Bridgestone Sues IBM for Fraud in $600 Million Lawsuit over Failed IT Implementation

Tomohiro Ohsumi/Bloomberg/Getty Images

This is already turning into one nasty, public fight.

On Monday, the newspaper The Tennessean ran an article about Nashville-based Bridgestone Americas, Inc., which is part of the Japanese firm Bridgestone Tire and Auto-service Corporation, bringing a US$600 million lawsuit against IBM. Bridgestone alleged in its complaint (pdf) that when the new US$75 million plus SAP-based invoicing, accounting, and product delivery system went live in January 2012, it found "that there were extremely serious defects in the IBM SAP design solution as implemented which Bridgestone had no reason to expect and for which IBM offered no explanation consistent with the purported concerns IBM had raised.”

As a result, the lawsuit states, “Bridgestone has suffered damages in excess of $200,000,000, and continues to suffer damages from injury to its reputation and customer relations.”

The lawsuit, which was filed 29 October, was sealed until recently. While the legal complaint is heavily redacted, in it Bridgestone alleges that IBM engaged in a “pattern of deception, intentional misrepresentation, and concealment” over its capabilities and the actual status of the project risks and problems. For example, Bridgestone states that IBM “assigned individuals, including the chief technical architect for the project, who did not possess the proper knowledge, skill, education, training, experience, technical expertise, and qualifications to perform the services necessary for the successful design and implementation." The lawsuit also says a lot of the work was outsourced to IBM workers in India and China who possessed less than stellar development skills and practices.

Bridgestone’s lawsuit alleges: (1) Fraud in the inducement and contract performance; (2) misrepresentation in business transactions; (3) constructive fraud; (4) violations of the Tennessee Consumer Protection Act; (5) gross negligence, and (6) breach of contract. The company wants a jury trial.

IBM, which has taken a battering over other failed IT implementations, including the Queensland Health payroll fiasco, the Indiana government outsourcing farce which is still unresolved, the Texas government outsourcing debacle, and the recent botched Pennsylvania government system implementation, has come out swinging. IBM immediately, publicly, and vehemently rejected the claims brought by Bridgestone. IBM gave its side of the story Wednesday to Business Insider, claiming in a statement that:

“Bridgestone filed a lawsuit claiming breach of contract and fraud against IBM regarding a recent SAP implementation. These claims against IBM are exaggerated, factually wrong and without merit. From the outset of this project, Bridgestone failed to meet critical commitments upon which the performance of IBM’s obligations were predicated.

Ultimately, Bridgestone’s repeated failures had a significant impact on the project’s cost and schedule, and its decision to prematurely roll-out the implementation across its entire business negatively impacted its operations."

Among the claims IBM made were that:

  • Bridgestone understood that this would be a challenging project. It had tried several times with other vendors and failed to upgrade its system. IBM was the only vendor to succeed in completing the upgrade to SAP.
  • Notwithstanding the complexity of the project and its negative history, Bridgestone failed to staff the project with people who sufficiently understood its own legacy systems and could assist IBM in designing and converting them into a new SAP system. Throughout, Bridgestone lacked the necessary leadership to effectively manage the project; it replaced its CIO on six occasions in a 2 year period during the project term.
  • Bridgestone failed to supply the necessary software, hardware and network infrastructure for the system to operate properly. In many instances, Bridgestone supplied inferior resources or no resources at all.

There is a lot longer laundry list of complaints which you can read in the Business Insider piece, but you get IBM's gist. Bridgestone, when asked to comment on IBM's statement blaming it for all the system's resulting problems, said its only response is contained in the complaint filed with the lawsuit.

A careful reading of Bridgestone’s complaint includes all of IBM’s points above and says why the tire company thinks those points don’t hold any (legal) water. The redacted proprietary parts of the complaint (which due to someone’s poor understanding of how to use redaction in PDF documents, is easily readable) discusses what appears to be the specific promises by IBM regarding its skills and capabilities, as well as how IBM said it would manage the implementation and any problems that would arise.

Bridgestone in its complaint says that it brought the lawsuit after mediation failed. It also indicated that it was during the mediation effort that it found out “that IBM had been engaged in a course of intentional deception, fraud, and misrepresentation throughout the project.” This seems to indicate that some sort of out of court settlement, like what happened when Avantor brought a lawsuit against IBM a year ago for “reckless indifference"  on another bungled SAP project, is not likely.

How much of Bridgestone’s lawsuit will stand is anyone’s guess. Some of the specific allegations in the complaint, many of which include IBM’s representations in the redacted bits, could, to my distinctly non-lawyerly eye, be thrown out as IBM merely engaging in puffery over its skills and capabilities. That's what happened when Marin County, Calif., sued Deloitte Consulting for fraud over an SAP project in 2010. Other allegations including IBM's agreement to only use personnel possessing the proper expertise and knowledge to carry out the statement of work may be more promising.

I’ll keep you updated on the progress of both the lawsuit and public brawl.

Photo: Tomohiro Ohsumi/Bloomberg/Getty Images

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