California County Files $30 Million Lawsuit In Botched ERP Implementation

In what seems to be an increasing willingness on the part of government customers in taking IT service companies to court, Marin County, California decided last week to sue consulting company Deloitte Consulting LLP for $30 million along with unspecified punitive damages over what it claims is a botched SAP ERP implementation. The County said it decided to go to court after mediation talks proved fruitless.

According to the Marin Independent Journal, Marin County is accusing Deloitte of "fraud, misconduct and misrepresentation" in its customization, configuration and installation of the County's financial, Human Resources and payroll functions as part of their MERIT (Marin Enterprise Resource Integrated Technology) system.  The MERIT system initially went live in July 2006 and Marin County claims it has been having trouble with it ever since.

It states in this Contra Costa Times story, that:

"The top-shelf SAP system installed by Deloitte cost about $20 million, or $4 million more than expected, while requiring work from a $600,000-a-year team of consultants. The SAP software package of 15 programs cost about $1 million. Deloitte Consulting got an initial $9 million for customization, configuration and installation work, then $2.4 million more in overruns when the county couldn't cope with what it bought."

"A county grand jury investigation last year put all costs, including staff time spent since the installation on trying to make it work, at about $29 million - and counting."

According to the lawsuit, the County claims that "Deloitte wrongfully used the County's former project manager, Ernest Culver, as part of a scheme to conceal risks on the project from county executives," and furthermore, that Mr. Culver "sign(ed) off on substandard, deficient or uncompleted work that Deloitte claimed to have performed and that, in some cases, other county employees had rejected."

Mr. Culver, the Journal article says, left Marin County and joined SAP as a sales executive in 2007.

In addition, Marin County claims that Deloitte used inexperienced personnel on the effort instead of the experienced staff it had expected and had been promised. As a result, the County claimed it was little more than a Deloitte ERP "guinea pig."

The projected cost of the County's lawsuit against Deloitte may top $2 million.

Deloitte vigorously denies the County's charges, saying that it had performed all work to the satisfaction of the County and that the MERIT system was working when it left. Deloitte also said that it was confident that it would prevail in court. In fact, it was still owed $444,171.50 in unpaid change orders, plus a late fee of $111,713.80 this San Francisco Business Times article says.

Deloitte plans to file a lawsuit to get the money it says Marin County still owes it.

You can read a 2009 Marin County Grand Jury report outlining the many problems with the MERIT implementation here.

What you will find in it are all the usual suspects:

  1. poor system requirements and specification;
  2. inadequate experience on the part of both the government and contractor management and implementation teams;
  3. inadequate customer involvement;
  4. inadequate testing;
  5. inadequate customer training;
  6. a rushed scheduled, and so on.

A friend of mine, Phil Simon, has written a book, Why New Systems Fail (recently released in its second edition) on why ERP-type systems go bad and how you can (try) to keep them from doing so. It's worth a read if you are thinking about implementing one of these systems.

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