ScanSource, a South Carolina-headquartered wholesale distributor of specialty technology, announced this week that it had filed a lawsuit against Avanade, a joint venture formed in 2000 by Accenture and Microsoft. The suit alleges that Avanade purposely underestimated the cost of the enterprise resource planning (ERP) software system Microsoft Dynamics AX that ScanSource had contracted with them to install. According to ScanSource’s press release, Avanade promised to install the ERP system—claimed by ScanSource “to be one of the largest global enterprise level Microsoft Dynamics AX implementations to date”—for $17 million in 11 months; however, “within a few months” the cost escalated to an estimated $66 million and more than three years to complete.
In its lawsuit, filed in U.S. District Court in Atlanta, ScanSource alleges “fraud, tortious misrepresentation and breach of contract," and seeks "tens of millions of dollars in damages that ScanSource has incurred and will continue to incur, as a result of Avanade’s misconduct.” The company claims that Avanade misrepresented its “skills and abilities” in order to land the contract, using “bait-and-switch” tactics that included making ScanSource believe that Avanade would use “highly-skilled consultants to perform the implementation” but instead used “a revolving door of consultants who knew little or nothing about implementing Microsoft Dynamics AX software or managing large-scale global ERP projects.”
ScanSource may have a hard time making the bait and switch charge stick, since courts often view "vague, exaggerated, generalized or highly subjective statements" related to representations of skills and abilities as mere "puffery."
ScanSource may have better luck with its claims that the consultants created “an incomplete and defectively designed system that suffered from numerous flaws and required extensive remedial work. Avanade’s incompetence was reflected in, among other things, the staggering 500 000 lines of software code it wrote in an attempt to have the Microsoft Dynamics AX platform meet ScanSource’s business requirements.”
In addition, the code developed apparently was riddled with “hundreds” of Priority 1 fixes that a Microsoft quality assurance assessment uncovered. ScanSource claims that the poorly designed and developed software would likely have increased the cost of future upgrades and maintainability of the ERP system.
The press release says that after ScanSource received the Microsoft QA assessment, it delivered a Notice of Default to Avanade in May of 2012 demanding that it fix the identified problems. The press release goes on to say that, “When it became evident to ScanSource that Avanade had no intention of curing its defaults, on 28 September 2012, ScanSource provided Avanade with a Notice of Termination removing Avanade from the Project.”
ScanSource has hired a new implementation partner and plans to complete the ERP project, still using Microsoft Dynamics AX. The project's cost to complete is now estimated at between $58 and $72 million, and it may not be completed until late this year or early next. The company says it has spent some $37 million already, and “seeks tens of millions of dollars in damages that ScanSource has incurred and will continue to incur, as a result of Avanade’s misconduct.”
A blog post over at the Wall Street Journal says that neither Avanade nor Microsoft will comment on the lawsuit. Doubtless, one or both will soon file a counter suit saying all the resulting problems were the result of ScanSource's unreasonable demands and expectations, and that they were entirely blameless for the fiasco.
There may be yet another ERP-related lawsuit in the offing, as well. An AP story from last month reported that California’s State Controller’s Office wrote a letter to SAP claiming that the California government payroll system modernization effort called the 21st Century Project “is foundering and is in danger of collapsing.” The state controller’s office demanded that SAP fix the state-identified problems, the AP said, “including replacing inexperienced project managers and staff.”
Hmm, that sounds familiar.
An SAP spokesperson told the AP in response to the letter, which still hasn't been made public, that there were “some challenges” on the project, but not to worry; “SAP remains committed to the overall success of the project.”
How long California remains committed to SAP remains to be seen. California fired BearingPoint in January 2009 for “non-performance” on the project, which is now over 5 years late and triple its original cost of $131 million.
In a less contentious bit of IT project failure news, also last month, Vermont announced that the state and HP had agreed to a “no-fault” divorce over a botched six-year, $18.5 million Department of Motor Vehicles project computer system modernization effort. According to a press release from Governor Peter Shumlin, HP will refund Vermont the $8.37 million it was paid, and Vermont will return to HP “physical and virtual rights to all software and documents created by HP.” Vermont will keep some of the components developed by HP that are now in use at a cost of about $262 000.
The two parties agreed to terminate the contract for “mutual convenience.” The governor’s press release said that, “The state and HP entered into the settlement agreement because they recognize that the DMV contract was flawed and that a mutual termination is the best path to resolve outstanding issues.”
The AP was onto this story as well, noting that the state is out “nearly $5 million in state staff time DMV employees have put into trying to implement system changes that now are deemed to have failed. Other unreimbursed state expenses include money Vermont spent for ‘change management consulting’ and other services.” Those consulting costs look to be in the several million dollar range.
For now, Vermont doesn’t plan another attempt at modernizing the now 36-year old DMV computer system. DMV Commissioner Robert Ide says that the focus will be on keeping the current system working, adding that, “My people need a break. It's been incredibly discouraging for our people who were working on this project.”
At least Vermont has one of the most progressive health care systems in the United States. I'm not sure if it covers emotional therapy or "stress relaxation" to help DMV workers deal with their discouragement. Maybe Vermont can provide it by using some of the money HP gave back.
Contributing Editor Robert N. Charette is an acknowledged international authority on information technology and systems risk management. A self-described “risk ecologist,” he is interested in the intersections of business, political, technological, and societal risks. Along with being editor for IEEE Spectrum’s Risk Factor blog, Charette is an award-winning author of multiple books and numerous articles on the subjects of risk management, project and program management, innovation, and entrepreneurship. A Life Senior Member of the IEEE, Charette was a recipient of the IEEE Computer Society’s Golden Core Award in 2008.