IT Failure Case: Marin County vs. Deloitte Consulting LLP, SAP America Inc and Ernest Culver
As I started searching for a topic for the blog, I wasn’t quite sure what to expect. After several minutes of using Google as effectively as I could, I stumbled upon a case that could help me in my professional career. I came across a litigation case involving a software consulting firm and their client (http://www.marinij.com/sanrafael/ci_20090038). Upon understanding the case, I used other sources to confirm the details of the case. In this litigation, the software consulting firm is Deloitte Consulting LLP and the client is Marin County Office in California. The software in question is called SAP. Before I get into the details, let me briefly explain what SAP does. SAP offers a variety of software solutions for large businesses and organizations that include cloud computing, financial software’s, CRM (customer relationship management) applications, information management, database solutions and many more. The important thing to understand is that they have a general software application for everyone that needs to be customized for a specific client. This is usually done by software professionals that have acquired SAP training or have experience working with it. So, not very often can you just purchase the software and install it and be done. It needs work.
In this case, Marin County filed a couple of lawsuits against the consulting firm and SAP because the software installed did not work as they expected and they had to move to another solution, which cost the County additional money. According to the county, Deloitte Consulting used them as “guinea pig” to test out their installation methods and the work they did was shoddy. In addition, they believed that the firm bribed the auditor (Ernest Culver) of the program to hide the problems in the project by offering lavish meals and job promises. This should be a good time to mention that Ernest Culver quit the county job and started working as a SAP Sales executive in middle of this project. Supervisors of the county sued, seeking $30 million in one suit against Deloitte, and then claimed racketeering in another, seeking treble damages, or $90 million in a case that named Deloitte, SAP and Culver.
The litigation dealing with racketeering was dismissed by the US District court based on the grounds of plausibility problems. Also, the court did not entertain claims against SAP based on the fact that SAP had advised Marin of the possible problems with the ‘design” in the software customization by Deloitte consulting that could result in re-implementation of the software. I personally agree with this. SAP is a vendor of the application but is not responsible for applying it for Marin or even installing it. If some third party failed to install or use the software for their clients incorrectly, SAP should not be held responsible. SAP is by no means an agent or not even an independent contractor for the county in this case. It’s a mere vendor of a product. As a result of dismissal of the claims, the county re-files the case, but, excluded the racketeering charge.
One of the very obvious issues to me in this case is the fact that Culver seemed to have breached his duty of loyalty towards Marin County. Culver was an auditor for the project and had the responsibility of making sure the software application worked as expected which in turn decided whether Deloitte would be paid or not. From the evidence available it seems like Culver and SAP had some sort of an agreement that he would be hired by SAP if he bought in more money from Marin to SAP. He is also blamed of concealing project problems from Marin County. This is a clear breach of his fiduciary duties. I am confident that Marin County will get a decision in their favor in the case against Ernest Culver since Ernest Culver was an agent when the project started and owed all fiduciary duties to the principal.
On the other hand, Deloitte consulting firm in this case seems to be independent contractor. Like in most business transactions of this magnitude, this project must have had a contract between Deloitte and Marin County. From my knowledge, it is very common for a client to do “Acceptance testing” as a part of approving/accepting software into their system. I didn’t read anything about this in the case. However, if Deloitte was paid in full, it implies to me that the acceptance testing was done, but perhaps not as effectively. If it wasn’t, it should have been. When you install SAP in your system, it is a huge step. You clearly have to know what you want out of the system and you cannot rely on a third party alone. You should know your requirements and have to work closely with the consulting firm at every step. This may go against Main County. Having said that, it is important to see what clauses exist in the contract in case of a failed deployment of software. This is a learning lesson. When you assign projects to independent contractors, it is imperative that you design a solid and a strong contract to cover your bases. Normally, Deloitte will not owe and fiduciary duties to Marin county unless the court thinks they are agents, which in my opinion is unlikely. Marin County has a pending case against Deloitte for fraudulent inducement of contract, breach of contract and breach of express or implied warranty.
Lastly, SAP did not appear much in the claims filed by Marin. The exception was when Marin claimed the SAP bribed the auditor, Culver. Normally, SAP would not be responsible for failures of any “SAP project”. As I mentioned before, SAP is generic industrial software that has to be highly customized for each client. However, one of the judges inferred that Marin had an arguable claim that Culver did get bribes or had some sort of an agreement with SAP. In my opinion though, SAP was also not an agent to Marin. Hence, the laws on agency-principal definitely don’t apply, in my opinion. There is a pending case against SAP based on breach of fiduciary duties though. I don’t think Marin can be held accountable. Sure, they did something immoral, which his bribe Culver. But it was Culver’s duty as an agent to do the right thing (for Marin).
I learned three things from the above case. One is very clear. What seems immoral on part of an employee/agent can also be illegal. This is referring to lavish lunches and trip enjoyed by Culver on SAP’s expense based on the understanding that they could be mutually beneficial to each other. Also, when dealing with an independent contractor you need to take legal advice when structuring a contract. You need to have provisions for warranty and service after the delivery date. The requirements must be clearly defined and the expectations should be set right at the outset. Lastly, when you are dealing with something that’s not your staff’s expertise, it might be worth hiring another consultant who can constantly monitor the project (SAP in this case) implementation.
