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Deloitte Sued Over Failed SAP Implementation

The $30 million lawsuit filed by Marin County, Calif., alleges that the consulting firm misrepresented its understanding of SAP technology.

Seeking to replace its aging financial management, payroll and human resources systems with a modern enterprise resource planning system in 2004, Marin County, Calif., solicited proposals from various software consultants.

Thirteen proposals were submitted to the County from software integrators working with Oracle, PeopleSoft, SAP and others.

The County hired Deloitte in April 2005 based on the firm's representations about its deep knowledge of SAP systems and the experience of its consultants.

In a complaint filed on Friday, attorneys representing Marin County said those representations were fraudulent. Deloitte, the complaint alleges, used the County's project as a training ground to provide its neophyte consultants with public sector SAP experience, at the County's expense.

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"[I]n its two years of work on the project, Deloitte engaged in a fraudulent scheme to ensure that the County would not learn the truth about Deloitte's pre-contract misrepresentations until Deloitte's fees had been paid," the complaint states. "As part of its fraudulent performance of the contract, Deloitte: intentionally and/or recklessly failed to disclose to the County that Deloitte's lack of SAP and public sector skills resulted in a defective SAP system; withheld information about critical project risks; falsely represented to the County that the SAP system was ready to 'go-live' as originally planned; conducted woefully inadequate testing; and concealed that it had failed to perform the necessary testing, thereby ensuring that system defects would remain hidden prior to the go-live."

The County claims that despite over $11 million in consulting fees paid to Deloitte, its SAP system continues to be dogged by crippling problems.

Deloitte spokesperson Jonathan Gandal dismissed the County's claims and said Deloitte plans to file a counter suit over the County's failure to pay the firm's invoices.

"It is unfortunate that the County has chosen this path," he said in an e-mailed statement. "As stated previously, we fulfilled each and every one of our obligations under the contract, as evidenced three years ago when all of our work was approved by the County officials responsible for the project. To be clear, the SAP software was working properly when we completed our work in November 2007. Not only is the complaint without merit, but we are filing our own claim against the County for breach of agreement and unpaid invoices. Although we are confident that we will prevail in court, it remains our belief that this dispute can and should be resolved in a more logical fashion that benefits the County and its taxpayers."

In an addendum to the County's complaint, Deloitte charges that the County owes it over $550,000 in unpaid fees and interest. It also claims that the County failed to adhere to the terms of the deal that required the County to provide Deloitte with written reports detailing deficiencies and with adequate time to address such problems.

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