Down To Business: No One Wins An ERP Lawsuit

Add Montclair State University to the litany of organizations whose enterprise software engagements ended badly.

In a suit filed against Oracle last month in U.S. District Court in Newark, New Jersey's second largest public university charged Oracle with breach of contract, gross negligence, willful misconduct, and fraud in connection with its failed implementation of a PeopleSoft ERP system for administration, financial, HR, and student services. Oracle responded a week later that Montclair State's complaint is over the top, devoid of specifics, and inconsistent with the law, arguing that the university "decided to pay its lawyers instead of paying Oracle, and embarked on a 'scorched earth' litigation campaign which is costing the taxpayers of New Jersey millions of dollars and threatens to waste millions more."

In 2009 Montclair State agreed to buy from Oracle $4.3 million in software and technical support services and pay a $15.75 million fixed implementation fee. Sometime in 2010, after a series of delays whose causes are in dispute, Oracle sought $8 million beyond the fixed-fee agreement to finish the project, and when the university refused, Oracle and its consulting arm walked away. Montclair State now claims it will rack up as much as $20 million in additional expenses to finish the project without Oracle.

It's impossible to take sides before a full airing of the issues in court, but one thing's clear: No one walks away from these kinds of train wrecks unscathed. They've been operational and public relations disasters over the years not only for the likes of Oracle and SAP, but also for Nike, Hershey, Waste Management, and scores of other companies, which at one time or another blamed severe financial shortfalls on their failed enterprise software implementations.

Most (though not all) of them could have been avoided with an exhaustive vetting of the contract terms and their myriad deliverables. The onus is on both vendor and customer to get on the same page from the beginning of these long-term engagements. (The Montclair State one was supposed to last 25 months.)

In a March 23 column, InformationWeek's Secret CIO related his frustration with a recent (and not atypical) enterprise software negotiation: sifting through licensing models that vary wildly and inconsistently based on access method, number of users, and CPU size; dealing with disinterested and/or uninformed vendor salespeople; taking on features and functionality that are hard to assimilate or don't deliver as promised. Buyer beware, of course, but it's hardly in a vendor's long-term interests to base its business model on complexity and obfuscation. Part of the appeal of the software-as-a-service model is the (relative) simplicity of pay-as-you-go subscriptions and vendor-managed capital infrastructure. Customers do have alternatives if enterprise software vendors are intent on selling them a bill of goods.

But customers must take some responsibility as well. As lawyer Kenneth J. Richard wrote in a March 26 InformationWeek column, "customers don't pay enough attention to the contracts they're signing, and in many cases they ignore the very language that defines the scope of the software offering or implementation." Software vendors aren't in the business of understanding and adapting to their customers' processes. Especially for complex and costly IT deployments, customers need to invest more in the up-front product and vendor evaluation, even if that entails paying a good chunk of money to a third-party expert to conduct a detailed requirements analysis and align it with the contract terms.

An ounce of prevention can be worth a ton of lost business, legal fees, and PR backpedaling.

Rob Preston,
VP and Editor in Chief, InformationWeek
[email protected]

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