Waste Management Inc.'s lawsuit against SAP for the "complete failure" of a $100 million software implementation could bruise the credibility of SAP's vertical-market strategy.

Waste Management claims SAP duped it into purchasing untested software that wasn't ready to handle the complexities of the U.S. waste hauling market.

The $13-billion-a-year waste hauler's suit comes at a time when SAP, Oracle, and other software companies are developing more software packages specialized for specific industries, while also honing their software to deal with the economic nuances of different global markets. Yet Waste Management, the nation's largest waste hauler, claims SAP failed it on those efforts.

In a March 20 lawsuit filed in a U.S. District Court in Texas, Waste Management said that SAP had licensed its Waste Management and Recycling software to a limited number of small, European waste companies prior to its contract. SAP assured the company, however, that its software would work in "the considerably more complex competitive environment" created by the U.S.'s open pricing system for waste hauling, which is very different from Europe's government-controlled pricing system.

Waste Management claims it was a ruse, starting in 2005 with demonstrations in both the U.S. and Germany, involving high-level SAP executives such as SAP Americas President Bill McDermott and former president of technology, Shai Agassi, of what SAP said was mature, industry standard software for the waste industry that did not require customization. Waste Management claimed it later learned the demos were of "fake , mock-up simulations" of software with "false functionality."

Waste Management said it signed a contract for an 18-month project for a system, built on SAP R/3, which handled the order-to-cash process, including billing, collections, pricing, and customer setup. Its goal was to streamline operations and improve revenues and customer satisfaction. Waste Management said the system was core to a broader company strategy called Customer First for expanding and retaining market share.

While Waste Management didn't provide details of its legacy systems, it appears some were developed by Oracle-owned companies. Waste Management used the services of SAP's TomorrowNow, a company that provides third-party support for Oracle software such as Siebel and JD Edwards, and is the subject of a lawsuit Oracle filed against SAP last year.

During the initial pilot project in New Mexico, Waste Management discovered the software was "unable to run [our] most basic revenue management operation." Waste Management alleges that SAP tried to solve the problem by rewriting tens of thousands of lines of core code during the implementation process. But that only caused further failures and made the system incompatible with future upgrades, Waste Management claims. That pilot, originally scheduled for completion in December 2006, is "not even close to being completed today," Waste Management said.

It appears that Waste Management is looking to kill the SAP project. SAP proposed a new development project to fix the problems that would result in completing the project in 2010 "without any assurance off success," Waste Management said. But that would require the company to "once again act as SAP's guinea pig by agreeing to convert what was supposed to be an 18-month out-of-the-box implementation into an even more expensive, longer and highly risky software development project."

The suit accuses SAP of fraudulent inducement, fraud, negligent misrepresentation and breach of contract and seeks compensatory and punitive damages. SAP decline comment on the suit.