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SAP Software A 'Complete Failure,' Lawsuit Claims

Waste Management claims SAP showed it "fake, mock-up simulations" of software in order to snag a contract to rehaul its revenue management system.

By Mary Hayes Weier, InformationWeek March 27, 2008 URL: http://www.informationweek.com/story/showArticle.jhtml?articleID=207000149

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.

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This story appeared on Network World at http://www.networkworld.com/news/2008/081408-sap-fires-back-at-waste.html

SAP fires back at Waste Management By Chris Kanaracus , IDG News Service , 08/14/2008

SAP attorneys have filed a counterclaim to the lawsuit Waste Management filed in March over dissatisfaction with an enterprise resource planning implementation, asserting the vendor's innocence and charging in turn that the trash-disposal company violated the deal's contract.

Waste Management's initial complaint states that in 2005, the company was seeking a new revenue management system, and SAP said its Waste and Recycling product was ideal for Waste Management's needs. SAP also allegedly said the software could be fully implemented throughout the company within 18 months.

In addition, senior SAP executives allegedly participated in "rigged and manipulated" product demonstrations prior to the deal that employed "fake software environments, even though these demonstrations were represented to be the actual software."

After a deal was signed in October 2005, SAP's implementation team soon discovered gaps "between the software's functionality and Waste Management's business requirements," and SAP's German product development team knew these existed before the deal closed, according to Waste Management.

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SAP eventually determined that if Waste Management wanted an enterprise-wide deployment, it would have to develop a new application with an updated version of SAP's platform, pushing the project's estimated completion date from December 2007 "to an end-date sometime in 2010 without any assurance of success," according to Waste Management's complaint.

But SAP's amended counterclaim, filed in July in a Harris County, Texas, court, said those claims are invalid because Waste Management "understood and expressly agreed that SAP America not warrant that the applications in the Software are designed to meet all of [Waste Management's] business requirements."

In addition, Waste Management allegedly violated its contractual agreement with SAP in a number of ways, including by "failing to timely and accurately define its business requirements"; not providing "sufficient, knowledgeable, decision- empowered users and managers" to work on the project; and failing to successfully migrate data from the legacy system.

SAP alleges that it is owed millions in maintenance and services fees, and is seeking unspecified compensatory damages as well as the return of its software.

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An SAP spokesman said Thursday that the company does not comment on ongoing litigation, but the company is "confident in the actions of the court."

Waste Management said in a statement that SAP's claim and alleged damage "are baseless."

"We find it interesting that SAP not only continues to evade responsibility for its fraudulent conduct, but wants to profit from it by obtaining even more fees from Waste Management," it added. "The costs SAP wants to recover are for consulting services it provided in a futile attempt to fix its own defective software, which Waste Management is not even using."

It is somewhat unusual for implementation disputes to result in active litigation, industry observers said Friday.

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"Large-scale implementations are complicated affairs that require alignment among the system integrator, vendor and client for success, " Forrester Research analyst Ray Wang said via e-mail. "It's a three-legged stool and lawsuits are typically the last resort when any one party faces irreconcilable differences."

Nucleus Research analyst Marc Songini echoed Wang. "Things have become very, very bad here. Usually these implementations either get fixed up or they're settled quietly, or as quietly as possible," Songini said in an e-mail. "It doesn't look good to a prospective customer to see that their relationship with an enterprise applications vendor might end in court."

"It's always incumbent on the software vendor to ensure their customers succeed with the vendor's software," Songini said. "According to the response, however, SAP is blaming Waste Management for the problems. In fact, SAP seems to be indicating that if the customer doesn't have a Mensa-level IQ, they shouldn't deploy SAP."

The IDG News Service is a Network World affiliate.

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