Should You Sue over a Botched ERP Implementation?

Botched ERP implementations can often cost an organization hundreds of thousands, if not millions, of dollars. Should an organization sue over an unsuccessful implementation?

Answer

Michael Krigsman (CEO, Asuret Inc.)
The simple answer is avoid lawsuits at all costs, but sue if the damage warrants such dramatic steps and there is no other recourse..

ERP implementations can be large and expensive, easily running into millions of dollars or more. Unfortunately, the complexity of these implementations sometimes makes failure a real possibility. Given the financial and organizational impacts of failure, it's no surprise that ERP lawsuits happen.

Before filing a lawsuit, keep a few things in mind:

-- Most ERP failures involve customer problems in addition to issues with the ERP vendor or services provider. See my many posts about the IT Devil's Triangle for more information: http://bit.ly/kDUMvf . Given this, it is essential to examine your own role and see whether you can do anything to change your part of the negative equation.

-- If you do sue, be prepared to justify your own organization's role in the failure. Smart opposition attorney's will try to put you in the hot seat.

-- Lawsuits don't fix the failure; they can only help compensate you for damage. Therefore, do everything you can to resolve problems with vendors and only use lawsuits as an absolute last resort.

-- Be sure to distinguish between problems caused by the vendor and those caused by the system integrator or consultant.

-- Use the court of public opinion to sway sentiment in your direction. ERP failures are big news, but be prepared for the vendor to strike back. The days of ERP vendors quietly sitting back and accepting blame are coming to a close, as a New Jersey college recently learned after filing a lawsuit against Oracle.
7 Additional Answers
Martin Calvert (Marketing Executive, RAD Software)
The function of ERP is to increase insight and efficiency while reducing waste in time, energy and materials. Where a vendor sells an ERP product that does not achieve these goals when used correctly, it's only natural for clients to feel fundamentally missold.

Can client-side failings produce bad results? Certainly, though vendors should make a robust assessment of the business in question to identify where there may be gaps in knowledge or barrires to implementation. If that assessment is not done, then lawsuits will occur given the sums involved.

For a Scottish ERP firm that has had no such difficulties in providing ERP success to the manufacturing community, please see www.RAD.co.uk :)
Gopi Krihsna Pampana
Need to analyse before sue.
ERP implementation normally consists of
1. company which is being implemented
2. company - Supplied software ) SAP / oracle /........
3. comany - Implementing partner

If the implementation is failed few reasons may be
1. bugs in the software - we should verify before going for selection of the same. we should meet the existing customers for that product and their experiences, our pain areas and commitment to resolve / solutions etc.

2. if the emplyees resist strongly for the change managment then also it can not success- in that case we should blame top management which is not part of the implementation and not taking pro active steps for resistance to change management. Even though the responsibility is laid down on th e implementation partner the primary responsibility lies with us and need track the plan vs actuals and proper review meetings are to be done in different levels. If the team is not capable of meeting the requirements in the initial stage itself we should send them back or should take in writing from the implementing partner to hold complete responsibitiy.

3. the implementation partner also hsould follow the project procedures and maintain all the tracking. any deviations which have impact on project and company should have informed in writing.

regards,
GK
Gkpampana@yahoo.com

3.
Bill Wood (President, R3Now Consulting)
Michael,

While I generally agree with you on most things and have a STRONG disdain for lawyers and lawsuits this is one area that needs it badly!

There is so much blatant, rampant, and outrageous fraud in the business software sales, implementation, consulting, and staffing industry that only harsh actions will ever clean it up.

The FRAUD is rampant and widespread. The snake oil sales are just absolutely ridiculous and the only reason for it is there is no mechanism to police the trash that goes on.
Jonathan Gross (Vice President and Corporate Counsel, Pemeco Consulting)
The short answer is: it depends on the circumstances of the specific case.

I'll come at this question from two perspectives:

- the first is based on my experience as a corporate/commercial litigator.
- the second is in my capacity as an ERP selection/contract negotiations consultant who works for a full-service ERP firm. In this latter capacity, I'm drawing upon a New Zealand-based ERP failure lawsuit in which our President was retained as an expert witness.

In an ERP failure lawsuit, a Plaintiff or Complainant can only be successful if it establishes two things: fault and damages that flow from fault. In this respect, ERP lawsuits aren't different from many other forms of commercial litigation cases. And, in many of these cases, the Plaintiff/Complainant and Defendant(s) share in the fault aspect. In such cases, the court will typically apportion damages based on the allocation of fault.

My piece of advice to parties who feel hard-done by an ERP vendor or implementer: don't sue until you get reasonable, dispassionate opinions of fault and the extent of the potential damages. In many cases (including one where I recently advised a client not to sue), the potential for a damages recovery is exceeded by the likely litigation costs. In other words, there may be little, none, or negative economic benefit to suing - even if the party has a strong case on the liability (fault) component.

So, where should parties look to get an understanding of fault and potential damages?

1) Understand the ERP contracts - they often times set up rules for liability and caps for damages (we are often retained to negotiate these and other terms during an ERP selection project);

2) Consult an independent, vendor-agnostic ERP expert who has no relationship with any of the implicated parties. Pay a few bucks to have this person or firm give an opinion on fault.

3) Consult a business economist or valuator to provide an opinion on the potential damages that flow from the alleged liability.

4) Consult a lawyer (who you don't intend to hire) to provide an estimate of the legal costs of a trial given those circumstances.

If you think that this sounds like a lot of expensive due diligence to do up-front, you're right. But it pales in comparison the amount of expert evidence and legal services you'll need to pay for to prove your case at trial. At the very least, it'll give your business a jolt to see how it truly feels about the merits of the case. At the very best, it'll give your business an honest assessment of the merits of a lawsuit and also provide a basis to proceed or let sleeping dogs lie. In other words, it'll help you achieve closure one way or another.
James McGovern (Industry Analyst)
Whenever you analyze a failed systems implementation, you will typically find:

1. A management consultancy that was really great at schmoozing executives and doing wonderfully beautiful PowerPoint presentations, but otherwise lacked any significant engineering capabilities.

2. Had an out of balance ratio of experienced people who have done it before vs those who are newbies.

3. A mindset where the client through it over the wall and didn't insist on Agile approaches such as frequent releases, daily builds, working software, etc

4. Too much of a focus on the contract where they attempted to define every possible scenario upfront without realizing that this is futile and it is better to be more incremental in defining requirements.
Art van Bodegraven (President, Van Bodegraven Associates)
Absolutely! With a few caveats.

One being all other avenues having been exhausted.

Another being that your hands are totally clean: that the RFP was near-perfect; that all data and information provided were complete and accurate; that your resources were capable, sufficient in number, and committed; that you didn't continually nudge the scope; that you froze specs at an appropriate time; that you made the necessary investment in training (and in organizational development; that you didn't stop short of full implementation in the interest of time, budget, or resource fatigue; and so on and so forth.

Reality? The vendors aren't universally a bunch of crooks and charlatans, and the buyers aren't all living examples of the 'greater fool' theory.

But, without fully investing in the front end 90% of the implementation, the remaining 90% to completion is in daily jeopardy. Not to mention the 90% that must be devoted to building and maintaining the multi-layered relationships required for laasting success.
Art van Bodegraven (President, Van Bodegraven Associates)
Back at you, Bill . . .

I'd ask how mnay ERP sales people don't know what they don't know, let alone really understand what their prospective customers don't know.

I'm not an integrator, but can't conceive of proposing a major project of any sort without building in all the front-end and ongoing work needed for success. No sale is worth glossing over those realities. Maybe that's why buyers need to invest in independent third parties to help them and the integrator work through all this stuff together.

As to the buyers' hands being clean, I occasionally provide litigation support (not in failed ERP implementations), and it's clear to me that plaintiff's case is seriously weakened when defendant can point to the things that plaintiff should have done, but didn't.
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