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Legal Liability

To my talented friends and colleagues at Deloitte, Sorry folks!  This needs to be addressed.  It is not that all of Deloitte has a problem, I know some incredibly talented Deloitte folks, unfortunately a few bad apples CAN and sometimes DO spoil the whole entire bushel (or barrel if you prefer).

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The recent Marin County California Lawsuit against Deloitte Consulting took an interesting turn.  The initial complaint was filed in mid 2010 against Deloitte only for fraud in providing inept and incompetent consultants (for background see my previous post SAP ERP Project Failure Lessons Learned and Mini Case Studies 1).

Not long ago Marin County amended their complaint (a pretty standard legal practice after the initial legal complaint is filed) and included several other failed Deloitte projects as examples of a common practice.  Along with that SAP AG and SAP Services were joined to the complaint as additional parties.  The basis of SAP’s liability, as alleged in the complaint, is that SAP through its partnership with Deloitte knew or should have known of Deloitte’s fraud and continued to give them credibility.  That modified complaint was filed on December 16, 2010.

The SAP software itself was still not alleged to be the problem

The introductory statement of the complaint lays it out:

This action arises from defendants’ illegal and continuing scheme to defraud the County and other governmental entities while reaping tens of millions of dollars in ill-gotten gains in connection with the implementation of enterprise resource planning (“ERP”) software known as SAP for Public Sector, licensed by the German software developer SAP AG.  As part of this scheme, Deloitte, with the knowledge and assistance of the SAP Defendants, targeted the County by misrepresenting its skills and experience in SAP for Public Sector software to obtain a highly lucrative public sector implementation contract for itself, and licensing, maintenance and support contracts for SAP Public Services, Inc.

As a further part of the scheme, Deloitte falsely represented to the County – which had no ERP or SAP for Public Sector experience – that Deloitte had the requisite skills and experience in SAP for Public Sector software to deliver a successful implementation for the County.  Deloitte and the SAP Defendants also falsely represented that Deloitte, by virtue of its “alliance” with the SAP Defendants, was uniquely qualified to properly implement SAP for Public Sector software.  These representations were false because, at the time they were made, Deloitte and the SAP Defendants knew, or were reckless in not knowing, that Deloitte in fact lacked the ability and/or the intention to provide the County with appropriately skilled consultants.

As a further part of the scheme, to conceal implementation problems that resulted from Deloitte’s lack of skills, Deloitte and the SAP Defendants engaged in unlawful conduct to ensure that the County proceeded to go live with the SAP system on the scheduled go-live dates, in order to secure payment of their fees.  Such misconduct included deliberate under-testing of the SAP system by Deloitte to obtain artificially positive results and thereby conceal system defects; attempt by Deloitte and the SAP Defendants to silence an employee who raised issues with Deloitte’s deficient implementation work; and efforts by Deloitte and the SAP Defendants to corruptly influence defendant Culver, a County official who was also the County’s Project Director, to cover up Deloitte’s deficient implementation work, obtain payment for work that was not properly performed (or not performed at all) and cause the County to enter into additional contracts with Deloitte and SAP Public Services, Inc.

The fraudulent scheme that Deloitte and the SAP Defendants perpetrated on the County is consistent with a pattern and practice of similar misconduct that they have perpetrated on other public entities, including those in Los Angeles, San Antonio, Colorado and Miami-Dade in connection with the implementation of SAP for Public Sector software.

On January 26, 2011 it appears the case was removed to Federal District Court for Northern California from the Marin County Superior Court.   On February 23, 2011 SAP filed motions to be dismissed as parties from the case, and to strike their name from the complaint.  On March 21, 2011 the Motions to Dismiss and Strike were terminated because the parties all agreed to allow the complaint to be amended, and allowed for additional time to respond to the newly amended complaint once it is complete.

So, the case continues.  Once again there is a key and noteworthy item in this case, the SAP software itself was still not alleged to be the problem.  The allegations within the case surround the consulting practices of Deloitte and SAP is “guilty by association” because they put their “seal of approval” on Deloitte as a qualified integrator.

Consulting Industry Implications – Especially for SAP Partner Programs

This case reminds me of something Michael Doane wrote about some time back about the need for SAP system integrators to be certified as well as their consultants (see Certainly Certifiable – SAP System Integrators Not Just Consultants).

After reading through the entire complaint I can 99.999% guarantee that one or more of the “consultants” Deloitte brought to the project had partially or even completely fake resumes and SAP backgrounds.  I wouldn’t be surprised at all if the number of fake or fraudulent “consultants” on that project was closer to 30% or even higher.  I’m not talking about fake or fraudulent because they didn’t have public sector experience, I’m talking about completely fake and fraudulent work histories and experience in general.

If the Marin County outside attorneys at Kasowitz Benson Torres & Friedman LLP subpoena the employment application information and contractor resumes and do a thorough background check on the Deloitte consultants I wouldn’t be surprised if they find massive fraud.  Worse still I’m equally sure that a careful review of the Deloitte vetting process will reveal that the experience claims and employment history for contractors was not verified.  It wouldn’t surprise me if many of these “consultants” listed fake “certifications” on their resumes as well which was not verified (for more background on the MASSIVE fraud around SAP “consultants” please see Screening and Interview Methods to Find the Right SAP Consultant and the follow-up piece Screening and Interview Methods to Find the Right Consultant – Part 2).

What Would be the Impact on SAP and SAP System Integrators if the County Wins?

If SAP bears even a small amount of liability by the end of this case it will have huge ripple effects throughout the entire business application space.  It might actually force SAP to ensure that their partners have some measure of verifiable skill rather than just buying a seat at the table.  On top of that it will put all system integrators on notice that if the current failure to verify skill and experience continues they may be held liable.

Maybe it’s time SAP finally put in that “transcript” service for consultants who claim to have SAP training or certification.  Let decent training programs apply to be “certified training centers” or “training alliance partners” to submit the training information to SAP’s transcript service.  After all, SAP offers a Higher Education industry solution so they have the software to support it.

One Way SAP MIGHT be able to Get Out of the Marin County Case Fast!

I’m guessing here that the reason SAP was joined to the complaint was because Marin County recently ripped out the SAP system and wants to get their SAP license fees and maintenance fees back.  If they can get treble damages for fraud, all the better.  Guess what SAP, if you are REALLY smart you might want to try to negotiate that with the County in a private settlement IMMEDIATELY.  Cut the legal fees, end the PR headaches on the heels of the Oracle debacle, give them back their money for the software and the maintenance fees and then fix the partner program!  Get those settlement negotiations started IMMEDIATELY because your private settlement discussions are NOT admissible in court.  Run from this mess fast!

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Complete Marin County Deloitte-SAP Complaint Removed to Federal Court

I have attached a copy of the entire, lengthy case for anyone who is interested in reading this.  Even if every allegation is not true, I have seen enough of these kinds of tactics to know that this type of thing happens routinely.  This complaint should be REQUIRED READING FOR EVERY POTENTIAL SAP CUSTOMER IN THE RFI OR RFP STAGE!  (Complaint document here).

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Contact me today through our site contact form ( http://www.r3now.com/contact ), phone, or e-mail.

Bill Wood
+1 (704) 905 – 5175
Bill Wood contact

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