The following entry is a record in the “Catalogue of Catastrophe” – a list of failed and troubled projects from around the world.
Marin County – California, USA
Project type : Enterprise Resource Planning system – Accounting package
Project name : MERIT (Marin Enterprise Resource Integrated Technology)
Date : Jan 2013 court case settled Cost :$33M
Marin County (Marin) is an affluent county of about 250,000 inhabitants located just across the Golden Gate Bridge from San Francisco. In 2003, Marin commissioned a study to assess the effectiveness of its financial management, human resources (HR) and payroll systems. The study determined that Marin’s “existing [IT] systems were outdated and inconsistent with industry standards [and]…..were largely dependent on manual, time-consuming processes”.
As a result, in 2004 Marin initiated the Marin Enterprise Resource Integrated Technology (MERIT) project with the goal of replacing the affected legacy systems. Issuing a Request for Proposal (RFP), Marin selected Deloitte Consulting LLP (Deloitte) to implement the MERIT system and accepted Deloitte’s assurances that they had the necessary skills to complete the project successfully. Thus in March 2005, Marin signed a contract with the well-known software consulting firm to implement SAP’s Public Sector ERP system.
Release I of the new system went live on July 3, 2006. Almost immediately, the system experienced “significant cash reconciliation and financial posting issues”. On January 3, 2007, despite the fact that Release I was still experiencing problems, Release II went live as well. The second release introduced further problems and Marin found themselves struggling with performance problems and other very significant flaws. Shortly thereafter, Marin fired Deloitte and initiated a “get well” program in an attempt to recover the situation.
Following internal reviews of the situation, Marin sued Deloitte in May 2010. The case alleged fraud and sought $30M in damages. The key allegations were that Deloitte:
- Misrepresented its skills and experience during the RFP processes and after contract signing failed to resource the project with staff who had the necessary skills to complete the work successfully (the so called “bait and switch” manoeuvre)
- Withheld critical project risk information
- Committed conflict of interest by influencing Marin’s own Project Manager into accepting incomplete work and concealing project risks from senior management so that the two software releases could go live.
Over the next year, Marin expanded its legal action to include its then former Project Manager and SAP themselves. The case came to a conclusion in Jan 2013 with the Court finding that the only legal issue was scope of work, and that SAP and Marin’s former Project Manager had not engaged in any wrong-doing. Marin and Deloitte finally settled January 9, 2013. The Settlement amounted to Deloitte refunding Marin $3.9M of their $11M system integration fee. The legal fees for reaching the settlement are report to have cost Marin a total of $4.7M, while the failed project itself is reported to have cost the Marin taxpayers an estimated $28.6M.
The MERIT project raises three important issues that are commonly seen in projects:
- The alleged use of “Bait and Switch” tactics by sellers. On this issue Marin claimed that they did not get the high level of talent and expertise they had been promised during the RFP process (in fact once the project was underway Marin claimed that some of the Deloitte staff had to attend the same basic SAP classes as the Marin staff). In its judgment the Court disagreed with Marin’s claim, saying that Deloitte’s actions during the RFP processes was one of “puffery” (i.e. “promotional statements and claims that express subjective rather than objective views and which no reasonable person would take literally” – Newcal Industries, Inc. v. IKON Office Solutions, 513 F.3d 1038, 1053 (9th Cir. 2008) – Wikipedia). Suffice to say buyers should be careful to not fall victim to marketing hype, and try to protect themselves from any Bait and Switch type tactics.
- The failure to define adequate acceptance criteria when planning and in accepting the live release of both Release I and Release II. Given that both Releases were failures, clearly Marin’s acceptance criteria were inadequate, and not controlled by their own team.
- Lack of quality control and inadequate project governance by Marin. The failure to oversee the work of the Project Manager and establish an appropriate robust acceptance processes appear to have been direct causes of the failure.
Contributing Editor: Brig Henry
Contributing factors as reported in the press:
Insufficient skilled people acting for the best interests of the buyer. Reliance on pre-contract hype and falling for aggressive marketing tactics by the seller. Unclear scope of work assigned to contractor. Different opinions about what subjective words meant (what does it mean when the contract says a person shall have “significant experience”). Failure to test the system effectively. Failure to establish an effective sign-off and acceptance process.
Reference links :
- Big money: Marin County and Deloitte settle ERP lawsuit under gag order
- Original contract
- Court filing – Superior Court of California, County of Marin May 28, 2010
- County of Marin v. Deloitte Consulting LLP et al – Document 123