Did SAP deceive and defraud Waste Management (WM) during ERP selection and implementation? That’s the question at stake in a $500 million lawsuit that WM is making against SAP.

According to documents filed in court by WM, SAP pitched WM on a well-tested, sector-specific, ready-to-install ERP package. WM learned after the implementation had started that no such software existed. Rather, the ERP system in question was still in development and had “never been tested in a productive environment.”

The jury should have its hands full trying to untangle this mess. Assuming that all of the allegations are proven, SAP should end up on the losing side. WM, however, will probably share part of the blame.

The Fraud Allegations

WM’s fraud allegations go much deeper than simple misrepresentation. Before contracts were signed, SAP purportedly demonstrated the fully functioning software to WM. WM claims it relied on SAP’s demonstrations when it chose the SAP software. WM says that SAP demonstrated a “mock-up” version and that the demonstrations “were rigged and manipulated to depict false functionality.”

SAP denies the allegations. However, if WM wins on its fraud and misrepresentation claims, this case could drive a stake through the heart of the world’s leading ERP vendor. No customer will want to build its business operations on a foundation of lies and deception. In addition, SAP will likely face criminal investigations.

Members of SAP’s C-Suite were directly involved in landing the WM account. Some of those executives are no longer with the company. There’s plenty of speculation about whether their departures are related to the WM fiasco.

Waste Management’s Share of Liability

Just on the PR battle, SAP is getting pretty banged up. WM is also taking its share of hits. A close reading of its own court filings shows that it’s partially responsible for its own losses.

Here are two of the most glaring examples taken from WM’s court pleadings:

#1: “Waste Management relied on [SAP’s] Business Case estimates in agreeing to license the SAP software.”

As part of its sales pitch, SAP prepared a “business case.” SAP stated that its software would enable WM to achieve between $106 million and $220 million of annual benefits.

WM showed questionable judgment in relying on SAP’s projections. Clearly, SAP was partial. It was trying to make a big sale. In my analysis, WM was imprudent and arguably negligent when it decided to rely on an obviously conflicted business case projection.

WM should have done its due diligence. If it needed help, it should have turned to an impartial third-party advisor. An independent analysis might have shown that the SAP software wasn’t the best choice.

#2: “Waste Management believed that developing a new software posed unacceptable risk… and instead decided to look for an ‘off-the-shelf’ solution that was already fully developed and fully tested.”

Before it selected the software, WM admits it knew that SAP’s “Waste and Recycling Software had been developed specifically for Waste Management,” according to court pleadings.

This is a case of WM both having and eating its cake. On the one hand, WM wanted a generic and well-tested system. In the end, though, WM selected the SAP system knowing it was designed for WM’s business alone.

I agree with the prudent approach that WM considered but didn’t follow. A company of its size and scale had little reason to assume the risks of early technology adoption. It should have made sure that system stability and system track-record were unassailable selection criteria. Had it done so, it wouldn’t have selected the SAP system and wouldn’t be embroiled in this lawsuit.

In the end, if SAP acted deceptively, there’s probably little that WM could have done to protect its investment. However, it could have mitigated some of its losses had it applied more rigour to its project management.

Originally published here by Manufacturing AUTOMATION on February 26, 2010.

Update on the lawsuit

The lawsuit between WM and SAP was settled in 2010 with SAP making an undisclosed, one-time cash payment to WM according to court documents and a regulatory filing.

 

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