County alleges SAP, Deloitte engaged in racketeering

SAP and Deloitte engaged in 'a pattern of racketeering' related to a troubled ERP project, according to a lawsuit

The government of Marin County, California, is suing two SAP subsidiaries and Deloitte Consulting, alleging they "engaged in a pattern of racketeering activity designed to defraud the County of more than $20 million."

SAP must deliver a response to the suit by Feb. 23, according to a filing made Tuesday in U.S. District Court for the Northern District of California. The county originally filed suit in December in a lower California court, and the case was removed to federal court last week, according to the filing.

Marin County's suit also names as a defendant Ernest Culver, a former county employee who served as project director. The county alleges that Culver interviewed for jobs at Deloitte and SAP, where he now works in the Public Services division. During that time, Culver "was also approving Deloitte's deficient work on the project, approving payments, and causing Marin County to enter into new contracts with Deloitte and SAP Public Services, Inc," according to the county.

Deloitte also "repeatedly treated him to lavish meals," the county alleges.

Marin County's complaint alleges violations of the federal Racketeer Influenced and Corrupt Organizations act (RICO). The county wants US$35 million in damages, which would be tripled under RICO to $105 million, along with punitive damages.

Marin County officials previously decided to "rip and replace" the SAP system, believing that doing so would actually cost less than trying to fix the problems.

The county had already sued Deloitte, which was a consultant on the troubled project, claiming the company had used it as a training ground for inexperienced workers. Deloitte has denied the allegations.

Last August, when news of the county's intentions to remove the software came to light, an SAP spokesman told IDG News Service that the company's product was not to blame, and "any issues in this implementation in no way reflect on SAP." Many public agencies are using SAP software successfully, he added.

In an e-mail, Deloitte spokesman Jonathan Gandal said the county's latest complaint "is a frivolous litigation tactic."

"By recycling their allegations against Deloitte Consulting and filing them before a different judge, the County's lawyers are trying to find a more favorable forum for their claims, several of which were recently dismissed," he added. "Deloitte Consulting denies these inflammatory and false charges and will continue to vigorously defend the case."

"In 2010, when the Marin County board of supervisors recommended to terminate the implementation and opted to look for a new provider, SAP expressed then that we would continue to work with them in any way they requested during their search," SAP spokesman Andy Kendzie said in an e-mailed statement Wednesday. "That position has not changed. ... Our attorneys are reviewing the county's action and, as is SAP's policy, we don't comment further on ongoing litigation."

Marin County's troubles are far from the only ones being experienced by ERP (enterprise resource planning) customers around the world, as implementing the software remains a tricky, time-consuming process.

SAP is attempting to recast itself as a nimbler, more innovative company through product strategies such as mobile applications, analytics and SaaS (software as a service). But on-premises ERP systems remain a key business, and SAP is therefore no doubt eager to see an end to situations like the Marin County project.

In an interview last week, SAP co-CEO Bill McDermott indicated the company is in a better position now to accomplish that goal.

"Customer success is linked top to bottom to the way people [at SAP] get paid," he said.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is Chris_Kanaracus@idg.com

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Chris Kanaracus

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