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Microsoft, Accenture joint venture Avanade sued over alleged ERP project failure

ScanSource says Avanade lied about its ability to do the job, resulting in a project disaster

A half-million lines of custom code wasn't enough to produce a viable Dynamics AX ERP (enterprise resource planning) system for point-of-sale and RFID products distributor ScanSource, according to a lawsuit it has filed against Avanade, the joint venture between Microsoft and Accenture.

ScanSource reached a deal with Avanade in 2009 for an implementation of the Dynamics AX system, according to the suit, which was filed Wednesday in U.S. District Court for the Northern District of Georgia. The project was supposed to cost US$17 million and take 11 months, but ultimately the cost estimate grew to about $66 million and it has failed to go live after three years, the suit alleges.

AX is one of four ERP products sold under the Dynamics brand, and is aimed at larger companies. The ScanSource project "is believed to be one of the largest global enterprise level Microsoft Dynamics AX implementations to date," ScanSource said in a statement. ScanSource reported $3 billion in net sales during its fiscal 2012 and has 26 office locations around the world.

Some allegations in ScanSource's suit have a familiar ring to ones lodged in other recent legal actions by customers against ERP vendors and systems integrators.

For example, Avanade allegedly told ScanSource that it would assign experienced and skilled staff to the project but instead sent in a continually changing cast of consultants without the ability to do the job or even familiarity with AX. It also said it would be able to customize AX 2009 to meet ScanSource's business requirements, according to the suit.

However, "Avanade also knew, or should have known, that the level of software customization required to perform the implementation to meet [ScanSource's] functional needs far exceeded the effort it was capable of delivering at the cost, and within the timeframe, it proposed."

Avanade's team came up with a "defective and deficient system design that resulted in a staggering amount of modifications made to the core software code." Ultimately, Avanade programmers wrote more than 500,000 lines of custom code, according to the suit.

When searching for an ERP system, ScanSource had initially taken proposals from Oracle, SAP and Dynamics, the suit states. Avanade officials went to ScanSource's headquarters to study its systems and gather information from users. Subsequently, Avanade gave ScanSource a "day in the life" presentation that showed how AX would be a good fit.

However, "As Avanade knew but did not disclose to ScanSource, this pre-contract product demonstration, which consisted of mocked-up simulations of the Microsoft AX software, did not reflect the software's actual capabilities or functionality," the suit states.

Avanade also allegedly conducted a "classic bait-and-switch" on ScanSource, by "drastically increasing" its estimated fees after being on the job for a few months.

ScanSource has had to scale down some of its project requirements in order to rein in costs and stick to a schedule. It has also had to keep using some older applications and write a number of new ones to fill functional gaps, according to the suit.

Microsoft and Accenture weren't unaware of the problems with the project, the suit adds. In fact, the parent companies performed ongoing quality assessments, and Microsoft was highly critical of how Avanade was customizing the code, according to the suit. Accenture has a majority stake in Avanade.

Microsoft and Accenture also proposed a project plan meant to get the effort back on track, but ScanSource ultimately decided to sever ties with Avanade.

The project has cost ScanSource $37 million so far, and will take another $29 million to finish, according to the suit.

ScanSource is seeking tens of millions of dollars in assorted damages from Avanade.

"We don't comment on pending litigation," an Avanade spokesman said via email. "However, we can tell you that we believe the allegations are without merit. We intend to defend our position."

Microsoft has since released an updated version of AX, version 2012. A second installment of AX 2012 that became generally available in December has new features meant to make it easier to run global operations. It wasn't immediately clear Thursday whether these features would have helped avoid the problems ScanSource's implementation allegedly faced.

ScanSource's allegations "read like a textbook about consulting gone wrong," said analyst Michael Krigsman, CEO of the consulting firm Asuret. At the same time, it's worth asking why it took so long for ScanSource to dump Avanade, he said. "The project timeline exceeded plan by 300 percent and the budget went over by almost 400 percent."

"Although it sounds like a royal screw-up on Avanade's part, there are always two sides to these stories," Krigsman added.

For example, ScanSource's complaint notes that it had no prior experience with ERP projects. "It sounds like the customer did not possess sufficient experience to oversee Avanade's work," Krigsman said.

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

Tags avanadeapplicationsenterprise resource planningScanSourceMicrosoftlegalCivil lawsuitssoftwareaccentureservices

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