Are class actions the cure for failure?

EDS just got hammered for $46o million. Project failures never go away but is the Devil's Triangle analysis enough? In this case the answer is only a a partial yes. What else might work to mitigate the number of projects that are failing? Class action anyone?

I read with interest Mike Krigsman's analysis of the Marin and EDS cases. At face value the EDS case is spectacular if for no other reason than the quantum of settlement ordered by the court. While I have no doubt HP took this (and presumably other) litigation into account when negotiating due diligence on the EDS acquisition, it must have come as a surprise to be clobbered with $460 million. That should be big news yet it attracted no attention on the Techmeme firehose. Of the Marin case, Mike claims:

In a case that has the potential to reshape important aspects of the systems integration business, Marin County, California filed a complaint against Deloitte Consulting for its role in an over-budget SAP implementation. The lawsuit alleges that Deloitte committed fraud and “misrepresented its skills and experience.”

This ties back to Mike's theory that all (or at least the vast majority of) project failures can be explained by his Devil's Triangle theory. Reading the whole of the EDS judgment tells me something very different. In the EDS case, Mike asserts:

When selling IT contracts, system integrators and consultants often assure clients of great service, support, and so on. These assurances are fine when the integrator possesses both intention and capability to follow through on the promises.

Unfortunately, system integrators and clients sometimes have different economic goals and objectives, which can interfere with efficient or successful project delivery.

Of course they do. That's why buyers and sellers enter into what they both hope will be legally binding contracts. When things go wrong we then enter a long process of trying to figure out what was said, what it means and how that compares with what happened. When all is taken together, a judge arbitrates on what he or she thinks the sum of the moving parts represents.

Having been an expert witness in fraud and compensation cases, I know how difficult it can be to untangle past events and come up with an answer that is just. I equally know how difficult it is to go back over the past and discern what was in the minds of those entering into contracts at the time. Legal documents don't provide those insights though evidence is always revealing. The many years of litigation between Sky and EDS and 468 pages of judgment confirms that view.

What did the judge deduce re: EDS?

Liar, liar

What stands out to me is the early claim that one of EDS's main witnesses and an important player on this particular stage was dishonest. I don't know about you but what I can say from experience is that if a person is determined to lie then it is very difficult to overcome that without doing a heck of a lot of checking. In this case, the person concerned, one Joe Galloway, lied to EDS as employee and in testimony. It was only after intensive cross examination, analysis and background checking that his lies were brought to the surface.

At para 194/195/196 (see Scribd document), Judge Ramsay says:

This is not a case where there was merely a lie as to the MBA degree. Such a lie might have had a limited effect on credibility and might be explicable on the basis that Joe Galloway wished to bolster his academic qualifications and was embarrassed about the way he did it. However his dishonesty did not stop at that. He then gave perjured evidence about the MBA, including repeatedly giving dishonest answers about the circumstances in which he gained his MBA and worked in St John on a project for Coca Cola. In doing so, he gave his evidence with the same confident manner which he adopted in relation to his other evidence about his involvement in the Sky CRM Project. He therefore demonstrated an astounding ability to be dishonest, making up a whole story about being in St John, working there and studying at Concordia College. EDS properly distance themselves from his evidence and realistically accept that his evidence should be treated with caution.

In my judgment, Joe Galloway’s credibility was completely destroyed by his perjured evidence over a prolonged period. It is simply not possible to distinguish between evidence which he gave on this aspect and on other aspects of the case. My general approach to his evidence has therefore to be that I cannot rely on the truth of his evidence unless it is supported by other evidence or there is some other reason to accept it, such as it being inherently liable to be true.

Having observed him over the period he gave his evidence and heard his answers to questions put in cross-examination and by me, which have been shown to be dishonest, I also consider that this reflects upon his propensity to be dishonest whenever he sees it in his interest, in his business dealings. Whilst, of course, this does not prove that Joe Galloway made dishonest representations, it is a significant factor which I have to take into account in assessing whether he was dishonest in his dealings with Sky.

Pretty damning you might think. But then in Mike's Devil's Triangle scenario, the client has a part to play. I've never felt wholly comfortable with this idea.

Was Sky part of the problem?

Software vendors, consultants and systems integrators always hold a trump card when negotiating deals. In most cases they know more than the customer will ever know, They have been doing what they do for years whereas customers are likely entering into agreements for technology they may only implement once or twice. The balance of power therefore is almost always skewed in favor of the sell side of the discussion.

I contend that if customers fail at all, it is often by under-estimating the amount of due diligence necessary in order to achieve a given outcome as articulated in whatever constitutes the contract under discussion. This is a topic that Ray Wang, Vinnie Mirchandani and I have touched upon at various times when thinking about how life could be made better for buyers.

One of Ray's planks to solving this dilemma is the notion of customer bill of rights. The Atlimeter BOR for SaaS to which I had some input along with Mike is here. In private conversations, Vinnie has tended to be dismissive of the legal profession arguing that in his experience they neither have the time nor the understanding to work through all the contract nuances. I find this surprising. On the the other side of the coin, I know, again from experience, how tough a vendor's lawyers can be. Another point of inequality? This is where consulting parties start finger pointing in the hope they can show the client contributed to failure and thereby mitigate their risk.

Having become obvious the project was at risk, EDS de-scoped the project but then found itself having to add-in fresh needs. EDS argued Sky acted unreasonably. The judge thought otherwise. At para 1796:

In relation to Sky’s performance from March 2002 to March 2006 I accept that there is a large gap between the effort and time which Sky took to complete the Actual CRM System and the effort and time which a competent, alternative Systems Integrator might have taken to achieve that implementation. There are a number of reasons why that might have happened. Those put forward by Sky such as schedule compression could account for some of the gap. EDS has sought to rely on particular deficiencies but I do not consider that they have established a case that the additional costs were caused by Sky acting unreasonably and thereby failing to mitigate their loss.

Does this mean Sky gets a pass? There are parts of the judgment that suggest Sky could have reasonably done better but they don't appear to have weighed heavily in the judge's findings.

Problems with experts

There is a fascinating (to me at least) section that talks about expectations and lost benefits. This was a project where Sky expected a system that could reduce customer churn. There is a long, detailed debate about what would or would not have worked with expert witnesses in disagreement. Again and having been on the sharp end of producing evidence that is defensible, I can fully understand why experts might take different positions. This leaves the judge with the unenviable task of figuring out what was reasonable in order to assess the degree of failure. I conclude from this that while Mike talks about vagueness in contracts, the bigger point is about accuracy and prior agreement upon what is feasible.

What to do?

Given the above then what can we learn?

In reviewing the judgment, I can see where parts of the Devil's Triangle theory hold up. But that is not the whole story. In this case, the judge would likely argue that it doesn't apply because Sky mitigated its position.

  1. Misrepresentation is serious and while Mike infers this is a common practice to which I can also attest, it is unclear how this gets resolved. Due diligence is key but how do you go about that at the pre-contract discussion stage? Ray's BOR calls for transparency but that only works if SI's and consultants do their homework first and are prepared to provide evidence to that effect.
  2. If you agree that SIs, consultants and vendors are in an advantageous position can a BOR alone save them when it comes to these kinds of case? I don't think so. Instead, I'd argue that customers must engage the best negotiating and legal brains they can find.
  3. The EDS case is instructive across many dimensions. The fact there is disagreement about anticipated benefits among experts drawn in after the fact suggests that this is an issue that is rarely well explored. I have been critical of Enterprise 2.0 for similar reasons and even now I have yet to see consistent hard dollar value upon which I can reasonably rely. Insist on benefit analysis, call in experts and be prepared to accept a range of outcomes. Even if that means canning the project on subsequent risk analysis.
  4. Even when you take all this together and find, as this judge did, that EDS is on the hook for a significant sum, then it makes no real difference. If nobody in the media cares enough to ask the tough questions and customers continue to get sucked into agreements where the brand speaks louder than the realité, then vendors of all stripes will continue to get away with substandard work.Bringing attention to these cases is not enough. There has to be better analysis of failure causes that allows for learning.
  5. While Mike is correct to advise that buyers look more closely at what's going on, the fact he seems to have fodder for life tells me that either nobody is listening hard enough to make a difference or that the pain of litigation just isn't bad enough - yet. That last point leads me to an alternative conclusion.

If as seems the case that the same suspects turn up defending themselves, then I wonder if there's a lawyer out there prepared to consider the possibility of consolidating cases on the basis of similarity and then clobbering the evil doers with a massive class action? Would such an action - or the threat of such an action - hold up? I can think of one case where there is a strong possibility of such a case being brought by close to 200 litigants. It would be a last resort but for where we're at, it seems to me the only viable alternative.

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