See You in Court

Learn-Fast Guide: It's All About You Sign up to receive Security Resource Alerts

March 26, 2001 (Computerworld) -- The fact that we live in a litigious society is undeniable. But to what extent has lawsuit lunacy penetrated the world of IT? Are disaffected companies running to court over broken IT contracts as never before?
It all depends on how you read the numbers. "I sense that the IT world over the past decade has gone from becoming relatively less to relatively more litigious than the rest of the economy," says Tom DeMarco, a consultant at Cutter Consortium in Arlington, Mass. "Big systems integrators often have 50 concurrent lawsuits pending."
DeMarco, who is exposed to many IT-related lawsuits in his work as a litigation consultant, says the equivalent of 10% to 15% of many corporate IT budgets are consumed by legal costs. Court calendars are clogged with often baseless lawsuits brought by people who would rather fight than talk, he says.
Although precise numbers are hard to come by, there's evidence to suggest that the number of IT outsourcing lawsuits has increased significantly during the past few years. While many executives rail against filing suit at the drop of a hat, the situation is likely to get worse before it gets better.
Whether it's a matter of late delivery or unmet requirements, experts say that most problems arise from a failure to communicate.
CIOs can help their companies avert the pain of litigation by spelling out specifications and timetables upfront and by maintaining channels of communication with the vendor during implementation.
Bruce Webster, a consultant at PricewaterhouseCoopers in New York, recently completed a study of 25 years of litigation resulting from IT systems failures. His sampling of cases lends credence to the view that IT litigation has trended upward.
Of the 120 cases Webster studied, five were filed in 1974-76, 18 in 1988-90 and 23 in 1994-96. A decrease to 19 filings in 1997-99 "reflects a time lag in our ability to gather data on the most recent cases, rather than an actual downward trend in such legal actions," according to Webster's report.
But Webster is cautious about exaggerating the trend's significance. "My impression is that litigation is on the rise because the number of IT projects has been increasing steadily over the last 25 to 30 years," he says. "Before that, it was relatively rare to embark on a major project. Today, it is a fundamental necessity in both business and government."

			Avoiding Conflict Agree ahead of time to expectations, promises and contingencies. Include performance and compatibility requirements, anticipated life span and acceptable levels of defects in systems specifications, as well as required functionality. Clearly define key terms, conditions and activities. Review documents up and down the chain of command in both organizations to make sure all relevant personnel understand what's promised and what's expected. Implement small, comprehensible and workable systems at first before expanding into the desired large systems. Plan to migrate off IT technologies that your organization doesn't control in order to avoid unplanned obsolescence. Get expert legal and IT guidance before signing anything. Act quickly when problems arise. Work with the vendor to achieve the desired goal. Source: Bruce F. Webster, "Patterns in IT Litigation: Systems Failure (1976-2000)," PricewaterhouseCoopers, New York, 2001

So does an increase in raw numbers indicate a litigation explosion? According to Rick Matlus, research director at Stamford, Conn.-based Gartner Group Inc., the ratio of litigated IT projects to the total has actually remained steady over the past few years. "I have been checking with law firms that do this kind of work, and they have not seen an increase in litigation," he says. "Overall, less than 3% of all IT deals end up in arbitration or in court."
The Blame Game
In any event, when IT projects do fail, it's often easier for companies to blame the vendor for defective products or sleazy sales techniques than to take responsibility for any shortcomings themselves. In Webster's study, customers were five times more likely to initiate a lawsuit against vendors than vendors were to sue customers.
DeMarco says organizational politics often lead to unreasonable customer expectations, which in turn spawn irreconcilable differences with vendors. "Authority uses fear to get people to knuckle under and accept the feasibility of a desired result, no matter how unreasonable," he says. If the CEO says a project must be completed within a year, then that expectation is set in stone.
The corporate blame game also tends to fuel litigation, says DeMarco. Once a project goes awry, those responsible would rather cover up their poor deal-making than try to fix it. "Litigation is a way to defer blame," he says. "The typical lawsuit can take three, four or five years. Litigation has the beneficial effect of deferring judgment."
One of the other factors that plays into the surge in IT litigation is the role that CEOs, chief financial officers and other senior business executives play in deal-making with vendors. "The projects are pitched to those with a stake in the company's profitability," says Joe Auer, a Computerworld columnist and president of International Computer Negotiations Inc. in Winter Park, Fla. "The vendor claims that outsourcing will drop x cents per share to the bottom line, and the executives start calculating their bonuses."
But vendors aren't necessarily the ones at fault. "The customer doesn't always perform what they need to do to get the product implemented," says Ann Jordan, general counsel for PeopleSoft Inc. in Pleasanton, Calif. "It is easier to blame the vendor than to go to your own management and say, 'We could have done a better job.' "
In October, PeopleSoft settled a lawsuit in which Newark, Del.-based W.L. Gore & Associates Inc., maker of the Gore-Tex fabric used in outdoor apparel, accused the software vendor, along with consultancy Deloitte & Touche LLP, of botching the installation of a human resources management system. Although Gore didn't specifically complain about PeopleSoft's product, it did contend that PeopleSoft foisted New York-based Deloitte's services on Gore and claimed that the consultancy wasn't up to the task.
The lawsuit charged that the software problems interrupted the firm's business operations. Terms of the settlement remain confidential, according to Jordan.
Adam Cohen, an attorney at the law firm Weil Gotshal & Manges LLP in New York, says he's seen similar situations, frequently involving failed Web site projects. In such cases, "the developer often points to the client and says that they didn't provide deliverables [in a timely manner] under the contract," Cohen says. But "it is rarely black and white. Each side has duties and obligations to the other."
Webster points to other problems on the customer side. "I've seen cases where the project champion leaves the company," he says. "His replacement has little or no stake in the project succeeding. Sometimes, there is also a small but influential group of users who like the way things were done before."
In some cases, problematic software implementations are the result of how they're handled - or mishandled - internally, according to Rich Reed, vice president for information and network technology at the Chubb Group of Insurance Cos. in Warren, N.J. "There has to be a program of change management that surrounds implementation of enterprise applications," he says. "The failure to educate users on operational changes will create potential problems."
When It's Time to Walk Away
Bill Donovan, CIO at Charlotte-based ocean transportation and logistics services firm CSX Lines LLC, says he and his CEO were both hot under the collar and ready to sue a Big Five consultant a few years ago over the unsuccessful implementation of a customized system for booking and tracking cargo. Both sides agreed to walk away from the project and call it a wash after the consultant waived any further payments under the contract.
But Donovan gleaned some important project management lessons from the experience. "We gave [the consultant] full accountability for the success of the project," he says. "Since then, we've never given an outside firm accountability. We manage the team in-house and hire contractors as needed."
Many CIOs recommend documenting both customer and vendor expectations from the get-go, which is precisely the job of Stuart Kliman, founding partner of Vantage Partners LLC, a Cambridge, Mass.-based consulting firm. Kliman helps companies find better ways to relate to one another, a task that's easier said than done. "Both vendors and customers are frustrated with the dynamic at play, but neither is comfortable taking the first step to change it," he says.
A language barrier almost brought down the relationship between The Leading Hotels of the World Ltd. (LHW), a New York-based marketing and reservations service, and SimNet Computing Ltd., a Japanese systems integrator. LHW hired SimNet in 1998 to hook up the LAN at its Tokyo installation with its WAN. SimNet installed $50,000 of software not authorized by LHW. When LHW refused to pay, SimNet threatened to sue.
"It was a communications problem," says Edward Nesta, LHW's CIO. "There was a discrepancy between what they thought we said vs. what was really approved."
Nesta and his team negotiated their way out of litigation by extending SimNet's service contract, thus allowing the vendor to recoup its losses. "We have an excellent working relationship with them today," he says. But Nesta surmises that the original problem could have been avoided had he placed a few key people on the spot to work directly with SimNet.
Buxbaum is a freelance writer in Elizabeth, N.J. Contact him at pab001@aol.com.

Print this Story

Send Us Feedback

E-mail this Story

Digg this Story

Slashdot this Story

"Today's US college business professors, hopefully, aren't all like the one who is teaching a Florida university's business major. Maybe..." Read more... "For the first time in 30 years, there were no public offerings from a venture backed company. Look for more..." Read more... Read more Management posts or See all Blogs

Microsoft promises four patches next week Google gives away home-cooked Web application security scanner Storm botnet stages Fourth of July attacks More top stories...

Microsoft trumpets security additions in upcoming IE8 Apple cuts price of high-end SSD MacBook Air by $500 Ultrathin showdown: Apple MacBook Air vs. Lenovo ThinkPad X300 vs. Toshiba Portege R500

This old laptop: Revitalizing an aging notebook on the cheap All it takes is a couple hours and about $125 to breathe new life into an old laptop. Here's how. Bill Gates moves on Is Microsoft's Golden Age over? What are Gates' most memorable quotes? Find out in Computerworld's complete coverage of the end of the Bill Gates era at Microsoft. Five things you should never tell your boss There are some things your CIO definitely doesn't want to hear. Also don't miss the flipside, Five things you should always tell your boss. Hands-On: Firefox 3 fixes what's broke and keeps what's right With its latest version, Mozilla's browser continues to raise the bar for what Web browsers should be. Windows Vista A to Z Reviews, analyses, how-tos, visual tours, hot issues and predictions about Microsoft's new OS. More Continuing Coverage After 9/11: Homeland SecurityAsk a Premier 100 IT LeaderBlackBerry Legal BattleData Security BreachesElectronic VotingFirefoxH-1B VisasHP's Boardroom ScandalHandheld DevicesHurricane Katrina AftermathMicrosoft Legal IssuesMicrosoft's VistaOpen SourceRFID TechnologySCO's Linux FightSarbanes-Oxley ActSpamVoice Over IPWi-FiWindows Meta File VulnerabilityWindows XP Service Pack 3 IT Careers 2010 Four years from now, the IT field will be a vastly different place. Will you be ready? More Special Reports Premier 100 IT Leaders 2007 Best in Class2006 Computerworld Horizon Awards2006 Premier 100 IT Leaders2006 Salary Survey2007 Best Places to Work in IT2007 IT Forecast2007 Premier 100 IT Leaders40 Years of ComputerworldASPs, Take TwoBest Places to Work in IT 2003Best Places to Work in IT 2004Best Places to Work in IT 2005Best Places to Work in IT 2006Business Intelligence Home RunsBusiness Intelligence: Smarter BIBusiness Intelligence: The Future of BICRM Goes VerticalCRM: Sober CRMCareer Planning Guide 2005Careers: IT Profession 2010Computerworld Horizon Awards 2005Data Management: Mining for GemsData Management: Taming Data ChaosDevelopment: Hard-Workin' Web SitesDevelopment: New Tools New ChoicesDevelopment: The New World of Application DevelopmentDevelopment: The Web Services TsunamiDevelopment: Web Services HurdlesDisaster Recovery: Preparing for the WorstE-commerce Grows UpE-mail/Groupware: Big DecisionsFaces of Mobile ITForecast 2006Global MobileHardware: Multiple Cores, Multiple ChallengesHardware: On-Demand Un-HypedHardware: The Shape of Things to ComeHorizon Awards: 10 Cool Cutting Edge TechnologiesIT Management: Guide to Managing VendorsIT Management: Navigating Global ITIT Management: Recovery AheadIT Management: The Future of ITIT Management: The Resourceful Project ManagerInnovative Technology Awards 2004Management: Reinventing ITMicrosoft in TransitionMobile/Wireless Leaders and LaggardsMobile/Wireless: The Untethered WorkerMobile/Wireless: Tiny Gadgets, Huge CostsNetwork Management: Taking ControlNetworking: Turbulence Ahead!Networking: VoIP Goes MainstreamOperating Systems: In the Slow LaneOperating Systems: Linux Goes GlobalOperating Systems: Should You Nix Unix?Outsourcing: Offshore Buyer's GuideOutsourcing: Outsourcing DangersPremier 100 IT Leaders 2004 Best in ClassPremier 100 IT Leaders 2005 Best in ClassROI: Do the Math!Salary Survey 2003Salary Survey 2004Salary Survey 2005Security Action PlanSecurity: Compliance HeadachesSecurity: Proactive SecuritySecurity: Risk and RewardSecurity: Tips From Security ProsSouped-up SecurityStorage: Battling ComplexityStorage: Cheap & Secure Data StoresStorage: Stretching Your Storage DollarsStorage: The Lean Storage MachineStorage: The New Rules of StorageStorage: The Ultimate Backup GuideSupply Chain: Missing LinksSupply Chain: RFID Reality CheckThe Business of SecurityWeb 2.0 SecurityWireless: Wireless At Work All Zones Application Performance Zone Business Continuity Zone Data Center Management Zone Enterprise-Class Security Zone The File Data Management Zone Grid Computing on Windows Zone Security Management Zone ITIL Best Practices Zone The SAS Zone Storage Virtualization Zone Business Intelligence and Analytics Zone See your link here

Learn-Fast Guide: It's All About You (Source: Computerworld) Is your career in sync with the current megatrends: business alignment, globalization, the consumerization of IT, web 2.0 and beyond? In this guide, you'll get advice about how to make yourself more valuable, how to make the global talent pool work for you and how to make sure you "get found" when you put yourself out there. Download this executive briefing  Optimizing Virtualization Success with Facts and Transparency Get this white paper now! (Source: BDNA) Without transparency into the IT environment, it is a struggle to measure the opportunity and ultimate success of virtualization initiatives. By establishing a trusted fact base of IT assets, both physical and virtual, IT can measure and manage virtualization initiatives. This white paper describes technologies to establish this fact base. Download this white paper  A Leader in Healthcare IT: Marshfield Clinic Case Study A Leader in Healthcare IT: Marshfield Clinic Case Study View this webcast now! Go to the webcast  White Papers Read up on the latest ideas and technologies from companies that sell hardware, software and services. Deploying Virtualized NetWare on Linux Whitepaper Toward More Flexible, Next-Generation Collaboration Solutions Driving Business Success Through Workgroup Choice and Flexibility View more whitepapers

• Microsoft promises four patches next week
• Google gives away home-cooked Web application security scanner
• Storm botnet stages Fourth of July attacks
• More top stories 

Computerworld Technology Briefing: Meetings @ the Speed of Business For large organizations, Web conferencing gives a major boost to collaboration among far-flung offices. For smaller companies, experts say Web conferencing is no longer a luxury but a necessity for everything from webinars to customer presentations. But the real value lies in saving soft costs and in increases in productivity. Download this briefing

Intercept Spam & Viruses With MessageLabs MessageLabs is offering a complimentary 30 day trial of its managed Anti-virus and Anti-spam security solutions. MessageLabs guarantees complete protection against all know and unknown email threats. By providing 24 hour support, your business can increase productivity and decrease risk. Register for a complimentary trial and receive a free datasheet. Download this white paper now!