Users Say Consultants Play Role in IT Disasters

Perceived dirty tricks of hired hands include bait-and-switch, overbilling

When a multimillion-dollar information technology project heads south, the finger-pointing and litigation begins. And frequently, users blame the disaster on what they view as dirty tricks by high-priced consultants.

Some consulting tactics are familiar to IT veterans; other ploys are less common. They include the following:

• The firm implies that high-level, seasoned consultants will do the work but then replaces them with greener staff.

• In a corollary to that bait-and-switch maneuver, the firm claims expertise in a given area but uses the client's project to train new consultants.

• The firm overbills, often by putting extra consultants on-site, overcharging for living expenses or doing work outside the contract scope.

• The firm disagrees with definitions of key terms, such as "product" and "test," frequently leading to delays while the parties haggle.

• The firm claims that it owns much of the intellectual property produced during the project, leaving the user vulnerable to ongoing maintenance fees.

Questionable Tactics

Of course, most of the trickery can be prevented with sharper negotiating and eagle-eyed management.

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Users Aren't Angels Either

Users aren't always blameless in disputes with outside consultants. Inexperience and arrogance among IT people can certainly mangle a big project. And user companies, as well as consultants, have been known to play games, said Reed Simpson, an expert witness in IT litigation.

"It's not unusual for me to find out that the people who told top management [bad things about a consultant] are trying to hide the facts and blame the problems on someone else," Simpson said.

Sometimes IT doesn't live up to its contractual duties, such as stress-testing new pieces of software by a certain deadline. Slipping behind on testing can make the whole project late. Similarly, if the user company fails to provide promised testing facilities, including clean data, the project can go off kilter.

Perhaps the No. 1 thing a user company can do to damage a project is to change key IT managers in midstream. And that isn't uncommon, given today's jumping IT job market.

Bruce Webster, a director at PricewaterhouseCoopers, said he's seen that happen in three user-consultant disputes just this year. "The projects continued on their own momentum, only no one cared," because the original IT managers were gone, Webster said, "and there was a growing chasm between developer and client" that ended in litigation.

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"Consultants are used to walking in and being totally in charge and having no one question them," said Ella Conrad, a former IBM consultant and now CIO at Utility.com Inc. an Internet utility company in Albany, Calif.

"You have to remind them of what their role is," said Conrad, who this year has done deals with Andersen Consulting and Deloitte & Touche LLP. "You have to manage the hell out of them."

Early this year, Conrad threw one consulting company out, in part, she said, because it ignored her own IT people and tried to run up billable hours by putting extra people on the job. "I walked into a meeting and there were 20 of them sitting there whom I'd never met," she recalled.

"Here's your project team," the lead consultant said.

"Whoa," Conrad said. No way. "I'd never seen resumes, and you don't need 20 people overnight to start a project."

Bruce Webster, a director in the Dispute Analysis and Investigations practice at PricewaterhouseCoopers in Washington, said there are ways to prevent the classic personnel swap. Look at resumes and interview all prospective workers, he advised. In the contract, name the people who will work on the project and set a maximum turnover rate.

"Screen these people just like full-time employees. Given what you're paying, it's important," Webster said.

In a $500 million lawsuit pending against Andersen Consulting, FoxMeyer Corp., a now-bankrupt drug distributor in Carrollton, Texas, cited a string of allegedly unfair maneuvers on the part of the consulting firm, including the bait-and-switch and using FoxMeyer as a guinea pig for untrained Andersen people.

Andersen didn't return several calls seeking comment. The case, which was filed in 1998 after a bungled implementation of SAP AG software, is slated for trial in May [News, Oct. 30].

Still, sometimes user allegations are a matter of perception, said Delicia Yard, editor of "Consultants News" in Fitzwilliam, N.H. "People seem to have the same complaints over and over," Yard said, "but there are so many sides to every story."

For example, what an angry client may call bait-and-switch, the consultant may view as wise allocation of staff. And users themselves aren't always blameless in troubled IT projects.

The User's Role

Users typically approach the consulting deal the wrong way, said Marlene Bauer, who helps companies bargain with consultants.

Consultants typically push for long, open-ended engagements where deliverables aren't specific. After all, those are the big-money deals.

IT managers go along, contracting for resources - a certain number of workers for a particular hourly rate, for example - instead of results, said Bauer, who works at International Computer Negotiations Inc. in Portland, Ore.

She said the contract should include a detailed project plan that lists which software pieces will be delivered when, how they will be delivered and how well they will perform, as well as criteria and schedules for acceptance and consequences if the software fails. Payments should be tied to the completion of each phase.

Consultants "don't want you to do that. They want to throw bodies at it and bill and bill and bill," said Bauer. "But if you haven't defined what it is you want, how do you know when you get it?"

Newark, Del.-based W.L. Gore and Associates Inc., which makes Goretex fabric, contracted with Deloitte & Touche in 1996 to install PeopleSoft Inc. human resources software. The resulting system miscalculated taxes, couldn't reconcile payroll or benefits and couldn't print key reports, Gore said in a lawsuit filed last year. Gore paid Deloitte & Touche more than $2.8 million - more than twice the consultant's written estimate.

The suit was settled last month for undisclosed terms. However, court documents show that one of the many problems was a dispute over who was responsible for the critical job of converting the old data to the new system.

Improper data conversion can take down an entire project, yet it's often treated casually in contracts, said Reed Simpson, a 35-year IT veteran and expert witness in computer lawsuits. In a case he's working on now, conversion fell to the admittedly inexperienced user. "The outside firm was clever in writing the contract such that this was not its problem," said Simpson, who is vice president at Computer Legal Consultants Inc. in Harrison, Idaho. "The question is, did they know that [a bad] conversion would cause the whole project to fail?"

Join in the Dance

When trouble starts, a common consultant move is to bypass the internal IT people and appeal to upper-level managers who are less directly involved. One countermove is to name a project manager from the in-house IT staff to shadow the consulting firm's project manager. Send both people to all meetings, including those with senior user executives.

Relationship management is as important as savvy deal-making - especially when things go wrong, said Max Hopper, former CIO at AMR Corp. in Fort Worth, Texas, and now a consultant in Dallas. Hopper recalled when he hired an IT consultant who, as it turned out, simply didn't know how to do the work. Hopper had negotiated a deal that included large penalties for problems and the right to cancel the agreement.

But he didn't cancel. Instead, he arranged to pay the firm about half the money originally promised - if it could find people with the skills to finish the assignment.

"It seemed foolish," said Hopper, "to try to put [the consultant] in the position of so totally losing money that it wouldn't have any incentive to make me happy."

How to get a leg up on negotiations with consultants

Ideally, users would have a detailed IT project plan -- including milestones, acceptance tests and payment schedules -- before signing a contract with a consultant.

Yet users who hire consultants often do so precisely because they lack the knowledge required to devise such a plan.

What to do?

Marlene Bauer, an expert at International Computer Negotiations Inc., in Portland, Ore., said users have the following options:

  • A request for information. Send letters to several vendors and consulting firms, asking them to identify the information they would need if they were to get involved in this project. Use the resulting list to formulate a request for proposal. "Suppliers don't spend a huge amount of time on a response, but it gives you a lot of information," Bauer said.
  • A gap analysis. Hire a consulting firm to assess the capabilities of your IT people and systems, then compare that assessment to the goals of the new project. The result is a clearer picture of what it will take to get the work done.

    You should specify that the analysis must be written in such a way that it can be read and understood by any other systems integrator, Bauer said. Tell the consulting firm to avoid using in-house lingo and proprietary methodologies. To help keep it neutral, stipulate that the company doing the gap analysis can't bid on the subsequent work.
  • A competitive request for proposal (RFP). Give as much information as possible in an RFP sent to five or six firms Once the field is narrowed to two or three, allow the firms to visit the user site to do due diligence and refine their proposals.

    Make sure the firms know that no one has the job yet, that it's a competitive situation, Bauer advised. Then ask that they give you a list of key questions -- which you'll use during later negotiations. "You'll have two or three suppliers crawling around your organization and taking up people's time," she said. "But once they do that, they can give you very precise pricing and information."
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