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12/16/2011
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Oracle Accused Of Lies, Extortion By N.J. University

Montclair State University lawsuit claims Oracle purposely over-promised off-the-shelf ERP functionality it couldn't deliver.

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To keep deployment and administrative costs down and simplify future upgrades, most organizations try to avoid customizing enterprise software deployments. That's what Montclair State University (MSU) was hoping to do when it chose Oracle in 2009 for a $20 million PeopleSoft ERP implementation.

The project ultimately failed, and in an amended lawsuit filed Tuesday, the university alleged that Oracle knowingly overstated off-the-shelf capabilities and understated customization and resource requirements in order to win the bid.

MSU, New Jersey's second-largest public university, with more than 18,000 students, contracted with Oracle in 2009 for $4.3 million in software and a $15.75 million fixed-fee implementation. The project was aimed at replacing a 25-year-old administrative system and giving students, faculty, and administrators better access to information and self-service capabilities through a Web portal.

After a series of missed deadlines and disputes during the summer of 2010, the project came to a screeching halt in November 2010 when MSU says Oracle walked away from the project when the university refused to pay more than the agreed-upon implementation fee.

[ Why are enterprise applications lawsuits a lose-lose proposition? Read No One Wins An ERP Lawsuit. ]

MSU first filed suit against Oracle in April, accusing it of breach of contract, gross negligence, willful misconduct, and fraud. In the 60-page amended suit filed this week in the U.S. District Court for the District of New Jersey, the university detailed "intentionally false statements" by Oracle, including an assertion that "95% of the University's more than 3,200 business requirements were satisfied by its base [PeopleSoft] system." MSU later found that the software "did not contain all of the critical functionality which Oracle had represented it would contain."

In one example, Oracle did a live demo during the proposal phase of online enrollment application processes for undergraduate and graduate admissions that were "falsely represented" as being part of the basic PeopleSoft system. MSU later learned that online enrollment functionality is "not part of the base system," according to the complaint.

The amended suit also alleged Oracle tried to "extort millions of dollars" by threatening to withdraw from the uncompleted project "unless the University agreed to pay millions of dollars more than the fixed fee the University and Oracle had previously agreed to." Most of the work Oracle performed won't be reusable, according to the complaint, and the cost to finish the project will exceed the original contract by as much as $20 million.

Oracle declined a request from InformationWeek to comment on the amended complaint. Oracle's response to the original lawsuit was a $5.3 million countersuit against Montclair State University, filed in May, in which it denied the charges and asked the court to dismiss the claims of gross professional negligence and fraud.

In its countersuit, Oracle said that as trouble escalated, it became clear that university officials "did not adequately understand the technology and the steps necessary to complete the project." The $5.3 million claim is for work already completed, according to the suit, and it charges that "MSU's project leadership, motivated by their own agenda and fearful of being blamed for delays, escalated manageable differences into major disputes."

MSU's suit said that the university was looking for off-the-shelf functionality because it knew that substantial customization would "require more work from its staff and therefore place severe strain on its already limited resources."

The desire to configure software rather than customize with original code has become the dominant theme in systems implementation, according to Forrester analyst Paul Hamerman. Cloud-based applications are helping to drive that trend because "software as a service, by definition, can't be customized," he said. "It can be extended with development tools, but that's different than customizing."

Even modern on-premises software is becoming more flexible, with model-based administrative interfaces and process maps that are less technical, allowing systems configuration to move from IT to the business unit.

In the case of PeopleSoft, the roots of the software go back 20 years, it ships with PeopleTools for custom code development, "and customers do get into quite a bit of customization," Hamerman said.

What can enterprises do to avoid nasty surprises? Hamerman said due-diligence and adequate project staffing and project management skills are essential on the customer side. He also suggested phased deployments implementing one component at a time. In the case of ERP, for example, it's best to start with the accounting modules and hold off on additional commitments until the first phase is completed.

"Oracle is well known for selling you all the software you would ever need even if it's not going to be implemented for a while, yet you pay for it up front," Hamerman said. "Commit only to what can be reasonably implemented within two years."

According to MSU's complaint, the project scope included Oracle's PeopleSoft Financial Management System, Human Capital Management, Hyperion budgeting and planning software, CRM and Campus Solutions, Oracle Data Warehouse and Analytics, and the Oracle Enterprise Portal. The negotiated implementation time for all these technologies was 25 months.

That's quite an ambitious plan. It's now up to the courts to determine whether off-the-shelf capabilities were misrepresented and need for customization was the project's undoing.

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D. Henschen
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D. Henschen,
User Rank: Author
12/16/2011 | 2:58:18 PM
re: Oracle Accused Of Lies, Extortion By N.J. University
Would you have signed that contract? Was the project's failure a matter of "lies" or an unrealistic plan that a rookie CIO could have spotted? What's your view?
Jason Sharp
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Jason Sharp,
User Rank: Apprentice
12/16/2011 | 7:33:41 PM
re: Oracle Accused Of Lies, Extortion By N.J. University
I would not have signed it, nor would I have recommended anyone to do so. A clue that resonates here for me is the all too common theme of "severe strain on its already limited resources". i.e. there are too little internal staff skills and bandwidth to evaluate, manage, and see through such an ordeal.

The old mindset of "nobody gets fired for buying IBM [or MSFT or Oracle]" is struggling against the reality that organizations don't have the ability to cushion such a large scale failure or delay--both all too common. And if the implementation is ultimately successful, it sapped too much from the budget pool and leadership momentum for other needed projects. With the growing lack of internal skills and bandwidth, stories like this are sadly a continuing trend.

Indeed, I agree completely with the tips to avoid such predicaments. Phased implementation is key, as boiling the ocean sounds good in the abstracted boardroom but is recipe for DOA at the implementation level.
SOLBLACK
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SOLBLACK,
User Rank: Apprentice
12/16/2011 | 9:35:09 PM
re: Oracle Accused Of Lies, Extortion By N.J. University
Sounds like Oracle MO!
Oh yea they will walk off site of a job in a second!
Instead of Oracle admitting it can't do the job they will take the money.
They will be in court for awhile.
Tom F. Randall
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Tom F. Randall,
User Rank: Apprentice
12/17/2011 | 3:00:12 AM
re: Oracle Accused Of Lies, Extortion By N.J. University
This is quite unfortunate for all parties, especially the students who would have benefited from an improved information system to manage their matriculation. The funds and time that will be used by both parties to engage in this lawsuit could have probably covered this misinterpretation and meetings of the minds to produce the customizations needed to make the system effective. If Oracle's divisions were more integrated, they could have easily made up the difference in their maintenance fees over the next few months.

A large scale and complex implementation like PeopleSoft is never going to occur in 25 months. Universities often lack enough trained staff and resources to provide development support while continuing to maintain existing operations and systems. Training and development will consume most of the time. Staff need the training to know how an out-of-box system works in order to redesign or adapt to the new systems. They also need an intimate understanding of their existing processes and how their functions can be altered. In addition to a cadre of contractors for the coding, facilities and management, I would dedicate at least one-quarter of all university staff resources in HR/Payroll, Procurement/Accounting, Departmental Academic Staff, and IT to implement any PeopleSoft solution.

It appears that pragmatism and skepticism are no longer part of IT project management. The engineering cycle is far too compressed, and by necessity, there is always a need to hurry and scurry. We need to implement technology before it becomes stale and obsolete, which was by the way, yesterday.
Guest
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Guest,
User Rank: Apprentice
12/18/2011 | 7:19:54 PM
re: Oracle Accused Of Lies, Extortion By N.J. University
Although this all sounds like standard practice for Oracle, I agree that it is a common story in ERP, or any other large IT project implementation. The internal project management/change management is almost always the culprit. When it all goes wrong, the internal team blames the technology with some "we didn't know that the sales people were trying to sell things" explanation.
Guest
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Guest,
User Rank: Apprentice
12/18/2011 | 7:46:19 PM
re: Oracle Accused Of Lies, Extortion By N.J. University
This has to at least partially fall on the University's due diligence.

"According to MSU's complaint, the project scope included Oracle's PeopleSoft Financial Management System, Human Capital Management, Hyperion budgeting and planning software, CRM and Campus Solutions, Oracle Data Warehouse and Analytics, and the Oracle Enterprise Portal. The negotiated implementation time for all these technologies was 25 months."

- Anyone remotely familiar with ERP implementations would have raised a red flag at implementing half of that in 25 months. Oracle's interest is to sell as much software as possible as quickly as possible. For an external validation of Oracle's plan, the University relied on... Oracle (Consulting). If they had IBM as the consultancy, for instance, they would have probably told them to break this into smaller projects.

"Oracle, including an assertion that "95% of the University's more than 3,200 business requirements were satisfied by its base [PeopleSoft] system." MSU later found that the software "did not contain all of the critical functionality which Oracle had represented it would contain."

- That is the oldest and most well known software sales pitch in the book. Sure, if you release an RFP with common functional requirements, Oracle is going to say we support that (whatever it is) natively. The internal team or an external party without a financial interest in the project needs to validate that the general line item functional requirements on an RFP meet the nuances of their particular processes. Reason number 1,243 why internally developed RFPs create more problems than they solve.
ANON1242834577420
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ANON1242834577420,
User Rank: Apprentice
12/20/2011 | 5:13:54 PM
re: Oracle Accused Of Lies, Extortion By N.J. University
I own a small network security business. I can make the same accusation about Oracle fraudulently representing a piece of SW to us. The amount was significantly less than NJU's dispute, but the injurious loss to us was significantly damaging. The Oracle salesperson gave us the sales pitch and promises of what the SW could do. We even checked it out with personnel up the ladder from the salesperson, a director and a vice president. They all assured and promised that the SW would work for our intended purposes.

To make a long story short -- in the end, we paid for the SW (you have to, or they won't activate it), it did NOT work as they promised; it was of no use to us; and all they had to say was, "Gee, that's too bad." They simply dropped off the map with no further responses to us. Our only recourse would have bee to sue. Remember, I said we are a small company. Our available resources weren't even close to adequate to begin such a lawsuit against the mighty Oracle. They would have in turn wiped us off the map with hardly a flick of a lawyer's finger. We lost. The bully won, and it wasn't even lunch money to them -- it meant a lot to us.

Is it any wonder that when I see the Oracle yacht out playing in the boiling ocean waters that my blood also boils!?
ps2os2
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ps2os2,
User Rank: Apprentice
12/25/2011 | 6:03:47 AM
re: Oracle Accused Of Lies, Extortion By N.J. University
I have seen very few honest proposals in my 40+ years in IT. Although some are reasonable and can be followed. The large companies now days, its a laugh to expect that they will even come close to telling you the truth. What you really need is a boatload of people to advise you on how much you can trust them to deliver on their promises. On the other hand I have seen one or two companies come in and tell the management fire this person or that or a few as "they know who will be a good resource for the vendor and will not be". Don't expect the vendor to be honest with you as they will lie cheat and steal you blind. Any numbers they come up with look at it as a bold face lie and get your own numbers and then pad. Also realize that huge projects are a moving target. Try not to hit a moving target or expect $$ to go out the window.
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