informa
/
News

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.
My Mistake: 10 CIOs Share Do-Over Worthy Moments
Slideshow: My Mistake: 10 CIOs Share Do-Over Worthy Moments
(click image for larger view and for slideshow)
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.

In today's uncertain and highly scrutinized financial services industry, achieving effective risk management is vital for survival. The report examines the need for enterprise risk management, the benefits of holistic data management, and ERM best practices. Download the report now. (Free registration required.)