LOS ANGELES (CN) – The state Auditor warned on Thursday that court software with a $1.9 billion price tag may end up being useless, while court administrators are pressing ahead with development of the same software, saying any delay would “impose” on the private consultant and cost $1 million a week. Those statements sounded like a faint echo of three lawsuits against the same private consultant brought by a county, a union and a famous maker of jeans.
Ongoing litigation by the County of Marin accuses Deloitte Consulting of under-testing payroll software, putting steady pressure to meet go-live dates, silencing a critic and sugaring a key manager. The consultant was paid $11 million for a system that ultimately had to be scrapped, according to the suit.
A second action was brought by the school teachers union in Los Angeles alleging that on one day the software system put in place by the consultant paid 30,000 people the wrong amounts of money, a day referred to by union officials as “Black Friday.” The matter received local publicity and the suit was ultimately settled.
Another ongoing action is brought by by Levi Strauss & Co. and levels similar charges, saying the consultant used the jean maker as “an installation guinea pig” to put in place software meant to control inventory and handle payroll. In fact, says the suit, the software “delivered ruin.”
In both of the ongoing cases, Deloitte is saying it delivered the software, that it worked, and that any problems were caused either by the complainers themselves or other consultants they hired. In the case, of Levi, the consultant claims the clothing maker still owes nearly $8 million in fees.
But those amounts of money could be considered puny compared to the Gargantua of them all a $1.9 billion software system that is only partially installed in California’s courts, in a deal set up by the Administrative Office of the Courts.
In a report published Thursday, California’s state Auditor warned that the software project called the Court Case Management System may be useless by the time it is fully installed.
“The useful life of CCMS may be very short after it begins to achieve a positive return on investment in fiscal year 2019-20,” said the Auditor in a report put out Thursday. “The technology will be almost 10 years old when fully deployed. Our IT expert believes there is significant risk that the technology could be outdated shortly after its full deployment in fiscal year 2016-17.”
In contrast to the Auditor’s critical view, the Administrative Office of the Courts is pushing the project forward. The agency’s project director said in a meeting last week that the state would be “imposing” on Deloitte if the project were halted.
At that Judicial Council meeting, Judge Burt Pines from Los Angeles questioned administrators about the actual cost of the project and what harm would result from a halt in the spending while an independent review of the project is undertaken.
The project director answered, “Any delay that the Judicial Branch imposes on Deloitte in other words we’re stopping because we would like to so as they as they turn down and until we tell them to completely stop, it’s about $1 million a week at this point because of where we are at on the project, that we’d be responsible for.”
“There’s also hosting charges of several hundred thousand dollars a month for development environments that Deloitte has established on our behalf and we’re paying them to host as well,” said director Mark Moore.
Among the allegations in the lawsuit brought by Marin County is the claim that the software installed by Deloitte turned out to be useless, while the county was under pressure to “go live” with the software on a tight schedule.
The suit filed by Marin County in December charges Deloitte Consulting with a “scheme to defraud the county while reaping tens of millions of dollars in ill-gotten gains.”
The deal involved installation of payroll software by a German company SAP AG. Misconduct by Deloitte and SAP, according the complaint, included “deliberate under-testing to obtain artificially positive results and thereby conceal system defects.”
The two companies also tried to “silence an employee who raised issue with Deloitte’s deficient implementation,” says the suit, while also corruptly influencing the county’s project director with “promises of employment and lavish dinners.”
Marin County says it paid Deloitte $11 million in consulting fees and lost an additional $30 million in damages before concluding that the system had to be replaced. The complaint also alleges that SAP and Deloitte did the same thing to public entities in Los Angeles, San Antonio, Colorado and Miami.
On the defense side of the case, Deloitte in January removed the case to federal court in San Francisco, and filed a motion asking to have an arbitrator decide the matter.
The accompanying memorandum sets out the substance of Deloitte’s defense.
“When Deloitte Consulting completed its work in 2007, the system worked as specified,” says the memorandum prepared by Geoffrey Holtz with the national law firm of Bingham McCutchen. “The County accepted without complaint all the deliverables under the Implementation Services Agreement.”
“However,” says the memo, “the County refused to pay Deloitte Consulting’s final invoices, subsequently disputed the work performed, hired outside counsel and sued Deloitte Consulting on four tort causes of action seeking punitive damages.”
The memo argues that the terms of the contract between Deloitte and Marin County require that the matter should not be decided by a sitting judge or jury but rather it should be heard by “a retired California judicial officer.”
In the interest of full disclosure, it should be said that Bingham McCutchen is a substantial subscriber to Courthouse News Service.
In the other ongoing action in California, Levi Strauss also complains that Deloitte Consulting installed a software system that caused enormous losses.
“Deloitte’s incompetence and deception resulted in massive inventory discrepancies and losses, increased operating costs and customer dissatisfaction – all of which contributed substantially to a staggering 98% drop in the company’s net income,” says the complaint filed in April 2009 in San Francisco Superior Court.
The complaint says Deloitte pocketed $25 million in fees for a system that did not work right, forcing Levi Strauss to use a lot of its own resources and hire other consultants to redesign the system.
“Deloitte conducted truncated, woefully inadequate testing to ensure problems would remain hidden prior to the ‘go-live’ date,” says the complaint. “Deloitte continued to collect fees, representing falsely that the issues were manageable.”
Represented by William Goodman with Kasowitz, Benson, Torres and Friedman in San Franciso, Levi Strauss seeks $100 million plus punitive damages. Kasowitz Benson is also a subscriber to Courthouse News Service.
In its answer, Deloitte denies the allegations and sets out affirmative defenses based on the conduct of Levis Strauss, without specifying the conduct.
“Plaintiff has committed acts by virtue of which it has waived the claims set forth in its complaint,” says the answer. In addition, the damages suffered by the jean maker were “caused or contributed to by Plaintiff’s own recklessness.”
A separate action was filed by Deloitte, also in April 2009, against Levi Strauss in an attempt to collect $7.7 million in fees under the consulting deal and an additional $212,000 under a separate servicing agreement. “Defendant is a $4 billion company with a large, sophisticated Information Technology department, and it insisted that its own IT personnel take the lead role,” says the complaint by Deloitte.
As with the Marin County case, Deloitte charges that Levi Strauss accepted the work of the consultant and did not complain at the time. The filing also blames outside vendors, saying the bulk of the money owed was to “remedy problems caused by others.”
The actions between Deloitte and Levi Strauss have been combined and are now in the evidence gathering stage, with both sides filing motions for sanctions. San Francisco Judge Richard Kramer in September ordered Deloitte to produce documents and describe how it generates and stores discovery material, as well as for defense counsel to confirm under oath statements made in court.
In December, the judge ordered both sides to conduct all discovery through noticed motions filed with him. He also refused to assess sanctions on either side.
As those legal actions proceed, the fate of the $1.9 billion-dollar software pushed by California’s court administrators remains clouded.
The criticisms leveled in the lawsuits are partially reflected in a satirical piece presumably made by a judge or judges, attacking the court software project and mocking the administrators behind it. An audit last month blasted the management and cost of the project, while a state legislator called this week for defunding the project.
“The AOC has repeatedly cut into the operating budget of the courts to find money for CCMS,” said the letter from Luis Alejo, D-Watsonville. “The cost of creating CCMS has devastated the courts’ ability to provide necessary services to the community and the AOC must not be allowed to continue diverting money to CCMS except when they were originally designated for that purpose.”
That missive followed a letter from trial judges castigating the software system and two more letters calling for the departure of head court administrator William Vickrey, one by Los Angeles Judge Stephen Czuleger and most recently another by two powerful legislators.
“Under Mr. Vickrey’s leadership, the projected cost of a statewide court case management system has ballooned from $260 million in 2004 to $1.9 billion, and counting, today,” said the letter by Assembly members Ricardo Lara (D-Longbeach) and Bonnie Lowenthal (D-San Pedro).
“During the course of the system’s evolution, the Administrative Office of the Courts, led by Mr. Vickrey, has consistently ignored warnings,” the letter continued. “In 2004, the Legislative Analyst’s Office warned of a lack of planning and oversight.”
“We believe your tenure as Chief Justice may rely on your willingness to make the pruning necessary,” said the letter addressed to Chief Justice Tani Cantil-Sakauye.
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