On March 13, 2017, Chicago-based MillerCoors filed a breach of contract lawsuit in the Northern District of Illinois against HCL Technologies (an Indian-based ERP implementer) and its American affiliate HCL America. The lawsuit is related to an SAP upgrade involving SAP’s Global Available to Promise and Extended Warehouse management software. The following details are taken from the Complaint.
- In September 2014, MillerCoors issued RFPs to several potential ERP vendors.
- In December of 2014, MillerCoors awarded the project to HCL. The parties entered a Work Order pursuant to a previously existing Master Services Agreement. Subsequently, HCL began working on the blueprinting phase of the project.
- In October of 2014, MillerCoors began to question the quality of the blueprinting and the resources HCL had assigned to the project. The parties entered an additional Work Order increasing the cost of the project by approximately $9 million.
- In May 2015, the parties reduce the scope of the project so that certain timelines could be met.
- In November 2015 the first phase of the project went live one month behind schedule. From the Complaint, it appears that the project went live despite over 50 known defects. The Complaint alleges that following the implementation, thousands of additional defects were found.
- In December 2015, MillerCoors and HCL amended the milestone payments to accommodate HCL’s cash flow.
- MillerCoors sends a letter to HCL on March 8, 2016 demanding that the project be fixed.
- On June 18, 2016, MillerCoors terminates the project.
- On March 13, 2017, MillerCoors files a breach of contract lawsuit in the Northern District of Illinois, represented by George Spatz and Amy Gilbert of McGuire Woods.
As with any ERP software lawsuit, there are lessons to be learned and practices to put in place that can minimize the risk of both an ERP implementation failure and a failed ERP software implementation lawsuit.
Lesson 1: ERP Failures Are Usually Failures Of Process––Not Technology. While HCL details numerous allegations in its Complaint, and identifies “defects,” none of the allegations are directed at MillerCoors’ ERP software vendor, SAP. Instead, MillerCoors alleges that HCL:
- Repeatedly failed to meet the project deadlines it had agreed to;
- Delivered a defective software solution;
- Delivered a software solution that failed to meet basic performance requirements;
- Delivered a software solution that failed to meet basic industry standards;
- Failed to provide leadership on the project and adhere to its program management obligations; and
- Failed to staff the project appropriately.
The lion’s share of MillerCoors’ allegations deal with the failure of HCL to deliver services. While there are some allegations related to defects in the SAP software, these allegations appear to be primarily about the alleged failure by HCL to provide services in accordance with project requirements and project management methodologies.
Most ERP software deals include at least a consulting services agreement and a software license agreement. Certainly, the software licensing contract needs to drafted carefully and all issues considered, but special attention needs to be paid to the contracts governing the ERP software implementation. Statements of work, work orders and change orders all need to be carefully drafted to increase the likelihood of a successful ERP implementation.
Lesson 2: Negotiate Project Specific Contracts. The MillerCoors Complaint raises more questions than it answers. As the lawsuit progresses, greater clarity will emerge. At this point, it appears that MillerCoors had a pre-existing relationship with HCL and used an already existing Master Services Agreement to govern the implementation. Oddly, MillerCoors’ attorney did not attach a copy of the contract to the Complaint. Generally, if you are suing under a breach of contract theory, it is helpful to attach a copy of the contract as an exhibit to the complaint.
Because the contract and associated work orders are not provided, it is difficult to know the scope of the Master Services Agreement. Based on our reading of the Complaint, however, we do know that MillerCoors drafted and amended a series of work orders for various phases of the project. Drafting and negotiating project specific contracts, statements of use and work orders for each phase of a project is critical. Most software deals contain at least a contract for the licensing of the software and a contract for the implementation. Sometimes, one contract covers both. The terms and conditions applicable to licensing and implementation are different and should be negotiated separately. Work orders, statements of work and change orders governing specific phases of the implementation should be drafted and attached/incorporated as part of the implementation contract.
Lesson 3: Use A Lawyer When Drafting And Reviewing Implementation Contracts. Simply because you may have previously put in place a master services agreement that governs the provision of software consulting services doesn’t minimize the importance of project governance documents like statements of work and work orders. While these types of documents contain less legalese than the underlying contracts, an attorney should prepare them and negotiate them
Based on the Complaint, MillerCoors put in place project specific work orders, renegotiated work orders and put additional work orders in place. MillerCoors even went so far as to include onerous language in Work Order 1-1 in what appears to be an attempt to shift responsibility to HCL in preparation for a possible lawsuit.
The language in MillerCoors’ Work Order 1-1 is so incredibly one-sided it seems unlikely that HCL’s legal department reviewed and revised the language. This type of over-reaching and one sided language is exactly the type of language one should avoid and is the type of language that may make defending the lawsuit more difficult for HCL.
Lesson 4: Include The Right Language In Your Project Governance Documents. While MillerCoors correctly utilized work orders that included milestone deadlines, it does not appear that MillerCoors utilized contract language that:
- Allowed it to accept or reject deliverables;
- Included user acceptance testing criteria;
- Obligated HCL to remedy allegedly defective deliverables;
- Provided incentives for on-time delivery; and
- Punished HCL for missing deadline or providing deliverables with missing functionality.
This type of language is critical to include in your ERP implementation contracts. It tends to reduce the risk of a lawsuit because it forces the ERP vendor to provide conforming deliverables at every step of the project or rework the deliverable or provide a refund.
This case is at its earliest stages. HCL as not yet been formally sued and an initial status hearing before Judge Amy J. St. Eve is set for April 24, 2017. As more information becomes available we will post additional insights that may be helpful in avoiding an ERP software implementation lawsuit. MillerCoors is represented by attorneys George Spatz and Amy Gilbert. HCL has not yet retained counsel.