Waste Management Sues SAP for Alleged Fraud and Breach of Contract Waste Management, Inc. (WMI) is a provider of integrated waste and environmental services in North America. Through its subsidiaries, it provides collection, transfer, recycling, disposal, and waste-to-energy services. WMI is headquartered in Houston, Texas, and employs over 47,000 people, with a recent annual income of $1 billion based on revenue of $14 billion. The firm’s 20 million customers include commercial, industrial, municipal, and residential customers; other waste management companies; electric utilities; and governmental entities. In December 2005, WMI signed a fixed-fee contract with SAP to transition to a my SAP Business Suite software environment for its order-to-cash process, which includes customer billing, collections, pricing, and customer setup. SAP promised to deliver this system by December 31, 2007. The project goal was to streamline WMI’s customer care and billing functions to raise revenue, increase customer satisfaction, and become more competitive. On March 20, 2008, WMI filed suit in U.S. District Court in Texas. The suit alleged that SAP committed fraudulent inducement, fraud, negligent misrepresentation, and breach of contract by getting WMI to purchase untested software not able to handle the complexities of its business.34 WMI seeks compensatory and punitive damages. WMI alleges that SAP assured WMI that its software was mature and represented the industry standard software for the waste industry. WMI alleges that SAP assured the company that my SAP would operate in “the considerably more complex competitive environment” of open pricing for U.S. waste hauling—much different from the government-controlled pricing system in Europe, where SAP software was implemented at dozens of waste and recycling customers—and would not require special customization to meet WMI’s needs.³⁵ WMI had grown largely through the acquisition of smaller waste-hauling companies—each with its own information systems and business processes. As a result, the firm had a lot of legacy systems that were not well integrated. The promise that SAP could tie together all these disparate systems and processes, with no customization to the standard SAP software, to create an efficient order-to-cash process was enticing. WMI also alleges that it discovered that presale demonstrations of the SAP software were of “fake, mock-up simulations” of software with “false functionality.” 36 When WMI conducted an initial pilot of the actual SAP software at a WMI site in New Mexico (unfortunately for WMI, this was after the contract was signed), WMI was dismayed to find that the software “was unable to run [our] most basic revenue management operation.” ³⁷ WMI further alleges that SAP wrote tens of thousands of lines of code in a fruitless attempt to address the issues. The pilot was originally scheduled to be completed in December 2006 but was still not complete as of March 2008. SAP recommended a new development project to provide the functionality needed by WMI. SAP felt that it could finish this new project in 2010 but “without any assurance of success.” ³⁸ WMI was not warm to this idea, as it would require the company to “once again act as SAP’s guinea pig by agreeing to convert what was supposed to be an 18-month-out-of-the-box implementation into an even more expensive, longer, and highly risky software development project.^{” 39} SAP attorneys filed a counterclaim to the WMI lawsuit asserting the vendor’s innocence. SAP alleged that WMI violated the deal’s contract by “failing to timely and accurately define its business requirements; [not providing] sufficient, knowledgeable, decision-empowered users and managers” to complete necessary work on the project; and not successfully migrating data from legacy systems.⁴⁰ SAP is seeking millions in maintenance and service fees for the software as well as unspecified compensatory damages. Meanwhile, the attorneys for both parties are earning their pay. SAP has requested the court delay the proceedings until early 2010 due to the complexity of the case. The firm has also subpoenaed Deloitte Consulting, which served as the system integrator for the project. Waste Management claims that “SAP has sought to delay the case at every turn,” and that the trial should begin in April 2009.⁴¹ Both sides are complaining that the other side is providing volumes of meaningless paperwork in the discovery process—WMI has provided nearly 1 million pages of documents, including customer invoices, office building sign-in sheets, and customer addresses, which do not relate specifically to the matter at hand. Meanwhile, SAP has provided over 300,000 pages of documents.⁴² According to Ray Wang at Forrester Research, “large scale implementations are complicated affairs that require alignment among the system integrator, vendor, and client for success. It’s a three-legged stool and lawsuits are typically the last resort when any one party faces irreconcilable differences.^{” 43}

Discussion Questions

1. What actions should WMI have taken to lessen the risk of this project and avoid these problems?

2. What sort of losses has WMI incurred from the delay of this project? How has the lack of success on this project affected SAP?

3. Do research on the Web to find out the current status of the lawsuits between WMI and SAP. Write a brief report summarizing your findings.