The Weird Tale of Accenture, Avanade, and ScanSource – A Bait-and-Switch Fraud Lawsuit
Project costs of four times of what was promised.
Time frame multiplied by three.
And the system wasn’t even close to finished yet. Not to mention that it had hundreds of errors and that much of the promised functionality was canceled.
It’s not an exaggeration that Avanade and Accenture delivered a disastrous ERP implementation project to its client ScanSource.
In fact, according to a press release from 2013 ScanSource calls it fraud and they even give details of how Avanade performed a “classic bait-and-switch” fraud.
ScanSource contracted Avanade to implement a Microsoft’s Dynamics AX ERP system in December, 2009, after a 16-month due diligence on ERP systems and implementation consulting firms.
Avanade is owned to 80% by Accenture and relies heavily on Accenture for its business model – it gets 65% of its business subcontracted via Accenture and half of Avanade’s employees are on loan from Accenture.
This project was slightly different: Avanade itself won the project in the US and outsourced the development to Accenture in Hyderabad, India, according to one of the project team members who wishes to be anonymous.
Avanade said it could implement the system in 11 months at a cost of $17 million.
Almost three years after the project launch, the project was far from finished and had already cost $37 million. Accenture estimated that it would cost another $22.5 to 29 million to finish the implementation, which would total up to $66 million (four times the initial price tag).
– Avanade’s CEO, Adam Warby
This is remarkable as the project had a “not-to-exceed” fixed-fee pricing structure.
To Avanade this must have been a huge win, with $37 million in project revenues. In fact, the project received the Delivery Excellence Award at Avanade on March 8, 2012 as seen in this internal email and pdf attachment:
The Team Lead responsible for delivery got promoted to Associate Manager in August 2011. At this point the project was nine months overdue and was less than half finished. He was also later rewarded with an onsite opportunity in the US.
The client, however, decided to sue Avanade with allegations of fraud, tortious misrepresentation and breach of contract and threw Avanade out just six months after Avanade celebrated it as a “delivery excellence”.
“It became apparent to us that we were missing go-live dates that Avanade was putting out there. As more continued to happen for different and various reasons, we began to challenge them more. We said when you sold us this project, you said you were going to deliver within a year with this price tag”, said Mr. John Ellsworth, ScanSource’s general counsel according to technology site CRN.
The result was an incomplete and defectively designed system that suffered from numerous flaws and required extensive remedial work. Avanade’s incompetence was reflected in, among other things, the staggering 500,000 lines of software code it wrote in an attempt to have the Microsoft Dynamics AX platform meet ScanSource’s business requirements.
Accenture and Microsoft conducted quality assessments and both concluded the project was mismanaged.
Microsoft found hundreds of problems in the code of which most were considered serious or as “Must Fix” and pointed out that Avanade had been changing the core code of Dynamix AX. Changing the core code of an ERP system is obviously making maintainability difficult and increasing the costs of future upgrades of the system (Dynamix AX version 2012 was already available before go-live).
Accenture’s assessment concluded it would have taken another 11.500 man days to finish the system. This is equivalent to 30 developers working for two more years (totaling five years for the implementation, not 11 months). ScanSource wisely decided to switch to another consulting firm to do this.
As stated by the project team member interviewed by Exposing Evil Empire:
– Accenture Project Team Member
“Avanade US made sure that there was no interaction between client and offshore (Accenture India). The client never knew that the actual coding was being done by Accenture people.”
He or she continues: “One thing I still can’t figure out is Accenture again being involved in a review and then giving a very negative feedback on its own work.”
“Poor ScanSource people don’t know that they were actually duped by Accenture. Accenture delivered the project, Accenture reviewed it and said it was bad and then the client sued Avanade.”
ScanSource’s project is believed to be one of the most expensive global enterprise level Microsoft Dynamics AX implementations ever, says the lawsuit document.
Why Did Avanade Fail?
How can Avanade and Accenture, whose main business is to do this kind of projects, fail so miserably?
ScanSource’s lawsuit points to two explanations for Avanade’s failure, which can be summarized in one word: fraud.
- Overselling and lies to win the project
The lawsuit alleges that Avanade knew it was not capable of performing the Microsoft AX implementation for ScanSource, and misrepresented its skills and abilities to land the lucrative engagement.
- Bait-and-Switch Fraud on the Consulting Staff
The suit also states that Avanade engaged in “bait-and-switch” sales tactics that defrauded ScanSource into believing that Avanade had, and would assign, highly-skilled consultants to perform the implementation. Instead, as the lawsuit alleges, Avanade provided ScanSource with a revolving door of consultants who knew little or nothing about implementing Microsoft Dynamics AX software or managing large-scale global ERP projects.
As mentioned above, the inexperienced Accenture consultants delivered a low performance with hundreds of serious errors and changed the core of the underlying Dynamix AX system instead of keeping the customization separate from the core system.
The project team member that Exposing Evil Empire spoke to is on the same track as ScanSource regarding the reasons for the failure, stating in his/her own words:
“In my opinion it was a combination of incompetence of both the manager and the resources. The only thing the manager was concerned about was sycophancy (brownnosing). He did not care about delivery or quality. He made sure the project was staffed with only such people.”
The Team Lead had less than 5 years total working experience when assuming the project management and had been promoted to “Team Lead” only four months before the beginning of the ScanSource project, judging from his LinkedIn Profile. This means that most likely it was his first project as a manager and he had responsibility for one to two dozens of people.
Blaming Each Other
The inside project member also gives some perspective on the blame game between Avanade and Accenture:
“The project manager was the one who planned and reviewed everything. He always preferred ‘papering on the cracks’ and blaming onshore people for not providing enough clarity rather than making an effort. He made sure he never did anything by email. He would always come to your desk and tell you what to do. Pretty smart to avoid any chance for the other person to make any allegations.”
“The entire Dynamix AX Service Line in India was informed that it was Onshore’s (Avanade) inability to translate the requirements correctly that lead to the disaster and Onshore said that the Offshore (Accenture) did not estimate the project correctly.”
“There was a great deal of effort to suppress the news of the lawsuit and Accenture’s Service Line Lead asked all the resources who received a Hold Notice to not reveal the situation to anyone outside the project.”
A Hold Notice means that Accenture issues an email to all people in such projects to hold all email communication related to the project for legal reasons.
“As usual the details were given in a closed room without any email trail.”
“I didn’t understand the extent of the problem then, but later understood the entire picture of the management in India trying to save the Team Lead in every way possible.”
The project insider is amazed of the inability that caused such a huge loss to a client and that the management of the organization helped the Team Lead to thrive even after such a disaster.
Well, with $20 million in additional revenues for Avanade and Accenture, compared to the initial quote, surely they would let him thrive. After all, Accenture and Avanade bills by the hour so a failure for the client is a win for the consulting firm.
The Bait and Switch Tactics
The lawsuit states: “Avanade’s inability to accurately estimate the effort required for the implementation caused ScanSource to de-scope some of its Minimum Business Requirements in an attempt to reduce the Project’s escalating cost and keep the scheduled go-live dates intact. ScanSource was required to write its own applications to fill the gaps.”
“By forcing ScanSource to de-scope functionality, Avanade performed a classic bait-and-switch on ScanSource. Specifically, after being engaged on the Project for only a few months, Avanade drastically increased its fees estimate, thereby forcing ScanSource to make the following choice:
- either pay substantially more for functionality that Avanade was supposed to deliver as part of the initial quote, or
- forego that functionality to reduce a ballooning budget far in excess of what Avanade had represented and agreed to.”
This is in sharp contrast to what was said during the sales period.
Avanade had promised the client that there would be “no surprises” on the Project because Avanade “tightly manages scope, budget and expectations on all Avanade managed projects and religiously follow[s] our delivery methodology to provide tight control, transparency with our customers and a frequent and proactive communication plan.” This could not be further from the truth, says ScanSource.
Avanade’s CEO, Adam Warby, even got involved during the sales process and assured ScanSource’s CEO, Mike Baur, that a decision to select Avanade as the Project integrator was the right one. When Baur pressed him, Warby assured him that Avanade had the necessary skills and experience to deliver the turn-key solution, representing that the “best team” would be assigned, and that “we won’t let ScanSource fail.”
The “best team” apparently included an inexperienced Team Lead on his first management assignment.
Avanade’s View on the Project Disaster
Avanade does not comment on pending litigation, according to a company spokeswoman, who added “We can tell you that we believe the allegations are without merit. We intend to defend our position.”
Neither Accenture nor Microsoft are included as defendants in the lawsuit, most likely because the contract was with Avanade.
The project failed because when it is charged by the day, a failure to the client is a huge win to Accenture and Avanade. This is reflected in a fraudulent proposal that promised competence and speed, and a project that milked the client.
Both Accenture and Avanade are responsible for the disaster. Technical errors in the code and low quality are on Accenture. Avanade is accountable for the fraud and for horrendous client relation management. Both firms most likely dragged the project out as long as they could.
While project members perhaps only see the failures of their Team Lead, a project of this magnitude has plenty of project sponsors and observers in the executive ranks of Accenture and Avanade. All these executives know of the delays and how much money the delays bring in to their organizations. It is profitable to turn a blind eye and even encourage milking the client. From the lawsuit we can see that the CEO of Avanade and at least six other high-ranking Executives were involved in this project.
The aggressive culture and the office politics that are played at Accenture and that Exposing Evil Empire has covered many times before is the most likely reason why this failure turned out in such a weird way where Accenture blamed its own subsidiary for the failure and got them sued.
As Avanade assumes the costs of the lawsuit, only 80% of those costs affect the bottom line of Accenture as it owns 80% of Avanade. 20% of the costs are indirectly assumed by the other owners of Avanade, most notably Microsoft.
This “20% discount” effect is good for Accenture, however it is not the reason that Accenture blamed Avanade and got its own subsidiary sued. The client had no contract with Accenture and thus had to sue Avanade.
Still, it would surely be better for Accenture and Avanade to not be sued at all. So how come they end up in this situation?
It is simple math. If you oversell your projects and then milk the clients for up to four times the initial price estimates, then you will still be immensely profitable even if you get sued by a few of your clients.
The lesson learned for clients is certainly to not trust Accenture’s and Avanade’s proposals. Either be very sure of the work required (which you can never be sure of) or demand a fixed price and enforce it.
|Facts of this Failure|
|Accenture Office:||Accenture Hyderabad Delivery Center|
|Project Type:||ERP Installation|
|Timeline:||Project started in January, 2010|
Client terminated contract in Sept, 2012
Lawsuit filed in January, 2013
- ScanSource’s Press Release: ScanSource Sues Avanade
- The Lawsuit Document
- CRN: ScanSource Sues Avanade For Alleged Botched ERP Project
- LinkedIn profile of Team Lead (not revealed to protect his identity.)
- Interview with project team member at Accenture India