ScanSource Sues Avanade, Alleging "Bait-and-Switch"
ERP Install Price Ballooned From $17 Million to Nearly $66 Million and Go-Live
Date Jumped From 11 Months to Three Years and Is Still Not Live
GREENVILLE, S.C., Jan. 2, 2013
GREENVILLE, S.C., Jan. 2, 2013 /PRNewswire/ --Avanade, Inc., a joint venture
between Accenture (NYSE: ACN) and Microsoft (NASDAQ: MSFT), has been sued by
ScanSource, Inc. (NASDAQ: SCSC) for what ScanSource calls a
"bait-and-switch,"after ScanSource saw Avanade's initial estimate for the
installation of enterprise resource planning (ERP) software system Microsoft
Dynamics AX balloon from $17 million to nearly $66 million and from 11 months
to three years, with the ERP system still not live. ScanSource's project is
believed to be one of the largest global enterprise level Microsoft Dynamics
AX implementations to date.
ScanSource contracted with Avanade in 2009 to replace its aging information
technology infrastructure with a new core system that would support
ScanSource's continued global expansion. Avanade's implementation was
originally scheduled to be completed within 11 months.
The lawsuit, which was filed in U.S. District Court in Atlanta, alleges -
among other things - fraud, tortious misrepresentation and breach of contract,
and seeks tens of millions of dollars in damages that ScanSource has incurred
and will continue to incur, as a result of Avanade's misconduct.
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. 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. 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.
According to the lawsuit, "As a result of Avanade's fraud and breaches, an
implementation that was initially budgeted for $17 million has now cost
ScanSource approximately $37 million - and is estimated by Accenture,
Avanade's parent entity, to require an additional $29 million to complete.
This ballooning of the Project cost estimate from $17 million to approximately
$66 million represents an almost 300% price increase for delivery of the
global ERP implementation that is years behind the originally scheduled
initial go live..."
The suit also 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. As a result of this
de-scoping exercise, ScanSource had to retain some of its legacy applications
to perform certain processes that the new Microsoft AX system was supposed to
handle. For other de-scoped functionality, 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."
The lawsuit continues, "At regular intervals throughout the Project, Microsoft
and Accenture performed quality assessments of the Project (the 'QA
Reports'). Both Microsoft and Accenture concluded that the Project was being
mismanaged and made recommendations, including the preparation of an
integrated project plan, to stabilize the Project and get it back on a track
"The Microsoft quality assessment, which focused primarily on software
development, documented hundreds of 'Issues' with the Avanade-developed code.
Many of these problems were characterized as 'Must Fix Issues.' Microsoft
further criticized the manner by which Avanade altered the core Microsoft AX
code, noting that 'even single methods have multiple developers' and that
'[v]ery commonly, base classes, forms and tables have been modified,'
increasing the costs of future upgrades" and maintainability of the system.
"Among other criticisms of the Project, the Accenture quality assessment noted
that the Project could not be completed without additional fees of $22.5 to
$29 million, and resource commitments totaling 11,504 workdays."
"Following receipt of the QA Reports, ScanSource delivered a Notice of Default
to Avanade on May 17, 2012. Despite providing an extended cure period,
Avanade has failed to correct its breaches of the Implementation Agreement.
When it became evident to ScanSource that Avanade had no intention of curing
its defaults, on September 28, 2012, ScanSource provided Avanade with a Notice
of Termination removing Avanade from the Project."
"The Notice of Termination followed repeated failures by Avanade to meet
multiple scheduled and rescheduled go-live dates, and the realization that the
Project -- still without a projected go-live date, and now estimated to cost
at least three times Avanade's original estimate -- could not continue with
Avanade as integrator."
ScanSource has contracted with a new global implementation partner to mitigate
the damages and harm caused from Avanade's misconduct. ScanSource plans on
completing its new Microsoft Dynamics global ERP project. Excluding any
potential recovery from this lawsuit, ScanSource believes that the total spend
for the ERP project could range from $58 million to $72 million and extend
past fiscal year 2013, as stated in its prior 10-Q filing for the period
ending September 30, 2012.
ScanSource is being represented by Mark P. Ressler of Kasowitz, Benson, Torres
& Friedman LLP.
About ScanSource, Inc.
ScanSource, Inc. (NASDAQ: SCSC) is the leading international distributor of
specialty technology products, operating from dedicated business units in
North America, Latin America and Europe. ScanSource POS & Barcoding delivers
AIDC (automatic identification and data capture) and POS (point-of-sale)
solutions; Catalyst Telecom and ScanSource Communications provide voice,
video, data and converged communications equipment; ScanSource Security offers
physical security solutions; and ScanSource Services Group delivers
value-added support programs and services. Founded in 1992, the company ranks
#760 on the Fortune 1000. For more information, call the toll-free sales
telephone number at 800.944.2432 or visit www.scansourceinc.com.
SOURCE ScanSource, Inc.
Contact: Mike Sitrick, +1-310-788-2850, or Wendy Tanaka, +1-415-369-8447,
direct, or +1-415- 369-8470, main, both of Sitrick And Company
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