Waste Management sues SAP over ERP implementation

Waste Management alleges that SAP execs' fraudulent sales scheme has cost the trash-disposal giant more than $100 million

The trash-disposal giant Waste Management is suing SAP, saying top SAP executives participated in a fraudulent sales scheme that resulted in a failed ERP (enterprise resource planning) implementation.

Waste Management said it is seeking recovery of more than $100 million in project expenses as well as "the savings and benefits that the SAP software was promised to deliver to Waste Management."

An SAP spokesman said Thursday that "as a matter of policy SAP does not comment on ongoing litigation."

In 2005, Waste Management was looking for a new revenue management system, according to a company statement. "SAP proposed its Waste and Recycling product and claimed it was a tested, working solution that had been developed with the needs of Waste Management in mind," the Waste Management statement reads in part.

SAP promised that the software could be fully implemented throughout all of Waste Management within 18 months, according to the statement.

"From the beginning, SAP assured Waste Management that its software was an 'out-of-the-box' solution that would meet Waste Management's needs without any customization or enhancements," the statement reads. "Unfortunately, Waste Management ultimately learned that these representations were not true."

Waste Management said product demonstrations by SAP prior to the deal employed "'fake software environments, even though these demonstrations were represented to be the actual software."

Waste Management's original complaint, filed in Harris County, Texas district court, said senior SAP executives, including SAP Americas' president and CEO, Bill McDermott, participated in the "rigged and manipulated" demos.

The company filed suit against SAP Americas and SAP AG on March 20 after "months of discussions with SAP and a recent consensual, three-day mediation that SAP ended after day two," according to the statement.

The action followed a lengthy initial courtship and falling out between the companies, detailed at length in Waste Management's court filing.

SAP officials held meetings with the company throughout the summer and fall of 2005, according to the complaint. Shai Agassi, a former executive board member, was among the SAP executives present at one meeting on June 17, 2005, in Walldorf, Germany, according to the complaint.

"At that meeting, SAP AG executives and engineers represented that the software was a mature solution and conducted a demonstration consisting of what they represented was the actual SAP Waste and Recycling software," the complaint states. The company later discovered that the software was a "mock-up version of that software intended to deceive Waste Management," according to the complaint. SAP has admitted to this in "internal documents," the complaint states.

SAP also demonstrated the "fake software" at subsequent sales presentations, according to the complaint.

Waste Management ultimately signed a sales pact with SAP on Oct. 3, 2005, according to the court filing.

"Almost immediately following execution of the agreements, the SAP implementation team discovered significant 'gaps' between the software's functionality and Waste Management's business requirements," it states.

"Waste Management has discovered that these gaps were already known to the product development team in Germany even before the SLA was signed. Instead of admitting what it knew at the time -- that the software lacked basic functionality to run Waste Management's business -- SAP undertook an elaborate fraud to perpetuate the original fraud and to recover additional money from Waste Management."

Members of SAP's implementation team blamed Waste Management for the functional gaps and submitted change orders requiring that Waste Management pay for fixing them, according to the complaint.

In addition, the complaint alleges, SAP originally promised that a pilot phase in New Mexico would be up and running by Dec. 15, 2006, "but it is not even close to being completed today."

Eventually, SAP conducted a "Solutions Review" and by summer 2007 determined the software was not an "enterprise solution" for Waste Management's needs, according to the complaint.

SAP said that if Waste Management wished to have the software implemented on a companywide basis, it would have to "start over" and agree to let SAP build a new version of the product with an updated version of its enterprise application platform, according to the complaint.

"SAP's 2007 proposal is precisely the kind of risky, expensive and time-consuming project that Waste Management rejected from other companies two years earlier," the complaint states. "Indeed, the development project that SAP proposed would drastically lengthen the implementation timetable from the original December 2007 end-date to an end-date sometime in 2010 without any assurance of success."

A Waste Management spokeswoman said the company would have no comment beyond the statement and complaint.

Copyright © 2008 IDG Communications, Inc.