PeopleSoft Sued for 'Faulty' ERP Rollout

The state of Ohio is suing software maker PeopleSoft, seeking up to US$510 million in damages and costs because of what it calls a faulty installation of the company's enterprise resource planning (ERP) applications at Cleveland State University.

The lawsuit charges PeopleSoft with breach of contract and negligent misrepresentation, among other counts, and claims PeopleSoft's solutions for managing student applications amounted to little more than "vaporware."

Also named in the suit is Kaludis Consulting Group, which helped the university select and implement the PeopleSoft applications.

Bugs in the System

PeopleSoft did not return calls seeking comment. Meanwhile, the university said it could not discuss details of the case because doing so could impact pending litigation.

The case underscores the inherent difficulty of installing massive software applications on existing computer systems, particularly in cases where an extensive legacy system is in place and thousands of different users are involved, according to Gartner (NYSE: IT) analyst Betsy Burton.

"Depending upon the system and the users, it can take years before it's running completely smoothly," Burton told CRM Buyer.

Burton also noted that lawsuits like the one filed by Cleveland State are rare because vendors would rather do what it takes to make the situation right than face potential public-relations damage from a high-profile legal battle.

"If a customer isn't happy and has legitimate reasons, a vendor might offer refunds or build workarounds -- whatever it takes to set things right," she said. "For it to get to the point of a lawsuit shows a lot of frustration on the part of the customer."

Fixes Aplenty

In its lawsuit, Cleveland State, which was among the first major colleges to adopt PeopleSoft's student administration applications in the late 1990s, alleges the software has proven faulty from the outset and has required "hundreds of fixes" over the years to make PeopleSoft programs run on the university's IBM (NYSE: IBM) mainframe.

The software was intended to make it easier to manage student applications, transfer requests, financial aid forms and grade records.

The university claims it lost some $5 million in revenue, which it could not collect because the system did not allow it to accurately track and collect bills as they came due. Additionally, it claims it was forced to buy a second mainframe -- a Sun Solaris server running an Oracle (Nasdaq: ORCL) database.

Rare Occurrence

As Burton suggested, vendors' willingness to make things right has cut down on the number of such lawsuits, although they still occur occasionally. PeopleSoft was last targeted by W.L. Gore & Associates, the maker of Gore-Tex outerwear, which also sued consultancy Deloitte & Touche over a large-scale payroll automation system.

Burton said that among software rollouts, ERP installations are the most likely to cause widespread problems because they are intended to encompass, automate and centralize nearly all functions within an enterprise -- from bookkeeping and accounting to planning.

"Enterprises often underestimate the amount of disruption that can occur," Burton added.