Marin County s legal war against Deloitte Consulting LLP, which it accuses of orchestrating a $30 million computer debacle, has cost more than $2.6 million, and there s no end in sight to the litigation or the expense.
County supervisors this week quietly pumped another $1 million into the battle, and costs easily could double or even triple before a resolution, as officials are convinced they will prevail on behalf of taxpayers.
"Our board is not shrinking from this corporate attempt to bury us in legal costs," said Supervisor Steve Kinsey. "The compelling documentation we ve gathered has bolstered our board s confidence to fight this all the way through trial if necessary."
"Costs and attorneys fees to date are approximately $2.5 million, and the county is prepared to expend the necessary time and costs to pursue the case to final resolution," said County Counsel Patrick Faulkner, adding it could take years to conclude the case. "The county expects the case to continue for a considerable period of time."
The county is locked in a Marin Superior Court fight with Deloitte Consulting LLP, a computer consultant, and seeks $30 million, alleging fraud, misconduct and misrepresentation. A second suit accuses Deloitte of racketeering, seeking treble damages, or potentially $90 million, claiming that the firm, along with software giant SAP and former assistant county auditor Ernest Culver, who headed the ill-fated project for county staff, engaged in a continuing illegal enterprise.
The defendants have denied the accusations, saying they fulfilled their obligations and noting that the county signed off on the project as satisfactorily completed. Culver signed off for the county, then took a job with SAP after informing the county he intended to pursue employment with the firm.
Worker skill an issue
The county faces a tough fight on several fronts, with Deloitte proceeding slowly, fighting every procedural inch of the way, and SAP in court papers calling the county s racketeering claims so ridiculous the lawsuit "spins reality" and "lacks merit and makes no sense, either as a matter of fact, law or commerce."
Court papers filed by Marin accuse Deloitte of obstructionist "delaying tactics," and refusal to hand over critical evidence, such as performance evaluations and information about skills of workers on the Marin project. "For nearly a year, Deloitte has effectively managed to withhold the production of critical internal documents from the county," according to one Marin legal brief.
An email exchange obtained by the county involves a dispatch from Deloitte project manager Mark Seidenfeld to another Deloitte colleague: "The staff situation (at the county is) primarily the result of multiple poor resource decisions by firm management at the highest levels ... resulting in a quantity, not quality approach ... due to a rush to hire, resulting in a declining collective skill set among our consultants ... lack of an adequate staff training and development program, resulting in a poorly skilled workforce."
Former Santa Clara County Superior Court Judge John Herlihy is hearing the Deloitte cases as referee in light of a contract stipulation that rules out a jury trial -- although the county tried to get one on the racketeering charges. The racketeering case against Culver and SAP is being heard in the federal courtroom of Judge Susan Illston, who ruled against Marin and shifted the county s racketeering allegations against Deloitte to Judge Herlihy. But Illston indicated there was enough merit to the racketeering allegation for the litigation to continue.
Aside from denying the allegations, Culver s counsel declined comment. Culver in a 2009 interview called the SAP software a "good procurement" and added at the time that problems were not related to the software. "It s about the difficulty in getting an organization to embrace different ways of doing things," he said.
SAP s lawyer, while denying any wrongdoing, declined any on-the-record comment, and Andy Kendzie of SAP media relations said his firm s filings "speak for themselves."
Deloitte has asserted it did a good job, saying it "complied with all its obligations under the contract and performed well. All our work was approved by the county administrator responsible for the project."
"The lawsuits are proceeding as expected, as the county did not expect a quick resolution," Marin s Faulkner said in careful commentary that skirted specifics in light of the ongoing court fight. "The documentary portion of discovery is continuing, with millions of pages of documents reviewed and produced, and hundreds of pages of written questions asked and answered, with more to come."
At the same time, Judge Illston decision on SAP s bid to throw out its part of the case is expected soon.
The high-stakes legal battle isn t coming cheap. Officials estimate the county has already spent more than $2.5 million, not including county staff time or a new $1 million contract with the New York law firm of Kazowitz, Benson, Torres & Friedman getting routine consent calendar approval last Tuesday. The leave-no-stone-unturned firm already has been paid $2 million for work on the case. In another recent routine contract approval, the county board hired Capsicum Group, Inc. of Philadelphia for $580,000 to provide electronic document reproduction and organization services.
Lack of public discussion of the legal contracts, litigation cost or its status apparently stem from a belief by officials that the county s case should not be aired publicly. Instead, the county board has held closed sessions on the matter.
Breach of security
Oral depositions are expected to begin next year, "including issues related to the downloading of employee personnel information," Faulkner said.
The personnel information issue emerged last month when lawyers disclosed that Culver had retained a "shared" project hard drive containing names, Social Security and related payroll information about county employees. Culver, who was booted as the administrator s computer project manager after problems mounted, quit his $140,000 county auditor job in July 2007 to join SAP as an executive in the Southwest. Among the county s claims is that Culver was "bribed" with lavish meals and job promises.
The county alerted employees about the "breach of security" involving their Social Security numbers earlier this month, saying it did not have any information about whether personal data was used inappropriately. The county is investigating "the scope of the breach" and advised concerned staffers to carefully check their credit records and if necessary place a fraud alert on credit files.
Marin a guinea pig
Essentially, Marin officials claim consultants used the county as a "guinea pig" and employed rookies to work on an untested system, failed to provide proper training and rushed to meet installation deadlines despite problems, in order to obtain fee payments. The result was a "defectively designed, deficiently installed and poorly-functioning SAP system," the county suit says. SAP counters the county "does not and cannot allege that the software was defective," but rather the county contends the software failed to perform because of a "flawed design and implementation process," which was Deloitte s role.
Deloitte, which was paid about $12 million for its work, is seeking another $555,000 it says it is owed in light of an unpaid change order.
County scraps system
The system triggered a cascade of problems from the start, ranging from bobbling the county payroll to an inability to reconcile cash accounts. Some problems have persisted.
County supervisors chose the sophisticated SAP program in 2005 after courting vendors including Oracle and PeopleSoft, as officials sought to bring efficiencies to a bureaucracy that relied on an aging accounting system incapable of in-depth financial oversight. A grand jury probe concluded the botched program cost taxpayers $28.6 million as of April 2009, although some of the expense would have accrued no matter what system the county installed.
After spending more than $30 million on a fancy computer system that never worked well, supervisors concluded the program should be scrapped as soon as a more efficient system is phased in.
County Administrator Matthew Hymel said pulling the plug on the county s computer debacle will cut losses because the county can buy a better and more efficient system for about as much as it would cost to fix and maintain the problematic program installed by Deloitte.
Contact Nels Johnson at email@example.com