What This Article Covers
- What is Puffery?
- What is the Interpretation of Such Language used by Consulting Companies to Gain Projects by the Court in terms of its Meaning and Enforceability?
- How Should Companies Interpret Statements of Commitment or Skill Level from Consulting Company RFPs?
- What Could have Helped Marin County Protect itself from Deloitte?
Background on the Deloitte / SAP Case
As a visitor to this site will notice, a number of recent articles have focused on the Marin County versus Deloitte and SAP case. This case is interesting from a number of perspectives, and one of them being how court’s interpret the meaning of the fuzzy but overarching promises of competence, experience and special attention that Deloitte would give to the Marin County SAP implementation.
The Court Documents
This quotation is from the court documents:
Marin alleges that Deloitte and SAP committed mail fraud by inducing the County to enter into the ISA and the SAP software license agreement (“SLA”), by making fraudulent representations in Deloitte’s June 7, 2004 Response to the County’s Request for Proposal and Response to the County’s Request for Clarification. AC ¶ 220(a). Marin identifies the following fraudulent representations made in the RFP response: that Deloitte is “uniquely qualified”; has “deep experience”; has “assembled a highly skilled and experienced” team; has “experienced consultants”; has a “seasoned team”; has a “breadth” of capability and “unmatched” understanding of the County’s needs; has ‘commitment to dedicate our best resources”; has “deep bench strength”; has an “experienced team that has worked together before”; has “solid” references from every one of its North American installation clients; has great “strength” in integration of “all aspects of ERP implementations”; will “draw upon the experience of a full range of public sector specialists”; is “absolutely committed to the success of this project”; and that Deloitte and SAP have a “winning solution, a proven implementation approach, and the strong project team needed to meet” the County’s requirements. AC ¶¶ 56(a)-(n).
That is what Deloitte said it was going to do. Here is what Marin County says they actually did.
In its legal filings, Marin County claims that Deloitte botched the implementation project because it “was utterly incapable of providing the County with the necessary expert advice, guidance or leadership”. Marin further alleges that Deloitte had “staffed the project with dozens of neophyte consultants, many of whom lacked even a basic understanding of SAP”
Obviously, that is quite a discrepancy. According to Marin County, they not only did not have a few of the things they promised in the RFP, but all of them. This weakness in the team, their work product, organization and so on, is a good reason they may have need to allegedly bribe the individual responsible for approving the funding and signing off on the work (described in this post).
Because of this discrepancy, Marin County has alleged fraud. However, are they fraud according to the court?
The Court finds that the representations are highly subjective, generalized statements of the superiority of Deloitte’s qualifications made in a sales context. As such, they are “puffery” and not quantifiable, actionable misstatements that can form the basis of a mail fraud claim. As the Ninth Circuit explained in Cook, Perkiss & Liehe, Inc. v. Northern California Collection Service, Inc., 911 F.2d 242 (9th Cir. 1990), puffery or puffing has been recognized as vague, exaggerated, generalized or highly subjective statements regarding a product or business which do not make specific claims.
So, therefore, they are not fraud according to the court. Furthermore, the court states (The US District Court for the Northern District of California) that Marin County had other things to base their decision on aside from this puffery.
What This Means for Present and Future Clients
It means that any statement in RFP or other documentation submitted by not only Deloitte but other large consulting firms essentially is not enforceable and therefore has no meaning. Thus, these types of statements should be treated as such by those evaluating RFPs from consulting companies.
However, upon reviewing the specific statements from Deloitte, there are some reasons not to believe them. I will go over each as a person who has worked for a number of consulting companies and had to work with consulting companies as and independent consultant. For this reason, I have included the Deloitte “puffery” comment, and then a translation.
Deloitte is “uniquely qualified”;
Deloitte is not uniquely qualified. Deloitte offers the same generic implementation services as Accenture, IBM, etc… Deloitte has a large public service division, but other consulting companies also have public service division. Does this make Deloitte unique?
has “deep experience”;
Some consultants at Deloitte have a lot of experience. Others don’t. If you work for a while you become experienced. Also, it does not follow that deeply experienced consultants will be assigned to your project.
has “assembled a highly skilled and experienced” team;
This is a total fabrication. Project teams are not assembled before projects are sold. Teams are assembled after the work is sold. If it were the case that teams were assembled before a sale were known, Deloitte would have to assemble many teams and have many consultants on the bench, which they would not want.
has “experienced consultants”; has a “seasoned team”; has a “breadth” of capability and “unmatched” understanding of the County’s needs;
This is highly doubtful. If resumes were compared between Deloitte and IBM and Accenture or other large consulting firms, they would all look similar. Individuals move between the large companies freely, and again none are unique.
has ‘commitment to dedicate our best resources”; has “deep bench strength”;
How can Deloitte claim this? If Deloitte’s best resources are dedicated to other projects, they will stay on those projects. They will not be pulled from and existing project to satisfy Marin County. Why? Was Marin County offering better rates. Also, where would that leave other clients? Logically speaking, Deloitte would have to add that if another project sold requiring the top resources from the Marin Project, Deloitte would pull the resources from the Marin Project and move them to a new project.
has an “experienced team that has worked together before”; has “solid” references from every one of its North American installation clients;
Deloitte does not have solid references from every one of its North American installation clients. This is where I have to disagree with the court and that this statement crosses the line from puffery and exaggeration into a lie. Many clients I have personally worked with are very unhappy with Deloitte’s work, and would not give them a reference unless you held a gun to their head. A number of have sued Deloitte to recover damages, and are also not in a reference giving frame of mind.
has great “strength” in integration of “all aspects of ERP implementations”; will “draw upon the experience of a full range of public sector specialists”; is “absolutely committed to the success of this project”;
This section goes off into left field a bit. In terms of being committed to the success of the project, I am not sure what that means. If the project goes south, what specific things would Deloitte do if they are so committed? Are they offering free work to fix problems? Probably not. This hyperbole, ridiculous in light of Deloitte’s behavior at Marin County and other clients, gets away from the main point. Deloitte is there to bill Marin County to provide services. Statements about undying love or absolute commitment may be better saved for Hallmark Cards. In fact that is how over the top Deloitte’s puffery is that it sounds much like a greeting card.
and that Deloitte and SAP have a “winning solution, a proven implementation approach, and the strong project team needed to meet” the County’s requirements.
Deloitte’s implementation approach is not proven. Who has independently verified it or proved it? I have seen several of their implementation approach documents and was completely nonplussed. I noticed several parts of it is actually directed around pulling as many billing hours as possible from the account. So, I am not sure I would call it purely an implementation approach. It is more of a hybrid implementation/billing maximization approach. All of the implementation steps can be found in books on the topic. I will leave the winning solution statement alone, as it speaks for itself.
Does Deloitte Have an Unlimited Talent Base?
The problem with Deloitte’s statements is that they imply an unlimited reservoir of talent. As I stated, much of their talent is committed to existing clients. New projects are staffed by what the assigned partner can find available or can hire permanent or as a contractor. Marin County makes the point in their lawsuit that Deloitte lacked the resources with the knowledge of SAP to make the project a success. However, the idea that Deloitte will always have the talent for a new project assumes that they would say “no” to work if they lacked the human resources. However, Deloitte would never do this. Here is why.
Why Consulting Companies Do Not Say “No” To Work
Every consulting company is filled with frustrated senior managers and new partners who do not yet have an account of their own. To stay a partner in a consulting company, you need to have a billable structure underneath you, billing to a client or several clients. This means you must have clients that are “yours.” Every new client is essentially a niche for a new partner or senior manager (to become partner) to support their salary. So every new project the firm lands is essentially a promotion and the partner managing the account, and more income for the senior partners that receive their cut. The major consulting companies are a tiered income transfer scheme. Clients pay more for a partner when the partner bills hours to the account. However, when it comes to paying out salary, a subsidy is given to the partners, moving money from the lower tiers to the upper tiers. This is covered in the post.
Therefore, because of the compensation design, and the extreme motivation of the partners in all the major consulting companies (not only Deloitte) there is a strong incentive to exaggerate capabilities and to say whatever is necessary to get the project. That seems to be what happened at Marin County. The leadership over the project at Marin County must have been highly angered when years after the fact, and millions of fees, they discover that Deloitte had done.
The Marin County case shows that the general statements regarding how “fantastic” and “unique” the consulting company says that it is, are legally meaningless. Deloitte, and others, according to this court’s opinion have the right to claim any capability and then drop off whatever resources they like, regardless of their skill level, and they cannot be sued for this. Since they cannot be sued for this, we can expect all of the major consulting companies to have this type of puffery in their RFPs. Clearly, the best approach is to ignore it.
One thing that hurt Marin County, is that they did not have people inside who were qualified to ascertain the skill level of the Deloitte consultants that were brought to the project. True, Deloitte allegedly offered the project auditor a significant pay increase and a job offer, which that project controller took, inside of Marin County to sign off on the budget. However, Marin County could have averted what happened by employing a few independent consultants to evaluate the work done by Deloitte along the way. This could have allowed Deloitte to be removed from the project earlier in the process, recovering the project, and preventing the necessity for such an expensive lawsuit.
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