Oracle and its partners KBACE Technologies and Cognizant were sued in January 2019 by Barrett Business Services, Inc. (“BBSI”) in San Francisco Superior Court, for fraud, negligent misrepresentation and breach of contract arising out of one of Oracle’s Cloud Service offerings.
BBSI (NASDAQ: BBSI) is a so-called professional employer organization ("PEO") in the business of establishing "co-employment" relationships with small and medium-sized companies. It assumes responsibility for their payroll, payroll taxes, workers' compensation coverage, employee benefits and other human resources functions. The clients retain responsibility for day-to-day operations and employee management.
BBSI bills its PEO services as a percentage of client payroll at the end of each payroll processing cycle. The gross amount, including direct payroll costs, employer payroll related taxes, workers' compensation coverage (if provided) and a service fee, is invoiced.
In 2017 BBSI supported in excess of 5,600 PEO clients with approximately 110,000 worksite employees located in twenty-four states through a network of sixty branch locations in different states of the US.
In 2019 BBSI had net revenues of $942.3 million and gross billings of $5.97 billion.
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Timeline of Events
According to BBSI it all went down like this.
Early 2017
BBSI utilized a combination of commercial and custom applications to manage its human resources, payroll and financial functions. BBSI believed that its legacy systems needed upgrading to improve scalability and stability, decrease reliance on manual 5processes, streamline its operations, increase efficiency and ensure that its user experience keep pace with its business objectives.
Thus, BBSI made the decision to upgrade to an Enterprise Resource Planning ["ERP"I Systems Integration Service. Galen Weaver ("Weaver"), BBSI's Director of Information Technology, undertook this task.
To this end, Weaver prepared a comprehensive and highly specialized list of human resources and payroll requirements mandated by BBSI's operations. Unlike other companies, BBSI did not have one payroll, with one tax identification number. Instead, it handled thousands of payrolls for thousands of employees in multiple companies across different states with varying state payroll tax requirements. Importantly, unlike most other companies, these payrolls were also BBSI's mechanism for generating revenue.
Among other things, BBSI's list of key functionality requirements included but were not limited to:
> Application Program Interfaces ("API") that would allow seamless integrations with its other key business systems for importing benefits, time and labor, absence and payroll data on a daily basis (like TimeNet, TimeClock and Bullhorn, Swipe, Busy Busy, etc);
> Ability to calculate certified payroll;
> Ability to file local taxes under BBSI's Employer Identification Number ("EIN") and not the customer's state EIN;
> A time entry grid-style screen with a customizable lay-out that shows all customer employees;
> A user interface for customers with a single uniform log-in point;
> A single screen that brings together all the various items that have to be created or managed for the clients;
> Ability to show multiple work relationships for employee self-service;
> Ability to allow clients to process payroll through a simplified professional user screen;
> Ability to enter time as a grid for a specific client's department, division, worksite location or project;
> Ability to include both positive and negative wages, deductions, hours within an employee's timesheet entry and many other requirements.
Weaver distributed this requirements list to several companies to determine if they had a compatible product, service or solution and interviewed thirty of the industry leaders in software technology.
June 2017
Among the several companies interviewed by Weaver was Oracle. Weaver conveyed BBSI's list of specific requirements to Oracle and on June 30, 2017, participated in a conference call with an Applications Sales Manager and a HCM Applications Sales Manager from Oracle.
After Weaver went over the requirements list and sought to carefully explain the uniqueness and complexity of BBSI's situation and unique needs as a PEO, the Oracle team represented to Weaver that their HCM Cloud system could and would be the best fit to provide BBSI with an integrated human resources and payroll system that would ensure satisfaction of its requirements. Oracle never presented BBSI with any other options.
July 2017
Because of these representations, BBSI invited Oracle to present an onsite demonstration on July 20, 2017 at BBSI's offices in Vancouver, Washington.
During that demonstration, Oracle informed BBSI that Oracle would have to be implemented by KBACE, Oracle's No.1 HCM Cloud implementer. KBACE is part of Cognizant, the 15 Billion IT service provider giant.
Oracle represented to BBSI that KBACE was a consulting and technology services company that specialized in cloud strategy, implementation and integration, which was certified and experienced in Oracle's HCM Cloud product implementation.
Oracle told BBSI that KBACE could successfully implement the HCM Cloud to fulfill all of BBSI's complicated human resource and payroll requirements.
August 2017
August 3, 2017 there was a conference call attended by Weaver of BBSI; several representatives from Oracle and several KBACE representatives.
Oracle and KBACE again told BBSI that KBACE was Oracle's No.1 HCM Cloud implementer, that KBACE had done in excess of 300 HCM Cloud implementations, had knowledge of the special requirements of PEOs like BBSI and was, in fact, currently deploying a PEO implementation for another company. Oracle never mentioned or recommended any other implementer.
Because of Oracle's and KBACE's representations, BBSI began considering the HCM Cloud product in earnest. BBSI had several hours-long in-person meetings and telephonic conferences with Oracle and KBACE.
At each of these meetings, BBSI took great pains to educate Oracle and KBACE as to the precise nature of its business operations, its peculiar needs and the business functions that informed BBSI's extensive list of requirements.
In meticulously discussing its list of requirements with both Oracle and KBACE, BBSI underscored its need for ease and efficiency of user interface and processes relating to payroll, time entry, billing and taxes given its human resource and payroll management challenges and the fact that payroll was also its revenue source. At all of BBSI's discussions with Oracle and KBACE, BBSI's list of requirements remained unchanged.
At all of BBSI's discussions with Oracle and KBACE, BBSI's representatives also made clear that they were ignorant as to Oracle's HCM Cloud system or any other Oracle products or how they performed and were relying wholly on Oracle and KBACE to advise them as to the suitability and capabilities of the product or system vis-å-vis BBSI's requirements.
The Oracle and KBACE representatives assured BBSI that Oracle's HCM Cloud system could handle BBSI's PEO requirements, which would be implemented by KBACE quickly and efficiently.
September 2017
On September 6, 2017, Oracle and KBACE were at BBSI headquarters to do an Oracle Cloud Roadmap Presentation. Multiple Oracle, KBACE and BBSI representatives were in attendance. During the presentation KBACE affirmed that they could configure Oracle's HCM Cloud to comply with BBSI's human resources and payroll requirements.
At the same meeting, KBACE also claimed extensive knowledge of payroll systems, and an understanding of the complexity of BBSI's PEO payroll needs.
December 2017
Finally, on December 5, 2017, after seven months of performing what BBSI
believed was Oracle and KBACE's due diligence, and with Oracle's apparent knowledge, involvement and consent, KBACE presented BBSI with a HCM Cloud implementation package according to BBSI's requirements at an estimated cost range of $5,410,000 to $5,950,000.
KBACE's "project overview" slide reflected an Accounts Payable/General Ledger ("AP/GL") "go live" date of July 29, 2018 and a "pilot population" and Accounts Receivable/Platform as a Service ("AR/PAAS") "go live" date of January 7, 2019.
What Went Wrong
Missing key functionalities
According to BBSI, soon after the implementation process was underway, KBACE began identifying significant and critical gaps in the functionality of the HCM Cloud product relative to BBSI's expressed requirements which were not previously disclosed to BBSI.
The HCM Cloud, among many other failings:
> Did not have sufficient APIs to allow for seamless 8integrations with BBSI's other key business systems;
> Required custom reports to be created to calculate certified payroll;
> Did not have the ability to file local taxes under BBSI's EIN;
> Did not have a grid-style screen for rapid time entry by either the customer or BBSI;
> Did not have a user interface for customers with a single uniform log-in point;
> Did not have a single screen that brings together all the various items that have to be created or managed for the clients;
> Did not have the ability to manage shared employees;
> Did not allow clients to process payroll through a simplified professional user screen;
> Did not have the ability to enter time as a grid for a specific client's department, division, worksite location or project;
> Did not have the ability to include both positive and negative wages, deductions, hours within an employee's timesheet entry; and
> Did not include Oracle's Time and Labor application thereby precluding BBSI from performing necessary automated record keeping of worker time and attendance.
BBSI received no notice of the existence or extent of these deficiencies prior to contracting.
BBSI had been under the impression that in recommending the HCM Cloud to BBSI and in the seven months before providing BBSI with implementation cost and duration assessments, Oracle and KBACE had conducted the necessary due diligence on the suitability, capabilities, functionalities, vulnerabilities and amount of customization necessary for the HCM Cloud system to comply with BBSI's architecture and requirements.
Because these critical gaps in functionality were "showstoppers" meetings were convened to address these issues.
At a June 5, 2018 at a face to face meeting, somebody from KBACE/Cognizant advised BBSI representatives that the Oracle HCM Cloud system was not the right system for BBSI's business functions and that BBSI should never have bought the system.
To BBSI's shock and dismay, this is the first time that BBSI heard any suggestion that the HCM Cloud system was not the right system for BBSI's functions or that they never should have bought the system.
No experience with PEO
At the same June 5, 2018 meeting, KBACE admitted that in fact, their only experience with a PEO implementation took place eleven years prior and did not involve the HCM Cloud.
Further, they admitted that KBACE lacked the expertise and ability to propose a solution that would meet BBSI's needs and indicated they would have to draw on Cognizant, its parent company's resources to devise a plan of action.
Expensive implementation services
On June 13, 2018, Oracle advised BBSI that unless BBSI changed the way it processed payroll, the HCM Cloud system would never perform to BBSI's current level or be able to process as fast as BBSI did before the HCM system was in place and that BBSI would need to schedule payroll by pay groups.
Thereafter, on June 25, 2018, KBACE/Cognizant purported to present BBSI with a revised proposal to provide implementation services and address the gap functionalities it had identified.
The new proposal withdrew the original implementation price quote of $5,410,000 and instead presented a new "Labor Total" of $33,059,274, almost six times greater than the original quote.
Extended go-live dates
In addition, KBACE/Cognizant's new proposal extended the original go-live dates. The new proposal now reflected:
> Completion of Phase I (i.e. Core Human Resources/BBSI Corporate, Financials, Legacy Accounts Receivable and Procurement) by April 15, 2019 instead of the original July 29, 2018
> Completion of Phase 2 (i.e. Core Human Resources, Financials, Accounts Receivable, Payroll, Absence Management, OTAC, Taleo and PaaS Extension Development for SaaS) by May 10, 2021 instead of January 9, 2019.
"Bait and switch"
Even with this price and time jump, however, the new proposal still offered no workable solutions to BBSI's satisfaction.
By email to Oracle dated November 14, 2018, BBSI's Chief Financial Officer, protested Oracle and KBACE's apparent "bait and switch" tactic. He noted that "[y]ou quoted BBSI a cost of $5.4M to implement and then when you were done with Accelerate, the quote was now $33M and would take twice as long." Because of the critical functionality gaps in the HCM Cloud solution that were never disclosed to BBSI before contracting and which neither Oracle nor KBACE could cure within the price and time quoted, Kramer advised Oracle and KBACE that BBSI would make no further payments for a system they did not and could not use and was rescinding the contracts.
Losses
BBSI alleges to have suffered economic harm in a myriad of ways. BBSI was forced to pay sums to Oracle and KBACE for which it received no value and also as a consequence of payments to third parties, including but not limited to, the following:
> $171,920 paid to the independent consultant
> $266,306 paid to KBACE for their useless services.
> $1,008,586 paid to Oracle for their useless products and services.
February 2018, BBSI employees began devoting significant resources to the implementation of the Oracle system. For instance, BBSI dedicated a seven person "project core team" working full time on the Oracle implementation. The project core team devoted over 9,000 hours to this project.
Further, there were 58 BBSI employees who devoted time to "project read-in." Some employees doing "read in" devoted as much as 29 hours per week to this work. These employees devoted over 1,800 hours to the project.
In addition, from March 2018 to present, there have been BBSI employees working as "backfill" on the project. These employees worked over 2,000 hours. The cost to BBSI in terms of hours worked by its employees on this project exceeded $900,000.
If these BBSI employees had instead been working on revenue-generating ventures, these employees would have generated in excess of $3,000,000 in revenue, the exact amounts to be ascertained at trial.
Additionally, BBSI has lost time and opportunities with respect to system upgrades as well as incurred other damages, the exact amounts to be ascertained at trial.
How BBSI Could Have Done Things Differently
Independent third party assessments
Because of the many difficulties encountered during the HCM Cloud implementation, and the admissions by Oracle and KBACE representatives regarding the true limitations of the system and of KBACE, and the astronomical leap in the implementation cost range and duration, BBSI began talks with other consulting companies regarding the HCM Cloud.
These companies expressed shock that the HCM Cloud solution was recommended for BBSI and voiced concerns that, based on their knowledge and expertise, the HCM Cloud was not the right product for BBSI.
BBSI then hired an independent consultant to undertake a full review and assessment of the suitability of Oracle's HCM Cloud for BBSI's stated requirements. The independent consultant reported that the HCM Cloud was ill-suited to BBSI's requirements for several reasons.
BBSI could have saved a lot of headaches by hiring this independent consultant before signing a contract and spending serious amounts of money and effort.
Consider your industry-specific needs and solutions
PEO is a fairly unique industry. Standard Cloud HCM systems are less likely to address the variety of distinctive needs of companies in this space.
Be skeptical of concepts like SAP’s Model Company, Oracle’s Unified Model, NetSuite’s Suite Success and other software industry hoaxes that may mislead you to unrealistic expectations.
Industry best practices baked into software don’t exist. Neither do silver bullet implementation solutions. It is important to plan and execute accordingly.
Be a responsible buyer of technology
Being a responsible buyer of technology and implementation services, and working well with suppliers during projects are crucial skills for any organization.
Yet, the absence of those skills explains more project failures in third-party projects than any other factor. You will find some prominent examples of these among these and other project failure case studies.
Some may argue that suppliers should have all the skills required to make their projects a success, but any company relying completely on the skills of a supplier is making themselves dependent on good luck.
If you are not a ‘responsible buyer’ then you risk not spotting when the supplier and/or the product is failing. Things will always start to drift and get off track. That’s a normal part of complex cloud projects like these.
But the key is how we identify risks, mitigate risks, and take action when warranted.
Ask for reference clients to call
BBSI could have asked Oracle for a reference client to call. Ideally of course another PEO. These ten questions are a good starting point any software reference call:
1) How long have you been using the software?
2) Describe the process for getting up and running in the software. How long did it take, how much time and investment was required of you and your team, and did your experience match what the vendor had promised?
3) What are the top three things you use the software for today? Have the product features lived up to your expectations?
4) Have you identified any feature gaps or shortcomings in the product? If so, how has the vendor handled your feature requests? Is the solution updated frequently?
5) How would you describe the business value the software delivers to your organization?
6) How would you rate the customer service you receive from the vendor? How would you rate the quality and caliber of employees you interact with at the vendor? Do they know and understand your business?
7) If there are parties outside of your company who interact with the software (e.g., investors, partners, advisors), how has it been received? Have you received compliments or complaints?
8) What other products did you look at before deciding on vendor [x]? Why did you choose vendor [x] over the others?
9) Is there anything else about your experience with the software or vendor that you think I should know?
10) Can you recommend the vendor without reservation?
Closing Thoughts
As with any dispute, there are at least two sides to every story. There are many questions that will need to be answered to understand what really happened, but no matter what the answers are, BBSI did not act as a responsible buyer.
You can never just trust a vendor alone when it comes to fulfilling requirements. You have to put in some work to validate this.
You can delegate authority to the supplier but you cannot delegate responsibility.
In a nutshell: Responsibility for the project — including responsibility for it failing — always rests ultimately with the buyer.
Don’t let your project fail like this one!
Discover here how I can help you turn it into a success.
For a list of all my project failure case studies just click here.
Sources
> BARRETT BUSINESS SERVICES, INC vs. ORACLE AMERICA, INC, 04/08/2019
