Wipro hands $75m to National Grid US after botched SAP upgrade

Pair settle out of court over failed project that cost utility firm hundreds of millions

IT consultancy Wipro has paid National Grid US $75m to settle a lawsuit over a botched SAP implementation that cost the utility firm hundreds of millions to fix.

National Grid US, which supplies electricity and gas in Massachusetts, New York and Rhode Island, wanted to replace legacy back-office systems with a SAP platform. It hired Wipro in the role of systems integrator in 2010, paying some $140m for the work.

But errors in the rollout saw staff and vendors paid incorrectly and prevented the firm from producing crucial financial reports. This led to state investigations, employee settlements, plenty of negative PR and major losses.

For instance, staff were ultimately overpaid by about $8m, while efforts to stabilise the system were costing National Grid US about $30m a month to a total outlay of more than $300m. A 2014 audit estimated the upgrade could end up costing National Grid $1bn.

National Grid US pinned the blame on Wipro, flinging a sueball at the Indian consultancy at the end of last year with an eye to recoup the $140m as well as the extra cash it sunk into fixing the problems.

Oral arguments in the case were due to be heard in the New York Eastern District Court on Wednesday (8 August), but this weekend Wipro revealed the pair had settled the case out of court for $75m.

The project to upgrade National Grid US's legacy systems – many of which were running on Oracle – began in 2008.

Deloitte was initially employed as lead implementation partner, project manager and systems integrator, but in June 2010, it was replaced by Ernst and Young in the first two roles, and by Wipro as systems integrator.

However, according to National Grid US's complaint (PDF), defects were discovered in the supply chain, payroll, accounting and reporting systems immediately after they went live.

"The new SAP system miscalculated time, pay rates and reimbursements, so that employees were paid too little, too much or nothing at all," the complaint said.

"Meanwhile, with respect to supply chain functions, system defects devastated National Grid's procurement, inventory and vendor payment processes.

"Two months after go-live, National Grid's backlog of unpaid supplier invoices exceeded 15,000, and its inventory record-keeping was in shambles."

Such problems meant delays in producing financial statements – the financial close that took four days using the legacy systems took 43 days with the SAP system – and National Grid US had to seek various extensions.

National Grid said it spent "hundreds of millions of dollars" on additional resources from other vendors, had to hire hundreds more employees, and that it took more than two years for the SAP system to be fully stabilised.

"In many instances, functional and technical specifications had to be completely re-written and entire SAP modules had to be re-built or abandoned," it said.

The suit said that the Indian IT consultancy had over-egged its abilities when bidding for the work, and that National Grid US had relied upon these both when hiring and then extending Wipro's role.

"Wipro's representations were knowingly or recklessly false when made," the firm said at the time.

"As Wipro knew or should have known, it had neither the ability nor intent to assign appropriately experienced and skilled consultants to the Project because... it in fact had virtually no experience implementing an SAP platform for a US-regulated utility."

However, an audit report (PDF) published in 2014 pointed out that some of the blame fell on National Grid US, which it said was "unprepared" for the project.

In addition to picking a firm with little experience of US utilities, the report said, National Grid had "very limited" discussions with other US utilities about implementing and using SAP.

At the time, Wipro said that the claim misstated the facts, and in a filing with the Bombay Stock Exchange this weekend said that the settlement did not mean it had admitted fault.

"The settlement has been effected for an amount of US$75 million and is without admission of liability or wrongdoing of any kind by the parties," Wipro said.

"National Grid has been a valued customer of Wipro for over a decade and both organizations have had a mutually beneficial relationship over the years. We believe that this settlement will be commercially beneficial for us and will help us remain focused on growth."

The settlement will appear in the Wipro's financials for the quarter ending 30 September 2018. ®




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