Brightpoint Files Suit Against Emptoris: When Spend Analysis Does Not Go As Planned

Every few months in the enterprise software market, it seems there's a lawsuit or two involving an unhappy customer who ends up filing a complaint against their vendor or systems integrator (SI). The most recent suit occurred on February 18th, 2011 when Brightpoint sued Emptoris in Marion County Superior Court (Indiana). Brightpoint alleges that the suit "arises from the fraud, misrepresentations, breaches of contracts, breaches of warranty and negligence committed by Emptoris pertaining to their purchase of "a Spend Analysis Professional Module, e-Sourcing Enterprise Module, Contract Management Professional Module, and Supplier Performance Enterprise Module."

According to the complaint, Brightpoint paid Emptoris in excess of $3 million, the "vast majority" of which "became due" between 2009 and 2011. Spend Matters research suggests that the size of this deal would easily put it in the top 10% of typical software deals in the procurement and sourcing marketplace. However, Brightpoint did purchase what appears to have been a full-suite at the time, which would in part explain the size of the transaction (today, a full suite can be had for less, in certain cases). Things appeared to have soured early in the relationship when Brightpoint suggests Emptoris did not meet its "13-14 week" implementation deadline for the "initial phase of the software implementation" for spend analysis.

Specifically, the allegation is that "Brightpoint discovered that Emptoris had misrepresented its ability (as represented to Brightpoint) to cleanse the data that Brightpoint provided to Emptoris." As a result, Brightpoint at this point in time has "ceased using the Software and utilizing the Services of Emptoris." It is not clear in the complaint how much Brightpoint still owes Emptoris under the terms of the contract, but they list 2010 fees of $893,334 and 2011 fees of $893,334 (and optional 2012 and 2013 annual fees of $105,000). Spend Matters' limited experience in covering software litigation costs suggests that the cost to litigate in this case is likely to approach (or possibly exceed) a material percentage of annual costs per the terms of the agreement, yet in this case, it is likely to be less than the 2011 obligation due (one expert we spoke with suggested the bare minimum plaintiffs should set aside for litigation is $100K, although the costs to litigate in Indiana may be lower).

Spend Matters reached out to Emptoris for comment and they said, "At Emptoris we pride ourselves on our ability to proactively address the challenges and needs of our customers through our customer support and professional services organizations and through executive team involvement. We were surprised to find out that a complaint had been filed, and we deny all allegations made in the lawsuit. Emptoris has more than 300 global companies as customers and their success and results are a testament to the solutions we continue to provide." Brightpoint did not return our phone calls requesting a copy of the complaint and could not be reached for further comment.

Given the context of this case, we also spoke to another vendor to ask about the challenges of classification they've seen in the market (not specific to Emptoris). They cited the following example: take a company that contracts with a spend analysis provider for a complete spend visibility solution. The company extracts the information and then provides it to the vendor who uses offshore resources to manually classify a percentage of remaining data after it goes through an initial classification engine. In this actual example, spend in a single area for one supplier is classified in three different ways: as a snow mobile, as a missile, and as a heart monitor product.

In this case, the company's supplier in question in question is Polaris. As such, in this example, the supplier provided heart monitor products (not missiles mind you, however cool that sounds showing up in a spend cube). What's the lesson here? The spend visibility vendor we spoke with suggests spend analysis data services come down to understanding the business and having some context around the business. This "happens again and again and again," they suggest.

This vendor argues that typical data analyst resources (especially offshore) may miss the industry and category-specific nuances because they follow a "Google and guess" model for non-classified spend. Yet at the same time, it's important to keep in mind that there are other reasons that challenging implementations can fail. Emptoris points to the fact that they are always upfront with customers in terms of spend analysis, and that they never guarantee -- or any other vendor in this area for that matter -- that this type of integrated software/services solution is "out of the box." Thinking about the old adage "it takes two to tango," there are definite requirements for success, such as the customer making sure that they have a qualified team that is dedicated to acquiring the data and working closely with the vendor. In the initial stages of a spend visibility deployment, our experience suggests this is essential.

We can't be sure about anything in terms of the Brightpoint/Emptoris case until we hear all sides of the story, yet perhaps most important at this stage, this case should serve as a reminder that spend analysis is never just about software. If the quality of the underlying information sets are poor or incomplete and/or the data analysts working with the post-classification engine output don't have the right context, a whole lot can go wrong.

Spend Matters will be providing continuing coverage of this case as new information becomes available. In the meantime, it is our recommendation to current and potential Emptoris customers to remember the adage of "innocent until proven guilty." We simply don't all the facts yet, nor has a jury ruled -- let alone been selected -- in this case.

Jason Busch

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