Xerox, PeopleSoft service provider in software project dustup

The companies are at an impasse over millions in fees associated with a PeopleSoft upgrade

Xerox is being sued by systems integrator CedarCrestone over payments related to an Oracle PeopleSoft upgrade at insurer CIGNA.

CedarCrestone is looking to recover about US$1.8 million it says Xerox still owes it, according to the lawsuit, which was filed last month in U.S. District Court for the Northern District of Texas. But in a counterclaim filed last week, Xerox alleges that CedarCrestone performed shoddy work and never met its contractual obligations.

Originally, CedarCrestone signed a deal with IT outsourcing firm Affiliated Computer Services for the PeopleSoft work at CIGNA. Xerox later bought ACS. Under the pact, CedarCrestone was to upgrade CIGNA's PeopleSoft HCM (human capital management) system from version 8.9 to 9.1.

But as the project went on, Xerox started failing to make timely payments, according to CedarCrestone's suit.

"CedarCrestone performed, substantially performed and/or tendered performance of its obligations" until Xerox breached the companies' agreement, according to the suit.

It also "tried in good faith to work with [Xerox] to identify and resolve any problems," it adds. "[Xerox] responded in bad faith by stalling and making false and improper complaints and excuses."

Xerox's "true intentions and plans were to get CedarCrestone to continue providing services as long as possible but with no intention of ever paying for them," the suit adds.

Any defects or delays associated with CedarCrestone's work on the project were either too trifling to merit nonpayment or were excused by terms in the companies' contract, according to the suit. The contract "provides in pertinent part that CedarCrestone's nonperformance of any obligations ... shall be excused to the extent that they were due to the acts or omissions of ACS or CIGNA or third parties acting on their behalf."

But Xerox's response and counterclaim tell a much different story.

Xerox didn't fall behind on payments, nor did it violate any contractual obligations, according to its filing.

"CedarCrestone was to complete the upgrade on schedule, including meeting several critical deadlines throughout the contract period and an ultimate 'go live' date of January 3, 2012," it states.

Xerox agreed to pay CedarCrestone a fixed price of about $3.1 million for completing the job, it adds.

"However, CedarCrestone failed to meet its critical deadlines and, to this day, has never finished the software upgrade," the filing states.

Initially, CedarCrestone staffers said the project was going smoothly, but by July 2011, began reporting that portions of it were behind schedule, Xerox said.

"Around the same time, CIGNA started questioning the positive nature of CedarCrestone's weekly reports, and Xerox began pressing CedarCrestone for confirmation of their accuracy," the filing states.

One critical date in the project was supposed to be Sept. 19, 2011, according to Xerox. At that time, CedarCrestone was supposed to provide "product and coding" to Xerox in order to begin some testing.

But CedarCrestone didn't have the work product ready, and was not even close to finishing it, according to Xerox.

The next day, CedarCrestone admitted that it was "substantially behind," Xerox's filing states.

By October, Xerox determined that the project's planned go-live date of Jan. 2 would be missed, and to avoid further delays "began working seven days a week."

But CedarCrestone officials failed to participate in meetings and calls, according to Xerox. CedarCrestone then sent Xerox a demand letter on Jan. 19, asking for about $750,000 in payment, and stopped work completely on the job by the end of that month, the filing adds.

After Xerox began making other plans to finish the work as fast as possible, "CedarCrestone failed to participate in crucial meetings and conference calls, pulled its employees off the project, and, eventually, stopped working on the project altogether," it states.

Later, CedarCrestone refused to help Xerox or its new systems integrator, it adds.

As a result, the project's planned go-live date was not met, "and Xerox was damaged severely," the filing states. The PeopleSoft upgrade ultimately went live in July.

Xerox is seeking assorted damages, attorneys' fees and costs.

The radically divergent positions taken by CedarCrestone and Xerox may make for a difficult court battle if the case goes to trial.

But there are a few things that can be concluded now, according to analyst Ray Wang, CEO of Constellation Research, who viewed the companies' court filings.

"These he-said, she-said battles get there when both sides have exhausted all options," Wang said. "There's always a bit of truth on both ends. But the bottom line is, the customer loses when this happens."

CIGNA did not immediately respond to a request for comment on Thursday.

CedarCrestone had already been caught up in a high-profile legal battle with Oracle, which sued the company in September on grounds it was offering third-party support for PeopleSoft customers in an illegal manner.

Oracle also terminated CedarCrestone's partner status.

Third-party providers can't give customers new application upgrades, but they provide ongoing tax and regulatory updates and in some cases technical support for a price they claim is far less than what vendors charge.

In an October court filing related to the Oracle case, CedarCrestone denied any wrongdoing and also said it had been planning to phase out its tax and regulatory service for PeopleSoft six months before Oracle filed suit.

CedarCrestone's filing lodged a number of counterclaims against Oracle, including for unfair business practices. The revocation of its partner certification resulted in CedarCrestone losing a number of contracts, including one worth $17 million, according to the filing. Neither contract involved tax and regulatory support, it added.

Vendors such as Oracle are keen to protect support revenues, which provide high profit margins. Third-party providers maintain they offer a legal service to software customers who are on older releases that they do not want to upgrade, a process that would require staying on vendor support.

Oracle has also sued Rimini Street, which offers third-party support for Oracle and SAP software. Rimini Street has also denied any wrongdoing.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris' email address is Chris_Kanaracus@idg.com

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