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With the increase in the need for digital transformation and to improve the efficiencies, many organisation are looking to modify/ change their existing Enterprise resource planning (ERP) system. This write-up aims at stating certain points to be considered while negotiating such contract mainly based on the case analysis of MillerCoors vs HCL order.

• Facts and issues involved in the case

In September 2013, MillerCoors (Company) issued a request for proposals for a Business Process and System Transformation Realization project. In October 2013, the project was awarded to HCL, and Company engaged HCL Technologies Limited and HCL America, Inc. (HCL) for the ERP implementation process across its various breweries.MillerCoors mainly entered into the contract to drive efficiencies, innovation and growth across MillerCoors’ by adopting a common set of best practices business processes and implementation through a better ERP solution.^[1]. It was agreed that HCL would review and document MillerCoors’ existing business processes. Accordingly, HCL will build and test a customized version of SAP eWM in MillerCoors’ warehouses^[2].

However, after the start of the contract, MillerCoors, after being unsatisfied with HCL services, began to question HCL step-plans and the direction taken for successful deployment of the project. The Company did raise concerns about HCLs blueprints and the assigned resources. HCL tried to address the concerns of the Company and issued a new work order, thereby increasing the total price of the ERP implementation^[3]. The contract was earlier worth about $53 million, and an additional $9.6 million was added to the initial contract price pursuant to the additional work order. Once the initial phase went live in November, a lot of defects were found. After this, the Company decided to completely scrap the SAP implementation project with HCL.

A lawsuit was then filed for breach of contract claim in relation to the Master Service Agreements (MSA) by the Company on March 13, 2017, in the Northern District of Illinois^[4]. For the loss suffered, compensatory damages in an amount to be determined at trial in excess of $100 million^[5] was sought. Following were some of the allegations made by the Company on HCL:

• Failure to meet the project deadlines due to a lack of a sufficiently staffed team working on the project. The lawsuit stated that ‘HCL was unable to adequately staff the project and maintain the project schedule’.
• The behaviour of gross negligence: MillerCoors asserted that HCL violated its project methodology and Program Management responsibilities^[6].
• Multiple defects in the initial phase of the SAP that went live^[7].
• HCL has changes in employees allocated for the project, replacing two Program Directors and at least seven Project Managers during the course of the project^[8].

On the other hand, HCL too claimed that there was a breach of contract by the Company and sought compensation for damages. In the counterclaim, HCL filing mentioned that MillerCoors is using ‘HCL as a convenient scapegoat to shield its own leadership from blame’ and raised the following allegations against the Company:

• Lack of proper communication and expectations^[9]
• Misrepresentation of the scope of work and change in the business requirements post the start of the project.^[10]
• Tortious interference with the agreements by MillerCoors. Extract from order states ‘In Count III of the Amended Counterclaim, HCL alleges that Molson Coors tortiously interfered with the MSA and Work Order No. 1-3 HCL alleges that although MillerCoors could have terminated for convenience Work Order No. 1-3 at any time with notice, a termination for convenience would have required MillerCoors to pay “Wind Down Expenses” and “Unamortized Investments” as defined by the MSA. (Id. ¶ 129)’
• Wrongful termination of the agreement. Extract from order states HCL contends that after being directed by Molson Coors to terminate the PP&S implementation, MillerCoors wrongfully terminated the PP&S implementation by giving oral notice and failing to pay Wind Down Expenses and Unamortized Investments’

The lawsuit was issued less than a year later[11]. The Court analysis mainly centered around the allegation of the HCL that post the acquisition of MillerCoors by Molson Coors in 2016, MolsonCoors tortiously interfered with MSA & Work order. Though, the court did not accept the argument of interference of MolsonCoors and stated that in order ‘where the defendant was acting to protect an interest which the law deems to be of equal or greater value than the plaintiff’s contractual rights.

The parties settled the dispute in 2018. Court records do not detail the terms of the settlement.

b. Literature review and further analysis

There have been multiple cases of ERP implementation failure in the past. In most of the judicial precedents that have been tested before the courts, many allegations made against the ERP implementation partner were similar.

The case of MillerCoors and many other similar cases reflects how ERP projects can be brought to court if the client company is unsatisfied with the progress or where they see excessive additional costs. Also, it was seen that MillerCoors did not raise many questions on the technology underpinning the ERP buildout^[12] but the major challenge for the Company was the manner in which the project was handled. In the present case, the contract was closed soon by the parties without discussing many clauses in intricacies. Sometimes, to win the bid, the ERP implementation partners quote less fees, but eventually, they realise that the implementation cannot be carried out with the bid price. They start creating challenges after the start of the contract by stating additional costs even for small requests that were not covered in the initial agreement; thereby a lack of understanding of the client’s needs can lead to issues that were not contemplated at the start of the project. Further, it appears that communication problems and decision-making delays caused issues in the present case.^[13]

Though HCL was expected to create the blueprint of the process and understand them well in the initial run (relevant extract from order reproduced below), it seems there were an inaccurate understanding of processes and expectations were not clearly understood.

‘Prior to engaging HCL, MillerCoors created ‘blueprints’ to document the various business processes that would be implemented in SAP. According to MillerCoors, HCL’s initial task was to engage in a knowledge transfer process to learn and understand the blueprints that had been created, after which HCL would document and fill any gaps in the blueprints for processes that were not adequately documented. The knowledge transfer project was memorialized in an interim Work Order No. 1 BP&S Program Knowledge Transfer – SAP Realization Services executed on or about December 3, 2013 (“KT Work Order”). (Id.) The KT Work Order was issued under an existing Master Services Agreement by and between MillerCoors and HCL, effective December 1, 2012 (the “MSA”). (Id.) Other Work Orders followed, and the final Work Order No. 1-3 was executed on December 10, 2015. (Id. ¶ 23.)’^[14]

While on the other hand, the termination of the contract by the Company without discussing the defects identified by the Company in the initial phase seems incorrect. In the order, it is stated that ‘HCL maintains that after it successfully completed implementation of Work Order No. 1-3 and turned over a fully functioning SAP platform, MillerCoors terminated the Work Order No. 1-3 without prior notice’.

Some other examples of ERP implementation failure worth mentioning would be the case of Levi Strauss & Co, 2013. Different technical challenges with the ERP implementation prevented Levi Strauss & Co. from fulfilling its orders correctly for some time. Thus, the technical errors and problems in the SAP ERP implementation contributed to the significant economic losses mainly associated with the decline of 98% in the company’s net income.^_[15]. Another one would be Revlon (cosmetic company) case which implemented a new SAP ERP system, but again poor management and execution of the entire project resulted in Revlon’s business being affected at the Oxford, N.C manufacturing plant. This prevented the fulfilment of shipments, resulting in lost sales of about $64 million. Subsequently, Revlon’s stock price dropped 6.4% after announcing these problems. This led to initiation of class-action lawsuit from investors seeking claim for damages.^[16] This list goes on and there are multiple other examples.

Considering the discussion in the previous paragraphs, following things should be taken into consideration while negotiating/ concluding ERP implementation/ modifications projects:

• The contract should not be done in haste, and parties should take sufficient time to go through the different clauses so that they do not overlook the contract terms: It appears from the present case that if MillerCoors had reviewed the contact in detail, they would have made clear expectations. If the contract outrightly is not detailed enough, the other party can limit its accountability. On the other hand, a thorough review would have enabled HCL to limit its liabilities.^[17]
• Clearly setting up the expectations^[18]: As mentioned in the previous point, clearly setting up expectations in the contracts outrightly (for example: adding milestones, deliverables deadlines, remediation actions) helps create more accountability. For example, in the present case, HCL failed to meet the project deadlines and deliver solutions as per the expectations.
• Clearly worded language^[19]: It is always helpful to draft a contract with clearly understandable words to avoid interpretation issues later. In this present case, MillerCoors did include milestones in the work orders, but it seems not much clarity was provided regarding remediation action and repercussions for failure in missing deliverables deadlines.

The discussion in previous paragraphs shows how drafting and negotiating contracts does plays an important role. It appears that in most cases ERP implementation fails mainly because of poor project management and the inability of the implementation partners to understand the expectations and to follow the best practices. Also, too many changes in the expectations vis-à-vis initial agreement adds to further challenges. In all, it is important to concretely law down expectations, the possibilities of changes, remediation plan where things does not turn out as expected in such contracts.

[1]  Jochelle Mendonca & Neha Alawadhi, Breach of Contract: MillerCoors sues HCL Tech for $100 million (March 25, 2017); see https://economictimes.indiatimes.com/tech/ites/breach-of-contract-millercoors-sues-hcl-tech-for-100 million/articleshow/57819765.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

[2]   MillerCoors v. HCL Technologies Limited; see https://www.disputesoft.com/cases/millercoors-v-hcl-technologies-limited/

[3]   Bill Baumann, Lessons Learned from the MillerCoors ERP Failure (March 31, 2021); see https://www.panorama-consulting.com/millercoors-erp-failure/

[4]   MillerCoors LLC v. HCL Techs. Ltd., Case no. 17C 1955 (N.D. Ill. Oct. 3, 2017); see https://casetext.com/case/millercoors-llc-v-hcl-techs-ltd

[5]   Jochelle Mendonca & Neha Alawadhi (ibid 1)

^[6]   MillerCoors Sues India’s HCL Technologies For Failed SAP Implementation Seeking $100 Million In Damages, Marcus Stephen Harris; see https://softwarenegotiation.com/millercoors-sues-indias-hcl-technologies-failed-sap-implementation-seeking-100-million

[7]  Venus Tamturk, ERP Implementation Failure: MillerCoors Sues HCL for $100M, CMS Connected (March 31, 2017); see  https://www.cms-connected.com/News-Archive/March-2017/ERP-SAP-Implementation-Failure-MillerCoors-Sues-HCL-for-$100M

[8]  MillerCoors Sues India’s HCL Technologies For Failed SAP Implementation Seeking $100 Million In Damages (ibid 6)

[9]   Patrick Thibodeau, MillerCoors’ $100-Million IT Lawsuit Warning, Information week (July 27, 2017); see https://www.informationweek.com/strategic-cio/millercoors-100-million-it-lawsuit-warning

[10]  MillerCoors v. HCL Technologies Limited (ibid 2)

[11]  Bill Baumann (ibid 3)

[12] MillerCoors Settlement Spotlights Problems with ERP Builds (Jan. 7, 2019); see https://www.toolbox.com/tech/erp/blogs/millercoors-settlement-spotlights-problems-with-erp-builds-010719/

[13]  Patrick Thibodeau (ibid 9)

[14]  MillerCoors LLC v. HCL Techs. Ltd. (ibid 4)

[15]   Levi Strauss & Co. and the ERP Failure Essay, IvyPanda (July 22, 2019); see https://ivypanda.com/essays/levi-strauss-co-and-the-erp-failure/

[16]  Patrick Thibodeau, Problems with Revlon’s SAP ERP project trigger lawsuit from investors, TechTarget (May 29, 2019); see https://www.techtarget.com/searcherp/news/252464165/Revlon-SAP-ERP-problems-result-in-rare-investor-lawsuit

[17]  Bill Baumann (ibid 3)

[18]  Bill Baumann (ibid 3)

[19]  Bill Baumann (ibid 3)