Internet auto retailer CarsDirect.com says it was duped into buying the ultimate CRM bill of goods from KPMG Consulting: an untested system that the consultants were unable to properly tune and which ultimately cost CarsDirect tens of millions of dollars in lost business and productivity. KPMG says CarsDirect is simply trying to get out of paying over $1 million in overdue invoices because the dot com is on rocky financial ground. Misrepresentation and fraud, or just buyer's remorse from a cash-strapped company?
On September 26, 2000, CarsDirect filed a comprehensive lawsuit against KPMG, alleging misrepresentation, deceit and fraud around a CRM project that began in late 1999. Although the case is not scheduled to go to trial until November 13, 2001, CRM magazine has acquired pre-trial filings and allegations filed in court by both CarsDirect and KPMG.
CarsDirect claims that it hired KPMG, which had already done significant consulting work for the company, to evaluate, recommend and implement a CRM system to replace the company's internal customer management package known as the Lead Application System (Lead App). That process led to the selection of Web-based CRM vendor Silknet Software in late November 1999, with a first-stage implementation target of February 1, 2000 at a cost of $610,000 in implementation fees.
CarsDirect claims that the experience from that moment onward was a disaster, largely due to the fact that KPMG recommended the Unix version of Silknet, which was newer than the Windows NT version and not yet in full release at the time of its selection. CarsDirect claims that KPMG did not adequately disclaim that they had never performed a customer implementation of Unix Silknet.
Ultimately, CarsDirect says they were presented with a system that offered slower performance than Lead App for displaying and manipulating customer data in its contact center, and which had serious scalability issues. CarsDirect also charges that KPMG should have explicitly disclaimed that it owned a stake in Silknet, and in fact the complaint effectively charges KPMG with attempting to sign extra Silknet customers so that the software outfit would become even more valuable.
Despite what the company says were later attempts to correct the problems and "mollify" CarsDirect, after a total investment in the neighborhood of $1.75 million in fees to KPMG, CarsDirect claims that KPMG never managed to even provide a direct functional replacement for Lead App, let alone provide additional benefit.
At the time the complaint was filed, CarsDirect was still using Lead App for customer service and claims to have suffered "no less than $50 million" in damages to its business.
KPMG points out that the timing of CarsDirect's lawsuit coincided with the drop-dead date KPMG gave CarsDirect to make full and final payment of CRM-related invoices totaling nearly $1.25 million that had been piling up unpaid since April 15, 2000.
In addition to seeking payment on these invoices, KPMG systematically denies CarsDirect's allegations. KPMG claims that it presented a choice between Silknet and Siebel to a CarsDirect technology panel, which made and took final responsibility for the decision. KPMG claims to have an admission from a CarsDirect executive that it clearly stated in advance that its consultants had never before performed a Silknet Unix installation.
Further, KPMG believes that CarsDirect could not help but be aware that KPMG owned a stake in Silknet from the Silknet marketing materials presented to CarsDirect, and that a formal disclaimer was not legally necessary. Finally, KPMG broadly claims that CarsDirect had never been critical of its own efforts before the lawsuit was filed--only of Silknet. One KPMG e-mail exhibit shows CarsDirect's Jamal K. Mickens directing the blame for performance and support issues at Silknet, not KPMG. Others seem to offer bold praise of KPMG's work from CarsDirect, including a June 6, 2000 e-mail from CarsDirect executive vice president, Larry J. Tchamkertenian, lauding the "hard work and results" from the KPMG team.
The depositions leave a number of unanswered questions. Although CarsDirect's complaint speaks of the KPMG invoices it opted not to pay, it says "in or about July 2000 KPMG began pressuring CarsDirect to pay more money," referring to invoices that are dated months earlier. It also speaks of an agreement made in March 2000 whereby KPMG would waive costs for converting the system from Unix to Windows NT. KPMG provides no details of this process in its response and CarsDirect does not explicitly say that the unpaid invoices reflect work it believed KPMG would not charge for.
The biggest question of all is the conspicuously absent Silknet itself, which Kana Communications acquired in February 2000. Kana appears content to stay on the sidelines. Through their PR firm, the company would only authorize the following statement: "Kana is not a party or named party in the suit, therefore they do not want to influence the ongoing suit in any way, and would feel it would be most prudent not to publicly comment on any aspect of that suit." KPMG submits that CarsDirect was contractually restricted from suing Silknet or its successor by the terms of the product license, which appears to widely disclaim any warranty as to the performance of the software.