Southwark Council loses £700k software claim against IBM

The High Court has dismissed a claim by the London Borough of Southwark that it was mis-sold software for a master data management system (MDM) by IBM.

The IT giant provided software and associated consultancy services to the council in 2006 and 2007. The software to be provided by IBM was in connection with the implementation of the MDM, which the council hoped would rationalise the large amount of information historically and continuously logged on to a number of the disparate computer systems it ran.

But Southwark complained that IBM’s software, and in particular a product called Arcindex that was manufactured and marketed by a different company (Orchard), was unsatisfactory and otherwise unfit for purpose. It stopped using IBM’s software and services in the second half of 2007.

The borough then launched legal action against IBM, initially for misrepresentation, breach of a collateral warranty, negligence and breach of the three specific contracts that the parties had entered into, although a number of its claims were abandoned by the end of the trial. IBM rejected the claims.

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In London Borough of Southwark v IBM UK Ltd [2011] EWHC 549, Mr Justice Akenhead last week ruled that the council’s case as a whole failed on the issue of liability.

Mr Justice Akenhead said the council had lowered its sights after realising it could not afford the price tag for a complete MDM system. “Whereas the goal remained one of ultimately achieving an MDM system, it seems likely that the requirements for the IBM procurement were significantly less than those for a full system procurement,” he added.

The judge said there was clear evidence that a team from Southwark had carried out a detailed investigation mostly into Arcindex. This included receiving a user guide and white paper and attending two or more detailed demonstrations.

“The team was an intelligent one well versed in IT matters and they gave every impression that they fully understood what it was that Arcindex could and would provide,” the judge said. “I am led inexorably to the factual conclusion that the Southwark team in 2006 and at all times up to the arrival of [a consultant data integrity specialist who was instrumental in the decision to abandon the project] was wholly satisfied that Arcindex met its requirements and reflected exactly what it wanted.”

Mr Justice Akenhead also cited the experts’ joint report which said that Arcindex functioned as described in the Arcindex User Manual.

He said: “As was said colloquially at one stage during the trial, Arcindex does ‘what it says on the box’. An analogy is the potential car purchaser who might want an off-road vehicle but, having looked at the brochure for an on-road vehicle, says to the salesman ‘that's what I want’ and buys that vehicle. There will be no cause of action against the garage that the car is no good off the road. The salesman will reply, with justification: ‘you got exactly what you asked for’. That is essentially what has happened in Southwark's case.”

Mr Justice Akenhead suggested that, if operated sensibly and with cleansed and standardised information, Arcindex would have been of substantial use to Southwark “because, at the very least, it could be used to identify and take out a vast amount of duplicated or matching information which would effectively de-clog the source systems and avoid or reduce in a substantial measure the risk of errors being made in the treatment of people and premises”.

He added: “In my judgement, Southwark got by way of Arcindex exactly what its then team knew that they were getting and what it decided that it wanted and needed within its budgetary constraints.

“It follows from my findings that I am satisfied on a balance of probabilities that Arcindex as supplied by Orchard to Southwark was of satisfactory quality and suitable not only generally but also for the specific purposes which Southwark’s personnel had identified to IBM and Orchard as their requirements.”

A Southwark Council spokesman said it was disappointed with the ruling but would not be appealing.

"This case refers to acquisition of software back in 2006 which, in our view, was not fit for purpose,” he said. “We're disappointed with the judgement but we took this action because we believed we had been mis sold a product. Our duty is to have IT systems that work and that save the council and the council tax payer money.

"We will not appeal. We will now have an internal review to make sure we get the software we need so that we are able to cut running costs for the organisation and will look for suitable partners to help us deliver this."

Philip Hoult

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