IBM has been cleared in court of a £2.5 million claim that it mis-sold an IT system to Southwark Council.

In a judgement issued last week at the Technology and Construction Court, judge Mr Justice Akenhead said Southwark had received the master data management system it sought in 2007.

It intended to procure a system to give a “joined-up” view of property and citizens in the area, drawing on five source systems. The procurement was through a framework agreement between HM Treasury and IBM, that was open to local authorities.

The judge ruled that Southwark was aware of the capabilities of the system chosen, which was based on the ArcIndex housing management software from supplier Orchard and on IBM Websphere. Southwark has decided not to appeal.

In 2007, the council had signed three software and services contracts with IBM, having rejected initial plans for SAP software. In the subsequent lawsuit, it said the software implemented by IBM had failed to de-duplicate its data as efficiently as promised.

Southwark had initiated the claim two years later, citing the alleged deficiencies in the system, and accusing IBM of misrepresentation, breach of contract and negligence. Instead, Southwark now faces a bill for IBM legal costs.

Under the contracts, Southwark said IBM was to provide £286,500 worth of systems, plus additional consultancy and support services at separate costs totalling over £100,000. It had chosen a setup according to limitations on what it could afford.

“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,” the judge wrote.

“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 spokesperson at Southwark Council 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."

IBM said in a statement: "We are pleased with the judgment in this case, which found that claims asserted have no merit and that IBM met all its obligations to Southwark."

Southwark cancelled the project on 19 July 2007, and several months later project manager Mike Katz left the council. Southwark also deleted the system from its servers – a fact that the judge said was not malicious but had been a mistake, and had hindered the trial somewhat.

The case hearings took place in February this year. Southwark’s initial claim of £717,000 in August 2009 – based around money paid to IBM, Orchard, and Southwark’s IT staff and existing contractors – was followed by a failed mediation process in January 2010. Claims then rose to £2.5 million in September 2010 as Southwark began to call upon collateral warranties, and alleged misrepresentations and negligence on the part of IBM.

In the judgement, Mr Justice Akenhead noted that Southwark’s case failed “on the issue of liability”. He stated that while IBM had introduced Southwark to the ArcIndex system from Orchard, it had not recommended the product as suitable and had left the decision to Southwark. The council also had the responsibility for managing the project.

Additionally, it was “clear”, the judge noted, that “no requirements were formulated in writing by Southwark in relation to the IBM procurement”. It had relied upon a plan initially drawn up for the SAP system.

The judge suggested that Southwark had wanted the ArcIndex system to do more than it was geared for. "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'," Mr Justice Akenhead wrote in his judgement. "There will be no cause for action against the garage that the car is no good off the road.”
During the case hearings last month, Southwark abandoned several of its claims, namely around contract breach, misrepresentation and negligence as well as some of the alleged defects. Its remaining claims centred on two specific alleged failures of the software to do what it had requested from IBM – around data matching and user  access restriction.

In court hearings, the judge noted, Southwark had relied on pre-contract documents to show what its requirements were. It had also failed to provide a witness to verify that it had an “oral over-arching contract”.

“Surprisingly”, the judge added, Southwark “did not call as a witness any one of six possible people who were involved in the pre-contract period” on its behalf.

“Southwark therefore had no oral evidence to support its claim that there was an oral over-arching contract, or that, if there was a material misrepresentation anyone of relevance within Southwark had relied upon it or to support any real substratum of fact to demonstrate that there might have been a collateral warranty.”

In January of this year, IBM offered to settle the case, on the basis that each party would “walk away” and pay its own costs. This was rejected by Southwark, and the judge argued that there was “no good reason” why the council had done so given weaknesses in its claim.

IBM had rejected an offer of a second round of mediation, in December 2010, based on the failure of the previous attempt before the case reached court. Southwark, in rejecting the IBM settlement offer, had questioned IBM’s decision not to mediate but said it was “not surprised” given IBM’s “conduct throughout this litigation”. The seven day trial then took place in February 2011.

The parties will now debate how much legal cost is owed to IBM. According the judge, Southwark “accepts that it must pay IBM’s costs”, but IBM is seeking costs on an indemnity basis, arguing that Southwark had shifted its claims and failed to provide proper evidence.

The judge ruled that IBM’s costs must be paid on a standard basis (on their reasonableness) up until 14 January this year, when the IBM offer a settlement was closed, and on an indemnity basis thereafter (in favour of IBM).

The parties will now debate the quantum, and the judge is expected to issue a decision in the coming weeks. The council insisted that any costs due were "provided for within earmarked reserves to ensure that these do not impact on front line services".

Southwark Council said it 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".