Israel Chemicals (TASE: ICL: NYSE: ICL) is suing IBM for $300 million. Israel Chemicals claims that IBM failed in the development and implementation of a global information system for the company (the harmonization project), which was abandoned in 2016.
Because of the failure of the project, Israel Chemicals made a one-time write-down of $282 million in the third quarter of 2016.
In a notification to the Tel Aviv Stock Exchange, Israel Chemicals states: "Because of financial disputes that erupted between the sides when the project was halted, the company gives notice that after exhausting the mediation process, it filed a claim against IBM Israel in the Tel Aviv District Court today… for compensation for damage caused to the company from its failure to meet its obligations in the project, which led to the failure of the project and the writing off of the investment in it…"
In 2012, Israel Chemicals decided to invest in the project, when, following acquisitions and mergers, the number of information systems in use in group companies multiplied. From the statement of claim it emerges that IBM recommended the project, and found that it was appropriate to Israel Chemicals and feasible.
"Israel Chemicals' management adopted the project and designated it a strategic project meant to ensure the company's ability to grow and prosper in the future. Israel Chemicals regarded the project accordingly and was prepared to invest huge resources and a great deal of money in it, in order that the global system, which had substantial potential benefits for the entire concern, should be implemented successfully in all branches of the concern. Israel Chemicals hired the services of IBM so that IBM should lead the project from start to finish, in reliance on its presentations showing that it had the professional skills, knowledge, manpower and resources required for it.
"A series of agreements were made between Israel Chemicals and IBM. Each of stage of the project was governed by an agreement - from preparation for the project; through specification; and ending in implementation. Each agreement defined the scope of the services, responsibility and commitments that IBM undertook in relation to Israel Chemicals. Given IBM's expertise in information technology, it was stipulated in the agreement on the implementation stage of the project that IBM would bear full responsibility to Israel Chemicals for all aspects of the provision of services in accordance with the timetable set out in the agreement and its terms."
Israel Chemicals alleges that every stage of the project was carried out by IBM incompetently. It states that IBM in effect operated on a trial and error method, and in the event, "these things caused a series of postponements and delays, and to a disproportionate rise in costs. They led to the system that was handed over to Israel Chemicals in April 2016 being unstable, not integrated, and dysfunctional."
Ultimately, "Israel Chemicals did not receive even a partial system, and because of the project's failure it wrote off the entire amount of its investment in it."
A statement from IBM in response to the lawsuit says: "IBM believes that this case has no merit and will vigorously defend it."
Published by Globes, Israel business news - en.globes.co.il - on December 3, 2018
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