AIB suing over banking software

Allied Irish Banks is suing two related international companies claiming some €84 million spent by it on a new retail banking software system was “wasted expenditure”.

The bank claims the Flexcube product was “beset with serious technical problems” from the outset in 2007 and only some 3,000 customers out of an expected five million were ever switched over to it in a three year period.

In March 2010, work on implementing the Flexcube product ceased after which the bank decided to decommission the 3,000 accounts using it. Since then, AIB claims, it had to return to using its existing retail banking system.

It claims all costs and expenditure on the project were “wasted” and it is claiming an estimated €84 million for that. It is also claiming damages for loss of profits and damage to goodwill, yet to be calculated.

Today, Mr Justice Peter Kelly granted an applicaiotn by Michael Howard SC, for AIB, to transfer to the Commercial Court the bank’s action against Oracle Financial Services Software BV (OFSSBV) and Oracle Financial Services Software Ltd (OFSS Ltd), two related companies based in the Netherlands and Germany.

Cian Ferriter, for the defendants, consented to the case being fast-tracked in the Commercial Court.

AIB is suing OFSS BV as alleged provider of the software and OFSS Ltd in its capacity as alleged guarantor of the obligations of its related company.

The bank claims OFSS BV had under an agreement of December 2005 agreed to provide software and related services to AIB for its corporate banking division while OFSS Ltd provided a guarantee and indemnity in favour of the bank under that agreement.

This was known as Project Pentagon and is not part of the bank’s action.

Under the 2005 agreement, AIB claims it was also granted an option to procure software referred to as Flexcube Core Banking for use across its retail banking operations. It claims documents and agreements were executed in 2007 under this option and the provision of the Flexcube project became known as Project Acorn.

AIB claims the 2007 agreement applied the terms of the 2005 agreement to Project Acorn. AIB said its retail banking unit uses a database provided by IBM known as the z/DB2 platform and, from the bank’s perspective, the Flexcube project had to be capable of deployment on that platform. That key requirement was made known to the defendants and accepted by them, the bank claims.

However, the bank claims, the implementation of the Flexcube product was beset with serious technical problems and project management shortcomings throughout the period between March 2007 and March 2010.

Work on implementing the Flexcube project began just after March 2007 but by the end of December 2009, only a sample 3,000 of AIB’s customers were ever switched over to using the Flexcube product, it said. This was in circumstances where it was anticipated and agreed some 5 million customer retail accounts were to be operational on the Flexcube product within three years from March 2007, it said.

By March 2010, work on implementing the Flexcube product ceased and the expenditure of the bank on it turned out to be wasted, AIB said.

The bank also said it had attempted on numerous occasions to have the defendant remedy the deficiencies in the Flexcube project. AIB said it was advised by OFSS BV in March 2010 it had decided to cease development of the Flexcube product on IBM’s z/DB2 platform for western banks but would continue to work on the product for AIB.

This decision meant AIB would forever remain the only western bank using the z/DB2 platform, a situation AIB could not contemplate as it would be unable to benefit from efficiencies promised whereby upgrade costs would be shared across a number of similar banks, it said.

This decision was also contrary to representations by the defendants prior to the 2007 agreement that AIB would be among several “top tier” banks in the US and Europe using the Flexcube product, it said.

While OFSS BV had also offered an alternative product on the Oracle platform, AIB said it had declined that offer after a seven week asessment period which resulted in it concluding the alternative offered was “wholly unsuitable” for its retail business needs.

Whuile the sides had availed of dispute resolution procedures, no resolution was achieved and the legal proceedings were then initiated, the court heard.