Exaggerations happen.

The Mistake. 

A software development company contracted with an electric supply distributor for $250,000 to install warehouse management software for their regional distribution center.

Following the installation, the distribution company complained that the software did not perform as promised, including not integrating with the invoicing systems, and that it lacked crucial functionality.

After several weeks of servicing the software, the efforts to resolve the dispute ended at an impasse and the software company stopped providing support for the product. The distribution company filed a lawsuit alleging they lost sales and profits from the downtime and in the end and had to buy a new system. The company sought compensatory damages of $1mm and also seeks multiplied and punitive damages for unfair trade practices.

The Consequences

Defense Costs: $34,000
Indemnity: $177,000
Total cost to carrier: $211,000

The Avoidance

  • Work with a reputable software company with references.
  • Design the contract with milestones that need to be signed off on by the client prior to completion.