That Didn’t Work Out Too Well

INDIANAPOLIS (CN) - Indiana claims IBM bungled a contract with the state's Family and Social Services Administration so badly it cost taxpayers "hundreds of millions of dollars," which the state wants returned. IBM countersued the state for breach of contract.

The dueling complaints were filed in Marion County Court.

Indiana claims it outsourced management of its FSSA system to IBM in 2006 for 10 years. But it claims that "IBM performed so deficiently that FSSA was left with no choice but to terminate" the contract.

Indiana claims that IBM promised a modernized system that would improve the welfare system, reduce errors, and "provide efficient, accurate and timely eligibility determinations for those applicants who qualify for assistance."

After IBM rolled out an error-riddled system in 59 of the state's 92 counties, serving 430,000 citizens, "far short of the original project roll-out plan," Indiana says it notified IBM twice of 36 areas that needed improvement, but IBM failed to fix them.

"FSSA was left with virtually nothing of value from IBM's failed performance, and indeed is now faced with expending hundreds of millions of dollars in reprogramming and eventually entirely replacing IBM's failed systems," the state says.

Indiana claims IBM's performance was so bad it led to numerous civil lawsuits against the state.

For instance, the state claims that IBM canceled Medicaid and food stamp benefits to a woman hospitalized with terminal cancer because she missed her scheduled appointment. The woman made several attempts to contact IBM, but her information was never processed. It was 7 months before she began receiving benefits again. Also, a deaf person's benefits were terminated because he was unable to complete a telephone interview.

Indiana says it required IBM to respond to callers within 2 minutes, but IBM hired a subcontractor and required that it respond within 7 minutes.

Indiana claims it paid IBM $437 million before it had to terminate the contract and must now rebuild and redesign the entire system.

In response, IBM claims that it did its job, but that things such as an increase in applicants were not considered. IBM adds that the contract requires the state to pay IBM for deferred expenses and fees and for equipment not returned, regardless of the reason for termination.

Indiana seeks declaratory relief and damages for breach of contract and unjust enrichment.

IBM alleged breach of contract and seeks $52 million for equipment not returned and deferred expenses that were to be paid throughout the 10-year contract.

Indiana is represented by John Maley with Barnes & Thornburg.

IBM is represented by Andrew Hull with Hoover Hull.

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