​IBM to pay Indiana state $78m in damages

A US judge has directed big blue to pay Indiana $78 million in damages after it failed to deliver an IT project for the state's welfare service.
Written by Asha Barbaschow, Contributor

IBM has been directed to pay the US state of Indiana $78 million in damages after a judge ruled the IT giant failed to automate much of the state's welfare services.

Marion Superior Court Judge Heather Welch issued the ruling nearly six months after she heard arguments from attorneys for both the state and IBM Corp.

The Indiana Supreme Court ruled last year that IBM had breached its contract and it directed the trial court to calculate the damages.

Indiana and IBM sued each other in 2010 after then-governor Mitch Daniels cancelled the company's $1.3 billion contract to privatise and automate the processing of Indiana's welfare applications.

Under the deal, an IBM-led team of vendors worked to process applications for food stamps, Medicaid, and other benefits, with residents able to apply for the benefits through call centres, the internet, and via fax.

The contract was pulled in late 2009, less than three years into the 10-year deal, following complaints about long wait times, lost documents, and improper rejections.

The state sought more than $172 million from big blue, but the judge ruled IBM responsible for $128 million in damages, offset by about $50 million in state fees the company was owed.

IBM said it will be appealing the decision and that it believes the judge's ruling "is contradicted by the facts and the law".

"IBM worked diligently and invested significant resources in its partnership with [the state] to help turn around a welfare system described at the time by Indiana's governor as one of the worst in the nation," the company said.

A different judge ruled in IBM's favour in 2012 and awarded the company $12 million, mostly for equipment the state kept. An appeals court reversed that decision, finding that IBM had committed a material breach of its contract by failing to deliver improvements to the welfare system.

The state argued that IBM owed Indiana for the cost of fixing the company's problematic automation efforts to make the system workable, paying overtime for state staffers to review and correct those problems, and hiring new staff to help oversee that process, among other expenses.

After significant delays and cost overruns, the state of Pennsylvania terminated a contract with IBM in 2013 after the IT giant failed to provide new software for the state's unemployment compensation system.

At the time of cancellation, the project was 42 months behind schedule, with a $60 million cost overrun, based on an original budget of $106.9 million.

IBM said it was surprised by the termination and said, "in complex information technology implementations, there is accountability on both sides for system performance and service delivery."

In April last year, the Queensland government was ordered by the Supreme Court of Brisbane to pay IBM Australia's legal fees stemming from the legal proceedings over the state's troubled health payroll system, which cost taxpayers an estimated AU$1.2 billion.

It was said at the time that the cost of the case was potentially as high as AU$3 million.

The state dropped its pursuit of the local arm of big blue a year after it lost its battle in 2015. Justice Glenn Martin ruled in favour of IBM, declaring that "on the proper construction" of the supplemental agreement, IBM was released from the State of Queensland's claims in its lawsuit.

The state government originally settled with IBM in early 2011 over the debacle, in exchange for IBM fixing the system; however, former premier Campbell Newman announced in December 2014 that the state was taking legal action against the tech giant.

The local arm of big blue found itself at the centre of the federal government's investigation into the Australian Census debacle, after the Australian Bureau of Statistics (ABS) experienced a series of denial-of-service (DDoS) attacks, suffered a hardware router failure, and baulked at a false positive report of data being exfiltrated, which resulted in the Census website being shut down and citizens unable to complete their online submissions.

The ABS said in its submission to the Census Inquiry by the Senate Standing Committee on Economics that IBM failed to adequately address the risk posed to the Census systems it was under contract to provide, and that IBM should have been able to handle the DDoS attack.

"The online Census system was hosted by IBM under contract to the ABS, and the DDoS attack should not have been able to disrupt the system," the ABS said at the time. "Despite extensive planning and preparation by the ABS for the 2016 Census, this risk was not adequately addressed by IBM and the ABS will be more comprehensive in its management of risk in the future."

Days after the botched Census, Australian Treasurer Scott Morrison called out IBM, saying that if it is found responsible for the failure of the Census 2016 website, the federal government will pursue the global giant.

Since then, IBM Australia has been awarded dozens of federal government contracts across departments including Department of Defence, the Australian Taxation Office, the Department of Immigration and Border Protection, and the Department of Industry, Science and Innovation.

It also scooped up a AU$96m mainframe contract with the Australian Department of Human Services in May, and earlier this month it signed a AU$164 million contract with the Department of Defence.

The enterprise licensing agreement signed with Defence covers the sustainment for existing IBM software and hardware within the department and covers the final three years of the July 2014 contract, rolling in support for additional IBM hardware and software items, a Defence spokesperson told ZDNet.

With AAP

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