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IBM, Indiana Haul Each Other To Court

Big Blue claims state is illegally withholding millions in payments, but Indiana says outsourcing job was botched so badly it should receive compensation.

"By refusing to honor certain contract provisions, while at the same time relying on other provisions to remove IBM from the project, the State threatens to undermine the integrity of a public procurement process under which thousands of private companies conduct business with Indiana expecting and depending on the State to fulfill its contractual commitments," IBM said in a statement Thursday.

"The FSSA is in the process of implementing a 'hybrid' system using IBM technology, infrastructure, applications, automated processes and systems," IBM said. "The FSSA has announced that the hybrid system has been so successful that it wants to expand it—underscoring IBM's contributions to an improved welfare eligibility system in the state," the company added.

IBM further maintains that it had no control over many events that, it says, were the root cause of delays and other problems that plagued the system's development.

For starters, IBM contends that political factors resulted in significant changes to the system it originally intended to deploy—to the point where it was almost unrecognizable, even to IBM.

In early 2006, the state, in response to opposition from local labor groups opposed to privatization, commissioned a special review committee to eyeball the proposed project line-by-line.

"For seven months, the Review Committee examined every detail of the Modernization Project and demanded numerous changes to align the project with the Review Committee vision," IBM stated in court papers, also filed in Marion County.

"The final plan was not primarily the IBM Coalition's, but rather was primarily the product of significant Review Committee revisions," IBM stated.

IBM further contends that the severe economic downturn that began in 2007 meant thousands of more Indiana residents than expected were forced onto the welfare rolls during the period as the state's unemployment rate doubled from 4.5% in 2006 to 9% in 2009—further taxing the rollout plan.

The assumption "that there would be no material economic downturn in the State of Indiana was simply wrong," IBM said, in its complaint.

And in early 2007, Indiana introduced a public health benefits program, Healthy Indiana Plan, that more than doubled the expected number of healthcare benefits applications in the months that followed.

Adding to the stress on the system, Indiana was hit by massive flooding and other severe weather in the spring of 2008 that left thousands homeless and without basic services. "The State needed help to screen these new applicants, and it turned to the IBM Coalition," IBM said.

IBM said it acknowledges Indiana's right to remove it from the contract if it wasn't satisfied with the work, but insisted the state has no legal grounds for withholding more than $53 million in deferred fees and equipment charges. IBM is asking the court to order the state to pay up.

A trial date has yet to be set.

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