IBJNews

IBM: Indiana canceled deal because of budget woes

Back to TopCommentsE-mailPrintBookmark and Share

The real reason Indiana canceled its nearly $1.4 billion contract with IBM for a troubled welfare automation system was state budget problems, a lawyer for the computer giant argued Tuesday. But the state said IBM was more concerned about profit than getting assistance to needy people.

Both sides traded jabs during five hours of closing arguments before Marion Superior Court Judge David Dreyer, who is considering dueling lawsuits in the case. Gov. Mitch Daniels canceled IBM's privatization contract in 2009 amid complaints about long wait times on calls, lost documents and improper rejections from clients and federal officials.

Indiana had sued for the $437 million it paid the company, but Dreyer capped the damages the state could seek at $125 million. IBM is seeking about $100 million that the company claims it's still owed.

IBM attorney Steve McCormick said the Armonk, N.Y.-based computer company simply gave the state officials what they wanted: Switching from in-person visits at county welfare offices to taking applications online and via remote call centers.

"The problems were inherent in the system that the state chose," McCormick said.

But John Maley, one of the attorneys hired to represent the state, said IBM simply didn't live up to its end of the billion-dollar deal. He said the company repeatedly failed to hit benchmarks that it agreed to meet, then blamed its failures on a surge in applications due to the economic downturn and the floods that displaced thousands of people in 2008.

"IBM said it would be accountable when it sold modernization to the state, but now it offers excuses," Maley said. "It's time for IBM to finally be held accountable."

He said IBM failed to process applications in a timely manner, which he said was its primary obligation under the 2006 contract. He said IBM didn't devote enough resources to provide the service it had promised, and cited a company executive's testimony that IBM couldn't shirk its fiduciary responsibilities."

So the shareholders trump a million needy Hoosiers," Maley said.

McCormick said timeliness wasn't even mentioned in the contract. The main goal, he said, was to free welfare applicants from the chore of traveling to a county welfare office, and a secondary goal was to save the state money in administrative costs. He played audio of Daniels announcing at a 2009 news conference that the automated system had saved the state $40 million.

McCormick said the state never complained until it decided to break off the deal, and he said internal emails showed that state officials were planning behind the scenes to ditch IBM months before Daniels cancelled the contract in October 2009.

That was about the same time Daniels ordered state agencies to cut spending in the wake of multimillion-dollar revenue shortfalls.

"They terminated the contract because of their budget problems," McCormick said.

Dreyer is not expected to rule for several weeks.

ADVERTISEMENT

  • News
    I seem to remember news casts, prior to dropping IBM, stating that the IBM system was declining welfare applications and the persons applying for said same were threatening lawsuits against the state, via the federal government for discrimination.

    To rephrase the problem noted on comments it is the unemotional computer program vs. the emotional decision of entitlements approved by caseworkers.
  • "Consultant"
    It seems to me that IBM failed at the job of being both a "consultant" and a "supplier". Whatever happened to the high road, where the customer comes first? We always enjoyed competing with IBM and other large companies that pounded their chest, made all of the nice sounding promises, very often over committing, and in the end, always blamed the customer for Big Blue's own short comings and failures. This trial is like watching a rerun from long ago, with the plot never changing, and the customer getting the blame. We have Corporate America (IBM) vs. the Republican Leadership of Indiana. This is better than Final Four Tickets.
  • Still Problems
    Got news for you. IBM isn't the only problem. ACS (or whatever they're calling themselves these days) have just continued the LOUSY practices that have been established and there are just as many problems and complaints today. With no assigned caseworkers there is no accountability to see that work gets done in a timely manner. Documentation gets sent to some black hole fax number or email address and is never seen again.

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. PJ - Mall operators like Simon, and most developers/ land owners, establish individual legal entities for each property to avoid having a problem location sink the ship, or simply structure the note to exclude anything but the property acting as collateral. Usually both. The big banks that lend are big boys that know the risks and aren't mad at Simon for forking over the deed and walking away.

  2. Do any of the East side residence think that Macy, JC Penny's and the other national tenants would have letft the mall if they were making money?? I have read several post about how Simon neglected the property but it sounds like the Eastsiders stopped shopping at the mall even when it was full with all of the national retailers that you want to come back to the mall. I used to work at the Dick's at Washington Square and I know for a fact it's the worst performing Dick's in the Indianapolis market. You better start shopping there before it closes also.

  3. How can any company that has the cash and other assets be allowed to simply foreclose and not pay the debt? Simon, pay the debt and sell the property yourself. Don't just stiff the bank with the loan and require them to find a buyer.

  4. If you only knew....

  5. The proposal is structured in such a way that a private company (who has competitors in the marketplace) has struck a deal to get "financing" through utility ratepayers via IPL. Competitors to BlueIndy are at disadvantage now. The story isn't "how green can we be" but how creative "financing" through captive ratepayers benefits a company whose proposal should sink or float in the competitive marketplace without customer funding. If it was a great idea there would be financing available. IBJ needs to be doing a story on the utility ratemaking piece of this (which is pretty complicated) but instead it suggests that folks are whining about paying for being green.

ADVERTISEMENT