IBJNews

Indiana can't collect on IBM welfare lawsuit, judge rules

Back to TopCommentsE-mailPrintBookmark and Share

Indiana cannot collect millions of dollars it claims IBM owed after its efforts to overhaul the state's welfare system failed, and the computer giant is entitled to payment for equipment the state kept, a judge said in a Wednesday ruling that condemned both sides.

Marion County Judge David Dreyer said in his 75-page order that neither side deserved to win the dispute.

"Overall, both parties are to blame and Indiana's taxpayers are left as apparent losers," Dreyer wrote, blaming "misguided government policy and overzealous corporate ambition."

A team of vendors led by IBM in 2006 was awarded a 10-year, $1.37 billion contract to process applications for food stamps, Medicaid, and other public safety net benefits. The deal introduced call centers, the Internet and fax machines as means to apply for benefits and removed specific state case workers assigned to each household.

The changes drew fire from lawmakers, welfare clients and their advocates, who claimed the new system lost necessary documents, left telephone callers on hold for long periods, reduced or eliminated face-to-face contact with case workers. Gov. Mitch Daniels killed the deal in 2009, after less than three years.

Indiana initially sued IBM for $437 million, which was later reduced to about $170 million. IBM countersued for about $100 million that it claimed it was owed.

Dreyer said Indiana set out to fix the previous welfare system, which Daniels called the worst in the nation, by "inserting an untested theoretical experiment, and substitute personal caseworkers with computers and phone calls.

"This is now admitted to be an error, and there is nothing in this case, or the court's power, that can be done to correct it, or remedy the lost taxpayer money or personal suffering of needy Hoosiers," he wrote.

Indiana failed to prove that IBM breached its contract, Dreyer said, and he denied the state the money it sought.

Dreyer also found that most of IBM's claims for damages were "unreasonable" but awarded the Armonk, N.Y.-based company $12 million, mostly for equipment the state kept. IBM previously had previously received $40 million in a summary judgment ahead of the trial.

Peter Rusthoven, a private Indianapolis attorney who represented the state in the case, disputed Dreyer's finding that IBM hadn't broken its deal with the state and said the government would appeal the decision.

"We believe the court's view that IBM's concededly bad performance did not materially breach the contract is wrong, and cannot be squared with the overwhelming evidence of poor performance," Rusthoven said in a statement.

He said federal regulators found IBM's performance "abysmal" and the company's own chief executive called it an "abomination."

Rusthoven also said the ruling contained "regrettable, unnecessary political commentary that is neither accurate nor relevant."

IBM said in a statement that the ruling "confirms the essential role IBM played in reducing fraud and laying the framework for the welfare eligibility system that is currently serving Indiana's neediest citizens."

Robert Weber, IBM Senior Vice President and General Counsel, said the case was about the need for Indiana to fulfill its contractual promises.

"The court's decision ... makes clear that the state is not above the law," Weber said.

A group of subcontractors led by the Family and Social Services Administration has introduced a new hybrid welfare system that maintains elements of the IBM project but includes more face-to-face caseworker interaction with clients during the application process.

"Modernization is the foundation on which the state hybrid system now stands. For better or worse, and through much transition difficulty, the contract, including IBMs efforts, conferred the overall aggregate benefit sought by the State: a new welfare system that works better," Dreyer said in the ruling.

Daniels said the state's new welfare intake system is the "most timely, most accurate, most cost effective and fraud free system ever" in the nation.

"We'll seek and expect a reversal," he said in a statement. "Either way, it's all been well worth it to solve the problem we set out to fix."

A welfare advocate said while the hybrid system addresses some deficiencies in Indiana's welfare system, it is still difficult for many people to get approved for welfare, food stamps and health care benefits and keep receiving them.

Daniels' statement "doesn't accurately portray to the public how much room for improvement there is to bring Indiana up to the level of other states," said David Roos, executive director of the advocacy group Covering Kids & Families of Indiana.

David Sklar, president of the Indiana Coalition for Human Services, a not-for-profit coalition of about 25 service providers and advocacy groups, said the organization had always been concerned about the effect privatization would have on low-income families, but said the new, hybrid system generated far fewer complaints.

"It's a shame that this endeavor in the end will probably cost the taxpayers more money," he said.

ADVERTISEMENT

  • ACS
    Interestingly, ACS was the former employer of Mitch Roob, who was leading FSSA when IBM/ACS was hired. hmmmm..... very interesting that they are the ones that were really screwing up.....
  • Barnes & Thornburg
    JJ, actually the Governor's Office insisted that Barnes & Thornburg be hired. The AG though could have overruled him since he's the state's attorney. He didn't. The biggest problem is that B&T had a huge conflict since that law firm is ACS's counsel and ACS, IBM's main subcontractor on the job, was in the middle of the screwed up Medicaid privatization. In fact, Judge Dreyer said that almost all the complaints were about the services ACS was providing.
  • How much?
    Our gov has spent 10 million on legal fees to his bud Pete. I am glad to see that the people of Indiana does not have a qualified attorney general, or staff. I expect that one we go further that this is a drop in the bucket to the next level. Mitch, you are the steward of my money.

    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. I am so impressed that the smoking ban FAILED in Kokomo! I might just move to your Awesome city!

    2. way to much breweries being built in indianapolis. its going to be saturated market, if not already. when is enough, enough??

    3. This house is a reminder of Hamilton County history. Its position near the interstate is significant to remember what Hamilton County was before the SUPERBROKERs, Navients, commercial parks, sprawling vinyl villages, and acres of concrete retail showed up. What's truly Wasteful is not reusing a structure that could still be useful. History isn't confined to parks and books.

    4. To compare Connor Prairie or the Zoo to a random old house is a big ridiculous. If it were any where near the level of significance there wouldn't be a major funding gap. Put a big billboard on I-69 funded by the tourism board for people to come visit this old house, and I doubt there would be any takers, since other than age there is no significance whatsoever. Clearly the tax payers of Fishers don't have a significant interest in this project, so PLEASE DON'T USE OUR VALUABLE MONEY. Government money is finite and needs to be utilized for the most efficient and productive purposes. This is far from that.

    5. I only tried it 2x and didn't think much of it both times. With the new apts plus a couple other of new developments on Guilford, I am surprised it didn't get more business. Plus you have a couple of subdivisions across the street from it. I hope Upland can keep it going. Good beer and food plus a neat environment and outdoor seating.

    ADVERTISEMENT