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IBM, Indiana to mediate welfare contract dispute

December 10, 2014

IBM Corp. and the state of Indiana are turning to mediation in hopes of settling their dispute over IBM's failed attempt to privatize Indiana's welfare services.

The two parties said in a Monday court filing with the Indiana Supreme Court that they have agreed to mediation and chosen John R. Van Winkle of Indianapolis-based Van Winkle-Baten Dispute Resolution to hear their differences at a Feb. 25 mediation session.

The state Supreme Court heard oral arguments in the welfare-privatization contract dispute on Oct. 30. The following week, Chief Justice Loretta Rush suggested that the parties consider mediation "to seek a mutually agreeable resolution of their dispute." Rush's order also said that if mediation failed, the court would move ahead to reach a decision in the long-running dispute.

An IBM-led team of vendors won a state contract in 2006 to privatize Indiana's welfare service. The team's push introduced call centers, the Internet and fax machines as means by which residents could apply for benefits, and removed specific case workers assigned to each household.

That new system quickly became mired in complaints from lawmakers, welfare clients and their advocates about long wait times, lost documents and improper rejections. Welfare applicants also complained about being left on hold for long periods and the reduced or eliminated face-to-face contact with case workers.

Then-Gov. Mitch Daniels canceled the contract in 2009, less than three years into the 10-year deal, and Indiana and IBM countersued each other.

John R. Malley, a private attorney helping represent Indiana's Family and Social Services Administration in the case, said Wednesday the agency "appreciates the Indiana Supreme Court's consideration of this case and the suggestion for mediation."

"FSSA looks forward to mediating in good faith to explore potential resolutions," he said.

Clint Roswell, a spokesman for Armonk, New York-based IBM, said that "at the court's encouragement, IBM has agreed to mediate." He declined to comment further.

A Marion County judge ruled in 2012 that Indiana had failed to prove that IBM breached its contract and awarded the company $52 million. Indiana appealed that ruling and the state Court of Appeals found in February that IBM had committed a material breach of its contract, but was still entitled to nearly $50 million in state fees.

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