A few days back I posted this blog about the outsourcing troubles between Texas and IBM. Basically, the Texas Department of Information Resources sent a letter to IBM detailing what it calls “chronic failures” of agreed service levels in a multi-year, multi-million-dollar outsourcing contract initiated in 2006. Then, a colleague alerted me to another IBM and state government outsourcing relationship gone sour.
In this battle, IBM is suing Indiana is suing IBM (the suits were filed in May). The point of contention: a 10-year, $1.6 billion outsourcing contract that’s about automating intake for Indiana’s social services system. You can read more about it here, in Government Technology.
Basically, the Indiana Family and Social Services Administration (FSSA) is trying to recover $437.6 million it paid IBM through Jan. 31, because it says the system is kaput. The suit also asks for costs of any third-party lawsuits, federal penalties and employee overtime, plus triple damages worth more than $1.3 billion. For its part, IBM has sued Indiana for $52.8 million, reportedly for hardware, software and automated processes Indiana IMB left there and Indiana is still using.
There are a lot of charges flying around.
According to the Government Technology article, each side disputes the other’s claims. Indiana says data errors in the IBM system led to backlogs and service denials. IBM blames the recession and natural disasters that occurred in the state, such as the 2008 Midwest floods, which led to higher than expected social service caseloads.In this article in the Evansville Courier Press, IBM is not backing down. It is especially upset about $9.3 million worth of equipment, and complained earlier this month in a letter to Indiana Attorney General Greg Zoeller, the newspaper reported. “The state has neither paid the invoice nor returned the equipment to IBM. The state and its subcontractors continue to use IBM’s equipment today in the operation of the state’s welfare eligibility system throughout the state without compensation to IBM,” according to the letter.
Indiana shows now signs of forgiveness either. Back in May, in the Government Technology article, FSSA spokesman Marcus Barlow said the FSSA had enough caseworkers to handle the load, adding that “there was more staff working on eligibility during IBM’s tenure than before IBM came, yet the results show that once IBM put their system in place, timeliness got worse, error rates went higher. Backlogs got larger.” He then pointed specifically to IBM’s system for many of the errors and delays.There’s been no settlement. And it may be a while before anything gets determined. According to the Evansville Courier Press, IBM wants the trial to start in July 2011, while the state is apparently pushing for February 2012.
I’ve heard some interesting comments from the blog regarding Texas and IBM, and I’d like to hear more. Who’s to blame here, IBM or Indiana? And are we going to see more and more lawsuits like this going forward? I mean, I remember the days of big ERP implementations gone bad, with plenty of blame and lawsuits to go around. I think the lesson from that mess was vendors needed to buck up and fix ERP. But buyers learned too: monolithic, multi-year ERP projects were not the way to go. What does all this say about outsourcing?