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Judge: IBM owes Indiana $78M for contract breach

August 7, 2017

IBM owes Indiana a net of nearly $78.2 million in damages for breaching a contract to modernize the state’s welfare privatization efforts, a Marion County judge has determined.

Marion Superior Judge Heather Welch ruled Friday the state was entitled to $128 million for IBM’s breach of its master services contract signed more than 10 years ago to modernize the welfare eligibility computer system used by the Family and Social Services Administration. Welch noted IBM is entitled to $49.5 million in equipment fees and assignment fees from the state, an amount previously affirmed by the Indiana Supreme Court. The parties have also stipulated that IBM is entitled to around $311,000 for two change orders.

The ruling is the latest chapter in litigation stemming from the state’s cancellation of the contract to privatize and upgrade welfare systems. Welch’s ruling comes on remand from the Indiana Supreme Court’s decision in March 2016. Justices reversed an earlier trial court decision by Marion Superior Judge David Dreyer that found IBM had not breached the contract and that the company was entitled to about $62 million in damages from the state.

The $1.3 billion, 10-year contract executed by former Gov. Mitch Daniels in 2006 was plagued with problems and terminated for poor performance in October 2009, but not before the state had paid IBM more than $440 million. The ensuing litigation also was fraught with trouble.

After the Supreme Court remanded the matter to Dreyer with instructions to calculate damages the state was entitled to for IBM’s breach, the Supreme Court later removed Dreyer from the case.  The court ruled Dreyer exceeded his authority for issuing orders again denying damages for the state on the day the Supreme Court opinion on remand was certified. Lawyers for the state petitioned for Dreyer’s removal for what they called his “surprise” ruling taken without hearing, briefing, argument or notice to the state.

Welch has had the decision under advisement since February.

This article will be updated.
 

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