(AP) — A judge on Wednesday rejected Indiana's bid to recoup any of the
roughly $170 million it was seeking from IBM over the company's failed
efforts to overhaul the state's welfare system.
Judge David Dreyer said in his 75-page order that neither side deserved to
win the dispute, and he gave IBM only a small fraction of what it was
parties are to blame and Indiana's taxpayers are left as apparent losers,"
Dreyer wrote, blaming "misguided government policy and overzealous corporate
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 project introduced call centers, the Internet and fax machines
as means by which residents could apply for benefits, and it 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 callers on hold for long periods
and reduced or eliminated face-to-face contact with case workers. Gov. Mitch
Daniels killed the deal in 2009 after less than three years.
initially sued IBM for the $437 million it paid the company, a figure that
before the trial was reduced to about $170 million, said Peter Rusthoven, an
Indianapolis attorney who represented the state in the case. IBM countersued
for about $100 million that it claimed it was owed.
Indiana set out to fix the previous welfare system, which Daniels called the
worst in the nation, by "inserting an untested theoretical experiment" and
substituting 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, and he denied the
state any of the money it sought.
The judge 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.
disputed Dreyer's finding that IBM hadn't broken its deal. He said the
government would appeal.
"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."
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."
IBM Senior Vice President and General Counsel, said the case was about the
need for Indiana to fulfill its contractual promises.
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.
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.
Wednesday's judgment stands, Daniels said the state made the correct
decision in firing IBM and hiring a new vendor to handle the automation of
Indiana's welfare system.
"We now have a
system that is very dramatically better than before and of course better
than what IBM could do," he said, calling Indiana's welfare intake system
now one of the best in the nation.
"I'm sorry that
it didn't work the first time, I'm sorry that we had squabbles with IBM, but
we weren't going to stop until we got this problem — until we made big
improvements in Indiana's welfare system, and we have," Daniels said.
In response, the
company issued a statement in which it said Daniels "chooses to ignore the
fact that the modernized system is based on IBM technology and efforts while
it led the program."
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
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.
president of the Indiana Coalition for Human Services, a nonprofit 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
"It's a shame
that this endeavor in the end will probably cost the taxpayers more money,"
Leader Pat Bauer said in a statement that the lawsuit stood to cost taxpayer
about $65 million, counting the judgments and outside legal fees.
welfare didn't work. It was a complete disaster," said Bauer, D-South Bend.
"We wasted three
years to prove the point that many of us said would happen when this
miserable idea was first launched," he added.