State must pay $52M over terminated welfare contract

Marion Superior Judge David Dreyer has ordered the state to pay IBM an additional $12 million in early termination closeout payments and for equipment it retained after canceling a contract with IBM to implement a modernized welfare system. The judge previously ruled in January that the state was on the hook for $40 million in subcontractor assignment fees for terminating the contract.

In the ruling handed down Wednesday morning, Dreyer wrote, “Neither party deserves to win this case. This story represents a ‘perfect storm’ of misguided government policy and overzealous corporate ambition. Overall, both parties are to blame and Indiana’s tax payers are left as apparent losers.”

IBM and the state filed lawsuits against the other over the cancellation of the 10-year contract the state entered into with IBM to update Indiana’s welfare system. The $1.3 billion contract was signed in December 2006, but the state terminated it in October 2009, dissatisfied with IBM’s results.

The state sought more than $437 million from IBM, but Dreyer ruled earlier this year the most the state could recover is $125 million in damages. IBM wanted the state to pay it $100 million for terminating the contract early.

Wednesday’s ruling awards IBM $52,081,416, plus prejudgment interest and costs. The company is not entitled to damages for deferred fees or mandatory changes. The state got nothing out of its complaint.