State Ordered To Pay IBM $52 Million For Botched Welfare Privatization Deal

The state's Family & Social Services Administration attempted to scapegoat IBM for the failed privatization of the agency's welfare services, which was primarily carried out as a way of steering hundreds of millions of dollars to ACS, the former employer of the agency's then-Secretary Mitch Roob. When it became apparent the effort had caused harm rather than the promised benefits from the initiative, the state sought to blame the lead contractor IBM while retaining the services of ACS despite ample evidence that ACS had not performed its job well either. The Daniels administration then hired the law firm employed by ACS to win the contract in the first place, Barnes & Thornburg, to represent it in a breach of contract suit against IBM seeking more than $100 million in damages despite the law firm's conflict of interest. IBM fought back with its own countersuit. Today, Marion Co. Superior Court Judge David Dreyer ruled in favor of IBM on some of its claims against the state, and he ruled against the state of Indiana on all of its claims against IBM. Judge Dreyer's latest order requires the state to pay IBM $12 million for computer equipment the company purchased but the state retained for ACS's use on its continued contract with the state. Judge Dreyer had previously ruled that the state had to pay IBM $40 million to cover fees it paid to its subcontractors, bringing its total judgment to $52 million. Dreyer admonished both parties in his ruling.  "Neither party deserves to win this case," Dreyer wrote in a 65-page ruling. "This story represents a 'perfect storm' of misguided government policy and overzealous corporate ambition," the Star reported on his ruling. "Overall, both parties are to blame and Indiana's taxpayers are left as apparent losers." The ruling still left IBM without many of the damages it had sought from the state over the state's termination of its contract.

UPDATE: Gov. Mitch Daniels remains unapologetic about the badly-botched privatization deal. The Fort Wayne Journal-Gazette's Niki Kelly says the state will seek and expects a reversal of Judge Dreyer's decision:

“Here’s what matters: Indiana, which eight years ago had the nation’s worst welfare system, now has its most timely, most accurate, most cost effective and fraud free system ever. That was always the goal, and changing vendors was essential to achieving it. We’ll seek and expect a reversal, and either way, it’s all been well worth it to solve the problem we set out to fix.”