Ind. to pay IBM $12 million for contract termination

The State of Indiana has been ordered to pay IBM $12 million in early termination closeout payments and for equipment it retained after canceling a contract with the company to implement a privatized welfare system. The decision was ordered Wednesday by Marion Superior Judge David Dreyer.

Dreyer previously ruled in January that the Hoosier State was required to pay $40 million in subcontractor assignment fees for terminating the contract.

Indiana signed a contract with IBM in 2006, agreeing to pay more than $1 billion if the company created an automated application system for benefits distributed by the Family and Social Services Administration.

But in 2009, Gov. Mitch Daniels terminated the agreement, citing complications with the system.

In response to Dreyer’s decision, Daniels released a statement reminding residents that, eight years ago, Indiana had the nation’s worst welfare system. But now, Daniels said, Indiana has the “most timely, most accurate, most cost effective and fraud free system ever.”

The U.S. Department of Agriculture recently recognized Indiana’s FSSA for its second straight year of achieving payment accuracy and negative error rates, toppling the national average in both categories. A year ago, according to the release, Indiana was the second most improved state for payment accuracy, earning the state a $1.6 million bonus.

“Even if this ruling stands, it will have zero impact on the state surplus,” said Adam Horst, director of the Office of Management and Budget, in the release. “The state sets aside funds for exactly this type of lawsuit contingency. Taxpayers are way ahead because of the decision to modernize our eligibility system.”

If the state had not changed its welfare system, the cost to operate the old system under IBM would have cost $61 million more this year than the system now in place, according to the release.

But Indiana Democratic Party Chair Dan Parker said in a statement that Daniels’ decision to privatize the state’s welfare system will be at the expense of taxpayers.

“Not only are Hoosiers left footing the bill for Mitch Daniels’ ill-conceived privatization effort, but we cannot forget that his outsourcing scheme caused physical harm to vulnerable Indiana families,” Parker said. “This proves that the Governor’s system was a failure, but money can’t repair the damage done to the neediest Hoosiers who couldn’t get the service they deserved from state government.”

— Mark Keierleber