Gov. Tom Wolf is accusing IBM of racking up tens-of-millions in cost overruns while failing to deliver under a $110 million contract to create a new integrated computer system for handling the state’s unemployment compensation program.
A fraud suit filed by the Wolf’s administration said a sweeping computer upgrade the state contracted IBM to complete back in June 2006 fell three years behind schedule, went $60 million over budget, and ultimately never came to fruition.
Following the advice of an independent project assessment, the Corbett administration in 2013 , cancelled the contract with nothing to show for all the time, effort and money.
“All told, Pennsylvania taxpayers paid IBM nearly $170 million for what was supposed to be a comprehensive, integrated, and modern system that it never got,” Gov. Tom Wolf said in a statement.
“Instead, the Department of Labor & Industry has been forced to continue to support many of its UC program activities through a collection of aging, costly legacy systems, incurring tens of millions of dollars in server, support and maintenance costs.”
Said Senate Republican spokeswoman Jenn Kocher of the lawsuit: “This lawsuit validates our position that taking a step back, asking more questions and holding the administration accountable for spending was the right thing to do. Our insistence on finding a remedy has finally brought us to the point of action by the administration.”
According to a complaint in the Dauphin County Court of Common Pleas, the upgrade was meant to integrate disparate computer systems that the department relied on to process data regarding tax payments submitted by employers and benefit claims submitted by unemployed workers.
After a three-year bidding process, the complaint said that the state chose IBM for the project based on its representations that it was the only vendor with the type of proprietary databases capable of providing a totally integrated computer system.
But the state said that IBM never came through on its promises.
“Despite being paid nearly $170 million, IBM never delivered the modern, integrated computer system it commit to build, instead delivering failed promises and a failed project,” the complaint said.
While analysts spent time working with the department to understand the functions that would need to be built into the system, the complaint said that IBM ultimately removed the workers from the project when the time came to begin actually designing and coding the system.
“Frequent IBM personnel churn came to be a defining feature of the … project,” the complaint said.
The complaint also accused IBM of making repeated misrepresentations about the prospects for completing the project.
The contract was ultimately allowed to expire in September 2013 without the system ever coming online.
The suit levels claims including breach of contract, fraudulent inducement and negligent misrepresentation, and seeks unspecified damages.
“IBM will vigorously defend itself against the unfounded claims by the commonwealth,” the company said in a statement. “The claims are without merit ….”
The commonwealth is represented by David Wolfsohn, Sandra Jeskie and Aleksander Goranin of Duane Morris LLP.
Counsel information for IBM was not immediately available.
The case is Commonwealth of Pennsylvania v. International Business Machines Corp., case number 2017-cv-1740, before the Court of Common Pleas of Dauphin County, Pennsylvania.