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Disagreement Between IBM and State of Pennsylvania Turns Into Lawsuit

Technology giant IBM is on the receiving end of a lawsuit by the State of Pennsylvania. The lawsuit, which was filed on behalf of the Department of Labor and Industry, is in response to what the government says is a failed update to its outmoded unemployment compensation system.

Computer-bug-63136248-001The story began in 2006 when the State of Pennsylvania and IBM signed a $109.9 million contract. According to the agreement, IBM was going to overhaul the state’s system for distributing unemployment compensation and collecting unemployment insurance taxes. The Department of Labor was using systems that were outdated and consisted of several programs that were not compatible. IBM was supposed to replace this with a streamlined substitute that would be more efficient and cost-effective in the long run.

A completion date of February 2010 was established by the contract. However, that deadline came and went without a working system being installed at the Department of Labor. Various delays stretched the deadline out to September of 2013, by which time the state had paid $60 million in excess of the agreed-upon sum. The government alleges that even after numerous delays and the extra payments, the computer system at the Department of Labor had still not been updated.

Both sides assert numerous reasons why the project was not completed as agreed upon. Turnover at IBM, and the re-assignment of various employees, caused delays, miscommunication and complications. IBM argues that at least some of the fault lies with the government, citing their failure to appoint personnel to manage the project.

It is safe to say that this case will not be resolved quickly or easily, considering the amount of money and the reputations that are at stake. However, this situation provides a useful reminder of how imperative it is for governments, companies and individuals to be exceptionally cautious when it comes to signing contracts. A well-drafted agreement is the key to a successful project, while one that is poorly written merely opens the door to numerous costly legal battles. Accordingly, it is wise to have all contracts reviewed by a business attorney before signing on the dotted line.