INDIANAPOLIS – Gov. Mitch Daniels announced Thursday the state will abandon its $1.34 billion welfare contract with IBM Corp., a move the vendor in charge of the largest private contract in state history disputed.
Daniels announced the "midcourse correction" to a packed house of media, saying he would terminate the contract in 60 days, or Dec. 14, and move forward with a hybrid system that has features from both the old system and the new modernized one.
"It wasn’t resources. It wasn’t effort," he said. "It was a flawed concept that simply did not work out in practice."
Opponents of the contract quickly declared victory Thursday.
"It was the right move," said House Speaker Pat Bauer, D-South Bend. "There were too many people suffering."
He added that lawmakers need to monitor the new system as the state minimizes the privatization contract.
Daniels said his administration tried to save thousands of Hoosiers from unnecessary face-to-face meetings to apply for benefits. But incomplete applications and confusion about documentation showed the practice just wouldn’t work.
The contract, originally for 10 years and $1.16 billion, was signed in 2006 and lauded by the Daniels’ administration as a way for the state to reduce fraud and modernize its welfare system.
More than $361 million in state and federal money has been spent on the contract, the Family and Social Services Administration told the state budget committee last month.
But the privatization was fraught with criticism from the beginning, especially because it typically traded trained state caseworkers for contracted call center workers. The state halted the rollout early this year and asked IBM to submit a plan to correct problems.
Hybrid plan
The state is working on a new hybrid system in which Hoosiers will apply in person at a county office.
A contract employee will take applications and gather documents and will pass the information to a state employee to determine eligibility. The involvement of both workers will eliminate fraud, Daniels said.
The person’s case also will be handled by a single case manager or team – much like the old system.
Daniels thanked the critics – constituents, legislators, advocates – who raised concerns and alarms. And he commended IBM for its effort, noting it hired extra employees.
But the errors and timeliness rates did not show "clear, positive improvement," he said.
Daniels declined to comment on whether there would be a fee to cancel the contract, saying he hoped the situation could be handled amicably.
IBM rebuttal
IBM spokesman John Buscemi said the company had invested great amounts of money and resources in a process complicated by the severe recession, high unemployment and natural disasters that increased the number of people seeking help.
"IBM rejects the state’s claims and believes the state’s action is unjustified," Buscemi said.
IBM would take action as appropriate to protect its rights under its contract with FSSA, Buscemi said, but declined to be provide specifics.
Provisions in the contract give the state the right to cancel for any reason at any time, and say the state is not liable for further payment after termination.
The 60-day termination timeline gives the Family and Social Services Administration time to develop a detailed implementation plan for the hybrid system.
The state agency essentially will take over IBM’s role with its subcontractors, such as Affiliated Computer Services and Arbor, and will have to hash out agreements with them in that time. It was unclear Thursday whether the state would have to hire back some employees and whether IBM will cut jobs in the state over the cancellation.
Too soon to tell
In theory, the cancellation should be good news for the thousands of Hoosiers whose benefits have been delayed or improperly terminated since the state signed the contract in 2006.
But a lack of detail and concern over subcontractors worried some advocates.
John Cardwell, chairman of the Indiana Home Care Task Force, said more face-to-face contact is one component advocates have fought for since the contract was signed. Most clients’ problems began when they lost their assigned caseworkers, he said.
But he’s waiting for more details of the state’s new system before deciding whether it will be an improvement.
"If IBM is only being replaced in its system coordination capacity by FSSA directly, that still leaves a lot up in the air," Cardwell said.
Lawmakers’ view
Legislative reaction to Daniels’ decision was swift. And both Republicans and Democrats commended the governor for making the tough decision.
Senate Minority Leader Vi Simpson, D-Bloomington, applauded the governor but said he took too long to act.
"This will be a great relief to the state’s service providers and recipients who have repeatedly asked to be allowed to work directly with well-trained state caseworkers in local offices," she said.
"It is now important that we maintain diligent oversight of the transition and this new hybrid system as it is tested."
Several Republican lawmakers from northeast Indiana sent out written statements on the announcement.
"By bringing together the best elements of the old system with the efficiencies, fraud prevention and standardizations delivered by the automated system, we will deliver better services than ever for Hoosiers in need," said Rep. Randy Borror, R-Fort Wayne.
And Rep. Dan Leonard, R-Huntington, said he is glad the governor recognized that the modernization hasn’t worked as intended.
"There are lots of Indiana residents who depend on FSSA, so its efficiency is vital," he said. "The governor was able to take the BMV, a broken system, and make it highly productive and efficient for Hoosiers. I believe we’ll see that same result with FSSA."
