INDIANAPOLIS – Hundreds of millions of taxpayer dollars are at stake in dueling lawsuits filed only minutes apart Thursday by the state’s social services agency and IBM Corp.

IBM was the primary vendor behind a failed effort to privatize and modernize Indiana’s welfare eligibility system. The state’s lawsuit accuses IBM of breach of contract and “unjust enrichment” associated with the company’s contract to fix Indiana’s welfare system.

“Although the cost in time and resources was great, (the Family and Social Services Administration) was left with virtually nothing of value from IBM’s failed performance,” the suit said.

The complaint doesn’t seek a dollar amount but claims Indiana has suffered hundreds of millions of dollars in economic injury.

“We are seeking every penny we paid to IBM plus any money FSSA has paid or will have to pay because of penalties or lawsuits due to the flawed system,” said Marcus Barlow, FSSA spokesman.

As of Jan. 30, IBM has received $437 million in state and federal payments under the contract.

“IBM’s failure to help our most vulnerable Hoosiers and fix Indiana’s welfare system set us back in time and money, for which we’d like compensation,” said Family and Social Services Administration Secretary Anne Murphy.

“Our new contractors are achieving far better results than either Indiana’s previous system or the system IBM attempted to install. That is evidence the job of repair and reform could have been done much better.”

The lawsuit filed by IBM seeks payment for about $52 million in fees and equipment reimbursement.

IBM spokesman Clint Roswell said the company has a “strong case” for collecting fees it says the state owes.

“The thing about all of this that bothers us the most is that the state is using our technology now and taking credit for it,” he said.

The lawsuit filed by IBM also points to numerous comments made by Gov. Mitch Daniels when he canceled the contract concerning how well IBM did and saying the failure was due to the concept behind the new system, including the elimination of face-to-face client visits.

The governor commended IBM during a news conference and said: “It wasn’t resources. It wasn’t effort. It was a flawed concept that simply did not work out in practice.”

The IBM contract, originally for 10 years and $1.16 billion, was signed in 2006 and later grew to $1.34 billion. It turned over administration of food stamps, Medicaid and other welfare services to IBM and a host of subcontractors.

The intent was to replace the state’s paper-based casework system with one that relied on computer and telephone contact with clients.

The court filing said FSSA began seeing problems with IBM’s system early in its rollout in the first region of counties in October 2007. FSSA suggested delaying further rollout until the problems could be fixed, but IBM assured the state that if the next region was added, efficiencies and economies of scale would improve performance.

That improvement never came, the state said. Instead, the system was plagued by complaints from clients, advocates and lawmakers citing clogged telephone centers, lost documentation, long waits for determinations and errors in kicking people off the system.

The state halted the IBM-led system’s expanding to more counties and required IBM to submit to a corrective action plan last summer. But in October, Daniels canceled the contract and said the state would instead implement a hybrid system with more staff and face-to-face contact.

The state continues to use virtually all of the contractors hired under the original plan except IBM.

IBM’s Roswell said the company was staffed under the contract to handle about 4,000 applications a month. When the economy weakened and unemployment skyrocketed, the number of applications grew to between 10,000 and 15,000 a month.

“That made things very difficult,” he said.

IBM is not disputing its removal from the project but believes the state owes it money related to the termination.

At issue are expenses IBM incurred at the outset of the project. As an accommodation to the state, IBM agreed to defer payment to spread costs more evenly over the 10-year project. Under the contract, payment of those expenses is owed to IBM if it is removed from the project “for any reason,” the lawsuit filed by IBM said. Those expenses include a $43 million annual deferred fee and $9.3 million worth of telephones, computers and furniture.

Murphy has refused to pay those costs, claiming IBM’s contract was terminated “for cause.” The state’s lawsuit against IBM also disputes those expenses.

Both lawsuits were filed in Marion County courts.

“In a very real sense both parties, FSSA and IBM, have been guilty of violating the public’s trust, and both parties have brought substantial harm to tens of thousands of impoverished, sick and disabled Hoosiers in the past three years,” said John Cardwell, chairman of the Indiana Home Care Task Force. “Apart from the FSSA and IBM lawsuits against each other, the central public policy questions are these: How will the people of Indiana who have been harmed be made whole, and how do we keep this sort of politically motivated mess from happening again?”

Rep. Peggy Welch, D-Bloomington, said she is glad the state is standing up for itself: “I don’t want us to roll over. Unfortunately, the state of Indiana rolled over for too long with IBM and let IBM call the shots. We’re not doing that anymore. If that means a legal battle, then so be it.”

nkelly@jg.net