INDIANAPOLIS – Indiana must pay IBM Corp. millions related to the 2009 cancellation of a billion-dollar contract meant to modernize the state's welfare eligibility system.
Gov. Mitch Daniels responded to the ruling before it was even released to reporters, saying "we'll seek and expect a reversal, and either way, it's all been well worth it to solve the problem we set out to fix."
He focused on the current state of the system: "Here's what matters: Indiana, which eight years ago had the nation's worst welfare system, now has its most timely, most accurate, most cost-effective and fraud-free system ever. That was always the goal, and changing vendors was essential to achieving it."
Marion County Judge David Dreyer said the state owes IBM $12 million – mostly for equipment left in the state's possession when the contract was canceled.
He earlier found the state had to pay IBM $40 million in contract termination payments.
The state had sought hundreds of millions and got nothing – except a legal bill that could top $8 million.
"Neither party deserves to win this case," Dreyer said in his ruling. "This story represents a 'perfect storm' of misguided government policy and overzealous corporate ambition. Overall, both parties are to blame and Indiana's taxpayers are left as apparent losers."
IBM responded by saying the ruling confirms the essential role IBM played in reducing fraud and laying the framework for the welfare eligibility system that is currently serving Indiana's neediest citizens.
"This case was all about whether the State would fulfill its clear and explicit contractual promises," said Robert Weber, IBM senior vice president and general counsel. "The Court's decision is an important one for all companies who do business with the State because it makes clear that the State is not above the law."
The ruling came more than three months after final arguments in the case.
At the end of the six-week trial, lawyers for the state said IBM Corp. failed so severely in its takeover of welfare eligibility services that the company should pay the state $177 million in damages. The judge earlier capped a possible reward at $125 million.
But IBM contended the state reaped benefits from the company's system and owed IBM $100 million for equipment, termination fees and creation of a workload management system.
The trial included more than 130 hours of testimony and 100 witnesses.
The base question was whether IBM breached a $1.37 billion, 10-year contract with the state.
The goal was to modernize the state's welfare system by moving from a paper-based system to one where Hoosiers seeking food stamps, Medicaid and other public assistance no longer had face-to-face meetings with case managers, instead applying online and through call centers.
That system is known as remote eligibility.
In October 2009, Gov. Mitch Daniels canceled the contract after three years because of service complaints about the automated system.
The state then sued IBM in May 2010, and IBM countersued.