1. Experienced observers point out that the development of a state social services system is always exceedingly difficult. Multi agency interaction and interdependence often leads to delays and complications in getting requirements finalized and agreed upon. And even if that is accomplished, changes in welfare policies by the state or federal government can render those requirements invalid and require considerable rework. Given the problems that IBM encountered on this contract, should it decline the future opportunities it may have to propose a new solution for a state social services system?

2. Present a strong argument that the state of Indiana is entitled to reimbursement of all funds paid to IBM as well as reimbursement of all overtime employees were paid due to fixing problems associated with the new system. Now present a strong argument that IBM should be allowed to keep all funds it has received so far for this new system.

3. Read about the judge’s recent ruling in this case (www.govtech.com/health/Nobody-Wins-in-Indiana-vs-IBM-Lawsuit-Judge-Says.html). Do you agree or disagree with the ruling?Provide three reasons to support your opinion.

In December 2006, IBM and the Indiana Family and Social Services Administration (FSSA)entered into a 10-year, $1.16 billion contract to modernize the state’s processes and systems for determining welfare eligibility. The state expected to generate $500 million in administrative costs savings over the life of the contract. FSSA claims it began to notice problems in the new system as early as the project’s initial rollout to 10 northern Indiana counties in October 2007. As a result, further expansion was delayed. The state’s lawyers wrote: “IBM assured FSSA that if the Region 2 roll out was implemented, IBM would recognize some efficiencies and economies of scale that would improve performance.” Accordingly, FSSA agreed to roll out the system to the next region. By May 2008, the system had expanded into 59 of Indiana’s 92 counties. In January 2009, a new FSSA secretary Anne Murphy took over and halted any further expansion until IBM submitted a corrective action plan. She set a deadline of July 2009, and her request included the stipulation that the contract be canceled if IBM failed to improve the situation by September 2009. IBM estimated that addressing the issues would cost $180 million. In October 2009, the state announced it had canceled the deal because IBM failed to make the proposed improvements to the satisfaction of the state.

In May 2010, the state of Indiana sued IBM for $1.3 billion, claiming breach of contract. The Indiana FSSA claimed that system-processing errors resulted in incorrect denials of benefits and delays in processing claims bringing harm to in-need citizens. The claims mishandling rate had climbed from 4 percent to 18 percent under the new system. FSSA spokesman Marcus Barlow stated that“there was more staff working on eligibility during IBM’s tenure than before IBM came, yet the results show that once IBM put their system in place, timeliness got worse,error rates went higher. Backlogs got larger.” When the FSSA defined the project in 2006, they told IBM that, for staffing flexibility and efficiency, they wanted a system that would not assign one citizen to a single caseworker. Thus,IBM designed a task-based process that involved outsourcing 1,500 former FSSA employees to IBM. These workers interacted with welfare applicants to gather the necessary data to apply for welfare. Once these workers completed their tasks, the application was turned over to some 700 FSSA state workers who used the accumulated data to determine benefits eligibility.

An IBM spokesman asserted that while there were delays in the system, it was because there were an insufficient number of workers to handle the number of claims. In addition, IBM pointed out that during contract negotiations with IBM, FSSA specified that the system be able to handle up to 4,200 applications per month. However, during the severe recession of 2008–2010, the number of applications frequently exceeded 10,000 per month. The IBM spokesman made it clear that changing from the assigned case worker approach was Indiana’s idea, and was not proposed by IBM. FSSA has since implemented a hybrid system that incorporates the “successful elements of the old welfare delivery system” and a “modernized system.” This system assigns caseworkers to welfare recipients and allows for more face-to-face contact. In its lawsuit, Indiana is demanding that IBM refund the $437 million the state already paid to IBM. Indiana also wants reimbursement of all overtime pay state employees earned working longer hours due to problems with the system. In addition, Indiana insists that IBM be liable for any federal penalties or damages from any lawsuits filed by others because of delays in payments to citizens. IBM countersued Indiana to keep the $400 million it was already paid and for an additional $53 million for the equipment it left in place, which FSSA workers are now using. In a press release issued at the time the lawsuit was filed, IBM claimed that Indiana had acknowledged that the new system had reduced fraud that was estimated to cost over $100 million per year, led to creation of 1,000 new jobs, and reduced Indiana’s operating expenses by$40 million per year for 2008 and 2009 with projected savings of hundreds of millions in upcoming years. In a 2012 court ruling, the judge ruled that IBM is not entitled to the more than $400 million it sought from Indiana. In the same ruling, the judge denied IBM’s claim for damages, while ordering Indiana to pay $12 million for equipment provided by IBM.