IBM Fired from $1.34 Billion Contract with State of Indiana

On Oct. 15, IBM was officially terminated from a 10-year welfare services contract with the state of Indiana—a project intended to improve the efficiency and quality of working with welfare recipients.

A press release about the termination came from Gov. Mitch Daniels, who stated that Indiana plans to move ahead with a "hybrid" strategy that will include more face-to-face contact and "localized team based case management," said a news release.

The IBM system eliminated face-to-face meetings and took a task-oriented approach rather than a case-based approach and was not working well for Indiana residents, said the state. While there were improvements to the system in terms of eliminating fraud, increasing state case loads for employees and adding some new jobs to Indiana, fundamental problems still exist, claimed the state in the news release.

"The fraud appears to have been stopped and we're still on track to save taxpayers hundreds of millions of dollars, but the intended service improvements have not been delivered, and that's not acceptable," said Daniels in a news release. "Those who raised concerns about service quality were correct and we appreciate their efforts. We'll now take the best parts of the old and new and move ahead with a hybrid system in what amounts to a major mid-course correction."

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IBM will wind down its part of the operations in 60 days, and within that timeframe the state is reviewing the 22 subcontractors involved in the project, said an article by local newspaper The Indianapolis Star. Demand for welfare-related services has been up in the state as the recession took hold between late 2008 and 2009. The contract was originally slated to cost $1.16 billion, but changes to the contract had costs ballooning to $1.34 billion, according to the AP.

Firing IBM was "gutsy," told state Rep. Peggy Welch, D-Bloomington, to The Indianapolis Star. The changes to the program are further explained in the IndyStar.com article:

"People seeking food stamps, Medicaid and Temporary Assistance to Needy Families will be able to go into county offices for a face-to-face meeting, instead of being pushed to apply only by phone or computer. Those options, though, will remain for people who prefer them. And, instead of being routed through two call centers in Grant and Lake counties, calls will be sent directly to the counties. While those call centers will become 'change centers' where workers can make basic changes, such as a new address, to people's information, the actual cases will be managed by caseworkers in each county."

IBM representative John Buscemi told the AP following the news of contract termination, "'IBM rejects the state's claims and believes the state's actions are unjustified." Asked whether the company was considering suing the state, he said, "IBM will take action as appropriate to protect its rights under its contract with FSSA."

One of IBM's partners from the contract, Affiliated Computer Systems, will be the lead technology company on the project now, said Family and Social Services Administration official Marcus Barlow to the AP.

"The state will continue to shift to paperless case files, rather than the burdensome paper files that clogged the eligibility system," said the state news release.