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Michigan Sues HP for $49 Million Over Failed Project

HP was to replace an aging mainframe computer, but state officials say that after 10 years and $27.5 million, they're still using the legacy system.

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Hewlett-Packard is being sued by the state of Michigan for $49 million for not completing a project to replace an aging computer system in offices around the state.

Despite having 10 years to complete the project, HP has not delivered a computing system to replace the mainframe-based solution that was built in the 1960s and is used by all 131 offices of the secretary of state as well as other internal work areas, according to Michigan officials.

The state fired HP from the contract Aug. 28 and now is looking for compensation and damages after paying the giant tech vendor $27.5 million since the project kicked off in 2005.

"I inherited a stalled project when I came into office in 2011 and, despite our aggressive approach to hold HP accountable and ensure they delivered, they failed," Secretary of State Ruth Johnson said in a statement. "We have no choice but to take HP to court to protect Michigan taxpayers."

According to Michigan officials, HP was hired in 2005 to replace the mainframe system—which uses outdated programming languages, costs a lot to run and maintain, and makes it difficult to offer services state residents want—as the contractor for the Business Application Modernization project in the state. The company failed to meet the 2010 deadline set in the contract, and after taking office in 2011, Johnson noted that the system put in place by HP "had not delivered a single function to the state," state officials said in a statement.

The state renegotiated the contract with HP, which included set timelines for the project and penalties that HP was to incur if it didn't complete the project. The state also noted that the renegotiated contract included the stipulation that HP would still provide support even if it was fired. However, HP staff has not returned to work since Aug. 31.

Now the state is looking to the courts for help.

"Our DTMB [Department of Technology, Management and Budget] partners and I are gravely disappointed that this action to sue is necessary, but HP simply failed the state of Michigan," Johnson said. "Our focus now will be on looking for options that allow us to continue to provide the best possible service at the lowest possible cost to our customers."

In a statement to the media, HP officials said that "it's unfortunate that the state of Michigan chose to terminate the contract, but HP looks forward to a favorable resolution in court."

The situation echoes other conflicts between government agencies and tech vendors, including the high-profile dispute between the state of Oregon and Oracle over the software vendor's role in creating the state's Obamacare Website.