IBM lawyer: Indiana agency leader sought breach of deal

Gov. Mitch Daniels' second human services chief went looking for ways to kill Indiana's $1.37 billion welfare automation deal with IBM Corp. after taking over her agency in 2009, an attorney for the computer giant argued Monday in an Indianapolis courtroom.

Until Anne Murphy became secretary of the Family and Social Services Administration in 2009, Indiana officials had nothing but praise for the work performed by Armonk, N.Y.-based IBM 's work in introducing call centers, document imaging and other upgrades to applications for food stamps, Medicaid and other public assistance programs, attorney Steve McCormick said.

He said Murphy actively looked for something to constitute a breach of the contract so the state could break the deal, which Daniels did later that year.

Now Indiana is suing IBM for the $437 million it paid IBM, and the company is countersuing for about $100 million it claims it's still owed in deferred payments and equipment costs. A trial that could last as long as five weeks began Monday. Daniels killed the contract less than three years into its scheduled 10-year span amid wide-ranging performance complaints from clients, their advocates and federal officials.

McCormick contested the state's claim that IBM provided "virtually nothing of value" after several years, pointing to statements in Daniels' press conference announcing the split that IBM had reduced paperwork and saved the state $40 million a year.

McCormick agreed that IBM didn't breach its contract but only failed to perform at its best.

"Nobody is disputing this is poor performance," McCormick said.

John Maley, one of the state's attorneys, showed videos of depositions with several IBM executives who all stated they were aware that IBM wasn't performing to an acceptable level.

In an email to a co-worker, IBM Senior Vice President Mike Daniels called the company's performance "an abomination."

Maley argued in his opening statement that a lack of internal communication was just a part of IBM's problem. He also showed videos of interviews with welfare and Medicaid recipients, including a nun, who struggled to understand IBM's system and received late notifications of errors in their aid applications.

Federal Medicaid officials also notified Indiana, after it implemented IBM's system, of problems with long turnaround times between applications and the approval of benefits.

"At the end of these statistics are real people," Maley said.

After Daniels fired IBM, FSSA took its place as the leader among several subcontractors in the automation project and it has gradually introduced a new system it has dubbed "hybrid" that adds more face-to-face caseworker interaction with clients to the welfare application process. The hybrid system was introduced to Indianapolis and Marion County last week, completing FSSA's overhaul of Indiana's welfare intake system.