Pennsylvania Won’t Renew IBM's Contract for Botched Project

State’s unemployment compensation modernization program 42 months late, $60 million over budget

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Pennsylvania Won’t Renew IBM's Contract for Botched Project
Scott Eells/Bloomberg/Getty Images

Pennsylvania’s Labor and Industry Secretary Julia Hearthway announced Wednesday that the state has decided not to renew its contract with IBM to modernize the state’s 40-year-old unemployment compensation computer system. According to an AP report, the contract, which was awarded in 2006 and is set to expire in 2013, is currently 42 months late and over $60 million above its original contract amount of $106.9 million.

IBM's Fred Brooks once famously wrote in his 1975 groundbreaking IT project management book The Mythical Man-Month that IT projects become a year late one day at a time. Of course, Brooks meant it as a warning, not as a goal, something that Brooks may want to explain to his old company.

The state decided to end the contract after a US$800 000 assessment of the effort by the Software Engineering Institute (SEI) indicated that the critical objective of the modernization effort, namely a demonstrated “capability to reliably, consistently, and accurately process unemployment claims, calculate payments, and enable payment to eligible citizens who are out of work” doesn’t yet exist, and apparently, there is no agreement when, if ever, such a capability will ever exist.

Hearthway stated that, in wake of the SEI’s assessment, “The bottom line is that the problems we've identified cannot be solved and we will not renew our contract with IBM. The level of risk, combined with the critical nature of the system, demands that the (department) has a system that produces timely decisions reliably and accurately.”

An IBM spokesperson said the company was “surprised” by the state’s decision. In addition, the spokesperson said that, “IBM is fully prepared to continue to bring the benefits of a contemporary unemployment benefits system to the state and its citizens, and we stand ready to work with the state to resolve this matter.”

The IBM spokesperson went on to moan that the company had not seen the SEI report or had a chance to respond to it. He also stated, “In complex information technology implementations, there is accountability on both sides for system performance and service delivery.”

In other words, don’t blame us, instead the blame should be placed on the state’s mismanagement of the system contract for the modernization effort ending up resembling IT roadkill.

The SEI assessment does indicate that the state’s management of the effort left lots to be desired, especially in terms of mismanaging obvious project risks, which allowed them to turn into problems at an ever increasing rate over from 2007 through 2011.  The report states that the “approach [or lack thereof] to managing the program from contract award to early 2011 led to a situation in which no one … was accountable and responsible for the administration of the program.”

Naturally, IBM repeatedly pleaded with the state to suspend the contract to allow the state to get its management act together in order to rectify this obvious case of poor project management, right?

Ah, no.

It seems that IBM was very content to let the chaos continue while it collected sums much greater than the original contract called for.  And to say it was surprised over the state's decision to not renew the contract is a hoot as well. A Department of Labor and Industry spokesperson said in response to IBM's surprise claim that, "We've been meeting weekly with them and they know full well all the problems. That's ridiculous that they say they're surprised. They must be in denial.”

Denial, or maybe just forgetfulness? Perhaps IBM forgot that the state has held back $17 million in payments for what it called the company's “shoddy work” on the project. Or maybe IBM forgot that not everyone thinks it is perfectly okay to be a wee bit late on the project and fail to deliver on what is promised. Or possibly IBM forgot that other states like Texas and Indiana recently fired it for less than stellar IT contractual performance, too?

IBM’s reputation will likely take another hit as the Queensland Health Payroll System Commission of Inquiry report which was delivered to the government on Wednesday soon becomes public. You may recall (and IBM definitely doesn't want to), IBM was the prime contractor for what is arguably one of most botched IT projects in history but one that the company insists was an “outstanding success.” The 2008 contract price for the Queensland Health payroll system was A$6.19 million (fixed price); when all is said in done, the final cost to make the payroll system “work” as envisioned could top A$1 billion. Early speculation is that IBM’s corporate image will not be enhanced by the commission report.

Pennsylvania is now going to regroup and figure out what to do next. Luckily the current unemployment system works, albeit more slowly and less efficiently than anyone likes. There may also be elements of the “modernized” system that IBM developed that are salvageable.

U.S. taxpayers are the ones who really should be angry over the fiasco. Of the $170 million spent on the modernization effort, $153 million comes out of federal coffers, not Pennsylvania’s.

Photo: Scott Eells/Bloomberg/Getty Images

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