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Texas Tells IBM: Make Way For Others on Outsourcing Contract

Texas Outsourcing Contract to IBM Likely to End in Court?

2 min read
Texas Tells IBM: Make Way For Others on Outsourcing Contract

Well, I sure got that wrong.

I was pretty confident that IBM and the State of Texas would reach some sort of mutually unacceptable accommodation in their disagreements over the quality and level of performance involving the outsourcing contract Texas awarded to IBM in 2006 that would allow everyone to save face and move on.

While I got the mutually unacceptable bit right, more importantly, I was way off about the two sides reaching an accommodation.

As you may recall, the Texas Department of Information Resources (DIR) sent an 8-page "Notice to Cure" letter to IBM last month in essence stating that in the state's opinion, IBM has failed to live up to the IT outsourcing promises it has made to the state since the contract's start.

The DIR gave IBM 10-days to come up with an acceptable cure plan, and 30-days to cure the contract breaches noted in the cure notice.

The 30-day period ended this week, with IBM declining to submit an acceptable plan, as well as in DIR's opinion, declining to fix the contract breaches noted in its cure letter.

On the Tuesday, the DIR sent a new letter to IBM stating that:

"On August 13, 2010, IBM delivered a letter to DIR that mischaracterized the obligations of IBM and DIR under the MSA, was insufficient to cure the breaches identified in the Notice to Cure Letter, and was little more than a reiteration of inconsistent and incomplete ideas that IBM has previously expressed. During discussions over the past nine months, IBM suggested that DIR re-procure all or part of the services under the MSA. Given IBM's failure to cure the breaches set forth in the Notice to Cure Letter, IBM now leaves DIR no course but to pursue procurement."

"In accordance with the terms of the MSA, the Notice to Cure Letter specified that IBM had thirty (30) days to cure each such breach. IBM has failed to cure the identified breaches. Accordingly, DIR has full legal right and authority to terminate the MSA for cause. DIR has determined that it is not in the best interests of the State to exercise that right at this time. DIR will proceed with procurement for all services required of IBM under the MSA. DIR requires IBM’s full and compliant performance of its obligations under the MSA."

"DIR expressly retains all rights with respect to termination of the MSA, and no delay in termination of the MSA shall be deemed a waiver of those rights."

What this all means is that the DIR will take over control of the contract, and according to a story in the Dallas-Morning News, rebid much of the remaining work on the contract.

An article in the Austin-American Statesman states that the contract required the merger of the data centers of 28 Texas state agencies "into two streamlined and secure facilities. The consolidation was supposed to be completed by December 2009 but is still only 12 percent complete."

IBM disagrees with the DIR's stance, and is quoted in the Statesman as saying it is still "hoping to continue a constructive dialogue" with the DIR.

That doesn't look too likely.

I hesitate to make any predictions, given my previous track record, but I would guess an eventual trip to court looks better than a 50-50 chance.

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