IBM paid Pa. $33M to settle lawsuit over jobless benefits computer project

A legal battle against IBM accusing the company of failed performance on a project to upgrade Pennsylvania’s unemployment computer system resulted in a multi-million-dollar settlement in favor of the commonwealth.

According to the settlement agreement obtained through a Right to Know Law request filed by PennLive, IBM agreed to pay $33 million to the state Department of Labor & Industry to end the litigation filed in 2017. A department spokeswoman confirmed on Monday the settlement payment has been received.

The department filed the lawsuit in Dauphin County Court after it paid IBM $170 million to modernize the system used to process jobless benefit claims. It terminated the contract with IBM in 2013 after the project ran nearly four years behind schedule and $60 million over budget.

In the settlement agreement, IBM, based in Armonk, N.Y., acknowledged no liability or wrongdoing on its part and the department denies it owes the company any money for work performed as part of the contract executed in 2006.

Neither a spokeswoman for the Labor & Industry nor IBM Americas spokeswoman Carrie Bendzsa offered any further comment beyond a news release issued on Aug. 24 announcing the settlement.

That release states that both parties “are pleased to have avoided additional litigation expense.”

According to records produced by the department in response to PennLive’s Right to Know request, the commonwealth had paid its Philadelphia-based law firm Duane Morris LLP more than $7.8 million for its work on this lawsuit. The agreement states that each party will bear its own costs associated with the litigation.

When the lawsuit was filed, IBM dismissed the department’s claims as having no merit. The commonwealth maintained in the suit that “IBM repeatedly failed to live up to these commitments and made decisions that thwarted successful completion of the project.”

The settlement bars either party from commenting on the lawsuit or to make any disparaging comments about each other relating to IBM’s performance or the department’s claims. Both also agreed not to voluntarily disclose terms of the agreement unless compelled to by law, including the Right to Know Law.

The department’s termination of the contract with IBM followed an $800,000 study by Carnegie Mellon University’s Software Engineering Institute that found the problems with the IBM system to be unsolvable.

After terminating the contract with IBM, the state hired Florida-based Geographic Solutions Inc. in 2017 to upgrade the 50-year-old computer system it had been using to process unemployment claims.

The new system carried a $30.2 million price tag, with some ancillary costs, and was launched in June, two years after its original delivery date. In that case, Labor & Industry officials attributed the delay to a diversion of department staff working on the project to help handle the record high number of pandemic-related unemployment compensation claims. Additionally, the department had to build new systems to process pandemic-related jobless benefits.

Once the system was up and running, department officials acknowledged the new system overall was working well but there were still some bugs to be ironed out.

The House Labor & Industry Committee is scheduled to hold a Capitol hearing on Tuesday on a variety of issues related to the state’s unemployment compensation system.

Jan Murphy may be reached at [email protected]. Follow her on Twitter at @JanMurphy.

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