State suing IBM over unemployment compensation tech

David Weissman
  • State suing IBM over former contract to modernize unemployment compensation system.
  • IBM was about $60 million over budget and 45 months behind schedule when contract expired.
  • Labor department furloughed about 500 employees last year after Senate failed to vote for funding.

Amid disputes with the Legislature over funding for the state's unemployment compensation system, Gov. Tom Wolf's administration has sued IBM for its failure to fully modernize the technology at the center of those disputes.

County residents needing to file for unemployment compensation are facing a long wait at CareerLink, Monday, Jan. 9, 2017. John A. Pavoncello photo

The lawsuit, filed on behalf of the state Department of Labor and Industry, seeks claims for breach of contract, fraudulent misrepresentation, negligent misrepresentation, constructive fraud and fraudulent concealment, according to a news release. It was filed in the Dauphin County Court of Common Pleas.

IBM was awarded a $109.9 million fixed-price contract in 2006 to modernize the department's unemployment compensation system, with an expected completion date of February 2010.

The project ended up costing nearly $170 million before the department allowed the contract to lapse, at the recommendation of an independent assessment in September 2013.

"Pennsylvania taxpayers paid IBM nearly $170 million for what was supposed to be a comprehensive, integrated and modern system that it never got,” Wolf said in a statement. “Instead, the Department of Labor and Industry has been forced to continue to support many of its UC program activities through a collection of aging, costly legacy systems, incurring tens of millions of dollars in server, support and maintenance costs.”

Labor Secretary Kathy Manderino recently said during budget hearings that the legacy system is "put together with chewing gum and duct tape."

State unemployment call system subject of House hearing

Lawsuit: The 53-page lawsuit alleges that IBM knowingly, or recklessly, misled the department regarding its ability to complete the modernization project in the time and manner agreed upon in the contract.

The suit details that IBM needed the department to work in partnership with the company in order to successfully complete the project.

"In fact, at the time it made these statements, IBM had no intention of acting as a 'partner,' but instead intended to take advantage of (the department's) lack of experience with projects like the (unemployment compensation modernization system), using (the department) as its personal cash register," the suit states.

The lawsuit points to high turnover in staffing on the project and multiple requests to push back deadlines as evidence that IBM didn't fulfill its contractual duties.

Clint Roswell, an IBM spokesman, wrote in an email that the company will "vigorously defend itself against the unfounded claims by the commonwealth."

JJ Abbott, a spokesman for Wolf's office, wrote in an email that the governor's Office of General Counsel has been looking at this project since Wolf took office, and the office has been exploring all options, including litigation, which is very complex and data intensive.

He also confirmed that the state currently has five active contracts with IBM, with four statewide contracts and one for the state Department of Transportation.

Current issues: The labor department, which closed three offices and furloughed nearly 500 employees in December, is seeking a contract with a new vendor to complete the modernization project. Manderino said she expects to sign a new contract in June.

Unemployment claimants have been dealing with significantly increased call wait times to the department since the furloughs, which occurred after the Senate refused to vote last session on a bill providing additional funding.

The bill would've extended a fund, authorized after the failed IBM contract, that provided the department about $178 million from 2013 to 2016.

Senate Republicans refused to vote on the bill — which passed the House, 175-13 — because the combined $348 million provided through the fund and for the IBM contract still hadn't resulted in a fully modernized system.

Pennsylvania Department of Labor and Industry Secretary Kathy Manderino speaks during a news conference in support of increasing the minimum wage to $10.10 per hour at Continental Square in York City, Thursday, March 24, 2016. Dawn J. Sagert photo

Manderino told legislators during recent budget hearings that the department prioritized improving "the quality, efficiency and timeliness of services provided by the service center system," which was spelled out in the act creating the fund.

As for infrastructure improvements, Manderino said the department has taken more time to be thorough in selecting a new vendor, partly because of the failures with the IBM contract.

Multiple lawmakers requested during hearings that Manderino look into legal action against IBM to recoup funds, and Manderino responded that she agreed and was looking into such options.

— Reach David Weissman at dweissman@yorkdispatch.com or on Twitter at @DispatchDavid.