State ex rel. Indiana Family & Social Services Administration v. International Business Machines Corp.

In December 2006, the Indiana Family and Social Services Administration (the state) (plaintiff) outsourced the administration of the state’s welfare services to International Business Machines Corporation (IBM) (defendant). The parties signed a 10-year contract. One of the primary purposes of the contract was for IBM to bring food and services to the state’s poor residents in a timely and reliable manner. There were performance problems from the outset of the partnership, including unanswered consumer calls, failure to timely process welfare applications, and high wait times at local welfare offices. In July 2009, the state and IBM agreed on a corrective action plan. Later that month, the federal agency that oversaw state Medicaid programs found that Indiana residents were not being granted timely access to Medicaid. In October 2009, the state terminated the contract because it believed that IBM’s performance, particularly IBM’s processing of welfare-benefit applications, had not sufficiently improved. The state claimed that IBM was not performing under the contract and brought suit. IBM also sued the state for breach of contract. The trial court found that IBM did not materially breach the contract. The court awarded IBM $40 million in assignment fees for contracts that the state assumed, over $9.5 million in equipment fees for IBM equipment retained by the state, over $2.5 million in early-termination payments, and over $10.5 million in prejudgment interest. The state appealed.