IBM In Hot Water Over Outsourcing Contract With Texas

The Big Blue has found itself in hot water once again when earlier this month, disagreements over the company’s outsourcing contract with US state, Texas, lead to an ultimatum from the state to fix the alleged problems involved in their outsourcing deal.

Tech company IBM (NYSE:IBM) is no stranger to outsourcing contract disagreements. If you’ll recall, just a few months ago, another US state, Indiana, filed a lawsuit against IBM for alleged breach of contract by the company to their $1.16 billion deal. IBM in turn filed a counter suit against Indiana for payment owed by the state for the revamp and modernization of Indiana’s “antiquated and highly inefficient welfare eligibility system”.

In the case of Texas on the other hand, the lawsuit stems from “problems with basic service delivery,” according to Texas CIO Karen Robinson. In a seven page “notice to cure” by Robinson, she writes:

“IBM promised an investment in people, processes and technology to bring the benefits of data center consolidation to the state of Texas. We have had continual problems with basic service delivery and IBM has failed to deliver on their promises.”

The state is then giving IBM 30 days to fix the problems, specifically to fix a large number of service problems and 19 alleged contractual breaches. Of course, such an ultimatum is easier demanded than done considering the numerous complaints that Texas has raised against IBM which include moving the IT operations of 27 state agencies into two new consolidated data centers, of which, according to the Texas Department of Information Resources, IBM has only been able to move less than 12 percent with 5 agencies completed and 5 currently undergoing consolidation.

Also, alleged in the notice by Robinson is that, IBM has failed to “provide verification for all managed systems whether backups are in fact performed as scheduled and completed successfully. IBM is required to verify that backups are completed without error within 24 hours of the scheduled backup. However, adherence to this obligation is inconsistent. IBM has failed to respond in a timely manner to backup failures despite urgent requests from agency staff.”

Aside from that, the state also alleges that IBM has failed to “reduce the rate of turnover of assigned personnel below the contractual threshold of 15%”. According to the state, the annual turnover rate since the start of the contract has been 20% to 45%.

IBM meanwhile has stuck to their guns and has said that they believe that Texas’ allegations are unfounded and does not hold enough weight to merit the termination of their contract. In an email by Jeffrey Tieszen, spokesperson for IBM, he states that, “We are looking at each of [the department's] numerous shortcomings since the very beginning of the contract,” which indicates that IBM is not one to not point the finger back to Texas for the problems.

This is not the first time for Texas and IBM to have a conflict in their contracts, last 2008, the company had been given a notice to cure for data back-up deficiencies.

With just two weeks left until the deadline, IBM will be hard pressed to meet all the demands that Texas have set. And even if IBM manages to do so, given the setbacks that have plagued the seven year contract even before its half way mark, it may be unlikely that the two will work together again in the future. A situation like that may well prove to be a case of, out of the frying pan and into the fire. But then again, miracles do happen, don’t they?

Author: Audrey B.