Pennsylvania Kills An IBM Contract That's 3 Years Late And $US60 Million Over Budget

Ginni RomettyAPIBM CEO Ginni Rometty

The state of Pennsylvania is
killing a contract with IBMbecause, as of July, the project was $US60 million over budget and a whopping 42 months behind schedule, state officials said.

That’s three and a half years late.

Chris Kanaracus at IDG’s News Service broke the news.

In 2006, Pennsylvania signed a $US106.9 million contract with IBM to be completed in 2009.

It was, by any measure, a huge and complex project. It was to give the state a new computer system to track employee wages, employer taxes and handle unemployment claims, appeals, payments.

Half of IT projects with budgets of over $US15 million dollars run 45% over budget and are 7% behind schedule, according to research from McKinsey. So, sadly, it’s not surprising that a project this big would have problems.

By August 2012, with the project not yet complete, Department of Labour Secretary Julia Hearthway commissioned Carnegie Mellon University’s Software Engineering Institute to tell her if the state should finish or bail.

On Wednesday, the report came back, recommending that the state pull the plug.

The report blamed the state for poor project management. But it also slammed IBM pretty thoroughly. It said the computer system built so far was unreliable and full of bugs (had “a higher number of software defects than industry norms.”)

Plus, it blamed IBM’s revolving-door workforce. The initial project manager and the top executive left in 2009 and IBM preceded to have 638 people work on the system, rotating most of them off in less than a year.

“The size and churn of the workforce created an environment for inefficiencies,” the report said.

A year ago, laid-off IBM employees told us that the company’s ongoing layoffs are creating a lot of churn in large projects like these and hurting the company. They named a handful of cases where other big clients pulled the plug on IBM contracts.

IBM is right now in the process of another big layoff that will cost it $US1 billion and trim an expected 6,000 to 8,000 jobs.

We asked IBM for comment on how employee churn affected this contract. IBM sent us this statement:

“We are surprised by the Commonwealth’s recent announcement. This decision is based on a third-party report that we had not seen at the time of the Commonwealth’s announcement, despite repeated requests to the Department of Labour and Industry to review it together in the normal course of a working relationship that always has had the best interests of the citizens of Pennsylvania as its primary objective.

“In complex information technology implementations, there is accountability on both sides for system performance and service delivery. IBM is fully prepared to continue to bring the benefits of a contemporary unemployment benefits system to the State and its citizens, and we stand ready to work with the State to resolve this matter.”

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