'Chronic failures' threaten IBM contract with Texas

$863 million data center consolidation contract in jeopardy.

AMERICAN-STATESMAN STAFF

IBM Corp.'s $863 million data center consolidation contract with Texas is teetering on collapse.

Seven months of negotiations aimed at righting the troubled project and salvaging the partnership fell apart at the end of June.

On Friday, the state gave IBM 30 days to fix the myriad problems that have plagued the effort to merge the data centers of 28 state agencies into two upgraded and secure facilities.

Turning around the mammoth project in a month will be a formidable task for IBM because some of the problems have been known for years and still persisted. Many industry insiders expect IBM and the state to part ways.

Karen Robinson , executive director of the state's Department of Information Resources, provided IBM a seven-page litany of alleged contractual violations and "chronic failures."

For example, Robinson said IBM had abandoned its obligation to provide enough people to do the work outlined in the contract.

IBM had reduced the personnel in one key project area from 124 in October to 40 in June. That pullback, in part, has brought the merger process to a virtual standstill.

The original contract set December 2009 as the completion date for the transition. So far, less than 12 percent of that work has been completed.

The company has been paid almost $487 million so far under the contract, which was signed in 2006, and has accumulated penalties totaling $7.3 million for service failures. During the negotiations, IBM had asked for at least an additional $500 million to complete the project.

Jeff Tieszen , a spokesman for IBM, said the company "has fulfilled its obligations under the contract and today's action by DIR was unnecessary and unjustified."

"IBM very much regrets the state's action and will aggressively protect its interest going forward," Tieszen added.

Tieszen would not comment beyond the terse statement.

If IBM fails to meet the state's demands, the seven-year contract could be terminated. No decision has been made to do so, and the aim is for IBM to improve its performance, said Department of Information Resources spokesman Thomas Johnson .

The five biggest agencies that are part of the project all backed the move by the department, said Ann Hatchitt , a spokeswoman for the Texas Workforce Commission, whose deputy director sits on the project's leadership committee.

IBM received a similar 30-day warning in 2008 after a server crash at the state attorney general's office revealed the project's spotty data backup systems. The initial loss of data, which was mostly recovered, threatened some Medicaid fraud investigations and Gov. Rick Perry suspended operations until the security of state data could be ensured.

But that notice was more of a finger-wag to IBM. Friday's letter was a clear poke in the eye.

"The accumulated effect of under-investment by IBM, poor performance, and continual disregard for the protective obligations of the (contract), has resulted in harm to state agencies, exposure to unnecessary risks, and failure to achieve the objectives set and agreed to by IBM," Robinson wrote.

It is unclear what awaits the agencies that have been stuck in the middle of this conflict.

Legislation passed in 2005 mandated they participate in the project. The objective was to save money and also improve operations and security by consolidating the agencies' mainframe and server operations.

The agencies turned over people and control to IBM and its partners, collectively known as the Team for Texas.

The Texas State Library and Archives Commission was the first agency to move its data center operations, and it was very bumpy ride, said Peggy Rudd , director and librarian of the archives.

The agency paid significantly more under the contract and got substandard service, Rudd said.

But there is no turning back now, she said. Her agency has no choice but to stay in the new facility, whether it is run by IBM or some other entity.

The Information Resources Department has discussed breaking up the contract into smaller pieces and seeking new bids for those jobs. Johnson said that it is premature to speculate on what will happen if the contract is killed and that such speculation is "not in the spirit of our current efforts."

Rudd, who has been a critical of IBM's handling of the project, said the company can turn the situation around. "The game is theirs to lose," she said. "If they want to make it happen, they'll make it happen."

kalexander@statesman.com; 445-3618