Texas, IBM data center contract to end

By Kate Alexander | Monday, March 12, 2012, 01:05 PM

The end is near for Texas’ failed data center partnership with IBM Corp.

IBM’s successors have been hired to complete the mammoth task of consolidating the data centers of 28 state agencies into two streamlined and secure facilities, and a settlement agreement to end the contract with IBM is in the works, the state’s Department of Information Resources said Monday.

State officials would not release details on the settlement, and IBM did not immediately respond to a request for comment.

A Dallas-based unit of Xerox Corp. formerly known as ACS State and Local Solutions secured the largest of the three new contracts at a cost of $1.1 billion over eight years. Xerox will also run another smaller component of the project, and Capgemini assumes an oversight and service role. The companies will take full control on July 1.

State officials say the new arrangement, which splits up key responsibilities among the contractors, will bring the consolidation component of the technology project to completion by July 2016. Under the original contract, that work was scheduled to be done in late 2009.

“The way these contracts are written, these companies have to work really closely together for them to be successful,” said Carl Marsh, chief operating officer for the Department of Information Resources.

In 2005, the Legislature mandated the consolidation project in order to upgrade the state’s antiquated technology, improve the security of state information and save money by operating two high-quality data center facilities rather a bunch of smaller ones.

IBM was hired the next year to manage the enormous undertaking at a cost of $863 million over seven years.

But the project soon fell far behind schedule as conflicts erupted between IBM and the state agencies. IBM attributed the problem to intransigence within the state agencies; the agencies in turn said the company’s service was woefully lacking.

Meanwhile, repeated server crashes threatened important state data, such as Medicaid fraud investigations that were held on a remote server in the attorney general’s Tyler office. In 2008, Gov. Rick Perry shut down the project for a short time to ensure the information was protected.

IBM was supposed to complete the consolidation of the agencies’ servers by December 2009 but by the summer of 2010, only about 12 percent of that work had been done. Little progress has been made since that time as the state has been searching for IBM’s replacements.

As of last month, IBM had been paid about $758 million and faced $10 million in penalties for failing to meet certain contract requirements.

Despite the delay of the server consolidation, the state did get a lot for that investment, including the data center facility in North Austin, Marsh said. And the mainframe and bulk mail components of the contract were finished in a timely manner.

“I would not say that that’s wasted money,” Marsh said.

ACS will handle the day-to-day execution of the project. It will be responsible for merging and running the data centers as well as other servers, mainframes and networks.

The state agencies will immediately get new hardware to protect data and improved service, according to the Department of Information Resources. By next year, ACS will have at least 672 people serving the agencies’ needs, an increase of about 100 from what IBM had in January.

Xerox will continue running the state’s bulk printing and mail services, as it did under the IBM contract, with a six-year, $54 million deal.

Capgemini, a French company, will oversee the process to ensure ACS stays on track toward completion under a six-year $127 million contract. It will also run the help desk and other service components of the job. That direct contact with the agencies working with ACS will allow Capgemini to catch potential problems early, Marsh said.

The old and new contracts are not directly comparable, and the original cost estimates are out of date, according to the Department of Information Resources. But the department estimates that the overall project costs will remain about the same under the new contractors.

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