Texas, IBM spar over IT contract

State alleges missed goals, cites employee turnover as nearly $1 billion IT consolidation contract with IBM may now be at risk

The state of Texas may be preparing to terminate a contract signed with IBM four years ago to consolidate the state government's IT operations because of missed goals and excessive employee attrition.

The contract, signed in late 2006 , called for IBM to consolidate the state's IT operations as well as reduce the number of data centers from 31 to two and provide specific services.

At the time, the seven-year contract was valued at $863 million, a figure that was only "a snapshot of what it would take to consolidate on that exact day," said Thomas Johnson, a spokesman for the Texas Department of Information Resources (DIR) agency, today.

The state had expected IT efficiencies to save $179 million over the seven-year period.

But late last week, the state sent IBM a lengthy "Notice to Cure" that gave the vendor a 30-day window to fix a long list of problems, little time for what seemed to include some complex problems. The notice didn't threaten an immediate termination of the pact.

"Much of the state's IT systems still reside within legacy data centers and we continue to rely on aging infrastructure for our critical systems and applications - this is clearly unacceptable," Ed Swedberg, deputy director of the state's data center services, told a state legislative committee on Monday.

IBM called the state's action "unnecessary and unjustified."

In an e-mail, company spokesman Jeffrey Tieszen said, "IBM disagrees with DIR's unfounded accusations of material contract breaches or DIR's ability to terminate the contract for cause. IBM has worked in cooperation and good faith with DIR to provide benefits and improvements to all citizens of Texas."

Swedberg called delays in the server consolidation is a key issue for the state. Server consolidation was due to be finished at the end of this year, but as of last week only about 10% had been completed.

He also complained of backlogs for routine work in the project.

The state isn't terminating its contract with IBM, but nor is it explaining exactly how the two sides can resolve the problems.

Among the claims the state is making against IBM is a shortage of qualified personnel.

In the notice to IBM, the state said the company has failed "to reduce the rate of turnover of assigned personnel below the contractual threshold of 15%." The annualized 12-month turnover rate has been 20% to 45% since the contract commencement, the state alleges.

The project costs have gone up, though it's unclear who is responsible.

The state has paid IBM $486 million since March of 2007.

The contract with IBM is "consumption based," meaning that IBM invoices agencies only if an agency consumes its services, such as disk storage. But the economic downturn has apparently increased consumption of IT services by some agencies.

"We've seen the total value of the contract grow over the course of the first three years," Swedberg told lawmakers. He cited unemployment-related services and Medicaid as two reasons for the increase.

For instance, The Texas Workforce Commission has experienced "an unprecedented increase in unemployment claims" in the period covered by the IBM contract, said a spokeswoman at that agency said. In 2008, the state distributed about $1 billion in benefits compared to $4 billion in 2009. Texas officials could not immediately say exactly how much the increased benefits boosted IT costs.


Join the newsletter!

Error: Please check your email address.
Rocket to Success - Your 10 Tips for Smarter ERP System Selection

Tags governmentserversIBMData Centerhardware systemsConfiguration / maintenanceGovernment/Industries

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Patrick Thibodeau

Computerworld (US)
Show Comments



Sansai 6-Outlet Power Board + 4-Port USB Charging Station

Learn more >



Back To Business Guide

Click for more ›

Most Popular Reviews

Latest Articles


PCW Evaluation Team

Louise Coady

Brother MFC-L9570CDW Multifunction Printer

The printer was convenient, produced clear and vibrant images and was very easy to use

Edwina Hargreaves

WD My Cloud Home

I would recommend this device for families and small businesses who want one safe place to store all their important digital content and a way to easily share it with friends, family, business partners, or customers.

Walid Mikhael

Brother QL-820NWB Professional Label Printer

It’s easy to set up, it’s compact and quiet when printing and to top if off, the print quality is excellent. This is hands down the best printer I’ve used for printing labels.

Ben Ramsden

Sharp PN-40TC1 Huddle Board

Brainstorming, innovation, problem solving, and negotiation have all become much more productive and valuable if people can easily collaborate in real time with minimal friction.

Sarah Ieroianni

Brother QL-820NWB Professional Label Printer

The print quality also does not disappoint, it’s clear, bold, doesn’t smudge and the text is perfectly sized.

Ratchada Dunn

Sharp PN-40TC1 Huddle Board

The Huddle Board’s built in program; Sharp Touch Viewing software allows us to easily manipulate and edit our documents (jpegs and PDFs) all at the same time on the dashboard.

Featured Content

Product Launch Showcase

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?