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March 09, 2017

Wolf administration sues IBM for fraud over failed $170 million project

Gov. Tom Wolf's Administration filed a lawsuit against IBM to recoup losses from a failed project to overhaul Pennsylvania's unemployment compensation system, state officials said.

The governor's office announced Thursday that the state accused IBM of fraud for failing to deliver on a $109.9 million contract to upgrade the system that administers unemployment benefits. The project was scheduled to be completed in February 2010, but the state scrapped the deal under then-Gov. Tom Corbett in September 2013 after paying nearly $170 million without receiving a finished product.

“Instead, the Department of Labor and Industry has been forced to continue to support many of its UC program activities through a collection of aging, costly legacy systems, incurring tens of millions of dollars in server, support and maintenance costs,” Wolf said in a statement.

IBM was awarded the Unemployment Compensation Modernization System project, which the state allowed the lapse in September 2013 when independent assessment realized there was a high risk of failure as delays and costs mounted.

The lawsuit alleges claims for breach of contract, fraudulent misrepresentation, negligent misrepresentation, constructive fraud, and fraudulent concealment.

IBM issued a statement asserting that the state's claims are without merit and it would fight the lawsuit.

The filing marks the latest problem for the state's unemployment services. The failed project led to longer wait times and underfunding for the department. Last December, 600 state employees were laid off due to a lack of funding.

The lawsuit was filed in the Dauphin County Court of Common Pleas.