Michigan’s Decade-Long IT Contracting Nightmare

October 5, 2015

Michigan cyberspaceThe State of Michigan recently terminated an information technology contract with Hewlett-Packard and sued the company in court in Michigan.  The basis for these actions was H-P’s alleged failure to complete the contract on time.  In many government IT contracting disputes, both sides share some of the blame for performance failures.  In this case, however, it appears that H-P’s conduct was exceptionally unreasonable.

Michigan entered into the contract with H-P in 2005.  H-P was to replace old mainframe computer systems that several state government agencies had been using since the 1960s.  Michigan agreed to pay H-P $49 million, and the company was to complete the work by 2010.

As of 2015, the work had not been completed and progress on the project had reportedly stopped as H-P had removed its staff apparently as part of H-P’s ongoing efforts to reduce the size of its workforce.  As of this year, Michigan had reportedly paid H-P $33 million under the contract, but there was no completion date yet in sight.

Michigan terminated the contract for cause this year.  It also initiated a breach of contract lawsuit in Kent County Circuit Court in Michigan.  The state is seeking $11 million in damages, attorney’s fees, and compensation for the costs it will incur to re-bid the project.

Thus as of today, several government agencies in Michigan, including the Office of the Secretary of State, the Management and Budget Office, and ironically, the Department of Technology continue to use mainframe computers that were manufactured and placed into operation approximately fifty years ago.  Given the pace of technology development and the standard product life-cycles in the IT sector, this situation seems comparable to driving today’s highways in a Model T Ford.

This incident offers important lessons for government IT contractors and their clients.  Contractors must act responsibly to set performance commitments that they can effectively meet, even with the ups and downs of their commercial fortunes.  Customers of those contractors must diligently monitor contract performance and must take prompt and assertive action when performance failures appear.  It is also important that clients of contractors establish appropriate back-up plans to protect their interests in the event of performance failures by contractors.

Based on the reported facts associated with this dispute, it seems that H-P has acted unreasonably in failing to complete this seemingly straightforward project after a decade.  As a result of this failure, Michigan residents are being served through use of IT equipment that was placed into service long before many of them were born.  This situation is outrageous and provides an extreme example of a failure of the government contracting process.