Mitch Daniels after his lobotomy
You would think after the better part of a decade we the taxpayers would finally be able to put former Governor Mitch Daniels now infamous welfare privatization scheme behind us! But if today's story in the Indianapolis Star is to be believed we maybe nowhere near the finish line on this.
Earlier today Fatima Hussein and Tim Evans wrote "
IBM owes $128M in welfare privatization". Mr. Evans and Miss Hussein give some background on the ongoing pissing match between IBM and the State of Indiana:
The state of Indiana has won a judgment for $128 million in damages in a lawsuit against alleging IBM breached its 2006 contract to modernize delivery of welfare services by the Family and Social Services Administration.
Marion Superior Court Judge Heather Welch awarded the damages in an order today, according to a statement issued by Barnes & Thornburg, which represented the state in the lawsuit. The suit has been going on since the state terminated IBM's contract in 2009 claiming the company's performance was poor.
IBM intends to appeal the latest ruling "which is contradicted by the facts and the law," says Clint Roswell, an IBM representative in an emailed statement to IndyStar.
"IBM worked diligently and invested significant resources in its partnership with FSSA to help turn around a welfare system described at the time by Indiana’s governor as one of the worst in the nation," Roswell said.
The Indiana Supreme Court ruled in 2016, according to the statement, "that IBM was owed around $50 million for certain unpaid fees and equipment charges, but rejected over $53 million of IBM’s other claims, and held that IBM had breached its contract with the State as a matter of law."
The Supreme Court then sent the case back to the trial court to determine the amount of the state’s damages.
The net result of today’s ruling, the statement said, is that IBM now owes the state more than $78 million, plus interest at 8 percent from the date of the judgment.
Evans and Hussein provide a condensed account of the events leading up to today's ruling:
The case stems from a $1.37 billion,10-year contract that IBM and Indiana entered in 2006. It was hailed at the time as the solution for fixing one of the nation’s most-troubled welfare systems.
The state, though, canceled the contract three years later after a flood of complaints about the system from clients, their advocates and federal officials. At the time, the state had paid $437 million to IBM.
The two sides sued each other for damages. In 2012, a Marion Superior Court judge awarded $52 million to IBM.
In 2014, though, the Indiana Court of Appeals reversed the ruling and ordered a determination of damages suffered by the state. Indiana was seeking $177 million in a breach-of-contract countersuit against IBM. The Indiana Supreme Court then took up the case.
John Maley and Peter Rusthoven of Barnes & Thornburg, issued a joint statement saying they were gratified by the latest decision. “We are very pleased the court awarded $128 million in damages for IBM’s failure to keep the important promises it made to the State of Indiana,” the statement said.
“This has been a long, tough battle with a big corporation that refused all along to take responsibility for its poor performance," the statement said. "This hurt Hoosier families most in need, who depend upon the help of the Family and Social Services Administration. Today’s ruling is another victory for those families, for our State, and for all our citizens and taxpayers. It also vindicates the consistent determination of former Governors Mitch Daniels and Mike Pence and now Governor Eric Holcomb that IBM must be held responsible for not doing what it promised.”
As frequent readers of the late Gary Welsh's Advance Indiana blog and Paul Ogden's Ogden on Politics blog will note. The state bears at least as much and probably more of the blame for screwing up Indiana's welfare programs! John Marley and Peter Rusthoven might want to avoid pointing fingers. According to rumor the biggest reason why Mitch Daniels did not run for President in 2012 is because the Obama administration would have had the US Attorneys Office in Indianapolis investigate and possibly prosecute many key players in the whole IBM-FSSA-ACS debacle. The fact that IBM is going to appeal the most recent decision in this case should give former Indiana Governor now Vice President Mike Pence pause about ever running for another office! This problem won't go away even if IBM loses. Also Marley and Rusthoven are probably hoping nobody will ever ask them about their law firms representing the state, while having a non waivable conflict of interest in doing so since they also represent ACS as well. Click here to read more about the conflict of interest.
The late Carl Moldthan who worked for Mitch Daniels and argued against the privatization of welfare services warned of problems that would emerge back in 2005. But Mitch Roob was hell bent on privatization. And as Gary Welsh pointed out IBM was most likely a placeholder put on so that they could be later fired and Roob's former employer ACS could step in.
Here are some extracts from both Gary Welsh and Paul Ogden's work documenting the whole FSSA nightmare:
Carl Moldthan's time at FSSA:
"When Moldthan arrived at his his new job, Mitch Roob wasn't quite sure how to best utilize him. Because there had been so much talk about privatizing the services administered by the county welfare agencies, Moldthan suggested he be tasked to visit all of the offices, learn better what they were or were not doing right and make recommendations to Roob and his management team. Roob thought that sounded like a fantastic idea so off Moldthan went to visit every single county welfare agency--all 105 of them--over the next several months. During the course of his visits, Moldthan would make no fewer than 70 suggestions to Roob and his superiors on ways of improving the agency's operations, changes if implemented, he claims would have resulted in hundreds of millions in savings. Little did Moldthan know at the time that his common sense ideas would be met with scorn, laughter or otherwise summarily rejected by his superiors and would culminate in earning him a trip to Roob's office where he would be undressed for being the most disloyal person Roob had ever met."
"What Moldthan came to learn was that Roob was going to privatize the work done by those county welfare agencies come hell or high water. Anyone who didn't believe in privatization should leave, an offer Moldthan gladly accepted after less than a year on the job. Moldthan also learned that Roob had no intention of saving money from privatization. After all, the county welfare agencies comprised only $180 million of FSSA's multi-billion dollar budget, representing just 7% of the agency's entire budget. Surely there were other more effective ways of findings savings at the agency than getting rid of your front-line workers."
Moldthan's warnings to Mitch Roob:
"Moldthan found a broken system. Moldthan pleaded the case for an alternative solution to privatization recommended by the consulting firm hired by Roob, but Roob and others rebuffed him."
Gary Welsh explains Mitch Daniels and Mitch Roob's real plans for FSSA:
I have always steadfastly maintained that it was never the intention of the Daniels administration to put IBM in charge of this major undertaking. I've contended that IBM's role was that merely as a placeholder to provide cover to Mitch Roob from criticism that he was steering the state's largest contract in Indiana history to his former employer (ACS).
"Underscoring my view, Judge Dreyer noted evidence in the record that ACS's lobbyist, Joe Loftus, was lobbying state officials behind IBM's back to have it assume control of the contract and to oust IBM despite ample evidence that many problems with the implementation involved tasks performed by ACS. He cited testimony that Loftus "used his political contacts with the administration to help his clients, ACS and Arbor, with respect to Modernization" and "Anne Murphy relied on Joe Loftus as a source of information in her dealings with IBM." Judge Dreyer found that ACS was interfering with IBM's contract "by directly lobbying the Governor, and the State was unable or unwilling to redirect the revenue necessary to adequately fund Modernization with IBM." Judge Dreyer found that Loftus' lobbying actions were creating distrust among the contract partners. He cited an e-mail exchange Loftus had with Roob in which he said, "I expect to get a lecture today from IBM reminding me that they are the Prime." Loftus added, "They just don't get it." Dreyer found that Loftus' communication behind IBM's back "presumably violated its contract with IBM and the state was in violation of the terms of the MSA, which provided that IBM was the sole point of contact with regard to contractual matters." Loftus' communications included conversations directly with Gov. Daniels and one of his top staffers, Betsy Burdick, who is the sister of Brian Burdick, the Barnes & Thornburg attorney who signed the contract on behalf of the firm to represent the state in its lawsuit against IBM despite its obvious conflict of interests. Loftus' actions were that of a snake in the grass, completely stabbing IBM in the back to win the contract for his client. Dreyer noted that ACS officials testified that Loftus' communications behind IBM's back "were contractually prohibited." As Dreyer put it, "The Court is unable to find that IBM breached the contract by failing to adequately manage ACS at the same time ACS and the State were talking behind IBM's back."
For the life of me, I do not understand why a criminal investigation has not been launched by the FBI and the U.S. Attorney's office. This has got to be one of the most corrupt deals in the history of Indiana state government. Hundreds of millions of federal tax dollars were being misspent simply so big campaign contributors of Gov. Mitch Daniels could make a lot of money with no concern at all to the services being provided using those tax dollars. One of the administration's biggest critics in the state legislature is a Republican lawmaker, State Sen. Vaneeta Becker (R-Evansville). “The whole thing could have been avoided if the state from the beginning had just provided new computers and additional training to caseworkers,” she told the Star's Mary Beth Schneider. “A lot of this could have been avoided and a lot of costs.” Gov. Daniels, for his part, was totally unapologetic about the outcome and says he expects the decision will be overturned on appeal. Even if the state loses on appeal, he told Schneider that the more than $52 million the state will be required to pay IBM was irrelevant because they "are so tiny compared to the savings we’re achieving.” The state has spent more than a half billion dollars to date on the privatization effort. What do you expect from a guy who told Congress when he was OMB Director that the Iraq war would only cost taxpayers $50 billion? Oh, and did I mention that Gov. Daniels put a former paid consultant for ACS, Mike Gargano, in charge of FSSA after Roob's successor, Anne Murphy, left the agency after a short stint running the agency?
There were lots of hiccups along the way, some of them IBM's fault, some of them the fault of subcontractors like ACS, some of them the fault of FSSA and some due to circumstances beyond both parties' control attributed to the explosion in claims caused by the Great Recession. The undisputed facts show the state devised metrics for measuring IBM's performance and an overwhelming number of those metrics were on target. What few were under-performing were moving in the right direction when Gov. Daniels abruptly terminated IBM's contract and handed its work over to ACS entirely to fulfill, which I believe was the objective all along. Roob just needed IBM as a placeholder not to make it so obvious he had steered one of the most lucrative contracts in the state's history to his previous employer, although everyone knew that was his objective all along beyond a shadow of a doubt.
Gary Welsh predicted Indiana would try to screw over IBM:
Sometimes justice works, and sometimes justice works in mysterious ways. This is one of the most corrupt and sad chapters in recent Indiana government history. There should have been criminal prosecutions for what took place involving this contract in the Daniels administration and what continues to take place to this day. Unfortunately, I don't see much upside for IBM finding justice in this state, and its attorneys would probably be well-advised to pick up its marbles and go home without being stripped too bare of its clothing before leaving the state by the wheels of justice in Indiana, which can work in very mysterious ways. IBM should have realized it was lying down with dogs when it got involved in this taxpayer feeding frenzy years ago and the inevitable result of waking up with fleas.
Paul Ogden on FSSA debacle and Barnes and Thornburg's conflict of interest representing the state and ACS:
The State, i.e. FSSA, ended up suing IBM to recover under the contract. IBM countersued, claiming that the State breached the contact through its termination. But who does the Daniels' administration insist the State hire to represent the State? None other than Barnes & Thornburg the very law firm that represented ACS in lobbying to get the contract and still represents ACS to this day.
Let me summarize what appears to have happened. ACS lobbies state officials to oust IBM so ACS can have the lucrative Medicaid privatization contract to itself. ACS eventually succeeds. The State sues IBM, perhaps to counter the inevitable breach of suit IBM was about to file. After, IBM sues, the State hires Barnes & Thornburg, ACS's attorney to represent the state.
The State appears to be nothing more than a proxy for ACS. This case is essentially ACS v. IBM, yet we taxpayers are on the hook to pay Barnes & Thornburg, ACS' attorneys, $9.6 million. That is uttterly outrageous.
Given that federal money here is involved, I too wonder why there has not been a federal investigation opened up by the FBI into this matter. There certainly should be now that the facts here expose troubling, if not illegal, conduct by government officials and private lobbyists.
