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State, HP settle on failed $49M computer contract

Michael Gerstein
The Detroit News

Lansing — The state has reached a $13 million settlement with Hewlett Packard Enterprise after suing over a failed $49 million computer system overhaul for the Secretary of State, the office said Tuesday.

Hewlett Packard Enterprise, now called DXC Technology, will pay Michigan $13 million as part of the settlement, $9.5 million of which will be in cash and $3.5 million in credits against other DXC state contract invoices, according to Secretary of State Ruth Johnson’s office.

The settlement resolves all claims the state filed against the company related to the computer modernization project, which has since been handed over to Colorado-based Fast Enterprises. The new project costs about $75 million instead of $49 million.

“We’re pleased to bring this matter to a close without the need of costly protracted litigation,” Johnson said in a statement. “By reaching this agreement with DXC, we are now able to focus 100 percent of our energy on completing this critical modernization project instead of debating what happened in the past.”

In May 2016, Michigan ordered Hewlett Packard Enterprises to hand over materials from its failed project that were supposed to be returned six months prior to the order after Michigan canceled its project with the company in August 2015 and sued it in Kent County Circuit Court a month later.

The state alleged that it failed to deliver on its $49 million contract.

Johnson said Tuesday that Fast will take over the $75 million project to replace the office’s Lyndon Johnson-era state computer system in May and will be finished in about 4 years.

The state previously delayed its decision to go with Fast Enterprises over concern about the company’s involvement in designing the Unemployment Insurance Agency’s faulty automatic fraud detection system, which led to false fraud accusations of more than 20,000 Michigan residents.

The company designed the fraud detection program, which resulted in two lawsuits against the state, one of which was recently settled with accompanying broad policy reforms for the agency. The UIA also has selected a new agency director who will start May 8.

The company also designed a software update for the unemployment agency that potentially exposed nearly 1.9 million Michigan residents’ Social Security numbers to unauthorized viewers with access to the system.

But Johnson’s office and company maintain that Fast Enterprises can be trusted for the new project and say no other company can do what it does.

The Secretary of State’s “mainframe-based” computer system was largely built in the late 1960s and uses “outdated programming languages” that are costly to maintain and update, according to the office.

mgerstein@detroitnews.com