Texas dispute takes toll on Maximus' earnings

The loss of an important subcontract for an eligibility project in Texas has had a negative impact on the first quarter earnings of Maximus Inc., the company reported today.

The company said its first quarter results were negatively affected by about $27 million, which includes lost revenue of $12.1 million, a pre-tax operating loss of $11.9 million and expected legal expenses of $3 million.

The company is embroiled in an arbitration battle with Accenture Ltd. over the Texas Integrated Eligibility project. Accenture is the prime contractor and Maximus was a subcontractor.

Maximus revenue for the first quarter of fiscal 2007 was $161.7 million compared to $162.7 million in first quarter fiscal 2006.

Maximus has filed an arbitration claim against Accenture to resolve disputes between the two companies involving the contract, Maximus said. Accenture has responded with a counterclaim.

Maximus announced in December 2006 that it wanted to enter arbitration to resolve matters related to the scope of Maximus' role managing the Texas Children's Health Insurance Program, or CHIP.

Each company alleges that the other defaulted on the subcontract, according to Maximus. Upon starting the arbitration process, Maximus recorded provisions for the Texas project in its first fiscal quarter for outstanding accounts receivable and future legal expense.

Maximus notified Accenture on Jan. 24 that it intended to pursue termination of the subcontract if matters were not resolved by Feb. 16, at which point Maximus would transition integrated eligibility operations to Accenture. Maximus moved the majority of its CHIP operations to Accenture earlier this week.

The dispute with Accenture has serious financial implications for the company, said Richard Montoni, Maximus CEO.

The company is taking immediate action to mitigate future recurring losses in Texas, he said. While the project may continue to generate losses for the company in the second quarter as it completes the transition of project duties, the company expects reduced losses in the second half of the year, he said.

"We are confident in the merits of our case and we will continue to aggressively pursue our rights and remedies," Montoni said. "However, we cannot predict the outcome of the arbitration proceedings or the impact they may have on our operating results or financial condition."