IBM faces loss of $836M data center contract

Texas puts IBM on notice that if it doesn't shape up in the next 30 days, it might get fired from the state's data center consolidation contract.

IBM Corp. has been warned by the state of Texas that it is in danger of losing a $863 million data center consolidation contract if it can’t show some improvement in the next 30 days.

The state sent IBM a detailed letter July 16, listing 15 areas where the state says the company has fallen short. The biggest issue is that IBM has not completed the consolidation of the states data centers from 27 to two. The seven-year contract was awarded in 2006 and the consolidation was to be completed by December 2009. To date, less than 12 percent has been consolidated, according to the state.

“IBM promised an investment in people, processes and technology to bring the benefits of data center consolidation to the state of Texas” said Karen Robinson, executive director of the Texas Department of Information Resources. “We have had continual problems with basic service delivery and IBM has failed to deliver on their promises.”

The Department of Information Resources issued the warning, known as a “notice to cure,” to pressure IBM to improve. The move “follows months of unsuccessful attempts to find a collaborative solution with IBM,” the state said.

IBM is defending itself. In a statement, the company said: "IBM has fulfilled its obligations under the contract and last week's action by DIR was unnecessary and unjustified. IBM has worked in cooperation and good faith with DIR to provide benefits and improvements to all citizens of Texas. IBM very much regrets the State's action and will aggressively protect its interests going forward."

According to the state, IBM and Texas negotiated a framework for improving work on the contract. The framework, called Agreements in Principle, was developed at the end of 2009, but by June 25 the state told IBM that the framework had failed.

In addition to the data center consolidation issue, IBM is accused of failing to perform backup and data recovery services, failure to deliver a disaster recovery plan, and not providing sufficient staffing.

These and other issues put IBM in material breach of its contract with Texas, the state said in its notice to IBM.