North Carolina ends $171M Medicaid pact with ACS

Citing breach of contract, the North Carolina Health and Human Services Department last week terminated Affiliated Computer Services Inc.'s contract to deliver a new Medicaid payment system to the Tar Heel State.

ACS of Dallas failed to meet staffing levels and did not complete terms of its contract, which called for the company to build and operate a new Medicaid Management Information System, Secretary Carmen Hooker Odom wrote in July 14 letter notifying ACS.

The five-year contract, which began in April 2004, was valued at $171 million.

North Carolina's award to ACS was troubled from the outset. Following the selection of ACS in 2004, both EDS Corp., and Unisys Corp., protested it.

The rancor between ACS and EDS continued through 2005, with EDS lawyers writing Gov. Michael Easley (D), asking him to stop ACS' work on the contract, according to media reports.

The contract also has been the subject of an ongoing lawsuit by EDS, which charged that the state improperly awarded it to ACS. EDS has run the state's Medicaid claims system for nearly 30 years, and continued to handle the work while ACS built a new system.

North Carolina had set a June 16 deadline for ACS' compliance with contract terms, then pushed the deadline back to July 13, and finally terminated the agreement through Hooker Odom's letter. The letter calls on ACS to stop work immediately and to preserve materials the state may want back.

The letter further instructs ACS to wait for the state's guidance on how to deal with various issues, such as assignment of terminated subcontracts, liability issues related to the terminated subcontracts, transfer to the state certain parts of the project, and the destruction or return of information and materials that North Carolina had given to ACS.