AMS settles Federal Thrift lawsuit

American Management Systems Inc. Friday settled a $350 million lawsuit brought by the Federal Retirement Thrift Investment Board, its former client.

AMS had worked for four years to build a new computer system for managing the government's retirement system when the board fired the Fairfax, Va., company and sued it for fraud and breach of contract in the U.S. District Court for the District of Columbia.

The board's suit sought to recover actual damages of about $50 million and punitive damages of $300 million. The suit had been pending appeal on jurisdictional grounds.

AMS responded in October 2001, by suing the board in the U.S. Court of Federal Claims, alleging that the board improperly terminated its contract. The Department of Justice had asked that the case be dismissed, according to the TSP Annual Audit Report, published March 19.

All litigation and claims have been settled, according to the board and AMS.

Under terms of the agreement, the board will pay AMS $10 million for certain work AMS performed under the contract and for which payment remained outstanding. The board also agreed to a no-fault termination of the contract. AMS will pay $15 million to the Thrift Savings Plan as partial reimbursement of the $31 million AMS received for other work it performed under the contract.

Gary Amelio, executive director of the board, said his decision to settle was made solely in the interest of participants in the Thrift Savings Plan and their beneficiaries, who would net $5 million from the settlement agreement. The agreement was supported by the entire board, Amelio said. The Thrift Savings Plan is a retirement savings plan, similar to a 401(k) plan, for civilian and military government employees.

"We have removed a major uncertainty from our future," said Alfred Mockett, chairman and chief executive officer of AMS. "Since I joined AMS 18 months ago, settlement of this contract dispute and associated litigation has been a top priority. It has been distracting, time consuming, expensive and harmful to the business."

AMS will incur a pre-tax charge of approximately $45.5 million in the second quarter of fiscal 2003 as a result of the settlement. The charge will include a $40.5 million non-cash write-off related to AMS's contract receivable with the board, the company said.

The settlement came four days after the new retirement system went live. It was built by Matcom International Corp. of Alexandria, Va., which took over the job 23 months ago.

The system will allow the government to process employee transactions and value the five TSP retirement funds daily, rather than monthly. It also will report account balances in shares as well as dollars and offer a greater number of withdrawal options.

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