IBM-Texas settle contentious data center consolidation spat; Xerox to step in

IBM-Texas agree to disagree over $863 million contract

Looking to avoid what would have been a costly and likely lengthy court battle IBM and the state of Texas's Department of Information Services have apparently agreed to disagree over a failed $863 million data center consolidation pact.

Published reports, including this one from, indicate that under an agreement, IBM will transfer $20 million worth of equipment already installed to the state and forgo $26 million worth of billing for work it has already done.  For its part, Texas will pay in total about $35 million owed to IBM for the cost of services and equipment. As of February, Texas had paid IBM almost $758 million and assessed the Big Blue $10 million in penalties for failing to meet certain contract requirements.

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The original contract, signed in 2006, called for IBM to consolidate the state's IT operations as well as reduce the number of data centers from 31 to two and provide specific services.  At the time Texas said it expected the project to save it $179 million over the seven-year contract time-frame.

Problems surfaced in 2010 with Texas complaining IBM had fallen behind on the project and IBM saying disputing any snags.  

In the end Texas Rep. John Otto, R-Dayton, told the, "What we had was not working, so we obviously needed to conclude the agreement we had and try to get out of it with as little litigation as possible."

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For its part IBM  said: "IBM is pleased an amicable resolution concerning the Data Center Services contract with the Department of Information Resources that recognizes the contractual rights of both parties has been reached. IBM will continue to work with DIR to successfully transition the project," IBM spokesman Jeff Tieszen told the

In the meantime Texas has indeed moved on, this week announcing its had given Xerox an $848 million, eight-year contract to do basically what IBM was to have done - consolidate 28 data centers into two.  In addition IT services form Capgemini, got a six-year year, $127 million contract to oversee the consolidation project and operations, according to the Texas Department of Information Services.

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