Heavy Fine for IBM After Terminated Contract

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After a failed IT project and terminated contract, IBM still has to pay 80.5 million British pounds in compensation to an insurer on appeal.

The case continues from a 2015 IT project in which CIS General Insurance, part of the Co-Op Group, partnered with IBM for an IT platform to manage insurance and underwriting activities. It was a contract worth 175 million pounds, about 210 million euros. 50 million pounds was for the platform, the rest for support.

Things quickly went wrong between the parties involved. Co-Op states that IBM had presented them with a turnkey product that would ship in 9 months with data migration within 24 months and a plan to retire legacy systems after 30 months. The fact that it was such a turnkey solution played an important role in choosing IBM, the company says.

But the necessary deliveries were delayed to such an extent that Co-Op refused to pay; after that, the contract was terminated. IBM, for its part, argued, among other things, that the customer made unnecessary adjustments, that Co-Op and the subcontractors were also at fault and that the payment was unlawfully withheld, which put a bomb under the contract.

The case went to court, where Co-Op demanded 128 million British pounds. In December, a judge ruled that the company was entitled to £13 million from IBM.

The case came up again on appeal this year, and the compensation is much higher. The ruling dates back to February, but the documents about it only recently came online and were noticed by The Register.

Much of the legal discussion has to do with clauses in the contract about lost revenue and savings. Especially important because CIS General Insurance has since been sold, and IBM’s platform was purchased to split that branch. In that discussion, the court now seems to be the following Co-Op, forcing IBM to cough up £80.5 million, six times more than the original damages, for the terminated contract.