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State axes $153 million system to modernize unemployment claims

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The state will shut down its overdue and over-budget computer system update it intended to modernize its unemployment claims and processing.

Pennsylvania Department of Labor & Industry Secretary Julia Hearthway said the $153 million — so far — upgrade to the Unemployment Compensation Modernization System, which was in its third and final phase, will be terminated immediately without spending additional public money.

The third phase of the upgrade deals with taking online unemployment claims and paying benefits.

"It's simply not working," Hearthway said at a news conference Wednesday morning in Harrisburg. "The system we had hoped for from IBM simply isn't there."

The state will continue to use its current system, which was never turned off during the upgrade process. The system is old, Hearthway said, but is reliable.

"It's like your old Chevy," she said. "It's an old clunker … but it gets you from Point A to Point B."

She said the state is now investigating how much money may have to be invested in the old system to keep it running before the system upgrade can be continued. There is no timeline for when a new vendor can come in to continue the work on the system, she said.

The system upgrade has been an albatross for the department for a decade. Conceived in 2003, the state awarded the contract for the upgrade to IBM in 2006 with the intention of having it up and ready by January 2010.

"But it was plagued with problems and delays" from the outset, Hearthway said.

The first two phases of the upgrade of the system have been completed and will be instituted, but the third phase — which took up the largest chunk of the work and the funding — will be scrapped.

Hearthway said she couldn't put an exact dollar figure on how much money was spent on the failed phase three, only that it was a "majority" of the $153 million — more than $75 million.

She said the matter has been handed over to the Pennsylvania Office of General Counsel to determine whether legal action should be taken against IBM to recoup some of that money.

State Rep. William Keller, the Democratic chairman of the Labor and Industry Committee, said the upgrade started with the best intentions, but spiraled out of control.

The abandonment of the system comes after a yearlong study by the Software Engineering Institute at Carnegie Mellon University to determine what the state should do about the UCSM project.

The study, which the state paid $100,000 for, Hearthway said, recommended stopping the process. The institute will continue on as a consultant in the process, she said.

Editor's note: This story has been modified to correct State Rep. William Keller's name.

Michael Sadowski

Michael Sadowski

Mike Sadowski covers Lebanon County, banking and finance, law and the legal community, and technology. Have a tip or question for him? Email him at michaels@cpbj.com. Follow him on Twitter, @MikeCPBJ. Circle Michael Sadowski on .

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