State recovers $11 million in Ciber Inc. lawsuit

The state has reached a settlement with the information technology firm Ciber Inc. and one of its insurance companies to resolve a lawsuit over a failed state Department of Transportation computer project.

The settlement so far has allowed the state to collect $11 million, including $1 million from the now-bankrupt Ciber Inc., and $10 million from the company’s insurer, Indian Harbor Insurance Co., according to the state transportation officials.

The state hired Ciber in 2008 to develop what was known as the Financial Accounting System Transportation project (FAST), but the new system never worked. The state claimed the system was unable to perform even simple tasks, and federal highway officials refused to certify it.

According to the state, Ciber was paid nearly $7 million in fees but abandoned the project in 2014. When transportation officials demanded that Ciber complete the project for the agreed-upon price, Ciber refused.

Gov. David Ige finally scrapped the project in 2015. Ciber sued the state for breach of contract, and the state filed counterclaims against Ciber for fraud, false claims, breach of contract and unfair competition. Lawyers for the state pursued the case even after Ciber filed for bankruptcy in April 2017.

According to records provided by the state Attorney General’s Office, the state last year filed a claim for damages that included $6.8 million in fees paid to Ciber and $8.1 million fees paid to other companies involved in the FAST project.

The state claim also listed $4.5 million in software and other costs that were committed to the FAST project; more than $5.6 million in damages under the Hawaii False Claims Act; $1 million in lawyers’ fees; and more than $20 million the state will now have to spend to purchase the financial accounting system that Ciber failed to deliver.

The state was also seeking punitive damages, and Ciber and the state finally agreed to a $46 million judgment in favor of the state, according to the settlement agreement. However, since Ciber is now bankrupt, it is unclear how much of that money the state will be able to collect.

The state alleged in court filings that Ciber “used lobbyists and exercised inappropriate political influence” to persuade the state to continue making payments to the company, and to counter pressure from state transportation officials who were trying to enforce the terms of the contract.

The company billed the department for work that Ciber knew was of no value, and deliberately understaffed the Hawaii project to meet the company’s internal profitability benchmarks, according to a statement released last year by the Transportation Department.

In announcing the settlement Friday, the state also cited internal Ciber documents that showed Ciber managers admitted the company’s project team lacked the necessary technical skills to complete the project and made critical mistakes. Company documents also showed Ciber misled the DOT about the quality of Ciber’s work and the ability of Ciber’s team to deliver a working system, according to court filings.

“The outcome is a complete vindication of the State’s decision to pursue its claims against Ciber for failing to deliver a financial accounting system for HDOT,” said Gov. David Ige of the settlement. “This sends a clear message that we will hold vendors accountable when they fail to deliver on what was promised.”

The case isn’t quite over yet. Ciber also assigned to the state the rights to its other insurance policies issued by companies that were not part of the settlement, to allow the state to seek further recovery from Ciber’s other insurers.