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Baltimore, Unisys battle over breach of contract for integrated tax program

Ten years ago, Baltimore officials awarded an $11.4 million contract to Unisys Corp. to completely overhaul the city’s archaic property tax software. Phase one of the new system was to “go live” in November 2003.

Baltimore is suing the vendor it hired in 2002 to upgrade its property tax billing software. The city solicitor said the new system ‘would have addressed some’ of the issues that led to highly publicized errors, like the one that left a couple on the 100 block of North Streeper Street (above) owing $9,200.

Since that time, there have been 20 missed deadlines and the city has spent $8 million, but it still has the same circa-2002 system.

In a federal lawsuit filed this year, Baltimore has asked the court to order Unisys to disgorge all $8 million, pay compensatory and consequential damages totaling more than $1 million, and assess punitive damages on top of that.

Meanwhile, the city’s tax system has come under fire in the media for errors related to application of tax credits and incorrect assessments that have caught homeowners flatfooted with surprise changes to their tax bills. The Baltimore Sun has run a multi-article investigation highlighting errors that have cost homeowners thousands when audits corrected things like mistakenly applied historic tax credits.

In an interview last week, Baltimore City Solicitor George A. Nilson said the Unisys integrated system was supposed to help stave off errors like these.

“The company has been trying for nine years to produce a system that is functional and would have addressed some of these issues,” Nilson said. “The bottom line is that that has not occurred.”

Unisys, though, claims that Baltimore changed the terms of the contract over the years and did not correct legacy mistakes in property tax data as it had agreed to do.

The company claims it was working to fix the issues and proceed with further testing that would have led to a successful implementation until Baltimore officials terminated the contract in December.

“We clearly believe that we have a working system,” said Unisys co-counsel Kenneth L. Thompson, a partner with Venable LLC in Baltimore. “We tried to move forward with the system, but the city didn’t want to — they essentially pulled the plug on the project.”

A company spokesman declined to comment directly, but in court documents, Unisys argues that the city shoulders some of the blame for the delays.

“From early on, the City took actions changing the scope and nature of the Contract from an off-the-shelf solution into a full custom system,” Unisys said in a counter-claim it filed last month.

Unisys said that from 2002 to 2009, the city made several contract amendments and had more than 30 change orders that “drastically” changed the contract. Those changes, the company said, resulted in significant extensions to the timeline.

“They’re blaming the victim,” Nilson said. “And we’re blaming them for their failure.”

The lawsuit, filed in January in Baltimore City Circuit Court, was moved to U.S. District Court in Baltimore in February. The city’s claims include breach of contract; breach of warranties; unjust enrichment and negligent and intentional misrepresentation.

In company literature, Unisys said it has experience with integrated tax systems “in more than 40 tax administration agencies worldwide, including 25 state revenue departments and local taxing jurisdictions in the United States.”

Claims and counterclaims

According to the lawsuit, Baltimore officials started contemplating the overhaul to the tax system in 2000. Talks with Unisys began in 2001, with the company recommending a system that included the Manatron Visual Property System offered by Manatron Inc., a Portage, Mich.-based subsidiary of Thomson Reuters. The contract was awarded in May 2002, and the phased-in system was to be wholly completed within three years.

The first phase of the Baltimore project was slated to go live on Nov. 1, 2003. According to the lawsuit, Baltimore stopped payment at the end of 2008, citing the $8 million paid and the failure to complete phase one.

After Unisys responded with a written notice that it considered the city to be in breach of contract, the city agreed to start testing the first phase.

The city now claims that the tests, which began in December 2010, uncovered 217 “critical” issues, any one of which was enough to forestall implementing the system. Baltimore stopped payment again and declared Unisys to be in breach of the contract on March 18, 2011, after the issues were not repaired, according to its lawsuit.

“Despite the City’s numerous efforts to allow Unisys to demonstrate that the Integrated Tax System was a fully functional and integrated tax system, Unisys has been unable to demonstrate that the system is ready to go live,” the complaint says. “After approximately nine years and the expenditure of over $8 million, Unisys has utterly failed to provide the bargained for Integrated Tax System.”

Unisys has gone on the offensive in the case as well, filing its counterclaim on March 2. In the counterclaim, Unisys asked the court to dismiss the claims of unjust enrichment, negligent misrepresentation and intentional misrepresentation. The company also argued that the city’s claims for punitive damages should also be dismissed.

Moving on

A trial date has not yet been set in the case. Before the lawsuit goes to trial, both sides will try to hash out an agreement in mediation.

In separate phone interviews last week, Nilson and Thompson each expressed cautious optimism tempered with a resolve to litigate if need be, should mediation not resolve the dispute.

“We tried to work it out and get the system in place and the city didn’t want to,” Thompson said. “If mediation doesn’t work, then we’ll be in court.”

In the interim, Nilson said, one thing that will not likely happen is any further work to implement a Unisys system. He said Baltimore officials are already moving forward with an alternate solution to the property tax system issue. Nilson said the Mayor’s Office of Information Technology has already begun discussions with potential vendors.

“We’re not going to sit around and wait for the litigation to end,” Nilson said. “The city is not going to wait another eight years for a Unisys system.”

Settlement reached in Jefferson County

About the same time Unisys and Baltimore were signing their contract, Unisys and Manatron started on an unrelated project that also wound up in federal court.

Jefferson County, Ala., the largest county in that state, hired Unisys to implement the Manatron Visual Property System in early 2002. The county filed suit in March 2010, alleging the work was oft-delayed and the system never installed. It asked the court to award it the $1 million it had already paid on the contract.

Unisys filed a third-party complaint in June 2010, denying the allegations and bringing Manatron in as a third-party defendant.

Jefferson County dismissed its action against Unisys in May 2011 after reaching a settlement, the terms of which were confidential.

The county, which surrounds the city of Birmingham, filed a Chapter 9 bankruptcy petition six months later, citing $3 billion in debt.