Dive Brief:

• Pennsylvania Governor Tom Wolf's administration filed a suit against International Business Machines Corp. (IBM) last week claiming IBM failed to deliver a new IT system for handling the state’s unemployment claims, the AP reports. IBM and Pennsylvania signed the contract in 2006.

• The lawsuit accuses IBM of "breach of contract and intentionally misrepresenting or withholding important information" and seeks undisclosed damages. IBM said it intends to fight the lawsuit.

• The lawsuit claims IBM was paid $170 million, but failed to deliver on the project. The state allowed the contract expire in 2013, which at the time was four years behind schedule and over budget. "IBM repeatedly failed to live up to these commitments and made decisions that thwarted successful completion of the project," according to the lawsuit. 

Dive Insight:

IBM is not the first major consulting firm or tech company to get into a legal tangle with a state government. Last year, Rhode Island sued Hewlett Packard Enterprise — which in turn filed a counter suit —  related to a state Division of Motor Vehicles computer project.

Meanwhile, Pennsylvania continues to use its 50-year-old legacy system and the department is struggling financially, having laid off hundreds of state employees in December, according to the report. In order to check unemployment claims, the state mails forms rather than checking about someone's application for benefits online. And Pennsylvania is far from the only state struggling with legacy technology, where in many cases budgets are dedicated to just keeping old technology running. 

But for IBM, and potentially other services firms, a lawsuit against an allegedly botched project can pose a challenge to a company's reputation. This is especially true for companies that receive a large source of revenue from consulting practices and assisting customers with implementations.