IBM to pay $105 million for failed IT project

On April 19, 2022, it became known that a British court of appeal ordered IBM to pay £80.6 million ($105.7 million) to the owner of the insurance company CIS General Insurance (CISGIL) under a contract for the development and support of systems, which in 2017 was terminated after a series of failures of the project. The court issued its decision on April 4, 2022, but IBM said that it "must" receive this court decision and intends to appeal.

The legal dispute between IBM and its client - CIS General Insurance (CISGIL), a subsidiary of Co-Op Group - concerned an agreement concluded in 2015 to develop software for managing insurance and underwriting operations. The platform was supposed to become the main part of IT, which is the basis of the entire business of the company, complete with an external website aimed at the consumer. The CISGIL customer named the new platform Project Cobalt and pledged to pay a total of £175 million ($228 million) for the development of IBM, which transferred the project to 1insurer. This amount includes £50 million ($65 million) for the development of the platform and £125 million ($163 million) for ten years of support. However, everything did not go according to plan.

As reported, the project was so protracted that in 2017, Co-Op Insurance disgusted it, saying that the IBM subcontractor 1insurer (then known as Innovation Group) had ruined the platform so much that it turned out to be unusable, and claiming that IBM by that time could not make even the first release.

IBM to pay $105 million for failed IT project

As a result, a lawsuit was created by CISGIL in the amount of £128 million ($170 million) in damages.

In a written statement of the events that prompted the lawsuit, it was said that IBM won a competition to develop and maintain a critical IT insurance platform, which in turn transferred the project to its 1insurer subcontractor, for Co-Op, because it assured the company that it had a "white stamp" of a British insurance package that could be custom-designed and provided within nine months. However, according to Co-Op, during the trial it turned out that the proposed 1insurer system was created for the US market and could not be easily transferred in accordance with UK regulatory requirements.

Co-Op Insurance CEO Mark Summerfield called the developed platform "terrible." Summerfield stated that the platform did not meet its purpose, and the project eventually collapsed after Co-Op Insurance stopped paying IBM. The situation reportedly escalated in February 2021, when a judge accused IBM of "critical delays" that led to the failure of the transaction between the companies.

IBM refused to admit its guilt in the collapse of the Cobalt project and claimed that the Co-Op Group and its own subcontractors were far from perfect: Co-Op Insurance sent them unnecessary requests for scale-changing changes, including significant platform changes at a late stage of the project.

IBM to pay $105 million for failed IT project

Judge O'Farrell said that both IBM and Co-Op contributed almost equally to the failure of the project. The judge ruled that the American IT giant illegally terminated the contract, and awarded compensation for the collapse of the Cobalt project in the amount of £13 million ($17 million) to Co-Op Insurance, which was sold to Soteria Insurance in December 2020 as part of an agreement between the Co-Op Group for £185 million ($243 million).

A representative of IBM said: IBM is pleased to conclude this dispute in the conditions when CISGIL wanted to complete the project. IBM is also pleased that the judgment reduced CISGIL's overstated claims for damages to a small portion of the claimed, recognizing the distribution of risks under the contract.

However, in the final decision of the Court of Appeal, adopted by Judge Coulson in late February 2021, the judge said that there are "separate reasons" why the past judge was "wrong" in interpreting the clause preventing Soteria from demanding a refund for "irrational expenses as a result of IBM's refusal of the contract."

IBM to pay $105 million for failed IT project

According to him, these provisions on which IBM relies included the use of wording in exemption provisions - the term "irrational expenses" was not used. Coulson said the ability to make claims for unsustainable expenses is a "valuable requirement," and this requirement is "easy to confirm" through invoices, contracts, receipts, etc.

The judge said that irrational expenses are a recognized and compensable type of loss, which is completely subject to the compensatory principle.

In order to be able to recover such a probable claim, this exception must be clear and obvious. However, in this case there were no relevant exclusions [in the treaty], let alone clear and obvious. " The confusing argument IBM relies on to avoid this predicament only confirms a lack of clarity.

All three judges who considered the appeal agreed with this, as a result of which Judge Coulson ruled that "the amount of £80 574,168 ($105.7 million) is reimbursable." IBM said it does not agree with the decision and intends to appeal.^[1]

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