Legal fight could mean longer lines to renew licenses

GRAND RAPIDS A fight between the Michigan Secretary of State's Office and the contractor who built its Express SOS website could result in much longer lines at branch offices to renew driver licenses, the state has warned in a court filing that asks a judge to order the contractor back to work.

The state fired Hewlett-Packard Enterprise Services LLC in August, saying the company had missed too many deadlines on the $35.6-million contract it has held since 2005 and that much of the work HP did complete was defective.

HP said in court filings that delays and other problems with the project are mostly the state's fault.

The state says HP is required to keep workers on the job to keep systems operating during a transition phase, but it pulled its entire team off the job on Aug. 31. The state says HP has also refused to turn over software "source code" owned by the state, which the state needs to make security and other upgrades and to hire another contractor to finish the work.

Should Express SOS fail, "even partially, the state would be forced to redirect the nearly two million annual transactions conducted on the website to various MDOS branch offices, which would severely impact service levels at those branches," and "irreparably harm the reputation of the Secretary of State," lawyers for the state told Kent County Circuit Court Judge Christoper Yates in asking for a preliminary injunction.

"It pulled its team from the job site and is holding hostage the state's source code and documentation critical to maintaining state operations," the state said in a court filing.

"As bad as its overall performance has been, certain of HP's personnel are essential to assure uninterrupted operation of the Express SOS website and data migration work during the transition," the state said.

The Express SOS system was out of service briefly Friday morning, but spokeswoman Gisgie Gendreau said it was for routine maintenance unrelated to the dispute with HP.

A hearing before Yates is to resume in Grand Rapids today. During the first day of the hearing last Friday, the state and HP promised to try to work together to resolve things, but there was no word Thursday on whether they are close to a settlement.

HP said in court filings that any problems the state has are mostly of its own making.

The state "contributed to delays in performance, refused to identify alleged breaches of contract, failed to give HP an appropriate opportunity to cure, failed to provide any rationale for its alleged damages, reflexively terminated the contract and filed this lawsuit as HP sought to reach a resolution, and then abruptly cut off negotiations on transition services that HP made clear it was prepared to provide." the company said in urging Yates not to issue the order the state seeks.

The state has offered to pay HP about $1.3 million to keep eight employees on the job through the transition, but also wants HP to pay the state $16 million in damages for falling short on the contract.

HP said the state did not have proper grounds to cancel the contract, but also threatened to bar the company from any further contracts with the state and assess further liquidated damages of about $11 million unless HP paid it $16 million by Aug. 27.

The HP contract, know as the Business Application Modernization (BAM) Project involves not just Express SOS, which allows activities such as automobile registration to be accomplished online and at kiosks located around the state.

The contract also includes the "Penske application," which allows manufacturers to issue license plates without waiting for the transaction to be processed by a branch office.

If the Penske application failed, "branch offices would be forced to process routine license-plate transactions, thereby overburdening those offices and leading to increased costs to both the state and the manufacturers," the state said in a court filing.

Also because HP failed to meet deadlines on the BAM Project, the state is still reliant on its old mainframe system, meaning data needs to migrate between the old and newer systems to keep them in sync. That can't happen without the source code HP refuses to turn over to the state, lawyers for the state told the judge.

Unable to perform security upgrades, the state would face increased risk of hacking and could lose certification to accept credit card payments, the state said in its brief.

"Over the years, and despite receiving substantial payments, HP failed to achieve most of the milestones called for under the contract and failed to deliver many of the products promised," the state alleges. Also, items "it did furnish were defective and did not conform to the contract."

The state notified HP in an Aug. 28 letter that it intended to terminate the contract.

In that letter, the state told HP it was required, for up to 270 days after termination, to support the work it had previously done, including the Express SOS website, the Penske application, and data migration, while the state sought a new approach.

"Instead of honoring its contractual obligations during the transition period, HP pulled its entire BAM Project team off the job on Aug. 31, 2015, and refuses to return unless the state agrees to certain unreasonable conditions."

Rick Barnes, the HP account executive on the project, said in an Oct. 7 affidavit HP has turned over source code to the state as required by the contract, even when the state has unlawfully held back money for work the company has completed.

The state rejected HP's transition plan and sought to dictate terms, Barnes said.

"I don not agree that HP has an obligation to remain onsite following the state's termination of the entire contract for cause, in the absence of a negotiated transition plan," Barnes said in the affidavit.

HP said that after unilaterally kicking HP off the job, "the state exacerbated its breach by refusing to cooperate with HP in developing a transition plan, despite the fact that the contract required the parties to 'develop a mutually agreeable transition plan.'"

"Instead, the state attempted to impose its terms of a transition plan upon HP and insisted that HP turn over its valuable source code without compensating HP."

"The state's wrongful termination of HP does not convey ownership of source code to which it is not yet entitled under the contract."

HP says the state's request for an injunction is based "on the speculation of actual harm," and "the state's cries of urgency and injury in the context of its wrongful termination for cause are staggering considering the state's universal lauding of two key aspects of the program known as Express SOS and QEK/Penske."

"The state created the conditions for which it now asks this court for extraordinary relief."

It said work is required to separate the source code and HP is willing to submit a proposal for the state to pay it for that work.

"Given the status of HP's performance, HP is materially better situated to complete the project than any other contractor," and the state's decision to end the contract was "misguided and irrational."

Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on Twitter @paulegan4.