An $863 million outsourcing deal between the state of Texas and IBM has again come under fire again, this time in an independent report commissioned by the Texas Department of Information Resources.

Under a seven-year contract, IBM is managing and consolidating the state's 31 data centers into two data centers, in Austin and San Angelo, and putting into place new disaster recovery and security capabilities.

The report, by IT consulting firms EquaTerra and Sierra Systems Group, urges overhauls to the arrangement. "In the final analysis, the current relationship is not sustainable," the report finds. "Texas has yet to realize all the benefits the state anticipated from this initiative, and we believe IBM has yet to reach even a financial break-even point."

At the start of the project, Texas anticipated saving $159 million between 2006 and 2013. However, according to an audit released this summer, the state has saved less than $9.7 million since the project's inception.

As of September, IBM and Texas had built a new data center in Austin, consolidated 13 mainframes to 8, and nearly completed consolidating print and mail services. However, they were only 7% of the way through consolidating more than 2,900 servers.

According to the new report, the project's main problem is a misalignment of "the original business intent of the project with the organizational, financial and operational realities" of Texas government. For example, though the contract is managed through the Department of Information Resources, the department has little direct control over state agencies, creating cross-agency contention and poor governance. That has resulted in low morale, exhaustion and stress among both IBM employees and Texas' IT pros, according to the report.

It recommends a number of changes to the project. Among them: the agreement should address inter-agency dynamics in Texas; disputes and open issues should be categorized and prioritized; and governance should be redefined. The report pushes the state to make these and other changes over the next year.

"We're going to be working very closely with DIR on the way to move forward," said IBM spokesman Jeff Tieszen.

Earlier this month, Texas disclosed plans to remove its voter registration system from IBM's duties, blaming an August server crash that caused one state agency's records filing system to be down for 13 days. IBM disputes the characterization.

"That outage was due to a failure with an aging third-party piece of equipment in a SAN environment that IBM inherited," said IBM's Tieszen. "We worked closely with the Secretary of State's office to get it back as quickly as possible. It was only intermittently down, and all data was recovered in the end." The system was used without incident during the November 3 election, Tieszen added.

The data center consolidation contract has been cited for problems in the past. Earlier this year, a report by the state auditor criticized the state's oversight of the contract, and a survey showed that 88% of state agency IT directors were dissatisfied with IBM's services. In October 2008, Texas temporarily stopped work on the project, claiming that IBM had failed to back up data for more than 20 agencies, including a loss of the equivalent of several months' worth Medicaid fraud records.

Last month, Indiana terminated a $1.34 billion, 10-year welfare modernization contract with IBM.

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