The state of Indiana is close to outsourcing the technology and back-office operations that support its welfare system under a contract that, if approved by the governor, would be worth $1.6 billion to IBM and a handful of partners, including ACS and Phoenix Data Corp.

The 10-year deal requires the final approval of Indiana governor Mitch Daniels, who, in a statement released Wednesday, said it would make "America's worst welfare system better for the people it serves." Daniels said he will wait until the outcome of a Dec. 8 public hearing before signing off on the agreement.

Sources familiar with the negotiations say IBM prevailed over technology outsourcer Accenture.

Under the deal, IBM would provide Indiana with intake processing services and technology support for its Family and Social Services Administration. Among other things, IBM will set up an automated welfare eligibility application system that will be accessible online 24 hours a day.

About two thirds of FSSA staffers who currently work on eligibility applications would transfer to IBM or one of its partners. The rest would remain employed by the state, according the governor's office.

Indiana officials say the deal will result in $500 million in administrative savings over the life of the contract.

In exchange for the work, IBM has agreed to create 1,000 new jobs in Indiana over the next four years. Many of those will be located at a new customer service center that IBM has pledged to open in the state at a location yet to be determined. IBM will also donate to the state a supercomputer for use by researchers at Purdue University and Indiana State University.