Computer firm, ERS take battle to court
By John Duchemin
Advertiser Staff Writer
More than two years after the state employees' pension fund hired a Mainland firm to replace an antiquated computer system that had contributed to a backlog in processing thousands of retirement benefits, the multimillion-dollar project has erupted into a court battle.
The state Employees' Retirement System, which pays pensions for most state and local government employees, and computer firm Quovadx filed separate lawsuits last week, each alleging the other has breached the $13 million contract.
Quovadx and ERS both seek unspecified damages in the dispute, which further delays a long-standing plan to improve the pension fund's back-office pension processing methods, cited in a 1999 state audit for leaving thousands of state retirees facing months of delays and errors in benefit calculations.
The warring lawsuits are the latest problem to arise in a decade's worth of computer troubles for the ERS, an $8.4 billion pension fund that supports the pension benefits of 90,000 state and county employees and retirees.
Since 1992, the pension fund has been attempting to move most of its records and benefit calculations from paper to computer, and to replace a 1980s-era Wang computer system with a more efficient and technologically advanced system.
In 1999, an investigation by state auditor Marion Higa charged that the pension fund had wasted nearly $1 million since 1992 on fruitless efforts to replace its system and computerize its files and benefit calculations.
The new system's software repeatedly botched benefit calculations, according to Higa's audit, and as of 1999 ERS employees were still manually calculating benefits for retirees.
A series of software upgrades didn't help, Higa found, and the pension fund spent more than $900,000 on the project.
In the wake of the audit, ERS hired Quovadx of Englewood, Colo., in February 2000. Under terms of the contract, Quovadx was to design hardware and software that would finally replace the ERS' older Wang system.
By August 2000, Quovadx's $10.7 million contract had ballooned to $12.7 million, according to the lawsuit filed by Quovadx.
Trouble arose in 2001 after ERS questioned Quovadx's plans and said it was concerned over lack of progress, the Quovadx lawsuit said.
By 2002, ERS had terminated the Quovadx contract.
Last week, Quovadx sued the pension fund saying the company had done nothing wrong, and charging that ERS had illegally terminated its contract and acted in bad faith.
ERS responded with its own lawsuit charging that Quovadx failed to live up to its contract obligations, did not provide ERS with a meaningful product, and tried to overcharge ERS by more than $3 million.
"They were contracted to provide a working computer system, and we never got it," said Jon Komeiji, a lawyer with Watanabe Ing & Kawashima, the law firm representing ERS.
Komeiji said ERS' goal is to get a working computer system and recoup some of the money it spent in the early stages of the contract with Quovadx.
Quovadx lawyer Rick Eichor said last week that the parties are at "substantial disagreement over who's at fault."
"They leave us with no options. Every time we would submit a claim, ERS would come back and make a claim against us," said Eichor, a lawyer with Honolulu firm Price Okamoto Himeno & Lum.
The fund has been trying to replace its Wang system since the early 1990s, but ERS assistant administrator Wesley Machida said last week that most of the fund's functions still are carried out on the Wang system.
The backlog in benefit calculations has grown to longer than one year, ERS administrator David Shimabukuro said Monday.
He blamed the delay not only on the computer system, but on a shortage of pension examiners, who review retirees' pension applications. ERS has not increased its examiner staff since 1990 despite steady growth in the number of retirees using the system, Shima-bukuro said.
Shimabukuro said that as ERS tries to fix the backlog, most new retirees get payments that equal about 98 percent of their final benefits.
The delay comes because ERS must determine the accumulated sick leave for each retiree, Shimabukuro said.
A new computer system would help speed benefit calculations, he said.
Reach John Duchemin at 525-8062 or jduchemin@honoluluadvertiser.com.
