TCS settles US lawsuit for $26 mn

In exchange for this payment, the county will now dismiss its lawsuit against Tata, who in turn will dismiss its cross complaint

Tata Consultancy Services (TCS), the country’s largest information technology (IT) services provider, said it had settled an ongoing lawsuit with Orange County in California, USA. For doing so, it has agreed to pay $26 million (Rs 175 crore).

The three -year dispute was over a failed replacement to the County’s automated property tax system, initially to be completed by 2010 but not delivered.

After the announcement, TCS’ shares were down by 1.2 per cent and closed at Rs 2,571.90.

“Both parties had claims against each other but neither admits any liability. The settlement was reached after a mediation conducted by judge Jay C Gandhi, representing a compromise between the two parties versus the prospect of a lengthy trial,” said a TCS spokesperson.

The mediation settlement was late last month and a board of supervisors there approved the proposal. After which, last Friday, the county was notified that the settlement payment from Tata had been wired to the former’s treasurer.

Had the litigation not been settled, there would have been a trial. The county sued Tata in 2013, claiming the software giant had  violated the California False Claims Act and was guilty of fraud, intentional misrepresentation, negligent misrepresentation and fraudulent concealment, as well as breach of contract.

The software programme in question was meant to interface on behalf of the relevant departments there to generate annual tax bills for secured and unsecured property.

The county alleged the  Tata fraudulently induced it into selecting the latter to develop the property tax system and then presented false claims in the form of invoices and reports, provided false and unachievable milestone completion dates, and intentionally understaffed the project, to maximise profit. And, that TCS took what was originally promised to be a two-year and $6.4-mn contract and tried to stretch it into a six-year and $17-mn project.

TCS also filed a complaint and also asked a court to dismiss the county’s fraud claims. In an order filed April 1 this year, the district court there rejected Tata’s attempt to persuade it to dismiss the county’s fraud claims,saying the company’s internal e-mail revealed Tata employees “appearing to strategise as to how to mislead the county about the status of the system”.

The initial contract with Tata America International Corporation  was approved by Orange County in July 2008 for $7.97 mn — reduced to $6.4 mn a year later — and with a promised delivery date of July 2010. In June 2010, supervisors extended the delivery date for a year and approved another $1.2 mn, bringing the contract total to $7.6 mn.

TCS is also battling another suit, filed by Verona-based electronic medical records vendor, Epic. The jury had okayed a $940 mn fine on TCS but a final verdict is yet to come.