Ms Vs Ams Essay, Research Paper

The State of Mississippi versus American Management Systems

On April 22, 1999, the State of Mississippi filed a lawsuit against American Management Systems (AMS) in Hinds County, Mississippi. This was ten days prior to when AMS would go live with the Withholding Tax System. This was only a single component of the State Tax Automated Revenue System (STARS). American Management Systems was contracted to construct an automated, integrated tax system for Mississippi. At the completion of the contract, American Management Systems would have created a customized program to collect all thirty-six taxes for the Mississippi tax commission.

The State was requesting an integrated computer system to accurately and quickly record, maintain, and compute tax liabilities, payments, and refunds. On or about May 18, 1993, the State Central Data Processing Authority, the predecessor to ITS, released Request for Proposals No. 2403 (herein after referred to as RFP 2403), seeking to contract with a qualified contractor to provide services to the State Tax Commission in the transfer and modification, or design and development, and implementation of a system which will fulfill the automation requirements of the Mississippi State Tax Commission (MSTC). Once implemented, the system will be known as the Mississippi Revenue Management System (MRMS). “This must be easy to use, user-friendly, and run efficiently. This investment must produce new business processes at MSTC that will yield:

Improved services to the taxpaying public, reduced costs for tax and revenue processing, audit and enforcement, increased collections performance, enhanced professionalism and employee satisfaction within MSTC, and a robust and flexible technology platform that can be readily adapted over the next 20 years to the evolving demands of the legislature and the public.” (Buelow, 2001)

AMS represented to deliver a complete, custom-developed solution that fully and rigorously meets or exceeds all functional requirements. AMS specifically promised that it would “manage and execute the conversion of all data from these existing systems into the new MRMS, in conformance with RFP requirements.” (MITS vs AMS)

AMS further promised to exceed the Commission’s proposed 40-month implementation schedule. We are proposing a 36 month project duration, with a phase-in of tax processing functionality consistent with the Commission’s requirements.” (MITS vs AMS)

In responding to the State’s RFP 2403, AMS promoted itself as one of the nation’s largest independent systems development and technology consulting firms with particular expertise in delivering administrative systems solutions to large government organizations. AMS offered the corporate strength, and depth to assure that the State will achieve its implementation objective, on time and within budget. “AMS is committing to this project many of our most senior members-each of whom has played a similar role implementing large-scale systems, in the proposed technical environment, for a large public sector client”. (MITS vs AMS)

The Company’s chief executive officer stressed “the experienced and outstanding team” that would be assigned by AMS to the MRMS project. The State promised to pay the sum of Eleven Million, Nine Hundred and Ninety Two Thousand, Nine Hundred and Fifty Seven Dollars ($11,992,957) to AMS in exchange for the development and implementation of a project called the State Tax Automated Revenue System (”STARS”), a fully integrated system pursuant to the specifications and requirements of RFP 2403. As AMS recognized, the purpose of STARS was “to modernize, streamline and integrate all tax and revenue applications for the Commission”. (MITS vs AMS)

Only four months after the January, 1994, beginning of the project, the State accepted AMS’ recommendation that the system be based on a client-server system using individual personal computers, rather than on a mainframe computer as envisaged by the RFP. AMS did not disclose to the State that the overall marketing strategy for the revenue practice would be enhanced by the change to client-server architecture.

The total integration of data entry, analysis and transfer in and among the six “families” of taxes — Corporate and Franchise Tax, Sales and Use Tax, Individual Income Tax, Withholding Tax, Petroleum Tax, and Miscellaneous Taxes — is the fundamental goal of the STARS Project. Thus, as AMS represented in its bid, for STARS “to be truly successful the project must deliver more than simply a new software application. It must incorporate all the elements necessary to improve the efficiency and the management of the tax and revenue operations within Mississippi.” (MITS vs AMS)

The Project Plan, called for the Withholding Tax component to be submitted for testing in July , 1995. The Withholding Tax component was selected because it involved the fewest number of taxpayers — 46,700 employers paying withholding taxes for their employees — and because Mississippi Withholding Tax is the simplest of the six basic “families” of taxes to be encompassed by the STARS project.

The Project Plan was amended again, at the request of AMS, to permit submission of Withholding Tax for testing by the State in October, 1996; AMS failed to meet this date, and requested a further extension of the time to submit this component for testing. Ultimately AMS delivered Withholding Tax to the State for testing in February, 1997.

In the April 1994 change order approving the client-server system, AMS agreed to utilize a client server model known as “distributed logic” together with aspects of a model known as “remote data management.” These models were represented by AMS to be the most cautious, conservative approach to developing a computer system that did not rely on the State’s mainframe computer. A “high level technical architecture design” document, which was delivered by AMS to the State in August 1994 pursuant to the contract, also set forth these models of client-server architecture as the approved form of the project.

AMS deviated from the agreed upon model for the withholding tax segment of STARS for no reason related to the State’s best interests. Instead, AMS assigned less experienced and less qualified programmers to the Mississippi project than it had warranted and represented in the Contract documents. These less experienced and less qualified programmers were not sufficiently skilled to write software code consistent with the contractually agreed upon model.

The assignment of less qualified, junior programmers was no accident, but was a direct consequence of business decisions made by AMS to favor clients other than Mississippi. AMS assigned its more experienced programmers to projects in Kansas, Virginia, and other states, where the contract prices were higher and the technical infrastructure was more readily replicable than was the case with the Mississippi STARS Project.

The failure of AMS to deliver acceptable software for the Withholding Taxes component seriously compromised the remainder of the STARS project. Only 46,700 employer-taxpayers are subject to withholding taxes; by contrast, 1,200,000 individual taxpayers are subject to individual income taxes. If the product tendered by AMS is not able to efficiently, speedily and accurately account for the taxes paid by 46,700 employers, then it cannot be depended upon to do so for over one million individual Mississippians. Moreover, the defects exposed by the testing of the Withholding Taxes component of STARS demonstrate fundamental flaws in the design of the overall STARS software architecture.

Because AMS has failed to deliver acceptable, conforming Withholding Taxes software after three or more notices of non-conformance, because AMS’ failures jeopardize the overall success of the STARS project, because these failures represented a material breach of warranty, and because AMS has unduly delayed performance of the Agreement, the State, by letter of April 22, 1999, terminated the Agreement for cause.

I. COUNT ONE – BREACH OF CONTRACT AND BREACH OF WARRANTY

II. COUNT TWO – BAD FAITH BREACH OF CONTRACT

III. COUNT THREE – BREACH OF FIDUCIARY DUTY

The stakeholders of this case were the State of Mississippi as well as American Management Systems. From Mississippi’s point of view, they were offering a large sum of money in return for a service. However, the service was not rendered especially under the original contractual agreement. This system requested was to update our state taxes through technology so citizens could easily compute any tax. When the integrated system failed, the state suffered a major loss of time. All of the previous work that had gone into the system was terminated. Therefore, to achieve the goal, a new contract should be offered to a company that would create the system desired.

AMS was a stakeholder during the case as well. Regardless of the inadequately performed job, AMS was paying employees wages assigned to the case. This generated a loss of revenue. Also, AMS had an image that they wanted to maintain. However, the existence of junior programmers as opposed to experienced programmers and system developers on such a cumbersome task did not uphold the company image.

The state was taking a risk when the decided to file a lawsuit against AMS. There could have been a possible number of outcomes. The state gambled on the option of possible appeals that could be granted to AMS for completion of the system. Also, the outcome could have favored AMS completely leaving the state in an obligation to continue the contract and completion of the system. Also, the court could have granted multiple extensions to AMS. However, the state took the risk to pursue the termination of AMS with STARS.

The ethical aspect of this paper is derived from the actual summary of the case listed above. When a contract is in operation it is only ethical that the obligations be met. Of the many conflicts that were stated above, the Mississippi Board of Information Technology Services and the State Tax Commission tried to settle out of court. Numerous attempts were made by the state with AMS’s insurance. However, the refused to settle outside of court. After careful deliberation the hearing came to a close in approximately 90 minutes. The lawsuit, which was filed and won, was to regain lost revenues and forfeit all ties with AMS. The settlement that Mississippi received was, breach of contract $299,539,652, punitive damages of $175,000,000. The actual damages were based on the cost to build an automated, integrated tax system for Mississippi and to recover revenues that should have been collected after implementations of the system.