County Gets $26 Million Settlement From Software Company in Fraud Case

India’s largest software company has paid Orange County $26 million to settle a lawsuit alleging the company defrauded taxpayers through a failed software project, the county announced Tuesday.

Tata Consultancy Services was hired by the county in 2008 to develop new property tax billing software and promised to deliver it two years later at a cost of $6.4 million. But, according to the county’s lawsuit, the company repeatedly missed its deadlines, asking for extensions and cost overruns to the point where it eventually tried to extend the contract to six years and $17 million, according to the county.

County supervisors eventually canceled the contract and filed a federal lawsuit, claiming that Tata lied about its ability to do the work, intentionally understaffed the project to maximize its profits, and presented false invoices and reports to the county.

The case was scheduled to go to trial this month, but a last-minute settlement meeting led to the $26 million payment that was transferred to the county treasury last week. It’s believed to be the largest settlement payment to the county since 1998, when the brokerage firm Merrill Lynch agreed to pay $400 million to resolve claims related to the county’s 1994 bankruptcy.

“Tata substantially misrepresented the capabilities of their system and then made substantial efforts after the fact to conceal their misrepresentations,” said Supervisor Shawn Nelson, who represented county supervisors during the July 25 settlement talks that led to the deal.

“We knew their system didn’t work because they lied about their capabilities,” Nelson said. “They flat-out lied to us and I caught them. Thank heavens that my colleagues agreed to fight to the last minute for justice and were willing to take this to trial.”

The county had paid $4.9 million to Tata under the contract and spent another $10 million on the legal battle, according to the county. That leaves about $11 million from the settlement for other uses, like finally upgrading the 1980s-era property tax software.

County Auditor-Controller Eric Woolery said he’s working on a $4.5 million to $6 million upgrade to the system’s code that will help prevent it from crashing until a new software system is developed.

In a statement, Tata spokesman Ben Trounson emphasized that neither side admitted any liability, and the settlement represented “a compromise between the two parties, versus the prospect of a lengthy trial in Orange County.”

The software, known as the Property Tax Management System, is critical for county’s collection of over $4.5 billion per year in property taxes to help pay for schools and services provided by cities, the county and special districts.

The system calculates the property taxes for more than 1 million items of property, such as land, homes, boats and aircraft.

For decades, county officials have been relying on an aging mainframe computer system known as ATS, developed in the 1980s and 1990s. That system uses an obsolete programming language that the county says isn’t even supported by the company that has the rights to it.

To replace it, the county decided to split ATS’ functions into two systems, with the contract for the property tax system going to Tata in July 2008.

Tata was chosen based on what the county claims it later learned was “a series of false promises and intentional misrepresentations” by Tata, which “made promises to complete the project on a budget and according to a timeline with which they had no intention of complying.”

The company had promised that the software would be finished by July 2010 with a total county cost of $6.4 million, according to the suit.

The company also claimed it would assign 16 people to the project, including two property tax experts: Terri Sexton of California State University and Sam Birchfield of Ryan and Co., a tax services firm.

Instead, the county claimed, “only five of the sixteen promised personnel ever performed a role” and Tata sought and received millions of dollars in cost overruns and passed its deadlines twice before the county refused to grant any further money.

The county further alleged it spent “millions of dollars” on county employee salaries and “hundreds of thousands of dollars” on other consultants because of Tata’s incompetence.

As for the two experts, the county asserts that “TCS never had either of those experts play a meaningful role, if any role at all, on the PTMS project” despite numerous county requests to seek their expertise.

In an April ruling, U.S. District Judge Josephine L. Staton dismissed Tata’s request to throw out the suit, writing that email evidence supported the county’s fraud allegations.

In those internal emails, Tata employees “appear to strategize as to how to mislead the County about the status of the property tax management system,” Staton wrote in her order.

The case was slated to go to trial this month, with jury instructions, witness lists, and other trial matters being filed with the court in July.

But the July 25 settlement talks apparently worked, with the county telling the court two days later that the case had been settled. County supervisors then met on Aug. 9 to discuss the case, and the settlement agreement was signed that day by county CEO Frank Kim and Tata executive Surya Kant.

No settlement approval by county supervisors was reported out of closed session until Tuesday.

News of the Orange County settlement was reported by several media outlets in India, where Tata is the nation’s largest software services company and among the nation’s top 10 largest corporations.

Nick Gerda covers county government and Santa Ana for Voice of OC. You can contact him at ngerda@voiceofoc.org.