North Carolina state officials have described their decision to halt an $85 million contract for a new tax software system as a “mutually agreed” decision made earlier this month between the state and the vendor.

But new documents show the state took action in November against the company, CGI Technologies and Solutions, saying the tax software project wasn’t meeting the contract’s terms. The state then sent notice to terminate the contract on Jan. 10, with language that said the project was a failure.

That prompted CGI officials to negotiate with the state for a final resolution, signed Jan. 16, that cast the parting of ways as a “mutual agreement” to abandon the project, known as the Tax Information Management System or TIMS.

The state paid CGI an additional $5 million to settle outstanding bills and officially end the arrangement on a “no-fault” basis. CGI is the same company behind the troubled national health care website.

The final agreement explains why state officials have been relatively muted in their criticism of the failed software project: Revenue Secretary Lyons Gray signed on to a provision in the termination agreement that says the two sides “agree not to disparage the other and agree to make only positive or neutral references regarding the other, the contract, the TIMS Project, and the reasons for the mutual termination of the contract.”

A department spokesman, Trevor Johnson, said that was a “necessary step” to move forward, including closing the contract out cleanly and without litigation.

‘Weeks Away From Delivery’

In a statement Monday to The News & Observer, Linda Odorisio, a CGI spokeswoman, said the latest software update had been “weeks away from delivery” but that the state did not agree on CGI’s view of the status of the project. She wrote that the final resolution of the contract has “invalidated any previous assertions” by the state about CGI.

The documents show that state officials gave formal notice of default to CGI on Nov. 27.

A memo from state budget director Art Pope says six weeks of discussions followed but that, by Jan. 9, the state had “not received from CGI a resolution to cure, nor do we have an acceptable offer on an alternative approach to move forward in any capacity.”

The notice of termination was sent the next day, Johnson said.

That notice to terminate says the tax software project, which began in 2008 and was supposed to roll out in phases through 2011, would have fully supported all of the essential functions of tax administration for the state.

Officials have said that an early part of the project, aimed at spotting tax delinquents, has worked well, identifying and helping the state to see a net gain of about $230 million in those collections since 2010. Officials say that piece of the system will remain in place and they are confident it will work going forward. CGI’s Odorisio emphasized that the system generated revenue on Monday in the statement.

But that is a small part of the tax project. The bulk of it hadn’t been put in place, meaning the major tax schedules handled by the state are running on an older system that dates to the 1990s. The TIMS system was to replace that. Now, with the canceled contract, the state will be running two tax systems while it looks for a new solution.

One phase, which was partly up and running by July 2011, continues to have “defects and performance issues,” according to the notice of termination sent to CGI this month. Another phase of the project was supposed to have gone live a year later, but still hasn’t.

Detailed Criticisms in Letter

Gray’s letter giving notice of termination to CGI was pointed.

“The period of performance under the contract has been marked by significant obstacles directly arising from CGI’s failure to meet its contractual obligations, empty assurances and guarantees, and poor performance,” Gray wrote.

He wrote that the contract was terminated because of “CGI’s failure and inability to deliver as required.”

The notice of termination did not address any possible monetary settlement.

Johnson said CGI officials immediately responded, leading to the mutual agreement six days later and the state’s $5 million payment to CGI.

©2014 The News & Observer (Raleigh, N.C.)