TCS settles Orange County lawsuit for USD 26 mn; shares down

TCS settles Orange County lawsuit for USD 26 mn; shares down

TCS settles Orange County lawsuit for USD 26 mn; shares down
India's largest IT firm Tata Consultancy Services and its US affiliate have paid Orange County, Calfornia, USD 26 million to settle a lawsuit over what the latter termed as a "failed replacement" to the county's automated property tax system.

"TCS and Orange County have agreed to settle an ongoing dispute regarding the joint development of a Property Tax Management System," a TCS spokesperson said.

The spokesperson added that both parties had asserted claims against each other, "but neither admits any liability".

"The settlement was reached after a mediation conducted by Magistrate Judge Jay C. Gandhi, representing a compromise between the two parties, versus the prospect of a lengthy trial in Orange County," the spokesperson said but declined to confirm or deny the lawsuit amount.

According to a statement by the US county, "Tata Consultancy Services and its US affiliate have paid the County USD 26 million to settle litigation over a failed replacement to the County's automated property tax system that initially was to have been completed in 2010 but was never delivered."

The county in the US state of California said that on August 19, 2016, it received notification that the USD 26 million settlement payment from Tata had been wired to the County Treasurer-Tax Collector.

In exchange for this payment, the county will now dismiss its lawsuit against Tata, which in turn will dismiss its cross complaint, it added. TCS shares were trading 0.65 per cent lower at Rs 2,586.40 on the BSE.  The county said that settlement amount was more than four times the USD 6.4 million cost of the contract, and more than five times the amount the county actually paid to Tata.

In its legal complaint, the county alleged that "Tata fraudulently induced the county into selecting Tata 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."

The county statement further alleged that "Tata took what was originally promised to be a two-year, USD 6.4 million contract and tried to stretch it into a six-year, USD 17 million project. The county intended to ask the jury to award punitive damages for fraud against Tata."

Had the litigation not settled, trial would have begun on August 2, 2016, it said. The county sued Tata in 2013, claiming the software giant violated the California False Claims Act and allegedly engaged in "fraud, intentional misrepresentation, negligent misrepresentation and fraudulent concealment, as well as breach of contract".

The software programme was to interface on behalf of the Assessor, Treasurer-Tax Collector and AuditorController departments to generate annual tax bills for secured and unsecured property, including land, buildings, boats, aircraft and business equipment.

Tata filed a cross-complaint and also asked the court to dismiss the county's fraud claims.

The initial contract with TCS America was approved by the county in July 2008 for USD 7.97 million —- reduced to USD 6.4 million a year later —- with a promised delivery date of July 2010. In June 2010, supervisors extended the delivery date for a year and approved another USD 1.2 million, bringing the contract total to USD 7.6 million, the county statement claimed.

"In June 2011, after Tata officials attended a Board of Supervisors meeting and promised to fix several ongoing issues, the Board reluctantly approved another USD 2.7 million to bring the total cost of the contract to USD 10.3 million, with a new delivery date of July 2012," it said.

The county statement further said that in January 2013, when Tata requested a third extension (asking for additional two years to finish the system at an additional cost of $7 million), the county terminated the contract and the Board authorised the initiation of litigation against Tata.

"Before terminating its contract with Tata, the county had paid a total of USD 4,925,541 to the software vendor. To prepare for trial, the county spent approximately USD 10 million on legal fees, expert fees and related court costs," the county's statement claimed.

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