State Recovers $31.7 Million in Lawsuit about Botched Software Upgrade for HDOT

The state of Hawaiʻi will recover $31,775,000 from successful litigation stemming from a failed project to upgrade the Hawaiʻi Department of Transportationʻs Highways Division financial management system, according to a HDOT news release.

That total is the result of the remaining defendants in the lawsuit recently agreeing to pay more than $20 million in the settlement, which was litigated by lawyers at the Department of the Attorney General and at Kasowitz Benson Torres LLP.

The litigation relates to misconduct by Ciber, Inc., a Colorado-based technology firm that HDOT hired in 2008 following a competitive sealed proposal process. Ciber was hired to design and implement a financial accounting system, on an Oracle software platform, for HDOT’s Highways Division. Ciber’s work on the project was beset by delays, design defects, failed tests and a shortage of skilled consultants. After five years of error-filled work and nearly $7 million in fees from the State, Ciber abandoned the project in 2014 without delivering a functioning system, the news release said.

When HDOT demanded that Ciber complete the project for the agreed-to price, Ciber refused, sued HDOT for breach of contract, and demanded $17 million in alleged damages. HDOT fought those claims and pursued its own claims against Ciber for fraud, violations of the False Claims Act, breach of contract and unfair business practices.

During the litigation, HDOT eventually obtained from Ciber internal documents containing admissions by Ciber managers that Ciber’s team lacked necessary skills, made critical mistakes during the project, and misled HDOT about the quality of Ciber’s work and the ability of Ciber’s team to deliver a working system.

When Ciber sought bankruptcy protection in 2017, HDOT continued to pursue its claims in state and federal court. In December 2017, Ciber and its primary insurer agreed to pay HDOT a total of $11 million, and Ciber further agreed to assign to HDOT the rights to Ciber’s excess insurance policies.

HDOT sued Ciber’s excess insurers in Hawaiʻi court in 2018, and the court directed that HDOT’s claims be arbitrated in Hawaiʻi. The insurers fought HDOT’s claims for two years, disclaiming any responsibility to provide coverage. As HDOT geared up for an arbitration trial set to begin on May 17, 2021, the insurers agreed to settle the case for a total of $20,775,000. That settlement, on top of the $11 million HDOT previously obtained, brings the State’s total recovery to $31,775,000 – an amount that accounts for the State’s damages and exceeds the fees HDOT paid to Ciber for the failed project.

“When HDOT hires vendors on projects, it expects them to perform as required – and the department is committed to holding them to account when they fail to do so,” said HDOT Director Jade Butay.

Hawaiʻi Attorney General Clare E. Connors said: “It is a priority of my office to ensure that vendors hired for State projects comply with their contractual and professional obligations – and that their insurers likewise live up to their commitments.”