Disappointed client seeks $100m from CSC

Disappointed client seeks $100m from CSC

21st Century Insurance Group has filed an arbitration proceeding seeking more than US$100 million from Computer Sciences Corporation (CSC) over an IT project the insurer says has not yielded the expected results.

Called the arbitration filing unfounded, IT services provider CSC said it had complied with its contractual obligations and pledged to defend itself vigorously.

A 21st Century spokeswoman said the company would not comment on the matter beyond its statement issued on Monday. CSC could not be reached for comment.

At issue is a software development project 21st Century launched in 1997, for which it hired CSC. In an October filing with the US Securities and Exchange Commission (SEC), 21st Century claimed it had spent almost $100 million on the project and that it had paid most of that money directly to CSC.

The system is still in development and supports "less than 2 per cent" of the company's business, 21st Century said in the filing. The company said "material components of this new system do not perform at levels necessary to support the entire operations of the company".

As a result, 21st Century said in the SEC filing, it took a one-time pre-tax charge to write off US$37.2 million of previously capitalised software costs in its third fiscal quarter, ended September 30, during which it posted a net loss of $45.2 million. The company said it was looking to find a solution for the matter "with CSC as well as exploring other alternatives".

Ironically, 21st Century launched the software development project in 1997 to "further reduce operating costs for the company", according to an October press release in which the company announced its third-quarter results.

In its statement, CSC said it had provided 21st Century with "highly customised" and integrated software systems, including database management, workflow, marketing and insurance processing software, and that the insurer was using them to process its personal automobile insurance business for customers located in Nevada, Oregon and Washington, and that the system "can and should" be implemented in California, where the insurer is based in Woodland Hills.

CSC also said 21st Century had made the critical decisions for the direction, priorities and resource allocation for the project, and work that 21st Century allocated to itself to implement the system in California had not been completed.

Despite the arbitration proceeding, CSC said it continued to work with its client to achieve the objective of implementing the software system in California.

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