Mississippi and AMS Settle a Suit

Although it won $475.5 million in its case against American Management Systems this August, Mississippi is settling for less. Rather than face the legal costs involved with several rounds of appeals, both parties agreed to a $118 million settlement in a suit that charged AMS with failing to implement a large-scale computerized tax-collection system.

The state had hired AMS in 1993 to design the tax system for $11.2 million. After years of disagreement about everything from the length of time that AMS had been given to complete the project to the extent of the tax overhaul, Mississippi pulled the contract in 1999 and sued AMS. "They failed to deliver a single satisfactory system on any tax," says Ed Buelow Jr., chairman of the state tax commission.

AMS says it was "absolutely shocked" by the size of the Mississippi jury's award--an amount that was more than 40 times the value of the contract--and insists it delivered a working system for the withholding tax within an agreed-upon time frame. The company says it was days away from implementing an improved system when the state pulled the contract. "We believe that the case would have been overturned on appeal, but the toll on our business was not worth duking it out in court," says Cheryl Janey, vice president of AMS.

For his part, Buelow says the case "serves notice to all the people that contract with state government that they're going to have to be responsible."