Tata Consultancy Services (TCS) shares fell marginally following news that the company has paid $26 million to Orange County, California to settle a lawsuit. The settlement ended a three-year litigation over the failure of TCS' US affiliate to deliver a new property tax management system to the county in 2010, the deadline decided between the parties to deliver the software.
The county's litigation alleged that TCS "presented false claims in the form of invoices and reports, provided false and unachievable milestone completion dates, and intentionally understaffed the project to maximize profit." The county said the company tried to extend what was originally a two-year, $6.4 million contract into a six-year, $17 million project.
The settlement amount, according to Orange County, is four times the actual amount of the contract and five times the cost it actually paid to TCS America.
As per the initial contract, TCS America was to have delivered the property tax system by July 2010 for $6.4 million. In June 2010, the delivery date was extended for a year and sanctioned $1.2 million. When TCS failed to deliver the software in 2011, the supervisors of the project approved another $2.7 million while deferring the deadline to July 2012. This brought the total cost of the contract to $10.3 million until 2012.
In 2013, TCS sought a third extension for two more years while claiming that the company needed an additional $7 million, taking the total cost to $17 million, following which the county sued the company in the same year. When the county terminated its contract, it had paid the IT vendor $4.9 million in total grand for the project.
The county claimed that the Indian IT services exporter violated the California False Claim Act and filed a litigation on account of "fraudulent concealment, intentional misrepresentation and breach of contract" among other charges. TCS had filed a cross-complaint asking the US District Court to dismiss claims of fraudulence. In an order dated April 1, 2016, the court turned down Tata's plea.
The county's statement said if the litigation was not settled, it would have led to a trial on Aug. 2, 2016. It also stated that the county had spent approximately $10 million on legal and expert fees in preparation for the trial.