May 21, 2010, 06:00:00AM. By Charles Benson

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Indianapolis, IN: The state of Indiana and computer support giant IBM are currently embroiled in a contentious IT overtime lawsuit over a terminated outsourcing deal which had intended to allow the company to overhaul and modernize the state's welfare eligibility system.

The lawsuit alleges that IBM breached its established contract by intentionally denying Medicaid to both a dying cancer patient and a nun, and bilking the state out of millions of dollars in uncontracted overtime hours.

Lawyers for the state are hoping to recoup some $437.6 million paid to IBM over the past three years in lieu of costs incurred for third party lawsuits, federal penalties and state employee overtime incurred as a result of the failed deal, according to Zacks Equity Research.

For its part, IBM is countersuing the state of Indiana, seeking to recover fees and expenses promised under the initial 10-year contract to the tune of $52.8 million and $83.4 million in cancellation penalties for the early termination of said contract.

While the company was removed from the project in October 2009, the state has since utilized the infrastructure laid by IBM to establish its new Medicaid disbursal system, which could explain why the company is not contesting the termination itself, but rather looking for a recovery of expenses incurred.

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