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Five days after being hit with a $474.5 million verdict in a breach-of-contract lawsuit filed by the state of Mississippi over a tax processing system that never materialized, American Management Systems Inc. (AMS) has settled. On Aug. 23, a Jackson, Miss., jury ordered AMS to pay $299.54 million in compensatories and $175 million in punitives. On Aug. 28, AMS settled, agreeing to pay $185 million over the next 13 years. Fairfax, Va.-based AMS responded to Mississippi’s request for proposals for the system in 1993, said plaintiff’s attorney Armin J. Moeller Jr., of the Jackson office of New Orleans’ Phelps Dunbar L.L.P. AMS, he said, promised to build the system in 36 months and promised it would result in $36.8 million in additional revenues per year. But, said Mr. Moeller, “AMS failed to build the system, and the state never realized any of these gains.” By 1997, AMS had provided only one aspect of the proposed system, a software program called “Withholding I,” he said. “Withholding I was riddled with defects,” he said. “AMS persuaded the state to go on-line, that the defects would be resolved.” But when the state began using it, he said, “it caused the state’s computer system to crash.” This crash caused considerable problems for the state and taxpayers, he said. One restaurant in Biloxi, Miss., was padlocked because of an erroneous tax notice, Mr. Moeller said. In 1999, AMS provided a new version, called Withholding III, but the state declined to accept it, he said, after “AMS said there were defects in this version.” Instead, the state sued AMS for breach of contract. State of Mississippi v. American Management Systems Inc., No. 251-99-382 (Cir. Ct., Hinds Co., Miss.). In addition, the state charged that AMS abandoned development of the Mississippi system because the company had signed lucrative contracts with other states. In a public statement, AMS Chief Executive Officer Paul A. Brands did not admit any liability. He said that the company was settling because “the appeal process would have taken up to two years and been extremely distracting for our management and employees.”

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