CASE: Outsourcing to Tata

While some states, such as Tennessee, have been quick to ban or

limit international outsourcing of government activities, other state
governments have sought to take advantage of low-cost
opportunities that international outsourcing can offer.
The state of New Mexicos Labor Department hired Tata Consultancy
Services, an Indian outsourcing firm, to redo New Mexicos
unemployment compensation computer system. While Tata had
completed work for other states, including Pennsylvania and New
York, it had never worked on a n unemployment compensation
system. Also, New Mexico agreed to allow Tata to do all computer
software work in India, apparently with insufficient monitoring of
progress by New Mexico officials responsible for the outsourcing
project.
The new system should have been completed in 6 months, which
put the due date in December 2001. Unfortunately, things did not
work out well. The initial system was delivered 1 year later. But in
late 2004 it was still not working. Also, the outsourcing project went
way over the budget of $3.6 million, up to $13 million. The
warranty for the system ended in 2003, leaving New Mexico with a
situation of either suing Tata to complete the project (it was
estimated at 80% complete) or hiring someone to fix it. Tatas
position was that it had complied with the outsourcing agreement
and was willing to continue fixing the system if it could receive
additional compensation to justify additional work.
What could New Mexico have done to achieve a more successful outcome?
Is this a case of cultural misunderstanding or could the same result have
occurred if a US firm, such as IBM had been selected?