The state of New York today announced that it has terminated the $2 billion contract with Tyco Electronics M/A-COM to build a statewide public-safety network and has demanded payment of at least $50 million. The state claims that the results of November tests indicate that the new system is “unacceptable for public-safety use.”

After, New York State CIO Melodie Mayberry-Stewart wrote a letter in August declaring M/A-COM in default of its contract. In that letter, July tests in the initial buildout area of the statewide wireless network (SWN)—covering Erie County and Chautauqua County—were cited as demonstrating that the system performance was “unsatisfactory and unacceptable.”

M/A-COM was given 45 days to correct 19 deficiencies before the system was tested again in November. Officials for the vendor said 12 of the 19 deficiencies were corrected, noting that the other seven items were not included in the contract. Today, the state revealed that its November testing indicated that only four of the 19 deficiencies were addressed—findings that the state claims were confirmed by Federal Engineering, the independent validation and verification firm hired by the state.

“We are extremely disappointed M/A-COM has failed to demonstrate the reliability of their OpenSky technology, especially its network and subscriber radios, which are the core of the system,” Mayberry-Stewart said in a statement. “Per the terms of the contract, we have given M/A-COM every opportunity to remediate existing deficiencies. However, the state’s testing concluded M/A-COM is unable to deliver a system that meets the needs of New York State’s first responders as stated in the contract.”

Under the terms of the contract, M/A-COM was required to establish a $50 million letter of credit—one that had to be replenished, up to $100 million—that the state could draw down if the contract was terminated with cause, said Angela Liotta, spokeswoman for the New York Office for Technology. The state has demanded payment from the letter of credit “without delay” and will seek additional money after M/A-COM has replenished the letter of credit.

“We have spent over $54 million,” Liotta said today during an interview with Urgent Communications. “I don’t know what the total amount would be that we would be looking for, but, to date, the [state] has incurred over $54 million in costs [related to SWN].”

In a prepared statement, M/A-COM expressed disappointment with the state’s decision to terminate the contract.

“We believe that M/A-COM has fulfilled its contractual obligations and delivered a state-of-the-art system that would benefit the residents of New York,” spokeswoman Victoria Dillon said in the statement. “We recognize that the state's current priorities may no longer support the construction of a statewide network and we have made several attempts to address this amicably with the State. Tyco Electronics and M/A-COM will take all necessary steps to protect the company’s rights under the contract.”

Mobile wireless consultant Andrew Seybold—who counts M/A-COM as a client, although he had not done any work related to the New York project—said he expects the company to object to the state’s actions.

“This is a ‘He said, she said’ [issue], and I’ll bet you that M/A-COM’s [internal test] results are different from the state’s,” Seybold said during an interview with Urgent Communications.

Seybold said it is normal for large systems to have “glitches” in the early stages of deployment, but the vendor and agency typically try to work together to resolve the problems. Such a relationship between the entities seemed to exist for some time—the state proudly trumpeted the coverage and voice quality of the system’s initial buildout less than a year ago. However, the relationship has become decidedly “adversarial” in recent months, he said.

“When you have a bid like this, in my mind, it really becomes a partnership between the vendor and the contracting agency,” Seybold said. “And it’s obvious to me that there is no partnership in this deal.”

While New York’s stated reasons for terminating the contract are purely technical, many sources close to the situation have noted that other circumstances also may have influenced the decision, including the fact that the abrupt economic downturn has left the state’s budget in dire straits.

“Whether they want to get out of it because of the financial implications at this point, and they’re using it as an excuse or whether they’re getting pressure from another vendor, I don’t know,” Seybold said. “I think there’s something lurking here that’s different from most of these contracts.”

For M/A-COM, the state’s action is significant. In addition to losing a $2 billion contract—the state was not required to make any payments until the initial buildout phase was accepted—and as much as $100 million associated with the letter of credit, the company’s reputation for delivering mission-critical communications systems could be damaged by a large client like New York declaring its system unfit for use in three separate tests after the vendor had proclaimed them ready for testing.

With this in mind, most industry observers anticipate that M/A-COM will pursue legal action against the state. Indeed, lawyers for the company this month sent a letter to the state, although the contents of the letter have not been made public.

“M/A-COM has no choice but to fight this,” Seybold said.