As expected, it looks like the dispute between Tyco Electronics M/A-COM and the state of New York is on the verge of ugliness, as the vendor has filed a notice of its intent to sue the state for backing out of a $2 billion contract and taking at least $50 million out of the company’s letter of credit.

In short, the state says M/A-COM’s system doesn’t work, citing multiple failed tests conducted during the past year, the latest one in November. M/A-COM claims the system has no technical deficiencies, but New York “repeatedly hindered” the company’s efforts to fulfill the contract and used a flawed testing method in an effort to justify getting out of the big-dollar deal, which was creating problems for the state’s deficit-ridden budget.

There’s more to it—a lot more—but that will be chronicled in future news stories and columns. Like many divorce cases, both parties appear to have legitimate complaints about the actions of the other and there is a substantial difference of opinion between the two. It’s very possible that the courts will have to sort this all out.

Officially, the dispute only involves M/A-COM and the state, but the repercussions of this saga likely will be felt outside of New York.

There is a financial impact on M/A-COM, the second-largest LMR player on the continent. Losing a $2 billion contract is a tough hit for a company to take at any time, but particularly during an economic downturn like we’re seeing now. M/A-COM has acknowledged that the considerable bad publicity about the New York fiasco has damaged the company’s reputation, for which it plans to seek at least $100 million in damages from the state.

Meanwhile, because of the huge New York deal, M/A-COM understandably poured a ton of resources into the project, which left it lacking resources in other areas and effectively unable to pursue other business, in some cases. During the past few years, I’ve talked with officials of multiple agencies that have sought competitive bids for a project only to have M/A-COM not participate, with company representatives telling the agency that the vendor was concentrating its efforts on fulfilling the New York contract.

It’s possible that this was a convenient excuse for the company to use when it felt it would not be given a legitimate opportunity to win a bid. If not, M/A-COM has experienced lost-opportunity costs that it may never recover.

One might think that this would be a boon for Motorola, but it has its own set of problems, as its struggling commercial handset division is proving to be an albatross for the rest of the company, including the supposedly healthy public-safety arm.

These financial woes for the two biggest LMR players may well mean that neither is in a position to offer public-safety agencies vendor financing of large communications projects. And that could be a big problem for many agencies, said Tom Sorley, chairman of the National Public-Safety Telecommunications Council (NPSTC) technology committee.

“I think it could be an issue, because I think some agencies are dependent on being able to absorb the cost of building their systems as an operational expense rather than as a capital expense, especially in today’s economy,” Sorley said during an interview with Urgent Communications.

In M/A-COM’s case, it may never again structure an offer like it did with the state of New York, which was under no obligation to pay the company any money until it accepted the first regional buildout—something that never happened. Many sources close to the situation claim this arrangement meant the state was never invested in the project, so it was easier for officials to seek a way to back out of it instead of working with the vendor to find solutions to perceived problems.

“I don’t think you’ll ever see M/A-COM do a [deal structured like] New York again,” said Charles Brennan, deputy secretary of Pennsylvania’s public-safety radio service, which is a longtime customer of M/A-COM. “I don’t think they’ll ever stick their neck out that far in the future.”

Meanwhile, the M/A-COM-New York saga also could impact the way business is conducted in the industry in other ways. While agencies and vendor occasionally voice complaints about the other, they typically have worked closely to “make things right” when the almost-inevitable unforeseen occurrences happen and a project’s scope is altered.

In light of the New York situation, it’s going to be tempting for vendors and agencies alike to look even more closely at the wording of RFPs, contracts and testing procedures. Certainly both parties should always conduct due diligence on such important documents. Let’s just hope that so many lawyers don’t get involved that it becomes virtually impossible for deals to get done, because first responders only get improved communications when better systems are deployed, not when attorneys argue over the wording of contracts.

What do you think? Tell us in the comment box below.