Delaware awards $738000 single-bid blockchain contract to IBM
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IBM will design blueprints for what could become Delaware’s future blockchain-based corporate filing system, according to a $738,000 single-bid state contract recently awarded to the Armonk, New York-based tech giant.
Blockchain, the much hyped financial technology that underpins Bitcoin currency, keeps information safer from hackers than traditional computer networks, according to advocates. It also allows documents to be updated and amended electronically without human errors creeping onto the records, they say.
That is key for Delaware’s billion-dollar corporate franchise business, which provides the state with more than a quarter of its revenue. The state is the registered home to more than 1 million corporate entities, including 64 percent of Fortune 500 companies.
Locally in Delaware, blockchain evangelists say the extra safety provided by the disruptive technology will allow the state to charge companies higher fees to file documents with the Secretary of State. If done right, they say, Delaware will buttress its edge over Wyoming and other states in its business registration trade.
In 2016, then-Gov. Jack Markell became a leading blockchain promoter, telling a conference of investors and startups in New York City that the technology could “free up billions of dollars in capital” by reducing business risks, eliminating layers of technical procedures and speeding up the exchange of assets.
Now, with a new contract awarded on June 18, IBM will develop and test computer code for a prototype blockchain system that would be used as a guide for a future state contract for the full-scale build-out of such a system.
Deputy Secretary of State Kristopher Knight compared IBM’s work to an architect building a model of a skyscraper before construction. The state will use the scale model to gauge how blockchain may benefit Delaware-registered entities, he said.
“It’s all dummy information and it’s just meant to show you that this is how we imagine these pieces working together,” Knight said. “We’re talking about something that’s so new and we don’t want anyone who’s bidding on this information to get it confused.”
Delaware could legally hand IBM the contract without competing bids because the deal piggybacked on an existing federal consulting contract that the tech company holds, state officials said.
Knight said he hired IBM without listing the work in a competitive bid process because the contract is so critical for the state’s core revenue generating business and “IBM is a leader in the space.”
He said that while the three-quarters-of-a-million-dollar cost of the contract is substantial, it is necessary because governments have a track record of rolling out high-tech systems that end up costing taxpayers as much as twice the estimated amount when not properly planned for.
Pennsylvania “has had a ton of them in the past 10 years, the past 20 years almost,” Knight said.
IBM officials did not respond to a request to comment for this story.
While Delaware has been looking into the feasibility of placing certain slices of the corporate franchise business onto a blockchain-based system ever since Markell made his speech in New York, the journey has featured fits and starts.
The recently-awarded IBM contract follows separate blockchain consulting that IBM had done with the Delaware earlier this year. The state paid $49,000 for the work, which came after a Delaware partnership with a blockchain startup, called Symbiont, mysteriously collapsed.
That company’s CEO Mark Smith claimed Delaware officials were playing “politics” after they expressed concerns last year that a blockchain filing system could disrupt the business of registered agents and corporate attorneys in the state.
Smith said his company’s coders had built a blockchain system for Delaware’s state archives, but the new system never launched as the state balked.
“(Gov. John) Carney reached back to the private sector to find out who would be affected,” Smith said in January. “The administration is focused on jobs in the state of Delaware and registered agents make their livings off of” company filings.
Symbiont officials did not respond to a request to comment on this story.
Pressed on why the Department of State awarded a Blockchain contract to IBM when some work already had been done with Symbiont, Knight said his agency never had a contract with Symbiont.
He did acknowledge there had been a working relationship.
IBM will not be the company that builds a full-scale, blockchain-based corporate filing system, if that ultimately happens, Knight said.
“Blockchain is new and it’s expensive and, if we were to move on to that next phase, it’s going to be a significant investment with that technology firm, we need to make sure that from the beginning, we’re all on the same page,” Knight said.
Contact Karl Baker at firstname.lastname@example.org or (302) 324-2329. Follow him on Twitter @kbaker6.
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