Pennsylvania is pulling the plug on an IBM (NYSE:IBM) computer project that it says is 42 months behind schedule and more than $60 million over budget, the state's Department of Labor and Industry announced yesterday.

The IBM computer system, known as the Unemployment Compensation Modernization System (UCMS), was designed to calculate and provide unemployment compensation benefit payments.

However, a study commissioned by the Department of Labor and Industry and carried out by Carnegie Mellon University's Software Engineering Institute found "The Contractor [IBM] track record of ineffective project management led to weaknesses in process and practice discipline."

"The bottom line is that the problems we've identified cannot be solved and we will not renew our contract with IBM," Department Secretary Julia Hearthway said in the department's statement. "The level of risk, combined with the critical nature of the system, demands that the Department of Labor & Industry has a system that produces timely decisions reliably and accurately."

The original contract was for $106.9 million in 2006 and it expires in late September after no-cost extensions were allowed to assess the program.

IBM spokesman Scott Cook said in an emailed response to a request for comment that the company was "surprised by yesterday's announcement. The decision is based on a third-party report that we had not seen at the time of the Commonwealth's announcement, despite repeated requests to the Department of Labor and Industry to review it together in the normal course of a working relationship ... [W]e stand ready to work with the State to resolve this matter."

-- Material from The Associated Press was used in this report.