A Marion County judge has ruled that Indiana cannot collect millions of dollars it claims IBM owes over the state's failed welfare system overhaul, while IBM is entitled to just half the damages it sought in a countersuit.

Marion County Judge David Dreyer issued the order Wednesday. In a blistering two-page introduction to the ruling, Dreyer began by declaring "neither party deserves to win this case," going on to blast both sides for what he called questionable competence in the attempt to privatize the task of determining welfare eligibility.

Dreyer called the system's failure "a 'perfect storm' of misguided government policy and overzealous corporate ambition." But Dreyer says I-B-M's poor performance did not amount to the breach of contract the state claimed, because the public-private hybrid which replaced I-B-M was built on the foundation laid by I-B-M's work.

Dreyer presided over a trial earlier this year of dueling lawsuits concerning the state's cancellation of IBM's nearly $1.4 billion contract with the Family and Social Services Administration.

Gov. Mitch Daniels said the state plans to appeal, but stressed that parting ways with IBM was the right move.

"Indiana, which eight years ago had the nation's worst welfare system, now has its most timely, most accurate, most cost effective and fraud-free system ever," he said. "That was always the goal, and changing vendors was essential to achieving it. We'll seek and expect a reversal, and either way, it's all been well worth it to solve the problem we set out to fix."

Daniels killed the contract to automate the state's welfare system in 2009, less than three years into its scheduled 10-year span, amid wide-ranging performance complaints from clients, their advocates and federal officials.

Indiana sued IBM for the $437 million it paid the company, and IBM countersued for about $100 million that it claimed it was owed.

Adam Horst, the director of the Office of Management and Budget, said in a news release that the judgment won't hurt the state's bottom line.

"Even if this ruling stands, it will have zero impact on the state surplus," he said. "The state sets aside funds for exactly this type of lawsuit contingency. Taxpayers are way ahead because of the decision to modernize our eligibility system."

But Democrats quickly challenged those claims.

"Not only are Hoosiers left footing the bill for Mitch Daniels’ ill-conceived privatization effort, but we cannot forget that his outsourcing scheme caused physical harm to vulnerable Indiana families," Democratic Party Chair Dan Parker said in a statement. "This proves that the governor’s system was a failure, but money can’t repair the damage done to the neediest Hoosiers who couldn’t get the service they deserved from state government."