The Beltway Bandit Behind the Healthcare.gov Debacle

October 10th, 2013 by Phil Mattera

Healthcare.gov website downA January 2011 article in Canada’s Globe and Mail was headlined “CGI Spies Opportunity in Obama’s Call for Efficiency.” A new story in the same newspaper about the same company has the title “Canadian IT Firm at Centre of Obamacare Foul-Up Furor.”

U.S. critics of the Affordable Care Act are depicting the widespread computer problems that have accompanied the launch of the ACA’s online healthcare exchanges as a major government failure. To be more precise, it is a failure of government contracting. And the contractor at the center of the mess is CGI Group, a Canadian outsourcing corporation that is little known outside information technology circles.

According to a Government Accountability Office report published in June, CGI’s U.S. subsidiary CGI Federal received the largest share (totaling $88 million) of the contracts awarded for the creation of the Healthcare.gov website, the ACA enrollment portal in the 36 states that declined to create their own exchanges. That report, by the way, warned of possible “implementation challenges.”

The glitches in the ACA rollout are shining an unfavorable light on the widespread practice by governments at all levels of contracting out information technology to the private sector. The Washington Post just published a front-page story reporting that the federal government, which spends some $80 billion a year on outside IT services, ends up purchasing “outdated, costly and buggy technology.” This may be an indication of cluelessness on the part of federal IT procurement officials, but it is also a sign that the private sector is all too willing to take taxpayer dollars for inferior products.

It is not yet clear whether CGI tried to use sub-standard technology for Healthcare.gov or whether it just failed to meet the challenges of creating a complex new system. The company and the feds are saying little about the reasons for the glitches, preferring to issue assurances that everything will soon be running smoothly.

The Post notes that “Federal officials have not yet explained why CGI was given the contract or why it was awarded on a sole-source basis.” They might also want to explain why the contract was given to a company linked to some earlier contracting scandals.

CGI has built its U.S. operation in large part by acquiring existing federal contractors. One of those was Stanley Inc., which it purchased in 2010 for about $900 million. Two years earlier, Stanley found itself under fire when it was reported that some of its employees working on a contract with the U.S. State Department had improperly looked at the passport records of several Presidential candidates, including Barack Obama.

Stanley was also involved in a controversy over its labor practices at the 400-worker processing center of the U.S. Citizenship and Immigration Services in St. Albans, Vermont. As it was about to assume control over the facility, which handles citizenship applications, Stanley announced that it would change job classifications at the facility, resulting in a pay decrease of about 12 percent for up to half the workers. Vermont Sen. Bernie Sanders called on the Labor Department to investigate what he charged was a violation of the Service Contract Act.

Stanley’s move also prompted a union organizing drive by the United Electrical workers. UE official Chris Townsend told me at the time that Stanley was employing a variety of union-busting tactics—from hiring the union-avoidance law firm Seyfarth Shaw to forcing workers to watch propaganda videos. Townsend said workers were held in captive-audience meetings for up to one-quarter of their shifts in the period leading up to the elections—this at a time when the backlog of citizenship applications was a serious problem. Despite these obstacles, UE managed to win representation elections covering most of the workers. In 2011 the U.S. Department of Labor announced that Stanley (by then owned by CGI) and several subcontractors would pay nearly $2.9 million in back wages for workers who had been misclassified.

CGI itself has also had its share of scandals, including a 2007 furor over a C$400 million contract it received from the Canadian government at a time when the Public Works Minister was Michael Fortier, who had been an investment banker for CGI during his time working for Credit Suisse. A 2010 report by the Hawaii State Auditor found that what was supposed to be a five-year contract awarded in 1999 by the state department of taxation to a company later purchased by CGI had been repeatedly extended through non-competitive awards, costing the state far more than originally planned.

The federal government long ago chose to depend on contractors for its vast information technology needs. That decision periodically results in debacles like those surrounding the rollout of the ACA exchanges. It remains to be seen whether fiascoes will also mar the actual insurance coverage being provided through the ACA, which also relies on the supposedly efficient private sector.

UPDATE: I subsequently learned that in September 2012 the Toronto Star reported that the government of Ontario had canceled a C$46 million contract awarded to CGI to create a diabetes registry after the company failed to meet deadlines.

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