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December 27, 2013 2:27 PM A Crummy Government IT Contractor Finally Gets Punished, a Little

By Ryan Cooper

The atrocious Healthcare.gov rollout inspired some digging into the foggy and often-dysfunctional government contracting and procurement process. Back in mid-November, Matt Yglesias noticed that the stock price of CGI Federal (who build said website) was at an all-time high, right in the midst of a media blood frenzy over CGI’s colossal screwup. Why?

The more cynical—and more likely—interpretation points to strong market confidence that despite the blow everyone else involved is taking, it makes no difference for CGI’s bottom line. The exciting world of government contracting is just so screwed up that it doesn’t matter how badly a large incumbent fails. Once you’re in, you’re in…
In theory, the virtue of contracting out this kind of work would be precisely to avoid this dynamic: A firm that failed would see market share shrivel; firms that built successful state exchanges would grow. In practice, federal contracting doesn’t work like that. Failure simply isn’t punished. The Standish Group examined 3,555 federal IT projects with labor costs at least $10 million and found that 41.4 percent were “failures” and the vast majority of the rest had serious problems.

Well, this has changed a little bit for the better, as at least a couple states have gotten pissed enough at CGI that they’re going to stop paying them:

…at least two states that used the same contractor and are still plagued with malfunctions — Massachusetts and Vermont — are taking preliminary steps to recoup taxpayer dollars. Massachusetts officials are reviewing legal options against CGI Group, a Montreal-based information technology company, and will make recommendations on how to seek financial redress at a Jan. 9 meeting.
So far, the state has paid $11 million of its $69 million contract with CGI. It will not pay a penny more until a functioning website has been delivered, said Jason Lefferts, spokesman for the Commonwealth Health Connector, the state’s insurance marketplace…
In Vermont, state officials recently alerted CGI that the state is withholding payment of $5.1 million as compensation for the company’s failure to meet key deadlines. The state is also disputing more than $1 million in charges billed by CGI because of incomplete work that left its insurance website so far behind schedule that Vermonters could not buy coverage online, as promised under Obama’s health care law, until early December, two months after it opened.

No doubt a real overhaul of government IT procedures would require some legislative initiative. But we can see here that a determined government have many secondary options for kicking up a fuss. If you have to follow a terrible procedure, you can still make it clear that a failed contractor is going to have to fight like the dickens to get their money.

And on a side note: if we are going to overhaul federal procurement, a new rule saying “you get paid when the job is done” seems like a good place to start. Or, if the project is so expensive they need to have the money up front, then they have to pay it back if they don’t deliver on time.

Ryan Cooper is a National Correspondent at The Week, and a former web editor of the Washington Monthly. Find him on Twitter: @ryanlcooper

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