Do big contracts mean big failure?

Published: March 14, 2013

Contract AwardsForecasts and SpendingHealth CareJustice/Public Safety & Homeland SecurityPublic Finance

Procurements and contracts don’t always go as planned. While this is not exclusive to any one type of contract or industry, it is often the very large contracts that have complications, to put it mildly. Mega statewide or citywide contracts have lots of requirements that often apply to several systems. These sizeable projects include revamping radio infrastructure, building out 911, upgrading Medicaid management information systems (MMIS), and major financial system overhauls, all of which require significant time, money and sometimes a bit luck.
Large projects often require longer-than-normal procurement processes due to several factors. First, large projects require lengthy solicitations (request for proposals), which in turn require more time for vendors to develop their response. Second, the comprehensive bids submitted take longer for agencies to review and determine a successful bidder. Additionally, the approval process can often be an uphill climb. Oversized projects carry significant price tags and therefore the buy in from governors, mayors or commissioners isn’t always a quick process. Add all of these pieces together and you have the makings for a drawn-out procurement. 
There are a number of projects we can look to in various industries to see how these types of initiatives are often unsuccessful. In the health care industry, the Medicaid management information system procurement field has been plagued with an innovation-squashing procurement cycle – they are typically over budget, deadlines are missed, and systems are outdated by the time they are installed. A study in 2012 found that three out of seven states undergoing an MMIS procurement resulted in canceled projects. Five out of 10 states in the MMIS design, development, and implementation phase experienced significant delays. Some notable MMIS delays include the state of New Hampshire, which recently convened a budget conference committee in the legislature due to concerns with the length of its MMIS implementation. The state’s $61 million MMIS contract with Xerox was the largest computer contract in state history in 2005, and the state now estimates the system will be running by April 1, 2013, which is five years behind schedule, prompting a $15.8 million contract extension.
West Virginia awarded a $248 million contract to Molina, which is now under protest after the original RFP was twice canceled. South Dakota canceled its MMIS contract with CNSI due to cost overruns and being sued by the vendor. The state has now reached a settlement and is in the process of renegotiating a contract for a new MMIS.
Although states recognize that changes need to be made to the costly, burdensome MMIS procurement process (with its few titans), the right answer doesn’t seem to have been discovered yet. With a new set of individuals gearing up to enroll in Medicaid in the coming years, can states afford new systems burdened with the same problems?
The public safety industry is also not immune to procurement failings. The state of New York began planning its statewide wireless network in 2000. After a draft proposal in 2001, it issued an RFP in June 2002 and eventually awarded a contract to M/A-COM two years later in April 2004. The project was expected to cost just less than $2 billion over the 20-year contract. However, the project immediately began to experience delays, and after several years, many failed system tests and the inability of M/A-COM to fix the issues, the state canceled the contract in 2009. The failed and subsequently canceled contract had a major impact on M/A-COM, as it would any company losing a $2 billion contract during a tough economy. Soon after this project hit the fan, Harris Corporation purchased Tyco Electronics Wireless Systems (M/A-COM). It’s unclear whether this sale was a direct result of the failed New York contract, but certainly makes for a curious coincidence.
The state of California has had several run-ins with large procurements that have been delayed or canceled. The Los Angeles Regional Interoperable Communications System (LA-RICS) has been delayed due to a large procurement that was canceled after being deemed illegal. More specifically, the LA-RICS contract was illegal because of its large scope of services. After months of reviews and the eventual cancelation, the project was broken up into various pieces, each procured separately, with a combined estimated price tag of $600 million. The California Administrative Office of the Courts also had major delays leading to the cancellation of its half-billion dollar court case management system (CCMS), which was riddled with issues. The state is now moving forward with a new system.
Finally, on the financial side of the state and local market, New York City will forever be remembered for CityTime. The city sought to upgrade its payroll system; however, the selected vendor, Science Applications International Corporation (SAIC), has since been removed from the project and is required to pay the city $500 million after a judge ruled in the city’s favor. The project included SAIC employees accepting bribes and stolen or completely wasted money as part of the project implementation. Issues with the system led to numerous scams and scandals, all of which caused the project to go from a $63 million project to a more than $650 million project. The irony is that the upgraded system was supposed to prevent employees from cheating on their time cheats; instead, the city was cheated out of millions of dollars.
Since this disaster, SAIC split in two – the government services business separated from the division that provides technology for national security (now called Leidos), health care and engineering. Is it possible that this large scandal, like the radio project involving M/A-COM, led to the SAIC division? While we may never know the answer, Marjorie Censer, reporter for the Capital Business section of the Washington Post, alluded to the CityTime scandal as well as declining revenues causing the split.
Analyst’s Take
Large contracts that follow large procurements are often doomed from the start. While it is not unheard of for massive projects to move forward without a hitch, they are huge undertakings that often lead to issues down the road. When agencies solicit bids for these projects, vendors must ensure that they are prepared for the extensive planning and negotiations that will occur prior to implementation. Agencies have become aware of the inherent issues that may present themselves with these types of projects, and like Los Angeles learned, splitting up a project into smaller pieces may be the way to go.
It would be easy to advise hiring a consultant to assist with planning and procurement processes, but many of the projects mentioned did in fact utilize a consultant. Agencies that commit to large-scale, high-cost projects must establish working committees and regular meetings throughout in order to safeguard themselves, the project, and the tax and grant dollars that make it happen. As part of this, assigning a clear-cut chain of command can help minimize problems and ensure everyone is properly designated to specific tasks if issues arise. When every stakeholder is part of the process from the start, there is less likely to be problems with a new agency added to the mix.
Additionally, when working in the health care and general government IT sphere, a solid quality assurance and independent verification and validation team can clearly define project goals and establish target dates for those goals. Vendors and the government are then held accountable throughout the implementation process.
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