Some contractors see contract values rise: report

Reuters News
Posted: Aug 26, 2014 8:21 PM

By David Morgan

WASHINGTON (Reuters) - Three firms involved in the troubled Obamacare website have seen their contract values exceed initial estimates by more than a quarter-billion dollars, including the lead IT contractor at the time of the site's botched rollout, government data shows.

A report released on Tuesday by the U.S. Department of the Health and Human Services (HHS) Office of Inspector General (OIG) estimates the original value of 60 information technology (IT) contracts related to the Obamacare federal marketplace at $1.7 billion.

But obligations made under 20 contracts had exceeded their initial estimates by March 2014, with seven contracts more than doubling in value, according to the report.

The OIG report did not specify a total dollar value. But its data shows the combined value of the 20 contracts rising more than $280 million from their original estimates, with over 90 percent going to former lead contractor CGI Federal, Verizon Communications Inc's Terremark unit and Quality Software Services Inc (QSSI).

The OIG cautioned that not all the contracts it examined were awarded solely for and its federal marketplace. Some contracts also cover services to state-run marketplaces and other federal healthcare programs.

The amount of money actually obligated for the federal marketplace totaled about $800 million as of February.

The findings are likely to draw fire in Congress about the escalating cost of the federal marketplace that provides private insurance to consumers in 36 states.

The Centers for Medicare and Medicaid Services (CMS), the HHS agency mainly responsible for implementing Obamacare, responded to Tuesday's OIG report with a statement saying it has moved aggressively to reform contracting practices to better monitor contractors and reward performance.

The OIG report follows an investigation by the watchdog Government Accountability Office that blamed contractor cost overruns on lax oversight, the complexity of the federal Obamacare marketplace and the need to rework technology after the launch of crashed during its Oct. 1 launch after being overcome by technical glitches that paralyzed the operation and plunged President Barack Obama's healthcare reform law into months of political crisis. An emergency rescue operation later revived the site, enabling more than 5 million people to enroll for coverage in the federal marketplace alone.

CGI, which U.S. officials blamed in internal HHS emails for repeated delays and cost overruns, saw the biggest single windfall with four contracts increasing more than $180 million in combined value as a result of options and other modifications, according to data in the report.

Earlier this year, HHS jettisoned CGI as lead contractor for and replaced it with Accenture PLC.

Terremark,'s host, saw its contract value rise $50 million, while three QSSI contracts increased $22 million, the data shows.

Eight other contractors also saw increases.

QSSI is a subsidiary of UnitedHealth Group Inc, which sells insurance in the federal marketplace. Andrew Slavitt, former UnitedHealth executive who helped fix, was appointed this year as CMS principal deputy administrator.

(Reporting by David Morgan; Editing by Ken Wills)