The race to construct an online insurance exchange by Oct. 1 spurred the Obama administration to use an expedited bidding system that limited its choice of a builder to just four companies, including CGI Group.

Eighteen months elapsed after passage of the 2010 health care overhaul before CGI was selected to begin work, government documents show. That left the Montreal-based vendor two years to create a website,, designed to link consumers with insurers while drawing data from a variety of U.S. agencies, including the Internal Revenue Service.

The relatively short time frame for the work and the political controversy surrounding the law probably signaled the project was “doomed from the start,” says Larry Allen, head of a McLean, Va., consulting firm. Now, CGI and the administration are sorting out what went wrong and how to fix the site by the end of the month, when uninsured Americans will have weeks to sign up for coverage that begins in January. “I am sure there are companies that looked at this specific opportunity and said, ‘You know, I’ve got other things in the pipeline,’” says Allen, the president of Allen Federal Business Partners.

Software flaws

All big technological rollouts have bugs, says Don Garlitz, executive director of bswift Exchange Solutions. “Naturally … you have to test. Generally on the private side you find those bugs before you release to production.” However, bswift has built their private software over the last 14 years and he says he could only imagine trying to build what his company has in the short term during which was rolled out.

Since the Oct. 1 website debut, the Obama administration has identified a number of software flaws that led to the problems, criticized CGI’s handling of the work, named another software company to supervise their work and pulled in engineers from Google Inc., Red Hat Inc. and Oracle Corp. to help get the website working smoothly by the end of this month.

In House hearings last week, Kathleen Sebelius, Secretary of Health and Human Services, and Marilyn Tavenner, administrator of the Centers for Medicare and Medicaid Services, both testified that CGI failed to meet expectations outlined in its contract. In earlier hearings, CGI said it got late instructions from the government to make changes to the site and that end-to-end testing, the responsibility of Tavenner’s agency, didn’t begin until about two weeks before launch.

CGI’s choice for the job came as the result of a bidding shortcut that may have cut as much as nine months from the time usually required, says Rod Benson, a former procurement director for CMS. “It’s a greatly streamlined process.”

However, some companies may not have bid on the exchanges due to the sheer cost involved in a project like this, says Garlitz, whose company runs multiple private exchanges. He says he has spoken to vendors who did not bid because an RFP as large as the exchange website alone would cost millions. “It is very costly to bid and lose,” he says. “As a result, you typically deal with very large companies, (such as CGI) since it is very complicated.”

16 vendors

The decision, however, limited the companies that could bid to build the website to a pre-approved list of 16 vendors selected in 2007 for an umbrella contract to work on unspecified systems for the U.S. Centers for Medicare and Medicaid Services. Only four of the 16 companies bid for the work, including CGI. The other bidders haven’t been publicly identified.

In the past, “there were no issues brought to my attention about CGI,” says Charlene Frizzera, a former acting CMS administrator who left the agency in 2010. “They seemed to be a fine contractor when I was there.”

With no obvious red flags, CMS contract officers would have had no reason to exclude CGI from consideration, Frizzera says. Indeed, CGI earlier had worked for the agency on the Website among other projects, says Thanos Moschopoulos, a BMO Capital Markets analyst in Toronto.

CGI has been paid $104 million already, and while no penalties are built into its contract, Sebelius on Oct. 30 said that “paying for work that isn’t complete is not something that we will do.”

$197 million due

The Canadian company is due $197 million through the end of March, Sebelius said. The entire Website project is budgeted to cost $630 million, said Julie Bataille, a spokeswoman for CMS, on a Nov. 1 conference call.

“CGI is an important part of the team to make sure we fix the website, work through the problems and get through our punch list,” said Jeffrey Zients, the entrepreneur appointed by President Barack Obama as a management consultant to the repair effort, during the call last week. Zients, a former official at the Office of Management and Budget under Obama, will become his chief economic adviser on Jan. 1.

Linda Odorisio, a CGI spokeswoman, said in an email that the company is now focused on improving the site. She declined to address Tavenner’s and Sebelius’ criticisms. “We remain 100% committed to the success of our client, and our experts continue to work around the clock, seven days a week, to improve the online consumer experience on the federally-facilitated marketplace,” Odorisio said.

New supervision

The company’s work is now being supervised by Quality Software Services Inc., a unit of UnitedHealth Group Inc., named lead contractor for the project two weeks ago. QSSI built a piece of the infrastructure, a “data services hub” that feeds information from federal agencies to CGI’s site and state-run insurance websites.

For CGI, is a relatively small project causing an outsized political headache.
The company is expected to record $10.2 billion in revenue this fiscal year, and its U.S. government business amounts to about 13.5% of sales, according to data compiled by Bloomberg.

“Any contractor who would’ve been picked probably would’ve had issues,” says Frizzera, the former acting CMS administrator. “It’s not like it is easy, and it’s not like anybody’s had any real experience doing this.”

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