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Outsourcing Obamacare Again

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Outsourcing Redux: Obama Fires Canadian Company

on Healthcare Website, Hires Irish Company

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The good news is that President Obama and his Secretary of Health and Human Services, Kathleen Sebelius, have fired CGI, the Canadian company that couldn't get the Heathcare.gov website working properly.  The bad news is that they have hired Accenture, the company formerly known as Anderson Consulting, a division of Arthur Anderson, a company that chose to incorporate in the tax haven of Ireland to avoid paying U.S. corporate taxes.

What is the White House thinking?  Or what is the White House smoking these days? 

Accenture relocated to Bermuda in 2001 to avoid U.S. income taxes.  In 2009 it relocated to Ireland to keep its taxes low.  In October 2002 the Congressional Government Accountability Office (GAO) identified Accenture as one of only four publicly traded federal contractors that were incorporated in a foreign tax-haven country.

Arthur Anderson was also deeply involved in the Enron scandal.  The Powers Committee (appointed by Enron's board to look into the firm's accounting in October 2001) came to the following assessment: "The evidence available to us suggests that Andersen did not fulfill its professional responsibilities in connection with its audits of Enron's financial statements, or its obligation to bring to the attention of Enron's Board (or the Audit and Compliance Committee) concerns about Enron's internal contracts over the related-party transactions."

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On June 15, 2002, Andersen was convicted of obstruction of justice for shredding documents related to its audit of Enron, resulting in the Enron scandal.    During the investigation of the Enron scandal, Anderson Consulting was split off from Arthur Anderson and renamed Accenture. 

The work on Healthcare.gov grew out of a contract for open-ended technology services first issued in 2007 with an initial value of only $1,000. An extension, awarded in September 2011 to build Healthcare.gov, drew only four bidders.

That 2011 extension was called a "delivery order" rather than a contract because it fell under the original 2007 agreement for CGI to provide software services to the Centers for Medicare & Medicaid Services, the lead Affordable Care Act agency. CGI reported that it had received $55.7 million for the first year's work to build Healthcare.gov.

CGI spokeswoman Linda Odorisio said there were three one-year options, bringing the total potential value of the contract to $93.7 million. By August, 2012, spending on the contract was already close to that limit.

In 2013, the bills skyrocketed. The government spent $27.7 million more in April, an additional $58 million in May and another $18.2 million in mid-September.  According to U.S. government records that brought the total spending for CGI's work on Healthcare.gov to $196 million. Adding in potential options, the contract totaled $292 million.

CGI's original 2007 contract was of a type called Indefinite Delivery/Indefinite Quantity, federal records show. ID/IQ contracts allow the government "to write a laundry list of things they can order from the contractor," said Sarah Gleich, a government procurement expert at Gibson, Dunn & Crutcher. "They'll write incredibly broad descriptions of the work, like 'telecom services,' so you can't tell what they're ordering," she added.

The advantage of an ID/IQ contract is that it can be expanded almost indefinitely without the government having to solicit new bids for additional work. The disadvantage is that these contracts destroy the competitive bidding system by rewarding existing contractors with new work. CGI turned a $1,000 contract into $292 million with minimal competition.

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The Obama administration now intends to sign a contract with Dublin-based Accenture PLC to complete unfinished work on healthcare.gov and run the site, according to the Washington Post.

The United States government should not outsource its work to companies that are not incorporated in the United States.  These companies have gone offshore only to avoid U.S. taxes and should not be the beneficiary of U.S. government largesse.  In addition, there is no record of competitive bidding for this multi-million-dollar contract.  Let's reopen the bidding, and open it only to companies who are incorporated in the United States.

 

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Chairman, Made in the USA Foundation, economist and lawyer, author of ten books and hundreds of articles.

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