OUTSOURCING OBAMACARE

By Joel D. Joseph, Chairman, Made in the USA Foundation

While the federal government was closed, the Affordable Care Act rolled out http://www.healthcare .gov, the website for consumers to shop for health insurance.  Fourteen states have set up exchanges that are working fairly well, but the federal website has been a complete disaster. The primary Obamacare Internet exchange contract went to the CGI Group, a Canadian consulting company that has played a major role in administering Canada's single-payer health care system.

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Since Obamacare is the president's legacy legislation, I was shocked to learn that the software used to sign up participants was outsourced to Canada.  The federal Buy American Act requires the U.S. government to use domestic products and services.  Are there not any American companies who can build reliable software?

U.S. software is the envy of the world.  Canadian software is not.  Apple, Xerox, Microsoft, Google, Oracle and many other American companies write excellent software and could have written software for the President's signature healthcare law.  The software for the Blackberry was written in Canada.  Would you rather have an iPhone with its U.S. software or a Blackberry with its Canadian software? Even Korean-based Samsung uses Google's Android software for its cellphones.  Consumers prefer iPhone and Android software operating systems, and the Blackberry has been relegated to the dustbin of history.

How CGI Got the Contract

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 is 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.

This year, 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 is now valued at $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.

What We Should Do Now

Democratic lawmakers and former administration officials have proposed that the federal government get new contractors to fix Healthcare.gov, including companies that built some of the more successful insurance exchange sites in fourteen states that chose to run the marketplaces on their own.

We should fire CGI immediately, and sue it for overcharging the government for unsatisfactory software. CGI never should have been awarded the contract in the first place, for a lack of true competitive bidding and because it is a Canadian company.  Most computer software experts who studied CGI's software found it to be substandard.

U.S. government officials have blamed the poor-performing CGI software on massive traffic, but outside experts said it likely reflected programming choices as well. "It's a bug in the system, a coding problem," said Jyoti Bansal, chief executive of AppDynamics, a San Francisco-based company that builds products that monitor websites and identifies problems.

Bansal said, "Before you launch you run a lot of load testing with twice the load of the peak, so you can go through and remove glitches. I'm a very very big supporter of the health-care act, but I don't buy the argument that the load was too unexpected."

Canadian provincial health officials last year fired CGI. CGI was officially terminated in September, 2012 by the Ontario government's health agency after the firm missed three years of deadlines and failed to deliver the province's flagship online medical registry. Ontario is Canada's most populous province with about half of Canada's total population.

If Ontario can fire CGI for failing to deliver on time, the U.S. government can and should do the same.  Since Americans are not required to have healthcare until January 1, 2014, we still have time to fix healthcare.gov by opening up the process to true competitive bidding by U.S. companies only.