Photographer: Joe Raedle/Getty Images

How Healthcare.gov Botched $600 Million Worth of Contracts

A new government audit reveals what went wrong.

The public employees responsible for overseeing $600 million in contracts to build healthcare.gov were inadequately trained, kept sloppy records, and failed to identify delays and problems that contributed to millions in cost overruns.

That’s according to a new government audit, published today. It reveals widespread failures by the federal agency charged with managing the private contractors who built healthcare.gov. The audit is the first to document, in detail, how shoddy oversight by the Centers for Medicare and Medicaid Services (CMS), which manages federal health programs including Obamacare, contributed to the website’s early struggles.

To develop healthcare.gov, CMS hired and managed private companies to create vast, interlocking software systems that would allow consumers to shop for insurance policies. According to the report, issued by the agency’s inspector general, lapses in oversight of those companies started early on—well before the website’s limping debut, on Oct. 1, 2013. The site faltered for months, frustrating consumers until a scramble to repair it ultimately allowed millions to enroll in health plans.

The agency says it has already addressed some of the auditors' recommendations and is working on others. A spokeswoman for the Department of Health and Human Services, which oversees CMS, declined to say whether any employees had been terminated or disciplined over the lapses the inspector general identified.

The audit, conducted over 11 months, focused on the 20 contracts most critical to the website’s operation. The contracts went to eight companies (some worked on multiple projects), with most of the money going to CGI Federal, Quality Software Services, and Verizon subsidiary Terremark Federal. Together they’re worth more than $600 million, with 70 percent already paid out.

But government employees made multiple missteps in doling out and managing those contracts. In January 2012, for example, new federal rules required employees overseeing contracts worth more than $10 million to undergo 96 hours of training meant to prepare them to manage complex projects. CMS disregarded this requirement and allowed less qualified employees to oversee contracts worth as much as $50 million, according to the audit. One employee, who isn’t named in the report, oversaw a $130 million contract for at least 15 months without even the lower-level certification that the government requires for managing contracts worth more than $25,000.

The agency’s contracting staff, which continues to monitor work on healthcare.gov, still hasn’t completed the required levels of training, according to the audit. It won’t meet the federal standards until October 2016. 

The workers in charge of day-to-day contract management—monitoring spending and making sure companies deliver monthly status reports, among other responsibilities—changed frequently prior to the healthcare.gov launch. One contract had five successive people monitoring it from March 2010 to March 2014. Employees sometimes failed to document who was in charge at any given time.

Over several months in 2012, unauthorized CMS staff added work to a contract with CGI Federal that contributed to a $28 million cost overrun. The employee monitoring the job had limited experience with IT contracts and didn’t realize the company’s monthly reports were missing total cost projections. In September 2012 another CMS office more familiar with IT work took over management of the contract, and the cost overrun was identified the following month.

On top of all that, CMS couldn’t provide auditors with dozens of “routine” documents they’d requested. The auditors also found that one federal employee who’d previously worked for a subcontractor may have breached ethical standards by not disclosing the relationship, since no record of a disclosure was found.

The leaders of both agencies overseeing healthcare.gov have moved on. U.S. Department of Health and Human Services Secretary Kathleen Sebelius stepped down in 2014, and former CMS chief Marilyn Tavenner left in February 2015.

What’s not clear is whether anyone else has been held accountable—or if other contracts are being handled better today. In comments to the auditors included in the report, CMS concurred with their recommendations, including the rather obvious suggestion that staff “comply with federal regulations and contract terms.”

The agency said it now has almost 400 staff trained to oversee large contracts. Among other reforms, it's developed a manual for contract staff, and has issued "guidance that lays out the roles and responsibilities for each member" of the workforce. The agency "is committed to providing effective management and oversight" of contractors, acting Administrator Andrew Slavitt wrote, "thereby acting as a good steward of taxpayer dollars."

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