U.S. to part with contractor CGI for Obamacare website

HealthCare.gov struggled with error messages and slow speeds for weeks after its October 1 launch, creating a political crisis for President Barack Obama, threatening the roll-out of his signature healthcare law and emboldening its foes among Republican lawmakers to call for its repeal.

CGI Federal, a subsidiary of CGI Group, built the website.

Its contract with the Centers for Medicare and Medicaid Services (CMS), the agency responsible for the roll out of the Affordable Care Act, was originally awarded in 2011 and is scheduled to end February 28.

CMS would not confirm or deny CGI's departure. "We are working with our contract partners to make a mutually agreed upon transition to ensure that HealthCare.gov continues to operate smoothly for consumers," a CMS spokeswoman said.

Obama has said the fiasco with HealthCare.gov has made him want to overhaul the way the federal government buys technology services. Critics say the system favors large, established contractors such as CGI.

"At the end of the day, you have a company here that turned in subpar and visibly high-profile work. I think that that's a fireable offense," said Clay Johnson, chief executive officer of the Department of Better Technology, and former Presidential Innovation Fellow who has pushed for procurement reforms.

But the government appears poised to replace CGI with another large contractor. The Washington Post, which first broke the news, reported that Accenture will get a year-long contract for the website worth about $90 million.

The government's dissatisfaction over the website's early crashes, as well as aspects of the site that still do not work, prompted the switch, the Post reported, citing a person familiar with the matter.

In an emailed statement, an Accenture spokesman said, "We are in discussions with clients and prospective clients all the time - but it is not appropriate to discuss new business opportunities we may or may not be pursuing."

Johnson called the news "disappointing" and pointed to examples of poorly managed Accenture contracts highlighted by the Project on Government Oversight, a watchdog group.

For example, the company was publicly faulted by the California Public Employees' Retirement System (Calpers) for costly delays and other problems during a major IT overhaul, Johnson noted.

"We'll see how well they do, but Accenture doesn't have a strong reputation of doing this stuff successfully," Johnson said.

Officials from the administration and CGI had assured Congress over the summer that HealthCare.gov would open on time and work as intended.

At a September 10 hearing, CGI vice president Cheryl Campbell testified that the company "is confident that it will deliver the functionality that CMS has directed to enable qualified individuals to begin enrolling in coverage when the initial enrollment period begins on October 1."

Instead, the site failed to load, returned countless error messages, and generally thwarted the attempts of millions of users to create accounts, shop for coverage or enroll.

The administration eventually acknowledged that the fault lay in hundreds of coding errors in the software CGI wrote, and the White House brought in trusted Obama aide Jeffrey Zients to fix the site by the end of November.

The improvements allowed more than 1.1 million people to shop for and enroll in insurance on HealthCare.gov by the end of 2013, far short of original hopes for early enrollment.

Although the site is vastly improved, technical glitches continue to bedevil enrollment. There are about 13,000 people who are now in a "caseworker system" to try to resolve particularly thorny technical issues, White House spokesman Jay Carney told reporters.

The website still lacks several "back end" features, such as a payment system for insurance companies.

The deadline for signing up for 2014 health insurance under the Affordable Care Act is March 31, meaning the new contractor will take over at a time when the government needs the site to handle what it hopes will be a surge of last-minute sign-ups.

"With only limited days to enroll, the government is rolling the dice, and the new vendor could be a savior or a bust if new problems arise," said Scott Amey, general counsel for the Project on Government Oversight.

But Peter Neupert, an operating partner with Health Evolution Partners, a private equity firm that invests in health companies, said he did not think the switch in contractors likely would affect the website, which is now overseen by Kurt DelBene, a former Microsoft executive.

"This appears to be about getting a new, hopefully better, team for the next few cycles of iteration," Neupert said, noting he suspects DelBene will have a "transition plan" to manage the change.

This is at least the second contract switch for HealthCare.gov. In November, CMS said it would not renew its contract with Verizon Communication Inc's Terremark unit for computer servers hosting the troubled website and instead award a contract for that work to Hewlett-Packard Co.

Terremark's contract ends on March 30, the day before the sign-up deadline. The Terremark servers suffered at least one outage last fall that lasted for hours, making the website inaccessible.

Despite the bad publicity from the website woes, two analysts said they did not expect CGI to take a significant hit from the end of the HealthCare.gov contract.

"You could say what they're losing in effect is this $90 million, 12-month contract, which in the context of a $10 billion revenue company is nothing," said one of the analysts, who declined to be quoted by name.

U.S.-listed shares of CGI Group closed at $31.58, down 2.9 percent.

The second analyst said CGI might be better off to not be associated with the highly politicized project. "We will never hear CGI's name associated with Obamacare, which, frankly, is a very, very good thing," the analyst said.

(Additional reporting by Sandra Maler in Washington, Lewis Krauskopf and Sharon Begley in New York, and Leah Schnurr in Toronto; Editing by Karey Van Hall, Michele Gershberg, Nick Zieminski, Dan Grebler and Lisa Shumaker)