Stewart sought to cut Northrop Grumman payments

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Cutting VITA bills - Read the draft of a letter in which VITA officials considered cutting Northrup Grumman's fees by 25 percent.



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Stewart sought to cut Northrop Grumman payments



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Frustrated by spotty performance -- including the paralysis of the motor-vehicle agency's computer system -- Virginia's information technology chief for months wanted to use the state checkbook as a weapon against contractor Northrop Grumman, but was thwarted by his bosses in the run-up to his eventual firing.

In March, after citing inventory problems, billing disputes and service disruptions across state government, then-Chief Information Officer Lemuel C. "Lem" Stewart Jr. sought to cut monthly payments to Northrop Grumman by 25 percent until its performance improved.

In e-mails provided to the Richmond Times-Dispatch through a Freedom of Information Act request, it appears Stewart, who two months later would recommend withholding all payments to the company, waited to send the letter indicating the 25 percent cut until he discussed it with members of his oversight board.

The letter never went out. The board directed that the bill for about $14 million be paid, angering senior executives at the state's computer department, the Virginia Information Technologies Agency, including contract director Fred Duball.

"I am not at all happy about the board's decision to delay or not go forward with the application of the 25 percent action," Duball wrote in a March 24 e-mail to Stewart. "I will sign the invoice for this month but I am very concerned doing this, as I feel we are not using the necessary tools available to us to manage this contract."

Northrop Grumman spokeswoman Christy Whitman, in a written statement on Friday, had little to say about Stewart's attempt to cut payments to the company by 25 percent.

That, she said, "was months ago and not relevant to performance on today's program."

The e-mails, presentations and other documents obtained by The Times-Dispatch shed light on the difficulties associated with the $2.3 billion, 10-year contract for IT services at more than 80 state agencies.

The continuing, election-year dispute over Northrop Grumman's giant contract with the state is raising questions about Virginia's aggressive embrace of privatization -- a policy favored by elective leaders in both parties who collect millions of dollars in contributions from corporations angling for government business.

Two legislative panels are investigating the VITA-Northrop Grumman enterprise, with lawmakers and staff members suggesting that the committees' findings could shape the state's future efforts in outsourcing.

Further, Northrop Grumman finds itself losing money on the Virginia venture because of allegedly unforeseen expenses. The company also is attempting to convince taxpayers, through a public-relations offensive that includes newspaper and radio advertising and meetings with editorial boards, that the state's richest-ever privatization contract will lead to the efficient delivery of IT services at a reasonable cost.

The dispute between Stewart and the VITA oversight board came to a head in June, three months after he had proposed cutting payments to Northrop Grumman by 25 percent.

Stewart sought to return the entire April invoice to Northrop Grumman, for incomplete and undocumented work. He wanted to delay payment until he could get a more detailed invoice. That led to a clash with his boss, James F. McGuirk II, chairman of the panel that governs VITA. The bill was paid, because the dispute over it dragged beyond a deadline to resolve invoice issues.

The board convened a meeting on June 10, at which Stewart was dismissed as chief information officer but retained as a $19,619-a-month consultant through the remainder of the year.

The intricacies of how VITA's staff and oversight board have tried to maintain what is described as a partnership with Northrop Grumman while holding the company to its contractual obligations are revealed in 2,100 pages of correspondence reviewed by The Times-Dispatch.

Whitman, the Northrop Grumman spokeswoman, said in the statement that, "As the CIO of our partner, VITA, and leader of the program, Northrop Grumman representatives were in regular and routine discussions with Mr. Stewart, along with members of the [VITA] board and the VITA staff practically every day -- as is appropriate in a project of this size, scope and importance."

However, Northrop Grumman, which VITA declared to be in breach of contract for having failed to complete a variety of tasks, including a requisite inventory of existing equipment, is committing additional dollars and staff to the Virginia ventures.

And for that, Northrop Grumman has been pressing for more money and a contract extension. Nearly four months ago, it projected that without changes to the contract, the state's costs could swell by $26 million a year. Because the state's payments to Northrop Grumman are capped at $236 million a year under the current contract, one option the contractor presented was to extend the contract, according to McGuirk.

Such appeals by the contractor began in early April -- roughly the same time that VITA management ramped up efforts to hold Northrop Grumman accountable through the power of the purse.

Stewart, following legislative inquiries critical of Northrop Grumman, prepared in March a draft of the letter threatening the 25 percent reduction.

It read, "Despite the commonwealth's efforts, significant deficiencies in Northrop Grumman's performance of key functions persist and elevate the management, operational, financial, and customer satisfaction risks to which Northrop Grumman is exposing VITA."

The e-mails also chronicle problems besetting state offices, including the Department of Motor Vehicles, a high-profile agency that is particularly sensitive to customer complaints.

DMV Commissioner D.B. Smit e-mailed Stewart at 8:59 a.m. June 1 -- a Monday, when the agency typically sees heavy traffic in its offices -- because its computer system crashed for 40 minutes.

"I invite VITA or NG staff to visit our customer service centers and see what it's like when our staff get bumped off the system and they have to explain that it may take an hour to have their passwords reset," Smit wrote.

Stewart, in turn, fired off an e-mail to Northrop Grumman employees, calling the situation at DMV a "train wreck" that made him "look like a fool" for assuring Smit that his agency's problems would be remedied.

Stewart continued, "Now after much bashing back and forth in order to keep citizens from literally coming across the counter at our service representatives in DMV offices we have all decided to roll back things to . . . start over another day."

Contact Olympia Meola at (804) 649-6812 or omeola@timesdispatch.com.

Contact Jeff E. Schapiro at (804) 649-6812 or jschapiro@timesdispatch.com.