Extra computers are headed to health offices as part of Virginia's response to swine flu after the company providing IT services to the state initially resisted supplying the gear because it was uncertain it would be paid.
Northrop Grumman attributes the holdup to a misunderstanding. The Virginia Health Department blames confusion that, once cleared up, led to a better deal for the agency.
The incident is the latest example of a major issue contributing to friction between Northrop Grumman and its lead customer, the Virginia Information Technologies Agency: payments for services outside the company's 10-year, $2.3 billion contract with the state.
Virginia's largest-ever outsourcing contract restricts annual payments to Northrop Grumman to $236 million. But it includes provisions under which the company can bill the state for services beyond the basic agreement.
The company and state, however, are quarreling over what qualifies as an extra.
In Northrop Grumman's view, the contract is not an all-you-can-eat buffet. Rather, the meat of the contract -- basic services, such as updated computers and software -- is essentially fixed in cost. The gravy -- custom services -- potentially adds millions of dollars to the cost borne by taxpayers, but also could improve Northrop Grumman's bottom line.
The company has consistently argued that it is spending more on the Virginia venture than it gets back.
Both sides are trying to determine what is what. The process is a contentious one, requiring lawyers, vetting by the VITA oversight board and, ultimately, an OK from the agency's boss, George F. Coulter. But it spotlights what's at the core of the difficulty between the state and Northrop Grumman: government's responsibility to serve the public, versus the company's demand for profits.
In addition to the Health Department's roughly 115 laptop computers for monitoring H1N1 flu -- a request that lurched through the information-technology bureaucracy for about three weeks, according to state officials -- Northrop Grumman and VITA have clashed over payment for computers for 17 temporary unemployment offices.
In a report sharply critical of Northrop Grumman and VITA, the Joint Legislative Audit and Review Commission said the Virginia Employment Commission wanted the offices outfitted with computers and communications gear in one to three months. Northrop Grumman took up to six months.
"According to VITA, Northrop Grumman slowed procurement of PCs at other offices because temporary use would not ensure NG's full cost of recovery," said JLARC, the General Assembly's investigative arm.
Earlier this week, a subcommittee of the VITA governing board screened two other projects that apparently fall outside the contract: data security and enhanced Internet service.
In the tussle over the H1N1 computers, Samuel Abbate, recently named by Northrop Grumman to run its embattled Virginia project, first refused to approve the equipment request, citing concerns about payment.
"I don't have the confidence that your contracts or business organization will accept a cost after execution," Abbate said in an e-mail to a VITA manager, Debbie Secor. "The risk of recovering our costs is all on [Northrop Grumman]."
But in a statement yesterday, Abbate indicated he changed his mind. Without elaborating, he said: "There were some initial discussions about the particular requirements for the Health Department project, but those were quickly cleared up and the request was approved."
Dr. James Burns, deputy commissioner for public health, is pleased with the outcome.
He said the agency got the computers, is paying for them with federal funds and agreeing to a service charge from Northrop Grumman for the time that the equipment is expected to be used. After the flu outbreak ebbs, the computers -- Burns could not provide a cost per unit -- will be mothballed until the next emergency.
Contact Olympia Meola at (804) 649-6812 or jschapiro@timesdispatch.com.
Contact Jeff E. Schapiro at (804) 649-6814 or jschapiro@timesdispatch.com.
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