Unfulfilled promises haunt VITA

The plan was to run Virginia's government computer systems like a business, but the result was two huge outsourcing deals that have missed their targets.

The Virginia Information Technologies Agency -- where a new chief has done some major house-cleaning, firing three top executives last week -- was a key initiative of then-Gov. Mark R. Warner, intended to centralize the state's computer operations to save money.

Six years later, the agency is presiding over the state's biggest-ever contract, a $2.3 billion, 10-year computer system modernization project that's a year behind schedule. A smaller contract for software has accomplished less than first promised. State officials complain of poor service, while total IT costs have not declined.

Just two days after his inauguration as governor in 2002, Warner told state legislators: "We need to more fully integrate technology into the way that we do business, both to serve our citizens better and to save money as well."

Eleven months later, after a hard look at the state's technology, he was more blunt: "This is not the right way for any major enterprise to operate."

Warner's idea of a more businesslike approach, through VITA, quickly became big business for two big donors.

One, Northrop Grumman Corp., won the $2.3 billion deal to modernize computers and networks at 90 agencies. The company gave Warner, his designated successor Timothy M. Kaine and related committees $125,000 by the time the contract was awarded, with Kaine's inaugural committee getting $51,000 more a few months later.

Another major donor, CGI-AMS, won a $300 million contract to supply computer applications. That company gave $99,500 to Warner, his political action committee, Kaine and other Democratic Party organizations before winning its contract, as well as $50,000 to Kaine's inaugural fund soon afterward.

Northrop Grumman has missed a key deadline in its contract and says a lack of cooperation from state agencies is partly to blame. VITA officials have criticized Northrop Grumman.

As for CGI's assignment, except for "business intelligence" software and a one-stop-shop program for the Department of Business Assistance, most of the roughly $9 million the state has spent under the applications effort has involved preparing requests for bids for financial management and budget systems.

The initial idea that CGI could install $300 million of software, financed by savings to the state's operating costs, was cast aside almost as soon at the contract was signed, according to Peggy Feldmann, the state official in charge of the applications effort.

"Like a lot of people, [Warner] is disappointed that more progress hasn't been made," said Kevin Hall, a spokesman for Warner, who is now a U.S. senator. "I think the senator would share concerns that have been expressed about the specific governance structure and the adequacy of oversight."

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When Warner proposed VITA in late 2002, there were state agencies storing personal data insecurely, and many had installed software without buying the proper licenses. Agencies' computer networks couldn't connect with one another, and many were using antiquated equipment. A study by the Joint Legislative Audit and Review Commission, the legislature's watchdog agency, estimated that the state had wasted $75 million on poorly thought-out IT projects.

"I don't think anyone's saying the business case doesn't make sense," Hall said.

Hall said Warner wasn't involved in the Northrop Grumman contract, and in fact had criticized VITA's oversight board for its secrecy in negotiating and awarding the contract.

Northrop Grumman and CGI last week defended their work and their companies' right to make political contributions.

"This groundbreaking concept to upgrade and integrate Virginia's entire IT network to support improved delivery of government services will benefit citizens and state agencies well into the future," said Northrop Grumman spokeswoman Christine Whitman.

"As the largest technology and manufacturing employer in the state, Northrop Grumman has a long and consistent history of being politically active, and we believe our record of giving is appropriate to a company of our size and diversity," she said.

Linda F. Odorisio, a CGI vice president, said that since the contract signing in early 2006, economic and budget pressures squeezed funding.

"The work that has been funded through this initiative has assisted the commonwealth in identifying enterprise applications within and across agencies that could benefit from an enterprise approach to applications governance," she said. She said CGI feels it gives campaign donations in an appropriate way, and that disclosure of those funds ensures its actions are transparent.

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Gov. Timothy M. Kaine believes VITA is making progress on a complicated job. He said the state has saved $59.7 million by centralizing purchases and $11.8 million by using energy-saving equipment. It counts as savings more than $70 million because no major IT projects have failed since VITA took charge, spokesman Gordon Hickey said.

When VITA was formed in 2003, then-Secretary of Technology George Newstrom said it would cut $100 million a year from what was then an annual bill of $900 million for the state.

Virginia now spends about $1 billion a year, including $320 million at VITA, which has run over budget for the past three years.

Newstrom said in 2003 that consolidating the state's in-house expertise would reduce reliance on private contractors, and also that the move could mean an increase in state employment.

But within four months of VITA opening its doors in July 2003, Northrop Grumman and other computer giants were bidding to take over key computer functions. When that happened, VITA put a private-sector takeover of state computers on a fast track, according to agency records that the Richmond Times-Dispatch obtained through the Freedom of Information Act.

According to the documents, VITA officials held private meetings in May 2004 with four companies, including Northrop Grumman and CGI-AMS, to help them revise initial plans that VITA officials thought missed the mark. EDS and IBM also bid -- between the two, they had given less than $3,500 to Virginia politicians.

It was only in June 2004, after helping the four firms refine their proposals, that state officials let anyone else have a chance at the business, documents show. They gave potential competitors 45 days to offer bids to compete with those that the four companies had been working on for months, with helping hands from state officials.

No other potential bidder bothered. Governor Warner soon came to VITA's oversight board and "challenged the board and VITA staff to move the PPEA process forward," board minutes report, using the acronym for a state law allowing corporations to seek to take over state government functions.

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But there were problems. A financial review team said none of the four firms gave "enough detail to determine the actual cost to the commonwealth."

VITA directors complained that Northrop Grumman's proposal was "very complex. . . . It will be hard to undo." They said were disappointed in the proposal from CGI.

But that October, a panel of senior state officials decided to let Northrop Grumman and IBM battle it out to take over the state computers, with IBM and CGI contending for the separate contract to provide computer applications.

It took another year of negotiations for Northrop Grumman to win what would be a $2.3 billion, 10-year contract.

Northrop Grumman spent $184,836 lobbying state officials in the 12 months that ended April 30, 2006, according to filings with the secretary of the commonwealth.

The company's spending included a $1,089 dinner and drinks bill for VITA's then-top executive, Chief Information Officer Lemuel C. Stewart Jr., and seven company officials on Jan. 19, 2006. In October 2006, Northrop Grumman spent $924 on a dinner in Bristol, Tenn., for Stewart and eight company officials. The following January, the company hosted Stewart and two other VITA officials at a $2,490 dinner with 15 Northrop Grumman officials.

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Meanwhile, state agencies, forced to yield control over their computers, balked at working with VITA. In June last year, VITA's top executive, Stewart, blasted DMV Commissioner D.B. Smit over a nearly $4 million project for a new drivers-license system that DMV started without first getting VITA's approval.

That summer came the first hints that parts of some agencies might miss the target date for switching to a new statewide computer system.

The problem was that the basic inventory of computers, servers and other IT equipment that Northrop Grumman was hired to manage still had not been completed. Without that, it would be impossible to make the June 30, 2009, shift to billing state agencies for their actual computer use -- the key to the idea that VITA would save the state money.

Things began getting very tense. In October, Northrop Grumman missed a goal of shifting 68 percent of state offices to local area networks, and the company never caught up. Northrop Grumman's problem, contract administrator Rick Herycyk reported in an e-mail to VITA, was its dependence on VITA to help gain access to more than 400 sites.

VITA's response was an internal e-mail contending that Northrop Grumman was building a case to renegotiate the contract.

"Idiots," one top VITA official commented in an e-mail to several colleagues, forwarding a message to Northrop Grumman complaining about progress on a firewall project in which he said, "guys this is not rocket science."

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Despite continuing concerns about the inventory, the official word was that all was going smoothly. Stewart boasted to VITA's oversight board in December that Northrop Grumman had invested more than $270 million in IT facilities, corrected "millions of dollars in infrastructure deficiencies," brought forth ideas and innovation and ensured competitive pricing for IT services.

Not everyone was convinced. In March, VITA officials were shocked to learn that the Department of Health Professions had won permission from the General Assembly to set up a program to track prescriptions outside the VITA-Northrop Grumman system. A hacker later broke into the system.

"We have seen this before with DHP," Fred Duball, the now-dismissed VITA official in charge of overseeing the Northrop Grumman contract, said at the time. "Both of the [unnamed] individuals in question at DHP are out of control."

In March, a VITA official complained that the Virginia State Police and Department of Emergency Management "are basically stalling on transformation." Penny J. Baggett, executive director of the Commission for the Arts, complained to the governor's office that VITA officials had misclassified -- as spam -- e-mails from a federal agency that she relied on for funds.

"VITA seems to know nothing about our wiring cabinet," a Department of Minority Business Enterprise official complained to the governor's office on the second day of a phone outage, after seven calls to the help desk.

As agencies, many of which had resisted centralization, began taking their frustrations over service problems to the governor's office, VITA officials grew concerned.

"VITA staff have been marginalized and neutralized by Northrop Grumman in attempting to manage the contract terms and conditions via the [VITA oversight] Board and Governor's office," Stewart complained in an e-mail to colleagues -- though Kaine's spokesman Hickey says VITA asked Chief of Staff Wayne Turnage to step in because of problems with transforming some agencies.

There were other signs of confusion. When a state official asked about missing procedures manuals, and Northrop Grumman replied that the documents had been at VITA for nearly a week, Duball, the contract manager, fired off: "I am absolutely furious over your continued cavalier attitude towards our requirements. . . . It is no wonder we get poor quality products from you."

Finally, in a confidential memo to top VITA executives in April, Stewart outlined his big worries. One was that the focus on not missing the June 30 deadline meant Northrop Grumman wasn't paying enough attention to day-to-day operations. The other was that likely budget cuts meant state agencies might delay paying what they owed VITA.

The answer, he suggested, was to slash VITA's payment to Northrop Grumman.

"We are working thru some difficult issues, you want to throw down the 'gauntlet'" James F. McGuirk II, the chairman of VITA's oversight board responded, when Stewart floated the idea.

"What is the next action??? Default, 'beat the horse up the hill faster???' What is Plan B???"

Two months later, the board canned Stewart.

Contact David Ress at (804) 649-6051 or dress @timesdispatch.com.