Computer Crashes and Sweetheart Contracts


    It’s now been over a week since the once-ballyhooed, privatized state computer system crashed, a mess caused by a malfunctioning storage unit in Richmond. The unit has been repaired, but, as anyone who has ever dealt with a hard drive crash knows on a small scale, the work in getting everything back in order still goes on, while state business doesn’t get done very well.  

    Some relief has been promised for today. However, according to the Washington Post, three state agencies – the board of elections and the departments of motor vehicles and taxation – are still experiencing major computer issues that hamper daily operations.

    More than 32,000 Virginia residents haven’t been able to renew or get new driver’s licenses in person. Taxpayers have been unable to file returns, make payments or register online through the  Department of Taxation. Tax account information is unavailable for bills and refunds. Residents can apply to register to vote, but the applications won’t be processed until the agency’s database is completely restored.  

    Computers for 24 other state agencies are operational, but the computer problems mean that they can’t operate efficiently. The Washington Post noted that those agencies include social services, environmental quality, juvenile justice, criminal justice services, professional and occupational regulation, and information technologies.

    So, in this year of budget shortfalls and phony “surpluses,” state employees will now get  overtime pay to work through the backlog of more than a week’s down time. You know, I wonder what possessed Virginia to give Northrup Grumman a contract to create a single state computer system – something Northrup had never done before. The history of that $2.4 billion – and counting – contract is a convoluted one, beginning in 2002 when JLARC reported that the state computer systems were out-of-date and expensive. (If JLARC thought the old way was expensive, wait until they figure out the ultimate cost of this system that has caused trouble from day one.)  

    Here is a time line for that Northrup Grumman contract:

    November 2001: Northrup Grumman buys Newport News Shipbuilding for $2.1 billion, plus assuming $500 million in NNS debt, making it a huge Hampton Roads employer.

    2002: JLARC finds that Virginia’s computer system is out of date and too expensive. Gov. Mark Warner and the Republican-controlled legislature put out for bid a contract to build an integrated computer system for the state.

    2002: Northrup Grumman gets a contract for $2.4 billion, even though at that time it had no experience in doing such a state-wide job. Responsibility for managing that contract is given to an independent board, not the governor or the General Assembly.

    2009: JLARC issues a report saying that almost every state agency has had severe problems with the Northrup-designed system. JLARC mentioned Northrup’s lack of experience in its report.

    April 2010: new governor, Bob McDonnell revises the contract with Northrup. McDonnell said is would cost the state at least $350 million to end the contract. New legislation was passed that allowed the Virginia Information Technology Agency to report directly to the governor, not to that independent board.

    McDonnell’s sweetheart contract extended Northrup’s previous contract for three years beyond its original time, released $15 million being held because of system problems, promised to pay Northrop $105 million over the next nine years to settle other company claims for money, plus $47 million over the same time frame for new security features.

    As luck would have it, in 2009 and 2010 the company was conducting a search for a new home for its California headquarters and considering sites in Maryland and Virginia. Even McDonnell was forced to admit that it helped Virginia for him to redo the contract with terms favorable to Northrup before it ultimately chose Virginia.

    I suppose we have to chalk up this expensive mess to just another nightmare caused by outsourcing, not to the best choice to get a job done but to whoever has the best political connections. Welcome to corporate “democracy,” where corporations are people and the people are expendable cogs in the corporate machine.

    • Tom

      When I was a civil service employee for the Navy (Crystal City, Arlington, most of my 38 years) I wrote contract RFPs. including tech. performance specs., evaluated proposals and was the Contracting Officer Tech. Rep. (COTR) after contract award for several It-related contract much larger than this VITA contract. More than once I recommended contract termination for failure to meet contract performance requirements and every time the contracting officer supported my recommendations and in every case issued a “show cause” letter to the contractor to prove the contract should not be terminated and in every case but one, when the contractor proposed a plan that I and the CO approved to correct the performance failures (and succeeded in three months) the contracts were all terminated. The government in all those cases took possession of the hardware and software bought by the contractor as part of the termination conditions in lieu of much higher performance penalty charges, and at about 10 cents on the dollar compared to the original purchase charges for the equipment because at that point it was used computer equipment, worth about 10% of what the government originally paid for it under the terms of the contract.

      What I think can and should happen is that the entire It infrastructure that NG presently owns but is used equipment and software with very little market value should be “taken” as partial penalty payment for non-performance under the terms of the contract, with NG subject to additional penalties for denial of service, including the overtime cost of the government agencies now faced with working long hours to handle the backlog of work that has built up while NG tried to figure out how to do their most basic contract tasks. I don’t see any reason that the AG should not be suing NG for actual and punitive damages, and if he knew anything about contract law he should be able to get them to settle out of court and agree to contract termination and reimbursement for all state government agency overtime required to deal with their failure to perform.

      Termination of this contract would immediately save Va. taxpayers a minimum of $500M – much more than Gov. McD. can hope to get from privitizing the ABC, and would eliminate the $230M+ reward for performance failure that VITA CIO Nixon happily negotiated as the NG reward for poor performance, not to mention terminating the 3-year extension to the 10-year contract.


      That “show cause” clause exists in the VITA contract