In a two part series, VTDigger examines more than $300 million in state IT projects. In Part 1, we look at general government expenditures. In Part 2 we will analyze health care IT investments.
State officials and legislators are growing concerned about the state’s spending on major information technology projects, and they are calling for more careful planning and oversight to avoid repeating past failures.
House Speaker Shap Smith says that a specially tailored oversight committee that would monitor major IT projects may be one way to avoid problems like those that recently beset the Department of Motor Vehicle’s failed $18 million VT DRIVES project and the Judiciary’s $4.3 million JUST WARE case management system.
In both cases, officials are negotiating with outside firms. The state is seeking resolution and in the DMV’s case, compensation, for what officials say is a failure to deliver on contract promises.
But arrangements between the state and the two companies — Hewlett-Packard and New Dawn Technologies — have not yet been finalized despite months of negotiations.
“I’m concerned about the number of projects that we spent money on but appear not to work,” Smith said. “And I do think that we need to have more robust oversight at the Legislature. Ultimately we are called to account by our constituents for these kinds of failures.”
Successfully managing IT systems development and infrastructure isn’t easy, but Smith said, “I’m worried about a pattern here. This is an area of large investment, and we need to make sure the money is being spent right.”
Just how large are those investments? The state has spent, or is projected to spend, more than $300 million for IT projects over a 13-year period. One-third of those expenditures is for general government projects; the rest is for federally funded health care IT projects that should be completed over the next five years. It is not clear at this point how much the state plans to spend on a new Agency of Human Services IT program to replace the nearly three decades old ACCESS system that tracks food stamp and welfare benefit eligibility. Several years ago, lawmakers referred to the ACCESS replacement project as a $100 million investment.
Officials say Vermont has not kept up with changes in technology. About 70 percent of the state’s administrative IT infrastructure is considered “legacy,” or somewhat outdated, according to Richard Boes, the commissioner of the Department of Information and Innovation. In other states, the split between modern and “legacy” systems is 50-50, he said.
For this series, VTDigger has divided state IT development projects into two categories: general government and health-care-related projects.
In this story we analyze expenditures of $90.75 million on general government IT projects that began in the period between 2005 and October 2012. Some have been completed, some are ongoing and a few have failed to materialize. All the projects were projected to cost $500,000 or more. The information for our analysis is derived from a spreadsheet compiled for VTDigger by the Vermont Department of Innovation and Information. The DII spreadsheet also includes $6.7 million in health-care-related expenditures.
The DII listing does not include a $12 million pension system overhaul, nor does it include contracts with the Vermont Information Consortium, a national franchise company that develops websites for state governments. VIC creates “free” websites for the state in exchange for a cut of fees from online sales generated from motor vehicle, drivers and mobile home licenses, and court, police and vital records. It is not known how much VIC generates in profits as a result of the arrangement.
A table at the end of this story summarizes DII’s listing of major state IT projects from 2005 to October 2012, including initial projected costs, a brief project description, and the date the project went through an independent review by DII.
In 2009, the Legislature and the Douglas administration passed a government accountability program known as “Challenges for Change,” and as part of this effort state officials sought to cut bureaucratic red tape. As a result, some IT projects initiated in 2010 bypassed an independent review requirement for projects that cost more than $500,000. Under state statute, projects of this size are subject to an independent review and cost-benefits analysis by a contracted technology firm. DII is charged with overseeing the reviews.
Boes, the commissioner of the Department of Information and Innovation, couldn’t estimate how many projects had slipped under the department’s radar starting in 2010, nor how much those projects cost. He cited one project, a $3.8 million Oracle software license purchase in 2010 by the Agency of Human Services that didn’t undergo a DII-supervised review.
“I think that was a massive mistake, because when you don’t go through the appropriate vetting of projects, you’re not always aware of the risks,” Boes said. “If you’re not aware of the risks, how do you mitigate those risks?”
Until recently, DII’s involvement in agency and department IT decisions for ongoing projects has been on a by-request basis. “We have not tried to insert oversight for projects already in process unless requested by the department,” Boes said.
Since Boes was appointed by Gov. Peter Shumlin to oversee the department in 2011, new project proposals have again been required to go through the vetting process, in which DII recommends or pans proposals.
Legislation passed this year gives DII oversight of the whole life cycle of a project worth $100,000 or more from inception to completion.
This year, for example, the Department of Corrections withdrew a $3.9 million proposal to create an offender management system after an independent review found weaknesses in the proposal.
Unfavorable reviews are the exception, not the rule. Boes could cite only one other voluntary withdrawal of a project, a $4.1 million grants management proposal this year from the Department of Public Safety.
Health care IT projects have not been under DII scrutiny until recently. Boes said his department hadn’t been very involved in overseeing health care IT projects in the past, but with new legislation clarifying DII’s role this summer, his department is providing oversight for all health care IT projects moving forward. He sits on an oversight committee for the state’s $228 million in projects that are slated to move forward over the next five years.
The state is spending $110 million for Medicaid eligibility program for a Health Services Enterprises System that is 90 percent funded by the federal government. In addition, Vermont is spending $118 million on the creation of the state’s online health care exchange, which will be paid for by Centers for Medicare and Medicaid Services.
Is more scrutiny necessary?
Administration Secretary Jeb Spaulding said further scrutiny may be warranted, but “I think we already have a much higher level of scrutiny than we had years ago.”
“The state is much more sensitive to making clear upfront what the deliverables are from IT vendors, and the payment is based on delivery of those products and services, not based on time and materials,” he said. (Clarification: Payment for the Judiciary’s JUSTWARE contract was based on delivery of the product, not on payment for time or materials.)
Many IT proposals, like the DMV and Judiciary projects, were started in years prior, Spaulding said. “It’s entirely possible we’ll see more hiccups down the road.”
Doug Hoffer, the state’s auditor-elect, said that while it’s clearly necessary for the state to continue upgrading its IT infrastructure, it’s the lack of clarity around purchasing and contracting that worries him.
“What appears to have become a problem are the purchasing procedures,” Hoffer said. It’s not clear, he said, how recommendations from outside experts affect an individual agency’s plan to revamp its computer systems. “On a couple of high-profile cases, decisions made about buying either hardware, software or training, didn’t work out very well.”
“The question is not are we spending too much or too little, but how do the departments decide these things on their own?” said Hoffer. “If we want to help the state, we can help investigate the procedures, and can help them improve that part of it, so this won’t keep happening. The most important thing to me is help get the procedures straight.”
Hoffer said his initial discussions with staff about audits to pursue will include a discussion of IT purchasing procedures. He characterized state government spending on IT as without question “a very substantial expenditure,” and said “there’s no avoiding it for an organization of this size.”
In a November 2012 newsletter, Boes outlined challenges that lie ahead for DII because of a renewed public focus on failed IT projects after the JUST WARE story broke. “One specific area that needs more attention is IT contracting,” Boes wrote. “We need to do a better job of specifying what the State needs and ensuring appropriate accountability is in place prior to a contract being signed. This discussion has begun, but has a ways to go before a proposal is developed.”
He concluded, “It is clear that the risks we have taken in the past are too high, so some additional checks and balance are needed.”
How past IT projects have fared
The past performance of IT systems has been mixed. Earlier this year, two large IT failures came to light: the VT DRIVES project for the Department of Motor Vehicles, which was supposed to update driver data in real time, and the Judiciary’s online court case management program JUST WARE.
As VTDigger reported in October, the state has spent $18 million on the VT DRIVES project, but Hewlett-Packard, which also handles the state’s Medicaid payment system, has not yet delivered on its promise of a driver data system. The project is three years overdue.
Robert Ide, the DMV commissioner, said the state is trying to wrest compensation from HP for $9 million it paid to the company. The project went through an independent review in November 2005.
The state Judiciary signed a contract with New Dawn Technologies in December 2009. Bob Greemore, the state’s courts administrator, said the state contracted with the Utah firm to modernize the 20-year-old case management system for $4.3 million.
But after spending $1.7 million, it became clear earlier this year that the arrangement wasn’t working as planned. The project required too much time and attention from court personnel, and the vendor failed to deliver promptly.
“Our investment in the project started to grow,” said Greemore. “At one point, we finally looked at it and said, the timeline and budget are not going be met on this project.” Greemore then notified New Dawn that they wanted to suspend the project.
Greemore declined to characterize the ongoing negotiations with New Dawn and couldn’t comment on why exactly the project failed, or who was responsible for the failures.
It’s unclear at this point whether the state will have to pay the remaining contract balance of $3.75 million, though Greemore said he’d be shocked if that were the case.
Although Greemore said New Dawn had designed parts of court systems for other states, JUST WARE was the first comprehensive statewide court system the company had attempted.
A taxing problem
The state’s Tax Department has also faced IT growing pains. Commissioner Mary Peterson said an $8 million IT contract awarded in 2007 for an integrated tax system for the state’s two dozen tax types, currently only works for four tax categories.
She added that it was unclear whether the system, which went live in 2010, could be further improved. It was supposed to integrate three different tax processing systems and several tax categories into one seamless online experience, for both administrators and taxpayers, but fell short of that goal.
The integrated tax system doesn’t allow taxpayers, including citizens and businesses, to manage their tax accounts online, a key aim of the original 2007 revamp.
“It hasn’t developed quite the way that was envisioned in 2007,” said Peterson. “So right now we are going through a re-evaluation process and deciding how we’re going to go forward. … When you buy something that’s new, as the department chose to do at that time, there’s risk there that it doesn’t continue developing as you imagine.”
A problem with the integrated tax system now is that it doesn’t allow taxpayers, including citizens and businesses, to manage their tax accounts online, a key aim of the original 2007 revamp.
“The question is whether we continue down the road and wait for those capabilities,” said Peterson.
The Tax Department has hired consultants to evaluate whether it would be worthwhile switch to another vendor. Peterson hopes a proposal can be drafted by January so that improvements can be in place for the 2014 tax season.
Peterson spoke highly of another tax IT project, a “data warehouse” that enhances the department’s tax compliance and enforcement capacity, allowing it to better identify fraud and process refunds. She projects the upgrade will enable the department to bring in an additional $16 million in tax revenue over five years. The state will pay the vendor $4 million of those revenues.
Timesheet, online lottery, radio communication, ACCESS and pension IT systems
The PeopleSoft solution
The state is in the process of updating a human resources management software system called PeopleSoft that will replace Paradox, a human resources accounting program. The $19.6 million project is the most expensive line item on DII’s project list.
The PeopleSoft upgrade, which is on budget and should be up and running in January 2013, is part of the comprehensive Enterprise Resource Planning project, which is in the process of updating accounting and human resources software across state government.
As part of this effort, Vermont is also upgrading the state’s time and labor program at a cost of $8.2 million, as VTDigger reported previously.
Now workers manually record hours on paper timesheets before department supervisors approve the logs and pass them to a clerk. The clerk enters the information into Paradox, which logs time and expenses for state employees. In the new system, state employees will log their own hours directly into the system. Supervisors will then review the timesheets electronically.
Project manager Brad Ferland said the state first opened a bid to reform time and labor, as well as a finance system module, in 2006. State records also indicate an even earlier request for a project cost quote, dating back to November 2004.
The time and labor project became active again in 2009, despite the fact that payroll staff had an “extremely long list of concerns” about Paradox, which was first implemented in the 1990s.
An $18 million online gaming system
Among the IT projects cited by DII is the $18 million implementation of an online Lottery Gaming System, for the Vermont Lottery that began in June 2009. It’s the second costliest project of the 23 listed by the DII.
Vermont Lottery executive director Greg Smith said the $18 million represented the technology-related investments that are part of a $25 million contract paid over six years to Intralot Inc., which will operate the online lottery gaming system for the state. Profits generated by the Vermont Lottery go to the state’s Education Fund.
A $13.8M radio network
The Department of Public Safety began a $13.8 million effort in June 2009 to install a reliable wireless radio network to bolster law enforcement work, particularly interaction between the state’s public safety agencies and first responders.
Mike Manning, a state police liaison for the Vermont Communications Board, which represents first responders and is a partner on the project, said the radio network is on budget. He expects the project to be completed later this calendar year.
According to deputy state auditor Joe Juhasz, an October 2006 RFP for an earlier version of that project came under question because of problematic bidding and contracting, resulting in a 2009 bid revision. Uncertainties about funding also factored into the decision to cancel negotiations with the preferred vendor and reopen the bid, Manning said.
A May 2008 auditor’s report shows that the department and VCOMM inadequately documented its original selection of Motorola as the contractor. Motorola’s bid was $7 million more than the cheapest offer by a rival firm.
The audit found no evidence of improper decision-making, but state auditor Tom Salmon wrote in his report: “This was a highly complex RFP which generally asked for ‘solutions,’ rather than presenting specific requirements for equipment, installation, and implementation, and asking vendors to develop a price to implement the State’s system design.”
The ongoing plans to replace the state’s aging ACCESS system
One of the oldest IT systems the state manages is the ACCESS system, which was installed in 1983 and determines government assistance eligibility for the Agency of Human Services.
Expected costs for a new system are unknown, as the project is currently under bid, but state estimates two years ago were in the $100 million range, 90 percent of which was slated to come from the federal government. That figure may be significantly less if the state can leverage funds from the Centers for Medicare and Medicaid Services for the Medicaid eligibility portion of the project, which is a priority under federal health care reform.
Angela Rouelle, AHS chief of IT, said that since ACCESS incorporates both a unified system to sign up for benefits, along with child support benefit systems, there isn’t yet a timeline or estimated cost for replacing the ACCESS system as a whole. That’s because costs for replacing the child support system are not fleshed out yet.
Sen. Jane Kitchel, a former secretary of the Agency of Human Services, has been very concerned about the ACCESS system for some time. “We have a very old system at risk; it’s a legacy system, a workhorse system, which supports the disbursement of millions of dollars in benefits, and does hundreds of thousands of transactions. … We have really pushed this down and postponed dealing with the replacement of this system, as far as we should, without creating a high degree of risk.”
The $12 million pension benefits system
A system to manage pension benefits at the state treasurer’s office, started in 2005, is known as the Retirement System Re-engineering Project. The project is a significant upgrade from a 1970s mainframe, partly involves converting paper records to digital records, and has cost the state $7 million so far.
The project has faced ongoing delays and the treasurer’s office has been criticized for paying hundreds of thousands of dollars in overtime to several staffers in the retirement division to get the new system up and running.
According to figures from a public records request the office incurred about 9,000 hours in overtime and about $265,000 in overtime pay during fiscal years 2010, 2011 and 2012. One employee, the interim director of the retirement division, who was tapped internally, logged more than 3,000 hours in overtime during that period.
State Treasurer Beth Pearce told VTDigger in October that the project is partially implemented and should be completed next year. She says it will cost $1.5 million less than the $13.5 million initially projected.
A lack of in-house expertise?
The state auditor’s office published a report in April 2012that examined three major state IT contracts after a state lawmaker and press reports sparked concern about the VCOMM radio project, the Medicaid Enterprise Solution RFP, and the DMV VT-Drives project.
Administration Secretary Jeb Spaulding said that many parties must shoulder responsibility for a failed IT project, including the relevant government agency, the technology firm implementing the project, the administration, the Legislature, and the Department of Innovation and Information.
House Speaker Shap Smith had a different view. “Probably everybody bears some responsibility,” he said, “but my feeling is that the people making the call have to be held responsible for it, the people who ultimately decide ‘go’ or ‘no go’ on the purchase of this system; that would be at the agency level.”
Doug Hoffer says agencies may lack IT expertise.
“To know the whole universe of what’s out there and to be very clear, knowing the words and different aspects of the information technology, it’s all very complicated stuff. It’s not like saying I need a tire with these specifications,” he said.
Funding and the future for state info tech
Currently, computer system upgrades and purchases receive funding from a variety of sources. Funding for IT projects can come from the capital bill, appropriations, federal agencies, and state department budgets, according to Jim Reardon, the commissioner of the Department of Finance and Management.
Alice Emmons, D-Windsor 1-2, chair of the House Institutions and Corrections Committee, said there is no structure for funding IT systems, and ongoing maintenance and upgrades, but that may change. “There’s an attempt to have a coordinated effort with the administration and the legislative branch,” Emmons said. “Those discussions are occurring and that’s something we’ll be working on during this upcoming session.”
Emmons explained that a shift, starting in 2010, to funding IT projects through the appropriations bill rather than the capital bill, came as lawmakers realized that modern IT infrastructure could have short lifespans of three to five years, ill-suited to the 20-year bonds issued to finance many capital construction projects.
“We haven’t yet come up with a permanent ongoing funding source for IT-related projects,” said Reardon. “So we’ve kind of limped along in terms of funding IT projects, from a variety of sources.” He said the diversity of funding sources is problematic because it puts extra pressure on agencies to justify IT spending to the Legislature, and the federal government.
Reardon was also pessimistic about whether a study on the subject, due to the Legislature in January, would make specific recommendations about a dedicated funding earmark, because it’s unclear how much money the state should allocate for information technology.
Boes, the state’s chief information officer, said he is working to identify all the aging IT systems in place across government, and the costs required to upgrade them. More information will be available next year, he said.
Kitchel, the chair of Senate Appropriations, said funding for major IT projects is an item that tends to be postponed when budgets are tight, “sort of like not replacing your roof.”
“We’ve had discussions about how we should better organize and address funding,” Kitchel said.
One of the challenges, David Tucker said, is “getting legislators to understand that, these days, bits and bytes can be just as important as bricks and mortar.”
Oversight is another issue that the state has yet to grapple with adequately, she said. “What do we need to put in place, what kind of standards, what kinds of review? Those are all questions that are important ones to ask. … I think we’ve just started those conversations.”
She said concrete solutions to the state’s difficulties with IT are premature, as lawmakers have difficulty grasping the exact nature of the problem. “I think we have to define the problem before we know what is going to be the most appropriate response or corrective action,” Kitchel said.
One of the ongoing problems associated with IT has been the rapid turnover of the chief information officers over the years, Kitchel said. “We have not had continuity of leadership in the department of the DII, which we would view as key in terms of oversight, and independent analysis and evaluation.”
Prior to Boes, four separate commissioners served from 2006-2012, with leadership changes in 2009, 2010 and 2011.
Former DII commissioner David Tucker, who served under Gov. Jim Douglas, said he suspected that there’s been an increase in external contracting for IT projects in recent years, whereas previously the state used to manage much of its IT development internally. But he doesn’t believe state government faces unusually large problems in managing these projects, any more than other large organizations that handle similar upgrades.
Tucker said one of the challenges is “getting legislators to understand that, these days, bits and bytes can be just as important as bricks and mortar.”
It’s a lesson that some lawmakers already understand. IT spending is very important, House Speaker Shap Smith said, because “it’s about providing the level of service that Vermonters are paying for, and making sure that government runs efficiently.”
Smith said that inefficient systems cost taxpayers money and also could lead to problems with program service delivery.
Randy Brock, the former gubernatorial candidate, state senator and auditor, believes that a sense of discipline needs to brought to the development and procurement process. DII and the chief information officer doesn’t have the authority to manage the state’s IT systems, in his view.
“Based on what I’ve seen historically, I don’t think that IT is a core competency of state government. …The chief information officer has never really been properly empowered or a strong enough character in state government to really direct and formulate and shape IT policy. As a result, IT systems and policy are very fragmented.”
Centralized oversight of all IT projects should be on the table, he said.
“IT offers the promise, done effectively, of tremendously improving both the service and lowering the cost of government, done well,” Brock said. “Right now, we don’t do it as well as we could.”
Editor’s note: This story was updated with more information about PeopleSoft at 6:30 a.m.