Editor’s note: This commentary is by Randy Brock, who heads Rockledge Risk Advisors LLC. He is a former Vermont state auditor and state senator, and he was the 2012 Republican nominee for governor of Vermont. He is completing work on his first book “Bandits in the Boardroom: Lessons from America’s Greatest Corporate Frauds.”
[W]e are now in Round 3 of what has become a marathon bout, pitting Vermont taxpayers against multinational software giants. So far the contractors are winning.
We clearly lost Round 1, when Canadian software behemoth CGI failed to deliver a working Vermont Health Connect, despite collecting millions in taxpayer money. In a truly world-class display of system design incompetence, CGI built an Internet application that simply didn’t work. It was a system in which someone forgot that real people occasionally changed their addresses, had children or got new jobs. CGI’s system could not accommodate any of this. The contract began in December 2012 at $36.4 million, but with changes and add-ons, it eventually totaled more than $67 million, before the plug was pulled.
In mid-2014, CGI was then replaced by OptumInsight. Three years earlier, in 2011, Optum had been called Ingenix, a company accused of a multimillion dollar fraud by the New York state attorney general. According to the attorney general, Ingenix engaged in “a scheme to defraud consumers” by systematically causing insurers using its databases to overbill the nation’s patients by hundreds of millions of dollars for more than a decade. The databases in question were used by insurance companies to calculate the local “usual and customary charges” that insurers would pay. The attorney general alleged that this was not an error, but a deliberate scheme designed, in a system ripe with conflicts of interest, to benefit, among others, Ingenix’s corporate parent UnitedHealth. Optum (Ingenix), without admitting guilt, paid New York $50 million and gave allegedly defrauded doctors, patients and health care providers another $350 million.
Newly named and with Vermont officials blissfully unaware of its checkered past, Optum was awarded a $5.7 million contract that has grown now to $76.2 million, with no end in sight. Despite promises and a healthy dose of spin, today, more than a year later, consumers still cannot go online to change their address, add a child or update their income.
Now, the Shumlin administration has upped the ante. With plans for a mammoth $420 million project to replace Vermont’s hodgepodge of ancient human services systems, negotiations are underway with a company called WIPRO, another foreign technology giant.
But have Moe, Larry and Curley – the folks in state government who select technology vendors – done it again?
WIPRO — where $420 million of Vermont money may go
Let’s look at WIPRO. Based in Bangalore, India, WIPRO was formed in December 1945 as Western India Vegetable Products Ltd. From its modest beginnings as a vegetable oil producer, it later expanded into manufacturing soaps and other consumer care products. The company’s expansion into information technology saw it evolve from selling vegetable oil in India to offering sophisticated software development services to its clients. Today from its headquarters in India, WIPRO has annual revenues of more than $7.5 billion, employs more than 140,000 employees and has operations in North America, Europe, Australia, Africa, Latin America and Asia.
WIPRO provides information technology solutions to a wide variety of clients. Where its work in the United States involves software development, such as the type of services that Vermont is seeking, WIPRO uses an interesting model. It performs some of the work in the United States and some of the work offshore in India.
One of the hidden secrets as to how major IT suppliers get their work done is to use H-1B and L-1 visas to import workers from India. The H-1B is a non-immigrant visa that allows U.S. employers to temporarily employ qualified foreign workers in specialty occupations, such as software development. The law requires that those working under H-1B visas be paid the prevailing wage in the region where they work, although the Department of Labor does not routinely check up on this, and some WIPRO employees have complained that their wages have lagged those of U.S. nationals. There is an annual limit on the number of visas issued and a requirement that the visa applicant have a bachelor’s degree or higher. The L-1 visa, known by some as the “stealth visa,” applies to employees of a firm with offices both in the United States and abroad. The L-1 visa allows employees to work in their company’s U.S. offices and the visa does not have the restrictions that limit the number of visas, the education requirements or the wage parity required by the H-1B.
Optum and CGI also have both allegedly imported some foreign IT staff to work on Vermont’s contracts. But WIPRO has taken labor import to a new level. In the past six years, WIPRO has certified more than 24,000 foreign workers for H-1B visas. Last year, the company certified 7,266 Indian nationals to work on its projects in the United States. Workers imported under H-1B provisions are typically paid at rates that would seem attractive, but some of the claims against WIPRO have alleged that these rates still fall below those that would be paid to equally qualified American workers.
As the Shumlin administration talks repeatedly about how important it is to create job opportunities for Vermonters, the export of the development work to India or its performance in the United States by Indian nationals specifically imported for this purpose is of concern.
In the CGI and the Optum contracts, the hourly wage rates that the state will pay for specified types of worker are fixed in the contracts. But in dealing with WIPRO, the important question is whether Vermont will pay WIPRO a different hourly rate for services provided to the state by WIPRO’s employees located outside the U.S. There could be a significant difference if the worker was domiciled in India, where wage rates for IT professionals are typically significantly less than those in the United States. For example, according to the Wage Indicator Foundation of the University of Amsterdam, a software applications programmer with five years’ experience earning $59,424 in the U.S. could be expected to earn only $10,113 in India.
Sen. Bernie Sanders, part of a bi-partisan group that covers the entire political spectrum, has been critical of the visa program. “Last year, the top 10 employers of H-1B guest workers were all offshore outsourcing companies,” Sanders said in a Senate speech in 2013. “These firms are responsible for shipping large numbers of American information technology jobs to India and other countries.”
As the Shumlin administration talks repeatedly about how important it is to create job opportunities for Vermonters, the export of the development work to India or its performance in the United States by Indian nationals specifically imported for this purpose is of concern.
History of lawsuits — smoke but no fire?
Beyond that, one of the red flags that should have given Vermont pause before retaining CGI was the history of lawsuits and claims against the company for promising results and then failing to deliver them for its clients. WIPRO has not been immune from similar claims. In June, Webster Bank, of Waterbury, Connecticut, filed suit for $1.6 million against WIPRO in the U.S. District Court for the Northern District of New York. Webster alleged that WIPRO, despite repeated promises, failed to deliver a software project on time or on budget and that WIPRO had diverted staff from the project to other more lucrative clients. Webster claimed that because of WIPRO’s failures, the bank incurred significant expenses in having to hire others to complete the project. WIPRO has vigorously denied Webster’s claims and the suit is still pending. Sound familiar?
WIPRO, according to their annual SEC report, is currently under investigation by the SEC. According to the report, “the SEC has issued a formal order directing a private investigation by the Staff of the Enforcement Division of, among other things, issues relating to auditor independence, our internal financial controls and books and records, and the appropriateness of certain accounting entries pertaining to our exchange rate fluctuation and outstanding liability accounts.” The company noted that an unfavorable result of the investigation “could have a material adverse effect on us.” WIPRO has been sued on more than one occasion by American employees, claiming that Indian nationals have been given preference in U.S. employment. Other suits have claimed that WIPRO has systematically refused to pay overtime required by state laws. WIPRO has prevailed in all of the suits to date, and the company has consistently denied allegations against them. However, there is pending in federal court in California a class action lawsuit about overtime wages that was filed in June.
Vermont’s troubled technology trail
For more than two decades, Vermont has demonstrated a long and troubled history of hiring large IT consultants for system development projects that ultimately failed. From the multimillion-dollar cost overruns for the Tax Department system in the late 1990s, to the failed Judiciary administration project, followed by the $18 million spent on a non-working Motor Vehicle Department system, and lastly the seemingly never-ending saga of Vermont Health Connect, Vermont has clearly demonstrated that software development is not a core competency of state government. One reason for these consistent failures has been inadequate examination of the companies to whom contracts have been awarded.
Would Vermont have hired CGI if our officials been aware that our own State Auditor Elizabeth Ready in 2000 had been critical of the performance of a CGI predecessor company or that it had had a $474 million judgment against it for failure on another state’s project? Would we have hired Optum had we known in advance that it had just changed its name after paying some $400 million in the wake of fraud allegations by the N.Y. attorney general? And, at a time when Vermont and other American software developers are competing for work in a global market, should we award a $420 million contract to an India-based software company that, if history repeats itself, will perform much, if not most, of its work using not Vermonters, but foreign nationals?
A second major reason for our consistent failure has been the absence of IT as a core competency in state government. Vermont has never elevated the role of chief information officer to that which the 21st century requires. As a result, political appointees, as in the Vermont Health Connect debacle, have overseen and directed projects for which they were incompetent. The CIO, now called the commissioner of Information and Innovation, has had a limited role and typically has not been sufficiently empowered to challenge the uninformed technology decisions of the mandarins in charge of state agencies or the political appointees who drive policy.
A vision for a better Vermont technology future
Developing major technology projects will consume Vermont for the foreseeable future. Our core IT systems are elderly. There is a clear stream of needed system remediation projects stretching for years to come. Now is the time to begin developing the IT development capability in Vermont to perform this work, preferably with Vermonters or with other American citizens who could become Vermonters. The WIPROs of the world may be needed in the short term, but we must build IT competence into state government right now, and we must work with and encourage the creation and expansion of Vermont’s IT businesses. It’s a great opportunity to support our own growing technology industry, to better integrate the talents of a group of smaller technology providers, and to develop innovative ways to build our own technology “mini-behemoth” that can not only meet Vermont’s development needs for the future, but can also be part of the base for building a larger and more robust Vermont IT economy.
The alternative is bleak. Absent a change in direction, we’ll continue to funnel hundreds of millions of dollars of taxpayer money to companies far from our Green Mountains. Although we live in the age of the global economy, we have to ensure that, as a source of hi-tech talent, Burlington is as important to us as Bangalore. But right now, for our young people, the notion that most of the work on the largest software development project in Vermont history will be outsourced to India, must be hard to swallow.
Oh, well, perhaps the folks from Bangalore will buy our maple syrup.
