This is the accessible text file for GAO report number GAO-14-824T 
entitled 'Healthcare.Gov: Contract Planning and Oversight Practices 
Were Ineffective Given the Challenges and Risks' which was released on 
July 31, 2014. 

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United States Government Accountability Office: 
GAO: 

Testimony: 

Before the Subcommittee on Oversight and Investigations, Committee on 
Energy and Commerce, House of Representatives: 

For Release on Delivery: 
Expected at 9:15 a.m. ET: 
Thursday, July 31, 2014: 

Healthcare.Gov: 

Contract Planning and Oversight Practices Were Ineffective Given the 
Challenges and Risks: 

Statement of William T. Woods: 
Director, Acquisition & Sourcing Management: 

GAO-14-824T: 

Chairman Murphy, Ranking Member DeGette, and Members of the 
Subcommittee: 

I am pleased to be here today as you examine implementation of the 
Patient Protection and Affordable Care Act (PPACA). A central 
provision of the Act required the establishment of state health 
insurance exchanges, now commonly referred to as marketplaces. 
Marketplaces permit individuals to compare and select private health 
insurance plans. For states that elected not to establish a 
marketplace, PPACA required the federal government to establish and 
operate a federal marketplace, which users access via the website 
Healthcare.gov. The Centers for Medicare & Medicaid Services (CMS) 
within the Department of Health and Human Services (HHS) was 
responsible for designing, developing, and implementing the 
information technology systems needed to support the federal 
marketplace. CMS largely relied on contractors to develop, build, and 
operate the necessary information technology systems. CMS's role 
includes acquisition planning, contract management, and oversight of 
the contractors. As of March 2014, CMS reported obligating $840 
million for the development of Healthcare.gov and its supporting 
systems. 

When initial enrollment began on October 1, 2013, many users of the 
Healthcare.gov website experienced problems such as website failures, 
errors, and slow response times. Given the high degree of 
congressional interest in the development, launch, and other issues 
associated with the federal marketplace, GAO is conducting a body of 
work in this area. Our report on contracting for Healthcare.gov is 
being issued today.[Footnote 1] That report and my testimony this 
morning focus on (1) CMS acquisition planning activities; (2) CMS 
oversight of cost, schedule, and system capability changes; and (3) 
actions taken by CMS to identify and address contractor performance 
issues. 

For our review, we selected two task orders and one contract, which 
together accounted for more than 40 percent of the total CMS-reported 
obligations related to the development of Healthcare.gov and its 
supporting systems as of March 2014. We evaluated the task order 
issued to CGI Federal Inc. (CGI Federal) for the development of the 
federally facilitated marketplace (FFM)--a system that accepts and 
processes data entered through the website. The FFM was intended to 
provide three main functions: eligibility determination and 
enrollment, plan management, and financial management. We evaluated 
the task order issued to QSSI, Inc. (QSSI) for the development of the 
federal data services hub (data hub), which routes and verifies user 
information among the FFM and various external data sources, such as 
the Social Security Administration and the Department of Homeland 
Security. We also evaluated the contract awarded to Accenture Federal 
Services in January 2014 to continue FFM development and enhance 
existing functionality. 

To conduct our work, we reviewed Federal Acquisition Regulation (FAR) 
and relevant HHS/CMS policies and guidance; analyzed contract 
modifications, contractor deliverables, and contractor monthly status 
reports; identified monitoring requirements; and analyzed contract 
file documentation. Finally, we interviewed CMS contracting officials, 
CMS program officials, and the contractors to obtain their 
perspectives. A more detailed description of the scope and methodology 
used for our study is provided in appendix I of our report. We 
conducted the work on which this statement is based in accordance with 
generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings 
and conclusions based on our audit objectives. We believe that the 
evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

In summary, we found that CMS undertook the development of 
Healthcare.gov and its related systems without effective planning or 
oversight practices, despite facing a number of challenges that 
increased both the level of risk and the need for effective oversight. 
According to CMS program and contracting officials, the task of 
developing a first-of-its-kind federal marketplace was a complex 
effort that was exacerbated by compressed time frames and changing 
requirements. In an effort to be expedient, CMS issued task orders to 
develop the FFM and the data hub systems when key technical 
requirements were still unknown--including the number and composition 
of states to be supported and, importantly, the number of potential 
enrollees. CMS contracting officials explained that meeting project 
deadlines was a driving factor in a number of acquisition planning 
activities, such as the decision to proceed with the contract award 
process before requirements were stable and the selection of a type of 
cost reimbursement contract, known as a cost-plus-fixed-fee contract, 
for both the FFM and data hub task orders. 

This type of contract is considered high risk for the government 
because of the potential for cost escalation and because the 
government pays a contractor's allowable cost of performance 
regardless of whether the work is completed. While CMS's use of the 
cost-plus-fixed-fee contract type may have been a reasonable choice 
under the circumstances, the related risks increased the need for 
oversight. Despite these risks, CMS did not develop a required 
acquisition strategy to identify risks and document mitigation 
strategies and did not use available information, such as quality 
assurance surveillance plans, to monitor performance and inform 
oversight. 

CMS incurred significant cost increases, schedule slips, and delayed 
system functionality for the FFM and data hub systems due primarily to 
changing requirements that were exacerbated by inconsistent oversight. 
From September 2011 to February 2014, estimated costs for developing 
the FFM increased from an initial obligation of $56 million to more 
than $209 million; similarly, data hub costs increased from an 
obligation of $30 million to almost $85 million. New and changing 
requirements drove cost increases during the first year of 
development, while the complexity of the system and rework resulting 
from changing CMS decisions added to FFM costs in the second year. 
Moreover, CMS delayed key governance reviews, moving an assessment of 
FFM readiness from March to September 2013--just weeks before the 
launch--and CMS did not receive required governance approvals. As a 
result, CMS launched Healthcare.gov without verification that it met 
performance requirements. 

Furthermore, because of inconsistent contractor oversight within the 
program office and unclear roles and responsibilities, there was 
confusion about who had the authority to approve contractor requests 
to expend funds for additional work. Our review identified 
approximately 40 instances during FFM development in which CMS program 
staff inappropriately authorized contractors to expend funds, totaling 
over $30 million. This is not to say the work was not necessary; 
however, the work was not approved properly. 

As the October 1, 2013 deadline for establishing enrollment through 
the website neared, CMS identified significant performance issues 
involving the FFM contractor, but the agency took only limited steps 
to hold the contractor accountable. In April and November 2013, CMS 
provided written concerns to CGI Federal regarding its responsiveness 
to CMS's direction and FFM product quality issues. In November 2013, 
CGI Federal responded in writing, stating that it disagreed with CMS's 
assertion that CGI Federal had not met the requirements in the FFM 
statement of work and that delays in CMS's establishment and 
finalization of requirements influenced the time available for 
development and testing of the FFM. 

CMS was prepared to take action in August 2013 that could have 
resulted in withholding fee from the contractor; however, CMS 
ultimately decided to work with CGI Federal to meet the deadline. In 
September 2013, CMS program officials became so concerned about the 
contractor's performance that they moved their operations to the FFM 
contractor's offices to provide on-site direction. Ultimately, CMS 
declined to pay about $267,000 in requested fees. This represents 
about 2 percent of the $12.5 million in fees paid to the FFM 
contractor. CMS contracting and program officials stated that the 
contract limited them to withholding fee only as a result of rework. 
By the end of the task order's development period, only the FFM's plan 
management module was complete. Some of the elements of the 
eligibility and enrollment module had not been provided, and the 
financial management module--which includes the services necessary to 
accomplish financial interactions with issuers--remained unfinished. 

In January 2014, CMS awarded a new contract to another firm, Accenture 
Federal Services, with an estimated value of $91 million to continue 
FFM development. This work also has experienced cost increases due to 
ongoing changes such as new requirements and other enhancements. As of 
June 5, 2014, costs on the Accenture Federal Services contract had 
increased to over $175 million, while key FFM capabilities--including 
the financial management module--remained unavailable. Financial 
management module functionality is currently scheduled to be 
implemented in increments through December 2014. CMS needs a 
mitigation plan to address these issues. Unless CMS improves contract 
management and adheres to a structured governance process, significant 
risks remain that upcoming open enrollment periods could encounter 
challenges. 

The report we are releasing today makes five recommendations to the 
Administrator of the Centers for Medicare & Medicaid Services to 
better manage the ongoing effort to develop the federal marketplace 
and improve future contracting efforts. Specifically, we recommended 
that CMS: 

* take immediate steps to assess the causes of continued FFM cost 
growth and delayed system functionality and develop a mitigation plan 
designed to ensure timely and successful system performance; 

* ensure that quality assurance surveillance plans and other oversight 
documents are collected and used to monitor contractor performance; 

* formalize existing guidance on the roles and responsibilities of 
contracting officer representatives and other personnel assigned 
contract oversight duties, and specifically indicate the limits of 
those responsibilities in terms of providing direction to contractors; 

* provide direction to program and contracting staff about the 
requirement to create acquisition strategies, and develop a process to 
ensure that acquisition strategies are completed when required and 
address factors such as requirements, contract type, and acquisition 
risks; and: 

* ensure that information technology projects adhere to requirements 
for governance board approvals before proceeding with development. 

After reviewing our draft report, CMS concurred with four of GAO's 
recommendations and partially concurred with one. CMS's comments, 
along with our evaluation of them, are provided in full in our report. 

Mr. Chairman, this concludes my prepared remarks. I would be happy to 
answer any questions that you or other members of the subcommittee may 
have. 

For questions regarding this statement, please contact William T. 
Woods at (202) 512-4841 or woodsw@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this statement. W. William Russell, Assistant 
Director; Jennifer Dougherty; Elizabeth Gregory-Hosler; Andrea Yohe; 
Susan Ditto; Julia Kennon; John Krump; Ken Patton; and Roxanna Sun 
made key contributions to this statement. 

[End of section] 

Footnotes: 

[1] GAO, Healthcare.gov: Ineffective Planning and Oversight Practices 
Underscore the Need for Improved Contract Management, [hyperlink, 
http://www.gao.gov/products/GAO-14-694] (Washington, D.C.: July 31, 
2014). 

[End of section] 

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