ADP Modernization:

Health Care Financing Administration's Software Redesign Contract

IMTEC-89-15: Published: Mar 16, 1989. Publicly Released: Mar 16, 1989.

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GAO reviewed the Health Care Financing Administration's (HCFA) management of its computer software redesign contract, which is part of its Project to Redesign Information Systems Management (PRISM) used in administering Medicare and Medicaid programs.

GAO found that: (1) HCFA awarded a cost-plus-fixed-fee contract in September 1987 at an estimated cost of $7.95 million; (2) HCFA partially withheld payment for April 1988, since the contractor did not have required key personnel working on the project and delivered unacceptable products; (3) HCFA withheld payments for July, August, and September 1988 after contractor performance problems persisted; (4) the HCFA PRISM director was considering alternative ways of increasing agency oversight to better ensure contractor compliance; (5) although HCFA took effective steps to improve contractor performance, the contractor estimated that it would need an additional 9 months to complete the contract with a cost overrun of $720,000; (6) in December 1988, HCFA accepted the contractor's revised work plan for completing the contract and was negotiating a proposed $4.7-million overrun; and (7) successful PRISM completion depended on HCFA management of its current and future contracts to minimize schedule delays and cost overruns.

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