RICHMOND - Virginia will require Northrop Grumman to pay nearly $5 million for a series of mistakes that led to a computer meltdown last summer that left more than two dozen state agencies unable to handle residents' requests for more than a week.
The giant Los Angeles-based defense company, which holds a $2.4 billion computer-services contract with the state - the largest in Virginia history - agreed to implement a series of recommendations outlined in a state audit .
"We are committed to holding all state contractors accountable for the performance of their duties," Gov. Robert F. McDonnell (R) said in a statement Thursday. "This agreement brings closure to this incident, and provides the commonwealth with an improved information technology infrastructure that will reliably support Virginia's citizens and agencies in the years ahead."
The August 2010 outage, which was a result of both technological and human error, left 26 of the state's 89 agencies scrambling. The total financial impact to the agencies was $4.8 million, said Secretary of Technology Jim Duffey.
Tens of thousands of people were unable to renew their driver's licenses at Department of Motor Vehicles offices. The Department of Taxation could not access taxpayer accounts to issue refunds and liens. The Department of Juvenile Justice was unable to release inmates.
"We've had some history of trying to go the privatization route. You know, each time, regrettably, it seems when it comes back, it's really not the cost saver it was sold to be," said Sen. R. Edward Houck (D-Spotsylvania), who sits on the powerful Finance Committee. "It usually ends up costing as much or more, and yet there's a diminishment of services. I think we have to be very cautious about entering into these kind of arrangements."
Eight months after the system failure, the Virginia State Police's e-mail system went down for nearly a week because of a hardware problem. The department uses an old computer system that is maintained by Northrop Grumman.
Duffey said Northrop Grumman's payment includes $1.9 million paid over 24 months as credits to the state's monthly invoices; $2.84 million worth of operational improvements, such as database backups, system monitoring and capacity management; and $250,000 for the cost of the audit. The $1.9 million includes a $200,000 fine.
The improvements have begun and will be made over the next six to 12 months.
In other states, fines against private contractors have generally been much smaller. In Oregon, the state ordered a company working on a 10-mile section of mountain highway to pay $240,000 after legal, engineering and pollution troubles. In Massachusetts, a company hired to do construction work on a police station was fined $100,000 for failing to pay proper wages and keep records. And in New Mexico, a firm managing the state's behavioral health-care system was fined $1.4 million for not paying nonprofit groups and companies for work they completed.
Sen. Janet D. Howell (D-Fairfax), who has been critical of the contract, said she had hoped Virginia would receive $5 million in cash.
"This doesn't seem like a huge penalty, especially since it covers things they should be doing anyway," she said.
But Duffey said Northrop Grumman is making upgrades beyond what its contract requires. "The items are upgrades to what would normally occur, at their expense," he said.
In a statement, Northrop Grumman spokeswoman Christy Whitman said the company was pleased with the agreement over the outage and pledged to work with the Virginia Information Technologies Agency, which oversees the state's computer systems.
"In partnership with VITA, we are implementing new procedures, policies and safeguards to help avoid similar occurrences," she said.
After a legislative review in 2002 found that the state's computer system was outdated and increasingly expensive to maintain, governor Mark R. Warner (D) proposed consolidating the state's computer operations into one agency and overhauling the system. The General Assembly, then controlled by Republicans, approved the overhaul.
The state accepted bids and selected Northrop Grumman, but from the start, the contract has been plagued by problems, including missed deadlines and poor service. A blistering legislative audit released in 2009 found that the computer system had caused problems at almost every state agency that used it.
McDonnell, who had criticized his predecessor, Timothy M. Kaine (D), for failing to properly manage the Northrop Grumman contract, has repeatedly said he would run such programs as businesses.
He reworked the state's contract with Northrop Grumman, extending the 10-year agreement by three years and agreeing to pay the company an additional $100 million, but he added new penalties for poor service.
Sen. Mary Margaret Whipple (D-Arlington), who questioned the contract with Northrop Grumman from the start, said she was skeptical when McDonnell extended it. "It seemed odd to extend the contract and give them more money,'' she said.
