In 2005, Virginia signed the largest contract in the state's history, for Northrop Grumman Corp. to manage the state's information technology system for 10 years. The $2.3 billion contract, seen by many as a potential model for other states, was intended to save money and improve the quality of the large, intricate system by transferring operations to the private company. But as of late 2009, with more than 80 state agencies relying on Northrop Grumman for their information technology needs, the project is behind schedule and has been plagued by numerous problems, including a decline in service quality and many technical glitches.
Virginia Statewide Information Technology System
Starting in 2003, while the State of Virginia was working to consolidate and modernize its information technology system, it received four unsolicited proposals from companies seeking to take over the system. In 2005, the state signed a 10-year, $2.3 billion contract with one of the bidders, Northrop Grumman.
In June 2009, Virginia Information Technologies Agency (VITA) fired then-CIO LEM Stewart after Northrop Grumman failed to pay a series of claims. Stewart suggested the lack of payment was due to his belief that the vendor was not meeting its contractual obligations.
As a result of numerous problems with the IT system, the state's Joint Legislative Audit and Review Commission performed an audit to evaluate the system and the contractor's performance. The scathing audit report, released October 13, 2009, showed that Northrop Grumman's management of the IT system disrupted core government functions multiple times throughout the life of the contract. Unfortunately, the audit also estimated that cancellation of the contract would have cost Virginia up to $400 million.
Virginia's IT project fell over a year behind schedule and service left many agencies without reliable technology, Northrop Grumman submitted a corrective action plan to the state. Virginia accepted parts of the plan, including new timelines for the transfer of certain activities, but maintained that the problems constituted a breach in the original contract. The state used the possibility of a lawsuit to apply pressure on the contractor for better performance.
Despite missed deadlines, cost overruns, poor performance and numerous complaints by state agencies, Governor Bob McDonnell agreed in March 2010 to extend the 10-year contract by three years, allowing annual payments to rise to $247 million in the 10th year of the contract.
Now questions have been raised regarding what will happen when the contract runs out in 2019. The State does not have adequate resources to run the software, and it is unclear whether the hardware belongs to Virginia or Northrop Grumman.
As this debacle continues to develop, one thing is clear -- the contract that was supposed to serve as a model of successful large-scale private transfer of government IT management has proven to be treacherous and fraught with problems that affect the functioning of many parts of government.
Since the privatization of the state's IT system, problems with service quality, such as network and computer outages, have occurred numerous times. Almost all agencies have reported a problem or issue with the contracted services. The Department of Motor Vehicles reported several outages that lasted multiple days. A state prison was left without inbound phone services for several hours. Northrop Grumman also was unable to set up the necessary computer and phone services for temporary unemployment offices for 6 months, although the state had requested the offices be set up within 1-3 months.
Privacy concerns regarding confidential data surfaced after Northrop failed to prevent the hacking of prescription drug records in the Department of Health Professions. The agency's director told the Virginia House Science and Technology Committee that physicians are concerned about prescribing serious pain medications because they don't have access to the drug data base.
The contract was marked by a lack of transparency from the beginning. An independent board was put in charge of the Virginia Information Technologies Agency and a 16-member committee was charged with choosing the contractor. After the Chief Information Officer Lemuel C. Stewart Jr. tried to stop a $14 million payment to Northrop Grumman, the board fired him. Two other high-ranking employees at agency were shortly fired after Stewart as well.