Lessons Learned
The Accenture contract is one of the nation's largest and most complex government outsourcing arrangements. As such, it carried significant risks from the beginning. It simply was not reasonable to assume that a project of this magnitude could be accomplished within six short months, yet HHSC attempted to do so anyway, increasing its inherent risks exponentially.
Key Mistakes
While this report has identified numerous problems, the review team believes that four key mistakes caused the project to fail.
The first mistake was to assume that any savings from such a large undertaking could be achieved within a two-year period. The requirement to show savings seems to have compelled HHSC to accelerate the implementation unreasonably. Technology improvements and program outsourcing can indeed provide savings to the state, but only after a prudent investment of time and startup expenditures. HHSC was, in effect, expected to save $140.9 million within the first biennium―while it also needed to invest in software development, training and transition costs. The drive for immediate savings may well cost Texas more in the end, due to project delays resulting in unexpected, unbudgeted expenses.
The second mistake was to attempt to change far too much, far too quickly. A series of decisions about what to outsource and when to implement the transitions had a snowball effect; each decision expanded the project's complexity and scope, and pushed it further out of control.
The third mistake was to create a contract that paid Accenture for effort rather than good performance; provided Accenture with financial incentives to process applications as labor-intensively as possible; and limited Accenture's liability beyond its relative responsibility.
The fourth and final major mistake was for HHSC to assume it could manage a $1 billion contract without specifically trained, experienced and competent contract management staff and documented, proven contract management practices. With an appropriately skilled management staff, HHSC could have avoided or minimized the failures resulting from the first three mistakes.
Effective contract management requires a different set of skills and experience than were possessed by the staff members who managed the eligibility programs prior to outsourcing. As a Harvard Business Review article put it:
Contract-management teams require people with deep knowledge of the hired providers, the users, and the contracts. Accordingly, they must include individuals with extensive contract-management skills, technical people with a thorough understanding of the company's IT requirements, and a systems integrator to ensure that all IT systems provided by external and in-house suppliers work together without gaps or unnecessary overlaps.... [T]he companies that got the most out of their contracts were usually those that had assigned a manager with experience in administering leasing or licensing arrangements, some IT knowledge, and a proven ability to manage complex relationships. [1]
Expensive Hindsight
The lessons learned from this project can and should be applied to Texas' future information technology and outsourcing contracts. At minimum, the state should recognize billion-dollar contracts cannot be managed in the same manner and with the same resources that small contracts are.
Texas cannot afford to allow another project of this magnitude to go awry. The Accenture contract is the state's largest outsourcing contract ever, and the TIERS technology is the most expensive system the state government has ever developed. The cost overruns from these two projects are wasteful and unnecessary; they were also avoidable.
Endnote
[1] Mary C. Lacity, Leslie P. Willcocks and David F. Feeny, "IT Outsourcing: Maximize Flexibility and Control," Harvard Business Review (May-June 1995), pp. 1 and 8.