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The volume and severity of the findings presented in this report clearly indicate that integrated eligibility cannot be put on a successful track with just a few simple changes.

The integrated eligibility model fundamentally changed the way HHSC contracts with private vendors, but there was no accompanying change in the skills or abilities of the people assigned to manage the project. To succeed in a large-scale outsourcing project such as this, the state must develop the leadership, expertise and competence needed to select and manage large vendors and programs.

The following recommendations are common management practices in the private sector. The outsourcing of HHSC responsibilities to the private sector requires actions that are appropriate to this arena-application of private-sector models to privatization efforts.

Since the integrated eligibility project demands immediate attention and intervention, the Comptroller's office recommends the following strategies:

  1. To immediately address the problems, the 80th Legislature should pass emergency legislation to transfer authority and responsibility for the integrated eligibility project and the Accenture contract to a turnaround team led by a special master reporting directly to the Governor and Legislative Budget Board (LBB).

The integrated eligibility project can be put back on course only with new leadership. To achieve any savings for the state, the project and HHSC's plans to salvage the project must be subjected to an independent technical and financial assessment.

The Legislature should appoint a turnaround team of experts, led by a special master, specializing in contract management, technology, finance, legal affairs and IT project management. This team should be charged with protecting scarce taxpayer dollars.

Special masters can be used in a variety of ways. Courts can appoint special masters to investigate situations and carry out directions on their behalf, as in the federal Microsoft case, in which the judge appointed a special master to advise the court on technical issues and investigate certain claims. State education agencies also may appoint special masters to assume leadership of failing school districts.

In the case of integrated eligibility, a special master should be authorized to re-estimate the project's costs and change its direction as needed to restore customer service; ensure adequate and stable technological resources; and achieve savings for the state. HHSC's commissioner and executive managers should report to the special master for this project only; all other health and human services would remain under the current lines of authority.

  1. The cost of the turnaround team should be funded by Accenture's $20.3 million in excess profits.
  2. The first order of business for the turnaround team should be to end the contract and review the Integrated Eligibility program top to bottom. While the state has had to hire back state employees to do Accenture's job, Accenture has made $20.3 million in excess profit.

HHSC mismanaged the contract from the very beginning by notifying staff in October 2005 that they were going to lose their jobs. This was three months prior to going live with an untested system and long before they knew if Accenture could handle the workload. Now they are having to hire back state employees to solve Accenture's problems. In addition, HHSC did not create an infrastructure of trained staff skilled in outsourcing to manage the project.

The special master, with assistance and advice from the turnaround team of experts, should report directly to the Governor and LBB and should be made responsible for:

  • re-evaluating the integrated eligibility business case, given its delays and increased costs, and determining the most cost-effective and feasible way to provide services for eligibility determination.
  • assessing the TIERS and MAXe systems and their continuing viability. This should involve estimating the costs involved in repairing or replacing defective system components and recommending an overarching technological strategy for the project.
  • revising the integrated eligibility rollout strategy based on Accenture's demonstrated performance and capabilities.
  • providing the Governor's Budget Office, the LBB and the Comptroller's office a report with a revised implementation schedule and realistic cost and savings expectations.
  • overseeing the implementation of the revised business case and technology strategy.
  • ensuring that the state pays for the company's services only when it meets objective performance standards and achieves its goals.
  • evaluating the cost effectiveness of the current solution to hire back state employees to perform functions that were outsourced to Accenture, while Accenture continued to earn profits that exceed contract limits.
  • providing contract oversight and assessing liquidated damages as appropriate.
  • determining the expertise HHSC will require to manage integrated eligibility and enrollment after the special master and turnaround team are dissolved.
  • Accenture should be held accountable for its commitments through the transition period.
  1. To mitigate the risk of further wasteful spending and outsourcing failures, the Texas Legislature should create a new state Office of Contract Management to establish and manage large contracts for programs and information technology services such as integrated eligibility, Medicaid claims processing and electronic benefits transfer.

State and local government spending on health and human services information technology (IT) nationally is expected to rise from $7.6 billion in 2006 to $12.2 billion by 2011, according to a recent report released by INPUT, a government market intelligence firm. [1] Current trends to outsource administrative functions and services will continue as governments seek to achieve the savings and quality improvements private vendors can offer.

Fiscal constraints will encourage states to modernize and consolidate human services systems. These projects inevitably will be large―what the private sector calls "mega deals." Contracts termed "mega deals" exceed $250 million in value.

Texas is the first state to attempt to outsource eligibility determination to this degree. Other states are watching to see whether Texas will succeed with the integrated eligibility and enrollment (IEE) initiative, calling it a "groundbreaking" project.[2]

"Texas is the first state to go with the big-bang approach," according to Amy Santenello, senior research analyst for government strategies with market research firm Meta Group, now part of Gartner Group.[3]3 Several states are considering similar options as a way to update antiquated systems and eliminate redundant enrollment processes.

To date, however, no other state has attempted to outsource as much technology and services as Texas in health and human services.[4]

Many states have suffered through the same contract management failures Texas is experiencing now.

Unfortunately, the success rate of large IT outsourcing arrangements is extremely low. Some states never get past the contracting phase before they cancel the project. Those that are implemented often prove to be riddled with problems.

The fundamental problem behind these failures is a lack of expertise in contracting and contract management. According to Tom Davies, senior vice president at Current Analysis, Inc.:

Although most large commercial enterprises and the federal government have invested considerable resources and training in developing this expertise, such competency is woefully neglected in the states. The purchasing offices generally are unfamiliar with the sourcing and contracting requirements of large, complex business services arrangements that the mega deals often entail.[5]

The common reasons for failure in other states are now at work in Texas; HHSC lacks:

  • appropriate training for workers and system users;
  • project management and contract management skills; and
  • clear authority for decision-making.[6]

If Texas is to continue pursuing outsourcing contracts, it must develop the contract management expertise needed for success.

Given our state's size, it is reasonable to expect that it will continue to enter into large, "mega deal" contracts similar to the one with Accenture. Texas, therefore, must build its capabilities to manage large outsourced services and IT contracts. At present, however, state agencies must manage such contracts largely without the skills and capabilities needed to do so.

State Auditor's Findings

Contracting problems are not new to the Accenture contract, nor are they confined to only this state agency. The State Auditor's Office (SAO) has conducted numerous audits related to contracting mismanagement on the Department of Information Resources, the Commission on Environmental Quality, the Department of Transportation, Texas Education Agency and Texas Worker's Compensation System, in addition to HHSC. These audits have found significant and repeated problems in contract development and planning, procurement, management and monitoring. Many of these problems have continued at the same agencies, despite SAO recommendations that could have been implemented in subsequent contracts or extensions of existing ones.

SAO's audit recommendations address problems found at each stage of the contracting cycle, from initial development to implementation or delivery of the final product and services. Generally, SAO often finds evidence that agencies did not thoroughly research and plan for contractual arrangements, or involve key staff people who best knew the agency functions that were being outsourced.

Such problems lead to significant contract mismanagement, such as failure to obtain independent verification of contractor's test results; implementation of new systems with known defects; and cost overruns and unjustified fee increases. In addition, some contracts fail to include a range of sanctions other than termination for nonperformance.

Common SAO recommendations for improving contract management include:

  • key agency staff should be involved in the development of and planning for the contract's scope and statement of work.
  • contractors should provide appropriate documentation (signed and dated as appropriate) including time sheets, status reports and invoices with detailed information regarding tasks performed.

SAO also recommends that contracts include:

  • formal deliverables, expected services, timelines and products;
  • significant deliverables tied to the payment schedule;
  • monitoring mechanisms, such as a schedule for status reports and a list of persons or positions to receive them;
  • a range of sanctions, including fines and termination, for nonperformance;
  • a designated contact person, manager or department;
  • a procedure to amend the terms of or cancel the contract;
  • a mechanism to resolve disputes and disagreements; and
  • a closeout procedure that verifies that all of the provisions of the contract have been completed satisfactorily before the agency makes arrangements for a final payment.

A Contract Management Office

A Contract Management Office (CMO) could provide all Texas state agencies with the specific capabilities they need beyond their own program expertise. The office would allow the state to develop and centralize contract management expertise and make it available to state agencies for the life of each contract.

Rather than centralizing the contract management function, the Comptroller recommends centralizing expertise, as a "center of excellence" model commonly used in the private sector. Under this model, the agency executing the contract would retain authority for it, and the CMO contract manager would report to the agency head while on assignment. The CMO would be responsible for hiring, training and coordinating contract managers and providing advice and support for managers on assignment.

Guidelines should be developed to determine when an agency would be required to assign a contract manager to lead a procurement. The Comptroller recommends contracts with the following characteristics should have trained, capable contract managers:

  • total contract value greater than $5 million;
  • outsourced services to citizens or agency business process included in the contract; and
  • information technology services involved.

State agencies should be required to use this expertise to:

  • develop requests for proposals;
  • evaluate proposals;
  • negotiate contracts;
  • manage contracts and vendor relations; and
  • manage IT project development and implementation.

Expertise at the CMO should include:

  • legal affairs;
  • large contract management;
  • technology contracting;
  • information technology project management; and
  • finance and auditing.

Endnotes

[1] INPUT, "Sate & Local Health Care and Welfare IT Market Expected to Surpass $12 Billion by FY11," www.input.com/corp/press/detail.cfm?news=1266 (Last visited September 5, 2006.)
[2] William Welsh, "All Eyes on Texas," Washington Technology (April 4, 2005.)
[3] Welsh, "All Eyes on Texas."
[4] Interview with staff at INPUT, Inc., August 14, 2006.
[5] Welsh, "All Eyes on Texas."
[6] Interview with INPUT.

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