CGI Federal landed the Healthcare.gov contract. Here’s how it fights for the ones it loses.

CGI Federal, arguably the key contractor behind the construction of HealthCare.Gov, has come under a fair amount of scrutiny over the past few weeks for its federal health-care practice. But that's far from its only contract.


HUD: Just another source of CGI's contracts. (Lydia DePillis)

Consider Section 8 rental subsidies. For CGI, the business of handling the low-income housing program started back in 1999, when the Department of Housing and Urban Development -- under pressure to downsize its in-house operations -- started outsourcing the job to public housing authorities around the country. The housing authorities would subcontract with IT providers like CGI Federal, which mopped up more than 25 percent of the $200-300 million or so in fees that came from HUD every year. CGI, the biggest of all the subcontractors, provides the infrastructure and support to route housing subsidies to landlords and monitor for compliance with HUD rules.

The relationship between contractor and subcontractor is very close. At the Assisted Housing Services Corporation of Ohio, California Affordable Housing Initiatives, and North Tampa Housing Development Corporation, many staff actually list themselves on LinkedIn as CGI employees. The Ohio group's state director, for example, identifies himself as a "Manager of Consulting Services in CGI Federal's Healthcare Compliance Group, focused on business process outsourcing for the Department of Housing and Urban Development." The California group's state director calls himself the same thing, adding that he has "quickly adapted staffing strategies to changing industry conditions in order to maintain and improve competitive position," and has experience "analyzing and interpreting Federal policy and managing the impacts on operations." The Columbus Metropolitan Housing Authority executive named as the Ohio group's contract administrator was a CGI director of consulting services until 2011.

So while the "instrumentality" set up by the housing authority is a separate legal actor, it effectively functions as a joint venture with CGI.

"What CGI and a number of other firms have done is they've gone in to work with these local housing authorities and said, 'you're eligible for this contract, we can provide you with a lot of help in administering these contracts, and share the fees with you,'" says Garth Rieman, director of advocacy at the National Council of State Housing Agencies, which is now competing with the local housing authorities for the Section 8 contracts. "So it's a moneymaking venture for the local housing authority, to partner with these entities to win the contracts."

In 2007 and 2009, however, HUD's inspector general found that contract administrators had been allowed to overbill the program by tens of millions of dollars. In 2011, HUD decided to rebid the contracts, setting a lower standard for the profit margin that recipients would be allowed to take and a cap on the number of units any one contractor could administer. When the new contracts were awarded -- with a savings of about  $100 million, or one third. over the previous set, -- many of CGI's partners lost out.

Instead of letting the awards stand, the losers complained en masse to the Government Accountability Office, prompting HUD to back off those awards and offer another solicitation. This time around, HUD got rid of the cap on the number of units a subcontractor could administer, but precluded out-of-state entities from landing a Section 8 contracts if there was a qualified local bidder, which cut into CGI's business model -- some of the entities they worked with offered services to housing authorities all around the region, and wanted to compete for contracts even further afield. The GAO ruled that the new process was a no-no.

HUD decided to ignore the GAO. So the housing authority-affiliated entities appealed again, this time to the Federal Court of Claims -- the three that contract with CGI filed a joint complaint, saying HUD's award process was anticompetitive. In April, HUD won. But the companies kicked it up yet another notch, to the Federal Court of Appeals, where arguments were held last week. Until the litigation is resolved, HUD can't execute any of the new awards.

Meanwhile, the Ohio entity asked its state's Congressional delegation -- where CGI does lots of business -- to include an amendment in this year's ill-fated Transportation, Housing, and Urban Development appropriations bill that would have forced HUD to keep the contracts available to out-of-state entities, which CGI wanted. (The legislators asked HUD nicely to do so earlier in 2012, to no avail).

Public records indicate that during this time, every quarter from 2010 through 2012, CGI Group itself was lobbying on "HUD housing management contracts."

Finally, there's also a whistleblower lawsuit from a former CGI employee -- who'd been recruited from HUD after overseeing the very Section 8 contracts CGI won -- alleging that he was fired after refusing to go along with fraudulent plans to work around the bidding process. CGI denies the accusations, but has so far failed to get the case thrown out.

Those are the lengths to which a company -- in this case, partnering with a local non-profit entity that it needs to land the contract -- will go to preserve government work. In private enterprise, of course, a losing bidder usually just figures they've lost, and moves on. In federal contracting, with enough lawyers, it's possible to improve your chances of getting that business back.

"It is not unusual for a contractor to protest and to pursue all avenues, including the courts, to seek remedy when they feel like the government hasn't followed its own rules," says Neil Couture, director of Government Procurement Law and Business Programs at George Washington School of Business. "Especially in a strategically important area, with large dollars, or new technology."

In response to questions about the current status of CGI's partnerships with housing authorities, CGI spokeswoman Linda Odorisio said: "CGI’s systems and consulting services have been recognized by federal, state and local agencies as a key tool in helping public housing agencies operate more efficiently and effectively."

Technically, it's possible for CGI to also work with the statewide housing agencies that would be advantaged if HUD wins at the Court of Appeals, and hang on to the business it's so carefully developed. But according to Rieman, whose organization represents those agencies, CGI has preferred to work with local entities -- who may see the contract more as a business proposition than a way to serve residents.

"Does the system make sure that the entity administering the program has a full enough public purpose and affordable housing mission to ensure that the services are being done with that intent, and not just a narrower profit making enterprise with a private sector firm?" Rieman asks. "Our view is they are taking all steps necessary to preserve their opportunity to participate in this program in the way that they want to."

Which doesn't mean CGI is doing anything illegal. It's just the cost of getting -- and keeping -- business.

Lydia DePillis is a reporter focusing on labor, business, and housing. She previously worked at The New Republic and the Washington City Paper. She's from Seattle.
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