By Anita Kumar and Rosalind S. Helderman
Washington Post Staff Writers
Wednesday, October 14, 2009; B01
RICHMOND, Oct. 13 -- A scathing legislative audit released Tuesday shows Virginia's outsourcing of a massive $2 billion computer upgrade has been so troubled that core government services have been disrupted but that canceling the contract could cost the state hundreds of millions of dollars.
The problems have affected almost every state agency that uses a computer -- a prison was left without inbound phone service for hours, the Virginia State Police in Newport News lost Internet access for more than three days and computers in DMV offices crashed.
Northrop Grumman, the giant Los Angeles-based defense company, was awarded the contract, the largest of any kind in Virginia's history, because state officials thought it would provide the best value despite the business's lack of experience managing state computer and communication systems, according to the report by the Joint Legislative Audit and Review Commission.
Decisions made about the contract "cost the taxpayers a lot of money," House Majority Leader H. Morgan Griffith (R-Salem) said. "In these economic times, we don't have $30 to $40 million to be spending because a giant multinational corporation made mistakes."
Sam Abbate, vice president and program manager for Northrop Grumman, said he was optimistic that changes in the project would lead to improvements in the "unique partnership."
"This is an investment in the commonwealth of a very significant order," he said. "Throughout its life, it will improve services for the citizens of Virginia, without question."
Terminating the contract early could cost the state as much as $400 million and leave no one to manage its computer system.
The state looked for a private company to oversee its computer system in 2003 after a legislative review showed that its technology was out of date and increasingly expensive to maintain. Then-governor Mark Warner, now a U.S. senator, received approval to consolidate computer operations into one agency and overhauled the system to make it more efficient and less costly.
But the report shows that the troubled contract has led to years of finger-pointing, the firing of employees, violations of the state's open meetings law and crucial decisions made by only a few people.
The report found that a convoluted governance structure in which an independent board -- not the governor or the General Assembly -- was put in charge of the state's technology agency led to confusion and a lack of oversight. Northrop Grumman was chosen by a 16-member committee that included two board members and state officials.
That board fired Chief Information Officer Lemuel C. Stewart Jr. after he tried to stop a $14 million payment to Northrop Grumman. Two other high-ranking employees at the Virginia Information Technologies Agency were removed by Stewart's successor.
James F. McGuirk II, chairman of the Information Technology Investment Board, which oversees the agency and contract, did not return calls.
The report recommended that Gov. Timothy M. Kaine (D) be placed in charge of the agency.
Problems in the 10-year contract, meant to be a model for the nation, put a stain on a state accustomed to accolades for management and raises questions about how to make outsourcing work for government.
"This is a cautionary tale on what can happen with public-private partnerships," Sen. Janet D. Howell (D-Fairfax) said. "The lesson is be very cautious -- and don't be the first state to do it."
Frustrated legislators who serve on the commission heard details of the audit at a long meeting Tuesday on Capitol Square in a room filled with state employees, lobbyists and Northrop Grumman representatives. Both chambers of the legislature have begun investigations into the contract.
The report makes clear that the delays have had widespread effects on government as state workers have suffered frustrating network crashes and choppy transitions to new computer systems.
When the state received federal money to establish 17 temporary unemployment offices to help workers who lost jobs during the recession, the Virginia Economic Commission proposed opening the centers as quickly as possible -- within one to three months. But Northrop Grumman could not quickly provide computer and phone services to the new offices, which did not open for six months.
In Bland County, a DMV office lost network connection for 31 hours this summer, forcing customers to reschedule appointments. In Roanoke, a Department of Environmental Quality office was without phones or computers for more than a day in May.
Kaine said in a statement Tuesday that he is pleased that the audit acknowledged that the way the state manages the contact is "neither workable nor advisable."
"Both VITA and Northrop Grumman must continue to improve their performance in the delivery of services and contract management," he said.
The original timetable called for the company to assume full control of the state's computer infrastructure by this July 1, but the report shows the company has missed numerous deadlines and has fallen far behind schedule.
George Coulter, the state's new chief information officer, said the state is "on track" to complete that task by June 30. "I believe the state is in fairly good shape . . . it is not uncommon to see these kinds of problems on these kinds of contracts," he said.