Photo: Bob McDonnell, governor, Virginia. Photo courtesy of Virginia Governor's Office


Virginia Gov. Bob McDonnell announced Tuesday, April 6, the state has renegotiated its IT services and management agreement with Northrop Grumman, a $2.3 billion deal that has been plagued by cost overruns and service problems.

The new terms add $105 million in cash payments to the vendor over the next decade, but state officials said that expenditure was preferable to killing the deal outright, which would've cost Virginia "at least $353 million if terminated for cause and $685 million if terminated for convenience."

The renegotiation is the latest step Virginia has taken to remedy its IT management. Last month, McDonnell named former lawmaker Samuel Nixon the state CIO in a restructuring of the Virginia Information Technologies Agency's (VITA) governance.

"Northrop Grumman will create rapid response teams to better address IT service issues as they happen," McDonnell said in a statement about the restructured agreement. "Virginia employees will find a completely restructured help desk operation that is more responsive and service-oriented. These and other operational improvements will allow VITA to better manage IT functions for the state. Northrop Grumman will now bill VITA on a usage basis, rather than on a fixed baseline. This makes far more sense in a contract of this nature."

According to McDonnell's office, the terms of the new contract include:

Performance Improvements

  • creates Rapid Response teams -- assignment of additional on-site resources with additional abilities to quickly resolve individual IT issues;
  • expedites replacement of damaged desktops and laptops by replacing equipment within 24 hours of repair determination; 
  • overhauls help desk services -- a top-to-bottom review of current procedures to implement changes outlined in the agreement and other suggested improvements. Changes include the creation of one-hour password reset and encryption password reset that were reduced from three to five days; 
  • redesigns work-order process. Changes in procurement process to more automated format to ensure a more timelier response; 
  • formalizes agreement for Northrop Grumman to develop a new technology investment council for agency involvement; and
  • moves forward on long-delayed migration plans for all desktop operating system upgrades, Exchange server and Microsoft Office platform upgrades, all beginning in 2010.

Operational Efficiencies

  • consolidates and strengthens performance-level standards, with a 15 percent increase in penalties if Northrop Grumman fails to perform on clearly identified and measured performance standards;
  • improves Incident Response teams to determine technology failures and expedite repair; 
  • institutes clear performance measurements for Northrop Grumman that agencies can easily track; 
  • creates an enhanced dispute resolution process;
  • adds new services to the contract, such as improved disaster recovery and enhanced security features; and
  • establishes a three-month review period for performance under the revised agreement ending June 25, which allows Virginia to test new operational, financial and contractual changes to ensure significantly improved contractor performance in a short time frame.

Financial

  • Virginia releases $15 million in previously withheld contract payments after deducting $1 million in performance level penalties;
  • the prior gubernatorial administration negotiated contract modification that included $196 million in additional cash payments over six years with an average payment of $32.5 million a year; and
  • current revision includes $105 million in additional cash payments over nine years with a net present value cost of $63 million.