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IT Procurement Reforms

In reaching a settlement with TRW, the California Department of Corrections demonstrated how the state's tough, new procurement reforms are working when it comes to risky IT projects.

by / July 31, 1998
In 1994, the California Department of Corrections (CDC) put out an RFP for a Correctional Management Information System (CMIS) -- a system that would track prison-inmate movements within the justice system, automate the intake and classification of inmates housed by CDC, and automate the collection and monitoring of individual inmate parole dates as mandated by various laws. After a competitive-bid process, the state officially awarded a $40.1 million fixed-price contract to TRW on Dec. 9, 1994. Under the contract, TRW would analyze, design, build, document and implement a fully operational CMIS system.

While preparing to launch the project, CDC took a step not many other state agencies had taken at that time: CDC hired Logicon, an independent consultant, to keep an eye on the project. "We hired Logicon to be an independent verification and validation group," said Tom Maddock, interim corrections director and undersecretary of the Youth and Adult Correctional Agency. "Their job was to oversee the project and give us an independent view; they told us the good, the bad and the ugly -- no matter who was at fault."

At first, the project seemed to be headed in the right direction. The analysis phase, which would be used as the foundation for the design phase, was completed in July 1995, and CDC paid $2 million to TRW at its completion.

By 1996, TRW was well into the design phase. But when that phase was not progressing as smoothly, it was quickly red-flagged by Logicon. After conferring with CDC staff, Logicon and CDC jointly recognized that the design phase was incomplete, inconsistent and inaccurate. In February 1997, CDC sued TRW for breach of contract, misrepresentation and unfair trade practices. CDC then took possession of a $10 million letter of credit it had required TRW to deposit in the event they defaulted on the contract.


This May, the lawsuit between TRW and CDC was finally settled. In siding with the state, the court ordered TRW to pay CDC $18 million, facilitating the department's ability to enter into a new contract for the CMIS system and covering the state's legal fees. TRW is also required to provide CDC with 100 hours of consulting services over the next 18 months at no charge. Government Technology placed a number of calls to TRW which were not returned as of press time.

Perhaps the greatest good that stemmed from the dispute was the fact that it tested the new IT procurement policies implemented in the state by the Department of Information Technology (DOIT), and the results of that test proved that the state could successfully enter into high-stakes IT projects while protecting themselves and taxpayers adequately should things go sour.

When Gov. Pete Wilson created DOIT in 1996, a key component of his mission was to develop risk mitigation measures to keep IT project disasters from continuing to happen in the state. Today, DOIT, led by Chief Information Officer John Thomas Flynn, requires all major computer systems under development in the state to have Independent Validation and Verification (IV&V) contractors. IV&V contractors are charged with evaluating IT projects and reporting on the feasibility of the primary contractor's plans and budgets.

"These are the independent eyes and ears that inform DOIT and the state about the performance of the vendor," said Flynn. "They provide the technology and management expertise to augment state resources. In the CMIS project, the private oversight consultant played a tremendously significant role in advising the state early in the project as to the problems that were occurring. It was this assistance that directly contributed to the informed decision on the part of the state to terminate the contract -- thus protecting both the state and the taxpayers."

Flynn said the strategies applied by CDC served as a model for the reforms he's mandated throughout the state. Aside from oversight, major IT projects now also require a letter of credit to be filed by the vendor prior to beginning the project, just as CDC did with TRW. "This requirement significantly shifts the burden of risk from the state to the vendor," said Flynn.

Flynn, who first implemented a project-management and oversight project while serving as chief information officer in Massachusetts, said he can't imagine any CIO being able to find and hire the kind of expertise necessary for the variety of IT projects that state organizations implement -- everything from corrections systems to enterprise accounting systems to intelligent highway systems. "I think we have to have a very flexible oversight organization that can use the genius of the private sector to bring their expertise to bear on these technology projects," he said. "It's very important that the independent, nonpartisan status of the group allows us to get a fair representation of the status of projects. A lot of times our own managers are, for various reasons, reluctant to point out bad news."

Today, CDC is in the process of developing a new RFP for CMIS. "The policies put in place by us and DOIT were obviously very helpful," said Maddock. "The settlement of 8 million dollars, plus the 10 million dollars under their letter of credit gives us a little over 18 million dollars. Since we only spent 2 million dollars under the original contract, the rest will help cover our legal costs as well as cover the difference between TRW's bid and the next lowest bidder in the original contract," he explained. "Basically, we'll be able to get this thing done for what it was originally bid at."

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