The Broken System Behind

The lead contractor on the federal exchange is prospering like never before.

A woman looks at the insurance exchange website.
CGI Federal built the dysfunctional But the company’s not panicking.

Photo by Karen Bleier/AFP/Getty Images

The ongoing struggles of are creating an understandable sense of anxiety and unease among Democrats in Washington. The site is a key element of the party’s central recent policy initiative. Abject failure will be devastating to the reputation of Democrats nationwide, including huge swaths of people who had no crucial role in the design of the Affordable Care Act and certainly nothing to do with the information technology architecture of the federal insurance exchange.

One place where people aren’t panicking is in the actual belly of the beast—the offices of CGI Federal, the U.S. division of the global IT services company whose slow and steady rise to power David Auerbach profiled earlier this month in Slate.

CGI personnel continue to work on fixing the problem in advance of the president’s Nov. 30 quasi-deadline, but they are doing so in a not-especially-panicked manner.  Officially the White House is trying to avoid spats with its partners, but government employees working on the site’s implementation tell me contractors have plenty of time to spend quibbling with the Department of Health and Human Services over which changes are really remedying defects and which are billable as new work.

And the really crazy thing is their complacency seems justified. While the failures we’ve already seen are imperiling elected officials’ careers, they’ve left CGI Group’s stock unscathed. It’s not just that the company’s share price hasn’t collapsed: After a brief swoon in late October, CGI shares are trading higher than they were over the summer and indeed are at an all-time high as of writing.

The benign interpretation is that this reflects strong market confidence that the troubled exchange will be fixed so rapidly and so decisively that this whole fiasco will have no impact on anyone whatsoever.

The more cynical—and more likely—interpretation points to strong market confidence that despite the blow everyone else involved is taking, it makes no difference for CGI’s bottom line. The exciting world of government contracting is just so screwed up that it doesn’t matter how badly a large incumbent fails. Once you’re in, you’re in. No less an authority than the president of the United States himself told us so.

“The federal government does a lot of things really well,” Barack Obama said to the country at a press conference last week. “One of the things it does not do well is information technology procurement. You know, this is kind of a systematic problem that we have across the board.” As far as explanations go, that’s about right. As a statement of self-defense, it’s incredibly lame.

The unrelenting hostility of congressional Republicans has stymied many worthy initiatives from this White House. A major reform to federal IT procurement is not on that list. And even after these failures, no important proposals have been made and nobody seems to be expecting any. That’s how a company like CGI can build a broken federal exchange and several broken state exchanges without any collapse in share price.

In theory, the virtue of contracting out this kind of work would be precisely to avoid this dynamic: A firm that failed would see market share shrivel; firms that built successful state exchanges would grow. In practice, federal contracting doesn’t work like that. Failure simply isn’t punished. The Standish Group examined 3,555 federal IT projects with labor costs at least $10 million and found that 41.4 percent were “failures” and the vast majority of the rest had serious problems. 

Ex post facto, of course, contractors always have a reason why problems aren’t their fault. In the case of the federal exchange, CGI points out that it was not the only contractor working on the issue. The company further argues that HHS itself served as the manager of the contracts. Thus CGI is not to blame. In some sense, CGI may be right. But in a system of proper accountability, firms would not accept multimillion dollar contracts unless they believed conditions were right for the project to succeed. Involvement in a high-profile failure would be much too costly to their reputation and further business. That’s why articles detailing the increased affluence of the Washington metropolitan area—largely built on contractor riches—are so disturbing. There’s nothing wrong with the public sector paying high salaries for important public functions that require skilled labor, but right now the job isn’t getting done.

This winter, the disaster means egg on Democrats’ faces and joy for Republicans. But conservatives should consider that the time will come when they, too, want sophisticated digital technologies. You can’t replace Social Security with private accounts or turn Medicare into a “premium support” program to subsidize private insurance without building some complicated computer applications. Right now we have a procurement system that can’t do that reliably and doesn’t punish companies that get rich off failure. The problems with the website itself appear to be attenuating day by day, and there’s reason to hope it will work well enough pretty soon. But on the problems that brought us the broken website, we don’t seem to have made any progress at all.