Millions more will go toward computer contract
CHARLESTON, W.Va. -- One of the most expensive West Virginia government contracts just got more expensive.
Auditor Glen Gainer, Treasurer John Perdue and Gov. Earl Ray Tomblin's chief of staff voted last week to spend another $12.4 million on a computer contract already expected to cost $98 million.
The multi-year project is supposed to eliminate scores of far-flung software programs by creating one computer system to manage the state's accounts, personnel and assets. The project is known as the Enterprise Resource Planning system, or ERP.
The contract, one of the largest in state government, was awarded late last year to CGI, a Montreal-based technology company that does similar projects in other states.
CGI representatives and state officials, led by Gainer, met four days last week to renegotiate key parts of the initial contract.
Following those negotiations, Gainer, Perdue and Tomblin chief of staff Rob Alsop voted Friday to increase CGI's contract by more than 12 percent.
The state purchasing division's handbook "strongly" discourages changes to projects that cost more than 10 percent of the initial agreement.
But officials said they expected the unexpected when they first signed the ERP contract with CGI.
Gainer said the state created a $25.5 million contingency fund because officials knew they would want to update the contract and might have to deal with unforeseen issues.
Gainer said even with the $12.4 million in new costs after CGI's first year, he still expected to have money in the contingency fund when all is said and done.
Gainer said the money was for a host of project costs, not just changes to CGI's contract.
"That's not $25 million that could go to CGI," he said.
Gainer said there will be a second round of negotiations early next year that will also add costs to the contract, although they will be "substantially smaller" than the $12.4 million changes.
The state is also paying $12 million to $14 million to Connecticut-based Information Services Group to provide expert advice on setting up such a system. Mitt Salvaggio, the consultant's managing partner, sat in during negotiations with CGI last week, Gainer said.
The new computer system has been a long time coming. Officials talked for years about upgrading the state's many aging computer systems and combining them into one, modern system.
The project is already costing more than was initially expected. In 2008, the state's top technology official thought it would cost maybe $60 million.
More than 30 people advised the state on how to proceed. The state asked companies to meet 12,310 specific requirements. None of the companies met all of those requirements.
Partially because of that, the renegotiated contract was expected, Gainer said.
State ERP project manager Todd Childers said the state could not do a project of the ERP's size without certain unknowns that would have to be dealt with after a contract was signed.
"There would have been change orders regardless of who the vendor was," Childers said.
(Companies the state contracts with are known as vendors. Renegotiated contracts are known as change orders.)
Last year, one of the losing bidders, Accenture, questioned CGI's ability to do the project for the price CGI bid in the first of two rounds of bidding. That price eventually went up in the second round, but CGI still came in with the lowest bid and the fewest hours of labor.
Last year, CGI said it would need 514,000 hours to complete the project at an average rate of $118 an hour. By contrast, Accenture needed 20,000 more hours — 533,000 hours — at $164 per hour. At the high end, a third bidder committed to 622,000 hours at $144 per hour.
Alsop said that even with the extra $12.4 million headed CGI's way, the contract still would end up costing less than either of the other bids.
Officials also said one of the changes made last week could bring in nearly $8 million a year by allowing the state to work closely with the federal government to collect bad debt.
"We really feel that is a low number," Perdue said, referring to the amount of debt the state would be able to collect because of the ERP. "We're pretty confident we will end up with more."
The state and CGI spent part of the past year deciding if the original contract needed to be changed. There are three categories of changes: work the state originally demanded but CGI did not agree to do; work the state originally demanded but realizes now it does not need done; and work the state never realized it wanted.
Officials said the state was able to save some money by telling CGI not do some work the state originally agreed to pay for.