IT Procurement

Friday, September 28th, 2012

Health warning – IT Procurement

This risk briefing paper is based on an audit report issued by the New York City Comptroller. On April 1, 2005, the Department of Information Technology and Telecommunications (DOITT) contracted with Hewlett-Packard Company (HP) as systems integrator for the Emergency Communications Transformation Program (ECTP) to transform and consolidate the City’s 911 Emergency Dispute System. Our briefing paper is not seeking to criticise any of the parties involved. We need to make it very clear that there were disagreements on some findings, between Audit and DOITT. There are important risk issues that warrant highlighting to encourage IT and Procurement specialists to ask “What are the lessons to be learned?”

Cost of the project

“As of April 17, 2012, the City has paid HP $309 million of the $346 million currently provided for this contract. Effective January 2011, DOITT awarded a second system integration contract, not to exceed $286 million, to complete one of the original components identified in the project definition. Consequently, the anticipated overall system integration cost increases to $632 million.” (Report extract). “Based on our analysis of the budget breakdown provided by DOITT, we estimate the cost overruns could be as much as $362 million.

Readers of our briefing papers will recognise a theme of IT projects exceeding their original costs, highlighting the difficulties of accurately estimating costs. This logic applies to IT specialists bidding for work. It is unquestionable that some put in a ‘best guess’, hoping to recover incorrect assumptions that cost them money, through a contract change process.

Award of contract to HP

As with any contract award, it is always worth probing the circumstances that lay behind it. “DOITT should not have awarded the system integration contract to HP in 2005 because 1) HP did not receive the minimum technical score DOITT  required to be considered a viable contractor and 2) DOITT did not maintain documentation to justify awarding this contract to HP. According to DOITT, after the only other contractor withdrew its proposal, HP was awarded the contract even though it did not achieve the minimum technical score because it received outstanding recommendations from two government agencies (NYPD and US Air Force).” (Report extract).

Readers in the EU will be very interested in the contract award process, contemplating what would be the situation if only one bidder was left and they did not meet the previously set minimum criteria!

The Audit Report says “HP’s failure to receive the minimum experience and necessary skills to fulfil the requirements of the agreement. HP’s failure to receive the minimum technical score required should have been an early indicator that HP did not have the qualifications or abilities to fulfil requirements of the contract.” (Report extract)

The project definition was sent to 109 pre-approved contractors but DOITT only received two proposals. According to the project definition “Proposals will be first scored on their technical merit. Only those proposals that are determined to be technically viable will receive further consideration.”

The story continues….Here