Report: Va., IT vendor on track for costly divorce

RICHMOND, Va. - Virginia's giant computer services agency and its corporate partner in the richest contract in state history could be on track for a costly divorce, a new General Assembly report warned Tuesday.

Lawmakers sat stunned and dismayed at times, listening to findings of an inquiry by the legislature's watchdog agency of flawed and neglected oversight by state officials of a $2.4 billion, 10-year contract with the giant government and defense contractor Northrop Grumman.

The long-anticipated Joint Legislative Audit and Review Commission report showed that some provisions of the contract between the Virginia Information Technologies Agency and the company were based on nothing more than handshake deals involving two or three officials, all outside of public view. The Information Technology Investment Board which oversees VITA often was unaware or uninterested in the developments, with some members of the board missing up to half of its bimonthly meetings.

Reports mounted of Northrop Grumman missing key deadlines and dozens of critical service failures daily, at times severe enough to shut down core functions of state agency offices. And when the state finally tried to impose penalties, the company often eluded them because of weak provisions in the four-year-old contract.

Only 14 of 74 deadlines involved financial penalties for the company if they were missed, "thus, for the other 60, Northrop Grumman could receive full payment no matter when they were delivered," said Ashley Colvin, the JLARC analyst who supervised the investigation and delivered its findings. In cases where the state granted the company extensions, it was still eligible for financial credits that offset any penalties.

"So, it's as if I'm late turning in a term paper and I go to my professor and say, 'Gee, I can't get it done, can you give me another week,' and then he says yes," said and incredulous Sen. Janet Howell, D-Fairfax County, a JLARC member. "And I turn it in five days later and say 'Can I have an A for turning it in early?'"

Some decisions to relax Northrop Grumman deadlines made it before the ITIB, Colvin said. They were granted under "gentlemen's agreements" that only the chief information officer and top members of the nine-person board approved. Because no more than two people were involved at any one time, Colvin said, the state's Freedom of Information Act would not apply.

Now, the state faces a Dec. 27 deadline for acting to terminate the agreement under a claim Northrop Grumman breached the contract, Colvin said.

"That's precisely the conundrum the state finds itself in: It's costly to get out, but it may be costly to remain," he told the panel of House and Senate members.

The JLARC study recommends the legislature scrap the current VITA governance structure to make the agency fully answerable to the governor, who directs nearly all agencies served under the technology partnership. And Democratic and Republican members of the commission said changes will be put before the 2010 General Assembly starting in January.

Severing the partnership would be lengthy, litigious, and so costly it could impair the state's bond rating, affecting its ability to borrow money. It could also could cripple operations ranging from vital databases to access to phones. So as unhappy as legislators are, they're not ready yet to enter into what Del. H. Morgan Griffith, R-Salem and a lawyer, likened to a divorce between VITA and Northrop Grumman.

"As in all divorces, both sides lose something," he said, noting efforts to salvage the partnership. "Hopefully counseling can work that out, but maybe we're at irreconcilable differences."

Should the state terminate the partnership and Northrop Grumman challenge it in court, the state could face fees of about $400 million if a judge finds that the company did not violate terms of the contract. And that doesn't count mountains of legal bills.

VITA was formed under a 2003 law to save the state money and improve efficiency by consolidating scores of far-flung, incompatible state information systems. The partnership has yielded benefits despite the failures, the report said, including replacement of outmoded information technology systems with new ones, enhancing online security, hundreds of new jobs at Northrop Grumman data centers in the state.

But the agency has been in turmoil for months since June, when the board abruptly fired former state CIO Lemuel Stewart and replaced him briefly with a member of Gov. Timothy M. Kaine's cabinet, Technology Secretary Leonard Pomata. Stewart was dismissed after he refused to sign off on monthly payments to Northrop Grumman because of the missed deadlines.

Sam Abbate, a Northrop Grumman vice president, said the company will improve its performance and deliver the computers and services it guaranteed in the contract.

"I know it's difficult now to see it as a snapshot, but when you look at it from an enterprise level across the state over the life of the contract in managing services and costs, it will improve vastly," Abbate told the legislators.

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