HEALTHCARE.GOV

Contract Planning and 

Oversight Practices Were 

Ineffective Given the 

Challenges and Risks

Statement of William T. Woods 

Director, Acquisition & Sourcing Management

Testimony 

Before the Subcommittee on Oversight 

and Investigations, Committee on 

Energy and Commerce, House of 

Representatives

For Release on Delivery 

Expected at 9:15 a.m. ET

Thursday, July 31, 2014

GAO-14-824T

United States Government Accountability Office
Page 1 GAO-14-824T 

Chairman Murphy, Ranking Member DeGette, and Members of the 

Subcommittee:

I am pleased to be here today as you examine implementation of the 

Patient Protection and Affordable Care Act (PPACA). A central provision 

of the Act required the establishment of state health insurance 

exchanges, now commonly referred to as marketplaces. Marketplaces 

permit individuals to compare and select private health insurance plans. 

For states that elected not to establish a marketplace, PPACA required 

the federal government to establish and operate a federal marketplace, 

which users access via the website Healthcare.gov. The Centers for 

Medicare & Medicaid Services (CMS) within the Department of Health 

and Human Services (HHS) was responsible for designing, developing, 

and implementing the information technology systems needed to support 

the federal marketplace. CMS largely relied on contractors to develop, 

build, and operate the necessary information technology systems. CMS’s 

role includes acquisition planning, contract management, and oversight of 

the contractors. As of March 2014, CMS reported obligating $840 million 

for the development of Healthcare.gov and its supporting systems. 

When initial enrollment began on October 1, 2013, many users of the 

Healthcare.gov website experienced problems such as website failures, 

errors, and slow response times. Given the high degree of congressional 

interest in the development, launch, and other issues associated with the 

federal marketplace, GAO is conducting a body of work in this area. Our 

report on contracting for Healthcare.gov is being issued today.1 That

report and my testimony this morning focus on (1) CMS acquisition 

planning activities; (2) CMS oversight of cost, schedule, and system 

capability changes; and (3) actions taken by CMS to identify and address 

contractor performance issues.

For our review, we selected two task orders and one contract, which 

together accounted for more than 40 percent of the total CMS-reported 

obligations related to the development of Healthcare.gov and its 

supporting systems as of March 2014. We evaluated the task order 

issued to CGI Federal Inc. (CGI Federal) for the development of the 

federally facilitated marketplace (FFM)—a system that accepts and 

 1 GAO, Healthcare.gov: Ineffective Planning and Oversight Practices Underscore the 

Need for Improved Contract Management, GAO-14-694 (Washington, D.C.: July 31, 

2014).
Page 2 GAO-14-824T 

processes data entered through the website. The FFM was intended to 

provide three main functions: eligibility determination and enrollment, plan 

management, and financial management. We evaluated the task order 

issued to QSSI, Inc. (QSSI) for the development of the federal data 

services hub (data hub), which routes and verifies user information 

among the FFM and various external data sources, such as the Social 

Security Administration and the Department of Homeland Security. We 

also evaluated the contract awarded to Accenture Federal Services in 

January 2014 to continue FFM development and enhance existing 

functionality. 

To conduct our work, we reviewed Federal Acquisition Regulation (FAR) 

and relevant HHS/CMS policies and guidance; analyzed contract 

modifications, contractor deliverables, and contractor monthly status 

reports; identified monitoring requirements; and analyzed contract file 

documentation. Finally, we interviewed CMS contracting officials, CMS 

program officials, and the contractors to obtain their perspectives. A more 

detailed description of the scope and methodology used for our study is 

provided in appendix I of our report. We conducted the work on which this 

statement is based in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives.

In summary, we found that CMS undertook the development of 

Healthcare.gov and its related systems without effective planning or 

oversight practices, despite facing a number of challenges that increased 

both the level of risk and the need for effective oversight. According to 

CMS program and contracting officials, the task of developing a first-ofits-kind federal marketplace was a complex effort that was exacerbated 

by compressed time frames and changing requirements. In an effort to be 

expedient, CMS issued task orders to develop the FFM and the data hub 

systems when key technical requirements were still unknown—including 

the number and composition of states to be supported and, importantly, 

the number of potential enrollees. CMS contracting officials explained that 

meeting project deadlines was a driving factor in a number of acquisition 

planning activities, such as the decision to proceed with the contract 

award process before requirements were stable and the selection of a 

type of cost reimbursement contract, known as a cost-plus-fixed-fee

contract, for both the FFM and data hub task orders. 
Page 3 GAO-14-824T 

This type of contract is considered high risk for the government because 

of the potential for cost escalation and because the government pays a 

contractor’s allowable cost of performance regardless of whether the work 

is completed. While CMS’s use of the cost-plus-fixed-fee contract type 

may have been a reasonable choice under the circumstances, the related 

risks increased the need for oversight. Despite these risks, CMS did not 

develop a required acquisition strategy to identify risks and document 

mitigation strategies and did not use available information, such as quality 

assurance surveillance plans, to monitor performance and inform 

oversight.

CMS incurred significant cost increases, schedule slips, and delayed 

system functionality for the FFM and data hub systems due primarily to 

changing requirements that were exacerbated by inconsistent oversight. 

From September 2011 to February 2014, estimated costs for developing 

the FFM increased from an initial obligation of $56 million to more than 

$209 million; similarly, data hub costs increased from an obligation of $30 

million to almost $85 million. New and changing requirements drove cost 

increases during the first year of development, while the complexity of the 

system and rework resulting from changing CMS decisions added to FFM 

costs in the second year. Moreover, CMS delayed key governance 

reviews, moving an assessment of FFM readiness from March to 

September 2013—just weeks before the launch—and CMS did not 

receive required governance approvals. As a result, CMS launched 

Healthcare.gov without verification that it met performance requirements. 

Furthermore, because of inconsistent contractor oversight within the 

program office and unclear roles and responsibilities, there was confusion 

about who had the authority to approve contractor requests to expend 

funds for additional work. Our review identified approximately 40 

instances during FFM development in which CMS program staff 

inappropriately authorized contractors to expend funds, totaling over $30 

million. This is not to say the work was not necessary; however, the work 

was not approved properly.

As the October 1, 2013 deadline for establishing enrollment through the 

website neared, CMS identified significant performance issues involving 

the FFM contractor, but the agency took only limited steps to hold the 

contractor accountable. In April and November 2013, CMS provided 

written concerns to CGI Federal regarding its responsiveness to CMS’s 

direction and FFM product quality issues. In November 2013, CGI 

Federal responded in writing, stating that it disagreed with CMS’s 

assertion that CGI Federal had not met the requirements in the FFM 
Page 4 GAO-14-824T 

statement of work and that delays in CMS’s establishment and finalization 

of requirements influenced the time available for development and testing 

of the FFM.

CMS was prepared to take action in August 2013 that could have resulted 

in withholding fee from the contractor; however, CMS ultimately decided 

to work with CGI Federal to meet the deadline. In September 2013, CMS 

program officials became so concerned about the contractor’s 

performance that they moved their operations to the FFM contractor’s 

offices to provide on-site direction. Ultimately, CMS declined to pay about 

$267,000 in requested fees. This represents about 2 percent of the $12.5 

million in fees paid to the FFM contractor. CMS contracting and program 

officials stated that the contract limited them to withholding fee only as a 

result of rework. By the end of the task order’s development period, only 

the FFM’s plan management module was complete. Some of the 

elements of the eligibility and enrollment module had not been provided, 

and the financial management module—which includes the services 

necessary to accomplish financial interactions with issuers—remained 

unfinished. 

In January 2014, CMS awarded a new contract to another firm, Accenture

Federal Services, with an estimated value of $91 million to continue FFM 

development. This work also has experienced cost increases due to 

ongoing changes such as new requirements and other enhancements. As 

of June 5, 2014, costs on the Accenture Federal Services contract had 

increased to over $175 million, while key FFM capabilities—including the 

financial management module—remained unavailable. Financial 

management module functionality is currently scheduled to be 

implemented in increments through December 2014. CMS needs a 

mitigation plan to address these issues. Unless CMS improves contract 

management and adheres to a structured governance process, significant 

risks remain that upcoming open enrollment periods could encounter 

challenges.

The report we are releasing today makes five recommendations to the 

Administrator of the Centers for Medicare & Medicaid Services to better 

manage the ongoing effort to develop the federal marketplace and 

improve future contracting efforts. Specifically, we recommended that 

CMS

• take immediate steps to assess the causes of continued FFM cost 

growth and delayed system functionality and develop a mitigation plan 

designed to ensure timely and successful system performance;
Page 5 GAO-14-824T 

• ensure that quality assurance surveillance plans and other oversight 

documents are collected and used to monitor contractor performance;

• formalize existing guidance on the roles and responsibilities of 

contracting officer representatives and other personnel assigned 

contract oversight duties, and specifically indicate the limits of those 

responsibilities in terms of providing direction to contractors;

• provide direction to program and contracting staff about the 

requirement to create acquisition strategies, and develop a process to 

ensure that acquisition strategies are completed when required and 

address factors such as requirements, contract type, and acquisition 

risks; and

• ensure that information technology projects adhere to requirements 

for governance board approvals before proceeding with development.

After reviewing our draft report, CMS concurred with four of GAO’s 

recommendations and partially concurred with one. CMS’s comments, 

along with our evaluation of them, are provided in full in our report.

Mr. Chairman, this concludes my prepared remarks. I would be happy to 

answer any questions that you or other members of the subcommittee 

may have.

For questions regarding this statement, please contact William T. Woods 

at (202) 512-4841 or woodsw@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this statement. W. William Russell, Assistant Director; Jennifer 

Dougherty; Elizabeth Gregory-Hosler; Andrea Yohe; Susan Ditto; Julia 

Kennon; John Krump; Ken Patton; and Roxanna Sun made key 

contributions to this statement.

(121249)
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