The U.S. Department of Labor (DOL) is in the middle of an Oracle Financials implementation that has gone horribly wrong. Its experience should serve as a cautionary lesson for enterprises planning major projects.
In June 2008, the DOL awarded Global Computer Enterprises Inc. (GCE) a 10-year, $50.4 million contract for Oracle Financials. The first part of the contract required GCE to migrate the DOL to the Oracle financial software running in the GCE cloud. The remainder of the contract was to pay for software maintenance and hosting services.
At the beginning of 2010, the DOL reported that it was live on Oracle Financials and the legacy systems had been decommissioned. Unfortunately, by the end of 2009 the DOL had spent $11.5 million and, according to Washington insiders, had only implemented a small part of a total financial package. Implementation continued and costs increased. From 2010 to 2012, the DOL spent an additional $57.7 million with GCE on implementation and cloud hosting.
In 2013, the FBI began investigating GCE's alleged use of foreign nationals on federal contracts requiring U.S. citizens to perform the work (presumably to reduce GCE's operating costs, but violating contract terms and potentially compromising personally identifiable information in DOL databases.) Although GCE collected another $14.5 million that year under the original contract, GCE was running out of money.
In September 2014, GCE filed for bankruptcy. The DOL had to scramble to keep its financial systems operating. It engaged Booz Allen to help operate its current financial system until it could migrate to the Department of Transportation's Shared Service platform.
The DOL's experience reinforces the need to follow good contract management practices, including:
- Own your own data. The DOL failed to include language in its contract that required GCE to create a data extract process and return the data to the DOL in a machine-readable form. In June 2012 the DOL began trying, without success, to get GCE to give the DOL its own data back. The situation got really messy, and even more expensive, after the bankruptcy. GCE petitioned the court to sell "interfaces, licenses, servers, software, and documentation" in a complex deal to keep the DOL operating. On Dec. 3, 2013, GCE was awarded a new $23.5 million sole-source contract to transfer selected assets to the DOL and to create 624 reports with an interface to a new DOL data warehouse. The DOL stated in FedBizOpps.gov that "GCE is the only source available to perform this service."
- Own the licenses. It is unclear who now owns the Oracle licenses paid for by the original contract. It appears that GCE purchased the Oracle licenses for the DOL's financial systems in GCE's name. Since Oracle typically limits license transfers, it is very likely that the DOL will be forced to buy new licenses in order to continue operating its financial systems.
- Select a cloud provider with care. The DOL was operating in the GCE cloud when the bankruptcy was announced and was faced with the immediate shutdown of the GCE cloud. Since the new data repository was not yet operational, the DOL had no options and was forced to take over the lease for the GCE space housing the GCE cloud servers. When moving to the cloud, few organizations create a contingency plan that addresses the actions to take if a cloud provider suddenly ceasing to operate. Make sure your plan does. While smaller cloud providers' services may be cheaper, it is safer to use Amazon, Microsoft or another major cloud provider.
- Be suspicious of low bids. The other firms competing for the original DOL contract submitted bids between $75 and $85 million. Question any bid that is significantly lower than all other bids, particularly from a small company. (GCE was a small business with only $37 million in revenue in its best year.) Investigate very low bids carefully and make sure you understand the reasons behind major price differences.
- Monitor program progress closely. Outsourced projects demand constant supervision. Monitor closely, carefully and regularly. Question the outsourcer thoroughly regarding any discrepancies against plan. Even based strictly on budget, the GCE project was in trouble by the end of the first year. Things only got worse during each subsequent year. Rather than wait for subsequent failures, commission a detailed review as soon as concerns emerge.
- The DOL ignored basic contract management principles and has paid a high price in consequence. And it isn't out of the woods yet. Despite all the money spent to date, Deltek reports that the DOL "may have a continuing requirement for Oracle Federal Financials Commercial Off-the-Shelf software, Information Technology (IT) hosting and administration." Deltek estimates that the new expanded-scope RFP will open for bid in August 2015 and be awarded in May 2016, with a contract value of $238 million over eight years.
The DOL's financial systems debacle demonstrates the importance of careful contracting and excellent project management. Conceptually, both are straightforward. In practice, both require an enormous amount of work, consume huge amounts of time, and require great attention to the details. But failing to perform these critical functions successfully can cost far, far more. Just ask the DOL.
Bart Perkins is managing partner at Louisville, Ky.-based Leverage Partners Inc., which helps organizations invest well in IT. Contact him at BartPerkins@LeveragePartners.com.