CGI Group Said to Lose Main Obamacare Contract to Accenture

Jan 10, 2014 4:12 pm ET

(Updates with CGI share price in second paragraph.)

Jan. 10 (Bloomberg) -- CGI Group Inc., the company that built the main Obamacare website, will be replaced next month when its contract with the U.S. federal government expires, a person familiar with the decision said.

The Obama administration intends to sign a contract with Dublin-based Accenture Plc to complete unfinished work on healthcare.gov and run the site, said the person, who asked not to be identified because the decision isn’t public. Montreal- based CGI fell 2.9 percent, to $31.58 in New York.

The Oct. 1 debut of the insurance exchange serving 36 of the 50 U.S. states was plagued by delays, error messages and hang-ups that prevented people from completing applications. Accenture, the second-largest technology-consulting company, led construction of California’s better-performing state system.

“We are working with our contract partners to make a mutually agreed upon transition to ensure that healthcare.gov continues to operate smoothly for consumers,” Aaron Albright, a spokesman for the U.S. Centers for Medicare and Medicaid Services, said in an e-mail without confirming the decision.

A spokeswoman for CGI, Linda Odorisio, didn’t respond to an e-mail seeking comment on the decision. Joanne Veto, an Accenture spokeswoman, declined to comment, saying the company is always in contact with prospective clients.

Accenture rose less than 1 percent to $83.20.

Diminished Role

The government-run insurance exchanges offer health plans and access to subsidies created by the 2010 Patient Protection and Affordable Care Act. CGI’s role in managing healthcare.gov had been reduced following the botched rollout, with a unit of UnitedHealth Group Inc. brought in to oversee emergency repairs. Most Americans have until March 31 to select a health plan for 2014 coverage.

The government had spent $319 million building healthcare.gov and its supporting technology as of Oct. 31, according to Albright’s agency. Marilyn Tavenner, the CMS administrator, and Kathleen Sebelius, the U.S. health secretary, each told Congress in hearings late last year that CGI had failed to meet expectations under its contract.

Accenture would be a good fit to take over the contract because of its reputation and size, said David Grossman, an analyst at Stifel Nicolaus & Co.

‘Best’ in Business

“They would have both the scale and the resources to bring to bear to improve this system, get it working and then support it,” he said in a phone interview. “A lot of the risks and the issues are already known, and the government is in a bad spot. Given how important this is to the current administration, I think you would want to get somebody who is the best in the business to try to fix it.”

The Obama administration’s decision not to renew the contract was first reported by the Washington Post.

In addition to the federal site, CGI built health exchanges for Massachusetts and Vermont, which have also criticized the company’s work.

Vermont on Nov. 21 told CGI that it would dispute $1.1 million in charges for the company’s work on its Health Connect exchange and deduct $5.1 million in damages from the state’s payments to the firm. Leaders of the Massachusetts Health Connector told their board of directors yesterday that most people applying for insurance at the state’s exchange haven’t been able to use its website because of CGI’s poor performance.

“Incomplete and inadequate IT functionality as a result of an under-performing vendor has made it difficult for users to complete the application process,” the exchange’s staff said in a presentation. Governor Deval Patrick, a Democrat, instructed the exchange “to consider all of our legal rights related to CGI’s failure to perform and the cost of remediation,” according to the presentation.

--With assistance from Peter Cook in Washington, Alex Barinka in New York and Gerrit De Vynck in Toronto. Editors: Romaine Bostick, Andrew Pollack