In a sternly worded letter to a top executive at the technology firm hired to build Vermont’s new health insurance exchange, the Shumlin administration late last month served notice that it plans to withhold more than $5 million in payments as a result of CGI’s “failure” to meet key deadlines.
The Nov. 21 correspondence represents the first formal move by the state to impose the “liquidated damages” that CGI Technologies and Solutions could face for missing at least four “critical milestones.”
And it comes as the state seeks new bargaining power over the company on which it’s relying to fix the problems that will otherwise prevent Vermont from having a fully functioning exchange.
“What we’re focused on now is making sure we exercise the rights we have under the contract … and making sure Vermonters get what they were promised,” Mark Larson, commissioner of the Department of Vermont Health Access, said in a phone interview Tuesday.
In two correspondences addressed to Melissa Boudreault, the vice-president of State Health Solutions at CGI’s office in Andover, Mass., Larson writes that the state “is in the process of investigating and documenting the full extent of CGI’s shortcomings.”
Larson writes that the letter “shall constitute” the “Payment Dispute Notice” Vermont is required to file under the contract in the event that the state exercises its option to impose damages for missed deadlines.
“During the past year, CGI has failed to meet a number of … Critical Milestones, has repeatedly missed delivery dates for many of the project’s key … deliverables, and has only partially completed other … deliverables,” Larson wrote. “Most importantly, because CGI has yet to provide (the state of Vermont” with a fully functioning website, Vermont residents still cannot buy their health insurance plans online, as promised.”
Larson goes on to demand a “sit down with high-level CGI executives, face-to-face, in order to map out a new path for completing” the exchange project “as soon as possible.”
In late 2012, Vermont enlisted CGI to construct the technological infrastructure needed to deploy one of the biggest health care reform initiatives in state history. The $90 million contract was riddled with key deadlines intended to ensure readiness by the exchange’s Oct. 1 launch date. But, as has been the case with insurance exchanges across the country, Vermont’s website has been plagued with technological problems, and even now lacks the capacity to facilitate premium payments between carriers and small businesses.
In a phone interview Tuesday, Larson said that the state has yet to schedule the “sit down” with CGI. But he said he’s confident the meeting will occur in the reasonably near future. He said the state intends to extract a new set of promises from CGI about when the key functions needed to make the website work will be complete.
“What we want to do is have a discussion about the milestones that have been missed, and talk about how do we establish a clear contract schedule for how the rest of the work will be completed,” Larson said Tuesday.
Larson’s letter to Boudreault enumerate the alleged “shortcomings” and “failures” committed by CGI in recent months. Those missed milestones, according to Larson, are largely responsible for a troubled roll out that has forced the state to delay enrollment deadlines.
In an emailed statement Tuesday, Linda Odorisio, vice-president of global communications at CGI, said “we are currently reviewing the communication we received from the state of Vermont and are considering our options.”
The state’s contract with CGI includes a process for resolving disputes.
“Despite the many challenges of this complex program, Vermont Health Connect is enrolling consumers thanks to an enormous team effort,” Odorisio said. “CGI fully intends to honor the terms of its contract while at the same time dedicating its resources to continually improve Vermont Health Connect.”
The state’s contract with CGI includes provisions for “liquidated damages” for missed deadlines. Those “damages,” according to the contract, “are intended to be reasonable estimates of the actual damages that (the state of Vermont) would suffer.”
Damages accumulate for each day a deadline goes unmet; failure to meet some of the more critical milestones results in six-figure sanctions per day.
By the state’s count, CGI has amassed more than $26 million in liquidated damages. The contract, however, caps CGI’s maximum liability for missing deadlines at $5.1 million.
In his letter, Larson tells Boudreault that the state intends to withhold payment on several invoices, in amounts totaling the $5,102,492.91 damage cap written into the contract.
Despite language in the contract saying that the liquidated damage amounts “are reasonable estimates of the damages which (the state of Vermont) will suffer for a failure to meet each Milestone,” Larson said Tuesday that the tech firm’s failings haven’t cost the state $26 million in losses.
Larson said the state has paid CGI about $18.6 million thus far for services provided under the contract.
While the state’s letter to CGI announces its intention to “withhold” payments for liquidated damages, Larson won’t say yet whether Vermont is committed to assessing them.
Larson said he wasn’t at liberty to discuss the particulars of the state’s negotiations with CGI. But the money, and whether or not Vermont continues to withhold it, could become a valuable bargaining chip as the state looks to CGI to invest new corporate resources into the project, and deliver a fully functioning website as expeditiously as possible.
“We are very committed to making sure Vermont gets what it was promised under the contract, and that Vermonters see the value,” Larson said Tuesday. “So I can’t comment on specific resolutions to any conflict we might have about pathways to getting to that place.”