Management flaws cited for failed DHS contract

A contract for a project to integrate financial data across the Homeland Security Department collapsed because management challenges were underestimated, a DHS official told lawmakers Wednesday.

BearingPoint Inc. in September 2004 won a blanket purchase agreement worth up to $229 million to work on the project, known as eMerge2. The contractor was to help fuse eight legacy financial systems, but within weeks the department realized that the project was unacceptably off schedule and the contract had problems, said Eugene Schied, DHS' acting chief financial officer.

Approximately $18.3 million was spent on the contract -- $9.4 million for the project's initial phase and $8.9 million under a task order that originally was worth $20 million, Schied testified at a joint hearing of House Government Reform and Homeland Security subcommittees.

"Deadlines were missed and products presented to the team were not accepted," Schied said in his opening statement. "Soon, concerns began to arise regarding the extent to which there was a clear understanding between DHS and BearingPoint on what was to be delivered."

The 20 or so staffers who worked in the CFO's office when the project started in 2003 did not have enough "organizational capacity to pull off a big project like this so early in the formative stages of the department," Schied said. The investment review process to which the project was subjected was not as mature as the process in place now, he added.

"I think there was some underestimation [of] the amount of management that's needed to produce a successful outcome of a project like this," Schied said. When crafting the contract, officials weren't aware of the full scope of DHS financial systems, he said.

"You can't take broken processes, ineffective processes [and] poor internal controls and just throw them onto a new financial system and expect success," Schied said.

Former department CFO Andrew Maner let the eMerge2 contract expire Dec. 22, 2005, after deciding the project was heading in the wrong direction.

The department has $48.4 million available for the revised eMerge2 project this fiscal year and requested another $18 million in the fiscal 2007 budget. The funds will be spent on consolidation, change management, data visibility and implementing the financial side of an electronic travel system, according to Schied.

Schied could not provide specifics, but said the revised cost to implement an integrated financial management system will be in the $150 million to $200 million range and will be stretched out over a longer period of time. He added that a number of the products created under the original contract will be helpful in the future and the old contract will serve as a useful reference model.

The Office of Management and Budget's financial management line of business and its centers of excellence "offer viable alternatives to meet DHS' requirements," Schied said.

Also testifying at the hearing was Scott Charbo, DHS' chief information officer, who said additional authority over the department's information technology budget would help him implement long-standing Government Accountability Office recommendations for improved IT management.

"It will take some of the arguments away," Charbo said.