The real story with Obamacare IT woes is out-of-control private contractors

Whatever the ultimate benefits of Obamacare, it's clear that the rollout of its $400m registration system and website has been a disaster. Healthcare.gov was unusable for millions who visited the site on launch day earlier this month, and the glitches reportedly continue. What went wrong?

Of course, the Obama administration is to blame for the botched rollout, but there are other culprits getting less attention – namely, global tech conglomerate CGI, which was responsible for the bulk of the execution, and in general the ability of big corporations to get massive taxpayer-funded contracts without enough accountability.

Government outsourcing to private contractors has exploded in the past few decades. Taxpayers funnel hundreds of billions of dollars a year into the chosen companies' pockets, about $80bn of which goes to tech companies. We've reached a stage of knee-jerk outsourcing of everything from intelligence and military work to burger flipping in federal building cafeterias, and it's damaging in multiple levels.

For one thing, farming work out often rips off taxpayers. While the stereotype is that government workers are incompetent, time-wasters drooling over their Texas Instruments keyboards as they amass outsized pensions, studies show that keeping government services in house saves money. In fact, contractor billing rates average an astonishing 83% more than what it would cost to do the work in-house. Hiring workers directly also keeps jobs here in the US, while contractors, especially in the IT space, can ship taxpayer-funded work overseas.

Fortunately, then, there are alternatives to outsourcing public functions to big corporations padding their profits at taxpayers' collective expense, and it is time we used them.

To this end the Healthcare.gov experience should serve as a wake-up call to President Obama, who, after all, said early in his first term he wanted to rein in the contractor-industrial complex, and to the state governments doling out multi-million dollar contracts. The revelation here is that an overdependence on outsourcing isn't just risky in terms of national security, extortionate at wartime, or harmful because it expands the ranks of low-wage workers; it's also messing with our ability to carry out basic government functions at a reasonable cost.

Like many contractors, CGI got an open-ended deal from the government, and costs have ballooned even as performance has been abysmal. The company – the largest tech company in Canada with subsidiaries around the world – was initially awarded a $93.7m contract, but now the potential total value for CGI's work has reportedly tripled, reaching nearly $292m.

Sadly, Healthcare.gov is but one high-profile example of the sweet deals corporations get to do government work—even as they fail to deliver. For other recent examples, one need only look at the botched, taxpayer-funded overhauls of the Massachusetts, Florida and California unemployment systems, courtesy of Deloitte.

In Massachusetts alone, professional services giant Deloitte got $46m to roll out a new electronic system for unemployment claims. The company, whose private-sector whippersnappers were expected to lap the crusty bureaucrats the state employs directly, delivered the project two years late and $6m over budget. On top of that, the system has forced jobless residents to wait weeks to months to collect benefits. One unemployed man who filed a claim for benefits instead received an erroneous bill charging him $45,339. A slap in the face of absurd proportions.

Similarly, the rollouts in Florida and California, which each cost about $63m, can only be described as train wrecks: late, over budget and riddled with glitches that delayed payments to the jobless.

It doesn't have to be this way. We can save money, create good jobs, and get more for each taxpayer dollar by simply by in-sourcing government work. Doing so would mean actually having faith that the government can employ top talent instead of making unfounded assumptions that anyone receiving a government check is a waste of space who can't possibly innovate. Think about it: Why couldn't we, the taxpayers, have just directly hired the finest minds in tech to build Healthcare.gov?

Unfortunately, while Obama promised to focus on insourcing at the start of his presidency, federal workers have instead received multiple kicks in the teeth. There are now 20%, or 676,000, fewer federal workers since the size of that workforce peaked in mid-2010. Recall, too, that Obama froze federal worker pay for two years following the 2010 congressional elections. Now the sequester – a fancy word for the government cuts that started this year – is causing further damage, and could cost 100,000 more federal jobs within a year. Deep cuts to state and local governments continue at the same time.

If we're not going to insource work – presumably because anti-government types successfully peddle the useless bureaucrat stereotype – we should at least have a better process for picking contractors that benefit from taxpayer largesse to carry out public projects. It may be hard to believe in light of the Healthcare.gov experience, but there are examples of successful government outsourcing arrangements in IT. One key to their success, a Government Accountability Office study pointed out, is consistent communication with, and monitoring of, contractors. Penalties for cost overruns, failing to deliver by agreed-upon deadlines and other forms of mismanagement would help, too.

Of course, we also need a more competitive bidding process, and a more thorough examination of the track record of any company up for a giant government contract.

Putting all of these systems in place takes time and money, which is one reason why direct government hiring is preferable. But regardless of whether we start insourcing or improving oversight or both, one thing is clear: we need to stop blindly throwing taxpayer money at corporations while not holding them accountable.

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