Auditors slam Northrop’s $2B Virginia outsourcing contract

Company faulted for missed deadlines, cost overruns and technical failures

• By Nick Wakeman
• Oct 14, 2009

Virginia state auditors have issued a scathing rebuke of Northrop Grumman Corp.’s handling of a $2 billion contract to manage the state’s information technology infrastructure. The company disagreed with the auditors' findings, saying the report provided an unbalanced view.

The project, awarded in 2005, has been beset by cost overruns, missed deadlines and technical shortcomings. The controversy led to the ousting of the state chief information officer earlier this year and pressure from state legislators to deal with the problem.

The 131-page report by the Joint Legislative Audit and Review Commission (JLARC) cited problems such as network and computer outages at the state Motor Vehicles Department and state police offices. These outages sometimes lasted for days, the auditors said.

In another incident, the state wanted temporary unemployment offices opened quickly, in one to three months. It took Northrop Grumman six months to open the offices, the report said.

The JLARC also faulted the Virginia Information Technologies Agency (VITA) for a poor governance structure and recommended several changes.

Because of VITA’s structure as an independent agency governed by a board, the governor and the General Assembly have limited oversight. That structure needs to change, the auditors said.

In a letter responding to the report, Northrop Grumman acknowledged problems, but said the JLARC focused too much on Northrop Grumman’s role and that the report was an “imbalanced view of the shared responsibilities and performance.”

Northrop Grumman’s letter argued that because the contract was structured as a partnership and not a traditional service contract, the JLARC should report on all the stakeholders involved – Northrop Grumman, VITA, and the agencies.

The JLARC is planning another report for December.

In its letter, Northrop Grumman also said the report, released Oct. 13, rehashed known issues and challenges that are already being addressed.

The company also cautioned that the Virginia project is a first of its kind initiative. “Virginia is breaking new ground and should be proud of that fact in spite of the challenges we all acknowledge exist,” the company said.

The contract is likely to continue because it would cost the state $400 million to cancel it, and the auditors said the state can't afford that during the current budget environment.

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