CMS Failed to Ensure Contracts Were Awarded Properly, OIG Says

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By Alex Ruoff

Jan. 20 — The Centers for Medicare & Medicaid Services didn't always meet federal requirements when awarding contracts to build the federal health insurance marketplace,, according to a report released Jan. 20 by the Department of Health and Human Services Office of Inspector General.

The CMS failed to “perform thorough reviews of contractor past performance when awarding two key contracts” for the federal marketplace during its early development, between 2012 and 2014, the OIG said. The CMS also made decisions that “may have limited the number of acceptable contracting proposals” for

Additionally, the CMS failed to name a lead systems integrator to coordinate the efforts of the 33 contractors working to build the marketplace prior to its initial, problematic launch, the OIG said. By February 2013, the CMS had awarded more than $860 million to 33 companies in 60 contracts to build the federal marketplace.

“CMS’s procurement decisions may have limited its choices for selecting federal marketplace contractors,” the OIG report said.

“The complexity and significance of the federal marketplace underscored the need for CMS to have the opportunity to select the most qualified contractors,” the OIG said. “CMS’s procurement decisions may have limited its choices for selecting federal marketplace contractors.”

The cost of six key contracts for building the federal marketplace nearly doubled between 2012 and 2014, from $464 million to $864 million, the OIG said in the report, “ Federal Marketplace: Inadequacies in Contract Planning and Procurement” (OEI-03-14-00230).

The OIG recommended that the HHS strengthen its contracting process. The OIG said the CMS should revise its acquisition guidance to include specific standards for conducting past performance reviews and ensure that future contracts are awarded under federal contracting requirements.

The HHS agreed with the OIG's findings.

Little Review of Contracts

Only two of the six largest contracts associated with the development of the federal health insurance marketplace underwent review by the Contract Review Board, a federal body within the CMS that ensures contracts comply with federal laws, the OIG said.

Additionally, the OIG said, the CMS purposefully awarded five of the six largest contracts for the design and development of the marketplace under an existing contract, the Enterprise System Development (ESD) indefinite-delivery-indefinite-quantity (IDIQ) contract, a massive, $4 billion, 10-year contract designed to update the CMS's IT infrastructure that began in 2007.

By using the existing ESD IDIQ contract, the OIG said, the CMS could award new contracts for the development of the marketplace quickly, but could only solicit proposals from the 16 companies awarded the original contract. The CMS only received five technically acceptable proposals for six key contracts related to the marketplace.

The six key contracts highlighted in the OIG report totaled more than $500 million and included the $93 million contract awarded to CGI Federal, the one-time lead contractor for the federal marketplace.

CGI's role in overseeing the rollout of was reduced significantly after the October 2013 marketplace launch, which was, plagued by delays and error messages that prevented consumers from signing up for health insurance through the marketplace for weeks. CGI was replaced by Dublin-based Accenture in 2014.

Performance Reviews

While the CMS undertook performance reviews of contractors before awarding all six key contracts, two major contracts were awarded with little review, the OIG said.

The CMS asked contractors just three questions related to their past performance two days before awarding CGI its $93 million contract to head the development of the marketplace and Quality Software Services Inc. $68.7 million to build the data services hub, which connects various federal databases to the marketplace.

Federal contracting rules require the HHS to assess past performance before awarding contracts but don't specify the procedures for conducting a review of past performance, the OIG said.


The OIG report called on the HHS to make changes to “strengthen” its contracting processes.

“Although the federal marketplace was an unprecedented project with unique challenges, the experience of contracting for the federal marketplace has broader implications for federal contracting,” the OIG said. “Government contracting personnel are continually faced with the competing demands of timeliness, fiscal responsibility, and attracting contractors that will provide outstanding performance.”

The OIG said the HHS should ensure that existing federal acquisition strategies are completed prior to any future IT projects. These strategies aim to “attract highly skilled IT contractors and develop contingency plans for when few companies submit technically acceptable proposals for contracts that are critical to the success of major IT investments.”

The OIG said its review of federal marketplace contracts revealed that certain pieces of documentation were missing from many of the CMS's files. The OIG said the CMS should ensure that contract actions are supported by required documentation and that documentation is properly stored.

The CMS should also conduct comprehensive reviews of companies' past performance to ensure that it contracts with reliable companies, the OIG said.

The OIG said the report is part of a series on the planning, acquisition, management and performance oversight of contracts and operations. The OIG said it plans to publish “additional, in-depth audits and evaluations that look at other aspects of contract management and performance for the Federal Marketplace.”

To contact the reporter on this story: Alex Ruoff in Washington at

To contact the editor responsible for this story: Kendra Casey Plank at

The OIG report is at


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