Next up after website glitches: The lawsuits

By Josh Gerstein, Politico

If the Obamacare enrollment website seems like a tangled mess, just wait for the lawsuits.

The potential for a morass of litigation over who’s responsible for the problems that have plagued the rollout of President Barack Obama’s signature health care law is significant, government procurement experts say.

With scores of federal employees and 55 contractors reportedly involved in setting up the Obamacare federal exchanges, it may take years to sort out exactly what happened — let alone for the feds to recover any of the hundreds of millions of dollars already paid out on the project. The debacle could lead to years of claims and counterclaims over a law that has already had its day at the Supreme Court.

(Understanding Obamacare: POLITICO's guide to the Affordable Care Act)

“The government, to recover damages, will have to prove which contractor or contractors are responsible for any defects,” said Harv Lester, who litigated numerous contracting disputes during a 20-year career in the Justice Department’s Civil Division. “If problems arose because the government wasn’t able to coordinate its contractors’ work properly, the burden is the government’s to bear — the government has to pay for it.”

At the moment, the administration is avoiding talking in public about the potential for lawsuits or attempts to seek refunds from the contractors.

White House press secretary Jay Carney referred all questions about the contracts for and costs of the project to the Department of Health and Human Services. An HHS spokeswoman, in turn, referred the questions to the Centers for Medicare & Medicaid Services. A spokeswoman there had no answers Tuesday about the costs of the project, the terms of the contracts or any efforts to limit payments for design of nonfunctioning parts of the website.

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Health and Human Services Secretary Kathleen Sebelius ducked a question about it last week, telling The Wall Street Journal she is currently focused on trying to get the website working correctly and would address the possibility of refunds down the road.

Ironically, some of the same contractors that may be blamed for HealthCare.gov “glitches” are also needed to fix the site. The normal inclination would be to slow the flow of funds to such companies, but lawyers say the need to keep those contractors working puts Sebelius and other officials in a tough spot.

“The first thing they do is stop or slow down current payments,” said Pam Marple, a former Civil Division attorney now with New York-based law firm Chadbourne & Parke. “They need them to keep working, but don’t want to be criticized for making payments when things go wrong.”

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The federal government could sue for refunds or withhold payment to contractors. Contractors who believe they’ve been shorted could sue, or countersue. Companies could also sue one another or point fingers at other contractors or even other entities like state governments or private insurance companies for causing some of the problems.

“With the whole web of contractors and subcontractors, there are going to be a lot of opportunities for finger-pointing about who’s to blame and to say, ‘I was really responsible for this piece rather than that piece,’” said a former Justice Department official, who helped defend and bring such lawsuits on behalf of the federal government.

Congress will also play a role in any finger-pointing. House Republicans have promised investigations into the website problems, and witnesses from four firms who hold Obamacare-related contracts are scheduled to appear at a House Energy & Commerce Committee hearing Thursday. No witness from HHS is expected, although Sebelius will likely testify at another hearing next week.

The absence of a government witness at the Thursday hearing could allow those present to push blame toward the government — a tactic that is typical when contractors and the feds end up in a fight over failed or delayed work.

Sebelius may have been trying to head off that possibility when she mentioned lead website contractor CGI Federal Inc. on Tuesday without leveling any criticism.

”We have secured additional staff and commitments from our contractors, including CGI, the lead firm responsible for the federally facilitated marketplace technology,” she said in a blog post. “They are providing and directing the additional resources needed for this project within the provisions of their existing contract.”

“We have asked all of our contractors to look at their teams on the ground and bring in their absolute A-team and I am confident that is happening,” Sebelius added in an interview Tuesday with CNN. “We had hoped that they had their A-Team on the table, but I am talking to CEOs and urging them to make sure that we have the [best] talent that they have available. … We want new eyes and ears.”

Terms in the Obamacare website contracts — the text of which is not currently public but has been requested by congressional committees and the media — could complicate any government effort to withhold payment from contractors or demand repayment for allegedly botched work, warned Lester.

“There might be a ‘best efforts’ clause in the contract, where the contractor doesn’t actually guarantee that whatever new technology is being developed is going to work,” said Lester, now with the Chicago-based law firm Vedder Price. “In other contracts, the government and the contractor might share the risk of a possible failure, or otherwise apportion it between themselves somehow. The assignment of risk is going to be a huge factor if there are cost claims or damages claims.”

Litigation over the contracts for the Obamacare website is likely to play out in one of two obscure venues: the Court of Federal Claims or the Civilian Board of Contract Appeals, a panel the General Services Administration runs on behalf of many government agencies, including HHS.

Such litigation sometimes drags on for decades and can be staggeringly complex.

A lawsuit McDonnell Douglas and General Dynamics filed in the Court of Federal Claims in 1991 for $3 billion following the Pentagon’s cancellation of the A-12 Avenger Stealth jet program is still pending more than 22 years later. After a trip to the Supreme Court in 2011, a settlement finally appears to be in sight but will require approval from Congress.

The disputes often involve contractors insisting they are owed money and the federal government countering that it is the wronged party.

Last year, Northrop Grumman filed a Court of Federal Claims suit against the U.S. Postal Service, demanding $179 million after postal officials allegedly improperly injected themselves into the company’s efforts to design a new sorting machine for large mail pieces. The Post Office countersued, claiming about $411 million in damages from Northrop’s alleged failure to meet deadlines and requirements in the contract.

A status report filed with the court in August said the Postal Service and the Justice Department were having budget-related issues managing the number of documents likely to be turned over to Northrop in the litigation. “The United States has represented it has approximately two terabytes of materials, or 10-15 million pages” of records potentially related to the dispute, the report said.

Any legal fight over the Obamacare website could be similarly complex, pulling in every email, memo and computer file generated as engineers, bureaucrats and administration officials debated plans for the site, tried to execute them and muddled through the current snafus.

Of course, the HealthCare.gov failures are so high profile that both the government and the contractors will have to consider carefully whether to make financial claims related to the project.

“These government contractors are often repeat players, and it can be desirable in the first instance to try to work things out,” said the ex-official, who asked not to be named because of the possibility his work might involve one of the plethora of firms involved with the flawed website.

However, if the public finger-pointing becomes sufficiently intense, some firms may view the legal system as a way to vindicate their work and to establish that fault for the site’s failures lies elsewhere.

“There are lots of motivating factors, beyond the monetary aspect, that might cause a contractor to submit monetary claims and file suits against the government — including a desire for public vindication,” Lester said. “Nonmonetary considerations like that are not ‘damages’ that a contractor can claim against the government, but they can be the real result that the contractor most wants.”

It’s also possible litigation is already under way over aspects of the website. Anyone with knowledge of alleged fraud on the part of federal contractors can file a so-called qui tam lawsuit on behalf of the government. Such suits are filed under seal and are often kept secret for years, while the government investigates and decides whether it wants to back the suit.

The filers — often employees at government contractors — can get 15 percent to 25 percent of any money recovered through such litigation. The suits must claim some kind of deception on the part of the contractor, not simply incompetence, but the deception can be as simple as claiming a system is working when it isn’t.

Lawyers said the short timelines involved in the HealthCare.gov project and the federal insurance exchanges make it less likely such suits were brought, but even the firms involved wouldn’t really know.

Perhaps it should not be surprising that it’s so hard to figure out who’s responsible for the problems with the Obamacare website since it’s quite a challenge simply to figure out how much the effort is costing.

Estimates have put the tab at $600 million or higher, but analysts say it’s difficult and perhaps impossible know from publicly available information what amount of money the government has spent on the design and rollout.

Databases like USASpending.gov, a website Obama passed legislation to establish when he was in the Senate, include a slew of contracts for companies working on the new site. The main contractors for the HealthCare.gov website and the related “data hub” — CGI and Quality Software Services — both have “cost plus fixed fee” contracts.

However, vague descriptions like “ADPE system configuration” or “ADP systems development services” give only a hint of the services being provided (presumably something to do with “automated data processing”) and don’t say whether the work is for the Affordable Care Act site or other projects.

“It’s incredibly vague,” said Kaitlin Devine of the Sunlight Foundation. “What is particularly frustrating for me is that they were supposed to improve transparency with USASpending,gov, but those claims have not been realized in reality.”

The public database does contain ID numbers that link contracts on certain projects, but there’s no public index of those numbers and the Obamacare work seems to have several different numbers. The contracts themselves might solve the mystery, but they’re not part of the database. Nor are the invoices the contractors have submitted.

Devine said the database shows “a big cluster” of modifications and additional payments in September, just before the Oct. 1 target for the insurance marketplace to go online. She said the key to any future disputes will be the wording of the contracts and changes, but said that could mean the government owing even more money to the contractors. “A lot of the time they write these so the government pays a penalty for changing the requirements so late in the game,” she said.

“To be able to really see what they’re spending money on, those transactions … should be linkable back to the original contracts, or a purchase order or invoice,” Devine said. “It’s supposed to be so anybody can go look up stuff without needing this kind of assistance.”

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