by Jeff Reeves | February 28, 2014 5:01 am
Think the U.S. government is done with IT services firm CGI Group (GIB) now that Accenture (ACN) has won a one-year, $45 million contract to fix the Healthcare.gov debacle?
Although CGI reportedly was cut out of the new healthcare law’s website rollout, the firm just signed a $4.87 million contract extension on Feb. 21 that will ensure it works on the site at least through March 31.
That’s the deadline for open enrollment in healthcare programs as part of the Affordable Care Act, aka “Obamacare.”
According to a spokesman for the Centers for Medicare & Medicaid Services, which is overseeing the CGI contract extension and the ongoing Accenture deal, “The agreement will help to ensure a smooth transition between contractors so consumers can continue to have a positive experience enrolling in quality, affordable health coverage for the remaining weeks of open enrollment.”
There also is the option for additional extensions to keep CGI Group on the job through April 30.
“CGI remains committed to its ongoing business relationship with CMS and the success of the federal insurance marketplace,” said Linda F. Odorisio, the vice president of global communications at CGI.
Supporters will say the extension is a vote of confidence in CGI Group — from both the administration and Accenture — at a time when Heathcare.gov needs all hands on deck for a crunch during the final days of open enrollment.
Accenture itself did not comment, instead referring questions on the contract to the government.
Critics, on the other hand, will argue that the extension is another payday for a company that has walked away with a lot of taxpayer money — including its initial $93.7 million contract that ran through December 2013 — despite botching the launch of the Obamacare portal in October.
President Barack Obama himself admitted the administration and CGI “screwed it up” with the initial rollout of Healthcare.gov.
Of course, underneath the politicking, things appear much more bland. Experts agree that, for better or worse, this is simply how business is done in Washington on any project.
A New York Times article from mid-February noted that the government was working on an extension with CGI Group. So there’s no backroom deal here, nor is there special treatment.
“This appears to be a typical government contract shuffle,” a technology executive was quoted as saying to the NYT. “A new company wins the contract and hires many of the old people. It happens all the time in government.”
Furthermore, while $4 million isn’t chump change to the average American family, estimates months ago pegged the total cost of Affordable Care Act technology at $500 million, according to technology website Digital Trends, and about $400 million, according to CNN … and that was before recent overruns and extensions.
The sad reality is that in D.C., an extra $4 million delivered to an outgoing firm isn’t that big of a deal.
All that said, the divisive nature of politics surrounding Obamacare and the very visible problems with the rollout of Healthcare.gov make this particular extension an item of great interest.
You can bet that CGI’s contract extension is likely to be one of many bullet points brought up in the debate over Obamacare as both sides dig in to the run-up to the 2014 midterm elections.
Enrollment is around 4 million right now, according to several reports, and the White House has an unofficial goal of 7 million total Affordable Care Act enrollees. If CGI Group is kept on and that number misses the mark … that won’t be good for the administration.
And if the Centers for Medicare & Medicaid Services decides to act on the option to keep CGI in the loop through April 30? That will be even more noteworthy.
Ironically, even after botching the launch of Healthcare.gov, CGI might be able to take a victory lap if Obamacare hits its target by the March 31 deadline.
As they say in football, winning cures everything.
Investors should note that CGI’s stock hasn’t budged much since Feb. 21 despite winning this extension — though shares are up more than 7% from the beginning of February, when rumblings of the deal started in earnest.
That might not be entirely a reaction to the deal, however, given that CGI Group does about $9 billion in annual revenue, so $4 million is quite literally a rounding error for the Montreal-based IT giant. But the high-profile nature of the award might have moved the needle.
Accenture shares are up 4.4% since early February, only slightly better than the S&P 500.
Stay tuned for how the extension options through April play out, because that could affect the stocks as well as the politics in the coming weeks.
Anyone interested in the full details of CGI’s past and ongoing deals can view them at this free, public database of government contracts.
Andrew Taylor helped research this report.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.
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