Tax department pays contractor additional $15.2 million for no additional work

HONOLULU—After another year of crunching the numbers for a balanced budget, which has meant further cuts to State jobs and services, Hawaii officials are currently looking into how one international IT company has managed to consistently receive millions of taxpayer dollars for services that the State’s own IT specialists say is not being delivered.

A resolution, SCR 78, passed this legislative session requests that the State Auditor perform a management and financial audit of all contracts between the Department of Taxation (DOTAX) and out-of-state vendor CGI Technologies and Solutions, Inc., which has signed on for more than $87 million through sole source or procurement exemption since 1999.

Canadian company CGI, known as American Management Systems (AMS) at the time, had first been tapped to upgrade DOTAX’s aging computer technology and ensure a smooth transition past the approaching Y2k bug concerns. The initial project to create CGI’s Integrated Tax Information Management System (ITIMS) for the State cost $53 million.

Years later, DOTAX’s computer specialists continue to struggle with CGI’s software—describing daily problems and a constant threat of crashing.

At two department retreats held in 2008, led by leadership consultant Jim Bagnola, seven out of nine DOTAX managers identified CGI’s employees and software as problematic.

The now-retired Tu Duc Pham, who served as DOTAX’s Tax Research and Planning Officer, attended the retreats and testified that the Governor’s Chief of Staff Barry Fukunaga initially approved the cancellation of CGI’s contract because of a breach of trust and the instability of the system, which had already cost taxpayers $53 million. Soon afterwards, Fukunaga reversed his decision.

Pham described an atmosphere at DOTAX where talk of ending the contract with CGI was discouraged and where, in spite of testimony against CGI’s performance, the vendor was able to secure further money from the State.

On June 29, 2009, DOTAX deputy director Sandra Yahiro signed a statement of work that re-scoped an agreement between CGI and the State of Hawaii. For its second large-scale project, CGI was hired to implement a process to collect delinquent taxes and integrate all taxes into one system. The new agreement raised the compensation that CGI would receive on that contract from $9.8 million to $25 million. 

The new agreement added no new deliverables and released CGI from its deliverable obligations from the original contract.

The contract was signed and executed in spite of reports of existing performance problems with CGI’s current software, ITIMS, and CGI’s failure to deliver on other obligations from previous contracts.

In testimony to the Hawaii Senate Ways and Means Committee on January 21, 2010, DOTAX director Kurt Kawafuchi compared CGI to a contractor who you hire to fix your home that ends up living in your unfixed house for years. Current DOTAX Deputy Director Stanley Shiraki testified that he was not aware if anyone at DOTAX had looked into other companies that could do the work CGI was responsible for under its current sole source contract.

“CGI doesn’t fix the problems, our guys do,” Bagnola said. “These people [at DOTAX] work so hard.”

Bagnola and Pham said when problems come up with CGI’s software, State employees are the ones who implement the fixes.

“Hopefully, the Auditor can review a plan, and we [in-state] can take over at cheaper costs,” Pham said. “The tech office needs to be in charge. They’re the ones doing the job, not CGI.”

Pham described alternative situations where the State would use less expensive software systems already available or have State employees take over without the need for an outside vendor altogether.

Pham also questions why Hawaii officials are so adamantly in support of working with CGI when their own State employees and IT specialists disapprove of the vendor.

Bagnola pointed to a pattern of complaints against CGI’s performance throughout the United States that should have sent red flags to State officials. In 2000, CGI (known then as AMS) settled a lawsuit with Mississippi for $185 million after a failed tax system implementation. CGI has also faced similar complaints in Kansas, Vermont, and Ohio.

In Hawaii, CGI has also had contracts with the Department of Health, the Department of Transportation, and the Department of Budget and Fiscal Services.

The State Auditor has until December to present its findings and recommendations of the audit. DOTAX has been asked to implement a transition plan where all functions performed by CGI personnel are transfered to State employees.

“Everyone [within DOTAX is] afraid to talk,” Bagnola said. “And of course, it’s a bad economy. They don’t want to lose their jobs.”

The State Auditor has been urged by lawmakers to use all of its powers, including the power to issue subpoenas, in order to compel witnesses to come forward.

In upcoming stories, The Hawaii Independent will be examining the reasons for State officials’ support for CGI, CGI’s performance in other departments and states, and how Hawaii taxpayer money has been spent in dealing with the out-of-state vendor.