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Obama Should’ve Hired This Tiny Tech Firm to Build Healthcare.gov

15 | By Michael A. Robinson

For her sake, it’s a good thing Health and Human Services Director Kathleen Sebelius isn’t working in the private sector.

If she did, the former Kansas governor would be out on the street right now. (By the time you read this, she might be.)

Actually, it’s worse than it sounds…

Sebelius and her tech team failed to live up to a series of bipartisan federal technology mandates stretching back more than 17 years.

Fact is, it was her responsibility to make sure the ObamaCare website HeathCare.gov was up and running smoothly at its launch on Oct. 1.

Instead, the crash-prone website is a major disaster that has the Obama administration on its heels. HealthCare.gov has become a political hot potato, with many Republicans in Congress calling for Sebelius’ firing.

Let me clear up one thing right now. My analysis of the situation at HHS is nonpartisan. And that’s the great thing about high tech: It’s politically neutral.

Web platforms don’t care about your political affiliation.

It’s not about politics, it’s about execution.

With tech, the question is simple: Does it work or not?

And for investors, our goal is to find high tech that makes us money. That’s why I want to tell you more about a small-cap expert that’s raking in the cash from government websites.

First, however, let’s put Sebelius and her tech team into some important historical context.

There Were Warnings

Her team operates under a 1996 federal law passed under a Democratic administration designed to prevent precisely this kind of mistake from happening in the first place.

So, my analysis of the website’s poor performance – and why Sebelius and her tech execs should be fired – is based on my 15 years of studying federal information technology and my understanding of the realities of high tech in the private sector.

That’s why I think it helps to take a look at how the late A.W. “Tom” Clausen handled a similar disaster at Bank of America back in the 1980s.

At the time, Clausen had recently left as head of the World Bank and returned to right the ship at troubled Bank of America. I know from personal experience the tough-minded, hard-charging executive would not accept this kind of failure on a major tech platform.

You see, in those days, I was the bureau chief of American Banker, a trade journal considered the Bible of the banking industry. I got wind of a major screw-up on Bank of America’s massive new computer system, designed to keep track of pension funds, 401(k) plans, and other employee benefits.

Bank of America spent $20 million designing and launching the MasterNet computer system. And, just like Healthcare.gov, the officials in charge of MasterNet put the system online despite signs of problems.

My exposés applied pressure to the bank to fix the problems and hold executives accountable. The bank eventually spent some $60 million to fix the problems.

And Clausen fired the two executive vice presidents in charge of MasterNet.

The example of how Clausen handled this situation speaks volumes about the differences between how failed leaders are treated in Washington these days and in the private sector.

Just last year, Apple Inc. (Nasdaq: AAPL) fired the head of the mapping program when the tech leader met with a barrage of criticism for the launch of its new maps application for the iPhone.

Only a few months ago, the board at mobile game maker Zynga Inc. (Nasdaq: ZNGA) booted the CEO who co-founded the company. Not only that, but his replacement has cleaned house, which included dismissing the company’s chief technology officer.

So, it’s a pretty safe bet that if a health insurer like Cigna Corp. (NYSE: CI) or Blue Cross Blue Shield messed up this badly, heads would roll.

For Sebelius and even for Obama himself, the problem actually runs much deeper than it appears.

E-Government Is Nothing New

The truth is, for at least the last 17 years, the U.S. government has been involved in a huge, sprawling effort to make federal information technology as good anything you’d find in the private sector.

Presidents Clinton and Bush were huge advocates of using technology to make the federal government more efficient, cost-effective, and citizen-centric.

Under Clinton’s leadership, Congress passed a federal IT law known as the Clinger-Cohen Act in 1996. Specifically, the act mandates that federal managers operate their IT systems as though they were efficient and profitably run private-sector businesses.

Three years later, at the end of Clinton’s tenure, a body known as the Chief Information Officers (CIO) Council – a Star Chamber of high-level tech experts from each federal agency – mandated that federal agencies help develop something known as an Enterprise Architecture. It was a complex undertaking, but it was basically a digital blueprint for making data flow seamlessly throughout the federal government.

Under Bush, Congress built on this effort with the E-Government Act of 2002. Among other things, the law mandated that the CIO Council meet regularly to keep the government computer networks running smoothly.

A year later, the Bush administration unveiled a program that became known as Firstgov.gov. The idea was to use IT systems to give citizens unprecedented access to federal services and information, and also to link to state, local, and even overseas government networks.

In short, Bush wanted citizens to find the information they needed in as little as three clicks on a federal website. Here is how the University of Albany’s tech center described the effort:

“Firstgov.gov offers a powerful search engine that searches every word of every U.S. government document in a quarter of a second or less.”

What a contrast between that bipartisan effort and the results today at Healthcare.gov. There, millions of citizens can’t even get log on to find the information they need. Instead of taking only a few seconds, using the deeply flawed portal often takes hours – if the site even works at all.

The administration says it’s working to correct the problem and that it will take at least a month to do.

Ironically, this embarrassment might have been avoided altogether had HHS used the services of a fast-moving, small-cap leader with deep expertise in this field.

The One Company That Could’ve Saved the Day

Its ticker symbol says it all: EGOV.

Indeed, NIC Inc. (Nasdaq: EGOV) is an expert at building government websites that operate flawlessly. It counts 3,500 government agencies as e-government clients.

In recent weeks, EGOV has made headlines because it:

• Helped the state of Hawaii’s Department of Health win its second national award for serving citizens through online services;

• Facilitated the redesign of a website for the state of Oregon’s medical board that includes a mobile offering;

• Provided the help needed for the state of Alabama’s website to run so well it won an international visual arts award among government websites; and

• Backed a tech system that lets teens in Wisconsin practice for their driver’s license exams with an app that works on tablet computers like the iPad.

To be fair, NIC does nearly all of its work for state and local agencies. However, it has racked up a great track record, both in terms of its technology and the stock’s performance.

Over the past year the stock is up 73%. But don’t worry: It still has plenty of room to run, if for no other reason than that the company has great financials.

With a market cap of $1.6 billion, the stock trades at just under $25 a share. The company has a 15% profit margin and a 39% return on equity. It grew its most recent quarterly earnings by 77% and reports third-quarter financials on Nov. 7.

Investors should pay attention to what happens with NIC for two reasons: E-government is a major tech trend – despite the debacle at HealthCare.gov – and this small-cap leader knows how to make piles of cash off this national tech effort.

See you next week…

[Editor’s Note: I welcome your comments, questions and suggestions. Post a comment below … I look forward to hearing from you.]

15 Responses to Obama Should’ve Hired This Tiny Tech Firm to Build Healthcare.gov

  1. Dianne Troutt says:

    It sounds to me like somebody should checkout everybody in Washington D.C. It looks like nobody up there knows what they are doing!

  2. Ed Kelly says:

    In the private sector the vendor will be watched closely as the project progresses and each completed area tested before moving to the next one. In this case it appears that only the vendor’s people knew what they were doing and therefore little checking or testing was done. Hence, the result.

    Just my opinion.

    Regards,
    Ed

  3. ALLAN says:

    I spent many hours this week trying to navigate the Australian Immigration website. At end of week I managed to lodge an application but still cannot find how to attach an online doc.

    The Queensland Gov let a contract to IBM I think to construct a new payroll system. Wow, what a mess. Many getting no pay, many being overpaid, etc, etc. Cost multi millions to build, multi millions to fix, and not able to make any claim on IBM! Just pay them more to fix the mess they made!

  4. Jim Cooper says:

    As long as government contracts are issued to the lowest bidder, what more can we expect? what vetting was done to select the vendors for this debacle?

    It’s way too common for bidders on govt. projects to bid “low ball” to get the lowest bidder contract award, and then count on “cost over-runs” to fix what they screw up before and at delivery.

    Who was the US Government project manager for this debacle? That is who should be fired and black-listed.

  5. Joe says:

    The problems with Healthcare.gov are what happens when nepotism is used instead of proficiency in choosing contractors.
    The contract should have at least been bid out!

  6. Jerry says:

    I still can’t understand why our government went to a firm in Canada to build the Affordable Healthcare Act site. ????

  7. Joe Tewes says:

    Too bad Michelle Obama convinced the President to give the Healthcare.gov tech contract to her girlfriend from Princeton University who is currently a top executive at the Canadian tech company which had an abysmal track record and completely destroyed the Canadian healthcare website on a NO-BID contract of all things!!!!

  8. Dan Ware says:

    The problems with the roll-out, as are most of the problems facing this country, can all be traced back to the obstruction caused by the garbage that was once called the republican party. Your party has turned itself into an anti-American farce. You hide behind your zealot tea baggers, claiming it is they that are causing the problems, when you all, secretly in it together. You and your ideas are stale. You can’t win a national election anymore without cheating and suppressing the vote of millions. That should tell you something. No one, but you and your ilk, wants your kind of America; one of hatred and division, one in which an elite few reap all the rewards, while fighting tooth and nail to deny anything for anyone else. When will you and your kind come to the conclusions, if it is at all possible, that a true American is colorblind, and wants the best for ALL Americans, and resides in the middle, politically? The problems facing this country are many but can be solved. After all; We are Americans; the CAN DO Society! The first step would be to rid ourselves of the haters and dividers….and you know who you are! Then the rest of us can tackle the real issues like the debt, immigration, reasonable gun controls, and healthcare, and not distractions like the poor rollout of the web site. Would anyone venture to guess what could have been done to help solve any one of the real issues above, if the republicans would have put as much time and money in a genuine bipartisan effort, as they have spent attacking the ACA?

    • Craig says:

      With all due respect Dan, you sound like an Obama zombie! The last time I checked, the Democrats are in control (seven years running; you controlled the congress the last two years of the Bush Presidency in case you forgot). A clear majority of the people never wanted Obamacare from the beginning & still don’t! The Democrats had total power at the time this legislation was passed & crammed it down the throat of the American people against its will. Why did they do that? Because they only care about one thing; their POWER! Obama & his cronies have done more to destroy this country in the last five years than all the Presidents in the last 50 years combined! Its time for you & all the other Obama zombies to wake up or their will be nothing left of America worth saving!

  9. Wally says:

    in the very early days of big governmant software progams in the intelligence community the approach was
    -define in modules
    -specify interfaces between modules
    -develop initial software packages
    -test thoroughly
    -fix problems and test again
    -build some more
    This approach seemed to work very well. Perhaps the governmet should try it again.

  10. Geraldina Howell says:

    It is the govenment’s attitude in general: We know what we are doing. You don’t.

    Everything is done behind closed door and we don’t have to listen to anybody.

    Just my thoughts.

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