Pennsylvania’s no-bid I.T. work keeps growing briskly

A fast-growing part of Pennsylvania's IT budget known as ITSA has a compelling feature: It enables state agencies to bring on outside computer firms as needed, without competitive bidding.

The Information Technology Staff Augmentation program, which has grown fivefold in seven years to $119 million last year, gives the state flexibility to hire talent, for example in building apps for residents. It also enables agencies to ask for favored firms, including those run by political donors and former state IT managers.

Controversy has surrounded the program's administrator, Optimal Solutions and Technologies of Washington, which the state hired to check credentials and oversee the performance of 463 subcontractors for 48 state agencies.

A federal whistleblower suit alleges that Optimal's owners and business partners set up sham businesses they controlled and landed contracts with the federal Department of Veterans Affairs and the Small Business Administration after persuading the government to certify their enterprises as small, veteran- and disabled-owned. In fact, Optimal's owners "were neither veterans nor disabled" and Optimal itself was too large to qualify for small-business preferences, according to the lawsuit.

The federal suit alleges not only that the businesses they created didn't accurately report the identities and qualifications of the workers it supplied federal agencies — some of the same work it is doing for Pennsylvania — but that Optimal and its owners also violated the law when they lied about contractor qualifications.

Whistleblower suits are more likely to succeed when government joins the litigation, experts say. In this case, the U.S. government "has reserved the right" but has not intervened at this time, said Thomas A. Coulter of O'Hagan Meyer PLLC, Optimal's lawyer. Optimal and its owners consider the accusations "meritless" and "look forward to defending the case in court," Coulter said. The whistleblower, Andrew Scollnick, is represented by Michael D. Kohn of Kohn, Kohn & Colapinto LLP.

Did the federal suit give Pennsylvania officials pause when they decided to renew Optimal's contract last summer, from 2017 into 2020? "The commonwealth primarily checked to ensure [whether] there are any Contractor Responsibility Program issues such as payment, performance, etc.," state Office of Administration spokesperson Dan Egan said by email. "We would not consider a civil case, which at this time is an allegation, as part of the renewal criteria."

The program has found problems in the quality of candidates. In February 2017, ITSA program managers told contractors they had received resumes including falsified information for some of their employees.

But it's not clear whether the state acted against these firms, or even how it has evaluated Optimal's overall performance. "Similarly to an employee performance review, we hold communications regarding vendor performance strictly between commonwealth and the vendor," Egan said.

Optimal officials and attorneys in Washington did not respond to emails, phone calls, or a calling card left at the firm's office in suburban Harrisburg.

Pennsylvania state government spends $1 billion a year buying information technology. Residents can now go online to report a polluter or a pothole, file for health benefits, or start a driver's license application, among many services.

But new demands on state systems keep proliferating. Pennsylvania's expensive 911 communications system failed to connect police departments. The state is suing IBM for a $110 million software installation for unemployment compensation that never worked. A turnpike software job that failed 10 years ago led to criminal bribery charges, and litigation that ended only this year after the installer's bankruptcy. And the state's election security, like those of neighboring states, has been called into question by federal investigators who found that Russian hackers had probed its cyberdefenses.

Instead of increasing spending to meet smartphone, cloud-computing and cybersecurity challenges, Harrisburg lawmakers have cut the state's IT procurement budget slightly in each of the last four years, as Republican leaders sought to hold down spending and prevent tax increases.

But one category of state IT spending keeps growing: Information technology staff augmentation service agreements — the ITSA program — have increased each year since 2010, rising from $24 million, or less than 3 percent of the commonwealth's IT procurement budget, to $119 million, or 12 percent, last year.

State IT managers appreciate ITSA, especially for such smaller jobs as writing smartphone apps, because it's faster and gives them more control than the competitive-bidding system, with its myriad requests for qualifications, requests for proposals, and point-scoring systems, state officials said.

ITSA has been used to help state agencies and contractors build systems that issue and change mining permits, trace prison inmates, register voters and confirm IDs of  medical-marijuana patients, child-care workers, and PennDOT vendors, among other projects.

But some observers believe the program may be growing beyond its intended uses. One of the 48 Pennsylvania agency heads who use ITSA said: "These were supposed to be short-term hires to fill gaps. But in some of the major departments like the Department of Human Services, 'short-term hires' have been in positions for as long as five years." The agency head questioned why the state wasn't hiring permanent employees for this work, or putting it out to bid.

The agencies that use the program are supposed to use ITSA in "a demand-driven situation, when there's a need for short-term skills," in "skill categories not available in the commonwealth, or in the quantity reported, typically for a short period of time," responded John MacMillan, the career IBM executive appointed by Gov. Wolf as Pennsylvania's chief information officer.

The average ITSA engagement lasts 13.2 months, said state spokesperson Egan. Firms often work back-to-back on overlapping engagements for the same agencies, stretching several years. "Short term" isn't defined in the 593-page contract that set up the current systems.

The company that has won the most ITSA business since 2008, Computer Aid of Bethlehem, managed ITSA until Optimal took over in 2015. Computer Aid has been one of the state's busiest IT contractors, winning contracts worth more than $650 million since 2008, most of them outside ITSA, for agencies including the state's workers' compensation system.

Computer Aid was founded by Anthony Salvaggio, who with family members and city employees has given candidates for Pennsylvania political office more than $100,000 since 2006, according to the Pennsylvania Department of State campaign finance database.

Salvaggio and other executives did not return calls to Computer Aid's main office in Allentown, or respond to a calling card left at the company's two-story satellite office in suburban Harrisburg.

Computer Aid continues to work as an ITSA subcontractor, along with contracts it holds directly with state agencies. But in 2015, Computer Aid lost the contract to manage ITSA based on price. It had been keeping a 6.22-cent cut of every dollar spent on ITSA subcontracts, but Optimal offered to cut its take to just 4.75 cents, giving it a lock on the contract. 

In June, when the state renewed the Optimal contract until 2020, it reduced Optimal's take further, to 3.8 percent.

The state paid Optimal nearly $6 million in 2017, records show. The firm had seven full-time positions on the roster of its Harrisburg office that manages the contract, said Troy Thompson, spokesman for the state Department of General Services.

For the first half of 2018, even with the lower rate starting in early June, the state paid Optimal $3.4 million, showing that the program grew ahead of last year's pace.

Here's how one state IT job ended up in a three-year ITSA deal:

In 2015, the state Department of Health awarded an $8.6 million contract through traditional competitive bidding to update software for the state's version of the national Women, Infants, and Children (WIC) nutrition benefit program. The winner was Computer Aid Inc., the same firm that until that year had run the ITSA program.

But Computer Aid did not complete the WIC contract. In 2016, after the state paid Computer Aid $2.99 million, the firm was terminated from the job. "We were not satisfied with the work product," said April Hutcheson, a health department spokesperson.

The department's termination letter doesn't mention the reason. Nor was there any refund of the money the state spent, because the state was able to use the work that Computer Aid completed, said Nate Wardle, another state health department spokesperson.

Using ITSA enabled the state to "scale back the scope of the project," and still meet federal requirements, Wardle added, though the department could provide no estimate of savings.

Before using ITSA, the health department had considered another option, Wardle said. While the Computer Aid contract was still in force, "the department explored an opportunity to join a multistate consortium through a cooperative purchase agreement with the state of Utah. Unfortunately, Pennsylvania was unable to join the consortium and decided to finish the project with IT Staff Augmentation," he said.

So the WIC job was turned over to the ITSA program and its manager, Optimal Solutions. To finish the WIC job, Optimal hired two ITSA contractors: Computer Aid, the same firm that the state had terminated; plus a second firm, Ciber Technologies, whose senior Pennsylvania executive had been indicted in connection with his role in a botched $80 million Pennsylvania Turnpike Commission software installation.

Besides criminal charges against Ciber and turnpike officials, the turnpike job led to prolonged litigation that ended only this year after Ciber went bankrupt. A Ciber successor company is still working on the WIC job as part of ITSA.

When will the WIC job be done, and how much will it cost?

"The overall project has a 2020 deadline," Wardle said. The final cost is not yet clear, since the state may "add other components to the project at a later date."

(Friday, Aug. 3, 5 p.m.: This story has been updated to add comments from an attorney representing Optimal Solutions and Technologies.)