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Despite string of problem projects, firm continues to win state work

Deloitte Consulting and affiliated groups spend heavily on lobbying, and the firm has won more than $540 million in state contracts. Many projects have been plagued by cost overruns and defects.

December 22, 2012|By Patrick McGreevy, Los Angeles Times
  • State Sen. Kevin de Leon, when he was in the Assembly, introduced a bill that would have imposed a five-year ban on government contracts for IT companies that were sued successfully for breach of contract. That bill failed after heavy lobbying by Deloitte.
State Sen. Kevin de Leon, when he was in the Assembly, introduced a bill that… (Rich Pedroncelli, Associated…)

SACRAMENTO — When state officials wanted a computer system to track the cost of therapy, transportation and other services for 240,000 disabled Californians, they hired Deloitte Consulting.

After four years, the Department of Developmental Services decided the new system didn't work as needed and canceled the project after paying Deloitte $5.7 million.

That same month in 2006, the Department of Industrial Relations hired the New York-based company to computerize its monitoring system for workers' compensation claims. Deloitte struggled to get a package of off-the-shelf software to work for the mammoth bureaucracy. The project was eventually completed at twice the $24 million it was budgeted for.

In the costliest collapse of a state computer project, Deloitte received $310 million before the state pulled the plug in March on a project to link every court computer in California. The system was supposed to cost $33 million.

Despite its record, Deloitte has continued to win contracts, in part, critics say, because of its adept lobbying of state and local officials.

The company, its affiliated firms, employees and a political action committee they formed have spent nearly $2.2 million on lobbying, campaign contributions and gifts to officials in the last 10 years. Over the last two years, the company has spent more on influencing legislators than any other competing firm in its field.

Deloitte spokesman Jonathan Gandal said problems on projects were often the result of costly design changes by state agencies.

"Because of the quality of Deloitte's work, the expertise of our people and the value of our services," he said, the company is asked "to provide additional features and services beyond the scope of our original contract."

He said the firm has met the requirements of its various contracts and helped California "deliver higher-quality services at lower cost to taxpayers."

But Bob Stern, the former head of the nonprofit Center for Governmental Studies in Los Angeles, said Deloitte's troubles can't be all blamed on the capriciousness of state agencies.

The company's projects have sparked critical audits and legislation designed to prevent it from winning new projects. The firm's efforts to keep its contracts also triggered a state ethics investigation.

"It's amazing to me, given past performance, that this company keeps getting contracts," Stern said.

In the last decade, state agencies have awarded the company — one of the nation's largest management and information-technology consulting firms — more than $540 million in contracts, making it the third-highest-paid IT contractor hired by the state, behind IBM and Electronic Data Systems Corp.

The firm is one of just a handful that government agencies say can handle large information technology projects and so, the state has gone back to the company for many of its projects.

The company is currently working on three projects — a child support enforcement system, prison health tracking system and disability insurance automation system — that were approved in the last two years and have not suffered significant problems.

In 2003, Deloitte secured the court system contract by beating out bidders such as Northrop Grumman Corp., Sierra Systems Group Inc. and ACS Government Systems. Other companies submitted lower bids, but Deloitte had secured a top rating on technical prowess.

As the project developed, the software had to be replaced nine times at six civil courts using the system because of defects. System crashes would intermittently paralyze those courthouses. Deloitte's contract, however, did not require it to fix all of the defects because the warranty expired before the system went online.

Those problems prompted a legislative committee to order an audit in 2011. The review found that the computer network, which was supposed to be finished in 2009, might not be finished until 2016 and could cost up to $1.9 billion.

Deloitte executives lobbied to keep the project going.

Among them was Alfonso Salazar, a former undersecretary for the California Trade and Commerce Agency. Salazar had been the agency's second-in-command when it hired Deloitte in 2001 to create an international trade website.

Just before the state audit was released, Salazar and two other Deloitte representatives visited key lawmakers. The executives argued that court officials had repeatedly changed the project and were responsible for the delays and cost increases, according to legislative aides who were present.

"They were saying, 'We are not the problem,'" recalled Craig Reynolds, chief of staff for state Sen. Lois Wolk (D-Davis), a member of the legislative committee that ordered the review.

Salazar did not return calls seeking comment.

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