IG blasts FEMA for conflict of interests in IT contract in flood insurance program

Federal Emergency Management Agency officials in charge of transitioning an information technology services contract at the National Flood Insurance Program from one contractor to another chose a former employee of the new contractor to oversee the new company's performance, according to an inspector general's report released on Friday.

The officials also hired 14 former employees of the legacy contractor to work in FEMA's Mitigation Directorate, which manages the flood insurance program.

"The misplaced allegiances of key directorate employees hampered the performance of both contractors," wrote Homeland Security Inspector General Richard Skinner in a report. The report was written at the request of FEMA leaders.

Among the problems Skinner found were:

--The Mitigation Directorate attempted to develop an IT system without involving the chief information officer, resulting in a system that didn't meet FEMA's security or technical requirements, failures that ultimately wasted $7.5 million.

--Directorate officials failed to coordinate activities with the acquisition management division, leading the agency to pay for an unproven system.

--The current acting assistant administrator for the Mitigation Directorate admitted knowing little about IT, the status of the technology transition or FEMA's security requirements. Instead of turning to the chief information officer or acquisition management division, he relied on subordinates.

--Directorate officials gave orders to contractors without involving contracting personnel, undermining the contracting officers' ability to enforce the terms of written agreements between contractors and FEMA.

The National Flood Insurance Program, established by Congress in 1968, aims to reduce flood risk through management of flood plains, improve hazard data and risk assessment, and make affordable flood insurance widely available in communities that take steps to mitigate risk.

In 2002, FEMA developed a blueprint for modernizing the program's future operations through a new IT system called NextGen. Optimal Solutions and Technologies won the contract in 2003 to develop the system, a government-owned network that FEMA, insurance companies and federal contractors would use. NextGen was to replace the legacy system operated by Computer Sciences Corp., which was scheduled to be retired in October 2008.

In 2006, the NFIP program office hired an employee from Optimal Solutions and Technologies who had worked for years on the development of NextGen. The employee was an IT adviser to the panel selecting the contractor to provide program management and insurance services -- a contract ultimately awarded to Optimal Solutions and Technologies. One year after FEMA hired the former employee, the worker was appointed the representative overseeing the new contract with his former company.

"The line between the [technical representative's] allegiance to FEMA and [Optimal Solutions and Technologies] became blurred and may have delayed the program office's realization that NextGen was unable to become the [system of record] as scheduled," the IG found.

For example, the employee misrepresented the results of an independent IT analysis of NextGen in March 2008, portraying the findings more favorably than actually reported. In spring 2009, the employee said the analysis indicated the NextGen transition was on track, when in fact it was not -- documentation was incomplete, the system was not fully tested, and it lacked required approval from FEMA's IT security office. The employee did not notify superiors of missed milestones until July 2009, nine months after the legacy system was to be retired.

The former employee of Optimal Solutions and Technologies wasn't the only problem the IG found. Fourteen former CSC employees worked at different levels of management in the program office. FEMA employees interviewed by the inspector general's office reported biased conduct toward their old company.

"Without exception, interviewees voiced concern that the program office had split into two camps, those favoring CSC and those favoring [Optimal Solutions and Technologies]," the inspector general wrote.

The divided allegiance likely impeded the transition and cost taxpayers millions of dollars. Because NextGen didn't become the system of record as scheduled, FEMA had to pay CSC more than $7.2 million to keep the old system operating for another year. FEMA also paid IBM, a third contractor, $388,000 to analyze NextGen's readiness. In November 2009, FEMA terminated the contract with Optimal Solutions and Technologies for convenience.

The IG made four recommendations to improve FEMA's oversight of the IT systems. FEMA agreed in part with one and in principle with the other three.

"Overall, the draft report competently relays the facts and identifies the deficiencies in the management of the National Flood Insurance Program information technology transition from an existing legacy system to a new NextGen system," said David Kaufman, director of the office of policy and program analysis, in a memo responding to the report.