VA terminates $36 million cloud deal with HP

The Department of Veterans Affairs has terminated its five-year, $36 million cloud computing contract with HP Enterprise Services, citing a material change in the agency's requirements.

The deal, signed in November 2012, was to eventually move 600,000 VA employees to Microsoft government community cloud e-mail and calendaring services. Yet only test accounts -- no actual users -- from VA actually made it to the cloud, despite the agency having the capabilities in place to do so.

Those test accounts have since been removed by VA, according to a statement from the agency to FCW.

"VA has decided to terminate the cloud email contract for the convenience of the government," a spokesperson for the agency said.

A contract terminated out of convenience means the cancelation was not the contractor's fault and was driven by changes in VA's requirements, the spokesperson clarified. As such, the now-dead deal will cost VA about $150,000 for services performed, plus what could be a sizeable termination settlement.

VA officials declined to elaborate on the changes made to agency requirements.

It is unclear how VA, the second-largest agency in government behind the Department of Defense, will proceed regarding its enterprise e-mail system. VA had envisioned its move to the cloud long before the November 2012 deal, releasing its first request for information document in February 2011.

"VA is determining next steps in regards to its enterprise email system," the spokesperson said.

HP Enterprise Systems, which acted as a systems integrator in leading the implementation of Microsoft Office 365 for the agency, also declined to go into detail on the circumstances, but an HP spokesperson confirmed the contract's termination to FCW.

And while no officials from VA agreed to comment publicly to FCW on the deal's demise, a key VA leader has publicly voiced doubt about the cloud before.

In November -- after the agency announced its cloud deal with HP Enterprise Services – VA's Deputy CIO for Architecture, Strategy and Design, Paul Tibbits, told an audience at 1105 Media's Enterprise Architecture Conference that he questioned the cost-effectiveness of moving to the cloud.

Tibbits was not discussing this project in particular, but rather stressing the broader need for real use cases and hard-nosed business assessments. "It is not 100 percent clear that expenses go down if we jump into the cloud," he said. "The revenue stream is up there in neon lights, we have got to figure out if that is going to save us money or not."

Note: This story was updated on July 16 to add HP's confirmation of the contract termination.