Obamacare Cloud Contract Will End Up Costing 10 Times Its Original Value

The Obama administration has extended and roughly doubled the value of a contract with Verizon’s cloud division to host, manage and secure backend data for HealthCare.gov and state Obamacare marketplaces because of a delay in moving that data to a new host, according to contracting documents.

The Centers for Medicare and Medicaid Services will pay the cloud division Terremark up to $58 million to store and manage Obamacare data for an additional seven months while it prepares to move that data to a separate Health Insurance Marketplace Virtual Data Center managed by HP Enterprise Services.

The contract extension, described as a “logical follow on,” would roughly double the $60 million the government had already agreed to pay Terremark for hosting services as of December 2013. That was when officials completed a series of repairs and upgrades to the troubled HealthCare.gov system, which suffered from severe outages and other usability problems during its first two months online.

The final Terremark price tag of roughly $120 million is more than 10 times the original $11 million value of the contract when CMS first awarded it in 2011. The contract had grown to $46 million as a result of 10 separate modifications by the time HealthCare.gov launched in October. Two additional modifications brought the price tag to roughly $60 million by the time repairs were complete in December.

CMS has justified the contract expansions by noting that “at the time of the contract award, the scope of cloud computing needs to support the implementation of insurance exchanges was unknown,” and that “CMS believed if the additional services were not added urgently, the exchanges would not function as designed and citizens would continue to have issues using the marketplace.”

The government contracted with HP to be Terremark’s successor as Obamacare data host in July 2013 but the transition was delayed by months of repair work following HealthCare.gov’s troubled launch in October. The HP contract is valued at $38 million.

CMS also posted three additional modifications to the Terremark contract on Thursday for a firewall upgrade and several other additional services. Those modifications totaled about $2.5 million.  

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