IRS puts CSC on short leash

Computer Sciences Corp. will be excluded from an Internal Revenue Service project because of the company's cost overruns and missed deadlines, as IRS officials struggle to mend their systems modernization program.

IRS Commissioner Mark Everson decided this month to exclude CSC from a project to update the IRS' tax enforcement systems after he learned the company would miss an April deadline for putting in a new general ledger accounting system. CSC must demonstrate success with existing projects before it can participate in new IRS projects, Everson said.

For CSC, the costs of management mistakes and missed deadlines are beginning to mount. IRS officials have asked Congress for $40 million in 2005 to modernize their tax enforcement systems. However, CSC will not be permitted to compete for the work, Everson said. In addition, the IRS wants to create a fixed-price contract for the remaining work on the general ledger accounting system.

CSC already is under a price cap for work on the mammoth taxpayer account database, the Customer Account Data Engine (CADE). Because the contract has a fixed cost, CSC does not receive extra pay, despite working on the program longer than anticipated.

The government's cost for the initial release of CADE would be well over the estimated tab if the IRS had not converted CADE to a fixed-price contract shortly after the project started to experience problems, said Larry Levitan, a member of the IRS Oversight Board, an independent group that advises the IRS.

Reactions to the IRS' latest contract decision have been mixed. John Reece, a former chief information officer at the IRS who is now a consultant, said he approves of the commissioner's decision.

"We were very tough on them back in February 2002 when we forced them to go to a fixed contract on CADE," Reece said. When that happens, there is no profit or revenue to cover costs, he said.

But Rep. Amo Houghton (R-N.Y.), chairman of the House Ways and Means Committee's Oversight Subcommittee, which heard testimony from IRS and CSC officials earlier this month, did not view the latest action against CSC as punitive. "I wouldn't necessarily call it penalizing," a subcommittee aide said. "Chairman Houghton felt the IRS had a good plan in place to, hopefully, be successful in the coming months," he added.

Despite the latest setbacks, CSC has earned nearly $1 billion under the prime contract it won five years ago. Paul Cofoni, president of CSC's federal sector, said Congress has appropriated about $1.7 billion for tax systems modernization. CSC's share has been $927 million, which it earned from 114 task orders and from 1,100 changes to those task orders.

Sounding exasperated and at times apologetic, Everson told the Oversight Subcommittee that the IRS and CSC are to blame for letting frontline operations officials remain distant from the modernization efforts while the prime contractor and IRS technical staff members struggled to understand tax rules and procedures. As a result, task orders frequently changed.

"It would be easy for me to sit here and just trash the contractor," Everson said. "There was a joint failure here to deliver, in which the IRS really shares." n