Obamacare: Washington severs ties with Montreal-based IT firm

CGI headquarters on René-Lévesque Blvd.
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Shares of IT services provider CGI Group fell 2.6 per cent Friday afternoon after published reports said the Obama administration will end the Montreal-based firm's contract for the problem-plagued health-care website.

The Washington Post newspaper and Bloomberg, citing unnamed sources, said the U.S. government is preparing to sign a 12-month contract worth about US$90 million with Accenture.

CGI Federal's contract is slated to expire in February but could have been renewed for one or two years.

On the Toronto Stock Exchange, shares of CGI (TSX:GIB.A) fell 91 cents at C$34.34 in early afternoon trading.

The Post said the government acted after concluding that CGI had not been effective in fixing computer problems in the new federal website HealthCare.gov.

CGI said it would comment later today. Accenture declined to comment on the reports.

After encountering initial problems at the October launch of the website that delayed or prevented people from enrolling in private health plans, the U.S. administration said last month that many of the problems were fixed, with more than 2 million people signed up. But the reports say the website is not yet able to automatically register people eligible for Medicaid in states' programs, compute exact amounts to be sent to insurers for their customers' federal subsidies, and tabulate precisely how many consumers have paid for their insurance premiums and are therefore actually covered.

The Post also said leaders of the Centers for Medicare and Medicaid Services "became frustrated with the pace and quality of CGI's work on the repairs.''

President Barack Obama's political support has taken a beating over what he described in a year-end interview as "fumbles'' with the website while Health and Human Services Secretary Kathleen Sebelius called it a "debacle.''

In November, CGI said that its customers haven't been spooked by media reports linking the company to the troubled launch of the Obamacare in October, about two years after it won the high-profile contract.

CEO Michael Roach told analysts that clients "clearly understand'' the complexity and uniqueness of the project, which is a key part of the president's health insurance strategy.

"This is not a simple website but rather a very complex integrated technology platform that, for the first time, combines the process of selecting, enrolling in insurance, and determining insurance eligibility for government subsidies all in one place and in real time,'' he said.

Industry analysts have said CGI's reputation has taken a short-term beating, but the information technology company's long-term forecasts remain bright because of the blockbuster European acquisition of Logica, a multinational IT and management consultancy company based in the U.K., in 2012.

A senior vice-president of CGI Federal testified before Congress that it was the government's responsibility — not the contractor's — to test the website and make sure it worked.

"We believe that these challenges will largely be offset by an improving backdrop in Europe (not to mention the tail wind of an appreciating euro), which is a much larger component of CGI's business,'' Thanos Moschopoulos of BMO Capital Markets wrote in a November report.

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