Investment Review Board Meeting December 12, 2005 FB6-1W103 Attendees IRB Members- Ted McPherson (OUS and Chair), Ray Simon (ODS), Michell Clark (OM), Terri Shaw (FSA), Jack Martin (OCFO), Tom Skelley (OUS - Budget), Henry Johnson (OESE), Kent Talbert (OGC) IRB Guests - Glenn Perry (CPO), Danny Harris (OCFO), Harry Feely (FSA), Richard LaPointe (OVAE), Susan Szabo (FSA - CSB), Michael J. Murray (FSA-CSB), Jim McMahon (FSA-Advance) Katie Crowely (FSA-Advance), Cathy Lewis (OIG) IAMT/ITIM Team (OCIO) - Wanda Davis, Jennifer Graban, Jimmy Jones Agenda o o o o o o o Welcome: IRB Chair/Vice-Chair Review of Revised IRB Charter FY 2005 Q4 Control Phase Review: Jennifer Graban IRB Control Discussion and Decisions of the Under Secretary and CIO Recommended Corrective Actions Common Services for Borrowers: Susan Szabo/Mike J. Murray ADvance Remediation Plan: Jim McMahon/Katie Blot IRB Discussion and Decisions of the Under Secretary Meeting Minutes Introduction: Under Secretary McPherson The Under Secretary opened the meeting by asking for adoption of the IRB charter. Michell Clark noted that the changes were needed to ensure that the right person is at the table in order for the entire IRB members have solid recommendations and to serve as a structure in place to allow for meeting to flow more smoothly. This recommendation was made for approval of the new charter and the members agreed unanimously that it should be approved. FY 2005 Control Phase Review: Jennifer Graban Jennifer Graban presented the analysis of the FY 05 Control Phase. Jennifer started by giving the overall summary of the Control Review, which addressed cost, schedule, performance and risk data for all Major and Significant IT projects. The analysis outlined overall strengthening in managing cost and schedule targets, but there were several projects that need to revisit the work breakdown structure (WBS) and baselines, which they are reporting to ensure complete and accurate information of the project status and progress. Jennifer also mentioned that there is an assessment planned for the FY 2006 Q1 Control review to evaluate projects' WBS and project managers' qualifications and training to further identify causes of portfolio variance. Jennifer noted that many of the projects also need improvements in the areas of performance measurement and risk planning. Jennifer Graban presented an overall view of each assessment area: o Cost Results Reporting issues seem to be a cause of the excess variance in regards to costs. Recommended that project managers need to revisit their WBS and baselines while also working to improve their cost estimating. 29 of the Department's IT portfolio received a Green rating for meeting target costs, with the other eight receiving a red. All of the eight projects have a positive cost variance, which may be attributed to over-budgeting, under spending, behind schedule, or other loaded activities within the WBS. o Schedule Results 1 Investment Review Board Meeting December 12, 2005 FB6-1W103 Reporting issues seem to be also driving the excess schedule variances. Recommended that project managers revisit their Work Breakdown Structure (WBS), baselines and improve their start dates and durations for WBS elements. Thirty-one received a green rating for meeting schedule requirements while six of the others received a red. Performance Results Twenty-two of the projects received a green rating, eight of the projects were graded at the yellow, and the other seven were left with a red ranking. It was noted that several projects do not clearly define what they are measuring and have not developed sound metrics to better understand what is being measured and how they are objectively measuring performance. Several of the projects report on performance annually or rely on outside subjective sources to determine performance results Risk Results This Control review was the first time that OCIO evaluated investments' risk management plans. This is an area where significant improvement is needed. The suggestions include encouraging project managers to address all 19 OMB defined risk area. The projects also need to improve their risk indicators as they pertain to their project and develop risk mitigation strategies accordingly. The projects also need to have their risk plans updated on a regular basis. 14 projects received a green, 13 were awarded a yellow, and 10 obtained a red status. o o The Under Secretary requested that further detail be provided around projects of particular concern and suggested to Terri Shaw that FSA share experiences from which the members may gain insight. CSB and Advance project managers offered to begin their presentations. Common Services for Borrowers - Susan Szabo CSB project managers were asked to come to the IRB at the 11/16/2005 PIRWG meeting to explain their plan if they should need to back out of the existing contract. Sue Szabo began by explain the current contract structure. The contact was awarded on January 1, 2004 with performance measures included that offered incentives and disincentives in the contract. The contract was designed to consolidate four legacy contracts. It was awarded to ACS with five base years and five option years. The development of the CSB system was to be delivered in the first two years of the contract. This contact value of $225 million serves over 9 million borrowers with five call centers and a contract staff of 1200 to 1400 personnel. The development creates a single Common Services for Borrowers (CSB) systems platform integrating the functions of the legacy system and provide Federal student regional staff with imaging workflow queues. The contract will save FSA $1 billion over the 10-year contract term. Terri Shaw noted that FSA is responsible for $18 billion of defaulted loans. There is another $14 billion of defaulted loans for which they are not responsible. FSA has negotiated new schedules with ACS as they have been behind schedule for They negotiated that there would be no cost to FSA for termination of the contract and that if they were successful in meeting the timeline they would be able to get a reduction in the cost of the software - We are now at the end of 2005 and they are still behind schedule. Ted McPherson noted that ACS, the prime contractor, is a New York stock exchange company. Their business partners include EDS and Pearson. Sue Szabo then moved on to the current status of the project. Federal Student Aid is still on schedule to save $1 billion with or without the development completion. The $1 billion dollars under the old contract was mostly operational costs and some time and materials systems development work. The CSB operation portion of the contract is successful and is meeting all of their performance metrics on the legacy system. The Direct Loan Servicing portion was successfully migrated to CSB environment at the end of November 2005. This consists of the bulk of the customers, roughly seven million borrowers. There are a total of approximately 9.5 million borrowers that will be moved to the new environment. Terri Shaw noted that the new environment refers to the new technology platform and computing environment. 2 Investment Review Board Meeting December 12, 2005 FB6-1W103 At the end of September 2005, CSB was successful in implementing the new imaging workflow queues in the regions (Atlanta, Chicago, and San Francisco). FSA is learning a lot about imaging and workflow and is getting staff to use it for productivity and quality initiatives. However, CSB continues to experience delays. Because of these delays, ACS needs to be re-baseline again. FSA will receive re-baseline documentation for consideration on January 8, 2006. High-level work that is still outstanding includes the integration of the direct loan consolidations, collections system, and total and permanent disability functions. Given the concessions that FSA negotiated at the beginning of 2005 and because of the delay in schedule, FSA will receive a seventy-five percent reduction on the cost of the software if it is completed and they decide to acquire it. Given the fact that ACS is re-baselining now, one can assume there will be one more delay. FSA also negotiated that this additional delay would bring the cost of the software to $0. In the original contract there was also a termination cost. If ACS doesn't deliver, FSA will still receive the $1 billion savings and be able to terminate at no cost. The transition ceiling costs are at $0. Any legacy system development costs are at $0 also. The contractor is also reimbursing FSA for any cost to the Virtual Data Center (VDC) for maintaining the legacy systems while the new system is being delayed. Terri Shaw summed up that FSA was able to leverage ACS's delays to their advantage. Several costs in the original contract were removed during these renegotiations. Jack Martin asked how much the legacy system is costing the contractor. Terri Shaw indicated that it depended on what the specific work is, but stated that the bottom line was that the contractor is eating a lot of money, estimated at over $140 million by the time the project is completed. The next steps are to receive the next re-baseline (Jan 8, 2006) with new delivery date. FSA plans to continue with the 5-year base period (ending 12/2008) given the cost reductions and the need for additional time to procure. However, they have begun the exercise for reprocurement, have done the Request for Information (RFI), and received feedback from other vendors on November 17, 2005. FSA has planned question and answers sessions for January or February 2006 to investigate other available options. Future procurement options to consider include the following: remaining on the legacy system, although this will most likely not happen; procuring CBS as it exists today, under the original intent of pulling legacy systems and operations together; procuring CSB in components, one contract for development and one for operations; or procuring CSB in multiple components. They need to check all options for feasibility and against market research. In any case, the new contractor would leverage the already completed CSB development as most of the borrowers are already in the CSB platform. The Under Secretary summed up the presentation as follows: This was a large project that got off track reasonably early. There was prompt attention from FSA, Terri Shaw, Sue Szabo and others, including meetings that the he had with ACS CEO. These actions resulted in some corrective actions from the contractor. The Department captured some business benefits from the project along the way, but work still remains to be done. The Department has also received some cost reductions from the contractor delays. Now it is necessary to look at other options for procurement. This is not an uncommon situation, but he wanted to make sure the IRB members were fully informed of the status of this project. Deputy Secretary Ray Simon asked what would happen if the contractor walked away from the project should they not be able afford this project. Terri Shaw answered that FSA is not in danger of compromising service to customers as the legacy systems are still functioning. It is in not in their best interest to walk away since this would endanger their business and a fair amount of their revenue comes from the Department of Education. This would also erode their reputation in the marketplace. The management of ACS is very committed to make this project successful and complete it. The Department has threatened to default the contractor, and the executives are making every attempt to complete this job. The Under Secretary noted that the Department has taken a fair but firm approach with this problem. It doesn't benefit the Department to run the company into the ground, but we are aware of all our options at any point in time for completing the project. 3 Investment Review Board Meeting December 12, 2005 FB6-1W103 Jack Martin asked if staffing was the cause of them not making their scheduled deliverables. Terri Shaw said that the contractor did not fully understand the level of effort in regards to this project's demands. The contractor was stunned when FSA presented them with show cause letters. They take all responsibility for the problems and are not blaming the Department for anything. They simply underestimated the level of effort. The Under Secretary noted that there were contracts in the past in FSA that were getting away with underperforming. Terri Shaw has made strides in changing the way that FSA does business with large contracts. Danny Harris inquired about what may be any barriers, besides budget, in making a final decision on other procurement options. Shaw said they would first wait for the ACS re-baseline in January. However, ACS has had a pattern of creating new schedules and now they need to deliver without continuing to delay. The positive side is that the contract was written so that the Department derives all the dollar benefits no matter the outcome of the project. The contractor management and oversight around it is good. FSA has always known ahead of time when the contractor would be behind schedule. Personal executive commitments don't mean a lot in the end if they don't deliver. They need to see a schedule they can believe in. ACS knows that there is a RFI on the street for people to bid re-procurement. This may pressure them to get this project going. Ted McPherson noted that even though there have been several problems, there have been no disruptions to the customer base. There have been some enhancements but not the full suite of enhanced services. Terri Shaw noted that the customers do not know what services they are missing. Tom Skelley asked if there are vendors that currently providing these services. Terri Shaw indicated that there is keen competition for borrower services and that these were the types of companies that responded to the RFI. Ted McPherson noted that this is probably a more attractive type of business then when it was first procured. ADvance Aid - Katie Crowely Katie introduced Advance as being somewhat similar to CSB in that it will be consolidating front-end legacy systems, processes by which students apply for aid through the Direct Loan and Pell Grant programs. The contract was awarded February 1, 2005 to the prime contractor, Pearson Government Solutions, with IBM contracted for service oriented architecture and EDS for functional knowledge around origination and disbursement functions. Pearson was the current legacy provider for application processing, bringing a lot of knowledge about FSA's front-end business. Pearson has seven other companies working with them in addition to IBM and EDS. This is a firm fixed price and performancebased contract, including incentives and disincentives around performance. Most incentives do not start until the operations part of the contract, but some disincentives occur immediately. This contract consolidates all existing contracts with Pearson into a single contract and rolled in operations of current systems along with new development. Ted McPherson reiterated that the contract covers operations of the existing system transactions as well as new development and enhancements. Katie noted that a good way to mitigate risk, reduce cost, and facilitate easier management is to award the contract to a vendor that will subsume the existing contracts from legacy systems into one. This contract has one base year with nine additional options. This gives FSA the flexibility to move out of the contract at any year with no termination penalties. The development is scheduled to occur in two phases. The first phase is the requirements, high-level design, and beginning development and the second phase is about seventy-eight percent of the overall completed development, which is at the Department's discretion. The Department can choose not to go forward with the second phase of development. Phase 1 is $20 million for development and $60 million for operating the legacy systems. The ten-year estimate of the contract is about $800 million. Terri Shaw noted that if they went all ten years, ADvance would save $500 million. CSB and ADvance combined; the Department is saving $1.5 billion. Ted McPherson noted that this is not easy work in the private or public sector. 4 Investment Review Board Meeting December 12, 2005 FB6-1W103 The contract functions include current operations of Central Processing Systems, FAFSA on the Web, Student Contact Center, Delivery partner Help Desk for application processing, ED express, Participation Management, and Editorial Services. The development includes implementation of Quick Hits for Student Contact Center, the requirements and high-level design of a new ADvance solution, technical proof of concept for ADvance solution architecture, and the development and implementation of a new ADvance solution. Future operations include all components of the new ADvance solution, including maintenance and enhancements. The project is experiencing scheduling delays due to quality control and contractor performance. The first major software development lifecycle (SDLC) deliverable, the requirements, has been rejected twice. FSA has been aware of the problems in advance of them occurring. The actions taken to alleviate these problems included continued discussion on expectations, collaborative work to address issues, formal communication of specific issues and contractual action taken in that a CURE notice was issued in September of 2005. The Department received the first draft of Pearson's CURE plan, which was not a plan but more like a contractual rebuttal to the CURE notice. The Department responded that they needed a new plan to complete the work and not a contractual rebuttal. The Department has finally received the plan on 12/9/2005 that is currently being reviewed. The evaluation of the plan will determine if it meets the technical success criteria and if the project's return on investment remains viable. There is a formal evaluation team is in place to do this work. If the plan is successful, the following will occur: o Agree on details of revised plan. o Negotiate on any possible cost implications and revised incentives/ disincentives. o Execute a contract modification (use CSB as an example to leverage contractor delays) o Complete Phase 1. o Make determination of where to execute Phase II at the Department's discretion. If the plan is unsuccessful, the following will occur: o Partial termination for the development of a new solution, which could result in default. o Re-negotiate current operations portion of the contract with Pearson. o Purse other identified alternatives as part of the plan evaluation (single procurement, multiple procurements) A partial termination is necessary because FSA will still need to maintain operations of the current legacy system until a new procurement is awarded. The major impacts of the pursuing alternative include that the Department may not be able to recover sunk costs. We are looking at ways to leverage those costs and look at moving toward litigation to getting Pearson to pay for these costs. Pearson is going to perform its part to reimburse the Department for its delays. There would also be costs to recompete and a delay in implementation of a new solution. However, there will be no degradation of services to the customer. Ted McPherson reiterated that the customer will not be negatively affected, but the Department is giving up an opportunity for cost savings and enhancements to the system. Jack Martin asked what Pearson's position would be if the Department went to litigation. Terri Shaw noted that when they were informed of the CURE notice, they were emotional, as they had never received such a notice before. They accused the Department of issuing the notice inappropriately. They were in denial in the response to the CURE, and the Department challenged them on this response. Terri Shaw suggested that they might react in a similar fashion if the Department used litigation. Ted McPherson ensured that our goal is not show how tough we are, we need to maintain a proper standing as a client. FSA has managed the risks while not affecting the customer service. The Department is not gambling but is rather managing the risks in a decisive and timely manner. Henry Johnson asked what the implications are for Pearson, as they have not completely owned up to their mistakes. Terri Shaw said that Pearson leadership is concerned that a CURE notice would harm other business with the government. They have agreed that there is a disconnect and that what they are 5 Investment Review Board Meeting December 12, 2005 FB6-1W103 delivering is not what the Department is expecting. They have already backed away from the first type of response, denial of wrongdoing, and have attempted to remedy the situation with a second response to the CURE notice, which is being evaluated now. They want the business with the Department, but they have to demonstrate that they can address all of FSA's concerns. Ted McPherson reminded the IRB members that it is in the Department's interest is working with them and other vendors since they have made such an investment in the Department already. He also reminded IRB members that in general IT project management is not stable and it takes a lot of management to handle these investments whether in the public or private sector. Michell Clark - Other Initiatives Michell Clark announced that the next projects to be discussed at the next IRB meeting would be GAPS, G5 - Grants Management Re-Design and EDFacts (formerly known as EDEN). He asked the members to look at the summary sheet in the back of the folders that shows how each application is performing across all quarters of FY2005. He encouraged everyone to look at the items in their portfolio to see how they are performing. Ted McPherson agreed with Michell's recommendations to have EDFacts, GAPS and G5 highlighted at the next IRB. Meeting adjourned. Action Item and Decision Table IRB Meeting Date 12/12/05 Action/Decision Action Description EDFacts, GAPS, and G5 will present at the next IRB meeting Actionee OCIO/IAMT and Project Managers Status Open 6