The state Department of Revenue relies on some computer systems that are so old that if they were state employees, they could retire this year with full pension benefits.
Those 35-year-old mainframe systems were installed in 1975, the year Bill Gates and Paul Allen formed a partnership that would become Microsoft.
The systems handle the flow of money from different taxes into state government and have outlasted many department employees. The agency also uses newer systems that process other taxes; they are about 20 years old.
Revenue Secretary C. Daniel Hassell doesn’t mince words. He worries the systems are living on borrowed time and could crash, bringing the department in charge of state tax revenue to its knees.
There is no argument from lawmakers that computer modernization is needed. In fact, a new system is on order, and it comes with an expected price tag of nearly $100 million.
The state recently selected Accenture, a global technology consultant that has offices in Philadelphia and Pittsburgh, to do the job.
However, several department employees and representatives from technology firms raised questions about the project and the process that led to a contract.
In addition, a company that lost out on the contract has filed a lawsuit in Commonwealth Court.
The company, Fast Enterprises of Greenwood Village, Colo., claims the state engaged in unfair practices that ignored the lowest bidder in the initial round of bidding and stifled competition.
Fast specializes in government tax systems, and its software platform is used in 14 states, said James Harrison, a partner at Fast. Fast’s software platform is more widely used among the states than any other, according to a representative of the Federation of Tax Administrators, an organization of state tax officials.
Harrison said his company never filed a lawsuit over procurement before this one.
He said he is certain the state will spend about double what it would have spent on this computer modernization had his company gotten this project.
“It’s just interesting the state seems intent on spending the most amount possible and having the least amount of competition possible on this,” Harrison said.
The state maintains it has the discretion to specify the software for this project. State officials also say this requirement was necessary so the computer systems would be compatible with those of other state agencies. State law does not require the state to accept the lowest bidder.
Accenture spokesman Peter Soh declined to comment, saying his company doesn’t respond to inquiries made about active procurements. Other companies that bid on the project also declined to comment on the matter.
Accenture was selected after the first round of bidding about a year ago, but the state decided to seek a fresh round of bids. The state altered the project’s requirements to include a specific software platform. Accenture won that competition this summer.
The amount of Accenture’s bid will not be released until a contract has been executed, and negotiations are ongoing, said Ed Myslewicz, a spokesman for the Department of General Services, which is the agency that handles state purchasing. He said the Fast lawsuit would not delay the execution of this contract.
Changes increase risks
Revenue officials said the department can’t operate as efficiently as it should with the outdated system, particularly with the budget-related job cuts it has absorbed over the last year.
Additionally, they said these critical systems are at risk of failure every time a tax change is ordered by the Legislature. That happens frequently.
Making changes in these very old systems introduces risks,” said Hassell, the revenue secretary. “It creates a risk that it will fail and start making errors or will just crash. I don’t want to be in charge of the department when that happens.”
Hassell began working for the Revenue Department in 1981 and was trained to use the corporate tax system. He said the computer he worked on was a green-screen terminal that has since been replaced, but the software powering it is still in use.
The department’s computer systems use COBOL, an outdated computer language no longer taught in college classrooms, which makes it increasingly difficult to find employees who can work on the system, Hassell said. It doesn’t do everything the department needs its computer system to do, such as calculating interest owed on corporate tax accounts. Department employees must do that manually.
The Revenue Department has different computer systems processing different tax types. One handles only corporate taxes. Another does the income tax, another the sales tax and employer withholding. Another is for smaller tax types such as the inheritance tax. The systems are information silos and cannot communicate with each other.
“It’s very hard to get a unified, integrated view of any one taxpayer,” Hassell said.
It’s possible now for the state to send someone a refund check for overpayment on one tax and send a bill for money owed for another tax.
“There’s no business in the world that would do that,” Hassell said. “We should be able to look at that taxpayer as one entity in order to really do our jobs well, and we’re just not there.”
He said the system Accenture has been tapped to install will be able to do that.
But some question the wisdom of diving into a costly, multiyear project with less than six months left in Gov. Ed Rendell’s term.
“The administration that’s making this decision won’t be held accountable for it, and the next administration won’t have a say in it,” said one technologist who asked to remain anonymous to avoid hurting his firm’s business relationships with the state. He was among eight department employees and representatives from technology firms who contacted The Patriot-News about peculiarities about this project.
Hassell said the work can’t be delayed.
Revenue’s computer system could crash like the mainframe at the state Treasury Department did over the Thanksgiving weekend in 2008.
“I think whoever the next governor is will look at the situation and say, ‘I don’t want to take the risk that the Revenue Department isn’t able to operate.’ They need to push ahead,” Hassell said.
The state budgets over the last three years included a total of nearly $24 million for this project. This year’s budget spends $15.8 million more, leaving upward of $56 million that the next administration will need to find to complete the modernization.
6 bids received
A solicitation for bids was put forward in April 2009.
Six vendors submitted bids. They ranged from Fast Enterprises’ bid of $53 million to Deloitte’s $104 million bid.
The Revenue Department chose Accenture, which submitted a bid of $65.4 million, and sent the company a letter on Oct. 1 saying it had been selected for contract negotiations.
Two months later, the department notified Accenture that it had changed its mind.
About six weeks later, a new invitation for bids went out. This time, it included a requirement that the vendor use a particular software package from SAP America, based in Newtown Square, Delaware County, that is used by agencies under the governor’s jurisdiction.
This bid solicitation drew only two responses. One came from Deloitte, which is the biggest beneficiary of the state’s information technology contracts. According to state Treasury records, Deloitte has been paid more than $854 million since 2003 for computer services provided to the state.
The other came from Accenture, which has been paid just under $24 million during that same time span, according to Treasury records.
Myslewicz said the first bid solicitation should have required the SAP package. He cited a March 2009 executive order that requires agencies under the governor’s jurisdiction to build on the state’s SAP system in any updates to financial applications.
In its lawsuit, Fast argues that the state’s procurement process was flawed because it overlooked the low bidder the first time the project was bid.
But Fast Enterprises’ attorneys also argued that the state’s software requirement was unlawful.
“The critical factual dispute is whether or not there is any meaningful validity to their claim that specifying SAP is going to save taxpayers money in the end. That’s the key dispute, and our guys would say it just isn’t accurate,” said Bridget Montgomery, a Harrisburg lawyer representing Fast Enterprises.
In court documents, Fast claims that SAP is an “essentially unproven tax processing software system … with little experience in the field of integrated tax processing systems.”
Four states use or are in the process of moving to an SAP platform for their tax administration, and one state, Florida, doesn’t have a state income tax, which Harrison said, “is by far the hardest and largest tax” to administer.
But the state’s lawyers argue that requiring agencies to use SAP systems is intended to capitalize on the multimillion-dollar investment the state has made in the system and state workers’ expertise in working with it.
“Clearly this was not an arbitrary or capricious choice but the exercise of reasoned judgment,” the state’s lawyers stated in court documents.
Hassell said the worst thing the department could do is pick an incompatible software that can’t talk with the rest of the state agencies’ systems, although he conceded that interface programs that would come at additional cost could alleviate that problem. Fast representatives claim their bid included the cost of the interface programs and training state employees.
“We would like to make sure if we are going to spend all this money that we do it in a way that’s consistent with the direction the rest of the commonwealth is taking,” Hassell said. “In the long run, that will be a far less expensive solution.”
Observers said the executive order compelling agencies to use a particular software package flies in the face of ensuring the state is getting the best deal for taxpayers.
“In 2010, where every tax dollar is scrutinized … the state finds it OK to limit competition for this $100 million project,” said a department employee who asked to remain anonymous for job security reasons.
Also puzzling to observers was hearing that a similar computer project that is going out to bid in late August at Treasury is not expected to include this SAP software requirement.
Treasury spokeswoman Corinna Wilson said, “A more open solicitation will give Treasury a wider array of approaches to evaluate.”
While many state agencies use SAP software, not all do, she said.
Myslewicz, the General Services Department spokesman, responded that Treasury is not an agency that operates under the governor’s jurisdiction and therefore is not compelled to comply with the 2009 executive order.
Harrison remains adamant that his firm could have saved taxpayers money.
“We could have helped the state and provided a great system at a great value in a good timeframe, all those things, like we do everywhere else, but they obviously have other ideas,” Harrison said.
Source:http://www.pennlive.com/news/patriotnews/index.ssf?/base/news/12806142055400.xml&coll=1
