Breach of contract lawsuit from 2011 could tip scales in Cover Oregon claims

Breach of contract lawsuit from 2011 could tip scales in Cover Oregon claims

PORTLAND, Ore. – The KATU On Your Side Investigators have documented the crash of another Oracle website project, the circumstances of which are nearly identical to those surrounding Cover Oregon, including claims that Oracle used a “rigged” demonstration to fool reviewers and hide numerous software problems.

Montclair State University’s Bell Tower Initiative was such a disaster PC Magazine named it one of the worst software failures of 2011. MSU’s lawsuit filed the same year charged Oracle with breach of contract, gross negligence, willful misconduct and fraud. While Oracle countersued and tried to get the case dismissed, the end result was an out of court settlement. The proceedings could provide a legal template for a potential lawsuit over Oregon’s bungled health insurance exchange – last week, Gov. John Kitzhaber asked Attorney General Ellen Rosenblum to “immediately initiate legal action” against Oracle, the website’s primary developer.

Charting the course of each project from inception to implosion, BTI and Cover Oregon follow almost the exact same progression. Like Oregon, MSU had a grand vision to “replace aging computer systems with a common platform that would consolidate and manage information and data.” Its new Enterprise Resource Planning (ERP) website would be “an integrated system for finance, human resources, student recruitment and enrollment, and campus life.” It was, in other words, a ‘No Wrong Door’ approach similar to Oregon’s attempt to place healthcare insurance, Medicaid enrollment and welfare subsidies on the same online portal.

ERPs are incredibly challenging IT designs – the $20 million contract MSU put out for bid in 2007 had more than 3,000 business and technical requirements. Likewise, Oregon’s insurance exchange would need nearly triple the coding rules of other states’ insurance exchanges to support Medicaid and welfare benefits enrollment.

Enter Oracle’s sales team, which skipped the from-scratch approach. They had a different pitch for MSU: Oracle’s existing software could be snapped together like LEGO blocks to build whatever kind of web platform the school needed, straight out of the box.

“Oracle represented that 95% of the University’s more than 3,200 business requirements were satisfied by its base system,” the 2011 lawsuit stated. But according to MSU’s legal team, the statement was “intentionally false … in reliance on these misrepresentations, the University chose Oracle over another competitive bidder.”

Oracle would later quote the same 95% compatibility rating to land the Cover Oregon contract.

“A key reason Oracle was selected in 2011 was because it estimated it would need to customize only 5% of its product,” Kitzhaber said, when in reality “the actual customization turned out to be 40%,” which was MSU’s customization ratio as well.

Oracle’s live testing of the two websites produced dazzling results – and a lot of money for the company. When Cover Oregon went up for more federal funding, federal reviewers were “delighted with the level of quality”; the run-through was the deciding factor in MSU’s choice of Oracle over other vendors.

But testers might have been tricked by fake versions of the websites. “Oracle provided a ‘live’ demonstration of a robust on-line application process (Enrollment Management) that was falsely represented,” the MSU lawsuit claims. “The fact is that functionality was not part of the base system ... suggesting the initial ‘live’ demonstration was rigged.”

Flash forward to April 2012, when Cover Oregon’s “working system build” passed federal performance tests, known as gate reviews, in order to continue to receive federal funding. The testing included an individual completing an online application successfully. But a former member of the state’s IT oversight committee told the FBI it was only “smoke and mirrors.”

Bob Cummings, the Legislature’s top IT analyst, put it more bluntly: The feds were shown “little more than a demo” Oracle had built for Oregon. It gave “a skewed (or at least incomplete) picture of where we’re actually at.”

MSU tried to include the website allegations with an amended complaint – but Oracle argued successfully that its contract with the school prohibited MSU from suing for false inducement.

However, in the case of Cover Oregon, the live test wasn’t for a client – the alleged deception was meant to fool the federal government. The FBI has zeroed in on this point. It’s subpoenaed all communications between Oregon officials managing the Oracle project and the Center for Medicare and Medicaid Services, the agency in charge of the gate reviews.

Oracle’s response? Nearly identical dismissals in both instances: MSU, it wrote, was “motivated by their own agenda and fearful of being blamed for delays.” And as for Kitzhaber’s announcement he intends for Oregon to sue Oracle for breach of contract? In a statement sent to KATU News last Thursday, Oracle wrote, “We understand the political nature of the announcement (he) just made and that the Governor wants to shift blame from where it belongs.”

Oracle has already shown it’s willing to play hardball to defend its business interests, as when MSU and Oregon tried to withhold payment for their incomplete projects. With their respective websites little more than wrecked piles of code, Oregon and MSU both balked when Oracle continued to bill them. So Oracle issued both an ultimatum: Pay up, or Oracle’s programmers would walk off the project and take their software code with them.

Oregon caved, and forked over an additional $43 million. It’s still locked into another Oracle IT contract involving “No-Wrong-Door,” the $143 million Department of Human Services Modernization project. It was supposed to enable Oregonians to go to Cover Oregon to apply for benefits like food stamps, day care subsidies and Temporary Assistance for Needy Families. But this recent internal review recommended that DHS should shelve – or even scrap – the entire project. Like Cover Oregon, “DHS Mod” failed to make its online launch date last October, and it’s still unusable. The development team has burned through nearly half its budget already - $70 million so far, $48 million of that for Oracle.

MSU refused Oracle’s demand for an additional $8 million. Nor did it back down when Oracle threatened a $5.3 million countersuit.

But last year, both parties were at the bargaining table. MSU was able to extricate itself from Oracle – they agreed to an “amicable” out of court settlement (terms were not released) – and regain control of the Bell Tower Initiative. Last month it inked a three-year deal to complete its ERP project with an Oracle competitor.

On Thursday, Kitzhaber asked Attorney General Ellen Rosenblum to “immediately initiate legal action” against Oracle, Cover Oregon’s primary website developer. "I believe that the law is on our side, and I believe that justice is on our side,” he said.

Oracle appears ready for the legal battle to come – even taking credit for Cover Oregon in its latest statement: “We are proud of the work that we have done to enable over 420,000 Oregonians to enroll in health care,” read the company’s statement. “We look forward to an investigation that we are confident will completely exonerate Oracle."


Full coverage of the troubled Cover Oregon website: