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Mass. IT project is latest black eye for Deloitte

In its brochures, Deloitte Consulting proclaims a record of “smooth implementations” of complex technology projects. But in courts, school systems, and government agencies in several states, the roll-out of computer systems built by the global consulting firm has proved to be anything but smooth.

From Florida and Pennsylvania to California, multimillion-dollar projects managed by the New York company have come in behind schedule, over budget, and riddled with problems. It is a situation that has been repeated in Massachusetts this summer; Deloitte was two years late and $6 million over budget in delivering a system to manage unemployment claims, and, separately, the Department of Revenue fired the firm for falling behind on a $114 million tax-system overhaul mired in errors.

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In Florida’s Miami-Dade County, school officials fired Deloitte in 2009, partway through an $84 million contract to overhaul the district’s computer system. After paying Deloitte $30 million and having “virtually nothing” usable they could rescue, Superintendent Alberto Carvalho said, the district turned the project over to its in-house technology department, which completed it on time and within the budget.

“After much review the best thing to do was terminate Deloitte, and we did with a vengeance,” Carvalho said. “We cut out the middleman.”

In a statement, Deloitte defended its efforts on public contracts, saying it has worked with agencies in 45 states.

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“Thousands of these projects have been delivered without incident and we acknowledge the challenges we’ve had with certain engagements,’’ Dan Prince, a Deloitte spokesman, said. “That said, we’re proud of what we’ve done in this segment and would not want these few projects to be held up as reflective of our entire body of work.’’

The problems with several of Deloitte’s systems also spotlight the difficulties that state and local governments often have in managing large technology projects, contracting specialists said. Few agencies have the will to end a project that is going badly, often fearing they will not find another firm to take over the job.

In Massachusetts, for instance, state labor officials agreed to pay Deloitte an extra $4 million to keep working after the firm missed its first deadline to deliver the system in 2011.

Eric Kimberling, a consultant who has testified in disputes over large technology contracts, said such projects are frequently riddled with problems because public officials underestimate what it takes to complete them and consultants “lowball the cost to get their foot in the door.”

Many government agencies have to get halfway through a contract before “they know what it’s really going to take to get a project done right,” said Kimberling, managing partner of Panorama Consulting Solutions of Denver.

A project for California’s massive court system shows how bad it can get.

Officials hired Deloitte and another firm in 2003 to create a statewide case management system, connecting 58 county courts, as well as appellate courts. By 2010, Deloitte was running the entire job, and the contract had been amended 102 times, ballooning in cost to $310 million from $33 million, according to a state audit.

Worse, the cost to install the software had been wildly underestimated. The total price tag soared to a projected $1.9 billion, so expensive that the courts could not afford to put the system into operation.

“We basically got this nice SUV that can really do everything but we can’t afford to get it out on the road,’’ said Cathal Conneely, spokesman for California’s Administrative Office of the Courts.

The state audit blamed the court system for agreeing to contract terms that failed to ensure it had sufficient oversight of Deloitte.

Howard Anderson, a senior lecturer at MIT’s Sloan School of Management, said states rarely have IT teams that are equipped to oversee big projects, in part because people with technical talent can earn far more working for private companies. In addition, states rarely have the resources of a global giant like Deloitte, with about 61,000 US employees.

“Essentially, they are outmanned and outgunned,’’ Anderson said. “The state needs help, and they can’t afford to have that help internally.’’

That is one of the reasons that firms like Deloitte successfully court state governments and win vast amounts of business, IT contracting specialists said. In Massachusetts, the state has paid Deloitte Consulting at least $130 million for taxpayer-funded projects since 2010, according to the state’s Open Checkbook site, which tracks contracts.

In Los Angeles, school officials watched the cost of one Deloitte system jump 35 percent above its original price. The payroll system, which eventually cost $132 million, was plagued by hardware and software breakdowns that underpaid or overpaid teachers and school employees by tens of millions of dollars, according to the Los Angeles Times.

The city had to establish emergency hot lines, which were overwhelmed by calls. The school district sued, and in 2008 reached a settlement that required Deloitte to pay $8.3 million and forgive $7 million to $10 million in unpaid invoices. School officials declined to discuss the project or specifics of the Deloitte lawsuit.

David Tokofsky, a former school board member who favored hiring Deloitte but was later critical of the firm’s performance, said the final product did not justify the cost.

“The moral is, if your car is 14 years old with 160,000 miles on it and is not falling apart, don’t go and get a new car,’’ Tokofsky said.

In 2009, Pennsylvania’s auditor general performed an examination entirely dedicated to Deloitte’s broad reach with the state, including 25 contracts. The 179-page report detailed problems with procurement and management of contracts at agencies ranging from welfare to the state liquor board. The liquor board, for example, awarded Deloitte a $26 million contract to upgrade the agency’s technology, but the system caused inventory shortages while the cost more than doubled, to $60 million.

The auditor’s review pointed back to state officials for better oversight, saying it “found numerous concerns, including poor accountability of contracts totaling $592.1 million.’’

Megan Woolhouse
can be reached at mwoolhouse@globe.com.
Beth Healy can be reached
at bhealy@globe.com.
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