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$54m later, state fired computer contractor

The state’s Department of Revenue fired Deloitte, the firm tied to snarls at the Labor Department, as defects became obvious.

REUTERS File

The state’s Department of Revenue fired Deloitte, the firm tied to snarls at the Labor Department, as defects became obvious.

The commissioner of the state Department of Revenue, Amy Pitter, vividly remembers her employees’ reaction during a disastrous test run last year for a $114 million computer system that was supposed to revolutionize the way Massachusetts residents file tax returns. The system couldn’t print forms or calculate interest and penalties, despite the fact the state had already paid $54 million on the project.

“Holy cow, this is not good,” Pitter recalled. “This is horrible.”

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So she eventually did what public officials rarely do when they are faced with substandard work by a contractor, in this case, Deloitte Consulting of New York. She fired them.

In a statement, Deloitte spokeswoman Courtney Flaherty said her company and the Department of Revenue “mutually agreed to terminate the contract when the project changed direction. We met our obligations and were paid for the work we performed.’’

The department terminated Deloitte in August, just a month after another state agency — the Labor Department — rolled out its own Deloitte system, to handle unemployment benefits. Deloitte’s work on that project was two years late, $6 million over budget, and plagued with problems that left hundreds of jobless workers struggling to get benefits.

Labor Department officials said they considered firing Deloitte after it missed deadlines for delivering the system, but, unlike their colleagues in the Revenue Department, determined it would be too difficult or costly to replace the company in the middle of the contract. They ultimately agreed to pay Deloitte millions more to finish the project.

Later this month, the Senate Committee on Post-Audit and Oversight will hold hearings to examine the Labor Department contract and problems by claimants since the introduction of the system July 1, the committee chairwoman, Senator Cynthia Stone Creem of Newton, said Thursday.

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Public officials often don’t fire consultants because it may involve acknowledging a botched project, damaging their own reputations, or igniting public ire over the costs, said Z. Vanessa Giacoman, managing partner at Panorama Government Solutions, a consulting firm in Denver. The result is often a lack of accountability by the contractor, even when projects are over budget and behind schedule, she said.

“In the private sector, these people would be fired in a second,” she said.

Lauren Jones, spokeswoman for the Labor Department, said in an e-mail that officials knew the Revenue Department had been working with Deloitte but considered the project separate and distinct.

“While we have uncovered some problems since the launch,” Jones said, “it has been largely successful, and we are holding the vendor accountable for any necessary fixes.”

Deloitte has said that the unemployment computer system is a complex and challenging project, but it has devoted considerable time and resources to ensure a quality system.

The Revenue Department project was never installed.

Pitter said firing Deloitte will delay the project, but she still expects to bring the system in on budget, by using as much of the hardware, software, and system design from Deloitte as possible.

She said she expects the system to go online in about a year.

“To end a contract like that, it’s hard,” Pitter said in an interview. “You spend a lot of money, you have high hopes, but I’m 100 percent confident we made the right decision.”

On Thursday, the agency put the rest of the project out to bid.

The Revenue Department first awarded the contract to Deloitte, the low bidder, in 2010.

The goal was to build a system that would dramatically improve tax collections, provide more personalized service to taxpayers, and consolidate tax activities online.

Pitter inherited the Deloitte contract when she became commissioner in 2011. An experienced former information technology project manager, she said there had already been delays, problems, and Deloitte staff turnover.

Pitter said she tried to get the project back on track, monitoring it much more closely. But when the agency began in-house tests in September 2012, it found 1,000 defects.

Deloitte, to its credit, fixed the problems at its own cost over the next nine months, she said. Pitter said her agency decided that if it kept Deloitte, it could spend the entire $114 million and still not get the system it wanted. So she decided to pull the plug.

Megan Woolhouse can be reached at megan.woolhouse@
globe.com
. Follow her on Twitter @megwoolhouse.

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