Obamacare Web builders unscathed by mess

For all the heat in Washington, the contractors responsible for constructing Healthcare.gov haven't taken a hit in the stock market.

By The Fiscal Times Oct 25, 2013 12:43PM

Screenshot of the HealthCare.gov WebsiteBy Brianna EhleyThe Fiscal Times logo

The contractors responsible for constructing the Obamacare glitch-ridden website, Healthcare.gov, seem to be fairly immune to their product’s failures -- at least as far as the stock market is concerned.

CGI Federal, the American division of Canadian-based CGI Group (GIB), the contractor that played the largest role in building the troubled site, has seen almost no change in its stock performance since the botched launch nearly three weeks ago. CGI is also the lead contractor that designed the website for Hawaii’s state exchange, which experienced so many technical problems that it had to re-launch two weeks behind schedule.

Still, its reputation in the financial sector remains unscathed. Indeed, CGI’s stock opened at $34.83 on Oct 1 -- the day the exchanges first went live. It closed at $34.43 on Thursday -- despite a barrage of heavy criticism from the media and the administration for the scores of technical problems with its “finished product.” The two other major contractors that helped build the website actually saw their stocks increase during that same time period.

Equifax Workforce Solutions, a subsidiary of Equifax (EFX), saw its stock rise nearly 7 percent on Thursday, from $63.74 to $59.68. Similarly, Serco Group, which trades in London, enjoyed a slight uptick in its stock price from $548 to $552.50.

That’s after three solid weeks of receiving negative attention over its faulty product.

A slim success rate

The website has performed so poorly that during its first week of operation only 2 percent of the 9.47 million unique visitors were able to begin the application process, according to a study by Millward Brown.

Healthcare.gov has even received criticism from some of the White House’s closest allies like former press secretary Robert Gibbs, who called the rollout “excruciatingly embarrassing” and called for heads to roll.

For their part, the contractors are doing their best to deflect much of the blame back on the administration. During a lengthy congressional hearing on Thursday, Cheryl Campbell, senior vice president for CGI Federal, said the federal agency in charge of the project (Center for Medicaid and Medicare Services) was “the ultimate responsible party for the end-to-end performance” of the site.

She explained that the site passed eight technical reviews as required before the official launch, and that it was the government’s decision to take the website live on Oct. 1. The independent testing that each group said was completed was not nearly enough to guarantee a relatively seamless launch.

Last week, during an interview at CNBC, Mark Bertolini, CEO of Aetna, elaborated on how the system has failed: “When you implement a project of this size, the first thing you do is unit testing, then application testing, then you do integrated testing, then you do scalability testing, and then you do user testing.  And that plan is usually a lot longer than some of the application development itself. That's happening on the fly. We didn't get code drops until about a month before the system went live.”

CGI, with revenue of $4.8 billion in 2012, received about $88 million through March from CMS. But with the additional “fix it” workload, the administration is having to pour more money into the project, causing CGI's total work on the federal exchange website to soar to nearly $200 million, far above the spending first allocated for the site, according to Reuters. (The total spending on the site exceeds $500 million according to estimates.)

As Dan Carrol of Motley Fool notes, the additional payments likely explain why the contractors’ stocks are performing well right now. But if the tech glitches persist and CGI, as well as the other contractors continue receiving negative attention, they’ll be as radioactive as the site is right now.

“Any tech-related failure of the law will affect the company's future more than its present. CGI has already been awarded its government contracts. However, there is an opportunity cost here: As fellow analyst Sean Williams points out, CGI could see potential future business dry up if Obamacare's technical problems grow worse,” Carrol writes.

For now, analysts like Desjardins Securities’ Maher Yaghi, say CGI will likely report steady growth in the fourth quarter.

Brianna Ehley is a reporter at The Fiscal Times. Subscribe to The Fiscal Times' FREE newsletter.

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19Comments
Oct 25, 2013 1:45PM
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I know if I wanted to make the president look bad a DDOS attack on the healthcare website would be a very cheap and effective way to do so. It is clear that everyone should get an exemption from the penalties for at least 1 year so they can fix the problems and allow people time to sign up.
Oct 25, 2013 2:05PM
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It's not my fault, is the mentally of each side.  The website should of not been released until if worked properly.
Oct 25, 2013 1:44PM
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Maybe if Obama would hire some younger people instead of more old white men they could have told them this was going to happen. Anyone who has played Sim City, Diablo 3, or GTA 5 online could have told him that they needed to overestimate the amount of bandwidth needed and that they needed to stress test it before rolling it out.
Oct 25, 2013 2:05PM
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They probably had a good reputation ---- until they did business with the incompetent whoring slut specification providers known as the administration of President Barack Hussein Obama.
Oct 25, 2013 2:17PM
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They will be hit. Everything is the fault of everyone other than the Kenyan.
Oct 25, 2013 1:56PM
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I knew they were going to blame this on private enterprise and capitalism somehow.  It is never the governments fault.  Maybe if they don't always use the lowest bidder, gov't would work a little better.
Oct 25, 2013 3:23PM
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Why wouldn't the company continue to perform well, heck, they are getting paid 3 to 4 times the actual amount of what they claimed something would cost. If everyone could overcharge like these criminals do, they would be singing all the way to bank also. Now in spite of the fact that they provided shoddy work, they can overcharge even more. Now that's a SCAM that rivals Defense Contracts.

Obama has failed just as his Republican Counterparts in Transparency concerning Bloated Government Contracts. It's literally a Slush Fund for Family and Friends of Government. And it has to end. Not tomorrow, but today. Regardless of your stance on the ACA, most of can agree about that. That is unless you are getting some of the SLUSH.

Oct 25, 2013 2:53PM
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of course the stock didnt take a hit... It won't until the pocketbook takes a hit.  If morons keep hiring halfwits at inflated prices, the halfwit enterprise is still going to make fat earnings.  Even if the product is garbage.

If i ball up pieces of paper and sell them for $10 each as a free energy generator, and people buy 10 million of them, well... investors don't care that the product is ridiculous as long as it makes money.

It will take a while before bad quality catches up with them and customers go elsewhere, but it will be even longer to recover once it does.  Ask GM, Chrysler and Ford.
Oct 25, 2013 6:28PM
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Clearly the fault of the Government when this company has a TRACK record of failure. So sure, we believe you Jacob. Both sides of the aisle are knee deep in Family and Friends contracts regardless of the quality of services rendered. It must stop, now. Jacob must have missed the 60 minutes episode where they questioned both parties about the misuses of Campaign Funds. Corruption is Rampant by both Parties, there is little doubt about that. Family members are getting paid 6 plus Figures to basically sit on their hands all day. Same for their Friends.

There are a ton of ways to address Cost concerning health-care if folks stop oversubscribing Drug Prescriptions and the like. Bogus costly tests and not enough preventive health-care programs. We can address the cost issues even with the issues of subsidizing the Old and the Sick. At some point, everyone will be either OLD and or SICK. Seems some folks don't understand that part of Reality.

Oct 25, 2013 4:52PM
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I'm not surprised. Blame the contractors if you would like, but this is clearly the fault of the government. They delayed important decisions and compressed the performance and testing portion of this project. Given enough time and detail this problem can be fixed. However the problems with the PPACA will be much harder to fix. Somehow we need to get the young and healthy to subsidize the old and sick, not easy. Otherwise we should expect the PPACA to cost significantly more than promised with just as many uninsured as before. 
Oct 25, 2013 1:53PM
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A website can be fixed. T-bagger stupidity cannot be fixed.
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