Labor, GSA forced to buy systems from bankrupt vendor

The Labor Department and the General Services Administration will spend more than $23.5 million to rescue systems and data from a key vendor going bankrupt.

Global Computer Enterprises runs Labor and the Equal Employment Opportunity Commission’s financial management systems in the cloud. But GCE filed Sept. 4 for bankruptcy protection under Chapter 11 in the U.S. Bankruptcy Court in the Eastern District, Alexandria, Virginia.

In what many see as an unusual step, Labor will pay GCE more than $5 million for software licenses and interfaces for its financial management system in the cloud.

GSA will give GCE more than $18 million for hardware and software in order to keep Labor and EEOC’s financial management system alive until it can move to a federal shared service provider.

These are the final steps in what has been a tumultuous leap of faith by the Labor Department.

In January 2010, Labor awarded GCE a contract worth less than $10 million to put its financial system in the cloud. Labor was one of the first large agencies to outsource its financial system to a cloud provider.

While the system worked well, Labor’s acquisition experience has been filled with lessons learned.

The most recent lesson came from Labor’s IG when it issued a redacted copy of a report Aug. 15 detailing concerns that the department may be in trouble should GCE stop supporting them all of sudden. The GCE contract was scheduled to end in June 2016, according to Labor.

Labor also had to pay GCE to gain ownership of its data. In December, the agency issued a sole source justification saying it had to pay GCE to obtain its financial management data.

Now that GCE filed for bankruptcy, Labor will transfer the running of its financial system to Booz Allen Hamilton, according to court documents.

Court documents say GCE will lose its leased space in Reston, Virginia, on Sept. 30 and must transfer all hardware, software and data to the government by Sept. 18. Booz Allen will take over the financial management system beginning Sept. 20.

“In the event that GCE is unable to complete the conditions precedent on Sept. 20, 2014, the result would have a significant impact on GCE’s operations, and as a result, have significant consequences for the core financial functions at both DoL and EEOC, particularly at the end of Fiscal Year 2014,” GCE stated in court filing.

GCE argues that the court must approve the sales to Labor and GSA because if not, DoL and the EEOC “will each lose the basic automated capability to manage their finances, creating disastrous effects to those federal agencies and the public they serve for an unknown and potentially long period of time.”

This statement by GCE directly relates to what Labor’s IG found. Auditors say Labor “does not receive contractor-provided copies of recent New Core Financial Management System (NCFMS) application and data backups. Further, the primary and alternate NCFMS processing sites, as well as department financial databases, are owned and operated by the same contractor [GCE].”

The IG said as of its July 15 review, Labor had weaknesses in its continuity plans that could result in financial management system shortfalls.

“Those recovery plans include the resumption of certain high priority core financial operations by manual processes. We noted, however, that those plans contained incomplete and insufficiently detailed financial transactions and processes,” the IG reported. “Further, the department had not fully developed a comprehensive plan for the recovery or reconstitution of financial data into an approved financial system after a disruption, compromise or failure. Lastly, we noted additional considerations for the department regarding coordination with its Emergency Management Center, as well as using an existing federal shared service provider with a standardized financial management system solution.”

Michael Kerr, the assistant secretary for administration and management, responded to the draft IG report on Aug. 11, saying since the IG first issued its draft report, Labor has made “important additions and refinements from extensive consultations and actual exercises with DOL agencies.”

Kerr said Labor has taken steps to mitigate risks of improper payments and continues to refine its approach to COOP.

Kerr also said Labor is working with the Transportation Department’s Enterprise Services Center to migrate its financial management system to ESC’s shared service.

But first, Kerr said Labor must stabilize its interim financial system, which means taking more and more control away from GCE.

“Once DoL is confident that the interim financial system is stable, DoL will resume working with DoT/ESC to prudently plan DoL’s transition to DoT/ESC’s shared service offering, which likely will occur over an 18 month to two-year time frame,” Kerr wrote. “Transitioning from one financial system to another, even to a federal shared service provider, takes significant time to properly plan and implement, and the department wants that transition to be as seamless and smooth as possible. Indeed, it is for this very reason that we asked DoT/ESC to assume operations and maintenance of NCFMS as an interim measure, so they would be knowledgeable and familiar with DoL financial management requirements as we plan for and transition to the DOT/ESC shared services. Indeed, one of the goals of the contingency efforts is for the same transition from the current financial system to the shared service provider to occur, and that this interim measure will improve that transition.”

As for the future of GCE, it’s unknown.

GCE recently changed its name or created a subsidiary called Data Analytics or Serendipity Now — it’s not exactly clear what these two companies are in relation to GCE. GSA, however, recently extended GCE/Serendipity Now/Data Analytics contract to run the Federal Procurement Data System — Next Generation and the USASpending system. In the notice on, GSA wrote “Serendipity Now (formally Global Computer Enterprises) developed, built and implemented FPDS-NG in 2003.”

An email to GCE founder and CEO Ray Muslimani wasn’t immediately returned and no one answered the phone at GCE/Data Analytics/Serendipity Now.

GCE’s downfall came as a result of too much reliance on federal customers and the costs to deal with an FBI investigation starting in 2013 over allegations that the company used foreign nationals and had other violations on contracts that were prohibited. GCE says in court documents that it opposes any civil or criminal penalties, but is cooperating with the FBI. Court documents say GCE and the FBI have not been able to negotiate a settlement.

GCE spent more than $4.6 million on legal fees thereby running out of cash to run its business.

Court documents show GCE tried to sell its business, but didn’t have any takers. And despite employee layoffs over the last year, GCE couldn’t survive.

This post is part of Jason Miller’s Inside the Reporter’s Notebook feature. Read more from this edition of Jason’s Notebook.