CGI shares slip after Washington pulls the plug on Obamacare contract

MONTREAL — CGI Group took a hit Friday after media reports said the U.S. administration will not renew the Montreal-based firm’s contract for the problem-plagued health insurance website.The Washington Post and Bloomberg, citing unnamed sources, said the U.S. government is preparing to make the change and will sign a 12-month contract worth about US$90-million with Accenture.The Centers for Medicare and Medicaid Services referred to impending changes, saying: “We are working with our contract partners to make a mutually agreed upon transition.”CGI shares fell 2.9% Friday after the media reports, with company shares company shares losing $1.02 at $34.23 in afternoon trading on the Toronto Stock Exchange.CGI Federal’s contract is slated to expire in February but could have been renewed for one or two years. It was selected in September 2011 as the lead contractor and was awarded a US$93.7 -illion contract over two years to design and build the government’s health insurance website, said it would comment later today. Accenture declined to comment on the reports.After initial technical problems with the October launch of the website that delayed or prevented people from enrolling in private health insurance plans, the U.S. administration said last month that many of the problems were fixed, with more than 2 million people signed up. But the reports say the website is not yet able to automatically register people eligible for Medicaid in state programs, compute exact amounts to be sent to insurers for their customers’ federal subsidies, and tabulate precisely how many consumers have paid for their insurance premiums and are therefore actually covered.The Post said the government concluded that CGI had not been effective in fixing the problems, and leaders of the Centers for Medicare and Medicaid Services “became frustrated with the pace and quality of CGI’s work on the repairs.”President Barack Obama’s political support has taken a beating over what he described in a year-end interview as “fumbles” with the website while Health and Human Services Secretary Kathleen Sebelius called it a “debacle.”In November, CGI said that its customers haven’t been spooked by media reports linking the company to the troubled launch of the program.CEO Michael Roach told analysts that clients “clearly understand” the complexity and uniqueness of the project, which is a key part of the president’s health insurance strategy.“This is not a simple website but rather a very complex integrated technology platform that, for the first time, combines the process of selecting, enrolling in insurance, and determining insurance eligibility for government subsidies all in one place and in real time,” he said.Industry analysts have said CGI’s reputation has taken a hit, but the information technology company’s long-term forecast is strong because of the blockbuster European acquisition of Logica, a multinational IT and management consultancy company based in the U.K., in 2012.A senior vice-president of CGI Federal testified before Congress that it was the government’s responsibility — not the contractor’s — to test the website and make sure it worked.“We believe that these challenges will largely be offset by an improving backdrop in Europe (not to mention the tail wind of an appreciating euro), which is a much larger component of CGI’s business,” Thanos Moschopoulos of BMO Capital Markets wrote in a November report.— With files from The Associated Press read more