HUD issues to IBM new, cheaper financial management upgrade

This article was updated at 5:59 p.m. on Monday, Sept. 27, to include comments from Housing and Urban Development Department officials.

IBM has won a new $129 million contract to upgrade the Housing and Urban Development Department's financial management system, following the department's decision to scale back a prior design, according to HUD contracting officials.

The 10-year work order comes after the department announced on Sept. 15 that it would scrap plans for a three-phase integrated financial management project in light of an Office of Management and Budget review of the initiative's complexity. The government posted a summary of the award on FedBizOpps.gov on Sept. 24. In 2008, HUD had granted IBM a more than $190 million, 10-year contract to modernize its financial operations, but the deal was contested and work never got started, HUD officials said on Monday. The new pact with IBM represents the culmination of an open bidding process that began in 2006, they added.

Under the agreement, HUD and IBM will build a single core system that is expected to save up to $44 million, department officials said. The initial plan was to deploy a core system that would synch with applications and data at Ginnie Mae, a government corporation that guarantees payments on mortgage-backed securities, and the Federal Housing Administration. IBM could be paid as much as $213 million for additional contract line items, including the $44 million option of incorporating Ginnie Mae and FHA at a later date.

This summer, OMB halted development on all government financial systems -- projects totaling $20 billion -- so departments could troubleshoot this class of systems, which tend to waste billions of taxpayer dollars on delayed, overly ambitious work. OMB heads and officials at federal departments are meeting to decide whether to cancel or rework each project.

After work on its pared-back system starts this year, HUD will examine the practicality of connecting with the Ginnie Mae and FHA systems, HUD officials added.

"As a result of discussions with OMB, and to accommodate our reevaluation, HUD negotiated with IBM to ensure that pricing for the three systems will be clearly severable and will not exceed originally consolidated prices," HUD spokeswoman April Brown said.

IBM officials were awaiting permission from the department before speaking publicly about the contract.