BreakingPoint

On Friday, US News & World Report ran a piece that has the internet abuzz.

In “15 Companies That Might Not Survive 2009,” Rick Newman opens with the recent demise of big-box retailers Circuit City and Linens-N-Things. From there, I expected to see the list populated mostly with similar retail operations — companies that sell consumer goods at a time when consumers just aren’t consuming. (It’s not a trick of the crystall ball to speculate that long-troubled BlockBuster likely won’t last the year. They weren’t doing well before the bust, and haven’t significantly changed their product offerings or business model in any meaningful way since. Chrysler was another no-brainer for the list.)

But I wasn’t expecting #15:

BearingPoint. (BGPT; about 16,000 employees; stock down 21%). This Virginia-based consulting firm, spun out of KPMG in 2001, is struggling to solve its own operating problems. The firm has consistently lost money, revenue has been falling, and management stopped issuing earnings guidance in 2008. Stable government contracts generate about 30 percent of the firm’s business, but the firm may sell other divisions to help pay off debt. With a key interest payment due in April, management needs to hustle - or devise its own exit strategy.

What especially surprised me is the idea that if BearingPoint survives, it will be based on their substantial pile of “stable government contracts.”

I can tell you first-hand that providing professional services to the public sector can be challenging, and that engagements are prone to bumps and hurdles. But those are a common element of public-private relationships. What separates the wheat from the chaff among government contractors is how those inevitable bumps and hurdles are handled.

And from what I’ve heard and seen, I’d be hard-pressed to say that BearingPoint has always risen above to triumph:

• In 2007, BearingPoint had to abandon a multimillion-dollar technical contract in Florida, to privatize the state’s accounting services via a project called “Aspire,” after significant technical failures (“$89M down the state drain”, St. Petersburg Times, May 18, 2007).
  
  

  To be fair to BearingPoint, it does sound like the state of Florida had equal culpability in this one. Still, why was the situation allowed to get this bad? Over three years and ~$90M, the project shouldn’t have devolved into “he said, she said” on a public stage. That’s an embarrassment to both parties — and worse, it erodes the public’s confidence in the state’s ability to oversee high-dollar appropriations.

• In 2004, BearingPoint was removed from another multimillion-dollar contract in Florida, where they were contracted to “maintain and improve services delivered through the State Technology Office’s data center, desktop management, and e-government services.”
  
  

  The contract was retracted due to what were spun by state officials as “procurement irregularities”… but “unfair advantage” by losing bidders.

  State auditors allege that [then-state CIO Kimberly] Bahrami did not use the same requirements for all contractor proposals that were evaluated. Bahrami chose BearingPoint as the lead contractor amongst top firms such as Accenture, and three other bidders that did not make it to the final cut. After Bahrami’s decision, the State gave BearingPoint extra perks such as additional work and compensation which was not part of the original blueprint. Florida audior general, Bill Monroe, stated that according to Florida law, competing vendors did not have an equal opportunity to make proposals. (Law & Entrepreneurship News, 8/28/04)

  And a few weeks after presenting BearingPoint with this $126M contract on a silver platter, Bahrami resigned from the state, to “pursue other professional opportunities”.

  At BearingPoint.

  This affair cast such a pall over the Florida State Technology Office that then-Governor Jeb Bush put Simone Marstiller in place, presumably with a directive to clean house and restore public faith… but to no avail: the STO was defunded by the Florida State Legislature in 2005.

• In 2001, BearingPoint was selected to serve as the systems integrator for a software system called CoreFLS, in a project intended by the US Department of Veteran Affairs to improve health services for veterans — with a price tag close to $500 million (BearingPoint’s cut was $117M).
  
  The prototype was to be built at the Bay Pines VA Medical Center in Florida, then rolled out nationwide, but CoreFLS was riddled with problems, throughout the multi-year engagement. CoreFLS eventually had to be abandoned, at a loss of ~ $300M. BearingPoint spokesman John Schneidawind said that BearingPoint believed it had complied with the CoreFLS contract, and that the system exceeded VA requirements.
  
  

  Criminal and civil investigations were launched (though, I can’t find where — if ever — there were criminal findings). A post-mortem assessment by Carnegie Mellon University called CoreFLS “an exemplary case study in how not to do technology transition.” One U.S. Senator wanted BearingPoint banned from bidding for all government contracts, over the Bay Pines disaster.

This is just three — of the dozens of big contracts that BearingPoint has landed with state and federal government agencies since leaving KPMG. And apparently, ethical issues around “procurement irregularities” aren’t that unusual when BearingPoint is involved.

Now let’s say you are one of the US states experiencing fiscal recession right now (which is most of them). Can you afford — especially in this economic climate, when taxpaying voters are being asked to tighten their belts at home — to earmark even one dime for a company that has a demonstrated history of spectacular expensive failure on government projects?

16,000 employees is a lot of jobs — and for the sake of those workers, I hope BearingPoint hangs on. But it’s got to be an uphill climb to win public-sector contracts… at a time when corporate waste and greed are taking a shellacking in the public sentiment, and every single government appropriation is being examined with a fine-tooth comb.

I just don’t see how it can be enough to pull beleaguered BearingPoint out of the hole.