TSP board fires contractor

Board terminates contract for Thrift Savings Plan modernization and files lawsuit against AMS

FRTIB's complaint against AMS

The board that oversees the Thrift Savings Plan ended a tumultuous relationship Tuesday by terminating its contract with American Management Systems Inc., the company hired in 1997 to modernize the federal retirement program's systems.

Beyond terminating the contract with AMS on July 17, the Federal Retirement Thrift Investment Board filed a $350 million lawsuit against the Fairfax, Va.-based firm, claiming breach of contract and fraud.

In rapid succession, however, the board awarded a $20 million, one-year contract to Materials, Communication and Computers Inc. (MatCom), Alexandria, Va., to fulfill "essentially the same project that AMS has been unable to complete," the board said.

The termination means that the long-delayed efforts to give federal workers electronic access to their retirement accounts has come to a screeching halt. The Thrift Savings Plan is the federal government's equivalent of a 401(k) retirement savings plan.

The termination occurred because AMS failed to comply with a January 2001 "cure letter," which laid out a requirement that AMS set an implementation schedule, the board said.

"The board's cure letter required that AMS, having adopted and abandoned four previous schedules, once and for all establish and meet a reasonable schedule for project completion," a release issued by the board July 18 said.

In March, AMS officials had set a December 2001 delivery date but later extended that to January 2002.

"Last week, however, it became apparent—as AMS refused the board's request for a schedule confirming the January delivery date—that AMS knew it could not make that date but would not admit it to the board," the board's statement said.

As the project's delays have mounted, so have the costs. Originally slated at $30 million, AMS's most recent estimate is nearly $90 million, the board said.

"It was our fondest desire that AMS would adhere to its fifth, most recent, schedule, and would complete the project under it, for which the board and AMS would negotiate a fair and reasonable payment," board executive director Roger Mehle said in the statement. "It has become evident, however, that AMS is incapable of fulfilling its commitments. This appears to be a very different company from the one with which we contracted in 1997."

AMS said that it would defend itself against the lawsuit vigorously and accused the board of attempting to "shift the focus from the board's own deficiencies in performance and contract breaches."

"Implementation of a new 401(k) recordkeeping system is an inherently complex undertaking," the company said in a statement issued late on July 17. "While the board has expressed a desire to secure the benefits of a commercial system, it has been unwilling to live with the capabilities of the leading commercial systems. After more than three years, the board still has not fully determined its system needs and frozen the design."

The company noted that it has developed more than 1.2 million lines of code -- five times the original estimate -- to meet what it called the board's "evolving requirements."

"AMS remains fully committed to the successful completion of the new recordkeeping system" for the Thrift Savings Plan, AMS officials said.

In addition, the board said new benefits announced last year will be made available to TSP participants through modifications to the board's current system performed by the Agriculture Department's National Finance Center.

Most of those modifications were completed as of May 1. The remaining large change, necessary to accommodate military personnel into the TSP program, will be completed by the NFC later this year, the board said.

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