Wednesday, February 04, 2009
By George Russell
Satyam Computer Services Ltd., the Indian tech giant at the center of a $1 billion executive fraud and a World Bank ethics scandal, is involved in yet another kind of debacle — this time at the United Nations’ public health arm, the World Health Organization (WHO).
At issue is Satyam’s role in the development of a $55.5 million global business management system for WHO, which was slated to become the master control for staffing, financial payments and procurement by the organization by an initial deadline of September 2007.
That deadline has long since passed, and instead, according to documents obtained by FOX News, the project is far behind schedule, wallowing in glitches that have deeply affected WHO operations, and, despite management claims to the contrary, likely to end up far exceeding its budget.
Moreover, according to the documents, in the push to get at least part of the system up and running by last summer, Satyam ignored the instructions of the software’s manufacturer, Oracle, for implementing the complex system; ran user tests that validated the system without “being able to replicate a real-life situation,” provided little or no training to WHO employees; and failed to adequately involve health care professionals who see the system as a vital tool, among a host of other failings.
Among other things, the report strongly implies that the failure to use actual data in its testing may severely crimp the abilities of the disease-fighting organization, for example, in “mobilizing large amounts of money in a very short time for emergencies.”
Despite being written in a fog of bureaucratic language, the audit report is a scathing indictment of Satyam’s role as “system integrator” for the global business management program, and also of management’s oversight of the project — failings that include “the risk of over-dependence” by WHO on Satyam even after the project is completed.
Those lapses are even more dramatic in the context of Satyam’s behavior at the World Bank.
WHO signed its contract with Satyam in September 2005 — at roughly the same time as the World Bank was in the final stages of a three year, hush-hush investigation of the company’s improper financial dealings with the bank’s chief information officer, Mohamed Muhsin, that would end with Muhsin’s ouster the following month.
Satyam itself was not suspended as a supplier by the bank, however, until February 2008 — a suspension that turned into an eight-year formal ban last September. Along with the financial dealings, the World Bank cited “lack of documentation on invoices” by Satyam as a cause for the belated sanctions.
(The World Bank, a U.N. institution, never informed the U.N. or its sprawling network of funds and agencies of the investigation, the suspension or the ban until December 2008, after a series of reports appeared in FOX News.)
In other words, Satyam won the contract at roughly the same time that the World Bank was about to fire its top technology manager for accepting heavily discounted shares of stock from Satyam in return for promoting the company’s fortunes.
Even WHO’s top management, which has been strongly defensive of its Satyam project, has admitted that “there remain continuing problems,” and has pushed off the full global roll-out of the system, beyond WHO’s Vienna headquarters and its Western Pacific region, into the indefinite future.
A WHO spokesman would say only that “there are further planned roll-outs to extend the geographical coverage during the next year or so.”
When it came to cost over-runs for the fiasco, the spokesman said only: “The contract with Satyam is a fixed price contract and no additional costs associated with the delay have been identified to date. We still currently estimate that the project will be completed within budget.”
Nor, the spokesman added, was there any evidence of “incorrect billing” by Satyam in connection with its portion of the overall deal, which amounted to more than $27 million, or roughly 50 percent of the entire cost.
But that management assertion, along with many others, is openly questioned by WHO’s own external auditors in a report that was presented to the health organization’s main legislative body, the Health Assembly, last May. According to the audit report, Satyam had already exceeded its contractual work-time on the project by more than 40 percent by that time, worth at least $1.4 million over the contract price.
Moreover, WHO’s own staff costs as a result of delays are escalating at a project rate of at least $250,000 a month, according to the report, which adds drily that management efforts to manage the financial exposure “are encouraged.”
When asked by FOX News whether WHO was “confident” that Satyam had not had similar improper relations with WHO staffers in winning or working on the contract, a spokesman replied, “All contractual relations were subject to the strict WHO procurement procedures.” He added that “this particular contract has been subject to audit.”
The spokesman also told FOX News that Satyam, which has been suspended by other branches of the U.N. in the wake of its banning at the World Bank, is bidding on a future WHO contract and also has three other contracts with the health organization “totalling less than $400,000.”
WHO’s own external auditors, however, are far less admiring of WHO’s “strict” procurement procedures.
The same external audit that slammed Satyam and WHO management for their handling of the global management system also cited WHO’s Contracting and Procurement Services Unit (CPS) for ignoring a startling variety of fundamental WHO procurement rules, involving tens of millions of dollars.
Among other things, the audit cites WHO staff for ignoring rules that demand three competitive bids on contracts, or justifying selection of a single supplier without competitive bidding, as well as rules that called for sealed bids.
In the case of one shipping company favored by WHO, the auditors noted, a contract worth $4.5 million “had been operative for the last 15 years without a written agreement and without adhering to competitive bidding at any stage,” in violation of procedures.
In the case of a $3 million insurance contract, the auditors noted that “there was no evaluation on record to establish that the new negotiated rates were competitive," and added that WHO insurance agreements “have continued with basically the same company from 1990 to date, and the current one is to continue until 2011.”
Whatever discretion the rules allowed, the auditors said, “does not encourage an agreement to be continually renewed for four terms and a period of 21 years with the same company, without going in for competitive bidding.”
More alarming was the fact that WHO’s ostensibly “strict” procurement rules were ignored on multiple occasions when they involved life-or-death vaccines for the likes of influenza, yellow fever, rabies and hepatitis A and B.
In all of thoses cases, the auditors reported, WHO’s procurement staff ignored guidelines that declared “it is imperative to purchase vaccines only from prequalified sources” to ensure that the medicines worked as they should, and instead bought them from non pre-qualified vendors.
Nor does WHO, according to the auditors, have “specific written guidelines” for the review of how well its vendors were performing. Perhaps as a result, WHO procurement staffers said they did not have a supplier performance evaluation system. Likewise, the auditors said, there was no system for recording “the background and other details for assessment of new suppliers who were invited to tender.”
Finally, the auditors found that WHO does not even have a process for blacklisting vendors who violated its rules, listing them only as “active” or “de-active.” Not that it apparently made much difference: during WHO’s then-current two year budget cycle, the auditors reported, the procurement unit “has not ‘de-activated’ any vendor in the system.”
Ironically enough, WHO procurement staff claimed that some of the lapses in collecting background data were supposed to be solved in the new global management system being installed by Satyam.
But when the auditors evaluated the Satyam project for “data conversion,” they discovered instead that whatever historical data WHO possessed on procurement would disappear once its old electronic purchasing system was shut down. “The loss of institutional memory of the Organization,” they concluded, “is a real risk.”
When it came to procurement, it seemed, much of WHO’s memory was of rule-breaking events.
George Russell is executive editor of FOX News.