Costs in the Clouds

Cloud computing costs for more than quintuple original estimates
February 24, 2014

The federal government will spend more than five times the originally contracted amount for computing cloud software, according to government contracts released by the Centers for Medicare and Medicaid Services (CMS).

CMS released documents for its IT contract with Verizon Terremark, which is running the cloud component of, on Thursday. The latest documents, which were first reported by, explain that the original contract has ballooned from $10.8 million to $59.9 million since 2011.

CMS said it "could not have contemplated" the need for additional IT framework that brought millions in extra costs.

The original contract was altered 12 times between its initial award and Nov. 30, 2013, the administration’s self-imposed deadline to "fix" following the website’s disastrous rollout last October.

The documents released Thursday detail the final two changes needed to "improve performance of the Marketplace" before Nov. 30, which cost an additional $13.9 million.

"CMS executed urgently required modifications 00011 and 00012 in rapid succession to add technology infrastructure and service requirements not contemplated at time of award," the document said. "The additional services are required to provide sufficient cloud computing to support the operations of the Federally Facilitated Marketplace (FFM) and Data Services Hub (DSH)."

Terremark is responsible for the cloud computing infrastructure that facilitates the exchange of information to and from Obamacare’s data hub.

The government first awarded the contract to Terremark in 2011, but has modified it numerous times since. The original cost estimate was $10.8 million for three years. Prior to the launch of, the contract had already been altered seven times.

The final changes, "modification 00011 and 00012," cost $13,904,133.33. The total price of the project now stands at $59,948,597.91.

The General Services Administration (GSA) determined the revised cost to be "fair and reasonable," according to the documents.

Some of the services added to the contract over time were "software to support the cloud environment, firewall upgrades, virtual machine compute and storage, and professional services."

"CMS could not have anticipated the need to add these additional services," the documents said.

The documents also reveal that CMS expected the website to run smoothly prior to its launch on Oct. 1.

"Previous resource estimates gave CMS reasonable assurance that the capacity procured through this order was sufficient for the expected demands," the documents said. "CMS learned through system performance after the Oct. 1 Go Live for Open Enrollment that the Terremark cloud would not be able to handle expected traffic to the website."

CMS explained that the agency had to go outside the normal procurement process and expedite the contract because it "needed to improve the system performance by Nov. 30, 2013," the deadline President Barack Obama set to "fix" the website.

CMS also justified fast-tracking the contract because Obamacare affects a large segment of America.

"The Health Care Reform efforts this task order supports affect a significant portion of the country’s citizens," it said. "CMS is not in a position to take the time to compete the added capacity requirements and successfully implement the exchange program as mandated by law."

Aside from the failings of the cloud component, the backend of has yet to be completed. HHS awarded another expedited contract in January, this one for the completion of software that can process subsidies and payments in the exchange. HHS warned that if the website is not completed by March it puts the "entire health insurance industry at risk."

The total cost of could ultimately reach $677 million based on contract obligations by HHS.