By Sharon Begley

NEW YORK (Reuters) – As U.S. officials warned that the technology behind Obamacare might not be ready to launch on October 1, the administration was pouring tens of millions of dollars more than it had planned into the federal website meant to enroll Americans in the biggest new social program since the 1960s.

A Reuters review of government documents shows that the contract to build the federal Healthcare.gov online insurance website – key to President Barack Obama's signature healthcare reform – tripled in potential total value to nearly $292 million as new money was assigned to the work beginning in April this year.

The increase coincided with warnings from federal and state officials that the information technology underlying the online marketplaces, or exchanges, where people could buy Obamacare health insurance was in trouble.

In March, Henry Chao, deputy chief information officer at the lead Obamacare agency, said at an insurance-industry meeting that he was "pretty nervous" about the exchanges being ready by Oct. 1, adding, "let's just make sure it's not a third-world experience." At the same event, his colleague Gary Cohen said, "Everyone recognizes that day one will not be perfect."

The contract to build Healthcare.gov, issued to the CGI Federal unit of Montreal-based CGI Group, has come under scrutiny after the site, offering new subsidized health insurance in 36 states, stalled within minutes of its October 1 launch, leaving millions of Americans unable to create accounts or shop for plans.

In its third week of operations, the website continues to experience problems, which government officials say they are working day and night to repair. Even allies of the Obama administration have been highly critical, with former White House press secretary Robert Gibbs calling it "excruciatingly embarrassing" and calling for "some people" to be fired.

How and why the system failed, and how long it will take to fix, remains unclear. But evidence of a last-minute surge in spending suggests the needs of the project were growing well beyond the initial expectations of the contractor and the U.S. Department of Health and Human Services.

"Why this went from a ceiling of $93.7 million to $292 million is hard to fathom," said Scott Amey, general counsel at the Project on Government Oversight, a Washington, D.C.-based watchdog group that analyzes government contracting.

"Something changed. It suggests they ran into problems and knew last spring that they couldn't do it for $93.7 million. They just blew through the original ceiling. Where was the contract oversight?"

HHS did not respond to Reuters' requests for information about CGI's contract.

The work on Healthcare.gov grew out of a contract for open-ended technology services first issued in 2007 with a place-holder value of $1,000. There were 31 bidders. An extension, awarded in September 2011 specifically to build Healthcare.gov, drew four bidders, the documents show, including CGI Federal.

That 2011 extension is called a "delivery order" rather than a contract because it fell under the original 2007 agreement for CGI Federal to provide IT services to the Centers for Medicare & Medicaid Services, the lead Obamacare agency. CGI Federal reported at the time of the extension that it had received $55.7 million for the first year's work to build Healthcare.gov.

In addition, said CGI spokeswoman Linda Odorisio, there were three one-year options, bringing the total potential value of the contract to $93.7 million. By August 2012, spending on the contract was already close to that limit.

This year, the bills skyrocketed. The government spent $27.7 million more in April, an additional $58 million in May and, in its latest outlay, $18.2 million in mid-September.

According to the government records, that brought the total spending for CGI's work on Healthcare.gov to $196 million. Adding in potential options, the contract is now valued at $292 million.

LATE REGULATIONS

The changes to the Healthcare.gov contract came in response to more detailed requirements about how the site should operate, said a person at CGI familiar with the work.

When CMS awarded CGI Federal the first $55.7 million delivery order in 2011, "most of the regulations and guidance implementing the Affordable Care Act had not yet been finalized," said the person with knowledge of the award.

The Obama administration was issuing regulations and changing policy regarding how the reform should be implemented late into this summer. Many required significant changes to the IT running Healthcare.gov, which kept contractors scrambling.

CGI Federal has been asked to provide details of what it knew of the website's troubles to the House of Representatives Energy and Commerce Committee, which is led by Republican Fred Upton. Fellow contractor Quality Software Services Inc and HHS have also received requests for information.

Democratic lawmakers and former administration officials have proposed the government get help from additional contractors to fix Healthcare.gov, including from companies that built some of the more successful insurance exchange sites in 14 states that chose to run the marketplaces on their own.

CGI was also responsible for building state-run sites that have operated more or less smoothly, including in Massachusetts and California, as well as sites in Colorado or Hawaii that have proved either partially or completely inoperable.

A "LAUNDRY LIST" CONTRACT

CGI's original 2007 contract was of a type called Indefinite Delivery/Indefinite Quantity, federal records show.

ID/IQ contracts allow the government "to write a laundry list of things they can order from the contractor," said Sarah Gleich, an attorney and government procurement expert at Gibson, Dunn & Crutcher. "They'll write incredibly broad descriptions of the work, like ‘telecom services,' so you can't tell what they're ordering."

The advantage of an ID/IQ contract, said experts, is that it can be expanded almost indefinitely, without the government having to solicit new bids for additional work.

Because "there are very strict regulations on sole-source contracts," an Indefinite Delivery/Indefinite Quantity agreement makes it easier for the government to avoid running afoul of those requirements, said Sajeev Malaveetil, a director at the Berkeley Research Group, a procurement consultant.

IT work is particularly suited to imprecise, open-ended contracts. "Agencies know that at some point they'll need IT services or system implementation," Malaveetil said. "ID/IQ contracts can often be for five or 10 years: the agency just keeps issuing delivery task orders, which fall under the base language of the contract."

No other IT contractors have come forward to say they, too, bid on the contract to build Healthcare.gov.