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THRIFT INVESTMENT BOARD TERMINATES AMERICAN MANAGEMENT SYSTEMS CONTRACT FOR DEFAULT, SUES COMPANY FOR $350 MILLION

        Washington, D.C. (July 17, 2001) — The Federal Retirement Thrift Investment Board today announced the termination for default of its contract with American Management Systems, Inc. (AMS).  AMS had been under contract with the Board since 1997 to develop and implement a new record keeping system for the Thrift Savings Plan, which the Board administers.  AMS has consistently failed to adhere to the numerous schedules it has established for delivery of the new system, all the while misleading the Board and delivering inferior interim products to it.  AMS ultimately has demonstrated to the Board that it is unable to perform the contract under any timetable.

        At the same time that it terminated the AMS contract, the Board filed suit on behalf of TSP participants against AMS in United States District Court for the District of Columbia.  The suit seeks $50 million in actual damages and $300 million in punitive damages for AMS's breach of contract and fraud in its engagement with the Board.  (The complaint is posted on the Board's Web site, www.frtib.gov.)

       The Thrift Savings Plan (TSP) is a retirement savings plan for Federal employees that is similar to the 401(k) plans offered by many private employers. It was created by the Federal Employees' Retirement System Act of 1986.  As of June 30, 2001, TSP assets totaled nearly $100 billion, and retirement savings accounts have been established for approximately 2.5 million TSP participants.  Already the largest defined contribution plan in the world, the TSP will potentially double in size with the eligibility of the approximately 2.7 million members of the uniformed services in October.

       The new TSP record keeping system was to have been a customized product built around the widely used commercial-off-the-shelf (COTS) record keeping system known as "OmniPlus", a product of SunGard Employee Benefit Systems.  Use of the "OmniPlus" COTS software was intended to (and will, when implemented by the Board's new contractor, as discussed below) permit the Board quickly to adapt the administration of the TSP to the ever-changing legal and programmatic requirements affecting the TSP and defined contribution plans in general.

       Besides enhancing the efficiency of TSP administration, the "OmniPlus" software was originally intended to support the implementation of two additional TSP investment funds and certain other new benefits authorized by Congress.  Instead, because of AMS's delays, the Board announced late last year that the new benefits would be made available to TSP participants through modification of the Board's current software system by the Board's record keeper, the National Finance Center (NFC) of the Department of Agriculture.   Most of the modifications were in fact completed as of May 1.  The remaining large change -- to accommodate participation by members of the uniformed services -- will be completed by the NFC later this year.

       When it was awarded the contract in May 1997, AMS contracted with the Board a May 2000 implementation date for the new system.  Today's contract termination occurred because AMS failed to comply with its response to a "cure letter" issued by the Board to AMS in January 2001.  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.  In its March response to the cure letter, AMS set a December 2001 system delivery date, later extended to January 2002.   Last week, however, it became apparent -- as AMS refused the Board's requests 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.

       In May 1997, AMS's cost estimate for the project was approximately $30 million; since that time, AMS's estimate has skyrocketed to nearly $90 million.  When AMS manifested serious cost estimating and performance problems early last year, the Board caused an assessment of AMS by the Defense Contract Management Agency (DCMA).  Based on the assessment's adverse findings, the Board demanded that AMS take corrective measures to address them, and advised AMS that it expected a reduction in the overall charges for the project in view of AMS's mismanagement and of its false and misleading representations about the project's attainable implementation date, both as detailed in the DCMA assessment.  The Board and AMS entered into negotiations for such a reduction, but they were interrupted by AMS's successive revelations that its latest project schedule was inoperative and a new one would be required.

       Executive Director Mehle stated that, "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.  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."

       As a contingency against the potential performance failure of AMS (which has materialized), in September 2000 the Board issued a request for proposals to other software developer/integrators to adapt the "OmniPlus" COTS system to the Board's needs. After evaluation of the proposals received, an award was made to Materials, Communication & Computers, Inc., (MATCOM) of Alexandria, VA, leading a team comprising the Centech Group, Computer Sciences Corporation, Keane Federal Systems, and SunGard Employee Benefit Systems.  Upon AMS's termination, the Board has authorized MATCOM to begin its engagement, essentially the same project that AMS has been unable to complete.  Under the terms of the Board's contract with MATCOM, the "OmniPlus" adaptation will be completed within one year for a cost not to exceed $20 million.

       Mehle also noted, "Our current computerized record keeping system has been serving us reliably for fifteen years, and it can continue to do so indefinitely.  We will make a transition from it to the new 'OmniPlus'-based system only when we are completely satisfied that the new system is just as reliable."

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