The decision is part of a package of changes that will add as much as $3 billion to the cost of the constitutionally mandated count, pushing the overall cost to more than $14 billion.
The project to develop the computers "has experienced significant schedule, performance, and cost issues," Gutierrez said in prepared testimony before a House Appropriations subcommittee. "A lack of effective communication with one of our key contractors has significantly contributed to the challenges.
"As I have said before, the situation today is unacceptable, and we have been taking steps to address the issues," he said.
This was to be the first truly high-tech count in the nation's history. The Census Bureau has awarded a contract to purchase 500,000 of the computers, at a cost of more than $600 million. The devices, which look like high-tech cell phones, will still be used to verify every residential street address in the country, using global positioning system software.
But workers going door-to-door will not be able to use them to collect information from the residents who didn't return their census forms. About a third of U.S. residents are expected not to return the forms.
The Census Bureau plans to hire and train nearly 600,000 temporary workers to do the work.
Interviews, congressional testimony and government reports describe an agency that was unprepared to manage the contract for the handheld computers. Census officials are being blamed for doing a poor job of spelling out technical requirements to the contractor, Florida-based Harris Corp.
The computers proved too complex for some temporary workers who tried to use them in a test last year in North Carolina. Also, the computers were not initially programmed to transmit the large amounts of data necessary.
Gutierrez, who oversees the Census Bureau, said officials there were unaccustomed to working with an outside vendor on such a large contract.
The Harris Corp. issued a statement saying it still hopes to play a large role in the 2010 count.
"The wireless handheld devices are part of a larger, multifaceted process to move from a 'paper culture' to a more 'automated' culture appropriate for the 21st century," the company said. Despite the problems, company officials said they were "encouraged that automation and the adoption of new technology is moving forward, even if in a more narrowly focused fashion."
The 2010 census was already on pace to be the most expensive ever, even taking inflation into account. Officials now are scrambling to hold down costs while trying to ensure the count produces reliable population numbers -- figures that will be used to apportion seats in Congress and divvy up more than $300 billion a year in federal and state funding.
Harris Corp. was awarded a $596 million contract in March 2006 to supply the handheld computers and the operating system that supports them. The contract has since grown to $647 million.
The success -- or failure -- of the census could have widespread repercussions. The Constitution has required a census every 10 years since the first one in 1790. It is used to apportion the 435 seats in the House of Representatives among the states. And states and many cities use census data to draw legislative districts.
Population numbers are used to calculate billions in state and federal grants for transportation, education and other programs. Private businesses use census data to identify labor and consumer markets.