Caution: Outsourcing Ahead

There should be a warning label: "Outsourcing IT has been known to cause major headaches." Texas' IT outsourcing project is bumping down the road. Georgia got stuck with two sole-source IT contracts because of a lack of interested bidders. And just last month, Virginia, off schedule on its IT "transformation" with Northrop Grumman, removed its chief information officer from his position, a firing heard around the state and certainly in CIO circles around the country. It also led the state Senate to hold hearings to find out what may have gone awry with a project that is handing over to a private partner the care, maintenance and upgrading of computers, networks and technology services at most of its state agencies.

The 10-year, $2 billion project was officially late as of July 1. Depending on whom you talk to, the project either will wrap up by October or won't be finished until Christmas.

The problems went public after a June meeting in which then-Chief Information Officer Lemuel Stewart was removed from his position by the Information Technology Investment Board. The Board reviews state technology investments and appoints the chief information officer. Stewart noted during the meeting that 23 agencies were disputing bills issued by the Virginia Information Technologies Agency. VITA provides IT services to state agencies and bills them for the work.

The problem, Stewart said, was that Northrop Grumman was supposed to have switched, a year ago last month, to a billing system based on the use of technology services. Stewart was planning to withhold the monthly payment to the contractor.

According to local media stories, Stewart was fired for questioning the monthly Northrop Grumman bill. Len Pomata, who sits on the board that canned Stewart and now serves as his interim replacement, advises against such a conclusion. Meanwhile, Pomata's temporary appointment as CIO has raised questions about a conflict of interest.

The billing issue, however, is not just a matter between Virginia and its outsourcing partner, says state auditor Walter Kucharski. Agencies that receive federal funds must submit bills to the federal government in a particular way--and that is not working, either. VITA entered an agreement with the feds to try to fix the billing issue within a certain period of time. "That period of time," Kucharski says, "is coming to an end."

Meanwhile, Northrop Grumman was supposed to have finished the "transformation" of Virginia's IT systems by now. The scope of the project's problems, the subject of a recent Senate Finance Committee hearing, appear to "go beyond what would have been anticipated," noted Senator Yvonne Miller. The committee plans to review how it can respond to non-performance under the contract--a question Stewart had raised earlier. It plans to hear Northrop Grumman's side of the story and review how satisfied agencies are with the IT restructuring--then figure out options for dealing with the issues.

Pomata isn't too distressed about the IT project. Northrop Grumman hasn't met its contractual obligations, he admits, but "This is a pretty complex and enormous contract. There are some down times, some up times, some glitches. That's just business."

The Virginia endeavor is unique--the first of its kind on the state level--and has "challenges and unknowns," says Jorman Granger of Northrop Grumman. "We're making tremendous progress," he notes, adding that it takes time to do things right. There is a "vastness that none of us truly understood," he says, when the commonwealth and the company started down this path together.