When the full brunt of Y2K anxieties struck in the late 1990s, states and localities were quick on the stick. They figured out almost immediately that, with little in-house experience to meet this unforeseen challenge, they would need outside help. Most state and local governments made the decision to outsource the areas in which they weren't strong.
Once the Y2K hurdle was cleared, however, some of these governments came to a broader conclusion: Outsourcing might not be a bad way to go for a much more comprehensive array of information technology and telecommunications projects.
And for good reason. Outsourcing is an opportunity to tap into the technical expertise of outside vendors. This can hold true even for functions that are at the very core of a state or local agency's mission. And there are sizable side benefits. Outsourcing can be a way to free up in-house computer operators, database administrators and supervisors for the sexier aspects of today's government technology: creating the tools that allow citizens to go online to pay taxes, pull a permit, enroll a child in camp or find out where the fish are biting. Or these functions themselves can be outsourced, with the contracts overseen by knowledgeable staff.
Inevitably, outsourcing will gain momentum at all levels of government. A recent Governing survey found that 80 percent of state chief information officers expect outsourcing to increase in the coming years. Tom Boardman, chief information officer in San Diego County and a true believer in outsourcing's potential, predicts that within a few years, $10 billion of the $50 billion total information technology budget for state and local governments will be outsourced.
The many techies who fled government to follow the money during the dot-com craze will feed the forward motion. That pool of skilled workers is now looking back to the stability of government after the dot-bomb fallout, and many are bringing their expertise back to government--not necessarily as employees but as private consultants to outsourced technology proj-ects.
All this activity will occur in an environment in which no one can yet point to a major government technology outsourcing that has been an unqualified success. Some of that is because several major proj- ects are still in the nascent stage. But others have cratered as a state or locality has been unable to overcome predictable or, in some cases, unforeseen obstacles. One of the most talked-about technology outsourcing attempts to date, for instance, is a failed statewide project in Connecticut that crumbled under the weight of union opposition.
Governments that embark today on a major technology outsourcing will have to look to models that are moving forward but that, at the same time, have not yet been fully evaluated. The good news is that there are glimmerings of successful outcomes in a range of projects and a variety of approaches. This is leading more states and localities to ready themselves to put their in-house technology projects to the outsourcing test.
GEORGIA: A TELECOMMUNICATIONS MODEL
Agency: Georgia Technology Authority
Partner: Contract out for bids
Larry Singer has a pretty busy telephone schedule these days. The executive director of the year-old Georgia Technology Authority answers callers ranging from rural legislators to other states' officials to the national media. They all want to know more about why Georgia is taking the plunge into what could be the next national model for statewide outsourcing of technology: the state's telecommunications system.
Singer knows the story well. During the first few weeks of his tenure, he reviewed the state's telecommunications services and found plenty of evidence of the need to tap into private industry's expertise. The state Department of Administrative Services had built out its own telecommunications infrastructure, but much of it was operating inefficiently. That was costing the state money: State offices were paying unreasonably high rates for both interstate and intrastate telephone calls.
And there was more. The state's public television system needed to move from analog broadcasting to digital to meet Federal Communications Commission requirements, so a major budget request for tower improvements was in the offing. A sophisticated two-way radio system had been discussed before the 1996 Olympics in Atlanta, but no action had been taken to address this point.
And in perhaps the most extreme example of inefficiency, the state had established a statewide paging network but had chosen a frequency that no one else had ever used. As a result, the state had to have its pagers custom-made at the high price of $120 apiece.
With all the talk in the telecommunications industry of an integration of voice, data and video systems, the GTA realized it should be viewing the state's telecommunications needs as a package that could be pulled together under one upgrade program. Outsourcing makes sense in this case, Singer points out, because it's always difficult for a government to get capital expenditures to modernize. Also, the skill sets needed aren't those that are at the core of what state government does best.
The resulting request for qualified contractors--a means of prequalifying prospective vendors--was released by GTA in May. It represents the largest technology-related procurement in the history of Georgia state government--and perhaps what will be the most watched state-level technology outsourcing project over the coming years.
What Georgia officials are calling the Converged Communications Outsourcing Project will cover voice communications, including local and long distance, and data communications, including Internet access and distributed computing, which takes into account local area networks and desktop and laptop computers. It will also include video communications, high-speed data access, mobile short messaging, distribution of television and radio broadcasts, two-way radio and mobile data communications.
About a dozen firms are expected to compete for the contract. A request for proposals is scheduled for release this fall, with a contract award anticipated by next January.
Singer expects the outsourcing to generate tremendous benefits as both a technology upgrade for the whole state and an economic development tool in rural Georgia. The project has strong support from state legislators, especially those that represent districts that are underserved in telecommunications. Up to now, the telecommunications industry has contended that rural Georgia was not ripe for improvements and that demand for the services in those areas was low.
The underlying theory for widespread benefits to all, according to Singer, is this: With the state serving as an anchor tenant, the new system should spur additional business activity and send demand soaring. The telecommunications infrastructure would then serve as a significant foundation for the state's other users.
City and county governments also will have the option to purchase telecommunications services under the GTA contract. The authority has guaranteed that the program will not increase its annual telecommunications expenditures, just redirect them. And existing state workers affected by the outsourcing will be assured employment for a negotiated period of time.
PENNSYLVANIA: AN OVERDUE CONSOLIDATION
Agency: Bureau of Consolidated Computer Services
Partner: Unisys Corp., with IBM as subcontractor
Think of it: There were 17 independent data centers operating within an 8-mile radius of Harrisburg, Pennsylvania, and 14 of them were being run by separate state agencies. It was this kind of glaring inefficiency in information technology that was highlighted in a report by a blue-ribbon panel commissioned by Pennsylvania Governor Tom Ridge in the mid-1990s to review state operations.
Bolstered by an analysis of options from consultant KPMG, state officials decided on a course of action. They would find an outside partner to consolidate the 17 data centers and manage the new shop. Moreover, the outsourcing would apply to operations and technical support functions, not to application development or maintenance. "This is punching buttons and running backups," says Curt Haines, director of the Bureau of Consolidated Computer Services in the state's Office of Administration.
The project was strongly backed by the governor, who had been pushing a long-range goal of improving public service delivery through technology. The governor met personally with his Cabinet on the consolidation issue. "Every member was expected to support it," says Haines, and that wasn't exactly a slam dunk. "There was a lot of raw emotion associated with this project," Haines notes. "Many managers still had responsibility for data centers that had been around for 30 years."
In the summer of 1999, the state finalized a contract with Unisys Corp., which was the sole bidder for the project and which used IBM as a subcontractor. The 17 data centers were consolidated at the former site of the Department of Public Welfare's data center, a facility now called the Data PowerHouse. The first state agency moved into the center in December 1999, and the combining of all 17 centers was completed last fall.
State officials say the change already has yielded great benefits. All state agencies have received technological upgrades under the project. Mainframe tasks are being completed faster, data storage has been upgraded, and all mission-critical systems such as public safety are in hot-site backup and recovery mode. While some of the state's big agencies were already up to speed with their technology, "for our mid-size and small agencies, the difference is like night and day," Haines says.
In addition, all state agencies now are using the same computer technology. With compatibility in place, much more interagency data sharing and planning are occurring, and that is enhancing opportunities to remove barriers to effective service delivery.
As part of the half-billion-dollar contract agreement with Unisys, 200 state employees whose roles had centered around data center operations were trained for new positions. Some employees moved over to mainframe application development, while others were trained to work in Internet applications, as part of Ridge's mission to move more state services online.
The state did not gain any immediate savings through the contract because no staff reductions occurred. But officials estimate a "cost avoidance" of about $111 million over five years. That's because they won't, among other things, have to hire Internet application contractors to develop the systems that make it possible for citizens to use electronic options for license renewals and tax payments.
Haines suggests that any outsourcing project this ambitious must have strong leadership and demonstrations of will from the chief executive. "If you have lukewarm support, don't waste your time," he says. "Entrenched forces will slow you down." He also advises states to explore existing data-related arrangements between state agencies and the federal government. An example would be where state law enforcement shares data with the FBI.
KENTUCKY: OPENING A WINDOW TO THE WORLD
Agency: Office of Infrastructure Services
Partner: Consortium headed by Bell South
Kentucky is in the sixth year of a 10-year contract with a consortium of local exchange carriers for its telecommunications infrastructure. The state touts an aspect of the outsourcing that is a distinct advantage of looking to the private sector: leveling the technological playing field across a large jurisdiction.
The state is the anchor tenant on the Kentucky Information Highway system, a communications infrastructure for voice, data and video communications that is managed by a consortium headed by Bell South. Local governments have the option to be on the system. State funding has enabled all county courthouses to be connected.
Dave Ballard, executive director of the Kentucky Office of Infrastructure Services, says the state has taken a careful approach to upgrading its telecommunications infrastructure, adding technology as it becomes needed, as opposed to all at once. That decision stemmed partly from a state mandate that made clear that the effort would be funded with existing resources.
The state guaranteed all of its business to the consortium of vendors by requiring that the entire executive branch use the outsourced system once implemented. While that's swung a lot of business the consortium's way, it's also paid off technologically across the state. The vendors have supplied significant technological upgrades in more remote areas that lagged behind the more populated areas.
Ballard says the Kentucky Information Highway has generated a tremendous payoff for K-12 education as well. The state's education reform efforts required all technology to be equally applied across the state. Through the outsourcing, the state has been able to provide all schools with Internet access and high-speed connections.
That has opened up new possibilities for teachers and students. It has allowed for virtual tours of the White House in rural classrooms whose occupants may never travel to Washington, D.C., Ballard says.
It's even had some spillover effect in the Ballard household, where the director's wife is an elementary school teacher. Now, when she teaches her class about weather patterns, the lessons are derived from real-life examples via the Web, not from the clipped-out weather map that each day left Ballard with a hole in his newspaper.
FAIRFAX COUNTY: A HYBRID METHOD
Agency: All county agencies
System: Some information technology functions
Partner: Multiple contractors
Fairfax County, Virginia, CIO David Molchany makes no bones about his distaste for the term "outsourcing." To him, every technology function a government performs must be evaluated on a case-by-case basis to determine the proper "sourcing," as he likes to say. Then a sound decision can be made on whether existing staff should perform the function or whether private partners should be brought in to work with the county.
"County staff are working alongside contractors here," Molchany says. "We're using the best of both worlds."
Every year at mid-summer, Molchany's office asks each county department what it would like to include on the year's IT proj-ect list. Molchany's department then issues a set of recommendations that goes to a policy advisory committee appointed by the county Board of Supervisors.
For what functions does the county tend to go outside? Molchany says policymakers look for processes that the county doesn't want to do anymore so that it can train staff to do other higher-priority things. For example, the county no longer uses its employees to wire buildings.
It also may bring in partners when a proj-ect crosses agency lines, believing that outside expertise might be able to simplify that potentially messy process. In addition, outsourcing is pursued when in-house staff simply lacks knowledge in a specialized area.
But even in these instances, the lines between in-house and outsourced get a little blurry. For instance, the county outsourced development of a kiosk service, then brought the operation back in- house. Conversely, in-house staff originally developed the county's Web site, but three outside contractors are now on retainer to redesign pages on the site. Often what dictates the decision is an assessment of the return on investment and what services a function will provide to the citizens of Fairfax County.
Molchany believes the case-by-case review has added some accountability across county agencies in their technology decision making. "We make them think about how they will source things," he says. "People don't realize all their options; there are many ways to do this. It's both a political decision and a business decision."
THE TWO SAN DIEGOS: OPPOSITE APPROACHES
County Agency: Board of Supervisors
County System: Information technology
County Partners: A consortium of vendors headed by Computer Sciences Corp.
City Agency: City
City System: Information technology
City Partner: San Diego Data Processing Corp.
It's getting to be a well-known story: San Diego County, home of the largest local government technology outsourcing, got started down that road when it was facing financial ruin six years ago. The Board of Supervisors brought in a new chief administrative officer with a background in industry who began a push to run the county more like a business.
County agencies were asked to re-engineer their operations in order to compete with the private sector for the services they traditionally provided. While most succeeded in keeping their place, it was clear from the outset that the county's technological resources lagged too far behind, Tom Boardman, the county's chief technology officer, explains. A report commissioned by the county estimated that it would cost a total of $250 million to bring county systems up to date. "If I had gone to the board and asked for that to upgrade IT, I wouldn't have gotten through the door," Boardman says.
County leaders opted instead to seek a private contractor to install new technology and operate it for seven years. A contract was approved with Computer Sciences Corp., which administers a consortium of technology companies participating in the project known as the Pennant Alliance.
Under the seven-year contract, which has three one-year renewal options, every county service that can go on the Web is expected to go on. At the same time, CSC is overseeing a laundry list of improvements that includes replacement of 22,000 telephones, 14,000 PCs and the entire wide area network, as well as conversion to one operating platform countywide, one e-mail system and a consolidated help desk. The latter was an effort in much-needed simplification. There was, Boardman notes, "a help desk to call for what help desk to call."
The human resources transition was smoothed through the offering of bonuses and salary increases to those employees who stayed through the transition and beyond. The employees also got better training through the contractor. "Before, the IT operation was mediocre at best," Boardman says. "It's not fun to be part of that year after year."
The project's initial goal was to enhance IT support for day-to-day functions of the county government, but Boardman says that soon was generalized to the concept of "better, faster, cheaper government."
If there has been any downside to the outsourcing so far, Boardman says it is the raised level of expectations that came with the project. Those have sometimes proven difficult to meet. For example, the contract with CSC sets a four-hour turnaround time for repairs. While that is a vast improvement for some county departments where the wait for a PC to get fixed was a week, four hours takes some getting used to for others, such as county judges who once had their computer maintenance staffer sitting in an adjacent office.
"Under an arrangement like this, you expect change so quickly," Boardman says. "We went from not being able to hire anybody for these functions to being upset if we can't get everything done in two months."
San Diego County's ambitious undertaking carries with it some irony. Its neighbor, the city of San Diego, found itself at a similar technological crossroads many years earlier. It went down a different path. The city in 1979 took its existing information technology operation and converted it to a nonprofit corporation that still functions today as the San Diego Data Processing Corp. The original intent was to stop the flight of high-tech workers to the private sector, says Roger Talamantez, the corporation's president and CEO.
A staff of about 50 with a $3 million budget in 1979 is now some 400 strong, with around $82 million in purchasing power for city operations. The corporation charges for everything it does, but unlike a CSC or other private company, it is not governed by the profit motive.
"It is easier to say this is no longer our responsibility and to outsource it, but the better decision is to create a nonprofit," Talamantez says. He adds that San Diego County didn't have that choice because its IT operation was so underfunded in the past that it needed an aggressive boost that only an outsourcing could bring.
The city's new strategic plan created a governance committee that now decides among the technology priorities of all city agencies. Not everyone is happy with every decision, Talamantez says, but everyone understands the process.