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The Outsourcing Option

As governments turn to private partners to put their transactions online, they're finding that there's more than one way to make e- commerce happen.

Claude Johnson, a Mississippi information technology official, has the benefit of hindsight. Not his own, but that of other governments that have launched e-commerce initiatives, most of them outsourcing their projects, or some portion of them, to private-sector vendors. Mississippi has spent the past two years studying the experiences of 15 states, including Washington, North Carolina and Texas. Now Johnson feels that Mississippi is ready to act.

That doesn't mean Mississippi has unearthed the perfect e-commerce Web site--or that there is such a thing out there--or that Mississippi officials know exactly what they want, even now. But after looking around at what others have tried, Johnson does have a better idea of what features are possible and which are desirable or necessary, particularly for a state that has a large digital divide, not only among residents but also among its own agencies.

Johnson, director of the Strategic Services Division of the state's Department of Information Technology Services, also has had the opportunity to discover what the state is not interested in. For instance, he doesn't think a model that involves charging transaction fees to users is desirable. He will be asking vendors to suggest ways to fund a site other than with taxpayer money or transaction fees, perhaps by adding value so that the business community would be willing to pay to get Web applications up online. "We're interested in imaginative things we haven't thought of as maybe a way to fund these portals," he says.

Governments trying to sort out the e-commerce puzzle pieces have a lot of places where they can look over the shoulders of more experienced government users. Many state and local governments have taken on projects small and large, and vendors have come in offering everything from total outsourcing of an e-government Web portal to software development to consulting services to a variety of other public-private partnerships.

In the midst of this activity, of course, the technology sector plunged into the seas of a nasty economic downturn. "All this venture capital that was tossed everywhere last year just isn't anymore," says Kimberly Brasch, formerly with the marketing department at GovConnect, a company that recently eliminated its marketing department during an internal restructuring. Other technology companies serving governments took stock as well. GovWorks filed for bankruptcy in January, and its payment transaction piece is expected to be acquired by eONE Global. EzGov had been offering its self-supporting model to governments for free but has since changed its strategic direction and is charging maintenance and licensing fees.

CHARGING AHEAD

Despite the troubles in the gov-com arena, governments continue to charge ahead with e-commerce, frequently employing private-sector partners to get them on course. With help from the top companies in Silicon Valley, California made a big splash in early January by launching its new Web portal, called My California (http://my.ca.gov). The portal, designed and developed by Deloitte Consulting, will allow residents to access government services and information online. They will be able to purchase and renew licenses, make tax payments and shop online at the Park Department's store.

Des Moines hooked up with Netgov.com and in January launched an interactive Web site that will deliver electronic government. So far, only parking-ticket payments are online, but the city plans to expand its e-commerce offerings.

Indiana has more experience with e-commerce than most. The state signed a contract with National Information Consortium for transactional services in December 1995. Laura Larimer, the state's chief information officer, believes one of the most important features of any contract a government signs to build e-commerce capabilities is the flexibility to anticipate the continually changing technology field. "If I were looking at outsourcing today," she says, "I would look at how to develop a contract such that I have room to move toward developments I can't even foresee today."

That is the type of contract Indiana has with NIC. Under a "self- funded" model that NIC offers, the company provided all the physical infrastructure and security necessary to operate a one-stop-shop portal for government services. In exchange, residents and businesses are charged transaction fees for certain services that go toward repaying NIC's investment.

Indiana's decision to outsource, and to charge transaction fees, was based on necessity. It seemed impossible at the time to get a tax- supported model for e-commerce through the legislature. "The difficulty in putting together a portal has more to do with how we budget our money in the states than e-commerce," Larimer says. Because states generally budget by departments or programs, they don't tend to have an overall technology budget or e-commerce budget. That has left better-funded agencies with a good Web presence and the poorer ones without much of one at all. "How to put one face on top of all those varying departmental approaches to things is a difficult thing to do," Larimer says.

Along the way to putting that one face on state government, Larimer's office was surprised by an unexpected development. The state's insurance department had signed on several years ago with a vendor specializing in e-government insurance applications. The insurance application allows the insurance department to communicate and share licensing information with a national insurance association and other states.

The deal was similar to the state's arrangement with NIC, in that the vendor set up the application in exchange for a long-term contract and transaction fees. "The insurance agency goes to a meeting, sees this application completely tested and rolled out, and thinks, `Why go through the pain of development again?'" Larimer says. She agreed and made an exception, as she is allowed to, to a law that says all electronic information will be made available through a common portal or state gateway unless permission is otherwise granted. Larimer allowed a link on Indiana's Web pages to the insurance application.

The state didn't have a policy, or an understanding at the time, she says, that for a portal to be successful, there needs to be a consistency of presentation from all agencies and a search function that can find everything the state offers, no matter whom the state contracts with for an e-commerce application.

At the same time, it is in the best interests of Indiana to support NIC, which set up its portal, with transaction revenues so that NIC is able to continue to develop more applications for the state, including applications that are free to residents. So what is to be done when a specialty vendor sets up an application that siphons off fees that might otherwise have gone to the company that continues to expand state applications by using transaction fees? "As management, I was taken aback," says Larimer. "I had not anticipated it happening."

The answer for Indiana was to come up with a policy that requires specialized applications to go through the state's portal and for any fees to be shared with NIC to help with the e-commerce infrastructure support. This didn't occur with the insurance application because no such policy was in place at the time. "I was caught off guard. It took a long time to figure out how to deal with that," says Larimer. "I foresee it happening elsewhere."

She describes the advent of these more narrow, specialty companies as the most current evolution in e-commerce. Those applications have to be integrated into e-commerce models states have set up. "I needed to start developing policy to meet the needs of the agency with a short timeline to market, as well as continue to fund the portal," Larimer says.

Other than that rock in the road, Indiana is satisfied with its outsourcing arrangement. Back when drivers' records were on paper years ago, insurance agencies clamored for the data to be available with a one-hour turnaround instead of three days. They were more than willing to pay $1 extra per record. And now they can. That application was the first fee-based one in Indiana, and it provided the funding that allowed NIC to kick off Indiana's Web portal.

VIRTUAL GOVERNMENT FOR SALE

For Conyers, Georgia, population 8,000, outsourcing didn't simply mean having a vendor take over some transaction activities for the city. The city also entered into a long-term relationship with VC3 for the vendor to be the city's information services department. "What we're trying to do is create a paperless government, government that is convenient for people," says City Manager Rebecca Woolcot. But it couldn't do it with its own small, non-technical staff, and the city needed full-time system maintenance.

Now in the second half of the first year of a two-year contract, VC3 has provided Conyers with a virtual government that allows residents to pay taxes, request services, get accident reports online and more, in a way that has been cost-effective for the city. Because Conyers paid an upfront fee for hardware, software and services, it does not charge transaction fees to residents. In fact, it's cheaper for residents to conduct business with the city online. If residents want to get an accident report by going to City Hall, it costs $3. If they go online, it's free. "It saves on our staff time," Woolcot says. "It's not only more convenient for the customer but for us."

Hickory, North Carolina, and York, South Carolina, also have recently signed contracts with VC3 for software that will allow for e-commerce transactions online. Hickory did so for the convenience of residents, says Warren Woods, assistant city manager. The e-commerce functions will be hosted at VC3's headquarters but will appear on the city's Web pages. Although Hickory was already networked and was a little further along technologically than some other small cities, it did not have the wherewithal to build transactional services on its own. "Now we're getting on board with payments online," Woods says.

York officials anticipate that, over the long term, the community is going to demand e-government, so the city chose to get started sooner rather than later. By the end of the year, City Manager Trey Eubanks hopes to enable the payment of utility bills online.

EVER-SHORTENING LINES

For Cobb County, Georgia, signing on with EzGov meant not only convenience for residents paying tickets but also the shortening of some very long lines at the courthouse. There were no startup costs for Cobb, which is possibly the only way the county could have gotten e-commerce applications going. If the court had tried to use the information services department for its project, it could have been a long wait. "They serve the entire county. You can imagine how their time is," says Diane Graham, clerk of the state court of Cobb County. "To get a major project like this done is very time-consuming. We usually get only one project a year."

The online service was sorely needed. The court processes more than 100,000 tickets a year, and half of those are "payable," meaning that if violators choose not to contest the ticket they can just pay up without going before a judge. The other half are for more serious violations that require a court appearance. When there was no online service, both groups of people showed up at the court, and the crowding created waits of up to an hour for paying tickets.

Graham says the county is pleased with its choice. Between October and December, 2,446 tickets were paid online, for a total of $226,000 in transactions, and the county had already done $61,000 in electronic transactions by the middle of January. The 17 percent of payments done electronically was "higher than I would have assumed it would be after such a short period of time," Graham says. And there has been a noticeable drop in the length of the lines at the court.

Before the court system went online, the court was accepting credit cards for payment at its offices. But there were limits to how well that worked. For instance, if an 18-year-old got a moving violation, he couldn't go to court with his parents' credit card, because the court would not take it. Online, the family can make the payment and extract the money from the teenager on its own time. "It's a progression of technology," says Graham. "It's creating an environment compatible to our busy lifestyle."

Getting the system up had its hitches. For one, it doubled the court's workload in August because court personnel were double- checking every bit of work. And it was time consuming to work out policies on how to handle the electronic information and how to deal with the payments online through a third-party vendor. Graham felt that she was losing control since she wasn't involved in all the steps of the process. And people using the new system for the first time were calling after they'd done their transactions to see if they had been successful, creating extra work for employees.

In addition, the court set a cut-off time for when people could pay online. The court does not allow electronic payments within 48 hours of the court date scheduled on the ticket. Graham says time is needed to pull the files from the computer to process the records and organize the court's calendar. When people went online within that 48- hour period, they got confused because they couldn't find their file. "It misled people," Graham says. "They thought the ticket had disappeared. My office could work a little more on getting the word out." Her office did add a message to the Web page on why the information had disappeared.

But overall, despite a lot of upfront work, the project has been successful, Graham says. Some people complained about the $3 convenience fee, but she points out that they don't have to pay it if they don't want the convenience. "If you don't want to pay the $3 you can come on up here. But you'll pay $5 to park for three hours."

Davidson County, North Carolina, also uses EzGov, for vehicle and real personal property tax payments. It's a benefit to the county not to have to open the mail. "We have tons of mail when we send out the bills," says Tax Administrator Joe Silver. Reports from EzGov show who logged on, payments made and checks cleared. "We get a printout daily of anything that transpired."

The county was online within a matter of weeks after it expressed interest in the service. Davidson County officials aren't showing savings from the county's e-commerce activities at the moment; as far as Silver can tell so far, the revenue from online payments hasn't amounted to enough to eliminate any employee positions. "But it's another envelope we don't have to open," he says. WAREHOUSING TAXES

The Virginia Department of Taxation entered into a five-year partnership with American Management Systems that provides the agency with an Internet e-commerce feature that pretty much thrills business taxpayers--as much as paying taxes can thrill anyone. The system allows business-tax filers who must pay withholding taxes and sales and use taxes monthly or quarterly to "warehouse" their payments. Although monthly sales-tax returns are due on the 20th of each month, business filers using the "iFile for Business" application can prepare the return any time prior to that date and ask that the payment not be executed until the 20th. That way, the business can continue to earn interest or other income on the funds.

"Warehousing is very popular," says Danny M. Payne, the state's tax commissioner. Of the $23.4 million in business taxes that have been received online between the beginning of the project in September 1998 and mid-January of 2001, $22.3 million was warehoused for some period of time.

Although these programs are up and running successfully now, tax officials found out in 1996 when they wanted to replace their technology infrastructure that the General Assembly would not grant authority for the agency to enter into the expensive public-private partnership the department was asking for at the time. Agency officials had to find another way to fund it.

AMS offered a five-year "benefits funded" contract as a way of paying for hardware, software and consulting services. AMS believed it could collect payments more efficiently, and therefore collect more money than the state had been getting, and pointed to that extra revenue as the source of its payment for the project. "It was a creative way to replace the system without costing the commonwealth any money," says Payne.

And indeed, since the $122.9 million contract project began in September 1998, the department has been able to increase its revenue collection of overdue taxes by, among other things, using an AMS compliance program that allows the department to assign risk to various accounts and try to collect money accordingly. The program figures out the most efficient way to collect delinquent taxes by forecasting the probabilities of payment and enforcement strategies.

When AMS presents invoices, the tax department pays the company out of money in a fund that was set up to collect the additional tax revenues. If there is not enough money available, the department waits until the money accrues and then pays AMS with interest. So far, the state has paid $31 million to AMS, including $951,000 in interest for late payments. It's a good deal as far as Virginia is concerned. "All the risk is borne by the contractor," Payne says.

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