Update: San Diego OKs $667M outsourcing deal

A study says more city and state governments may soon be eyeing similar moves

San Diego County officials today approved a $667 million IT outsourcing contract with Northrop Grumman Information Technology and hope to complete a transition to the new contractor by year's end.

Overseeing this major shift in outsourcing contractors is Michael Moore, CIO for San Diego County, who took that post three years ago -- well after the initial seven-year contract with Computer Sciences Corp. was signed. Northrop Grumman won the new contract after it was put out to bid.

The deal made today covers IT services for the 17,000-employee county government, which operates on a $4 billion budget.

To complete the transition, Moore will be relying on a lengthy list of provisions approved in the 1999 contract that detail the "disentanglement" process. This spells out how the outgoing and incoming contractors are to cooperate regarding access to tools, assets and personnel. The first milestone will be the transition of the help desk in April, followed by applications, desktops and networks, and finally a transition of the data center in October to Northrop Grumman.

"I think they did a phenomenal job in 1999, and that's why I'm fairly comfortable that we got a very low-risk transition," said Moore.

The shift won't result in any platform changes, but it will bring changes for the 305 CSC workers. Those employees, many of whom worked for the county prior to the first outsourcing agreement, will now be interviewed for jobs with Northrop Grumman.

Moore said the new contract includes benchmarking changes that will allow for better price comparisons. For instance, all costs associated with a desktop, such as networking and security, were previously bundled into one price, which made it difficult to compare prices. Those costs are now being split up.

Moore said the contract will also bring about changes that will reduce costs by increasing productivity, such as introducing mobile systems that don't require workers to return to the office to process forms, improved integration of permitting processes and a better property-tax system, which could reduce head count.

"All of our technology initiatives are driven by business needs," said Moore, adding that about 80% of the county's costs involve the labor needed to deliver services. Having a "profound impact" on those costs will mean delivering an IT system that reduces manpower, he said.

More and more local and state governments may soon make similar outsourcing moves, if Reston, Va., consultancy Input is right about its IT outsourcing market forecast.

Input expects state and local spending on IT outsourcing to grow from $10 billion in 2005 to $18 billion by 2010, with a compound annual growth rate of 12%.

James Krouse, manager of state and local markets analysis at Input, said he expects states increasingly to turn to outsourcing to deal with an unprecedented set of problems, including aging IT workforces, outdated systems, and pay scales and technologies that make government service unattractive to college graduates. "The leading-edge technologies are in the private sector," he said.

The county of San Diego awarded one of the first big local-government outsourcing contracts in the nation in 1999 to Computer Sciences Corp. The county's board of supervisors today will consider a different vendor, Northrop Grumman, after rebidding the work. At stake is a seven-year contract to manage IT for the 17,000-employee county government, which operates on a $4 billion budget.

Krouse sees the commonwealth of Virginia as a bellwether for the nation. In November, Virginia officials approved a 10-year, $2 billion agreement with Northrop Grumman to manage the state government's IT operations. More than 900 employees of the Virginia Information Technologies Agency will get job offers through the contract or can choose to stay with the state, according to details of the plan released in November.

"Virginia is a prime case that is looking at something that could be a precursor for things to come," said Krouse.

Tom Wade, CIO for the state of Georgia, said outsourcing is something the state will look at, although it has no definitive plans to do so. He agreed that pay is an issue and said his IT vacancy rate is about 15% because of improvements in private-sector hiring.

Wade said it's particularly difficult to get project managers with experience. Finding someone to head his enterprise architecture division took a year and a half because the state couldn't attract someone at a salary that begins at about $125,000. A compatible job in the private sector would easily pay $20,000 to $30,000 more, plus bonuses, he said.

Otto Doll, CIO of South Dakota and someone who has long been involved in a national association that represents top state IT managers, also sees new interest in outsourcing among his peers. "Right now, there is a big drive toward consolidating services -- and one of the options when one looks at consolidating is whether you are going to do it in-house or whether you are going to outsource it," he said.

"Consolidation is on a lot of people's minds," said Doll, who is also on the executive board of the National Association of State Chief Information Officers in Lexington, Ky.

Government IT services have long been stymied by "stovepipe" systems built to support individual state agencies. Doll said he sees a range of consolidation plans that run from basic efforts to combine data centers and networks to larger schemes by state governments interested in consolidating all IT services under one organization. The latter is what Virginia officials are eyeing.

Doll said his state consolidated its IT services in the mid-1990s but uses outsourcing only in a limited way, such as hiring contractors to help with application development. He said South Dakota has compared the cost of providing IT services with outsourcing, "and it doesn't prove to be a viable economic decision for us."

Copyright © 2006 IDG Communications, Inc.

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