Government Eyes IT Outsourcing

Bush administration wants agencies to compete with private sector for fed jobs

NASA has outsourced management of about half of its desktop computers, totaling some 44,000 PCs and Macintosh systems. While that's one of the federal government's biggest IT outsourcing projects to date, many more deals of its kind could soon be on the horizon.

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Bush and Outsourcing

The boss wants it: As governor of Texas, George W. Bush supported outsourcing initiatives; nearly one-third of that state’s IT budget is spent on outsourcing. Now, he’s making a similar push in the federal government.

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Other Drivers: Federal agencies have trouble filling IT positions because of pay. Contractor use is already on the rise.
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Chief Obstacle: Moving government jobs to the private sector is a politically contentious issue.
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Goal: As many as half of the eligible federal civilian jobs may be outsourcing candidates.

If the Bush administration has its way, more federal services may soon be outsourced. IT, which accounts for approximately $44 billion in federal spending, is considered a prime candidate for outsourcing, particularly because of problems government agencies have in hiring skilled technology workers and in keeping abreast of new technologies.

The potential for federal IT outsourcing is massive, said Chip Mather, a principal at Acquisition Solutions Inc., a Chantilly, Va.-based consulting firm that's advising the U.S. Department of Housing and Urban Development on an outsourcing contract. "I think there is a big bull's-eye on [government] IT," he said.

Last month, the White House Office of Management and Budget (OMB) issued a memo spelling out specific outsourcing goals for government agencies as a whole. The memo directed agencies to compete head-to-head with private-sector companies this year for at least 5% of the eligible jobs they will have next year, with the OMB saying it wants the amount of jobs being considered for outsourcing to eventually increase to 50%.

The emphasis on outsourcing has been expected. President Bush backed outsourcing initiatives while he was the governor of Texas. The Lone Star State exceeded national averages in IT outsourcing last year, with 29% of the state's total IT budget going to third-party contractors, compared with a nationwide average of about 18%, according to a state government report.

Also a sign that the outsourcing push was coming was President Bush's choice of domestic advisors who espouse competition, such as former Indianapolis Mayor Stephen Goldsmith.

The federal directive also means agencies will have to show that they can provide services at costs that are competitive with private-sector companies in order to avoid having particular jobs outsourced. The OMB's outsourcing goals cover a broad range of federal jobs, but IT departments are expected to get a lot of attention.

One big factor is the aging of the government's IT workforce: A mid-1999 study released by the federal CIO Council predicted that about half of the 70,000 IT workers on the U.S. payroll will become eligible for retirement in the next five years. Moreover, many agencies say they're having problems recruiting new workers because they can't offer competitive salaries.

As a result, the use of IT contractors by federal agencies has been on the rise, according to federal IT managers and analysts. "I couldn't hire a person to save my life through the federal process, so reliance on contractors became more and more important," said Scott Ducar, a technical director attached to the deputy CIO's office for Secretary of Defense Donald Rumsfeld.

But the use of contractors to address specific IT issues can also raise difficulties, such as finger-pointing when technical problems arise, noted Ducar. He's currently involved in a pilot program to outsource the management of approximately 1,000 desktop PCs and, eventually, some servers and networks to Bethesda, Md.-based Lockheed Martin Corp.

Mark Hagerty, a program manager at NASA, said he has started receiving inquiries from other parts of the government about the space agency's outsourcing program since the OMB's directive was issued. "It's already generated some impact," he said of the desktop initiative, which began in 1998.

NASA would like to turn even more of its desktop system management over to outsourcing vendors, Hagerty said. But to accomplish that, the agency first has to overcome a "culture curve" of resistance from end users, he said. "Those are the ones [whose reactions] range from 'it's a bad idea' to 'over my dead body,' " Hagerty added.

Analysts say the Bush administration faces other obstacles to its outsourcing push, especially a workplace culture where government positions are seen as jobs for life. "There are certainly a lot of political questions that have to be worked through for this to work," said Kevin Plexico, a vice president at Input, a Chantilly, Va.-based market research firm.

Although the federal government has been engaged in some big technology outsourcing projects in the past, few of those efforts led to the displacement of federal IT workers. NASA's project, as well as a plan to outsource desktop PC operations at the Bureau of Alcohol, Tobacco and Firearms, didn't include any layoffs or other job reductions.

But despite the potential roadblocks, the Bush administration "is at least putting some kind of stake into the sand" on the outsourcing issue, said Ray Bjorklund, a vice president at McLean, Va.-based consulting firm Federal Sources Inc. Furthermore, the OMB's directive shows that officials are "getting ready to take a stronger position later on," he added.

Outsourcing Advice From ATF Insider

Three years ago, the Bureau of Alcohol, Tobacco and Firearms (ATF) was supporting machines that still used 5.25-in. floppy disks and three different e-mail systems. And there was no Internet access.

Under an outsourcing contract with Blue Bell, Pa.-based Unisys Corp., equipment was modernized and standardized. There were no layoffs among ATF's 85-person IT staff, who were freed to focus on more important technology needs, said CIO Patrick Schambach.

Schambach said the outsourcing decision was the right one, but he advised others to obtain service-level agreements—something that wasn't in vogue when he originally decided to outsource.

Schambach also recommended that IT managers involved in similar projects focus on the objective and ensure that details didn't derail the project.

"As the CIO, success here was my responsibility—not the contractor's," he said.

Copyright © 2001 IDG Communications, Inc.

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