Selling up

Systems integrators specializing in the state and local market are seeing the federal government as fertile ground for information technology solutions originally developed for their state and local customers.

Although the federal government usually monitors large state IT programs that are funded by federal dollars, it hasn't shown an interest in seeing innovations flow back up from the states, according to analysts and industry officials.

As the federal government moves away from customization and makes itself more open to innovative contracting arrangements, integrators have more opportunities to bring their state and local solutions to the federal market, they said.

Another key element helping to open the federal market has been the dramatic improvements in information sharing made possible by the Internet, said Ron Salluzzo, senior vice president for state and local services at KPMG Consulting Inc., McLean, Va.

Governments are only beginning to realize the full potential of interoperable systems that are able to share information by virtue of the World Wide Web in ways that would have been unimaginable five or 10 years ago, Salluzzo said.

But to reach this stage, industry and government have had to overcome significant hurdles in the form of data transmission, wireless protocols and privacy and security to make it possible for governments to share information and to transfer and install similar systems.

Even though the federal operational requirements are noticeably different, the concept of solution selling ? at which state and local contractors excel ? is becoming more enticing to federal decision makers, said Ray Bjorklund, vice president of consulting services at Federal Sources Inc., McLean, Va.

Solution selling refers to the consultant or integrator solving a problem for a government customer using existing or configurable hardware and software components.

Bjorklund also said the best practices state and local contractors derive from systems development work will be useful in shaping projects at the federal level.

"Particularly as the federal government is trying to accelerate its e-government and information sharing initiatives, the contractors that can exploit their state and local knowledge base will be able to jump-start many of the initiatives," he said. This phenomenon "should give federal systems integrators reason to pause."

At this point, a number of state and local integrators are scouring the field of opportunities in the federal government for places where approaches they have taken or solutions they have developed might be appropriate for the federal government.

Salluzzo said the federal government is showing more interest in state-built systems that deal with federal activities, such as education, law enforcement and criminal justice. The federal government also is becoming more interested in coordinating those activities with state governments.

"We're just now getting to that stage. People are just catching up to the various ways that technology can be used," Salluzzo said.
Integrators also are applying innovative contracting approaches, such as value-based and performance-based contracting, and are seeing significant interest from federal agencies.

Accenture Ltd. of Hamilton, Bermuda, for example, has had success moving the concept of value-based contracting from a state tax project in California to similar arrangements with federal agencies, said Stan Gutkowski, the managing partner of Accenture's U.S. federal government practice.

Value-based contracting, or shared savings as it also is called, is an arrangement where the contractor pays for the design and development of a system and is compensated by sharing with the customer the revenue generated by the system once it is deployed.

"The states were in the lead in that area," Gutkowski said.
The California Franchise Tax Board hired Accenture in 1994 to develop a system that would process taxes for businesses, corporations and partnerships. Accenture built the system at no cost to the tax board and was compensated for the development costs of $30 million from the financial benefits achieved by the state.

Accenture used the same concept in the federal government when it won a contract to modernize operations at the Department of Education's Office of Student Financial Assistance in 1999, Gutkowski said.

Accenture also is using value-based contracting in a $400.9 million project to modernize supply chain management systems at the Defense Logistics Agency, Gutkowski said.

One of KPMG Consulting's state and local solutions that is receiving attention at the federal level is a system that school districts can use to automate collection, reporting and analysis of public education data statewide, Salluzzo said.

The Web-based State Education Resource, or WebSTER, collects data from school districts that can be used to measure performance against education standards mandated by state law.

WebSTER was first built for the Oregon Department of Education in 1997 when KPMG Consulting was hired to help the department account for school-level spending and performance.

On the federal side, the Department of Education used Oregon's Database Initiative Project as the model for a 1999 pilot to collect data from the Nebraska and Oregon state departments of education over the Internet. The company is discussing a wider rollout with federal officials, Salluzzo said.

"There is an interest at the Department of Education ... in making something like that available to all states, then creating one massive reporting system that would get consistency among the states and between the federal government," he said.

KPMG Consulting is also marketing an integrated justice solution it developed for Pennsylvania that became operational in 1998 to federal agencies, said Dan Johnson, KPMG Consulting executive vice president of public services.

Unisys has a law enforcement solution, originally tailored for local governments, that has attracted the interest of federal, state and local law enforcement agencies, said Ed Hogan, vice president for global public sector at Unisys Corp. of Blue Bell, Pa.

Unisys has a five-year, $17 million contract for its major crime investigation suite in the United Kingdom. The Home Office Large Major Inquiry System, known as Holmes2, eventually will be used by all 56 police forces in the United Kingdom, Hogan said.

Hogan said several federal agencies are interested in the solution, but he declined to name them.

Despite the success of Unisys and others in transferring state and local solutions to the federal market, obstacles remain.
Tom Davies, a senior vice president with Current Analysis Inc., Sterling, Va., said the difference in business requirements between the two sectors is still a substantial barrier to the transfer of systems back and forth between the state and federal sectors.

Even where the solutions are similar, such as medical claims processing, student loan processing and fingerprint identification, the federal government has a greater need to customize these solutions to fit its unique requirements, Davies said.

"Customization is expensive, and often state and local [governments] cannot afford it. This is what often leads to market opportunities for integrators at the federal level," he said.

Staff Writer William Welsh can be reached at wwelsh@postnewsweektech.com.Companies that want to move information technology solutions from the state and local sector to the federal sector will find these obstacles:

• Different business requirements;

• Different structure, function and role of federal and state governments;

• Lack of coordination among federal, state and local government;

• Far more citizen interaction and transaction at the state and local level;

• Big brother syndrome: Feds still dictate requirements to states;

• Vestigial challenges of data conversion and interoperability.