2004 Who's Who in the State & Local Market
Stretching Dollars: Large companies have advantage as states seek partners<@VM>Top-ranked companies poised to climb Who's Who List<@VM>Outsourcing opportunities abound<@VM>Unisys joins the battle with EDS, ACS for Medicaid business<@VM>Hot contracts in 2004<@VM>State and local governments embrace ERP<@VM>California pushes share in savings<@VM>How we got the numbers
"It's no secret that there is an intense pressure to help businesses out everywhere, particularly in government," said Ed Nadworny, senior vice president of public sector services for American Management Systems Inc.
Bruce Caswell, IBM
By William Welsh
[IMGCAP(3)]IBM Corp. is helping the Texas Public Safety Department reduce a two-year records backlog and capture more federal highway construction funds.
Accenture Ltd. has installed an electronic licensing system for the Florida Business and Professional Regulation Department through a share-in-savings contract that will reduce costs by $84 million over nine years.
Deloitte has developed an integrated tax administration system for the Florida Revenue Department that's pulled in $70 million by identifying unpaid taxes in the telecom industry.
As states rebound from three straight years of budget shortfalls, systems integrators are showing remarkable creativity in helping states stretch scarce dollars. Many are signing contracts that require less upfront funding by customers, and that generate additional revenue for the state. Although these approaches are not necessarily new, the demand for them is strong and growing.
Among the companies on Washington Technology's 2004 "Who's Who in State and Local Systems Integrators" list of top contractors, many executives said their flexibility in offering innovative contracting to government customers was key to their success.
"It's no secret that there is an intense pressure to help businesses out everywhere, particularly in government," said Ed Nadworny, senior vice president of public sector services for American Management Systems Inc., Fairfax, Va., one of 14 companies on this year's "Who's Who" list of top state and local contractors.
"There remains a demand for anything that reduces cost or increases revenue or efficiency," Nadworny said.
The three top companies on the list -- Affiliated Computer Services Inc., Dallas; EDS Corp., Plano, Texas; and IBM, Armonk, N.Y. -- had more than $1 billion in state and local sales last year. These three have been the top-ranked companies for three years running.
The other companies on the list have at least $100 million in state and local revenue annually. Three companies, Accenture Ltd. of Hamilton, Bermuda, Deloitte of New York, and Unisys Corp. of Blue Bell, Pa., have more than $500 million in annual state and local revenue.
Federal Sources Inc., a market research company in McLean, Va., provided the revenue figures for the Who's Who ranking. The list remains unchanged from last year except for Deloitte, which moved up a tier.
Overall, state and local IT spending is expected to increase annually by 5.9 percent from $42.3 billion in 2004 to $50.3 billion in 2007, according to the research and consulting firm Gartner Inc., Stamford, Conn.
The states' desire for share-in-savings contracts and other innovative funding models favors the larger companies, because they've got the deep pockets to provide upfront funding for projects, said Rishi Sood, principal analyst for state and local government with Gartner. Companies such as Accenture, Deloitte and IBM can wait to get paid until their projects generate a revenue stream.
However, share-in-savings contracts remain "a risky proposition for everyone involved" and are most often employed in areas where their success can be easily measured, such as tax and revenue or e-procurement, he said.
As the market regains its equilibrium, the higher ranked companies will see the greatest growth, said Ray Bjorklund, FSI's senior vice president and chief knowledge officer. The big integrators enjoy a decisive advantage over the small ones because they have larger work forces and more pervasive marketing efforts, he said.
"The strong market players will get stronger and the weak ones may be compelled to retrench into market niches where they do well today," he said.
The staff of the Texas Department of Public Safety struggles on a daily basis to keep up with the backlog created by the more than 850,000 highway crash reports the department receives each year from police departments throughout the state.
The current two-and-one-half-year backlog associated with the reports means that state highway engineers are making decisions with data from 2001, said Cathy Cioffi, the department's crash records information systems manager.
"With old data, it's hard to know that your project selection and decision-making is correct," she said.
A large part of what Texas gets in federal highway construction funds depends on the state's ability to provide specific traffic accident and safety-related information, said Bruce Caswell, a state and local government partner with the business consulting services of IBM Corp.
To remedy this, IBM is designing a Web-based crash records information system for Texas that will, among other things, facilitate the analysis and reporting of accident data from police departments to the Texas Public Safety Department and to the National Highway Safety Administration. The 18-month, $9.9 million project is scheduled for completion in September, IBM said.
The Texas project exemplifies how contractors are helping states tap into federal funds for large state-run programs, such as transportation or health and human services. Integrators also are helping states stretch dollars by using innovative funding models, particularly in the administration and finance sector.
Administration and finance, which includes tax and revenue projects, is the largest sector in state and local government, according to Gartner. The market research company expects state and local governments to spend $8.6 billion on administration and finance in 2004.
Tax systems are especially attractive candidates for share-in-savings because improved tax reporting and collection systems hold the promise of increased tax revenue. AMS, which refers to its shared-in-savings approach as benefits-funded, has helped a number of states boost tax revenue with its benefits-funded tax and revenue programs. To date, the company has generated $1.2 billion in previously uncollected revenue from benefits-funded projects in California, Hawaii, Kansas and Virginia, Nadworny said.
In November, the company won a new benefits-funded tax and revenue project from the Missouri Department of Revenue. AMS will upgrade the Show Me State's tax systems with new software and provide consulting services to assist in collecting overdue taxes. The $11 million project will be paid for using revenue from previously uncollected taxes, the company said.
Similarly, Accenture won a 10-year, $122 million project with the Arizona Taxation Department in 2002 to modernize the state's tax system and re-engineer business processes related to state tax programs. A share-in-savings approach was necessary because the state could not pay for the system out of its own pocket. The company will develop and deploy the system over a five-year period.
Deloitte won a project with the Florida Department of Revenue in 2001 to develop a tax administration system that provides better customer service while also increasing revenue collection. For the Florida System for Unified Taxation project, or Suntax, Deloitte took seven tax-related computer systems and consolidated them into a single system.
The system administers $21 billion in tax receipts and processes more than 6 million financial transactions to collect 36 separate taxes and fees, Deloitte said. The system has identified 264 major insurance companies and more than 53,000 corporations registered for sales tax that never filed corporate tax returns, and it has generated more than $70 million in revenue collections. The contract is worth about $30 million, the company said.
Bob Campbell, the U.S. public sector leader at Deloitte, said major IT initiatives need to be justified based on either cost savings or revenue enhancement as well as improved citizen services.
"The ones that get funded and get supported by the legislatures are those which have a firm dollars-and-cents business case while also driving citizen service," he said. *
Managing Partner Kenny Mitchell and Accenture stand at the brink of breaking through the $1 billion level in state and local revenue.
By William Welsh
Although the rankings on this year's "Who's Who" list remain largely unchanged from last year, that doesn't mean companies haven't made notable gains.
In the top category, Affiliated Computer Services Inc. continues to show strong growth with business process outsourcing. The company's state and local business, which netted the company $1.7 billion in 2003, grew 21 percent last year, ACS said.
The sale of its federal sector business to Bethesda, Md.-based Lockheed Martin Corp. in August enables the company to concentrate on its state and local business, said Ray Bjorklund, Federal Sources Inc.'s senior vice president and chief knowledge officer.
"They deserve credit for staying focused on state and local," he said.
New York-based Deloitte was the one company whose ranking changed from last year. The company broke through the $500 million threshold with its 2003 revenue. Deloitte did this by leveraging greater resources as a result of the reintegration of Deloitte Consulting into Deloitte in June.
Two other top-ranked companies are poised to rise to the next category next year. Accenture Ltd. had more than $950 million in state and local revenue last year, so a modest increase would push the company over the $1 billion threshold.
The company plans to hotly pursue new business this year associated with Medicaid fiscal services, eligibility determination, IT outsourcing and homeland security, said Kenny Mitchell, the managing partner for Accenture's East Coast Client Group.
Los Angeles-based Northrop Grumman Corp. also is experiencing strong growth and its sales could top $500 million in 2005, as the company continues to capitalize on its acquisition of Cleveland-based TRW in 2002, FSI said.
Northrop Grumman is getting a more solid footing in the market and making a conscious effort to advance its state and local growth, Bjorklund said.
The defense giant has two groups -- enterprise solutions and public safety solutions -- focused on the state and local market, said Gene Kakalec, vice president of Northrop Grumman's new Commercial, State and Local Solutions unit formed Jan. 1.
While Northrop Grumman hasn't actively pursued the biggest state and local integration projects in the past, it now plans to pursue such opportunities, Kakalec said.
"Over the next three years you will see Northrop Grumman as an awakening bear in this market that will go after the larger integration jobs," he said.
By William Welsh
The move by state and local governments toward outsourcing shows no signs of slowing down. The money agencies will spend on outsourcing is expected to grow nearly 15 percent annually during the next three years, rising from $4.8 billion in 2004 to $7.2 billion in 2007, according to Gartner Inc. of Stamford, Conn.
The most recent statewide IT outsourcing deal was won by Accenture Ltd. and BearingPoint Inc. last July with the Florida State Technology Office. Accenture is providing application services, and BearingPoint is providing infrastructure services. The contracts are worth $140 million over seven years, the state said.
Unisys Corp., of Blue Bell, Pa., has a large data center outsourcing contract in Pennsylvania, and Northrop Grumman Corp., Los Angeles, has one in Texas.
Unisys won a $621 million contract for the Pennsylvania DataPowerhouse project in 1999 and a three-year, $252 million contract extension in 2002. Northrop Grumman did not provide the value of the Texas contract.
The boom in business process outsourcing continued unabated in 2003, according to industry officials. The states' fiscal woes did not reduce opportunities for Dallas-based Affiliated Computer Services Inc., which focuses heavily on BPO in the health and human services and transportation sectors, said John Brophy, president of ACS' state and local solutions.
Business process outsourcing is the contracting out of back-office or transaction-oriented functions, such as accounts receivable, billing, claims processing and transaction processing.
ACS had a string of major wins for child support payment processing in the last 12 months, Brophy said. The company won new contracts in Illinois, Massachusetts, New Hampshire, Ohio and Wisconsin. The largest was a six-year, $234 million project for the Ohio Administrative Services and Job and Family Services departments
The company also won a 10-year, $500 million contract to provide electronic toll services to the state of New Jersey.
Ed Gund, ACS' chief operating officer for state and local solutions, said the company will pursue opportunities this year in two new areas: education and welfare. The opportunities in education are an outgrowth of the No Child Left Behind Act of 2001.
When laws are passed, the company scrutinizes them for outsourcing opportunities, Brophy said. "Whenever there is a piece of legislation that changes the landscape for state and local governments, we have established business to meet the needs created by that legislation," he said.
Frank Abramcheck, Unisys vice president and managing partner, North America public sector
By William Welsh
As many as 16 states are expected to put up their Medicaid services contracts for renewal in the next two years, setting up a clash of titans among major integrators wrestling for control of this market.
EDS Corp. holds the top position with contracts in 16 states, while Affiliated Computer Services Inc. is close behind with programs in 12 states and the District of Columbia.
With contracts set to expire in many states, the two health-care giants not only must battle each other, but also other players looking to expand market share, such as Accenture Ltd. of Hamilton, Bermuda, Maximus Inc. of Reston, Va., and Unisys Corp. of Blue Bell, Pa.
"EDS is the No. 1 player, so they have a big bulls-eye on their back right now. ACS is the No. 2 player, so they carry the second biggest bulls-eye," said Greg Baroni, president of Unisys Global Public Sector, the No. 3 company with business in five states. "We plan to take a few contracts from them," he said.
To prepare for the approaching battle, Unisys hired Frank Abramcheck, a former EDS official, in November to serve as vice president and managing partner of its North America Public Sector services responsible for all government business.
Abramcheck was senior vice president of EDS' government solutions business, which included the company's Medicare and state Medicaid operations, Unisys said.
State and local governments are expected to spend $4.3 billion on IT-related health care in 2004, making it the fifth largest sector in the market, according to the market research and consulting firm Gartner Inc., Stamford, Conn.
Under the Medicaid management information systems contracts, integrators build systems that comply with government regulations and also provide fiscal agent services, such as determining eligibility of those who apply for aid, processing claims and making payments.
EDS of Plano, Texas, won one of the largest Medicaid administrative services contracts in the nation last year. In April, the company announced that it had won a four-year, $407 million contract renewal from the California Department of Health Services to continue managing the state's Medicaid program, known as Medi-Cal.
But Dallas-based ACS beat EDS two years ago for the $400 million Texas MMIS contract renewal. Accenture is a key subcontractor on ACS' team providing transition services from the incumbent contractor, infrastructure technology and program management support.
EDS has four contracts set to expire this year -- in Vermont, North Carolina, Wisconsin and Arkansas. But if EDS is looking over its shoulder, it isn't letting anyone know. "We had an excellent year -- and a busy year -- on the Medicaid front," said John Engler, president of EDS' state and local government.
Massachusetts State Police Department
Project: Intelligence Management System
Estimated Value: TBD
RFP: April 2004
Summary: The Massachusetts State Police Department has a requirement for an intelligence management system that will support the department in its efforts to forecast and respond to new challenges in law enforcement by implementing innovative policies, programs and strategies. It also will support statistical analysis of ongoing programs to ensure their success. The system will store and access multiple files, classify data, apply information security constraints and audit trails, graphically display analysis and purge data in accordance with federal and state regulations.
Massachusetts Department of Labor and Workforce Development
Project: Internet-based and Interactive Career and Job Matching System
Estimated Value: TBD
RFP: April 2004
Summary: The Massachusetts Labor and Workforce Development Department's Division of Career Services wants an enhanced Internet job bank and job matching system that will allow it to increase the number of potential employment choices available to job seekers in the state and to improve opportunities for employers to fill vacancies by making openings available on Internet job boards and employer sites.
Project: Vehicle location monitoring system
Estimated Value: Between $10 million to $50 million
RFP: April 2004
Summary: The New York City Metropolitan Transportation Authority has a requirement for the design and installation of an automatic vehicle location monitoring system that will include citywide coverage for 1,300 vehicles, a data communications network that works on a real-time basis, and a customer identification system.
California Franchise Tax Board
Project: State Disbursement Unit
Estimated Value: More than $10 million
RFP: May 25, 2004
Summary: The California Franchise Tax Board has a requirement for the design, development and implementation of a state disbursement unit to help the state's child support program with certification, worker effectiveness, customer service, maintainability and implementation.
New Jersey Department of Human Services
Project: Consolidated Assistance and Support System
Estimated Value: $46 million
RFP: August 2004
Summary: The New Jersey Human Services Department's Division of Family Services has a requirement to implement a consolidated assistance and support system as part of its effort to re-engineer and integrate the division's automated systems.
Wyoming Department of Transportation
Project: Enhanced Statewide Radio Network
Estimated Value: $51 million
RFP: July 2004
Summary: The Wyoming Transportation Department has a requirement for an enhanced statewide radio network to support agencies that join the new network. The project will give users access to all or part of the current infrastructure until they are able to upgrade their equipment.
New Hampshire Department of Health and Human Services
Project: Medicaid Management Information System and Claims Processing Solution
Estimated Value: $100 million
RFP: June 2004
Summary: The New Hampshire Health and Human Services Department has a requirement for a MMIS fiscal agent and health-care claims processing services. The contractor will enhance the current system, convert existing platforms to new platforms, retrain Medicaid staff and handle back-office functions.
By William Welsh
State and local agencies show a continuing interest in enterprise resource planning initiatives that enable them to tackle problems from an enterprisewide perspective.
ERP initiatives drive substantial savings through the elimination of duplicative systems and a sharp reduction in maintenance that results from standardizing and centralizing systems, said Ron Salluzzo, senior vice president for state and local services with BearingPoint Inc., McLean, Va.
BearingPoint is currently implementing financial management and data warehouse ERP modules developed by Pleasanton, Calif.-based PeopleSoft Inc. for the Florida Financial Services Department, Salluzzo said.
The project will improve fiscal management by creating more timely and accurate information for agency executives and by streamlining accounting operations for state employees.
The company won the 18-month, $68 million deal in August, he said.
At the local government level, Deloitte has a four-year contract to implement a citywide project for San Antonio using ERP software developed by Newtown, Pa.-based SAP America, the company said. The four-year deal, which involves the implementation of finance, materials management, payroll, budget and human resources software, is worth $88.5 million.
Clark Kelso, California chief information officer
By William Welsh
In the months ahead, California will aggressively pursue share-in-savings contracts so state agencies and departments can see a tangible return on investment before making a heavy financial commitment, said the state's top technology official.
"One of the great challenges the state is going to have, both for the state and the vendors, is the need for quick results, so we're not financing initiatives over multiyear periods. Once we start moving, we need to see results in the current fiscal year," said Clark Kelso, the state's chief information officer.
The state's desire to shift the risk from itself to the contractor on major information technology investments comes at a time when California is launching a [IMGCAP(2)]performance review that might lead to a major reorganization of the California executive branch later this year. The state spends more than $2 billion annually on IT hardware, software and services.
Gov. Arnold Schwarzenegger launched the performance review Feb. 10. He is trying to get a grip on California's ongoing budget problems. The state expects to have a $15 billion budget shortfall in fiscal 2004-2005, according to the Denver-based National Association of State Legislatures.
A similar governmental reorganization saved Texas between $3 billion and $4 billion during its two-year budget cycle, Kelso said.
One of the 14 teams participating in the review will devote its attention to information technology, according to the governor's office. The team is tasked with finding ways the state can replace outmoded and duplicative IT systems with a common set of modernized systems.
The IT team likely will make recommendations about infrastructure consolidation and determine which legacy systems need replacing first, Kelso said.
A separate team focusing on governmental reorganization will decide whether the state needs a separate technology office. The California Technology Department was abolished in 2002 after the legislature declined to reauthorize it because of malfeasance within the office.
Schwarzenegger wants the first recommendations by June. "The governor doesn't like to let grass grow under his feet," Kelso said.
Neither the absence of a state technology department nor a freeze on new contracts last December have had an adverse affect on the state's technology initiatives, Kelso said. The state currently has about 175 ongoing IT projects and initiatives, including a child support system, child services case management and controller's payroll application. The state also wants to expand its use of electronic benefits transfer and electronic licensing capabilities to additional agencies beyond where the solutions are already employed, he said.
The only visible result of the freeze enacted last year is that agencies now must get final approval for IT projects from the Finance Department.
"That can slow things down days or weeks, but we aren't seeing a dramatic slowdown in our projects. They are going forward," said Kelso.
Washington Technology's list of top systems integrators in the state and local government market was compiled by Federal Sources Inc., of Vienna, Va. Because few companies specifically track or provide precise revenue figures for state and local work, FSI obtained its information using a variety of means and sources.
These include research and analysis of public domain information, such as annual reports, Securities and Exchange Commission filings and press releases, as well as discussions with knowledgeable representatives within the market.
FSI, a subsidiary of Washington Management Group Inc.., of Washington, provides intelligence on the public-sector technology market. Its clients include government contractors and a number of state and federal agencies.