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Big states push to consolidate data center operations

That Texas is about to award a data center consolidation and outsourcing deal, worth at least $500 million, is an unmistakable sign that the state market for such projects is reaching a rapid boil.

Over the next year or two, about six states are expected to issue solicitations for consolidation projects of similar scope and size, industry officials said.

"It's a very strong market," said Jim Dillon, vice president of marketing and business development for North America public sector at Unisys Corp. "There's obviously a market, because you've got big states moving in that direction."

Projects range from consolidating multiple sites into a few key ones to conserve resources and gain efficiencies, to handing over day-to-day operations and maintenance to private sector companies through lucrative outsourcing deals.

Other states in the pre-solicitation phase include Illinois, Minnesota, New Jersey, New Mexico, Oregon and Pennsylvania, industry experts said.

Competitive landscape

Competitors for data center consolidation work include IBM Corp., Northrop Grumman Corp. and Unisys in the front ranks, as well as Accenture Ltd., Computer Sciences Corp. and EDS Corp.

Although media reports have suggested that Lockheed Martin Corp. also is competing for the Texas project, the company told Washington Technology that it is not, and has no plans to pursue data center work in the state market. But Lockheed Martin does plan to seek desktop seat management contracts in Texas, said Joe Wagovich, a company spokesman.

Unisys will team with IBM to go after the Texas data center project. Team leader and prime contractor IBM declined to be interviewed for this story.

The competition is in its final stages, with the Texas IT Department to choose between offers from the IBM team and Northrop Grumman, which holds Texas' state data center contract.

The winning team will have to do the heavy lifting involved in combining 31 data centers and outsourcing operations. As of press time, no award had been made, but Texas Chief Technology Officer Larry Olson has said he expects one by December. Olson declined to be interviewed for this story.

Over the past two years, Northrop Grumman has emerged as a top competitor for data center work. Its recent contract wins include outsourcing for Virginia and San Diego County.

Opportunities are developing in states both large and small, said Cheryl Janey, vice president of business development and strategy for Northrop Grumman's commercial, state and local group in Herndon, Va.

"Some are further along than others, but there's certainly a number of states that are interested in moving toward addressing their infrastructure needs," she said.

States have numerous reasons, from aging applications and infrastructures to shrinking workforces, to consolidate data centers, industry officials said. The one constant is the desire for more efficient, less costly government.

"There's a short-term infusion of technology needed for a long-term benefit of reduced cost of running infrastructure," Janey said. "If you have 15 data centers, it's going to be more expensive to run 15 than it is to run one."

Pick a path

Once a state decides to consolidate its data center functions, it must choose whether to handle the job internally, move to managed services while keeping control, or outsource the project, handing over the entire facility and operations to a contractor.

Workforce limitations, both in numbers and technical expertise, may make it impractical to do such a complex project in-house. Most states will find "that is a pretty complicated process" and it "behooves them to look outside for help," Janey said. "Frankly, it's cost-effective to look at someone else running it."

If a company has other data center operations contracts and its own, robust facilities, the economies of scale it can leverage to offer cheaper services can be too good to pass up, said James Krouse, acting director of public sector market analysis for Input Inc., Reston, Va. Another advantage of outsourcing is that states can hand off the expensive responsibility for information privacy and security to the private sector, he said.

Information safety becomes more important with consolidation, said Ray Bjorklund, senior vice president and chief knowledge officer at FedSources Inc., McLean, Va.

"When you consolidate, you are putting more eggs in one basket," Bjorklund said. "You're going to have to put a lot of energy into protecting the privacy of the information, as well as whatever level of security the state needs to prevent hackers from disrupting this consolidation."

While industry officials agree that states want to move forward on data center consolidation projects, when the RFPs will appear is up for debate. Midterm election results could push back some projects or could create demand for new ones. Whatever the elections' outcome, however, their needs likely will force states to consider data center consolidation.

"The reasons behind it continue to make sense," Krouse said. "It definitely is going to happen. The biggest question is whether it's going to happen one year from now, or four years from now."

Staff Writer Ethan Butterfield can be reached at ebutterfield@postnewsweektech.com.

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