Connecticut Muddies Outsourcing Outlook

By Steve LeSueurConnecticut Gov. John Rowland's abrupt decision to cancel the state's historic plan to outsource all of its information technology services could be the death knell for similar large-scale efforts by other states, but will not slow projects at the local government level, industry officials said."I don't think there is any built-in interdependence between San Diego and Connecticut," said Paul Cofoni, president of the technology management group for Computer Sciences Corp. of El Segundo, Calif. CSC is one of three companies vying for a 10-year outsourcing contract worth $50 million to $70 million annually from San Diego County."I don't see it as having any impact on us at all," said Lana Willingham, deputy chief administrative officer for San Diego County's IT outsourcing project. Electronic Data Systems Corp. and IBM Corp., which sought the top job in Connecticut's IT effort, are seeking a prime role on the San Diego project.Industry and government officials also pointed out that San Diego County differs from Connecticut in one very important way: The county is run by a five-member board of supervisors that has strongly supported the outsourcing concept.Connecticut's June 29 announcement ending contract negotiations with EDS "will be a stake in the heart of total enterprisewide outsourcing by state governments," said Thomas Davies, a senior vice president with Federal Sources Inc., McLean, Va.EDS, which had devoted several years and up to $10 million to pursue the contract, said in a statement that it "respects the state's decision." The $16.9 billion systems integrator was chosen late last December to enter contract negotiations for the effort worth an estimated $1.5 billion over seven years."We worked diligently with the state and made every effort to help the state in its effort to transform government," said Stephen Person, a spokesman for the Plano, Texas-based company.But efficiencies and cost savings in the company's original proposal could not be realized because of changes in Connecticut's outsourcing approach, he said. They included a recent proposal that Connecticut IT employees be allowed to remain as state employees after EDS began managing the state's IT services.As a result, the state now plans to contract at a future date with a number of companies, including EDS, to make improvements in selected areas of its IT operations, industry and state officials said.The announcement came one day after Rock Regan, Connecticut's chief information officer, recommended the state terminate negotiations with EDS in a June 28 letter to Rowland. EDS and state officials had been trying to finalize contract negotiations by June 15.Although negotiations with EDS "have yielded considerable progress," Regan wrote, "several factors led me to conclude that the draft contract that EDS has proposed, as it stands now, would not be in the best interest of the state of Connecticut should not be pursued." Specifically, the state and EDS "have been unable to reach agreement on total cost and pricing of specific services ? more importantly, what benefits and services proposed in the EDS best and final offer to the state would be included in the base price of the contract. This leads me to conclude that entering into an agreement with EDS on its terms is an unacceptable risk," Regan said.After terminating negotiations with EDS, Connecticut officials had the option of initiating negotiations with IBM, which finished second in the competition. But Rowland decided to abandon the landmark outsourcing project in favor of working with vendors through smaller contracts."We've learned a lot about our strengths and weaknesses, and I think what we'll do is focus on bringing in vendors where we have weaknesses," Regan told Washington Technology last week. He mentioned Internet applications for citizen services, network management and help desk management as possible areas for outsourcing.Republican Gov. Rowland faced strong opposition from state IT employees affected by the plan and their Democratic allies in the state legislature. The drawn-out negotiations with EDS and the constant criticism from opponents seemed to drain the project of the momentum it needed to survive the expected bruising battle for approval in the general assembly.If a contract with EDS had been signed, the general assembly could have rejected the contract with a three-fifths vote of either house."The governor didn't have the votes, and it became clearer to him as time went on that he couldn't get those votes" said Davies.Regan, who oversaw the negotiations, said he still thinks EDS is a good company, and that the state could have saved money and gained other benefits through the outsourcing arrangement. But there were too many issues where the two sides could not reach agreement. "Most had to do with risk on both sides," he said. The Connecticut project has been dogged by opponents in the legislature and even in the executive branch. For example, Connecticut Comptroller Nancy Wyman, a former Democratic legislator, last month criticized EDS and declared that the outsourcing project "could be the worst fiscal and policy decision of the decade for the state of Connecticut."Connecticut's full-scale outsourcing of IT services, which would have been a first by a state government, has been watched closely by state and local governments that are considering similar steps. The companies competing in San Diego County said that their project is moving forward with fewer problems and delays than in Connecticut. The county issued its request for proposals in February, received proposals in April and intends to select a winner later this summer."It's been an expedited process," said David Caplan, a spokesman for IBM Global Services, Somers, N.Y.One sticking point in San Diego County could be its approximately 300 IT employees, who, like their counterparts in Connecticut, also have objected to the outsourcing plan. But, thus far, they have not mounted the fierce campaign waged by the Connecticut State Employees Association, nor is there a county legislative body to champion their cause.In Connecticut, the employees union is extremely happy, not only with the decision to cancel the outsourcing project but with the new approach outlined by Regan."We've been saying all along that there's room for consolidation and rationalization in the IT department," said Rick Melita, a union spokesman. "But we think you ought to augment the department with outside vendors rather than let the outside vendors run the show."It's better to teach a man to fish than to give him one," he said.