Andersen To Clean Up Education's 'Hairball'

By Nick Wakeman Staff WriterAndersen Consulting has a chance to put its money where its mouth is by winning a Department of Education contract to modernize the nation's student loan system.The contract is one of the first in the federal government to pay a contractor based on money saved from the implementation of new information technology systems and re-engineered business processes. Andersen's pay also will be based on meeting performance goals, such as improved service and streamlined operations."We see this as a history-making project," said Stan Gutkowski, managing partner of Andersen Consulting's Cabinet Agency Portfolio in Washington. Andersen will be doing the work for the Education Department's Office of Student Financial Assistance, which was created by Congress in 1998 as a "performance-based organization" charged with running the student loan and grant programs, said Greg Woods, chief operating officer of the OSFA.The Office of Student Financial Assistance administers more than $42 billion in student aid each year. However, 11 different stovepipe systems have developed over the years to run the various loan and grant programs, Woods said. The systems cannot interact with each other. Department of Education officials have described the situation as a "tangled hairball of systems."The modernization blueprint "relies heavily on commercial best practices and requires the application of a lot of technology skills in a hurry," Woods said.The value of the five-year contract has not been released, in part because the final terms are still under negotiation and because Andersen will be paid based on its success, government and company officials said.Woods said he has $38 million in his fiscal 2000 budget for modernization efforts, but he declined to say how much of that will be paid to Andersen. "I'm still in the middle of negotiations," he said. The contract should be finalized by the end of September.Andersen won the contract over Computer Sciences Corp. of El Segundo, Calif., and Electronic Data Systems Corp. of Plano, Texas, because of its commercial experience and a focus on adding value for the customer, Woods said. "They proposed what sounded the most like forming a true partnership," he said.Andersen plans to have senior people on site and was more aggressive in cost-cutting approaches and the use of shared savings, Woods said.Ironically, Andersen's team also includes EDS. Other teammates are Affiliated Computer Systems Inc. of Dallas; AFSA Data Corp. of Long Beach, Calif.; Critical Path Consulting of Eden Prairie, Minn.; Exolve Inc. of Washington; and KPMG of New York.To form a "partnership" with OSFA, Andersen has adopted the same three goals for itself as Congress set out when it formed the performance-based organization, said Steve Shane, an Andersen partner and global leader for financial services."Their goals are to shrink costs, increase customer satisfaction and improve morale and those are our goals as well," Shane said. "We aren't just their systems integrator or another contractor."OSFA has 16 existing contractors who are supporting the various IT systems already in place, and Andersen will have to form working relationships with them, Shane said.OSFA wants to keep many of the legacy systems already in place and wrap new technologies around them, Woods said.Andersen's role will be to help transform the agency by bringing in commercial practices for functions such as loan origination, loan servicing and collections. "Those processing requirements are similar, if not the same as commercial lending institutions," Gutkowski said. "I believe there are more similarities between the private sector and the public sector than there are differences."Woods said he expects Congress to watch closely the OSFA modernization efforts, both to track that the agency is following the directions set out in the Higher Education Amendments of 1998, and to see if creating performance-based organizations is a good way to allow agencies to modernize their operations."In creating [performance-based organizations], Congress granted us added flexibility in procurement and personnel, and in doing that, they didn't attach other strings," Woods said. "In essence, we made a contract [with Congress] to deliver results."The act lets OSFA use more streamlined hiring procedures and strongly encourages the agency to use performance-based and shared-savings contracting.The OSFA contract also is part of what some in industry and government see as a growing trend in government contracting, where an agency hires a single systems integrator to oversee a wide range of modernization efforts. The OSFA contract is similar to the Internal Revenue Services' $8 billion, 15-year Prime Integration deal won by CSC last year. The U.S. Customs Service also is looking to use the approach to modernize its IT systems.Building a partnership is the key to making these types of contracts work, Shane said. "You have to have an understanding of what each other wants and what is success to them and what is success to you," he said. "A partnership has to be a win-win."Part of OSFA's implementation strategy includes an "investment review board," which will review major steps of modernization, Woods said."Each chunk will go through an investment review, just like in the private sector," he said. "What we advocate is a modular approach. We'll take it one step at a time."The so-called "build a little, test a little and deploy a little" approach has many advantages including controlling risk and getting benefits out of a contract more quickly, Shane said.