Slow and Steady Marks Agency Inroads on Desktop Outsourcing

by Ed McKennaDespite impressions given by the headline-grabbing Navy/Marine Corps Intranet and National Security Agency's Groundbreaker programs, caution remains the watchword for most federal agencies when it comes to information technology outsourcing. For evidence, look no further than the government's two largest desktop outsourcing vehicles: the General Services Administration's Seat Management program (Seat) and NASA's Outsourcing Desktop Initiative (ODIN). Projected to reach combined revenue of $22 billion over 10 years, these programs together have generated just $648 million in their first 30 months of business. Furthermore, most of the initiatives launched under these contracts have been small, pilot projects, such as the Peace Corps' recent order covering 885 seats. The lone exception is NASA's recently completed desktop outsourcing initiative that covers about 45,000 seats, a far cry from the near 450,000 expected to be outsourced under the Navy/Marine In-tranet program.While disappointing to some, the slow growth has not surprised industry ob-servers. "It is a new concept requiring a new way of offering services, and there is a learning curve for both industry and government," said Olga Grkavac, executive vice president of the enterprise solutions division at the Information Technology Association of America, an Arlington, Va., trade group that counts more than 11,000 IT companies as members.To outpace that learning curve, many agency officials are finding they must negotiate bureaucratic bottlenecks as well as political, technical and practical issues.Christopher Wren, seat management program director at the GSA Federal Technology Service's Office of Information Technology Integration, knows the difficulties. It has not helped that new programs, such as Navy/Marine Corps Intranet, have stolen some of the thunder and potential customers from Seat and ODIN, he said. But Wren said he remains optimistic that seat management orders will pick up. "I think that people are aware of what it is conceptually. Now, they must determine how to buy and manage it," he said.Government desktop market growth is not expected to skyrocket. Pegged at $222 million last year, federal desktop outsourcing revenue is projected to reach $307 million in 2004, a 7 percent annual growth rate, according to market research firm Input of Vienna, Va. By contrast, worldwide sales are expected to jump from $9.3 billion last year to $23.7 billion in 2003, a 26.8 percent annual gain, said Adam Couture, senior analyst with Dataquest of San Jose, Calif.The gulf between the two growth rates underscores differences between the private- and public-sector cultures and the bureaucratic snags in government organizations that begin with the decision-making process. "In the commercial world, if the chief executive officer says we are going to do this, and he has some modest forces behind him, it typically means they will do it," said Wren. "In the government, however, there are many different masters."While chief information officers oversee technology concerns, "a lot of the IT dollars are aligned with programs, not with the CIO; so how those dollars are spent and what they are spent on is more the discretion of the program manager than of the CIO," he said. Agency CIOs, for the most part, lack the clout to make program decisions, agreed Jerry Slaymaker, senior manager at KPMG's office in McLean, Va."Unfortunately, some of that inability has come about because they have failed to understand that a big part of their practice is building the business case for technology," he said. Without such a business case, "they haven't been able to come to the table with credibility that they understand: what it really costs and what the real benefits are," said Slaymaker, who until early this year served as a senior adviser to the Environmental Protection Agency CIO.Though skeptical about the value of seat management, Slaymaker said he supports agency efforts to build a business case for outsourcing through total cost of ownership, or TCO, studies. "If you do those right, it implies that you have identified your assets and costs, both indirect and direct; and then if you decide to outsource using Seat Management or any other vehicle, at least you can do that having made a business case," he said. TCO studies are growing in popularity. Before signing up to Seat in April, for example, the Peace Corps engaged Harris Technical Services Corp. of Alexandria, Va., to perform a TCO study, said Doug Greene, the agency's CIO. "We are not going into this thing thinking it is going to save us a tremendous amount of money, but we did want to benchmark where we were," said Greene, adding he hopes to conduct another study 18 months after the organization goes under seat services Aug. 2.The Peace Corps tapped Federal Data Corp., Bethesda, Md., to cover 885 seats under a $17 million, five-year contract. The agency will consider next year whether to expand the program by an additional 1,800 seats at its overseas offices, said Greene.About two years after it outsourced its desktops, the Bureau of Alcohol, Tobacco and Firearms recently engaged the GartnerGroup, a research firm in Stamford, Conn., to determine its TCO, said Patrick Schambach, the bureau's CIO. The results determined that the organization paid about $9,500 per seat annually in hard and soft costs; and while that may seem high, it ranked below average when compared with similar entities in GartnerGroup's TCO database of about 2,000 organizations, Schambach said.But TCO studies do not eliminate other critical issues, including the politics involved in moving to outsourcing. It is "not nearly as easy as people try to make it out to be," said Adam Wieder, vice president for corporate development at Computer & Hi-tech Management Inc., McLean, Va., which is a subcontractor to Wang Government Services Inc., McLean, Va., on ODIN and Seat. For example, agencies must confront the possibility of giving up control of their information technology assets and losing skilled employees, he said. And if they do, what happens if the switch-over proves a failure?No political issue is more controversial in outsourcing than displacing government employees. In February, Rep. Albert Wynn, D-Md., introduced the Truthfulness, Responsibility and Accountability in Contracting Act (H.R. 3766), which places constraints on government efforts to contract out. Although observers give it little chance of passing this year, the bill has grown steadily in popularity, with 187 co-sponsors to date.This move to protect government workers must be balanced against Congress' call for performance-based contracting. "There is a little rub between the two," Wren said. The government has been picking up the pace of outsourcing over the last few years, he said, and only a massive infusion of IT professionals into the government accompanied by a significant slowdown in the rate of technology change will alter that trend.ATF's Schambach, an ardent supporter of desktop outsourcing, dismisses many of these objections as excuses not to act. "It has been a quandary to me why there have not been more agencies jumping on this, because, it seems to me, it answers so many questions," he said.Spurred on by communications breakdowns associated with the April 1993 tragedy involving the Branch Davidians at Waco, Texas, ATF became the first agency to adopt enterprisewide outsourcing when it signed up with Unisys Corp. of Blue Bell, Pa., in November 1997, before Seat or ODIN existed. That program now covers 6,000 desktops at a cost of about $40 million over five years, Schambach said.He said the implementation was not easy, and that the effort required to roll it out was "an eye opener for both the vendor and us." There was an endless number of logistical issues and "little loose spots that we had to go over and over again," he said. It took ATF three test rollouts to implement outsourcing effectively before it could be deployed at the agency's 188 sites around the country, he said. To one degree or another, all agencies undergoing outsourcing have faced practical challenges. The most severe appears to be at GSA, where the organization has placed on hold plans to expand its initial, limited desktop order to the rest of the agency. "The agency is doing a little housekeeping or preparation for whatever it decides to do downstream," said Wren, noting that a key focus is putting into place working standards.As the launch customer for Seat, GSA awarded a $114 million task order to Litton-PRC Inc. of McLean, Va., in December 1998 to support about 2,500 users, most of them at the organization's Washington headquarters.The agency did little advance work before the contract began. When PRC took over, it discovered "about as diverse an IT architecture as you can imagine," PRC CIO Cora Carmody told Washington Technology earlier this year. That lack of standardization made the transition take longer than GSA or PRC expected, she said.To speed implementation, the agency has considered issuing a second task order and adding another vendor. However, GSA now is rethinking that strategy, said one industry source. By contrast, NASA's initiative has gone fairly smooth, said Mark Hagerty, the ODIN program manager."I don't want to overstate that. There are still folks within the agency who would prefer not to do this, but by and large, the resistance has been fairly contained," he said. With a $123.7 million task order to Intellisource Group Inc. (recently acquired by Affiliated Computer Services of Dallas), NASA completed its plan to contract out the desktops at its 10 main centers. The agency already is planning follow-on contracts, which will be needed for some centers by Dec. 1, 2001, Hagerty said.Continuous education has been critical to the agency's success, Hagerty said. "Our project manager here at Goddard [Space Flight Center in Maryland], for example, sends out a kind of ODIN 101 newsletter to the entire community every week without fail."Officials at Wang Government Services and their customers at the Treasury Department meet monthly, according to Mike Sanders, vice president and general manager for civilian operations at Wang. "We call it Seat investment," he said, adding that it is a very open and frank discussion about the contract about what processes can be improved.As the individual agencies struggle to manage their programs, Seat and ODIN face the challenge of losing customers to other government programs. When Navy/Marine Corps Intranet was announced last year, Seat was close to signing up a couple of Navy commands, said Wren. But with the intranet, all of the elements of the service became off limits to either Seat or ODIN.On another front, the Defense Logistics Agency considered Seat and ODIN before opting to use the GSA schedule to put together its seat management program. The agency believed that the schedule offered greater flexibility, said Chad Krainer, DLA contracting officers representative. The DLA contract was awarded to Wang under a blanket purchase agreement worth about $20 million over five years and initially covering 2,200 seats. Unlike programs crafted under Seat or ODIN, the agency, for now, is maintaining ownership of equipment. Orders off other programs, such as the GSA schedule, are expected to increase as desktop outsourcing takes root within the U.S. government."We've had some interest from the schedule," said Tom Arnsmeyer, vice president of IT management services at Federal Data Corp. However, Arnsmeyer worries that proliferation of different seat management schemes may cause some confusion. "Under a schedule contract or some of these other procurements, it is hard to tell what services are included," he said. On an upbeat note, both Seat and ODIN report unabated interest in their products. "We still give two to three briefings a month" to outside agencies, said Hagerty. Seat has two orders on the street now for pilot projects at the departments of Education and State for about 1,000 and 200 seats, respectively, said Wren, adding the program has its sights on recruiting ATF when it re-bids its program next year. "We are not eliminating any possibilities," including Seat, ODIN or re-upping with Unisys, Schambach said.Another program for the Air Force's Special Operations Forces at Wright-Patterson Air Force Base in Dayton, Ohio, is primed to expand, said Steve Miller deputy director of the program. Last month, Miller rewrote the contract with Federal Data Corp. to make it easier for additional organizations to use."Right now, we've got 200 seats under contract at the Special Operation Forces [systems program office]," said Miller, who noted several other program offices are considering it. They include the Air Force Materiel Command, which is exploring outsourcing 2,500 seats at its headquarters building at Wright-Patterson.XXXSPLITXXX-XXXSPLITXXX-