Lockheed Martin, SCT Snare Major IT Outsourcing Wins

By William Welsh, Staff Writer

The movement toward full-scale outsourcing of technology services, still viewed with considerable apprehension by many elected officials and local government administrators, received a boost by two major awards made recently to systems integrators.

The IMS unit of Lockheed Martin Corp. of Bethesda, Md., in November signed an 11-year, $260 million contract for outsourcing with Orange County, Calif.; and Systems and Computer Technology Corp. of Malvern, Pa., is on the verge of signing a seven-year, $42 million contract with Memphis, Tenn., according to city and company officials.

"Outsourcing is part of a trend, and the only question is whether it will accelerate quickly or slowly," said Paul Light, director of governmental affairs at the Washington-based Brookings Institution.

"We see this as very much of a growth market at the state and local level," said Mike Daniels, president of SCT's Global Government Solutions.

The state and local government market for outsourcing will grow at a rate of 25 percent a year from $1.95 billion in 2000 to $5.96 billion by 2005, according to Gartner Dataquest, Stamford, Conn., a technology research company.

A large-scale outsourcing project in San Diego County, awarded in 1999 to Computer Sciences Corp. of San Diego, focused attention on outsourcing's potential benefits, said government and industry officials.

"We have seen an increased interest in [San Diego County] on the part of other state and local governments," said Richard Jennings, CSC's lead executive on the project. "We have not yet seen the movement of those clients to procurement stages, although we think they are approaching that point."

Government officials are attracted by the reductions in personnel and other savings derived from IT outsourcing, Light said. He expects outsourcing to become a common approach among state and local governments.

"The trend is toward smaller and smarter government," he said. "There is no going back."

In Orange County, Lockheed Martin IMS will upgrade the county's telecommunications infrastructure, provide application development and support for e-government initiatives and manage the Orange County Data Center.

In the final round of negotiations, Lockheed Martin IMS, the incumbent contractor, competed with Science Applications International Corp. and Systems Management Specialists. The staffing level will remain at about 250 employees, said Leo Crawford, Orange County's chief administrative officer.

The Orange County contract authorizes IMS to sell additional technology services and surplus data capacity to other public- and private-sector entities. The provision of leasing the data center "is an additional twist" to the contract that could bring in another $250 million in sales on top of the $260 million contract, said Mike Sinkinson, Lockheed Martin IMS' vice president and managing director for information resource management.

"We view this as a $500 million contract," he said.

IMS will share the additional revenue with Orange County, and has guaranteed the county $21 million regardless of how much excess capacity it sells.

"That's why they won the contract," Crawford said about the revenue-sharing arrangement. The county will use the revenue to offset the rates that the county charges its agencies for information technology. "We want Lockheed Martin IMS to be successful, and we want them to share that success with the county."

The city of Memphis is outsourcing its information technology because it's having trouble competing with the private sector for skilled IT workers, said Abe Kani, Memphis' chief information officer of information services.

"On top of that, technology changes so quickly and we want access to this type of expertise when the city needs it," he said. "We know that major IT vendors [such as SCT] can bring to the city their best practices to help it implement proven technologies."

Memphis and SCT officials are now negotiating the terms of the contract, which they expect to complete and sign this month, Kani said.

SCT will assume responsibility for computer and technology work previously managed by the more than 50 full- and part-time IT workers employed by the city. These employees will become SCT employees during the transition period, SCT's Daniels said.

SCT has other outsourcing projects in Anaheim, Calif., Evansville, Ind., Indianapolis and Greenville, S.C., said Maureen O'Brien, SCT's public relations director. Competing with SCT in Memphis were Affiliated Computer Services Inc. of Dallas and EDS.

While industry officials are eager to expand various outsourcing models, they said many jurisdictions lack the infrastructure to support such business models. Also, strong support from the mayor, in the case of Memphis, and the boards of supervisors, in the case of the two California counties, is essential to get the projects off the ground and through procurement.

"If they don't have the political climate or the leadership from elected officials, it is not going to happen," Jennings said. "That is a variable that we can't forecast and that influences whether these [opportunities] make it to the procurement stage."

First- and second-tier systems integrators will be most likely to find outsourcing opportunities in one of two different situations, Light said. One is where local government IT workers are working at the limits of their capacity, and the other is where the jurisdiction has failed on its own or wants new approaches.

When they find outsourcing opportunities, contractors should try to increase the local work force rather than simply convert jobs to their payrolls, Light said. For example, SCT is being strongly encouraged to recruit locally in Memphis to fill the additional positions that are anticipated by city administrators, Kani said.

The concept of partnership on outsourcing projects is far more than a casual buzzword, officials said. Outsourcing blends together the public and private work forces to the point where, although IT workers are employed by a private firm, they are actually government employees, Light said.

"[They] are creating a blended public sector that blurs the distinction between public and private," he said.

Daniels agreed that projects centered on technology implementation and management create a tight bond between the government and its industry partners, but he said contractors still view the employees assigned to an outsourcing project as their own and not the government's.