Outsourcing plan gets federal scrutiny

A groundbreaking effort by Florida to turn welfare eligibility ruling over to the private sector is facing intense scrutiny by federal agencies that oversee public assistance programs. The multiyear project has an expected value of between $2 billion and $3 billion, and has attracted the attention of several large systems integrators, including Accenture Ltd. of Hamilton, Bermuda, Affiliated Computer Services Inc. of Dallas, and EDS Corp. of Plano, Texas.State officials had hoped that by now they would have outsourced eligibility determination for food stamps, Medicaid and Temporary Assistance to Needy Families, but the process has been slowed by the need to structure the program according to federal guidelines.The Agriculture and Health and Human Services departments, the federal agencies that oversee these programs, must approve changes Florida makes in how it administers the programs. For its part, the Agriculture Department is open to innovative approaches to improve the food stamps program, said Jessica Shahin, deputy associate administrator for the USDA's Food Stamp Program.But in a June 23 letter to the Florida Department of Children and Families, she said that, given the program's size, a staged rollout would be better than an immediate statewide implementation. "Project implementation must occur in sequential stages to ensure that any potential adverse impacts can be addressed and controlled before they impact the full caseload," she wrote. The project, one of the first of its kind in the nation, could influence how other states determine welfare eligibility, according to analysts and industry observers. In Florida, it would be the latest state program to be outsourced as part of a reform effort by Republican Gov. Jeb Bush.The state legislature has approved that the Department of Children and Families go forward, provided the agency awards the contract to two prime contractors instead of one. Stephen Goldsmith, former mayor of Indianapolis and now an executive with ACS, is confident the state will resolve federal concerns and move forward with the program. Governors and agency officials bent on reforming government don't "stake their ability to do broad business process re-engineering on federal approval," said Goldsmith, ACS senior vice president of e-government solutions. In the long run, state officials may find they don't even need federal approval for most aspects of the project, he said. "Ninety-nine point nine percent of what [Florida] wants to accomplish can be accomplished without federal approval," he said.TWO PRIMESThe project follows on the heels of other state program and technology outsourcing plans by Gov. Bush. His administration outsourced statewide IT support to Accenture and BearingPoint Inc. of McLean, Va., last year at a cost so far of $324 million over seven years. The state also outsourced human resources services to Convergys Inc. of Cincinnati two years ago in a deal worth $280 million over seven years. Florida's move to outsource the determination of eligibility for federal welfare programs closely mirrors the Convergys deal. The two projects are similar in that they require the contractor not only to provide technical support, but also administer program functions that were previously the exclusive domain of state employees.The Department of Children and Families is working with state and federal agencies to finalize solicitation for bidders, said Tim Bottcher, a department spokesman. He did not say when the solicitation would be released, but observers expect it will happen before the presidential election in November. The department wants proposals that either would involve outsourcing of eligibility determination or would provide an alternative method of service delivery to improve service at reduced cost, he said. Bidders also may propose a combination of the two approaches, he said.Goals range from streamlining the client application process and improving caseload management to improving the process for the welfare-to-work transition and enhancing risk assessment and fraud prevention, according to market research information. The state spends about $300 million annually to perform the services under the program, Goldsmith said.In anticipation of the project, the Florida legislature already has enacted legislation requiring the state to award the contract to two prime contractors, said Evelyn Lynn, chairwoman of the Florida Senate's Children and Families Committee. If only one company were administering the program, and it ran into problems, the state would be in a dilemma as it already would have laid off the state employees running the program, she said. But with two primes on the project, one could fill in if the other was having substantial difficulties meeting requirements.States generally award projects of this nature to one firm because the they get a better deal through economies of scale, said John Kost, managing vice president for worldwide public-sector research with market research firm Gartner Inc. of Stamford, Conn. Because this initiative is groundbreaking, it might make sense to try different approaches and maximize competitive pressures on firms providing the services, he said.Having two primes on the project is essential, Florida's Lynn said. "This is insurance for the state." FEDERAL PARTNERSThe Agriculture and Health and Human Services departments are working with the state to make sure that the structure of the solicitation and any proposals received comply with federal guidelines, USDA's Shahin said. If the Florida Department of Children and Families decides to go forward with the outsourcing project, the department "will be asking the questions that need to be asked to make sure that program access is protected," she said."We will have to look at the [proposed] solutions to determine whether waivers might be required," she said. For example, Florida has requested the food stamp program waive its requirement that state merit employees perform eligibility determinations and certification interviews, Shahin said. Rock Regan, Connecticut's former chief information officer, said federal agencies primarily want assurances from state officials that cost allocation is done properly on the contract, so that one federal program doesn't wind up inadvertently subsidizing another. "You have to have good accounting processes in place," he said. Connecticut faced a similar situation in trying to get federal approval of a statewide IT outsourcing project it was planning to embark on five years ago. The project was never awarded, because the state and the contractor couldn't agree on the terms of the deal. Tom Davies, senior vice president with market research firm Current Analysis Inc., Sterling, Va., said Florida officials are acutely aware of the need for special oversight and management expertise after the contract is awarded and are taking steps to address the matter.Still, contractors bidding on the project should insist the state establish independent oversight that involves detailed performance reporting after operations begin, he said. Prospective bidders have a difficult road to travel, Gartner's Kost said. "Contractors need to build realistic expectations, not false promises," he said. "This will be a tough project. Everyone needs to acknowledge that, so there isn't a failure to achieve expectations, even if the project is successful."Staff Writer William Welsh can be reached at wwelsh@postnewsweektech.com.