Virginia sets outsourcing table

That Virginia's IT outsourcing initiative is on schedule to award contracts this fall is due in no small measure to work done by state officials to build the widespread support that was lacking in many high-profile failures in other states. "When we talk to people in the state, everyone is on the same page, and there is a lot of consistency in the message, strategy and implementation plan," said John Nyland, general manager of the public sector for IBM Global Services, one of three companies bidding on project.Many states are watching to see if the Old Dominion state can successfully award its seven-year, multibillion-dollar IT Transformation Initiative that was made possible by a groundbreaking law that Virginia passed three years ago. The new law, the Public-Private Education Facilities and Infrastructure Act, reformed the bid process to give contractors more room to propose creative ideas and solutions. If Virginia is satisfied with the self-funded bid proposals it receives this summer, and if its newly established IT investment board approves the project, then both parts of the project would be awarded by September, said Lem Stewart, Virginia's chief information officer. The state hopes to complete the negotiations and sign a contract by October, Stewart said. IBM Corp. and Northrop Grumman Information Technology of Herndon, Va., are bidding on the IT infrastructure part of the project; IBM and CGI-AMS of Fairfax, Va., are bidding on the enterprise applications part. MULTITUDE OF FUNCTIONSUnder the IT infrastructure track, Virginia would outsource services for computers, facilities, help desk and hardware and software. The enterprise applications track covers human resources, financial management, procurement, budgeting and accounting and other enterprise programs, such as permitting and licensing. At press time, the enterprise applications component was about a month behind the IT infrastructure component, according to state officials and company executives.The two tracks "generally have been running concurrently, but when we began moving toward due diligence, it took longer to form an enterprise team than it did [to form] the infrastructure team," Stewart said. The enterprise applications component will likely be back on schedule by the time the contracts are signed, he said.The project has strong support from Gov. Mark Warner (D) as well as from key supporters in the state legislature, Stewart said. Even agencies, which can sometimes resist giving wholehearted endorsement to external initiatives, recognize that outsourcing to the private sector may be the only way to modernize legacy systems, he said"It's a monumental effort, but it really needs to be done," Stewart said. "We're dealing with a lot of antiquated systems, and we really don't have the dollars to modernize our [IT] environment. It will take a significant partnership to make that happen over the long term."The state and local market is littered with statewide IT outsourcing projects that failed over the last decade, including projects in Connecticut and Georgia that never made it to award and one in Florida that was terminated after one year.The biggest cause of failure for these projects, before and after award, has been a lack of attention by the government executives involved, said John Kost, public sector analyst for IT consultancyGartner Inc. of Stamford, Conn.Transformational projects of this magnitude include literally thousands of decisions concerning policy, spending and contract language that require both an empowered project management team and swift responses from senior management to sustain momentum and avoid potentially serious project delays, he said. These initiatives cannot be viewed simply as IT projects, he said. "They must be seen as projects that are transformational for the whole of the [state]. Management attention cannot waiver," Kost said.THE ROAD BETTER TRAVELEDThe companies bidding on the Virginia project believe it will turn out differently than other statewide IT outsourcing projects, because the state has shown an ability to award and sustain large, innovative projects, such as its telecommunications and tax and revenue initiatives."If you look at the track record among states for successful business partnerships, Virginia has to be at the top of the list," said Caroline Rapking, vice president of consulting services for state and local government with CGI-AMS.Although support of the governor's office is important to the project, the state's new IT governance structure was crafted to ensure continuity for large-scale initiatives beyond Virginia's gubernatorial one-term limit, Stewart said.The Virginia Information Technologies Agency, which Warner established two years ago, is overseen by an Information Technology Investment Board. Board members serve four-year terms, and they appoint a state CIO, who serves a five-year term. Current board members and the CIO will serve in their positions well after Warner leaves office Dec. 31.The new IT governance structure implemented under Warner played a key role in bringing major systems integrators to the table in Virginia, Stewart said."What makes a difference is the continuity of the decisions that [the board members] make and their ability to implement them," he said. "We span what has been a rapidly changing environment with a one-term governor. From the standpoint of stability, that makes a big difference to the private sector."Still, the board needs the support of the incoming administration, Kost said. "It's the opinion of the leadership of government, not an unelected board, that matters," he said.UNIQUE APPROACHStewart declined to estimate the savings the initiative might generate until he reviews the proposals, but said that the return on enterprisewide initiatives is likely to be substantial. [IMGCAP(2)]"If you look at enterprise initiatives and what has happened in other states, the return is two or three dollars for every dollar invested in terms of redesigning the business process," he said. Virginia is requiring companies competing for each project component to work side by side during the due diligence phase, he said. The state also has shunned one-on-one meetings with any of the bidders.Having competitors work side by side during due diligence makes the project unique and separates it not only from other large-scale government IT projects, but also from large-scale commercial IT projects, Nyland said. "It's been an interesting process for us. I can't think of a place where we actually sat down with our primary competitor," he said. "Everything is out there in the open, and that is a very positive thing." IBM and Northrop Grumman have completed the due diligence necessary for the IT infrastructure track, and are crafting their proposals, Stewart said. Meanwhile, CGI-AMS and IBM continue due diligence for the enterprise applications track, which is a prerequisite to bid preparation. Virginia has set aside about two months for negotiations, Stewart said. If contract negotiations for a project of this nature take longer than a few weeks, it is generally a sign that not enough preparation was done to set realistic expectations, Kost said. In Virginia's case, it appears that the state and its contracting partners have conducted an appropriate amount of due diligence, he said. But they will need to be especially responsive to each other as they wrap up the due diligence and start contract negotiations, he said. "If all parties use their experience and expertise, or the experience and expertise of the consultants they are using, to follow a proven template, there is no reason for the final phases of the contract process to be unnecessarily drawn out," he said. Senior Writer William Welsh can be reached at wwelsh@postnewsweektech.com.XXXSPLITXXX-Reforms enacted under Gov. Mark Warner (D) have put Virginia in a strong position to take on a major outsourcing initiative to modernize IT infrastructure and transform key business processes. State technology officials hope to award the groundbreaking IT Transformation Initiative in October, just a few months before Warner steps down in keeping with the state's one-term limit. When Warner took office in January 2002, Virginia was in the midst of a severe budget crisis. To cut spending, the former technology executive proposed an ambitious reform package that included consolidating 94 state IT departments into a new agency. In so doing, Warner hoped to create an environment that would save the Old Dominion $100 million on the nearly $1 billion it spends on IT each year. A key architect of Warner's technology reform agenda from his first days in office was George Newstrom. Warner in March 2002 hired Newstrom, a familiar face in Virginia technology circles and an EDS Corp. executive, as his secretary of technology .The final reform effort, which was the result of a compromise between the governor and legislature, was signed into law May 5, 2003. The legislation established a single IT department, the Virginia Information Technologies Agency, and a chief information officer to oversee the planning and development of all IT projects and purchases. But rather than give control of the new agency to the secretary of technology or a CIO who would report directly to the governor, the legislation established a 10-member oversight body, the Virginia Technology Investment Board, which has the authority to appoint a state CIO to lead the agency. Warner agreed to the modifications to achieve his goal of IT consolidation. In an important move that same year, the legislature amended the state's Public-Private Education Facilities and Infrastructure Act of 2002 to include IT infrastructure initiatives. The law, passed to encourage creative financing of education facilities and infrastructure, lets contractors enter a public-private partnership in which they share the risk of a project with the state by investing upfront in the initiative. "It really does bring best practices, innovation and creativity to bear in the government IT process," Newstrom said last year. After helping set the stage for the IT consolidation and creative financing for IT modernization, Newstrom resigned his post Oct. 1, 2004, and returned to the private sector. Lem Stewart replaced him.