Eye on the States: Lack of mega deals makes market dicey
- By Thomas Davies
- Mar 19, 2005
If there is one characteristic of the state and local market that sets it apart from its federal counterpart, it's the absence of a healthy and sustainable market for mega deals. The lack of mega deals is the primary reason so many state and local systems integrators struggle to grow their sales.
Mega deals are those contracts worth $250 million or more, and there is ample evidence that the market can produce contracts of this size.
Consider the Connecticut and Georgia outsourcing deals that never made it to award. Each exceeded $1 billion in value. Then there was the Florida technology outsourcing contracts that, at one time, totaled $250 million.
And don't forget that the Florida human resources business process outsourcing award was worth $250 million.
The San Diego County outsourcing contract that is scheduled for re-bid this year originally was $644 million.
Add to this the mega Medicaid fiscal agent contracts in Texas and California, and there is your evidence of mega deals in the market.
But it seems that for every San Diego County that makes it across the goal line, there is a mega deal that dies prematurely. Even when one does get to contract, rarely is such a deal replicated in other states and localities.
The possible culprits for these failures are many, but a fundamental problem is the lack of sourcing expertise.
When it comes to purchasing and contracting, states and localities are struggling to keep up.
Although most large commercial enterprises and the federal government have invested considerable resources and training in developing this expertise, such competency is woefully neglected in the states.
The purchasing offices generally are unfamiliar with the sourcing and contracting requirements of large, complex business services arrangements that the mega deals often entail.
Normally in such a situation, consulting firms and other intermediaries step in to fill the expertise gap. But in the case of the mega deal, the usual consulting firms don't seem able to get it right, either.
Too often, the advisory firms can't claim a success even though they have been involved with some of these deals since their inception.
Perhaps the consultants, like so many others, simply haven't mastered the unique dynamics of designing mega deals in the states.
Another likely culprit is the companies themselves. Few companies in the industry have a top management team that understands the state and local market. In the case of mega deals, this can be fatal, because it's rare that such a deal gets awarded without the direct involvement of the company's senior leadership.
Because they lack experience with the market, the top leadership isn't quite as astute as it might be when it comes to making difficult judgment calls that can spell the difference between success and failure. Thus, when mega deals are awarded in the states, they often result in disappointed customers and stockholders.
Mega deals are a key to unlocking the growth potential of the state and local market. The recent announcement by Texas of its intent to award an eligibility determination services contract to Accenture Ltd. is encouraging. The Virginia outsourcing award expected later this year will be another test.
If all goes well, perhaps the states finally can follow in the footsteps of their commercial and federal counterparts. n
Thomas Davies is senior vice president at Current Analysis Inc., Sterling, Va. His e-mail address is email@example.com.