In the homestretch
Virginia's outsourcing projects near finish line
- By Ethan Butterfield
- Nov 20, 2005
After months of careful preparations using a new bid process, Virginia has awarded one mega outsourcing deal and is on the verge of announcing another to two technology powerhouses.
The Old Dominion last month selected Northrop Grumman Corp. and CGI-AMS to lead its 10-year, multibillion dollar IT Transformation Initiative to overhaul the state's legacy IT systems and enterprise applications.
Northrop Grumman IT of McLean, Va., will create a new infrastructure for the state, and CGI-AMS of Fairfax, Va., will provide enterprise applications. The companies vied in separate competitions against IBM Corp.
The Northrop Grumman contract, valued at $2 billion over 10 years, was sent to Gov. Mark Warner (D) at the end of October, and he approved it Nov. 14. The company will begin work under a $3.5 million interim contract, pending a review by the state's general assembly.
Final terms of the CGI-AMS project are being negotiated, but an announcement from the governor is expected in the next few weeks, said Caroline Rapking, vice president of consulting services at CGI-AMS.
Rapking said the deal is for seven years with two three-year options. The potential value has not been made public. CGI-AMS is part of CGI Group Inc. of Montreal.
Virginia's technology transformation project was awarded using the Public-Private Education Facilities and Infrastructure Act, a law the state passed three years ago that altered the bidding process to give contractors more room to propose creative ideas and solutions.LONG TIME COMING
Using open negotiations process, the companies and state officials hammered out terms aloud and in person, said Virginia Chief Information Officer Lem Stewart, who will oversee the IT infrastructure project. Secretaries of finance and administration will lead the enterprise applications project, which likely will cover human resources, financial management, procurement, budgeting and accounting and other enterprise programs.
Crafting the contracts required months of study and due diligence. Virginia officials and outside consultants studied failed statewide outsourcing projects in Connecticut and Florida as well as successful private-sector outsourcing projects, Stewart said. Virginia also inventoried its own stable of IT hardware, software, systems and personnel before moving forward, he said.
The level of preparation Virginia officials put into the contract goes above and beyond what other states have done, said John Kost, managing vice president of worldwide public-sector research at Gartner Inc., Stamford, Conn.
"Since most governments have done so little large-scale outsourcing, they aren't even sure what to expect, and thus don't know how to do it," Kost said. "The financial due diligence of Virginia has been virtually unprecedented."
The terms of the infrastructure project call for Northrop Grumman to invest about $250 million in new regional facilities and offer 900 state employees a chance to transfer to Northrop Grumman's payroll. The company also will offer training and redeployment of state staff and will create 700 new jobs, many in distressed areas of southwest Virginia, Stewart said.
The contract also includes hardware, networks, associated services and staff for mainframes, servers, desktop and laptop computers, voice and data networks, operating systems, e-mail, security, help-desk services and data center facilities.
Northrop Grumman will be repaid for its investment over 10 years, likely getting back between $300 million and $350 million, Stewart said. After the final year of the deal, when the contract calls for repayment on Northrop Grumman's investment to end, the state will save about $30 million a year on what it pays now for IT infrastructure, Stewart said.
Virginia's only obligation is to keep doing business with Northrop Grumman, nothing more, Stewart said.
"It's really a commitment to do business in the partnership over a long enough period of time that, if you can achieve the efficiencies that we all see, there will be adequate dollars within the current expenditure structure for them to get a reasonable return on their investment," he said.MORE SAVINGS AHEAD
Open communications, such as occurred during the company's negotiations with Virginia, could help save more IT projects in the future, CGI-AMS' Rapking said.
"The reason that not only outsourcing, but also all IT projects fail is because the expectations of the government are not always well known," she said. "If you don't meet people's expectations, it's a disappointment no matter what. This allows that communication of expectations to be as crystal clear as communication ever is, and makes the chance of success that much greater."
With a large segment of state IT employees nationwide nearing retirement age, it is certain that other state governments will be watching Virginia's outsourcing project very closely, said Jim Krouse, manager of state and local market analysis at Input Inc., Reston, Va.
"They will not have the staff, and the computer hardware is just way outdated ? there's a whole bunch of factors that are coming together that are going to push that kind of adoption," he said. "This will accelerate it, without a doubt, because it will break down some of the risk aversion that a lot of the state and local governments are still holding."
Success in Virginia would go a long way toward dispelling the fear created by failures of IT outsourcing projects in Connecticut, Florida and Georgia, Gartner's Kost said.
Staff Writer Ethan Butterfield can be reached at email@example.com.