Connecticut officials will soon take bids to outsource all state agency infotech work, a bold move that could reap a frontier of infotech opportunities nationwide, industry officials say.
Although the contract structure is still flexible, the contract will likely run for seven years and involve one prime and many subcontractors. Already, major players such as Andersen Consulting, IBM Corp., and Science Applications International Corp. have expressed interest in a prime role. Proposals are due May 9 and an award is expected to be announced in late fall.
Many states have discussed similar outsourcing efforts but none has pursued the kind Connecticut's Republican Gov. John Rowland seeks: Turning over to private industry the oversight, maintenance and upgrade work for the state's mainframe, desktop, telecommunications and applications structure - currently a $300 million a year job.
"We haven't gotten the return on investment we expected," conceded Rock Regan, project manager at the state's office of policy and management. "The governor believes this can change the way the government provides services."
Nationwide, state and local government infotech outsourcing is growing at a 20 percent annual rate and is projected to account for $936 million in contracts this year, according to G2 Research Inc.
But that doesn't count the request for proposal that Connecticut released Feb. 21. It's likely that other states will fall in line if Connecticut is successful, said Meghan Cotter, a senior analyst at G2 Research, based in Mountain View, Calif.
"In state and local government, you find a lot of people rushing to be second," Cotter said. "Once there's been an example of a successful solution, you see others follow."
It's not the first time that elected leaders have talked about ambitious outsourcing plans. But efforts in recent years fizzled after making big headlines. In Indiana, officials dropped the plan after failing to adequately project the cost savings of outsourcing. In Iowa, any outsourcing is on hold while state officials struggle with the year 2000 computer compatibility problem and look to establish a designated state agency for infotech.
A Federal Sources Inc. survey last year of state and local government officials found that 23 percent saw a lack of control as the biggest disadvantage to outsourcing, said Thomas Davies, vice president of consulting for Federal Sources, based in McLean, Va. While 16 percent of those taking part thought outsourcing was too difficult, most of the more than 200 respondents wanted to do more outsourcing. "The general feeling is that outsourcing is gaining momentum across all the states," Davies said.
Connecticut's move may be the turning point. Rowland said the state's IT management is so bad that, after 18 months of study, bureaucrats still don't know how many PCs they have.
Since the request for proposal was announced, Connecticut officials have received calls from 10 other states, said Regan, who declined to identify the states.
However, the National Association of State Information Resource Executives released a survey last year that indicated resistance to large-scale IT outsourcing is breaking down. States that wanted to learn more about outsourcing include Arizona, Arkansas, Idaho, Kentucky, Michigan, Nebraska, North Carolina, North Dakota, Pennsylvania, South Carolina and Virginia. Discussion about outsourcing in Texas and California has also attracted national attention.
KPMG Peat Marwick LLP has recently worked on consulting reports on the subject for 20 state and local governments, according to KPMG's Washington office. Ongoing outsourced infotech work has resulted in some multimillion dollar contracts, but nothing on the level that Connecticut is considering.
Electronic Data Systems Corp., Plano, Texas, has picked up nearly $50 million in annual contract revenue to provide Medicaid systems and microcomputer work in Vermont, Kansas and Michigan. In fact, EDS services Medicaid systems for 18 states. The company sees this as a growing market as governments offer 24-hour service through Internet and telecommunications advancements.
"We're seeing the states thinking about enterprisewide outsourcing more than ever," said Steve Person, a spokesman for EDS government services, based in Herndon, Va. "Citizens are demanding better services.They don't want to go to government offices to fill out paperwork. They'd rather be online than in line."
Staff writer Nick Wakeman contributed to this report.