Three Firms Stand to Make Billions In Government Outsourcing Market

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Three Firms Stand to Make Billions In Government Outsourcing Market

By Nick Wakeman

Staff Writer

With budget pressures pushing from one side and the General Services Administration pulling on the other, a contract for outsourcing data processing centers might become a multibillion dollar bonanza for the winners.

Computer Sciences Corp., SunGard Computer Services and Unisys won GSA's Virtual Data Center Services contract, which is valued at $6 billion over 10 years and is open to any government agency.

The contract was created by GSA in response to the Office of Management & Budget pressure on agencies to either outsource their data processing centers or consolidate them with other agencies to take advantage of economies of scale.

While agencies are not required to use it, GSA expects the vehicle to be popular because it offers agencies a quick and economical way to address OMB's concerns, said John Ortego, GSA's program director for the contract.

"Outsourcing has been proven for sometime in the commercial world," said Marshall Henderson of CSC Systems Group.
Ironically, GSA probably won't use the contract because it has already outsourced its data centers for $300 million to Unisys.

GSA made a presentation on the contract to agency chief information officers shortly after the contract was awarded Feb. 19. "We've been getting calls from a number of agencies," Ortego said, including the Federal Aviation Administration, the Federal Communications Commission, the departments of Education, Labor, Energy, and Health & Human Services.

Agencies are expected to face continued pressure from OMB to streamline. The GSA contract offers a way for agencies to address that pressure without going through a long contracting process on their own, he said.

"The federal government spends $2 billion a year on these data centers," he said. "If we can make a 20 percent to 25 percent penetration in that market, we'll have been successful."

The early stages of the contract will be critical, said Robert Deller, an analyst with Global Systems & Strategies, McLean, Va.

"If the contractors can provide the services and keep the customers happy, more agencies will give up their data centers," he said, adding that smaller agencies with smaller centers will likely be the first to try outsourcing. "They have less to lose," he said.

But working against the drive for outsourcing are political pressures, said Robert Dornan, senior vice president of Federal Sources, McLean, Va.

Members of Congress are loath to see their districts lose government jobs as centers consolidate and even move to new areas. "That could make some agencies reluctant to outsource," he said.

"Obviously, [outsourcing] is going to be a significant psychological change," Ortego said.

"Anytime you move to a new way of operating, there are concerns," said Lee Cooper, vice president of business development for Unisys, McLean, Va.

The winners of the contract are hoping to use their successes in the commercial world as one lever to convince the agencies that outsourcing is the best path to follow.

"Outsourcing has been proven for sometime in the commercial world," said Marshall Henderson, director of outsourcing for CSC Systems Group, Falls Church, Va.

"This is our opportunity to go after more government work," said David Douglas, president of SunGard Computer Services, which is the outsourcing unit of SunGard Data Systems, Wayne, Pa. "Ninety percent of what we do is commercial work."

SunGard has three of its own data centers that will be available to the government, and its partner, GTE Corp., Stamford, Conn., has two other centers.

CSC is offering six centers in the United States and another six overseas. Unisys has six U.S. centers and two overseas.

Pre-existing centers were a requirement of the contract so agencies would not have to wait for contractors to build a center. "It is going to be sort of plug and play," said Steve Dock, senior vice president for SunGard Computer Services.

While agencies can outsource on their own without using the GSA contract, that is not seen as a viable alternative, government and industry sources said.

Doing a separate outsourcing contract could take as long as 18 months, Ortego said. But a task order under the GSA contract could be awarded in three months.

A more likely competitor to the contract are agencies banding together to consolidate smaller centers into a larger one, Deller said.

Outside of that, CSC, SunGard and Unisys should dominate the data center outsourc ing market. "They have effectively shut out other companies," said Gregory Gould, an analyst for Goldman, Sachs & Co., New York.

None of the companies offered projections on what they expect to win or those agencies they will be targeting. The contract is geared toward centers that operate mainframes at less than 200 million instructions per second.


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