Integrators Get Picky in Social Services
By Andrea Novotny
A surge in spending by the states for systems to track welfare and child support cases is swamping integrators with business opportunities and has created niches for new entrants into the market.
The state and local government market for such human service applications is expected to swell from $1.04 billion in 1997 to $2.29 billion in 2002, according to G2R Inc., a market research firm in Mountain View, Calif.
"[A year or two ago,] companies would uniformly bid on projects across the board," said Thomas Davies, vice president of state and local for Federal Sources Inc., McLean, Va. "Today, it's just the opposite." Companies do not have the marketing resources or personnel to take on the entire spectrum of projects being offered by states, he said.
John Gallagher, Unisys
|Human Services Application Forecast||Case Management|
|1997 ||$240 million|
|2002 ||$597 million|
|Eligibility & Assessment |
|1997 ||$209 million|
|2002 ||$477 million|
|Child Welfare |
|1997 ||$104 million|
|2002 ||$162 million|
|Provider & Payment|
|1997 ||$ 94 million|
|2002 ||$215 million|
|Child Support Enforcement |
|1997 ||$104 million|
|2002 ||$214 million|
|1997 ||$ 94 million|
|2002 ||$206 million|
|1997 ||$ 83 million|
|2002 ||$175 million|
|Other Human Service Spending|
|1997 ||$115 million|
Robert Carlson, segment director for social services for IBM Global Government Industry, agreed.
|2002 ||$241 million|
"All of the vendors are becoming very focused on what their competencies are and how to fit those competencies into the marketplace," he said.
New federal requirements have mandated states to implement a vast array of systems for such things as welfare case management, eligibility assessment, fraud detection, job training and child support enforcement .
"The human services area is by far [one of] the largest areas of investment for information technology in state governments," Davies said. "That makes it a very attractive area for the private sector to [target]."
The demand by state governments for systems to better manage and account for social services has lured a variety of systems integrators, including Andersen Consulting, Chicago; Deloitte & Touche, New York; IBM Corp., Armonk, N.Y.; Lockheed Martin Corp., Bethesda, Md.; and Unisys Corp., Blue Bell, Pa. Like IBM, Unisys has remained active in a broad range of human services but is becoming more selective when bidding projects to best suit the company's solutions, said John Gallagher, director of marketing for social services for Unisys' Information Services Group.
In the public sector, social services is one of the company's fastest growing areas with revenues climbing 20 percent to 25 percent annually, Gallagher said. The company would not reveal specific revenue figures.
As Unisys and other traditional players in this market pick and choose projects on which to bid, new companies are stepping in to fill niche opportunities. In addition, the flexibility given to states to implement their welfare reform programs is diversifying the landscape of companies marketing their services to states, Davies said.
That's where companies, like Dynamics Research Corp., Andover, Mass., and DynCorp, Reston, Va., have made a recent push into the human services market.
Three years ago, DRC, a software engineering and systems integration company, branched out from defense contracting and entered the state and local public sector to pursue the human services market, said Ernie Massa, the company's director of human services systems re-engineering.
"The opportunities are there for companies like us," Massa said. "Welfare reform is generating a lot of infotech changes among state governments. States have to think about how they are going to modify, change and enhance their systems to implement that reform."
The publicly traded company's overall revenues have grown $55 million since entering the human services market in 1995, Massa said. DRC now has case management, child welfare and child support enforcement systems in Colorado, New Hampshire and Ohio. Last year, work on these projects made up a third of the company's $159 million revenues, he said.
"We are not trying to build up an organization that has experts in every facet of human services," Massa said. "We don't want to deviate our attention from the bull's eye."
The biggest growth area in the human services applications sector will be for case management systems, according to G2R. Spending on these systems will soar 149 percent in five years - from last year's $240 million to $597 million in 2002.
Bob Carlson, IBM
Case management systems are expected to become the core tool used by states to manage federal requirements for the Temporary Assistance to Needy Families program.
Under sweeping welfare reform initiatives enacted in 1996, the federal government changed the way welfare programs were financed and administered, including the TANF program, which replaced the Aid to Families with Dependent Children program.
States now are given federal block grants and the discretion to design and implement their own welfare programs. Those changes are spurring state spending on information technology for social services. For fiscal 1998, the federal government is providing $16.6 billion in TANF grants to states.
|Dynamics Research Corp.|
|1995 ||$104 million|
|1996 ||$130 million|
|1997 ||$159 million|
|1998 estimated ||$191 million |
In addition, other federal initiatives have provided funding for the states to build integrated welfare systems for food stamps, Medicaid and cash benefits; statewide automated child welfare information systems; and automated child support enforcement systems to track down and collect money owed by deadbeat parents.
IBM, for one, has done well in the social services market. Last year, social services made up $1.5 billion of the company's $6 billion in worldwide government revenues, Carlson said. Of that $1.5 billion, about half was in the United States, he said.
IBM provides public assistance, employment and public health solutions. The company's services include program management, systems integration, consulting and software turnover.
"The marketplace has rewarded [IBM] handsomely," Carlson said.
For example, IBM is providing a case management system for Washington state to track the status of aid recipients, employment services and other related information.
The company won a four-year, $45 million prime contract in 1993 to develop a federally certifiable welfare system that automates Washington's cash payments, food stamp, Medicaid and other programs. Since then, IBM has won number of additional contracts from that state, Carlson said.