States Jump on Data Center Outsourcing Bandwagon

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States Jump on Data Center Outsourcing Bandwagon

By Dennis McCafferty
Staff Writer

In what could be a harbinger of opportunity for information technology companies, Armonk, N.Y.-based IBM Corp. recently launched an ambitious outsourcing project for Michigan's unemployment data center operations.

The job, awarded in the fall of 1995, has an estimated value of $60 million over 10 years. IBM will run the data center for the remainder of the contract. The launch of the outsourcing initiative was delayed by about a year because of complications related to upgrading the unemployment data system.

And while Michigan is now focusing much of its information technology resources on date code corrections to avoid any year 2000-related software problems, Michigan Chief Information Officer George Boersma said he remains open to other data center outsourcing initiatives in the future.

"We'll continue to outsource on whatever makes good business sense to the state,'' he said.

The outsourcing of state governments' data centers is picking up ground as a hot topic, as the state of Pennsylvania recently announced that it will outsource its information technology data centers.

Pennsylvania is looking for vendors to take over its IBM and Unisys platforms, with a request for proposals being released in October and an award expected by February. There is no estimated value of the award, although the annual operating budget for the data centers is about $82 million.

The Pennsylvania data center outsourcing will have a spillover sales opportunity effect for IT vendors, as the estimated $127 million in anticipated savings over five years from the outsourcing will be spent on state government PCs, local area networks and other information technology investments.

In addition to Pennsylvania and Michigan, officials in the state of Connecticut are getting national attention for their determination to outsource all information technology services, including the running of data center systems.

"[These] are like first steps,'' said Pat Ferrill, manager of business development for IBM's government group in Bethesda, Md. "The commercial world four years ago started up with outsourcing data centers heavily. Now, the government world is moving in that direction. We're just several steps behind. If Connecticut and Pennsylvania go on to an award, I think you'll see a lot more opportunity as other states follow.''

For sure, other states are positioning themselves to follow suit. California is in the process of consolidating all 12 major data centers by 2002, and officials there are leaving it open as to how much of the current $350 million it costs to run the data centers will be outsourced. Chief Information Officer John Thomas Flynn said it is too early to cite specific estimates but that it will be "a substantial amount.''

"Gov. [Pete] Wilson understands that we have created these islands of automation that we like to talk about, and he has brought me in here so that the taxpayers are getting the best bang for their buck," Flynn said. "These data centers use so many similar resources ... that it doesn't take a rocket scientist to figure that you're supporting all these systems with all this staffing, and you can do it more cheaply.''

The state of New Mexico is in the "early evaluation period'' of a consolidation of its data center operations. The state of Texas has contracted with IBM to run a data center in San Angelo, Texas, and is recruiting state government customers to bring their business to the center. So far, it's starting slow, with just Angelo State University and Texas public schools using the data center.

But Texas also is hampered by the reality that its information technology decisions are made on an agency-by-agency basis, with those agencies headed by elected officials or appointed boards made up of members with staggered terms. In the latter case, a governor will need four years to get a majority on the board, hindering any chance of fast, sweeping IT initiatives.

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