After Long Wait, EDS Gets Connecticut Nod

After Long Wait, EDS Gets Connecticut Nod

George Newstrom

By Steve LeSueur

Electronic Data Systems Corp.'s vision for transforming the state of Connecticut's processes landed it a $1 billion outsourcing job to run the state's information technology services, top state officials said.

Rock Regan, Connecticut's chief information officer, said that the $24.3 billion systems integrator, based in Plano, Texas, bested its rivals with far-reaching proposals to improve government services.

"EDS looked at this from a business perspective and offered a number of solutions that we felt would help us in our statewide transformation," Regan said. The state is considering "pay for performance" provisions that would make the size of certain contractor payments dependent on measurable improvements in the government's operations, he said.

George Newstrom, group executive of the EDS Government Services Group in Herndon, Va., called the win a "substantial award" with the potential for opening up other projects throughout the country. "This is a major step in changing the landscape of government outsourcing," he said.

Connecticut's full-scale outsourcing of IT services — a first by a state or local government — will not begin for another eight months as state and company officials hammer out a formal contract agreement. Sept. 1 is the target date for EDS to begin its work.

Those negotiations, which are expected to take 90 to 120 days, are the first step in a process that will include a review of the deal by state auditors and by the Connecticut General Assembly.

State employee representatives say they will continue to oppose the plan and to push for state legislators to reject it.

Nonetheless, EDS officials are elated that Connecticut finally is moving forward on a project that is getting a lot of attention from state and local governments that are considering similar steps.

Also on the winning EDS team are Xerox, Unisys, A.T. Kearney, Microsoft, Lucent, Sprint and American Management Systems.

Losers were IBM Corp., Computer Sciences Corp. and Connecticut's State Employees Association, which also submitted a bid.

If unable to reach agreement with EDS on a contract, Connecticut state officials will commence negotiations with IBM and, failing that, with CSC.

The planned seven-year contract would represent a significant savings over the estimated $200 million the state currently spends each year on IT services.

EDS and its subcontractors would be responsible for the state's IT infrastructure, such as desktop computers, mainframes and telecommunications, while the state's Department of Information Technology would retain a staff of about 80 people to manage the contractor and set the strategic agenda for the state.

The idea of bringing in a private contractor is not just to modernize the technology, Regan said, but also to improve statewide services by eliminating duplication, taking advantage of new technologies, such as the Internet, and streamlining government.

If successful, the Connecticut project could open the gates for similar outsourcing projects by other state and local governments, industry officials and analysts said.

"There's a tremendous amount of interest out there," said Regan, whose office has received six inquiries from government officials he described as "fairly serious" about outsourcing on a large scale.

One of those calls came from California's San Diego County, where officials are now drafting a request for proposal for an outsourcing project valued at $100 million annually.

Outsourcing by state and local governments, both large and small IT projects, is expected to reach $1.35 billion in 1999, and thereafter grow at 20 percent annually to $3.3 billion in 2003, according to G2R, a Mountain View, Calif., market research firm.

"A lot of vendors see outsourcing in governments as producing a steady stream of revenue in the future," said Rishi Sood, director of G2R's state and local group.

In its Connecticut proposal, EDS said it would centralize IT management, recruit state and private information technology workers, improve privacy safeguards of confidential information, consolidate and improve the state's IT systems and promote technology in education and business.

EDS will open a new technology transformation center in Hartford to serve as the state's information technology headquarters and house most of its IT infrastructure, Regan said.

The EDS proposal also guarantees employment to all state IT employees for a minimum of two years, with salaries and benefits at or above current levels.

Connecticut's Republican Gov. John Rowland first recommended outsourcing in December 1996. But the proposal met with fierce opposition from the Connecticut State Employees Association, the union representing the 600 IT professionals who would be affected by privatization, and from the union's Democratic allies in the general assembly.

Legislators allowed the project to move forward on the condition that state auditors would have 75 days to review the eventual contract, after which the general assembly has 45 days to debate the issue. Either house can reject the contract with a three-fifths vote.

Union members intend to use the audit and subsequent debate as opportunities to continue their attack.

"This is a very bad deal for the state of Connecticut," said Rick Melita, a lobbyist with the CSEA.

Melita argued that IT contractors have a poor track record in other privatization efforts with the state, and that state employees don't want to work for EDS or any of the other contractors.

According to Melita, nearly a third of the IT professionals have left state employment since the outsourcing plan was first announced two years ago.

"The people who jump ship are going to find their own lifeboat and make their own deals in the private industry," Melita said. "They're not going to stake their future on a deal worked out by Rock Regan with EDS."

Although the union will seek support in both houses of the general assembly, Melita suggested that the Democratic dominated House of Representatives would be the most likely to reject the contract. There are 96 Democrats in the House, and only 91 votes are needed for a three-fifths vote.

"It's a mistake to assume that the legislature has signed off on this project," Melita said.

Both EDS and state officials say they are trying to address the employees' concerns. Regan said one of the reasons EDS was selected is because it has experience in IT outsourcing with foreign governments, including Australia and the United Kingdom, and has treated employees well in helping them move into the company.

EDS executives said the company is eager to have state employees work for them.

"We want to make it advantageous and financially rewarding for the employees transitioning to our company," said Newstrom.

Regan said he believes the Sept. 1 target date is realistic, but he acknowledged that uncertainty remains.

"There are four months in this process that we don't have any control over," he said, referring to the period when the auditors and the general assembly will review the contract.

"We won't know until we see how the legislature reacts."

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