EYE ON THE STATES

E-Gov Partnerships Break New Ground

Thomas R. Davies

by Thomas R. Davies

Partnerships between government and the private sector have been a long standing tradition in state and local government. But now electronic government companies are taking partnerships to new levels.

In some cases, the partnerships are beginning to take on the qualities of the most far-reaching arrangements found in the commercial world.

Formulating and executing innovative partnerships in state and local government is becoming a critical factor separating winners from losers. In the competition for e-gov business, companies work overtime to convince government officials their company is the best partner for the job.

There are several proof points that companies use to establish their partnership qualifications.

1. Economic development is a high priority for many governors, and states are competing intensely for more jobs, a skilled work force, a stable tax base and a better quality of life. E-gov companies are striving to demonstrate how they can address these priorities by offering, for example, to provide technical training to economically disadvantaged areas. Governments want companies who go beyond the immediate technical requirements of the task and make a contribution to solving larger problems.

2. State and local governments want
e-gov partners that have a strong local presence. The more local the better. At a minimum, most serious e-gov companies establish a local office to be credible.

3. Visibility is also important for e-gov companies, especially for those hoping to establish a national reputation of being a good partner. E-gov companies are aggressively reaching out, through advertising and other means, to build an image of being a good partner.

They are also investing considerable resources in national conferences and other forums where they can gain access to state and local officials.

4. And perhaps the foundation of any
e-gov partnership is trust. For young companies, building trust is a challenge because they are so new and they do not yet have the proven track record that gives government buyers the reassurance they need.

One increasingly popular step by e-gov companies is to hire highly regarded former state and local officials. A favorite hire are those officials who have been visibly involved in e-gov initiatives.

These officials help overcome a natural resistance to entering into partnerships with strangers. A related tactic is buying or partnering with well-established companies with a good track record and reputation.

5. An e-gov company trying to demonstrate they are "worthy" needs to show commitment. State and local governments often expect e-gov companies to make a commitment to their jurisdiction in advance of future sales.

For example, in return for receiving the official endorsement of a government or for gaining a preferential right to sell to e-gov services to government agencies, some companies are willing to forgo profits for up to a year. Others are willing to underwrite the cost of developing an e-gov solution in return for assistance in marketing it.

6. Sharing the rewards of success. State and local governments pioneered the practice of what is known as shared benefits contracting. Under these arrangements, both the company and the government work together to achieve well-defined performance objectives. If and when these targets are achieved, then both share in the resulting benefits.

E-gov companies are raising the financial stakes to new heights. E-gov creates new opportunities for companies to reap greater rewards if they are willing to assume significantly greater risks. Venture funded e-gov companies in particular have demonstrated a willingness to take on more risks than most companies that traditionally have done business with state and local governments.

But what is truly unprecedented, and has gone completely unnoticed, is that state and local governments are becoming investors in e-gov companies. In some cases the government also is a customer. This investment practice mirrors the practices of large commercial enterprises, who are taking equity stakes in Internet companies they buy from. Some governments are in a position to do the same.

As to where state and local governments take their e-gov partnership practices in the future: In the near term, expect to see more of the same, closer relationships, with the line between the private and public sector continuing to blur. The long-term direction is anyone's guess. But without a doubt, e-gov is taking partnerships from marketing hype to a competitive weapon.

Thomas Davies is senior vice president at Current Analysis in Sterling, Va. His e-mail address is tdavies@currentanalysis.com.

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