States Back Off Large Welfare System Projects
States Back Off Large Welfare System Projects
Ed Gott, Shelley Hodgson and Thomas Mechachonis
By William Welsh, Staff Writer
Systems integrators are finding that most state governments with large automated welfare systems are interested in upgrading rather than replacing them.
This is forcing these companies to shift their approach from large systems integration projects to Web-enablement projects that make these systems accessible through the Internet.
"In general, traditional systems integration is being elbowed aside by Web-enablement projects in the state and local government marketplace," said Tom Meagher, vice president of Equity Research, BB&T Capital Markets, Richmond, Va. "[States] don't want to build custom systems from scratch anymore."
And states are increasingly selecting smaller companies over larger ones to provide these enhancements, and then integrating them on their own, according to Georgia Chief Information Officer Larry Singer.
"States are acting as their own integrator," he said.
In response to this turn of events, a number of companies, such as American Management Systems Inc. of Fairfax, Va., Keane Inc. of Boston, Tier Technologies Inc. of Walnut Creek, Calif., and New York-based Deloitte Consulting, are pitching to the states specific enhancements. These include integration of eligibility programs, Web-enablement of existing systems, and solutions to meet federal requirements to establish one-stop employment and training support centers, as mandated by the Workforce Investment Act of 1998.
By doing so, these companies are putting themselves in a good position for an expected upswing in system enhancements set to occur next year. And if successful, these projects likely will produce additional work in other states once word of their success spreads, according to Meagher. "Past performance is becoming a critical issue in who wins these contracts," he said.
A sampling of awards this year shows the contract value for upgrades or enhancements to automated welfare systems averages between $5 million and $15 million. In essence, states are breaking down contracts for new automated welfare systems ? which in the past might have been valued between $50 million and $100 million ? into a series of $5 million to $10 million enhancements, said Singer.
One reason states are shying away from large systems is gradual enhancements provide them with more control over the cost and risk associated with what many consider to be among the most difficult systems to construct and the hardest to make succeed, according to state and industry officials.
"From an automated eligibility standpoint, about half of [these systems] haven't gone to the satisfaction of the vendors or the states," said Kevin King, head of health and human services global practices of Deloitte Consulting in Pittsburgh.
Another reason states are reluctant to contract out for large automated systems is that during 1999, they went through a resource-draining period in which they had to bring all their systems into compliance with the year 2000 date code.
"Most states were consumed with Y2K, and there was no way to undertake major development [of systems]," said Aldona Valicenti, Kentucky's CIO and president of the National Association of State Information Resource Executives.
As a result, vendors are seeing fewer request for proposals for system upgrades this year, said David Mastran, chief executive and president of Maximus Inc. of McLean, Va., a company that is a longtime player in the state welfare marketplace.
"It has been pretty quiet in terms of RFPs out on statewide systems," Mastran said. "There is not a pressing deficiency right now."
For those vendors that make the adjustment, the rewards are likely to be plentiful. Information technology expenditures for human services are estimated at $7.3 billion this year and are expected to reach $9.6 billion in 2005. IT expenditures for health are $4.4 billion this year and are expected to reach $5.6 billion in 2005, according to market research firm Gartner Dataquest of Stamford, Conn.
Human services comprises all major welfare programs, such as statewide automated child welfare information systems, temporary assistance to needy families, food stamps, child support enforcement and child care. The major health programs include Medicaid and Women, Infants and Children, according to Gartner Dataquest.
Indeed, industry experts predict business will pick up next year. "The states are now using [Temporary Assistance to Needy Families] funds to take a fresh look at their automated systems," said Tom Davies, senior vice president of research firm Current Analysis Inc., Sterling, Va. TANF is the state-run assistance program created by 1996 welfare reform.
Nearly half of the states are planning or implementing changes to their TANF eligibility systems, according to the U.S. Department of Health and Human Services. They are Arizona, California, Colorado, Connecticut, Georgia, Illinois, Kansas, Maine, Massachusetts, Michigan, Missouri, Nebraska, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Texas, Vermont, Washington, Wisconsin and Wyoming.
One of the newcomers to the state welfare marketplace is Keane Inc., which announced in August it won a $12.3 million, fixed-price contract from the Maine Department of Human Services to build its Web-based Automated Client Eligibility System.
Keane entered the state government marketplace by providing Y2K and other solutions to Georgia, Maine and North Carolina. In 1999, the company had annual sales of $1 billion and about 9,000 employees.
Of the four vendors that submitted proposals, Keane was the only one to offer a custom-built solution; the other bidders were trying to transfer systems from other states, said Ed Gott, Keane senior account executive. "The transfers are costly, and they take a long time, he said.
In Maine, Keane will integrate TANF with 13 other public assistance programs, including Medicaid and food stamps. In a bold move, Keane has pledged to deliver the automated system in 15 months rather than the two years typically needed to complete such a project. Company officials would not disclose whether they are bidding on similar projects in other states.
Another company to watch is Tier Technologies. Tier handles child support payment contracts, of which the most notable was a $6.9 million deal in March for a 15-state consortium. In 1999, Tier had 780 employees and $92 million in annual sales.
Before making its proposal, Keane officials studied Deloitte Consulting's "New Heights," a $22.5 million automated public assistance system that Deloitte completed last year for New Hampshire. Deloitte has provided similar systems to about 10 other states, said King. In 1999, the company had 11,000 employees and sales exceeding $5 billion.
Deloitte is actively marketing a Web-enabled integrated eligibility solution to state governments, said King. The customer-focused solution simplifies eligibility determination by allowing applicants to apply once for many different programs, he said.
In August, AMS announced it had received a $4.9 million award for the Web-enabled Texas Integrated Eligibility Redesign System. While AMS will handle the solutions for eligibility determination, San Diego-based Science Applications International Corp. will provide independent validation and verification services through a related $1.5 million contract.
AMS also is integrating a client management system for Ohio, valued at about $20 million, according to officials for AMS, which in 1999 had sales of more than $1.24 billion and 9,000 employees.
The company has a comprehensive portfolio of automated welfare projects in three areas: child welfare, eligibility and online services.
"We are working in all three sectors in industrial-strength states," said Cynthia Hunt, vice president and head of AMS' Midwest region health and human services practices.
One of AMS' newest solutions in health and human services is an online guide to information and services it is providing to Kentucky. The project, known as Kentucky CARES, is worth about $1 million.
Two companies that have had great success in the state welfare marketplace since welfare reform are Lockheed Martin IMS of Washington, and Maximus. Both are committed to making the necessary adjustments to remain competitive.
"We've gone away from [delivering] big mainframes to trying to bring services to people," said Steve Minnich, vice president of operations for welfare and work-force services division for Lockheed Martin.
In 1998, the Central Florida Workforce Development Board, reacting to the Workforce Improvement Act, awarded a contract to Lockheed Martin for a job opportunity portal. The contract combined with the company's existing TANF contract in Florida totals about $5 million, Minnich said.
The company has TANF contracts in two other states and the District of Columbia, and is bidding on TANF projects in Michigan and Pennsylvania, Minnich said.
Maximus, whose health and human services work amounts to 75 percent of its business, is systematically Web-enabling all of its automated welfare systems, according to company officials.
This year the company won a $7.2 million contract in Utah to develop a Web-enabled Medicaid system, and an $11.5 million in Georgia for an automated child care payment system.
"In the past, we have been primarily a consultant," said Mastran. "But with the Utah and Georgia contracts, we are trying to be a stronger competitor in the statewide systems business."
The company's portfolio includes dozens of automated child welfare information systems, Medicaid systems and TANF systems, said Mastran. In 1999, Maximus had $319 million in sales and more than 3,400 employees.
To succeed and increase business, Maximus and the other companies will need to integrate their program services and systems integration capabilities, Meagher said.