EYE ON THE STATES

Mega-Contracts Regain Popularity in the States

Thomas Davies

After a brief hiatus, mega-contracts ? those wins that exceed $50 million ? are making a comeback in state and local government. The lull that followed the cancellation of Connecticut's outsourcing procurement a couple of years ago appears to have been temporary.

Those that concluded the aborted outsourcing initiative was the death knell for big contracts apparently jumped the gun.

It's clear the states are now turning to systems integrators to take on some of the toughest challenges and some of the largest contracts ever handed out. Most of the top state and local integrators have been awarded at least one mega-contract in the past six months.

Unisys Corp. won a $60 million contract with the California State University System to support streamlining its financial and human resource administrative systems. Affiliated Computer Services Inc. has snagged several mega-size business process management outsourcing contracts for health care claims processing, including a recent one in the District of Columbia.

TRW Inc., recovering from some troublesome human services contracts, is back with several wins in the law enforcement marketplace, including a $59 million agreement with Montgomery County, Md., to build an integrated police, fire and rescue records management system.

Electronic Data Systems Corp. struck gold with recent wins in the human services, outsourcing and health care markets, including a $102 million award from Oklahoma.

SCT Corp. has once again shown its outsourcing prowess by winning a heated competition for a $50 million contract with Memphis, Tenn.

To see even larger opportunities on the horizon, look no further than Georgia and Larry Singer, the new state chief information officer. Georgia is cooking up two of the largest deals ever to come out of the states.

Proposals are due at the end of April for a contract to consolidate the administration of health care programs for state government employees; higher education employees; low-income, poor and disabled populations; and children. Integrators also are eagerly anticipating the forthcoming telecommunications outsourcing procurement that could easily exceed $500 million.

It may be too soon to arrive at hard and fast conclusions, but there are strong indications that larger contracts are here to stay, primarily because they are being fueled by changes in the underlying dynamics of state information technology and politics. These changes include:

? The realization that the complexity of IT in the states is growing by leaps and bounds.

? Governments simply do not have the skilled workers needed to manage the newer technologies.

? Impatience with the time it takes to make visible progress when so much is at stake.

? States now need help in supporting and maintaining the infrastructure in which they have made tremendous investments over the past couple of years.

? Elected officials who have come into office over the past few years see the private sector as a partner, not an adversary.

? Many outsourcing initiatives have been delayed or killed in the past eight years because of second guessing by the federal government acting in an oversight role. With the new administration, the foot dragging is likely to stop.

Integrators can capitalize on these market dynamics to build even more momentum for mega-contracts. A good first step would be getting the word out about the successes.

All too often, integrators stop telling their stories once a contract is awarded and the press announcement released. This undercuts market momentum. As a result, the only time other states hear news about the contract is when there are problems.

Integrators would benefit from communicating the value of these mega-contracts to their customers in terms other than solely cost savings. Improving service delivery, productivity and program effectiveness also need to be measured and publicized.

There is nothing like comparing best practices and performances among jurisdictions to garner the attention of state and local officials. Integrators need to demonstrate that best-in-class governments are those that partner with integrators.

Systems integrators share an interest in getting the word out. While they do compete for business, they should consider how they can work together to overcome the idea that all large contracts fail. Too many governors have heard of the failures, and far too few can readily point to the successes.

Integrators spend considerable time working together through their associations at the federal level to get their message to Congress and the executive branch. They would be well-served by acting in concert to take this message to the states.

CIOs who are comfortable doing business with integrators have been instrumental in shaping procurements that have led to many mega-contracts. Not surprisingly, integrators share a common interest in having top government executives, with a pro-integrator perspective, in key positions in the states.

It's not unusual for executives to accept senior-level positions in the federal government, but it's very unusual for the same to occur at the state level. With a little encouragement from their companies, many industry executives may be willing to make the jump to the public sector.

With states about to embark on a new wave of mega-contracts, it's important that integrators learn from the past and work together to build and sustain market momentum. This is a fresh opportunity to show that mega-contracts are in everyone's best interests.

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

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