Eye on the States: Smaller, focused outsourcing deals to follow Georgia fiasco

Thomas Davies

The cancellation last month of the $1.8 billion Georgia telecommunications procurement again raises the question of whether the states will ever get one of these mega-outsourcing deals done. For many, it's hard to admit that huge, enterprisewide outsourcing may be too difficult. The reality is that these comprehensive outsourcing projects, to use a well-known colloquialism, are "dogs that just won't hunt."

That's not to say these deals don't make good business sense. The Georgia Converged Communications Project was a highly innovative strategy for addressing the state's telecommunications needs and improving services.

And it doesn't mean there isn't a way to make these deals work in state and local government. After all, San Diego awarded a $644 million outsourcing deal to Computer Sciences Corp. a few years ago.

There are any number of reasons why most of these comprehensive outsourcing deals crash. For one, they are taking far too long to get done. Rather than run the procurements like a sprint, the states approach them as a marathon. In Connecticut and Georgia, it took up to two years. While this may serve the interests of the consultants, who are being paid lucrative fees to advise the states during the procurement, it doesn't benefit the states or the bidders that spend tens of millions of dollars chasing the deals.

One way to fix this may be to make payment to the consultants contingent upon award or, better yet, when the benefits from outsourcing are realized. Another way may be to adopt expedited procurement practices, such as those recently used by the federal government.

Patrick Schambach, associate secretary and chief information officer at the Transportation Security Administration, completed a mega-outsourcing procurement last year for a $1 billion infrastructure build-out that only took three and one-half months from requirements to award. That's a best practice for the states to emulate.

One reason these procurements take so long is they are too comprehensive. The more involved they are, the longer it takes and the more energy it requires to gather all the affected parties and reach consensus. It's not unusual for hundreds of state employees across dozens of agencies and universities to be involved in these initiatives.

By no means will the demise of the Georgia project slow outsourcing by the states. It could accelerate it. In the future, states are unlikely to spend time pursuing outsourcing strategies that get wrapped around the proverbial procurement axle. Far more important is the end result of improving services and managing costs.

And for signs the outsourcing market will continue growing, just look at those procurements being awarded. Business process outsourcing awards to companies such as Affiliated Computer Services Inc., Accenture Ltd. and Maximus Inc. are on track and gaining momentum. Under the leadership of Gov. Jeb Bush, Florida became the first state to outsource its human resources functions, giving the work to Convergys Corp.

Smaller in scope but awarded more frequently are managed services contracts. For example, Minneapolis recently gave a $58 million desktop and network infrastructure contract to Unisys Corp. And Northrop Grumman Corp. continues to grow its managed services business with states such as Texas.

These successful outsourcing awards are everything the mega-outsourcing deals are not. They are highly focused, manageable and smaller. They address a pressing business problem and contain an acceptable level of risk to the buyer and the vendor. These are important lessons for those committed to growing their outsourcing business in the year ahead.

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

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