'Teeth and consequences'

Agencies warm to outsourcing, but also must understand the challenges that go with choice


107 government officials were asked:

"Can the government complete effectively and fairly against the private sector to win agency customers for lines of business services?


No: 35%

Source: Post-Newsweek Tech Media reader survey

"SBA's entire focus is toward delivering mission-specific results, and hosting a data center for our financial management doesn't really fit with that," says Stephen Galvan, SBA.

Henrik G. de Gyor

While some agencies consider the move to centers of excellence under the Office of Management and Budget's lines of business initiatives for human resources and financial management, others are finding the private sector a viable alternative.

The Small Business Administration, for example, was ahead of the game when, nearly three years ago, it turned over the back-office functions of its financial management system to Corio Inc. (since then bought by IBM Corp.). The move not only saved the agency money, it also freed SBA workers to focus on the agency's mission.

"SBA's entire focus is toward delivering mission-specific results, and hosting a data center for our financial management doesn't really fit with that," said Stephen Galvan, SBA's chief of staff and chief operating officer.

Under the Lines of Business initiatives, OMB encourages agencies to sign up with agency centers of excellence or their private sector counterparts for back-office functions, such as human resources and financial management, that are common to all government agencies.

But the administration wants agencies to consider all options as they perform their due diligence.

"We're not advocating outsourcing, but rather a thorough analysis as to the best means of providing these functions on a governmentwide basis," said Tim Young, OMB's associate administrator for e-government and IT.

Other agencies, including the National Endowment for the Humanities and the Transportation Security Administration, have teamed with the private sector for financial management services and HR, respectively, furnishing examples of OMB's goal of money saved and work enhanced.

"We want improved focus on agency core missions," Young said.

Look before leaping

Before agencies jump to team with the private sector, there are several aspects to consider, government and industry experts said. First, agency officials must keep an open mind and not assume that any one provider: the private sector, a public provider or in-house staff, will be the best to furnish these functions.

"Look at the options the [center of excellence] has, and don't try to use how you do things today as an excuse for not moving forward," SBA's Galvan said. "You've got to really be open for adopting new and efficient ways."

Agencies also should take stock of their needs and determine which functions are critical to their missions, said Alan Webber, senior analyst at Forrester Research Inc., Cambridge, Mass.

Questions he said agencies should ask before going to the private sector: "What is the net effect you expect from this? How much is this going to improve the mission of your agency? How easy is it going to be for me to work with this person and this entity?

"It may take a huge effort to outsource, and it may not be worth it," Webber said.
If an agency selects a private sector company, it would do well to sign performance-based contracts with built-in mechanisms that let the agency continually review the contractor's performance, experts said.

"The contract needs to have some teeth and consequences for poor performance," said Brian Andrew, senior director of the public sector division at Convergys Corp. of Cincinnati. Convergys runs the bulk of Florida's back-office HR functions.

SBA in July 2003 signed a five-year, fixed-price contract with enterprise applications management company Corio to host the administrative nuts and bolts of the agency's financial accounting system.

Galvan said that if these responsibilities were kept in-house, the agency's costs could double, and its workforce would be less efficient. SBA officials said the agency is paying IBM Global Services between $400,000 and $500,000 a year, and it is saving or avoiding costs of about $1 million a year.

One size doesn't fit all

That does not mean that outsourcing is right for everyone.

The Equal Employment Opportunity Commission did not consider the private sector when in April it re-upped with the Interior Department's National Business Center for financial management services.

Under an 18-month contract, which, with five one-year options, could be worth $11.7 million, EEOC will get accounting and other services. The accounting system will be able to accept all procurement and HR data from other systems.

Plenty of private sector vendors could offer those services, but EEOC said it could find none that had the interfaces with Bank of America that it needs for its travel and purchase information.

"Nobody in the private sector is doing this, and no one expressed interest, either," said Jeff Smith, EEOC's chief financial officer.

As highlighted in a mid-March congressional hearing, there also are labor issues.
During the hearing, Rep. Todd Platts (R-Pa.) questioned whether having private centers of excellence would bring changes to OMB Circular A-76, which details how agencies should compete inherently commercial tasks against the private sector.

OMB has yet to publicly respond, but Young said the administration is developing a competitive framework based largely on A-76.

Now that the ball is rolling, analysts don't expect the government ? even with a new administration in 2008 ? to walk away from OMB's initiatives.

"There has been a lot of momentum for this over the past six or seven years," said Andrew Robinson, senior vice president for information and program management at ICF Consulting Inc. of Fairfax, Va.

"The pendulum has swung," he said, and the feeling now is "that this is the politically smart way to go."

Rob Thormeyer is a staff writer with Government Computer News. He can be reached at rthormeyer@postnewsweektech.com.

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