Government may represent the ultimate school of hard knocks, at least when it comes to IT outsourcing. What is often accomplished with relative ease in the private sector turns into a political and financial minefield in the government arena, even for some of the largest and most experienced IT vendors.

Connecticut proved that a couple of years ago. The states ambitious $1.35 billion plan to completely outsource all its computer systems to services giant EDS unraveled less than a year after it was announced.

When first promoting the initiative, Connecticut Gov. John Rowlands repeated the often-heard mantra, "Were in the business of government. Were not in the business of information technology."

The trouble is, IT vendors almost have to be in the business of government to pull off an outsourcing project of that magnitude. Apart from the financial and administrative barriers in Connecticut, the political problems surrounding the deal would probably have been enough to sink it. It lacked essential support in the legislature and met with firm opposition from the state employees union. Combined with bureaucratic resistance to losing key IT staff in some of the agencies, this was ultimately enough to shatter confidence in the project. There were simply too many risks involved for both the vendor and government for the deal to carry forward, according to Connecticut CIO Rock Regan.

All that might now be ancient history, given the speed at which the IT world moves, save for the fact that the Connecticut experience has become something both governments and vendors have learned from. Big outsourcing projects, especially those involving a significant part or all of an IT network, are today approached with more caution and forethought.

Economics 101

"Outsourcing is one of those pendulum things," explained Mark Czarnecki, president of the International Government Benchmarking Association. "A couple of years ago the pendulum was all over on the side of outsourcing everything. The pendulum is starting to come back to where there is some better rationalization of where outsourcing makes sense."

IT doesnt change the laws of economics, and outsourcing is no exception. "What doesnt work is trying to outsource some of the low-end, commoditized-type services, where you are hiring at the low end of the pay scale," added Czarnecki. "You are in essence competing against someone who is trying to under-hire you.

"Say you are paying $10 a hour for someone to put a computer in place. To competitively outsource that, a vendor has to pay someone less than you are paying for the job. That leads to a meltdown because the vendor ultimately winds up settling for a person with skill sets below what you would be able to hire yourself. So they cant meet your service level requirements and everything goes to hell. More and more of our studies are turning up that sort of thing: disasters which occur because vendors are trying to do things more cheaply than you are trying to do it."

On the other hand, said Czarnecki, outsourcing is advantageous where economies of scale allow governments to obtain better IT talent than they would otherwise be able to hire.

Noteworthy successes in outsourcing either a significant portion or all of a network are now starting to emerge, in part as a result of better assessments of the economic realities on both sides of the bargaining table.

"First and foremost, outsourcing is viewed as a way of cutting costs," explained Alan Aptheker, director of communications for global outsourcing at Unisys. "But it really goes deeper than that, which is why we try to add more value. Typically, what governments are looking for is faster acquisition of technology. Thats one driver. Another for the public sector is the notion of business recovery, or disaster recovery - being able to recover quickly so

Blake Harris  |  Contributing Editor