San Diego County will be among the first in the nation to switch IT outsourcing partners. Over the next year, Northrop Grumman will incrementally replace Computer Sciences Corp., (CSC) as the county's IT provider.
The county's executive staff took a risk that almost failed when the county started outsourcing its IT in 1999. The partnership ultimately succeeded, and county leaders applied hard-earned wisdom from the seven-year experience to negotiations with Northrop Grumman. The county promises its freshly minted agreement is bulletproof against the types of misunderstandings that almost sank its first attempt at outsourcing IT.
Other local governments hoping to successfully outsource the first time can gain insight from San Diego County's lessons learned the hard way, such as how not to write an outsourcing contract and how not to handle publicity.
County executives knew that to pre-empt potential battles with Northrop Grumman, they would need a specific, unequivocally written contract to prevent squabbling over interpretations of responsibilities. Michael Moore, CIO of San Diego County, said the county purposely left many provisions vague in the CSC contract thinking the vagueness would create flexiblility in unanticipated circumstances.
Ironically, this vagueness actually caused those unanticipated problems.
For example, the county and CSC disputed interpretations of a provision concerning PC refreshes. The provision merely said CSC would replace PCs every 36 months. The county assumed CSC would conduct a staggered deployment, refreshing 230 PCs every month for three years, until every employee had a new computer.
CSC, however, wanted to do a single deployment for the entire county every 36 months, said Moore, which would have caused a lengthy countywide disruption.
"If you wait till the 36th month, you can't do it. You can't change 12,000 PCs in a month. CSC wanted to wait because PCs cost a lot of money, and that's capital they have to expend," Moore said.
"At month 36," he later added, "they came in and said, 'We're ready to refresh,' and the county said, 'Well, we can't put 12,000 PCs in at once,' and they said, 'Well, then it's not our fault.'"
On its end, the county failed to create a new image for the new PCs -- an important part of the refreshing process -- and soon, there were talks of waiving the refresh requirement altogether.
"CSC wanted to go ahead and put the new PCs out there without the image on them, but the county wouldn't let them," Moore said. "Now you're arguing about who is at fault for not doing the refresh."
The county and CSC also eventually engaged in monetary disagreements. A provision, which stated CSC would provide extra bandwidth on demand, failed to specify who would cover the cost. Each party believed the provision placed financial responsibility on the other.
These skirmishes and nearly 50 others like them prompted the county to send CSC a letter of default in 2002.
"We were just at wit's end, and both sides decided that the agreement was going to fall apart," Moore said.
However, both wanted to avoid a lengthy court battle, especially CSC, which had signed a no-suspension-of-services contract.
"Even when we were arguing about this, they couldn't stop, and the county had withheld money," Moore said, adding that this explains why CSC didn't want to agree to a no-suspension-of-services clause again.
Both sides came to an out-of-court agreement in July 2002 that allowed San Diego County to withhold $15 million annually from CSC's service charges and set up behavioral "milestones" for the company to reach before receiving any money.
The county's milestone authority enforced a staggered PC replacement cycle and numerous other procedures fought over before the negotiation. CSC and the county settled the roughly 50 major disagreements and haven't