Does Lem Stewart's Dismissal Mean the End of Major Public-Sector IT Outsourcing?

Virginia CIO's firing as part of with troubled Northrop Grumman deal could mean trouble for other state outsourcing projects.

by / September 1, 2009

Virginia's firing of state CIO Lem Stewart can be best described as a door closing on large-scale public-sector IT outsourcing projects. The door isn't shut tight, but almost.

Stewart lost his job in June after he told the state's IT oversight board about a host of problems relating to Virginia's 10-year, $2.3 billion outsourcing contract with Northrop Grumman to upgrade, consolidate and manage the state's IT systems.

In 2003, then-Gov. Mark Warner launched a major initiative to centralize and overhaul how the state invested in and managed its technology and networks. The move led to the formation of the Virginia Information Technologies Agency, which oversees the contract between the state and Northrop. In addition, the governor and Legislature created an Information Technology Investment Board, which appointed Stewart as state CIO and was to act as a buffer between the IT business world and state politics.

Given how Stewart's dismissal was handled, the plan didn't work.

Despite lessons that have been learned from past outsourcing projects gone sour, Virginia's multibillion dollar partnership with Northrop has become increasingly turbulent. Virginia newspapers reported problems with computer services that have impeded performance, including a computer failure that shut down social-service benefits payments for 58 hours and a breached computer that exposed a half-million Virginians Social Security numbers.

Worse, the state wasn't on track to save an estimated $100 million a year as originally expected, but actually had to spend more because of project cost overruns. When Stewart tried to hold up payment of an invoice to Northrop, the state's IT Investment Board fired him, and Virginia Secretary of Technology Len Pomata was installed as acting CIO.

This isn't the first time a large outsourcing contract for government IT has run into trouble. In 2008, Texas Gov. Rick Perry halted work on consolidation of the state's data center when safety concerns were raised about the state's data. The private partner, IBM, hadn't implemented a remediation plan as required, and IBM paid fines for missed performance targets on the $863 million project.

San Diego County, one of the first governments to outsource IT operations, ran into problems early on over disputes about service-level agreements with its partner, CSC. The county has since signed a new $667 million contract with Northrop. And then there is the story of Connecticut, which in the 1990s tried to privatize its IT systems and failed after fierce opposition from the state's employee unions.

With Georgia, the only other state that has gone as far as Virginia on a big outsourced IT partnership, the public sector's appetite for outsourced IT operations seems to have reached its limit. These megadeals were touted as a way for government to turn IT over to the professionals so the public sector could focus on the business of government. The vendors would put their know-how into making IT a cost-effective, service-oriented experience.

But as Virginia is finding out, privatization hasn't been a slam-dunk solution to government's IT woes. "Where these arrangements tend to go wrong is when public agencies convince themselves that they can outsource a problem without fixing it, either by themselves or with the help of a third party," said Public CIO columnist Paul W. Taylor, the chief strategy officer of the Center for Digital Government. "When the contractor makes a broken process move faster, it is still broken and likely to fail at the most unfortunate moment."

Virginia's agreement with Northrop is still on. But with Stewart's firing, followed by a probe into the situation launched by the state's General Assembly, that "unfortunate" moment could be approaching.

Tod Newcombe, Editor Editor, Public CIO