Opting For Outsourcing

Despite what recently happened in Connecticut, San Diego County is outsourcing its IT and telecommunications functions in one of the largest contracts to be awarded in the country.

by , / August 31, 1999
San Diego County and the vendor expected to be selected sometime this month to handle the jurisdiction's IT and telecommunications projects have history on their sides. The county's decision to award a contract worth between $500 million and $700 million over 10 years is one of the largest of its kind in the country, but it certainly isn't the first.

It involves the consolidation of eight data centers into one, converting 127 county local area networks into a single virtual network pushing technology to the desktop (as opposed to the current system, which makes use of dumb terminals) and far greater use of online governance.

The contract ushers in a new era of digital governance for San Diego County, a sort of one-stop shop for everything from license renewals to zoning regulations and parking-fine payments. The new system will eliminate much of the "wrong-door" traffic generated in the world of analog governance, while making full use of multimedia technologies, from voice to video to e-mail. The integration of fragmented infrastructures into a single state-of-the-art system based on standardization of hardware and software enables a substantial reengineering of government.

"Our goal is to serve more of our customers online instead of in line," San Diego County Chief Administrative Officer Lawrence Prior wrote in a letter endorsing the project to the county Board of Supervisors.

San Diego's decision to outsource reinforces a well-established trend in both the public and private sectors. Last year, private-sector corporations -- including some high-tech groups such as Sun Microsystems and Lucent Technologies -- outsourced more than $33 billion in IT services. The corresponding figure for state and local governments was $2 billion.

Public-sector outsourcing contracts range from the very large, such as in the city of Indianapolis, to the small, such as in the Southern California cities of Irvine, Riverside and Fullerton. Not that there is anything particularly new about public-sector outsourcing: Neighbor Orange County outsourced its data center and telecommunications network in 1972, but it was only in recent years that the trend has caught on in a big way.


Keeping the trend going was in the minds of Connecticut officials until late June, when Gov. Jim Rowland halted the state's $1 billion, seven-year plan to outsource its entire computer system. State CIO Gregg "Rock" Regan recommended that Rowland pull the plug on the deal, which had taken four years and $3 million to develop and negotiate, because the state and vendor Electronic Data Systems Corp. (EDS) were unable to reach an agreement on pricing of specific services and the total cost of the contract, which was surging to $1.5 billion.

"The state reached its limit on the risk that it could assume under this contract," Regan said. "EDS' methodology on pricing assumed a number of productivity improvements over time and we weren't comfortable with the adjustments that would be made if, in fact, they didn't meet their commitment on productivity. The fact is, our price could have increased over the seven-year contract, so we simply asked for some protections on price in the event they were unable to meet their pricing commitment."

EDS' communications director on the project, Stephen Person, blamed the state employees' union for the deal's collapse. "Originally, all [state IT] employees were going to go to EDS. If a union is in place that is hostile to the idea of outsourcing, it becomes difficult to predict what savings and improvement you can do. [Also,] we didn't know how many employees would choose to stay with the union or come over to EDS."

San Diego County's contract is less than the Connecticut deal but just as sweeping in its scope. It's no coincidence that the finalists in the Connecticut sweepstakes -- EDS, IBM and Computer Science Corporation (CSC) in partnership with SAIC -- are the same finalists out west. All three are waiting word as to which entrant gets the deal.

Not that the jurisdiction isn't up to speed on its needs. San Diego County's outsourcing decision follows a recommendation by the Warner Group, which was retained by the county to study the county's IT and telecommunications needs. The Gartner Group advised on IT issues, PricewaterhouseCoopers on pricing and Gordon & Glickson on legal and contract matters.

Big Savings

By making more services available online, San Diego expects to be able to reduce the cost of government, as an estimated 70 percent of the county's 2.6 million residents own personal computers, which is indicative of the kind of support the county expects for planned online services. Those citizens not connected to the Web will be able to access government services online via networks of kiosks or ATMs.

The outsourcing contract is part of a wider reengineering of the county government that has already netted $33 million in savings and reduced the public-sector workforce by 1,000 to the current 17,000. This, however, is just the start. More and more county service providers are being exposed to the chill winds of competition. Earlier, the contract for the management of the county automobile fleet of 3,200 vehicles was put to tender, with the incumbent county fleet manager winning the contest against tough private-sector competition. Workers' compensation and health services to correctional facilities have also been outsourced -- this time to private-sector service providers.

"Reengineering and managed competition in health and human services saved the county $13 million, which was reinvested in immunization and other programs," said Lana Willingham, head of competition and reengineering in San Diego County, who is overseeing the outsourcing contract. "The IT outsourcing contract will enable a range of other reengineering projects in the county government, which we expect to result in further financial and staff savings."

The vendors are encouraged to propose various methods of gain-sharing arising from a technology-enabled reengineering of government, added Willingham. "We're saying to the vendors, come and invest with us and we will give you a long-term contract."

Outsourcing Will Occur
Despite seeing the megadeal in Connecticut dissolve before his eyes, Connecticut CIO Gregg "Rock" Regan sees outsourcing in the state's future.

"I'm convinced outsourcing was the right way to go. There's many ways to get there, and the state will get there," he said a few days after the governor halted the project in late June. "The historical problem with government is time. Things take too long."

The outsourcing plan was the result of a 1996 consultant's report that found the state's IT system woefully outdated and poorly managed. The EDS deal would have been the culmination of efforts to turn the state's information technology around.

"Connecticut will now continue its modernization," said state IT Department Communications Director Nuala Forde. "The goal has not changed, but the means of achieving it have. The state is going to focus on areas of consolidation, centralization, standardization and accountability, and establish a management oversight team."

Outsourcing remains a tool, Forde said. "The state will contract outside on an as-needed basis."

The outsourcing contract makes sense from a financial point of view. The county traditionally spends nearly $100 million a year on IT and telecommunications services, inflated at the rate of 6 percent to 8 percent a year. A further $100 million would have to be invested over the next five to seven years in infrastructure improvements, and another $150 million in software and enterprise-wide systems applications. Without a thorough modernization of the infrastructure, a substantial percentage of annual spending goes to shoring up outdated technologies. Added to this is the ever-present difficulty of attracting and retaining IT skills.

"Outsourcing this non-core business offers the best available opportunity to control costs and hold expenditures at a steadier level," said Prior. The existing infrastructure is aging, with some applications now 20 years in use. Outsourcing allowed the county government to get into some much-needed enterprise re-engineering to keep it ahead of the technology stampede and to better service its citizens and businesses.

San Diego County surveys staff and citizens on a regular basis to keep its finger on the pulse of progress, and to compare service levels with other jurisdictions. The results have been more flattering in recent years, and point toward a growing demand for electronic governance.

Not that the county is a slouch when it comes to electronic governance. Its Web site is a mine of local information and allows businesses to pay property taxes online using credit cards. You can also keep abreast of local developments such as county Y2K compliance, apply for rental accommodation, check up on recent property sales or submit proposals for government purchase contracts. The Department of Planning and Land Use Web site allows the public to review California Environmental Quality Act documents online, including notices for negative declarations and environmental impact reports. Also available online is the county's General Plan 2020, a three-year project that will serve as a blueprint for San Diego County land use through 2020.

But there's much more that can and will be done online once the contract is awarded. The new IT infrastructure will substantially reduce duplication and unnecessary paperwork -- leading, ultimately, to a smaller labor requirement. County employees will have all the automated tools to perform their tasks efficiently, from telephony to desktop applications, systems applications, video and e-mail. Consolidating the eight data centers into one means personal data need only be entered once on the computer systems.

Vendors are obliged to offer employment for at least 150 days to the 346 county staff directly affected by the contract, though this is likely to be substantially bettered by the winning vendor. Staff will have the added benefit of working with a world-class IT firm with substantially richer career prospects, and the opportunity to study close to 100 career-enhancing courses.

"[This] IT project will make San Diego County a leader not only in the technology arena, but in all aspects of government service," said Pam Slater, chairwoman of the San Diego County Board of Supervisors. "More than that, it will allow the county to streamline its operations, reduce costs and labor requirements, and show that it is serious about delivering smaller, more efficient governance to its citizens."


Assistant Editor Bryan Gold contributed to this story.
Ciaran Ryan is a writer based in South Africa and Rhonda Wilson is a research analyst for Government Technology's Center for Digital Government.