It seems as though another large IT outsourcing contract is announced each week. Some of these projects are successful. State and local jurisdictions that are forging ahead boast of reduced costs, faster time to market and, sometimes, higher revenue. Others, however, experience overwhelming obstacles. One Midwestern city, for example, hoped to save millions of tax dollars by outsourcing, but political infighting and indecision have stalled the project.

Orange County, Calif., recently signed a $260 million IT outsourcing contract. Though the project is just under way, Orange County is already confident it will result in a better-run county government. How can they be so sure? Because the county went through a process of careful vendor selection and complex negotiations designed to ensure they get exactly the benefits they are looking for.

The Deal

Orange County has successfully outsourced since the mid-70s, culminating recently in a $260 million deal with Lockheed Martin IMS (LMIMS), a Washington, D.C.-based provider of technology services to state and local government. Under the terms of the agreement, LMIMS will provide 10 years of IT services to Orange County, including voice, WAN, LAN, programming (legacy and Web) and data-center operations. The county will supply the hardware, facilities and software. LMIMS will use the countys data center to support other customers and share that revenue stream to help the county reduce the cost of providing services to its departments and agencies. Further, the vendor guaranteed Orange County revenues of at least $21 million over the term of the contract. Other revenue opportunities are anticipated.

For Orange County officials, vendor selection was by no means a shoo-in. "Orange County went through quite a process to select the contractor on a long-term basis," said Naomi Marr, vice president of Technology Solutions at LMIMS. "While we had the edge on experience, price and value were the dominant factors in the negotiations."

When one of Orange Countys existing contracts with LMIMS expired, it carefully researched its options. The county went through a request for proposal (RFP) evaluation process that looked at several outsourcing models and vendors, as well as the possibility of an in-house operation. The primary decision points were operating costs, revenue opportunities, technical expertise, resource availability and the ability to hire or retain qualified staff.

"We had a steering committee of a number of department heads who guided us through the process and endorsed our conclusions," said Leo Crawford, assistant CEO of Orange County Information and Technology. "As the employees and departments are our customers, it was essential to provide a solution that they actually wanted."

The committee concluded that paying a vendor best fit the countys needs. "We believe that outsourcing enables us to better service our customers and respond much faster to technology changes," said Crawford. "Also, the contract gives us a significant revenue stream that otherwise would not have been possible."

After identifying the best outsourcing methodology and the most cost-effective technical approach, the county developed more detailed terms and technical specifications. Orange County incorporated these into a "model contract" for subsequent negotiations with the three highest-ranking vendors. Operational costs, revenue potential, technical approach and compliance to the model contract determined final selection. LMIMS won, largely based on experience, price and value.

The total time elapsed from RFP drafting to final award was one year -- short for a project of this magnitude. Crawford attributes the fast pace to strict control of the procurement process and keeping the user community, as well as the County Board of Supervisors, well informed throughout the process. He also credits a responsive legal team for resolving the many legal issues that came up during negotiations. Further, he cautions that anyone embarking upon an outsource contract be ready to commit his or her best staff due to the inherent difficulties of the process.

Drew Robb  |  Contributing Writer