More and more, governments are asking the private sector to become involved in managing and operating government technology through outsourcing -- a distinct form of privatization where functions of a public institution are transferred to the private sector. The trend has staunch proponents and growing political and public opposition, partly due to increased sensitivity to loss of government jobs through downsizing.

Arguments in favor of outsourcing IT projects generally include controlling and reducing the rising costs of information technology, achieving greater efficiency, and making technological solutions more responsive to change.

Yet there is concern that when some government functions are transferred to for-profit companies, service might ultimately suffer; that contractors who must focus on profit and loss cannot share the vision of local government leaders; and that outsourcing may prove to be a one-way street. "Few local governments have taken a previously outsourced information shop and brought it back in as an internal function," pointed out Michael Humphrey, business director of Public Technology Inc.

National Trend

A great deal of national attention was recently focused on a nearly $2 billion systems integration and reengineering project in Texas -- the Texas Integrated Enrollment System (TIES) -- which had been cited in some press reports as the largest single IT procurement in state government to date.

This initiative started when the Texas Legislature opened the door for privatization of some functions of the state Health and Human Services Commission (HHSC) -- a possibility which was only being explored. Nevertheless, various public/private consortia involving companies like Lockheed Martin IMS, IBM Corp., Andersen Consulting Inc., Electronic Data Systems Corp. and Unisys Corp. began preparing to bid on the job of overhauling Texas' human services infrastructure -- a sweeping project that would replace the hodgepodge of more than 12 independent entitlement programs with a single, integrated database to qualify applicants for a wide range of human services including food stamps, Temporary Aid to Needy Families, job opportunities and basic skills, and even medical services.

The goal was not only to reduce the state's administrative costs by 25 percent to 40 percent, but also to greatly improve the speed and accuracy of the eligibility determination process -- a process which currently involves scattered mainframe legacy databases and is still largely paper-based.

Public outcry from groups opposed to privatization of HHSC, especially the unions, led the White House to step in and disapprove the RFO that would allow the Texas HHSC to even begin asking the questions which might or might not lead to eventual privatization.

New legislation has now been enacted in Texas replacing the TIES program. HHSC is now the lead agency charged with formulating a new plan to reengineer the work processes in the state and to develop a new automation system to support this. As this new bill calls for automation of eligibility determination and service delivery, the scope of the new project may even be greater than the earlier TIES approach. The role that outsourcing will play in this new plan remains to be determined. Charles Stuart, HHSC associate commissioner for external affairs, emphasized that the new legislation (House Bill 2777) is very different from TIES because "the competitive element as been removed." The various government agencies involved are now working together rather than competing to develop a plan of action.

The bill also authorizes a new bond to finance the automation. "Under the TIES proposal, we would have been looking at the vendor community to in effect finance the automation," explained Stuart. "But that is no longer the case, so the state has to finance that itself -- anywhere from $150 to $200 million."

Once a new plan has been developed in consultation with a new legislative oversight committee, it still requires the final approval of both the Legislative Budget Board and the governor.

Blake Harris  |  Editor