Texas is poised to seek new contractors for its data center consolidation initiative after the state failed to resolve an ongoing dispute with current contractor IBM.

A letter to IBM from Texas CIO Karen Robinson on Aug. 16 indicated that the state would rebid all or part of the $863 million data center project, which originally envisioned moving IT operations for 27 Texas state agencies into two new consolidated data centers that would be run by IBM. With the project months behind schedule, Robinson asserted in July that IBM had breached its agreement to consolidate and run data centers for Texas agencies. Her formal "notice to cure" gave the company 30 days to improve its performance or face potential termination of the deal.

"Given IBM's failure to cure the breaches set forth in the notice to cure letter, IBM now leaves DIR no course but to pursue procurement," said Robinson's Aug. 16 letter.

IBM denies breaching the contract, saying the project has struggled due to mismanagement by the state. In its formal response to the cure notice, IBM blamed project delays on poor leadership by the Texas Department of Information Resources (DIR) and foot-dragging by state agencies. The company says it pumped resources into the project far beyond those required under the contract in an effort to make the initiative work.

Texas officials called IBM's response -- which came in an Aug. 13 letter from Brian Whitfield, public-sector general manager for IBM Global Technology Services -- inadequate.

"IBM had 30 days to cure the [contract] breaches. IBM has failed to cure the identified breaches," said Thomas Johnson, spokesman for the DIR, in an e-mailed statement. Although the agreement between the DIR and IBM remains in effect for now, "everything is on the table," Johnson added.

New Outsourcing Model

If Texas does re-procure the data center services contract, the deal could end up looking significantly different than the comprehensive agreement awarded to IBM and a team of subcontractors in 2006. Texas officials told Government Technology last month that they would consider breaking up the massive consolidation contract into smaller chunks if the dispute with IBM could not be resolved.

"One option we're looking at is breaking up the pieces of services that are currently being provided and going to market and sourcing them through a number of different vendors," said Ed Swedberg, deputy executive director for the DIR.

IBM's Aug. 13 letter appears to suggest a similar approach. The company notes that the state's mainframe computers and print-and-mail services have been completely consolidated under the current agreement. IBM recommends leaving those services in place, but "exploring alternative delivery models" for consolidating agency midrange servers.

Placing Blame

Transfer of midrange servers from Texas agencies to IBM was supposed to be finished in December 2009, but is less than 12 percent complete, according to the DIR. Just five agencies are completely consolidated, and consolidation efforts are under way in only five more.

The DIR contends those delays stem from IBM's poor performance and underinvestment in the project. In an interview with Government Technology last month, Robinson said the DIR had tried for nine months to negotiate project changes with IBM that would speed up the server transfers, prioritize consolidation activities and reduce costs for agencies. Ultimately those talks were unsuccessful.

IBM blames delays on state agency opposition to the consolidation plan. "Ceding control of their individual IT environments in favor of a centralized, common system was (and continues to be) unpopular with the constituent agencies, and without strong leadership from DIR, those agencies not only failed to cooperate, but in many cases actively resisted the project," the letter said. The company added that state agencies have delayed or avoided transferring employees to the privatized data centers, forcing IBM to deploy much more of its own staff than expected under the contract.

Johnson said the DIR "disagrees with IBM's representation and implication that the state is entirely at fault for the lack of progress and the failure to perform the services."

Governance Changes

On Friday (Aug. 20), IBM notified the DIR that it would assist the state in any effort to rebid all or part of the data center agreement. But the company insisted that project management and oversight changes are needed, regardless of who gets the contract.

The DIR said it's already implementing a new governance framework for the initiative, including changes made earlier this year to give individual state agencies stronger representation in -- and more accountability for -- the outsourcing initiative.