In 1997, former Connecticut CIO Rock Regan received orders from then-Gov. John Rowland to privatize the state's technology infrastructure in the executive branch. The state awarded a $1.35 billion, seven-year contract to EDS in late 1998 for the project, and the company -- with a group of subcontractors -- was to assume responsibility for Connecticut's desktop computers, mainframes and telecommunications operations.

The bellwether initiative got substantial press because the state was among the first to consider such large-scale outsourcing and publicly commit to making it work.

The following summer, however, the project was killed.

Spirited opposition from several fronts -- including labor unions, legislators, the state comptroller and a handful of state agencies -- created enough fear, uncertainty and doubt to derail the privatization project, Regan told Information Week in late 1999. He said he wished he had better articulated his project plans because that might have saved the project.

"Instead, we allowed the issue to be framed by other people," Regan told the magazine.

That Was Then. This Is Now.

In 2004, a scant seven years later, huge outsourcing projects like Connecticut's aren't a novelty anymore. Some governments have upped the ante by outsourcing whole business areas, including HR or public welfare, and now let private companies do the government's daily work.

Because of the unbelievably tight budgets in which governments find themselves working, outsourcing has become an attractive way to shave costs. A new rank of governors with private-sector backgrounds also has spurred governments to actively search for opportunities to privatize services. These governors' familiarity with ruthless, bottom-line thinking has rubbed off on other branches of government.

Add a looming work force crisis -- the coming retirement wave -- and it's easy to see why outsourcing and privatization suddenly appear to be the answers to a number of problems.

That's reflected in the steady growth of outsourcing spending in state and local governments, said Shawn McCarthy, IDC's program manager who covers IT opportunities in U.S. government and education.

"In general, I expect to see contract IT services spending increase an average of about 6.9 percent each year between now and 2008," McCarthy said. "This will differ by state and municipality, but the overall trend is noticeable."

Solutions that state and local governments typically outsource fall into two categories, he said: business process outsourcing, which includes accounting, logistics systems and HR systems; and IT services, which includes network management, support, and hosted Web sites and applications.

Still, reliance on outside parties can cause trouble for governments learning to manage complex contracts associated with large-scale outsourcing.

As with any recipe, the wrong blend of ingredients can turn a pleasant dish into a foul mess. Turning over your entire enterprise computing operation to somebody else is an intricate undertaking, and structuring and managing that sort of contract is a skill not mastered quickly or easily. Governments have had varying success with these monster outsourcing projects, but the efforts can work and promise enough payback to make it all worthwhile.

Bring It On

Large-scale outsourcing is nothing new in San Diego County, though at one point, the county nearly scrapped a huge outsourcing deal.

In October 1999, the county signed a landmark, seven-year $644 million contract with the Pennant Alliance -- a group of companies including Computer Sciences Corp. (CSC), which leads the consortium; Science Applications International Corp. (SAIC); SBC (formerly Pacific Bell) and Lucent Technologies -- to outsource all county IT operations.

The first few years of the contract weren't pleasant.

CSC was fined for failing to meet service goals during the contract's first year and for not migrating county employees to a common e-mail platform, according to Michael Moore, CIO of San Diego County. In all,

Shane Peterson  |  Associate Editor