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The 20-Year Reign of Big Outsourcing Draws to a Close

Outsourcing gov tech through mega contracts was gaining steam in the early 2000s. Now, as states and localities turn toward more agile methods, GT looks back at what led to the demise of those large-scale agreements.

by / January/February 2020
Virginia Chief Information Officer Nelson Moe

When the Virginia Information Technologies Agency (VITA) announced in 2018 the termination of its 12-year outsourcing contract with Northrop Grumman and plans to migrate to other suppliers, it marked an end of an era. For nearly 20 years, a handful of states and at least one large local government have pursued outsourcing strategies that put much of IT in the hands of big IT firms, contractors and system integrators. 

The idea that government should privatize its tech operations took root in the late 1990s when computing in the public sector increased substantially, becoming more complex and costly. For mayors, county executives and especially governors, the growing burden of expensive hardware, software and specialized tech workers hit their budgets hard just as costs for education, health care and crime fighting continued to rise. At the same time, the growth of large-scale system integrators, along with fast-growing tech firms — IBM, Unisys and HP, for example — created an opportunity to change how government procured and ran its computer systems.

In 1999, Connecticut Gov. John Rowland explained why he wanted to change the role of IT in his state. “I hope that government entities, whether [they’re] cities, counties or states, take a very serious look at getting out of the business of information technology,” he told a governors’ Task Force on Information Technology during the National Governors Association meeting in February that year. Rowland, who was in the process of outsourcing his state’s entire IT operation to systems integrator EDS for an estimated $1.35 billion over seven years, said the cost savings and improvement in services would be worth the effort.

Rowland wasn’t the only government chief executive to believe outsourcing could be a better and cheaper way to run IT. That same year, San Diego County awarded a contract to Computer Sciences Corporation worth more than $500 million over a 10-year period to run a substantial portion of its computer systems. Part of the plan was to use the contract to bring in new technology at a faster pace, allowing the county to move more services online while holding down overall costs.

Like Rowland, the county believed that government shouldn’t be in the business of running technology. Former San Diego County Chief Administrator Lawrence Prior told Government Technology that outsourcing “this non-core business offers the best available opportunity to control costs and hold expenditures at a steadier level.”

Not surprisingly, state and local government borrowed the idea of wholesale, mega-outsourcing deals from the private sector. In the 1980s, GM outsourced its entire IT operations to EDS. Kodak did the same with IBM. Like Connecticut and San Diego, these firms and others emphasized that technology was not part of their essential business and should be run by experts who could do it better and at a lower cost.

As enticing as this sounded, it soon became apparent that privatizing IT in the public sector was easier said than done. Connecticut’s multi-year contract with EDS quickly ran into opposition from labor unions, legislators, the state comptroller and several state agencies. Not long after Rowland told fellow governors at the NGA meeting about the benefits of outsourcing, the project in Connecticut was dead.

Still, the interest in large-scale outsourcing continued to resonate, especially at the state level. In 2003, Virginia Gov. Mark Warner, a former telecommunications businessman, created VITA as part of an IT consolidation and streamlining program. In 2005, he privatized the state’s IT systems and services, signing a $2 billion contract with Northrop Grumman to run tech for the state, with VITA overseeing the outsourced work. In 2006, Texas undertook a statewide IT consolidation project, which included outsourcing its data centers to IBM. In 2009, Georgia signed contracts with IBM and AT&T to run the state’s IT infrastructure and to provide tech services to state agencies.

Two other states that embraced the outsourcing fever during this period were Pennsylvania and Florida. The Keystone State has had a series of large contracts with tech services firm Unisys, starting in 1999 with a $621 million deal to consolidate its mainframe operations that was extended several times. In 2014, the state and Unisys signed a seven-year, $681 million contract to move computing operations to the cloud. Florida, which has been a long-time proponent of outsourcing for just about every state service, entered into several IT contracts with vendors back around 2003, but many had to be rebid after allegations of mismanagement.

While Georgia’s mega-outsourcing deal has operated relatively smoothly, both Virginia and Texas ran into trouble with their efforts. Some of the challenges were around transitioning IT workers from government jobs to the private sector, as was the case initially in Virginia. Structuring a contract to privatize an enterprise-scale computing environment also proved daunting, as did managing something so complex. But universally, tech firms struggled to provide state agencies with the level of service that had been promised.

When Texas turned to IBM to consolidate 27 state agencies into two new data centers, the effort proved too daunting for the tech giant. Deadlines were missed and when the state tried to renegotiate the contract, progress stalled. By 2010, Texas decided to rebid the $863 million deal and break up the consolidation into smaller chunks involving a variety of contractors, not just one.

That thinking mirrors somewhat the plan announced by Virginia’s VITA last July to implement a multi-supplier model rather than rely on a single vendor to manage the state’s IT services. Georgia has also begun to move in this direction, with plans to issue smaller, short-term contracts, covering PCs and cloud computing, for example, rather than the mega-deals that covered as much as a decade of service in some cases.

What will happen with outsourcing 20 years hence? Two decades ago, government computing was still heavily mainframe-based; client-server computing was where a lot of resources were focused; and the Internet was just beginning to become a mainstream phenomenon, though it would be years before social media and cloud computing would resonate. Going big with IT outsourcing made sense to public officials who believed government should be in the business of government, not running computers.

Today, the landscape is vastly different. The desire to turn over computing to the big integrators and tech firms has dissipated. But it’s hard to rule out the appeal of big firms with lots of expertise handling the digital needs of government, always a tech laggard. Microsoft just signed a massive $10 billion deal to handle cloud computing for the Pentagon, for example. Who’s to say big deals won’t come back to state and local government too?

 

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Tod Newcombe Senior Editor

With more than 20 years of experience covering state and local government, Tod previously was the editor of Public CIO, e.Republic’s award-winning publication for information technology executives in the public sector. He is now a senior editor for Government Technology.

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