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Audit Report Criticizes Massive Virginia IT Outsourcing Plan

Vendor failed to plan appropriately, had poor grasp of agency needs, report claims.

by / October 14, 2009

Photo: George Coulter, who became Virginia CIO on Aug. 20, 2009.


For the second time in less than two months, a major state IT outsourcing initiative is the target of a critical state auditor's report.

On Tuesday, Oct. 13, Virginia's Joint Legislative Audit and Review Committee released a withering assessment of progress under Virginia's 10-year, $2.3 billion contract with Northrop Grumman to run the state's computers, servers, e-mail systems and help desk services. That review comes on the heels of a similar audit in Texas that criticized the state's Department of Information Resources for lax oversight of an $863 million data center consolidation initiative that was outsourced to IBM.

The Virginia report acknowledges that Northrop Grumman invested nearly $300 million in new IT infrastructure and built two new data centers since the outsourcing contract began in 2006. But auditors said inadequate planning and poor understanding of agency needs by the vendor have delayed the initiative and disrupted key services.

Virginia's contract with Northrop Grumman required the vendor to complete 59 transformation projects by July 2009. Only 32 have been completed thus far, according to the committee's report. Auditors also noted that the transformation initiative disrupted business operations for state agencies, including communications outages for public safety and help-desk deficiencies at the Department of Motor Vehicles.

In a written response to the Joint Legislative Audit Committee, Northrop Grumman said the report puts too much blame on the company for the problems. Characterizing the outsourcing arrangement as a "partnership," the letter says Northrop Grumman and the state share responsibility for making the initiative work.

"The interim report correctly calls out the challenges and risks with partnerships versus traditional contract relationships, so it is appropriate, then, to view the work of all the partners simultaneously. Therefore the criticism of due diligence, planning, missed milestones and overall transformation delays, absent the full context of VITA [Virginia Information Technologies Agency] and agency participation yields an imbalanced view of the shared responsibilities and performance," wrote Tom Shelman, vice president and general manager for the Civil Systems Division of Northrop Grumman Information Systems

The letter adds that many of the shortcomings listed in the committee's report already are being addressed through a corrective action plan submitted in August.

Long, Hot Summer

Tuesday's audit report is the latest indication of problems for the Virginia outsourcing initiative, which is one of the most comprehensive in the nation. In June, Virginia CIO Lem Stewart was fired from his position as director of VITA after he questioned a multimillion dollar invoice from Northrop Grumman. Stewart was replaced in August by software executive George Coulter.

In a letter to the Joint Legislative Audit and Review Commission, Coulter said the report accurately captures the "history, progress and challenges of modernizing Virginia's IT infrastructure."

"This report will be helpful in addressing my top priorities of enhancing customer service, getting the IT infrastructure program with Northrop Grumman back on track and reducing costs," Coulter said. "That work already is under way. However, I understand there is much more to do, and look forward to reviewing in detail the recommendations in the report."

Tough Work

Paul W. Taylor, former deputy CIO for Washington state and current chief strategy officer of the Center for Digital Government, said Virginia's experience underscores the difficulty of large infrastructure modernization projects, regardless of whether the work is done by a contractor or in-house.

"This stuff is hard work and enormously complicated," said Taylor, noting that such projects typically involve very old systems and complex interrelationships. "Outsourcing doesn't eliminate that problem."

Virginia's initiative may be confronting a few political hurdles, too.

Almost any long-term IT project eventually suffers from leadership turnover, Taylor said. "It's almost inevitable that they'll run into trouble. The people who were around and thought it was a good idea are no longer in office in a term-limited environment. So the project becomes an orphan because of process issues."

And outsourcing itself may be a victim of a political shift where privatization of government operations is losing favor. "Large outsourcing contracts had a subtext to them that government employees are incompetent, so let's let the private sector do it," he said. "Now, there's a view that if we bring these projects in-house we'll have more control."

Still, Taylor doesn't view problems in Texas and Virginia as a death knell for outsourcing initiatives. Instead, they highlight the need for public agencies to develop proficiency in managing long-term vendor relationships.

"I don't think outsourcing is dead or even dying in this sector, but it should prompt a review of governance structures," he said. "It should prompt a look at whether we have the bench strength to initiate, negotiate and manage these kinds of enterprise initiatives."


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