Virginia Shows How to Lose an Outsourcing Gamble: Bet Big

Ann All

Some organizations seem to look at outsourcing like gambling. The more you wager, the more you can win. While this is technically true, so is the inverse. And let's face it, more folks end up trying to scrounge up enough change for the $1.99 all-you-can-eat breakfast buffet than ensconced in a high roller's suite with a bottle of Dom Perignon.


Or in the state of Virginia's case, too strapped to buy themselves out of a disastrous outsourcing contract with Northrop Grumman.


Unlike most private organizations, which have eschewed large and lengthy outsourcing contracts with a single provider in favor of a multisourcing model, public agencies continue to up the ante with mega-contracts like Virginia's 10-year, $2 billion deal with Northrop Grumman. In a bit of foreshadowing, I mentioned Virginia's outsourcing initiative in a 2008 post describing Texas' efforts to address problems in its seven-year, $863 million contract with IBM.


Some progress has been made in Virginia, reports Network World. Northrop Grumman has replaced 45,200 of 57,500 PCs, though the swap was supposed to have been finished last July. A central gateway was created for Internet traffic, replacing individual agency connections, the help desk is now centralized, and 26,200 of 63,500 e-mail accounts have been migrated to a centralized e-mail platform. But agencies have been without critical services for days at a time: a 78-hour loss of Internet access at a Virginia State Police office, 31-hour loss of network connectivity at a Department of Motor Vehicles bureau and an 18-hour outage of phone service at a state correctional facility.


The initiative encompasses 59 projects, 72 agencies and 2,000-plus sites and involves replacing PCs, servers, mainframes, e-mail, network, security, help desk and telecom. A 131-page report issued by the state's Joint Legislative Audit and Review Commission notes a nasty domino effect:

Projects are interdependent and delays with one project can have cascading effects on other projects.

A corrective action plan was filed in August when Northrop Grumman missed its July 2009 deadline. The new deadline is June 2010, but four agencies are not included and just 32 of 59 projects were completed as of last month. The report places much of the blame on Northrop-Grumman, although it also knocks the convoluted governance structure of the Virginia Information Technologies Agency (VITA), which was formed in 2002 to centralize the state's IT. While VITA signs contracts and oversees projects, it is overseen by an Information Technology Investment Board (ITIB). The board falls under the governor on the state organizational chart, although the governor has no authority to intervene in the contract dispute with Northrop Grumman.


Reader comments following the Network World story imply that Virginia's experience is far from uncommon, though it is unusual in its scale. "Underscoping is endemic to the bidding process," writes an anonymous reader who claims to have been involved in an government outsourcing project with EDS. "The contracting organization isn't aware of the entire complexity, and so submits a lower bid than the others. When the low bid is accepted they have a very rude awakening."


Another anonymous reader who claims to be a local government employee writes, "The statewide IT infrastructure was broken long before NG was hired. The levels of bureaucracy, levels of incompetence, and overall stupidity were staggering." I think this reader is on to something.


As I wrote in August in a post on Indiana's 10-year, $1.34 billion contract with IBM and Afffiliated Computer Services, many states seem to see outsourcing as a panacea. Their IT systems become so complex and convoluted, they have no idea how to fix them so they hire an outsider to do so. But as in the private sector, simply shifting a problem to someone else and hoping it wil go away rarely works.

Add Comment      Leave a comment on this blog post
Oct 20, 2009 9:52 AM M Ellard M Ellard  says:

Agreed - outsourcing is not a cure-all. However, it's important to note that all outsourcing is not equal, nor is an outsourcing partner going to be properly prepped if the folks doing the hiring have just thrown up their hands at the problem. Projects, especially huge ones like those described here, require insights and perspective from both sides of the table - and the most effective outsourcing partners are just that - they work effectively with those that brought them on.


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