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McAuliffe Hits Private IT Outsourcing

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Peter Galuszka
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mcauliffeBy Peter Galuszka

Just a decade ago, privatizing and out-sourcing traditionally government work was all the rage.

Virginia’s Democrats and Republicans alike saw a philosophical advantage in fending off Information Technology, road maintenance and other work to for-profit, private companies who supposedly – if you believed the hype then  –could always do things better, faster and more efficiently than state workers.

The concept of “government” workers always seemed to be negative. Not only would taxpayers have to pay their health and retirement benefits, they might try to join unions and make labor negotiations even more difficult. It didn’t wash with Virginia’s conceit of being an anti-labor, “right-to-work” state that promised to keep workers docile as the state tried to recruit outside firms.

Now, Gov. Terry McAuliffe is turning this concept on its head. He is ordering a review of state contracts, especially on out-sourced IT service work that he says may be inefficient and expensive. “I am concerned that state government is inappropriately dependent on expensive contract labor when traditionally appointed state employees can perform at a higher level at a lower cost.”

Now that’s a major turn-around, even for a Democrat. After all, it was fellow Democrat and former Gov. and now U.S. Senator Mark Warner, currently running for re-election, that worked the get the state to accept a $2.3 billion contract for defense contractor Northrop Grumman to take over and upgrade the state’s antiquated IT system in 2005.

That deal proved disastrous as the contractor’s performance issues brought on bouts of oversight and renegotiation. The state ended up extending its contract with Northrop Grumman by three years.

An underlying problem is that while the contract lasts until 2019, the state must make some decisions if it wants to continue with the outsourcing route or start relying on its own state workers.

Another problem is whether the state identifies independent contractors as such or employees of state organizations. About 1 percent of the state’s workers were misidentified as independents. Apparently, state workers have their Social Security and taxes withheld from paychecks. But are they really independents? Or is it just window dressing to play homage to some fad thought up by fiscal conservatives?

McAuliffe is right to start thinking in these terms. What he’s going to have to face, however, is the conventional wisdom in Virginia that “public” is always bad and “private, for-profit” is always good. For evidence of this hidebound view, just read this blog regularly.

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20 responses to “McAuliffe Hits Private IT Outsourcing”

  1. TMT Avatar
    TMT

    The Governor should do what the city of Indianapolis did in the 80s and 90s. It required business cases for both the public and private provision of support services. Government departments/agencies had access to consulting help to prepare their proposals. They best and most efficient vendor one. Sometimes, it was in-house; other times it was an outside vendor. Taxpayers deserve no less.

  2. DJRippert Avatar
    DJRippert

    A high percentage of private companies outsource some functions to other private sector providers. Everybody using Amazon’s cloud is effectively outsourcing some aspects of their IT operation to another private company – Amazon Web Services in this case.

    The fallacy is in believing that this is somehow anti-government worker. Even in government friendly Europe outsourcing is surging:

    http://www.computerweekly.com/news/2240207561/Europe-sees-huge-outsourcing-surge

    Maybe the state of Virginia should generate its own electricity instead of “outsourcing” that function to Dominion Resources?

    Maybe the state of Virginia should build its own trucks and construction equipment instead of “outsourcing” that function to Ford, GM and Caterpillar.

    McAuliffe wants more state employees because he knows they’ll reliably vote for the Democratic Party.

    Let’s get real here.

    1. LifeOnTheFallLine Avatar
      LifeOnTheFallLine

      That there is of course a substanative difference between the production of a good – trucks, power, etc. – and the implementation or production of a service – tech support, bridge design, etc. – either escapes you or you’re purposely ignoring it.

      That Europe has undergone a rightward swing recently and adopted some of America’s economic fetishes is not evidence that they’re actuall good or work, just that they’re currently popular. People thought disco was going to live forever, too.

      And if you think state employment is some guarantee of Democratic votes you’ve never been around either VDOT employees or IT workers.

      1. DJRippert Avatar
        DJRippert

        I knew if I baited the hook some fish would bite. The future of IT is very much the creation of technology as a consumable service quite like electricity. Perhaps you should do an internet search on “cloud computing” and read the first three articles you find. Salesforce.com, as one of many examples, provides the complete Customer Relationship Management (CRM) stack as a service. Thousands of companies which used to maintain their own CRM systems or even maintain the CRM systems they bought and over-modified in-house now “outsource” this to salesforce.com.

        Peter’s claim that the outsourcing of IT with the state of Virginia was somehow and anti-government ploy misses several points. First, that style of outsourcing is at least a prevalent in private enterprise as in the public sector. Second, the man who pushed the outsourcing was a populist Democrat, not a small government Republican.

        Both you and Peter confuse advances in the business model of providing IT services with some kind of bizarre anti-government theory.

        As for state government workers – I would be happy to wager that they are more likely to vote Democratic in Virginia than the average Virginian. I’m not sure how to prove that but thinking that state workers are more Republican than average is a hallucination in my opinion.

  3. James A. Bacon Avatar
    James A. Bacon

    I welcome McAuliffe’s initiative. Outsourcing is not a panacea, and it can lead to negative results if handled poorly. As TMT says above, government should routinely make the business case for both public and private provision of support services. If government can do it cheaper and better than current private vendors then, by all means, switch.

    So, I agree with you that “McAuliffe is right to start thinking in these terms.”

    Alas, you go off the rails with this comment: “What he’s going to have to face, however, is the conventional wisdom in Virginia that ‘public’ is always bad and ‘private, for-profit’ is always good. For evidence of this hidebound view, just read this blog regularly.”

    I’ve never heard this conventional wisdom. I’ve never espoused it. I *have* argued that we should aggressively *consider* outsourcing if we think it can save the taxpayers money. But the idea that the public is always bad and private for-profit is always good is nothing but a left-wing caricature of conservative thinking.

    1. LifeOnTheFallLine Avatar
      LifeOnTheFallLine

      I like you and you run my favorite Virginia-specific blog, but if you’ve never heard the “private sector always performs better” CW then you aren’t informed enough to discuss politics.

      1. DJRippert Avatar
        DJRippert

        The catch-word is “always”. No serous person believes that the private sector “always” performs better. In the matter of criminal law, for example, the public sector attracts more of the top attorneys than the private sector.

        The proper argument would be that the public sector does too much that would be better done by the private sector. Running Virginia’s retail alcohol outlets would be an example of this.

  4. larryg Avatar
    larryg

    in the modern world – both private and government – you employ folks to do the core function and you outsource the rest.

    but the risks are that you have to know your business to know what should be outsource and what not – and what is outsourced – what the work product should be.

    If you cut government and the managers don’t really understand the core mission – they may do a hatchet-job on the outsource instead of a scalpel.

    The entire state is an electronic network – and if you do not have a system-wide security policy and configuration – you’re setting up an eventual disaster.

    this means that you have to have a defined, standardized security configuration that is implemented and maintained on every single computer
    that is hooked to your network.

    If you cannot find competent computer people (as opposed to those who can just do something that “works”) – then you are in trouble.

    It’s like sending your employees up on the roof to deal with the HVAC or into the utility room to screw with the electrical.

    computers/networks are infrastructure – just like electrical, HVAC, water/sewer, elevators, etc…

    the last thing in the world you want is some in-house jack-leg guy “securing” your PCs.

    you outsource these things and you have to be competent enough to know what a good contractor looks like and write the contract accordingly.

    there is nothing wrong with outsourcing. It’s common sense and cost effective but like anything else – it does require competence.

  5. billsblots Avatar
    billsblots

    Network and computer desktop customer servicing aside, this Warner initiative turned the Dept of Information Technology (DIT) into the raging monster that is the Virginia Information Technology Agency (VITA). This is the agency that put down claims and was given said authority that all state agencies must buy “technology related items” through their contracts, even though there are fields within “technology” that VITA personnel know little about or are understaffed to act on with competence. These became “mandatory contracts”. Combined with Gov Kaine’s Executive Order 33 establishing a goal of 40% Small, Women, and Minority (SWAM) purchasing this put a real gauntlet of intimidation and roadblocks in the path of timely, efficient and cost-effective procurement.

    Given the cowardly suck-up mentality of senior management and executives in state agencies who only seek to get along and not cause waves on their 6-digit state income + 63% total compensation, this “goal” of 40% SWAM became written-in-plutonium mandatory within agencies and departments no matter the costs in time and money it often added to procurement.

    1. larryg Avatar
      larryg

      NMCI – the Navy Marine Corps Internet were subject to the same complaints and I do not, without reservation, defend the 3rd party IT companies.

      but you must have a standardized network – even if it means some things are not best of breed – at east at the get-go.

      the problem is that the best-of-breed folks don’t see to care if the network itself is standardized or secure and there actions tend to undermine the goal of a secured and standardized corporate network.

      you’d have this issue whether you outsourced or not because what happens is that in the nooks and crannies of corporate – there are agencies and offices whose perceived duty is to protect the function they have built – even if that function is at odds with a standardized corporate architecture.

      I understand the thinking but it’s wrong in the longer run because specialized things that have no standard security configuration – are a threat to the entire network and you don’t need to look far in today’s news to see how successful the hackers are in penetrating corporate networks.

      they find the weak links and they get inside behind the firewall – and it’s all over.

      so the outsurcer is fighting this culture.

      NMCI was accused of the same transgressions as the Virginia IT outsourcer.

      it’s basically a clash of corporate culture vs what it takes to secure the corporate network.

      and if the corporate culture enclaves can damage the corporate IT -they will.

      the best-of-breed folks are always right in a smaller sense – but they are always wrong in the bigger picture. you must have a corporate standard eve if it’s not he best of breed for each agency.

    2. LifeOnTheFallLine Avatar
      LifeOnTheFallLine

      So if the state workers are so cowardly how come Bob McDonnell didn’t reverse it?

      Finding a SWAM vendor is literally as easy as going on a database, picking a couple and checking their availability. This is not a cumbersome process.

      1. DJRippert Avatar
        DJRippert

        Because Northrop Grumman promised to move its headquarters to Virginia and give McDonnell a major PR coup?

  6. larryg Avatar
    larryg

    there is a problem with trying to outsource a corporate computer network if te current system is a hodge-podge of de-facto “fiefdoms” where each office or agency has hired an in-house geek – that management knows virtually nothing about what he/she does -only that they can keep your computers running.

    when you turn over this kind of hack-eyed architecture to a company to take over and maintain – they run into one road-block after another who don’t want to be subjected to a centralized system and they will do – what they can to essentially sabotage the system to “prove” that outsourcing it was a disaster.

    How do I know this? Because I was in the middle of the Navy’s attempt to bring their wildly disparate systems into some kind of centralized standard.

    we had agencies that insisted that Microsoft Word was their standard and others that insisted on WordPerfect and still others than insisted on something else.

    Same thing with email and databases and spreadsheets – and security software and configurations.

    It was crazy. And every one of them claimed that their setup was mission-critical and the 3rd party company had to keep going to top level management to try to get some kind of rationality towards a standard.

    every computer geek in every little office group would be telling the managers that they’d be toast if they allowed the 3rd party contractor to take control.

    and you know what – it often worked. We’d have a UNIX network logger that was built on unsupported freeware and only one guy knew how to deal with it and that’s exactly the way he wanted it – and management backed him against the 3rd party company.

    We talk a lot about VDOT here. But VDOT is all about standards. standards for design. standards for road signs and traffic devices. Standards for materials like asphalt… etc.

    standards are why you look on your tire – get the size and then go to the tire store and your size is a standard size they stock or can get in a day or so.

    standards are the key to outsourcing. Outsourcing is not inherently evil. It’s a good thing – but it has to be based on industry standards and the folks who outsource – have to understand their business and how it works.

  7. Breckinridge Avatar
    Breckinridge

    It is easy to forget that at the time the contract was negotiated with Northrop Grumman, the state literally did not have the cash to upgrade its laptops, networks, servers, security systems, etc. Virginia needed the capital. Was it a good deal? I don’t have enough information and I suspect NGC isn’t sharing all of its internal numbers. I do know that these deals run in the red to start but then can turn very profitable. And I’m glad someone noted that the SWAM requirement added a layer of costs, as well.

    The pendulum swings. Maybe now away from outsourcing, and one day back again. We seek but never find the elusive free lunch.

    1. LifeOnTheFallLine Avatar
      LifeOnTheFallLine

      Virginia pays NG to run all of its tech support and tech acquisition – if it couldn’t afford laptops how could it afford a contract?

      It was sold to the workers as a way to provide the level of tech support that the larger state agencies – like VDOT, DPH, DMV – were able to provide for themselves to the smaller agencies that couldn’t and in a uniform manner across all agencies. I can’t speak for how it has worked out for those smaller agencies, but the level of service at the larger agencies declined dramatically after the switch.

  8. Richard Avatar
    Richard

    The problems with outsourcing are oversight and corruption.

    1. DJRippert Avatar
      DJRippert

      I’ve seen the oversight problems (in two different directions) but not the corruption problems. At least, not corruption in the legal sense. It’s just too easy to end up in an orange jumpsuit for any outsourcing executive to blatantly engage in corruption.

  9. Darrell Avatar
    Darrell

    Oversight, now there’s a word. Agencies outsource their IT systems to companies who employ well qualified persons in accordance with predefined job statements. Then the agencies provide oversight to the point that these well qualified contractors can’t even log into a computer, much less meet contracted Service Level Agreements, without someone physically approving every key stroke or mouse click. Oversight is how agencies justify reclassifying a position back to a government required FTE.

    1. LifeOnTheFallLine Avatar
      LifeOnTheFallLine

      You have no idea how VITA and their IT support have been implemented in the real world. What you’ve described is 100 percent backwards. VITA didn’t kick the DMV database in the head because state employees were dictating mouse clicks.

    2. DJRippert Avatar
      DJRippert

      That is frequently the case. Retention through oversight.

      It is also frequently the case that the outsourcer will underbid the contract in order to win with a mentality of “we’ll figure it out after we win”. In those cases the contract is a firefight from day one. The assumptions made by the outsourcer rely on an exceptionally quick “transition period” to the new processes. The customer is rarely able to make the transition that quickly – often for very valid reasons. The contractor spends more money than expected during transition and finds itself with far lower (or negative) margin on the contract. In an attempt to “claw back” some profit the contractor demands that the customer comply with the letter of the contract – no exceptions. The contractor knows that customer either won’t or can’t do this since no contract is perfect and things change over time. The contractor hopes for either a series of profitable change orders or an extension to the contract. The extension is important because many contracts are unprofitable to the contractor in the early stages but profitable in the late stages. The longer the profitable portion of the contract runs the more the contractor can “claw back” margin.

      I have no idea what happened with the VITA contract. However, these problems (when they occur) tend to fall into a few recognizable categories. Unwillingness to let go of the people by the customer is one common fail case. Underbidding and trying to “claw back” is another.

      Next time, VA should hire a competent advisor to help with the proposal and contracting process. That advisor should be independent and not attached to any outsourcer. That consultant should also be required to sign a “no work” agreement for at least 18 months specifying that he or she will not take a position with an outsourcer until after that period.

      While I would be conflicted, I would be happy to refer a list of qualified independent advisors to any Virginia government agency which cares to ask.

      Getting this right is hard but far from impossible.

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