Coming to a local government near you: IT outsourcing

San Diego officials are expected to vote Tuesday on a US$667 million IT outsourcing contract with Northrop Grumman Information Technology, a move more and more local and state governments may soon make if Reston, Va., consultancy Input is right about its IT outsourcing market forecast.

Input expects state and local spending on IT outsourcing to grow from $10 billion in 2005 to $18 billion by 2010, with a compound annual growth rate of 12 percent.

James Krouse, manager of state and local markets analysis at Input, said he expects states increasingly to turn to outsourcing to deal with an unprecedented set of problems, including aging IT workforces, outdated systems, and pay scales and technologies that make government service unattractive to college graduates. “The leading-edge technologies are in the private sector,” he said.

The county of San Diego awarded one of the first big local-government outsourcing contracts in the nation in 1999 to Computer Sciences Corp. The county’s board of supervisors today will consider a different vendor, Northrop Grumman, after rebidding the work. At stake is a seven-year contract to manage IT for the 17,000-employee county government, which operates on a $4 billion budget.

Krouse sees the commonwealth of Virginia as a bellwether for the nation. In November, Virginia officials approved a 10-year, $2 billion agreement with Northrop Grumman to manage the state government’s IT operations. More than 900 employees of the Virginia Information Technologies Agency will get job offers through the contract or can choose to stay with the state, according to details of the plan released in November.

“Virginia is a prime case that is looking at something that could be a precursor for things to come,” said Krouse.

Otto Doll, CIO of South Dakota and someone who has long been involved in a national association that represents top state IT managers, also sees new interest in outsourcing among his peers. “Right now, there is a big drive toward consolidating services — and one of the options when one looks at consolidating is whether you are going to do it in-house or whether you are going to outsource it,” he said.

“Consolidation is on a lot of people’s minds,” said Doll, who is also on the executive board of the National Association of State Chief Information Officers in Lexington, Ky.

Government IT services have long been stymied by “stovepipe” systems built to support individual state agencies. Doll said he sees a range of consolidation plans that run from basic efforts to combine data centers and networks to larger schemes by state governments interested in consolidating all IT services under one organization. The latter is what Virginia officials are eyeing.

Doll said his state consolidated its IT services in the mid-1990s but uses outsourcing only in a limited way, such as hiring contractors to help with application development. He said South Dakota has compared the cost of providing IT services with outsourcing, “and it doesn’t prove to be a viable economic decision for us.”

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