P3 arrangement renewed amid kudos

In 1999, San Diego County embarked upon what was then thelargest municipal IT outsourcing initiative in the world: aseven-year deal worth $644 million with a group of companies knownas the Pennant Alliance (which included Computer Sciences Corp asthe prime contractor), meant to refurbish County governmentoperations for 21st century challenges.

Both sides faced real challenges. A June 2002 article in CIOMagazine (www.cio.com) simplydeclared the deal “a mess.” CSC paid significant non-performancepenalties that year, key executives on both sides of thearrangement were reassigned, and disgruntlement and cost overrunswith an ERP initiative had the County threatening litigation.

Yet, perseverance would soon begin to pay dividends. Constantdialogue and a real and shared commitment to flexibility anddispute settlement meant that both sides were showcasing success by2005. San Diego County has recently been lauded as a locale-government leader in the high-profile municipal survey of theCentre for Digital Government, and County CIO Michael Moore insiststhat his IT capacities are far better today than would have beenthe case had the County opted to go it alone (as some critics wouldhave preferred), and at less cost.

Perhaps not surprisingly, then, San Diego County seems intent oncontinuing down the outsourcing path. In its latest deal, thesequel, the County’s Board of Supervisors has approved a newseven-year deal worth $667 million that extends the reliance onprivate sector providers for most aspects of the government’s ITand telecommunications infrastructure (the deal also carries afive-year extension option valued at roughly $500 million).

CSC is out, however, and Northrop Grumman Corp is in as theprime contractor in this next phase. County CIO Moore underscoresthat the change does not reflect disgruntlement with CSC (the onlyother company that had been short-listed in the final round of theselection process), but rather a better proposal by NorthropGrumman. All sides appear confident of a smooth transition, despitethe inevitable complexities of disentanglement following sevenyears of CSC management.

There is also one key source of optimism that this nextoutsourcing phase will be successful, namely, the accumulatedexperience and competencies of County management and politicalleaders to effectively steer a partnership of such a largemagnitude.

When the County first opted for outsourcing in the late 1990s,it did so in desperation. Antiquated computer systems and limitedfunding meant that turning to the private sector became its lastand only option, hardly a recipe for a strong negotiating position.Over the past seven years, however, while leaving operations to theprivate consortium, the County has worked hard to expand its ownstrategic capacity, based within the CIO’s Office, in order tocollaborate with its partner companies.

The key lesson from Phase 1, and now a cornerstone of Phase 2,is that outsourcing does not mean relinquishing strategicleadership and total control to outside experts, however wellqualified they may be. Instead, the basis of a solid partnership isa shared understanding on both sides of challenges, opportunitiesand constraints. From this understanding flows an accumulation oftrust and flexibility that enables both sides to continuously adaptto shifting circumstances, as well as the unavoidable disagreementsthat emerge along the way.

This more balanced relationship also reassures San Diego’selected officials, who are now more inclined to follow the adviceof County managers. With the novelty and constant media attentionof Phase 1, all stakeholders were nervous and under scrutiny (adynamic contributing to some of the early tensions that arose).Today a more mature political setting pervades Phase 2, even aspoliticians are likely to keep close tabs on such an importantfinancial commitment.

San Diego’s experience also demonstrates that governments neednot fear long term commitments to public-private partnerships.Sound preparation is one key, as is a governance structure thatfacilitates trust and shared accountability through performancemetrics at regular intervals.

An important lesson for industry is the public scrutiny thatcomes with large scale public sector outsourcing. CSC leaves behinda laudable record in San Diego in this regard, as all eyes now turnto Northrop Grumman’s consortium and what will be achieved in thenext few years.

Jeffrey Roy ([email protected]) is associateprofessor at the University of Ottawa and author of, E-Governmentin Canada: Transformation for the Digital Age.

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