Sequel in San Diego

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

Both sides faced real challenges. A June 2002 article in CIO Magazine ( simply declared the deal “a mess.” CSC paid significant non-performance penalties that year, key executives on both sides of the arrangement were reassigned, and disgruntlement and cost overruns with an ERP initiative had the County threatening litigation.

Yet, perseverance would soon begin to pay dividends. Constant dialogue and a real and shared commitment to flexibility and dispute settlement meant that both sides were showcasing success by 2005. San Diego County has recently been lauded as a local e-government leader in the high-profile municipal survey of the Centre for Digital Government, and County CIO Michael Moore insists that his IT capacities are far better today than would have been the case had the County opted to go it alone (as some critics would have preferred) – and at less cost.

Perhaps not surprisingly, then, San Diego County seems intent on continuing down the outsourcing path. In its latest deal – the sequel – the County’s Board of Supervisors has approved a new seven-year deal worth $667 million that extends the reliance on private sector providers for most aspects of the government’s IT and telecommunications infrastructure (the deal also carries a five-year extension option valued at roughly $500 million).

CSC is out, however, and Northrop Grumman Corp is in as the prime contractor in this next phase. County CIO Moore underscores that the change does not reflect disgruntlement with CSC (the only other company that had been short-listed in the final round of the selection process), but rather a better proposal by Northrop Grumman. All sides appear confident of a smooth transition, despite the inevitable complexities of disentanglement following seven years of CSC management.

There is also one key source of optimism that this next outsourcing phase will be successful – namely, the accumulated experience and competencies of County management and political leaders to effectively steer a partnership of such a large magnitude.

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

The key lesson from Phase 1 – and now a cornerstone of Phase 2 – is that outsourcing does not mean relinquishing strategic leadership and total control to outside experts, however well qualified they may be. Instead, the basis of a solid partnership is a shared understanding on both sides of challenges, opportunities and constraints. From this understanding flows an accumulation of trust and flexibility that enables both sides to continuously adapt to shifting circumstances, as well as the unavoidable disagreements that emerge along the way.

This more balanced relationship also reassures San Diego’s elected officials, who are now more inclined to follow the advice of County managers. With the novelty and constant media attention of Phase 1, all stakeholders were nervous and under scrutiny (a dynamic contributing to some of the early tensions that arose). Today a more mature political setting pervades Phase 2, even as politicians are likely to keep close tabs on such an important financial commitment.

San Diego’s experience also demonstrates that governments need not fear long term commitments to public-private partnerships. Sound preparation is one key, as is a governance structure that facilitates trust and shared accountability through performance metrics at regular intervals.

An important lesson for industry is the public scrutiny that comes with large scale public sector outsourcing. CSC leaves behind a laudable record in San Diego in this regard, as all eyes now turn to Northrop Grumman’s consortium and what will be achieved in the next few years. 065122

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

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