Outsourcers

November 1996

INTEGRATION/OUTSOURCING GUIDE

Outsourcers

Regulatory changes have made it easier than ever for agencies to contract out information technology.

About 65 percent of all agencies operating in-house data systems soon will be outsourcing that work to private industry, predicts Joe Thompson, chief information officer for the General Services Administration. Thompson believes governmentwide outsourcing of information technology will reduce government IT costs by 25 percent to 30 percent, as well as create jobs in the private sector.

Many taxpayers and legislators believe government should not be involved in providing services that can be provided more inexpensively and more efficiently by the private sector. Major factors contributing to the trend toward outsourcing and privatization include tighter budgets, the lack of specialized skills among government employees and congressional discontent over spending on botched IT programs such as the IRS Tax System Modernization project.

The last year will be remembered as a historic one for federal IT outsourcing reform. After mandating the consolidation of federal data centers from 205 to 100, based on National Performance Review recommendations, the Office of Management and Budget released guidelines for the size of federal data centers. Facilities must be capable of processing a minimum of 400 million instructions per second (MIPS). According to the OMB mandate, those that fall below the MIPS threshold must be closed or consolidated. Some federal agencies have been prompt in complying with the OMB mandate to consolidate while others may be awaiting results of the recent election.

In addition, the Information Technology Management Reform Act (ITMRA) went into effect in August, repealing the long-standing Brooks Act. The ITMRA is a significant piece of legislation that will help government agencies with outsourcing by eliminating GSA oversight and loosening guidelines for IT acquisition.

GSA Leads the Way

GSA is one of the first agencies to establish a strategic program to consolidate and outsource IT processes under new OMB guidelines. Although the agency is outsourcing all of its internal data processing, few IT workers will be affected, since many of them are already contractors supervised by government managers.

For Thompson, there was no ducking the outsourcing issue. GSA headed the governmentwide team that sought data centers ripe for consolidation. After studying its own IT shop, GSA discovered that it was operating a system that had less than 250 MIPS-below OMB's threshold for staying in business. Studies also revealed that GSA would be better off consolidating its expertise and using less hardware for legacy mainframe systems.

"Outsourcing was not the only objective of the effort," Thompson says. "We wanted to become more efficient and cost-effective, as well as get additional expertise."

The agency examined its 22 data centers, which have been in operation for more than 20 years, and consolidated them into three centers in less than two years. But the centers were still below the MIPS threshold specified by OMB.

Consequently, GSA decided to merge its three remaining data centers and outsource the operation to Unisys Corp., which has consolidated its worldwide operations into one facility in Eagan, Minn. GSA's newest consolidation project will begin in the spring and should be completed by September 1997.

"It doesn't make sense to continue operating [data centers] in-house," says Don Venneburg, GSA's deputy CIO. "We expect to save about $10 million a year [by outsourcing], which is a significant amount to the taxpayers."

Thompson notes that GSA's initial consolidation efforts did not impair service. In fact, he says, GSA's customers have been able to get products faster, as well as receive new services. The most difficult part of the consolidation, according to Thompson, was ensuring that user requirements would be satisfied during and after the transition. He stresses the need for constant communication throughout the outsourcing process, and counsels that other agencies develop benchmarks and detailed time frames before attempting to consolidate or outsource data processing.

High Performance Computing

With the help of 11 subcontractors, Northrop Grumman's Data Systems and Services division won a bid to support the High Performance Computing modernization program for the Naval Oceanographic Office's (NAVO) Major Shared Resource Center (MSRC) at Stennis Space Center, Miss. The $170 million contract, awarded in May 1996, involves designing, installing and operating a supercomputer facility on-site.

NAVO's supercomputers enable scientists to run sophisticated computer models of the world's oceans and atmosphere to determine the effects of ocean currents on weather. The scientific work involves computational fluid dynamics, ocean modeling, signal and image processing, forces modeling and simulation.

Much of the work performed by NAVO is used for a variety of defense-related activities, such as developing models that predict fog patterns over Bosnia. Other models are used to track natural disasters. Some of the NAVO models are so complex that they need 24 hours to run, even on a supercomputer.

"There's not a ship or aircraft that launches that does not take something with them that was developed by NAVO," says Don Durham, technical director for the Navy's Meteorological and Oceanographic Command.

Northrop Grumman's Data Systems and Services division operates NAVO's supercomputer center, develops new products, builds communications links and provides support for a 2,000-user data center-tasks that would require a legion of full-time government employees.

The Major Shared Resource Center gets 8 billion pieces of data daily and must turn it around within 24 hours. Faced with a limited budget, NAVO is able to draw on the expertise of thousands of Northrop Grumman employees and not have to hire the staff needed to operate and maintain a supercomputer facility.

Anchors Away in Indiana

In the first full privatization of a military facility in U.S. history, the Navy's Re-use Planning Authority selected Hughes Technical Services to take over operation of the Naval Air Warfare Center in Indianapolis. The transition, which took place in May 1996, was not only good for Hughes, but also for the 2,200 federal workers employed at the facility that was scheduled to be closed.

Last year, DoD gave the Navy two alternatives for the Naval Air Warfare Center: Close and move, or privatize and stay. The Navy performed a cost-benefit analysis and discovered that both options would be beneficial, but there would be a greater savings over a five-year period with a privatization-in-place scheme.

Under a unique arrangement with the city of Indianapolis, the Defense Department will be able to essentially close the base but keep operations and employees in place while Hughes manages the facility. The company will lease the Naval Air Warfare Center's buildings and equipment for $1 per year, but must pay taxes on the facility, which amount to almost $3 million annually. The firm also must invest $7.5 million annually in capital improvements and scientific research, as well as set aside $3 million annually for job training.

The center will retain $200 million annually in Navy contracts, from work such as modernizing weapons systems on fighter planes, as well as defense electronics, prototyping, and research and development. In addition, Hughes will bring in commercial work from its other divisions, such as DirecTV. Hughes must employ 2,000 workers from the Naval Air Warfare Center.

Benefits to Bonneville

In an effort to provide support services and migrate mainframe systems to a reengineered client/server environment, the Energy Department's Bonneville Power Administration recently formed a partnership with Unisys. Under the two-year, $17 million Comprehensive Information Resources Support Services program, Unisys runs Bonneville's IT facility in Portland, Ore., with the help of several subcontractors. The contract, which supports 4,000 users, covers everything from computer operations, help-desk services, network installation and training to software development, systems programming and maintenance.

Bonneville's relationship with Unisys is a hybrid government-owned, contractor-operated arrangement in which the agency owns the equipment and the contractor does about 95 percent of the work. Unisys does about half the work on a fixed-fee basis, while the rest-mostly software development and maintenance-is conducted on an award-fee basis. Under the award-fee arrangement, Unisys is graded by Bonneville on how well it develops software products, how closely it stays on schedule and how effectively tasks are completed.

Bonneville's contract with Unisys contains an "innovation clause," which enables the company to reclaim up to 100 percent of unclaimed award fees for up to three years by developing and implementing innovative approaches to problem-solving. So far, Bonneville's outsourcing arrangement with Unisys has been a success.

The Gang's All Here

In one of this year's largest federal outsourcing awards, 20 vendors qualified for nearly $100 million worth of information technology work from the National Institutes of Health under the Chief Information Officer Solutions and Partners contract. Under the five-year, multiple-award, indefinite-delivery, indefinite-quantity contract, awarded by NIH's Information Technology Acquisition and Assessment Center, all federal agencies will be able to purchase IT services from qualified contractors in areas such as telecommuting, Year 2000 solutions, telecommunications, IT security, systems support, networking and facilities management.

The contract, which allows for the processing of up to 5,000 task orders, is designed to make IT outsourcing easy for agencies. The winning companies have formed teams in order to address key issues and provide appropriate services. PRC, IBM and AT&T, for example, have signed a joint agreement to cooperate for work under the contract.

Other companies include Andersen Consulting, BDM, Boeing, Computer Sciences Corp., Cordant, Electronic Data Systems, GTE, Logicon, Northrop Grumman, Orkand, Science Applications International Corp., Unisys and a half dozen more. Each vendor will advertise services on Web pages managed by NIH.

"Our plan was to do something that benefits NIH and also benefits all of government," says NIH's De Vera. "Government managers now have broad, easy mechanisms for acquiring IT products and services."

Top Federal Outsourcers (Fiscal 1996)

Company Headquarters Market
Share
Computer Sciences Corp. El Segundo, Calif. 11.0%
Lockheed Martin Bethesda, Md. 4.1
Electronic Data Systems Plano, Texas 3.6
Allied-Signal Morristown, N.J. 3.0
Computer Data Systems Inc. Rockville, Md. 2.7
Unisys Blue Bell, Pa. 2.4
Dyncorp Reston, Va. 2.1
Boeing Seattle 1.5
Northrop Grumman Los Angeles 1.3
BDM Federal McLean, Va. 1.3
Source: Eagle Eye Publishers Inc.
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