A Whole Lotta Shakin' Going On

nferris@govexec.com

Need to get a system built? If your answer is yes, a horde of contractors will be at your office door by morning. They're hungry for business, now that federal spending on services has leveled off and agencies are finding ways to cut costs to the bone.

In some ways, the cutback in federal spending and federal jobs has been good for the companies that supply information technology services. To get their work done with fewer people, agencies have been forced to automate. The result is more business for systems integrators, who deliver hardware, software and the expertise to glue them together into a functional system.

That wave of recent automation has peaked, but agencies are still losing bodies to the budget scalpel. "There's going to be continual downward pressure," federal management chief John Koskinen predicted shortly before his departure from the Office of Management and Budget in July. Forced to choose between mission specialists, such as meat inspectors or aeronautical engineers, and support employees, such as computer technicians or contracting officers, agencies have been opting for the former, says John L. Okay, a senior General Services Administration official.

IT services is one category they are looking to contractors to supply, even more than in the past. Computing is not regarded as an inherently governmental function, and thus it's a good candidate for outsourcing under official policies. And agencies have trouble keeping their IT job slots filled in the face of recruitment by private-sector employers that pay higher salaries.

The administration is trying to make outsourcing easy for agencies. Under a GSA contract known as Virtual Data Center Services, agencies can turn their mainframe applications over to one of three contractor teams without undertaking a full-scale competitive procurement. The contractors will run several customers' programs on a single mainframe, but to the agency the system will look much like its own. At press time, GSA officials said, the Education Department was close to selecting a Virtual Data Center Services contractor to handle some of its mainframe operations.

Seat Managment

GSA also is readying a "seat management" contract that will supply participating agencies with networked or stand-alone PCs and all the associated services, at an annual cost per "seat" or user. One advantage is spreading out the costs of acquiring expensive computer gear. With the budget knives still slicing, "many agencies don't have the funds available to purchase products," says M. Dendy Young, president and chief executive officer of Government Technology Services Inc. GTSI, one of the federal government's largest PC suppliers, is among the many companies hoping to participate in the seat management program. GSA officials say the program will let agencies buy PCs just as they buy electricity or gasoline.

Outsourcing also is a pet project in Congress. This spring, for example, Rep. Floyd Spence, R-S.C., introduced a bill that would require the Pentagon to procure competitively most of the services provided by the Defense Information Systems Agency and the Defense Finance and Accounting Service, as well as other DoD support organizations. The existing organizations would be allowed to compete for the work.

Some scoff at the buzz about outsourcing, saying it's more talk than reality. But observers such as Austin Yerks, senior vice president for business development at PRC Inc. in McLean, Va., say they think outsourcing will occur rapidly. Yerks says, for instance, that the Air Force plans to outsource all its civilian-style IT work.

While some agencies are looking to outsource IT operations, a countervailing trend is at work: the tendency to buy services in smaller chunks. In the past, agencies often obtained technical services such as computer programming, network installation or systems operation by contracting with a single systems integrator. Because of the time and expense required to carry out a competitive procurement, they usually awarded multi-year contracts. They ended up locked into a relationship with a contractor, even as times and technologies changed. For both agencies and contractors, establishing a good contractual relationship while getting over the procedural hurdles was often the focus. Critics said too little attention was devoted to the work itself and the mission objectives.

Over the last year, agencies have begun buying more IT services as needed, without making long-term or broad-spectrum commitments. That change seems to be more than a temporary phenomenon. From now on, "the kinds of big projects we've seen in the past will be few and far between," says Norman J. Berthaut, vice president of federal programs for market research firm Input in Vienna, Va. Input is projecting steady and comparatively rapid growth in the federal market for professional IT services, which it pegs at $1.2 billion this year.

Agencies have a choice of indefinite-quantity contract vehicles, including the GSA schedules. With the schedules and other governmentwide acquisition contracts, the competitive acquisition is done up front by the sponsoring agency. A customer agency can do some fast comparisons to select the right contract for its needs. Then it acquires the services by means of a quickly awarded task order. This means competition is even more intense among vendors (and among sponsoring agencies, too).

'We Want Competition'

That suits administration policy-makers just fine. "What we want is competition," OMB's Koskinen says. The administration is relying on market forces to shave the government's costs and pump up productivity in such areas as office automation, data processing, publishing and payroll processing. Koskinen says federal managers should ask continuously whether the work is being done by the right kind of worker-private company, in-house or another federal agency. "These ought not to be once-in-a-lifetime decisions," he says.

This means more opportunities for vendors, but most don't seem to consider these the best of times. From their perspective, agencies are squeezing them. Each month brings a new procurement that forces them to sell their services piecemeal, without the floor provided by a long-term contract. "You're changing all the dynamics of the risk factors," says Robert A. Dornan, senior vice president of market research firm Federal Sources Inc. in McLean, Va. On the other hand, some companies are benefiting. "We're certainly seeing business that we wouldn't have seen a year ago," says GTSI's Young. His company has teamed with a services company, Vanstar Corp., of Pleasanton, Calif., to provide IT services on the GSA schedule.

Both federal managers and contractors remain concerned about an important question: When agencies buy systems and services in small pieces, who makes sure they all fit together? "Who do you hold accountable?" asks Gary Hobbs, president of External Information Systems and Technical Services in Northrop Grumman's Data Services and Systems Division. Dividing up the responsibility for different systems chores might work, says PRC's Yerks, "but I can't point to any examples in the past where it has."

Outsourcing clearly is an answer to this question. But wholesale outsourcing of IT functions is a new phenomenon in the federal government, and only time will tell whether it resolves some of the persistent management issues that haunt federal IT.

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