Texas Outsourcing Contract Still Stumbling a Year Later

Reports Says Contract is "Unsustainable" and Should be Redefined

3 min read

Texas Outsourcing Contract Still Stumbling a Year Later

A year ago October, Texas Gov. Rick Perry suspended the transfer of state records to an IBM data management program saying that serious glitches in Texas's privatized computer system had put state agencies "in danger."

At the time, IT problems had plagued some 20 plus Texas government agencies since IBM won the state's $863 million, seven-year IT outsourcing contract in late 2006. IBM was given 30 days by the Texas Department of Information Resources to come up with a plan to correct the deficiencies, which the state eventually accepted.

However, a highly critical report released appropriately on Friday the 13th by the Texas Department of Information Resources, states that:

"... the Data Center Consolidation Project has experienced serious issues and challenges, and that these issues and challenges have proven very difficult to remediate, [and] that the contract does not align the original business intent of the project with the organizational, financial and operational realities of the State’s complex operating environment. This misalignment establishes dysfunctional relationship dynamics that are enshrined in the very processes prescribed in the contract for governance, oversight and service management, effectively driving the delays and performance issues experienced to date and at the same time assuring that tactical remediation initiatives will fail."

As a result, the morale on the project is low (turnover is running at 30 percent, which is very high given the current US IT job market), there is a large and growing backlog of unresolved contract disputes and unfulfilled requests for services, and there is a growing risk of major disruption of state government business because server back-up issues - the same ones that helped cause cure notice to be sent to IBM last year - have not been mitigated. Other critical problems also exist.

The report also in essence states that both Texas and IBM are at fault in the on-going fiasco and was caused by the same disease: abject naivety and excessive optimism about what could be accomplished and how to go about it.  Yet another case of a state's risk mismanagement of a large IT outsourcing contract.

The report states that the contract is "unsustainable" in its current form, but is salvageable, mostly because the outsourcing idea is a good one. 

The outsourcing idea may be a good one for Texas (and I think many people may debate that), but I believe from what I read in the report that claiming the contract is salvageable is more than a bit optimistic, and that Indiana's remedy to its recent outsourcing problem also involving IBM is probably a more realistic solution. Contract termination fees, however, may preclude this option from being considered. Anyone know?

That said, the report goes on to recommend that the contract be re-examined and fixed by February 2010 (at no extra cost to Texas taxpayers, of course) if things are not to become even worse.

A related article in Dallas Morning Star says that so far, the state has saved only $9.7 million through the contact over its first 23 months; the contract is intended to save the state $178 million by 2014.

In addition, the paper notes that in September, Texas Secretary of State Hope Andrade pulled "the state elections system out of the contract, weeks after a 13-day hardware outage denied the public access to records in her business-filings office." The Secretary of State's office felt that Texas's ability to conduct fair and credible elections was at risk if it did not.

The Star quotes Tony Befi, IBM's senior state executive for Texas, as saying that IBM "remains committed" to making the outsourcing contract successful.

Good luck.

Also, IBM announced last week "the opening of the sixth in a network of analytics solution centers - this one dedicated to helping federal agencies and other public sector organizations extract actionable insights from their data."

IBM said that, "The center's staff will work with federal agencies and other clients to apply breakthrough streaming technologies, mathematical algorithms, and modeling. Using these tools, IBM will help clients optimize individual business decisions, processes and even entire business models, as well as manage risk and fraud and, ultimately, improve the delivery of public services."

Sounds like to me that maybe they need to apply the staff's knowledge to figuring out how to make their federal as well as state IT outsourcing contracts work first.

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