State and local officials look to outsourcing

Retiring workforce driving new push to contract out services

State and local government officials may soon have to consider outsourcing some or all of their information technology functions because of a glut of high-tech employees who will be eligible for retirement in several years.

It’s the second time in recent years that experts have pointed to outsourcing as a viable way for governments to save money, stay current with technology trends and address workforce skill gaps.

When San Diego County officials outsourced their entire IT department to a private vendor six years ago, experts said it could be a turning point nationwide. But instead several high-profile deals fell apart, and the dot-com bust forced governments to scale back IT budgets and projects.

Michael Moore, San Diego County’s chief information officer, said the county’s seven-year, $644 million deal with Computer Sciences Corp. was successful, and they plan to go out for bid again May 11 because the current contract is ending.

This time around experts say officials will be forced to make decisions about outsourcing because a significant number of IT workers — many with the knowledge needed to maintain existing systems — could retire in three years, and governments are having a tough time recruiting younger workers in a competitive marketplace.

James Krouse, manager of state and local market analysis at market research firm Input, said he thought governments would see outsourcing as a good business decision, but driving the decision now is the retirement issue. “I don’t see it as a business decision in three years, but a necessity to maintain operations,” he said.

Moore said San Diego officials’ decision had to do with improving IT services, but he agreed that the aging workforce is probably a major reason for many governments now. He gets about five to 10 calls a week from other government officials considering outsourcing, and he thinks the shift to outsourcing is inevitable.

A handful of governments have outsourced some functions, but Krouse said few statistics exist. The benefits of outsourcing include maintaining a modern infrastructure, getting a long-term, predictable budget and better customer service. Some likely areas where governments might outsource functions include health care and welfare, help-desk services and call centers, data centers, and telecommunications, he said.

But there is also opposition to outsourcing, including resistance from employee unions. Michael Kerr, director of the Information Technology Association of America’s Enterprise Solutions Division, said about 200 bills were introduced in state legislatures last year that would prevent offshoring — or overseas outsourcing — in one way or another.

There are national security concerns regarding the handling of sensitive data, but he said there is also an element of political posturing. However, he said some states have legitimate concerns and are addressing significant job losses related to manufacturing.

Doug Robinson, executive director of the National Association of State CIOs, said indicators point to more outsourcing arrangements mainly due to the IT workforce issue, but he doesn’t characterize it as a trend. He said more supplemental employees and contractors will step in to help state governments.

A new way to do business

The state and local government outsourcing market will increase from $11.3 billion in fiscal 2005 to $17.7 billion in fiscal 2009, or a 12.4 percent compound annual growth rate, according to statistics from Input, a market research firm.

The market’s rebound can be traced to several factors, including the economy, the aging workforce, replacement of existing systems, and the politics of outsourcing vs. overseas outsourcing, or offshoring.

But James Krouse, Input’s manager of state and local market analysis, said only

2 percent to 3 percent of state and local information technology work goes overseas.

— Dibya Sarkar

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