Give and Take

n 1972, a young Philip J. Kiviat went to work for the Air Force in Washington as a civilian automated data processing specialist. He and his colleagues designed and built computer systems specifically for federal applications. "All there was were mainframes"-the large, lumbering computers that are regarded as dinosaurs today-and "the government had most of the programmers," says Kiviat, now a consultant with a long track record in federal information technology. "A lot of people don't remember that the government was the pioneer" in computing, he says.

In those days, the government was where the action was for anyone interested in information systems. Not only did federal agencies-principally the Defense Department-buy the latest and best equipment, but also they influenced the course of its development by specifying how it should be built and by writing advanced computer programs. That naturally attracted some of the best and the brightest engineers and computer scientists.

This scenario seems unimaginable today. For some years now, the government's ability to operate and manage its vast stable of computers and networks has been in doubt. Agencies are criticized for being slow to buy current technology and too insistent on buying the cheapest gear. They hang onto their mainframes and their equally ancient software. Federal employees are said to lack up-to-date technical skills and the management savvy needed to keep agency systems in good shape. Of course, some federal IT employees excel, observers agree, but too few. Even smart, proficient employees have difficulty navigating the swamp of laws and rules that complicate every agency action. The rule-bound, out-of-date IT environment makes it difficult to attract bright new employees.

At least, that's the prevailing view. It is cited to justify the use of contractors for all kinds of IT work, whether maintaining desktop systems or building the latest governmentwide Web portal. But is it true?

As with most bits of conventional wisdom, there is some truth to the prevailing view. Recruiting new IT employees has been tough for many federal agencies, and the number of rules and laws governing federal operations continues to increase. But that doesn't mean that the ranks of IT specialists in government are dwindling. In fact, during fiscal 2002, agencies added 1,500 employees to the ranks of federal IT specialists, according to the Office of Personnel Management.

"If you go to any Department of the Navy command and go to their HR shop, you're likely to find announcements for IT personnel on the board. We're looking for IT people," says Navy Capt. Chris Christopher, staff director for the enormous Navy-Marine Corps Intranet (NMCI) program. At the same time, the Navy is spending nearly $10 billion during this decade to turn over a major portion of its IT work to contractors through NMCI.

What's going on here? Federal agencies, prodded by the White House, are using both in-house and contractor personnel to rev up their electronic government programs. IT continues to increase as a percentage of federal spending, according to Federal Sources Inc., a market research firm in McLean, Va. But undertaking new initiatives and improving existing systems during a time of budget constraints is a tricky business. To do it, agencies are in effect reviewing their IT activities and placing them into one of several categories:

• Managing the development of unique new systems that help the agency carry out its mission or achieve its goals.
• Operating existing mission-critical systems and developing new systems.
• Maintaining and expanding the IT infrastructure, including desktop computers, local and wide-area networks, telephone systems and Web sites.

Mark Forman, the Bush administration's senior IT official, puts it this way: "Government's not in the business of developing applications. We want to use commercial solutions to the maximum extent we can." Forman, the e-government and IT administrator at the Office of Management and Budget, says there is a tremendous need for people who can turn a concept into a plan for a new system, manage contractors and keep IT projects on track, as well as decide how best to consolidate and modernize the government's thousands of existing systems and get them to work together better.

WORLD'S BIGGEST OUTSOURCING

Consolidation and upgrades are the objective of the Navy-Marine Corps Intranet program, the world's largest outsourcing effort. It's replacing a hodgepodge of desktop systems and more than 1,000 networks with a single Web-enabled pipeline to connect Navy facilities worldwide. Besides streamlining data communications, it will be more secure than the networks it replaces, and it will ensure that everyone is using the same software for basic functions such as e-mail.

The Navy adopted an outsourcing strategy that includes long-term maintenance and support instead of simply having new networks installed. It is buying a service rather than just a set of hardware and software. That means the Navy won't need to have its own employees perform maintenance functions. "What we want to do," Christopher says, "is take those people who were doing those tasks, which are sort of commodity tasks in our view now, and move them over to working on developing software for weapons systems, developing things that are core competencies of the Department of the Navy."

The Navy does not know how many jobs will ultimately be eliminated under the outsourcing effort, Christopher says. The NMCI contract, awarded to Electronic Data Systems Corp. in 2000, called for EDS to hire any displaced Navy employees who wanted to work for the contractor. EDS has hired 159 former Navy employees, Christopher says, but no one knows how many other Navy employees who used to provide help desk services, maintain networks and so forth have moved to other jobs in the Navy or elsewhere in the government. Some no doubt retired, but the Navy doesn't know how many.

Most of the displaced employees already were working for contractors, Christopher says, explaining that even before NMCI's launch, "a minority of the Navy's IT stuff was actually being done by federal employees." The lack of an exact count of Navy employees who were handling desktop and network support is a symptom of a problem that NMCI is designed to cure. The program is allowing the Navy to find out what it really is spending on IT. "Before, the network and the IT support was being done by each base, post or command locally and we really didn't have visibility from the Department of the Navy level down to what we were spending everywhere," Christopher says. "What we're gaining with NMCI is we're saying, OK, everybody's got to get their support from the NMCI contract, and as we start to transition, now we're understanding what was being spent where."

Although NMCI is huge in scope, it is not fundamentally different from recent IT outsourcing programs undertaken by agencies such as NASA and the General Services Administration. The Transportation Security Administration is taking a similar approach with its $1 billion effort to create an IT infrastructure. Under the program, a contractor team headed by Unisys Corp. is providing a broad spectrum of technology and telecommunications services for TSA. The contract is structured so that services are provided as needed on a task-order basis.

WHEN IS IT OUTSOURCING?

The classic definition of outsourcing is taking work done by an organization's employees away from them and turning it over to contractors. But in the case of TSA, no work was taken away from employees because the agency was brand new. As for NMCI, little of the work apparently was being done by Navy employees, although employees were responsible for making sure it got done.

Even before the current push to outsource, contractors were doing at least three-quarters of the federal government's IT work, according to the market research firm INPUT in Chantilly, Va. But in most cases, the relationship between the federal agency and the contractor technically is not an outsourcing relationship because most projects involve developing a new system or other IT work that was not being done by federal employees.

The government has contracted out much of its IT development work for many years. For example, when the Internal Revenue Service wanted to begin using imaging technology to process certain tax returns filed on paper, it awarded a contract to Northrop Grumman Corp. for development of the Service Center Recognition Image Processing System in 1993. Under subsequent contracts, the company has maintained and upgraded the system for the IRS.

That's a common scenario throughout both the military and civilian sides of the federal government. The only remarkable thing about it is the quantity of contracts for what INPUT labels commercial services. They account for 39 percent of the $45.4 billion that INPUT researchers say the government will spend on IT products and services this fiscal year. What's more, commercial services spending is growing faster than the other two major categories-computer systems (primarily hardware and software acquisitions) and telecommunications.

Within commercial services, outsourcing is the fastest growing category, predicts Payton Smith, manager of federal market analysis at INPUT. "The government has a certain level of IT requirements that are increasing," Smith says. "At the same time, the government does not have enough people" to accomplish its IT objectives.

Rather than pushing pure outsourcing, the Bush administration has embraced "competitive sourcing," under which federal employees compete against private firms for the right to perform a service. But there have been relatively few competitions under OMB Circular A-76 in federal IT offices and operations. Most of them have been at the Defense Department. For example, in 2002, TDF Corp. of Naperville, Ill., competed against the IT employees at the Army's Rock Island Arsenal and won a $33 million contract to do their work for five years, displacing 86 employees. TDF is a woman- and Hispanic-owned small business.

THE NEXT WAVE

In one major outsourcing effort, the Army's Logistics Modernization program, the Army got a waiver from using A-76 and barred hundreds of employees at facilities in Chambersburg, Pa., and St. Louis from competing for their jobs. The Army wanted a massive overhaul of its logistics systems, with commercial-style software and real-time information for managing its supply chain.

In 2000, the $680 million "Log Mod" contract was awarded to Computer Sciences Corp., a major systems integrator, after Army officials determined that the employees lacked the skills needed and that realistically not all of them could be retrained. Under the contract, CSC began operating the Army's outmoded systems while building new ones. As part of the deal, CSC hired more than 200 Army employees when they were laid off as the contractor began work.

The employees' battle to hold onto their jobs and the Army's firmness in the face of political pressure might have obscured the most important aspect of the Log Mod program. The Army chose to turn over its entire logistics support function-not just the computer and communications operations-to a contractor. CSC is providing logistics services rather than information systems.

Logistics is a mission-critical function for the Army. Its importance was illustrated this year when the U.S. drive to Baghdad in the invasion of Iraq had to pause briefly to wait for supplies to catch up with the soldiers. Meals, motor fuel and other essentials lagged behind the vanguard of American forces.

Outsourcing the logistics support activity was a revolutionary move, one born of desperation after it became clear that the Army's old logistics systems were unreliable and far too slow. But other agencies are beginning to do likewise with other functions. In fact, the Log Mod program embodies a hot trend in IT contracting: business process outsourcing. Under this approach, a contractor takes over an entire function, not just its underlying IT systems.

For example, after an A-76 competition, ACS Government Services of Rockville, Md., won a Defense Finance and Accounting Service contract to handle payments to the Defense Department's 2.5 million retirees and annuitants. ACS (a subsidiary of Affiliated Computer Services Inc. of Dallas) not only does the automated processing of monthly checks but also handles paperwork, mail room and customer service work that used to be done by 535 DFAS employees.

State and local governments appear to be ahead of federal agencies when it comes to this form of outsourcing. They have awarded contracts to run child support programs, parking enforcement, benefits disbursement and many other functions once thought to be inherently governmental. But many observers expect federal agencies to do more business process outsourcing. Thomas Burlin, who heads the federal practice for IBM Business Consulting Services, calls it "the new frontier" for companies seeking federal business. "What has really changed today in this market is . . . that line where the traditional IT services and best practices are blended with the mission," Burlin says.

IBM has labeled the new environment the "on-demand" market, because it calls for more flexible and scalable service providers-ones that can provide services to troops in Iraq as well as at a U.S. base, or help an agency reorganize on short notice. "That space is more fluid and volatile than traditional IT outsourcing," Burlin says. "Companies that respond to that need will be the most successful, and the organizations within government which recognize that need and design their business processes around that need will be the most successful organizations."

OMB's Forman agrees that it's not just about IT anymore. "It's e-business. It's the mesh between IT and a streamlined, more effective way of getting business done," he says. And it's winning new respect for IT in business and government. "For many years, IT [departments have] had trouble explaining their relevance to the folks who are actually running the line of business," he says. "But as we went through the last few years of a more collaborative business model, there's been much more alignment between IT and the lines of business, and IT has moved from a cost of operation to an enabler."

Asked whether it is getting more difficult to distinguish between IT and other kinds of outsourcing, Forman applauds the increasingly blurred line as a means of getting the best value for the taxpayer. In addition, he notes that OMB is requiring agencies "to look at different, more innovative, more productive business models" before settling on an IT project and seeking funds for it.

More often than not, he says, agencies choose a traditional approach. "It will be interesting to see how the new A-76 affects those decisions," Forman adds. "Over the last year and a half we have seen an increase in the types of outsourcing solutions that we've been talking about, the nontraditional outsourcing. But the norm has continued to be, look at that, do the analysis, and then the decision is to keep it in house and hire a contractor to help build and run it."

He says OMB will keep pushing agencies to evaluate the alternatives through a business case analysis and choose the approach that offers the best value to the government.

HELP WANTED

Forman is certain, however, that strong business cases and shedding operations that are not "core competencies" of agencies are not the complete solution to the government's IT problems. "The big gap we see is the ability to effectively manage projects to cost, schedule and performance objectives," he says. Although agencies might be quite capable of figuring out how to apply IT to solve a problem, Forman says they have deficiencies in areas that are not just technological-"things like enterprise architecture, solutions architects, capital planning and IT strategy, and especially project management."

"We have literally thousands of IT projects, and most of those are now modernization or management of more than just IT," Forman says. They involve changing the way agencies do their jobs, reengineering processes and restructuring organizations. "We feel we need that capacity within government," he adds. "You can't really hire somebody outside to change you. You can hire an IT project manager to manage the IT components, but the overall project manager has to be a government person."

The shortage of experienced project managers and enterprise architects is so severe that Forman says it might be necessary to hire such people from outside government. OMB was working this spring to determine how many otherwise viable IT projects across government lacked qualified managers and whether existing training programs can turn out enough managers fast enough.

Executives of Robbins-Gioia LLC, a project management consulting firm in Alexandria, Va., question whether a training program really can equip federal managers to manage the government's most complex and expensive programs. Program management is a series of disciplines, says the company's CEO, Jim Leto, a federal IT veteran. He suggests that agencies consider outsourcing program management support in a separate contract from the main outsourcing program. Sometimes, the outsourcing contractor is hired to provide program management support services as well, but under that model, some problems might not be reported to the agency, Leto says.

As the idea of outsourcing the outsourcing oversight shows, there's no end to what is proposed for contracting out these days. Earlier this year, the governmentwide CIO Council's committee on workforce issues reviewed the status of federal IT recruitment, training and retention. The report was written by consultants.

Some agencies even are outsourcing development of their enterprise architectures, the frameworks that spell out the linkages among their business operations and their various IT programs. That's not a good idea, says John A. Weiler, co-founder and executive director of the Interoperability Clearinghouse, a nonprofit consortium in Alexandria, Va., that assists agencies with architecture, program design and related IT issues. "If you don't have control of the architecture, it can become a bottomless money pit," Weiler says. At the very least, he says, hire another contractor to keep a management eye on the architecture effort.

Excessive outsourcing can be a problem, as some agencies found in the 1980s when they lost control over certain IT activities. And it's generally agreed that IT outsourcing is a one-way street. Once an agency turns work over to the private sector, getting the equipment, facilities and personnel slots back into its budget is out of the question.

For now, though, it seems that agencies are adding nearly as many IT jobs as they are outsourcing, while trying to make the transition from IT performer to IT manager. The Navy's Capt. Christopher explains it this way: "We're trying to put ourselves sort of in the same position that Wal-Mart has gotten in, where IT has been fundamental to its being the dominant retailer on the planet. . . . They have leveraged their IT investment in order to achieve that competitive advantage. Well, from a military perspective, we're wanting to do all those same things." And, Christopher adds, if you look at what the U.S. military accomplished in Iraq, you can see that it's working.

After three decades in federal IT, Phil Kiviat isn't so sure. "We really don't know how to specify what we really want," he says. Agencies find it difficult to set performance goals, and they are not comfortable with uncertainty. Outsourcing, he says is "an attempt to solve a problem that nobody has really come to grips with"-the overlapping and conflicting rules and laws that keep government managers from getting on with what needs to be done. "The government wants to behave like the private sector, but they can't," he ruefully concludes.