Federal government eyes more IT outsourcing

The National Aeronautics and Space Administration (NASA) has outsourced about half of its desktop computers, totalling some 44,000 PCs and Macintosh systems. That's one of the federal government's larger IT outsourcing projects to date, but many more deals of its kind could be on the horizon.

If the Bush administration has its way, an increased amount of federal services may soon be outsourced. IT, which accounts for some US$44 billion in federal spending, is considered a prime candidate for outsourcing, particularly because of problems that government agencies have in hiring skilled technology workers and in keeping abreast of new technologies.

The potential for federal IT outsourcing "is massive," said Chip Mather, a principal at Acquisition Solutions Inc., a Chantilly, Va.-based consulting firm that's advising the U.S. Department of Housing and Urban Development on an outsourcing contract. "I think there is a big bull's-eye on [government] IT," he said.

Last month, the White House Office of Management and Budget (OMB) issued a memo setting out specific outsourcing goals for government agencies as a whole. The memo directed agencies to complete head-to-head with private-sector companies this year for at least 5 percent of the eligible jobs they'll have next year, with the OMB saying it eventually wants the amount of jobs being considered for outsourcing to increase to 50 percent.

The directive means agencies will have to show they can provide services at costs that are competitive with those of outside companies in order to avoid having particular jobs outsourced. The OMB's outsourcing goals cover a broad range of federal jobs, but IT departments are expected to get a lot of attention.

One big factor is the aging of the government's IT workforce: a mid-1999 study (download pdf) released by the federal CIO Council predicted that roughly half of the 70,000 IT workers on the U.S. payroll will become eligible for retirement in the next five years. Moreover, many agencies say they're having problems recruiting new workers because they can't offer competitive salaries.

As a result, the use of IT contractors by federal agencies has been on the rise, according to end users and analysts. "I couldn't hire a person to save my life through the federal process, so reliance on contractors became more and more important," said Scott Ducar, a technical director attached to the deputy CIO's office for the secretary of defense.

But, Ducar said, the use of contractors to address specific IT issues also can raise difficulties, such as finger-pointing when technical problems arise. "You don't necessarily get the team play you want," he said. Now, Ducar is involved in a pilot program to outsource the management of about 1,000 desktop PCs and, eventually, some servers and networks.

Mark Hagerty, a program manager at NASA, said he has started receiving inquiries about the space agency's outsourcing program from other parts of the government since the OMB's directive was issued. "It's already generated some impact," he said.

NASA itself would like to turn even more of its desktop systems over to outsourcing vendors, Hagerty said. But to accomplish that, he added, the agency first has to overcome a "culture curve" of resistance from end users. "Those are the ones [whose reactions] range from 'it's a bad idea' to 'over my dead body,' " Hagerty said.

Analysts said the Bush administration faces other obstacles to its outsourcing push, especially a workplace culture where government positions are seen as jobs for life. "There are certainly a lot of political questions that have to be worked through for this to work," said Kevin Plexico, a vice president at Input, a market research firm in Chantilly, Va.

While the federal government has seen some big technology outsourcing projects in the past, many of them haven't involved the displacement of federal IT workers. NASA's project, as well as one to outsource desktop PC operations at the Bureau of Alcohol, Tobacco and Firearms, didn't include any layoffs or other job reductions.

But despite the potential roadblocks, the administration "is at least putting some kind of stake into the sand" on the outsourcing issue, said Ray Bjorklund, a vice president at consulting firm Federal Sources Inc. in McLean, Va. And the OMB's directive shows that White House officials are "getting ready to take a stronger position later on," he added.

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