I enjoyed reading your article on IT outsourcing (CW May 22, p1). The blame for the government "blunders" you refer to really must be sheeted back to the outsourcing vendors who have led the government and industry generally down the path that outsourcing would save millions of dollars, along with giving numerous other promises. Although most vendors are professional and ethical, unfortunately vendor hype sometimes creeps in.
Research that we have carried out over the last 10 years of outsourcing has shown that very rarely does outsourcing save an organisation money, particularly when an entire IT department is outsourced. Our research, along with research by people such as Mary Lacity and Leslie Wilcocks, has also shown that many other vendor promises - such as improved quality of services, better access to the latest technology and scarce resources, etc - rarely materialise.
There are ways to make outsourcing succeed, however. It requires both a commitment and extensive planning by the organisation well before any potential outsourcing vendors walk through the door. It also requires the organisation to completely and concisely define exactly what they want to outsource, what they expect from their outsourcing partner, and what the organisation will bring to the party. Organisations which go into outsourcing without good pre-planning will find that, post-outsourcing, what they really intended to outsource will be "out of scope" and therefore subject to a variation of contract, which means it will cost more. In more than one case we are aware of this occurring in a government department where almost the entire IT budget is now being paid to the outsourcer with very little budget left to carry out the other essential IT activities that were not outsourced.
Our advice to organisations wanting to outsource is "hasten slowly" - if all that an organisation (or its senior management) wants to do is save money, then they should start with a blank sheet of paper. They should identify what IT & T services they need to deliver to the organisation to help it achieve its business objectives, and get rid of everything else.