Northrop And Virginia Might Have Bitten Off More IT Support Than They Could Chew
One of former Virginia Governor Mark Warner's biggest decisions during his tenure was to outsource the entire state government's IT program to Northrop Grumman. Warner is now a Senator and the state government and the contractor are struggling with implementing the deal over five years later.
The contract was not true outsourcing as it basically transferred the state employees to the contractor and required that they stay within the state. One could imagine that if the goal was to save a great deal of money they would allow the contract to completely transfer the jobs to another area that might provide wage and cost savings as is so often done with technical support.
Due to the issues with implementing the contract and the concept the State Legislature has been reviewing it. As part of this the Joint Legislative Audit and Review Commission conducted a review of how the contract was being implemented. Much of this angst is being driven by the fact that the savings and performance promised by the move to contractor versus traditional in-house support are not materializing.
One of the report's main conclusions is that Northrop Grumman and the State underestimated the complexity of what they were doing not least because nobody had tried something on this scale. The Commission states that possibly Northrop was not experienced enough to necessarily carry out the task. In the actual source selection that chose Northrop over IBM experience was a very small part of the weighting and Northrop won on price and their promise of more economic development. One of the goals of the contract was to increase investment in the poor South West of the state.
The Commission concludes that there have been some benefits to the contract through standardization of services, networks and email across the government. IT equipment has also been replaced with newer machines that has also helped. Unfortunately the contract implementation has been delayed due to some of the struggles that Northrop has had getting started.
These delays have contributed to the idea that the contract overall has been a bad thing with worse service provided at a higher cost. The contract is a ten year one worth about $2 billion and IT spending by the State has been increasing every year especially in the Executive branch. The initial contract called for Northrop to complete the transformation of the State offices by July, 2009. They are behind and have submitted a correction plan to complete by June of next year. Part of this delay was caused by the State IT officials underestimating along with Northrop how hard it would be to schedule and manage this transformation of hardware and links between sites.
Another issue facing the State in this time of economic downturn is that the termination costs associated with the contract are large. As time passes they will get less but if the contract was canceled now for convenience the State would owe Northrop over $300 million which is money not currently available to Virginia. If the contract was canceled for non-performance then there would have to be a court case with some costs and the chance that the State would still have to pay termination costs. Finally there would be a cost associated with replacing all of the workers and hardware provided by Northrop. The majority of State IT workers moved over to the contract as intended so they would have to be hired back, new ones found or another contractor hired.
The Virginia-Northrop Grumman contract illustrates many of the issues involved not with just transferring services to a contractor from Government but in any project trying to transform a complicated IT network such as that Virginia uses. Over time not only was there a variety of systems but also applications being used and Northrop had to somehow integrate all of these and make them work on the new system. This is a difficult process and it seems that both the company and State underestimated the time and cost that this would take.
The State Government must decide whether to push on with the contract and continue to work with Northrop to get it right or end it. The costs of ending it may be high and cause further set backs. This kind of thing has happened with many other Government IT projects carried out by both civil servants and contractors.