This article is reprinted with permission from the PTI Prism; it was written by Michael Humphrey, Director of Telecommunications and Information at Public Technology, Inc. (humphrey@pti.nw.dc.us).
As technology becomes more complex and local governments look for ways to deliver services more cost-effectively and efficiently, many are turning to outsourcing to plan for, purchase, and maintain their information technology (IT) functions. Proponents of outsourcing—contracting with a private organization to provide public services—tout the model as a way to fully achieve technology’s potential, control its rising costs, and achieve greater efficiencies. Outsourcing may offer flexibility and access to new skills and technologies.
Outsourcing may not be the best avenue for all local governments, however. The process of hiring a contractor can be time-consuming and expensive. Identifying IT tasks to include in requests for proposals requires gathering extensive documentation, such as a description of the programs run, an inventory of equipment, batch page counts, on-line transactions, customer application descriptions, and more. Nor does outsourcing alleviate the necessity for local governments to make technology-related decisions. Even when all technology functions are outsourced, a local government must develop and communicate a vision for how technology is to be used, and it must continue to monitor outsourced functions to ensure that they are aligned with this vision.
Contractors and local governments bring different perspectives to technology management. By necessity, contractors focus on "the bottom line." For this reason, ultimate control should remain with the government to ensure that the goals and strategies of the contractor are aligned with the internal goals, strategies, and needs of the government.
While it may not work for all, it appears that outsourcing is here to stay. In a recent telephone survey of more than 200 state and local officials, 66 percent of respondents indicated they are outsourcing all or part of their information technology today, and 58 percent believed the trend toward outsourcing will gain momentum over the next few years.
Crafting a Contract
Local governments may outsource any or all of their IT functions; the greatest cost savings typically are achieved when the entire IT function is outsourced, because a contractor gains a comprehensive view of all IT needs and expenses. This option also gives a contractor greater flexibility to move personnel to meet new demands or changing needs.
Firms that specialize in IT generally have a limited number of qualified personnel on staff at any time; in many cases, employees needed for a particular job are hired after a contract is awarded. A local government’s request for proposals can specify required staffing levels and organizational experience; the contract also can stipulate the experience and training required for key positions, based on what would be needed were the IT function kept in-house. It is important to specify those positions that cannot be filled by the contractor without local government approval.
The outsourcing contract must address the process for making revisions or alterations to accommodate changing circumstances. Make a basic contract flexible: It will be time-consuming to make contract changes each time an IT contractor develops new systems and implements new technologies.
A good contract specifies equipment needed to perform outsourced functions and ownership of this equipment. Since contracts are for a fixed term, a local government must ask itself two questions: (1) Can it obtain the necessary equipment more cheaply? and (2) Who owns and controls the equipment when the contract ends? Most governments find it cheaper to retain ownership of IT equipment. Local governments usually can buy and maintain equipment more inexpensively than can private organizations. And because the life span of equipment often is longer than the term of a contract, a local government is able to extend its use. Contractors generally amortize the rent or lease of their equipment over the life of a contract (which may not be the same length of time as the life of the equipment itself) and may charge a processing fee as well. When a local government maintains ownership, a contractor may insist upon a termination clause or another loophole should the local government be unwilling or unable to upgrade systems or purchase new equipment.
The Contract Administrator
A good contract administrator is key to a local government’s success in outsourcing IT. Required skills for this job may be hard to find or develop; such a candidate not only should understand the demands of modern information technology, but must be politically sensitive as well.
Whether all, some, or none of the IT functions are outsourced, it is imperative that local governments have knowledgeable staff to guide technology-related decisions. While outsourcing spreads the burden of technical expertise and project management assistance to private-sector contractors, it is the local government that, throughout, must take charge of its own technology future.
Factors to Consider
The decision to outsource the IT function must be based upon local needs. Before outsourcing, your local government should: