For All Its Problems, the State IT Contract Is Functioning Like It Should

Virginia state server farm in Chesterfield County. Photo credit: Richmond Times-Dispatch

Virginia state server farm in Chesterfield County. Photo credit: Richmond Times-Dispatch

by James A. Bacon

The relationship between the Virginia Information Technologies Agency and Northrup Grumman is getting nasty as the two bang heads over the alleged breaches of the $1.3 billion, 13-year contract to provide IT services to Virginia state government.

Del. John O’Bannon III, R-Henrico, called the relationship between the two “a whirlwind courtship, short honeymoon, rocky marriage, and now we’re heading to an ugly divorce,” reports Michael Martz with the Richmond Times-Dispatch.

Martz’s article details disputes regarding Northrup Grumman’s alleged lack of operational support for a messaging services contract assigned to a third party, licensing and maintenance support for the state’s IBM mainframe service, an increase in Microsoft licensing fees, and charges for unneeded capacity on a Unisys mainframe system. Northrup Grumman has its own beefs, claiming the state owes it $10 million. As the contract expires, the contractor has signaled its intention not to participate as prime contractor after the current expires next year.

Some might wonder if privatizing the state’s IT services, one of the major achievements of the Warner administration, was a bad idea. In actuality, the disputes simply show how incredibly complex it is managing a massive government IT operation that cobbles together legacy systems such as IBM and Unisys mainframe computers with state-of-the-art desktops and servers. Enforcing the contract makes visible issues that otherwise would have remained submerged and very possibly might have gone unaddressed.

Indeed, the system is now working as it should. The state is acting as overseer of the contract, holding Northrup Grumman accountable for living up to its terms and conditions. Under the old arrangement, there was no one to hold accountable. State IT operations were dispersed between fragmented IT fiefdoms. Responsibility was diffused; no one had effective charge. The system was antiquated, inefficient, subject to disruption and vulnerable to security breaches. The system operated by Northrup Grumman, while less than perfect, is vastly superior to what it replaced.

The big question now is what comes after the Northrup Grumman contract? Does the state look for a single vendor, or does it seek competitive bids for different chunks of state business? One huge change between 2017 and 2004 is the emergence of the Cloud. Instead of maintaining its own server farms in Chesterfield and Russell counties, the commonwealth could consider contracting out its data storage business to any one of half dozen highly competent providers — all of which have server farms here in the state. A counter-balancing consideration is the need to ensure inter-operability between different providers.

A concern I have is whether the state can afford to pay the salaries it takes to recruit the top talent to effectively manage oversight of the state’s IT architecture. The IT industry pays top salaries for the brightest minds and dangles rewards like bonuses and stock options. Who would want to work for the state, where salaries are uncompetitive and pay raises are contingent upon state budget conditions? When it comes to managing a $135 million-a-year contract (a sum that could jump to $200 million a year), a few hundred thousand dollars a year in senior executive salaries is chump change. But state law makes it impossible to hire the best people we can find.

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6 responses to “For All Its Problems, the State IT Contract Is Functioning Like It Should

  1. The problem with your conclusion is that it could apply to almost everything the State does — not just IT. Of course it is penny-wise, pound-foolish not to pay the highest salaries to attract the best talent to compete to work in and shake up every one of our State bureaucracies, given their influence on our daily lives. Ain’t gonna happen.

    • You’re absolutely right. Some state employees with skills that are readily transferable to the private sector should be paid more. We have a looming public employee crisis — something like 40% of all state employees are expected to retire in the next 5 years (maybe it’s 10 years). How are we going to replace them?

      We have to make a fundamental decision: Do we want top talent working in the state workforce or will we be satisfied to have pretty-good talent running the state?

      I know the idea of paying some state employees more money will only add to budget pressures — budget pressures that I continually harp on. I’m fully cognizant of the apparent contradiction. But I would argue that excellent leadership can save money in the long run.

  2. A skill sorely lacking at virtually every level of government is the ability to manage contracts. To borrow from Larry, this is a discipline that should be offered in our colleges and universities. We offer public administration courses, but nothing related to the nuts and bolts of managing a contractor’s performance.

  3. TMT- while your idea of contract management being taught in the Colleges and Universities, while laudable, has some problems. The number of MPAs/MBAs in the State and Federal is not all that high. And most of those folks are not doing contract administration. An alternative may be to have State Governments enter into agreements with OPM and DoD to allow their employees to get training at the Defense Acquisition University (located on Ft. Belvoir here in Northern VA) or the OPM equivalent. While the material presented revolve around the Federal Acquisition Regulation (the FAR) and the D-FAR, there is still a wealth of learning about managing software development and system maintenance contracts.

  4. They won’t pay people the money. They are already 22% behind outside salaries and they keep dumping the raises and bonuses, so they aren’t going to get the talent.

  5. As a point of reference, the Virginia state courts still use an old IBM 360 system, overlaid with a stab at a Windows shell, that was antiquated in 1975 when I first encountered it in the Chicago courts system.

    Reminds me of the management of the Jackson Hole ski area, where the owner bought a chair lift second hand from an ad in the Wall Street Journal. The lift was not long enough to go from the base to the top of the slope in question, so the owner moved the loading station 200 yards up the hill from the base, and everyone was made to walk up to catch the lift.

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