EDITORIAL

Outsourcing comes home to roost

First came the flop with the benefits services provided by Accenture. Now state agencies express great dissatisfaction with IBM's handling of their computer services.

Friday, November 28, 2008

When it comes to huge contracts to outsource the state's computer work and claims that they will save taxpayers millions, the State of Texas — that is, Gov. Rick Perry and the Legislature — have failed to deliver. It looks like the state is on the verge of a second expensive flop.

The first flop became official in March 2007, when Albert Hawkins, the executive commissioner of the Health and Human Services Commission, announced that an $899 million contract with a major consulting firm, Accenture LLP, was being canceled by mutual agreement.

Accenture was hired after the Legislature in 2003 enacted a bill to modernize the state's systems for providing public benefits, such as Medicaid. It wasn't just a big upgrade in data processing technology; rather, much of the state operation would be "privatized" with — we were promised — big savings to the taxpayers. One way those savings would come would be by laying off hundreds of state employees who processed applications for state aid.

But the team led by Accenture couldn't pull it off to the state's satisfaction. Eligible applicants couldn't get their benefits paid because the state fell so badly behind in processing them. Finally, Hawkins and Accenture agreed to call it quits.

Now the state is considering whether to cancel another massive contract, this one for $863 million with IBM, aimed at outsourcing most of state government's computer operations, with more promises of big savings for taxpayers. The contract was signed after the Legislature in 2005 pushed for consolidation of computer services.

The idea was to centralize the computer operations of 27 state agencies into two major data centers, one in Austin and another in San Angelo, that would provide increased security as well as a backup for all data. IBM got the contract in 2006.

Unfortunately, something has gone wrong with it, too. Surveys of state agencies have found enormous dissatisfaction with IBM's service. The secretary of state's office, run by a Perry appointee, gave the IBM team a 0 on a scale of 1 to 5, and the Department of Transportation said that resolving computer problems that used to take a state employee less than an hour to fix were taking as long as a week.

Perry ordered a halt to IBM's work to review its performance. A decision could come by Thursday on whether to cancel the contract. IBM has acknowledged some problems but denies it has breached its contract.

One former state official says the state might share in the blame, for having expected too much too quickly from IBM, which had to contend with a wide variation of computer systems, aging technology and related problems at 27 state agencies. But then, no one forced IBM to make the bid or sign the contract.

Though we don't know the detailed solutions to these problems, one lesson is obvious: Hang tight to your wallet whenever an ideologue or a lobbyist starts claiming that the private sector can of course do any job more efficiently and at less cost than any state bureaucrat. It isn't true.