Service agreements smooth San Diego outsourcing effort

If there's one lesson that stands out in San Diego County's $644 million, seven-year outsourcing agreement with the Pennant Alliance, the consortium of IT vendors led by Computer Sciences Corp., it may well be a twist on the old adage, "Ask and ye shall receive" — "Know what you want before ye ask."

Defining a wide array of minimally acceptable levels of service that vendors must provide to meet the requirements of the contract helped shape the request for proposal for the groundbreaking agreement. The contract weds the county's IT and telecommunications infrastructure to CSC and fellow Pennant Alliance companies Science Applications International Corp. (SAIC), Pacific Bell and Lucent Technologies.

The government came up with 101 service levels — 44 of which are deemed critical and therefore result in a cost to the vendor if they are not met — before finalizing the RFP, said Tom Boardman, the county's chief technology officer and contract administrator for the agreement.

The county set specific performance levels for each product and service covered by the contract, including desktop PCs, software applications, help-desk services, networking, data center operations, telephones and pagers. In many cases, the levels of service varied depending on who would use the technology and when.

For instance, one condition defined in the RFP requires that a vendor restore or replace a faulty desktop PC within four hours for "Level 1" users, defined as elected officials, those in the office of the Board of Supervisors, the chief and deputy chief administrative officers, department directors and all mission-critical users. But the same problem for any other user mandates the solution be in place within 24 hours.

For the county, the concrete details spelled out in each pre-defined service level were vital for understanding its own needs and making sure that its goals were reasonably clear and fair for prospective vendors.

"The nature of IT puts you in the position of being able to measure things like quality of service in practical terms that a vendor can attain or fail to attain," Boardman said. "It's not like measuring whether or not you received friendly service."

In addition to clarifying a municipality's expectations and ensuring an IT vendor's performance, service level agreements can also help smooth the process of negotiating the final contract. In San Diego County's case, the performance goals gave both sides a clear understanding of the issues involved in the agreement and helped conclude the negotiations in just five weeks.

"It is really difficult to decide on service levels upfront because everyone wants to get the RFP out as quickly as possible," Boardman said. "But if you make them clear and write them into the RFP accurately, the vendor will know what you want and can tell you what it will cost."

Vendor Response

Although they serve a similar purpose in both the public and private sectors, service level agreements have the potential to transform state and local IT outsourcing in a way that's not likely to happen in the corporate world. With governments, vendors are more likely to accept such performance agreements — especially given the confines of public IT purchasing policies and the requirements of the RFP process.

"In our case, there wasn't a lot of pushback [from vendors] during the RFP process," Boardman said. "Vendors realize that county governments are heavily legislated in regard to contracting policy and that we can't relax the requirements of the RFP even if we'd like to."

Competition among the three vendors that responded to the RFP, issued Feb. 24, 1999, also helped speed the award process. In addition to CSC, teams from Electronic Data Systems Corp. and IBM Corp. responded to the original call. Any significant changes late in the process would have meant re- issuing the RFP, which in turn would have opened the process up to all three bidders again, Boardman said.

Given the nascent state of large-scale government IT outsourcing and the pressures of living up to the precedents set by the arrangement, both the county and the Pennant Alliance were eager to agree on the terms of the contract.

"It costs about $3 million for an organization of our size to put out an RFP of this magnitude, and the vendors see this as an opportunity to jump-start the brand-new market for state and local IT outsourcing, which is estimated [to grow to] $10 billion to $15 billion. So we all had a lot of incentive to make this work."

Despite the carefully laid plans and attention to detail, some surprises did crop up. First, the definition of acceptable levels of service revealed a number of startling weaknesses in the county's in-house IT infrastructure.

"None of us had any idea how fragile the IT organization was before the evaluation process began," Boardman said. Hundreds of 16-bit DOS applications had to be replaced because of their incompatibility with modern server software such as Microsoft Corp.'s NT — and that's just one example of how outdated the previous system had become. To compensate, the original schedule for upgrading hardware and software was shortened.

"We thought we were on an aggressive schedule when we planned to phase in the new equipment within three years," Boardman said. "But old junk doesn't work well with new technology. So we now have a huge team from CSC and the Pennant Alliance who are making the necessary replacements within 18 months instead of the originally planned three years."

Replacing the ad hoc system that had become the county's IT culture over the years has been a central element of the outsourcing project. In the past, key members of the in-house IT staff assumed responsibility for particular applications or equipment, holding the system together more by individual effort than by careful planning and design. With the new arrangement, the vendor (and by extension, its 226 employees) is responsible for how the technology runs and functions.

"In retrospect, we now know how important it is to put together the most aggressive replacement schedule that your organization can handle from a business change point of view," Boardman said.

The Future of Outsourcing

Though most county IT employees transferred to CSC and SAIC, the county retained several people to administer the contracts, one each in three technical disciplines: desktops and local-area networks; software applications, World Wide Web and security issues; and phones and wide-area networking. Each brings a technical perspective to monitoring decisions that are made on the county's behalf by the Pennant Alliance vendors.

"You need to have good people in those positions because you have to have a team that provides technical oversight as well as contractual oversight," Boardman said.

—Walsh is a freelance writer based in Peekskill, N.Y.