Input: State, local outsourcing to grow

Economic pressure will compel state and local governments to pursue more outsourcing contracts in the coming years, a market research study suggests.

The report, which Input released this week, predicts that the state and local outsourcing market will climb to about $20 billion in 2011 from about $12 billion in 2006. The market will experience an increase in outsourcing starting in 2008, according to Input. The firm said programs such as Medicaid will squeeze state budgets and motivate outsourcing moves.

Input said outsourcing deals that call for capital investment and job creation in local communities provide an additional incentive. In a recent example, an IBM-led team has committed to create 1,000 new jobs in Indiana as part of a $1 billion outsourcing contract awarded last month.

Input said outsourcing awards in Virginia and San Diego in the past 15 months could pave the way for additional projects, if successful. Virginia awarded contracts to Northrop Grumman and CGI-AMS, which target information technology infrastructure and systems in the state’s executive branch. San Diego County, meanwhile, tapped Northrop Grumman to run its IT and telecommunications services.

Specific areas that will propel outsourcing growth include data center management, application management, desktop services and hosting, Input noted.

Business process outsourcing will not play as large a role as previously projected, according to Input. Business process outsourcing involves off-loading business functions, such as procurement or payroll, to a service provider.

“The vast majority of elected officials remain uncomfortable with the political risks of relinquishing control of government business processes to a contractor,” Input said.