Been there, done that

Compared to the agencies taking cautious steps toward outsourcing some of their software to application service providers, the Federal Energy Regulatory Commission is a seasoned veteran of this increasingly popular management strategy for information technology.

For the past two years, FERC has paid an outside service provider to manage several of its accounting applications and is now in the midst of a second-phase project to migrate the software from the original service provider to a different one. In doing so, FERC is proving that you can retain full control over your IT operations even as you hand over parts of it to someone else to run.

FERC, with the help of the prime contractor on the project, Accenture, is moving its human resources and payroll applications from the Department of Veterans Affairs' data center in Austin, Texas, to a hosting facility in Annapolis, Md., operated by US-internetworking Inc. (USi), a commercial application service provider.

FERC is moving the software because the VA said it would be phasing out those specific hosting services.

The commission's main financial application has been hosted at USi since last year. The human resources and payroll applications — which, along with the financial applications, are part of the enterprise resource planning software suite from PeopleSoft Inc. — should be relocated to the USi facility by October.

The commission started down the path of application outsourcing in 1996 when its third-party payroll processor announced that it was discontinuing its service. Instead of just finding a replacement, FERC hired Accenture, which was then Andersen Consulting, to help modernize all of the accounting and payroll systems and, if possible, to outsource them to an outside service provider.

At the time, the commercial ASP model, as now practiced by companies like USi, was just getting off the ground. USi, in fact, only opened its doors in 1998. However, application outsourcing services were available from other government agencies. The Agriculture Department offered software application services to other agencies through its National Finance Center in New Orleans. And the VA was creating its own service out of Austin called the Financial Services Center.

FERC eventually selected the VA's service, becoming one of the department's first customers. But no matter what provider FERC selected, it still had to resolve one issue that many agencies face when outsourcing software — finding an acceptable level of software customization.

Typically, the ASP model works most efficiently when customers use a more generic version of the software because application modifications drive up the provider's support costs. That concept is quite familiar to government agencies that until recently have been reliant on highly customized IT solutions and have paid a steep price for that indulgence. But FERC was ready to make the break.

"We prefer to change our business process in lieu of customizing the software," said Janet Dubbert, FERC's director of management, administrative and payroll support, and Thomas Herlihy, the commission's executive director and chief financial officer, in a written response to questions for this story. "Maintenance of customizations is costly; therefore, we prefer to work with the federal community at large, reaching consensus on appropriate changes for government and then entering into a product strategy dialogue with the software vendor. The key is to select a product where the vendor is willing to entertain recommendations for change."

Even though he thinks it's generally "preferable" to limit the number of customizations to off-the-shelf software, Todd Singleton, an associate partner with Accenture's federal government sector practice, said the notion that ASPs are reluctant to make changes is overplayed. "Agencies do have unique business needs, and service providers need to accommodate that," he said.

FERC is now in the first year of a series of five, one-year renewable task orders with USi and Accenture. But FERC has plenty of leverage to make sure that the contractors deliver as promised. The commission can terminate the contract for sufficient cause anytime during the five-year run, according to Singleton. The parties also have a service-level agreement that sets out penalties if the contractors fail to meet FERC's expectations on issues such as application performance and availability.

Although FERC officials declined to be more specific, they said the commission pays a fixed price for the application management and hosting services and that the cost is "comparable in dollars" estimated for a federal staff to do the same work. The key selling point for FERC is the turnkey nature of the service package.

"The Accenture/USi ASP model provides for knowledgeable application managers and analysts as well as database administrators versed in the specific software application," wrote Dubbert and Herlihy. "This allows for a seamless integration of application support, operational services, infrastructure management and hosting expertise."

FERC currently accesses the software at USi via a private, frame relay-based network. Down the road, the commission could also supplement the frame relay line with a less expensive, secure Internet connection, reducing the overall networking cost.

In this scenario, "the infrastructure will be connected via a private line back to the corporate departments that need to do more sensitive financial management and have a browser-based, Internet interface for other general employees to do actions like enter time and expense reports," said Nick Magliato, senior vice president of global services at USi.

Accenture's Singleton thinks more agencies will look to the ASP model as a way to focus on their core missions and relieve IT staffing pressures. Government "can stay current with technology and continue to gain with the best practices built into these types of delivery models," he said. "They also make it easier to budget and plan."

A package deal

The following are some of the key infrastructure management services provided to the Federal Energy Regulatory Commission by its application service provider. The ASP's specific responsibilities on each of these points is spelled out in the service-level agreement.

Telecommunications. Hardware and software management. Production software. Database server. Application server security. Facility. Disaster recovery.