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San Diego County's 20-Year Outsourcing Journey

Company Overview

The County of San Diego, California, is one of the most award-winning and innovative government agencies in the United States. Its Board of Supervisors runs it like a business and emphasizes accountability, efficiency, and customer service. The County's annual revenues are around $4 billion per year, and it is home to 3.3 million residents. The County of San Diego's mission is to be a national municipal leader and a strategic business partner for innovative technology solutions. To achieve this, San Diego County's vision is to provide high-quality technology and wireless services while driving strategic innovation through collaboration and partnership with city and regional stakeholders. The County Technology Office is responsible for the oversight of the County's IT, including strategic planning, contract oversight, and execution and operational support for over 18,000 County employees at more than 200 sites.

The Problem

Twenty years ago, San Diego County had an outdated IT infrastructure that needed a $100 million investment to update it. Systems weren't integrated; 50+ departments each had their own IT staff, and communication throughout its 300 County offices was poor.

The Solution

Instead of investing heavily in outdated IT infrastructure, San Diego County decided to outsource its entire IT functionhardware, software, networks, data centers, help deskeverything! It wanted a productive outsourcing arrangement that offered a state-of-the-art IT infrastructure, an IT governance structure that fits the County's needs, and strong interoffice communications. In 2020, San Diego County has achieved its goal and is a model for how to outsource government IT operations. But it wasn't easy getting there.

Outsourcing Contract #1

In October 1999, the San Diego County Board of Supervisors decided to outsource a radical upgrading of the County's IT function. On December 13, 1999, Tom Boardman, Chief Technology Officer for San Diego County, signed a $644 million, seven-year IT outsourcing contract with Pennant Alliance, a four-vendor team led by Computer Sciences Corporation (CSC). At the time it was the biggest, broadest outsourcing deal ever initiated by a regional government. Under the terms of the outsourcing contract, all County IT employees, hardware, and processes were moved to the consortium. The entire IT function was centralized under a new County Technology Office (CTO) by replacing every component of the County's IT infrastructure and developing an aggressive enterprise resource planning (ERP) rollout plan to provide San Diego County's citizens with better access to its services.

Unfortunately, the first year of the contract didn't go smoothly largely due to the San Diego County's extremely high expectations. For example, the contract set the unrealistic requirement that Pennant correct 90% of reported application software problems within two hours and 99% within six hours. County employees cited one problem of waiting for weeks to receive reports and being billed several hundred dollars. Before outsourcing, the employee was accustomed to receiving a similar report in a maximum of three days and at no cost. Paperwork and administrative red tape also rose dramatically. One manager claimed that since outsourcing began, "We've had more system failures in the last three months than in the last three years."

At the end of two years, the outsourcing situation was an even bigger mess. The two principals who signed the deal had left, Michael Moore was the new San Diego County CIO, and the new day-to-day managers were embroiled in a bitter behind-the-scenes dispute over costs, service levels, and a late rollout of the promised ERP. By this time, Pennant had already exceeded its project investment by $10 million due to penalties and unforeseen upgrades to the County's creaky IT infrastructure and had added 300 extra people to hand hold County agency employees through the early days of the transition.

By the end of the contract, things were getting on a much more even keel. Seventeen separate help desks had been combined into one; five e-mail systems were integrated into a single system, and 800 or more servers distributed over 300 sites reduced to 520 housed in a single data center. Security had also been improved with the deployment of a common operating system for 12,000 County PCs that were refreshed every 36 months. The IT silos had disappeared, and in its place an integrated IT function.

Moore and his IT staff could now concentrate on strategic IT planning. Dramatic rewards were being realized from the new integrated IT infrastructure. Reliability was up and outages were down, and more effective security was designed in, rather than bolted on.

Outsourcing Contract #2

In January 2006, under its new CIO, Harold Tuck, San Diego County parted company with Pennant Alliance when it signed a seven-year $667 million outsourcing contract with Northrop Grumman Information Technology (NGIT). Learning from previous mistakes, the new contract specified fewer service-level agreements and divided IT problems into two categories: priority one and priority two to enable faster response time requirements for higher-priority problems and more realistic response times for lesser-priority ones. The second contract recognized the diversity in the county's user base. Rather than a one-size-fits-all approach to an employee's "desktop package" a choice of resources was offered to ensure departments got the essential resources they used and didn't get ones they would never use. It also addressed disaster recovery and business continuity needs. Several years into contract things were going well primarily due to a significant increase in frequency and quality of communications between the parties and the more reasonable terms of the contract, so it came as a surprise when NGIT walked away from it and transferred ownership to HP Enterprise Services (HPE), who was a major subcontractor in the existing contract.

Outsourcing Contracts #3, #4, and #5

On May 1, 2011, HPE assumed its duties as sole contractor and the County entered into its third outsourcing contract. On November 15, 2016, current San Diego County CIO, Mikel Haas, entered into a second contract with HPE, now known as Perspecta. One of HPE's goals was to establish a long-term relationship with its client while delivering superior IT services. A third outsourcing contract was signed with Perspecta on July 16, 2019. Currently, Perspecta provides 300 people to support the county's IT and telecommunications services through a help desk, desktops, applications, network, and one local and two remote data centers.

Lessons Learned

San Diego County's outsourcing struggles and ultimate success offer some useful insights into what can go right and what can go wrong in an IT outsourcing relationship. One of San Diego's major problems was the overly ambitious scope of its first outsourcing contract with Pennant and its failure to consider the different needs of its diverse departments and agencies. By applying lessons learned from one contract to the next, San Diego County's 20-year outsourcing experience effectively moved its IT functions from chaos to stabilization and ultimately transformed it into its current steady state. It also resulted in development of a beneficial and trustworthy long-term relationship between the County and Perspecta that has enabled the County to concentrate on its core competency of serving its 3.5 million residents and successfully fulfill its mission to be a national municipal leader and strategic business partner for innovative technology solutions.

Question

What two differences contributed to the success of the contract with NGIT?