The city of Falls Church, Virginia, has “a very demanding populace,” according to John Tuohy, the city’s CFO. On a per capita basis, it only trails Los Alamos, New Mexico, for the city whose citizens have the most advanced degrees. “They want everything done right now and done the right way at no cost,” he reports.
This means the highly educated citizens of Falls Church, 10,600 of them, want to use technology to make their lives easier? They want to pay their water bills by direct debit instead of sending a check or waiting in line.
The city’s real estate has $3 billion in assessed value. The median house price is $628,000. Citizens want to monitor their homes’ worth with a few keystrokes. Demands like these put pressure on the city’s small IT staff.
“Everything we do touches their lives in a way the corporate sector doesn’t,” explains Tuohy. In the corporate world, if a taxpayer has trouble with company A, it can do business with its competitor. “You have to move away if you don’t want to deal with local government. So we have to provide a higher level of service because people don’t have a choice,” the CFO explains.
The Challenges of Public Sector Recruiting
Unfortunately for the city, major IT employers like AOL are based in its backyard. (Falls Church is seven miles from the White House.) Tuohy says the high tech job market in the DC area is so competitive it’s “brutal.” He likens hiring and retaining good staff to “hand-to-hand combat.” In addition to the public sector’s lower salaries, the city has no stock options to offer. “We are disadvantaged,” says the CFO. The six-person department had three vacancies when it decided to outsource its IT in 2000.
“Governments can’t recruit,” says James Krouse, Director of Market Analysis for INPUT, a research firm specializing in the public sector. “The best pay and the cutting edge technologies are in the private sector. Governments have to outsource to maintain their operations. Today, outsourcing is a necessity, not a decision,” he explains.
The city of Falls Church put out an RFP “to outsource everything.” Everything includes network management, desktop support, and Web site design and maintenance–”everything a classic IT department does,” says Tuohy. The outsourcer also works with the city’s application providers. Reliable Integration, a Tysons Corner, Virginia, supplier, won the work.
Currently Falls Church is the only local government in Virginia to outsource its IT. But according to INPUT, its contract is a harbinger of the future. In its January 2006 Outsourcing MarketView, the company states: “The continuing inability of governments to overcome the inevitable combination of outdated government legacy systems, forecasted depletions to technical government workforces, and the continuing improvements to service delivery that advanced technological applications can provide will coincide by FY 2008. These combined factors will overcome politics and force state and local government decisions to outsource technology services.”
The City’s First Outsourcing
Tuohy is the first to admit the initial outsourcing was a challenge to any supplier. “Our network wasn’t up to snuff,” he says. The city had numerous small systems. Reliable’s first task “was to bring us into the twentieth century, now that it was over,” he says with a laugh. It installed an ERP system and then integrated the city’s financial system into it.
When the five-year contract was over, city regulations required the city to put out a new RFP. There was never any talk of bringing the tasks back in house. “We are committed to outsourcing because we had such good results,” he says.
What the City Learned from Its First Contract
In fact, the city hired a contract administrator to oversee the next contract. “The one major lesson we learned the first time is the CFO is not the person to oversee this kind of contract,” says Tuohy. “I don’t have the expertise or the time.” His chief criterion for hiring was “someone who knows what the supplier does.” The city hired a technical expert who had retired from the Air Force.
It also learned it wanted a fixed price contract. “We now know what normal and routine transactions costs. We have a history of repair and maintenance,” he explained. “We had no idea what they cost the first time.”
The city also learned outsourcing “is not good for strategic planning.” Instead, the city uses outsourcing for implementation only.
However, its past outsourcing experience made the city a better buyer. “We were able to put together a really tight RFP. This time we had a good sense of what we were asking for,” Tuohy recalls.
The city seriously looked at five responses. It interviewed three. It selected IntelliDyne, a Falls Church IT provider that specializes in the public sector. In addition to being local, the city liked the fact that IntelliDyne was five times the size of its first supplier. “They have a very deep bench which impressed us a lot.” He was impressed with its staff, particularly the head of the help desk. “You could put a ticking grenade on his desk and he could calmly tell you the steps to disarm it,” he says. Finally, the city appreciated the fact that IntelliDyne’s President, Rob Grey, was a hands-on executive.
Savings are high on the list, since they keep taxes in line. Tuohy says outsourcing saves the city $60,000 a year. He calculates the city saves another $100,000 a year in personal costs. In addition to saving the salaries, the city offers its employees a defined benefit pension plan which it would have had to contribute to.
Tuohy says dynamics of an outsourcing relationship helped streamline the city’s IT business. For example, it finally was able to manage its assets with surgical precision. IntelliDyne tagged every asset with a bar code. “Now we can take a wireless, hand-held scanner and tell them exactly what assets they have,” says John Scarcella, IntelliDyne’s Executive Vice President.
This knowledge led the city to decide to replace one-third of its inventory every year. Being able to plan for these purchases in advance allowed the city to save money “because now we have time to bid out the purchase,” says the CFO. This has saved the city as much as $40,000 a year.
It now has a repair and maintenance log. “If you asked an in-house IT department how many things they fix in a day, they would answer, ‘We do that all the time.’ But an outsourcer can answer that question,” he says.
His outsourcers also documented the city’s IT processes. “Documentation is something in-house employees just never get around to,” says the CFO. “But when you outsource, that’s the first thing they do.” Tuohy says this detailed documentation “is a wonderful ancillary benefit.”
The supplier’s expertise has proved invaluable. “In essence, we are paying $500,000 a year to hire 300 people,” says Tuohy, since he has access to IntelliDyne’s employee roster. “They have a tremendous amount of knowledge we can call on as we go forward.” This leads to more savings since the city doesn’t have to hire expensive consultants.
“We have experts that the city can use for a small slice of time,” says Scarcella. For example, the city used its security experts at the outset.
One of IntelliDyne’s major findings was discovering that many of the city’s network components were out of warranty. It rectified the situation immediately.
A New Specialty for the Supplier
The city of Falls Church is IntelliDyne’s first local government. It has a long history of working with the federal government, especially the Departments of Defense and Justice. “Falls Church is a mini-version of these contracts,” says Scarcella. Currently the city has 200 users and the Department of Defense has about 2,500. The supplier hopes to leverage this engagement into other local government contracts.
“We wanted to support the city where we are headquartered,” adds Scarcella.
Lessons from the Outsourcing Journal:
- Local governments have a tougher customer service challenge than corporations because their citizens have to move if they want to deal with a competitor.
- Local governments have difficulty recruiting IT talent because of the lower salary levels and lack of stock options. Outsourcing solves both challenges.
- Legacy systems, workforce challenges, and improvements in service delivery will force state and local governments to outsource technology services by 2008.
- Outsourcing the second contract is easier because there is more data thanks to the first supplier.