California nightmare: County declares CSC in default (Is outsourceing a thing of the past?)

Computer Sciences Corp. and San Diego County negotiators are desperately working to settle a contract dispute after county officials charged CSC with being in default on a groundbreaking information technology outsourcing project.

The county withheld a $44 million payment due to CSC in January, saying the company has failed to provide the required outsourcing services, such as adequate bandwidth for users, network support, security planning and refresh of infrastructure, applications and servers.

The county April 18 issued a formal “Notice of Default” three days after CSC broke off negotiations over the disputed contract, making it appear as if the company might take the dispute to court. But following a May 7 meeting between San Diego Chief Administrative Officer Walter Eckard and CSC Chairman and Chief Executive Officer Van Honeycutt, discussions began again.

The county views CSC’s return to negotiations as a positive sign, and negotiators are working closely to come up with an agreement that is satisfactory to both sides, said San Diego County spokesman Joe Tash.

“The county and CSC are hoping that this can be worked out,” he said. Frank Pollare, a CSC spokesman, declined to comment on the county’s allegations or any aspect of the contract dispute.

If not resolved, the problems with the San Diego County project would represent a major blow to the cause of outsourcing, at least on such a massive scale, said industry observers. CSC and the county are now in the third year of a seven-year, $644 million IT outsourcing deal signed in October 1999 that the private sector hoped would lead to similar large-scale opportunities around the country.

Among its responsibilities, the CSC Pennant Alliance team is tasked with improving and refreshing the county’s infrastructure, modernizing applications and bringing services online. About 220 employees assigned to the project are former county employees, Tash said. Altogether, about 600 employees are assigned to the project, CSC told Washington Technology for a previous story.

At press time, the county was still withholding the $44 million it was scheduled to pay at the beginning of the year for services from January through June. Thus far, the CSC-led team has been paid $213 million on the contract, Tash said.

The San Diego County outsourcing project is the largest of its kind in the state and local market. Three years ago, Connecticut killed a similar deal with Electronic Data Systems Corp. of Plano, Texas, before the contract was signed.

When CSC broke off negotiations suddenly in April, county officials said they were left with no recourse but to notify the contractor that it was in breach of contract. In an April 18 default letter, the county demanded that CSC cure all failures within 30 days and participate in a dispute resolution process.

The county alleges that CSC has failed to improve its use of IT and telecommunications and to provide the county with the latest security systems and methods to improve privacy and protection of confidential information and data.

Moreover, the county demands that CSC stop requesting additional fees for base services under the contract, stop threatening to reduce service levels, stop demanding the county pay fees higher than those required under the contract, and continue to provide all the services outlined in the base agreement.

Eckard said in a May 28 statement that CSC has performed well in some areas. Since the contract was awarded, CSC has successfully installed a new telephone system for the county’s 17,000 employees, reduced computer outages, improved response to IT service requests, provided new online services and provided desktop computers to some county employees who never had them before, according to the statement.

However, Eckard said CSC has failed to meet key contract milestones and perform IT services at the required level.

Leo Crawford, chief information officer for Orange County, Calif., which has a data center outsourcing contract with Affiliated Computer Services Inc. of Dallas, said the size of the San Diego County outsourcing project made it “a daunting task.”

“It seems like they were biting off an awful lot,” he said.

Mary Grillo, executive director of the Service Employees International Local 2028, said she doubts the two parties can complete what she said is a complicated project. “Neither group knew what they were getting into,” she said.

Grillo, whose union strongly opposed the outsourcing plan, said the county never imagined it would have to monitor the project so closely.

Analysts and industry observers noted the project has had several key changes in leadership on both sides since it began. (See timeline in box to the right of this article.)

Despite current problems, county officials are not second guessing their decision to outsource IT services and still believe outsourcing was the right thing to do to improve the county’s infrastructure, Tash said.

“Overall, we’re better off than when this contract began,” he said.

When San Diego County officials put together the outsourcing plan, they included stringent service-level goals to ensure the winning contractor provided high levels of service. They also wanted to assuage critics who said the county would suffer under the deal.

After the first year of the contract, the county assessed a $2.2 million fine against CSC for failing to meet some of the master service-level agreements.

“I don’t think any [company] could have made these service levels, but they signed up for them,” said Tom Boardman, then county chief technology officer.

While it is logical to have high standards, the way in which the customer enforces the standards says a lot about the partnership between the two parties, industry observers said. If the standards are enforced too rigorously, the contractor may lose substantial money on the project, they said.

Although CSC has declined to comment on the dispute, the county’s default letter suggests the company believes the county is requesting many services that fall outside the contract’s scope and requirements.

Jon Kutler, president of Quarterdeck Investment Partners LLC of Los Angeles, said some integrators that are accustomed to working in the federal sector have learned some hard lessons working on projects in the state and local sector, where some customers are not as sophisticated in structuring and managing contracts.

“In many cases, contractors assume that going from federal to state and local is the same as going from DoD to Treasury, and that there will be some differences, but they will be easy to overcome,” Kutler said. “The reality is that it has been a much more difficult transition.”

Payton Smith, manager of public-sector market analysis services at Input Inc., an IT market research firm in Chantilly, Va., said he doesn’t think the fallout out from the Pennant Alliance contract will hurt CSC’s federal business, where the company has an abundance of IT outsourcing jobs.

“Past performance is certainly important for federal agencies, but it’s more important [in relationship] to other federal work and not state and local work,” he said. “The impact of this deal at the state and local level will be minimal in terms of the company’s federal contracting.”

Any CSCers out there?

Is outsourcing dying?

I know CSC has serious problems, and tends to tool over their clients and such as is outlined here, but it also seems to be an industry wide problem. As it said, EDS just had a near-deal cancelled too.

I worked for CSC for 17 years before retiring. It was in the Federal sector.
They are about as honest a company as I have ever seen. We went to great lengths to fill a contract to the bottom line.

It looks to me (and I don't have any first hand information) like San Diego county is trying to modify the terms of the deal for free and CSC won't do it without increase of funds.

When you hire a contractor to put a new roof on your house, and you don't mention flashings, you don't get flashings. This should be interesting to follow.

They are about as honest a company as I have ever seen.

Is this the same CSC that now is forcing all it's billable people to 44 hour weeks to increase the CSC bottom line by billing their clients more under existing contracts?

That is about the last thing I ever expected to hear someone say.

My experience with CSC has been spotty. On certain contracts they do well. On other contracts I am specifically aware of, they seriously underbid just to get the contract and then once in the door do what they apparently have done here.

They do defraud customers on many contracts.

Now I do believe that they are not unique in this. It is industry practice, almost! But that is, in my opinion, part of what is killing off the market.

That's the topic I'm really interested in, here.

I'm thinking that IT outsourcing is a shrinking industry, since modern software doesn't require a fleet of highly-trained professionals just to run it.

Am I nuts?

Then why don't you resign in protest?!?

No one expects you to resign in protest from MS just because they've broken the law.

Just speak up for truth and justice. Argue for changes at your company. Fight to make them honest.

Like I'm doing.

You actively support and excuse the criminal behavior at your company. I don't.

Any chance you've seen the light now?

I've dealt w/CSC off and on for about 25 years in the Federal sector. They are very straightforward, and what I would call honest. I think you nailed it on change orders.

No, everybody, outsourcing is not dead. That's a silly idea.

But, when you contract out, you still have to be a competent manager, and that includes government agencies. Problems arise when incompetent GS'ers deal with professionals.

Can't face that simple truth, can ya.

Didn't think you would.

And the funniest thing is, if I had posted this about MS you'd be flaming me to the ground as an MS-basher.

Does this make me a CSC-basher? No.

I'm just trying to improve my company, something you don't have what it takes to do.

Is this the same CSC that now is forcing all it's billable people to 44 hour weeks to increase the CSC bottom line by billing their clients more under existing contracts?

Not true.

Am I nuts?

Too early to tell.

Not true.

We were specifically told to in an email from Mr. Cook.

I'm logging 44 hours a week, even tho I'm internal and non-billable, just because we don't want to be flagged.

P.S. -- my wife assures me I *am* nuts. So we can put that one to bed now, I suppose!

Any CSCers out there?

I don't work for CSC. I work for their competition mentioned in the article:

...which has a data center outsourcing contract with Affiliated Computer Services Inc. of Dallas...

I don't actually work in outsourcing but that is the biggest thing that ACS does.

No, outsourcing is not dying. It has picked up quite a bit since other companies started laying-off and trimming their staff. The outsourcing industry took up the slack from departments that were shut down in the process of corporate down-sizing. This seems to be more focused on CSC.

Now I do believe that they are not unique in this. It is industry practice, almost!

It's part of a series of tricks used to maximize revenue. The contracts discuss things at too high a level to set operational details, so the contractors try to get away with whatever they can. Case in point:

New phone install. One ticket, one hour, tops.

Nope. This is management policy:

Install the phone at the customer's desk.
Logon to the PBX and build the phone's configuration.
Logon to the voicemail system and set up an account.
Cross-connect to a house pair in the PBX room.
Punch it down to the customer's jack in the wiring closet.
Test the phone... got dialtone?

Six tickets, six hours. People are employed just to split tickets. From the Help Desk on down, each person to touch the ticket logs billable time against it.

The customer usually outsources stuff like this to save money but that's not what happens.

How recently did you get this e-mail, was this today?

No, months ago, when they missed their target for the 1st quarter.

It's standard. The contracts we sign apparently allow us to go up to 10% over, so they mandated a 44 hour work week in a mass mailing straight from the top.

This seems to be more focused on CSC.

And just one account for CSC, true.

Since 9/11, our defense work is way up, too.

I'm just worried about the long-term viability of our market. I think there will always be a need for outsourcing, I'm just afraid that the IT shop of 2 years from now will need perhaps 1/2 the staff that an IT shop of 2 years ago did.

The customer usually outsources stuff like this to save money but that's not what happens.

I've seen some insane things, too.

Mainly I'm worried that as software improves, the size of required IT staff shrinks, which lowers the headcount needed.

Am I worried about nothing?

6. Test the phone... got dialtone?

I love that -- that's a seperate step?

"Well, we hooked you up. Oh, you want me to *test* it?"

Creative.

I'm worried that as software improves, the size of required IT staff shrinks, which lowers the headcount needed.

Sure, business objectives increasingly include driving down headcount. Regional server farms, remote monitoring, "lights out" operations, other aspects of leveraging the economies of scale. How about them buzzwords? Move work to Mexico and the far east, maximize the bottom-line, make sure you can pay your executives top dollar so they'll stick around, but trim your production staff whenever you need some "temporary" relief. You can always find more production people when you need 'em.

And yet they still expect us to buy their goods, eh?

With WHAT?

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