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IBM, CSC, EDS vie for San Diego contract

After losing a shot at the State of Connecticut's behemoth $1 billion outsourcing contract to EDS, two IT services giants are prepping for a rematch, this time in San Diego County.

After losing a shot at the State of Connecticut's behemoth $1 billion outsourcing contract to Electronic Data Systems, two IT services giants are prepping for a rematch, this time in San Diego County.

"[This deal] would become the most important contract to have in the government arena," said Jack Winters, a vice president in the government and education services division at IBM Global Services.

IBM and Computer Sciences both lost a bid in January to negotiate the high-profile seven-year State of Connecticut contract to Plano, Texas-based rival EDS.

Bids on the ten-year San Diego contract, with an estimated worth slated somewhere between $700 million and $1 billion, are due at the end of the month. Unlike other governments that are outsourcing piecemeal, San Diego County is taking the big plunge by farming out all telecommunications and IT services--worth about $98 million a year--to the private sector. A winner should be announced by September.

"I think [competition] will be very intense," said Merrill Lynch analyst Steve McClellan. "Once you win this one you have a leg up on winning others."

When a services firm loses a contract, it's almost always because the quality, not the bidding price, didn't meet customer demands, he said.

Winters admits IBM missed a chance at the Connecticut deal by failing to assemble a stronger group of subcontractors for the bid.

"We made the mistake of not getting a leader in every area," he said. "Our team members weren't world class."

This time, IBM, which has historically concentrated more on commercial than government deals, has drafted heavyweights including AT&T, government contract giant Lockheed Martin, Xerox, and KPMG.

EDS is pitching the deal with Qualcomm, Cox Communications, Gateway, which are all based in San Diego, along with Microsoft. However, missing this time is IT services firms Unisys, who joined EDS on the Connecticut contract bid.

Meanwhile, El Segundo-based CSC is playing the home team card.

"The opportunity is in our backyard," said Richard Jennings, a vice president and general manager of outsourcing at CSC, which is leading the firm's San Diego bid.

CSC staffs a Western U.S. outsourcing data center in San Diego and has assembled a team including San Diego-based systems integrator SAIC, Lucent, and Pacific Bell. About 150 people from the four companies are working on the bid.

That firm that gets the contract will be charged with the daunting task of consolidating about 20 data centers, 40 help desks, and more than 100 local area networks. The county has 450 IT employees who support 17,000 workers.

The deal is intended to help San Diego County fulfill a vision of a "virtual government", where taxpayers will be able to access many services online--from searching for a deed, to finding a lost pet, to scheduling a meeting with a building inspector. But for now, it's all the county can do to keep up with systems upgrades and job training, said Larry Prior, San Diego County's chief administrative officer.

"We have a finance system that's two decades old," said Prior, a former TRW executive who has been on the job in San Diego since 1996. "It's not flexible. There's SAP and Oracle out there. We want [our chosen vendor] to pitch one to us and we'll change our work processes to match that best practice."

"[Municipalities] are getting more and more heat from their residents [demanding better service] at the DMV and they went through a thrashingly brutal time preparing for the year 2000," Merrill Lynch's McClellan said.

Watching the progress of the Connecticut and San Diego deals closely are about a half dozen more states that are currently considering outsourcing with one of the big services firms, he said

"When Connecticut did this it woke everyone up," he added.

Dean Davison, outsourcing program director at Stamford, Connecticut-based Meta Group, said outsourcing is a great way for states and counties to sell off aging IT assets, but it comes with a risk.

"The problem is, [ if you outsource everything] there's no way to go back," he said. "You'd have to raise a bond issue to get those assets back."