Breaking Into Government Managed Services

State and local governments are in a uniquely difficult position when it comes to upgrading technology. For them, it comes down to one word--politics. State and local CIOs have to jump through the requisite political hoops in order to get the capital funds to implement anything, from PCs to network upgrades.

As Karl Kaiser, CIO of the city of Minneapolis, describes it, "About half of the technology was obsolete when I came on board, and trying to find capital money in the public sector is not an easy thing. If I go to the city council and say I need to replace 1,000 PCs, it's not high on the political list, so we always end up being technologically behind."

To get around this, Kaiser decided to take what might have once been considered a drastic move for local government; he went looking for an outsourcer to take over both ownership and control of the city's technology assets. Minneapolis turned to Unisys in December 2002, signing a seven-year, $56 million contract that covers everything from PCs and laptops to servers and system software. And Kaiser is not alone.

This move toward outsourcing, or managed services as anyone in government is apt to call it, lest it be associated with offshoring or moving technology jobs and control away from the state or locality, is catching on at the state and local levels.

And while the terminology may sometimes be confusing, one thing is for certain--the managed-services market is poised to become a $17.7 billion market at the state and local levels by 2009, according to Reston, Va.-based researcher Input.

Jim Krouse, manager of state and local analysis at Input, says that the states will be the leaders in adopting a managed-services approach, followed by local governments and the federal side. At the highest level, managed services technically refers to the outsourcing of a range of IT services to a third party. "It will get to the federal level eventually, but it will be much more scrutinized; they're not the laboratory for change that states are," he explains.

Krouse says that, in general, managed-services providers are already smelling opportunity and staking out their turf. "There has been an uptick in partnerships, the ability and the willingness to partner with anybody to close a deal rather than be left out," Krouse adds. And while there will continue to be a pool of very large integrators that will compete for the biggest contracts as primes, he says that smaller integrators will also have many opportunities to partner with the big guys.

"The primes will increasingly need the support of their partners and [they] will have to maintain an ongoing pool of subcontractors that are pretested and prequalified, so when the work comes in, the primes will be ready," Krouse says.

This, of course, means that work needs to be done up front, to prepare for these types of services. In order to cash in on these deals, integrators and solution providers will have to adjust their business models and service-delivery methods accordingly.