May 14, 2014
by Russell Nichols

In 1984, California’s Department of Technology didn’t exist. Information technology consultants were rare, and there were fewer contractors involved in state services. For the most part, the state developed government systems with in-house resources. From development and analysis to budgeting and implementation, it was a full-service operation. 

That was then. 

“Today, with commercial, off-the-shelf solutions, less customized systems, plus the aging workforce, you have a whole different dynamic to how projects are implemented,” says Russ Guarna, who recently retired as deputy director of the Department of Technology’s Statewide Technology Procurement Division after 30 years with the state.

Three decades later, these so-called legacy systems are out of date, inflexible and at risk of breaking down. But the question of who should upgrade them is at the heart of an ongoing tug-of-war between the public and private sectors. 

Members of the private IT industry say the state should outsource government functions because technology is evolving far too quickly for the state to manage given its red tape-laden process. Additionally, state workers are not trained as frequently and comprehensively as needed to keep up with changing technology. The recent economic downturn, Guarna says, abolished training programs for state employees, which froze the workforce capability and slowed growth in government.

But in the wake of epic contract failures (like last year’s $50 million MyCalPAYS fiasco), public officials want to clamp down on outsourcing abuse by enforcing stricter standards and, when appropriate, flashing back to the self-contained model of the ’80s.

“We want to use our state workforce to full capacity,” says Assemblyman Richard Pan (D-Sacramento). “There is a lot of government work that is actually not done by state workers that perhaps needs to be brought in house to be cheaper and more effective.”

Last year, Pan proposed Assembly Bill 906, which called for personal services contracts to be approved by the Legislature and to put time limits on such agreements. Gov. Jerry Brown signed off, and the law went into effect in January. Although its final language was not as strong as Pan’s first version, it gives unions the right to review all contracts to determine whether the job should stay in house  or be outsourced.

Per AB 906, the Department of General Services (DGS) has already issued a statewide management memo: Any government or state agency about to enter into a contract must first notify the State Personnel Board. The Board must then contact organizations representing the state to see if public sector staff can fulfill the requirements in  the contract.

So far, the Brown administration has identified 102 unspecified private-sector positions that will go to state employees. But Pan’s not done. In February, he introduced in the Assembly a package of three bills (1574, 1575 and 1578) aimed at stopping outsourcing abuse by giving the state authority to terminate contracts that fail to meet agreed-upon terms, create performance criteria and cost parameters for contracts, and build an online contractor database with names, payments and employee wages.

“When you have this type of transparency, it makes sure everybody’s playing by the same rules,” says Willie L. Pelote Sr., an assistant director of the American Federation of State, County and Municipal Employees.

But some IT companies think the move gives state workers an unfair advantage. When comparing costs, for instance, contractor proposals include fully loaded rates that incorporate vacation, holidays, sick time, training, health care, payroll taxes, etc. But state employee proposals include salaries alone, ignoring the monetary value of employee benefits, according to Marty McGartland, president and CEO of Natoma Technologies.

For vendors like Natoma, whose biggest client is the State of California, this means contract proposals  coming from private companies look more expensive to the  review board when, in actuality, they are often comparable,  or even more affordable.

McGartland’s company has implemented the election-night reporting system and helped move the governor’s budget online. He says the government and the citizens it serves should worry about the potential for delays in procurements due to the lengthy process, which could lead to a loss of federal funds.

As a result, some in the IT industry believe cracking down on outsourcing to use the state’s workforce may be counterproductive.

“It’s impractical to think the State of California can identify and hire qualified information technology workers to sufficiently meet all the state’s needs,” says Carol Henton, vice president of state local education for Information Technology Alliance for Public Sector (ITAPS). “Outsourcing is imperative.”

But opponents say outsourcing wastes taxpayer dollars. In 2010, California hired Pennsylvania-based SAP to overhaul the state’s aging payroll system, MyCalPAYS. Last year, after major delays, system errors and cost overruns, the state terminated SAP’s $90-million contract. This was the second contractor the state fired for this project. As of January 2013, the state had spent $262 million of the allocated $373 million on MyCalPAYS (also known as the 21st Century Project) “with few tangible deliverables,” according to the report from the Legislative Analyst’s Office (LAO). The project remains on hold.

To avoid such colossal failures in the future, the state should avoid colossal projects, says Chris Micheli, principal at Aprea & Micheli. Instead, he advocates for smaller, shorter-term projects and suggests making past performance a key consideration in hiring vendors.

“The broader idea of ensuring that the state doesn’t face improper or poorly done procurements is a worthy goal,” he says. “The question is whether or not they’ve been overly aggressive in their efforts. We ought to be able to find the right balance between public and private participation.”

Despite claims to the contrary, Pan insists his motive is not to stamp out the outsourcing of government functions, but to increase  accountability and transparency for the public at large, who he refers to as “our bosses.”

“It’s important that there are  delineated outcomes. If the vendor doesn’t perform as promised, there needs to be consequences for that,” he says. “If you’re a business and you want to hire a subcontractor, I think you’d want the same thing. That’s what we want the state to do.”

According to Guarna, the push for more oversight will have a potentially bigger impact on the government than the IT sector by slowing the delivery of services. Now, as the vice president of state and local government for Tech America, Guarna hopes to bridge that divide by bringing both sides together to collaborate.

“When you look at technology, cycles of change happen in 6-month increments,” he says. “How are you keeping your workforce current if there aren’t adequate training dollars or facilities?  The staff is stagnating in their skills. 

What we would like to do is create a coalition, work with the state and unions.”

Any cooperation must begin with a conversation. But it’s a conversation that needs to be had sooner than later, he says, especially considering the fact that graduates now do not think like graduates of yesteryear. With the world evolving at the speed of technology, gone are the days of workers like Guarna committing to a state job for three decades.

This article can also be found in Comstock's Magazine.