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Some Perspective on Virginia's IT Contract Controversy

In a recent column I argued that the political controversy over Virginia's IT modernization contract with Northrup Grumman should not distract policymakers from the correct course forward—identifying the implementation challenges and working with the contractor to correct them and right the ship. Fairfax City Councilman Daniel Drummond (and former Northrup Grumman consultant) reaches a similar conclusion in this Richmond Times-Dispatch op-ed today that offers some important perspective on the project that shouldn't get lost amid the current kerfuffle:

To fix the problems, though, we need to understand why we are here in the first place. This deal wasn't about technology alone. In addition to fixing the state's ancient and vulnerable IT systems, it was about job creation, economic development, and introducing a new way of governing through a public-private partnership.

When then-Gov. Mark Warner announced the awarding of the 10-year, $2 billion contract in November 2005, state agency IT departments were already being put under one roof known as VITA. The next step of this transformation was to find a private partner to modernize the state's woefully inadequate computer systems. Highlights of the inept system included state employees using 12 separate e-mail services, some agencies using Windows Office 97, and millions of dollars' worth of illegal copies of software floating around.

The modernization concept (and how to pay for it) was this: Turn IT into a service similar to a utility, not much unlike the telephone or electricity. So instead of individual agencies buying their own computers and software, they instead would now buy "seats" that in turn got them not only the latest equipment, but also enhanced security and technical know-how.

In finding a partner, the state was looking for the company to make a significant investment in Virginia by building two new data centers (including VITA's new headquarters) in addition to paying for all of the computers, wires, software, and widgets needed to revitalize the state's IT infrastructure.

The General Assembly also insisted that the contract be equal to the same amount the state would have been paying for its IT services -- not a dime more. To make this happen while also satisfying the need to make a profit, Northrop Grumman would take the financial risk, but it would be allowed to leverage the state's IT network and sell services to local governments, higher education institutions, and the private sector.

The true genius of this was to find a partner that could help expand economic opportunity throughout the state. In other words, this wasn't just a contract -- it was a job creator. Not just the 400 Northrop Grumman jobs the company expects to ultimately create, but the ancillary employment and economic development opportunities that would result.

It worked: In Lebanon, for instance, CGI built its facility next to Northrop Grumman's IT facility, creating an additional 600 jobs in the rural part of the state. That's 1,000 new jobs in Russell County directly attributable to this project. The state also got the added benefit of having 600 VITA employees become Northrop Grumman employees, thus coming off the state's pension and health insurance plans and eventually saving taxpayers millions of dollars.

Clearly, there are difficulties facing this marriage. This deal has not lived up to expectations and both sides are to blame. But with a $400 million break-up fee hanging over its head, the commonwealth can't afford to walk away. Nor can Northrop Grumman, as its reputation and prestige are on the line.

With the upcoming legislative session certain to bring proposals to reform the contract and VITA itself, it's time to take a step back and see what's worked and what hasn't. And those working to salvage this deal need to remember that this partnership isn't about them. Rather, it's about the people who now have jobs in Russell County, the chance to save taxpayers money, and creating a partnership that will be a model for other states to follow while moving Virginia forward.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Leonard Gilroy is Director of Government Reform


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