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Reason Foundation

Florida IT Contract Draws Scrutiny

Leonard Gilroy
June 4, 2009, 1:15pm

FL State Sen. J.D. Alexander is questioning the Florida Department of Management Services (DMS) for its decision to consider extending a contract with the current operator of its human resources functions:

The state's decision to consider a no-bid contract extension for a controversial human-resources company has renewed criticism from a leading state senator who says privatization initiatives have cost taxpayers $200 million with little to show for the money. Senate budget chairman J.D. Alexander persuaded fellow lawmakers during the spring legislative session to increase scrutiny of large state contracts -- only to see Gov. Charlie Crist veto the proposal last week.

When Alexander got word Tuesday that the state's Department of Management Services might offer a five-year extension on a contract for state human resources services to Ohio-based Convergys, the Lake Wales Republican urged Crist to solicit bids for the contract. "There have been problems with this vendor before, so I'm not sure it's a good idea to give them $44 million more a year without seeing if there's a better option out there," Alexander said.

Convergys stands by its work and issued a statement that said: "The Legislature itself hired a third-party consultant to review the . . . contract and that consultant recommended the contract be renewed."

But Crist agreed with Alexander, saying the project should be rebid. "I think we always need open bids, good competition," Crist said. "I think he's right on point. I agree with the senator." Still, Crist vetoed Alexander's contracting oversight bill, saying it went too far by requiring too much legislative oversight. Under one interpretation of the legislation, lawmakers would have had to sign off on some state agency purchases of items as insignificant as office furniture.

The contract to centralize and consolidate the state's massive payroll system was one of the first large-scale privatization efforts to draw fire in Florida, in 2002. Paychecks came late, cost savings were lower than anticipated, and some state employees worried about identity theft after personal data was released to a subcontractor in India.

It is indeed true that the human resources privatization, known as People First, came under fire early in its rollout. However, having read the Council on Efficient Government's (CEG) 2008 report on this and other major IT initiatives (as reported in Reason's Annual Privatization Report 2008), it's pretty clear that the major problems with People First were in large part centered on the state's poor planning and its inability to rein in the demands of its agency staff for customization of the new systems. But let's go back to the beginning.

People First was developed to streamline and automate the state's human resource, payroll administration, staffing and benefits functions by consolidating the seven different legacy IT systems into one. In 2002, DMS entered into a seven-year contract with Convergys Customer Management Group, Inc. valued at $278.6 million. The contract term was subsequently amended to extend through 2011, increasing the total contract value to $350 million. Since 2005, the People First project team has deployed 330 system modules and releases. Today over 50 state agencies and entities, including 132,120 active employees, 48,261 benefits-only employees and 47,809 retired employees, use People First in some way.

Here's a snapshot of the CEG's findings that all parties in the current debate should refresh themselves on:

The report concludes that in the end, the transition was difficult but the privatization is working, which is something that certainly isn't made clear in the article above.

Regarding the central question of re-bidding the contract, I'm obviously a fan of subjecting services to regular bidding as a general rule. Competition keeps all parties honest and on their toes and drives down prices. But what, when and how you do it matters, and there's no doubt that this isn't your typical state landscaping contract—its a complex, statewide technological system that serves over 200,000 people—and the new system is just getting settled, so to speak.

The obvious difference is that standard operational contracts involve operating something, not building and operating something. As you dial up the contractor's responsibilities with the design and development of infrastructure systems, you generally tend to dial up the length of the contracts and the complexity. While I can only offer conjecture, I'm assuming that the state and its advisors view re-competing the contract at this point in time as potentially undermining the progress made on rolling out the system thus far and potentially taking on the risk of high transition costs at a terrible time for the state budget. This isn't a simple decisionmaking process and will be interesting to watch.

Leonard Gilroy is Senior Managing Director, Pension Integrity Project &
Director of Government Reform

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