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Exclusive: North Carolina To Privatize IT Operations, Jobs

Outsourcing, consolidation eyed as cash-strapped Tar Heel state looks to tech departments for savings, efficiencies.

Faced with a looming, $3 billion budget deficit, North Carolina is eyeing a major shakeup of its tech operations that could see the state outsource the bulk of its IT work to the private sector while consolidating other operations internally.

The state has launched a search for an outside consulting firm to help guide the reorganization, according to a memo Democratic governor Bev Perdue sent to state cabinet secretaries and agency heads. "The Office of Information Technology Services (ITS) issued a Request for Information to seek input and ideas from the vendor community for improving the delivery of IT in state government," Perdue said in the memo, dated July 21st.

"The time has come for us to take the next steps to begin this transformation," said Perdue.

North Carolina legislators last month passed a $19 billion budget for the upcoming fiscal year. Despite some cuts, it leaves the state facing a deficit of $3 billion in 2011. North Carolina's IT spending in 2008-2009 totaled more than $1.1 billion.

Through the RFI, North Carolina is looking to hire a firm that can help it identify outsourcers that could take over operations from internal IT units at state agencies, and also provide a blueprint for achieving additional savings and efficiencies. "The goal is to move aggressively toward an improved IT infrastructure that will lower costs, reduce complexity and redundancy, improve the utilization of resources and increase security," Perdue wrote in her memo.

"In keeping with our efforts to refocus government on delivering core services, the assessment will include an in-depth look at areas across all Executive Branch agencies where consolidation and utilization of private sector IT services would bring more value to the citizens of North Carolina," Perdue said.

It was not immediately clear how many jobs could be affected by the plan. A spokesman for Perdue said he wasn't immediately able to provide more details. Perdue said she wants a consultant hired and working by September 27th. Preparations for the assessment will be led by North Carolina CIO Jerry Flarick.

Under the RFI's rules, the firm that wins the consulting gig will be disqualified for bidding on the outsourcing contracts that follow. Those contracts could be lucrative--Virginia handed off the bulk of its internal IT work to Northrop Grumman in 2005 under a deal worth more than $2 billion. IBM, Hewlett-Packard, Xerox's ACS unit, and Dell's Perot Systems arm are among the vendors that could be in line for work if North Carolina proceeds with the outsourcing drive.

IBM earlier this month announced plans to invest $3.7 million at North Carolina's Research Triangle Park to open a new business process outsourcing center that will create 600 jobs over the next two years.

At the very least, North Carolina will outsource the design and development of a new statewide government Web portal and plans to start looking for a contractor within three months, Perdue said. "This is in keeping with my pledge to make state government more transparent, responsive, and cost effective," Perdue wrote in her memo.

While outsourcing often appears to offer savings on paper, North Carolina will need to tread carefully. Northrop Grumman's efforts on behalf of Virginia have been fraught with delays and cost overruns, IBM and Indiana recently sued each other over a failed outsourcing deal, and IBM and Texas are at odds over a data center consolidation project.

Experts say government outsourcing contracts often run into trouble because vendors frequently underestimate and underbid the work, and their state counterparts often fail to prepare properly for the hand off of sensitive IT operations to a third party. Government employees also may fear losing their jobs under privatization and may not be fully on board.

Perdue said she won't stand for any efforts to delay or sabotage the process. "It is important for all Executive Branch agency heads and their staff, including agency Chief Financial Officers, Chief Information Officers, Public Information Officers, and Human Resource Directors, to cooperate fully and to devote the resources necessary to ensure a complete and timely assessment," said Perdue.

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