Union decries increasing number of outsourced IT contracts for state of California

The number of information technology contracts awarded by the state of California has tripled since 2003, and the state could save up to $100 million annually by reducing its reliance on contractors, according to a new union study.

The report, titled "Too Many, Too Costly, Too Little Oversight," was compiled by the Service Employees International Union in preparation for a hearing today in the Legislature and based on information provided by the Department of General Services.

SEIU represents 7,800 state IT employees, 80 percent of whom work in the Sacramento region. The union is sponsoring AB 2603 by Assemblyman Mike Eng, D-Monterey Park, that would require state departments to report IT contract expenditures so that they could be compared to the cost of state employees doing the work.

According to a 2006 report by the independent California Research Bureau, outsourcing IT work cost 50 percent more than doing the work in-house.

"At a time when we have so many budget issues and a ($8 billion) budget deficit, it's very important that we pursue any avenues in which might save money," said Eng, who will chair today's joint hearing of the Assembly Committee on Business & Profession and Public Employees, Retirement & Social Security.

California has struggled with IT strategy and oversight for more than a decade. In 2002, lawmakers shut down the state's technology office when they learned that Elias Cortez, director of the Department of Information Technology, had approved a $95 million contract with Oracle Corp. without competition.

In 2005, the California Department of Technology Services was created under a reorganization initiated by Gov. Arnold Schwarzenegger. Clark Kelso, the department's first chief information officer, put together a strategic plan to streamline the state's multiple hardware and software systems.

Kelso left the job after four years to become the court-appointed receiver of California's state prison system. Teri Takai, who was hired in December to succeed Kelso, was unavailable for comment Tuesday.

But critics in the Legislature contend the state is largely incapable of performing tasks that involve circumstances, such as technology, that change constantly.

According to the SEIU report, costs are continuing to skyrocket. Since 2003, the number of IT contracts has risen from about 1,800 in 2003-04 to 5,500 in 2007-08.

The total value of personal service contracts has jumped from $28 million to $340 million in the first eight months of the current fiscal year. Meanwhile, the value of consultant contracts increased from $40 million to $120 million.

"It's costing the state tens, if not hundreds, of millions of dollars every year," said Daniel Rounds, a SEIU official who compiled the union study.

Rounds charged that the Department of General Services, which awards major IT contracts, "essentially rubber-stamps" the agreements because it does not have enough employees to adequately to review them.

Adrian Farley, deputy director of the department's procurement division, said that's "not entirely accurate."

Farley said in the past several years General Services has transferred responsibility for awarding many contracts to individual departments.

"The core function, as it relates to procurement, has actually been enhanced in several ways in terms of skill-sets," said Farley, adding General Services audits departments every three years to ensure that guidelines are followed.

But Rounds said that of the 49 IT contracts his union has challenged since 2005, the State Personnel Board has invalidated the contract or directed departments to replace contractors with civil service staff in all 10 contracts in which it has rendered decisions.

Elise Rose, an attorney for the board, said she did not have the same figures. But Rose confirmed the board had disapproved more contracts that were challenged than it approved.

Rounds charged that in most instances it's easier for the state to award IT contracts than to fill positions with state employees because of constraints on state hiring due to the budget deficit.

"The real story behind this is the state is not really planning for its IT needs, it's not doing effective recruitment and retention (and) it's not paying IT workers what they should be paid," he said.

About the writer:

• Call Aurelio Rojas, Bee Capitol Bureau, (916) 326-5545.