Virginia And Northrop Grumman Revise Information Technologies Contract
Governor Bob McDonnell announced today that his Administration has successfully concluded a major contract revision between the Virginia Information Technologies Agency (VITA) and private sector partner Northrop Grumman.
The agreement finalizes outstanding financial, performance and operational issues. It creates rapid response teams to handle IT issues, expedites repairs of equipment, improves Help Desk functions, institutes enhanced Dispute Resolution Process and adds new services.
Follows Successful McDonnell Legislation to Restructure VITA and Create Direct Accountability to Governor; Appointment of Sam Nixon as New VITA CIO and Jim Duffey as New Secretary of Technology
The outsourcing contract was entered into in 2005 during the Warner Administration at a cost of $2.36 billion over 10 years. Contract renegotiations were initiated during the last months of the Kaine Administration. The revision resolves all outstanding contractual, performance and financial issues between the Commonwealth and the company.
Under the terms of the renegotiated contract, Northrop Grumman agreed to introduce a large number of new customer service features and benefits, all designed to dramatically improve IT functions for all state agency customers. The revised contract extends the contract for three years and keeps the annual costs for the originally agreed upon services within the initial $236 million annual contract cap, as well as contracting for new hardware and services.
The estimated new costs incurred for the additional hardware and services received by the Commonwealth are $105 million to be paid over the next nine years. A proposal put forward by the prior Administration to address the same issues would have had the Commonwealth pay $196 million over the next six years.
Additionally, the Commonwealth will release $15 million in previously withheld payments, and add $47 million in new data services to better support state agencies.
Speaking about the successful contract revision Governor McDonnell remarked, “It is critically important that the contract between the Commonwealth and Northrop Grumman provides the best service for state agencies at the best price for Virginia’s taxpayers. In the five years following the inception of this outsourcing agreement, a number of conflicts and performance issues have arisen. This significant contract revision was necessary to address all these matters at one time and in one document in order for both parties to move forward with the important work of ensuring that Virginia’s state government stays online and on the job.”
The Governor continued, “When we took office we outlined a number of clear steps that needed to be taken promptly to make VITA work better for the people of Virginia. Both the law and the state agency needed to be restructured to provide more transparency and accountability. Our legislation to accomplish this goal was successful, and our office, through the Secretary of Technology, now has direct management control of VITA. We called for new leadership in the organization. Yesterday, former Delegate Sam Nixon, my appointee to manage VITA as Virginia’s Chief Information Officer (CIO), officially took office. We called for significant modifications to the existing VITA-Northrop Grumman outsourcing contract to address outstanding issues at one time and increase vendor accountability. With the revised contract now executed, we have taken the third major step in ensuring a more efficient and effective information technology system for our state agencies and employees.”
McDonnell further noted, “Through this renegotiation we have implemented a number of new features that will make the system work more smoothly. We will demand a much better managed VITA and a much more responsive Northrop Grumman. Northrop Grumman will create rapid response teams to better address IT service issues as they happen. Virginia employees will find a completely restructured help desk operation that is more responsive and service-oriented. These and other operational improvements will allow VITA to better manage IT functions for the Commonwealth. Finally, Northrop Grumman will now bill VITA on a usage basis, rather than on a fixed baseline. This makes far more sense in a contract of this nature. All of this was accomplished within the existing yearly cap on payments, a significant and important accomplishment, especially in these tough economic times. I want to thank the Office of the Attorney General for its excellent legal work throughout the revision process. I also thank Northrop Grumman for their cooperation, and the state workers at VITA dedicated to providing excellent technology support for our state agencies. I am confident that all these important changes give me the tools we need to solve past problems and manage this important agency far more effectively.”
Highlights of the Revised Contract
Performance Improvements
- Creates Rapid Response Teams – Assignment of additional onsite resources with additional abilities to quickly resolve individual IT issues
- Provides agencies greater flexibility over routine administrative tasks
- Expedites replacement of damaged desktops/laptops by replacing equipment within 24 hours of repair determination
- Overhauls Help Desk Services– a thorough top to bottom review of current procedures to implement changes outlined in the agreement and other suggested improvements. Changes include the creation of 1 hour password reset and encryption password reset that were reduced from 3-5 days.
- Redesigns work order process. Changes in procurement process to more automated format to ensure a more timely response.
- Formalizes agreement for Northrop Grumman to develop a new technology investment council for agency involvement.
- Moves forward on long delayed migration plans for all desktop OS upgrades, exchange server and MS office platform upgrades, all beginning in 2010.
Operational Efficiencies
- Consolidates and strengthens Performance Level Standards with a 15% increase in penalties across the board if Northrop Grumman fails to perform on clearly identified and measured performance standards.
- Improves Incident Response teams to determine technology failures and expedite repair
- Institutes clear performance measurements for Northrop Grumman that agencies can easily track
- Creates an enhanced dispute resolution process that’s fast and predictable.
- Adds new services to contract such as improved disaster recovery and enhanced security features
- Establishes a three-month review period for performance under the revised agreement ending June 25, 2010 which allows the Commonwealth to test new operational, financial and contractual changes to ensure significantly improved contractor performance in a short time frame
Financial
- Commonwealth releases $15 million in previously withheld contract payments after deducting $1 million in performance level penalties
- Prior administration negotiated contract modification included $196 million in additional cash payments over 6 years with an average payment of $32.5 million a year.
- Current revision includes $105 million in additional cash payments over 9 years with a net present value cost of $63 million
- Northrop Grumman will not recover any increased costs incurred for additional hardware, storage or licenses provided during the first 4 years of the contract, nor increase the base price in the extension period of three years
- Addresses all outstanding financial and contractual issues, including additional storage, hardware and license costs incurred by vendor, estimated to be at least $30 million a year
- Adds payment for new services of $47 million not in original contract for additional security measures and enhanced disaster recovery
- Provides a one-time cost of living adjustment in year 10 of the base agreement
- The 3 year extension is at the Year 10 base price
- Northrop Grumman will retain any efficiency discount realized in years 11-13
- Presents much better option than tremendous cost and uncertainty of terminating agreement at the stated contract price of at least $353 million if terminated for cause, and $685 million if terminated for convenience. This doesn’t include the cost of keeping IT servers up and running.
Topics: 2010, contract, data services, dispute resolution, economic development, economic growth, Economy, employment, Governance, government, Governor Bob McDonnell, help desk, ICT, IT, Jim Duffey, jobs, monitor, news, Northrup Grumman, outsourcing, private sector, rapid response team, Sam Nixon, taxes, taxpayers, technologies contract, technology, U.S., United States, Virginia, Virginia Information Technologies Agency, VITA
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