1 expect the best Lemuel C. Stewart, Jr. Chief Information Officer of the Commonwealth Senate Finance Committee October 20, 2005 Transforming Information Technology in the Commonwealth

2 expect the best VITA Update Governor and the General Assembly set change in motion in 2003 VITA enterprise-wide IT re-engineering initiative –Phase I = Integration –Phase II = Transformation Integration completed successfully –Created IT “Utility” –Consolidated agency IT resources –Provided continuous service –Launched procurement reform –Implemented disciplined IT investment program Achieved $45 million in cost savings and $14 million in cost avoidance (FY04-05) Transformation is next step to meet duties established in 2003 legislation

3 expect the best What Does Transformation Look Like? IT InvestmentPresent StateFuture State SecurityInadequateAdequate NetworkFragmentedIntegrated ServersNumerous locations, excess capacity (3,000+) Consolidated (<1,000) Computing environment InconsistentStandardized Help desk supportMultiple (70+)Combined (1) Service levelsUndefined performance, variable costs Defined performance, predictable costs PCsIncompatible, outdatedCompatible platforms, scheduled replacement

4 expect the best Transformation Characteristics Long term re-engineering effort –10 years Requires significant investment –$250 to $300 million to re-engineer the IT infrastructure and business processes Challenges –Self-funded model = invest → save → r e-invest –Behavioral and cultural changes –No major, immediate cost savings –Re-engineering existing business processes

5 expect the best “Do It Yourself” Transformation Not Feasible Lack of capital for upfront investment is a key obstacle Peaks and valleys in transformation expenses are inevitable –VITA’s reliance on earned revenue would require frequent and significant rate adjustments Not palatable to customer agencies or federal grant administrators Commonwealth is less nimble than private sector in managing major transformation A long-term commitment to phased implementation is needed; budget priorities and biennial budget work against Conclusion: A partner is required to seriously address large-scale transformation of the Commonwealth’s IT infrastructure

6 expect the best PPEA Is Best Vehicle for Transformation Innovative Funding: PPEA provides access beyond biennial budget to substantial dollars required to recapitalize and revitalize Virginia’s IT infrastructure Flexible Approach: PPEA encourages private sector to bring innovative ideas and considerable expertise to benefit the Commonwealth Unique Partner: PPEA allows VITA to team with a partner who: –Will share the risk –Is committed to Virginia –Has successfully achieved transformation before –Possesses the capability to manage and serve the technology needs of a complex organization the size and scope of the Commonwealth

7 expect the best PPEA Timeline DateActivity July 2003VITA created Nov 2003 – March 2004 VITA receives 5 unsolicited PPEA proposals April proposals accepted for Conceptual Review June 2004Conceptual proposals posted for competition Aug 2004Conceptual review of 4 proposals Nov 2004Proposals split into two tracks: (1)Infrastructure: IBM and Northrop Grumman Business owner = IT Investment Board (2) Enterprise Applications: CGI-AMS and IBM Business owner = Secretaries of Admin & Finance

8 expect the best Infrastructure PPEA—Participation Highly collaborative review of infrastructure by stakeholders and subject matter experts –60 individuals representing 14 agencies 1 cabinet Secretary and 2 deputies 2 IT Investment Board members and the CIO –Council on Technology Services Workgroup 9 individuals representing 7 agencies, including Judicial and Legislative Branches, local government, and higher education Highly skilled and experienced independent resources for this type of agreement –Gartner (governmental IT industry expertise; negotiation support) –Gordon & Glickson (governmental IT contracting expertise; negotiation support) –PA Consulting (organizational design expertise) –Office of the Attorney General subject matter expert

9 expect the best Infrastructure PPEA Timeline DateActivity Jan 2005Joint Due Diligence initiated April 2005Proposal packages released to vendors Detailed proposal development June 2005Detailed proposals received by VITA Highly collaborative, detailed review begins Aug 2005Infrastructure PPEA Steering Committee develops recommendation based on input from wide range of stakeholders and subject matter experts Aug 10, 2005IT Investment Board approves Steering Committee recommendation to commence formal negotiations Oct 25, 2005IT Investment Board votes whether to recommend that the Governor approve the Comprehensive Agreement

10 expect the best Infrastructure Partnership “Musts” As part of any Comprehensive Agreement, vendor must agree: –Employees MUST be treated fairly and equitably –No additional GF or taxpayer dollars –No increased cost over our FY05 baseline expense level –Must have skin in the game—investment & risks –Must provide value to citizens Economic development –Provide more efficient and modern IT environment that improves services and security –No services provided from outside U.S.

11 expect the best Vendor Capital Investment FY 2006FY 2007FY 2008 $50,000 $75,000 $100,000 $125,000 $150,000 $175,000 $200,000 $98,050 $1,740 Total Investment = $294.7 M Average Capital Investment over first 3 years ($000) $194,913

12 expect the best Financial Comparison—Total 10 Year $2.20$2.25$2.30$2.35$2.40$2.45$2.55$2.60$2.65 FY05 Baseline Spend Continue As-Is Outcome Deteriorating 1980s Infrastructure Partnership Outcome Efficient 21 st Century Infrastructure (Billions)

13 expect the best How Do We Ensure Success? VITA has collaborated with independent IT industry experts to negotiate a Comprehensive Agreement that will be considered successful now AND in 10 years Minimum service levels are a central part of Comprehensive Agreement –Significant portion of payment to vendor will be withheld if minimum service levels not met Service levels are common IT industry tool to tie payment to performance Comprehensive Agreement service levels negotiated based upon lessons learned from other large government deals –Continuous improvement of vendor performance required in addition to minimum service levels

14 expect the best How Do We Ensure Success? Risk mitigation factors contained in Comprehensive Agreement: –Independent annual audits Finance, security, compliance with COV policies –Performance bond –Expiration and separation (early termination) addressed 2.5 year transition commitment by vendor Ability to take services back or re-compete Commonwealth under no financial obligation in the event of performance default by vendor or non-appropriation Vendor can only terminate for non-payment by Commonwealth Termination fees only if COV terminates for convenience

15 expect the best How Do We Ensure Success? Partnership with viable, motivated company who has “at risk” skin in the game –Vendor will have $ million capital investment at risk; any return on investment requires success –Potential impact of failure by vendor carries significant negative repercussions beyond the Commonwealth Loss of market standing Negative financial impact; this is a very large deal, even for these vendors Damage to national reputation

16 expect the best How Do We Ensure Success? Comprehensive Agreement requires commitment to Commonwealth –Employees and employee acceptance –Services provided in Virginia –Economic development Penalties for not meeting job creation target This is not a “turning over the keys” situation –ITIB, CIO and VITA will govern IT policies, architecture, standards and security, as well as manage vendor’s performance –Stability of ITIB and CIO will help mitigate effect of Administration change

17 expect the best What Happens Next? Interim Comprehensive Agreement concept Preparing for recommendation to ITIB on 10/25 Ongoing communication with General Assembly, agencies, employees and other stakeholders Evaluating capital/operating lease component

18 expect the best For More Information on VITA Lemuel C. Stewart, Jr. CIO of the Commonwealth