Government IT Outsourcing Market to Soar

The market for outsourcing state and local government information technology functions, personnel and related services will grow by about 67 percent to $20 billion by 2011, according to a new report.

Market research firm Input, which released the report on Tuesday, said state and local governments will be motivated to consider outsourcing as a viable approach due to budgetary pressures, a need to modernize information systems and a drive for economic growth.

Michelle Miller, an Input senior analyst, noted that Northrop Grumman Corp. has been running Virginia's state technology operations since July, under a deal that could be potentially worth up to $2 billion over 10 years. The state also signed a separate agreement with CGI Group Inc. for software development and applications work.

She said there are a handful of other cities, such as San Diego and Falls Church, Va., and states including Indiana and Texas, that have wholly or in part outsourced technology-related functions.

Miller said Indiana recently signed a $1.16 billion, 10-year deal with an International Business Machines-led team to modernize and run the state's social-services eligibility system. The government said improving services and reducing waste and fraud could save its taxpayers a significant amount of money.

IBM also will build a data center that will generate 1,000 jobs. Miller said economic development is another factor state and local governments are considering in these deals.

However, Miller cautioned that state and local officials are still wary of outsourcing and are monitoring the outcomes of these projects before they move ahead.