IBM Corp is on the verge of receiving a 10-year, $1.16bn contract from the state of Indiana to modernize its welfare-to-work system and manage back-office processes. To sweeten the deal for Indiana, but completely unrelated to the welfare-to-work program, IBM has promised to pour serious technology investments into the state and create jobs there, the state said.
The announcement from the Indiana Family and Social Services Administration comes just one day after Texas awarded an IBM-led team of contractors a deal potentially worth nearly $1.1bn over 10 years to run data centers for state agencies.
Indiana Governor Mitch Daniels yesterday accepted the outsourcing proposal with IBM and its team of partners, including Affiliated Computer Services Inc. The state will hold a public hearing on the contract on December 8th. Following appropriate federal review of the deal and assuming things proceed without a hitch, Daniels is expected to sign the finalized contract sometime in December, according to Jane Jankowski, a spokesperson for the governor.
The FSSA basically acts as a purchasing outfit for the state’s welfare-to-work program; some 92% of its $6.55bn budget already goes to outside contractors. Included in these contracts are deals with managed care organizations for health care services, plus a few other large deals for administrative and IT functions that it has outsourced since the 1990s, Jankowski said. For example, the agency contracts with EDS Corp for claims processing, JPMorgan electronic benefit services, including program cards, and Deloitte for development of its computer system, which will see an upgrade under the new IBM contract.
The IBM deal is a relatively small slice of the FSSA budget, some 2% of annual spending. But the state expects the contract to save $500m in administrative costs over the 10 years. The services covered under the new contract were previously done in-house, and about one-third of affected state employees, particularly those who actually determine FSSA eligibility, will remain with the state. The other two-thirds, mostly back-office workers and support staff, will transfer over to IBM, Jankowski said. The contract is scheduled to start in August 2007, and employee transitions will start in March.
IBM will implement a phone system and a Web program for around-the-clock eligibility services. The company will also automate more data collection processes for FSSA’s call center and document services.
The upgrade appears to be long overdue, and the state isn’t shy about its poor welfare-to-work system. In a statement today, Governor Daniels called it America’s worst welfare system, and Jankowski said the statewide FSSA offices were all paper with no connectivity.
An apparently big selling point for state was not in the deal itself, but in a separate promise from IBM to create new jobs and bring high-end technology to Indiana.
While this has nothing to do with the FSSA, such an arrangement highlights the importance of economic development and employment, perhaps even more so than the administrative savings, in the signing of huge outsourcing deals on the state level.
After all, in a report on the IBM deal, the state said it had earlier dismissed Accenture Ltd’s proposal in the middle of the bidding process for not being responsive enough to the state’s requests and not looking after Indiana’s state workers and economic interests. No other contractors were involved in the bidding.
IBM’s commitment to the state includes four components: create 1,000 new jobs in Indiana over the next four years, many of which will be located at a yet-to-be-built IBM customer services center; provide a BladeCenter Cluster supercomputer to be jointly owned by Purdue University and Indiana University, as well as relevant research staff and training, at an estimated cost of between $6m and $7m; establish a technology center at the joint campus; and provide 400 hours of free development consulting services to the state.