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Chapter 2: Competitive Government
Use “Seat Management” to Acquire Personal Computer Services
Summary
To improve the cost-effectiveness of their operations, many government agencies are attempting to identify internal functions that can be performed more efficiently by the private sector. One area often considered for outsourcing is information technology, particularly personal computer equipment and services. The federal General Services Administration has developed an outsourcing approach called “seat management” that transfers complete responsibility for personal computing to a private contractor. While seat management is a relatively new outsourcing strategy, it holds great promise for Texas state agencies.
Background
Government agencies in the Information Age face a number of challenges in managing their information technology (IT) resources. Change is a constant in the IT world; computer makers are constantly introducing faster chips and communications links, as well as new communications media such as wireless systems. Software designers are following suit with faster, more powerful programs. Government IT planners must cope with this dizzying rate of change despite flat or even declining funding and staffing resources, while also facing constant compatibility problems caused by the uncoordinated acquisition of desktop computing services and products by individual agencies.
Seat Management
The federal government has begun addressing such issues by developing “seat management,” a contractual arrangement in which complete responsibility for government personal computer (PC) resources is transferred to a private contractor. The contractor then becomes responsible for PC acquisition, planning, installation, configuration, testing, maintenance, repair, upgrades, training, project management, asset management, disposal, and other services.[1] The federal General Services Administration (GSA), which coined the term, defines seat management as including all necessary hardware, commercial “off-the-shelf” software, connectivity, and support services needed to support desktop computing.[2]
GSA’s seat management contracts address a major problem often associated with desktop computing, the “à la carte” purchasing of computer goods and services by various government agencies and departments. Seat management provides one-stop shopping for desktop, networking, and other IT services at a predictable price, often significantly lower than the total price of the same components acquired separately. It is an effective way to establish a large, standardized PC desktop environment for a relatively modest up-front expenditure. According to Giga Information Group, a major IT consulting company, standardized PC desktop environments are 15 percent to 20 percent less costly to operate and maintain than “à la carte” environments. Standardization makes it easier for support staff to troubleshoot applications, and it eliminates compatibility problems affecting programs, files, and e-mail attachments.
Seat management also requires the contractor to keep installed technology current, or “refreshed.” It is generally agreed that three years is a good “refresh rate”; in other words, that personal computers should be replaced every three years to keep pace with changing technologies. However, government-purchased PC equipment must be used longer than three years to realize the full benefit of the capital investment. As a result, many government agencies replace their equipment sporadically. Seat management contracts, by contrast, include refresh costs in a monthly price paid over the term of the contract.[3]
Furthermore, outsourcing gives government access to individuals with specialized skills that might otherwise be both expensive and difficult to attract to public employment.
In its purest form, seat management turns PC resources into a utility. The customer purchases the right to use the vendor’s equipment and resources, but the vendor is the owner and is ultimately responsible for their upkeep, as with power lines, telephone lines, television cable, and cellular phones. Seat management frees government agencies from the need to offer day-to-day computer support, allowing them to concentrate on their core functions and direct more resources to external customer service. It streamlines procurement as well, creating one supplier, one report, one bill, one charge per user, and one point of contact and accountability.
Seat management arrangements rely on outcome- or performance-based contracts, in which the customer pays a fixed fee in return for a specific level of service. With seat management, agencies have predictable costs and know what kind of service to expect for that cost. The vendor assumes most of the risk, because it must achieve the prescribed outcomes or risk losing its fee.[4]
Total Cost of Ownership
Any organization considering a seat management arrangement must begin by determining the total cost of ownership (TCO) of its present computer operations. TCO assesses the overall cost of information technology, which includes far more than the purchase price of the computer itself.
TCO, as defined by IT consultants, Gartner Group, includes both direct and indirect costs. Direct costs include expenditures for hardware, software, peripheral equipment, networks, management and support labor hours, systems development, and communications. Indirect costs include computer downtime and end-user training, self-teaching, and support. Every organization must perform its own TCO study to weigh the benefits of seat management.
At a September 1999 Technology Excellence in Government (TEG) seminar, Charles Self, assistant commissioner for GSA’s Federal Technology Service, told attendees that the biggest impact of seat management might be its influence on the initial purchase of PCs. According to Self, too many agencies “just buy PCs at the end of the fiscal year with no real plan for how they will be deployed or whether they are even necessary.” Howard Stoodley, an expert in TCO benchmarking for Harris Corporation, echoed Mr. Self’s remarks and told TEG attendees that this kind of buying contributes to per-seat TCOs that can spiral to $15,000 per year and beyond.[5] These costs are significantly higher than Gartner Group estimates ranging no higher than $11,000 per year for a Windows-based desktop system in a distributed network.[6]
Furthermore, TCO analyses often uncover what Stoodley calls “soft costs”—costs incurred as a result of poor training, inadequate help desks, uncoordinated equipment replacement, a lack of standardization, and unconsolidated servers. Experts agree that better IT management, not more IT itself, is the only way to solve these kinds of problems.[7] At a March 2000 TEG seminar, Lt. Colonel Alvin Lee, a technology branch chief and program manager at the Air Force Air Education and Training Command (AETC), told attendees that Randolph Air Force Base officials found that their “soft costs” per client ran as high as $12,000 per year. These soft costs usually show up as operational and efficiency losses and are not reflected in IT budgets. The Air Force uncovered staggering productivity losses in its current environment, finding that the average desktop user at AETC spends 9.3 hours per month fixing his or her own IT problems and another 9.2 hours per month helping coworkers with their IT problems. At just one Air Force Base, that is the equivalent of 480 people not at work.[8]
Other Benefits
Agency computer purchases usually are made as lump sums, creating peaks and valleys in the budget. As noted above, PC purchases often are made with end-of-year surplus funds. Technical support, whether in-house or outsourced, is paid for separately. With seat management, the costs for all equipment and support are grouped into one monthly price per seat. The benefits to financial accounting are a single invoice, level budgets for equipment and services, and easier planning for upcoming budgets.[9]
Finally, seat management can be used to significantly reduce warehousing costs. Texas presently spends more than $314,000 each month to lease warehouse facilities across the state. Even a modest 5 percent savings in warehouse costs through seat management could save Texas taxpayers more than $188,000 per year.
Cost Variances
Government agencies soon discover that one contractor’s definition of seat management may differ substantially from another’s.[10] This inherent flexibility has helped to make seat management popular, yet it also makes it difficult to compare various contracts on an equal footing. For example, the National Aeronautics and Space Administration (NASA) version of seat management, the Outsourcing Desktop Initiative for NASA (ODIN) contract, also includes local telephone service, while GSA seat management does not.[11] Given the plethora of prepackaged goods, services, and pricing options available, the multitude of choices can seem staggering.
In addition, variances among negotiated service-level agreements can have a significant impact on the overall per-seat cost of a seat management contract. According to Elaine Dauphin, vice-president of marketing for the Systems Sciences Division of Computer Sciences Corporation, “If an agency wants 99.6 percent network availability, and a two-hour response time on hardware and software problems, they will pay more per seat than [for] a contract that allows for 98.4 percent availability and four-hour or 12-hour response times for repairs.”[12] In a real-world example, GSA’s seat management arrangement charges $288 per month for a Pentium III class machine and associated services, while a similar system with almost identical types of services under a US Department of Housing and Urban Development contract costs only $194 per month.[13] Most of the price differential can be attributed to differences in the service levels built into each contract.
Potential Savings
The most significant savings from seat management are due to standardization and centralized control and not necessarily in acquisition costs. In all, desktop hardware makes up less than 25 percent of the cost of a seat management contract, while ser-vices account for more than 70 percent. These services include technical support, system administration, networking support, and user training, among other things. Bill Kerwin, an analyst with Gartner Group, says that a well-managed seat management arrangement can reduce TCO by up to 30 percent.[14]
Several governmental organizations were early users of the seat management concept. These include NASA, the Virginia Department of Transportation (VDOT) and Virginia Retirement System (VRS), and the University of Texas Medical Branch at Galveston (UTMB). In addition, other agencies are evaluating seat management contract proposals or are considering seat management, including the Commonwealth of Virginia, the Texas Workforce Commission, and the Texas Comptroller’s office.
While the accounts of savings discussed below are somewhat sketchy, every agency that has tried seat management so far has reported improved service delivery and expected savings.[15] According to Gartner Group, the average monthly cost per seat to manage a desktop system ranges from $225 to $290, but the cost can escalate to $400 if an agency needs around-the-clock network and systems services.
NASA’s Jet Propulsion Laboratory (JPL) expects to save several million dollars via its seat management contract. JPL’s agreement covers 8,600 PC and Apple Macintosh systems. Richard Green, program manager for JPL desktop and network services, expects costs to decline and quality to improve over the next five years. In addition, the contract has made it possible for JPL to reduce its workforce by 130 employees and contractors.[16]
In September 1996, the state of Missouri awarded a “PC Prime Vendor” contract, changing the way Missouri purchases technology. The only investment the state made in the contract was the staff time involved in preparing the contract, about $200,000. Annual savings to the state are estimated at about $2 million for each of the contract’s five years. Savings to county and municipal governments are estimated at as much as $1 million annually.[17]
In late 1998, VDOT and VRS awarded a joint seat management contract. Before the contract award, VDOT completed a cost-benefit analysis to determine whether or not to issue a Request for Proposals for seat management. The TCO figures produced by this study were $4,500 annually per PC, or $375 per month. The contract’s current monthly prices, by contrast, range from $85.50 to $179 for desktop machines and laptops.[18]
In 1998, NASA chose seven prime vendors for its ODIN master seat management contract. NASA estimated its TCO for a general-purpose desktop seat at $2,940 per year. Under ODIN, the price has dropped to $1,900 per year, a savings of about 35 percent.[19] The ODIN contract also illustrates the success of multiple award contracting. Through the Federal Acquisition Streamlining Act of 1994, federal agencies are allowed to award multiple contracts covering the same scope of work. As needs are identified for specific tasks or products, the agencies can use streamlined, commercial-style procedures to attract bids for orders from the contract holders. Such continuous competition for orders is highly effective in allowing agencies to buy up-to-date technical capabilities and products quickly and at the best possible price.[20]
In Spring 1999, the City of Philadelphia, Pennsylvania awarded a 15,000-user PC desktop management contract. This is not a full seat management contract; it does not include technology replacement, for instance. Still, the program has eliminated multiple PC desktop procurement and services contracts, and the city believes it can save $800,000 annually through the single contract.[21]
UTMB is moving more than 8,000 users to a seat management contract providing for PC acquisition, PC and local area network support, Internet and e-mail support, remote access support, help-desk functions, technology refreshment, and data, voice, and video communications services. The contract displaced 52 UTMB employees who were offered positions with the vendor, many of whom will continue to work at the UTMB site.[22] According to Tom Epley of the UTMB Information Services Leadership Group, UTMB expects to save between $2 million and $3.75 million annually, or between 15 percent and 25 percent of its prior costs. This estimate is based on current costs of about $1,760 per seat per year, and a contract price of about $1,510 per seat per year.[23]
Risks
Of course, IT outsourcing entails an element of risk. One obvious risk is that the seat management concept itself is new, with relatively little in the way of a track record. Another concern is that service contracts can prove to be too rigid, limiting organizational flexibility.
Furthermore, many vendors offer seat management services bundled into packages to lower costs. Although this arrangement contributes to its cost-effectiveness, agencies cannot choose to drop one part of a package and keep the rest with the same price efficiency. Naturally, one of the biggest risks is the possibility of poor performance or nonperformance on the vendor’s part, requiring the agency to cancel its contract. Because the vendor owns the hardware, the agency would have only two choices—to let the vendor remove its machines, leaving the agency without equipment, or to pay a lump sum to purchase the equipment and find another vendor to service it. Seat management contracts should address alternate strategies for such occurrences.[24]
Outsourcing experts agree that an organization that contracts for seat management may not see immediate cost reductions. For one thing, in the face of declining budgets and capital expenditures, many state agencies have been forced to operate with obsolete and almost unserviceable computer equipment. While such arrangements provide poor service, they are also relatively cheap. In such cases, the initial cost of a seat management arrangement that introduces state-of-the-art equipment can be quite high. Seat management is a long-term commitment, and TCO savings accrue over time, after internal support costs fall.[25]
Despite such risks, desktop outsourcing will continue to be an increasingly attractive option for cost control. Budget pressure, increased demand, cost-effectiveness in government, and the pace of technological change all will further acceptance of the seat management model.[26]
Cultural Change Required
Seat management represents a significant cultural change for government agencies, and it can succeed only if the various departments or business units involved are willing to work together to standardize their product and service requirements. Government agencies considering seat management anticipate savings based on standardization, economies of scale, and efficient management, yet many organizations that wish to quantify their potential savings do not even know what they are spending today. Even if spending estimates can be made, service levels are rarely measured, making it impossible to develop “apples-to-apples” cost comparisons.
As with any outsourcing initiative, no agency should begin “shopping” for seat management vendors without understanding its own internal goals and requirements. Organizations must develop a business plan focused on strategic objectives and agreed to by key stakeholders. Only then can they make informed decisions regarding the structure or suitability of a contract.[27]
Recommendations
A. Texas state government should adopt a seat management plan.
The planning participants should represent all state agencies and higher education institutions. Pilot Total Cost of Ownership (TCO) studies with 10 to 12 state agencies should be conducted over the next biennium, with the assistance of the Texas Department of Information Resources (see below). These pilot studies should be used to benchmark the current computer environment of these agencies and identify possible next steps for statewide implementation.
B. The Texas Department of Information Resources (DIR) should establish a Seat Management Office as a single point of contact for the state’s seat management planning efforts.
This office would coordinate the development of contracts; set minimum standards; serve as a “best practices” repository; manage and evaluate the pilot TCO studies; evaluate and recommend any modifications to the state’s seat management practices; and develop transition plans for the move to seat management and for any subsequent move from one seat management contract to another. The office should also develop an agency guidebook on seat management.
C. All state agencies and institutions should be directed to provide the Seat Management Office with an accurate personal computer inventory report.
The Statewide Property Accounting (SPA) system reports data on computers that state agencies have acquired through either purchase (capital expenditures) or capitalized leases (lease-purchase); however, it does not include computers acquired through operations leases. The reports should include both items reported through SPA and all computers operated through lease arrangements not reported through SPA.
D. DIR’s Seat Management Office should define alternate or change-of-vendor strategies to address any potential contractor failure.
This strategy should be outlined in all seat management contracts and should include a plan for payment if agencies choose to buy out vendor assets located at agency sites.
E. The Seat Management Office should, after evaluating the pilot TCO studies, recommend an appropriate plan of action, if feasible, to the Legislature for implementing a seat management strategy. This plan should include all necessary implementation costs and potential savings connected with seat management.
F. The seat management contract should be a multiple-award procurement.
In view of the success NASA has enjoyed with a seven-vendor seat management arrangement, state agencies should be able to choose among multiple vendors who would be prequalified by the Seat Management Office to ensure that they have the experience and ability to handle the contract.
Fiscal Impact
The inherent flexibility that makes seat management useful also makes it difficult to compare various contracts on an equal footing. In addition, variances in service levels, individual agencies’ IT requirements, and the indirect costs included in individual TCO studies can have a significant impact on the overall cost, per seat, of any seat management contract. The factors of equipment age and budgetary constraints must be taken into account as well.
The Statewide Property Accounting (SPA) system, as of May 30, 2000, reported more than 480,000 personal computers in use at 203 state agencies. Even if the computers reported by various legislative and judicial offices are excluded, the number still exceeds 473,000 computers in 174 state agencies. In addition, these figures do not include computers obtained through operations leases, which are not reported through SPA. Based on the SPA computer count, state agencies operate from as few as two computers (Red River Authority, Rio Grande Compact Commission) to as many as 61,113 (University of Texas at Austin). Of the 174 agencies, 64 operate 100 or fewer computers, and only 28 agencies operate 5,000 or more computers each.[28]
Based on these figures and the varying requirement of individual agencies, a pilot TCO study project must be completed for a true picture of the state’s IT environment and the fiscal impact of potential seat management opportunities. Once the pilot studies are completed, the Seat Management Program Office will be able to recommend a comprehensive seat management package to the Legislature with appropriate savings and cost estimates.
The cost of starting and maintaining a Seat Management Program Office at DIR is estimated at about $205,000 per year, including salary and benefit costs for one staff position. The cost of the TCO studies is estimated at $48,000 per agency for 12 agencies over the first biennium.
While it is impossible to determine potential savings at this time, savings to agencies implementing seat management are anticipated to be significant. Preliminary analysis indicates that if the Seat Management Program Office can deliver a contract as efficient as the UTMB contract, then every state agency operating computers should be able to save at least $250 per computer per year, or more than $118,450,000 per year statewide.
|
FiscalYear
|
Saving/(Cost) to the General Revenue Fund
|
Change inFTEs
|
|
2002
|
($781,000)
|
+1
|
|
2003
|
($205,000)
|
+1
|
|
2004
|
($205,000)
|
+1
|
|
2005
|
($205,000)
|
+1
|
|
2006
|
($205,000)
|
+1
|
[1 ] Commonwealth of Virginia, Council on Technology Services Seat Management Workgroup, Seat Management for the Commonwealth of Virginia (September 15, 1999), p. 8 (http://www.sotech.state.va.us/cots/). (Internet document.)
[2 ] General Services Administration, “Seat Management” (http://www.gsa.gov/fedcac/seat.htm). (Internet document.)
[3 ] Commonwealth of Virginia, Council on Technology Services Seat Management Workgroup, Seat Management for the Commonwealth of Virginia, p. 13.
[4] Commonwealth of Virginia, Council on Technology Services Seat Management Workgroup, Seat Management for the Commonwealth of Virginia, p. 8.
[5 ] Technology Excellence in Government seminars, “Seat Can Win The Day,” p. 2 (http://www.reuter.net/teg/seminars/092999.htm). (Internet document.)
[6] Barbara DePompa Reimers, “Rethinking Federal Desktop Computing; Can seat management relieve management headaches?” Federal Computer Week (May 3, 1999), p. 2 (http://www.fcw.com/fcw/articles/1998/FCW_032398_231.asp). (Internet document.)
[7 ] Technology Excellence in Government seminars, “Seat Can Win The Day,” p. 3.
[8 ] Technology Excellence in Government seminars, “Are You Ready For Seat?” pp. 1-3 (http://www.reuter.net/teg/seat.htm). (Internet document.)
[9 ] Commonwealth of Virginia, Council on Technology Services Seat Management Workgroup, Seat Management for the Commonwealth of Virginia, p. 13.
[10 ] Brad Bass, “Going to the Source: Choosing a Seat Management Vehicle,” Federal Computer Week, Special Report on Seat Management (August 24, 1998), p. 1 (http://208.201.97.5/ref/hottopics/seatmgmt/feat4.htm). (Internet document.)
[11 ] Brad Bass, “Going to the Source: Choosing a Seat Management Vehicle,” p. 1.
[12 ] Barbara DePompa Reimers, “Rethinking Federal Desktop Computing: Can Seat Management Relieve Management Headaches?” pp. 2-3.
[13 ] Dianne Frank, “Per-Seat Desktop Pricing on Some Seat Management Contracts,” Federal Computer Week (April 24, 2000) (http://www.fcw.com/fcw/articles/2000/0424/pol-seatside-04-24.asp). (Internet document.)
[14] Barbara DePompa Reimers, “Rethinking Federal Desktop Computing: Can seat management relieve management headaches?” pp. 2-3.
[15] Commonwealth of Virginia, Council on Technology Services Seat Management Workgroup, Seat Management for the Commonwealth of Virginia, p. 2.
[16 ] Barbara DePompa Reimers, “Rethinking Federal Desktop Computing; Can seat management relieve management headaches?” pp. 1-2.
[17 ] National Association of State Procurement Officials, “Missouri PC Prime Vendor Contract,” (http://www.naspo.org/pubs/Bestpractices/mo.htm). (Internet document.)
[18 ] Commonwealth of Virginia, Council on Technology Services Seat Management Workgroup, Seat Management for the Commonwealth of Virginia, p. 17.
[19 ] Commonwealth of Virginia, Council on Technology Services Seat Management Workgroup, Seat Management for the Commonwealth of Virginia, p. 19.
[20] Memorandum from G. Edward DeSeve, acting deputy director for Management, Executive Office of the President, Office of Management and Budget, to The President’s Management Council, April 21, 1998 (http://www.arnet.gov/Library/OFPP/PolicyDocs/memopmc.html). (Internet document.)
[21 ] Jennifer Jones, “Philly Outsources Desktop Maintenance, Buying Strategies,” Federal Computer Week (May 3, 1999) (http://www.fcw.com/civic/articles/1999/CIVIC_050399_48.asp). (Internet document.)
[22 ] Commonwealth of Virginia, Council on Technology Services Seat Management Workgroup, Seat Management for the Commonwealth of Virginia, p. 22.
[23 ] Telephone interview with and PowerPoint slide presentation provided by Tom Epley, University of Texas Medical Branch, Information Services Leadership Group, April 17, 2000.
[24 ] Commonwealth of Virginia, Council on Technology Services Seat Management Workgroup, Seat Management for the Commonwealth of Virginia, p. 35.
[25 ] Commonwealth of Virginia, Council on Technology Services Seat Management Workgroup, Seat Management for the Commonwealth of Virginia, p. 12.
[26 ] Everest Group, “Desktop Outsourcing Observations, Trends, and Direction,” p. 2 (http://www.outsourcing-research.com/banners/everest/desktopoutsourcingobservations.pdf). (Internet document.)
[27 ] E. Zidar, Gartner Group, “Is Your Organization Ready for Seat Management?” research note, October 4, 1999, pp. 1-2 (http://gartner3.gartnerweb.com/). (Internet document; search for author Zidar.)
[28 ] Texas Comptroller of Public Accounts, State Property Accounting System, “State Agencies Reporting Personal Computers to the State Property Accounting System,” Austin, Texas, May 30, 2000. (Computer printout.)
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