Two years ago, San Diego County was supposed to be the proving ground for wholesale IT outsourcing of local and state government functions. Its seven-year, $644 million pact with a vendor consortium led by Computer Sciences Corp. (CSC) was said to be the first wave of a flood of new public sector outsourcing deals?all of them aimed at making government faster, more efficient, more e-businesslike for everyone. As the deal unfolded, government CIOs nationwide had one eye on San Diego and the other on their own preliminary outsourcing plans. The top outsourcing vendors, fresh from Y2K, promoted the state and local government marketplace as their Next Big Thing (see "High Anxiety," at www.cio.com/printlinks).

But today, San Diego is a mess. After some initial successes, the two principal executives who struck the deal have moved elsewhere (never a good thing in an outsourcing relationship). The new day-to-day managers are embroiled in such a bitter behind-the-scenes dispute over costs, service levels and a late ERP rollout that CSC has imposed a gag order on the account, for fear of igniting a public war of words. And the lucrative state and local government outsourcing bonanza that was supposed to develop right after San Diego’s ink dried has never materialized.

CIOs who remain committed to outsourcing?but are wary of following San Diego’s lead?are trying different tacks, such as breaking out smaller pieces for vendors. But by and large, across-the-board outsourcing of state and local government has become a prospect that never quite got off the ground?and, because of several intractable hurdles, it probably never will.

Even Rock Regan, the state of Connecticut CIO who has long been the poster boy for state and local government outsourcing (see "Connecticut Antes Up," at www.cio.com/printlinks), now says if he had the chance to outsource all over again, he’d take a very different tack. "Knowing what I know now, if we outsourced we’d do it in chunks?not all at once," says Regan, who is the current president of the National Association of State CIOs (NASCIO). As he surveys the national landscape, Regan sees little new outsourcing activity in the public sector. He attributes part of the stall to the recession. But mostly he cites what he now sees as the fatal flaw of wholesale outsourcing in local government: too much, too soon. "Too much change, too much politics, too many battles," he says.

Why Can’t We All Just Get Along?

Outsourcing is a proven business strategy in the private sector, so why can’t it work in City Hall?