Part of the problem, says Howard Lackow, senior vice president at The Outsourcing Institute in Jericho, N.Y., is the fundamental disconnect between big business (which wants to move fast) and municipal government (which traditionally moves slow). "Government is so archaic and cumbersome," Lackow says. "The whole objective [of outsourcing] is to try to streamline government, but that doesn’t seem to happen."

Although outsourcing might at first seem cost-effective for CIOs and lucrative for vendors, once projects are under way both parties find themselves spending a lot more time, money and energy than expected. Just ask CSC, the $10.5 billion IT services provider based in El Segundo, Calif., whose Pennant Alliance consortium has already exceeded its projected investments in San Diego County by about $10 million and 300 extra people. "Government takes a lot more hand-holding, care and feeding than people expect," Lackow says, and as a result there are fewer clients or vendors willing to take the risk.

But beyond unforeseen expenses, which can dog any IT project, public sector outsourcing poses some unique challenges?any one of which could kill a deal.

The scope of work. Frankly, state and local government IT is in worse shape than one might think. Because IT investments have been spotty at best in most agencies, the equipment is old, the networks are patched together, and the information silos are unbreached. It being the public sector, political turf is fiercely protected. Even though both sides in the San Diego contract did their due diligence before inking the pact, the county never really knew what it had for IT assets?much less what shape they were in. And no amount of homework prepared CSC’s Pennant Alliance for the amount of work that needed to be done just to get the county’s creaky infrastructure ready for upgrading. "We knew the triage work was going to be complex and difficult, but it was more than we expected," says CSC’s Richard Jennings, the former project manager of the San Diego contract. To complicate matters, all the work has had to be done while maintaining high levels of public service. "We’re changing the engine in a car that’s moving," Jennings says.

The publicity. Even though most private sector outsourcing deals are conducted between publicly held companies, the negotiations are still held in private. Not so in government, where every bid is a public document. The government executives are used to this transparency (not that they like it), but the vendors aren’t. "It’s a turnoff," Lackow says. "From the vendor’s perspective, even if you lose the contract, suddenly your pricing structure is public." And from the CIO’s perspective...well, would you want all your dirty data aired in public?