Municipal shared services agreements for information technology

Are shared IT services for municipalities a good deal? What are the risks and do they really save money or will you be stuck with a nightmare scenario from which you can never extricate your organization?

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In New York State, Governor Andrew Cuomo’s Countywide Shared Services Initiative “requires counties to assemble local governments to find efficiencies for real, recurring taxpayer savings... by coordinating and eliminating duplicative services and propose coordinated services to enhance purchasing power.”[i] New York is currently offering substantial financial incentives to municipal organizations that “create savings.”

According to a 2013 study[ii], about 8 percent of municipalities participate in IT shared services programs. Considering the financial incentives, I suspect that the percentage has increased significantly since that time.

In theory, shared services agreements among municipal entities appear to be a great deal for everyone involved, and especially for taxpayers. In reality? I am not only skeptical; I have seen the negative consequences of such agreements in the form of low-quality IT services that cost far more than similar services delivered by commercial vendors.

One possible scenario

A common scenario for shared IT services might take the form in which a county IT department becomes a service provider for cities, towns and villages in its jurisdiction. This may include email, infrastructure services, help desk services, software, printing of tax bills, break/fix services, hardware procurement and much more.

In this type of scenario, the county’s management may view such a deal as an opportunity to turn their IT operation from a cost center to a profit center. However, the differences in performance and productivity between the private and public sectors can be stark. Running a successful commercial IT services business is a tough, highly competitive undertaking that requires excellent management skills and continuous improvement.

For many municipal managers and elected officials, the one-time financial incentive may blind them to the necessity of examining the long-term consequences of such an arrangement. In other words, they will want to build the airplane in the air and the basis for the deal may be something that is not much more than a handshake deal, devoid of reality and details.

Get it right!

It is possible for a municipal shared services agreement to be successful, but success won’t be accidental. If you are involved in negotiating such an agreement, I provide the following suggestions to ensure that you make the best deal possible.

Use rigorous procurement methodology

A shared services agreement should be treated exactly the same as a deal with a commercial vendor. A few examples of documentation required for the evaluation should include the following:

  • Service level requirements. This is a document that precisely defines your requirements. Before entering into any service agreements with outside agencies, your organization should thoroughly understand and document your business needs, goals and objectives.
  • Service level agreement. This agreement is an essential part of any professional services contract. It defines requirements, responsibilities and accountability and includes financial penalties if the provider fails to meet agreed-upon service level targets.
  • Catalog of services. What is the universe of services offered by your service provider? How much does each service cost, and when are such services available? How do you obtain services not covered in the agreement?
  • PSA (professional services automation) system. An automated, auditable system for tracking incidents is a requirement for managed service providers. The system should be configured to send alerts to management and executives when the provider fails to meet agreed-upon service levels. Daily or weekly status reports should be available to the customer.

The agreement framework

Will this be a simple agreement using an MOU (memorandum of understanding) or some sort of BPA (business partnership agreement)? Regardless of the format recommended by your attorney, a clear exit path must be part of the agreement in case the relationship doesn’t work out. Agreements with commercial vendors always spell out how the relationship may be dissolved, but I have seen municipal shared services agreements that have no such escape clauses for the “customer.” Make sure you can get out of the deal if it isn’t working out.

Comingle infrastructure resources carefully

A significant risk of a shared services deal is that IT infrastructure built between the parties may become intertwined to an extent that may be difficult and expensive to unravel. Clear boundaries should be established that will allow the parties to simply unplug if the deal doesn’t work out. Also, who owns infrastructure and data? How do you get your data back once the relationship is dissolved?

Information security, governance and policy

Whose governance policies will apply? Acceptable use policies, security policies, regulatory compliance policies and personnel policies as well as organizational culture should all be considered. How will sanctions for policy violations be addressed between agencies?

Is the provider using best practices for ITSM (information technology service management) and ISMS (information security management systems). Are they in ITIL or ISO 20000 shop? How will security be managed? Do they follow any generally accepted frameworks for information security?

Quality control

Who will define quality standards? In the commercial world, the customer determines quality. In the public sector, the provider often defines quality — the DMV being a perfect example. What recourse do you have if the provider fails to meet quality standards? With a commercial vendor, you simply terminate the deal. In a shared services scenario, terminating the deal may require political capital that is not available. These arrangements present the real risk that you could be stuck with a bad deal for years or even decades.

Summary

These are only a few examples of the processes required to evaluate and negotiate a successful shared services agreement.

The great advantage of democratic local government is that citizens have the ability to address poor municipal management through the democratic process. If we’re not happy with the decisions and actions of management, city council or a county commission, we can simply vote them out of office. The problem with the trend toward regionalization of government functions and services is that we lose that ability to control it through elections. Don’t lose your ability to control your information technology operations by making a bad shared services deal.

References and endnotes

Shared Services Among New York’s Local Governments,” research brief, Office of the New York State Comptroller, Division of Local Government and School Accountability, November 2009

Shared Services: Establishing a Competitive Business Within a Business,” NDMA Inc.

[i] Shared Services Initiative, State of New York.

[ii]Shared services in New York State: A Reform That Works,” George Homsy, Bingxi Quian, Yang Wang and Mildred Warner, August 2013.

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