Shared Results: Strengthening the Enterprise

Appendix A Data Center Services — A Case Study

Applying the Core Principles

Through its adoption of a business-driven approach, development of a common vision through collaboration, and establishment of clear accountability through a systematic and rigorous process of data gathering and validation, the data center services initiative provides an excellent example of the state working as an enterprise.

State leadership set clear expectations during the 79th Legislative Session to consolidate the state ’s data centers (TGC 2054.375–391). Passage of the legislation, coupled with the August 2007 expiration date of the existing data center services master contract, were key factors in developing an appropriate schedule for the data center services initiative.

In implementing the provisions of the new laws, the state will deploy data center services that will combine and coordinate agency data center and disaster recovery operations to improve efficiencies and performance. Sharing data center services will leverage economies of scale and improve security and disaster recovery capability, while maintaining or improving existing service levels and reducing costs. Successful delivery of shared data center services is a top priority for the state.

Business-Driven Approach: Proven Best Practices

The Texas data center services initiative is significant for the state. A leading technology research and analysis firm, Gartner, Inc., characterizes the market for data center outsourcing as “one of the most mature”technology service categories.[7] The market has developed over several decades and data center services contracts have become standard. The global sourcing market continues to account for approximately $67 billion annually,[8] with recent growth increasingly fueled by government contracts.[9] As governments and global private sector companies consolidate and source the data center infrastructure, they find proven methodologies, greater standardization in contracting practices, and strong competition among service providers for business.

Texas has hired leading experts to bring the proven best practices of this marketplace to the data center services procurement. Technology Partners International (Houston), a firm that has supported more than 780 sourcing transactions, and Mayer, Brown, Rowe, & Maw LLP (Houston), a law firm with extensive expertise in technology services contracts, worked with state staff to develop the Texas methodology, Request for Offer (RFO) documents, and Master Services Agreement.

DIR has invested in strong quality assurance processes to encourage competition and ensure equal treatment of all bidders. An independent procurement quality team has been established that meets weekly. Monitors from the procurement quality team oversee all evaluation team meetings, clarification sessions, and additional meetings with the prospective service providers.

Collaboration: Agency Involvement

The data center services initiative has operated as a collaborative statewide project from its inception, emphasizing consensus and partnerships across all participating agencies. Since July 2005, 27 of the largest Texas state agencies have been working collaboratively to implement state leadership’s vision of shared data center services. More than 300 state agency personnel have participated in the data center services project over the past year.

Throughout this process, technology managers from participating agencies have been meeting as members of the Data Center Services (DCS) Advisory Council. The council established the guiding principles for data center services, and on an ongoing basis, provides input to DIR and coordinates all DCS project activities for their agencies. The process started with more than 100 agency staff in five functional workgroups reviewing the scope of services. The workgroups developed a list of more than 400 technology functions, and collectively determined which would be part of the data center and which would remain with the individual agencies. The groups reached consensus on all but two items, which were subsequently resolved through the DCS Advisory Council and DIR’s Executive Director.

Employees from the 27 participating agencies assisted in the development of the RFO and evaluated the responses. The development team participated in nine full-day workshops to build the RFO Statements of Work in February 2006. This effort included development of requirements, service levels, and the governance structures for future data center services. Many of the same people participated in 35 days of review sessions to evaluate the responses. This process included individual reviews, group assessments, and interactive clarification sessions with the prospective service providers.

The clarification sessions enabled the teams to pose questions about the proposals, clarify the state’s requirements, and receive explanation on the intent of the service providers’ proposals. After the clarification sessions, the service providers had an opportunity to amend their responses based on their improved understanding of the state’s requirements. The evaluation teams are supported by the Executive Advisory Panel, a representative group of senior agency executives who review the teams’ evaluation and share a critical business perspective with the state’s CTO.

DIR obtained agency feedback on the evaluation through confidential interviews with many of the evaluation team members. These interviews yielded constructive feedback about the thoroughness and quality of the process, the level of agency involvement, and the way agencies have begun to form an enterprise perspective through their participation.

In addition to state agency stakeholder involvement, Texas has sought to work in close concert with its federal partners to help them understand the state’s process and ensure full compliance with all requirements for continued federal participation in Texas programs. In August 2005, Texas sent a team to Washington, D.C., to meet with several federal agencies, including the Department of Agriculture and the Department of Health and Human Services (DHHS). These preliminary meetings established a foundation for information exchange and paved the way for future conversations about details such as cost allocation methodology, required documentation, and billing.

In February 2006, DIR provided the DHHS Division of Cost Allocation a white paper outlining the proposed approach for consolidation and outsourcing of data center services. This communication was followed by several productive conference calls with federal partners, Texas state agencies with significant federal funding, and DIR. As a result of these efforts, the Department of Agriculture and the DHHS determined that Texas, or any other states engaging in similar efforts, would not have to submit an Advance Planning Document, which would have required advance approval from all participating federal agencies before issuing the RFO or awarding the contract. With preliminary lines of communication regarding the Texas billing framework well established, the next steps include developing the details for the chargeback methodology and submitting the methodology to the DHHS in the Statewide Cost Allocation Plans for 2007 and 2008.

Accountability: Financial Base Case

Transforming the current financial model for data center services from “pay for assets”to “pay for services”requires rigorous research, analysis, and validation. The 27 agencies participating in the data center services procurement have collectively dedicated thousands of hours to gathering detailed data about the current infrastructure environment. This information, never before available, reflects the assets, resources, costs, contracts, and service levels that make up the Texas infrastructure. A comprehensive analysis of this data reconfirmed opportunities for consolidation, improvement, and greater statewide consistency in security and disaster recovery that were first revealed in the Statewide Data Center Assessment issued in March 2005.[10] Additionally, this detailed understanding of operations and costs forms an accurate benchmark from which to compare services, service levels, and pricing proposed by service providers.

The data center financial base case documents current costs incurred by the 27 prioritized state agencies. Costs in the financial base case include items such as employee salaries and benefits, hardware and software leases, disaster recovery contracts, and associated expenses, including postage and printing. The base year total was derived from the 27 agencies’ self-reported budgets for fiscal 2006–07.

The base year costs are extrapolated over a seven-year term that coincides with the life of the contract to establish a baseline for cost comparisons. The seven-year forecast is based on industry-standard economic modeling factors, including historical productivity gains and price improvements in technology. These expectations predict a decline in expenditures over time when no new programs or services are added. The factors were developed with the help of Technology Partners International and are based on their extensive industry experience with similar contracts. The base case is used in the financial evaluation of the RFO responses and to complete the business case analysis, which estimates future savings and benefits to the state.

The initial base case figures, published in the RFO on March 31, 2006, have been refined and updated through additional data gathering and work by the agencies. The new base case provides greater accuracy and a detailed picture of current operations and costs. The full-time equivalent (FTE) validation and due diligence contributed to the updates of the base case.

To ensure the data center and agencies each have the right resources to fully support operations, DIR hired an independent consulting firm to validate the number of affected FTEs. The firm reviewed data gathered to date, assessed organization charts, and interviewed technology managers and staff from the 27 agencies. The process resulted in changes to the number of affected employees in several agencies, with some agencies increasing affected employees and some decreasing affected employees. Additionally, many positions were reclassified from one out-of-scope area to another out-of-scope area (e.g., from “miscellaneous” to “help desk”).

This process allowed prospective service providers to obtain additional data about current operations to improve their responses and eliminate assumptions. The service provider bid proposal teams visited the agencies, interviewed operational staff, and collected additional information about technology in use (e.g., server complexity). Additionally, a total of 1,950 contracts were received and cataloged for review by prospective service providers. Due diligence activities concluded at the end of September 2006, to allow the findings to be incorporated in the Best and Final Offer responses, as appropriate.

The current data center services contract expires August 31, 2007, and no contract extensions remain. The new contract will be executed in late-November 2006, with a service commencement date of March 31, 2007. This timing is essential to give affected employees time to transition to the selected service provider and agencies sufficient time to seamlessly transition any currently contracted services before August 31, 2007. All current data center customers will transition to the new service delivery model, regardless of the selected service provider. The new contract will take over services in place and follow a gradual, deliberate plan to consolidate operations and achieve efficiencies over time. As Texas moves forward, the cornerstones of the project—accountability, collaboration, and a business-driven approach—will continue, ensuring the contract yields real value for the state.