Virginia Restructures Troubled Outsourcing DealVirginia Restructures Troubled Outsourcing Deal

Virginia has restructured a troubled $2.3 billion IT outsourcing contract with Northrop Grumman, Virginia Governor Bob McDonnell announced this week, only two weeks after reorganizing the state's IT department and switching CIOs.

Despite major contract woes -- including repeatedly missed deadlines and failing to create even a fraction of the jobs expected -- Northrop Grumman will be getting an added $152 million for additional hardware and services over the next nine years, though the state said the re-worked contract would cost significantly less than backing out and finding a new vendor.

Contract negotiations had been underway since before McDonnell took office earlier this year, and McDonnell's office was quick to point out in a press release that Northrop would have gotten even more additional money under a plan by predecessor Tim Kaine.

In terms of improving performance, the new contract increases penalties by 15% if Northrop Grumman doesn't meet certain performance standards, put new performance measurements into place, redesign the work order process, and create improved incident response and dispute resolution processes.

"Through this renegotiation we have implemented a number of new features that will make the system work more smoothly," McDonnell said in a statement. "We will demand a much better managed [Virginia Information Technologies Agency] and a much more responsive Northrop Grumman."

The revised contract includes some additional services as well, including new cybersecurity work, upgraded disaster recovery services, and revised help desk services and processes. Additionally, under the new contract, Virginia will begin "long delayed" upgrades to desktop operating systems, Microsoft Office, and Microsoft Exchange Server later this year.

The restructured contracts cap a series of sweeping changes made to Virginia's IT department over the last few weeks. Since mid-March, McDonnell signed a new law that reorganized and reallocated IT leadership power in the state, removed the state's previous CIO, and hired a new one.

On March 15, McDonnell signed a new law that gives the state's secretary of technology a number of new powers, made the state's CIO directly accountable to the governor, and disbanded a formerly powerful independent oversight board.

Then, on March 24, McDonnell used his powers to remove CIO George Coulter, who had only led the state's IT department since late August 2009, after former CIO Lem Stewart was controversially fired last May. To replace Coulter, McDonnell hired Sam Nixon, a Republican state delegate and IT consultant for Richmond-based consulting firm CapTech Ventures. Nixon has had a long career in IT and politics and has helped push a number of IT-related reforms through the state legislature.