IT contracts: Huge investment buys headaches

As states grapple with serious damage from contracting out information technology systems, the federal government is reconsidering the risks of outsourcing IT. Texas is cancelling its $863 million contract with IBM because of repeated failures, just as Indiana did last year. Halfway through the 7-year Texas contract to centralize computer services and data storage for multiple state agencies, only 10% of the work is done. State officials say inadequate staffing and shoddy service by IBM have caused data loss and severe backlogs.

Virginia's $2.3 billion IT contract with Northrop Grumman also has been plagued with delays, cost overruns, and poor service, as well as disagreement on issues such as who owns the physical hardware. Virginia is desperately trying to salvage the contract because a 2009 audit showed cancellation would cost the state $400 million.

As these state contracts flounder, the federal government is examining 26 IT contracts, totaling $30 billion, to determine which are ineffective and should be scaled back or cancelled. More information about the 26 high-priority IT projects is available on the government's IT Dashboard site.

While outsourcing IT may not be as obviously sensitive or risky as national defense or water supplies, technology allows governments to track important records, provide critical services, and communicate vital information. The failure of seemingly mundane services can cause widespread harm by disrupting the ability to draw unemployment, renew car registrations or receive medical care -- to name just a few of the crucial services affected.