State seeks rate cuts from IT suppliers

By: Peter Bacqué | Times-Dispatch
Published: April 03, 2009

The governor's office has quietly asked some of the state's IT service suppliers to roll back their rates 10 percent because of budget cutbacks.

And the state says it also wants future service rates to be 10 percent lower.

The state's request went to 27 prime contractors, but the rollback request affects about 250 vendor companies holding contracts for about $50 million in IT labor support, according to Lemuel C. Stewart Jr., chief of the Virginia Information Technologies Agency.

Van Williams, whose company, Smart Resources Inc. in Henrico County, provides information-technology staff to state agencies, said small businesses will be affected dramatically.

"While 10 percent may seem a small and reasonable amount at first glance, the impact is far more disastrous," Williams said, cutting a company's bottom line by 50 percent or more. "This is not acceptable if you, in fact, want small business to succeed."

The rollback effort comes as Virginia has been wrestling with a $3.2 billion budget shortfall.

"Spending in virtually every area of state government was substantially reduced," said Wayne M. Turnage, Gov. Timothy M. Kaine's chief of staff. "The one area that did not experience major retrenchment was information technology."

The state hopes to save about $3 million through the IT service suppliers' rate reductions, Stewart said.

Virginia has not asked its contractors in other industries to make similar reductions.

However, all government agencies have suffered budget cuts, said Gordon Hickey, the governor's press secretary.

"To the extent that they have contracts with vendors," he said, "there will be cuts in those contracts as they come up for renewal."

The governor's office said the state is negotiating with Northrop Grumman, which is far and away the state's main computer and communication services provider, to lower its rates.

VITA's Stewart said Northrop Grumman's $2 billion, 10-year contract is fixed and the state is not renegotiating its partnership agreement with the company.

Northrop Grumman did not respond to inquiries about the status of its partnership with Virginia. The 10 percent rollback request would apply to the company's other business with the state, Stewart said.

In a memo headed "Commonwealth Budget Crisis" last month, Turnage told the state's IT service contractors and consultants that "we are requesting the assistance of the supplier community to undertake the following action immediately:

"Voluntary 10 percent rate reductions for ALL Information Technology contractors or consultants currently engaged with the commonwealth."

And, Turnage wrote, "these new rates will be in place from this point forward for new engagements for contractor or consultant services."

The rollback request comes without penalties for nonparticipation, the state said. "Nobody's going to be blackballed," Hickey said. "If you can't do it, you can't do it."

Four service suppliers companies so far have agreed to the voluntary rate cuts, VITA said. But Williams said "I turned down the voluntary 10 percent decrease for my folks at DMV."

Josh Levi, vice president for policy with the Northern Virginia Technology Council in Herndon, said "we are concerned that it appears to be targeted specifically at IT and not all state contractors.

The council has 1,050 member companies representing more than 200,000 employees. The council is the largest such organization in the United States.

"There are probably more productive ways to do the belt-tightening," Levi said. "The state can work with their contractors to deliver more value."

Contact Peter Bacqué at (804) 649-6813 or pbacque@timesdispatch.com.