Legislative Analyst's Office
February 22, 1995

Department of General Services (1760)

Departmental Performance


In 1989 the DGS contracted with a vendor to establish a voice and data system for state government. Known as the California Network System (CALNET), the project was to provide the state its own telephone system plus the ability to provide networking and data transmission services for the state's various information technology programs. According to the contract, the vendor was to have the system in full operation by 1992, at a cost to the state of $67 million.

Because the vendor has not been able to complete a key task--the delivery of a Network Management System as specified in the contract--project completion has been delayed; however, CALNET is operating at reduced level of capability. At the same time, CALNET is not breaking even, with the gap between the DGS' expenses for CALNET and revenue derived from customer departments about $2 million in 1993-94 (we discuss this situation later in this analysis).

Private sector vendors of telecommunications services maintain that CALNET as currently designed will never be competitive with, or as capable as, their systems, and some state agencies have in fact selected alternative solutions. For example, the Department of Justice purchased telecommunication services from a private vendor. This use of other systems has presented a difficult situation to the Telecommunications Division, given the department's promise to become more customer-oriented and rid itself of services that can be provided more effectively and/or at less cost by others. The Telecommunications Division is seeking the assistance of an outside consultant to help it determine a course of action which will be most beneficial to the department's customers. Although we have some concerns with the proposed consultant contract, which we discuss later in this analysis, we believe that the Telecommunications Division is moving in a customer-oriented direction.


CALNET: Part of a Statewide Problem, or Part of a Statewide Solution?

Despite an investment of approximately $20 million to date, with additional expenditures through 2001-02 estimated at $50 million, CALNET continues to lose money while some state agencies buy telecommunication services from the private sector.

In a report on statewide information technology issued by our office in June 1994, we noted how the number of separately maintained data communication networks had grown substantially in the absence of effective coordination and the lack of a statewide plan. CALNET, conceived as an effective answer to both the state's telephone and data transmission needs, has instead become a costly endeavor which has not yet reached the operational capability originally intended.

It is important to note, however, that CALNET is providing both voice and data communication support to many state agencies. It is simply not recovering its cost of providing those services at current rates, and as noted above, the difference between cost and revenue was about $2 million in 1993-94.

Telecommunications Division staff maintain that CALNET could break-even at even lower rates if state agencies were required to use CALNET in lieu of purchasing telecommunications support from other sources. However, the department has not exercised its authority to force all departments to use CALNET, and is understandably reluctant to raise rates because doing so would make CALNET less competitive with private sector services. In addition to wanting to be more customer- oriented, and therefore not force business, there may be sound technical or service reasons for allowing some customers to shop around for telecommunications services. Nevertheless, the end result is the same: CALNET continues to lose money. At the same time, the proposed budget includes $3.5 million to (1) meet the next installment payment on the vendor contract--$2.8 million, and (2) add capacity to CALNET-- $697,000. As we indicated in our June 1994 report on statewide information technology, it makes no sense to invest heavily in a system with statewide capability and continue to invest in many separate systems at the same time.

Will a Consultant Study Improve Matters?

The department's intention to hire a consultant to study the state's telecommunications needs and recommend a strategic direction is an important step in the right direction. The effectiveness of the consultant's effort, however, will be dependent on the department's ability to develop a contract which will allow an unbiased assessment of potential solutions.

On December 19, 1994, the department, through its Telecommunications Division, released a Request for Conceptual Proposal (RFCP) to begin the process of hiring a consultant to evaluate the existing strategic direction for state telecommunications and make recommendations to improve the effectiveness and efficiency of state telecommunications policies and practices. According to the RFCP, the consultant's study should include a review of the competitiveness of CALNET. The department plans to award the contract in March 1995, with a final report due in August 1995. We believe that this is a step in the right direction, and we believe that certain aspects of the RFCP represent an improvement in contracting practice (for example, weighing the evaluation 30 percent for price, and 70 percent for other factors, such as vendor and staff qualifications, understanding the business problem, and the approach to problem resolution).

Much at Stake for the Telecommunications Division. The department, through its Telecommunications Division, has invested a considerable amount of resources to plan and implement CALNET, and there is a strong desire to make CALNET work. Moreover, the Telecommunication Division views CALNET as the centerpiece of a reengineered state telecommunications system. The desire to see CALNET succeed could influence both the contract award and the tasks the winning consultant is asked to accomplish. This influence could occur, for example, in the way the department handles questions from potential bidders as to what is meant by certain RFCP requirements.

Our review of the RFCP leads us to conclude that there are aspects of the RFCP that should be clarified in order to ensure the best possible product from the consultant who is selected. For example, the RFCP includes suggested approaches to the consultant study, but also indicates that all of the suggested approaches must be used. Certain of these approaches are not clear as to their purpose, and could result in needless costs.

Therefore, while we support the department's plan to hire a consultant to study the telecommunication situation, we believe that the consultant's effectiveness will depend upon the department's ability to eliminate any predisposition to favor CALNET and develop a contract allowing for the unbiased assessment of potential solutions to the state's telecommunications needs.

Cost of Converting Public Safety Microwave Network to Digital Technology

We recommend that the department adopt a plan to convert the Public Safety Microwave Network (PSMN) to digital technology.

Conversion Required to Meet Customer Needs. The PSMN is a statewide microwave system operated by the DGS since 1978 to meet the communications needs of all public safety agencies within the state. Because network technology is becoming increasingly reliant on digital systems, the DGS has been converting to digital in order to meet the needs of clients who are adopting the newer technology (for example, the California Highway Patrol). The department is trying to avoid any need for a rate increase to customer agencies by converting to digital equipment when the older analog equipment is in need of replacement, thereby accomplishing a gradual conversion within the annual maintenance budget. In that regard, the proposed budget includes $2 million to replace old analog equipment with digital technology.

Need for a Conversion Plan. While the department's approach has seemed to work so far, we are concerned that it may not work as well in the near future. We base our concern on an August 8, 1994 study commissioned by the department entitled Public Safety Microwave Network Analog to Digital Conversion Plan. The study identifies three options for converting the PSMN to digital, each costing $90 million. The option recommended by the report is to upgrade the entire system to digital; this option is estimated to require five to ten years to accomplish. The study notes that the current funding level for conversion to digital "creates a major problem" in that the DGS is prevented from moving as rapidly as it should to meet its client agencies' changing requirements. The study further notes that failure to use a fully integrated and technologically matched system will cause significant problems since the PSMN is not able to operate effectively with the capabilities installed by its client agencies.

According to the department, it has not adopted the consultant's specific recommendation to convert the entire system to digital technology, although it seems to be moving slowly in that direction. Given the importance of the PSMN, we believe that the department should have a specific plan which addresses the changing needs of its clients and the funding issue raised in the study. Consequently, we recommend that the Legislature adopt the following supplemental report language:

The Department of General Services shall adopt a plan for the conversion of the Public Safety Microwave Network to digital technology and provide a copy of that plan to the Legislature by January 2, 1996. The plan shall address the changing needs of the department's customers and how the department proposes to fund implementation of this plan.

Technology Initiatives

The department continues its efforts to employ various technology initiatives to better serve state and local government technology needs; however, certain of these initiatives may be working at cross-purposes and it is not clear as to whether the others are, or can be, as successful as anticipated. In this section we focus on five current initiatives:

Are Two DGS Services Complementary or Competing With Each Other?

We recommend that the department advise the Legislature, at budget hearings, on the extent to which its state computer store and its multiple awards schedule program are intended to be complementary or in competition with each other.

State Computer Store Sales Continue to Increase. Since 1986-87 the department has contracted, via competitive bidding, with the private sector for the operation of a state computer store selling desktop computer systems and related services to state agencies. Sales from the state store totaled approximately $305 million as of December 31, 1994, and are, according to the department, growing at an annual rate of about 25 percent. At present, there is only one store, located in Sacramento, and by DGS policy only Sacramento-area state agencies are allowed to purchase from the store. The department advises, however, that it plans to award a new contract in April 1995 which will provide for additional stores in San Francisco and Los Angeles, and that these new stores and the Sacramento store will be open to purchase from other governmental agencies.

California Multiple Awards Schedule (CMAS) Sales Also Increasing. In May 1994 the department implemented a new program to make it easier for state agencies to acquire information technology products and services. The concept is modeled after a long-standing program in the federal government which allows federal agencies to buy commodities and services from vendors based on price schedules, thereby avoiding the time and expense associated with conducting a competitive bid each time they want to make an acquisition. The state's version is known as the CMAS. Unlike the state computer store, the CMAS has always been available statewide, as well as to other governmental entities. Since its inception in 1994, CMAS sales are estimated by the department to be $16.7 million as of January 1995, and growing at an increasing rate as more vendors are added. Some of the same products are available through both CMAS and the state computer store; however, the prices can vary.

Each Program Managed Separately. It appears that both programs operated by the DGS are successful in terms of continually increasing sales, but each program is managed separately within the department, and there is a certain level of duplication in terms of products offered, which are sometimes priced differently. While there has for some time been an interest outside the DGS to expand the state computer store statewide and make it available to other governmental agencies, the department resisted expansion for several years, yet established the CMAS as a statewide program available to other governments.

Although, as noted above, the department indicates that the state computer store will expand and be open to other governments, it is not clear, given the different approaches and duplication of products, whether the department views these two programs as complementary or in competition with each other. We believe that this is an important question which the department should address during budget hearings, because state agencies and other governmental entities are becoming increasingly dependent on both programs to meet their information technology needs.

Videoconferencing--What Is it Saving?

While departments continue to invest in videoconferencing to operate more effectively, it is not clear as to whether state agencies are taking maximum advantage of this technology or whether its use is as effective as anticipated.

Videoconferencing is a relatively new technology which enables people in different geographic locations to conduct a face-to-face meeting without having to all locate in one place. Instead, participants travel to the videoconferencing site nearest to them. Thus, individuals in downtown Los Angeles can make a local trip to a videoconferencing site in order to "meet" with individuals who may assemble at a site in Sacramento. With the use of computers, television cameras, television monitors, and communications networks, all are able to see each other and converse, as well as display information from computers or overhead projectors. Additionally, hard copies of charts created during the meeting can be sent by facsimile transmission (FAX). The presumed benefit of videoconferencing is that it may significantly reduce the cost of travel, including flights, lodging, and meals, as well as nonproductive travel time by employees. According to the DGS, a one-hour meeting involving three people from Sacramento and three from Los Angeles would save a net $270 and 21 hours of staff time if conducted via videoconferencing.

To facilitate state agency use of videoconferencing, the DGS operates three videoconferencing facilities (Sacramento, San Francisco, Los Angeles) and has established a master contract from which agencies may acquire videoconferencing equipment. Moreover, the administration has authorized state departments to redirect up to 25 percent of their travel budgets to acquire videoconferencing equipment. As a consequence, as of late January 1995, 14 agencies had installed over 50 systems, amounting to approximately $4 million in sales under the master contract. The DGS has established a Videoconferencing Advisory Committee to guide the state's implementation of videoconferencing; however, the extent to which the growing investment in videoconferencing is producing offsetting savings is not known, because departments are not required to report this information. Without this information, it is difficult to encourage additional departments to use videoconferencing, and as a result the state may be missing an opportunity.

Electronic Commerce

Efforts to improve the state's procurement process through the use of information technology (IT) are on hold pending the resolution of responsibility for the state's IT coordination.

Prompted by both the Legislature in enacting Ch 1775/93 (AB 565, Polanco), and the administration's own desire to improve the state's procurement process, the DGS conducted a pilot project to determine whether computer-based procurements could eliminate paper transactions, reduce errors, shorten the procurement cycle, and produce net savings. This alternative process is known as "electronic commerce," because orders, invoices and payments, and related matters, such as inventory accounting, are accomplished electronically using computers and communication networks. The department had been eager to conduct the pilot test, believing that substantial savings could be realized from reducing the need for clerical staff and reducing errors.

In an October 14, 1994 report on the pilot project required by Chapter 1775, the DGS indicates that electronic commerce "is worth doing and the state should strive for full implementation." However, the report also cites several obstacles currently in the way of full implementation, including the state's IT coordination situation (please see the State Administration section of this Analysis). Consequently, the report recommends a more deliberative approach to implementing electronic commerce, placing primary responsibility for guidance with the new IT oversight organization the Governor has indicated he plans to establish. Consequently, until a new structure is defined, it appears that significant forward progress on implementing electronic commerce will not be made.

Putting SAM On-Line

The department is moving in the right direction in attempting to obtain added value from the state's growing and substantial investment in computers by making the State Administrative Manual (SAM) available electronically, which should eventually eliminate costs statewide to maintain and use the bulky paper version.

The SAM contains the various policies, rules, and procedures state agencies must follow in the conduct of their business. The SAM is two volumes, and unless maintained, quickly becomes dated and therefore of questionable utility (there are frequent revisions to the many sections in the manual). The DGS has recently completed an effort to place the SAM on a diskette which can be used on desktop computers which have CD-ROM capability. The intent is to reduce state agencies' reliance on the bulky hard copy.

Given the state's substantial and continually growing investment in computer capability, putting a bulky and frequently changing manual such as the SAM into a computer format appears worthwhile. It is relatively inexpensive to produce a computer diskette and maintain a computer version of the SAM once the process has been established; however, as long as the department maintains a hard copy version, optimum savings will not be realized (the department indicates that it spends about $390,000 annually to maintain the SAM). According to the department, the number of requested hard copy versions dropped from about 6,000 to 2,000 after the DGS imposed a fee for the paper version, but the number of requests for the paper version appears to be increasing.

We believe that the DGS is moving in the right direction--trying to utilize the installed computing capacity in lieu of maintaining a hard copy version--but it is not yet clear as to how soon the CD-ROM version will be usable by a broad cross-section of employees who need access to the SAM. This is because CD-ROM capability is relatively new with respect to state desktop computers.

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