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Authored by Chris Cotner, Senior Analyst, INPUT

It is always good to receive validation of projections. As I predicted in my blog, the Texas DIR is not sunsetting and funding will continue through FY 2013. Does this mean business as usual for contractors? Well, yes and no.

With the new law originating in SB 1 from the 2011 special legislative session, much of the DIR will remain the same, some things will change, and the exact future of the agency will remain unclear.

One surprise that emerged from the special session is the strength of Perry’s position as governor in essentially dictating the direction of the DIR moving forward. With the changes in legislation, the DIR is an even stronger central IT governance, planning, oversight, and procurement agency than it was before. Notably, almost all authority slated to go to elected officials (e.g., the comptroller) through HB 2499, or even as suggested through the Sunset Commission’s report, will remain with the DIR.

Aside from the political power plays, several distinctions and changes are in order for the DIR as a result of SB 1. These changes and my analysis are outlined below.

Title 10, Subtitle B, Chapter 2054 – Information Resources

• DIR will sunset on September 1, 2013. Analyst’s Take: Funding for the agency and all related IT projects is now secured through the current budget cycle (Texas fiscal year is May through September). The legislature will have to tackle the issue again in the 2013 session as it works on the 2014 to 2015 biennial budget.
• The Sunset Advisory Commission for the DIR will continue making recommendations. Notably, the commission will make a report with recommendations for the next legislature. Analyst’s Take: While Perry won the battle, the war for Texas IT is still well underway. If the DIR continues to show difficulty managing large projects, the Sunset Advisory Commission may suggest legislation changing the DIR yet again in the 2012 session.
• The DIR Board will establish rules for approval requirements for all contracts, including a monetary threshold above which board approval is required before the contract may be executed. Analyst’s Take: This is aligned with the Sunset Commission’s report; however, it clearly strips some of the contracting authority away from the comptroller that HB 2499 attempted to grant. Contracting will be in house through the DIR and its board. So, any future contracting issues will fall squarely on their shoulders. I would estimate that future concerns that may lead to the DIR’ restructuring would be the result of how well the DIR manages contracting moving forward.
• The following departments and functions are not under the purview of the DIR: Department of Public Safety’s use of federal IT resources; the uniform statewide accounting system; state treasury cash and treasury management system; databases or networks managed by the comptroller for taxes and other fiscal administration; databases or networks managed by the Department of Agriculture. Analyst’s Take: Giving the DPS governance over its resources that associate with various federal systems makes sense. The financial management systems remaining under the control of respective agencies may speak further to the underlying power struggle between the comptroller, the DIR, and the governor. So, while the comptroller gains very little access to DIR resources, the DIR also has little authority over the comptroller’s IT resources. I would expect this battle to continue in future legislative sessions.
• The DIR will set and charge fees to state departments receiving services from the statewide technology centers in an amount covering both direct and indirect costs. These collected fees can be used for developing statewide IT policies and providing shared IT resources to state agencies. Analyst’s Take: The substantive change is in how the fees can be applied. This is an attempt to control some of the funding provided to the DIR by other agencies. The most important aspect may be in what is not said; the DIR may not use fees collected from other agencies to further expand the DIR unless that is directly applied to providing shared IT resources to the state.

Title 10, Subtitle D, Chapter 2157 – Purchasing. Purchasing of Automated Information Systems.

• The DIR will negotiate with vendors to obtain the best value for the state in the purchase of commodity items. The DIR may consider strategic sourcing and other methodologies to find the vendor with the best value. The terms of any contracts between vendors and the state cannot be any less favorable than similar contracts between vendors and retail distributors. Analyst’s Take: One key change in the law is moving from “attempt” to obtain to simply “obtain.” The DIR’s role is now finding the best value that is competitive with retail pricing through all means available to the state. This is good news for vendors, as there should be some room in price points below what they are charging retail vendors.
• The DIR will set and charge fees to state departments receiving purchasing services from the DIR in an amount that will cover the costs associated with administration. These collected fees can be used for developing statewide IT policies and providing shared IT resources to state agencies. Analyst’s Take: The provision already existed for the DIR to recover costs associated with purchasing administration. This change places restrictions on what the DIR does with the fees. Again, the most important aspect may be in what is not said; the DIR may not use fees collected from other agencies to fund any part of the DIR not directly applied to providing shared IT resources to the state.

Title 10, Subtitle D, Chapter 2170 – Purchasing. Telecommunications Services

• The DIR will develop a system of billing and charges for telecommunications services provided that allocate cost to departments by proportionate usage. The DIR’s fees can cover both direct and indirect costs to cover services. These collected fees can be used for developing statewide IT policies, providing shared IT resources to state agencies, and providing network security resources to state agencies. Analyst’s Take: This is virtually identical to other new provisions for fees in restricting how the DIR may use these fees.
• The DIR will maintain a revolving fund to pay for state telecommunication services. Analyst’s Take: The news here is in what is not said, or in what was removed from law. Excess funds in the revolving fund used to go to the comptroller for administration. Now, the comptroller has been removed from this process.

Final Analysis: Governor Perry flexed his muscle. The legislature blinked, and the governor won this round. This is good news for vendors looking to do business with the state. The DIR is funded for another two years, which brings stability to purchasing and contracts in a generally turbulent economic time.

The new DIR has additional restrictions placed on it regarding how it uses the fees it collects. While this will not make substantive differences to the business community, it may alleviate some of the dissent from agencies paying the DIR fees. If so, this can only lead to further stability.

In terms of direct interactions with vendors, the DIR is now explicitly charged with obtaining the best value for IT commodity purchases. For vendors, this translates to more competitive procurement. Prior to HB 2499, various IT industry lobbying groups were pushing for more competition. Complaints about competitive pricing were part of the reason for the renegotiation of the data center consolidation project. Vendors now have what they want with increased competition. Now, there is even a benchmark for purchasing commodities, and pricing must at least be competitive with retail. In a purchasing environment with increased competition and a set benchmark, there is more room for vendors to work creative solutions to win contracts through providing the best value.

The DIR board is now in charge of setting the threshold for contract values that will require board review. HB 2499 placed some of this responsibility with the comptroller. By keeping this authority within the DIR, the board and DIR have the control they need to set IT procurement rules that help state efficiency.

This session, we have seen Perry’s dedication to keeping state IT under his leadership. With the DIR and its board appointed by the governor, some dissent is likely to persist from agencies outside the governor’s direct authority that have to pay the DIR for services they feel could be more efficiently managed themselves. I would project the comptroller or other departments from the elected officials’ camp to offer additional plays for power in IT governance and funding. Additionally, the Sunset Commission will produce another set of recommendations for the next legislature. If the DIR doesn’t right this ship, there could be more turmoil in the next legislature. At the very least, the discussion will continue in 2013 when the new budget and DIR’s sunset date is up for review.

Vendors and contractors would do well to win business now when there is at least one year (likely two) of DIR stability. 

Sources: INPUT, Texas Senate Bill 83(1), Texas House Bill 2499, Texas Department of Information Resources Sunset Commission Report.

See my previous free blog on Texas DIR here.

See my previous Analyst's Perspective on the Texas DIR, here (subscription required).

Follow Chris on Twitter, here.

See the INPUT State Profile on Texas, here (subscription required).