Off The Books, Part One: High-Price High-Tech

State agencies are spending tens of millions of dollars every year on information technology contract workers, employees who aren’t on the state payroll – but whose pay often dwarfs those who are.

The average IT contractor makes more than $100,000 a year, more than 99 percent of state employees. Several haul in well over $200,000 a year – more than the agency commissioners who hired them.

State officials say the pay matches the specialized work: managing massive computer and telephone systems in some of Texas’ most unwieldy state agencies.

“One of the things we need is specific expertise, project by project – someone who can change hats very fast,” said Stephanie Goodman, spokeswoman for Texas’ Health and Human Services Commission (HHSC). “That’s the kind of flexibility we get with a contractor.”

Fiscal watchdogs, however, question whether the state has created its own expensive mess by outsourcing telecommunications and data center programs, which in turn require high-dollar IT experts to work out the bugs.

“The headaches they’ve created for themselves have forced them to go bidding for some kind of IT messiah,” said Andrew Wheat, a researcher with Texans for Public Justice, which tracks money in state government. State officials “are over a barrel. And if somebody can convince them they can fix it, they can pretty much name their price.”

Others point out the large disparity between high-dollar contractors and the median state salary of $37,000.  Roughly a third of these contractors were hired under “best value” contracts – meaning state officials selected from a pre-approved pool of workers rather than competitively bidding the job.

“It’s sort of an end-run around agencies’ full time employee limits and very limited salaries,” said Mike Gross, vice president of the Texas State Employees Union. “The state won’t bump up its pay for employees, so then they can’t get qualified people and have to pay exorbitant amounts to get contractors.”

The nearly 1,000 IT contractors hired to work in state agencies in 2008 cost Texas taxpayers more than $90 million – but say they’ve saved the state millions in the long run.

Texas IT guru Mohammed Farooq has made more than $1.4 million working for HHSC since 2003 – an average of nearly $230,000 a year. That’s $20,000 more than the base salary of the agency’s commissioner, who oversees a $16 billion annual budget and 9,300 employees. And it doesn’t include the additional $6.5 million the agency paid Farooq’s IT company Gravitant in the last three years to hire two dozen other contract workers. They include the company’s executive vice president and chief technology officer, who both charge more than $100 an hour.

Farooq said the high pay comes with big risks: Projects can get canned, and money can dry up.  

“I could’ve taken a corporate job for $500,000 a year, with $1 million in stock options, and golden handcuffs for five years,” said Farooq, who has made a career out of advising and building software for state agencies. “Instead, I decided I’d be more impactful creating a vision to help state government.”

The Department of Information Resources (DIR), meanwhile, paid Active Strategies, an IT staffing company run by former state telecommunications chief Steve Parker, more than $5.5 million over the last three years for 23 employees. Sixteen of the employees cost the state more than $100,000 a year; four employees cost double that. Many of the employees, including Parker, were hired from the pool of “best value” contractors, meaning the state didn’t have to take the lowest bidder.

DIR officials say the jobs Active Strategies contractors perform are incredibly complex, and that outside experts are critical to their success. The contractors perform “highly technical communications technology services,” said David Duncan, DIR's communications director.

The contractors, meanwhile, say they’re a far better deal than the giant technology firms the state previously has used to manage information technology.

“I think the state could demonstrate it’s saved a bundle of money,” Parker said.