1 expect the best Lemuel C. Stewart, Jr. Chief Information Officer of the Commonwealth Joint Commission on Technology and Science December 1, 2005 VITA Annual Report

2 expect the best VITA Update Governor and the General Assembly set change in motion in 2003 VITA enterprise-wide IT re-engineering initiative –Phase I = Integration –Phase II = Transformation Integration completed successfully –Created IT “Utility” –Consolidated agency IT resources –Provided continuous service –Launched procurement reform –Implemented disciplined IT investment program Achieved $45 million in cost savings and $14 million in cost avoidance (FY04-05) Transformation is next step to meet duties established in 2003 legislation

3 expect the best Highlights Completed integration of 90 executive branch agency IT infrastructure and staff to VITA Reconstituted the Council on Technology Services Conducted independent validation and verification on 21 major IT projects Developed the Enterprise Business Architecture— framework for Commonwealth strategic business plan and future enterprise solutions opportunities Completed “refresh” of the four-year statewide strategic plan for technology Expanded outreach to local governments to grow business and provide savings and efficiencies

4 expect the best Highlights Participated in the Commonwealth of Virginia IT Symposium (COVITS) Reduced investment in duplicative, stand-alone systems Launched collaborative solutions –In 2005: Learning Management System and G2G Interface –In 2006: Enterprise GIS and Enterprise Business Licensing Submitted the 2005 Recommended Technology Investment Projects Reports with recommendations for funding priorities Managed portfolio with a monthly average of 36 major IT projects at $850 million with no major project failures Improved outreach to and participation from SWAM businesses

5 expect the best FY 2005 Financial Results FY05 Adjusted Budget FY05 Actual Results Operating Revenues$263,520,186254,722,275 Expenses, including transfers267,286,832248,562,302 Net change(3,766,646)6,159,973 Ending, retained earnings51,427,202 As of June 2005

6 expect the best FY 05 Results-FY 06 Projections Revenue Expense

7 expect the best IT Savings Initiatives IT Savings Initiatives ($000) FY04FY05 FY04-05 Cumulative Projected Savings $15,858$29,544$45,402 Projected Avoidance 87513,455$14,330 Total$16,733$43,478$59,732

8 expect the best Infrastructure Partnership This is a true partnership—share in risks and rewards Good deal for the Commonwealth –New, streamlined infrastructure –Improved security Good deal for employees –New standard for employee treatment –Managed workforce reduction; no mass layoffs Good deal for citizens –Job creation –Commitment by Northrop Grumman to grow business in Virginia

9 expect the best What are the partnership highlights? $272 million total capital investment Job creation Excellent employment packages Extensive and proactive technology refresh New, state-of-the-art facilities in Chesterfield and Russell Counties Innovative and flexible service contract model A reliable and agile 21 st century infrastructure

10 expect the best Who is Northrop Grumman? One of the largest providers of IT services to the US Government Experienced systems integrator Largest technology/manufacturing private employer in Virginia Nearly 32,000 employees in 14 primary locations in Virginia Three of seven sectors are headquartered in Virginia: IT, Mission Systems, and Newport News

11 expect the best Why Northrop Grumman? Met all “Musts” –Employees MUST be treated fairly and equitably –No additional GF or taxpayer dollars –No increased cost over our FY05 baseline expense level –Must have skin in the game—investment & risks –Must provide value to citizens (economic development) –Provide more efficient and modern IT environment that improves services and security –No services provided from outside U.S. Shares a common vision for excellence in customer service and unwavering commitment to customer satisfaction

12 expect the best Why Northrop Grumman? Employees Defined benefit retirement plan “Day One” employer 401k contributions Flexibility in telework Cultural fit Financial Strong investment commitment in Virginia Technical 3-year overall PC refresh 24-hour electronic disaster recovery (vs. 72) In-state back-up Security Operations Center Use of COTS software (vs. proprietary) Economic Impact $25.4 million (over 10 years) 754 jobs

13 expect the best What is the employee package? All VITA employees who spend at least 60% of their time on infrastructure support/services will receive a competitive employment offer from NG –Similar job requirements and responsibilities –Similar job location –Salary and benefits package that is comparable or better than Commonwealth Employees can choose to accept or remain Commonwealth employees –“Managed” employees who remain will receive technical direction from Northrop Grumman

14 expect the best What are the highlights of the offers? Employment guaranteed for first 12 months (except for “good cause”) Immediate 4% salary increase Signing bonus of up to 6% Immediate vesting in defined benefits plan/401k Service credit for all prior state service to determine eligibility for leave, disability, severance, retirement and health plans Free parking at new facilities and subsidized parking in current facilities and locations

15 expect the best When will offers be made? Employees will receive detailed information and invitations to participate in information sessions prior to offers Offers will be made after final approvals of the agreement (est. Spring 2006) Once an offer is made, employees will have up to 120 days to decide whether to accept Signing bonus incentives –6% of new salary if offer accepted within 30 days –4% of new salary if offer accepted within 60 days –2% of new salary if offer accepted within 90 days

16 expect the best What facilities are proposed? Meadowville Enterprise Solutions Center –New, Tier III primary data center in Meadowville Technology Park, Chesterfield County –VITA Headquarters & NG Richmond Operations –Secondary Security Operations Center Southwest Enterprise Solutions Center –Back-up data center in Lebanon, Russell County –Enterprise help desk –Disaster recovery within 5-24 hours –Primary Security Operations Center Dinwiddie Project Support Center

17 expect the best

18 expect the best Meadowville Enterprise Solutions Center

19 expect the best Southwest Enterprise Solutions Center

20 expect the best Southwest Enterprise Solutions Center

21 expect the best What are the technical highlights? Enterprise Help Desk –Single point of contact for infrastructure help and service Hardware refresh –Three-year cycle Security –Enterprise-wide security Networks –Enterprise voice and data network –100% network device refresh in years 2 & 3 Break/Fix Repair Messaging –Enterprise system –Support Blackberry enterprise server

22 expect the best What is the value of the agreement? The proposed agreement is valued at $1.98 billion over 10 years, with one 3- year extension Annual spending cap is $236 million If we did nothing, the Commonwealth would spend about $200 million more over the 10 year term –Duplicative, stove-piped infrastructure –Increased maintenance expenses –Inability to transform

23 expect the best What are the economic development highlights? $38.3 million in total estimated economic benefits to the Commonwealth Southwest –Russell Regional Business Technology Park anchor tenant –$22.8 million capital investment; creation of 433 jobs –Approx. 90% of labor pool drawn from southwest –Support of technology education at UVa Wise, including internships, student recruitment efforts, and a satellite office for the Russell facility Chesterfield –Meadowville Technology Park anchor tenant –$240 million capital investment; 631 VITA and Northrop Grumman employees Dinwiddie County –Project support center housing 34 employees

24 expect the best What does this partnership mean for IT businesses? Short-term: existing infrastructure contracts continue –Some contract rights will be assigned to NG –Statewide contracts retained by VITA and “shared” with NG Long-term: Northrop Grumman to assume infrastructure procurement responsibility for the partnership –May continue using existing contracts –May leverage its own supply base and contracts –VITA continues to offer statewide contracts VITA and NG will collaborate to optimize supply base Strong commitment to SWAM suppliers –5 SWAM partners in partnership agreement –Establish SWAM liaison to promote SWAM participation –Implement SWAM mentor-protégé program and suppliers

25 expect the best How will the partnership be managed? The Service Management Organization (SMO) within VITA will manage infrastructure service delivery –Single point of accountability –Ensures both partners fulfill contractual obligations Significant contract provisions to manage effectiveness of partnership –Service levels within each technical area –Penalties for missing service levels Help desk response time –Penalties for missing critical milestones Completion of the primary data center construction Independent audits of expected outcomes

26 expect the best VITA and NG interface – during SMO Build and Transition Lem Stewart CIO Fred Duball SMO Director Hugh Taylor Relationship Executive Joe Fay Relationship Manager PPEA Partner – Northrop Grumman Leads the Executive relationship with NG Accountable for overall relationship including oversight and management day to day operations with NG Interface relationshipReporting line Cheryl Clark Deputy CIO Ensures other Directorates provide appropriate support to SMO Sr. Transition & Transformation Manager Transition Management Manager Responsible for transition of infrastructure services and longer term transformation of each technical tower Steady State Service Delivery/ Operations Manager Service Delivery Sr. Manager Service Delivery Managers (Technical Towers) Service Delivery Managers (Technical Towers) Agency Service/ Performance Manager Agency Performance Sr. Manager Day to day operational relationship interface for service delivery Day to day operational relationship specific technical towers Ensures performance meets the Commonwealth’s requirements Strategy and Production Architecture Business & Finance Mgmt. (Pricing & Contracts) Strategy and Architecture Coordinator Commercial Management (Finance & Contracts) Sr. Manager Technology, Strategy and Architecture Directorate Ent. Portfolio, CRM, PIC, HR Directorates CRM, CSS, HR Directorates CRM, CSS. HR Directorates CRM, CSS, HR Directorates SCM, FMS, HR Directorates * For select directorates Coordination with Partner Architecture, technology & Innovation Shared and Sub Contracts, Pricing Governance and Negotiations with Partner ITIB PPEA Partner - VITA

27 expect the best How will we mitigate risks? RiskMitigation Strategy Budget Minimum of 85% of total targeted baseline fees for any given year of contract Price fluctuation Benchmarking Most Favored Customer status Milestones/SchedulePayments tied to completion of milestones Service level performancePerformance credits system Contractual performanceTermination and disentanglement Economic development $2.3 million penalty for failure to meet job creation targets, applied as credit to CoVA

28 expect the best What are our termination rights and fees? CauseFees DefaultNo exit or resolution fees Lack of fundsNo exit or resolution fees Incurred liabilityNo exit or resolution fees Change in controlResolution fees only Force MajeurExit and resolution fees ConvenienceExit and resolution fees

29 expect the best What if the contract is terminated early? Disentanglement –Up to 2.5 years to transition services to new provider or back to Commonwealth Smooth transition with no service interruption Ongoing use of assets –Broad perpetual license for proprietary technology, including free maintenance and upgrades for 2 years –Ability to make employment offers to vendor personnel responsible for terminated services –Rights to contracts used in the performance of services

30 expect the best When will the partnership be implemented? Transition Planning Interim Agreement signed Transition Planning Completed Transition Phase Service Commencement Transition Activities Completed Transformation Phase Operational Phase Transformation Activities Completed General Assembly review

31 expect the best What are the key milestones? MilestoneAnticipated Date Complete transitionService Commencement + 6 months Move into new data centerMarch 2007 Establish single help deskMay 2007 Establish back-up data centerJune 2007 Complete initial desktop refreshNovember 2007 Complete single enterprise February 2009 Complete server consolidationFebruary 2009 Dates Adjusted to Incorporate General Assembly Approval of Capital Lease Component Subject to Revision During Interim Phase/Transition Planning

32 expect the best What happens now? Commence partnership preparation for transformation Final agreement reviews Project implementation plan for ITIB approval VITA internal organizational transformation The interim phase will become final upon the earlier of: –Completion of all General Assembly and other approvals –June 30, 2006, unless extended Commonwealth has the option to terminate with limited exposure –Activities permitted by statute include project planning and development

33 expect the best Please welcome our partner Hugh E. Taylor President, Commercial, State and Local Solutions Northrop Grumman Information Technology

34 expect the best For More Information on VITA Lemuel C. Stewart, Jr. CIO of the Commonwealth