The federal IT community is facing an aging systems crisis. Collectively, agencies spend about 75 percent of their IT budgets on operations and maintenance activities, most of which is gobbled up by legacy systems. The situation is even worse at the VA, with reportedly only 10 percent available for investment in new development and modernization. With so much appropriated IT funding tied up in “keep the lights on” activities, agencies face the daunting — if not impossible — task of moving their legacy systems into the 21st century.
Unless the situation is dealt with expeditiously, time will only further compound the financial, security, and mission continuity risks these old systems already present. Nothing underscores the urgency for action more than Tony Scott’s, the former federal chief information officer, push to set up a $3.1 billion IT Modernization Fund (ITMF) through Congress, in the wake of OPM’s security breach. The White House’s original ITMF bill proposal has since morphed into a congressional derivative — the Modernizing Government Technology Act (MGT Act). After an initial rejection by the 114th Congress last year, the MGT Act has been reintroduced by Rep. Will Hurd (R-Texas).
In its current form, the MGT Act would allow agencies to establish a working capital fund and “bank” savings in that fund for reinvestment in other IT modernization initiatives, which is huge. It would also create a centralized, $500 million seed fund against which agencies could borrow money and repay over time. If for some reason the MGT Act fails to pass, or even if it does pass but falls short of generating the level of funding required to pay off decades’ worth of accumulated “IT debt,” which likely runs in the tens of billions of dollars, what other possible financing mechanisms can agencies turn to?
Perhaps procurement has the answer: it’s a technique called IT share-in-savings (SiS) contracting. With SiS, agencies can launch IT projects with little or no upfront funding. Instead, they pay a contractor a share of the savings (or revenue) generated from the contracted effort. The better and quicker the vendor performs, the better they do financially.The worse and slower they perform, the worse they do financially. It’s the ultimate form of performance-based contracting, and is a practice wholly permitted under existing federal regulations. Why not use SiS to bootstrap the modernization of the federal government’s legacy systems?
It’s hardly a new idea. In fact, Congress and the federal government made efforts to institute SiS IT as standard procurement practice back around the turn of the century. Congress, in particular, took thoughtful measures to ease the federal government’s path to widespread adoption through the passages of the Clinger-Cohen Act (1996) and the E-Government Act (2002). For example, the E-Government Act authorized a pilot period until 2005 during which agencies could enter into certain SiS IT contracts exempt from the “upfront funding of termination liabilities” provision scribed in appropriations law.
The one — and only — IT project to which the federal government applied SiS came courtesy of the Department of Education in 1999. In a now famous case study, Education engaged a vendor to consolidate several legacy systems under the Student Financial Aid program with “zero” upfront dollars. The vendor successfully recouped their costs and then some by generating nearly $40 million in savings!
Despite all the efforts, and one shining case study, SiS IT eventually fell by the wayside around 2005 due to a number of factors, including cultural barriers to adoption. GAO followed up with a report assessing the situation and concluded that SiS IT still remained untested.
So why give consideration to finally testing SiS IT now, after so many years of dormancy? We believe that we’re seeing a confluence of factors that warrants a revisit:
Legacy systems aren’t growing any younger, and the issues associated with their degrading state aren’t going to solve themselves (only compound). It’s going to take some investment.
As a technology community, we’re much wiser than we were 15 years ago about the practices — such as agile development and evolutionary architecture — that are necessary to modernize legacy systems successfully.
There are growing concentrations of technical and procurement talent within government who are capable of working with industry to apply these modernization practices within the context of an acquisition.
Open source software and cloud solutions have emerged as near-commodities for many facets of government software and infrastructure operations. This dynamic duo greatly increases potential costs savings and return on investment and thereby the compensation paid out to vendors under a SiS model.
Taken together, we think these are compelling drivers for giving SiS IT another go.
To encourage those within the IT acquisition community (Congress, federal government, and vendors) to think more deeply about how SiS IT could be applied to legacy modernization projects in the era of agile, we’ve developed a proposed solution model called Agile Share-in-Savings. The model is constructed upon several important principles from the fields of finance, economics, procurement, and agile software development. It strives to spread out the government’s risk by operating on small chunks of time, to reward vendors for cooperating well, and to drive down costs through competition. It’s also designed to solve key issues that the federal government originally encountered with SiS IT. Should the current form of the MGT Act pass, the model’s effectiveness would be greatly enhanced through the establishment of agency working capital funds.
We invite you to explore and provide feedback on our Agile Share-in-Savings concept. Ultimately, what’s important to us is that we come together us a community to construct an approach — whatever form it takes — that solves a pressing public problem: the continued aging of a large number of federal IT systems that support many, many critical mission and public-service functions.
Disclaimer: any of the views or opinions expressed in this article are completely our own and by no means represent that of the federal government’s.
Chris Cairns and Dr. Rob Read (alumnus) are co-founders of 18F. Together, they started and built the team’s acquisition arm, including Agile Acquisition Consulting, Agile Delivery Services Marketplace, RFP Ghostwriting, Micro-purchase Marketplace, and Digital Acquisition Accelerator.