The Department of Health and Human Services is enjoying … err … suffering from what many believe are the two major reasons why shared services continues to lag in government.

Despite high level support, HHS in the last month had to pause a major multi- million dollar effort to move its human resources system to the Agriculture Department’s National Finance Center.

Ned Holland, HHS’ assistant secretary for administration, said Friday that the project is so off schedule and mired in complexity that Frank Baitman, the HHS chief information officer, and John Gill, the HHS chief human capital officer, agreed to stop the program for 30 days to reassess their options and plans.

“We are having difficulties,” Holland said Friday, during a shared services event sponsored by the Partnership for Public Service and Deloitte. “Some of it is [NFC’s]. But let me tell you what part of it is our problem. Our problem is everybody thinks his way or her way is the way it has to be done. One of the problems we have is we don’t do big development projects the way they ought to be done. Today, if you are smart, you buy commercial off the shelf software. You modify it as little as possible and you adjust your business processes, which are not sacrosanct, to utilize what you can buy in the marketplace. Well, we haven’t been doing that in our transition to NFC. We’ve been doing it the other way, and we’ve made 3,000 changes in PeopleSoft. We aren’t that good and we shouldn’t be doing that.”

Yes, you read the right, 3,000 changes to a commercial system. It sounds like to me that HHS basically lost control of the program to a few financial management “experts” and NFC didn’t play its role of bad cop to push back against all of those “must have” changes.

In addition to getting agencies to understand their financial management system is not that much different than everyone else’s, HHS and NFC are struggling with how best to pay for the upgrades and integration.

Typically, federal shared service providers do not have money to prepare for new customers and can’t spend money to do so until they have a signed contract.

“One of the problems we have with shared service centers in my view is they are inadequately capitalized, not inadequately expensed,” Holland said. “When I ran HR at Sprint, I had the capital to do the things I needed to do and I made the changes I needed to make. One of the things that is not well understood in government, and I testified in Congress, I told them if they were going to give us help to do that, particularly in real estate, they ought to find a capital base to make investments. We don’t have that.”

The lack of investment capital means shared service providers are limited to how fast they can take on new customers by upgrading software, hiring more employees or vendors or by expanding their services.

This is not a new problem. The Office of Management and Budget said it’s studying how to deal with these rules that come under the Economy Act as part of a package of potential legislative fixes.

In the meantime, HHS, like several agencies, must reassess its plans for dealing with aging and expensive back-office systems.

Holland said HHS now likely will look to the private sector for an option to host its HR system. He said he expects HHS to come up with a new plan by the end of the fiscal year.

“We already have HR systems in place. We can continue to operate them, but as with most software systems, they will reach end of life and will no longer be maintained. We are not quite there yet, so we have some time, but we need to get this done before we get there because we don’t want to be re-upping on systems we have to get rid of.”

Holland said all is not lost for HHS if it does decide to leave NFC. He said any migration to a new system requires a lot of preparation such as data clean up and standardization. No matter where the department goes next with its HR systems, Holland said those data efforts will be helpful.

While HHS struggles with the move to an HR provider, many eyes in the federal community are on the Department of Housing and Urban Development and its move to the Treasury Department’s Administrative Resource Center (ARC) for financial management services.

HUD would be the first cabinet level agency to move to a federal shared service provider, and it’s the type of win that OMB and Treasury need to sustain the program.

Brad Huther, HUD’s CFO, said phase one and two are completed, and phase 3 and 4 are scheduled to be done by Oct. 1. HUD moved its travel system to ARC last October, and completed the move of its procurement system in early February.

Huther said over the next 6 1/2 months, HUD will complete the migration of its payroll and general ledger systems.

“The plan to transition HUD to Treasury’s system was first hatched in fiscal 2013. It was done with the very good efforts of a lot of people, but it, frankly, was based on all the wrong underlying assumptions and operational priorities. It just couldn’t by the time and within the available resources,” he said. “To their credit, the HUD team in place recognized that and started to develop in the spring of last year a different approach, and with the insights from OMB.”

He said HUD moved toward the use of agile development processes where it broke down key components of the system into manageable chunks. He said HUD now has more discipline and better technology tools that weren’t part of the initial plan.

HUD, and in many ways OMB, are holding their respective breaths. If HUD can show the migration to a federal shared service provider works well, maybe even save a little money, that would bode well for the future of the program.

And just as important, OMB and Treasury must solve some of these more difficult, long-standing governance and funding issues.

If HUD, like HHS, like Labor, like SBA, and like several other agencies can’t make shared services work, it could spell another dormant period for this idea.

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