The General Services Administration’s decision to award IBM a $149 million contract to modernize its human resources systems and create a private-sector shared services provider is a head scratcher.

It’s not so much that GSA is choosing to upgrade legacy technology, nor is it the size of the deal. What is confounding is the decision to go to the private sector instead of a federal shared services providers and the message that sends to the rest of government.

First, let’s get some of the basics out of the way. GSA is replacing the Comprehensive Human Resources Integrated System (CHRIS) as well as its time and attendance system and its authorized leave and overtime help application (ALOHA). GSA wrote in its fiscal 2016 business case on the IT Dashboard for its HR systems that “Legacy CHRIS is likely approaching obsolescence due to lack of integration of the various tools, limited hardware scalability, high customization and functionality of applications. Note: additionally CHRIS, PAR, ETAMS, and ALOHA are not integrated causing delays, handoffs, and possible errors.”

Additionally, GSA decided in September 2013 to get out of the HR Line of Business as a shared service provider for other agencies. GSA was one of the original federal providers, offering payroll and other HR services at one point to 40 agencies and about 25,000 employees of which 12,500 are its own employees.

GSA’s decision to get out of the HR Line of Business makes sense. It told the Office of Management and Budget in its 2016 business case that it’s facing consistent losses, doesn’t have a competitive rate structure to allow for full cost recovery and has a declining customer base.

So this leads us back to the 10-year deal with IBM to outsource its HR systems.

It’s unclear why GSA went with a private sector provider, given all the emphasis on using federal providers, especially for financial management.

You might remember that back in 2013, OMB mandated agencies to consider federal shared services providers first, and justify why they wouldn’t, for financial systems. While there was no mention of HR systems in the memo, it’s hard to believe OMB wouldn’t have different expectations for other back-office systems.

On top of that, there are plenty of federal options. GSA’s former competitors, including the Agriculture Department’s National Finance Center, the Interior Department’s Interior Business Center and the Treasury Department’s Shared Services Center, all offer similar human resources systems.

So that takes us back to why not move to a federal provider?

A GSA spokeswoman told Federal News Radio the decision was based on market research that showed the private sector approach made the most sense.

GSA made the award through a task order under the Human Resources and Equal Employment Opportunity Schedule 738X.

It’s unclear if any of the federal providers could or did bid on the opportunity. I’m sure GSA talked to each of the providers to see what their capacity and timing would be to take on new customers would be as part of the market research.

The spokeswoman said GSA will migrate its existing customers, including the Office of Personnel Management (OPM), Railroad Retirement Board (RRB), United States Institute of Peace (USIP), National Credit Union Administration (NCUA), and approximately 28 commissions and boards to the new IBM shared services.

The other piece to this decision that is a head-scratcher is the message the award sends to the rest of government. The Unified Shared Services Management (USSM) Office is housed inside GSA and over the last 18 months has encouraged, stressed and strongly promoted the use of federal providers. The USSM has issued a playbook, a catalog and new governance processes all in the last few months.

Does GSA’s decision to use IBM send the message that all of USSM’s work over the last year or so was just window dressing? Does it mean that the door opened by David Mader, OMB’s controller, back in October for private sector providers to play a larger role in this effort just got a bit wider?

One industry source, who requested anonymity, said GSA’s choice of a private sector provider is a big deal.

“The GSA decision to seek a commercial partner represents a transformational shift from a traditional ‘vertical’ government-aligned model, to a more efficient, ‘as a service’ model where capital investments and risk mitigation responsibilities are substantially transferred to the commercial partner,” said the expert, who works closely in the shared services community. “This is important because the current pace of technological innovation is accelerating at a rate that is making it increasingly difficult for both federal customers and providers to fund the system upgrades needed to successfully integrate an increasingly complex and rapidly changing universe of associated technologies. Many federal partners are barely able to sustain the status quo of their existing mission support capabilities. Strategic investments in research and development and innovation that are also critically needed for effective citizen engagement and evolving mission requirements are often, just not possible.”

The source said the lack of opportunity for private sector providers has been frustrating, especially in providing innovative technology, processes and services.

“The idea is to define outcome-based performance measures and then let the private sector work towards delivering against outcome-based contracts with the result being that the government can switch between providers because they are no longer held hostage to either antiquated government capabilities or proprietary-based commercial capabilities,” the source said.

The future of shared services is clear. Agencies need to modernize their back office systems in short order. But OMB needs to do a better job setting the expectations and the tone for the approach agencies should take. And Congress needs to finally get involved by updating funding approaches either through the Modernizing Government Technology (MGT) Act or another way so there is money and resources to move off of the legacy systems.

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