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Spending Trends: DoD Enterprise Resource Planning Systems

The Department of Defense spends almost $7 billion per year to maintain and operate its nearly 3,000 business systems.  With an annual IT budget of more than $35 billion, this spending on business systems accounts for approximately 20% of the DoD’s IT budget per year.  That’s a lot of money and in a time of increasing fiscal tightness, the DoD has been working for years to implement large-scale Enterprise Resource Planning (ERP) systems that will enable the department to decrease spending on its business systems and finally achieve a legislatively-mandated clean audit by FY 2017.  Because the size of the DoD’s investment in ERPs is so large and the work has gone on for so long, this week’s post will take a look at annual spending on many of the largest ERPs being implemented.

The ERPs Examined

The table below contains a list of the 16 DoD ERPs for which spending data was compiled.  This is not a complete list of the ERPs being implemented across the department, but it does include most of the largest systems.  Multiple instances of these systems being implemented in the various military departments are also included.

Before going further, a comment must be made about the limitations to the government provided data.  The Office of Management and Budget (OMB) requires that every fiscal year departments must submit what is called a Capital Asset Plan and Business Case Summary for every one of its major IT investments.  These documents, referred to as Exhibit 300s, contain the numbers of contracts awarded for work related to the investment.  It is these contract numbers that have been used for the spending tables below.  Unfortunately, spending data is not available for each of the contracts listed, so the data presented here is only for contracts with verifiable spending data.

Spending Trends

Figure 1 below shows that annual spending on DoD ERPs increased every year from FY 2009 to FY 2012.  That trend ended in FY 2013 as spending declined by $318 million due to the impact of sequestration; illustrating that even programs mandated by Congress are not immune to the across the board cuts sequestration demands.  If sequestration continues in FY 2015 and beyond (as looks likely) it is safe to assume that spending will continue trending down to flat.  Concerning FY 2014, $364 million was spent in Q1.  If this trend holds steady throughout the fiscal year, spending will total at least $1.45 billion, reflecting a bit of a rebound due to the restoration of some funding by Congress.  It is doubtful that spending will re-attain levels seen in FY 2011-FY 2012.  Last but not least, annual spending on these DoD ERPs averaged $1.52 billion from FY 2009 to FY 2013.

 

Total Spending by IT Segment

Government reports obligations by Product Service Codes and contracting personnel are notorious for selecting codes that do not accurately reflect the product or service being rendered.  This being what it is, the following data is to be taken with a grain of salt.  In Figure 2 below categories of PSCs used for obligations on DoD ERP projects have been grouped into IT market segments – Hardware, Software, and Services.  Of the three, services spending far outweighs spending on either hardware or software, coming in at a total of $7.1 billion obligated from FY 2009 to FY 2014.  Obligations for software come in second with $541 million spent over the same 5.3 year period.  Obligations for hardware total $301 million.

 

 

Services Spending Trend

Taking a closer look at spending on services related to DoD ERPs, Figure 3 shows that it tracks very closely with the overall trend shown in Figure 1 above.  The exception would be FY 2012, which saw the beginning of a decline in services spending whereas overall DoD ERP spending continue to rise in FY 2012 before declining in FY 2013. 

 

Spending by Defense Entity

Finally, Figure 4 shows spending on DoD ERPs from FY 2009 to FY 2014 by Defense entity.  Data for only the top 5 organizations has been included here.  Of these, the Navy leads the way with just under $3 billion in obligations on its ERPs.  Army comes next with $2.3 billion in obligations, followed by the Air Force with approximately $1.3 billion.

 

Implications

Several implications can be drawn from this data:

  • No IT program is immune from sequestration.  Sequestration took a bite out of all IT spending across the DoD, including spending on critical ERP implementations that will enable the DoD to meet Congressional mandates for achieving a clean audit by FY 2017.
  • Spending is rebounding somewhat in FY 2014. The approval of an FY 2014 budget rolling back some sequestration cuts will provide some relief to vendors working on DoD’s ERPs.  This relief will not amount to a full recovery of spending levels attained in FY 2012, but it will provide breathing space until sequestration cuts reappear in FY 2015.
  • Services spending is likely to suffer in FY 2015.  The return of sequestration in FY 2015 is likely to translate into a big decline in services spending related to DoD ERPs.  Software and hardware spending are also likely to suffer, but proportionally less than services spending given that far more is spent on services annually.

 

Business Opportunities in DOT’s Fiscal 2015 IT Budget

The Department of Transportation’s information technology (IT) budget request for fiscal year 2015 is $3.3 billion, an amount almost identical to that enacted in FY 2014. Of this total 51%, or $1.7 billion, is slated to be development, modernization, and enhancement (DME) funding. Compare this to $1.6 billion in operations and maintenance (O&M) funding for FY 2015 and what appears is yet another year that DME spending on IT surpasses spending on legacy IT assets at the DOT.

This remarkable situation (remarkable because IT budgets have stagnated everywhere) makes the DOT one of the more attractive business development targets in FY 2015. This post takes a look at a few of the programs receiving the highest percentage of DME funding at the DOT and examines the competitive environment surrounding some those programs.

Federal Aviation Administration



Not surprisingly, all of the top programs receiving 2015 DME funding are at the Federal Aviation Administration (FAA). I noted in a previous post that the FAA is slated to receive $836 million in FY 2015, plus an additional $186 million if Congress chooses to fund the president’s so-called “Opportunity, Growth, and Security Initiative” for the Department of Transportation. The programs listed in Table 1 will benefit from those DME dollars, as all are related to either the Next Generation Air Transportation System or the legacy National Airspace System that preceded it. Table 2 below shows that major support contracts related to some of those programs are due to expire by the end of fiscal 2015, providing a potential business opportunity for competitors and follow-on opportunity for incumbents.
 
 
Non-FAA Programs

Having looked at NextGen/NAS related programs at the FAA, what about other programs across the DOT that may be of interest and have DME funding in FY 2015? Table 3 below lists several programs offering potential business opportunities based on new funding in FY 2015.
 
 
Contract information for the DOT Common Operating Environment is readily available, but the opportunity here is limited given the long-term support contracts (#DTOS59D1000008 and #DTOS59D1000009) held by ActioNet which don’t expire until 2019. This leaves the remaining programs to consider. Of these, available details are hit or miss. Here is what could be found.
  • National Pipeline Information Exchange (NIPX) – A program planned by the Pipeline and Hazardous Materials Safety Administration, the NIPX is an integrated database of state and non-PHMSA data sources tracking “unregulated miles, inspection results, enforcements, SRCR and incident investigation on operators” that will enable information sharing between the PHMSA and state partners. No incumbent contract could be found, suggesting this may be a new requirement.
  • FMCSA Drug and Alcohol Clearinghouse – A program planned by the Federal Motor Carrier Safety Administration to create a controlled substances and alcohol test results database for Commercial Driver's License holders, the D&A Clearinghouse is part of MAP-21 legislation requirements intended to improve safety by ensuring the effectiveness of testing programs. No incumbent contract could be found.
  • MARAD Ready Reserve Force (RRF) Support – Automation capabilities provided by the Nautical System 5 (NS5) and Ready Reserve Force Management System (RMS) for the Maritime Administration’s RRF program. The current support contract (#DTMA91C20120008) held by Management Systems and Consultants expires in December 2016.
  • DOT Departmental Procurement Platform – A program for which the DOT last carried out market research in 2010, the DPP consolidates departmental procurement systems that integrate with DOT's Delphi financial system. An incumbent contract for DPP support couldn’t be found.
Summing up, this handful of programs illustrates that there are pockets of opportunity in the DOT’s $3.3 billion IT budget for FY 2015.  These aren’t multi-million dollar programs the size of many FAA investments, but winning contracts for this work would provide respectable revenue for small and mid-sized businesses in particular.

 

FAA’s NextGen Remains a Winner in Fiscal 2015 Budget Request

The Federal Aviation Administration, a perennial “winner” when it comes to appropriations, is slated to once again receive nearly $1 billion in funding for work related to the Next Generation Air Transportation System (NextGen).  The president’s budget request for the FAA actually works out to $836 million, plus an additional $186 million if Congress also chooses to fund the so-called “Opportunity, Growth, and Security Initiative” for the Department of Transportation.  One billion dollars per fiscal year is a lot of money under good circumstances.  In the context of the United States’ currently dire fiscal condition, it is an eye-popping amount

What has the DOT/FAA been doing with this annual budgetary largesse, generally untouched even in the face of sequestration?  Falling behind schedule and making bad business decisions, according to a recent audit by the DOT’s Office of the Inspector General.  To quote from the report “While FAA is making progress with elements of NextGen, [its] work continues to find longstanding problems with cost increases, schedule slips, and performance shortfalls.”  Some specific problems cited in the report include:

  • Failing to make “key Enterprise Architecture decisions … such as investments needed for a NextGen weather-related system that was scheduled for 2010.”
  • Failing “to develop an executable implementation plan that addresses costs and technology development and integration.”
  • Allowing the production schedules of “key modernization projects … needed to implement NextGen capabilities” to slip.

The result of these “challenges” is that members of the aerospace industry are becoming increasingly skeptical of spending money on the installation of NextGen electronic components in their aircraft given the lack of clear benefits to do so.  This is a remarkable observation considering NextGen has been touted for years as the future of air travel in the United States.

The picture that emerges from the OIG audit is not uniformly bleak.  In fact, for IT providers there is considerable opportunity in the FAA’s chaos.  NextGen schedule slips suggest the potential for more contractor work in the future and if the government is going to continue throwing close to $1 billion at the problem, who are industry partners to complain? 

For example, the longer NextGen systems remain under development, the longer legacy National Airspace System components will require sustainment.  The DOT proposes to fund the FAA’s NAS Sustainment Strategy to the tune of $370 million in FY 2015 “to reduce some of FAA’s multi-billion dollar maintenance backlog.”  Therefore, what we are really talking about in FY 2015 is a total of $1.37 billion for NextGen/NAS sustainment funding.

Finally, if all this screams legacy contract recompetition to you, then we’re on the same page as the DOT OIG.  To again quote from the report, the “FAA will need a sufficient workforce to manage FAA’s increasing acquisition workload.”  By my count there are at least 7 NextGen/NAS related contracts expiring by the end of FY 2015.


Of these contracts, two stand out – the ERAM support contract held by Lockheed Martin and the System Wide Information Management (SWIM) System Engineering and Business Support Services contract held by the North Star Group.  The ERAM contract deserves attention because it is by far and away the largest of the contracts listed and because the implementation of ERAM has experienced repeated delays over the years.  The SWIM support contract is worth knowing because the SWIM system is the SOA-based information sharing interface that sits at the center of NextGen.  Obviously, the others are worth having on the radar as well.  It’s just that these efforts stand out to me more than the others.

 

 

President Obama’s 2015 budget: Bringing back homeland and justice grants

The White House and President Barack Obama posted the fiscal year 2015 budget, which includes a number of initiatives from job growth and fiscal responsibility, to improving the nation’s security. Usually we think of national security at the federal level, with the Department of Defense and intelligence agencies, but often the first line of defense within the United States is held by state and local officials.
 
For nearly a decade, most Homeland Security and Justice Department grant programs have been reduced or remained stagnant. In cases like with the Federal Emergency Management Agency (FEMA), there are numerous grant programs, each with their own rules and regulations. As part of President Obama’s budget for the Department of Homeland Security (DHS), these grant programs will be simplified and consolidated into the already existing Homeland Security Grant Program (HSGP). While it is unclear the amount of funding that will be allocated, a more easily understood program will benefit state and local agencies vying for that money. Oftentimes agencies, particularly smaller ones, get bogged down with grant proposals and ultimately fail to win funds for reasons such as being unqualified for the grant to begin with.
 
As part of the budget proposal, both DHS and the Department of Justice (DOJ) would offer billions of dollars in grant funding. The DHS would have $1 billion for border protection and another half-billion dollars for technology research and development, and other initiatives. The DOJ and the DHS would offer local agencies millions to retain and rehire employees, including emergency management agents and police officers. The Byrne Justice Assistance Grant (JAG) has been funded in previous years, but a renewed commitment to these funds would be a vital source of money for local agencies. Agencies that are not connected to many of the federal criminal databases could utilize these funds to get up to speed as well as invest in officers.
 
Analyst’s Take
 
It is too soon to know whether President Obama’s budget will pass as constructed today. However, the inclusion of the public safety, emergency preparedness and other justice programs is a promising sign, especially to cash-strapped state and local agencies. There are numerous programs, including state criminal history initiatives that could move forward if funding is made available. The use of new technology in the justice system and within homeland security and emergency management would be welcomed by vendors with new tools, software and hardware that could reduce time in the field. Vendors should begin to follow the budget process to see what grant programs are funded, and reach out to existing clients who may want to expand existing systems or explore new opportunities.
 
 

Are Feds Struggling to Move to the Cloud?

A report on cloud adoption in the federal government has been getting attention recently.  Entitled The Road Ahead: Three Years after Cloud First, the survey-based report found that since the announcement of former Federal Chief Information Officer Vivek Kundra’s Cloud First initiative in 2011, federal agencies have struggled to implement cloud computing.  As evidence one slide in particular shows that “just ten percent [of agencies] have migrated more than half of their IT portfolio to the cloud.”  Common roadblocks to adoption, survey respondents said, include a lack of staff necessary to execute agency cloud strategies and a lengthy procurement process that hinders cloud adoption.

As someone who keeps a close eye on the federal cloud market, I have to admit I wasn’t surprised by the findings.  The halting nature of agency movement to the cloud has been well documented in my posts and inreports on the federal cloud market published by the Federal Industry Analysis team.  This said, however, the picture of federal cloud adoption presented in The Road Ahead shows several disconnects between the respondents and the available data.

For example, although 49% of survey respondents said they’d moved less than 10% of their IT portfolio to the cloud, 51% of respondents said that they’d moved 11% or more of their agency’s IT portfolio to the cloud.  I found this reassuring.  It tells me that agencies are moving to the cloud as quickly as they feel comfortable making the transition.  Could they move faster?  Of course, but we need to remember who we are talking about here.  Federal agencies operate within a risk-averse environment, but early cloud mandates forced them to move quickly and without well-laid plans.  A measured pace was called for and now that they are approaching cloud on a broader scale they have the opportunity to accelerate adoption.  In addition, it’s worth noting that most agencies don’t have the goal of moving 50% or more of their IT portfolio to the cloud.  In the Federal Cloud Computing Strategy published in 2011, agencies reported that, in aggregate, only 25% of the $80B in OMB-reported IT spending was even appropriate for the cloud.  So, as agencies gather momentum they’ll be able to have more informed conversations about the cloud and this is good news for industry.

Turning to the lack of staff needed to execute cloud strategy, this is a valid concern.  Hiring freezes, retirements, and staffing cuts have had an impact on agency IT operations across the board.  But this isn’t bad news for the market as agencies are turning to vendors for help.  Here at Deltek we classify cloud efforts into several categories.  These include consulting efforts we call “cloud enabling” and “cloud strategy.”  Cloud enabling efforts involve engineering/design to make systems and applications ready for migration to the cloud.  Since FY 2009 approximately 10% of the efforts we’ve identified could be classified as cloud enabling, and this doesn’t count many of the almost 300 other efforts we classify as “pure cloud,” (i.e., actual migrations or purchases of cloud-based capabilities) that include cloud enabling type work.  Add another 21 cloud strategy efforts in which vendors are assisting agencies with developing cloud strategies and what we have is a complex picture of a market in transition.

Survey respondents also mentioned a procurement bottleneck.  Here again there seems to be a disconnect between the survey responses and the data.  Without a doubt the overall IT procurement model leaves a lot to be desired.  However, contracting shops still found ways to award cloud contracts valued at more than $20 billion dollars from FY 2009 to FY 2013.

I am bullish on the prospects for the federal cloud market because the data tells me the market is growing.  To reinforce the point here are a few statistics:
  • To date, 48 agencies have acquired or are actively procuring a cloud service.  Of these 48 agencies 30 have engaged in 3 or more cloud efforts, this includes the Department of Defense and associated Military Departments.
  • 126 cloud efforts have been private cloud deployments, whether in a private government or commercial cloud.  This compares with 85 deployments in commercial clouds and 213 efforts where the deployment type could not be identified.  These statistics reinforce findings in The Road Ahead that agencies are moving mostly to private clouds.
  • Concerning how agencies are using the cloud, five areas stick out in particular:
    • 45 efforts identified have been/are for data center services, basically hosting and computing services.
    • 34 efforts have been/are for software development, essentially development and testing environments.
    • 28 efforts have been/are for email, yet this is primarily what we hear about in the media.
    • 27 efforts are for content and data management, including database hosting, content management systems, archiving, etc.
    • 25 efforts have been for cyber security purposes, including identity access management, network access management, and continuous monitoring.

The future looks bright too.  Deltek’s cloud forecast projects that the federal cloud market will grow almost threefold from $2.2 billion in FY 2014 to $6.15 billion in FY 2018 at a compound annual growth rate (CAGR) of 18%.  Our data shows that agencies are actively engaging industry partners to develop cloud strategies and implement solutions that make even greater use of cloud computing in the future.  Barring any extreme setback like a massive data breach or catastrophic failure of a cloud hosting facility, I’d expect to see agencies accelerate their adoption of cloud solutions.  This can only be good news for industry and agencies alike.

 

FY2015 President's Budget Rumored to Emphasize Technology and Innovation

Federal CIO Steve VanRoekel indicated at last week’s ACT-IAC “Igniting Innovation” event that the FY2015 President’s Budget contains “the prevailing theme” of technology and innovation.  “It drives everything we do,” according to VanRoekel.

VanRoekel could not offer specifics, because the budget has not yet been presented to Congress.  The budget is scheduled for release on March 4th.  VanRoekel went on to say, “We have a modest tech budget compared to the federal budget, but we are moving a sector of the economy through our actions.”

I was initially surprised by VanRoekel’s statements given that the State of the Union address contained no mention of IT, other than cybersecurity, and only minor allusions to investments in broader areas of technology such as R&D, connecting students to the internet, and increasing energy efficiency and independence. 

Also, as reported by Jason Miller with Federal News Radio, the IT budget passback guidance from OMB was less than informative or enlightening about administrative IT priorities.  The only new requirement for agencies in 2013 was to submit a plan to give CIOs more authority over commodity IT spending.  Beyond that, OMB set no new IT goals or new requirements.  

The lack of emphasis on IT in the State of the Union and the thin IT budget passback, led me to wonder if the upcoming budget might somehow skirt deep discussion or focus on IT.  However, avoiding or downgrading IT prominence in the FY2015 budget request would be surprising given Congress’ recent heightened interest and criticism of federal IT projects and procurement.  

Possibly one of the more telling remarks made by VanRoekel at the ACT-IAC event was the advice to “Think small.”  He denounced the prevalent attitude that in order “to do more, you must spend more.”  He encouraged agencies to consider what they could do under the simplified acquisition threshold or for even as little as $10k.  

Could this be a clue to the IT themes we might see in the President’s Budget in the coming weeks:  a push to increase innovation, but without funding increases, potentially with funding decreases?  I would not be surprised.  This would fit the persistent mantra of “doing more with less.”  Creativity and innovation on a shoestring budget will likely be the federal IT refrain for the foreseeable future. 

 

 

New RFP-IT Legislation Grants CTO Authority

FITARA, FITSATA, and now RFP-IT appear as vegetable soup to many outside of the beltway, but all are legislative attempts to improve federal IT acquisition, implementation and management.  Representatives Ann Eshoo (D-CA) and Gerry Connolly (D-VA) began floating the Reforming Federal Procurement of Information Technology Act (RFP-IT Act) this week, which would give the U.S. CTO powers over government IT projects.

The proposed RFP-IT legislation would establish a Digital Government Office (DGO), headed by the U.S. CTO, which would review all agency proposals for IT projects focused on citizen services or are determined to have high development, operating or maintenance costs.    The DGO would decide whether to manage the project, assist the agency with management of the project, or direct the agency to management project on its own.

The DGO would be funded by fees collected from executive agencies on government-wide IT IDIQ contracts, GWACS and GSA Schedules.  Five percent of agency fees collected from these contracts would go to a new DGO Fund.

It’s unclear whether current Federal CTO Todd Park would be slated to move into the newly created U.S. CTO position.   Additionally, I found any mention of the role of the Federal CIO, strangely absent from the proposed legislation.   And what about CTO purview over existing “major” IT projects? 

The draft RFP-IT Act follows on the heels of FITSATA, introduced in the Senate in December, and Congressman Issa’s FITARA legislation which has been making its rounds for over a year.  A Connolly spokesman stated that the RFP-IT bill and FITARA complement one another and are not competing legislation.  

In the wake of Healthcare.gov, Congress seems ready to act on IT reform legislation.  However to date, much of the legislation and proposed reform has centered around additional reporting and oversight rather than more authority and action.  FITARA proposes more budget power for CIOs, but for the most part requires additional reporting and transparency into IT projects and spending.  But is this the answer to fixing ailing IT programs and acquisitions? 

The IT Dashboard was meant to help mitigate risk in federal IT programs and it has increased visibility and garnered success.  But as GAO points out in its most recent review of the IT Dashboard, “the Dashboard was not updated for 15 of the past 24 months.”  GAO recommended that OMB make Dashboard information available independent of the budget process and appropriately address identified IT investment weaknesses.

In another example, the House Veterans Affairs Committee continues to pressure the VA over security of veterans data and systems.  Currently, the committee has 111 outstanding requests for information since June 2012.  Are all of these unanswered requests for information solving the problem?

Eshoo and Connolly’s legislation is less about transparency and reporting, and is more about authority.  To date additional reporting requirements have not solved the problem.  Could increased CTO power and control be part of the answer? 

 

 

 

 

State of the Union Highlights: Contractor Implications

On January 29, President Obama delivered his sixth State of the Union address, and the themes are familiar. The President urged Congress to work with him to pass much needed legislation to address key administration priorities, such as job creation, healthcare, immigration, national defense, tax reform, pay equality and income security, and education and training.

Although there was not much detail, my team of analysts and I walked away from the speech with a few takeaways with contracting implications:

  • No more budget crises. While Obama lauded the efforts of Congress in passing a two-year budget deal, he encouraged Congress to continue with investments that will both support our future and reduce the deficit. He also reiterated another key way to address the fiscal bleeding, which is to close tax loopholes, like those that give $4 billion to the fossil fuel industry each year, that impact our revenue.

  • Give Americans a raise. Although he does not have the power to enforce a national minimum wage increase, President Obama intends to sign an Executive Order requiring federal contractors to pay their federally-funded employees at least $10.10 an hour.This will be an interesting story to watch unfold, considering the burden this will place on the profitability of govt. contracts, especially for small businesses.  We may see contractors restructuring their rate schedules to build in increased wage requirements, which would indirectly lay the burden of higher wages onto the government and therefore U.S. taxpayers. It may also inadvertently impact the number of vendors in the federal market – and therefore price competitiveness – if businesses decide it just isn’t profitable enough to work with the federal government.

  • Accept Obamacare or propose a new solution. Now that healthcare.gov is functional, there seems to be renewed confidence in the possibilities of Obamacare.  The President challenged Republicans to come up with a better solution that makes financial sense rather than spend time on another 40 votes to repeal the Affordable Care Act.

  • Don’t skimp on R&D.  The President called for Congress to restore cuts to basic research that facilitates the development of leading edge technology and will help America regain global dominance in technology, medical research and manufacturing.  Obama noted two high-tech manufacturing hubs where businesses and research universities are working together, and the launch of six more hubs. More emphasis on federal R&D could give contractors more opportunities in this area. Funding basic research has been mentioned as a priority by officials from both the Pentagon and the Army.  Work done by DARPA, DOE labs, NASA, and other technology-focused parts of the government would also benefit. 

  • Refocus on CONUS defense.  There will be an interesting shift to using the Department of Defense here at home, which is a huge historical shift from restrictions on this that date back to the founding.  A major part of that strategy is to shore up cybersecurity defense capabilities and as the President stated, “…keep faith with our men and women in uniform and invest in the capabilities they need to succeed in future missions.” Not surprisingly, cybersecurity remains a critical area with gaps that agencies will need contractor support to fill.

  • Take care of our veterans. Judging by the moving reaction to wounded Army Ranger Sergeant First Class Cory Remsburg, veteran care is a one of those rare, bipartisan issues that draws agreement from both sides of the aisle. President Obama indicated that the administration will “keep slashing that backlog so our veterans receive the benefits they’ve earned and our wounded warriors receive the health care – including the mental health care – that they need.” VA’s Medical IT Support and claims processing budget accounts will continue to have consistent (and growing) funding, at least in the near-term.

  • Create new jobs and train people for jobs of the future. President Obama continues his focus on the national infrastructure – rebuilding roads and upgrading ports.  This could mean opportunities for federal and state and local contractors with Architecture, Engineering and Construction expertise. With a declining federal workforce, training programs are likely to translate into contractor opportunities. Vice President Biden will lead the reform of America’s training programs, which will give employees the skills required to match with company needs. Implications:  Could help contractors looking for specific talents/skills. 
  • Invest in education and the technology to support excellence. The President targeted investment (either grants or contracts) to select providers in his pledge to connect 99 percent of students to high-speed broadband over the next four years. With support from the FCC and companies like Apple, Microsoft, Sprint, and Verizon, more than 15,000 schools and 20 million students will be connected without a negative impact to the deficit. 

  • Invest in energy efficiency and independence. The President restated his commitment to working with industry to support natural gas production and set higher fuel efficiency standards, and with business and communities to reduce energy consumption. This implies additional policy, subsidies and training in “green” professions to help facilitate America’s “shift to a cleaner energy economy.”  

  • Fix the immigration problem. President Obama encouraged the House to follow the Senate’s lead and act on immigration reform, which could result in economic growth (and therefore job creation) and a deficit reduction of almost $1 trillion in the next two decades.

Compared to last year’s State of the Union address, there was much of the same.  The President’s priorities have not significantly shifted.  However, he did raise new issues that will have both positive (defense focus on CONUS and cybersecurity) and negative (higher contractor employee wages) ramifications for companies serving the federal government.  As we typically see in federal contracting, the main issue will be in effectively translating policy into execution.

 

2013 Wastebook: Entertaining and Eye-Opening

Last month, Senator Tom Coburn (R-OK) released his annual report on federal waste, documenting nearly $30 billion in wasteful government spending, up from $18 billion documented last year. The report, Wastebook 2013, identifies 100 programs that in Senator Coburn’s words represent “mismanagement and stupidity.”

“Had Congress, in particular, been focused on doing its job of setting priorities and cutting the kind of wasteful spending outlined in this report, we could have avoided both a government shutdown and a flawed budget deal that was designed to avert a shutdown,” states Coburn in the report.

Coburn’s research identifies federal funding to provide benefits to the Fort Hood shooter, study of romance novels, help the State Department buy Facebook fans and even help NASA study Congress.  For purposes of this blog, I’ve attempted to highlight programs that contain some form of IT or federal contracting implications, but I encourage you to browse through the entire 175 page report if for nothing more than amusement and entertainment purposes. 

Let Me Google That for You: National Technical Information Service – (Commerce) $50M:  Department of Commerce’s National Technical Information Service (NTIS) was established more than 60 years ago to collect scientific, technical, engineering, and business-related information and reports, and sells\ them to other federal agencies.  But with the advent of the internet, most of these documents are available for free online.  NIST has essentially become the “let me Google that for you” office of the federal government to the tune of $50M in 2013.

Millions Spent Building, Promoting an Insurance Plan Few Want and a Website that Doesn’t Work – (HHS) At least $379M:  We are all aware of the flawed rollout of Healthcare.gov.  Coburn’s report quips that Obamacare is perhaps the biggest marketing flop since Coca-Cola introduced the world to “New Coke” in 1985.  The cost to build Healthcare.gov is estimated at $319 million so far.  “The total amount to be spent nationally on publicity, marketing and advertising will be at least $684 million, according to data compiled The Associated Press from federal and state sources.”

Status Update: Facebook Pays No Taxes, Instead gets a Tax Refund – (IRS) $295M:  Facebook, one of America’s largest companies, avoided paying federal or state income taxes for 2012, and is poised to do so again this year.  In fact, they will likely receive a check from the federal government in the form of a tax refund. By providing stock options as a major form of compensation, they are able to use them for federal and state stock option deductions to offset pretax profit. 

State Department “Buys Fans” to Increase Facebook “Likes” – (State) $630K:  The State Department spent $630,000 “buying fans” for its Facebook and Twitter accounts.  The effort was undertaken by the Bureau of International Information Programs (IIP) to build America’s reputation with foreign audiences.   The program was a huge flop.  Even though the effort generated thousands of likes, few people engaged with the State Department on either site. 

Duplicative and Wasteful IT Systems – $321M:  The federal government spends more than $82 billion on IT each year, but according to a recent GAO report three agencies have spent $321 million for overlapping IT purposes over the past several years.  HHS maintains the most costly duplicative IT systems according to GAO, totaling $260.38 million.  HHS maintains four systems related to Enterprise Information Security and two IT systems that are used for Medicare coverage both containing similar information.  DoD and DHS were also cited has having costly duplicative IT systems by GAO.  

Can You Hear Me Now? Millions Wasted on Untested, Malfunctioning IT – (USDA) $20M:  The USDA forked over $20 million to several companies for mobile device management (MDM) integration which is now one year behind schedule and malfunctioning.  One contractor’s software is not even compatible with part of the USDA’s network security infrastructure.  Eight months after the MDM system was supposed to have completed a 30-day, 3,000 phone test phase, this test phase has been pushed back, and the USDA is still just testing one component of the contractor’s incompatible software to determine whether the software will be used or abandoned.

 

The Bottom Line

During the introduction of the report, Coburn suggests, “…place your personal political persuasion aside and ask yourself: Do each of these represent a real national priority that should be spared from budget cuts or are these excesses that should have been eliminated in order to spare deeper cuts to those services and missions that should be performed by the federal government?” 

The bottom line is that the federal government still has a long way to go in order to curb pet projects, wasteful spending, and fraud.   Federal agencies perpetually will face tighter budgets while endeavoring to become more efficient and effective.  In some cases, technology can help identify wasteful spending, and root out fraud and abuse.  Agencies will continue to strive to improve operations, processes, and payment accuracy in order to save taxpayers’ money, leaving the market ripe for continued contractor support, especially in the areas of financial management, payment accuracy, and fraud prevention.

 

 

Deadline Approaches for Critical Next Step in Budget Deal

The December budget deal received a lot of media attention, but it only marked the first step in the budget process. Current stopgap spending expires January 15, 2014. Without new spending authority in place, the government could partially shut down again. This rapidly approaching January deadline is where the rubber meets the road for agency funding decisions.

A month ago, the Bipartisan Budget Act of 2013, proposed by House Budget Chairman Paul Ryan (R-WI) and Senate Budget Chairwoman Patty Murray (D-WA), laid out top-line spending levels for the next two fiscal years, funding agencies through the fall of 2015. This plan essentially split the difference between the Senate and House budget for overall discretionary budget authority for the current fiscal year. It also reduced scheduled spending cuts by $63 billion over two years, essentially dulling the near-term impact of sequestration.

The top-level caps for discretionary budget authority would enable a rise in spending above current law. For Defense, this increase would be 4.5% in FY 2014 and 1.8% for FY 2015 from current levels. Non-defense discretionary budget authority would rise above current levels by 4.7% in FY 2014 and 1.9% in FY 2015.

A week out from the January 15th deadline, negotiators reported progress in reaching agreement on a $1.1 trillion spending bill to fund the government through September. This bill would mark the crucial next step in the budget process. This step is comprised of the line-by-line agency spending for the rest of fiscal 2014.  On Tuesday, January 7th, Senate Appropriations Committee Chairwoman Barbara Mikulski (D-MD) voiced optimism about reaching an agreement on an omnibus spending measure. Agency budgets close to being settled at the start of the week include the Defense Department, along with Commerce, Justice, Agriculture, Housing and Urban Development, Veterans Affairs and Transportation. 

In an interview with the Associated Press, Mikulski noted that negotiators were, “looking at narrow the differences, looking at … how we can compromise without capitulation on both sides.” Issues that could still present hurdles for the bill include health care and financial sector reform, environmental and labor regulations. With current continuing resolution nearing its expiration and Congressional recess on January 17th, a temporary measure has not been ruled out to extend funding if additional time is needed to address final details. In the meantime, the goal for legislators remains completing all 12 funding bills before the January deadline.

These spending bills are particularly important for government contractors looking for indications of agency priorities and program spending over the next two years. While top-level figures provide a sense of overall government spending, that’s just the start of the budget process. Appropriations committees still have to establish department spending limits from which program-level spending will be determined. And, it’s only once those figures are set that agencies are able to make decisions about specific initiatives and contracts.

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Originally published for Federal Industry Analysis: Analysts Perspectives Blog. Stay ahead of the competition by discovering more about GovWinIQ. Follow me on twitter @FIAGovWin.

 

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