FITARA: The Pros and Cons of Cloud Services Working Capital Funds

As two versions of the Federal Information Technology and Acquisition Reform Act wind their way through Congress, it is worth taking a moment to reflect on what the impact of this legislation could be on the federal IT market. FITARA contains a section authorizing agency CIOs to create cloud services working capital funds. These funds would provide a steady stream of funding more suited to the procurement of commercial cloud services by federal customers than standard acquisition approaches currently allow. Presumably, the creation of such funds would boost spending on cloud services, but the long-term effect could also be to reduce federal spending on IT.

The news has been replete recently with stories about the slow progress of the Federal Information Technology and Acquisition Reform Act (FITARA) through Congress.  If passed in its current form, FITARA, as it is known in the acronym-soup of the National Capitol Region, would be the single most important piece of legislation pertaining to federal IT enacted in many years.  FITARA has many important elements.  This post, however, focuses on just one – cloud computing working capital funds – and provides a few thoughts about the potential impact these funds could have on cloud adoption across the federal government.

“Section 303: Transition to the Cloud” of House Resolution 1232 (Section 5303 as written into the FY 2015 National Defense Authorization Act), authorizes agency Chief Information Officers to work with relevant fiscal authorities at their agency to establish cloud service working capital funds.  These funds would establish a ready pool of money to be used for investments in cloud computing.  Using working capital funds for cloud services would have several important effects on agency cloud procurement. 

First, funding available via working capital funds would provide increased flexibility for agencies seeking to leverage the “buy by the drink” benefit of cloud computing.  With a steady and reliable funding stream agencies would be able to realize the promise of utility-based computing.  This is not a benefit that many have been able to use so far.  A quick review of the contract language in many cloud procurements reveals that agency contracting shops are taking a standard firm fixed price approach to the acquisition of cloud services.  Agencies are thus squeezing square pegs into round holes and not getting the full benefits promised by a cloud approach.

Second, the use of cloud services working capital funds would centralize investment in cloud services.  Think of the impact this could have.  Authority centralized in the CIO’s office would enable the CIO to coordinate the use of cloud computing on an enterprise level.  Agencies are already moving toward common operating environments.  The cloud working capital fund provision of FITARA would basically enable the integration of cloud services into that common environment.  CIOs are also already deep into the process of inventorying applications and all other IT assets to comply with PortfolioStat.  Having gleaned an enterprise-wide picture of redundant capabilities an agency CIO with centralized investment authority could compete a single cloud contract for those capabilities in short order.  Duplication of buying would be removed from the environment.  So far so good, right?

The potentially not-so-good-for-industry part of this scenario is that these cloud working capital funds could eventually drive down IT spending.  Agencies continue to spend upward of 70% of their annual IT budgets maintaining legacy systems.  This funding flows into revolving generations of operations and maintenance contracts for those systems.  Conceivably, the centralized acquisition authority described above would also enable CIOs to direct greater percentages of funding toward work cloud-enabling older systems and applications.  While great in the short-run for vendors providing such services, once the transition to the cloud had been implemented, expenditures maintaining the operation of those systems would be set to a new and lower baseline.

In short, the passage and enactment of FITARA could be a mixed blessing for commercial cloud services providers.  Vendors offering cloud services would benefit in the near-term from the creation of cloud services working capital funds, but the eventual result of FITARA could be to drive significant reductions in IT spending at federal agencies.  By necessity this trend would result in a smaller market, a development that would be great for agencies and taxpayers, but not so great for those whose jobs depend on selling IT products and services to the federal government.