Is industry facing a $20B hit?

OMB's freeze on financial management and modernization projects might cost opportunities for contractors

Industry today had a mixed reaction to the Obama administration’s move to halt any project that updates a federal financial management system and to change the features of future projects.

Some companies working on agencies’ financial systems are unsure about how they will get hit by the new directive. At the same time, one small business welcomes the news of smaller projects, instead of the mammoth, built-from-scratch systems. Overall though, everyone’s going to get hit, experts say.

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OMB puts brakes on financial systems modernization

Federal Financial Management News Web Log

On June 28, Obama administration officials said they were forcing agencies to stop projects to modernize financial management systems, until officials in the Office of Management and Budget review and approve the project. Currently 30 projects are on hold, according OMB. The total cost spent on these projects is anticipated to be $20 billion over the life of these projects, with an additional $3 billion spent annually. Officials also issued a policy to chop large modernization projects into smaller bits, which would keep tighter reins on projects that tend to veer off course.

Several of the large companies that work with the government on financial systems were still trying to find out as much as they can about the new guidance. Several spokesmen said they needed more information about the projects and the project reviews before commenting. Without those details, they couldn’t get a good sense of what’s likely to happen and how the policy would affect their companies, and industry overall.

Trey Hodgkins, vice president for national security and procurement policy for the TechAmerica industry association, said his organization was sorting through the memos to find more details. “We’re still trying to figure out what we can,” he said.

One expert who works at a major IT company was sure of one thing: This would be a hot topic of conversation in the coming days.

The underlying issue is spending money wisely. Jeffrey Zients, deputy director for management and federal chief performance officer, said the overall effort is getting higher returns for the roughly $80 billion the government spends on information technology.

“This effort is about dramatically increasing our success rate and achieving a much higher return on our taxpayer dollars,” Zients said. Overall, the administration wants to reduce costs, especially regarding over spending the planned budget, while getting more from each dollar spent, he said.

Zients said he wants to use the private sector’s approach of checking a program frequently to keep things on track.

“Certainly, shorter timetables will be a challenge, especially on the larger programs,” the industry expert said.

David Lucas, chief strategy officer at GCE Federal, a financial management solutions provider, said OMB’s memos signaled “the end of the era of the mega-project,” and it also opened the door for small companies, like his. Small businesses offer a lot of innovation but the size of the projects has kept them from bidding on contracts, he said.

“The road is just littered with large financial management projects,” he said.

However, Doug Davidson, publisher of the Federal Financial Management News Web Log, said the small companies will be get hit by OMB’s hold. When the projects stop, the big companies, which are often the prime contractors, have to scale back their work. The companies will reserve their resources for their own employees and let the subcontractors go, he said.

In the end, companies that maintain agencies’ legacy systems will benefit from OMB’s memo, he said. With no new projects, agencies must rely on their current systems. Davidson agreed with OMB’s principle of saving money and reducing the government’s risks. But the consequences of stopping modernization projects can hurt the government more than some projects, especially those that are in the final stages of implementation.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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