GSA plans to stop providing HR shared services

The General Services Administration is getting out of the human resources and payroll shared service provider business.

The decision came as part of the review by administrator Dan Tangherlini. He wants GSA to focus on its core missions: acquisition, real estate and some of the technology services, said Anne Rung, GSA’s associate administrator in the Office of Governmentwide Policy.

She said HR services just don’t fit into their plans anymore.

“We haven’t yet finalized even the requirements, but it certainly is our intent to move the service out,” Rung said after speaking on a panel at the Shared Services Forum sponsored by ACT-IAC in Washington Thursday. “We put out a request for information in the effort really to try to gain input and help us develop the requirements. It’s still in those preliminary phases.”

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Multiple requests to GSA for a copy of the RFI were not returned, and Rung couldn’t provide more details on the notice.

GSA’s HR services provides payroll and other services to 40 agencies and about 25,000 employees of which 12,500 are its own employees. GSA services mostly small agencies, with the exception of the Office of Personnel Management.

Pressure to move commodity systems

GSA’s decision comes as the Obama administration is applying more pressure on agencies to share resources.

The Office of Management and Budget issued a shared services strategy in May 2012, setting a series of deadlines. It followed in March with a memo requiring agencies to consider federal shared service providers first when it’s time to upgrade their financial management systems. And OMB created Uncle Sam’s List (USL) to have one place to promote the availability of shared services.

OMB is planning to launch version 1.1 of USL in a few weeks that will include a simplified user interface and an easier way to promote existing services, said Peter Warren, who is leading the effort for OMB.

Scott Bernard, OMB’s chief architect, said version 2 of Uncle Sam’s List is expected to be ready in 2014 and will take into account the findings of a recent survey of acquisition, technology and financial management workers.

HR services a loss leader?

Former government sources said GSA’s decision is interesting on several levels. First, OMB rejected the agency’s initial application to be a HR shared service provider in 2004. GSA reapplied a few years later and received approval.

Sources say one of the biggest issues GSA faced in being a provider is the cost per employee. Sources say GSA charged agencies up to $200 to $300 more per person than other federal HR providers. So if GSA was losing money on the venture, in this time of tight budgets, it makes sense for them to get out of the business, sources say.

With GSA bowing out of HR shared services, including payroll, that leaves only the Interior Business Center (IBC), the Agriculture Department’s National Finance Center (NFC) and the Treasury Department’s HRConnect as civilian agency providers. But only the IBC and the NFC are payroll providers.

The fifth provider, the Defense Finance and Accounting Service, serves only the Defense Department.

Some experts question whether GSA’s leaving will impact competition among providers as OPM begins to pump some energy back in the initiative.

Looking for a suite of services

David Vargas, the director of human resources for IT transformation at OPM, said his office is making sure the technology to meet human capital policy can be sustained.

“What now agencies are looking for are suites of services. They don’t want to be entering things 3, 4, 5 different times as it relates to personnel. They want a single point of entry. That’s a critical component of what agencies are looking for,” Vargas said. “For the shared service centers, I’ve been talking to them on what they are asking for in terms of how they communicate with OPM, OMB and other agencies. They are looking for standardization of data elements, and interoperability. Actually, we are looking also for interoperability among systems. Those are the key functions. Once you get past the initial set up of these lines of business, you have to keep improving the service delivery to agencies.”

OPM also is looking to make small improvements and upgrades, what they’re calling smart growth, to the existing HR LOB systems.

With GSA dropping out as a HR provider, it opens the door for the other providers.

“I think it makes sense that [GSA] would look to probably get out of the business,” said Joe Ward, the director of the Interior Business Center. “Even though that will probably be the case, I think there will be enough competition in the payroll area where federal civil servants will not have to suffer and worry about a monopoly.”

He added the IBC will submit a response to GSA’s RFI. IBC provides payroll services to about 150,000 federal employees.

OMB’s push for agencies to consolidate commodity IT or seriously consider a government shared services center for financial management are major reasons why there is a growing optimism and demand for shared services.

Sequestration’s influence

Ward said sequestration also has caused more agencies to look for help. He said many of his 150 customers for HR and financial management have asked the IBC, what else can they do to help save costs and take some of the services off the agency customer’s hands?

Ward said in some cases the IBC is expanding the amount of HR services they provided to a specific customer.

Another area where there is both a need and a desire for shared services is with geospatial information. Nearly every agency uses geospatial data and more than 30 are part of the Federal Geographic Data Committee (FGDC).

“One of the activities we are working on right now is a program called the geospatial platform,” said Jerry Johnston, the geospatial information officer at the Interior Department. “What we have been able to do so far is we are beginning to offer more and services through this technology base.”

Johnston said FGDC partnered with Data.gov and brought several disparate geospatial data catalogs together on one site this summer.

“We started to build communities of interest and communities of practice into our website where our partners can come in and build their little corner on this website and share information with their peers,” he said. “The really big offering we are getting ready to embark upon is shared geospatial data and application hosting.”

The Homeland Security Department also is looking to expand the cybersecurity line of business. With the recent award for continuous monitoring-as-a-service, Jeff Spicka, the project manager for the Information Systems Security Line of Business, said DHS is looking for more opportunities to set up cyber service providers.

Start-up capital needed

Even with all this activity, there still are plenty of challenges.

Funding may be the biggest one, experts said.

Johnston said the geospatial committee solved it through a combination of pass the hat for the infrastructure capabilities, and by each agency paying for more unique or specific services they plan on using.

Michael Casella, the chief financial officer at GSA, said agencies need policy help from OMB to solve the funding challenges.

“The franchise fund authority is critical,” he said. “If providers have to charge for every dime they invest when they invest it, it makes it very hard to agencies who are customers for a number of reasons. One is that your bills are unpredictable during the year. If you have to do an upgrade during a different time frame then you predicted and agencies have to cough up in that year, it becomes extremely difficult for them. It becomes critical to have [a franchise fund].”

A franchise fund lets providers charge up to four percent more than the cost of the service to pay for technology or other program upgrades. Without a franchise fund, shared service providers under law are prohibited from charging customer agencies anything more than the cost of the service.

Casella said another barrier is the cost of migrating to a shared service provider from legacy systems or switching from one to another.

“A number of agencies, and we were one of them, that looked at other options, do we stay or do we go,” he said. “At the end of the day, we stayed in part because [IBC] provided some additional service we wanted, and in part because we couldn’t afford to move even if we wanted to. I think that’s what a lot of agencies face in this budget climate.”

Casella added the best option of moving to a new provider may not be a possible option because there is no money to migrate.

He said if the administration is serious about shared services, it has to address the funding issue through a model that helps agencies pay the cost. GSA, for example, is testing a similar concept around real estate. In an effort to get agencies to move from leased space to owned space, they are subsidizing moving expenses or furniture costs, Casella said.

OMB’s deputy controller Norm Dong said the administration understands these funding and franchise fund challenges and encourages agencies to submit a budget proposal to set up a franchise fund.

At the same time, Dong said OMB is looking at policies or guidance for agencies around what recourse they have if the service provider isn’t performing well.

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