The departments of Commerce and Housing and Urban Development and the Coast Guard are planning to outsource their financial management systems in the coming year.
These three agencies have only one choice in how they modernize their financial management systems — through a federal shared services provider.
The Office of Management and Budget’s March 2013 policy created a federal first priority for agencies to modernize their financial management systems through a shared services provider.
But this second attempt by OMB to move agencies to financial management shared services is fraught with the same obstacles of a decade ago.
In the mid-2000s, OMB tried to encourage agencies to use one of four federal civilian shared service providers. But several ongoing challenges stymied the effort, including but not limited to a lack of real competition, the uncertainty of whether the federal providers are able handle such a dramatic increase in business, and how best to ensure agencies are satisfied with their services and what happens if they are not.
But OMB believes this attempt at shared services is different. The administration says budget concerns and technology advancements will help overcome these long- standing barriers.
“I want to underscore this point: this is not fire the start gun, mad rush to shared services, everybody has got to get there within two years, OK go,” said Norman Dong, who recently left his position as acting controller at OMB and is now the commissioner of the Public Buildings Service at the General Services Administration. “But it is a much more of a thoughtful migration over time and we think that will help increase the uptake in shared services across the federal government over time.”
Dong spoke last June about the administration’s vision around financial management shared services.
Federal News Radio’s special series, Shared Services Revisited, looks at whether there still are too many unanswered questions that would doom shared services once again.
$8 billion, 53,000 people
OMB named five shared service providers under the Financial Management Line of Business initiative. With the exception of the Defense Finance and Accounting Service, the four civilian providers — the departments of Treasury, Transportation and Interior, and GSA — mostly found success with small and micro agencies.
But with agencies spending more than $8 billion a year on financial management systems and with more than 53,000 employees supporting those efforts, the opportunity to consolidate and simplify is great.
So administration officials say the time is right for a renewed push for shared services.
But private sector and other experts say OMB’s plans need more time to bake.
Carlos Otal, a managing partner with Grant Thornton, said there are several questions that OMB still needs to answer, including whether it’s cheaper for customer agencies to stay with what they already are using than move to a new provider in these times of tight budgets.
“How’s that going to work out? Who’s going to pay? Where are those investments going to come from?” he said. “Today there [are] various models for that. For the most part, the customer agencies are the ones who get the budget and pay. The question has to be asked, are there other models that would work better? And how would that model work through the legislative and other processes given the various constraints presented by that?”
Otal said OMB and Treasury’s Office of Financial Innovation and Transformation (OFIT) are trying to address these and many other questions.
But as agencies begin to move to these shared service providers, some experts are questioning whether OMB and OFIT are getting ahead of themselves.
A recent Association of Government Accountants survey of federal employees shows feds are concerned over this lack of clarity.
“[OMB and OFIT] are still building the framework by which the government will go about executing this. They even termed it as putting the wheels on the bus,” said Otal, who helped oversee the AGA survey. “They did lay out in the coming months there will be a series of more guidance that will be coming out around this, as well as other announcements, such as additional shared service providers they are now evaluating to help alleviate some of these concerns.”
Respondents to the AGA survey strongly believe shared services can work in the government. A majority of the respondents, say, however, they are concerned about losing control and not getting their needs met.
Additionally, OMB’s policy has yet to address how federal providers can ramp up to accept new customers in a timely fashion.
A 1932 law called the Economy Act continues to prohibit many federal shared service providers from retaining earnings year to year. This makes it difficult for them to plan and pay for business needs like marketing, new technology and hiring personnel to meet customer demands.
Federal providers also can’t spend money they don’t have because they’d violate the Antideficiency Act. This means they can’t hire more people or expand technology with the expectation of new business.
The lack of competition is a major problem. If the current choices of financial management software agencies had to choose from were cookies, agencies could have any kind of cookie they wanted as long as it was chocolate chip.
Three of the four current shared service providers for civilian agencies offer only Oracle’s Federal Financial software.
But there are other choices besides Oracle.
GSA offers CGI’s financial management software called Momentum. But industry and federal sources say GSA is likely to get out of the financial shared services this year.
It already announced its plans to stop offering human resources shared services by releasing a RFI last fall to other federal providers to take over their customers.
Repeated requests to GSA about the future as a financial services provider were not returned.
Other agencies are using SAP, Savantage and other financial management software that meet federal standards.
“I think there is a lot of competition. If you really look at the providers, they are trying to provider services around the edges of our products. Maybe Oracle is used quite a bit as the underlying baseline for financial management. If you look at other products around the edges, maybe in some of the other areas like contracting or asset management or those things, they are often offering other services that their competitors in the shared services arena can’t provide,” said Aaron Cornfeld, the group vice president for sales engineering for Oracle Public Sector. “And at the same time, maybe they are looking at the types of services that they will offer, for example technical support versus actually providing the resources to actually do some of the work for you. I think if you really look at the providers, they are doing a lot to compete across each other and differentiate themselves to the agencies who might become their customers.”
But how many different federal financial software options is unknown, and that is another concern among AGA respondents, where 86 percent say some financial management software products will get squeezed out of the market.
Even if OMB expands the field beyond Oracle, agencies still will have limited federal options, which leads some vendors to question OMB’s roadmap.
“This federal first concept doesn’t seem quite right. The memo never uses the term federal first or implies federal options are to be preferred at the expense of any competition,” said Lisa Kazor, president and CEO of Savantage Solutions, a provider of federal financial systems consulting, accounting services and one of five federally-certified financial management systems. “If you read the memo, you will notice the memo is all about using the best value as using the guiding principles, and to move to federal first translates really to the end of competition. So how can agencies benefit from the most cost effective and innovative solutions the market can offer when commercial providers are not allowed to participate in the process and compete?”
Kazor said competition brings innovation, and innovation brings efficiencies and cost savings. She said OMB’s current approach misses this point.
Reid Jackson, CEO of Compusearch, which provides agencies with an integrated procurement system, said innovation is not the only thing affected by this approach.
“They’ve constrained the ability for new entrants to come in,” he said. “We’ve had the same financial options in government agencies to really three solution providers for more than a decade, and in the commercial market, we have really innovative new solutions like Workday, Infor and Microsoft. Microsoft has a massive financial management solution capability. They don’t offer to federal. They haven’t climbed through the regulatory hurdles to do so and that constrains at a different level what’s even possible.”
Infor and Workday both offer software-as-a-service options for enterprise financial management services.
Jackson added shared service providers aren’t competing for work in the traditional sense either, which makes this approach less than optimal.
He said the new shared services strategy, once again, isn’t positioned to take advantage of how the private sector is driving down costs by using the cloud and through the sharing of assets.
Continuous improvement, benchmarks
OMB and OFIT are trying to solve the competition issue and other issues.
“We will make sure there are options in the marketplace that will meet the demand of agencies,” said Beth Angerman, the director of OFIT. “I do not expect that we will name a series of providers that offer only one solution, and there will be plans in place to make sure we have addressed all of the concerns or needs agencies may have, if in fact their needs are truly specific to an enterprise resources planning need.”
“We will establish some level of service that is expected of shared service providers. There will be governance over those providers to ensure they are continuing to offer technology and solutions that are competitive with what can be offered in the private sector,” she said. “We will look for ideas and opportunities for continuous improvement using things like benchmarking and performance management. Those types of things will be crafted by the customer community. What’s important to the CFOs as they move in the direction of shared services, and how will we set up those benchmarks and those performance metrics so we know what level of service to hold those service providers to?”
Angerman said then it will be up to the providers to make sure they are meeting their customers’ needs by looking at other financial system packages and by being innovative.
“The current providers when they were in the process of selecting the ERP they would use did a full and open competition. At that point, those companies that were interested in competing for a place for their system to be in that particular agency had an opportunity to do so and that selection was made. So that was their choice then and there was an open competition at the time,” Angerman said. “Competition is one of the main drivers of innovation. It is not the intention of us to avoid innovation or try to somehow keep innovation from happening.”
OFIT also is identifying technology or performance gaps, and coming up with plans and recommendations to ensure agencies have what they need to take advantage of all the data from these shared service providers.