Private sector grows skeptical of IT consolidation efforts

Flaws in the Bush administration's attempt to streamline agency management systems are frustrating potential private sector participants and putting the initiative at risk for derailment, industry representatives said Thursday.

The lines of business effort, backed by the Office of Management and Budget, is an aggressive attempt to consolidate agency information technology systems that support common functions such as financial management and human resources. The goal is to move all agencies to a handful of federal or private sector service providers.

But murky competition guidelines for prospective service providers, congressional skepticism, union opposition and ambiguity surrounding interagency contracting are poised to sink the initiatives, industry representatives said at the FedFocus 2007 conference hosted by the Reston, Va., market research firm INPUT.

Speaking before an audience composed mostly of industry officials, Amy Laderberg O'Sullivan, counsel in the government contracts practice group at Crowell & Moring, a Washington, D.C.-based law firm, said the lines of business initiative has noble intentions but is bogged down in implementation.

"Increasing efficiency and effectiveness of government -- we hear that all the time," O'Sullivan said. "Nobody is going to challenge these fundamental goals. The problem is you have great goals, but nobody planned the process in advance. I think the private sector is going to start to get fed up, because they've been patient for too long."

OMB has said that public-private competitions under the dictates of Circular A-76, the rule book agencies use when they open federal jobs to bids from the private sector, will be required for federal agencies outsourcing their financial management systems under the lines of business initiative. Private sector competition for agency IT work is an important way of keeping prices low and service satisfactory at cross-agency service centers, OMB has said.

In a competition framework released in late September, OMB said that once agencies determine they're ready to replace their in-house financial management operations in favor of a shared service center, they must hold a competition that includes bids from the private sector.

Government officials have said that agencies and contractors vying to be selected as providers under the human resources line of business likely will follow the A-76 rules too, but a competition framework has not been released.

Linda Brooks Rix, co-chief executive officer of Avue Technologies Corp., an HR technology company based in Tacoma, Wash., said the human resources line of business is not sustainable in the long run as currently set up because the implementation plans are flawed and because of congressional opposition to the funding method, which involves interagency funding transfers.

In response to questions raised by industry officials, OMB spokeswoman Andrea Wuebker said the government is using established procurement laws, policies and regulations to guide the development of the lines of business.

"As we continue to work through implementation issues, the intent is to take advantage of both private and public competitions in order to ensure we deliver the best services at the best prices in the interest of the American taxpayer," Wuebker said.

O'Sullivan's biggest criticism of the line of business initiatives is OMB's move to designate certain agencies as shared service centers in the financial management and human resources projects. The fact that private sector centers were not designated at the same time is one example of the creation of an unbalanced playing field between industry and the government, she said.

"Is the reason we're doing this separately that their status won't exactly be the same?" O'Sullivan said. "If we're going to a competition model, why do we need to pre-qualify agency shared service centers? That's what your [requests for proposals] are for. That's what your minimum requirements are for."

If the goal of the lines of business is to save money, it's unclear why OMB required the creation of agency shared service centers, since they have high start-up fees and add an unnecessary step in the process, O'Sullivan said. And since agencies have taxpayer funded service centers, they have a cost advantage, she argued.

"Before we can begin to save money, we have to spend a lot," O'Sullivan said. "Additional funds are required for this pre-qualification process. Is it worth it, especially if the ultimate goal of the lines of business is cost savings?"

Some contractors are looking to team with agencies that have OMB-designated shared service centers versus risking competing against them, O'Sullivan said.