18F Hasn't Cared Enough About Making Money, Report Finds

The federal digital consultancy hasn't been meeting financial expectations, according to a report from the inspector general.

by / October 26, 2016

Basically, 18F doesn’t care enough about making money.

That was the broad conclusion of a recent investigation into the group from the inspector general (IG) of the U.S. General Services Administration, which houses 18F. And it comes amid a time of restructuring for the embattled federal digital services consultancy.

From its inception in 2014, 18F has played the part of a tech startup while operating as a federal government agency — and that’s where most of the conflict in the inspector general’s report lies. It was supposed to be revenue neutral, but so far it has lost $31 million. It has offices in San Francisco, the District of Columbia and New York City, but has remote workers in all sorts of places, and the report says it has grown its staff too quickly. It has preached agile development and a faster approach to government problem-solving, and the report criticizes the consultancy for spending too much time on non-billable projects and moving faster than the flow of paperwork.

The timing of the report coincides with its former executive director, Aaron Snow, moving from 18F to a role in the newly created Technology Transformation Service that oversees 18F. The report's release also follows some tension within GSA, as a former 18F leader has said that the Federal Acquisition Service (FAS) looks at 18F as a burden. The Acquisition Services Fund (ASF) — the financing mechanism for 18F and several other FAS efforts — has had its own money problems recently. Amid all of it, technology companies that have traditionally supplied the services 18F has taken on have lobbied against 18F in the past year.

Revenue problems

18F failed to collect any revenue in its first fiscal operating year, and has followed up with two years where it’s fallen millions of dollars short of its own revenue projections, according to the IG report:

  • In fiscal 2014 18F projected $4.76 million in revenue but collected nothing.
  • In fiscal 2015 it projected $32.58 million in revenue and brought in $22.26 million for a shortfall of $10.32 million.
  • In fiscal 2016 it projected $84.18 million in revenue and has made $27.82 million through the first three quarters.

Moreover, the report raised doubts that 18F has an existing framework — or even willpower — to reach its expected revenue-neutral state. The path to breaking even has been growing longer year after year, and now the report says the agency doesn’t expect to climb its way out of the red until fiscal 2020.

And at least in the past, administrators have shown signs that their priorities laid elsewhere. At one point, according to the document, Andrew McMahon, who serves as the regional administrator for 18F’s Pacific Rim Region, said, “Sure, in the end, I could care less. ASF loses money all over the place. That's the decision we should reiterate with Denise [Roth, GSA Administrator], do you care about losing +$2.5M in order to bring in 100 more great hired [sic] into government?”

A growing staff

Even while losing money, the agency has expanded quickly. On top of its nation-spanning office locations, it has grown from 33 full-time employees in April 2014 to 201 in March 2016.

According to the report, Snow said that was to meet demand for the consultancy’s services. Even with the growing staff, they couldn’t accept all the requests coming their way.

It has worked with 31 federal agencies, its largest billing customers being GSA, the Department of Homeland Security and the Federal Elections Commission.

Working outside the lines

Part of the revenue issues might be related to time allocation — according to the report, about half of the work hours 18F has put in have been on nonbillable projects. That includes things like staff training and paid sick leave, but it also includes nearly 14,000 work hours spent on outreach and more than 700 hours spent on building 18F’s brand.

The outreach involves speaking at events and managing social media accounts, as well as keeping up the agency blog.

There was also an instance where employees spent 20 staff hours, valued at $4,148, building a bot for 18F’s internal Slack chat. The purpose of the bot was to correct users when they used male-centric language such as “hey guys.” 18F employees told the inspector general’s office that the purpose of the project was to promote a more inclusive workplace.

When working on billable projects, the report found, 18F also broke some rules. It’s supposed to have an agreement in place with a customer agency before working on a project, but about half the time 18F began work before making formal arrangements. That would violate 18F’s own handbook.

The agency’s agreements lead told the inspector general’s office that agreements can sometimes take more than two months to finalize — a time frame far too long for some of the projects involved.

“[T]he speed of business and the need for 18F services is often immediate, requiring business units to make decisions about losing clients, and potential ability to recover costs, or starting work without an agreement in place,” the employee said in the report.

Moving forward

The report laid out seven recommendations for 18F, including more oversight of internal projects and the creation of a plan to ensure cost recovery for its work.

In a blog post published the same day as the report, interim 18F Executive Director David Zvenyach said the agency has already been working to address many of the issues in the report for months. A new chief operating officer position within the Technology Transformation Service will provide oversight, as will new control systems for time management and agency work agreements.

“Our mission requires us to be relentlessly focused on helping our agency partners, and that means we need to ensure that we continuously improve on our controls and processes to meet that mission,” Zvenyach wrote in the post. “The oversight of GSA’s Inspector General is a critical part of how we can continue to improve, and we appreciate their review and agree with their recommendations.”

The GSA has been contacted for comment, but had not replied by press time.

Ben Miller Staff Writer

Ben Miller is the business beat staff writer for Government Technology. His reporting experience includes breaking news, business, community features and technical subjects. He holds a Bachelor’s degree in journalism from the Reynolds School of Journalism at the University of Nevada, Reno, and lives in Sacramento, Calif.