Is 18F on Solid Financial Footing?

Leaked documents and public reports show the digital service's funding agency is coping with declining revenues and budget shortfalls.

by / October 4, 2016

Editor's Note: This story was updated on Oct. 5 to include comments from FAS Commissioner Thomas Sharpe and clarification from the GSA.

After a bout of internal and IT industry criticisms, an investigation into the digital innovation team 18F has uncovered less about the federal group itself, and instead, prompted more questions about funding at the General Services Administration’s Federal Acquisition Service (FAS), an agency procurement service.

Last June, a House subcommittee hearing was held to assess 18F’s effectiveness at helping agencies build, buy and share modern technology. A few agency CIOs had expressed concerns about the digital consultancy’s operations and cost recovery methods, while established IT industry firms sought to limit, or halt, 18F’s reach into procurement policy and IT services — something the IT lobbyists complained hindered their ability to secure profitable contracts.

As a result, the U.S. Government Accountability Office (GAO) published a report on Sept. 14 with findings and recommendations that essentially urged 18F, and its sister organization, the U.S. Digital Service, to tie performance metrics to outcomes and cost savings. At the same time, the GAO asked for greater definition of the relationship between agency CIOs and digital service teams.

Yet 18F’s work wasn’t the only thing that came under scrutiny.

As part of the report, the GAO called attention to 18F’s funding source, a special $8.2 billion fund managed by FAS called the Acquisition Services Fund (ASF). Unlike many federal funding mechanisms, the ASF does not require appropriations from Congress but generates revenue from a portfolio of procurement programs and services. This provides the fund independence from congressional funding approvals, while at the same time, demands that FAS maintain a balanced budget — a practice that became an issue in 2015 when, for the first time in years, the ASF dropped into negative numbers.

The imbalance adds credence to commentary from former GSA Administrator Dan Tangherlini, who said in July that ever since 18F was founded, FAS officials have looked at 18F as a burden, with tensions likely escalating as 18F has grown in numbers — now at about 200 technologists, procurement specialists and policy experts.

“Another mission to be funded out of the same amount of resources is always going to be an imposition ...” Tangherlini said in July. “I think as 18F has grown, and commanded, and frankly demanded, more resources that sense of imposition has probably grown with it.”

But according to the GSA, the ASF is a cost-recovery revolving fund, and 2015 was the first time that operating results dropped into negative numbers. The agency has further clarified that the ASF "maintains sufficient capitalization to manage accounts receivable and payble cycles, fund capital purchases and provide for investment."

And since it was founded in 2014, 18F’s costs have risen. It has not achieved its directive to operate as a cost-neutral program, contracting its services to agencies that pay for its operations. The GAO reported that the group has cost the ASF — FAS primary fund — about $18 million from 2014 to 2015 at an average expense of $9 million per year. This cost is projected to grow slightly before eventually balancing in 2019 when the GAO calculates 18F will generate $1.1 million.

Money matters notwithstanding, President Obama, those inside 18F, House legislators, agency officials and Democratic presidential candidate Hillary Clinton have praised 18F for its assistance in saving multi-million-dollar federal projects like HealthCare.gov, instituting cost-effective procurement strategies and providing a pipeline for Silicon Valley expertise for federal departments.

While 18F still has to fine-tune its operations, there may be greater need for scrutiny of FAS. A source inside 18F, requesting to remain anonymous, submitted expense projections of other ASF programs and services. These show the fund is expected to continue with revenue losses in 2017, at $55 million; in 2018, at $24 million; and then recovering in 2019 with $19.9 million in revenues. There are also funding categories that seemingly run on indefinitely with million-dollar losses. The last year of projections is 2021 and the greatest cost overrun is found within “General Supplies and Services Categories” that posts total estimated net operating losses at about $322.4 million from 2017 to 2021 — see below for a complete list with dollars in the thousands.


Image from the GSA Office of the Chief Financial Officer. Obtained from an anonymous source.

The GSA denied a Freedom of Information Act (FOIA) request to obtain more information about these figures, citing a FOIA exemption for “pre-decisional” documents. Even so, the agency did confirm the existence of the documentation saying they had been prepared for planning the 2018 budget.

“The [GSA] Office of Budget prepared these documents as pre-decisional, deliberative materials for an internal FAS leadership meeting on the topic of the fiscal 2018 budget ...,” the statement read, adding that the figures change throughout the year until they’ll be finalized, and the documents released, in the spring of 2017.

Sharpe told Government Technology that FAS programs provide immense value to the American people, helping the government leverage its collective buying power.

"FAS helps the government act and buy as one, saving billions of dollars for the taxpayers each year," he said. "The ASF is not in the red. The Fund maintains a balance that is appropriate to manage its operations and serve customer agencies. All FAS programs must have an intent and plan to recover costs. We continuously monitor our programs to ensure that we are operating as efficiently as possible. Through the financial planning cycle, programs aim to achieve break-even through cost reductions, business development efforts and/or rate reductions to our customers. FAS has taken many steps to streamline operations and reduce costs, passing those savings to our customers."

Jason Shueh former staff writer

Jason Shueh is a former staff writer for Government Technology magazine.