OMB considers transition costs for centers providing bad service

Federal customers dissatisfied with third-party financial management services may gain the power to ask service providers to pay them to transfer allegiance to a competitor. The Office of Management and Budget's lines-of-business initiative seeks to consolidate administrative functions that individual agencies now perform in private-sector or federal service centers.

Areas for consolidation include human resources, grants management, cybersecurity and financial management. Lines-of-business efforts will save the government at least $5 billion in the next few years, said Karen Evans, OMB's administrator of e-government and information technology, speaking last week at an event in Washington, D.C.

But some agencies worry about how to react if the service is unsatisfactory. Based on the federal budget cycle, they may need up to two years to get Congress to allocate money for moving to a new service provider.

As a result, OMB is considering a policy whereby "the service provider will bear the cost of transition if it's based on a lack-of-performance issue," Evans said.

In turn, service providers would probably have the right to eject customers if they prove overly bothersome. "You may decide as a company or agency that it's worth you bearing the costs of transition to get them out," Evans said.

OMB still must determine who would be responsible for providing the transition money. One solution is to include transition costs in agency fees. But that could mean that satisfied customers subsidize unsatisfied agencies' transition costs. Another possibility is asking service providers to pay the costs, a government official said on condition of anonymity.

Either way, a meticulous description of requirements and metrics should appear in a service-level agreement, Evans said.

OMB wants three major departments to migrate to a shared service provider for financial management in the next fiscal year. "That's the goal," Evans said, but she did not specify which departments.

Asking the service centers to pay transition costs for dissatisfied customers may be unnecessary, said Steve Kelman, a Harvard University professor and Federal Computer Week columnist. Agencies already pay an opportunity cost for keeping financial services in-house. They're "routinely paying more than they otherwise would have to pay," and if they're dissatisfied, no competitor is waiting in the wings, he said.

If agencies need to shift again, "they're saving a little less than they otherwise would save," he added. This thinking requires entitling the agencies to keep some of their savings, Kelman said.

"I would strongly urge Karen Evans to fight both within OMB internally and with [congressional] appropriators to allow agencies to keep part of the savings," he added.

About the Author

David Perera is a special contributor to Defense Systems.

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