Agencies cite challenges in franchising

Agencies are achieving mixed results in their efforts to offer franchise services to other agencies citing problems such as inexperience with marketing and pricing as potential obstacles to success.

~~The Office of Management and Budget earlier this year selected six agencies to establish pilot programs to sell data center services and other administrative functions to other government organizations on a cost-reimbursable basis. They would market their services much as a private business would and in return could protect the programs from cuts made in the appropriations process.

~~Agencies are allowed to make up to 3 percent profit on services they sell to other federal users or to state and local governments.

~~Mark Catlett assistant secretary for management at the Department of Veterans Affairs said the greatest hurdle in his agency's franchising operation has been overcoming internal objections from VA users not used to paying for data center services out of their individual budgets.

~~"The toughest challenge we are facing is showing our internal customers they are getting a good price " Catlett said. "They didn't worry about this stuff before."

~~Catlett speaking to an audience of federal employees at the General Services Administration's Information Resources Management Conference last week said the department has been unable to assure its internal customers they are getting the best price because it has been difficult for personnel working out the franchising arrangements to determine how much to charge customers. "You've got to know your unit costs before you can price [services] " he told the gathering. "We are nowhere near where we need to be in doing that."

~~The VA offers four services under the pilot program: processing through the department data center in Austin Texas payroll through the department's finance office law enforcement training for security guards and information technology training for the disabled.

~~Ron Hack director of systems and telecommunications management at the Commerce Department said the pilot program at his agency has been extremely successful so far. But he expressed concerns similar to those raised by Catlett - that Commerce potentially could run into problems if it doesn't price its services correctly.

~~Hack said competition for franchised services will heat up in the coming months especially as agencies attempt to lure outside users away from services offered by their parent organizations. He said the competitive pressure may force some agencies to slash rates to levels below what they can afford.

~~"Some agencies are so intent on getting the job they don't make money " he asserted. "That kind of competition is not something we are used to in government. We are not in a position where we can have many loss leaders."

~~Hack said Commerce began offering franchised services about six months ago and that the department's Office of Computer Services has been selling data services and access to its Executive Information System and the Human Resources Data System. The Customs Service already has signed on as an HRDS user he said and the Treasury Department's Financial Management Service and U.S. Mint are "close to entering into an agreement" to obtain services from Commerce.

~~In addition Commerce's four regional administrative support centers run by the National Oceanographic and Atmospheric Administration offer services as part of the franchise fund. The centers are in Norfolk Va. Kansas City Mo. Boulder Colo. and Seattle.

~~Hack agreed with Catlett that marketing to other agencies can be difficult. "If I go to an office in another agency that organization is probably already getting computer support from within its own agency " he said. "There is difficulty competing with a parent organization.

~~"But the National Performance Review says you ought to be able to go anywhere for the best prices " Hack added. "That competition will drive down the price and drive up efficiencies."

~~He expects an even greater push from the White House next year regardless of how November's election turns out for agencies to obtain services from external sources.

~~"Folks will be told to start buying their services elsewhere " he predicted. "So if you're not good enough to sell the service you're going to be buying the service in two or three years. These lessons are important whether you are in a franchise or not.

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