A world without competition

cost ratio graphic

Imagine you wake up and are now required by law to use only the U.S. Postal Service for your mail-delivery needs. You are prohibited from using commercial providers such as FedEx or UPS or even your local courier, which is a small business.

That is the effect of a new law that has noble goals: to generate cost savings and efficiencies by maximizing federal investments in establishing and refining the infrastructure for providing mail-delivery services. The government has decided the best way to make the most of those investments is to remove commercial options and mandate the use of government-run solutions.

As draconian as that might sound, it is exactly what the world of federal financial systems modernization is about to become.

That niche industry provides both systems and support to federal agencies — to the tune of $8 billion to $10 billion a year. A large percentage of the highly skilled jobs involved in that work are concentrated in the Washington metropolitan area. When an agency modernizes and implements a new system, it can cost hundreds of millions of dollars, and an agency would normally shop around between federal and commercial providers to get the best deal.

Under the Office of Management and Budget's M-13-08 memo, however, that will change dramatically.

Released in March, the memo's goal is to help the government save money and operate more efficiently by using shared services and capitalizing on investments in existing federal providers. The memo suggests, reasonably enough, that new agency proposals for improving financial systems must consider the use of federal shared service providers (FSSPs) rather than be limited to an evaluation of commercial shared service providers.

But that is not about to happen.

Based on OMB's and the Treasury Department's interpretation and implementation of M-13-08, agencies seeking new solutions must go to Treasury's Office of Financial Innovation and Transformation (FIT) to determine a match between the potential federal customer and existing federal providers. The customer is assigned to a federal provider to perform due diligence on whether the FSSP can fulfill the requirements; if not, another federal provider may be assigned. If there is still no match, commercial providers may be approached as a last resort.

How can an agency determine its best-value option if it cannot compare options from all viable offerors, whether commercial or federal?

That process essentially eliminates participation by and competition from commercial providers. How can an agency determine its best-value option if it cannot compare options from all viable offerors, whether commercial or federal?

Nowhere in the memo does it state that federal agencies should consider "federal first" or have an inherent preference for federal providers at the risk of eliminating commercial competition. On the contrary, the memo was an attempt to remedy the opposite situation by requiring that a federal agency consider options from federal and commercial providers and use "best value" as its guiding principle.

So far, a number of federal agencies that need to modernize their financial systems have been assigned federal providers by FIT, including the Coast Guard and the departments of Commerce and Housing and Urban Development. To date, none of those agencies has gone through a rigorous open competition to see which provider -- federal or commercial -- could have provided the best value to the agency, as M-13-08 explicitly identifies as the preferred approach.

Competition is a major driver of cost savings and increased efficiencies, and a free market is what America is all about. Although OMB and FIT are still trying to hammer out the details of this process, I urge them to make sure the final strategy focuses on the best value for the customer, as the memo originally intended.

About the Author

Lisa Kazor is founder and CEO of Savantage Solutions.


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