Providers look for a level playing field

It’s been more than a year since public-sector providers of human resources and financial-management shared services called attention to inequities in the Economy Act—which, they say, handicap them in competing with the private sector.

And despite congressional interest and suggestions from federal experts, the Office of Management and Budget still is undecided about how to solve this problem.

While administration officials contemplate why agencies still must work within rules established in 1932, public sector SSPs—namely the Agriculture Department’s National Finance Center, the Health and Human Services Department, and the Interior Department’s National Business Center—are left wondering if they can compete with private-sector providers.

“[The Economy Act rules are] holding back our planned expansion of services on the human resources side,” said Doug Bourgeois, director of NBC, which is a shared-services provider for both financial management and human resources. “We are severely constrained in the ability to add new services to fully meet the entire scope of the HR Line of Business function service offering.”

And NBC is not alone in feeling constrained. NFC and HHS both have said that the Economy Act limits their bid and proposal dollars, and their marketing efforts [GCN, March 6, Page 1].

Rules for billing

The 1932 Economy Act governs how agencies buy services from one another. Congress updated the act in 1988, but the tenets remain basically the same: Shared-services providers can charge agencies only for services provided, and they cannot spend funds they do not have or extend the availability of their money by transferring it to services for another agency.

Additionally, NBC, NFC and HHS, unlike the other SSPs, cannot retain earnings from year to year, meaning they start each Oct. 1 with a zero balance and cannot easily plan for normal business activities such as marketing, refreshing technology or hiring personnel to meet customer demands. These SSPs also cannot budget revenues below costs, because then they would be in violation of the Antideficiency Act, which states that agencies cannot spend money they do not have.

Of the eight public-sector shared-services providers, four are affected by the Economy Act.

This, according to experts, puts those four SSPs at a disadvantage when competing for work against the other four SSPs that have a working capital fund or use franchise funds, which lets them retain earnings for systems modernization work or, basically, whatever else they need. And it makes it difficult for NBC, NFC, HHS and the Defense Finance and Accounting Service to compete against private-sector companies, which have more substantial budgets.

“I don’t think we will wake up one day and say the Economy Act killed us today,” Bourgeois said. “Over time, we will have big problems because the Economy Act limits our ability to smooth out the cost curve associated with infrastructure upgrades.”

Bourgeois added that he thinks OMB officials understand the situation, but that correcting it is not among their highest priorities right now.

An OMB spokeswoman said the September version of the FM LOB’s Migration Planning Guidance identified system modernization funding as an outstanding issue. And OMB “is still evaluating the question of modernization funding. Our goal is to help ensure that a level playing field exists for all federal and commercial shared-service providers.”

This indecision comes despite promises from OMB controller Linda Combs to look at all options during a congressional hearing last summer.

One solution, besides trying to get congressional approval, is to use the E-Government Fund to stake a modernization fund for the four SSPs.

One former government official said OMB could use the E-Gov Fund once, and then the fund could go away. “The E-Government Fund is for development of IT initiatives,” the former official said. “You need a more flexible mechanism to do this and wouldn’t need both this working capital fund and the E-Government Fund to operate.”

Another way would be to use the $40 million from excess Federal Acquisition Service fees the General Services Administration has requested from Congress the last three years for a working capital fund or something similar.

OMB’s spokeswoman said there currently is “no plan to use the E-Gov Fund to help SSPs under the Economy Act”

Bourgeois said that, while OMB decides on the best way to solve the issue, NBC is planning an approach to obtain necessary approvals.

“OMB has indicated they may look at ... rationalizing how franchise funds work,” he said. “We have plans on how we will provide [new] services. [But] it places the burden of infrastructure investments on a single or small group of customers.”