Alternative funds for federal IT

Don’t miss out on the Modernizing Government Technology Act

Alternative funds for federal IT With budgets that barely cover their daily operations, US federal agencies often feel trapped in their outdated IT systems – unable to update system features and performance.

Many agencies spend more than 80 percent of their annual IT budgets just to keep servers up and running. Combined with other operational costs, that leaves little money and time to implement the new solutions that are transforming the private sector – even if those solutions improve security and save cost over time.

And users have rising expectations for features and speed, based on what they’ve seen in private sector systems. As agencies face the lagging performance of their outdated systems, coupled with rising operational costs and mounting security issues, the agencies feel forced to take action – even if they have little budget for innovation.

The pressure to modernize legacy systems is one of the greatest challenges facing today’s federal CIOs.

Another path to funding In 2017, the US federal government passed the Modernizing Government Technology Act (MGT Act), which includes a Technology Modernization Fund (TMF) to support short-term projects that upgrade systems and eliminate inefficiencies. But agencies have not applied for this funding at the rate that was initially expected and allocated. As of last summer, more than half of the funding still remained unclaimed.

The biggest reason is that TMF funding is a loan – and that loan must be repaid within five years. “The repayment thing, I think, is daunting to some CIOs,” said Steve Cooper, former CIO, US Department of Commerce. IT upgrades can lead to cost savings, but Cooper said that CIOs struggle to find projects where the savings are sure to repay the loan in time.

Grant Thornton Advisory Principal Aurpon Bhattacharya said “There is also a hesitancy to being one of the first agencies to leverage the act.” But, he added, agencies can overcome their concerns and take advantage of this alternative path to funding by using two important tools: Working Capital Funds and the Technology Business Management Framework.

Working Capital Fund: Your operation innovation To help offset repayment concerns, the MGT Act paves the path for an agency to create and use a Working Capital Fund (WCF). WCFs let agencies develop IT shared services, while charging customers for those services to recover the costs. “A WCF does not go through congressional appropriations, and its budget is self-sustaining through the fees that it charges for its services,” said Bhattacharya.

Since WCFs are self-sustaining, many agencies have been eager to establish them for IT purposes. However, agencies must typically submit their services in a business case, subject to a lengthy legislative review, before they can establish a WCF. For projects funded through the MGT Act’s TMF, that process becomes streamlined and much more efficient.

What you need to do: To evaluate and activate the WCF option, Bhattacharya said that agencies need a clear understanding of the services the WCF will provide to customers and how much they will charge in order to fully recover costs and sustain business. Specifically, agencies need a:

  • service catalog for the WCF, outlining the services to be offered and the rates to be charged
  • business case for the WCF (even though it won’t be subjected to a full legislative review), outlining:
  • governance
  • service level agreements
  • performance measures
  • location within the agency (either under the CFO or CIO)

If agencies remain unsure about setting the right rates for services, or ultimately recovering costs, there is a framework that can help them along the way.

Technology Business Management Framework: Your rate of recovery The Technology Business Management (TBM) Framework is one methodology that can help agencies identify and communicate the true value of IT services. The General Service Administration TBM Playbook says “TBM is a way to manage IT like a business,” maximizing benefits and eliminating inefficiencies.

Grant Thornton Advisory Managing Director Wei Tang said “TBM is not only a tool to help eliminate inefficiencies, it is also a framework to help set appreciate rates for cost recovery. Most agencies don't have a consistent way of setting rates and, as a result, some are hesitating to use a WCF.”

A framework like TBM provides a common understanding of IT costs, mapping costs to the general ledger and showing value by using a common IT taxonomy across all federal agencies. “The ability to clearly identify how much is being spent on key IT services, such as storage, servers and applications, as well as on legacy systems, is essential to being able to modernize them,” Bhattacharya said. As CIOs become trusted business partners, “CIOs can use a TBM framework to demonstrate how they control costs and communicate IT value.”

What you need to do: To implement a TBM framework, Tang and Bhattacharya said that agencies must first focus on understanding the cost of IT. Then, agencies should establish an understanding of the data they already have available. Agencies do not need to immediately overhaul how IT is managed – rather, they need to develop a rapid prototype of the information and value they can achieve by applying a TBM framework to existing data, to demonstrate success.

This prototype, and ultimately a framework like TBM, can help an agency understand the rate at which it will recover costs for a modernization effort. By balancing the rate of cost recovery, an agency can be more certain about the modernization funding that it should request.

The next step To help agencies take action on the MGT Act and ultimately modernize their IT systems, the office of the US federal CIO has developed some fundamental sources of guidance. The MGT Act site serves as a central resource that provides funding guidelines, additional considerations, and FAQs and more. The TMF site focuses on selection criteria, templates, and suggestions for preparing a submission.

By taking advantage of MGT Act funding, agencies can escape the cycle of simply maintaining their outdated legacy systems. In the process, agencies can also achieve and communicate a better understanding of the true costs – and true value – of IT services, reinforcing the IT role as a trusted business partner, a source of value and a force for innovation.


Joy TaylorAurpon Bhattacharya
Principal, PS Advisory Practice
T +1 703 637 2984

Derek HanWei Tang
Managing Director, Advisory
T +1 703 562 6597