At its beginning, Daniel Tangherlini, former administrator of the General Services Administration (GSA), 18F’s parent agency, described the project in an email to colleagues as “a team of experts and innovators that will work to simplify the government’s digital services, making them more efficient and effective … these public servants will provide cutting-edge support for our federal partners that reduces cost and improves service.”
But like many digital-age start-ups, 18F, named after GSA’s 1800 F St. NW address, was long on vision but short on management. The result — it gets an F in financial administration.
Instead of securing enough cost reimbursements from its federal clients, 18F is losing millions.
A report from GSA’s internal watchdog says the start-up has suffered mounting losses from the beginning.
“Since its launch in March 2014, 18F has struggled financially,” says GSA’s Office of Inspector General (IG), citing loses every year, now totally over $31.6 million.
Whatever expertise 18F has in high-tech apparently is not matched by its ability to make accurate financial projections. The inspector general cited three reasons — “overestimating revenue projections, increased staffing levels, and staff time spent on non-billable activities.”
It also has a pattern of widely missing of financial targets.
“In FY (fiscal year) 2014, 18F senior managers projected annual revenue of $4.76 million, but ended the year with zero revenue billed or collected,” the IG found. “In FY 2015, 18F projected $32.58 million in annual revenue, but ended the year with only $22.26 million, a difference of 32% ($10.32 million) less than projected. 18F has projected annual revenue of $84.18 million for FY 2016; however, through the third quarter 18F has only generated $27.82 million in revenue, leaving 18F one quarter to generate $56.37 million in revenue to meet its projections.”
Also disturbing — “18F does not have a viable plan to achieve full cost recovery,” the report said.
Project officials don’t deny the shortcomings. David Shive, an acting commissioner, acknowledged that “past practices and controls were insufficient.”
Staffing is an example.
“Over the past three years, increased staffing costs have been a significant driver of 18F’s overall financial position,” the IG reported. “18F has continued to hire staff despite underperforming revenues.”
The project had 33 staffers at the beginning. Three years later, that had jumped more than 500 percent, to 201 employees in March, with projections to add more by the end of fiscal 2016.
Activities that can’t be billed to other agencies are another drain. One example is staff time totaling 727 hours on a logo change. The old logo was a blue square with 18F in the lower-right-hand corner. The new logo, a black square with 18F centered and a different font, wasn’t worth the time and doesn’t look as good.
Fittingly, 18F’s acting executive director, V. David Zvenyach, responded to the IG with a blog post. Zvenyach said 18F has “taken significant steps to strengthen 18F’s operations,” including obtaining an independent third party to review financial controls, transitioning to monthly customer billing and refining business operations to ensure full cost recovery.
“Since the launch of 18F, we have learned much about customer demand, which has allowed us to continue to improve our business strategy,” Zvenyach added. “We have seen significant positive signs, including a 69 percent increase in revenue from 2015 to 2016.”
Not wanting the bad news to overshadow the good works, Shive’s response, included with the report, pointed to 18F’s 252 projects helping 37 agencies deliver services “at significant cost savings for the American taxpayer.”
Those projects, according to the IG, include developing cloud.gov to help small federal IT teams create cloud Web services, “ghostwriting services” for the Department of Health and Human Services related to a child welfare data system and assisting federal agencies seeking to modernize their digital services.
Despite Zvenyach’s and Shive’s words, the IG’s office said it “found internal discussions by 18F senior management that raise doubts about their intent to break even. GSA records show that in discussions in February 2016 regarding the merits of the three break-even scenarios, 18F’s Director of Operations stated, “‘to be frank, there are some of us that don’t give rip about the losses.’”