Technology Modernization Fund: OMB and GSA Need to Improve Fee Collection and Clarify Cost Estimating Guidance for Awarded Projects

In December 2017, the MGT Act was enacted, which established the TMF. OMB, the Technology Modernization Board, and GSA oversee the TMF. The board is responsible for approval of agency project proposals focused on replacing aging IT systems. Agencies receive incremental award funding and are required to repay the funds transferred and an administrative fee within five years. Agencies may use the project's generated cost savings to repay the award. GSA can use TMF appropriations to cover its operating expenses, and is required to collect administrative fees from awarded projects to offset these expenses. GSA's fee rate was established with the intent to fully recover its costs. As of August 2019, Congress had appropriated $125 million to the TMF.

The act included a provision for GAO to report biannually on the TMF. For its first TMF report, among other things, GAO analyzed the TMF's operating costs and assessed the reliability of selected projects' cost savings estimates. To do so, GAO reviewed OMB and GSA's administrative fund processes, and GSA financial data on TMF operating costs. GAO also analyzed TMF project proposal and supporting cost estimate documentation from selected agencies.

As of August 2019, the Technology Modernization Board had made seven Technology Modernization Fund (TMF) awards to five agencies, totaling about $89 million, and had transferred $37.65 million of this funding to the projects (see table). In addition, pursuant to the Modernizing Government Technology (MGT) Act, the General Services Administration (GSA) had obligated about $1.2 million to cover TMF operating expenses, but had recovered only about 3 percent of those expenses through fee payments. The seven projects are expected to make $1.2 million in scheduled fee payments by the end of fiscal year 2025; as of August, three projects have made fee payments totaling $33,165. Based on the current schedule, GSA will not fully recover these expenses until fiscal year 2025 at the earliest.

GSA had collected fewer fees than planned to offset costs due to several factors. For example, the seven projects paid fees based on the amounts transferred, rather the total funds awarded, thereby reducing fee collections in the initial years. Two projects also proposed scope changes that are expected to reduce funding required and, thus, reduce total fees. Such factors raise doubts on whether GSA will be able to fully recover future operating expenses. Although GSA acknowledged this issue, the agency has not yet developed a plan outlining the actions needed to fully recover its TMF operating costs in a timely manner.

The Office of Management and Budget's (OMB) funding guidelines require projects to include a reliable estimate of any project-related savings. However, the seven projects' reported savings estimates derived from cost estimates are not reliable. None of the projects incorporated all of the best practices for a reliable cost estimate, as defined in GAO and OMB guidance. Without clarifying the requirement that agencies follow Circular A-11's cost estimating process (that references GAO's cost estimating guidance discussed in this report), agencies are at risk of continuing to provide unreliable cost information in their proposals.

GAO is making five recommendations—two to OMB and three to GSA, including developing a plan to fully recover operating costs and clarifying that agencies should follow required cost guidance. OMB raised a number of concerns that GAO addresses in the report. GSA agreed with one recommendation and partially agreed with the other two. GAO continues to believe all of its recommendations are appropriate.

Investments in federal information technology (IT) have the potential to  make agencies more efficient in fulfilling their missions by reducing costs  and improving operational efficiencies. However, over the past 2  decades, the federal government’s increasing demand for IT has led to a  dramatic rise in operational costs to develop, implement, and maintain its  existing legacy systems. Each year, the federal government invests over  $90 billion in IT, with about 75 percent reportedly spent on operating and  maintaining existing systems.

As we have previously testified, IT projects often fail—that is, even after  exceeding their budgets by millions of dollars and delaying the schedules  by years—the results do not meet requirements. Consequently, we  added improving the management of IT acquisitions and operations to our  High Risk List for the federal government in February 2015. In March  2019, we reported that, while progress had been made in addressing this  high-risk area, significant work remained to be completed.

Recognizing the challenges in modernizing government IT systems,  Congress enacted a law in December 2017 that authorized the availability  of new funding mechanisms to improve, retire, or replace existing  systems. The law, known as the Modernizing Government Technology  (MGT) Act, established a new funding mechanism called the Technology  Modernization Fund (TMF) within the Department of the Treasury. The  fund is intended to improve the efficiency and effectiveness of  government systems.

The Technology Modernization Fund is administered by the Office of  Management and Budget (OMB) and a program management office  within the General Services Administration (GSA), in consultation with the  Chief Information Officers Council. The law also established a  Technology Modernization Board, which is chaired by the Federal Chief  Information Officer (CIO), and is made up of seven federal government  IT executives. The board evaluates the proposals submitted by agencies  seeking funding to replace legacy systems or acquire new systems. The  GSA program management office began administering fund operations in  March 2018 and the board made its first awards to projects in June 2018.

The MGT Act included a provision for us to report biannually on the  TMF’s status and on projects that have been awarded these funds. Our  objectives were to: (1) determine the costs of establishing and overseeing  the TMF, as compared to the savings realized by projects that have  received awards; (2) assess the extent to which cost savings estimates  for awarded projects are reliable; and (3) determine the extent to which  agencies have used full and open competition for any acquisitions related  to the awarded projects.

The scope of our review included OMB and the GSA program office—the  two organizations responsible for TMF administration—as well as the five  agencies that had received the seven awards from the fund as of August  2019—the Department of Agriculture (Agriculture), Department of Energy  (Energy), Department of Housing and Urban Development (HUD),  Department of Labor (Labor), and GSA.

For our first objective, we obtained and analyzed financial data from the  GSA program office related to actual and planned operating costs for  establishing and overseeing the TMF for fiscal years 2018 through 2025  (fiscal year 2018 was the first year that the fund was in operation). We  also held initial discussions with staff from OMB’s Office of E-Government  and Information Technology and with officials from the Department of the  Treasury and GSA, regarding each agency’s role in administering the  fund’s operations and the costs associated with those activities. In doing  so, we confirmed that GSA is the only federal agency obligating funds  from the TMF to cover operating costs.

To ensure the accuracy and completeness of GSA’s financial data on the  operating costs for TMF administration, we obtained information from  officials within GSA’s Office of the Deputy Administrator on the controls in  place for ensuring the reliability of the financial data. We also reviewed  GAO, GSA Office of Inspector General, and GSA reports that discussed  the results of prior reviews of internal controls for GSA financial systems.  In addition, we reviewed GSA-provided data for obvious errors and  inconsistencies and did not identify any significant errors related to the  accuracy or completeness of the data. Based on these steps, we  determined that these data were sufficiently reliable for us to be able to  report accurately on GSA’s operating costs for TMF administration.

We also obtained and analyzed agency documentation from, and  interviewed officials within, GSA’s TMF Program Management Office  regarding the fund’s actual and planned operating expenses as of August 31, 2019. We assessed the collection of administrative fees used to  ensure the solvency of the fund during the period from June 2018 (when  projects first began to receive awards) through August 31, 2019. In  addition, we interviewed staff in OMB’s Office of E-Government and  Information Technology regarding OMB guidance and its administrative  responsibilities for the fund.

Further, we obtained and analyzed project proposal documentation and  signed interagency agreements and interviewed officials in charge of the  TMF-funded projects within the Office of the CIO and other appropriate  offices at each of the five agencies to determine the scheduled repayment  transfers, administrative fee payments, and whether awarded projects  had realized cost savings for fiscal year 2019. (Fiscal year 2019 was the  first fiscal year that awarded projects could have realized cost savings as  a result of receiving TMF funding.) In doing so, we confirmed that none of  the seven projects had begun to realize cost savings; therefore, it was  premature to compare projects’ realized savings to TMF administrative  costs.

For the second objective, we analyzed TMF project proposals, including  cost estimates and supporting documentation, from the five agencies that  received the seven awards. In addition, we interviewed the agencies’  project officials responsible for developing the overall TMF cost savings  estimate and associated cost estimates regarding their estimation  processes. We compared each TMF-funded project team’s estimating  methodologies and documentation to the best practices of a reliable cost  estimate discussed in GAO’s Cost Estimating and Assessment Guide.  Our analysis enabled us to determine whether each project’s cost  estimate, used to determine the project’s cost savings estimate, was  comprehensive, well documented, accurate, and credible.

We presented the results of our initial analysis of each project cost  estimate to its respective agency in July 2019. We asked each agency to  verify the information presented in the analysis and provide any updates  or additional documentation as appropriate. Each of the agencies  provided updated information, which we incorporated into this analysis, as  appropriate.

In addition, we interviewed staff in OMB’s Office of E-Government and  Information Technology, as well as officials from the TMF Program  Management Office, about the process for the review and approval of  TMF-funded project cost savings estimates and cost estimate  documentation.

Because the Technology Modernization Board required agency project  teams to use a template to submit the project cost savings estimates and  because we learned from project officials at each of the five agencies that  they did not rely on data from agency financial systems when completing  the template, we took additional steps to assess the reliability of the data  in the completed templates. First, we interviewed officials in the TMF  Program Management Office responsible for developing the template in  order to understand the purpose of each template data field and what  information was required to be completed. We took this step because  there were no written instructions for the template regarding the data  elements or the fields required to be completed.

We also interviewed officials in the Office of the CIO and other  appropriate offices at each agency, who were in charge of completing the  TMF cost estimate template. We discussed with these officials how the  template was filled out and what sources of data were used. We also  reviewed agency responses and other supporting documentation to  determine how the estimated costs and savings were derived and  whether there were any qualifications of the provided data. Further, we  reviewed the completed templates to identify missing data, or other  errors, and consulted with our cost estimation specialists about these  issues, as appropriate.

Based on our assessment of each project’s cost estimate (used to derive  the cost savings estimate) and the other measures we took to assess the  reliability of the data included in the completed templates, we determined  that the cost savings data for all seven TMF projects were not sufficiently  reliable; thus, we did not include the estimated savings amounts in our  report. In addition, we discuss the data’s shortcomings in our report.

To accomplish the third objective, we obtained and analyzed contract  documentation for each of the seven awarded projects. We also  interviewed officials in charge of the TMF-funded projects within the  Office of the CIO and other appropriate offices at each of the five  agencies about acquisitions related to the awarded projects. Using the  agency-provided contract information, we obtained and analyzed data  from the Federal Procurement Data System-Next Generation (FPDS- NG)—the government’s procurement database—for the period of June  through August 2019. We assessed whether each awarded acquisition  used full and open competition in accordance with the Competition in  Contracting Act of 1984 and the federal acquisition regulation.

To ensure the accuracy and completeness of the awarded projects’  contract information related to the use of full and open competition, we  searched FPDS-NG data to confirm that all contracts and task orders  related to the projects had been provided. We then presented the results  of our analysis to officials in charge of project acquisitions at each agency  and asked these officials to verify the completeness and accuracy of the  FPDS-NG data and provide any updates, as appropriate.

Officials in charge of all of the awarded projects confirmed the contract  information related to the use of full and open competition and provided  additional contract acquisition data, as appropriate. Based on these  steps, we determined that these data were sufficiently reliable to report on  the TMF-funded project acquisitions’ use of full and open competition.  Further details on our objectives, scope, and methodology are included in  appendix I.

We conducted this performance audit from March 2019 to December  2019 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.

Federal agency IT systems provide essential services that are critical to  the health, economy, and defense of the nation. However, federal  agencies increasingly rely on aging legacy systems that can be costly to  maintain. As we previously reported in May 2016, our review of federal  legacy systems found that 26 federal agencies reported spending almost  $61 billion on operations and maintenance costs in fiscal year 2015. In  addition, many of the government’s IT investments used hardware parts  that were unsupported and outdated software languages, such as the  common business oriented language (COBOL). In some cases, this lack  of vendor support created security vulnerabilities and additional costs  because these known vulnerabilities were either technically difficult or  prohibitively expensive to address.

Congress enacted the MGT Act in December 2017 and established the  TMF to help agencies improve, retire, or replace existing systems.  Congress appropriates money to the TMF, which is used to fund projects  approved by the board. As of August 2019, Congress had appropriated  $125 million to the TMF—$100 million was appropriated in fiscal year  2018 and $25 million in fiscal year 2019.

Overview of the Technology Modernization Fund

The MGT Act assigns specific responsibilities to OMB, GSA, and the  Technology Modernization Board for the fund’s administration and also  assigns responsibilities to federal agencies that received awarded funds.  Among other things,

OMB. The act requires the Director of OMB to issue guidance on the  administration of the fund and report the status of the awarded  projects on a public website. The information reported is to include a  description of the project, project status (including any schedule delay  and cost overruns), financial expenditure data related to the project,  and the extent to which the project is using commercial products and  services.

GSA. The act designates the Administrator of General Services with  responsibility for administering the fund. This includes, among other  things: (1) providing direct technical support in the form of personnel  services and other services; (2) assisting the Technology  Modernization Board with the evaluation, prioritization, and  development of agency modernization proposals; and (3) performing  regular project oversight and monitoring of approved agency  modernization projects.

In March 2018, GSA established a TMF Program Management Office  within the agency to manage these functions. An executive director  leads the office and reports to the Office of the Deputy Administrator  within GSA. The act requires the Administrator of General Services, in  consultation with the Director of OMB, to establish administrative fees  at levels sufficient to ensure the solvency of the fund in order to help  offset GSA’s operating expenses for these functions. Agencies pay  fees if they receive funding for a project.

Technology Modernization Board. The board has responsibility for  providing input to the Director of OMB for the development of  processes for agencies to submit proposals, making  recommendations to the Administrator of GSA to help agencies refine  their submitted proposals, and reviewing and prioritizing submitted  proposals. The board also is responsible for recommending the  funding of modernization projects to the Administrator of GSA, and for  monitoring the progress and performance of approved projects. In  addition, the board is tasked with monitoring the operating costs of the  fund.

As part of its oversight of awarded projects, the board requires each  project to present a quarterly update and report on the status of  milestones achieved in order to ensure the project is on schedule.

Other federal agencies. The act stated that any agency that submits  an IT-related project proposal and receives TMF funding must repay  the transferred amount as well as pay an administrative fee. After the  board approves a project proposal, the respective agency is required  to sign an interagency agreement with the TMF Program  Management Office that specifies the terms of the TMF funding  repayment, the administrative fee, and the repayment schedule before  initial funds are disbursed and the project begins.

Figure 1 provides an overview of key TMF activities that OMB, GSA, and  the Technology Modernization Board have undertaken to meet the  responsibilities outlined in the MGT Act. These include the establishment  of TMF administrative processes and the Technology Modernization  Board’s project award announcements, among other activities. These  activities are also discussed in greater detail following the figure.

In February 2018, OMB issued guidance on the implementation of the  MGT Act that included instructions for agencies on submitting  applications for TMF funding. Agencies were allowed to begin  submitting initial application proposals on February 27, 2018. The  guidance included an initial application template that agencies were  required to complete. As part of the template, agencies were required to  provide an estimate of the TMF funding request and the agency’s method  used for cost estimation.

Subsequently, in March 2018, OMB issued funding guidelines for projects  receiving awards. The guidelines stated that project proposals must  include a reliable estimate of any project-related cost savings or  avoidance relative to pre-modernization activities using the templates  provided. In addition, the guidelines stated that estimates must undergo  appropriate due diligence and concurrence from the requesting agency’s  Office of the Chief Financial Officer prior to submission to the board, in  consultation with OMB’s Resource Management Office and GSA’s TMF  Program Management Office. Further, the guidelines stated that the  agency’s estimation process would be subject to GAO review, pursuant to  the act.

For agencies receiving a TMF award, the guidelines stated that agencies  were required to repay all transferred funds as well as an administrative  fee, which was determined based on the amount of awarded funding. As  part of the process, agencies were required to establish a written  agreement with GSA that set forth the terms for repaying the transferred  funds and the administrative fee. Agencies were required to start making  payments one year after the initial amount of award funding was  transferred and complete all payments within five years, unless otherwise  approved by OMB. While the guidelines noted that reimbursement was  not contingent upon the achievement of project-related savings, agencies  could use the project’s generated cost savings to repay the award.

Agencies Follow a Two-Phase Proposal Process When Applying For a TMF Award

The TMF application process occurs in two phases, each of which  requires agencies to submit specific documents.

During Phase 1, agencies are required to submit an initial project  proposal providing preliminary information about the project, its purpose,  and its anticipated benefits. Within this documentation, agencies must  confirm that funding for this project has never explicitly been denied or  restricted by Congress or OMB, in accordance with the MGT Act.

Also during this phase, the Technology Modernization Board evaluates  proposals and makes recommendations for project funding based on how  well the project documentation demonstrates a strong execution strategy,  technical approach, and includes a strong team with a demonstrated  history of successful modernization efforts.

The board encourages agencies to consider the adoption of commercial  technology solutions in their proposals and present a strong technical  approach and acquisition strategy to implement those solutions. In  addition, agencies are encouraged to provide information on the potential  impact of the modernization effort on the agency’s mission, feasibility,  opportunity enablement (e.g. cost savings), and common solutions. If the  board approves the Phase 1 initial project proposal, the project team will  move on to Phase 2.

In Phase 2, the agency must submit a financial plan showing a cost  estimate and estimated savings from the implementation of the proposed  project. Agencies must provide a more comprehensive project description  than that provided in Phase 1, including discrete milestones, funding  schedule, project plan, and financial plan. These documents must be  approved by the agencies’ chief financial officer and CIO. Phase 2  proposals must also address any other areas identified by the board in  the initial project review. Further, the agency proposal team must also  prepare an in-person presentation for the board.

OMB’s Resource Management Office reviews the proposal  documentation to ensure that the proposed project aligns with the  requesting agency’s mission. The office’s review is intended to ensure  that the proposal does not duplicate funding provided through existing  appropriations, or previously has been expressly denied funding or  restricted by Congress. The review includes an assessment of the  proposed project’s information on the reimbursement of the awarded  funds, the project’s planned schedule, and out-year budget impacts. OMB  also reported that the agency sends information on the proposed projects  to Congressional appropriation committees for their review prior to the  Technology Modernization Board’s approval of a project.

Agencies with projects that the board recommends for TMF funding are  required to sign an interagency agreement outlining the repayment terms.  In addition, projects receive incremental funding contingent on the  successful execution of milestones outlined in the written agreement for  the transfer of funds. Figure 2 describes the steps in both phases of the  TMF proposal process.

As of August 2019, the Technology Modernization Board had awarded  $89.36 million to seven projects. Table 1 lists the projects that have  received funding (in alphabetical order by agency), descriptions of the  projects, and when the TMF funding awards were announced. For more  details on each of the awarded projects, see appendix II.

OMB and GAO Have Issued Federal Cost Estimating Guidance

OMB Circular A-11 directs agencies to follow the guidelines outlined in its  appendix on cost estimating for all IT investments and acquisitions within  the federal government. Since OMB first introduced its cost estimate  appendix in 2006, as noted in the circular, the cost estimating appendix  has been based on the GAO Cost Estimating and Assessment Guide.

The appendix outlines a number of major steps in the cost estimating  process and references the practices in GAO’s cost guide. Specifically,  these steps include preparing a high-level work breakdown structure,  defining ground rules and assumptions, developing the data by collecting  information on the cost drivers, developing the estimate using various risk  factors, performing a sensitivity analysis, documenting the estimate, and  updating it on a regular basis.

According to the GAO guidance, a cost estimate is considered reliable if it  meets four characteristics and the specific set of best practices  associated with each characteristic. Those characteristics are:

Comprehensive: An estimate should include all life cycle costs (from  the program’s inception and design through operations and  maintenance), reflect the current schedule, and have enough detail to  ensure that cost elements are not omitted or double counted.  Specifically, the cost estimate should be based on a product-oriented  work breakdown structure that allows a program to track cost and  schedule by defined deliverables, such as hardware or software  components. In addition, all cost-influencing ground rules and  assumptions should be detailed in the estimate’s documentation.

Well-documented: An estimate should be thoroughly documented,  describe how it was developed; and include source data, clearly  detailed calculations and results, and explanations of why particular  estimating methods and references were chosen. Data should be  traced to their source documents.

Accurate: An estimate should be based on historical data or actual  experiences on other comparable programs and an assessment of  most likely costs, and be adjusted properly for inflation. In addition,  the estimate should be updated regularly to reflect significant changes  in the program—such as when schedules or other assumptions  change—and actual costs, so that it should always reflect the current  status.

Credible: An estimate should discuss any limitations of the analysis  because of uncertainty surrounding data or assumptions. In addition,  the estimate should incorporate the results of a sensitivity analysis  (that examine the effects of changing assumptions on the estimate),  and risk and uncertainty analysis (that identifies all of the potential  project risks and assesses how these might affect the cost estimate).  The estimate’s results should be cross-checked, and an independent  cost estimate should be conducted to see whether other estimation  methods produce similar results.

If any of the characteristics is not met, minimally met, or partially met,  then the cost estimate does not fully reflect the characteristics of a high- quality estimate and cannot be considered reliable.

Federal Law Generally Requires Agencies to Use Competitive Procedures When Awarding Contracts

Federal agencies are generally required to use full and open competition  to award contracts for the procurement of goods and services (including  commercial IT products), with certain exceptions. The Competition in  Contracting Act of 1984 requires agencies to obtain full and open  competition through the use of competitive procedures in their  procurement activities unless otherwise authorized by law. Using  competitive procedures to award contracts means that all prospective  contractors that meet certain criteria are permitted to submit proposals.

While the Competition in Contracting Act generally requires federal  agencies to award contracts using full and open competition, agencies  are allowed to award contracts noncompetitively under certain  circumstances. Generally, these awards must be supported by written  justifications that address the specific exception to full and open  competition that is being used in the procurement. An example of an  allowable exception to full and open competition includes circumstances  when the contractor is the only source and no other supplies or services  will satisfy agency requirements. Federal agencies have the option to use  a variety of contract types when purchasing IT products and services,  including government-wide acquisition contracts, IT Schedule 70  contracts, and blanket purchase agreements. These contracts and  agreements allow agencies to establish a group of prequalified  contractors to compete for future orders under streamlined ordering  procedures once agencies determine their specific needs. Agencies can  then issue orders on these contracts and agreements, obligating funds  and authorizing work to be performed.

Agencies are required to publicly report their contract transactions in the  FPDS-NG database. This contract transaction data includes information  on the type of award made, the amount of the award, and whether  competitive procedures were used. Specifically, agencies are required to  identify the extent to which the contract was competed and what  solicitation procedures were used. In addition, if an agency awards task  orders on an existing contract, then the agency is required to identify  whether competitive procedures were used. Further, if the contract did not  use competitive procedures, then the agency is required to report the  reason that the contract was not competed.

About $1.2 Million Has Been Obligated to Cover TMF Operating Expenses and Agencies Expect to Realize Savings in Fiscal Year 2020 or Later

As of August 31, 2019, GSA’s TMF Program Management Office had  obligated about $1.2 million in operating costs for activities related to the  establishment and oversight of the fund. While the office intended to  assess administrative fees to fully recover its operating expenses, the  actual amounts collected as of August 2019 had been less than planned.  This was due to factors such as the office’s formulation of fee rates based  on appropriations levels that were higher than what was ultimately  received, along with changes to several projects’ scope and milestones.  Further, cost savings have yet to be realized. Officials from the seven  TMF-funded projects reported that they expect to begin realizing cost  savings from their projects starting in fiscal year 2020 or later.

TMF Operating Expenses Are to be Offset by Administrative Fee Collection, but Collected Fees Have Been Less Than Planned

According to the MGT Act, the TMF Program Management Office may  obligate funds to cover its operating expenses out of the appropriations  received for the fund (totaling $125 million as of August 2019) in order to  provide support to the Technology Modernization Board in meeting its  responsibilities. To help offset TMF operating expenses, the act required  that the GSA administrator, in consultation with the OMB director, to  establish administrative fees at levels sufficient to ensure the solvency of  the fund (so that obligations or transfers of funds to awarded projects  never exceed the amount available in the fund for these obligations or  award transfers).

Subsequent OMB guidance, issued in March 2018, required TMF- awarded projects to pay an administrative fee on awarded funds,  beginning the first year after the initial incremental amount of award  funding was transferred to the agency. The TMF Program Management  Office issued further guidance in June 2018 that established  administrative fee rates based on a percentage of the amount transferred  to an agency project and the payment period. During the time of our  review, the office’s current administrative rate was for the period from July  2018 through September 2019.

The fee rates were set in June 2018 with the intent to operate the fund as  a full cost recovery model, meaning that the Program Management Office  planned to fully recover all operating expenses through administrative fee  collection by fiscal year 2029 if the office’s assumptions regarding  appropriation levels and project selections were met. The office’s reported  intention is to help preserve the capital of the fund, which would maximize  the amount of appropriations available for award.

Table 2 outlines the rates for TMF administrative fees based on the  number of years to repay the awarded funds and the percentage of the  transferred amount, for the period of July 2018 through September 2019.

The TMF Program Management Office sets new rates annually after  review from the Technology Modernization Board and approval by GSA’s  Deputy Administrator; these rates go into effect in October of each year.

As of August 31, 2019, the TMF Program Management Office had  obligated about $1.2 million to cover its operating expenses and had  begun to collect administrative fees from agency projects, consistent with  the MGT Act. Specifically, from March 2018 (when the office began  operations) through August 31, 2019, the office obligated approximately  $409,000 in fiscal year 2018 and $797,000 for the first 11 months of fiscal  year 2019. During the same period, the office collected $33,165 in  administrative fees as of August 31, 2019. Based on this amount, the  fund was able to only offset approximately 3 percent of its obligated  operating costs as of August 31, 2019.

The TMF Program Management Office’s administrative fee collection has  been limited due to a number of factors that have affected the amounts  scheduled to be collected: (1) no fees were collected in the first year of  operation; (2) projects chose longer periods to make payments; (3)  projects make payments based on funds transferred; (4) fee rates were  determined based on assumptions regarding appropriations that were not  met; and (5) project changes may affect fee collection.

No fees were collected during the first year of operation. OMB’s  funding guidelines allowed agencies to start paying administrative fees  one year after a project received an award. Since the Technology  Modernization Board began awarding funding in June 2018 (within fiscal  year 2018), no projects were required to start paying administrative fees  until fiscal year 2019, which deferred the start of the TMF Program  Management Office’s fee collection by one year.

Projects chose longer periods to make payments. When the TMF  Program Management Office set administrative fee rates, agencies  receiving awards were allowed to determine what rate they would pay  according to how many years they planned to make payments. The office  reported that a lower administrative fee rate was offered to projects that chose to repay awarded funds over a shorter period (3 years) rather than  5 years. All seven projects that have been awarded funding as of August  31, 2019, chose the longer repayment period of 5 years with a 3 percent  rate.

The Executive Director of the TMF Program Management Office reported  that the office offered a lower administrative rate with the intent of making  repaid funds available more quickly to be awarded to new projects. In  doing so, the Technology Modernization Board expected to be able to  make additional awards, which would increase the collection of  administrative fees. Further, according to the Executive Director, the  office did not expect that the agencies’ selection of a 5-year repayment  term instead of a 3-year term to significantly affect the performance of the  fund. However, as the Executive Director noted, these longer repayment  terms do affect the collection of administrative fee payments because a  longer repayment term means that these funds are not as readily  available to award to new projects and generate new fees.

Projects make payments based on funds transferred. Agencies  receiving awards were only required to make administrative fee payments  based on the amount of the award funding that was transferred, rather  than based on the full awarded amount. As such, this reduced the amount  of fees that the TMF Program Management Office could collect in the  initial years that agencies made fee payments.

As of August 31, 2019, the Technology Modernization Board had  authorized the transfer of $37.65 million (of the $89.36 million awarded) to  the seven projects. Based on the amounts transferred, the office is  scheduled to collect $1.2 million in administrative fees through 2025 from  the seven projects. Table 3 shows the current scheduled administrative  fee payments that will be collected from the seven projects based on the  amount of awarded funding that the projects had received as of August  31, 2019.

Going forward, as the seven projects receive all of the remaining awarded  funds, the projects are planning to pay a total of $2.68 million in  administrative fees through 2025. However, the Technology  Modernization Board had not made awards to any additional projects as  of August 2019, and, as a result, the office will not likely be able to collect  any additional fees from new projects until at least fiscal year 2021. Any  newly awarded projects would be eligible to delay paying administrative  fees until 1 year after the initial award date in accordance with the funding  guidelines.

Fee rates were determined based on assumptions regarding  appropriations that were not met. The TMF Program Management  Office set its current administrative fee rates in June 2018 based on the  assumption that the fund would receive higher levels of appropriations  than what was ultimately received. In doing so, the office projected that it  would transfer more funds to projects, which would result in larger  administrative rates over the initial years of the fund. Specifically, GSA  requested $438 million in its fiscal year 2018 and 2019 budget requests  for the TMF, but actually received $125 million in appropriations.

Table 4 lists the amounts that GSA requested in its budget requests and  the amounts appropriated for fiscal years 2018 through 2020.

In making its June 2018 assumptions about the appropriations, the office  projected that it would distribute larger amounts of funds in the first 2  years of operation and collect more administrative fees through fiscal year  2025. However, the office’s projected collection of administrative fees is  less than what was scheduled as of the end of August 2019. In particular,  while the office exceeded its projections for distributing funds in fiscal  year 2018 ($1.93 million more than projected), the office had not yet met  its projection of distributing $75 million in fiscal year 2019—specifically, as  of August 31, 2019, the office had distributed only $25.71 million to  awarded projects. Consequently, these lower levels of distributed funds  decreased the amount of administrative fees scheduled to be collected.

Table 5 shows the TMF Program Management Office’s projections for  fund distribution for fiscal years 2018 through 2019 and its projected fee  collection, compared to the current scheduled distributions and  administrative fee collection for fiscal years 2018 through 2025, as of  August 31, 2019.

Going forward, the office had projected that it would distribute $75 million  in fiscal year 2020. However, based on our analysis, only approximately  $35.6 million was available in the fund as of August 31, 2019, to award to  new projects.

The Executive Director of the TMF Program Management Office stated  that the office had to make assumptions about the TMF appropriation  levels in order to develop the rate model. In doing so, all of the underlying  assumptions and parameters related to determining the administrative fee  rates and ensuring the fund operated at full cost recovery were reviewed  by GSA’s Office of the Chief Financial Officer and Office of General  Counsel, OMB, and the Technology Modernization Board before the GSA  Deputy Administrator approved the fee rates in June 2018. In addition,  the Executive Director noted that, at the time the rate model was  developed, the office did not yet have information on the fiscal year 2019  appropriations and made the assumption that the fund would receive the  same level of appropriations as in fiscal year 2018 ($100 million).

However, based on the wide gap between the budget requests and what  funds were ultimately appropriated in fiscal years 2018 and 2019, these  assumptions regarding fund appropriation levels did not materialize and  impacted the amount of fees that could be collected from awarded  projects in fiscal year 2019.

Four projects’ changes will affect fee collection. As of August 31,  2019, officials responsible for the management of four of the seven TMF- funded projects reported that they were planning to make significant  changes to their projects’ approved scope or scheduled milestones.  Officials from two projects reported that they had received approval for  these scope changes from the Technology Modernization Board (in June  2019 and August 2019, respectively) and are currently waiting on  approval for the repayment schedule changes as of August 31, 2019.  Officials from the other two projects reported in August 2019 that they  planned to present their changes to the board for approval. Based on our  analysis, these changes are expected to affect the four projects’  administrative fee repayment schedules and reduce two projects’  administrative fee collection by $369,117.

Table 6 lists the changes to the four TMF-funded projects as of August  31, 2019, as reported by the agencies; the status of the Technology  Modernization Board’s approval of the changes; and the potential impacts  these changes are expected to have on administrative fee collection. In  addition, more details on the changes reported by the four projects are  included in appendix II.

The Executive Director of the TMF Program Management Office stated  that the four projects’ reduction or delay in administrative fee payments  should not affect administrative fee collection. The Executive Director  explained that the return of prior awarded funds will allow the Technology  Modernization Board to have more funds available to award to new  projects, which would generate new administrative fees. However, these  proposed changes to the four projects’ scope and schedule likely will  affect upcoming administrative fee collection because additional time will  be needed to review new project proposals. In addition, the agencies may  delay administrative fee payments for one year after award issuance.

As a result of the five factors that we identified that had impacted  administrative fee collection as of August 2019, there is likely to be a  period of time between when the office’s current administrative fee  collection occurs and when the office can recover its operating expenses  from this collection. Specifically, based on our analysis, it will take the  TMF Program Management Office at least 5 years (until 2024) to recover  the operating costs expended as of August 31, 2019, (over $1.2 million)  with the current collection of administrative fees. In addition, once the two  projects’ proposed scope and schedule changes are approved by the  Technology Modernization Board (decreasing fees collected by  $369,117), it is likely that the office will take longer than 5 years to  recover these operating costs.

Further, it is not clear when the TMF Program Management Office will  recover future operating expenses incurred in fiscal year 2020 and  beyond. Moreover, these factors will most likely continue to be a  challenge for OMB and the office going forward if newly awarded projects  choose longer repayment periods or more awarded projects make  changes that affect fee collection. Consequently, OMB and the TMF  Program Management Office are not currently on track to operate the  fund at full cost recovery, as intended.

The Executive Director of the TMF Program Management Office stated  that the office had reduced its fiscal year 2019 operating expenses by  almost 50 percent from the original planned operating level (in the fiscal  year 2019 President’s Budget). In particular, the Executive Director  reported that the office used temporary staff internally to deliver  administrative and support activities, such as website updates and the  preparation of meeting agendas and minutes, rather than rely on  contractors. The office added that, using internal temporary employees  had provided the office with the flexibility to scale operations up and down  as appropriate. As of August 2019, the office was not pursuing a staff  increase.

Further, the Executive Director stated that, as of August 2019, the office  was reassessing the assumptions for the administrative fee rate model for  the upcoming year, including assumptions for fiscal year 2020  appropriations. The Executive Director added that the office would like to  have more information on its fiscal year 2020 appropriations in order to  help determine the new rate. These assumptions would be used to  develop a new rate model that is expected to go into effect on October 1,  2019, for fiscal year 2020.

As for the office’s ability to manage the fund at full cost recovery, the  Executive Director stated that all of the assumptions would have needed  to be met in order to ensure the TMF operated with full cost recovery. The  Executive Director added that the office still intends to pursue full cost  recovery going forward, but noted that this may change if the new set of  assumptions is not met. Further, the Executive Director reported that four  project proposals were in draft stages or pending a Technology  Modernization Board determination as of August 2019.

Since the fund was established in December 2017, OMB, the Technology  Modernization Board, and the TMF Program Management Office have  provided oversight of the fund’s awarded projects by requiring the  respective agencies to provide quarterly updates on the status of project  milestones and transferring additional funds only when milestones were  reached. However, the board had not made a corresponding effort to  ensure that the TMF Program Management Office’s operating costs and  administrative fee collection remained on track to achieve full cost  recovery as intended.

In addition, the office’s plan to take 12 years—from the start of operations  in fiscal year 2018 until fiscal year 2029—to fully recover its operating  costs hinders GSA’s ability to maximize the amount of appropriations  available for award due to the length of time necessary to recover its  costs. As a result, as of August 2019, OMB and the TMF Program  Management Office were not on track to recover all operating expenses  related to fund administration and oversight, thereby leaving less of the  fund’s capital available for project awards.

The TMF Program Management Office’s authorized collection of  administrative fees is intended to allow the office to offset expenses,  which maximizes the amount of funding that can be awarded to projects.  However, given the lower-than-expected collection of these administrative  fees and the office’s lengthy time frame for recovering all costs, it may be  prudent to review those fees and determine whether their rates are set  appropriately. Unless OMB and the TMF Program Management Office  take steps to develop a plan that outlines the actions needed to fully  recover TMF operating expenses with administrative fee collection in a  timely manner, there will be fewer funds available to award to projects  that are intended to improve the efficiency and effectiveness of  government IT systems.

TMF Projects Plan to Begin Realizing Cost Savings in Fiscal Year 2020 or Later

The MGT Act established the TMF to help improve, retire, or replace  federal IT systems with more efficient and effective systems that would  cost less money to operate and maintain. As part of its selection criteria,  the Technology Modernization Board stated that the agency would need  to clearly demonstrate in its proposal how the proposed project would  generate cost savings or how the modernization of the system would  dramatically improve the quality of service provided. In addition, OMB’s  funding guidelines stated that the project proposal must include a reliable  estimate of any project-related cost savings or avoidance using the  templates provided. Agencies were required to identify what year their  project would start to realize cost savings in the TMF application after  receiving an award (the earliest year savings could begin to be realized  was fiscal year 2019). Further, the guidelines stated that the agency’s  estimation process would be subject to GAO review, pursuant to the act.

As of August 31, 2019, officials responsible for project management for  each of the seven TMF-funded projects reported that their projects had  not yet begun to realize cost savings because either the project was still  currently being implemented or the project had experienced changes to  prior projections. Specifically, officials for four of the seven projects  reported that their projects were currently meeting targeted milestones for  implementation and would begin to realize cost savings starting in fiscal  year 2020 or later as planned. Officials for the other three projects  reported that they had recently made changes to the projects’ scope and  scheduled milestones that delayed when the projects would begin to  realize savings. For more details on the changes reported by these three  projects, see appendix II.

Table 7 shows the year that each of the seven TMF-funded projects  report that they would begin to realize cost savings.

One of the three projects that experienced changes, Agriculture’s  Infrastructure Optimization project, had originally planned to begin  realizing cost savings starting in fiscal year 2020; however, project scope  and milestone changes delayed the expected date for realization of this  savings. Officials from Agriculture’s Infrastructure Optimization project  reported in August 2019 that the new time frame for realizing cost savings  remained to be determined.

In addition, Energy’s Enterprise Cloud Email project had originally  intended to begin realizing cost savings in 2021, but changes to the  project’s scope have delayed the realization of savings until 2024. The  third project, GSA’s NewPay, had originally planned to begin realizing  savings in 2024, but changes to the project’s technological  implementation have delayed the realization of savings. In particular,  officials from GSA’s NewPay project reported that the project still  anticipates realizing cost savings, but the date for these savings remains  to be determined.

Congress established the MGT Act and the TMF to help agencies  transform their legacy IT systems to be more cost effective and efficient.  As the awarded projects complete implementation efforts, it will be critical  for agencies to realize cost savings from these modernization efforts in  order to help ensure the fund is successful.

Savings Estimates for the Technology Modernization Fund Projects Are Not Reliable

OMB’s Circular A-11 directs agencies to follow the guidelines outlined in  its appendix on cost estimating for all IT investments and acquisitions  within the federal government. Since 2006, as noted in the circular, the  cost estimating appendix has been based on the GAO Cost Estimating  and Assessment Guide. As discussed earlier, the appendix outlines a  number of major steps in the cost estimating process and references the  practices in GAO’s cost guide. According to GAO’s guidance, a reliable  estimate should meet the criteria for four characteristics and the specific  set of best practices associated with each of the characteristics. The four  characteristics and the specific best practices, among others, are:  comprehensive – the estimate should include all life cycle costs, a  work breakdown structure, and ground rules and assumptions; well-documented – the estimate documentation should describe how  the source data were used, the calculations that were performed and  their results, and the estimating methodology used; accurate – the estimate should be based on historical data or actual  experiences on other comparable programs and be updated regularly  to reflect changes in the program; and  credible – the estimate should incorporate the results of sensitivity,  and risk and uncertainty analyses.

According to the GAO guidance, if the overall assessment rating for each  of the four characteristics is not fully or substantially met, then the cost  estimate cannot be considered reliable.

Based on our analysis of the cost estimates for the seven TMF-funded  projects, the reported savings estimates that were derived from those  estimates cannot be considered reliable. Officials responsible for  developing the cost estimates for each of the projects did not incorporate  all of the best practices for a reliable cost estimate, as defined in the GAO  guidance and OMB Circular A-11.

Table 8 describes the four GAO cost estimating characteristics, key  practices associated with each characteristic (and the major steps in  OMB Circular A-11), and the results of our analysis of the seven TMF- funded projects’ cost estimates. In addition, appendix III provides more  details on our individual assessments of the seven projects’ cost  estimates.

In assessing the reliability of the projects’ cost estimates, we found that  the TMF Program Management Office did not provide written guidance for  developing the cost estimates in a manner consistent with federal  requirements outlined in Circular A-11 or our best practices. Specifically,  the only guidance that the Technology Modernization Board provided on  the TMF website was the instruction to submit a project cost estimate  using a template developed by the Program Management Office, and  approved by OMB and the Technology Modernization Board. While the  template provided a means to report costs for the proposed projects, the  template did not require agencies to follow any of the best practices  outlined in GAO’s Cost Estimating and Assessment Guide, and which is  referenced by Circular A-11. Further, there were no written instructions for  the template regarding the data elements or the fields required to be  completed.

Agency officials responsible for developing the cost estimate for each of  the seven projects all confirmed that they were instructed to use the  project cost estimate template to report their projects’ cost and savings  estimates. In addition, these officials acknowledged that they did not  follow their own internal cost estimate development processes or GAO  best practices when developing their estimates.

The Executive Director of the TMF Program Management Office stated  that the project teams were expected to follow their own internal  investment management process for developing the cost estimates.  Additionally, the agencies’ chief financial officers and CIOs were required  to review and approve the project proposal applications, including the  completed cost estimate templates, prior to the agencies’ submissions to  the Technology Modernization Board.

Further, the Executive Director acknowledged that written guidance had  not been developed for completing the project proposal documentation.  Instead, the Executive Director stated that the office had held meetings,  as requested by each project team, to provide assistance on how to  complete the cost estimate template. The Executive Director stated that  these meetings enabled the project teams to ask targeted questions on  how to complete the template for their individual projects, which enabled  the office to provide specific assistance on completing the template for  each project.

Staff in OMB’s Office of E-Government and Information Technology  stated that agencies are required to follow the requirements outlined in  Circular A-11 regarding the development of a cost estimate for all IT  investments. In addition, the staff noted that each proposal is required to  be approved by the agency’s Chief Financial Officer and CIO before  being submitted to the Technology Modernization Board. The staff added  that the information regarding the guidance for completing the proposal  documentation and cost estimates is available on the TMF website.

However, our review of the documentation provided on the TMF website  did not identify any guidance regarding the development of the cost  estimate as part of the proposal—except a statement requiring the  completion of the provided template. The website also did not include any  guidance instructing the agencies to follow the requirements outlined in  Circular A-11, which references GAO’s cost estimating guidance.

As noted in GAO’s cost estimating guide, reliable cost estimates can  provide management the data necessary to make informed investment  decisions, measure program progress, proactively correct course when  warranted, and ensure overall accountability for results. Having a realistic  estimate of projected costs also helps to ensure that projected cost  savings are reliable. Building such quality into a cost estimate is  addressed by the steps described in Circular A-11 (that references the  practices outlined in GAO’s cost guide). Regardless of whether or not  agencies were told to do so, it is an agency’s responsibility to follow these  steps.

Ensuring agencies understand the requirements they are supposed to  follow when developing a cost estimate for their TMF proposal is critical to  the success of the proposal process. If OMB and GSA do not clarify the  requirement that agencies follow Circular A-11’s cost estimating process  (that references GAO’s cost estimating guidance discussed in this report),  agencies are at risk of continuing to provide unreliable cost information in  their proposals to the Technology Modernization Board. Further, absent  detailed guidance from the TMF Program Management Office on how to  complete the cost estimate template, including information on the data  elements and the fields required to be completed, agencies are at risk of  providing incomplete or insufficient information in their project proposals.  As a result, the board may not have sufficiently reliable project cost and  savings information with which to make decisions on potential awards and  whether these projects offer appropriate value for the investment being  requested.

TMF Project Acquisitions Used Full and Open Competition or an Authorized Exception

The MGT Act requires the Administrator of GSA to ensure that the use of  commercial off-the-shelf products and services are incorporated to the  greatest extent practicable in agency projects awarded funding through  the TMF. As required under the Competition in Contracting Act of 1984,  all procurements, with certain exceptions, must be competed as full and  open so that any qualified entity can submit an offer.

Agencies are also required to publicly report their contract transactions in  the Federal Procurement Data System-Next Generation (FPDS-NG),  including information on the type of award made and whether competitive  procedures were used. In addition, if an agency issues task orders on  an existing contract, then the agency is required to identify whether  competitive procedures were used. Further, if the contract did not use  competitive procedures, then the agency is required to report the reason  that the contract was not competed.

As of August 31, 2019, six of the seven TMF-funded projects had  awarded 23 contracts or task orders for work on the projects. Agency  officials responsible for management of the six funded projects reported  that 22 of the 23 awards used full and open competitive procedures,  which we confirmed using acquisition data from FPDS-NG. HUD officials  reported that the remaining award was based on a sole source contract  that was not competed and an exception was documented. One project  had not yet made an award.

Table 9 lists the seven TMF-funded projects and the agencies’ reported  use of full and open competitive procedures in FPDS-NG for the related  awards, as of August 31, 2019.

In making the 22 awards, agency officials responsible for the  management of the six funded projects reported that they had relied on  existing IT service contracts and blanket purchase agreements, or had  established new blanket purchase agreements for these projects.  Specifically,

11 awards were based on task orders issued on existing contracts.

9 awards were based on orders from existing blanket purchase  agreements.

2 awards were made on new blanket purchase agreements.

In making these awards using existing contracts and blanket purchase  agreements that had followed full and open competitive procedures, the  agencies complied with the requirements for using competitive  procedures. In those cases where the agencies used existing blanket  purchase agreements, these orders were coded as competitive based on  data reported in FPDS-NG.

For the one award where competitive procedures were not used, HUD  completed a justification and approval for other than full and open  competition, indicating that only one responsible source and no other  supplies or services would satisfy the agency’s requirements. HUD  officials stated that they chose a sole source contract because they  wanted to retain the expertise of the existing contractors and maintain  cohesion between the different phases of project work.

For the project that had not yet made an award, officials responsible for  the management of Agriculture’s Infrastructure Optimization project  reported that, due to a change in the scope of the project made in June  2019, no contracts had been awarded yet for work on the project. The  officials reported that they anticipated making an award by the end of  December 2019 and that the contract is to be awarded using competitive  procedures.

Agencies’ continued adherence to federal acquisition requirements for full  and open competition should help ensure that their TMF-funded  investments deliver the intended services to benefit both the agencies  and the public.

Since March 2018, when GSA established the TMF Program  Management Office to administer fund operations, the office has  obligated about $1.2 million to cover its expenses from managing the fund  but has collected limited administrative fees to offset its expenses. As a  result, the Technology Modernization Board has fewer funds than  anticipated available to award to new projects. Going forward, OMB and  the TMF Program Management Office are likely to face ongoing  challenges in collecting administrative fees due to the factors that we  have identified that affect fee collection and the office’s lengthy time  frame for recovering all costs. While OMB and the TMF Program  Management Office are not currently on track to recover all operating  expenses in a timely manner, Program Management Office officials have  expressed the intent to revisit their fee structure, in part to address the  lower than anticipated amount of fiscal year 2019 appropriations.  Because of the number of factors that are likely to affect fee collection, it  will be critical that OMB and the TMF Program Management Office take  steps to develop a plan that outlines the actions needed to fully recover  TMF operating expenses with administrative fee collection in a timely  manner in order to maximize the funds available for awards.

By creating a new funding mechanism to help modernize federal IT  systems, Congress intended that funds would be used to improve, retire,  or replace existing federal IT systems to improve efficiency and  effectiveness of these systems. However, since none of the seven TMF- funded projects’ cost savings estimates can be considered reliable, it is  not clear whether the projects receiving funding to date will save the  government as much money as was estimated. An important aspect to  the success of the TMF will be clarifying the established requirement that  agencies follow Circular A-11’s cost estimating process (that references  GAO’s cost estimating guidance discussed in this report) in order to help  ensure that the reliability of estimated savings for awarded projects is  improved.

We are making five recommendations: two to OMB and three to GSA.  Specifically:  The Director of OMB should develop and implement a plan with GSA that  outlines the actions needed to fully recover the TMF Program  Management Office’s operating expenses with administrative fee  collection in a timely manner. (Recommendation 1)

The Director of OMB should work with GSA to clarify the requirement in  the TMF guidance that agencies follow the cost estimating process  outlined in Circular A-11 (that references GAO’s cost estimating guidance  discussed in this report), when developing the proposal cost estimate.  (Recommendation 2)

The Administrator of General Services should develop and implement a  plan with OMB that outlines the actions needed to fully recover the TMF  Program Management Office’s operating expenses with administrative  fee collection in a timely manner. (Recommendation 3)

The Administrator of General Services should work with OMB to clarify  the requirement in the TMF guidance that agencies follow the cost  estimating process outlined in Circular A-11 (that references GAO’s cost  estimating guidance discussed in this report), when developing the  proposal cost estimate. (Recommendation 4)

The Administrator of General Services should develop detailed guidance  for completing the Technology Modernization Fund project cost estimate  template, including information on the data elements and the fields  required to be completed, in order to help ensure the accuracy and  completeness of the provided information. (Recommendation 5)

We provided a draft of this report to OMB and the five agencies for their  review and comment. In response, of the two agencies to which we made  recommendations, GSA stated that it agreed with one recommendation  and partially agreed with the remaining two recommendations; and OMB  did not state whether it agreed or disagreed with the recommendations.

In addition, of the four agencies to which we did not make  recommendations, one agency stated that it concurred with information  presented in the report, two other agencies stated that they had no  comments on the report, and a fourth agency did not state whether it had  comments on the report. Further, four agencies provided technical  comments on the report, which we incorporated as appropriate.

The following discusses the comments received from each agency to  which we made recommendations.

GSA provided written comments in which it agreed with our  recommendation to develop detailed guidance for completing the TMF  project cost estimate template. Additionally, the agency partially  agreed with our recommendation to develop and implement a plan  with OMB that outlines the actions needed to fully recover TMF  operating costs with administrative fee collection, stating the agency  had concerns with our discussion of this topic in the report. Among the  concerns was that we clearly did not acknowledge that GSA is on  track to meet the requirement codified in the statute to maintain the  solvency of the fund.

However, our report did not make a conclusion that the fund was  insolvent, or that the fund was on track to being insolvent. Rather, we  discussed the factors that have affected administrative fee collection  to date. In our discussion, we noted that as a result of these factors, it  will take the TMF Program Management Office at least 5 years (until  2024) to recover the operating expenses expended as of August 31,  2019 (over $1.2 million) with the current collection of administrative  fees. Consequently, as of August 2019, OMB and the TMF Program  Management Office were not on track to recovering all operating  expenses in a timely manner, thereby hindering GSA’s ability to  maximize the amount of appropriations available for award. As such,  we continue to believe our assessment is accurate.

GSA also had concerns that we did not state that the TMF Program  Management Office’s goal of full cost recovery for operating expenses  was over the lifetime of the fund.

In our report, we discuss that the TMF Program Management Office  planned to fully recover all operating expenses through administrative  fee collection by fiscal year 2029. In doing so, we noted that the  office’s plan to take 12 years to fully recover its costs hinders GSA’s  ability to maximize the amount of appropriations available for award  due to the length of time necessary to recover its costs. Therefore, we  believe that we have sufficiently discussed the time frame GSA plans  to take to fully recover its costs.

Further, GSA stated that our discussion of the TMF Program  Management Office’s operating costs would be improved if we noted  the large percentage of fund administrative costs was devoted to  salaries for a limited number of staff.

In determining the cost of administering the TMF, we analyzed the  costs of establishing and overseeing the TMF and evaluated the  collection of administrative fees from projects awarded funding,  consistent with the MGT Act. In doing so, we noted the steps taken by  the TMF Program Management Office to reduce its operating  expenses, including reducing costs by 50 percent for fiscal year 2019,  and not pursuing a staff increase in fiscal year 2019. We did not  analyze any individual operating expenses and therefore, have no  basis to comment on current salary expenses and whether they could  or could not be reduced. As such, we believe that we appropriately  discuss the costs of establishing and overseeing the TMF and the  relationship of those costs to the goal of fully recovering all operating  expenses. Accordingly, we believe our recommendation to develop  and implement a plan to fully recover office operating expenses with  administrative fee collection is still warranted.

The agency also partially agreed with our second recommendation to  work with OMB to clarify the requirement in TMF guidance that  agencies follow the federal cost estimating guidance discussed in this  report. GSA stated that the agency does not set cost estimating policy  requirements for agencies, as that is the responsibility of OMB and  agency CIOs.

In our report, we discuss the MGT Act’s requirement that the  Administrator of GSA, in consultation with the CIO Council and with  the approval of the Director of OMB, administer the TMF. Because the  GSA Administrator has been designated responsibility for  administering the fund, the agency has a role in clarifying what  guidance agencies should follow when developing their cost estimates  for the TMF proposal application. Further, we acknowledge GSA’s  statement that the agency will commit to working with OMB and the  Technology Modernization Board to identify necessary updates to the  cost estimating guidance as a positive step towards addressing our  recommendation. Consequently, we believe our recommendation for  GSA to work with OMB to clarify the requirement in TMF guidance  that agencies follow Circular A-11’s cost estimating process (that  references GAO’s cost estimating guidance discussed in this report),  when developing the proposal cost estimate, is still appropriate.  GSA’s comments are reprinted in appendix IV.

OMB provided written comments in which the agency did not state  whether it agreed or disagreed with our recommendations; however,  OMB stated that the agency remains concerned with the facts,  characterizations, and opinions in the draft report. The agency further  stated that the draft report contains many key assumptions and  recommendations that are misleading and paints an incomplete  picture of the TMF. OMB then stated that while we met with the  agency twice during the course of the audit, we engaged with GSA  multiple times in contrast. According to OMB, many of the questions  we posed to GSA would have been better answered by OMB, whose  authorities in the budget, apportionment, and approval process for  TMF proposals could have enabled us to state items in the report with  greater accuracy. In addition, the agency stated that many of its  corrections and suggestions offered in its review of the statement of  facts were rejected by us, although the agency offered no examples to  support its comments.

We disagree with OMB’s statements regarding our audit methodology  for several reasons. First, in meetings with staff from OMB’s Office of  E-Government and Information Technology, we obtained information  from the staff in all of the areas noted by OMB in its letter. In our  report, we discuss OMB’s role in the fund’s administration and the  approval process for TMF proposals, as well as OMB’s guidance in  these areas. Further, we made ourselves available to engage with  OMB throughout the course of the audit. For example, we arranged a  meeting with the Federal CIO and her staff to discuss the  administration of the TMF and to present our preliminary  observations, but the meeting was cancelled by the Federal CIO’s  office due to scheduling constraints and not rescheduled.

Second, we incorporated many of OMB’s comments on the statement  of facts related to OMB’s role in fund administration and the approval  process into our draft report. For example, although we had included  information in the statement of facts regarding the requirement that  agency CIOs and chief financial officers approve TMF proposals prior  to submittal to the Technology Modernization Board, OMB requested  that we include this information in other sections throughout the  report. OMB also requested that we include language in the report to  ensure that it was understood that TMF projects began after an  interagency agreement was signed between the TMF Program  Management Office and the agency and not when TMF awards were  announced. We incorporated these changes into the background and  other relevant report sections.

However, in cases where OMB asked us to incorporate the entirety of  language from the MGT Act—rather than summarizing the law’s key  requirements—we chose not to do so for the purposes of  conciseness. In addition, OMB also requested that we update the  status information for the TMF awarded projects in our report to be  closer to the report’s issuance. However, as we had told OMB staff  during our review, we intended to report project information as of  August 31, 2019, based on our audit methodology and reporting  timeframes. Consequently, we believe that we have accurately  characterized the facts related to OMB’s role in TMF administration  and sufficiently incorporated OMB’s relevant comments into our  report.

OMB also disagreed with our characterization of the TMF repayment  process and the assumptions about potential insolvency of the fund.  As noted above in our response to GSA’s comments, our report did  not make a conclusion that the fund was insolvent, or that the fund  was on track to being insolvent. Rather, our report discusses the  factors affecting administrative fee collection and the impact these  ongoing challenges have on the TMF Program Management Office’s  ability to pursue a full cost recovery model and recover all costs by  fiscal year 2029, as GSA intended. In addition, we acknowledged the  Program Management Office’s efforts to reduce its operating costs in  fiscal year 2019 (to under $1 million).

OMB also stated that the primary shortcoming has been the fact that  the TMF has been underfunded by Congress, leading to slower than  anticipated project volume. In our report, among the factors that we  discussed as affecting TMF fee collection, we noted that the initial  TMF fee rates were determined in June 2018 based on assumptions  regarding appropriations that were not met. We also noted the impact  that these assumptions had on the TMF Program Management  Office’s projected collection of administrative fees in the first two years  of operation and for fiscal year 2020. Specifically, we noted that the  office projected it would distribute $75 million in fiscal year 2020 but  had only approximately $35.6 million available in the fund as of  August 31, 2019.

We concluded that OMB and the TMF Program Management Office  were not on track to recovering all operating expenses in a timely  manner, thereby leaving less of the fund’s capital available for project  awards. At no point did we assert the fund was insolvent, or was in  danger of becoming so. As such, we continue to believe our  assessment of the fund’s ongoing fee recovery is accurate and that  our recommendation for OMB and GSA to work together to develop  and implement a plan to use administrative fee collection to fully  recover operating expenses is still warranted.

OMB also challenged our analysis of agency projects’ cost estimates  using our Cost Estimating and Assessment Guide because,  according to the agency, we had asserted that federal agencies must  follow the cost guide when developing cost estimates for federal  projects. OMB stated that all projects, including those submitted for  consideration, must follow OMB Circular A-11, not the GAO guide.

Since OMB first introduced its cost estimating appendix to Circular A- 11 in 2006, the circular has stated that the appendix is based on the  GAO cost estimating guide. Specifically, the circular stated that the  appendix is based on GAO’s “guide to their auditors on how to  evaluate an agency's cost estimating process, and the reliability and  validity of the data used to develop the cost estimates. Following  these guidelines will help agencies to meet most cost estimating  requirements.” Further, we reported that OMB’s Circular A-11 cost  estimating appendix outlined a number of major steps in the cost  estimating process, and referenced the practices outlined in GAO’s  cost guide. As our report states, OMB Circular A-11 directs agencies  to follow the guidance outlined in the appendix on cost estimating for  all IT investments and acquisitions within the federal government, and  as mentioned above, is based on GAO’s cost estimating guidance.   We noted that OMB’s guidance referenced GAO’s cost guide;  however, we did not assert that agencies were required to follow  GAO’s cost guide independent of Circular A-11.

Further, our analysis of the cost estimates for the seven projects  found that none of the projects incorporated all of the best practices  for a reliable estimate cost estimate, as defined in either OMB Circular  A-11 or GAO guidance. We noted that the TMF’s website did not  include any guidance instructing agencies to follow the requirements  outlined in Circular A-11; however, we stated that, regardless of  whether or not agencies were told to do so, it was an agency’s  responsibility to follow these steps. Further, we noted that ensuring  agencies understand the requirements they are supposed to follow  when developing a cost estimate for the TMF proposal process is  critical to the success of the proposal process.

Accordingly, we continue to believe our assessment of the seven  projects’ cost estimates is accurate and based on appropriate and  generally-accepted criteria, and that our recommendations to OMB  and GSA in this area are still warranted. However, in the interest of  ensuring that our recommendations are explicit about clarifying which  requirements agencies are to follow when developing cost estimates,  we have modified the language of our related recommendations to  more directly address Circular A-11.

OMB also noted the additional requirements—beyond those found in  Circular A-11—imposed on agency submissions by the Technology  Modernization Board, including authoritative signoff by the agency  chief information officer and chief financial officer for schedule and  repayment documentation. The agency further asserted that the  characteristics of the TMF, including the ability to incrementally fund  projects and to adjust project scope and timing of project transfers,  means that projects funded by the TMF are more likely to succeed.

We agree that agencies’ executive review of submissions to the board  is an integral part of ensuring the quality of those submissions. Such  reviews, coupled with more clear direction to agencies on what federal  guidance they are required to follow, as discussed above, will further  strengthen the quality of the supporting documentation submitted to  the board.

Further, OMB also stated that the board takes seriously its  responsibilities to make sure approved projects meet the  requirements of the MGT Act, the guiding principles established by  the board, and to ensure that projects repay all required amounts  while successfully delivering smarter, more secure commercial  capabilities to improve citizen services. In addition, OMB stated that  the board requires that all approved projects have requirements to  provide information, best practices, playbooks, and other supporting  documentation. OMB also stated that the board has managed the  TMF both in alignment with industry-wide best practices for iterative,  agile financing for technology projects, and has been judicious and  discerning in how it invests TMF funds.

We agree with the importance of ensuring approved projects meet the  requirements of the MGT Act. In our report, we acknowledged OMB,  the Technology Modernization Board, and the TMF Program  Management Office’s efforts to provide oversight of the fund’s  awarded projects. However, our report also identified ongoing  challenges with the TMF Program Management Office’s fee collection,  including the office’s plan to take 12 years to fully recover its operating  costs—a plan that was reviewed by the Technology Modernization  Board and OMB—that will hinder GSA’s ability to maximize the funds  available for awards.

We also agree that it is important that all approved projects have  requirements in place related to providing information and supporting  documentation. In our report, we discussed that OMB’s funding  guidelines required projects to include a reliable estimate of project- related savings. However, as we also noted, none of the seven  projects’ reported savings estimates were reliable because they did  not incorporate all of the best practices for a reliable cost estimate as  defined in OMB Circular A-11 and GAO’s cost estimating guide.  Therefore, it was not certain whether the projects that we reviewed  would save the government as much money as was estimated. While  it is important that the board have requirements in place, it is equally  vital that agencies clearly understand the requirements they are  supposed to follow—and that these requirements are clearly  articulated on the TMF website—for the proposal process to be  successful. As such, we continue to believe our recommendations to  OMB and GSA are appropriate. OMB’s comments are reprinted in  appendix V.

In addition to the aforementioned comments, the four agencies to which  we did not make recommendations provided the following responses.

In an email received on November 22, 2019, a Director of Strategic  Planning, Policy, Egovernment and Audits in the Office of the CIO at  Agriculture stated that the agency concurred with the information  presented in the report.

In an email received on November 7, 2019, an audit coordinator in  Energy’s Office of the CIO did not state whether the agency had  comments on the report and provided technical comments, which we  incorporated as appropriate.

In written comments provided on November 19, 2019, the department  stated that it had no comments to provide on the written report. HUD’s  comments are reprinted in appendix VI.

In an email received on November 6, 2019, an economist in Labor’s  Office of the Assistant Secretary for Policy stated that the agency had  no comments on the report.

We are sending copies of this report to the appropriate congressional  committees; the Director of the Office of Management and Budget; the  Secretaries of the Departments of Agriculture, Energy, HUD, and Labor;  the Administrator of GSA; and other interested parties. This report will  also be available at no charge on our website at http://www.gao.gov.

If you or your staffs have any questions on matters discussed in this  report, please contact me at (202) 512-4456 or harriscc@gao.gov.  Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this report. GAO staff who made  major contributions to this report are listed in appendix VII.

Appendix I: Objectives, Scope, and Methodology

Our objectives were to: (1) determine the costs of establishing and  overseeing the Technology Modernization Fund (TMF), as compared to  the savings realized by projects that have received awards; (2) assess  the extent to which cost savings estimates for awarded projects are  reliable; and (3) determine the extent to which agencies have used full  and open competition for any acquisitions related to the awarded projects.

The scope of our review included the Office of Management and Budget  (OMB) and the General Services Administration (GSA) TMF Program  Management Office, the two organizations responsible for TMF  administration, as well as the five agencies that had received the seven  awards from the fund as of August 2019—the Department of Agriculture  (Agriculture), Department of Energy (Energy), Department of Housing and  Urban Development (HUD), Department of Labor (Labor), and GSA.

For our first objective, we obtained and analyzed financial data from GSA  related to actual and planned operating costs for establishing and  overseeing the TMF for fiscal years 2018 through 2025 (fiscal year 2018  was the first year that the TMF was in operation).

To ensure the accuracy and completeness of GSA’s financial data on the  operating costs for TMF administration, we obtained information from  officials within GSA’s Office of the Deputy Administrator on the controls in  place for ensuring the reliability of the financial data. We also reviewed  GAO, GSA Office of Inspector General, and GSA reports that discussed  the results of prior reviews of internal controls for GSA financial systems.

Based on discussions with agency officials and our reviews of these prior  reports, we did not identify any specific findings that would affect our  reporting of these data. In addition, we reviewed GSA-provided data for  obvious errors and inconsistencies and identified no significant errors  related to the accuracy or completeness of the data. Based on these  steps, we determined that these data were sufficiently reliable for us to be  able to report accurately on GSA’s operating costs for TMF  administration.

We also obtained and analyzed agency documentation from, and  interviewed officials within, GSA’s TMF Program Management Office  regarding the fund’s actual and planned operating expenses as of August  31, 2019. We assessed the collection of administrative fees used to  ensure the solvency of the fund during the period from June 2018 (when  projects first began to receive awards) through August 31, 2019. In  addition, we interviewed staff in OMB’s Office of E-Government and  Information Technology regarding OMB guidance and its administrative  responsibilities for the fund.

Further, we obtained and analyzed TMF project proposal documentation  and signed interagency agreements and interviewed officials in charge of  the TMF-funded projects within the Office of the CIO and other  appropriate offices at each of the five agencies to determine the  scheduled repayment transfers, administrative fee payments, and  whether awarded projects had realized cost savings for fiscal year 2019.  (Fiscal year 2019 was the first fiscal year that awarded projects could  have realized cost savings as a result of receiving TMF funding.) In doing  so, we confirmed that none of the seven projects had begun to realize  cost savings; therefore, it was premature to compare the projects’  realized savings to TMF administrative costs.

For the second objective, we analyzed TMF project proposals, including  cost estimates and supporting documentation, from the five agencies that  received the seven awards. In addition, we interviewed the agencies’  project officials responsible for developing the overall TMF cost savings  estimate and associated cost estimates regarding their estimation  processes. We compared each TMF-funded project team’s estimating  methodologies and documentation to the best practices of a reliable cost  estimate discussed in GAO’s Cost Estimating and Assessment Guide.  Our analysis enabled us to determine whether each project’s cost  estimate, used to determine the project’s cost savings estimate, was  comprehensive, well-documented, accurate, and credible.

The GAO Cost Estimating and Assessment Guide considers an estimate  to be comprehensive if its level of detail ensures that all pertinent costs  are included and no costs are double-counted or omitted; well- documented if the estimate can be easily repeated or updated and can be  traced to original sources through auditing; accurate if it is not overly  conservative, is based on an assessment of the most likely costs, and is  adjusted properly for inflation; and credible if the estimate has been  cross-checked with an independent cost estimate and a level of  uncertainty associated with the estimate has been identified and  quantified.

For each characteristic, our analysis had five possible assessment  categories:

Not met. The estimate provided no evidence that satisfies any of the  characteristic’s set of best practices.

Minimally met. The estimate provided evidence that satisfies a small  portion of the characteristic’s set of best practices.

Partially met. The estimate provided evidence that satisfies about  half of the characteristic’s set of best practices.

Substantially met. The estimate provided evidence that satisfies a  large portion of the characteristic’s set of best practices.

Met. The estimate provided complete evidence that satisfies the  characteristic’s entire set of best practices.

A cost estimate is considered reliable if the overall assessment for each  of the four characteristics are met or substantially met.

We presented the results of our initial analysis of each TMF project cost  estimate to its respective agency in July 2019. We asked the agencies to  verify the information presented in the analysis and provide any updates  or additional supporting documentation, as appropriate. Each of the  agencies provided updated information, which we incorporated into this  analysis, as appropriate.

In addition, we interviewed staff in the Office of E-Government and  Information Technology, as well as officials from the TMF Program  Management Office, about the process for the review and approval of  TMF-funded project cost savings estimates and cost estimate  documentation.

We also interviewed officials in the Office of the CIO and other  appropriate offices at each agency, who were in charge of completing the  TMF cost estimate template. We discussed with these officials how the  template was filled out and what sources of data were used. Because  project teams did not rely on data from agency financial systems when  completing the spreadsheet template, we reviewed agency responses  and other supporting documentation to determine how the estimated  costs and savings were derived and whether there were any qualifications  of the provided data. This included whether certain costs were excluded  from the program cost estimate, how up-to-date the data were, or whether  there were other qualifications of the provided data. We followed up with  agency officials regarding these qualifications as appropriate. Further, we  reviewed the completed templates to identify missing data, or other  errors, and consulted with our cost estimation specialists about these  issues, as appropriate.

Based on our assessment of each project’s cost estimate (used to derive  the cost savings estimate) and the other measures we took to assess the  reliability of the data included in the completed templates, we determined  that the cost savings data for all seven TMF projects were not sufficiently  reliable; thus, we did not include the estimated savings amounts in our  report. In addition, we discuss the data’s shortcomings in the report.

To accomplish the third objective, we obtained and analyzed contract  documentation for each of the seven awarded projects. We also  interviewed officials in charge of the TMF-funded projects within the  Office of the CIO and other appropriate offices at each of the five  agencies about acquisitions related to the awarded projects. Using the  agency provided contract information, we obtained and analyzed data  from the Federal Procurement Data System-Next Generation (FPDS- NG)—the government’s procurement database—for the period of June  through August 2019. We assessed whether each awarded acquisition  used full and open competition in accordance with the Competition in  Contracting Act of 1984 and the federal acquisition regulation.

To ensure the accuracy and completeness of the awarded projects’  contract information related to the use of full and open competition, we  searched FPDS-NG data to confirm that all contracts and task orders  related to the projects had been provided. We then presented the results  of our analysis to officials in charge of project acquisitions at each agency  and asked these officials to verify the completeness and accuracy of the  FPDS-NG data and provide any updates, as appropriate.

Officials in charge of all of the awarded projects confirmed the contract  information related to the use of full and open competition and provided  additional contract acquisition data, as appropriate. Based on these  steps, we determined that these data were sufficiently reliable to report on  the TMF-funded project acquisitions’ use of full and open competition.

We conducted this performance audit from March 2019 to December  2019 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.

Appendix II: Description of Projects Receiving Technology Modernization Fund Awards, as of August 2019

As of August 31, 2019, seven projects had been awarded funding from  the Technology Modernization Fund (TMF). Once an award had been  made, TMF funds were distributed to project teams incrementally based  on each project’s performance against the milestones established in the  project’s written agreement. These seven projects had received  incremental funding of approximately $37.65 million and, of that amount,  had obligated $18.05 million towards project implementation.

The following description of each of the seven projects includes an  overview of the awarded project, funding transfer, and project status  information as of August 31, 2019, and how the project intends to repay  the funds awarded.

Department of Agriculture’s Farmers.Gov Portal Project

The Department of Agriculture’s (Agriculture) Farmers.Gov Portal project  is intended to help update and modernize conservation financial  assistance and payment operations within the department’s Farm Service  Agency and National Resources Conservation Service. These two  agencies provide financial and technical assistance to farmers and  ranchers through related conservation programs. While separately  authorized and appropriated, the programs share common customers and  also share interconnected systems. The project is intended to work to  reengineer related financial assistance business processes at these  agencies and update the agencies’ legacy systems so that the systems  can be properly connected with the department’s common financial  system.

Due to changes to the project’s schedule, an official responsible for the  management of the Farmers.Gov Portal project reported that the agency  plans to delay requesting the remaining balance of $6 million in awarded  funds from the Technology Modernization Board until fiscal year 2020.  Figure 3 provides a summary of the Farmers.Gov Portal project.

Officials from the Farmers.Gov Portal project reported that the  department intends to repay the TMF funds awarded using annual  appropriations from each of the two agencies involved in the project.

Agriculture’s Infrastructure Optimization Project

Agriculture’s Infrastructure Optimization project, managed by the Office of  the Chief Information Officer (CIO), was originally intended to migrate 10  applications within the department to cloud services by the end of fiscal  year 2019. However, officials responsible for the management of the  project reported that they began working with the TMF Program  Management Office to make changes to the project’s scope in June 2019,  changing which applications would be migrated and reducing the number  of applications to be migrated to one. Officials reported that the project  now intends to migrate the Farm Production and Conservation’s  Emergency Watershed Protection Program to cloud services but has not  yet determined when the project will be completed. The program helps  landowners, operators, and individuals to implement emergency  measures after a natural disaster in order to help relieve imminent  hazards to their life or property.

Due to the change in scope for the project, officials responsible for the  management of the Infrastructure Optimization project reported that  planned to request a total of $500,000 for the project from the Technology  Modernization Board ($4.5 million less than the original award amount).  As a result of this change in scope, officials reported that the repayment  period, administrative fee, and the time frames for repaying the  transferred amount and associated fee, was being reevaluated by the  agency. Project officials reported in August 2019 that they planned to  present their revised project plan to the Technology Modernization Board  for consideration and approval. If approved by the board, the project  would likely reduce its administrative fee from $150,000 to $15,000.  Figure 4 provides a summary of the Infrastructure Optimization project.

Officials from the Infrastructure Optimization project reported that the  department originally intended to repay the TMF awarded funds by using  the planned cost savings and avoidances accrued from not having to pay  the costs for the maintenance of these 10 applications. In fiscal year  2018, the department reported spending approximately $4 million to cover  labor costs for maintaining these 10 on-premise applications. However,  project officials reported that, with the change in scope to the project, the  details for how they will repay the awarded funding are currently under  reevaluation.

Department of Energy’s Enterprise Cloud Email Project

The Department of Energy’s (Energy) Enterprise Cloud Email project,  managed by the Office of the CIO, was originally intended to complete the  consolidation, upgrade, and migration of 26 of the department’s on- premises email systems to cloud email software as a service by fiscal  year 2021. However, the department made changes to the project’s  scope in February 2019, reducing the number of mailboxes that would be  migrated from approximately 47,080 to 24,531. Officials responsible for  the management of the Enterprise Cloud Email project within Energy’s  Office of the CIO reported that the department was able to migrate 22,549  mailboxes to cloud services using department funds prior to receiving  TMF-awarded funds.

Due to the change in scope for the project, officials from the Enterprise  Cloud Email project reported that they planned to request a total of $7.41  million in funding for the project from the Technology Modernization  Board ($7.80 million less than the original award amount). As a result of  this change in scope, officials reported that the repayment period,  administrative fee, and the time frames for repaying the transferred  amount and associated fee, will change from what was originally  approved by the Technology Modernization Board. Project officials  reported in August 2019 that they intended to present their revised plan to  the Technology Modernization Board for consideration and approval. If  approved by the board, the project would reduce its administrative fee  from $456,510 to $222,406 and would complete the fund repayment in  2024 rather than 2025. Figure 5 provides a summary of the Enterprise  Cloud Email project.

Officials from the Enterprise Cloud Email project reported that the  department intends to repay the TMF funds awarded by using the  planned cost savings and avoidances accrued from future operations and  maintenance costs for these email systems. In fiscal year 2018, the  department reported spending approximately $4.78 million to cover  operations and maintenance costs for the 26 on-premise email systems  originally in scope for the project. However, the department could not  provide an update on the operations and maintenance costs for the  current email systems that are to be migrated using TMF funds.

Department of Housing and Urban Development’s Unisys Migration Project

The Department of Housing and Urban Development’s (HUD) Unisys  Migration project managed by the Office of the Chief Technology Officer  was originally intended to migrate five of the department’s most critical  business systems from an on-premise mainframe database to cloud  computing services by the end of fiscal year 2020. These systems help  manage the Federal Housing Administration’s mortgage insurance  program as well as over one hundred HUD grant, subsidy, and loan  programs managed through the Office of the Chief Financial Officer.

Due to delays in awarding contracts for the project, a HUD official  reported that the department had submitted a request to the Technology  Modernization Board in August 2019 for the project to be rebaselined.  The official reported that the project planned to delay requesting the next  disbursement of $5 million from fiscal year 2019 to fiscal year 2020 and  the project is now intended to be completed by March 2021. Figure 6  provides a summary of the Unisys Migration project.

Officials from the Unisys Migration project reported that the department  intends to repay the TMF funds awarded by using the planned cost  savings accrued from reducing the department’s overall operations and  maintenance costs for these systems. In fiscal year 2018, the department  reported spending approximately $11.6 million in operations and  maintenance contract costs for maintaining these five legacy systems.

Department of Labor’s Visa Application Transformation Project

The Department of Labor’s (Labor) Visa Application Transformation  project, managed by the Office of the CIO, is intended to replace a paper- based labor certification process for certain types of work visas with an  E-Certification process. The new system is intended to enable the  department to issue a labor certification securely and electronically to  employer applicants, similar to an electronic boarding pass issued by  airlines. In addition, this project is expected to streamline and improve  data accessibility and reporting capabilities by creating a data hub at  Labor. This hub is expected to allow the department to securely transmit  these labor certifications and other necessary documentation to the  Department of Homeland Security’s U.S. Citizenship and Immigration  Service, with an eventual linkage to the Department of Agriculture and the  Department of State. Figure 7 provides a summary of the Visa Application  Transformation project.

Officials responsible for the management of the Visa Application  Transformation project within the Office of the CIO reported that the  department intends to repay the TMF funds awarded by using the  planned cost savings accrued from eliminating the costs of procuring  security paper and printers for printing the certifications as well as  reduced costs for contractor and federal employee support of the paper  process. In fiscal year 2019, the department reported spending  approximately $1.9 million on these costs for the paper-based process.

General Services Administration’s Application Modernization Project

The General Services Administration’s (GSA) Application Modernization  project, managed within the Office of the Chief Technology Officer, is  intended to modernize 11 applications currently using proprietary vendor  technology by converting them to use open source technologies. GSA  currently has 88 applications that are in need of modernization and  intends to use the lessons learned and new capabilities as a repeatable  process that will be used for future migrations of other proprietary  applications to open source technologies. Figure 8 provides a summary of  the Application Modernization project.

Officials responsible for managing the Application Modernization project  reported that it intends to repay the TMF funds awarded through: (1) its  existing working capital fund and (2) the planned cost savings and  avoidances accrued from reducing operations and maintenance costs,  and eliminating hardware and operating system software costs for these  proprietary applications. In fiscal year 2018, the agency reported  spending approximately $23.9 million to cover these costs.

The NewPay project, managed within GSA’s Office of the CIO, is  intended to modernize GSA’s payroll system for its 21,000 users and  replace it with a cloud-based software as a service solution. This is  expected to lay the foundation for modernizing federal legacy payroll  systems to a cloud-based solution for approximately 2.1 million federal  civilian employees. Currently, four federal agencies (Agriculture,  Department of Defense, Department of the Interior, and GSA) serve as  payroll providers for federal civilian employees. NewPay also is intended  to encompass time and attendance solutions which are intended to be  implemented in later project phases.

Project officials reported that they originally planned to complete the  migration to NewPay and shut down GSA’s legacy systems by 2023 and  consolidate all other government legacy provider payroll operations into  NewPay. However, officials reported that the strategy for transitioning  other legacy payroll providers to NewPay was revised in mid-summer  2019. Going forward, GSA and the other federal payroll providers plan to  focus on completing the migration of all systems to NewPay prior to  transitioning and consolidating payroll operations within GSA. Project  officials reported that GSA is working with OMB and the other agency  payroll providers to identify funding available for these efforts so that a  new schedule can be developed. Figure 9 provides a summary of the  NewPay project.

Officials responsible for managing the NewPay project within the Office of  the CIO reported that the agency intends to repay the TMF funds  awarded through subscriptions and fees that federal agencies are to pay  to utilize the software as a service solution and through fees NewPay  intends to collect for serving as a payroll operations provider. In fiscal  year 2018, the four federal agency payroll providers spent approximately  $300 million providing payroll services for approximately 2.1 million  federal civilian employees.

Appendix III: Analysis of Cost Estimates for Projects Receiving Technology Modernization Fund Awards

Agencies submitting full project proposals to the Technology  Modernization Board during phase II of the proposal process for the  Technology Modernization Fund (TMF) were required to submit  information on the project’s cost estimate and cost savings estimate using  a spreadsheet template (known as appendix B).

We compared each TMF-funded project team’s estimating methodologies  and documentation to the best practices of a reliable cost estimate  discussed in the GAO Cost Estimating and Assessment Guide.  According to GAO’s guidance, a reliable estimate should meet four  characteristics and the specific set of best practices associated with each  of the characteristics. Those four characteristics are:

Comprehensive: An estimate should include all life cycle costs (from  the program’s inception and design through operations and  maintenance), reflect the current schedule, and have enough detail to  ensure that cost elements are not omitted or double counted.  Specifically, the cost estimate should be based on a product-oriented  work breakdown structure that allows a program to track cost and  schedule by defined deliverables, such as hardware or software  components. In addition, all cost-influencing ground rules and  assumptions should be detailed in the estimate’s documentation.

Well-documented: An estimate should be thoroughly documented;  describe how it was developed; and include source data, clearly  detailed calculations and results, and explanations of why particular  estimating methods and references were chosen. Data should be  traced to their source documents.

Accurate: An estimate should be based on historical data or actual  experiences on other comparable programs and an assessment of  most likely costs, and be adjusted properly for inflation. In addition,  the estimate should be updated regularly to reflect significant changes  in the program—such as when schedules or other assumptions  change—and actual costs, so that it should always reflect the current  status.

Credible: An estimate should discuss any limitations of the analysis  because of uncertainty surrounding data or assumptions. In addition,  the estimate should incorporate the results of a sensitivity analysis  (that examine the effects of changing assumptions on the estimate),  and risk and uncertainty analysis (that identifies all of the potential  project risks and assesses how these might affect the cost estimate).  The estimate’s results should be cross-checked, and an independent  cost estimate should be conducted to see whether other estimation  methods produce similar results.

In assessing each project’s estimate against the components of the four  characteristics, we assigned one of five assessment categories:

Not met. The estimate provided no evidence that satisfies any of the  characteristic’s set of best practices.

Minimally met. The estimate provided evidence that satisfies a small  portion of the characteristic’s set of best practices.

Partially met. The estimate provided evidence that satisfies about  half of the characteristic’s set of best practices.

Substantially met. The estimate provided evidence that satisfies a  large portion of the characteristic’s set of best practices.

Met. The estimate provided complete evidence that satisfies the  characteristic’s entire set of best practices.

A cost estimate is considered reliable if the overall assessment ratings for  each of the four characteristics are met or substantially met.

The following discusses in detail our assessment of the seven TMF  awarded projects’ cost estimates.

Table 10 includes our detailed assessment of the Department of  Agriculture’s (Agriculture) Farmers.Gov Portal project. Based on the  overall assessment ratings for each of the four characteristics,  Agriculture’s project cost estimate is not considered reliable.

Table 11 below includes our detailed assessment of Agriculture’s  Infrastructure Optimization project. Based on the overall assessment  ratings for each of the four characteristics, Agriculture’s project cost  estimate is not considered reliable.

Table 12 includes our detailed assessment of the Department of Energy’s  (Energy) Enterprise Cloud Email project. Based on the overall  assessment ratings for each of the four characteristics, Energy’s project  cost estimate is not considered reliable.

Table 13 includes our detailed assessment of the Department of Housing  and Urban Development’s (HUD) Unisys Migration project. Based on the  overall assessment ratings for each of the four characteristics, HUD’s  project cost estimate is not considered reliable.

Table 14 includes our detailed assessment of the Department of Labor’s  (Labor) Visa Application Transformation project. Based on the overall  assessment ratings for each of the four characteristics, Labor’s project  cost estimate is not considered reliable.

Table 15 includes our detailed assessment of the General Services  Administration’s (GSA) Application Modernization project. Based on the  overall assessment ratings for each of the four characteristics, GSA’s  project cost estimate is not considered reliable.

Table 16 includes our detailed assessment of GSA’s NewPay project.  Based on the overall assessment ratings for each of the four  characteristics, GSA’s project cost estimate is not considered reliable.

Appendix IV: Comments from the General Services Administration

Appendix V: Comments from the Office of Management and Budget

Appendix VI: Comments from the Department of Housing and Urban Development

Appendix VII: GAO Contact and Staff Acknowledgments

In addition to the individual named above, the following staff made key  contributions to this report: Dave Hinchman (Assistant Director), Jason  Lee (Assistant Director), Jessica Waselkow (Assistant Director), Chris  Businsky, Jennifer Echard, Emile Ettedgui, Valerie Hopkins (Analyst in  Charge), Anna Irvine, Julia Kennon, Sandra Kerr, James MacAulay,  Priscilla Smith, and Mary Weiland.

The General Services Administration and Office of Management and Budget oversee the Technology Modernization Fund, which awards federal agencies funds to replace aging IT systems. As of August, the fund awarded $89 million to 7 projects. Agencies must repay awards and an administrative fee within 5 years.

GSA spent $1.2 million for expenses but collected fewer fees than planned to offset costs

The 7 projects’ savings estimates aren’t reliable because projects didn’t incorporate all cost estimating best practices

We made recommendations to fully recover operating costs in a timely manner and to follow federal cost estimating guidance.