IG Questions Business Practices, Major Losses at 18F

18F logos

The General Services Administration’s digital services organization, known as 18F, has consistently overestimated revenue projections by tens of millions of dollars, allowed IT staff to spend more than half of their time on non-billable projects, and continued to hire employees at the top of the Federal pay scale despite losses that now amount to more than $31 million, a new inspector general report found.

The report found that 18F overestimated revenues for each year since its founding in 2014. Despite these revenue discrepancies, 18F continued to hire new staff from Silicon Valley, increasing its headcount from 33 employees shortly after its founding to more than 201 earlier this year–an increase of more than 500 percent.

The report also found that “less than half of staff time was spent working on projects billed to Federal agencies.” The remaining time was spent promoting 18F projects, developing 18F brand, and developing a timekeeping system.

As first reported by MeriTalk, 18F announced in May that  it had redesigned its logo during a weekend brainstorm–an effort that, when combined with other branding projects, the IG said cost taxpayers more than $140,000.

“ ‘Until July 2016,’ the 18F Handbook stated: ‘Non-billable work is the cultural lifeblood of 18F,’ ” according to the report. “According to Executive Director [Aaron] Snow, this statement exemplifies 18F’s commitment to professional development of staff and internal development of tools, which will in turn improve 18F’s work with customer agencies.”

This statement is no longer a part of the handbook.

18F’s operational costs are funded through the Acquisition Service Fund (ASF) out of GSA, which is comprised of revenue generated from Federal Acquisition Service (FAS) business lines. Under this memorandum of agreement, 18F must recover all costs from work performed in order to reimburse the ASF.

“We also found internal discussions by 18F senior management that raise doubts about their intent to break even,” the report said. It found that 18F’s director of operations stated, “to be frank, there are some of us that don’t give a rip about the losses.”

Andrew McMahon, the regional administrator for GSA’s Region 9, stated, “Sure, in the end, I could care less. ASF loses money all over the place. That’s the decision we should reiterate with Denise [GSA Administrator Roth], do you care about losing +$2.5M in order to bring in 100 more great hired [sic] into government?”

18f-ig-1The report also found that though FAS Commissioner Thomas Sharpe advised GSA officials on three occasions to pause hiring as a way to break even, GSA records showed that “in discussions in January 2016 regarding hiring, 18F managers acknowledged that continued hiring was not increasing revenue.”

Additionally, Roth wrote to Sharpe in January 2016, stating, “Demand for 18F services continues to be strong, the utilization rate is increasing, and there is other activity in place that justifies staying the course on hiring at this time.”

18F has also demonstrated “a pattern of ignoring” advice from GSA’s general counsel and chief financial officer not to begin work on projects before executed agreements are in place, according to the IG. GSA’s general counsel warned 18F about the practice at least 22 times, while the CFO and the Federal Acquisition Service offered the same advice another 15 times.

The FAS budget director is known to have warned former Technology Transformation Service Commissioner Phaedra Chrousos about the risks of continuing the practice.

“I am concerned that this issue is continuing to occur, despite OCFO and OGC expressed concerns…OCFO cannot physically monitor 18F operations, yet we are certifying the acceptance of funds (and in this case the obligation of funds as the ASF is the requesting agency),” wrote the FAS budget director in an email dated April 8, 2016. “Not only is this improper practice putting the financial management of the fund at risk but also the OCFO specifically.”

In addition, the IG’s review shows that GSA’s chief information officer provided written approval for only 11 of the 16 agreements entered into by 18F with internal GSA customers–a violation of the Federal Information Technology Acquisition Reform Act (FITARA).

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“We agree that we must continue to refine business operations to ensure the organization achieves full cost recovery and have taken significant steps toward that goal,” acting executive director of 18F Dave Zvenyach said in response to the report. “Earlier this year, we instituted an escalated review for new hires, and created dashboards that allow for greater real-time management of financial performance and staff utilization. We are also putting in place greater controls over non-billable work and improving our allocation of staff to projects.”

Zvenyach added that 18F sees promise in the 69 percent revenue increase from 2015 to 2016 and aims to achieve full cost recovery by 2019. He said that 18F has brought in an independent third party to review financial processes and are working on changes to ensure accurate billing and timekeeping.

“We have made many improvements over the last few months to address the issues outlined in this report and will take all additional actions necessary,” said Zvenyach.

17 Comments
  1. Anonymous | - Reply
    119 people at the GS-15 level? My God, no wonder things were such a mess. This looks like looting to me: get the GS-15 salary, screw things up horribly, leave a mess for other people to deal with, then leave.
  2. Anonymous | - Reply
    Read the 18F blog that was released immediately after the OIG Report hit the airways, explaining away the problems and comparing themselves to a startup. Unfortunately, the taxpayers have lost their money, not some venture capitalist. Besides, proper and prudent management has been and will continue to be a major weaknesswith this group. Frankly, if we wish to infuse innovation into the Federal enterprise, we should use USDS, where there is at least some fiscal accountability, and rethink 18F.
  3. Anonymous | - Reply
    "18F’s operational costs are funded through the Acquisition Service Fund (ASF) out of GSA, which is comprised of revenue generated from Federal Acquisition Service (FAS) business lines. Under this memorandum of agreement, 18F must recover all costs from work performed in order to reimburse the ASF. “'We also found internal discussions by 18F senior management that raise doubts about their intent to break even,'” the report said. It found that 18F’s director of operations stated, 'to be frank, there are some of us that don’t give a rip about the losses.'" >>>How much money is in this ASF, and how do people get to draw money from it without a viable plan to recover what they draw? Who is auditing this fund, and how many such funds are floating around government to subsidize professional playpens for these anointed tech folks? This is a disgrace. We can't get money for acquisition people to be trained, but we can fund this nonsense? Disgusting.
  4. Anonymous | - Reply
    I'm a GSA employee who lived through the aftermath of the Western Region Conference disaster. I can walk through GSA and find so many career employees who are just as smart and innovative and capable as the people in 18F, but whenever they want to try to do anything, they have to fight tooth and nail for every dollar. If GSA had given the money to these career employees and given them the leeway that 18F apparently had, you can be sure they would have come up with better ideas than a new timekeeping system or a Coffeemate bot. But instead, GSA leadership demoralized those good employees and let a bunch of jokers loose with taxpayer money. And it's going to be GSA employees who are going to clean up 18F's mess.
  5. Anonymous | - Reply
    79% of 18F's staff are GS-14 or GS-15 level! That is unbelievable!
  6. Anonymous | - Reply
    Can you believe how bold that Regional Administrator was about blatantly disregarding that these are our tax dollars at work? If he could care less, and is in charge of a region, what sort of message does that send to the staff? This administration, starting with the USDS, has decided that rejects from Silicon Valley are better than anyone in DC. Let's bring in more PR and design folks who break regulations with no accountability! Most startups fail, is that what we should be doing with our taxes?
  7. Anonymous | - Reply
    If you go through most of the folks at 18F, most aren't really technologists ..... just various jobs like teachers, journalists, etc.
  8. Anonymous | - Reply
    Wow, the comments on this thread are unreal. The value that 18F is delivering is well beyond a simple consulting firm. If the government want an internal Deloitte, Booz Allen, or lookahead martin, expect to receive the same level of cost and bloated and stalled bureaucracy. 18F is an attempt at the government trying something new and being measured under the lens of legacy business models. In the startup world or corporate innovation space. There is a period of time given to allow for experimentation and revenue loss. Yes it is tax payers dollars, and many of the tried and true practices have failed abysmally, a prime example was HealthCare.gov. From that fiasco came USDS, which receives pointed direction from the White House, under a separate set of funding and associated rules. 18F is a new business model for the government and since it is embedded within a legacy organization with operational processes that are not aligned to this strategic shift, there will be friction. Additionally, the non-billable projects 18F is working are the efforts that will be the real transformation game changers. Examples include the Calc tool: providing quick estimates for job roles; 18F open source policy and sharing of modern development standards and guides; Cloud.gov efforts to help agencies have an easy means to adopt cloud computing. The government is so far behind industry in many ways, it requires a leap forward, not the incremental steps that many administrators are wanting. This requires a different mindset of speed, urgency, and the requisite process to be modified. Lastly, GS15 to someone coming from the Google's, Facebook's, Uber's and the epicenter of technology ecosystems such as Silicon Valley, Boston, and Austin is still a pay cut. I know long time career government employees see a GS15 as a long road to achieve, and giving this level to new entrants to the government can be seen as wasteful. The reality is that those same members have far lucrative options available to them where they currently are. In this case, they are taking a pay cut to do their part to aid the government in its digital modernization.
    1. Anonymous | - Reply
      Regarding ANONYMOUS | OCT 26, 2016 AT 12:06 PM, “[C]omments on this thread are unreal.” Really? “18F is an attempt at the government trying something new and being measured under the lens of legacy business models.” Really? Legacy-shmegacy, no business management tool sanctions violating the law. No business management tool sanctions the lack of accountability. No business management tool sanctions disregard for costs. No business model says to grow an employee base without work to provide cost recovery. “Yes it is tax payers dollars, and many of the tried and true practices have failed abysmally, a prime example was HealthCare.gov.” Sorry, HealthCare.gov did not fail because the agency followed tried and true practices. It failed because the agency DIDN’T follow tried and true practice. Where in Silicon Valley is there a business model that, on a massive development, sends requirements over within weeks of go-live? Practice failure? Uh-uh. Management failure? Oh yeah. “18F is a new business model for the government and since it is embedded within a legacy organization with operational processes that are not aligned to this strategic shift, there will be friction.” The concerns being raised aren’t about a legacy-new business model divide; nor are they about friction, and God knows what you mean by strategic shift. The 18-Effers didn’t follow the law; they ignored advice; they ignored business practices; and they breached the public trust by throwing away money. The very fact that the organization’s defined role changes repeatedly is a clue that no one really has worked through why they’re needed. The fact that the 18-Effers apparently reportedly act like self-entitled jerks and without an understanding of business, government, or procurement is just a side annoyance. “Additionally, the non-billable projects 18F is working are the efforts that will be the real transformation game changers.” Really, so spending millions talking about themselves, the largest expense identified in the IG Report, is a game-changer? Look, the rest of your buzz-word-speak doesn’t address fundamental questions: Why the hell is 18F here; why does government need it, especially when it has doubled its debt over the last eight years? What is being achieved there that cannot be achieved in one of the ARPAs? Why should government money be spent on having 18F branch-out into “product lines” and compete with the private sector (state governments?)? By what quantifiable goals are the 18-Effers being measured (and please, don’t point to examples that are the equivalent of making Popsicle stick pencil holders at summer camp)? The list goes on, but it sure seems like the existence of 18F and the other bureaucracies that have grown up around it is less about a defined mission and more about an imposed process and belief system.
      1. Anonymous | - Reply
        ANONYMOUS | OCT 26, 2016 AT 2:51 PM: This is everything every non-18effer at GSA wanted to say. Thank you. It's all true.
    2. Anonymous | - Reply
      Do you know who else said the government needed to take a leap forward? Mao Zedong.
      1. Anonymous | - Reply
        Well, it kinda fits this bunch.
    3. Anonymous | - Reply
      "Dead man walking here"....and this is clearly the first shoe to drop. More IG findings on the way. Good luck spinning yourself out of all of these. It is like you didn't read the report and only want to continue justifying yourself. I have no dog in the fight, but the IG report along with the Congressional Inquiry (when your Commissioner was in front of the committee), all indicate the same thing. A tone-deaf approach to your work, how it was perceived, a lack of value proposition for agencies, and a lack of will in tackling the large projects in government that could have used your help. You instead developed websites. Congratulations. Your "customer centered focus" means nothing when you pick and choose what you want to work on rather than addressing what agencies need help with. Keep convincing yourself that you are transformation game changers, because you are half right...you will be transforming yourself out of the federal sector as you play with adult coloring books rather than facilitating the great "leaping forward". Oh...and your security stinks, so that requires a leap back from what you have implemented. Anyone can write guides and white papers, and those that I have read are regurgitating already completed white papers and guides. Finally, as to the pay, you get paid the value of what your worth is. Many would think that you are a bit overpaid in that respect. But because you are agile, I am sure you can make it well on the outside.
  9. Anonymous | - Reply
    So, is the naming of the Pixar guy an attempt to get people to stop talking about the fraud, waste, and abuse associated with the organization?
  10. Anonymous | - Reply
    i don't recall that many silicon valley startups losing money this fast with a very weak path to recovery.
    1. Anonymous | - Reply
      Don't worry, they'll make it back on sales to the states. Of course, if they can't account for costs, it's going to be hard to get paid and comply with the law, if they're complying at all. That's OK. Apparently, they have a free pass to do what they want. The IG will be ignored, and the new guy, with no background in government or procurement, will make them a flying saucer so they can escape. What a mess.
  11. Anonymous | - Reply
    Did the 18F people who responded on this thread consider this as work that was billable? #18effedup

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