The end-of-the-year spending spree -- in which agencies cram contract spending into the last quarter of the fiscal year -- is a time-honored tradition in government contracting.
And Tony Scott, one of the Obama administration's top tech officials, hates it.
Since being named the federal chief information officer in February, the former corporate IT exec with stints at VMware, Microsoft and Disney said he’s come to learn about the "use-it-or-lose-it" nature of federal IT funding that fuels the annual spending spike.
"That's just a really bad way to run IT,” he said Wednesday during a presentation at the Digital Government Institute’s 930Gov conference in Washington.
The end-of-the-year pressure drives agencies into “exactly the wrong behavior,” Scott said: more short-term, even frivolous, spending and less of a focus on longer-term investments.
Since 2009, agencies have spent about one-third of their annual contract dollars on average in the last quarter of the fiscal year, according to a recent Bloomberg Government analysis. Analysts say this year will be no exception.
The annual spending spree -- and criticism of the practice -- is nothing new. “Hurry-up spending” first drew congressional ire when a Senate subcommittee issued a scathing report on the practice in 1980.
More recently, research from the Harvard Kennedy School of Government in 2010 found an end-of-the-year “spending surge” in all major federal agencies.
But critics, such as Scott, have a point.
The Harvard researchers, who analyzed IT Dashboard data, found that the annual spending spree contributes to “lower-quality” acquisitions, because agencies spend funds on “low-value projects” that have been pushed off to the end of the year and because “the increased volume of contracting at the end of the year will lead to less effective management of those acquisitions.”
The problem, as Scott sees it, is that the mad dash to load up the shopping carts at the yearend may also be contributing to a lack of long-term investment in new development.
Overall, about 73 percent of the federal government’s total planned $79 billion in IT spending this year is budgeted for operations and maintenance -- not new projects, according to an analysis by the Government Accountability Office from earlier this year.
Spending on legacy systems as a share of the overall IT spending looks to be on the rise, Scott said.
“The trend from the preliminary data I see looks like it's headed the wrong way, and I don't like that,” he said. Scott declined to provide more specifics but said the updated data would be made public in the coming months and may come with a new strategy for right-sizing the makeup of federal IT spending.
"My concern is that it's heading the wrong way, and this will happen naturally when you have an environment . . . where budgets are constrained,” he said. CIOs are told to keep costs down, “and they cut the easiest thing there is to cut, which is spending on new application development and refreshing infrastructure,” Scott explained, adding, “it's just a natural phenomenon."
Coming up with a new model for IT budgeting could be key in freeing up more breathing room for longer-term investments.
Some agencies already benefit from more flexible IT budgeting. The Department of Veterans Affairs budgets in two-year cycles, and since 1992, the Justice Department has been allowed to roll over unused IT funds year over year. The Harvard researchers found DOJ made “higher-quality” purchases and reported a much smaller “spending spike” there at the end of the year.
Scott said he’s open to looking at ways to change the IT budget model, “so that you can either take that money with you that would [otherwise] be -- I'll say -- frivolously spent at the end of the year and make that available for seed funding,” for future projects.
“I think we've got to figure out a way," Scott added. "You can't sort of sit here responsibly and watch all of this decay and feel good about it. You've got to figure out a way to something."
(Image via microvector/ Shutterstock.com)