Feds Pull the Plug on Funding for IT Projects

The Obama administration, citing waste, has frozen spending on 30 IT projects as agencies work to create new plans.

The Obama administration's decision late last month to halt new spending on some 30 federal government financial system modernization projects is the latest example of President Barack Obama's cautious approach to IT spending.

The move is expected to significantly cut the annual spending on these projects -- currently estimated at $3 billion, according to Peter Orszag, director of the White House Office of Management and Budget.

In a blog post, Orszag contended that federal agencies are "wasting billions of dollars a year, and more importantly are missing out on the huge productively improvements" seen in the private sector. For example, he said, the Department of Veterans Affairs "has invested over $300 million in two financial system projects over the past 10 years. The first project ended in failure, and no operational capability has been realized with the second."

Orszag called on the agencies involved to submit "new, more streamlined project plans" to the Office of Management and Budget before spending can begin anew.

Federal government CIO Vivek Kundra has been tasked with reviewing the highest-risk IT projects as part of the effort. Kundra has long been a critic of the federal IT procurement process and is openly envious of the private sector's ability to share common platforms across enterprises and deploy new systems quickly. He has also said that cloud-type environments are an ideal platform for many federal services.

Trey Hodgkins, vice president of national security and procurement policy at TechAmerica, an IT industry trade association, said that even a temporary halt to such projects could prove to be a costly hit for some of the large IT vendors and integrators working on them. The companies could lose millions of dollars in fees while spending significant sums to redeploy hundreds of IT workers to other jobs.

He also suggested that halting the projects and waiting until IT modernization plans are approved to restart them would increase the overall cost of the efforts. "It's going to cost the federal government, we believe, more money by taking this action than they will actually be saving," Hodgkins said.

Input Inc. analyst Tim Dowd, however, doesn't see the White House action as an automatic setback for IT vendors. Dowd cited his firm's continued projection that federal IT spending will see a compound annual growth rate of 5.4% from 2010 to 2015, or from $86 billion to $112 billion.

The action on the financial services systems may be more of a pruning or refocusing of federal IT spending by the administration, he contended.

"It is probably a fairly prudent decision," given that "there is probably a lot of redundancy" in financial systems, Dowd said. The government may move some of this frozen money to more important priorities, he added.

This story was originally published in Computerworld's print edition. It was adapted from an earlier version that first ran on Computerworld.com.

Copyright © 2010 IDG Communications, Inc.

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