New industry estimates push Y2K costs skyward

Fixing the Year 2000 date change in the federal government's computer systems will cost more than twice what the Clinton administration has predicted according to a new industry study disclosed to Federal Computer Week last week.

Federal Sources Inc. a McLean Va. market research firm predicts the government will spend $5.6 billion to fix the Year 2000 code problem. Federal Sources was hired by several information technology firms to conduct the study and does not plan to release it to the public.

The Federal Sources figure provides the latest evidence that the administration may have seriously underestimated the scope of the problem. The Office of Management and Budget in February placed the government's Year 2000 code fix at $2.3 billion. Earlier this month OMB admitted the cost would likely rise.

The Year 2000 problem stems from the many federal computers that use a two-digit date field to identify years. Computers that are not Year 2000-compliant will read the Year 2000 as 1900 causing errors in date-sensitive calculations and making some computers shut down.

Congressional committee staff members viewed the new figure as a more accurate cost estimate.

"Obviously we haven't had an opportunity to see the data but initially my reaction is that the $5.6 billion is more of a realistic number than the $2.3 billion " said a staff member on the Senate Governmental Affairs Committee which may hold hearings on the Year 2000 problem later this year.

Rep. Steve Horn (R-Calif.) chairman of the House Government Management Information and Technology Subcommittee said at a hearing this month on the Year 2000 problem that the cost to the government would fall between $5 billion and $10 billion. "We'll never know until the end [how much the cost will be] for anything we estimate now just multiply it by three and that's about where the federal nut comes out."

Last year The Gartner Group a market research firm based in Stamford Conn. estimated the government would spend $30 billion to fix computer systems.

Industry group members IT executives and agency IT managers all of whom considered OMB's estimate too low believe the Federal Sources numbers are more reasonable.

"It's headed in the right direction " said Bob Cohen a spokesman for the Information Technology Association of America. He added that he would have to know more about how the estimate was calculated before making additional judgments.

Sherrie Merrow director of the federally oriented US2000 program at Year 2000 tool vendor Viasoft Inc. said she believes the actual cost of fixing the problem will exceed the Federal Sources estimate. "If [the government] gets away with $15 billion they are lucky " she said. "They are really looking at $15 billion to 20 billion in my opinion."

Bruce McConnell chief of information policy at OMB said the Federal Sources estimate was "within a reasonable ballpark" while defending OMB's original cost estimate. "We have noted from the outset that we expected agency estimates to rise as they complete their assessments " he said.

According to Federal Sources officials Year 2000 costs are not being driven by the expensive hourly rates charged by software programmers who must sift through millions of lines of codes to find date fields. Rather much of the cost will be pushed higher because many agencies will have to replace systems and make Year 2000 fixes when doing periodic upgrades on hardware and software. Agencies also are reconfiguring systems that are in development to meet Year 2000 compliance.

Adding to the rising costs are missed deadlines for new systems. If a system under development is scheduled to come on-line before the Year 2000 but delays cause the agency to miss the deadline the agency must fix legacy systems to meet Year 2000 guidelines.

Year 2000 costs are also increasing because of delays in fielding numerous systems including the Internal Revenue Service's Tax System Modernization the Department of Veteran Affairs' Vets Net compensation and pension payment system and the Health Care Financing Administration's Medicare Transaction System.

"Everyone considers this a software maintenance issue but it's not " said Susan Marshall Federal Sources' research analyst for the Year 2000 program. "The Year 2000 is driving the insertion of new technology because there are other Year 2000 solutions besides software conversions such as system replacements hardware and software upgrades and system retirements."

But Kathleen Adams chairwoman of an interagency committee that promotes awareness and solutions for fixing computers said nailing down an exact figure on the cost of the Year 2000 problem is complicated and controversial. "There is no agreement on how to estimate the costs or which costs ought to be charged to the Year 2000 project.... In addition few organizations are far enough along to know what all the costs particularly those associated with testing will be."

For example Adams said data centers must upgrade their systems with new software as part of a planned maintenance schedule. The latest upgrades would have to be Year 2000-compliant. "Is this a Year 2000 cost or is this a regular maintenance cost?" she asked.