GSA’s Tech Shops Face $30M Deficit After Priority Change Last Year

For the last year, the federal government’s internal tech consultancy—the General Services Administration’s Technology Transformation Services—abandoned its long-standing goal of being financially self-sustaining, resulting in a more than $30 million operating deficit as of August, according to comments from then-TTS leadership and documents obtained by Nextgov.

After years of striving for balance between helping federal colleagues improve government services and ensuring its own financial stability, TTS leadership told program managers in September 2021 that cost recovery was no longer a priority.

TTS was created in 2016 by combining a number of fledgling internal IT consultancies within GSA, including 18F, the Presidential Innovation Fellows and a group of programs that would become the Office of Solutions, which now includes Login.gov, FedRAMP, Cloud.gov and many more. The group of programs within TTS has since grown, adding initiatives such as the Centers of Excellence and 10x.

As with other programs within GSA, TTS programs that engage with other federal agencies charge a fee for those services. The goal was to make these programs fully cost recoverable, which helps the TTS programs remain financially sustainable while ensuring partnering agencies maintained a stake in their projects. But TTS never realized that sustainability. 

Since the announcement in September 2021 to shift focus from cost recovery, the program went from being close to sustainable—with payments from partnering agencies nearly covering operating costs like salaries and overhead—to more than $30 million in the red as of August this year.

Through the end of July 2022, TTS had accrued $65.9 million in operating costs for the fiscal year, offset by $35.5 million in revenues, according to an internal document obtained by Nextgov. The result is a net deficit of $30.4 million.

After publication, a GSA spokesperson told Nextgov that TTS evaluates it's fee structure and financial plans "on an ongoing basis."

"We evaluate TTS services based on how useful and valuable they are to our agency customers and the American public, while also strengthening their operating models and financial sustainability," the GSA spokesperson said. 

In a September 2021 all-hands call with staff reviewed by Nextgov, then-TTS Director David Zvenyach framed dropping the cost-recovery imperative as a shift toward prioritizing delivery on programs with the biggest impact—what the Biden administration called “high-impact service providers”—while also helping to stem some of the burnout felt by TTS employees.

“We have a huge opportunity right now … to make a huge difference in the lives of the American public and our agency partners. It may be the biggest opportunity we’ll ever experience in our lifetime,” he said. 

“And yet, I also want to acknowledge something, which is, right now, it doesn’t feel that way. Right? One of the things that I suspect is true for many, many people is that you are probably feeling a bit burned out. … Either for internal reasons or for whatever reason.’”

Zvenyach told employees that much of that burnout was directly related to programs’ financial responsibilities.

“When I joined the administration … what I had been told was that the organization was suffering under the weights of cost recovery,” he said, asking employees to raise their hands if they had felt that weight in the preceding eight months.

“Stop. Do not suffer under the weight of cost recovery,” he said. “I do not want to hear it. I do not want to think about it. I want us to focus on delivery. Period. I want us to always be thinking about how we are organizing ourselves and how we are doing the work to make sure that we can deliver for the public.”

Ashley Owens, then-acting executive director of 18F, one of TTS’ flagship programs, echoed that sentiment in an Oct. 8, 2021 team meeting also reviewed by Nextgov.

After announcing staff increases, Owens told the teams those additions wouldn’t have been possible under the old cost recovery requirements.

“One of the primary focus areas of 18F over the past few years—and maybe since its existence, to be honest—has been cost recovery,” she said. “We sign agreements to keep folks billable. And, honestly, beginning in 2018 when I first came into 18F, we started reducing a lot of nonbillable roles to try to hit this magical, mythical cost recovery number that kept eluding us, even though we missed it by very small amounts.”

18F was struggling to be financially neutral earlier than that. A Government Accountability Office report from 2016 showed the program accrued an operating deficit of $15 million in its first two years of existence and subsequently developed a plan to be fully cost recoverable by 2018—a metric that was never fully met. 

Attempting to tie every salary to incoming cash flow also forced 18F leadership to make different decisions on the projects they were choosing, Owens noted.

“This was direction we were getting from TTS/GSA leadership at the time. So, it was our No. 1 priority,” she said. “When you’re hiring for work that way, you can do things kind of scattershot—maybe not as strategic as you would. How you vet projects and think about the work you do is a lot different.”

Under a cost recovery model, the goal is to “never have a bench of humans” on staff who are not doing work, Owens said. “Which feels bad but it’s how cost recovery works.”

With clearance from leadership to refocus on the work, Owens told staff the team was given top cover to hire for—and keep—talent rather than justify each position with an active project.

Owens noted that while cost recovery would no longer be the focus, it was not going away.

“One of the things that it does mean is we no longer have to have conversations around utilization rate, which focuses you on hours in a way that can be not always so great for the folks who have to work under that billing model,” she said, announcing a shift to “weekly billing.”

“We have to choose to make this moment to say, ‘We’re all-in on delivery,’ and not trying to satisfy all of the various constituencies,” Zvenyach said in the September 2021 all-hands. “I spent the first eight months of my gig here trying to say, ‘Well, this is how I balance this and this is how I balance that and this is how I balance that.’ As opposed to saying, ‘This is what actually is going to be the thing that’s going to get us closest to delivery.’ And I can’t get past this sense that that’s been the wrong focus for me.”

One year later, in an interview with Nextgov shortly after he left TTS in September 2022, Zvenyach cited an influx of $150 million to the Citizen Services Fund—which supports a number of TTS programs—as part of the $1.9 trillion American Rescue Plan passed in March 2021.

With that added cushion, TTS leadership opted to pivot from focusing on financial sustainability to workforce sustainability, Zvenyach told Nextgov, which included a shift away from worrying about cost recovery.

While acknowledging that TTS programs can and should be fee-for-service—for several reasons, including ensuring agency buy-in and ownership of the projects—Zvenyach said the main goal for TTS programs isn’t to make money

“The purpose of TTS is to improve the public experience with government,” which is where employees should be focused, he told Nextgov. “We should be hiring people, enabling them to deliver the most value to the public and then spending our energy as a management team to create the structures to allow them to ship.”

Zvenyach said the accounting will all work out for fiscal 2022—including the aforementioned influx from ARP—but TTS as a whole is still working toward financial sustainability under the new model.

“But it’s on a good path,” he said, as the government continues to work out the best way to balance offering governmentwide shared services—especially for IT modernization—with funding the teams that perform those services. “The government has models for how to centrally fund things like rent. The government needs different models to figure out how to fund things like shared technology solutions.”

One such idea is to budget for more than just the next fiscal year, Zvenyach said, whether with multiyear budgets or creating more centralized funds like the Technology Modernization Fund.

“There are some things that I think Congress and the White House and GSA are going to need to do to be able to make it truly sustainable over time,” he said. “And one of the things I'm really grateful for is that there's a lot of leadership from Congress and from [the Office of Management and Budget] and GSA to think about these challenges and to really think about how to improve it. And I'd like to believe that over the course of the next several years, some of that's going to make it sustainable for real.”

Editor's Note: The story has been updated with a response from GSA received after publication.