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Obama’s Tech ‘Startup’ LOSES $1 Million Every Month

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Thomas Phippen Associate Editor
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The organization President Barack Obama founded to bring the federal government into the digital age is in big trouble not just for being unprofitable, but for losing $1 million every month.

A Government Accountability Office (GAO) report released Friday reveals that the start up, dubbed “18F,” spends about $1 million more each month than it recoups in revenue. By the end of fiscal year 2016, the federal technology firm will be $33 million in the hole.

The General Services Administration manages 18F, which works through interagency contracts to consult on IT and digital development in federal agencies. Because it is supposed to be funded on a fee-for-service model, it has been described as a “technology consulting firm within the government.”

A graph of projected profits and losses for 18F from the GAO report reveals estimated losses of $15 million in 2016, and a loss of $12 million in 2017. According to the chart, 18F expects to generate enough revenue to cover their annual expenses in 2019.

Estimated revenue and expenses for 18F from 2016 - 2019. Source: Government Accountability Office. http://www.gao.gov/assets/680/677794.pdf

Estimated revenue and expenses for 18F from 2016 – 2019. Source: Government Accountability Office. http://www.gao.gov/assets/680/677794.pdf

While recognizing the importance of flexibility in implementing new digital solutions, officials are concerned with the lack of transparency of an agency designed to be agile, flexible and adaptive to new technologies. In a hearing held Friday by the House Committee on Oversight and Government Reform, Phaedra Chrousos, who runs 18F as commissioner of technology transformation service at the GSA, testified that transparency is important to the success of the project.

“We haven’t been very a good job of communicating what 18F does,” Chrousos said.

According to Chrousos, 18F prefers to build smaller digital products quickly in order to demonstrate the effectiveness of new technologies to the agency that contracted their services.

“The projects that we get involved in are usually small reference products … that showcase modern methodologies to agencies, and then they go and procure larger teams to tackle the big problems,” Chrousos said.

The federal government is not well known for agility, innovation or disruption, perhaps because government agencies have the entire country as shareholders, more than any Silicon Valley startup.

“The startup mentality within the federal government is important, but government doesn’t have the appetite for the level of risk that the startup community has or the venture world has,” Rep. Will Hurd, a Texas Republican, said in Friday’s hearing.

Along with the United States Digital Service (USDS), 18F was founded by Obama to modernize federal IT infrastructures and bring the government into the digital age. In his second inaugural address, Obama laid out the directive to modernize federal agencies. “We understand that outworn programs are inadequate to the needs of our time,” Obama said. “So we must harness new ideas and technology to remake our government.” The next year, the USDS and 18F were created.

18F is under considerable pressure to be successful. As background, the GAO report lists four federal projects tasked with modernizing government in the past 20 years, costing between $127 million and $5 billion each. One of the failed projects, the Department of Veterans Affairs’ Scheduling Replacement Project, cost $127 million over 9 years before being scrapped in 2009.

“The government’s messed up,” Hurd said in the hearing Friday. “The way we buy it goods and services is messed up. We have difficulty getting smart people with the skills to solve the problems of the future is difficult.”

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