Turner Roth: 18F hears IG’s concerns but isn’t losing long-term vision

The General Services Administration digital services team 18F will take the advice of a recent inspector general report to re-evaluate its balance of billable and non-billable work, GSA Administrator Denise Turner Roth told FedScoop Thursday. But that doesn’t mean 18F will lose focus on its long-term mission to transform the way the federal government buys and builds technology, she said.

“18F in its short existence has showed how it can help the federal government and federal agencies, and how important its mission is,” Turner Roth said. “But certainly, like other startups, it’s not perfect. It has room to grow and areas to work on.”

The GSA IG issued a report — sparked by the concerns of senior GSA official — in late October that called 18F out for continually failing to recover its costs, losing $31.7 million since it was founded in 2014.

[Read more: GSA IG: 18F’s financial projections need a rework]

The report specifically pointed at three factors contributing to that: “18F management’s established pattern of overestimating revenue projections, increased staffing levels, and staff time spent on non-billable activities.”

Even before the report came out, GSA had been trying to address some of those issues, and these findings from the watchdog only reinforce those efforts.

“As we were looking to create the new Technology Transformation Service and develop some of the infrastructure for 18F to be a longer term effort that was going to be in place, we needed to look at all aspects of it,” Turner Roth said. “Some of these things we had started to evaluate, and then some we will go back and make sure as we get the input from IG that we are accounting for it.”

But since the report hit, there’s been a lot of focus particularly on the split between billable and non-billable work, on which the IG found the team spent about 52 percent of its time.

“It’s an important discussion and it’s absolutely the space where we’re going to spend time, and where we have been spending time to focus on what is the right mix,” she said. “I think the report fairly placed out that, because of the amount of time some staff has spent on non-billable work, that that hasn’t impacted the bottom line.”

In many ways, that discussion feeds into a larger one about the greater purpose of 18F — on the surface the organization appears to exist to help agencies build one-off software projects and make sure revenues are in the black at the end of the year.

But 18F is pursuing something bigger, and that’s where the non-billable work fits in — developing tools that other agencies can use to modernize their services, a model that isn’t immediately cost-recoverable or measurable — Turner Roth said.

“Non-billable work is where we do the development of cloud.gov; it’s where we create the design standards for how we go to the web,” she said.

That non-billable work is important, the GSA administrator told FedScoop, and just because 18F is millions in the red doesn’t mean that work is going away.

“There is a mixture that is the right one, but I think that the overall point is that we need this organization to be cost-recoverable, but we do have a demand that will get us there,” she said, noting 18F’s 69 percent revenue increase between fiscal years 2015 and 2016 despite an even quicker growing gap between that and its expenses in the pariod. “We just need to get the right mix of billable and non-billable in the focus of our work and attention.”

Through this IG report, and another two that may follow, 18F is learning where it fits as an innovative startup in the federal government.

The reports “are feeding into how we look at the transition and growth of the next iteration of 18F” — one that comes under the direction of new Technology Transformation Service Commissioner Rob Cook, who Turner Roth said has “worked with a sort of startup organization in a larger organization — Pixar within Disney — and he’s produced a financially viable effort.”

Even startups worth billions in the private sector — think Twitter, Snapchat, Amazon, Box and many more on a long list — lose hundreds of millions each quarter. But the federal government isn’t a private business, and 18F has the taxpaying public, and their overseers on Capitol Hill, to answer to.

“I think what’s important to recognize is that we have a very true commitment in the work of 18F to break even,” Turner Roth said. “There certainly is an investment in the front-end of projects, and it certainly is true here as well, to have a start up to it in terms of its initial up-front costs to develop the organization, the entity itself, and then to get it to a full cost-recoverable position. So we’re going through that cycle.”

“It may just be because 18F is a unique aspect to government,” she said. “Until now, we haven’t had something that looks like this entity and the type of work that’s being delivered to modernize the technology footprint.”

But even as the IG report explains anecdotally, many of GSA’s programs that pull from the same fund as 18F experience years in the red before they are sustainable.

Turner Roth and her deputy, Adam Neufeld, told inspectors that “many ASF-funded GSA programs are not projected to break even in FY 2017 – with some not projected to break even in any of the next five years – and that GSA is in a market with many uncertainties, which are magnified in new investments like 18F,” according to the report.

Faced with such financial challenges, though, 18F remains steady in its pursuit of its bigger-picture purpose, Turner Roth said.

“The long-term value of 18F overall is its role in the modernization of technology in the federal government,” she said. “We’re going to be the interface between how we are introducing technology into the federal government, we’re going to be the interface of how we’re considering policy and how we’re making a path for private sector to federal government to bring forth these new technologies.”

“What I go back to is ‘Is this a usable, helpful, necessary mission?’” Turner Roth continued. “And I think the answer to that is fully yes.”