Hard Times

GSA's financial situation is worse than predicted.

Third-quarter returns show that the Federal Technology Service is $104 million in the hole so far this fiscal year. Although a write-off of GSA Preferred, a failed agency information technology project, accounted for $71.4 million of those losses, the beleaguered agency originally had predicted that FTS would lose only about $80 million. The agency is largely a self-sustaining contracting shop that supports its operations independently of congressional appropriations. A General Services Administration spokesman refused multiple requests for comment on the agency's financial picture.

As of June 30, total FTS revenue stood at $3.7 billion, 30 percent less than the $5.3 billion GSA thought it would collect by that time.

Agency forecasts say that FTS will be $110 million in the red by the end of this fiscal year-an overly optimistic number based on projected losses of only $6 million during the fourth quarter, former GSA officials say. The agency "keeps missing their own projections, which means they don't have a handle on the problem," says Bob Woods, a former FTS commissioner, now president of Topside Consulting Group in Vienna, Va.

The annual fourth-quarter spending spurt by agencies usually treats GSA well, but the positive prediction bespeaks a culture of complacency unwilling to come to terms with GSA's changed circumstances, says a former government official who would speak only on the condition of anonymity. Major former customers-particularly the Defense Department-increasingly shun GSA, which has been forced to make unpopular changes to its contracting rules. Defense's orders to GSA's regional IT centers, for example, have decreased by about $1 billion since 2005, a drop of 30 percent. GSA also faces more competition for customers as other agencies set up their own multiple-award contracts.

In contrast to the Federal Technology Service, GSA's Federal Supply Service earned higher-than-anticipated revenue as of June 30, although an agency analysis attributes that to aggressive cost-cutting. FSS carried a positive balance of $99.1 million, $25.7 million more than expected. FSS includes IT Schedule 70, which racked up more than $13 billion in sales.

GSA has tried without success for more than a year to combine the FTS and FSS funds as part of a merger of the two operations into the Federal Acquisition Service. The most recent roadblock came in June when Sen. James Jeffords, I-Vt., put a hold on the merger in connection with a bill he sponsored to improve environmental efficiency in the federal government.

The drastically different financial pictures at the two organizations provide an argument against consolidation, says Neal Fox, a former FSS assistant commissioner who is now a consultant in Manassas, Va. If the the two funds were combined, GSA could prop up its unhealthy FTS businesses with FSS-earned surpluses, he says: "[FTS] will be insolvent for years to come." A merger of the two funds would "hide a serious problem for as long as it can be hidden," he adds.

In an attempt to cut costs, GSA announced earlier this year that it would offer early retirement or buyouts to 400 employees, a move it has since backed away from after only 150 people accepted the offer. Recently appointed Administrator Lurita Doan is deferring to James Williams, the new FAS commissioner, on the staffing question.

GSA's financial data shows that cost-cutting at the corporate level has not gone far enough, says John Okay, a former FTS deputy commissioner and now a Topside Consulting partner. "People in the central office are not doing their part to contribute," he says. For example, FTS corporate expenses as of June 30 were $32.4 million, 13 percent higher than the anticipated $28.5 million.