Why a federal high-tech start-up is a money loser

Uh nope. A perfect market means the price is equal to their costs, not the value provided. A monopoly is when you can extract the value provided as rent.

Let's say that the VA gets bids to create a new system for something. 18F says they can do it for $900k and ContractorX says they can do it for $1M. 18F gets the contract and produces a system that cost the VA $900k. Let's say the system cost taxpayers an additional $1M that isn't billed to the VA. That means that taxpayers are out $1.9M rather than $1M going with ContractorX. The issue can be that 18F isn't accurately pricing their services and hiding the actual cost to the taxpayer.

That isn't to say that I like contractors. I don't. But the point of 18F should be to prove that the government can create its own digital services at a lower cost than contractors. If they're "cheaper" in that they're charging agencies less, but then just taking money from a slush fund to cover the fact that they're not efficient, that's not a good thing.

Also, price being "value created - effort to get paid" isn't a good metric. You need to look at alternatives. If a system saves $1M, but you could pay one source $100k for it and another source $900k, you want to go with the $100k source. If we had to pay the value created for things, we'd stop a lot of economic activity. In fact, why would the VA want to do anything at all given that they're going to be charged the full value of any savings? 18F shouldn't be credited with $1M in savings if they spent $900k to achieve it when a contractor could have done it for $100k.

The value of 18F is if they can produce digital services better than other methods. Other methods are generally paying some non-governmental company for the services or hiring direct employees for the agency. In order to determine if 18F is a good model, they need to charge agencies enough to cover their costs. Otherwise, it's ridiculous. Someone in Health and Human Services would say, "we could hire people to do this project directly, but then we'd be paying 100% of their cost, but with 18F they'll charge us a fraction of the employees cost. In fact, we'll tell them to hire the dozen people we were going to hire and we'll only pay X% of the salary rather than 100%".

Plus, if agencies don't have to pay the full cost, they'll do projects that don't make sense. Let's say that a project for the VA creates $1M in savings. 18F says they'll do it for $900k. The VA green-lights it to save $100k. Great, right? $100k for spending on other things. But 18F actually spends $2M on the project. The VA gets another $100k in their budget, but the government is actually down $1.1M. When people see situations like this, they want to take advantage of it since they're able to basically spend other people's budgets. "If you use 18F, a bunch of the money for your project doesn't come from your budget," is the kind of thing higher-ups dream of.

I think 18F will get better at this. Figuring out how much one needs to charge is hard since it's hard to know exactly how much effort a project will take. I'm guessing that 18F is looking to generate good-will with agencies rather than going back to them with cost over-runs. Still, 18F needs to prove that it's a more effective way than alternatives and it can't do that by just under-charging and subsidizing whatever projects they get given. If 18F just offered free services, then every agency would want infinite 18F work (since it isn't coming out of their budget). Then which projects should be worked on? The ones 18F finds interesting? 18F wasn't created to be the arbiter of what the government should do. As such, they need to price accurately based on their costs. They will get better at this. They will likely have to start passing along cost over-runs to agencies. But if they get great, motivated people, they could provide digital services at a lower cost - it just has to actually be a lower cost.

Even if you hate contractors, a lot of agencies have tens of thousands of employees. Health and Human Services has ~80,000 employees. The VA has ~313,000 employees. Why shouldn't they just hire an engineering team? Why should they outsource a project to 18F? Agencies that large certainly have enough engineering projects to keep an internal team busy. They're not some restaurant that outsources their website because they don't have enough work to keep a dev busy. Well, maybe 18F can gain efficiencies through hiring better people at higher pay who can create better code and re-use stuff across agencies. Or maybe the overhead of outsourcing outweighs those efficiencies. That's something important to figure out and it's an answer that we can get closer to if 18F accurately charges agencies.

I dont care what hourly rate the VA negotiated under the auspices of "savings". If 18F doesnt deliver, then the investment is worthless.

Find something that can be spun negatively and sell the story to a friendly journalist. That it what appears to have been done here. Next get the head of a budget committee to question 18F spending. It is all done behind the scenes and sadly 18F's strongest supporters are all leaving government.

By the way, like a friend suddenly shaving off all of their hair, I consider a corporate logo change to be a harbinger of bad things to come.

Their GitHub organization [1] shows significant activity, it is sad to see people spending their time, energy and resources on things that are ultimately not supported by their financial funds.

[1] https://github.com/18f

There's no winning here for 18f. Either their sites are archaic disasters and they are criticized for not being up to par with the top tier consumer sites. Or they spend some money to bring them up to par and its "OMG! An $800 toilet seat!"

http://www.cbsnews.com/news/pepsis-nonsensical-logo-redesign...

This has to be a joke.

Pretty poor journalism. Brand development strikes me as a much bigger category than a single logo change.

727 employee hours, in comparison, seems like a pretty sweet deal.

Not to mention that the logo change was only part of that 727 hours (But out of context, it sure makes for an awesome soundbite!)

With all the government outsourcing it's difficult to have a consistent stack. I have hopes that 18F brings some sanity.

* "But like many digital-age start-ups, 18F, named after GSA’s 1800 F St. NW address, was long on vision but short on management."

* "Not wanting the bad news to overshadow the good works, ..."

* "It shows."

As a made-up example, a news article on Samsung's falling stock might focus on its Note 7 failures, making the assumption (and thus giving the reader the impression) that the mobile phone is the main cause of the company's decreasing revenues, when in fact the company's general electronic components sales have been dying for months. But this slow decrease is much less sensational and might've missed the headlines. This sort of "opinion" is far more difficult to notice, but still exists in reporting in the form of attempting to speculate on the reasons behind the facts.

This article just happens to be particular blunt about its assumptions.

If Clinton gets in, she'll probably appoint people from Google into high government positions. Eric Schmidt has given her campaign a lot of money and technical support, and she's mentioned bringing people from Silicon Valley in during some of her rallies. Probably that means giving Eric Schmidt a high-ranking position, or Google lucrative government contracts.

I don't think that Trump cares too much about Silicon Valley. He'll probably just review them as part of a routine audit of all federal agencies, and ask them to explain what it is that they do and then make a decision to keep them. I think this particular agency is not high on his list of problems.

Good grief. What a bunch of girls.

How many failed government IT projects have we read about that fulfilled a contract but was ultimately useless? Or stories about government inefficiencies and a failure to keep pace with modern technology?

I don't know why there's an expectation that they do this cheaper or at the same price as government contractors. Have we forgotten what happened with the healthcare.gov site already?

If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.

https://micropurchase.18f.gov

What's harder to understand externally is that there may have been 10, 20, or 40 logo designs that get explored, scrapped, edited, changed, saved, reverted... and sure, sometimes you end up pretty close to where you began. But that doesn't mean it was wasted time or effort.

Design often gets shit on when all you see is the beginning and end. The value is in the middle, which is done internally.

"18F Branding – Staff spent 727 hours (valued at an estimated $140,104) developing the 18F brand. An example of one of their branding projects is the 18F logo change, seen below in Figure 8. "

It was 727 for all branding activities and the logo was just one of them. And that's over a period of almost 2 years. Doesn't strike me as unreasonable, especially in the early stages.

It sounds like upper management doesn't want to do the hard work of accurately pricing their services, or maybe is intentionally undercharging to ensure they get to provide the service. In some ways, they're definitely in a bind -- if they undercharge, they're crowding out private competition, and if they overcharge, they look like greedy bureaucrats.

The theory of 18F is that you bring in high-grade technical talent for 2-4 year stints. You have them jump in to help unsnarl knotty problems, using approaches that are obvious to we Silicon Valley types but not widely adopted in government IT circles.

I know all this because a couple of years back I interviewed with them. I decided to stay in private industry, as I didn't want to leave SF. But they have a lot of really smart and dedicated people who want to change the way the US government does technology, making it faster, cheaper, and more effective.

So I think the real question is not, "How much was spent?" but "How much did they save?" That's a harder question to answer, but I think it's the only real way to evaluate 18F as an initiative.

The big consulting firms have zero interest in encouraging good quality development. They will happily sell you another SAP/whatever system that has a few features that match whatever some set of inexperienced managers say they want, and then spend the next five years customising it for every request.

They get paid on the number of hours, and the number of hours goes up the more complicated something is, so they have zero problem with the number of stakeholders and meetings and revisions going up, because they bill all of that back.

A department like 18F can potentially have a leadership role and say that things should be developed in certain ways (like API standards) and using modern tooling that works across a wider range of devices/browsers/etc.