The federal government’s use of grants to achieve national objectives has grown into a $600 billion lifeline to states, local governments and institutions. More than 1,670 federal grant programs were offered by 23 federal grant-making departments and agencies in fiscal year 2010, according to the Office of Management and Budget,.
The risks associated with administering those funds, and concerns about the lack of effective oversight tools, continue to draw criticism–the most recent coming in a new report issued last month by the Government Accountability Office.
But a less obvious problem is the substantial amount of funds that are devoted to administrative actions in managing grants that produce little or no economic value. That’s in spite of many efforts to streamline the grant application process, including the creation of a federal electronic application clearinghouse in 2002 called Grants.gov.
Forman was the first U.S. Administrator for E-Government and Information Technology (in effect, the Federal Chief Information Officer), and is widely credited for bringing leading practices such as e-business, enterprise architecture, IT capital planning to federal agencies. More recently,
Marshall has led a variety of government-wide management reforms at the US Senate Committee on Governmental Affairs, the White House Office of Management and Budget, the U.S. Agency for International Development and the Departments of Agriculture and Education. He has also held consulting and practice leadership roles lat CGI, IBM and Booz Allen Hamilton.
Their solution combines the new economics and scalability of cloud computing with a business model that makes it easier and less expensive for institutions to manage their grants. Best of all, says Forman, it won’t cost the government and taxpayers a dime. (Disclosure: Forman serves on AOL Government’s Editorial Advisory Council, providing insights on government operations.)
Forman and Marshall talked about their plans with AOL Government Editorial Director Wyatt Kash late last month.
What made you decide to tackle government grants?
Mark Forman (L) John Marshall (R)
Mark Forman: We looked at areas where this new wave of technology, that people refer to as cloud computing could bring big benefits for both the government and people who do business with the government. And one of the greatest areas of opportunity for simplifying the burden on people who have to do business with government is for federal grantees. So we figured that would give us the fastest take-up, the biggest benefit, and the biggest bang for our buck as a startup company.
Why do you believe this is a particularly good time to launch a company to address grants?
Forman: Two things: One is the end of the Recovery Act grants period…which funded literally hundreds of billions of dollars of grants. There’s very tight setup controls and oversight on those grants–making sure that they’re following the rules, making sure that they get closed out and people understand what benefits came out of those grants. For the first time, there’s real pressure to get the grants closed out. This has been a chronic problem for years that grants have not been closed out.
We see a big problem in the difficulty of just filling out the forms with the government.
The other thing that makes this a good time is the technology wave–this cloud computing wave. It creates an opportunity to really simplify accomplishing that business process of closing out the grants. We couldn’t do this two or three, or five years ago, because the technology wasn’t that advanced. So it’s a mix of huge demand that’s going to force the action with a toolset that should facilitate achievement of that requirement.
Most federal agencies don’t want the systems to talk to each other.
What’s different now than past efforts to apply technology to this kind of problem?
Forman: Well, let’s look at the problem that creates the avenue for the technology. Federal agencies have developed grants administration systems over the last couple of decades, focused on how (agency personnel) use the technology. They haven’t really focused on the people who have to fill out the data forms. They assume that if you want the grant, you will fill out the data form.
Most universities and research institutions have several thousand grants that are active at any one time. They manage it not by federal agency but by the university department, the different parts of a medical school, the physics departments and so forth. So they’ve built their systems to help them do their work and that creates a gap. These two systems don’t talk to each other.
In fact, most federal agencies don’t want the systems to talk to each other.
Their assumption is that they can offload the work of entering data to people sitting in these universities.
So along comes the cloud computing technology, which leverages a couple of things: Number one: economies of scale, where you can drive the cost of offering a service way down. And the other thing is commoditizing a common transaction. If you can figure out what that transaction is, and understand the business processing and how it’s similar, then you can leverage commoditization.
What John and I have figured out is that filling out that form or submitting that data is a very common transaction similar to how bills get presented in the private sector. So we make it very cheap to have a university system send us the data and convert that over and put into the agency systems regardless of those systems.
John Marshall: I can give you an example. At my last agency, USAID, in the 2001-2005 time frame–an audit found that we had hundreds of millions of dollars in unclosed-out grant funds, just sitting there. It could be de-obligated and re-obligated to other program needs –if we could just closeout the grants.
It was because people just…didn’t have the time to do it; it was an entirely people-based problem and process. In fact it still is to this day. We were getting adverse audit findings. . So we hired a contractor… to put more labor on the problem. Almost all agencies have a closeout backlog–and with the Recovery Act, it’s becoming more transparent and conspicuous. And the way this has been handled in most agencies is by just throwing resources (at the problem.)
Now, we can commoditize this workload by moving it to the cloud where it can be executed much more accurately and efficiently.
So this would make it easier and cheaper for the end-user to fill out forms, submit them and follow up?
Forman: For the typical research institution, we’re talking about saving 20 or 30 staff-whose primary purpose is to take data out of their grants administration system and recreate it into the federal system. And by using today’s technology we can automate that.
Now, that doesn’t mean that those people are going to lose their jobs. Chances are it could be one or two scenarios: One, especially for a lot of the state universities, is they simply don’t have the people. So these grants aren’t getting closed out. Universities are going to find that there’s some money left over for them to use or federal agencies will find this money left over to help counterbalance budgetary needs in the future.
The other scenario is that people are going to move from administering the grants to getting more grants, this concept that the government calls pre-award and that’s good for everybody.
If the grants were at a state university, they can get access to these funds to help fund professors and research by graduate students, then that’s a better use of their time than sitting in front of a government website and keying in data.
We also know and the government programs know that there’s lot of redundancy. They have to justify their existence so they don’t get consolidated–and they do that by slightly different definitions of common terms.
Marshall: It was the closeout issue that first opened our eyes to the opportunity here. But closeout is just one out of a dozen or so annual filings in the life cycle of a grant. Now we’re looking at automating through the same technology, all of those 10 to 12 report filings annually for each grant.
When you look at the university population, there are about 150 universities who are the major grant recipients, and the largest ones have an average portfolio size of 3,000 to 5,000 active grants. They file tens of thousands of reports per university per year-manually! That’s the workload we’re going to be automating.
The government actually spends more on grants every year than it does on procurement, and a large portion are research grants.
How do you envision the technology unfolding? Besides using the cloud, are you also writing new applications?
Forman: We are using the cloud, but it’s more using this concept of web service or shared service. One way to think of this is we’re managing the flow of information from one system to another. That’s a model that you could have done five or 10 years ago, but it would have been very expensive to create and maintain.
What’s happening in the Internet today is a lot of these basic functions are becoming commoditized. If you understand the business problem you can take that commoditized function and apply it with minimal tweaking, what John and I bring is a real strong understanding of the business problem and so we picked one that fit.
But to give you an idea, we talked to three companies (in the final round) when we were choosing our platform:
One company had the traditional client server software approach …we were looking at nine months for them to help us build our solution.
There was a first generation cloud solution company that had a very repeatable process. They were looking at about nine weeks to help us build our solution and it was about a tenth of the cost.
The solution we chose is current state-of-the-art in this concept of commoditized repeatable shared service: three weeks to help us build the solution and again about the same amount as the other cloud solutions.
What is the rough size of government grants in dollar volume that could take advantage of this ultimately?
Forman: It’s well over $100 billion per year which are the research grants. Some of these grant programs are five years; some of them are 50 years. So a lot of the National Institutes of Health, where they’re tracking twins or demographics last many years, but on average, typical grants are to be about three-year grants.
At any point in time, there’s over several hundred billion dollars that are open and a lot of the estimates are that there’s over $100 billion of grants that need to be closed out but aren’t because of this problem we’ve been discussing.
The government actually spends more on grants every year than it does on procurement, and a large portion are research grants.
Describe which agencies could benefit from being able to use a service like this?
Forman: Well, the irony of this is that the agencies don’t see a benefit. They benefit from getting the data and closing out the grants, but we haven’t really heard that has been a big concern from them. They don’t really care how much burden they put on the citizen in this filing. I’m sure that people care, but when we’ve talked to agencies about why they aren’t spending to facilitate the easy use of these transactions, they claimed they can’t make the business case.
In other words, if it helps some of the productivity dashboards and understanding who’s doing a good job with the grant or not, that’s the useful investment, but to actually minimize the reporting burden is not a priority investment for the agencies.
Customers get to use a greater portion of the grant money for research.
What do you see as the motivational benefit for them to pay more attention to facilitating better distribution of grants?
Forman: Intuitively we would think that they would look at the cost of administering grants. One of the most shocking things that we’ve found as we’ve been working on this is typically, universities spend more than 50% of their grant on administration and trying to comply with these federal requirements and all the labor that’s associated with that.
So if we can reduce the cost of that administration, then more of the dollars go to the research and hence the productivity of the grant should be higher. So the IT departments probably don’t care about that, but we believe the grants administrators, the program executives, and these agencies will care about bringing productivity to grants.
Marshall: So from an agency perspective, the primary benefit would be the potential to shift more money from overhead to the research mission – improve the tooth-to-tail ratio in grant-funded activities.
Another benefit would be reducing data entry errors from manual entry and re-entry in thousands of report filings annually.
Forman: There’s a push to fix erroneous payments issue and we’ve known for long time in government financial management, one of the biggest sources of erroneous payments is people hand entering data into different systems and the systems not matching the data and spitting out too much in erroneous payment
In addition, the Obama Administration has produced an executive order that says the agencies should focus on using technology to make things simpler for the citizen and benefit the citizen.
So essentially you’re appealing to agencies on better execution on your mission and reduce error problems and administrative costs?
Marshall: Yes, exactly.
Forman: Plus it doesn’t cost them money. We don’t charge the federal government. Like most of the cloud-based business models, we bill the customers because they get the savings and so we get a little bit of that back as a transaction fee.
They get to use a greater portion of the grant money for research.
What are your next milestones?
Forman: We are in the final phases of our initial product development. We are looking – just started looking for our beta test customers to validate the process. We’d be doing that beta testing in July and August. And then, we plan to roll out this initial product set in the fall
What lessons did you learned from OMB and KPMG that you’re putting to work here?
Forman: A lot of my knowledge and understanding and simplifying things for citizen came from a very simple moniker that President Bush used going back to his campaign in 2000, “we want to be citizen centered, not agency centered.” What I’ve learned is it’s very difficult for the agencies to come together and develop a solution that facilitates interactions with citizens, be they individuals, businesses, state and local governments, universities.
And so each agency pretty much does its own thing. And similarly that’s what drives a lot of the burden when you have a situation where a business, state/local government, or university has to deal with multiple agencies, each agency thinking that they’re unique. From that citizen grouping standpoint, the agencies aren’t unique.
Let each agency continue to think they are unique because they’re all funded differently. They’ll continue to have different funding streams and they’ll continue to thrive.
Something has got to come in the middle and simplify it for the companies, the individuals, the universities, state and local government. That’s what led us as we were looking at this technology wave, to really focus on simplifying the interactions with the government.
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