The Equal Employment Opportunity Commission (EEOC) expects to save 40% over the next five years by switching its financial management application to a cloud computing vendor -- a sign of the massive savings to come from the U.S. federal government's shift to the software-as-a-service model.
Slideshow: What is Cloud Computing?
The EEOC ran a competitive bid and chose Global Computer Enterprises (GCE) of Reston, Va., to provide Oracle's Financials Release 12 software in a cloud-based delivery model. The five-year contract has an estimated value of $10 million.
The EEOC is the second federal agency to migrate its financial management system to GCE's cloud-computing service. The Department of Labor -- and all 12 of its subagencies and offices -- made the switch to GCE last year.
"We're not ones to break new ground," says Jeff Smith, CFO of the EEOC, which enforces anti-discrimination laws in American workplaces. "It was important to us that the Department of Labor had already done this with GCE from a past-performance point of view. We had some comfort that they had done this successfully in the required time frame at Labor."
The Office of Management and Budget is pushing federal agencies to adopt cloud-computing services as a way of reducing cost and time-to-market for enterprise IT systems. In February, U.S. CIO Vivek Kundra released the federal cloud computing strategy, which advocates a cloud-first approach and estimates that the U.S. federal government could shift $20 billion of its annual $80 billion in IT expenditures to cloud computing vendors.
The EEOC deal is significant because it involves an agency choosing a cloud computing model for a mission-critical application such as financial management. Other agencies including the General Services Administration have chosen cloud-computing vendors for applications such as e-mail and Web-based collaboration.
Under the terms of the EEOC contract, GCE will provide all the necessary hardware, software and networking for hosting Oracle Financials for the EEOC. It also will provide related helpdesk, tech support, security, reporting, accounting and transaction-processing services.
Prior to awarding the contract to GCE, the EEOC since 2002 had used a government data center called the National Business Center that is run by the Department of the Interior to host its financial management systems. This arrangement was supposed to save the EEOC money, but the government data center's charges were escalating.
"We were seeing 25% increases in costs year-over-year, which was pretty much unsustainable," Smith says. He added that the EEOC's agreement with the National Business Center would expire in 2012, and "we had to do something to replace that contract."
The EEOC held a full and open competition, allowing government entities like the National Business Center to bid as well as private companies including GCE. The agency required fixed-price bids. Bidders weren't required to offer a cloud computing solution, but the EEOC found that those were the most cost-effective bids that it received.
"We expect to save about 40% for operations and maintenance across the life of the contract," Smith says. The software-as-a-service model "had some competitive advantages ... GCE put together a darn good bid."
Ray Bjorklund, senior vice president with market research firm FedSources Inc., says the EEOC has budgeted a decline in IT services spending that he attributes in part to anticipated savings from cloud computing. "Considering that EEOC's headcount and workload continues to increase annually, I read into this change that EEOC was throttling back its spending," Bjorklund says. "Perhaps some of that throttling could be attributed to stopping the legacy [financial management] program, regrouping, and jumping on the cloud."
The EEOC says it isn't worried about the cultural changes involved with cloud computing because it already used an outside vendor to host its financial management application.
"We had 10 years of handing off financial management to an approved shared service provider. For the most part, other than cost, we were happy with the functionality and the service level," Smith says.
The EEOC is considering moving other applications including electronic fax and Web conferencing to cloud computing, says Kimberly Hancher, CIO of the EEOC. "These are applications where we feel that more cost-effective services are easily found in the cloud," she adds.
The EEOC was able to turn around its bid for the new financial management service relatively quickly, issuing a Request for Information in January 2010 and awarding 12 months later. Smith says the EEOC would have made the award three months sooner if the OMB hadn't put a temporary hold on all financial management systems awards last summer.
The EEOC will be transitioned to the GCE platform by October, when the new federal fiscal year begins. One of the challenges for the contractor is training 100 agency users on the Oracle Financials software, as they were previously using a rival platform called Momentum. All of the agency's data needs to be migrated to the new software, too.
Smith says the cloud-computing deal will be a success if it passes muster with an outside auditor at the end of fiscal 2012. "That's the Housekeeping Seal of Approval for us," Smith says.
David Lucas, chief strategy officer for GCE, says the company's ability to quickly migrate the EEOC to its cloud-based computing platform is one reason it won the award.
"We were able to show them a plan for how quickly we can move them from one service provider to another," Lucas says. "We will have them live by Oct. 1. We can do that by having a system that's already built. Our accounting system is already constructed as software-as-a-service. That reduces the risk in moving from one provider to another, and it gives agencies a whole lot of comfort."
Lucas says GCE also provides the EEOC with a substantial return on investment because the agency doesn't have to hire a contractor to build a new application from scratch. "The cloud model gives us a lot of flexibility, a lot of risk mitigation and a lot of cost advantages," Lucas says.
Lucas says he hopes other agencies will follow suit and adopt the cloud computing model for their financial management systems.
"We're trying to turn financial management into a commodity service instead of having a financial management application built for each agency," Lucas says. "The EEOC award is going to, I believe, further validate this idea to CIOs and CFOs across the government, that they can modernize their workforce on a new set of tools in a cost-effective way."
EEOC officials are encouraging other CIOs to be open minded to cloud-based computing. "I think the federal government has got a lot to learn about the economies of scale that come from running the same service for multiple customers,'' Smith says.
Lucas adds that highly standardized government applications like financial management are ripe for software-as-a-service implementations, not only for federal agencies but also for state and local governments.
"Wherever you can find a rigorous set of standard business processes, those are the areas where industry can offer software-as-a-service to government," Lucas says. "Logistics, supply chain management, case management are all ripe for this type of investment. ... I expect growth in back-office applications like HR, financials, budgeting, procurement and acquisition."
Read more about data center in Network World's Data Center section.
This story, "Federal Agency Predicts 40% Savings From Move to Cloud" was originally published by NetworkWorld .