Report Shows Software Contracts Cost Taxpayers Millions

With a debt ceiling battle looming on Capitol Hill, and the Treasury Department running short on “extraordinary measures” to keep the nation under its borrowing limit, the issue of runaway federal spending is once again front and center. There is much disagreement about how best to get the government’s finances in order, but one very simple thing that can be done is for the government to assess its relationship with software vendors. Because of certain sticky agreements, the government – and therefore taxpayers – are shouldering costly contracts that are difficult to break.

This type of arrangement is known as “vendor-lock.” This occurs when switching providers for a product or service becomes so prohibitively difficult or expensive, that customers are effectively “locked” into their current agreements. Because of this, the companies can raise prices without providing additional benefits or efficient services because they know the customer cannot easily get out of the contract. In this instance, the customer is the US federal government and the taxpayers.

Michael Garland, a software and government procurement industry expert, recently released a report on just how much vendor-lock arrangements are costing the American taxpayer. The findings do not inspire encouragement. The US government has spent about $2 trillion on Information Technology (IT) since 1994. Further, roughly $300 billion of that has been on software classified as commercial off-the-shelf (COTS) software. Even in the world of Washington’s eye-popping numbers, these are significant sums.

The report finds that a large portion of contracts the government gives out in this space are done so without any meaningful competition or bidding process. For example, Garland’s research shows that Microsoft and Oracle – among the world’s largest software companies – got roughly 30 percent of their government contracts without competition.

Reasonable estimates cited in the report conclude Microsoft and Oracle account for $3 billion in federal spending on COTS software annually by themselves. This means nearly a billion dollars in government spending is being handed out without any process to determine if there is a more cost-effective option for the taxpayers every single year.

In a clear-cut example of the “vendor-lock” problem, the US Department of Agriculture spent an extra $112 million to buy Microsoft Office, instead of the more cost-effective Google Workspace. They did so because the perceived cost of switching away from Microsoft was higher than the savings they’d get by moving to Google in this instance. These vendor-lock contracts are imposing massive costs on the American taxpayer.

The Garland report concludes that even a small change in this area could provide meaningful savings. If the government were able to secure even a five percent improvement in its price performance from enhanced competition or switching to more cost-effective suppliers, they would save $750 million annually going forward.

Among the report’s recommendations is the passage of a bipartisan bill to address this issue, the Strengthening Agency Management and Oversight of Software Assets (SAMOSA) Act, introduced by Sens. Gary Peter (D-Mich.) and Bill Cassidy (R-La.). This bill would require each agency to do an accounting of their COTS software and contracts to better understand where they could potentially save. It also requires them to use third party expertise to potentially mitigate the role of cronyism in procuring the contracts.

While the federal government has been spending at record levels, addressing this clear area of waste is a commonsense first step towards righting the fiscal ship. Taxpayers should not be on the hook for hundreds of millions – if not billions – of dollars because the government is unwilling or unable to switch out of bad contracts.