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Federal agencies may benefit from innovative financing solutions

By Dave McCarthy Posted June 21, 2021

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After a year of external challenges, the government is returning to its normal acquisition cycle. The shift in priorities due to changes in mission and approach have forced some agencies to scramble to meet operational goals. Across the government, managers are looking for innovative ways to get more done with less, and many are turning to highly effective multiyear payment plans made possible by federal financing.

Federal Procurement Changes

The Department of Veterans Affairs (VA) is a good example. Constantly pushed to achieve more to serve veterans and keep up with the rapidly changing healthcare arena, the VA consistently has needs for IT infrastructure that overpower its annual budget. To address this, the VA often turns to IT solutions that provide financing options and access to private capital. These solutions can enable near-term leaps in needed technology and enable the VA to deliver optimal care within the guidelines of government procurement.

Dave McCarthy, Senior Vice President, Sales, Federal, Key Government
Dave McCarthy
Senior Vice President, Sales, Federal, Key Government Finance

Another example is the U.S. Army. In the face of large budget cuts, the United States’ primary battle force needed to upgrade its battlefield tactical network. The solution was working with a technology equipment manufacturer’s channel sales partner to introduce a multiyear payment plan to allow for a larger-scale procurement. This maximized discounts, got the deal off to a faster start and allowed for a significant amount of flexibility, all while getting the fighting force what it needed to communicate.

The federal government annually procures more than $200 billion in capital products and supporting services, yet private capital through financing comprises only about .5% of the procurements – significantly less than commercial and municipal sectors in the United States, leaving a lot of opportunity wasted.

Multiyear payment plans change the dynamic

By leveraging Key’s ability to structure multiyear payment plans, the federal government may access the funds it needs to get the job done and rest assured that the financial solution is backed by a regulated banking institution . In this way, it gets the essential IT hardware and software it needs today, while gaining efficiencies of scale in procurement, a more effective bargaining position and possibly greater savings.

A multiyear payment option may also enable federal agencies to:

  • Obtain what they need now, and at today's cost. Although they don’t have the budget now, they understand what their costs will be over the term of the deal and may be able to take advantage of their power in the market today.

  • Utilize the most appropriate funding sources by structuring the deal to leverage the correct source, allowing a bigger bang for the buck, while accounting for the transaction appropriately.

    An agency needs $5 million in software licenses today, with only $1.3 million budgeted. By agreeing to use the current funding as a base-year payment and acknowledging option-year payments for follow-on years of $1 million, the government may be able to procure the entire solution on day one.
  • Free up budget for greater priority projects by reallocating resources while using an annual payment plan to cover the resulting shortfall.

  • Use multiyear funding projects as a catalyst for long-term planning for tech refreshes rather than constantly bandaging failing systems.

  • Leverage the scale of the federal government’s procurement activity to achieve greater discounts.

  • Gain local scale by accelerating agency purchases to achieve greater discount levels than previously possible.

  • Guard against obsolescence while remaining vigilant against evolving cyber threats.

All of this may be done without over-obligating the government. The federal regulations that cover acquisition and budgeting prohibit committing future fiscal year funding. The Base Plus Option Year Structure, while requiring acknowledgement that the government understands they have not paid for the entire transaction, allows for the balance of the payments to remain as options.

Learn About Federal Government Financing

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