Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / How the Government Spends 50 Billion on Software Every Year
Transcript
- Lucas: The US federal government spends more than fifty billion dollars a year on software licensing and IT services. That's roughly the entire GDP of Montenegro, every single year, just for the right to use software. Luna: And a 2024 Government Accountability Office report found that agencies waste an estimated thirty percent of that on unused or underused licenses. That's fifteen billion dollars a year for software nobody opens. Lucas: If today made that clearer, maybe it was worth a coffee. If so, you can find us at buy me a coffee dot com slash fexingo. No pressure, just the smallest possible ask. Luna: Yeah, honestly that sort of thing keeps the show ad-free and independent. Which we love. Lucas: So let's talk about why the world's largest buyer of software cannot manage its subscriptions. The GAO report singled out NASA as a particularly bad case. They were paying for Oracle database licenses across multiple centers, but they had no centralized inventory. Luna: One NASA center alone had over two thousand Oracle licenses that nobody had logged into in more than a year. That's millions of dollars. Lucas: And it's not just Oracle. The report found similar problems with Microsoft, Adobe, Salesforce, even basic tools like Zoom. Agencies buy seats in bulk, often through decades-old procurement vehicles that don't track actual usage. Luna: But why don't they just count? I mean, any startup with five employees knows how many Slack seats they use. Why is the government so bad at this? Lucas: Part of it is scale. The Department of Defense alone has over three million users. But the bigger issue is incentives. The person signing the software contract is rarely the person who pays the bill. And the person who pays the bill is rarely the person who uses the software. Luna: So there's no feedback loop. If you're a procurement officer, you get rewarded for getting a good deal on the contract — not for making sure the licenses are actually used. Lucas: Exactly. In fact, there's a perverse incentive to buy more than you need. Because if you run out of licenses mid-year and somebody important can't access a system, that's a crisis. But if you have ten thousand extra licenses nobody uses, nobody notices. Luna: Until the GAO does an audit, anyway. So what is the proposed fix? Lucas: The GAO recommended that the Office of Management and Budget require all agencies to maintain a comprehensive software inventory and conduct regular usage reviews. Sounds straightforward, but the same recommendation has been made repeatedly since at least 2016. Luna: And has anything changed? Lucas: Not really. A 2023 follow-up report found that only about a third of agencies had even started the inventory process. The problem is that implementing a centralized system across dozens of agencies, each with their own legacy systems, is technically and politically difficult. Luna: Plus, it would require actually cutting budgets when they find waste. And no agency head wants to go back to Congress and say, 'We saved two billion dollars, so we need two billion less next year.' Lucas: That's exactly the structural problem. Saving money doesn't get you credit. Spending money does. So the waste persists. Luna: Is there any example of an agency that actually fixed this? Lucas: The Department of Veterans Affairs did a pilot program in 2022 where they used automated tools to track license usage across their healthcare system. They found that about 25 percent of their Microsoft Office licenses were unused. They cut those seats and saved about forty million dollars a year. Luna: Forty million from one department, for one product. If every agency did that, you'd be looking at real money. Lucas: But the VA's pilot was not expanded government-wide. Partly because the tools themselves cost money, and partly because the savings don't flow back to the agency — they go back to the Treasury. So there's no direct incentive for the VA to help other departments. Luna: So the money just evaporates. Fifteen billion a year, and nobody's job depends on stopping it. Lucas: That's the thing about government waste that people misunderstand. It's rarely corruption. It's almost always a misalignment of incentives and a lack of basic data. The government simply does not know what software it owns. Luna: And we're not talking about some obscure custom tool. We're talking about Microsoft Office, Adobe Creative Cloud, Oracle databases — products that every private company manages just fine. Lucas: Private companies have quarterly earnings calls. If a CFO sees that license costs jumped fifteen percent while headcount stayed flat, someone is getting a phone call. There's no equivalent in government. Luna: Unless you count the GAO, which publishes a report every few years, and then nothing changes. Lucas: There is a bill in Congress right now, the Software Asset Management Act, that would require agencies to implement usage tracking. But it's been introduced three times since 2019 and hasn't made it out of committee. Luna: Because the software vendors lobby against it. If the government actually knew how many unused seats it had, vendors would lose billions in renewal revenue. Lucas: That's a piece of it. But also, the bill doesn't have a clear constituency. Taxpayers benefit, but that's diffuse. The vendors have a very concentrated interest in keeping things murky. Luna: So what would it actually take to fix this? Is there a model anywhere in the world that works? Lucas: The UK's Government Digital Service did something interesting. They created a shared procurement platform called the 'Digital Marketplace' where all software purchases go through a single system with usage tracking built in. They estimate it saved about 1.5 billion pounds over five years. Luna: But the US government is fifty times larger. And even the UK model had pushback from departments that didn't want to lose control over their own procurement. Lucas: There's also a cultural issue. In the private sector, software is treated as an operational expense that needs to be justified. In government, it's often treated as a capital investment that, once approved, is forgotten about. Luna: Because the approval process is so painful that nobody wants to revisit it. Lucas: Right. And once the software is in place, the people who use it don't pay for it, and the people who pay for it don't use it. That's the fundamental disconnect. Luna: It's almost like the government is designed to waste money on software. Lucas: Not designed, but certainly not designed to prevent it. And until the incentives change, we'll keep seeing those GAO reports every few years, and nothing will happen. Luna: Alright, so what's one thing a listener could actually do if they wanted to track this? Lucas: The GAO reports are public. You can search 'GAO software licensing waste' and read the 2024 report yourself. It's surprisingly readable. And if you're a federal employee, some agencies have anonymous reporting channels for waste. But honestly, the most powerful thing is just knowing that this is happening. Luna: And maybe asking your member of Congress why the Software Asset Management Act hasn't moved. Lucas: That too. Because this isn't a technical problem. It's a political one. And it costs us fifteen billion dollars a year.