This is the “maintenance trap” in action: Agencies spend so much time and money keeping broken systems running that they can’t afford to replace them.
The U.S. federal government is technically one entity, but its software practices look more like a UN summit. Washington uses more than 100 human resources systems to manage payroll and benefits for roughly two million federal employees. That patchwork includes long outdated, insecure systems that cost agencies billions of tax dollars per year to maintain. Worse, these systems often fail at their most basic tasks, driving lost productivity and real disruptions for employees and their families.
The Office of Management and Budget and the Office of Personnel Management recently announced plans to consolidate federal HR into a single platform by 2028. The initiative, dubbed “Federal HR 2.0,” promises to save billions of dollars while finally giving the federal government a single system of record for managing its workforce — something common throughout the private sector.
The move is welcome and long overdue. But its success or failure will depend on whether the federal government can look beyond the entrenched contractors and vendors that created the mess in the first place.
The track record is dismal. Between 2019 and 2023, federal agencies spent about $3.3 billion on legacy Oracle PeopleSoft and SAP HR systems. More than half of that — $1.7 billion — went to maintenance alone. That’s roughly $340 million every year just to keep aging systems limping along, leaving little in agency budgets for actual modernization.
A recent report found that outdated HR infrastructure costs the federal government an additional $1 billion annually in lost productivity. Federal HR leaders are spending nearly half their time on manual workarounds, error correction and data reconciliation — tasks that modern systems handle automatically. Nearly 90% say legacy systems actively hinder their agency’s mission, yet 83% lack any roadmap for modernization.
This is the “maintenance trap” in action: Agencies spend so much time and money keeping broken systems running that they can’t afford to replace them.
Federal HR 2.0 will roll out in two phases, and agencies in the first wave include those with the worst track records — the departments of Veterans Affairs, Health and Human Services, and Transportation. VA has lost an estimated $450 million in cost overruns and suffered 24-month delays on PeopleSoft projects. HHS still operates a 55-year-old system with incomplete documentation for a transition plan.
These failures are the predictable result of business models designed to lock in federal customers and extract expensive maintenance fees year after year. Oracle recently extended support for PeopleSoft through 2036 — not to help agencies modernize, but to delay it while keeping maintenance revenue flowing. Licensing practices designed to make incumbents the easiest or only option eliminate any incentive to innovate or cut costs.
OPM is seeking a 10-year, single-award contract to serve two million federal employees. Agencies have been directed to pause their own HR modernization efforts pending this centralized procurement. There is no Plan B if this effort fails.
After years of superficial competition, OPM deserves credit for attempting a genuinely competitive procurement approach.
Entrenched incumbents are known for pushing back on such efforts to preserve the gravy train of endless fees. They’ve engaged in tactics like predatory audits to scare agencies into maintaining the status quo. Congressional oversight can help counter that pressure and ensure Federal HR 2.0 doesn’t become Federal HR 1.0 all over again.
Bills like the bipartisan SAMOSA Act would require transparency around maintenance costs and technical debt, impose modernization timelines with accountability milestones, and combat vendor lock-in. Congressional appropriators shouldn’t hesitate to use their power of the purse to course-correct if Federal HR 2.0 shows signs of falling into the same traps that have plagued past modernization efforts.
After canceling the Defense Department’s disastrous HR project — eight years late and $280 million over budget — Defense Secretary Pete Hegseth declared, “We’re not doing that anymore.” Federal HR 2.0 is an opportunity to translate those words into action. For this effort to succeed, Washington must demonstrate that it has finally learned a multi-billion-dollar lesson: Stop hiring those who created the problem to solve it.
Evan Swarztrauber is a Senior Fellow at the Foundation for American Innovation. Previously, he served as a policy advisor to FCC Chairman Ajit Pai and FCC Commissioner Brendan Carr
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