A Self-Funded Path to IT Modernization

At a time of sweeping technology and fiscal transformation across the U.S. government, federal agencies are under pressure to update their mission-critical IT and ERP applications.

For many agencies, accelerating IT modernization is an uphill battle but also an important mandate for longevity. Shrinking budgets and skyrocketing costs for legacy solutions and support services are among the obstacles standing in the way of modernization.

Forward-leaning agencies are taking a cost-neutral approach to immediately fund their modernization initiatives. With this approach—self-funded modernization—agencies reclaim funding from expensive enterprise IT support contracts and reinvest those dollars into modern, compliant infrastructure.

Self-funded modernization can yield positive results for agencies that have found themselves locked into legacy support agreements or dependent on appropriations to fund new projects involving technology. Self-funding can also help to accelerate modernization efforts like zero trust, quickly aligning with executive orders and strengthening cybersecurity while also facilitating regulatory compliance. 

Approaching self-funded modernization typically happens in two phases. The first is to reclaim budget from OEM support. The second phase involves reinvesting those funds into a modern resilient infrastructure, which can then happen within the same fiscal year, without needing to submit funding requests. This phased modernization approach not only improves infrastructure agility but also ensures mission-critical systems remain available throughout the process.

Reclaiming OEM Budget - Identify Budget Bloat

Paramount to phase 1 is identifying budget bloat, which is not hard to do when you consider that 75% of budgets are focused on operations and maintenance, not on advancing modernization. With software maintenance costs rising 300-700% in some cases, OEM software support is highly lucrative, with low incremental costs (e.g., minimal additional development) leading to OEM margins often exceeding 90%.

For these reasons, agencies are shifting to third-party independent support, saving half of OEM contract budgets while maintaining operational continuity and compliance. Many are recovering large savings from these agreements. Mid-sized agencies with annual OEM support costs between $3 million and $5 million may be able to save between $1 million and $2.5 million by switching to independent support. Larger environments have seen $4 million to $7 million in recovered spend, and in some cases, up to 80% of annual support costs have been reclaimed.

Reinvesting in Modern and Resilient Infrastructure 

The focus is shifting 3rd party software support away from vendors to IT services providers who meet the service and support requirements and improve upon them—at a fraction of the cost. These types of savings empower agencies to gain autonomy over their IT roadmaps and redirect resources toward modernization initiatives such as moving to resilient hyperconverged infrastructure, cloud migration and AI use cases.

These initiatives are replacing aging legacy infrastructure with cloud-ready platforms; modernizing data protection and recovery; migrating workloads to scalable cloud environments; and strengthening cyber resilience to comply with Executive Order 14028 and 14144. This phased approach not only improves infrastructure agility but also ensures systems remain available throughout the process while funds are freed for key modernization initiatives such as:

• AI and Advanced Analytics: streamlining operations, automating workflows, and enhancing decision-making capabilities.
• Cloud Migration: strategically transitioning to hybrid or cloud environments at a pace that suits agency-specific needs.
• Enhanced Cybersecurity: deploying proactive threat management, vulnerability scanning, patch automation, and adopting zero trust architectures.
• Operational Agility: leveraging modular services for management, consulting, protection, and other agile future-proof IT infrastructures.

Federal agencies no longer need to choose between maintaining legacy systems and investing in modernization. With the ability to self-fund innovation initiatives, federal agencies can proactively modernize their mission-critical IT systems, rather than playing catch up with reactive configuration and security tasks.

With support from third-party providers, self-funded modernization provides agencies with a different lens through which they can look at cost and effectively advance their modernization agendas.

Miguel Sian is the senior vice president of technology at Merlin Group.  He has over 20 years of experience in IT systems engineering, solutions architecture, consulting and technical program management. At Merlin, Miguel leads a team of cybersecurity solution architects, engineers and client success managers who provide technical services for the public sector and commercial markets. Prior to joining Merlin, Miguel was at VMware where he served in a technical leadership position in the pursuit and capture of large federal programs related to cloud, mobility, cybersecurity and end user computing. In the private sector, Miguel led a team of systems engineers that supported the largest-ever launch of new low-fare service in the history of the airline business. He holds a bachelor of science in computer science, master of science in management of information technology, and several technical certifications including CISSP, CCSP and ITIL.