We’ve been doing some research into the business models that are driving the various Lines of Business initiatives, and recently compiled some information about Federal franchise funds that we thought might be good to share.

“Franchise funds” is a 1994 program that allows certain federal government agencies to start for-profit businesses. That is, Congress provides startup money, and then the agencies have to compete for clients with the private sector — typically clients within their own agencies, but also in other agencies — and they must charge a fair going rate, and they can keep all the money they make for re-investment and in addition can keep 4% of the “profit” over and above that for future expansion, etc.

It was started as a pilot program and runs only at select departments: FAA, Interior, Commerce, Treasury, the VA, the EPA, and FEMA (HHS was on the original list; FAA and FEMA were not). Note that the “pilot” phase has been extended almost annually. The most recent I could find takes it through September 2006, but I expect that it’s been extended again. Commerce uses its fund for GovWorks. At Treasury, the fund has become permanent and it is the basis for their FM Center of Excellence.

The purpose was to provide “common administrative support services to the agency and to other agencies” that “can be provided more efficiently through such a fund than by other means.” The initial money is to be used for equipment, software and hardware, financial management, and “management information systems.” Some of the agencies are limited in what services they can provide. The FAA is allowed to use it specifically on “accounting, international training, payroll, travel, duplicating, multimedia and information technology services,” although elsewhere I found mention of “seven lines of business.”

Interestingly, it looks like unspent funds and existing inventories for other agencies within the department that were supposed to be used for that kind of service can be added to the franchise fund. The services are provided on a fee-for-service basis “to cover the total estimated costs of providing such services,” and money must be collected up front. FAA was dinged for not collecting money up front at one point — I don’t know if others were as well. FAA fixed the problem and the next audit was clean. (Interior can get their money after the fact, according to a 2003 law.)

Essentially, franchise funds allow federal agencies to set up businesses! Which is what the LoBs are!

Here are some sources for further information. The most inclusive site wasn’t the most authoritative, but it’s worth going back to if you want more info: http://www.casu.gov/authority/fran_legislation.html. There’s more of a history at http://www.govworks.gov/docs/Fran_Fund_Authority_April06.pdf.