Agencies Are Still Adjusting to the Cloud’s Consumption-Based Pricing Model

Consumption-Based Pricing Is Here to Stay

Pay-per-use computing stretches back to the dawn of the mainframe era, when users were charged for each second of CPU time consumed. In the intervening decades, with the advent of personal computers, the model shifted to purchasing discrete hardware and software. Client/server models then arrived with seat license deals, which fit neatly into the traditional government acquisition model.

Now, cloud computing, with its numerous advantages, is quickly revolutionizing the provision of services.

“With cloud computing, government agencies can acquire technology services on an as-needed basis,” says an Amazon Web Services spokesperson. “Our customers pay only for what they use, and we offer management tools that help them optimize their costs.”

Cloud-based services also eliminate the need for customers to keep or update their own hardware or software.

“When we look at total cost of ownership and how cloud evolves, with cloud solutions, you have more innovation injected into services,” says Keith Nakasone, federal strategist at VMware. “Customers don’t have to maintain legacy environments.”

After decades of building, staffing and paying for in-house data centers and software, federal agencies can start shifting away from hands-on IT infrastructure.

For example, government data centers don’t have to sit on standby for a hurricane anymore, Beutel says. Agencies can just spin up more virtual machines to handle any crisis through their cloud providers, and — just as important — those extra resources can be scaled back when they’re no longer needed.

“This is why cloud strategy is moving forward,” Nakasone says. “Consumption-based pricing is competitive, and the total cost of ownership should be lower if it’s managed well.”

DIVE DEEPER: Why prioritizing backup and recovery is crucial for digital recordkeeping.

Risks of the Pricing Model

Some cloud service customers have a rude awakening when they find they’re being charged for idle resources, such as Remote Desktop Services databases and elastic load balancers. These charges can quietly accumulate over time and create significant bills.

Certain providers also charge for data transfers within the platform, as well as to and from the internet. Effective management of cloud services takes know-how and vigilance, experts say.

Using consumption pricing also requires smart forecasting. If an agency can predict and plan the volumes it expects, it can better control costs, but there’s risk if it lacks the talent to do so.

On the plus side, most providers allow customers to prepurchase capacity and receive discounts. If you know you’ll need 10 virtual servers for three years, you’re in a much better position to save money.

“Agencies are making progress on usage-based pricing, but the challenge there is upskilling,” Nakasone says. “They need to have knowledge of the technologies, and the acquisition processes need to be updated.” Program management also needs improvement, he adds.

The Antideficiency Act Could Use an Update, Not More Work-Arounds

The General Services Administration released a memo in early 2022 updating its acquisition policies in light of the new pricing model.

“Federal agencies generally purchase cloud computing services in a fixed increment for a lump sum, which does not fully leverage all of cloud computing’s core benefits, particularly on-demand self-service, rapid elasticity, and measured service,” the document states.

“The concept of consumption-based ordering and associated pricing, using requirements task orders, is still new to many contracting officers,” says Laura Stanton, assistant commissioner of GSA’s Office of Information Technology. “GSA has developed tools to support them.”

One such tool, a guide to consumption-based ordering that GSA released in May, helps agencies estimate the total cost of a cloud service, hold that money in reserve and then bill against it as the need arises.

Beutel says that’s a positive step, but it isn’t enough.

“They have created some administrative work-around to mitigate the consequence of having to book whole anticipated costs,” he says. That leaves the money parked, with the potential to run out if forecasts are wrong, he adds.

LEARN MORE: How agencies can address cybersecurity concerns en route to the cloud.

“The consumption-based ordering procedure provides a process for agencies that wish to incrementally fund their cloud acquisition on a consumption basis,” Stanton says. “These procedures are currently only available on the Multiple Award Schedule SIN 518210C.”

A better answer to the problem would require updating the Antideficiency Act to reflect modern acquisition requirements, but that’s a political hornet’s nest, Beutel says. 

“The congressional appropriations panels would see it as a challenge to their jurisdiction,” he explains.

Instead, Beutel is working with interested parties to build a body of research that will make the case for why change is needed.

“The way they’re doing it now loses the huge value proposition of the cloud model: to scale instantaneously,” he says.

There is a precedent for open-ended agency expenditures. The Justice Department has a revolving pot called the Judgment Fund that pays out when the government loses a lawsuit and owes money. The amounts required are always unknown ahead of time.

“They pay money out without an appropriation,” Beutel says.

The fund paid out more than $2.2 billion in 2022, according to the Treasury Department’s annual report to Congress. Similar funding for federal IT could buy a lot of cloud-based services.