Costs Associated with Replacing the Federal Pay System

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This report provides an independent estimate of the cost of replacing the Phoenix pay system, the current payroll processing system that administers pay for federal public servants. It assesses costs associated with procuring and implementing a new software, as well as projected operating costs over 10 years.

PBO estimates procurement, testing and training costs will amount to $57.0 million from fiscal year 2018-19 to 2024-25, stemming directly from the need to procure and implement a new payroll system. Because pay file data cannot be transferred to a new system until it is corrected, PBO assumes a new system cannot be launched until 2023 based on TBS estimates.

Once implemented, a new system capable of processing federal pay should deliver significant savings, when compared to historic spending on federal pay systems.

PBO estimates the government will pay between $340 to $352 per each account, or between $101.9 million and $105.7 million annually beginning in 2023-24, to operate the new pay system, including both software and labour costs.

As shown in the table below, costs are expected to be lower under a new system than either current costs under Phoenix or historic costs under the old Regional Pay System.

An additional cost for which PBO is not able to fully account is a customization fee for the software. Because PBO is not able to estimate this cost, this represents an upside risk on the estimates.

PBO also finds that the complexity of federal pay will remain both a risk and a cost driver for a new system, as it was for Phoenix. This could be reflected in an increase to ongoing costs, specifically the subscription fee, and/or additional up-front costs.