The Life and Death of Direct File [pdf]

I was surprised how much I enjoyed reading this. Although it's necessarily opinionate d(the lead author was part of the Direct file team) it comes off as very even-handed, giving equal consideration to successes and failures, and addressing the partisan political environment in factual terms.

It's unusually well-written, providing lots of key details or dropping in relevant context without ever losing sight of the big picture and the looming deadlines. I expected to just read the executive summary and then skim the rest, but it held my attention the whole way through.

There isn’t much to study - it didn’t succeed or fail on the merits - someone didn’t like it because he didn’t create it so it got axed.

A fascinating , yet sad, post-mortem.

Anyone wheeling and dealing along in the shadows between "politics" and "deliverable, functioning product" should read it. Or, I guess, paste the link into Claude or ChatGPT and ask it to summarize for them, lessons learned in bullet points and how it could apply to $their_job.

But I'm generally a weirdo who finds these kinds of reports fascinating, so don't purely go on my recommendation.

I was not a fan of Direct File (I think it could have been much better!) but it was objectively in the success bucket:

- ~$50M all-in to build which sounds egregious but is small for a government project

- mostly good outcomes

- ~4y to pilot which also sounds egregious for a single moderate-complexity web app but again is practically lightspeed for a government project

People blame it getting shuttered on Trump but this is both a misread and a fundamental misunderstanding of how the government operates. The entire federal government is deliberately paced and primarily driven by a combination of politicals, regulation, budget, Congressional policymaking, and program staffing. The hammer on this was always going to fall,

[1] Congress has maintained a "buy over build" policy since literally the Cold War. Ironically the first policy here (1965) was to buy computers from ADP instead of custom-building them. The most impactful "buy commercial" policy (1996) was also IT focused. This was literally codified in several parts of the FAR, and if we're going to be blaming admins, the Trump admin has actually weakened the FAR with the RFO and would be on the other side of this issue.

[2] This policy is also the foundation upon which IT contractors like Palantir are built, if you've ever wondered "wtf do they do" they are a commercial contractor that builds custom software for government. So agencies get their custom stuff, Congress is happy they bought commercial, and the only loser is the taxpayer who overpaid a factor of 3-5x. To their credit, Palantir is a huge improvement on the status quo, because they charge by use cases and outcomes, whereas traditional SI's operate on a staffing model and a combination of high wrap rates and perverse incentives with billable hours creates horrible outcomes and ballooning costs. Anyways, there are a lot of commercial vendors that this work "could have" gone to and didn't. It would also have been really easy for them to shop this out because this was shaped really well for GSA MAS or STARS III.

[3] When you build things internally with e.g. 18F, one agency is typically the "customer" and pays the other agency (afaik 18F program is nested under the White House). So this really sucks when they walk away; 18F earned a reputation for building things through pilot, blogging about it, puffing their cheeks in the media, sending a bill to the agency, and then running off to the next shiny thing as engineers tend to do. As an agency you save a bit of money initially but now you are left with something nobody knows how to maintain, you have to hire contractors to do it, which by nature has to be a staffing contract, and then the wrap rate alone wrecks you. This happens all the time with commercial vendors, usually when they are outsized or don't get renewed, but obviously upsetting when it happens internally.

[4] The author of this piece was part of the team and so as you'd expect this piece is exceptionally biased. The reality is that the IRS self-assessed the maintenance as low and everybody who reports on this treats this as fact when it was not a GAO estimate, which is what carries any actual weight, it was internal IRS estimates and a single independent that mainly assessed call center volume not the actual system. Not only does their reputation precede them here, but their own spend on buildout (~$30M on contractors to help) contradicts the low maintenance narrative. We may never see a GAO estimate here, but the contract would almost certainly go out to TrussWorks, all government contracting data is public and you can look up for yourself how much TrussWorks typically charges the IRS whether directly or thru ATI's vehicles as subawards.

Eh, government should not be in the business of maintaining digital infrastructure, regardless of how capable it might be. As much of it as possible should be contracted out to 3rd parties.

A fascinating , yet sad, post-mortem.

But I'm generally a weirdo who finds these kinds of reports fascinating, so don't purely go on my recommendation.

I was not a fan of Direct File (I think it could have been much better!) but it was objectively in the success bucket:

- ~$50M all-in to build which sounds egregious but is small for a government project

- mostly good outcomes

- ~4y to pilot which also sounds egregious for a single moderate-complexity web app but again is practically lightspeed for a government project

There isn’t much to study - it didn’t succeed or fail on the merits - someone didn’t like it because he didn’t create it so it got axed.

I disagree wholeheartedly that there isn’t much to study. Direct File was actually a resounding success, especially when you consider how much difficulty governments tend to have shipping good software products. There is a lot of good information in here that government entities can learn from.

Eh, government should not be in the business of maintaining digital infrastructure, regardless of how capable it might be. As much of it as possible should be contracted out to 3rd parties.

Profit motives in infrastructure are a bad idea. See Thames Water in the UK, for instance. It always introduces a perverse incentive where if the company in control of the infrastructure can extract an extra million in profit by making everything less efficient and costing everyone else involved a billion, it's still in that company's interest to do so.

This is a prime example of that. H&R Block, etc, benefit from there not being direct file by around $3bn in revenue or around $750m in profit. Rough sums on the time saved by direct file if everyone used it is 8h * average wage * taxpayers, which seems to be approximately $44bn. i.e. in axing direct file, it has "created" $3bn in economic activity to the private infrastructure-owner (the intermediary between you and filing your return), but at the cost of $44bn in lost time & therefore lost activity (the other things you could have been doing) to the rest of the economy.

Infrastructure is not the economy. Infrastructure is the thing the economy runs on top of / has to use. Given that it is the role of government to govern the economy, it is the role of government to ensure that the infrastructure is running well (be the custodian of the infrastructure).

Arguing the other side, digital infrastructure shouldn't be such a complicated domain that it is out of the reach of governments. This is the authority we trust to build our roads, water/sewer system, electric grid, and virtually every other meaningful physical infrastructure. Why should digital infrastructure be out of bounds?

The only alternative is inserting a third party, one that has full access to all your financial information, an extraordinary level of trust for a private sector that has shown unrelenting loyalty to investors over customers. That shouldn't be necessary for the average filer, assuming a bare minimum of competence, like one might assume for the only country to put a human on the moon and bring them safely home.

Explain your reasoning at least.

The government has to maintain some infrastructure to get this sort of thing done. Whether digital or analog. And if it contracts it out, it needs to oversee it. So no matter how it is done, the government has to pay.

Don't you care about the actual outcome at all? Even if the government does a better job, you still prefer a third-party organization?

You could just light the money on fire instead and get the same result. Contractors routinely screw the tax payer. I once had a job in one of these third parties where the entire operation was effectively defrauding the tax payer by claiming 1hr jobs would take 40.

At exorbitant costs or lackluster execution, with plenty of campaign donations along the way

Do you think the government should allow electronic filing of taxes?

Because if the government is going to accept returns electronically instead of through the physical mail, then it should accept them without requiring an intermediary.

Interestingly, it does this for corporations, but not for individuals.

Gee, I wonder why.

Personally, I think that (a) the government needs to have my PII to process my taxes, and that (b) having the government require me to also hand my PII to a third party in order to pay taxes is a big fucking security nightmare.

> As much of it as possible should be contracted out to 3rd parties.

This is the case pretty much.

Direct File was a service not infrastructure

Including how and why it died. That is an important lesson for the entire governmental enterprise, including all decision-makers, to learn: that government CAN deliver something good and one single person should not be in totalitarian control

It had talented software engineers involved including with the marketplace. It succumbed to political forces

Don't you care about the actual outcome at all? Even if the government does a better job, you still prefer a third-party organization?

>This is the authority we trust to build our roads and virtually every other meaningful physical infrastructure in our civic life.

Trusting the government to be able to do something is not the same them actually doing it, nor is it the same as them doing it well. With roads the people using them have much more incentive in maintaining them than the government. What a person experiences driving down the road everyday is just a statistic to the government.

> As much of it as possible should be contracted out to 3rd parties.

This is the case pretty much.

At exorbitant costs or lackluster execution, with plenty of campaign donations along the way

Explain your reasoning at least.

Was direct file exorbitant expensive? Or lackluster? What about all the 18F work?

On the flip side, plenty of private companies are expensive and corrupt.

I think it's possible both can be good and both can be bad.

You are absolutely correct, billable hours are perverse incentives and wrap rates border on predatory, but this status quo is Congressionally mandated and buy commercial as a policy is generally bipartisan.

It had talented software engineers involved including with the marketplace. It succumbed to political forces

I think it speaks to doing things "the right way". Direct file could have been mandated by Congress, but it wasn't. Instead it only directed the IRS to do a "study" as a "voluntary agency initiative". That left full control of whether it should be done in the hands of the IRS and the executive branch.