Congress can make a quick and easy procurement fix to save millions on cloud

As the media focuses on the ambiguities and complexities of artificial intelligence, a far simpler — yet costly — and largely unnoticed software procurement problem continues to plague the federal government. 

For well over a decade, outdated regulations have hampered the government’s ability to efficiently purchase cloud computing, potentially costing taxpayers hundreds of millions of dollars. Fortunately, Congress can enact a relatively easy fix that would clarify procurement difficulties, streamline the process, and unlock significant savings.

The core issue stems from procurement and budgetary regulations that struggle to cope with the delivery model of modern cloud computing. The government’s inflexible system classifies purchases as either “goods” (paid upon delivery) or “services” (paid in arrears, after performance). 

This rigid system, designed for all purchases since at least the 1980s, is ill-equipped to handle cloud computing, which blends aspects of both goods and services. Traditionally software has been a good. But now cloud solutions like Software as a Service (SaaS) and Infrastructure as a Service (IaaS) are consumed over time, via the internet, delivered from the vendor’s own infrastructure. This creates a fundamental question: is cloud a good, a service, or a hybrid? And how should the government pay for it?

Here’s the rub: cloud vendors offer significant discounts for upfront payments and/or long-term commitments — standard practice for commercial customers — but the government generally cannot capture these discounts. Paying upfront usually violates either the Advance Payments Act or the Anti-Deficiency Act (sometimes both), two laws that prohibit paying for services before they are rendered and prohibits obligating funds in future years before congressional budget allocation. 

This forces agencies to resort to inefficient workarounds, forfeiting substantial discounts — the same discounts most commercial customers routinely receive. Simply put, the government has legal difficulties paying up front and making multi-year commitments — the key levers for discounting.

The existing regulatory landscape offers limited solutions. While FAR 32.202-1(b) allows prepayment for commercial services if customary, it caps advance payments at a mere 15% and treats them as financing requiring security. This is hardly a fit for typical cloud deployments. The GSA schedule authorizes prepayment for some cloud services, but many government transactions fall outside that contract. 

Another legalistic workaround interprets “delivery of access” to cloud as the fulfillment of the contract, making it a service immediately delivered, allowing upfront payment almost like it is a good. However, this tenuous interpretation ignores the reality that cloud contracts are for ongoing consumption, not just initial access. The potential for unexpected usage fees months after initial “delivery” further undermines the argument.

The most significant savings are lost when procuring IaaS. Leading cloud providers like Amazon Web Services, Microsoft, and Google offer substantial discounts — often 30% or more — to customers who commit to multi-year usage agreements. However, the Anti-Deficiency Act prohibits the government from entering into contracts with multi-year commitments, preventing agencies from accessing these cost-effective pricing models. There are exceptions, of course, and not all budgetary money is subjected to this restriction — but financial commitments, in excess of one annual funding cycle, are rare.

So how does the government purchase IaaS? Either it pays the worst price possible, one year at a time — a price no large commercial business entity ever pays — or it purchases from a third-party reseller or system integrator who contracts for the service separately by committing to a multi-year period with the cloud provider. The reseller then repackages it to the government, year by year, at whatever price it can charge. Unfortunately, both scenarios block the best pricing from reaching the government.  

When the government buys directly from the cloud providers it foregoes the better discounts, paying only for one year at a time. When it buys through a third party, there is no guarantee that the reseller is passing through the better discounted multi-year price to the government. 

Why would it? The reseller is contractually committed to paying for the service for three years, while their government customer can walk away at any time. In this way, resellers are assuming a risk that requires extra compensation. Surely, they are keeping some of the extra discount for themselves (perhaps all in some cases).

Unlike commercial customers who routinely leverage multi-year commitments for better pricing, the U.S. government — the world’s largest IT consumer — is uniquely constrained by its own regulations. According to a July 2025 OMB report (M-25-31), the government spends approximately $16 billion annually on “capability as a service” items. By simply enabling multi-year commitments and direct contracting with cloud providers, even a modest 10% improvement in pricing could save taxpayers $1.6 billion annually. The savings could be even greater.

Congress can easily rectify this situation by amending existing laws to allow government agencies to enter into multi-year cloud service agreements without violating the Advance Payments Act or the Anti-Deficiency Act. This straightforward change would also encourage direct contracting with cloud providers. 

While resellers and third-party integrators provide value in many scenarios, the government shouldn’t pay a premium simply to circumvent its own inefficient procurement processes. Congress should act now to unlock billions in potential savings. It’s a simple fix with a massive payoff.

Michael Garland is a software and government procurement industry expert, having held executive leadership roles in large IT companies and supported digital modernization at federal agencies, including GSA, DOD, USDA, HUD, OPM, and DOJ. Since 2015, he has run Garland LLC, a consulting firm that provides advisory and litigation services for topics focused on government acquisition.