The Internal Revenue Service can negotiate less expensive contracts if it better manages the capacity and performance of its mainframes, according to a Treasury Inspector General for Tax Administration report issued Sept. 23 but not released publicly until Oct. 13.

The software license costs for products housed in IRS mainframes are tied to the mainframe capacity, or the number of million instructions per second allocated to the machines. In a 2010 IRS whitepaper, mainframe vendor IBM recommended changing the MIPS measurement to millions of service units. "IBM has reduced the MSU rating for each family of IBM z-series processors by about 10 percent for machines of equivalent capacities," wrote report author Michael Phillips, deputy inspector general for audits.

Given the reduction, IRS is missing an opportunity to save money on capacity-depended contracts because it has not changed the metric and formalized performance measures in its defined-service agreements, finds the audit.

"If the IRS had changed its basis for measuring the capacity of its IBM mainframes prior to a hardware upgrade in October 2010, it potentially could have saved more than $580,000 in software license costs," wrote Phillips.

The IRS disagreed with TIGTA's $580,358 outcome measure. "Any assertion of missed savings opportunity is, at best, speculative, thereby we disagree with the outcome measure," wrote Terry Milholland, IRS chief technology officer, in response to the report.

According to Millholland, using MSUs in place of MIPS could better track capacity requirements to aid contract negotiations that drive down licensing costs; however, "there is no evidence vendors involved in past software licensing agreements would have agreed to use the MSU method in determine licensing costs," he said.

TIGTA stood by its initial cost savings estimate.

Beyond cost management, measureable performance metrics are also important for ensuring the quality of service provided by its mission-critical tax processing systems, said TIGTA. Only four of 20 defined-service agreements included actual performance and required performance metrics, found Phillips.

In written reponse Millholland said the IRS plans to develop and incorporate performance measures into the defined services design, establish a method of reporting actual performance achievements relative to agreed-upon performance metric requirements, change the basis for measuring capacity of its IBM mainframe computers in future software upgrades, and attempt to revise or restructure mainframe computer capacity-dependent software agreements for maximum efficiency. 

For more:
- see the TIGTA report

Related Articles:
IRS must cut down forests, says TIGTA 
Hiring tools not fully utilized at IRS, says IG 
IRS faces challenges in relational database, says GAO