GSA 'Share-in Savings' Program Picks Two Defense Projects

By Nick Wakeman, Staff Writer



The General Services Administration has identified two Department of Defense projects as the most likely candidates for the agency's "share-in-savings" pilot program.

The projects, a network consolidation project and a logistics management system, are still undergoing agency and congressional reviews, said Ken Buck, assistant to the commissioner of GSA's Federal Technology Service.

These projects were picked because they had measurable returns and high-level support within their organizations, he said.

"We ran 50 projects through a real vigorous process and only found two that have legs," he said.

The reviews, which are being performed by the Defense Department, Office of Management and Budget and key congressional panels, should be completed by the end of September. The pilot program then will move to the procurement stage, he said.

Plans call for GSA to pick the contractors for the project through a competition this fall, he said.

Originally, GSA had hoped to have the pilot running this summer. But launching the GSA pilot has been a slow process because of misunderstandings among the agencies about the share-in-savings concept, Buck said. Other delays have been caused by summer vacations and continued concerns among the agencies with year 2000 date code fixes, he said.

"The bad news about the delays is we haven't launched the pilot, but the positive here is that we have gotten smarter," he said.

The share-in-savings pilot is built on the concept that the contractor will foot the initial cost for implementing a new information technology system and will be paid out of the savings that system generates.

The network project is expected to save the Defense Department $100,000 to $500,000 a month, and the logistics management project should save $10 million to $20 million over three years, according to Buck.

The winning contractors will be paid some percentage of those savings, Buck said. GSA has not decided yet whether it will use an existing contract, the GSA schedule or some other procurement vehicle.

One common misconception is that the share-in-savings approach is a way to circumvent regular appropriations, Buck said.

The best cases for share-in-savings are projects where an agency can show a return on investment, and those projects are usually the easiest to get funding for, said Chip Mather, president of Acquisition Solutions Inc. of Chantilly, Va. Acquisition Solutions provides consulting services to the federal government on how to implement new procurement policies.

A measurable return on investment is critical, Buck said. Many of the 50 projects GSA reviewed for the pilot were rejected because the agencies proposing the projects could not determine baseline costs. Without a baseline, there is no way to measure the savings, Buck said.

Projects dealing with revenue collection, fraud and abuse detection, telecommunication services and efficiency of processes are the best candidates for the share-in-savings approach, Mather said.

Buck noted: "This concept just can't be applied across the board,"

Another obstacle to overcome is the cultural change that an agency has to embrace to implement a share-in-savings project, Buck said.

Because the contractor only gets paid if the project is successful, the contractor is taking on greater risk, he said. The contractor and the agency have to form a partnership and work together for a project's success, Buck said.

"The traditional arms-length approach just is not appropriate," he said.

Agencies also must learn to give more control to the contractor to decide the details of a project, Mather said.

"The government has to get out of the way. They can't worry about how the project is done, but what the end result is," he said.

While a relatively new concept with the federal information technology projects, share-in-savings concept has been gaining popularity among state and local governments. "They have really laid a lot of the groundwork," Mather said.

Contractors such as American Management Systems Inc. of Fairfax, Va., Andersen Consulting of Chicago, Computer Sciences Corp. of El Segundo, Calif., Electronic Data Systems Corp. of Plano, Texas, IBM Corp. of Armonk, N.Y., and Unisys Corp. of Blue Bell, Pa., have participated in share-in-savings projects with state and local governments.

Andersen recently won a Education Department contract with share-in-savings elements to modernize the agency's student loan system. (See story, page 16.)

Companies with state and local experience will be the front-runners to win share-in-savings contracts in the federal arena, Mather said.

"This is Ph.D. level contracting," he said. "There just are not many [contractors] out there with share-in-savings experience."