Share in savings gets a boost

Contractors can expect more opportunities for share-in-savings contracts under a new procurement rule proposed early this month by the General Services Administration.GSA also is planning a training program to help industry and government use the innovative procurement method, which has been used rarely in the federal government. One GSA official wants to see 50 new share-in-savings contracts in the next three years."We think that's quite achievable. There is incentive to really make this happen," said Ken Buck, director of the share-in-savings program office at GSA.The incentive is the E-Government Act of 2002, which took share-in-savings contracting out of the pilot stage in the federal government for information technology purchases. It charged the GSA with writing new procurement policy that would enable broader use of share-in-savings contracting and advising agencies on use of the method. With share-in-savings contracting, the contractor pays for developing an IT system and is compensated from the savings it generates for the agency. For example, a contractor building a tax-collection system would be paid a portion of the revenue it creates. "It's a way for the government to get new systems going in the absence of upfront money to invest in them. Wherever there is a revenue stream -- parking fines or licenses or taxes -- share in savings is very feasible," said Frank McDonough, a former GSA executive who now advises companies on government contracting. The new procurement rule will give contracting officers the guidance they need to implement share-in-savings contracting, Buck said. An advance notice of proposed rulemaking was published in the Oct. 1. The notice includes a proposed rule that outlines when and how share-in-savings contracts can be used. The rule stipulates that contracts cannot be longer than five years without special justification, and that no contract can be longer than 10 years. The contracts must be performance-based and used only for projects involving significant innovation or process improvement. Objective outcomes and performance standards must be set down in writing. Savings won't count if they come from a decrease in the number of civilian government employees. The notice asks for comment by Oct. 31. Share in savings has been used extensively by state and local governments, but rarely by federal agencies. The method is difficult to use, because the agency must know its baseline costs and the savings that can be achieved, according to procurement experts. Lockheed Martin Corp. of Bethesda, Md., has used the approach with a parking-fine system for the District of Columbia. Accenture Ltd. of Hamilton, Bermuda, has used share in savings extensively for state and local government tax systems. For the Education Department, one of the few federal organizations to use share in savings, Accenture built an IT system for student financial aid transactions. Hundred of millions of dollars in federal IT contracting could be done through share in savings, said Harvard professor Steve Kelman, a former administrator of the Office of Federal Procurement Policy in the Office of Management and Budget under President Clinton. Despite the potential, some industry executives said they are skeptical whether federal agencies will widely use share in savings. State and local government officials are motivated to use the method because their budgets are tight, but federal officials don't have that incentive, they said. And even if an agency wants to use share in savings, it can be difficult to get approval, said Lisa Mascolo, managing partner of the USA Federal Client Group at Accenture. "When [officials] hear the contractor is getting paid out of the benefits, they get suspicious. People may perceive the upside for a contractor is too great," she said. "We've been doing share in savings for a while, and it's not taking the market by storm." If share in savings is to take off, OFPP needs to encourage federal employees to try new contracting methods, Kelman said. An OFPP staff member said his office will work with agencies to make sure they capture the benefits of share-in-savings contracting. But, he said, OFPP wants cautious implementation. "We're going to be careful to limit the financial risk to the government," he said. The government's risk includes the expense of ending a contract early if it isn't successful. Meanwhile, staff members of the House Committee on Government Reform said committee Chairman Rep. Tom Davis has asked them to follow the use of share in savings closely and work to ensure the new authority of the E-Government Act is well-understood from the beginning. Davis, R-Va., has championed use of the method and was instrumental in creating the expanded authority. New training programs will help government and industry employees understand how and when to use share-in-savings contracting, Buck said. GSA and the Council for Excellence in Government, a nonprofit group in Washington, are developing the training. The first workshops should be held late this year, organizers said. The workshops will feature case studies of share-in-savings projects, he said. Attendees also will learn how to use online tools that GSA is deploying to help identify projects that are good candidates for share in savings. The workshops will be tailored to the needs of various groups, including budget, finance and program management professionals, said David McClure, vice president for e-government at the Council for Excellence in Government. "There is authority to do this and the expectation that it be done. But there are a lot of players in contracting, procurement and project management, so you have to get all those people on board," McClure said. Tony Trenkle, program manager for the e-Vital e-government project, expressed interest in using share in savings to continue developing the project. Through the cross-agency initiative, federal and state officials are designing a national infrastructure through which they can share vital records, such as birth and death certificates. The Social Security Administration manages the project and funds most of it. It receives some additional funding from the Department of Health and Human Services. A share-in-savings arrangement might be one way to get additional money, Trenkle said. "One of the concerns with a lot of e-government projects is lack of funding. There is a need to look for alternative ways of funding. One is share in savings," he said.Staff Writer Gail Repsher Emery can be reached at gemery@postnewsweektech.com.