Acquisition councils propose share-in-savings regulations

The Federal Acquisition Councils will require agencies using the share-in-savings contracting approach to develop a business case, use the best value as the criteria for contracting decisions and make all contracts performance based in a proposed rule due out in the Federal Register Friday.

The proposed rule lays out the process for agencies to use the share-in-savings method for IT contracts. With share-in-savings contracting, the contractor puts up some or all of the development funds and is paid from the savings or revenue that is generated.

The E-Government Act of 2002 opened the door for agencies to award 10 share-in-savings contracts in fiscal 2004 and 2005. The Defense Department, NASA and the Coast Guard can let five of those contracts and all other agencies can award the other five contracts annually.

The Office of Management and Budget, GSA and other agencies already started work on these types of contracts. OMB said the next set of e-government initiatives, called the Lines of Business Consolidation projects, are prime candidates for this approach. And GSA is using this method for its Federal Asset Sales Quicksilver project.

"Agencies are not precluded from conducting share-in-savings procurements just because of the nature of the rule," said Ken Buck, director of GSA's Share-in-Savings Office. "The statute gives them all the authority they need."

The councils started the rulemaking process in October, when they released an advanced notice of proposed rulemaking and asked for comments. After reviewing the comments, the councils revised the initial proposed rule to emphasize the need for an "open and collaborative environment" within agencies and between government and industry to "facilitate due diligence and mitigate risk" in the new regulation.

"The fact the rule changed significantly in terms of content from the advanced notice of proposed rulemaking, we decided to publish it as a proposed vs. interim rule," Buck said.

Additionally, the FAR councils provided contracting officers with definitions of the elements in share-in-savings contracts to help justify their use, and they specified the need for competition in the proposed rule due out tomorrow.

The proposed rule said business cases should include a preliminary baseline cost analysis of the work, including procurement, management, maintenance, administration, operation and personnel expenses.

"There must be a net difference between the current and projected baselines to result in a benefit pool large enough to ensure reasonable savings to the government and to cover contractor costs and incentives commensurate with risk," the proposed rule said.

Agencies may retain savings unless they come from the decrease in personnel costs, the proposed rule said.

"While there may be some changes made as a result of the comment period, we do not
anticipate major changes," Buck said. "As such, agencies are likely to also use the
content in the proposed rule as general guidance until the interim rule is published."

The councils will accept comments on the proposal until Sept. 1. Interested parties should e-mail them to 2003-008@gsa.gov.

Gail Repsher Emery, who writes for Washington Technology magazine, contributed to this story.