GSA jump-starts share in savings

No schedule or multiple-award contract has ever been dedicated to share in savings ? until now.

The General Services Administration last month awarded blanket purchase agreements to six companies to sell share-in-savings information technology projects to 19 federal agencies. Those agencies can use the agreements to contract for systems consolidation, business process re-engineering, e-government and IT infrastructure projects, said Ken Buck, director of GSA's share-in-savings program office.

The contract "is the first of its kind," said Austin Yerks, president of business development for the federal unit of El Segundo, Calif.-based Computer Sciences Corp., one of the six companies.

The other winners were Accenture Ltd. of Hamilton, Bermuda, CGI Group Inc. of Montreal, IBM Corp. of Armonk, N.Y., Science Applications International Corp. of San Diego and SRA International Inc. of Fairfax, Va.

Possible candidates for share-in-savings contracts include the Office of Personnel Management's e-payroll project, the Environmental Protection Agency's e-manifest project, and system consolidations at the departments of Transportation and Homeland Security, according to GSA, which announced the awards July 8.

With share-in-savings contracting, the contractor puts up some or all of the initial funds for a project, and then is paid from the savings or revenue that it generates.

Government agencies benefit from this approach because it minimizes their capital outlay and financial risk; contractors like the approach because it holds the promise of a large payoff from the savings.

Although state governments have routinely used share-in-savings contracts for certain types of technology projects, such as tax-collection systems, federal agencies have been slow to adopt the contracting method. Consequently, government and industry officials view the GSA contract as a big step forward.

"We already have performance-based contracts which have some aspects of share in savings," said Renny DiPentima, president and chief operating officer at SRA International. "We thought that share in savings could be a good way for the government to get some of the things it needs where you have constrained budgets and the right type of procurement."

Flood of phone calls

Buck said the BPA awards, coupled with recent publication of a proposed share-in-savings procurement rule, created a flurry of new interest in the contracting method among federal agencies.

"My phone has been ringing off the hook," he said. "Many government agencies are stepping forward. It appears they were waiting for the guidance [in the proposed rule] and the BPAs."

One of those agencies is the Bureau of Alcohol, Tobacco, Firearms and Explosives. Efrain Fernandez, ATF's chief procurement officer, said the bureau has not used share-in-savings contracting because of a lack of advice on how to do it.

"We would like to use share in savings because it makes good business sense, but we have been reluctant to plunge in because of lack of guidance on how to do it," he said. "The guidance puts bones on share in savings, and the BPAs put the meat on it."

Each BPA winner has until September 2005 to win up to $500 million in share-in-savings IT jobs. The E-Government Act of 2002 provision authorizing the share-in-savings contracts expires that month.

The winners are all large companies that get large portions of their revenue from federal work. Each has experience with share-in-savings contracting or other high-risk, incentive-based contracts in the federal, state and local government arenas or in the private sector. They also were selected for their financial capability to work on risky projects, Buck said.

Federal agencies can still create their own share-in-savings contracts with other companies, but the GSA contract gives agencies a ready-made vehicle tailored to the special requirements of share in savings. This could speed the contracting process and will make it a lot easier, industry and government experts said.

For example, the BPAs contain unique terms and conditions, such as permission for an agency to enter into share-in-savings contracts even if funds are not available to fully pay for early termination of the contract, should that become necessary. Normally, federal contracts require full funding of termination liabilities.

The BPAs also require the agency customer to provide government bidders with open access to data used to arrive at a cost baseline. The savings derived from contract performance are measured from this baseline.

Data used to develop the baseline include:
All contracting-related costs associated with the project
Any facilities or environmental costs
Government employees directly assigned to the project
Miscellaneous contracting costs associated with feeder or ancillary systems.

One Size Doesn't Fit All

The BPA awards are the latest action taken by GSA to promote share-in-savings contracting since the E-Government Act authorized its use for IT jobs. Last winter, the agency published online tools to help agencies develop share-in-savings project proposals and help contractors vet ideas for share-in-savings ventures.

On July 2, GSA published the proposed rule that tells agencies and industry how to use the contracting method. The agency recently finished training agency personnel in the method, Buck said.

The new guidance means "you can't say 'It's not in the [Federal Acquisition Regulation], I can't do it,' anymore. But that's not to say it's going to be easy," said Chip Mather, co-founder of Acquisition Solutions Inc., an Oakton, Va., company that advises agencies on procurement issues.

[IMGCAP(2)]Mather and others also cautioned that share-in-savings contracts are not appropriate for most IT jobs.

"This still is an extraordinary, complex contracting approach. It will not be a tool used generically across the board," said Judy Davis, EPA director of acquisition management.

Share in savings requires a problem-solving approach and more interaction than usual between government and industry, said David McClure, vice president of e-government at the Council for Excellence in Government, a non-profit, nonpartisan think tank in Washington.

The council worked with GSA this year to train agency and industry staff in share-in-savings contracting.

"Going forward, we will learn from the implementations; hopefully some of these are short-term projects. Short-term projects have less risk, and agencies can learn from them quickly," McClure said.

To be a candidate for share in savings, a project must net a large enough return on investment for a company to risk using its own money up front to build an agency's IT capability, Mather said.

Also, once a share-in-savings project is settled upon, inadequate planning still could derail it, said Sue Horton, GSA account leader for IBM's business consulting services unit.

The agency customer must provide the contractor with a wealth of information in addition to the baseline cost of the job, including independent government estimates of the job and current funding levels, Horton said.

"All that information is necessary to bid," she said. "That would be a show stopper if it didn't happen."

Despite the difficulties inherent in share-in-savings contracting, BPA winners said they see a marked increase in interest among their agency customers.

"We have at least three clients who have expressed an interest. This is exciting," said Barbara Moffatt, vice president of civil business development for CSC's federal sector. CSC has used share-in-savings contracting in the commercial sector to modernize IT infrastructures.

Donna Morea, president of CGI-AMS, a division of CGI Group, said CGI officials are talking to several agencies about share-in-savings projects that can deliver results in six to nine months.

AMS has used share-in-savings contracts widely in state governments to collect revenue and modernize tax systems.

"Because this is so new and different, agencies and vendors must find the right opportunities for a quick win so everyone can get the courage to go for larger contracts," she said. n

Staff Writer Gail Repsher Emery can be reached at gemery@postnewsweektech.com. Government Computer News Staff Writer Jason Miller contributed to this story.