Rule to raise share-in-savings profile

"An era of limited budgets requires increasing focus on creative contracting methods. [Share in savings] could enable us to do projects that would otherwise remain on the shelf." ? GSA Administrator Stephen Perry

Olivier Douliery

Procurement officials seek to boost use with incentives

Federal procurement officials are poised to issue new guidelines that could give share-in-savings contracting the boost it needs for wider use in the federal government.

Although federal law authorized pilot share-in-savings projects about eight years ago, few agencies and contractors have tried the method. Under the new rule, which implements provisions of the E-Government Act of 2002, agencies can keep the extra savings they realize from share-in savings as long as that money is spent on IT.

The new authority to spend the savings should generate more interest in the concept among agencies, said Rob Burton, acting administrator of the Office of Federal Procurement Policy at the Office of Management and Budget.

The E-Government Act allows 10 share-in-savings projects for information technology each year. With share-in-savings contracting, the contractor pays for system development upfront and gets compensated from the savings or revenue it generates for the agency. The contractor takes on greater-than-usual risk, and if the project is successful, gets greater-than-usual compensation.

The proposed procurement rule will be published soon in the Federal Register, giving federal agencies and their contractors more guidance on how to do share-in-savings contracting, said Ken Buck, director of the Share-in-Savings Program Office at the General Services Administration. Buck said the proposed rule includes clear definition of baseline costs, which must be determined before savings can be estimated.

GSA and the Council for Excellence in Government, a nonpartisan, nonprofit Washington group, hosted a Jan. 22 share-in-savings conference in Washington to discuss the new rule, which is being issued by the Defense Acquisition Regulations Council and the Civilian Agency Acquisition Council.

Rep. Tom Davis, R-Va., author of the E-Government Act share-in-savings provisions, said adoption has been hurt because a sizable number of lawmakers see the method as a means of outsourcing jobs. They also are opposed to contracting methods that allow large industry profits.

"What we really need are three or four more success stories. Then we can take them up to Capitol Hill and show how they work," said Davis, chairman of the House Government Reform Committee. Davis said he is working to get the share-in-savings authority, which expires in 2005, extended through new legislation.

Share in savings should work in the federal government just as it has in the states, where it is seen as an effective tool used to accomplish important tasks, said John Kost, a managing vice president at IT research firm Gartner Inc. of Stamford, Conn. Formerly, Kost was chief information officer for Michigan.

"There is no reason it should not work, other than that Congress is micromanaging things," Kost said. "Until Congress lets the executive branch execute and gets out of the way, good techniques and tools are going to be underutilized."

Share in savings has been more widely used in state governments because budget constraints have forced officials to turn to the private sector for upfront system funding, said Donna Morea, executive vice president and general manager of the public sector practice at American Management Systems Inc. in Fairfax, Va.

"Crisis breeds innovation," Morea said. "The states have gone through the worst fiscal crises in the last few years since the end of World War II. They had to do something."

Tight budgets will also spur use of share in savings in the federal government, said GSA Administrator Stephen Perry.

"An era of limited budgets requires increasing focus on creative contracting methods," Perry said. "[Share in savings] could enable us to do projects that would otherwise remain on the shelf."

The new federal leadership support for share in savings is crucial for its success, Morea said.

"Having somebody like Stephen Perry, who is the CEO of GSA, participating is fundamental," she said. "Having somebody like Ken Buck, who really gets it and can drive it day to day, is also a key part of the equation."

For share in savings to succeed, agencies must provide potential contractors with all their costs for performing a function, something they're usually reluctant to do, industry experts said.

"You can't do this efficiently unless you can determine your current costs and come up with strong performance measures," Kost said.

Contractor Kellye Sheehan said Indus Corp. officials are interested in the contracting method, but haven't seen enough cost data to attempt it.

"A lot of times when procurements come out, there aren't enough details to understand the government's current costs and how costs are measured," said Sheehan, director of the environmental health and natural resources division at the Vienna, Va., IT firm. "If we don't get enough information, it is hard to estimate the savings."

Staff Writer Gail Repsher Emery can be reached at gemery@postnewsweektech.com.

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