GSA plans new rule for share-in-savings

Ken Buck says he wants to see 50 new share-in-savings contracts in the next three years.

Olivier Douliery

The General Services Administration has proposed a new procurement rule intended to boost the number of share-in-savings contracts agencies award.

GSA also is planning a training program to help industry and government employ the 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 IT purchases. It charged GSA with writing a new procurement policy that would enable broader use of share-in-savings contracting.

In share-in-savings contracting, the contractor pays for developing an IT system and is compensated from the savings it generates for the agency.

'It's a way for the government to get new systems going in the absence of up-front 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 rule will give contracting officers guidance on implementing share-in-savings contracting, Buck said. An advance notice of proposed rule-making was published in the Federal Register last month. The notice includes a proposed rule, which outlines when and how share-in-savings contracts can be used.

The new 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.

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. 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.

Despite the potential, some industry executives said they are skeptical whether federal agencies will widely use share-in-savings. State and local officials face tight budgets, but their federal counterparts don't have that incentive, they said.

If share-in-savings is to take off, OFPP needs to encourage agencies 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.

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