Agencies warm up to share-in-savings deals

'We are focusing on underfunded programs that have passed OMB's business case evaluation.'

'Ken Buck, Director of the Share-in-Savings Office

Rachael Golden

For nearly a decade, agencies have been allowed to cut their up-front costs on IT and other projects through contracting methods that let them share savings with vendors who develop valuable systems. Few have taken that approach.

But now, a tighter federal budget and a push from the administration for tangible results have prompted more agencies to consider share-in-savings contracts.

More than 15 agencies, including the Defense Department, Environmental Protection Agency, General Services Administration and Office of Management and Budget, are working with GSA's Share-in-Savings program office, GSA administrator Stephen Perry said recently at the Management of Change conference in Philadelphia.

'This is another type of performance-based contracting that agencies have been gaining a better understanding of since Congress passed the E-Government Act,' said Ken Buck, director of the Share-in-Savings office, at a recent breakfast sponsored by the Bethesda, Md., chapter of the Armed Forces Communications and Electronics Association. 'The message is getting out that this works for certain types of projects.'

Under a share-in-savings contract, the vendor pays to develop an IT system and receives compensation from the savings or revenue it generates for the agency. A contractor building a tax collection system, for example, would get a portion of the savings or revenue.

Congress gave the approach a boost by including an amendment in the E-Government Act of 2002 that lets agencies use share-in-savings contracts for 10 IT projects a year.

Buck said the approach works best for consolidation projects and those that generate fees for government services. The projects also must have a return-on-investment window of no more than two years, he said'otherwise the vendor has to wait too long.

'We are focusing on underfunded programs that have passed OMB's business case evaluation,' Buck said.

GSA, which opened the Share-in-Savings office in January to assist agencies, is using the approach for its Federal Asset Sales e-government project, which consolidates how the government sells off property. It also is considering a share-in-savings contract for auditing its wireless phone bills to find calls that employees did not make, Buck said.

And OMB is considering using the method for the next wave of e-government projects, known as the lines-of-business consolidation initiatives, said Karen Evans, the office's administrator for e-government and IT.

'Things that are new in approach lend themselves to the share-in-savings model, and industry could come up with the innovative approaches that we need,' Evans said at the conference in Philadelphia, sponsored by the American Council for Technology and the Industry Advisory Council.

Business lifelines

GSA, on behalf of OMB, released a request for information in April and has received more than 100 responses from industry on how the government can consolidate systems along three lines of business: financial management, human resources and grants management.

Evans said her office will release a letter to industry this month detailing how agencies will go forward with the next wave of e-government projects, including how share-in-savings fits into the strategy.

EPA will award a task order this summer for telecommunications audit support, under which the agency will try to recoup money paid to phone companies for calls employees did not make. The contractor would share the revenue from reimbursements.

EPA also is working with the Transportation Department on a request for information on how to turn a fee-based paper process for tracking movement of hazardous waste into an online process, said Judy Davis, EPA's director of acquisition management.

'In today's climate, where there are limited budget resources, we are looking for creative ways to get the job done,' Davis said at the AFCEA breakfast. 'We are looking for specific applications that will aid the agency in meeting its mission. Industry needs to bring us their ideas instead of the usual dog-and-pony shows.'

Additionally, the Navy will use the share-in-savings technique for its Navy-Marine Corps Intranet product evaluation center in New Orleans.

While the final details have not been approved, Capt. Chris Christopher, NMCI's office staff director, said a vendor would operate the lab to test software for security and compatibility with the Navy-wide network.

'Share-in-savings is the final piece to the puzzle to make the product center work,' Christopher said. 'The cost shifts from us to industry to make sure the software meets our standards.'

David Marin, a spokesman for Rep. Tom Davis (R-Va.), chairman of the House Government Reform Committee and author of the share-in-savings provision of the E-Government Act, said training procurement workers is essential to getting agencies to use these vehicles.

'With share-in-savings, the government only pays for results; the contractor doesn't get paid just for showing up,' Marin said. 'The primary argument for share-in-savings contracts has always been that they give agencies access to cutting-edge goods and services without forcing them to make exorbitant up-front payments they can't afford.'


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