Former OFPP head warns agencies about risks of share-in-savings contracts

Former OFPP head warns agencies about risks of share-in-savings contracts

Angela Styles, former head of the Office of Federal Procurement Policy, has slammed the administration's zeal to use share-in-savings contracts.

In the newsletter Procurement Lawyer, distributed by the American Bar Association, Styles said share-in-savings contracting uses 'shady financing and accounting techniques' and moves federal IT purchases away from 'public and congressional scrutiny.'

Under share-in-savings contracts, a vendor pays for developing an IT system and is compensated out of the savings it generates for the agency. For example, a contractor building a tax collection system would get a portion of the revenue it creates.

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

Rep. Tom Davis, chairman of the House Government Reform Committee, wants to extend share-in-savings for all contracts under the Acquisition System Improvement Act, HR 4228. The Virginia Republican wrote the original share-in-savings provision in the E-Government Act, which he also sponsored.

The General Services Administration is awaiting approval of the final share-in-savings rule by the Federal Acquisition Regulations Councils [See GCN story here].

'There are instances when share-in-savings are appropriate,' Styles said. 'It is not all roses, though. It needs to be done thoughtfully, because there are constitutional implications. People have tried to sell it as great way to contract, but it certainly shouldn't be the way to buy things when agencies can't get money from [the Office of Management and Budget] or Congress.'

Styles, who was surprised that the provision remained in the E-Government Act, said one of the biggest concerns she has about the share-in-savings legislation is that the legislation does not limit how much money contractors can make from savings nor does it limit the monetary risk of the government.

'Virtually unlimited taxpayer dollars are at risk because the E-Government Act and H.R. 4228 have no limits on the undefined savings that can be shared with the private-sector contractor,' Styles wrote. 'Without any constraints, the E-Government Act and H.R. 4228 allow agencies to mortgage billions of dollars in future spending.'

She also said it is difficult to measure savings and that some measurements are often misleading. When Styles was at OFPP, she said, she requested evidence of documented savings at the federal, state or local level and none could be found.

Styles added that the government is liable for all costs incurred by a contractor, which means even if agencies don't have the money to pay up front, they would have to find the money should the contractor or government terminate the contract.

'I think people, before they go forward and execute all kinds of these contracts, need to understand their implications,' Styles said. 'It is not free money. The incentive for performance may not be as great as they think it is. My hope is that people will understand the risks and will be thoughtful about using share-in-savings.'

Officials from the on Government Reform Committee and GSA did not respond to requests for comments on Styles' article.

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