Education expands share-in-savings

The Education Department has moved into increasingly turbulent waters as one of the few federal agencies to use innovative share-in-savings contracting, while Congress and the Bush administration try to encourage more agencies to do likewise.

Education's Office of Student Financial Assistance Programs (OSFAP) signed two new share-in-savings contracts with Accenture last month. The contracts are expected to save the agency more than $173 million across the next 10 years by consolidating its systems and moving applications to the Internet. OSFAP has been working with Accenture on share-in-savings contracts since 1999.

In a share-in-savings contract, the vendor puts up all or most of the funds for a new system and is then "paid back" by the agency across a predetermined number of years according to an agreed-on percentage of the savings the agency realizes through the use of the new technology.

Saving money is the key to a share-in-savings contract, and measuring those savings is the most difficult element. The agency and the contractor must determine a baseline — how much time and money the agency now spends on a certain function — and a goal — how much the agency wants to spend — so that the difference can be measured and shared.

The Bush administration called on agencies to expand the use of share-in-savings in the fiscal 2002 budget. The concept is popular for outsourcing payment collections. In the Energy Department's Federal Energy Management Program, for example, contractors contribute all the upfront costs to identify a federal agency's energy needs and make the improvements in return for a share of the savings.

The General Services Administration and Clinton administration procurement officials championed share-in-savings for IT contracts in the past three years, but only Education tried the idea.

Share-in-savings contracts can be daunting for agency and industry alike, said Steve Shane, the Accenture partner responsible for the Education account — not only because of the difficulty of setting baselines for measuring the savings but also because of the high level of commitment and partnership required by this type of contract. It's "a bit of a Ph.D. in contracting," he said.

Some larger federal integrators are working share-in- savings provisions into larger contracts, said Olga Grkavac, executive vice president of the Information Technology Association of America's Enterprise Solutions Division.

But many companies are struggling to understand how to use share-in-savings, which is "not the answer for every firm, [and] it's not the only answer for every procurement," she said.

Rep. Tom Davis (R-Va.), chairman of the House Government Reform Committee's Subcommittee on Technology and Procurement Policy, added a section encouraging the use of share-in- savings to his draft Services Acquisition Reform Act in November 2001.

Angela Styles, administrator of the Office of Federal Procurement Policy, questioned whether Davis was taking the right step at a hearing before the subcommittee that month. "We want to ensure that the methodology proves beneficial before it is expanded governmentwide or otherwise made permanent," Styles testified. "To date, we have not seen demonstrable results."

In its first OSFAP contract, Accenture developed a new Central Data System to replace multiple legacy systems. Already, the office is saving almost $1 million per month, and a much smaller contract to migrate the office and its users from a proprietary wide-area network to the Internet brought ad.ditional savings, Shane said.

The two new contracts are a continuation of the office's modernization effort, he said.

Davis' legislation may be the best way to get other agencies moving forward toward these types of partnerships, Shane and Grkavac agreed.

"Some people are waiting for it not to be just encouraged, but more blessed," Shane said.

*** Accenture's Education share-in-savings deals

* Integration and retirement of the legacy Central Data System, starting the modernization of the Office of Student Financial Assistance Programs. Awarded 1999.

* Migrating OSFAP and its customers, including schools and financial institutions, from the office's proprietary wide-area network to an Internet application for communication. Awarded 2000.

* Developing and deploying a Common Origination and Disbursement system, which will consolidate the many legacy systems used to disburse more than $50 billion in financial aid payments. Awarded December 2001.

* Integrating Web applications, such as electronic bill payment and online self-service, into the Direct Loan programs administered by OSFAP and its partners. Awarded December 2001.