Rule proposed to implement share-in-savings authority

Proposed rule

A proposed rule published today would amend the Federal Acquisition Regulation to implement share-in-savings contract authority granted by the E-Government Act of 2002.

In a share-in-savings contract, the contractor bears the cost of a project and then is paid from the money that the project saves for the agency. The E-Government Act's authority applies only to information technology.

The authority ends in 2005, but the published guidelines will be helpful despite the short window of time, said Chip Mather, senior vice president of Acquisition Solutions Inc.

"You have about 75 percent of the contracting and acquisition personnel out there who say, 'If it's not in the FAR, we can't do it,'" he said. "Anything that's really new, I have found, if it's not in the FAR, it just won't happen."

That reluctance is pervasive, even though the FAR states that any contracting technique not prohibited by law is allowable, he said.

When the statutory authority expires next year, if no other legislation extends the authority, federal acquisition managers will balk for that reason, he predicted. However, Mather believes that no particular statutory authorization is needed for share-in-savings contracting.

"All the authority you need is in the FAR," he said.

Scott Orbach, president of consulting firm EZGSA, agreed. "There's been a lot of confusion within the government and within the vendors on how to formalize a relationship, because it's something that hasn't been clearly defined in the Federal Acquisition Regulation," he said.

The proposed rule offers guidance for agency officials interested in using share-in-savings. Among the measures:

* Consider share-in-savings contracts for projects that require significant innovation or process transformation.

* Develop a business case including a preliminary baseline analysis of the cost of the processes being changed. That will provide a standard against which to measure savings.

* In developing a solicitation, make sure that the contractor's share of savings reflects the risks involved and the market conditions, and that the government will get the best value.

* Negotiate the amount to be paid for cancelling or terminating the contract at the time the contract is awarded.

Mather said it is taking the government a long time to move forward with share-in-savings because the idea is alien to many officials.

"I think everyone is frustrated at the pace of change, but it's hard," he said. "It's really hard. I've become convinced it's one program, one person at a time."