FAR Council withdraws share-in-savings rule

The agency councils that propose acquisition rules have agreed to withdraw a measure they had proposed in 2004 that would have set parameters for share-in-savings contracting, according to a notice in today’s Federal Register.

The move by the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council -- collectively know as the Federal Acquisition Regulation Council -- throws the future of share-in-savings contracting into doubt.

The rule would have amended the Federal Acquisition Regulation to include share-in-savings contracting as authorized by the E-Government Act of 2002. In share-in-savings contracts, companies receive payments based on the amount of money they save agencies rather than a flat fee. Congress did not renew the limited statutory authority, which expired in September 2005.

Larry Allen, executive vice president of the Coalition of Government Procurement, said the expired authority and the rule withdrawal don't necessarily spell the end for share-in-savings contracting in the government.

However, the concept did suffer a body-blow, he said.

Innovative agencies may continue to use share-in-savings contracting even without the E-Government Act's authority. However, that is a sign of the government's growing aversion to risk, Allen said. Recent changes in procurement have tended toward “oversight and a more precise adherence to regulation” instead of innovative approaches, he added.

Alan Chvotkin, senior vice president and counsel at the Professional Services Council said he was frustrated lack of guidance and regulation given to share-in-savings contracting.

“I would hope that the withdrawal of the rule does not signal the federal government’s dissatisfaction with share-in-savings contracts” Chvotkin said. He added that the industry supported it as an additional tool, but now the IT community will lose several years worth of opportunities.

Steve Kelman , a professor at Harvard University's Kennedy School of Government, agreed, calling it “a sad event for innovative government contracting.” He said share-in-savings contracting was the “ultimate in pay-for-performance contracting.” If the venders did not save the agency money, they didn’t get paid.

His reason for the share-in-savings’ failure was selfish politics and ill-founded technical appropriations law.

Both Chvotkin and Kelman want Congress to reinstate the share-in-savings contracting. Neither would speculate as to the likelihood.

A Government Accountability Office report from July 2005 states that share-in-savings contracting remained largely unused and untested after the E-Government Act authorized agencies to undertake 10 such projects. The lack of specific rules and a general belief that the contracts don’t offer enough return on investment to be worthwhile were among the reasons agencies hesitated, GAO found.