GSA to test new buying concept

The General Services Administration's Federal Technology Service plans to develop by June up to five pilot contracts to test an innovative method of funding information technology projects.

Agencies using the new method, called share-in-savings, can create contracts for IT systems that require little or no up-front money and that base an IT vendor's payment on how well the systems perform. Under one option, a vendor pays for the development and installation of a federal computer system and receives payment based on how much money the system saves the agency or how much more revenue an agency collects because of the system.

"Share-in-savings can make real good sense," GSA Administrator David Barram said. "We've been using the concept for many years, so we know how it works.... But as a term [it] is unique because it's an innovative way to fund IT investment."

Share-in-savings will enable agencies to fund many IT projects that previously would not have been funded because of tight budgets, FTS Commissioner Dennis Fischer said. "That's the essence of what share-in-savings is aimed to do," he said.

The GSA pilot contracts, to be developed at several agencies, will serve as examples and vehicles for the rest of the government. Two federal agencies - the departments of Treasury and Education - have used the share-in-savings concept in a limited application, and state and local governments have incorporated the concept into a number of contracts.

A "center of expertise" at FTS, with representatives from all over government - including former and current members of the Office of Management and Budget - is working to ensure that the share-in-savings pilots conform with strict federal funding regulations, according to Ken Buck, assistant to the FTS commissioner and head of the project.

The group also has begun to spread the word to agencies and industry about the concept. This month the group held a conference on share-in-savings at GSA. Several conference participants, including representatives from the states currently using share-in-savings contracts, stressed that the most important aspects of these contracts are setting agreed-upon service levels, establishing a true dialogue with the vendors and securing high-level support.

Some federal agencies attending the conference expressed worries that the concept would backfire and that the agencies would be reprimanded by OMB for obligating funds. Several agency officials also expressed concern that after saving money from the new systems, Congress would cut the funding needed to pay the vendor in the next fiscal year.

To avoid these problems, agencies should discuss each planned share-in-savings contract with OMB and Congress, said Allan Brown, associate administrator of procurement innovation at OMB's Office of Federal Procurement Policy. OFPP already is helping GSA form its share-in-savings policy, and the organization is ready to stand as a liaison for other agencies in the future, he said.

"I've had calls from four agencies, and we're going to look at each agency individually and match them against the criteria we've developed," Buck said.

Share-in-savings is not meant to be a catch-all for IT projects that are refused money, and it will not solve all of an agency's IT problems, Barram said. "It's good as long as we don't try to use it for more than it's good for," he said. "It won't cure cancer, and it won't replace the secretary of Defense."

"It's not going to fit every contract vehicle," agreed Rep. Tom Davis (R-Va.), who represents the district that includes Northern Virginia, where many federal IT vendors have offices.

Davis and Rep. Stephen Horn (R-Calif.), chairman of the House Subcommittee on Government Management, Information and Technology, will be holding hearings in Congress to raise support for share-in-savings programs.