Share-in-savings: Round 2

Even though few federal agencies have dared to try share-in-savings contracts, advocates of the strategy continue to press for it, particularly Rep. Tom Davis (R-Va.).

A new rule is due to be published soon that will identify the process agencies are to follow in creating the contracts. Meanwhile, Davis, chairman of the House Government Reform Committee, will renew his fight to extend the statutory authority for share-in-savings granted in the E-Government Act of 2002 that's due to expire next year.

Share-in-savings contracts are sometimes considered risky for industry because companies earn no money unless their solutions save money for customers, said Ken Buck, General Services Administration's director of the share-in-savings program office. Agencies have resisted the practice largely because they are unfamiliar with it, he said.

State and local governments, forced to consider the arrangement by tightening budgets, have found it to be successful. Now federal agencies are feeling the same pull.

"We're seeing much more interest in this now because of the budget problems," Buck said. "Agencies have much less money to spend."

So far, "most of the efforts at the federal level have been small scale," he said.

Industry is also open to it, said Olga Grkavac, an executive vice president of the Information Technology Association of America. The strength of share-in-savings is that agencies can undertake information technology modernization projects without needing funds upfront, she said.

"Share-in-savings is just one of many options that a government agency should have in how to approach a procurement," she said. "There may be times to get modernization without funds that it would be appropriate, and there are times that it might not work. This is just one arrow in a quiver that an agency could have."

The E-Gov Act specifies that GSA be the lead agency to encourage share-in-savings contracting, and Buck's mission is to help agencies identify opportunities, he said.

"What makes share-in-savings unique and what makes it counterintuitive to the way we've been trained is that you don't need upfront funding."

Agencies have the authority to enter into share-in-savings contracts under the Federal Acquisition Streamlining Act, and that authority does not expire, according to ITAA officials. However, the explicit authority granted in the E-Gov Act expires in September 2005.

That means "we have a little less than two years to enter into an unlimited number of these types of contracts," Buck said. "The statute says we have to enter into them by September 2005 — it doesn't say they have to be completed."

Through a partnership with the Council for Excellence in Government, GSA officials will launch a series of seminars in March for agencies and industry to teach them about the concept, he added.

Davis has reaffirmed his commitment to the idea in several recent public addresses. He included new share-in-savings authority and incentives in his Services Acquisition Reform Act last year. Most of the bill passed into law, but that provision was dropped during the legislative process.

"What we really need is for someone in the government to implement this and have some successes," Davis said.

Charles Self, a consultant and former deputy commissioner of GSA's Federal Technology Service, said one good success story won't be enough to break down resistance.

"You need to have a few," he said. "I think it's the right thing to do. There are just a lot of roadblocks still in the way.... They're set in their ways."

Although industry may seem to take a larger risk, in fact share-in-savings is good for companies, provided they enter into the arrangements carefully, said Stan Soloway, president of the Professional Services Council. The agency and the prime contractor have to establish a baseline they agree on and can measure improvements against. And vendors should not undertake the contracts unless they are certain they can deliver improvements, he said.

Most companies are able to assess risks inherent in a contract before signing, he added. "These are not naive businesses."