Share-in-savings comments sought

Share-In-Savings Pre-solicitation notice

The government has questions for agencies and vendors regarding share-in-savings contracts.

Last week, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council published a Federal Register notice posing several specific questions. The purpose of the notice is to help vendors better prepare for share-in-savings contracts and for agencies to derive more value from them. Responses are due by Oct. 31.

In share-in-savings contracts, the vendor's payment is partially based on how much money its solution saves the agency, providing an incentive for vendors to deliver high performance.

Agencies have had the option to use such contracts under the Federal Acquisition Streamlining Act of 1994, but last year's E-Government Act introduced more favorable provisions. Though agencies have tentatively begun using the new rules, officials have not published a final rule.

The concept depends on the government's leverage as an important customer. Under the proposed rules, agencies are obligated to pay only when savings are realized, and then must pay just part of the savings to the contractor.

The authorities that the act grants expires in 2005.

The chief advantage of the e-gov provisions is the elimination of agencies' burden to set aside money in advance, said Steve Kelman, public management professor at Harvard University. Under the older rules, agencies have to set aside part of the cancellation fee to ensure they would have the funds required to cancel the contract if necessitated by future budget cuts.

"It can be a pretty big hit," Kelman said. "It makes agencies less anxious to do share-in-savings."

However, the new rules allow the government to exempt only 10 contracts a year from the upfront obligations. Agencies may award any number of share-in-savings contracts if they obligate enough money to pay the first year's costs and cancellation fees.

Kelman and Alan Chvotkin, senior vice president and counsel at the Professional Services Council, are concerned that the General Services Administration is taking too long to publish a final rule that would give the program a shape agencies and businesses could count on.

"They better get their [regulations] out soon or there will hardly be any time for agencies to do this," Kelman said.

"They're asking the right questions," Chvotkin said. "They could have asked the same questions six months ago."

Kenneth Buck, director of GSA's Share-in-Savings Program Office, said three agencies — the Interior Department, the Food and Drug Administration and the Postal Service — have launched pilot projects. GSA is not merely foot-dragging, he said.

"We just want to make sure we've got it right," he said. "That's why we're taking the time."

Although the authorities under the E-Government Act expires in 2005, Congress can renew it, Buck said. Rep. Tom Davis (R-Va.) has been "real aggressive in pushing this, especially as budgets get cut," he said.

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Probing Questions

The General Services Administration is seeking comment from vendors and agencies on how to improve share-in-savings contracting. GSA wants to know:

* What type of information will vendors need in the solicitation to adequately prepare a proposal for contract?

* What criteria should be considered in developing an appropriate share ratio and schedule for payment?

* What general criteria should be considered in determining the original, or baseline, cost of a process?

* How, if at all, should the determination of cancellation and termination costs differ from those used in connection with multiyear contracts?

* Should ownership rights of hardware or property acquired under the share-in- savings contract be addressed in the Federal Acquisition Regulation (FAR)?

* What method should be used to determine a contracts' value in regard to FAR requirements that are triggered by the acquisitions' dollar amount?

* Should there be a preference for structuring the contracts as firm-fixed-price or fixed-price with price adjustments allowed?

* Which, if any, performance-based contracting policies should not be applicable to an share-in-savings contract, and why?

* What types of activities in the information technology arena might be conducive to share-in-savings contracting?

Source: Federal Register

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