Kelman: Time to share savings

A huge frustration to anybody interested in a procurement system that delivers better value for agency missions and taxpayers is how slowly the use of share-in-savings contracting is spreading. It has been used more at the state and local levels than the federal level.

Share-in-savings contracts pay only for success — contractor payment is based on the savings that a contract delivers. The result is that the greater the savings, the greater the payment to the contractor. By contrast, failure is punished with no, or significantly less, money in the contractor's pocket.

This procurement method is a superb example of how one can structure a business relationship to promote successful contractor performance. But the current climate has not favored innovative approaches. Rather, the Bush administration has spent three years encouraging federal contracting people to retreat into a bureaucratic cocoon.

People such as Sen. Charles Grassley (R-Iowa) spend their time harassing agencies about trivial scandals, such as the purchase of construction under information technology contracts, oblivious to the climate of hypercaution and fear these tirades engender. Meanwhile, opportunities languish that our contracting workforce could pursue to help agencies and taxpayers.

New techniques such as share-in-savings are seen as risky. Yet familiar, commonly used contracting methods such as time-and-materials purchases, in which contractors are paid whether or not they perform, are far more risky. Share-in-savings contracts create a situation in which the contractor, not the government, bears the risk of failure.

In the current climate, the efforts of officials at the General Services Administration and its share-in-savings program office are a shining light. Everyone interested in share-in-savings initiatives realizes the government badly needs some quick, easy wins to help overcome the cautiousness pervading the system.

I have a suggestion for a priority area for GSA — reverse auctions as a technique to buy items, whether products or services, that the government needs on a recurring basis. The benefit is clear in the savings that the government achieves using reverse auctions, in which companies compete to provide a service or product at the best value, compared with the previous time the government bought the product or service.

So if the government had spent $500,000 on an item and gets it using reverse auctions for $400,000, the savings pool would be $100,000. The reverse auction vendor would be paid a percentage, determined through a competition among vendors, of those savings.

By way of full disclosure, I should state that I do some consulting work for FreeMarkets Inc., a reverse auction vendor.

Using share-in-savings for reverse auctions has the potential to jump-start the spread of share-in-savings in government.

Kelman is a professor of public management at Harvard University's Kennedy School and former administrator of the Office of Federal Procurement Policy. He can be reached at steve_kelman@harvard.edu.

The Fed 100

Save the date for 28th annual Federal 100 Awards Gala.

Featured

  • computer network

    How Einstein changes the way government does business

    The Department of Commerce is revising its confidentiality agreement for statistical data survey respondents to reflect the fact that the Department of Homeland Security could see some of that data if it is captured by the Einstein system.

  • Defense Secretary Jim Mattis. Army photo by Monica King. Jan. 26, 2017.

    Mattis mulls consolidation in IT, cyber

    In a Feb. 17 memo, Defense Secretary Jim Mattis told senior leadership to establish teams to look for duplication across the armed services in business operations, including in IT and cybersecurity.

  • Image from Shutterstock.com

    DHS vague on rules for election aid, say states

    State election officials had more questions than answers after a Department of Homeland Security presentation on the designation of election systems as critical U.S. infrastructure.

  • Org Chart Stock Art - Shutterstock

    How the hiring freeze targets millennials

    The government desperately needs younger talent to replace an aging workforce, and experts say that a freeze on hiring doesn't help.

  • Shutterstock image: healthcare digital interface.

    VA moves ahead with homegrown scheduling IT

    The Department of Veterans Affairs will test an internally developed scheduling module at primary care sites nationwide to see if it's ready to service the entire agency.

  • Shutterstock images (honglouwawa & 0beron): Bitcoin image overlay replaced with a dollar sign on a hardware circuit.

    MGT Act poised for a comeback

    After missing in the last Congress, drafters of a bill to encourage cloud adoption are looking for a new plan.

Reader comments

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above

More from 1105 Public Sector Media Group