Inherent risks continue to overwhelm benefits of share-in-savings contracts
The conventional wisdom for share-in-savings contracts has been that the idea is innovative and appealing. But most agencies have been waiting for a proven model before trying it, and industry has been leery at best.
But more agencies are getting close to attempting such a procurement, in which the contractor gets paid only if the project succeeds in saving an agency money. The contractor then shares in the savings.
Officials from some agencies discussed their planned and ongoing projects at a recent meeting of AFCEA International's Bethesda, Md., chapter.
Share-in-savings "is full of sharp twists and turns — no doubt about that," said Dave McClure, vice president of e-government solutions at the Council for Excellence in Government.
"It creates a more partnerial relationship," McClure said. "That's a real shift."
But if the contract is canceled before savings are realized, agency officials may have to pay termination fees that are not included in their budget. That risk, along with the novelty of the concept, has made government slow to adopt share-in-
savings, according to analysts.
"Like anything that requires culture change, it takes time," said Phil Kiviat, a partner with Guerra, Kiviat, Flyzik and Associates Inc.
Nevertheless, some agency leaders are looking closely at share-in-savings. Several projects are already under way, and new ones are in the wings.
The Navy will use a form of share-in-savings this summer to open its software testing lab, the Navy Marine Corps Intranet Product Evaluation Center, said James Clausen, a project manager at the Defense Department's Office of the Chief Information Officer.
A still-unnamed vendor will test software at no cost to the government. For the software to be deemed suitable for NMCI use, the producers must pay to have it tested. The testing lab will share the fees with the Navy.
DOD officials are considering other share-in-savings contracts, Clausen added.
Officials from the Environmental Protection Agency and the Transportation Department are considering a share-in-
savings procurement to develop an electronic system for tracking hazardous waste.
The system would automate the process that truck drivers and other transportation workers go through to document the shipping of hazardous waste. The EPA and Transportation jointly deal with hazardous waste transport.
"It's very decentralized, and it's a burden," said Judy Davis, director of the EPA's Acquisition Management Office. That burden is largely borne by industry now, and EPA officials are debating whether the government should take on the responsibility, she said.
The agency may take a share-in-savings approach to save upfront money, but if that is the chosen route, there will be challenges, she added.
"Since the government isn't [currently] involved, it gets tricky to determine the current baseline," she said. That baseline is necessary to calculate savings later.
Critics of share-in-savings call attention to the risks. Agency officials can use share-in-savings to duck some of the normal layers of approval that they have to go through to use appropriated funds, said Danielle Brian, executive director of the Project on Government Oversight, a Washington, D.C., watchdog group.
If there is a compelling reason for an agency to undertake a certain project, it can get funding without resorting to unconventional approaches, Brian said. She is concerned that share-in-savings could be used to launch pet projects.
"When it's a good project, it gets funded," she said. "I still believe in the old-
fashioned way of appropriating money for projects."
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