Learn to share
- By Stephen Rohleder
- Jun 19, 2000
Almost anyone can talk the talk, but the General Services Administration
and other agencies are walking the walk with share-in-savings contracting
Under a share-in-savings contract, the vendor agrees to bear the upfront
project costs until the client agency begins to achieve the specified results
from the work. Frequently, payment to the vendor is based on a percentage
of the savings and sometimes it is capped at a specific dollar amount.
The Education Department's Office of Student Financial Assistance, which
administers more than $42 billion in student aid annually, is pioneering
the use of this contracting vehicle with its modernization project. The
modernization contract awarded to Andersen Consulting includes a clause
tying the firm's compensation to results achieved from the new information
technology system development and re-engineered business processes that
are expected to improve services and streamline operations.
Share-in-savings even allows government executives to tap new ideas
with integrated teams of contractors and agency executives who understand
all the components involved in achieving a goal, injecting a greater sense
of accountability for all involved. As a result, share-in-savings contracts
are likely to result in the development of better solutions to advance agency
missions and improve citizen services.
The National Finance Center, which issues pay for federal workers at
nearly 60 agencies and plans to modernize its payroll system, is seeking
industry input about requiring a vendor to finance the front end of the
project, paying the vendor on the back end. Payment would be based on the
number of federal employees the system successfully pays.
Historically, procurement processes forced contractors and government
executives, much like factory managers, to focus on excellent workmanship
for a specific step in a process without considering the big picture. Share-in-savings
allows the factory owner, or the government, to tap the knowledge, experience
and creativity of those who understand the goal and understand best how
to achieve it.
Although share-in-savings represents a giant step toward making federal
government more efficient, states continue to lead. Texas, Washington and
Wyoming recently requested proposals for government portals that would require
the winning vendor to bear the cost of construction with payment received
on the back end on a per-transaction basis.
Such arrangements work because they focus on outcomes rather than prescribed
processes. They align a vendor's financial incentives with government goals.
More important, value-based arrangements result in changes that translate
into big gains.
The government must push for more innovative value propositions in contracting.
Value-based procurement represents a sound strategy when the contract structure
is founded on shared risks and rewards, and clear objectives.
—Rohleder is managing partner for the USA government services group at Andersen