Championing share-in-savings contracts
- By Steve Kelman
- Jul 03, 2000
At the recent Federal 100 gala, I ran into Ken Buck of the General Services
Administration's Federal Technology Service, who received an award for his
work promoting the use of share-in-savings contracting for information technology
systems. Not surprisingly, Ken was in a good mood. The Fed 100 accolade
no doubt helped raise his spirits for what has been a tough haul.
Share-in-savings remains one of the most attractive new ideas for increasing
the chances of success in developing IT systems. The basic idea is that
you pay for a new IT system all or partly by giving the vendor some percentage
of the savings the system produces. The greater the success of the vendor's
efforts, the greater the payment.
A failed project, however, pays the vendor little or nothing. It's like
a lawyer who takes a case for a contingency fee.
The government already uses such a system with debt collection contractors
and for promoting energy savings in federal buildings. It has also been
used for IT modernization projects at the state and local levels. But as
Ken Buck knows, it's been tough getting somebody to be the first to try
it for federal IT.
Share-in-savings contracting has gotten on the wrong track because federal
IT managers tend to see it as a way to fund projects for which they can't
get budget approval rather than as a way to give vendors incentives to improve
the success rate of projects.
Because projects with poor business cases have trouble receiving funding,
this produces a mind-set where the worst possible projects are considered
for a share-in-savings contract.
I am convinced, though, that Ken Buck's efforts will be crowned with
success. He has established a center for excellence at FTS to focus on innovative
incentive contracting arrangements such as share-in-savings. Ken's office
can provide expertise in developing business cases, statements of work and
contractual language, as well as help shepherd projects through Office of
Management and Budget approvals.
Ken also has good ties to share-in- savings supporters on the Hill,
who are eagerly awaiting the first federal IT share-in-savings projects.
His office is planning to develop a list of contractors who have experience
doing share-in-savings contracting. Because it's important that the first
projects succeed, I hope Ken limits that list to a few vendors with demonstrated
expertise in the area.
Several share-in-savings possibilities are in the pipeline, and we may
see a breakthrough soon. One agency is in the advanced stages of hammering
out a share-in-savings deal with a vendor to modernize the agency's major
service delivery systems.
Also, the program manager for one of the most important IT modernization
efforts going on right now told me that his agency is considering a share-in-savings
approach as a part of the agency's effort.
And Dan Chenok, Bruce McConnell's successor as head of IT policy at
OMB, told me that he would love to see some good share-in-savings projects
that he can shepherd through the system.
Ken Buck is in this for the long haul, and that's good news for all
—Kelman was the administrator of the Office of Federal Procurement Policy
from 1993 to 1997. He is now Weatherhead Professor of Public Management
at Harvard's Kennedy School of Government.