Championing share-in-savings contracts

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

of us.

—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.

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