Education signs incentive-based contract
- By Daniel Keegan
- Jul 27, 2000
The Education Department signed the federal government's first of a new kind of
incentive-based information technology contract, saying it will save $40 million to $50 million by
Under the share-in-savings contract with Andersen Consulting, the company
will be paid a percentage of the savings it creates by modernizing the Student
Financial Assistance Office's loan systems, which handle about $52 billion
Andersen expects to have the new system in by year's end, when it can begin
to earn money through savings. Andersen's payment will be capped at $14.4
million over the four-year period.
The contract calls for integrating the loan origination and loan servicing
systems. It eliminates the central data system, which has served as an intermediary.
The central data system's 12 functions will be reduced to seven and incorporated
into the other systems.
The savings accumulated by eliminating contract costs for the central system
will be the base for Andersen's payment. In fiscal 1999, the system cost
$20.3 million to operate. Increased efficiency should also reduce costs
related to fixing errors.
During a press conference Wednesday to announce the contract, which was
signed July 19, Greg Woods, SFA's chief operating officer, said the focus
on results will ultimately "improve services while cutting costs."
To highlight that, the department is not paying any upfront costs. Woods
gave Andersen Consulting partner Ken Dineen a large check for $0. "This
represents the government's investment," he said.
The General Services Administration has encouraged agencies to look at the
share-in-savings concept for more than a year as way to focus contracts
on program results — in this case, actual monetary savings — instead of
simply awarding to the lowest bidder.
Andersen was hired last year as SFA's "modernization partner." The company
will execute the department's Modernization Blueprint, which outlines how
the department should upgrade its systems. This share-in-savings contract
is the first of several deals.