Education to 'share'
- By Daniel Keegan
- Jul 31, 2000
The Education Department's groundbreaking share-in-savings contract announced
last week may encourage other agencies to embrace the concept, but they
will have to overcome cultural barriers first.
The Office of Student Financial Assistance Programs signed a contract
with Andersen Consulting to modernize the office's loan systems, which handle
$52 billion per year. Andersen aims to save the OSFAP $40 million to $50
million in four years by integrating the loan origination and loan servicing
systems. The central data system, which served as an intermediary, will
Andersen must pay all the upfront costs — an estimated $10 million to
$18 million — to modernize the system and will recoup its losses from a
percentage of the estimated savings. Its payment will be capped at $14.4
million, creating an incentive for the cost to come in at the low-end of
That incentive is why the General Services Administration has been championing
this type of contract for more than a year. "This is the ultimate in performance-based
contracting," said Ken Buck, executive director for business innovation
at GSA's Federal Technology Service. "It's results-driven vs. process-driven."
The biggest obstacle to this and similar procurement reform efforts
has been agencies, which embrace the status quo. Experts said other agency
leaders could look to Education to validate their own procurement reform
"This paves the way," said Art Chantker, president of the Potomac Consortium
Inc. "A lot of resistance from agencies has been artificial because of the
lack of out-of-the-box thinking."
Procurement experts say OSFAP was able to break through mostly because
of an innovative leader, Greg Woods, OSFAP's chief operating officer.
"It's an advantage that he can see the need for innovative leadership
and take the risk," Buck said, adding that the share-in-savings contract
was not the risk — change was. The difficulty in having employees accept
change was eased by several contract provisions that can be copied and customized
by other agencies, said Candace Hardesty, director of acquisition and contract
performance for OSFAP.
Andersen is also striving to reach a 75 percent to 85 percent customer
and user approval rating. Each month, a technical team will meet to discuss
whether the vendor met design and implementation milestones. A cost team
will also meet. If there's a dispute, the contract specifies a resolution
process, relying on an independent arbitrator if the vendor and the department
cannot reach a decision.
"It's removing the fear in doing business," Hardesty said. "The government
usually looks to find fault with the contractor, but here, it becomes a