Education to 'share'

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

be eliminated.

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

the estimate.

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

scientific approach."


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