Federal Contracting
Share-in-Savings Initiative Not Yet Tested Gao ID: GAO-05-736 July 26, 2005Federal agencies spend billions of dollars every year on information technology and are increasingly using performance-based contracting methods where agencies specify desired outcomes and allow contractors to design the best solutions to achieve those outcomes. Share-in-savings contracting is one such method under which a contractor provides funding for a project, and the agency compensates the contractor from any savings derived as a result of contract performance. The E-Government Act of 2002 authorized the use of share-in-savings contracting for information technology and required implementing regulations by mid-September 2003. The Office of Management and Budget (OMB) reported in December 2004 that no share-in-savings contracts had been awarded. The act's authority expires in September 2005. The act required GAO to assess the effectiveness of share-in-savings contracts. Because no such contracts have been awarded, GAO cannot provide an assessment. Instead, GAO reviewed the status of regulations and tools available to agencies in developing these contracts and identified the reasons agencies have not used the authority provided by the act. OMB and the General Services Administration (GSA) generally agreed with GAO's report.
More than 2 years after enactment of the E-Government Act of 2002, implementing regulations and OMB guidance for using share-in-savings contracts for information technology have yet to be issued. OMB officials indicate, however, that implementing regulations and share-in-savings guidance will be issued in the near future. GSA--which the act holds responsible for helping agencies identify share-in-savings opportunities, among other requirements--established a share-in-savings program office in February 2003. A few months later, GSA launched two Web-based tools, one of which is designed to assist agencies in identifying cost-effective uses for the share-in-savings approach and producing business cases for using share-in-savings for information technology projects. As of March 2005, this tool had been used more than 200 times. A total of 15 business cases were deemed potential share-in-savings candidates, however, none of these resulted in a contract award. GSA hired a contractor that developed a 2-day training course for share-in-savings contracting, but only 21 federal acquisition employees have taken the course. And even though GSA prequalified six contractors as viable information technology system solution providers with commercial share-in-savings experience, no agencies have taken advantage of these opportunities to award a share-in-savings contract. Officials from 11 agencies cited a number of reasons that the share-in-savings initiative has not resulted in the award of contracts for information technology projects. Reasons include lack of implementing regulations; difficulty determining baseline costs; a belief that the return on investment using share-in-savings contracts is insufficient; concerns among agency officials that they still would have to obtain funding for cancellation and termination liability, which can be a significant sum; and too few acquisition employees have been trained to use the share-in-savings contracting technique. Since OMB expects the implementing regulations and share-in-savings guidance to be issued soon, at least some of the reasons agencies cited for not using the share-in-savings contracting authority for information technology soon could be addressed. Whether or not other reasons can be overcome may not be known until the authority is tested.
GAO-05-736, Federal Contracting: Share-in-Savings Initiative Not Yet Tested
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
July 2005:
Federal Contracting:
Share-in-Savings Initiative Not Yet Tested:
GAO-05-736:
GAO Highlights:
Highlights of GAO-05-736, a report to congressional committees:
Why GAO Did This Study:
Federal agencies spend billions of dollars every year on information
technology. Increasingly, agencies are using performance-based
contracting methods where they specify desired outcomes and allow
contractors to design the best solutions to achieve those outcomes.
Share-in-savings contracting is one such method under which a
contractor provides funding for a project, and the agency compensates
the contractor from any savings derived as a result of contract
performance.
The E-Government Act of 2002 authorized the use of share-in-savings
contracting for information technology and required implementing
regulations by mid-September 2003. The Office of Management and Budget
(OMB) reported in December 2004 that no share-in-savings contracts had
been awarded. The act‘s authority expires in September 2005.
The act required GAO to assess the effectiveness of share-in-savings
contracts under the act. Because no such contracts have been awarded,
GAO cannot provide an assessment. Instead, GAO reviewed the status of
regulations and tools available to agencies in developing these
contracts and identified the reasons agencies have not used the
authority provided by the act.
OMB and the General Services Administration (GSA) generally agreed with
GAO‘s report.
What GAO Found:
More than 2 years after enactment of the E-Government Act of 2002,
implementing regulations and OMB guidance for using share-in-savings
contracts for information technology have yet to be issued. OMB
officials indicate, however, that implementing regulations and share-in-
savings guidance will be issued in the near future. GSA”which the act
holds responsible for helping agencies identify share-in-savings
opportunities, among other requirements”established a share-in-savings
program office in February 2003. A few months later, GSA launched two
Web-based tools, one of which is designed to assist agencies in
identifying cost-effective uses for the share-in-savings approach and
producing business cases for using share-in-savings for information
technology projects. As of March 2005, this tool had been used more
than 200 times. A total of 15 business cases were deemed potential
share-in-savings candidates, however, none of these resulted in a
contract award.
GSA hired a contractor that developed a 2-day training course for share-
in-savings contracting, but only 21 federal acquisition employees have
taken the course. And even though GSA prequalified six contractors as
viable information technology system solution providers with commercial
share-in-savings experience, no agencies have taken advantage of these
opportunities to award a share-in-savings contract.
Officials from 11 agencies cited a number of reasons that the share-in-
savings initiative has not resulted in the award of contracts for
information technology projects. Reasons include
* lack of implementing regulations;
* difficulty determining baseline costs;
* a belief that the return on investment using share-in-savings
contracts is insufficient;
* concerns among agency officials that they still would have to obtain
funding for cancellation and termination liability, which can be a
significant sum; and
* too few acquisition employees have been trained to use the share-in-
savings contracting technique.
Since OMB expects the implementing regulations and share-in-savings
guidance to be issued soon, at least some of the reasons agencies cited
for not using the share-in-savings contracting authority for
information technology soon could be addressed. Whether or not other
reasons can be overcome may not be known unless the authority is
extended.
www.gao.gov/cgi-bin/getrpt?GAO-05-736.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact William T. Woods at (202)
512-4841 or woodsw@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Share-in-Savings Regulations and Guidance Lag Behind Progress in Other
Areas:
Use of Share-in-Savings Authority Hindered by Issues Related to
Regulations, Baseline Costs, Up-front Funding, and Training:
Conclusions:
Agency Comments:
Scope and Methodology:
Abbreviations:
FAR: Federal Acquisition Regulation:
GSA: General Services Administration:
OMB: Office of Management and Budget:
United States Government Accountability Office:
Washington, DC 20548:
July 26, 2005:
The Honorable Susan M. Collins:
Chairman:
The Honorable Joseph I. Lieberman:
Ranking Minority Member:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Thomas M. Davis:
Chairman:
The Honorable Henry A. Waxman:
Ranking Minority Member:
Committee on Government Reform:
House of Representatives:
Federal agencies spend billions of dollars every year on information
technology to improve mission-related or administrative processes. To
try to maximize the prospects for success of information technology
projects, agencies are increasingly using performance-based contracting
methods where they specify desired outcomes and allow the contractors
to design the best solutions to achieve those outcomes. Share-in-
savings contracting is a performance-based technique, under which a
contractor provides the initial funding for a project and the agency
then compensates the contractor from any financial benefits derived as
a result of contract performance.
The E-Government Act of 2002 authorized the use of share-in-savings
contracting to obtain information technology.[Footnote 1] This
authority is set to expire at the end of September 2005. The act
required that implementing regulations be issued no later than
September 2003. It also required that the Office of Management and
Budget (OMB) report to Congress on the use of this authority, and that
we report on our assessment of the effectiveness of share-in-savings
contracting. In December 2004, OMB reported that no share-in-savings
contracts for information technology projects had been awarded. We
cannot, therefore, provide an assessment of the effectiveness of this
contracting method. As agreed with your offices, however, we (1)
determined the status of regulations, guidance, and program level
support available to agencies in developing share-in-savings contracts
for information technology, and (2) identified the reasons agencies
have not used the authority provided by the legislation.
To determine the status of share-in-savings regulations, guidance, and
program-level support, we obtained documentation from and interviewed
officials with OMB and the General Services Administration (GSA), which
is responsible for identifying potential share-in-savings opportunities
and providing guidance to the agencies. To determine the reasons
agencies have not entered into share-in-savings contracts for
information technology, we interviewed officials at seven agencies with
high-dollar contracting in information technology during fiscal year
2003. We also interviewed officials at four additional agencies that
had expressed interest in annual budget submissions to OMB in using
share-in-savings contracts for information technology. We conducted our
review from February 2005 through June 2005 in accordance with
generally accepted government auditing standards.
Results in Brief:
More than 2 years after enactment of the E-Government Act of 2002, the
regulations required to implement the authority to use share-in-savings
contracts for information technology have yet to be issued. Although
proposed regulations were issued in July 2004, the final regulations
are still undergoing review. OMB also is developing additional guidance
to ensure that share-in-savings projects are based on sound business
cases. OMB officials indicated that the implementing regulations and
guidance would be issued soon. GSA has established a program office and
launched two Web-based tools to assist agencies in identifying suitable
share-in-savings projects and to help them evaluate the merits of
prospective projects. Fifteen out of more than 200 projects evaluated
through the use of one of these tools warranted further consideration,
according to GSA, but to date, none of these projects has resulted in
the award of a share-in-savings contract. GSA has arranged for training
courses to teach the federal acquisition workforce how to use share-in-
savings contracting and identify suitable information technology
candidates. Only 21 federal employees, however, have taken the
training.
Officials cited various reasons to explain the lack of share-in-savings
contracts for information technology. The reasons included the absence
of implementing regulations, the difficulty of determining baseline
costs, and concerns that the return on investment may be too low to
attract potential contractors. Agency officials told us they are
reluctant to use share-in-savings contracting until the implementing
regulations are finalized. In addition, officials said that even though
contractors would be required to provide up-front funding, agencies
would still need available appropriations to cover potential
cancellation or termination liability, which can be a significant sum.
Officials also said that too few acquisition personnel have been
trained to use this innovative contracting technique.
Since OMB expects the implementing regulations and share-in-savings
guidance to be issued soon, at least some of the reasons agencies cited
for not using the authority for information technology soon could be
addressed. Whether or not other reasons can be overcome may not be
known unless the authority is extended.
We provided a draft of this report to OMB and GSA for their review and
comment. Both agencies concurred with the report. OMB provided further
observation on the development of regulations and guidance for
implementing the share-in-savings initiative.
Background:
Share-in-savings contracts fall under the umbrella of performance-based
contracting, in which a federal agency specifies the outcome or result
it desires and lets the contractor decide how best to achieve the
desired outcome. In theory, share-in-savings contracting can provide a
number of potential benefits to both an agency and its contractor. For
example, an agency can ask a contractor to provide up-front funding, in
which case most of the financial risk of the project shifts from the
government to the contractor. The agency also can leverage the
contractor's stake in the success of a project since the contractor
receives payment only after demonstrating that the project--a new or
upgraded information technology system, for example--saves the agency
money. Unexpected problems, such as a delay in system installation,
could erase some of the projected savings, so the contractor has an
incentive to effectively manage overall costs, schedule, and
performance. In short, the contractor is paid for results, not just for
effort. Because of the increased financial risk a contractor assumes, a
contractor can earn a greater return with a share-in-savings contract
compared to the return on a traditional contract.
In 1996, the Clinger-Cohen Act authorized limited pilot programs to
test the feasibility of share-in-savings contracts for information
technology. In 2002, the E-Government Act expanded authority to award
share-in-savings contracts in fiscal years 2003 through 2005 to acquire
information technology solutions and provided incentives for agencies
to enter into such contracts. For example, agencies are allowed to
retain, in their information technology accounts, any savings above
amounts paid to their contractors. The act required the OMB to report
to Congress on the number of share-in-savings contracts entered into
under this initiative. In December 2004, the OMB reported that no
contracts for information technology projects had been awarded.
In 2003, we issued two reports related to the use of share-in-savings
contracts.[Footnote 2] Our January 2003 report, which focused on
commercial use of share-in-savings contracting, found that this
approach can be an effective technique to motivate contractors to
generate savings and revenues for clients. To be successful, though,
clients and contractors need to agree on goals and objectives and how
to achieve them. Our March 2003 correspondence to OMB addressed the
need for OMB's Office of Federal Procurement Policy to ensure that
members of the federal acquisition workforce understand and
appropriately apply the authority of the E-Government Act of 2002.
The Department of Energy has used share-in-savings contracting for
technology solutions to reduce energy consumption. Congress authorized
the department, among other federal agencies, to use a type of share-
in-savings contract for private financing of energy-efficiency
improvements in federal facilities.[Footnote 3] Rather than use up-
front appropriations from Congress, the department asked energy service
contractors to contribute the up-front costs for identifying a federal
facility's energy needs as well as buying, installing, operating, and
maintaining energy-efficient equipment to reduce energy bills. In
return, the contractors get a share of the energy savings generated by
the improvements. We have found that agencies that have used energy
savings performance contracts have reduced their energy consumption and
achieved other goals.[Footnote 4]
We have raised questions, however, about the use of share-in-savings
contracts for energy-efficiency improvements. For example, a number of
factors may cause third-party financing of long-term capital
improvement projects to be more expensive than the direct use of
available appropriated funds.[Footnote 5] This is so because the
interest rate paid by a contractor for needed capital typically would
be higher than if the improvements were funded through appropriations.
Inevitably, by opting to use a share-in-savings contract, the federal
agency would have to take into account the contractor's higher cost of
financing than if the agency had funded the project itself. Another
area of concern is how share-in-savings contracts should be reflected
in the federal budget, an issue about which federal budget agencies
disagree. On the one hand, OMB believes that share-in-savings budget
authority, contract obligations, and outlays should be recognized on a
year-to-year basis. In other words, only the first year's costs, not
the cumulative annual costs of energy share-in-savings contracts, would
need to be reflected in the agency's budget in the year the contract is
awarded. On the other hand, the Congressional Budget Office believes
that the budget should reflect long term share-in-savings contract
commitments as new obligations at the time the contract is signed,
consistent with government accounting principles.[Footnote 6] In a
recent report, we raised similar concerns.[Footnote 7] Finally, the
extent to which energy savings cover costs remains uncertain, and we
have recommended more oversight of energy savings performance contracts
and other steps to ensure cost-effectiveness.[Footnote 8]
Share-in-Savings Regulations and Guidance Lag Behind Progress in Other
Areas:
Final regulations to implement the share-in-savings authority in the E-
Government Act of 2002 have yet to be published. Additional guidance on
the use of this method also lags behind the progress made in
establishing a share-in-savings program office and providing agencies
with some share-in-savings tools and related training.
The E-Government Act required that the Federal Acquisition Regulation
(FAR) be revised by mid-September 2003 to implement the share-in-
savings authority contained in the act. It was not until July 2004,
however, that a proposed revision to the FAR was published in the
Federal Register for public comment. As of July 2005, the final FAR
rule was still awaiting approval by OMB's Office of Federal Procurement
Policy. The act also required the OMB to develop guidance for
techniques to permit agencies to retain a portion of resulting
financial savings after payment of the contractor's share of the
savings. OMB officials told us they plan to develop a broader policy
memorandum providing agencies with additional guidelines to ensure
share-in-savings contracting success. As of July 2005, the policy
memorandum had not been issued. OMB officials indicated, however, that
implementing regulations and share-in-savings guidance would be
completed in the near future.
The act assigned GSA responsibility for helping federal agencies
identify information technology projects as potential share-in-savings
candidates and for providing guidance on determining share ratios and
baselines from which savings may be measured. GSA established a share-
in-savings program office in February 2003, and in July of that year
launched two Web-based tools to help agencies identify and evaluate
share-in-savings opportunities. The Business Case Decision Tool is
designed to assist agencies in developing business cases on the basis
of realistic baseline costs to ensure that use of share-in-savings
contracts would be cost-effective. The Proposal Evaluation Tool is used
to evaluate the merits of contractor share-in-savings proposals.
According to the program office director, agencies started using the
Business Case Decision Tool in September 2003. As of March 2005,
various agencies have used the tool to conduct 219 analyses, resulting
in the identification of 15 information technology projects as
potential share-in-savings candidates. Although some of these 15
potential projects are still under consideration, various steps remain
to be completed, and none has yet resulted in a share-in-savings
contract award.
GSA hired a contractor to train agencies in identifying suitable share-
in-savings projects, structuring solicitations, and analyzing
proposals. The training, which has been available to agencies since
July 2004, is a 2-day course and costs $650 per student. As of March
21, 2005, a total of 21 federal acquisition employees from six agencies
had taken the training. The same training is now being offered by the
Federal Acquisition Institute, an entity within OMB charged with
developing the curriculum needed to train the civilian agency
workforce.[Footnote 9] Two classes have been scheduled, one in June
2005, and the other before the E-Government Act's authority expires in
September 2005. The Federal Acquisition Institute may exercise an
option to provide five additional share-in-savings training classes in
fiscal year 2006.
Finally, in July 2004, GSA established blanket purchase agreements with
six contractors; each of which is a major information technology
solution provider with commercial share-in-savings contracting
experience. A blanket purchase agreement is a simplified method of
filling the government's anticipated repetitive needs for supplies or
services by establishing charge accounts with qualified sources of
supply. The agreements may subsequently be used by agencies to procure
specific goods or services. As of June 2005, however, since no share-
in-savings project is ready for the contracting phase, no agencies have
used the blanket purchase agreements.
Use of Share-in-Savings Authority Hindered by Issues Related to
Regulations, Baseline Costs, Up-front Funding, and Training:
Officials from 11 agencies cited several reasons the share-in-savings
contracting authority for information technology has not led to the
award of share-in-savings contracts. Reasons include a lack of final
implementing regulations and OMB guidance on how to budget and account
for retained savings and the difficulty of determining baseline costs.
Some officials said contractors are reluctant to get involved in share-
in-savings contracts because the return on investment is believed to be
too low. In addition, officials told us that even though contractors
would provide up-front funding for a share-in-savings contract, some
amount of appropriated funds would still be required. Officials also
said that too few acquisition personnel have been trained to use this
innovative contracting technique.
Implementing Regulations and OMB Guidance Not Yet Issued:
Agency officials told us they are reluctant to use share-in-savings
contracting until the FAR implementing regulations are finalized.
Because share-in-savings contracting is considered innovative within
the federal government, agency officials said they need clear
regulations to understand when and how to use this technique.
We also highlighted the need for guidance in our March 2003
correspondence to OMB's Office of Federal Procurement Policy.[Footnote
10] Given the federal government's limited experience with share-in-
savings contracting, as well as limited understanding of the conditions
that foster successful implementation in commercial share-in-savings
contracts, we reported that members of the federal acquisition
workforce need to understand and appropriately apply the E-Government
Act's new authority. Toward that end, we recommended that OMB develop
the necessary guidance. To date, OMB has not responded to our
recommendation. While GSA's guidance may be helpful in identifying
potential candidates, additional guidance is still needed from OMB on
accounting for savings in excess of amounts paid to the contractor and
developing sound business cases with firm baselines.
Baseline Costs Difficult to Determine:
Another reason agency officials say they have not used share-in-savings
contracting is the difficulty in determining a baseline cost. A
baseline cost is the cost of current operations. Without an accurate
baseline, agreed to by the agency as well as the contractor, savings
cannot be correctly measured, leaving both the agency and the
contractor at risk of not receiving their fair share of savings, if any
are generated. The contractor cannot determine with any certainty that
the savings would cover its costs, let alone result in a profit. Our
past work on commercial use of share-in-savings contracts suggests that
the business process and administrative cost information necessary to
calculate a baseline may not be available in some cases.[Footnote 11]
Agency officials told us that in the information technology area,
calculating a baseline can be very complicated. It can be difficult,
for example, to isolate the direct savings from a reduction in the time
an employee spends on a new task as a result of a new, automated
information system replacing one or more old tasks. Further, in our
past financial reporting, we have described the type of systemic
challenges agencies face in accurately determining the baseline costs
of programs, which could impede agencies' use of share-in-savings
contracting. For example, we reported in the 2004 Financial Report of
the United States Government that the federal government's ability to
reliably measure the full costs of certain programs is hampered by a
significant number of material weaknesses related to financial systems,
fundamental recordkeeping, financial reporting, and incomplete
documentation.[Footnote 12]
Return on Investment Believed to Be Too Low:
Even if a baseline could be established, most agency officials we
interviewed said an obstacle to using share-in-savings contracting
would be not having a potential savings pool large enough to provide
contractors an appealing return on investment. The GSA share-in-savings
program office and the Office of the Secretary of Defense's Business
Initiative Council determined that a successful share-in-savings
business case requires a savings-to-investment ratio of at least 3 to
1. However, a business case review in 2004 by the Defense Commissary
Agency illustrates the potential difficulty in meeting that target.
Last year, that agency determined that an inadequate return on
investment was a primary reason a share-in-savings contract would not
be used to buy a replacement retail transaction system for its hundreds
of commissaries.[Footnote 13] On two occasions, the agency requested
information from contractors on installing a replacement retail
transaction system under a share-in-savings contract. Concerns about
fewer commissaries in the future, as a result of anticipated military
base closures, and other cost uncertainties led contractors to request
a guaranteed minimum number of system replacements to protect profit
margins associated with their initial investments. The agency did not
provide minimum guarantees, and a share-in-savings contract was not
awarded.
Appropriations Still Necessary:
Another reason, according to officials, agencies may not have used
share-in-savings contracting to acquire information technology
solutions is that the E-Government Act requires funds to be available
for the first year of the contract. Even though the contractor pays the
up-front costs, the agency still needs appropriated funds to cover
cancellation and termination liability, in the event the government
ends the project.[Footnote 14] However, agency officials advised that
these funds can represent a significant share of the total cost of an
information technology project. Accordingly, so that any savings would
stay with the government, agency officials said they are motivated to
use appropriated funds for information technology projects and to award
traditional contracts. This is the reason that the Internal Revenue
Service decided not to award a share-in-savings contract to modernize
its taxpayer identification system for non-U.S. citizens.[Footnote 15]
In the past, when we interviewed Department of Energy officials about
using share-in-savings contracts for energy-efficiency improvements,
they said this contracting technique is best used to finance projects
when federal funding is thought to be unavailable.[Footnote 16]
According to Department of Energy officials, they would prefer the
agency pay for the entire project, because all of the savings would
stay with the government.
Few Acquisition Personnel Have Been Trained:
We have previously reported that training on the E-Government Act's
share-in-savings acquisition initiative would be essential to its
effective implementation.[Footnote 17] However, few acquisition
personnel have been trained on when and how to use share-in-savings
contracting. As of March 21, 2005, only 21 federal acquisition
employees had received share-in-savings training from GSA's share-in-
savings training contractor. The training developed by the contractor
addresses the technical and organizational share-in-savings issues
needed to be understood for successful contracts. For example,
negotiating a share-in-savings contract can be a highly technical and
time-consuming process and requires a certain level of business acumen.
As covered in the training, the use of share-in-savings contracting
demands a good understanding of requirements; agreement on baseline
costs, use of metrics to measure savings, confidence in savings-share
ratios; and the identification and mitigation of risks.
Conclusions:
With only a few months remaining before authority for the initiative is
due to expire, no federal agencies have used the share-in-savings
authority provided by the E-Government Act to award contracts.
Therefore, neither OMB nor we has a basis for assessing the
effectiveness of share-in-savings contracts for information technology
to improve agencies' mission-related or administrative processes.
Agencies' limited exposure to share-in-savings contracting for
information technology has not extended much beyond the initial steps
of analyzing potential business cases. As a result, the act's authority
has not actually been tested.
Since OMB expects the implementing regulations and share-in-savings
guidance to be issued soon, at least some of the reasons agencies cited
for not using the share-in-savings contracting authority for
information technology soon could be addressed. Although it is too
early to know whether or not other reasons can be overcome, the
issuance of implementing regulations and OMB guidance may soon create
better conditions under which to test the share-in-savings initiative.
If Congress wants to test the effectiveness of share-in-savings
contracts for information technology, Congress would need to extend the
authority beyond the scheduled September 2005 expiration.
Agency Comments and Our Evaluation:
We received comments on a draft of this report from OMB and GSA. Both
agencies concurred with the report.
In oral comments, OMB officials acknowledged that issuance of the share-
in-savings implementing regulations and OMB guidance has been delayed
longer than anticipated. The officials cited the need to ensure that
the regulations and OMB guidance are clear on how to successfully
manage share-in-savings complexities, such as establishing a baseline,
determining a reasonable return on investment, and ultimately
developing a sound business case. OMB officials commented that shortly
after enactment of the E-Government Act, the agency started efforts to
develop the share-in-savings regulations and guidance and noted the
October 2003 advanced notice of proposed rulemaking and the July 2004
publication of the proposed rule as examples of the results of such
efforts. OMB officials also noted that the final rule was drafted in
February 2005. However, OMB officials told us they continue to work
with other agencies to ensure that the final policy is clear on how to
successfully handle the complexities of the share-in-savings planning
and budgeting processes. Although OMB officials could not tell us
precisely when, they anticipate that the final rule and OMB guidance
will be published in the near future.
In e-mailed comments, GSA generally agreed with our report but believed
the title of the report did not accurately describe the efforts taken
to test share-in-savings. GSA commented that the report's title implies
that nothing has been done, despite the agency's efforts in promoting
the use of share-in-savings and that certain portions of the concept
have been tested, although outside of the E-Government Act's authority.
We recognize that the government has used share-in-savings contracts
under other authorities. However, the government has not awarded any
share-in-savings contracts under the E-Government Act's authority, and
therefore, the authority has not been tested. We also recognize in the
report the work GSA did to promote the use of share-in-savings
contracting.
Scope and Methodology:
To determine the regulations, guidance, and program-level support that
exist to assist agencies in developing share-in-savings contracts, we
interviewed officials and obtained documentation from OMB and GSA. We
participated in a 1-day course adapted from GSA's 2-day training
course, which was led by the contractor, Beacon Associates Inc. of Bel
Air, Maryland.
To determine the reasons agencies have not entered into share-in-
savings contracts, we interviewed officials from seven defense and
civilian agencies that used contracting vehicles other than share-in-
savings to award high dollar-value contracts for information technology
in fiscal year 2003. We identified the agencies with high-dollar
information technology spending by reviewing contract actions reported
in the Federal Procurement Data System, the government's repository for
contracting data. Though that system has recognized limitations, it was
sufficient for purposes of identifying a mix of defense and civilian
agencies with high levels of spending on information technology.
We interviewed agency officials who had shown an interest in using
share-in-savings contracts to buy information technology. We identified
these officials by reviewing their agencies' Exhibit 300, an OMB budget
justification and reporting requirements document that is required for
the procurement of major information technology systems. We also
contacted the GSA for help in identifying agencies that explored share-
in-savings opportunities. Finally, we interviewed and obtained
information from the Department of Defense's Business Initiatives
Council. The Department of Defense established the council to improve
business operations by identifying and implementing business reforms,
such as share-in-savings contracting for information technology. The
agencies we obtained information from as to why they opted not to use
the E-Government Act's share-in-savings contracting authority are the
Army, Navy, Air Force, and the Defense Commissary Agency in the
Department of Defense; the Departments of Agriculture, Health and Human
Services, Interior, and Justice; GSA; the Internal Revenue Service; and
the Office of Personnel Management.
We are sending copies of this report to interested congressional
committees, the Director of OMB, the Administrator of General Services,
and the chief acquisition officers at the 11 agencies from which we
obtained information. We will also make copies available to others upon
request. In addition, the report will be available at no charge on the
GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me at (202) 512-4841 or woodsw@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Major contributors to this report were
Carolyn Kirby, Assistant Director; Daniel Hauser; Noah Bleicher; Lily
Chin; Johnetta Gatlin-Brown; and Russell Reiter.
Signed by:
William T. Woods:
Director:
Acquisition and Sourcing Management:
FOOTNOTES
[1] Section 210, Public Law 107-347 (Dec. 17, 2002), codified at 41
U.S.C. § 266a and 10 U.S.C. § 2332.
[2] GAO, Contract Management: Commercial Use of Share-in-Savings
Contracting, GAO-03-327 (Washington, D.C.: Jan. 31, 2003) and GAO,
Contract Management: OFPP Policy Regarding Share-in-Savings Contracting
Pursuant to the E-Government Act of 2002, GAO-03-552R (Washington,
D.C.: Mar. 24, 2003).
[3] These share-in-savings contracts, called Energy Savings Performance
Contracts, were first introduced under the Comprehensive Omnibus Budget
Reconciliation Act of 1985, Public Law 99-272, which amended the
National Energy Conservation Policy Act.
[4] GAO, Energy Savings: Performance Contracts Offer Benefits, but
Vigilance Is Needed to Protect Government Interests, GAO-05-340
(Washington, D.C.: June 22, 2005).
[5] GAO, Capital Financing: Partnerships and Energy Savings Performance
Contracts Raise Budgeting and Monitoring Concerns, GAO-05-55
(Washington, D.C.: Dec. 16, 2004).
[6] Congressional Budget Office, Third-Party Financing of Federal
Projects: Economic and Budget Issue Brief (Washington, D.C.: June 1,
2005).
[7] GAO-05-55.
[8] GAO-05-340.
[9] The Federal Acquisition Institute is under the direction of the
OMB's Office Federal Procurement Policy. The Institute also partners
with the Defense Acquisition University to provide training to both
military and civilian acquisition personnel.
[10] GAO-03-552R.
[11] GAO-03-327.
[12] Our report is included in a report for fiscal year 2004: The
Department of the Treasury, 2004 Financial Report of the United States
Government (Washington, D.C.: December 2004).
[13] The Commissary Advanced Retail Transaction System is to replace
legacy technologies with a commercial, off-the-shelf, point-of-sale
system that includes hardware, software, and related support services,
such as a help desk, maintenance, installation, and on-site consulting
services.
[14] The government has the right to terminate the entire contract at
any time or cancel subsequent program years. If the government chooses
to cancel or terminate the contract, certain amounts may still be owed
to the contractor. The E-Government Act allows the amount of
cancellation or termination liability to be negotiated by the
contracting parties. As an incentive, the act gives agencies various
options to fund these costs. In certain circumstances, agencies can
even enter into share-in-savings contracts if the full costs of
cancellation or termination are not available. However, if an agency
chooses to leave a portion unfunded, first-year funds must still be
available. Also, under the act, the unfunded amount will never be more
than the lesser of $5 million or 25 percent of the total cost of
cancellation or termination.
[15] The Internal Revenue Service assigns an individual taxpayer
identification number to non-U.S. citizens who file tax returns. The
agency's legacy system has become costly, inefficient, and dependent on
redundant manual processes. According to the agency, the modernized
replacement system will reengineer the individual taxpayer
identification and numbering process to eliminate duplicate efforts,
unnecessary clerical hand-offs, and manual processing. The agency had
intended to procure the system with a share-in-savings contract
authorized under the E-Government Act. Instead, the Internal Revenue
Service issued a $2.8 million task order off an existing contract.
[16] GAO, Energy Conservation: Contractors' Efforts at Federally Owned
Sites, GAO/RCED-94-96 (Washington, D.C.: Apr. 29, 1994).
[17] GAO-03-552R.
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