	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. 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  December 2004, the OMB reported that no contracts for information  technology projects had been awarded. OMB officials indicated,  however, that implementing regulations and share-in-savings guidance  would be completed in the near future. 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. 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. 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. 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. Officials also said that too few acquisition  personnel have been trained to use this innovative contracting technique. 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. 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. 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. 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. 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.
Why GAO Did This Study

Federal 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.

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 until the authority is tested.