This story today in the Washington Post talks about the federal government's venture into a new contract model. Some quotes:
The Bush administration is encouraging cash-strapped government agencies to fund expensive technology upgrades essentially by handing out IOUs: Consulting companies agree to build computer systems now, and the agencies promise to pay later with the money they save by using modern systems. If an agency does not save any money, it does not pay. It is a good deal for government and a risky, but potentially lucrative, bet for technology companies.Here on more stories on this approach, from GovExec.com, Government Computer News, Washington Technology, and the Tallahassee Democrat. Posted by Marcia Oddi at February 16, 2004 02:42 PMThat, according to government officials, is exactly the point. With major modernization projects at such agencies as the Internal Revenue Service, the Federal Aviation Administration and the FBI stretching out years longer than planned and coming in millions of dollars over budget, rewarding contractors only for results, not their effort, is long overdue, they say. In fact, the "share in savings" contract model is the culmination of a shift in the government's attitude toward buying goods and services that began two decades ago. Before, the government searched for the cheapest widget; now it looks for the best one.
"The traditional way is low risk and low profit for the contractor and high risk to the government," said Steven Kelman, a public management professor at Harvard and former chief of procurement policy under President Bill Clinton. But share-in-savings contracts are the opposite, said Kelman, who likens payments under the novel agreements to the contingency fees of trial lawyers.
In theory, the idea seems like a win-win solution. Poor agencies can ask huge computer services companies to foot intimidating upfront costs, and the companies get business that otherwise would not exist. A successful project will yield savings, and thus guaranteed revenue for several years for the contractor. The companies build in fatter profit margins when negotiating with the government, to compensate for the delay in payment and the possibility that a project may bomb.
But in practice, the concept has proved tricky to sell.
Although states have long used these deliver-now, pay-later contracts to buy automated tax systems -- the contractor collects a fee for every tax return processed -- the federal government has employed this type of contract only a few times to fund technology upgrades. Congress granted agencies the authority to use the contract model in 1996, but budget surpluses created few incentives to try it then. In fact, no one in the government is tracking how much agencies are spending under these contracts.