Roughly 30 agencies are working on 45 programs that may use share-in-savings contracts, but the former head of federal procurement is trying to put the brakes on the use of the buying method.
Angela Styles, who resigned from federal work earlier this year after more than three years as administrator for the Office of Federal Procurement Policy, criticized the administration's zeal for this buying method and warned agencies that share-in-savings contracts must be used judiciously.
In the Procurement Lawyer newsletter published by the American Bar Association, Styles said share-in-savings contracting uses "shady financing and accounting techniques" and moves federal IT buys away from "public and congressional scrutiny."
Under share-in-savings contracts, a vendor pays for developing a system and is compensated from savings it generates for the agency.
"There are instances when share-in-savings are appropriate," Styles said. "It is not all roses, though. It needs to be done thoughtfully because there are constitutional implications. People have tried to sell it as great way to contract, but it certainly shouldn't be the way to buy things when agencies can't get money from the Office of Management and Budget or Congress."
Styles, now a partner with Washington law firm Miller & Chevalier, has come under fire from agency and congressional officials who support share-in-savings.
A senior policy official for the General Services Administration, who requested anonymity, said Styles "clearly misses the point."
And a Capitol Hill staff member charged that Styles' work as an attorney for the American Federation of Government Employees, a union representing federal workers, has influenced her criticism.
"AFGE, through Angela, is attempting to further the myth that share-in-savings contracts amount to outsourcing," the staff member said. "AFGE is, of course, motivated by concern for its membership rolls; Congress, on the other hand, is beholden to taxpayers."
AFGE paid for Styles' research.
Share-in-savings is not a new concept, but it received renewed attention after the E-Government Act of 2002 opened the door for agencies to award 10 share-in-savings contracts for IT services in fiscal 2004 and fiscal 2005.
Rep. Tom Davis (R-Va.), chairman of the House Government Reform Committee, wants to extend share-in-savings for all contracts under the Acquisition System Improvement Act, HR 4228.
But so far there have been no requests for proposals for share-in-savings deals, because the Federal Acquisition Regulations Council and OMB have not approved the final rule on how to conduct such buys. OMB also is developing draft guidance on how agencies should manage the savings they receive.
Styles, who expressed surprise that the provision remained in the E-Government Act, said one of her biggest concerns about the share-in-savings legislation is that it does not limit how much contractors can make from savings nor does it limit the government's monetary risk.
"Virtually unlimited taxpayer dollars are at risk because the E-Government Act and H.R. 4228 have no limits on the undefined savings that can be shared with the private-sector contractor," Styles noted. "Without any constraints, the E-Government Act and H.R. 4228 allow agencies to mortgage billions of dollars in future spending."
She also said it is difficult to measure savings and that some measurements are often misleading. When Styles was at OFPP, she said, she requested evidence of documented savings at the federal, state or local level -- and none could be found.
The GSA senior policy official countered Styles' claims about how to find savings. The official said savings are not measured only by money returned to the taxpayer, but also by cost avoidance and a greater return on investment.
The official said government could mitigate the risk of giving the contractor too much money by negotiating the amount of profit based on performance levels.
"Ms. Styles' objection to the possible profit that may be paid to a contractor under share-in-savings is curious," the official said. "During her tenure [at OFPP], she objected to time and materials contracts and wanted the use of fixed-price contracts only. In a fixed-price contract, the government has no right to question the amount of profit a contractor makes, no matter how they perform, as long as they perform in accordance with the contract."
The congressional staff member also said the law requires agencies to set a standard that would govern distribution of the savings.
"Before the contract begins, the baseline must be approved by the agency's senior executive as quantifiable and likely to yield benefits to the agency," the staff member said.
Styles said the government is liable for all costs incurred by contractors, which means even if agencies don't have the money to pay up-front, they would have to find the money should a contractor or the government terminate the contract.