Report to Congressional Committees

United States Government Accountability Office

GAO

July 2005 FEDERAL 

CONTRACTING 

Share-in-Savings 

Initiative Not Yet 

Tested 

GAO-05-736 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

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. 

Highlights of GAO-05-736, a report to 

congressional committees 

July 2005

FEDERAL CONTRACTING 

Share-in-Savings Initiative Not Yet Tested 

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 sharein-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-insavings 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-insavings 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-insavings 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-insavings 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. 

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-insavings contracting for information 

technology and required 

implementing regulations by midSeptember 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. 
Page i GAO-05-736 Share-in-Savings Contracts 

Letter 1

Results in Brief 2 

Background 3 

Share-in-Savings Regulations and Guidance Lag Behind Progress in 

Other Areas 5 

Use of Share-in-Savings Authority Hindered by Issues Related to 

Regulations, Baseline Costs, Up-front Funding, and Training 7 

Conclusions 11 

Agency Comments 11 

Scope and Methodology 12 

Abbreviations 

FAR Federal Acquisition Regulation 

GSA General Services Administration 

OMB Office of Management and Budget 

Contents 

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Page 1 GAO-05-736 Share-in-Savings Contracts 

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.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 

 1

Section 210, Public Law 107-347 (Dec. 17, 2002), codified at 41 U.S.C. § 266a and 10 U.S.C. 

§ 2332. 

United States Government Accountability Office

Washington, DC 20548 
Page 2 GAO-05-736 Share-in-Savings Contracts 

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-insavings 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. 

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-insavings 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-insavings 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 

Results in Brief 
Page 3 GAO-05-736 Share-in-Savings Contracts 

contractors. Agency officials told us they are reluctant to use share-insavings 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. 

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-insavings 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 

Background 
Page 4 GAO-05-736 Share-in-Savings Contracts 

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.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-insavings contract for private financing of energy-efficiency improvements 

in federal facilities.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.4

 

We have raised questions, however, about the use of share-in-savings 

contracts for energy-efficiency improvements. For example, a number of 

 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). 
Page 5 GAO-05-736 Share-in-Savings Contracts 

factors may cause third-party financing of long-term capital improvement 

projects to be more expensive than the direct use of available 

appropriated funds.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-insavings 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. 6 In a recent 

report, we raised similar concerns.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.8

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-insavings authority contained in the act. It was not until July 2004, however, 

 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. 

Share-in-Savings 

Regulations and 

Guidance Lag Behind 

Progress in Other 

Areas 
Page 6 GAO-05-736 Share-in-Savings Contracts 

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 costeffective. 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-insavings contract award. 

GSA hired a contractor to train agencies in identifying suitable share-insavings 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 
Page 7 GAO-05-736 Share-in-Savings Contracts 

needed to train the civilian agency workforce.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. 

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. 

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. 

 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. 

Use of Share-inSavings Authority 

Hindered by Issues 

Related to 

Regulations, Baseline 

Costs, Up-front 

Funding, and Training 

Implementing Regulations 

and OMB Guidance Not 

Yet Issued 
Page 8 GAO-05-736 Share-in-Savings Contracts 

We also highlighted the need for guidance in our March 2003 

correspondence to OMB’s Office of Federal Procurement Policy.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. 

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-insavings contracts suggests that the business process and administrative 

cost information necessary to calculate a baseline may not be available in 

some cases.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 

 10GAO-03-552R. 

11GAO-03-327. 

Baseline Costs Difficult to 

Determine 
Page 9 GAO-05-736 Share-in-Savings Contracts 

material weaknesses related to financial systems, fundamental 

recordkeeping, financial reporting, and incomplete documentation.12

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.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. 

Another reason, according to officials, agencies may not have used sharein-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 

 12Our 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). 

13The 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. 

Return on Investment 

Believed to Be Too Low 

Appropriations Still 

Necessary 
Page 10 GAO-05-736 Share-in-Savings Contracts 

termination liability, in the event the government ends the project.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.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.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. 

We have previously reported that training on the E-Government Act’s 

share-in-savings acquisition initiative would be essential to its effective 

implementation.17 However, few acquisition personnel have been trained 

on when and how to use share-in-savings contracting. As of March 21, 

 14The 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. 

15The Internal Revenue Service assigns an individual taxpayer identification number to nonU.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. 

16GAO, Energy Conservation: Contractors’ Efforts at Federally Owned Sites, 

GAO/RCED-94-96 (Washington, D.C.: Apr. 29, 1994). 

17GAO-03-552R. 

Few Acquisition Personnel 

Have Been Trained 
Page 11 GAO-05-736 Share-in-Savings Contracts 

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 savingsshare ratios; and the identification and mitigation of risks. 

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. 

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 sharein-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 

Conclusions 

Agency Comments 

and Our Evaluation 
Page 12 GAO-05-736 Share-in-Savings Contracts 

business case. OMB officials commented that shortly after enactment of 

the E-Government Act, the agency started efforts to develop the share-insavings 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-insavings 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. 

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. 

Scope and 

Methodology 
Page 13 GAO-05-736 Share-in-Savings Contracts 

We interviewed agency officials who had shown an interest in using sharein-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. 

William T. Woods 

Director 

Acquisition and Sourcing Management 

(120404) 
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