V

M e m o r a n d u m

U n it e d S t a t e s G o v e r n m e n t

FORM Q-11M (142)

R a il r o a d R e t ir e m e n t B o a r d

M ay 7, 2003

L-2003-04

TO Kenneth J. Zoll

Chief Information Officer

FROM Steven A. Bartholo 

G eneral Counsel

SUBJECT : E-Governm ent Act of 2002 

P.L. 107-347

This is in reply to your m em orandum d a te d April 2,2003, regarding section 

210 of the E-Government Act of 2002. That section am en d s title III of the 

Federal Property a n d Administrative Services Act of 1949 by ad d in g a new 

section 317 thereto which authorizes share-in-savings contracts for 

information technology. Pursuant to such a contract, a contractor receives a 

share of cost savings realized by the Governm ent. It also am en d s c h ap ter 

137 of title 10 regarding military procurem ent.

Section 317(b)(3)(B) of the a m e n d e d Federal Property a n d Administrative 

Services Act of 1949 limits the num ber of such contracts which m ay b e 

entered into "by all executive agencies to which this c h a p te r applies" to five. 

It should b e noted that, although this lan g u ag e is am biguous as to w hether 

e a c h a g e n c y is limited to five such contracts or all ag en cies are limited to a 

total of five Government-wide, the legislative history of the am e n d m e n t 

indicates that e a c h a g en c y would b e authorized to enter into five such 

share-in-savings contracts (H.R. Rep. No. 787,107th Cong., 2d Sess., pt. 1, a t 

7 4 (2 0 0 2 )).
The House of R epresentatives report states th at th e a m e n d m e n t w ould:

authorize governm ent-w ide th e use of sh a re [-]in[-]savings 

co n tracts for information technology. These co n tracts 

represent a n innovative a p p ro a c h to e n c o u ra g e industry to 

share creativ e technology solutions with th e G overnm ent. 

Through th ese co n tracts a g e n c ie s c a n lower their costs a n d 

im prove service delivery without large "up front" investm ents 

as th e co n tracto r provides th e technology a n d is 

c o m p e n sa te d by receiving a portion of savings a c h ie v e d .

The [am endm ent] is b a se d upon a provision c o n ta in e d in th e 

Services Acquisition Reform Act of 2002, H.R. 3832.

The [am endm ent] w ould authorize a g e n c ie s to en ter into 

share-in-savings co n tracts for information tech n o lo g y for a 

term of 5 years, a n d with th e ap p ro p riate ap p ro v al for up to 

10 years, to p a y contractors from th e savings realized, a n d to 

retain those savings th at e x c e e d th e am o u n t p aid to th e 

contractor. The section w ould perm it a g e n c ie s to use various 

options for funding can cellatio n or term ination costs a n d 

w ould perm it th e can cellatio n or term ination am o u n t to b e 

n e g o tiate d by th e parties. The section w ould require th at 

co n tracts a w a rd e d pursuant to this section include a 

provision containing a quantifiable baseline for savings th a t is 

a p p ro v e d by th e ag en cy 's senior p ro cu rem en t executive. 

Currently, a g e n c ie s subject to title 10 of th e U.S. C o d e w ould 

b e perm itted to en ter into a n a g g re g a te of up to 5 co n tracts 

e a c h during fiscal years 2003,2004, a n d 2005 w h ere funds 

a re only av ailable for th e first fiscal y ear of th e c o n tra c t a n d 

certain conditions m et. The sam e num ber w ould b e 

authorized for th e sam e period for a g e n c ie s u n d er title 41 of 

th e U.S. C o d e. The num ber of such co n tracts authorized 

w ould increase to a n a g g re g a te of ten for a g e n c ie s u n d er 

e a c h title starting 2006. Further, th e [am endm ent] w ould 

require th at th e Federal Acquisition Regulation (FAR) b e 

revised to im plem ent this section a n d to provide for such 

m atters as th e use of com petitive p ro ced u res a n d innovative 

provisions for technology refreshm ent, [and] ap p ro p riate 

regulatory flexibility to facilitate th e use of such co n tracts.
t

- 3 -

Further, GSA is to provide additional g u id a n c e to a g e n c ie s in 

identifying additional opportunities for th e use of th ese 

co n tracts a n d for determ ining baselines a n d saving share 

ratios. Finally, th e section w ould require th e Director of OMB 

to report to C ongress tw o years after e n a c tm e n t describing 

th e num ber of share-in[-] savings co n tracts e n te re d into a n d 

m aking reco m m en d atio n s for c h a n g e s in law n e e d e d to 

e n c o u ra g e their use a n d th e GAO w ould review th e OMB 

report. The provisions w ould sunset in S ep tem b er 2009.

While it d o e s not a p p e a r to b e required th at th e regulatory a m e n d m e n ts 

m entioned a b o v e b e in p la c e before a g e n c ie s m ay m ak e use of this 

legislation, it is u n clear from the legislation itself, a b se n t such regulations, 

how a baseline is to b e determ ined. S ee section 317(a)(4) w hich provides 

in pertinent part that, “C ontracts a w a rd e d pursuant to th e authority of this 

section shall include a provision containing a quantifiable baseline th at is 

to b e th e basis upon which a savings share ratio is established th at 

governs th e am o u n t of p ay m en t a co n tracto r is to receiv e u n d er th e 

co n tract. * * *"

It should also b e n o ted th at there a re a num ber of limitations regarding 

p ro cu rem en t in co n n ectio n with share-in-savings co n tracts. Section 

317(b)(2) requires th at th e “am o u n t p a y a b le in th e e v e n t of can cellatio n 

or term ination of a share-in-savings co n tra ct shall b e n e g o tia te d with the 

co n tracto r a t th e tim e th e c o n tra ct is e n te red into." If funds a re not 

av ailable for th e full costs of can cellatio n or term ination, a n a g e n c y m ay 

still en ter into a share-in-savings c o n tra ct un d er certain conditions: th e 

am o u n t of u n funded contingent liability d o e s not e x c e e d th e lesser of 25 

p e rc e n t of th e estim ated costs of a can cellatio n or term ination, or 

$5,000,000, a n d th e u n funded contingent liability in excess of $1,000,000 

has b e e n a p p ro v e d by th e Office of M a n ag e m en t a n d B udget.

R egarding th e utilization of the funds sav ed by a n a g e n c y through 

successful use of share-in-savings contracts, section 317(a)(5)(A) provides 

in pertinent part that, "* * * Except as provided in su b p a ra g ra p h (B), 

savings shall b e cred ited to th e appropriation or fund ag ain st w hich 

c h arg es w ere m a d e to carry out the c o n tra c t a n d shall b e used for 

information technology." S u b p arag rap h B provides that:

Amounts retain ed by th e a g e n c y under this subsection shall -
(i) without further appropriation, rem ain av ailab le until 

e x p e n d e d ; a n d

(ii) b e ap p lied first to fund any co n tin g en t liabilities 

a sso ciated with share-in-savings procurem ents th at a re not fully 

funded.

It should b e n o ted th at no share-in-savings c o n tra c t m ay b e e n te re d into 

after S ep tem b er 30,2005 (see section 317(d)).

You inquire w h eth er th e share-in-savings provisions ap p ly to th e RRB. The 

definition of "ag en cy " w hich applies to title III of th e Federal Property a n d 

Administrative Services Act of 1949 is sufficiently b ro ad so as to ap p ly to 

virtually any Federal a g e n c y , including th e RRB; "As u sed in titles I through 

VI of this Act -(a) The term ‘executive a g e n c y ' m ean s an y executive 

d e p a rtm e n t or in d e p e n d e n t establishm ent in th e executive b ran c h of th e 

G overnm ent, including any wholly o w n ed G overnm ent corporation."

40 U.S.C. § 472. In light of this definition, it is our opinion in th a t th e sharein-savings provisions d o apply to the RRB. However, it m ay b e advisable 

to w ait for th e issuance of regulations a n d g u id a n c e b efo re pursuing this 

type of co n tract.

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