[Federal Register Volume 69, Number 127 (Friday, July 2, 2004)]
[Proposed Rules]
[Pages 40514-40517]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-15028]
[[Page 40513]]
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Part IV
Department of Defense
General Services Administration
National Aeronautics and Space Administration
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48 CFR Parts 16 and 39
Federal Acquisition Regulation; Share-in-Savings Contracting; Proposed
Rule
Federal Register / Vol. 69, No. 127 / Friday, July 2, 2004 / Proposed
Rules
[[Page 40514]]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 16 and 39
[FAR Case 2003-008]
RIN 9000-AJ74
Federal Acquisition Regulation; Share-in-Savings Contracting
AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Proposed rule.
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SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils) are proposing to amend the
Federal Acquisition Regulation (FAR) to implement Section 210 of the E-
Government Act of 2002. Section 210 authorizes Governmentwide use of
Share-in-Savings (SIS) contracts for information technology (IT). SIS
contracts offer an innovative approach for encouraging industry to
share creative technology solutions with the Government. Through a
properly structured SIS contract, agencies may lower costs and improve
service delivery without large ``up front'' investments by having the
contractor provide the technology investment and allowing the
contractor to share with the government in the savings achieved.
DATES: Interested parties should submit comments in writing on or
before August 31, 2004 to be considered in the formulation of a final
rule.
ADDRESSES: Submit comments identified by FAR case 2003-008 by any of
the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Agency Web Site: http://www.acqnet.gov/far/ProposedRules/proposed.htm. Click on the FAR Case number to submit comments.
E-mail: [email protected]. Include FAR case 2003-
008 in the subject line of the message.
Fax: 202-501-4067.
Mail: General Services Administration, Regulatory
Secretariat (MVA), 1800 F Street, NW, Room 4035, ATTN: Laurie Duarte,
Washington, DC 20405.
Instructions: All submissions received must include the agency name
and case number for this rulemaking. All comments received will be
posted without change to http://www.acqnet.gov/far/ProposedRules/proposed.htm, including any personal information provided.
Please submit comments only and cite FAR case 2003-008 in all
correspondence related to this case.
FOR FURTHER INFORMATION CONTACT: For general information, contact the
FAR Secretariat, Room 4037, GS Building, Washington, DC 20405, (202)
501-4755. For clarification of content, contact Craig Goral, Program
Analyst, at 202-501-3856, or by e-mail at [email protected]. Please
cite FAR case 2003-008.
SUPPLEMENTARY INFORMATION:
A. Background
Section 210 of the E-Government Act amends the Armed Services
Procurement Act and the Federal Property and Administrative Services
Act to address the use of SIS contracts for IT. Share-in-Savings is an
innovative, performance-based concept that is intended to help an
agency leverage its limited resources to improve or accelerate mission-
related or administrative processes to meet strategic goals and
objectives and lower costs for the taxpayer. Under an SIS contract, the
contractor finances the work and then shares with the agency in the
savings generated from contract performance. In general, agencies would
agree to pay the contractor for services performed only if savings are
realized and, in such cases, only a portion of the total savings
realized.
Section 210, which sunsets at the end of 2005, authorizes an agency
that awards an SIS contract for IT to retain its share of the savings,
with certain exceptions. As a general rule, agencies would be required
to ensure that funds are available and sufficient to make payments with
respect to the first fiscal year of the contract and cover termination
or cancellation costs. However, section 210 authorizes award of up to
ten contracts (i.e., 5 among DOD, NASA, and the Coast Guard, and 5
among other agencies) during fiscal years 2004, and 2005 when funds are
not made specifically available for the full costs of cancellation or
termination of the contract--provided that the amount of unfunded
contingent liability associated with cancellation and termination does
not exceed the lesser of (1) 25 percent of the estimated costs of a
cancellation or termination; or (2) $5 million. In signing the E-
Government Act into law, the President stated that the executive branch
shall ``limit authorized waivers for funding of potential termination
costs to appropriate circumstances, so as to minimize the financial
risk to the government'' and ensure SIS contracts are operated
according to sound fiscal policy. Finally, SIS contracts entered into
under section 210 are generally to be limited to a performance period
not greater than 5 years, but may, under certain circumstances, and
with appropriate approvals, be awarded for a period of up to 10 years.
On October 1, 2003, the Councils issued an advance notice of
proposed rulemaking to solicit input for amendments to the FAR that
would motivate contractors and successfully capture the benefits of SIS
contracting. The ANPR included draft amendments reflecting the
Councils' preliminary thinking. The Councils have used the draft
amendments in the ANPR as a baseline for this rulemaking. Based on
responses to the ANPR, however, the draft amendments have been revised
to--
Emphasize the need for an open and collaborative
environment, both among interested stakeholders within government
(e.g., program, budget, finance, and legal offices) and between
Government and industry to facilitate due diligence and mitigate risk;
Provide additional guidance to help agencies develop
business cases to justify the use of SIS, including definitions of
``benefit pool,'' ``current baseline,'' and ``projected baseline,'' and
elements for successful analysis;
Specify options for seeking competition;
Describe considerations that may establish best value in
the context of SIS contracting; and
Assist contracting officers in determining what clauses
need to be included in SIS contracts.
One commenter urged that the final FAR implementation make clear
that some of the basic elements of SIS contracting are not dependent on
the express authority provided by section 210 and therefore do not
expire when section 210 sunsets. The Councils continue to evaluate
whether certain guidance, presently proposed for FAR Subpart 39.3,
should be addressed in other FAR parts.
The Councils welcome further public comment for consideration in
finalizing this proposed rule and potentially for distributing to
agencies for their use in preparing related guidance. The public is
still encouraged to comment on the same nine areas identified in the
ANPR (see the Federal Register at 68 FR 56614, October 1, 2003), with
special emphasis on the following expanded area:
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Cancellation and termination: How, if at all, should the
determination of cancellation liability differ from the determination
of termination liability, when the termination is for other than
default? How, if at all, should the determination of cancellation and
termination costs differ from that used in connection with multi-year
contracts (see FAR 17.106-1(c))?
This is a significant regulatory action and, therefore, is subject
to review under Section 6(b) of Executive Order 12866, Regulatory
Planning and Review, dated September 30, 1993. This rule is not a major
rule under 5 U.S.C. 804.
B. Regulatory Flexibility Act
The Councils do not expect this proposed rule to have a significant
economic impact on a substantial number of small entities within the
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq.,
because use of Share-in-Savings contracting will be targeted only to a
limited number of information technology projects, and the impact on
small businesses is not anticipated to be significant. An Initial
Regulatory Flexibility Analysis has, therefore, not been performed. We
invite comments from small businesses and other interested parties. The
Councils will consider comments from small entities concerning the
affected FAR parts in accordance with 5 U.S.C. 610. Interested parties
must submit such comments separately and should cite 5 U.S.C. 601, et
seq. (FAR case 2003-008), in correspondence.
C. Paperwork Reduction Act
The Paperwork Reduction Act does not apply because the proposed
changes to the FAR do not impose information collection requirements
that require the approval of the Office of Management and Budget under
44 U.S.C. 3501, et seq.
List of Subjects in 48 CFR Parts 16 and 39
Government procurement.
Dated: June 25, 2004.
Laura Auletta,
Director, Acquisition Policy Division.
Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 16 and
39 as set forth below:
1. The authority citation for 48 CFR parts 16 and 39 is revised to
read as follows:
PART 16-TYPES OF CONTRACTS
AUTHORITY: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42
U.S.C. 2473(c).
16.401 General
2. Amend section 16.401 by adding paragraph (e) to read as follows:
* * * * *
(e) For related incentive concepts, refer to Subpart 39.3, Share-
in-Savings Contracting, and 23.204, Energy-savings performance
contracts.
PART 39--ACQUISITION OF INFORMATION TECHNOLOGY
3. Add subpart 39.3, consisting of sections 39.300 through 39.309,
to read as follows:
Subpart 39.3--Share-in-Savings Contracting
Sec.
39.300 Scope of subpart.
39.301 Definitions.
39.302 Authority.
39.303 Applicability.
39.306 General.
39.307 Limitations on Share-in-Savings contract period of
performance.
39.308 Procedures.
39.308-1 Formation of an Integrated Project Team (IPT).
39.308-2 Development of the Business Case.
39.308-3 Use of performance-based contracts.
39.308-4 Solicitation of Proposals.
39.309 Cancellation or termination.
39.309-1 Paying for cancellation or termination.
39.309-2 Funding of cancellation or termination.
39.310 FAR clauses.
39.311 Acquisition-unique clauses.
Subpart 39.3--Share-in-Savings Contracting
39.300 Scope of subpart.
This subpart implements Section 210 of the E-Government Act of 2002
(Public Law 107-347) by prescribing policies and procedures for Share-
in-Savings contracts for information technology.
39.301 Definitions.
As used in this subpart--
Benefit Pool--Savings realized based on the net difference between
the current baseline costs and the projected (new) baseline costs
derived from the implementation of the new project or program.
Cancellation means the cancellation (within a contractually
specified time) of the total requirements of all remaining program
years. Cancellation results when the contracting officer--
(1) Notifies the contractor of nonavailability of funds for
contract performance for any subsequent program year; or
(2) Fails to notify the contractor that funds are available for
performance of the succeeding program year requirement.
Current baseline means the estimated total cost to the Government
to implement an information technology project through other than a
Share-in-Savings contract. It includes all costs of ownership,
including procurement, management, operation, maintenance, and
administration.
Projected baseline means the estimated total cost to the Government
to implement an information technology project through a Share-in-
Savings contract.
Savings means--
(1) Monetary savings to an agency; or
(2) Savings in time or other quantifiable benefits realized by the
agency, including enhanced revenues (other than enhanced revenues from
the collection of fees, taxes, debts, claims, or other amounts owed the
Federal Government).
Share-in-Savings contract means a contract under which--
(1) A contractor provides solutions for improving the agency's
mission-related or administrative processes or for accelerating the
achievement of agency missions; and
(2) The Government pays the contractor an amount equal to a portion
of the quantifiable savings derived by the agency from--
(i) Any improvements in mission-related or administrative processes
that result from implementation of the solution; or
(ii) Acceleration of achievement of agency missions.
39.302 Authority.
The E-Government Act of 2002 (Public Law 107-347) authorizes the
head of an agency to enter into a Share-in-Savings contract for
information technology. The authority under this Act expires on
September 30, 2005.
39.303 Applicability.
This subpart applies only to information technology projects that
are appropriate for Share-in-Savings contracting techniques.
39.304 General.
(a) In general, use of Share-in-Savings contracts should be
considered--
(1) For projects involving significant innovation or process
transformation;
(2) When there is senior level management support within the
agency; and
(3) When there is acknowledgment that the contractor(s) will bear
an unusual risk and an open and collaborative environment during the
entire acquisition cycle is required to help mitigate that risk.
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(b) Use of the share-in savings contract technique does not exempt
agencies from the requirements for acquisition planning (see Subpart
7.1), and an information technology acquisition strategy (see
39.101(b)).
(c) Share-in-Savings contracts that are considered to be major IT
acquisitions in accordance with OMB Circular A-11, section 53.2, are
subject to the requirements of OMB Circular A-11, Part 7, ``Planning,
Budgeting, Acquisitions and Management of Capital Assets.''
39.305 Limitations on Share-in-Savings contract period of performance.
(a) Except as provided in paragraph (b) of this section, a Share-
in-Savings contract shall be awarded for a period of not more than five
years.
(b) A Share-in-Savings contract may be awarded for a period greater
than five years, but not more than 10 years, if other applicable
requirements do not otherwise limit the length of the contract and the
head of the agency determines in writing prior to award of the contract
that--
(1) The level of risk to be assumed and the investment to be
undertaken by the contractor is likely to inhibit the Government from
obtaining the needed information technology competitively at a fair and
reasonable price if the contract is limited in duration to a period of
five years or less; and
(2) Use of the information technology to be acquired is likely to
continue for a period of time sufficient to generate reasonable benefit
for the Government.
39.306 Procedures.
39.306-1 Formation of an Integrated Project Team (IPT).
Agencies are strongly encouraged to form an IPT comprised of
program, acquisition, budget, finance, information technology, and
legal representatives.
39.306-2 Development of the Business Case.
(a) Agencies intending to use this subpart shall develop a business
case. Agencies are strongly encouraged to complete the ``Share-in
Savings Business Case Decision Tool'' at: http://www.gsa.gov/shareinsavings. The information provided from this tool will provide a
preliminary assessment to help determine if the proposed project is
suitable for the share in savings concept.
(b) The business case should minimally include a preliminary
baseline analysis using the applicable elements established in
paragraph (c) of this subsection. The baseline must be quantifiable
since it will be the basis upon which a benefit pool is established to
govern the share ratio and the amount of payment a contractor is to
receive under a contract.
(c) The basic elements of the current and projected baselines are
listed in paragraphs (c)(1) and (c)(2) of this subsection and cover
estimated costs for the expected period of the Share-in-Savings
contract.
(1) The estimated value of all contracts the Government would have
awarded for procurement, management, maintenance, administration, and
operation of the program; and
(2) The costs associated with the Government personnel assigned to
the project.
(d) There must be a net difference between the current and
projected baselines to result in a benefit pool large enough to ensure
reasonable savings to the Government and to cover contractor costs and
incentives commensurate with risk.
39.306-3 Use of performance-based contracts.
Share-in-Savings contracts shall be performance-based contracts.
(See Subpart 37.6.)
39.306-4 Solicitation of Proposals.
(a) Solicitations for Share-in-Savings contracts shall adhere to
the competition requirements of Part 6. Contracting officers may use
any appropriate competitive procedures authorized by the FAR, including
8.404, ``Using schedules,'' and 15.202, ``Advisory multi-step
process''. Each solicitation shall include provisions and evaluation
criteria ensuring that--
(1) The contractor's share of savings reflects the risks involved
and market conditions; and
(2) The Government will realize best value from the contract
including reasonable savings.
(b) When developing proposal evaluation criteria, agencies may
consider the contractor Proposal Evaluation Model located at http://www.gsa.gov/shareinsavings.
39.306-5 Award.
Award shall be made on a best value basis upon consideration of
technical factors, price related factors such as highest life cycle
return on investment to the Government, as well as other factors such
as highest overall net present value return to both the Government and
the contractor.
39.306-6 Managing retained savings.
(a) Agencies may retain savings in excess of the total amount of
savings paid to the contractor under the contract, but may not retain
any portion of such savings that is attributable to a decrease in the
number of civilian employees of the Federal Government performing the
function.
(b) Except as provided in paragraph (c) of this section, savings
shall be credited to the appropriation or fund against which charges
were made to carry out the contract and shall be used for information
technology.
(c) Amounts retained by the agency under this subpart shall--
(1) Without further appropriation, remain available until expended;
and
(2) Be applied first to fund any cancellation or termination
liabilities associated with Share-in-Savings procurements that are not
fully funded.
39.307 Cancellation or termination.
39.307-1 Paying for cancellation or termination.
(a) The amount payable in the event of cancellation or termination
of a Share-in-Savings contract shall be negotiated with the contractor
at the time of contract award.
(b) If funds are not made available for the continuation of a
Share-in-Savings contract in a subsequent fiscal year, the contract
shall be cancelled or terminated. The costs of cancellation or
termination may be paid out of--
(1) Appropriations available for the performance of the contract;
(2) Appropriations available for acquisition of the information
technology procured under the contract, and not otherwise obligated; or
(3) Funds subsequently appropriated for payments of costs of
cancellation or termination, subject to the limitations in 39.307-2.
39.307-2 Funding of cancellation or termination liability.
(a) Except as provided in paragraph (b) of this subsection, the
funds obligated for Share-in-Savings contracts must be sufficient to
cover any potential cancellation and/or termination costs.
(b)(1) The head of an agency may enter into Share-in-Savings
contracts even if funds are not made specifically available for the
full costs of cancellation or termination of the contract provided
that--
(i) The action is approved as provided in paragraph (b)(1)(iii) of
this subsection;
(ii) Funds are available and sufficient to make payments with
respect to the first fiscal year of the contract; and
(iii) The following conditions are met regarding the funding of
cancellation and termination liability:
(A) The amount of unfunded liability does not exceed the lesser of
25 percent
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of the estimated costs of a cancellation or termination, or $5,000,000.
(B) An unfunded cancellation or termination liability in excess of
$1,000,000 has been approved by the Director of the Office of
Management and Budget (OMB).
(C) Notification has been provided to OMB in accordance with
paragraph (c) of this subsection.
(2) The aggregate number of Share-in-Savings contracts that may be
entered into under this paragraph may not exceed 5 in each of fiscal
years 2004 and 2005 for each of the following groups of agencies:
(i) The Department of Defense, NASA, and the Coast Guard.
(ii) All other agencies.
(c) In addition to the requirements specified in paragraph (b) of
this subsection, an agency planning to award a Share-in-Savings
contract having an unfunded cancellation or termination liability in
any amount must notify the Office of Management and Budget at least 30
days prior to solicitation issuance.
39.308 FAR clauses.
For the purposes of determining the clauses to be included in the
contract, the contracting officer shall--
(a) Assume the contract type is ``firm fixed price''; and
(b) Use the maximum cancellation amount as the contract value.
39.309 Acquisition-unique clauses.
(a)(1) Share-in-Savings contracts shall include a clause containing
a quantifiable baseline that is to be the basis upon which a saving
share ratio is established to govern the amount of payment a contractor
is to receive under a contract.
(2) Before award of a Share-in-Savings contract, the agency senior
procurement executive shall determine in writing that the terms of the
baseline clause are quantifiable and will likely yield value to the
Government.
(b) Contracting officers shall include a cancellation clause
tailored to the specifics of the Share-in-Savings contract that
describes, at a minimum, the cancellation amounts, the basis for those
amounts, and the periods during which the Government may cancel the
contract. The clause shall contain the amount that the Contractor and
Government have agreed will be the maximum amount of Government
liability under the contract in the event of cancellation.
(c) Contracting officers may use a termination for convenience
clause other than one prescribed in 49.502 if the prescribed clauses do
not adequately address the specifics of the Share-in-Savings contract.
The clause shall contain the amount that the contractor and Government
have agreed will be the maximum amount of Government liability under
the contract in the event of termination for convenience.
(d) Contracting officers should consider the use of a technology
refreshment clause to ensure the information technology provided under
the contract incorporates desired technological advancements throughout
the entire period of contract performance. In developing such a clause,
contracting officers should consider similar terms and conditions
available on the commercial market.
(e) Contracting officers may include other appropriate clauses not
specifically prescribed in this Federal Acquisition Regulation (48 CFR
Chapter 1) to ensure that the goals of the Share-in-Savings contract
are attained, provided that such clauses are consistent with applicable
statutes and regulations.
[FR Doc. 04-15028 Filed 7-1-04; 8:45 am]
BILLING CODE 6820-EP-S