[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]



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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  

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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