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FED'S FIRST I.T."SHARE IN SAVINGS" CONTRACT TO SAVE MILLIONS

PublicationDate: 7/28/2000
Summary: FED'S FIRST I.T."SHARE IN SAVINGS" CONTRACT TO SAVE MILLIONS
Author: COO - Chief Operating Officer of the Office of Student Financial Assistance

Posted on July 28, 2000



FOR RELEASE
July 26, 2000 Contact: Karen Freeman (202) 205-1531
Jane Glickman (202) 401-1307
Stephanie Babyak (202) 401-2311

FED'S FIRST I.T.“SHARE IN SAVINGS” CONTRACT TO SAVE MILLIONS


The U.S. Department of Education says taxpayers could save tens of millions of dollars on its first-ever contract where the vendor will be paid only if it saves the department money.

Student Financial Assistance (SFA) chief operating officer Greg Woods today announced the contract with Andersen Consulting which is expected to reduce loan servicing costs between $40 - $50 million by FY 2004.

“Share in Savings” is supported by the General Services Administration (GSA) and “good government” proponents throughout the public, private, and nonprofit sectors. A “Share in Savings” contract is negotiated between a private contractor and a government agency for a fixed price. The contract provides incentive payments based on the percentage of cost savings the contractor helps create.

Under the contract, Andersen Consulting will be paid a percentage of the savings it helps create, up to a maximum payment of $14.4 million during the four-year period. SFA pays no money up front, makes no cash investment, and assumes no risk — the risk is borne by the contractor.

The contract, signed July 19, is for systems integration and simplification of SFA’s Central Data System (CDS), a computer system that services the Federal Direct Loan program. This simplification will reduce costs and eliminate the need for redundant edits, thereby avoiding errors. In fiscal year 2000, the direct loan program provided $14.7 billion in loans to 1.8 million borrowers.

“This is a giant leap for good government,” Woods said, “and a major step toward unraveling the ‘hairball’ of computer systems that now service the federal student aid program. The integration of the CDS won't affect the customer service we provide student borrowers; it will ‘tombstone’ one of our legacy systems, and it will save millions of dollars.”

The CDS currently services 12 main processes. Five will be retired because of duplication in other systems: seven processes will be retained and integrated into other systems.

Andersen Consulting was hired last year as SFA’s “Modernization Partner.” This contract is the first Share in Savings task order signed under the agreement. The performance period for this contract runs through October 31, 2003, and SFA and Andersen expect to build additional “Share in Savings” agreements as SFA’s systems modernization work continues.
Woods commented, “This proves government can operate more like business — working smarter and saving money.”

“We're proud to be making history with SFA,” said Kenneth S. Dineen, partner at Andersen Consulting. “Reaching agreement to create this contract was a difficult alignment that took work on all parts. Our ability to assume the risk of a Share in Savings contract symbolizes our commitment to the modernization effort of SFA and our confidence that we can do the job and help SFA save money — a lot of money.”

When SFA was designated the federal government's first Performance-Based Organization (PBO) in October 1998, its key mandate from Congress was to integrate its massive computer systems and simplify the systems by eliminating redundant capabilities. SFA’s Five-Year Performance Plan, released last year, and its Modernization Blueprint, released
last fall and updated this spring, are aimed at integrating the needed functions of existing computer systems while retiring (or "tombstoning") unnecessary systems and functions.


Student Financial Assistance is the office of the U.S. Department of Education that helps put about 8.5 million Americans through school each year by administering student loans and grants totaling some $52 billion a year. As a PBO, SFA strives to improve customer satisfaction while cutting the costs of administering student aid programs. Additional information is available at SFA’s Website, www.ed.gov/offices/OSFAP.

Andersen Consulting is an $8.9 billion global management and technology consulting firm, with more than 65,000 people working in 48 countries. Its homepage address is //www.ac.com.
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