There's Plenty of Savings to Go Around

f someone told you he had a foolproof system for transmuting lead into gold, would it pique your interest? Years ago people scoffed at alchemists promising such results. Today, however, the Bill Gates' of the world have proven that you can turn the ether into billions of dollars.

Having witnessed these private-sector bonanzas, federal agencies are seeking similar results. However, they're not looking for riches, per se. Rather, they're trying to meet missions and acquire services with slim-to-none prospects of getting any money from Congress. That can never happen, you say. Not so fast. Let's look at the Energy Department and a program that has been in the works for some time.

The Shared Energy Savings Program was established by law in 1986 and later renamed the Energy Savings Performance Contract Program by the 1992 National Energy Policy Act. Its aim is to encourage agencies to use private-sector investments to modernize energy systems and reduce consumption. It's different from virtually all other discretionary programs in that Congress doesn't appropriate the money for it. Instead, those contractors performing the upgrades bring the money.

Like other service providers, contractors are looking for a good return on their efforts, and they're getting it in this program through the cost reductions their investments produce. Energy service companies like Honeywell and Johnson Controls guarantee these savings, and only if they materialize are the contractors paid.

There's no better example of a performance-based contract than Energy's program. Energy consumption baselines need to be established, contractor performance standards set, and an effective measurement system put in place. Each element is critical to the success of the project.

The Energy Department's Federal Energy Management Program office cites numerous examples of win-win, government-contractor arrangements across the country. For example, the National Aeronautics and Space Administration's Johnson Space Flight Center in Houston saves roughly $2 million annually through lighting upgrades, HVAC system improvements and water consumption reduction.

With an electric utility bill totaling some $4 billion annually and with more than 500,000 federal facilities, there's no lack of opportune targets. Moreover, in June 1999 the President set a goal of a 35 percent reduction in energy use for federal buildings from 1985 levels by 2010. So there's no lack of political incentive to proceed either. In fact, the executive order applies some of the key tools of acquisition reform to encourage results. These tools include identifying a responsible person to champion the project and setting up teams of contracting, program, legal, budget and other stakeholders to carry it out.

Even the Office of Management and Budget, with its notorious aversion to financing schemes that straddle the appropriations process, has signed on. A July 25, 1998, memorandum from OMB Director Jacob J. Lew to the heads of executive departments and organizations lays out some ground rules for proceeding. They include insuring competition and the availability of funds to cover first-year payments to contractors. But the bottom line of the memo is, "let's see some results."

From a contracting perspective, the Energy Department has sought to make the process much more user-friendly. Energy has developed regional super energy savings performance contracts, which are essentially multiple-award, IDIQ contracts. According to Tatiana S. Muessel, project finance team leader for the program, these contracts were set up to further shorten the procurement process with the goal of dropping lead times from years to four or five months.

Unfortunately, even with all this effort, the takings have still been slim. In 1999, 18 delivery orders were awarded through these vehicles, but at an investment value of only about $40 million. T. J. Glauthier, deputy Secretary of Energy, says it's the nuts and bolts of the program that still need work. "We need to streamline the process for local site managers to get [energy consumption] baselines established, to get the project scoped out and to implement it."

When the effort was first getting under way, the challenge was to get Energy managers informed and on board, according to Muessel. "Now, we need to reach the teams, including the contracting officers, lawyers and budget staff," she says. As in any reform environment, unless you can get the right people trained in how the program works, it will remain a steep uphill climb.

Are there some useful lessons here for the General Services Administration as it explores similar techniques for other types of service contracting? Maybe. However, in my view they won't go far without explicitly handling budget scoring issues as the Energy program has done through legislation. Is it worth the effort? Barry B. Anderson, deputy director of the Congressional Budget Office, thinks so. "The [budget] caps haven't gotten any looser," he says. "This was an innovative way to accomplish more within tight budgetary constraints. It gains more relevancy all the time."

Allan V. Burman, a former Office of Federal Procurement Policy administrator, is president of Jefferson Solutions in Washington.