Taxing Times

Writing in US CIO, Donna Morea, executive vice president for AMS's public sector group, says one of the most successful types of performance-based partnerships is the "benefits-funded" approach, which optimises debt collection by improving the tax system and its surrounding systems.

"Unlike typical procurement scenarios - in which governments pay for systems up front - benefits-funded solutions shift much of the risk to the private sector partner. With this approach, the business partner provides the funds up front for the technology and business process overhaul, receiving payment only when the agency collects previously uncollectable funds. In short order, benefits-funding systems pay for themselves. Once implemented, they continue to generate income."

That approach was also adopted in Georgia. Singer says automating the system for tax collection meant increased compliance, which in turn brought in higher revenue at a lower cost of collection. In a model that had already been used in Hawaii, Virginia and a number of other US states, Georgia was able to build the system and pay for it through the increased revenue.

Morea says benefits funding is often part of an overall modernisation of an agency's tax systems, with the resulting integrated system possibly including data collection and reporting tools, a powerful customer relationship management (CRM) function, a comprehensive tax accounting and processing system, sophisticated audit selection techniques, automated audit work papers, a data warehouse and state-of-the-art decision support tools. This integrated approach leads to stronger collections and administration, as well as better taxpayer service.

She notes using the benefits-funded approach to fund tax administration modernisation, some US states have experienced as much as a 20 per cent increase in collections of accounts receivable within one year of implementation. For instance four state tax agencies implementing this approach have collected a combined total of over $US1 billion more than they would have expected under a traditional accounts receivable scenario.

BearingPoint's Geiger was so impressed with the performance-based contracts in use within parts of the Australian Department of Defence that he announced plans to introduce those arrangements to the US. He says the Defence contracts work differently - and in some ways more effectively - from those that typically operate either here or in the US.

"For example, in the United States, and I believe to a large extent here in Australia, the tender is put out . . . and three years later there is another competition, or two years later, or whatever it may be," Geiger says. "[The Defence Department is using] performance-based contracts for longer periods of time where the tender's put out, the contract is awarded competitively with one period of performance and say four options for a year each, and then the following year, a new option is awarded if you would, and at the same time the contract is extended out another year. So you always have a rolling five years of performance in front of you, based on how you do and based on the government's evaluation of your progress to date. And the government can kill that at any point of time.

"In the long run, we all spend a lot of money in the tender process and the government spends a lot of money in the tender process. So if we can reduce that, and performance is maintained, that makes a lot of sense to me."