Getting Off Your Assets

gencies with lots of overdue loans or other assets can now turn to the General Services Administration schedules for help managing and selling them. At any given time, federal agencies manage about $200 billion in loans. Last year, $48 billion in debt owed to federal agencies was more than 180 days late, and more than $35 billion of that was over 2 years old. In addition to loans, agencies handle foreclosed properties such as houses, banks and businesses. They also own and sometimes dispose of their own property, and hold other forms of assets as well. "Agencies have been acquiring a lot of these assets and not handling them well," says Sue McIver, director of GSA's Federal Supply Service Services Acquisition Center

One answer to the delinquent debt problem is to sell loans to the private sector. But agencies have shrunk from doing so, fearing that Congress would block such sales. Recently, law and policy have converged not only to calm such fears, but also to provide financial incentives for agencies to clean out their assets.

The 1996 Debt Collection Improvement Act said that loan sales aren't just OK, they're encouraged. In addition, the law permits agencies to pay the costs of such sales, usually about 2 percent of the transaction, out of proceeds. And on top of that, with their appropriators' permission, agencies can keep up to 5 percent of what they make selling assets to spend on credit or debt collection activities. They also have up to three years to spend the money. OMB has developed a policy that agencies should consider selling any delinquent debt over a year old if the sale is in the government's best interest and supports the agency's mission.

"OMB said to the agencies, 'We want you to do something other than sitting on your assets,' " says Karen Williams, a Federal Deposit Insurance Corporation asset sales supervisor.

The combination of law, policy and financial incentives spurred agencies to seek help getting their assets into shape to sell them, because, as McIver observes, "federal agencies do not have the expertise to sell their loans." With permission to cover costs out of proceeds and to keep a share of sales income, agencies were anxious to hire asset disposal experts. But the long, laborious, painstaking formal contracting process was a hurdle. To surmount it, the Department of Housing and Urban Development, Small Business Administration and FDIC formed a task force of the Federal Credit Policy Working Group to persuade GSA to create an asset services schedule.

The first contracts under the new schedule were awarded in June 1998, and the first task orders came in September. Forty-five firms received contract awards, 26 of them small businesses. Through the end of April, 11 task orders had been issued to 11 different companies, half large and half small. "You have your Ernst & Young and Deloitte Touche, but there also are a lot of small businesses in niche markets, for example auction companies," McIver says.

Because the assets they hold are worth billions of dollars, agencies are understandably cautious about jumping to use the new schedule. "There's a lot of handholding, letting them know the schedule exists and how they can use it to manage assets as OMB has told them they have to," McIver says. Agencies can use the contracts to get financial advisory services, such as investment management, benefits administration, asset-marketing plans, asset analyses and various forms of review. Also available are firms that can sell assets; confirm the history and status of assets; service, monitor and manage loans; and maximize agencies' interests. "This program helps you figure out if you're handling an asset in the best way," McIver says.

"The schedule streamlines [contracting]," Williams says. "Normally it takes seven to 12 months to get through the contracting process. GSA has done the initial beauty contest. The schedule is a shelf with pre-approved contractors sitting on it."

The Education Department hired a financial adviser to analyze $10 billion in defaulted student loans, McIver says. Agencies also might consider using the schedule to get help disposing of property. McIver says her unit has talked with Air Force officials about using the schedule for closing bases. Dave McDermott, chief of FDIC's contract policy and training section, says FDIC used the schedule to hire firms to do a series of asset auctions.

"FDIC predominately supervises banks and if they fail, puts them in receivership and liquidates their assets," he says. "This schedule is perfect for what we're trying to accomplish. It has the professional services we contract for to help us liquidate," adds McDermott. "If we do an open-market procurement for over $100,000, we're supposed to award it in less than 120 days. It takes 60 days going off the schedule, because GSA has done a lot of the legwork."