The Office of Management and Budget is setting out a more aggressive series of steps toward mandating the use of strategic sourcing contracts.

Acting OMB Director Jeff Zients sent a memo to agency leaders yesterday codifying the Interagency Strategic Sourcing Leadership Council, expanding their charge to oversee the implementation of these contracts and requiring every agency to name a lead official to oversee strategic sourcing.

“[B]y March 2013, the SSLC shall submit to OMB a set of recommendations for management strategies for specific goods and services — including several IT commodities identified through the PortfolioStat process — that would ensure that the federal government receives the most favorable offer possible,” Zients wrote. “Additionally, each of the SSLC agencies shall promote, to the maximum extent practicable, sound strategic sourcing practices within their agencies. For example, each SSLC agency shall establish an internal cross-functional strategic sourcing council to oversee the agency’s related activities. These efforts include, but are not limited to, issuing and enforcing mandatory use policies for governmentwide and agencywide strategic sourcing solutions to the extent appropriate, providing acquisition and management data to the General Services Administration and other executive agents in support of the development of new solutions, and tracking spending and savings information for use by OMB, as further directed by the Office of Federal Procurement Policy.”

Historic drop in spending

OMB’s desire to quicken the pace of strategic sourcing contracts comes as it reports agencies spent $20 billion less on contracting in fiscal 2012, as compared to 2011.

Joe Jordan, the administrator of the Office of Federal Procurement Policy, said in a conference call with reporters Thursday that overall the government spent $513 billion on the acquisition of goods and services, down from $537 billion in 2011, a 4.5 percent decrease.

The reductions occurred across both civilian and Defense Department spending.

The Pentagon spent $360.5 billion in 2012, down from $374 billion last year and a 3.5 percent decrease.

Civilian agencies saw a 7 percent decrease from year to year, spending a total of $152 billion in 2012 as compared to $163 billion in 2011.

“It’s not hyperbole to say this is a historic reduction in contract spending,” Jordan said. “We decreased by $20 billion over fiscal 2011 levels, which is the largest single dollar decrease in history.”

He said agencies met this mark because they focused on reducing spending in the right areas and the right ways, and OFPP gave them the tools to cut in a way that wouldn’t impact their mission.

Jordan said agency efforts to reduce contracts for management support services are a good example of this right focus and right cuts.

Management support services reduced

OFPP said agencies reached President Barack Obama’s goal of reducing spending on management support services by 15 percent between 2010 and 2012.

Jordan said agencies reduced spending on these types of contracts, which includes everything from professional and management services such as policy review and development services, and personal service contracts to IT support services such as automatic data processing services around development, and acquisition support and back up and security services, by about 16 percent.

In 2012, agencies spent about $33 billion on management support contracts, down from $40 billion in 2010. OFPP focused on these types of contracts because they grew from $10 billion in 2000 to $40 billion a decade later.

“This is through better planning, coordination by finance, program and acquisitions offices, and strengthening internal controls,” Jordan said. “We really strengthened the internal controls and made sure certain categories such as IT development, engineering services, etc., we had strong focus on both how can buy smarter and buy less there.”

And when it comes to buying smarter and buying less, OFPP believes strategic sourcing will continue to have a big impact.

The SSLC is led by Jordan, and includes seven of the largest agencies by procurement spend, including the departments of Defense, Veterans Affairs and Homeland Security, NASA and GSA, as well as the Army, Navy, Air Force and the Defense Logistics Agency. Zients also said the Small Business Administration is part of the council to ensure small businesses are not unduly impacted by these efforts.

Small business could be impacted

The impact of strategic sourcing on small businesses remains a growing concern. Some experts and vendors say the Federal Strategic Sourcing contract for office supplies are negatively affecting small businesses and costing the government more money.

Sam Bornstein, who is studying strategic sourcing at Kean University in New Jersey, said fast-tracking of strategic sourcing programs using blanket purchase agreements are of concern.

He said OMB’s decision to move forward picks only a few winners and too many losers.

Bornstein said the office supplies BPA, which OMB says saved the government more than $140 million last year, is an example of things to come for 15 other product and service areas.

“By limiting contractor participation to only the 15 BPA awarded contractors, these non-winners suffered financial distress and had to layoff a significant number of their employees due to the lost federal sales,” Bornstein said of the office supplies BPA. “My concern is for the unintended consequences, which will equate to the cost of economic loss due to the displacement of small businesses and the loss of jobs. I am suggesting a cost benefit analysis be performed to evaluate the economic impact on the U.S. economy and especially the small businesses and their employees, before these programs move forward.”

Zients memo follows the September meeting of the President’s Management Advisory Board, where he signaled the need to require agencies use the governmentwide and agencywide bulk buying contracts.

The Government Accountability Office also found in October the government is missing out on potentially billions in savings from using strategic sourcing contracts.

“Strategic sourcing was one of the most important initiatives of my time as administrator, and I am pleased to see that OMB is building on our successes to broaden strategic sourcing to more items,” said Dan Gordon, the former OFPP administrator and now an associate professor at The George Washington University. “The challenge is not to build a new bureaucracy, but to find ways for agencies to work together more effectively. The U.S. government is the world’s biggest customer, but too often it acts more like dozens of medium-sized ones. Strategic sourcing can help change that, by pooling the agencies’ purchases of commonly used items.”

The SSLC will make recommendations in seven areas to expand the use of strategic sourcing:

• Identify at least five products and/or services for which new governmentwide acquisition vehicles or management approaches should be developed and made mandatory.
• Provide a supporting spend analysis, estimate savings opportunities and define metrics for tracking progress against those five products or services.
• Identify existing contract vehicles and relevant contract renewal dates that could be used to develop transition strategies to the new solutions.
• Identify agencies that should serve as “executive agents” to lead the development of each of these new contract vehicles or approaches.
• Propose plans and management strategies to maximize the use of each strategic sourcing effort.
• Propose vendor management or other strategies that could be used to reduce the variability in the prices paid for similar goods and services, where the development of new governmentwide vehicles may not be immediately feasible.
• Propose other savings strategies that could be implemented, such as adapting existing vehicles to ensure that certain characteristics of strategic sourcing are followed.

GSA will play a key role in implementing the council’s recommendations. Zients said the agency will develop contracts for each of the five categories in 2013 and 2014. It also will promote the transparency of prices paid for similar products and services, and make available strategic sourcing best practices.

Industry wants a seat at the council

Roger Waldron, the president of the Coalition for Government Procurement, an industry association, said the council is missing a key ingredient.

“The supplier base, the people who will execute the strategic sourcing, the private sector, should have a seat at the table,” Waldron said. “You have these councils with OMB, you have the agencies who are the customers ultimately and then you have the suppliers, and if you eliminate that one leg it’s not really strategic sourcing from my perspective. I hope as it moves forward they engage industry. I don’t know why industry isn’t part of council and participate at that strategic level. In the private sector, one of the best practices is to engage with the supplier base as you move to a strategic sourcing model.”

He said he’s also concerned about the possible mandatory nature of strategic sourcing and the impact the contracts could have on competition. He said previously when GSA had mandatory contracts, the agency faced lawsuits from the vendors on the mandatory contracts when agencies went outside the required vehicle to buy products or services.

Agencies have until Jan. 15 to name a senior official responsible for their agency’s strategic sourcing efforts. This person “will have the authority to coordinate the agency’s internal strategic sourcing activities and its participation in governmentwide efforts,” Zients said.

Zients said the recent PortfolioStat sessions demonstrated multiple opportunities to consolidate buying around IT commodities, and increased use of shared services.

“Up front, we can make sure any vehicle GSA or another agency creates works for all of those agencies and we really can commit their spend through it,” Jordan said. “Instead of what in the past has been a ‘if you build it, they will come approach,’ we will now ensuring all of the agencies up front are committing their spend to these vehicles and we are setting up contracts everyone wants to use.”

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