In a report to Congress, GSA says it would be too expensive to test out the e-procurement and e-commerce platform approaches under the commercial platform initi...
Just over a year into the e-commerce portal initiative, the General Services Administration is making some major course corrections.
GSA’s initial thinking about the program aimed at making it easier for agencies to use online platforms to buy commercial products below the micro-purchase threshold of $10,000 it turns out was a bit off the mark in two key areas.
Not only has GSA decided not to test out the other two platforms that it initially offered under the initiative, it now says the overall market it is trying to capture is now $500 million, and not the $6 billion it originally estimated.
GSA made three awards in June 2020 to Amazon Business, Fisher Scientific and Overstock Government to test out this commercial online platform concept. The three vendors developed or modified existing platforms to meet the government’s requirements. The goal is to better manage and capture the data around online spending that is already occurring so agencies can better understand where this money is going. The other goal that Congress focused on when it included the authority and mandate to set up the commercial platforms in the 2018 Defense authorization bill is to make buying of commercial products better, faster and cheaper—or more like Amazon.
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While few argued with the idea of making buying of commercial products easier, the path to get there has been marked by challenges and questions, ranging from protests over the solicitation to educating contracting officers about using the platforms instead of their previous online and credit card buying approaches.
GSA said 13 agencies, including the departments of Veterans Affairs, Justice, Labor, Commerce and Health and Human Services, currently are part of the proof-of-concept. It expects to add another five agencies this fall, including the Department of Homeland Security, the Government Accountability Office, the Office of Government Ethics and the Small Business Administration. GSA said the platforms have seen about $6 million in sales through July, but 75% of which came over the last six months.
Without a doubt, a $500 million market still is a huge number, but it also means the impact of the Commercial Platforms Initiative will be smaller than first thought.
“What we’ve realized as we’ve gone deeper and deeper and learned over the last several years is that potential $6 billion market is all of the addressable product market under the micro purchase threshold. What we’ve also seen is the online channels that are only online is about $500 million. So that’s been a great increase from even what we saw in fiscal 2014 from $135 million. So just to put it in context, we’re really looking at about a $500 million market for the online-only channels,” said Laura Stanton, the assistant commissioner for the Office of Information Technology Category in GSA’s Federal Acquisition Service, in an interview with Federal News Network. “The bigger micro purchase threshold could be somebody walking into a brick and mortar store and placing the orders there, versus just buying online. So that’s the differentiator that I’m getting into. When we’re looking through the data, we’re looking really to see how much is being purchased online, so it’s possible to segregate out what’s being bought from a dot com. We’re looking at something that’s an online channel is really about $500 million. There could be other spending in that $6 billion market that’s being purchased online from a supplier that has both a brick and mortar store and online channels, and it would be we just wouldn’t be able to differentiate that.”
Additionally, GSA told Congress earlier this year in a mandated report that it doesn’t see the value in testing out the e-procurement or the e-commerce models.
“Ultimately, the implementation of either the e-commerce or e-procurement models won’t realize the benefits of an efficient, commercially-driven shopping experience, and instead result in an overly expensive, resource-intensive implementation,” GSA wrote in the report, which Federal News Network obtained. “The low cost and lightweight structure of the e-marketplace portal provider business model was a primary decision in selecting this model for the proof of concept, and GSA believes that the e-marketplace provider model continues to provide significant benefit to the government buyer, while closely aligning with administration priorities and minimizing government burden and costs.”
The decision not to test the other two models, which GSA said it would do in its Phase 2 report to Congress in 2019, which stated that it “is fully committed to assessing the best ways to leverage the benefits of the other models throughout implementation of the initial proof of concept,” didn’t sit well with some observers.
Roger Waldron, the president of the Coalition for Government Procurement, said in a recent blog post that GSA’s decision not to test out the other two models, even on a small scale, runs counter to federal procurement’s operating principle over the last two decades “to maximize the opportunity to increase competition from, and access to, the commercial market.”
“GSA is on the threshold of making transformative change with the introduction of innovative acquisition approaches, like the e-commerce portals. Rather than undermining that change, and risk foreclosing the benefits associated with it, the Coalition recommends that GSA evaluate all three approaches,” Waldron wrote. “Indeed, the very nature of a pilot is to test approaches in order to derive the data necessary to draw conclusions. For this reason, Coalition members believe GSA should reassess its decision to reject the e-commerce and e-procurement models. GSA should continue the e-marketplace proof-of-concept, and it also should pilot the e-commerce and e-procurement models.”
Stanton said GSA’s decision to stick with the e-marketplace pilot was partly based on the cost of standing up the other two platforms, but it’s also based on the user feedback in the first year.
“One of the exciting things since launch is that we have implemented a pretty robust customer experience framework. We’ve been getting quite a bit of feedback just over the last year since implementation,” said Keil Todd, the program manager for the Commercial Platforms Initiative at GSA. “Certainly from a buyer standpoint, we’ve learned that card holders want to buy through this channel. They certainly see it as a managed online channel. They like it. It’s a modern user interface. They like the competitive prices, the quick delivery times. They also know when they’re going to get their stuff. When you move up the chain and think about agency executives, they’re certainly finding the value in GSA managing the contract.”
GSA charges 0.75% per transaction to pay for the cost of the program on top of any fees charged by the platform providers. GSA claims this wouldn’t be enough to cover the cost of setting up the e-commerce platform, which it estimated would cost $44.7 million over five years, or the e-procurement platform, which is estimated would cost $39.4 million over five years.
“This is the step one that is only intended to be kept to provide a managed channel under open market. I think it’s much easier to keep the momentum going for something that already exists versus trying to do the education, the buyer onboarding, the account management and everything that we’ve been doing over the past year, there’s definitely a hurdle that an agency has to do in order to choose this,” Stanton said. “What we have learned is that the agencies were already going in this direction. So this is why I’m really looking at what’s being seen and what’s being purchased. As we are looking at how to expand that in the next iteration of the program really becomes critical that the agencies continue to find value in it. Because we’re not mandating this, the agencies can choose to use this or continue however they were acquiring those open market purchases today.”
Todd added that GSA isn’t necessarily ruling out other models in the future and as opportunities and needs present themselves, they will consider it.
But Waldron pointed out in his column that GSA’s change in thinking requires more transparency and details, including how it came to the conclusion that the costs outweigh the benefits of testing all three approaches.
“A proof-of-concept/pilot of the e-commerce and e-procurements would provide real-life data addressing the costs and benefits to the government customer. It also would provide an opportunity to assess the interplay between, and competition among, all three models, which could result in identifying additional opportunities to deliver value to customer agency through all three models,” Waldron wrote.
As part of these Commercial Platform course corrections, GSA told Congress in its report that it would like to extend and refine the initiative.
“This implementation approach allows GSA to test, refine and ultimately grow the program based on lessons learned and data collected. It is for this reason that GSA strongly recommends continuing this current implementation approach, and not losing focus through the testing of other models that would require shifting resources (and increasing the investment significantly) to support a much larger and costlier rollout that would yield little additional benefits to agencies,” GSA stated in the report.
Stanton said GSA will continue to gather data about the e-marketplace platform usage and experience and make changes as necessary.
But GSA doesn’t want to take a “build it and hope they will come” approach with the other models.
“The feedback that we’re getting is not specific to any business model that we identified. It’s probably worth noting that those business models are something that we’ve put together, just as part of our market research to organize our thinking around the market. They were never really intended to be the way that we manage this in an operational state. But it was a quick and easy way, at least, to get something out there at the request of agencies, but the feedback that we are getting, has been very positive,” Todd said. “I think, at the end of the day, we’ve seen just in the last year, the satisfaction of 9.2 out of 10, for instance, from a customer satisfaction standpoint, so it’s resonating with buyers and with agencies, and I think they’re really starting to see the value of this”
Officials from Amazon Business and Overstock Government, of course, lauded GSA’s decision to continue and expand the proof of concept. Fisher Scientific declined to comment for the story.
Jonathan Johnson, CEO of Overstock, said in email comments to Federal News Network that he remains optimistic about the future of the program given the significant increase in the platform usage over the last several months.
“Our biggest challenge is helping government agencies embrace this more convenient way of making purchases. This platform allows agencies to skip waiting to amass huge orders and buy what they need for immediate delivery. The response from customers who have used the platform is that they love it,” he said. “The other big challenge is speed. The government moves more deliberately than we would prefer.”
Mark Fox, the federal leader for Amazon Business, in an email to Federal News Network echoed Johnson’s comments about being optimistic about the growth of the platform use.
“Participating agencies are free to choose from multiple purchasing options, and we encourage GSA to continue to innovate and explore purchasing avenues that allows the government to operate in a more efficient manner that also helps them meet their goals and objectives, while maintaining compliance,” Fox said. “We encourage the government to provide more explanation for how GSA Commercial Platforms proof of concept participants can claim the small business credit on their purchases in our store.”
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