The lack of a clear definition of the goals of the Federal Strategic Sourcing Initiative is leading some in Congress and in industry to question the program’s real intent.

One of the main areas of uncertainty coming from the House Small Business Committee hearing Thursday was whether these contracts should be mandatory.

Lawmakers and industry associations, and the Office of Federal Procurement Policy do not see eye-to-eye on that one and several others.

“Truly strategic outsourcing is not simply a quest for the lowest price at any moment. It requires an understanding of the long-term dynamics of the marketplace and the power yielded by the buyer,” said Rep. Richard Hanna (R-N.Y.), chairman of the contracting and workforce subcommittee.

Industry experts say OFPP and the General Services Administration have not done enough to make sure industry and other agencies understand what strategic sourcing encompasses.

Too much focus on lowest price

Part of the reason, industry says, is how the blanket purchase agreements have come out for things such as office supplies or wireless services where obtaining the lowest price was the focus.

And even with the upcoming governmentwide contract, called OASIS, which is for complex professional services, industry is questioning how the administration is applying the concept of strategic sourcing.

Stan Soloway, the president of the Professional Services Council, was one of four industry association representatives who testified Thursday. He said strategic sourcing is not a one-size-fits-all approach.

“There’s a tendency across government today to look at everything through the prism of driving down unit cost rather than stepping back and looking at overall value and performance,” Soloway said. “The higher up the chain you go with complexity, the more that becomes a problematic strategy. You can strategically source the most complex requirements on the planet, but in that case you wouldn’t be doing it on the basis of lower unit price. You’d be doing it on the basis of technical quality, technical history, past performance and all these other discriminators that may not be as applicable when you’re doing it for simple commodities. It is a continuum. It’s a spectrum. It’s not one thing. I think our concern is it’s too often seen through one lens.”

Soloway said the concept of strategic sourcing is solid as long as it’s understood that a range of options exists.

That range of options can’t include contract consolidation or bundling for the ease of use.

Suitability factor

Hanna said OFPP and GSA need to better define what products and services are suitable for strategic sourcing and which ones are not.

The two major concerns that came up during the hearing centered on whether or not making FSSI contracts mandatory makes sense, and what the long-term impact would be on small businesses’ ability to contract with the government.

OFPP has come out several times over the last year or so saying the contracts under the Federal Strategic Sourcing Initiative are not mandatory. But then agencies issue memos telling contracting officers they must justify why they wouldn’t use the FSSI contract, which makes it mandatory without using the word.

Hanna said mandatory contracts are concerning because they would limit small business participation.

Hanna asked OFPP Administrator Joe Jordan whether the most recent strategic sourcing effort for janitorial and sanitation (Jan/San) services would be mandatory.

“OMB guidance, which we put out last December, does clearly say the vehicles that agencies create and the Strategic Sourcing Leadership Council approves should be mandated when appropriate. I think that is important,” Jordan said. “I think that, not speaking to Jan/San specifically because there are still steps to go, but overall strategic sourcing in some categories — it’s different in every category, what’s going to be the cost driver, the saving driver — but certain categories it is about ensuring that the government buys not as 300 mid-sized businesses and gets prices accordingly, but buy as what we are, the largest purchaser of goods and services in the world. And so, in those commodities where you can leverage our scale, you can drive significant taxpayer savings by getting volume-based discounts. We want to do that. But I do think that in certain categories in order to maximize the value of these vehicles it is appropriate to mandate their use.”

But when Hanna pressed Jordan for an example of a commodity or service that’s appropriate to mandate, he couldn’t answer.

Benefits of more than one contract

Robert Burton, a former deputy OFPP administrator and now a partner with the law firm Venable in Washington, said OFPP in 2005 realized making these contracts mandatory was a bad idea then and it remains a bad one today as well.

“There is a benefit to having more than one strategic sourcing vehicle in the government for any particular commodity or service,” he said. “There is a trend right now to be going to a single vehicle and make it mandatory. I think that this will be a mistake for government for a number of reasons.”

Burton said one major reason for not making FSSI mandatory is that it would reduce competition, which is a bad idea.

“The government’s strategic sourcing initiative was designed not only to increase small business competition but to ensure best value. The emphasis on value is a cornerstone of strategic sourcing,” he said. “Some of the current strategic sourcing vehicles are constructed as low-price, technically acceptable procurements. The government is emphasizing price at the expense of overall value.”

Burton added there are benefits to having competition among vehicles in government.

“We found that the competition among agencies with respect to vehicles was very productive,” he said. “It resulted in innovation, efficiencies and best practices to be shared among agencies, so I would encourage the government not to go to a single, mandatory procurement vehicle.”

Roger Waldron, the president of the Coalition for Government Procurement and a former GSA acquisition official, said competition is driving down prices already across the GSA and Veterans Affairs schedule contracts. He said there are 20,000 companies that receive more than $50 billion a year.

“The idea of mandatory use restricts the ability of small businesses to compete and reduces the market to a limited number of contractors,” he said. “I also think it’s not in the government’s best interest because it creates risk for the government.”

Waldron said when he was at GSA in the 1990s, agencies had to use the schedules.

“Ultimately, various agencies decided to use other than GSA contracts, for court reporting, for example, and that was a breach of those contracts,” he said. “It was breach of an agreement that the company would be exclusive source. Ultimately, the government ended up having to pay millions of dollars to various GSA schedule contractors for that breach. I’d much rather see real volume commitments for real requirements.”

Small businesses could suffer

The concerns about the impact on small businesses go even further than just the mandatory use of FSSI.

Waldron said GSA’s move to close certain schedules to new offerers would not let new small firms into the federal market. GSA, for example, closed the office supplies schedule to new companies in 2011.

A common concern that came up is what would happen to those vendors already on the schedule, who didn’t win a spot on the strategic sourcing contract?

Hanna brought this issue up, in relationship to the upcoming janitorial and sanitation contract, during the questioning of Jeff Koses, GSA’s director of the Office of Acquisition Operations in the Federal Acquisition Service.

“If Jan/San becomes mandatory, the 500-plus companies who do not win BPA awards will not be able to maintain their [schedule] contracts. They will not be able to make the required $25,000 minimum sales each year,” Hanna said. “What happens to these companies if that’s the case? What do you plan to do about it?”

Koses said the office supplies BPA has been about 30 percent of the $700 million a year on average.

“We have not seen the entire market move over to the strategic sourcing solution. We, frankly, would like to see a lot more move over,” Koses said.

But Hanna interrupted him reminding that the office supplies BPA isn’t mandatory.

“You recognize there is a problem with that minimum. You may become your own worst enemy by eliminating people from the marketplace that we want to thrive,” Hanna said.

Koses said GSA understands those concerns, and doesn’t expect every federal dollar to go through any of the FSSI vehicles.

“In talking to agencies, we are talking about the core areas where we are targeting,” he said. “We would like to see most of the spend able to concentrate through that vehicle. But if we say every situation, no exceptions, no waivers, we will create a program that doesn’t make sense.”

Koses said GSA is reconsidering the number of awards under the janitorial and sanitation strategic sourcing contract to more than the initial 15.

OFPP’s Jordan said there are plans to have on-ramps for small businesses so new ones have an opportunity to come on to a strategic sourcing contract, especially as early winners grow and no longer are considered small businesses.

Hanna said the committee will continue to watch the development of the strategic sourcing effort to ensure the government gets the best value and does not eliminate competition.

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