DoD’s latest efficiency push revolves around service contracting

A group of functional domain experts are reaching out to the military services and agencies to look at service contracting spending across 12 areas. The Defense...

“Efficiency and Effectiveness” — a common phrase across all of government. But at the Defense Department, it’s taking on a new meaning.

DoD no longer can spend more of its time worrying about the effectiveness of its acquisition programs at the expense of efficiency.

The budget reductions over the last two years make it obvious that change is necessary. Take the Army’s procurement budget for example. It’s expected to be 20 percent lower in 2014 than it was in 2013, and in 2013, it was 20 percent lower than it was in 2012. And, the Army had 20 percent less to buy goods and services in 2012 than it did in 2011. Over the last four years, the Army is expected to see its procurement budget drop to $65 billion from $126 billion.

But there is another reason, too.

“What’s interesting about today’s environment is, you look at the last 12 years of war and you hear people say, ‘Hey, we want to be effective and efficient.’ That’s great, but they are not the same thing. In any given situation, there’s a balance between effectiveness and efficiency. The last 12 years, it’s been all about effectiveness,” said Harry Hallock, the Army’s deputy assistant secretary for procurement, Thursday at the Coalition for Government Procurement’s spring conference in Falls Church, Va. “Get that product or service out to the troops, because it can save lives. So you make some decisions where efficiency isn’t always the number one focus and that you wouldn’t make in other environments. We were doing good things and we were being very effective.”

But with the war in Iraq ended and the Afghanistan theater winding down, the Army must change its buying habits.

“We have to focus more on efficiency,” he said. “It wasn’t that we were focused on efficiency, but effectiveness was more important. Now efficiency is more important.”

Putting discipline back into the system

This isn’t just an Army problem or challenge, but one that cuts across all of DoD and really all of the government.

The military initiated a multi-pronged approach to achieving more efficiency out of its procurement dollars.

Hallock said the Army’s inspector general is playing a key role by pointing out where the service was less efficient than it could have been, and how it could correct its problems.

The Better Buying Power initiative is a second way DoD is changing how contracting officers and others looked at how they buy. In many ways, it was the first step toward changing buying habits.

Hallock said the goal of Better Buying Power was to bring discipline back into the process and get contracting officers to ask better questions.

So one way the Army is addressing the efficiency issue is by asking better questions about how it buys services, specifically through strategic sourcing.

Hallock said Army Secretary John McHugh signed a charter to create a governance board to look at strategic sourcing.

“It’s made up of requirements generators that it’s their requirements that we are buying, the money folks in the building and the policy folks in the building to make sure we are doing the right things,” Hallock said. “We also put a couple of reviews in the process that says at certain points now when you are out there buying, you have to come to us so we can look and say whether this meets our goals for strategic sourcing. What are we trying to accomplish? That’s where we are now. We are trying to put those parameters in place, so when you come to these reviews, what are the goals and what do we want to come out of it?”

The Army already saved $982 million through strategic sourcing in fiscal 2011 and 2012 and has a goal of $2.5 billion by the end of 2015.

Hallock said services account for more than 60 percent of what the Army buys. He said if the Army can add more discipline to just three of its largest categories of services — knowledge-based, facilities and communications and electronics services — it can reach that goal and achieve more savings.

The Willie Sutton approach

More broadly across all of DoD, service spending accounts for more than 50 percent of all procurement dollars. In 2012, the Government Accountability Office found DoD spent $186 billion out of its $361 billion acquisition budget on service contracts.

Richard Ginman, DoD’s director of defense procurement and acquisition policy, said the Pentagon is taking a cross-agency approach to bringing efficiency to service buying.

“Mr. [Frank] Kendall appointed Alan Estevez, principal deputy undersecretary of Defense for ATL, to be the senior service manager. He has assigned across the Office of the Secretary of Defense staff functional domain experts who are reaching out then within the services and agencies to get people,” Ginman said. “It’s about looking at the spend. We used to refer to this as the Willie Sutton effort, the bank robber when asked why he robbed banks, the answer was ‘because that’s where the money is.’ We are attempting to figure out where’s the money. What are we spending our money on? And then hopefully what we will be doing is looking at better ways for the department to in fact look at where is our big spend and spending our time and effort trying to figure out better ways to do that.”

Kendall, DoD’s undersecretary for Acquisition, Technology and Logistics, detailed the 12 functional domain experts in a memo from October. They included Rob Carey to oversee electronics and communications services and Kevin Schneid to administer management services.

The second piece to this, Ginman said, is for DoD to then figure out the best ways to buy the service by looking at metrics and requirements development.

At the Defense Acquisition University, Ginman said he created a service acquisition workshop to help with that approach. A team of experts work with the program team to write a statement of work, create a quality assurance plan and get the output metrics to hold the contractor accountable for meeting the goals of the program.

Ginman said the last piece of this is to improve the pricing skills of the acquisition workforce. He once again turned to DAU for help in training mid-grade level workers and senior contracting officers on pricing analysis methods.

Ginman said the combination of these three steps and the focus on competition should help DoD reduce how much it spends on services.

Price variability must be reduced

Along with DoD, civilian agencies have been under pressure to cut service contracting and become more efficient.

The Office of Federal Procurement Policy required agencies to cut management support service contracts by 15 percent during the first three years of the administration. OFPP reported in 2012, agencies spent about $33 billion on these types of contracts, down from $40 billion in 2010.

The General Services Administration is trying to further the efficiency effort by using data to make better decisions for its agency customers.

“Over the last month, we’ve stood up a GSA acquisition portal, an internal tool that we hope ultimately is going to replace about 50 different regional sites, all of which were maintaining different acquisition policy,” said Jeff Koses, GSA’s senior procurement executive. “In the last three days, we stood up our first visualization tool — something I’m particularly excited about. What this tool does is overlays a U.S. map with data from the Federal Procurement Data System-Next Generation and data from the Small Business Administration’s dynamic search engine. What it allows our contracting folks to do is to drill down by PSC code, by NAICS code or by geography and get a visual display of who are the HUBZone businesses in this area, who have government experience, who have GSA experience and who are some of the new entrants to the federal community. It’s not so much that the data is new as it’s a new and more focused way to try and see the HUBZone firms that are now available. Over the next few weeks, we will be expanding that to cover some of the other socioeconomic categories.”

Price variability is another area GSA is trying to address across the schedules.

“We recognize that too much price variability is a very real concern. We do think we own the responsibility to address and narrow the degree of price variability,” Koses said. “But we also want to work together to keep schedules effective and easy to use. That’s why I think we will have a very good and full conversation. We will agree about goals and work through how to carry it forward.”

Price variability also caused Ginman to issue a deviation to the Federal Acquisition Regulations requiring DoD contracting officers to determine whether GSA schedules are fair and reasonable prices on their own, instead of just trusting they already are of high quality.

DoD’s decision caused a lot of angst with the industry audience.

Ginman said most of the problems come from buys under $3,000, but the concern is what the deviation will mean to more complex purchases and whether the need to do a cost analysis will lengthen the procurement timeline.

One of the big issues about price is how GSA enforces the price reduction clause. This is a requirement for vendors to give the government their lowest prices no matter what.

Vendors and other experts have said the price reduction clause is no longer useful and should be scrapped.

Koses said GSA is open to those discussions, but would like more details on what other approaches would help protect the government from not getting the best price.


DoD needs to set goals, measure progress for buying services

DoD plots third chapter in Better Buying Power initiative

New DoD guidance infused with Better Buying Power principles

OMB increasing the tempo of strategic sourcing

Inside the DoD Reporter’s Notebook: Pentagon goes its own way on GSA schedules; VA still think its electronic health record can meet DoD’s needs

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