Agencies ignoring billions in savings from strategic sourcing

Agencies are missing out on billions of dollars in savings by not using strategic-sourcing contracts, particularly when buying services, according to a new repo...

Agencies are missing out on billions of dollars in savings by not using strategic sourcing contracts, particularly when buying services, according to a new report from the Government Accountability Office. By not taking advantage of the government’s volume buying power, departments are putting their mission goals at risk because of tightening budgets.

The GAO report found four agencies, which account for 80 percent of the total procurement spend across government, weren’t taking advantage of their volume purchasing power and lacked specific metrics and guidance for what to buy through these deals.

“Perennial high spend areas such as services offer the biggest potential for savings but have been largely ignored in strategic sourcing efforts,” according to the report. “Focusing only on low risk, low return strategic sourcing strategies diminishes the government’s ability to fully leverage its enormous buying power and achieve other efficiencies. Until top-spending federal entities, especially the Defense Department and the Federal Strategic Sourcing Initiative program, better incorporate strategic sourcing leading practices, increase the amount of spending through strategic sourcing and direct more efforts at high spend categories, billions of dollars in potential savings may be missed, denying agencies a valuable tool for maximizing their ability to carry out critical missions under tight budgets.”

Auditors reviewed the use of strategic sourcing by DoD, the departments of Energy, Homeland Security and Veterans Affairs, and the Federal Strategic Sourcing Initiative (FSSI) between August 2011 and September 2012.

Governmentwide spend, savings low

These four agencies spent $388 billion on acquisition in fiscal 2011. GAO found only DHS spent 20 percent of their budget through strategic sourcing contracts and saved about 2.3 percent. DoD spent 5.8 percent of its budget through strategic sourcing vehicles, but saved only 0.06 percent. Energy used these volume buys for 9.3 percent of its acquisition budget, and saved 1.34 percent, and VA spent 1.4 percent of its budget through strategic sourcing, saving 0.32 percent.

Of the $537 billion spent on acquisition governmentwide, agencies spent 5 percent of their budgets through strategic sourcing with a savings of 0.4 percent.

“This percentage of managed spending and savings is very low compared to leading companies, which generally strategically manage about 90 percent of their procurement spending and achieve savings of 10 to 20 percent of total procurements annually,” GAO wrote. “However when strategic sourcing contracts were used, selected agencies generally reported savings ranging from 5 percent to over 20 percent.”

All four agencies are taking steps to strategically source more goods and services.

For example, GAO reports the Navy plans to set up a strategic sourcing contract for engineering and technical services.

Additionally, the Air Force, the Navy, DHS and VA have instituted policies requiring the use of strategic sourcing contracts. GAO says it’s too early to tell if these mandatory policies are having an effect yet.

The Office of Management and Budget received recommendations from the President’s Management Advisory Board in September to strategic sourcing mandatory for all agencies. OMB acting Director Jeff Zients hinted that is something the administration would consider.

The Air Force, however, said by promoting the use of FSSI through the use of random calls to its contracting officers, the use of the office supplies vehicle increased by 50 percent from March to April 2011.

SmartBUY 2.0 coming

GAO also reviewed the FSSI initiative led by the General Services Administration and the Office of Federal Procurement Policy.

Auditors say GSA and OFPP applied the lessons from the first strategic sourcing contract for office supplies to the latest attempt and found a spending increased to 13 percent in 2011 from 1 percent in 2009. GAO says agencies spent $202 million through the office supplies vehicles and saved about $24 million last year.

GAO said GSA is creating a SmartBUY 2.0 version to incorporate the software buying initiative into FSSI.

“The FSSI Program Management Office plans that going forward, FSSI SmartBUY will develop strategies to address all large software publishers,” the report stated.

GAO didn’t address the impact of strategic sourcing on small businesses, or whether the contracts affected competition across the government.

Some claim strategic sourcing doesn’t save money and actually does more harm than good.

Sam Bornstein, a professor of accounting and taxation at Kean University in Union, N.J., and a partner with consulting firm Bornstein & Song, criticized GAO’s findings, specifically around the FSSI program for office supplies.

“[T]he damage that this program has caused for a significant number of small businesses and the resulting jobs that have been lost, it is critical to evaluate the impact of strategic sourcing on employment along with the displacement of small businesses that will result from the restriction of competition,” he said in an emailed comment. “Merely seeking out a lower price is short-sighted if there are unintended consequences which will result in job loss in an 8-plus percent unemployment environment. Strategic sourcing at this time may hurt rather than help the economic recovery.”

Bornstein added agencies should do a cost-benefit analysis to quantify the impact on jobs in order to determine the true net savings of strategic sourcing.

“Without this analysis, strategic sourcing may in fact be an unnecessary self-inflicted wound which will constrain economic recovery,” he said.

Lawmakers echo call for strategic sourcing

Lawmakers, however, have also called for a greater use of strategic sourcing.

Rep. Darrell Issa (R-Calif.), chairman of the Oversight and Government Reform Committee, detailed draft legislation, the Federal IT Acquisition Reform Act, which calls for agencies to use the FSSI program as often as possible.

“The federal government must do better when purchasing commonly-used goods and services, especially information technology, where inefficiency and waste is substantial,” Issa said in an emailed statement. “My draft IT acquisition reform legislation would mandate priority consideration of strategically sourced goods and services. As the GAO has underscored, leading private sector companies have successfully used strategic sourcing since the 1980s and saved billions of dollars. It is time the federal government catches up.”

Sens. Scott Brown (R-Mass.), Susan Collins (R-Maine) and Joe Lieberman (I-Conn.) introduced a similar bill in October 2011, the Acquisition Reform Bill, that would require more robust use of Federal Strategic Sourcing vehicles.

GAO made several recommendations for each agency and OMB. Many focused on setting goals for the amount of money spent through strategic sourcing contracts and establishing procedures to identify and track departmentwide efforts.

Auditors want OFPP to issue updated guidance to calculate savings and to establish metrics to measure progress. Additionally, GSA should decide which areas of federal spending are most ripe for FSSI and develop a plan for creating such vehicles.


Strategic sourcing: Pennywise, but pound foolish?

OMB’s Zients hints at making strategic sourcing mandatory

Issa proposes major reforms to IT management

Bill would require greater use of strategic sourcing

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