Agencies take action as GAO knocks strategic sourcing effort

An audit that concluded agencies have made very little use of strategic sourcing despite frequent urging that they do so has found a willing audience, according to agency responses included in the audit report.

For example, Richard Ginman, director of defense procurement and acquisition policy at DOD, told the Government Accountability Office that by March 2013 his department will find the best way to strategically source the products on which it spends the most money. At that point, DOD will send the Federal Strategic Sourcing Initiative program a list of products and services that present the best opportunities to participate in governmentwide strategic sourcing efforts. FSSI manages the governmentwide attempts to leverage the federal government’s buying power.

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The Defense Department set the new deadlines after GAO found that the government’s top spenders saved an insignificant amount of money through strategic sourcing. DOD, along with the Veterans Affairs, the Homeland Security, and Energy departments, spent 80 percent of the $537 billion in contract spending in fiscal 2011, but only 5 percent of that money was channeled through strategic sourcing contracts. In strategic sourcing, agencies aggregate their needs to make purchases in greater volumes, saving money through scale. In all, GAO found the four departments gained $1.8 billion in savings in FY ‘11.

GAO also suggested the secret to greater strategic sourcing savings is to apply the technique to services, which are agencies’ highest area of spending. However, federal officials said it is not easy to strategically source services, as requirements are difficult to standardize. And agencies can show senior administration officials results when they focus on less complex commodities. But “focusing only on low risk, low return strategic sourcing strategies diminishes the government’s ability to fully leverage its enormous buying power,” GAO wrote.

Ginman gave his office six months to evaluate whether DOD has provided enough resources to the Defense Program Acquisition and Strategic Sourcing office, which coordinates efforts across the department. The PASS office could not provide GAO with a comprehensive list of department-wide strategic sourcing initiatives; it indicated more are likely happening in DOD than are unaccounted for.

Lastly, Ginman told GAO the department will establish the metrics to measure their strategic sourcing progress in a year.

At VA, meanwhile, Chief of Staff John Gingrich (pictured) wrote that his department has accepted the strategic sourcing concept and has shown its dedication by creating  a Strategic Acquisition Center. The SAC works with the Veterans Health Administration to leverage the VA’s buying power to get lower prices for health care related products and services, such as radiology decision support. VA’s Technology Acquisition Center is also working with VA’s Office of Information and Technology to set up contracts for IT products and services, such as software license purchases.

Based on the current business cases, Gingrich wrote the VA could save from $668 million to $810 million if it implements strategic sourcing successfully.

Federal officials say they have warmed up to the idea of strategic sourcing, but GAO said agency actions have not backed up those claims. GAO wrote that leaders at DOD have dedicated limited resources to strategic sourcing, while leaders at VA and Energy are just beginning to align resources for agency-wide strategic sourcing efforts. Even more, the departments have no clear guidance for measuring success.

On the other hand, DHS told GAO it set up a central office and has held senior managers accountable. The department also set goals for use and then reported it had directed nearly 20 percent of its fiscal 2011 procurement spending through strategically sourced contracts. DHS saved $324 million in fiscal 2011 through strategic sourcing.

The administration wants to do more with strategic sourcing. OMB designated strategic sourcing as a cross-agency priority goal and directed agencies to establish two new strategic sourcing efforts in fiscal 2013 and 2014.

As GAO sees it, the savings are there for agencies if they will participate and pool their resources to get companies to lower their prices for the government. FSSI handled relatively little money in fiscal 2011 but achieved considerable savings. It managed $339 million through several governmentwide initiatives and reported $60 million in savings.

Yet, GAO wrote, “Total spending through the program remains low, in part, because the FSSI contracts have low rates of use and the program has not yet targeted the products and services on which the government spends the most.”