GAO urges agencies to learn from private-sector purchasing

Agencies could save money on acquiring services by following the lead of major corporations, according to a study by the Government Accountability Office released on May 15.

Companies saved anywhere from 4 percent to 15 percent during the previous year by strategically sourcing the full range of services they buy, instead of using numerous individual purchases. Agencies buy many of the same services, including facilities management, engineering, and information technology.

However, said GAO, companies' "keen analysis of spending, coupled with central management and knowledge sharing about the services they buy, is key to their savings." (Read GAO's report here.)

GAO said corporate analysis of spending patterns encompass two essential variables: the complexity of the service and the number of suppliers for that service. The agency said that with those two variables for any given service, companies tailor their tactics to fit the situation. They do not treat all services the same, according to GAO.

In general, the study said corporate tactics fall into four basic categories: (1) standardize requirements, (2) understand cost drivers, (3) leverage scale, and (4) prequalify suppliers.

For example, Walmart negotiates better prices on basic commodity services using its sheer size to promise high-volume orders. On the other hand, when the services are sophisticated and have only a few providers, Dell provides an example of understanding the factors that most influence prices – labor rates in this case – and targeting negotiations to reduce them.

"Federal agencies have sizable opportunities to leverage leading commercial practices to lower costs and maximize the value of the services they buy," the study found.

GAO noted that in September 2012, it reported large procurement agencies like the Department of Defense and Veterans Affairs leveraged only a fraction of their buying power through strategic sourcing and faced challenges analyzing reliable data on spending, securing leadership support, and applying this approach to acquiring services. At the time, GAO recommended these agencies and the Office of Management and Budget (OMB) issue guidance, develop metrics and take other actions.

Potential savings from such practices, said GAO, could be significant. Even if the savings were a mere 4 percent, when applied to the $307 billion spent by federal agencies on services in fiscal year 2012 that would cut $12 billion. GAO said it has made recommendations in previous reports to help agencies strengthen strategic sourcing practices, with which agencies concurred and have planned actions under way.