GSA regions struggle to generate revenues

General Services Administration officials received a grim message in a January executive briefing that described the agency’s weak financial condition. They were warned that failing to take immediate action could cause permanent damage to Federal Technology Service programs and GSA overall.

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Internal financial information, which GSA officials would not release but Federal Computer Week obtained, shows that as of January, fiscal 2006 revenue for the agency’s Information Technology Fund was 26.7 percent — or $597.5 million — less than the agency’s forecasted numbers. The agency’s regional offices all missed projections for several reasons, including lower business volume than expected and the defection of important customers to other procurement means, according to a January 2006 GSA report, “Information and Technology Fund and Professional Services Variance Report.”

The figures show a continuing trend that began with a 16 percent decline in IT Solutions business in fiscal 2005 after five years of rapid growth, according to GSA documents.

Numbers reveal regional weaknesses
The IT Fund fuels FTS’ telecommunications and IT procurement services. According to the report, all 11 GSA regions were underperforming on regional IT, nine of them were bringing in less than expected in professional services business, and five of them failed to meet planned business goals in regional telecom services.

National IT services, not divided into regions, also failed to meet revenue expectations, but some individual programs fared better than expected, the report states.

The regions brought in a total of $1.6 billion in IT Fund business as of January compared with a goal of $2.2 billion.

In the Regional IT Solutions Program, revenue for the Heartland Region, which includes Iowa, Kansas, Missouri and Nebraska, was $103.7 million less than expected, the largest regional shortcoming in dollars, according to the report. Region 8, which contains the Rocky Mountain states, had a smaller monetary shortfall at $71.9 million less than planned, but it had the largest percentage drop of the regions at 85.6 percent.

For many of the regions, the cause of revenue problems was a loss of business among the Defense Department and military services. For example, revenue for the Northeast and Caribbean Region, which covers New Jersey, New York, Puerto Rico, the Virgin Islands and Europe, fell $30.9 million — or 53.2 percent — short of its goal because it lost an Army program at Fort Monmouth, N.J., as a customer.

Revenue for the Southeast Sunbelt Region — Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina and Tennessee — was $54.6 million less than expectations “due to the impact of the internal DOD policies requiring permission to use GSA,” the report states. It adds that the downslide may continue.

Although nine regions failed to meet revenue projections for Professional Services, the Northeast and Caribbean Region and the National Capital Region exceeded expectations. The Army’s increased business volume and the large task orders from the Navy and the Labor Department boosted revenue for those regions, respectively.

GSA spokesman David Bethel said regional officials are trying to keep customers and bring back those who have left the agency.

“We are working hard through word and our performance to demonstrate to our customers that we offer the best value for their dollar, that we are excellent at meeting their needs, that we have corrected past problems in our procurement processes, and that we can be trusted to handle their funding correctly,” he said.

Bethel also pointed to cost-cutting measures that GSA has recently enacted, including hiring freezes, an effort to trim about 400 positions through buyouts and early-out provisions, and other cutbacks in discretionary spending.

“Regions are vitally important to GSA’s success,” he said. “They are located where the customers are. There is no substitute for building and maintaining customer relationships on a face-to-face basis.”

GSA’s reorganization effort includes developing a system of zones to more effectively manage those relationships, Bethel said.

GSA tries to win back customers
A group of GSA executives are in “extensive and intensive” discussions with the agency’s most important customer, DOD, according to an April 12 memo from David Bibb, GSA’s acting administrator.

“As with any business, when your key customer and decreasing revenues are part of the melange of issues, you go to your key customer” and talk things out, Bethel said.

Subpar customer service has caused many agencies to leave GSA, some acquisition analysts said, adding that winning back their loyalty will be tough. But business comes back “one customer at a time, one transaction at a time,” said Frank Pugliese, former Federal Supply Service commissioner and now managing director of government business development at DuPont.

Bob Guerra, a partner at Guerra Kiviat, said DOD has wanted to go its own way for some time. Bill English, national representative for the National Federation of Federal Employees’ GSA Council, said he believes GSA and other agencies should be held to a level playing field to foster competition and lower prices.

Leaders search for new strategies
The long-range forecast for FTS’ IT Solutions business is uncertain, according to the GSA briefing documents. Agency forecasts show that the business may eventually stabilize, but assisted services may continue their slide.

However, according to slides used at a GSA briefing, the agency’s cost structure is out of line with its volume of business.

In line with what agency officials have told FCW in previous interviews, the documents show that customers’ buying behaviors have shifted. DOD and other agencies are handling more of their own contracting and urging greater use and availability of enterprise contracts.

The briefing slides also state that customers are frustrated with recent changes to GSA’s processes, which were necessary to comply with the law and procurement regulations.

“We’ve been knocked for a loop or two,” English said. Past management decisions, such as the Get It Right program’s micromanagement, hurt the agency. “They slowed down the process and wrecked our customer base,” he said.