Departments missing chance to save big money

Agencies are failing to take full advantage of strategic sourcing’s lowered prices, a pending report from the Government Accountability Office finds.  As a result, what could be big savings remain relatively insignificant.

In fiscal 2011, the departments of Defense, Homeland Security, Energy, and Veterans Affairs spent 80 percent of the government’s total $537 billion in procurement spending, but GAO found that less than 5 percent of those dollars were managed through strategic sourcing.

Read the draft report, obtained by FCW.

The four departments reported $1.8 billion in savings from the purchases that were strategically sourced -- a process whereby an agency moves away from individual purchases to a broader cross-departmental approach.  The savings on individual contracts can range from 5 to 20 percent on those individual contracts, the GAO found.  DHS, for example, saved $324 million in fiscal 2011 through strategic sourcing, and earned a nod last year from the Office of Management and Budget for its work.  But the overall strategic-sourcing savings equaled less than one-half percent of total procurement spending.

GAO compared the departments’ strategic sourcing and savings figures to those of leading private-sector companies. The private firms strategically manage about 90 percent of their procurements and save roughly 10 percent or more; one unnamed company with $55 billion in annual spending focused on reducing services expenses to cut operating costs by 10 to 15 percent. GAO found a similar savings rate would yield the federal government as much as $50 billion annually.

The secret to greater strategic sourcing savings, GAO wrote, is services -- which are agencies’ highest area of spending. However, federal officials told GAO 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.

GAO recommended Joe Jordan, administrator of the Office of Federal Procurement Policy, tell agencies to track the savings generated from strategic sourcing initiatives. It suggested creating more performance metrics to measure progress toward savings goals.

GAO also wants Jordan to direct the Federal Strategic Sourcing Initiative program to assess whether each top-spend product and service governmentwide suits the program, and then plan to address those items that fit the program.

Jordan, in an e-mail to FCW, said the government has made progress, spurred on by President Barack Obama's attention to pushing reforms, notably in a memo released in March 2009. Amid the president’s insourcing and acquisition workforce reforms, he told agencies to buy smarter through strategic sourcing.

“As a result, we have seen tremendous progress in leveraging the buying power of the federal government to deliver better prices for taxpayers and are committed to ramping up these results moving forward,” said Jordan.

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. Further, OMB told agencies to up their use of existing governmentwide strategic sourcing solutions by 10 percent each of those years, Jordan said.

“Strategic sourcing has also been a topic of tremendous focus for top private-sector leaders on the President’s Management Advisory Board, and we are committed to drawing on private-sector best practices along with the many learnings from our agency experience as we work with agencies to ramp up efforts this year,” he said.

For several departments, GAO recommended officials evaluate their strategic sourcing programs and find what other items and services they could include.

In reaction to the report, Rep. Darrell Issa (R-Calif.), chairman of the Oversight and Government Reform Committee, said agencies need to step up their efforts in strategic sourcing.

“The federal government must do better when purchasing commonly used goods and services especially information technology where inefficiency and waste is substantial,” he said in a statement.

Issa’s proposed IT procurement reform bill would mandate priority consideration of strategically sourced goods and services. The draft legislation would require the newly created Federal Commodity IT Center to seek out more strategic sourcing opportunities, including improving the DOD Enterprise Software Initiative and the General Services Administration’s SmartBUY program. They are programs through which agencies can buy software for lower prices because they are strategic sourced. The bill would also mandate priority consideration of items offered on OMB’s Federal Strategic Sourcing Initiative.

“As the GAO has underscored, leading private sector companies have successfully used strategic sourcing since the 1980s and saved billions of dollars,” Issa said. “It is time the federal government catches up.”