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GAO: Agencies missing out on billions in contract savings

Oct. 4, 2012 - 11:56AM   |  
By SARAH CHACKO   |   Comments
Agencies missed an opportunity to save billions of dollars last year by underutilizing strategic sourcing programs that leverage the government's buying power, a new report shows.Strategic sourcing essentially means bulk purchasing, and it requires that agencies commit to using one contract for certain products and services - such as office products or delivery services - so they can negotiate deeper discounts from vendors.
Agencies missed an opportunity to save billions of dollars last year by underutilizing strategic sourcing programs that leverage the government's buying power, a new report shows.Strategic sourcing essentially means bulk purchasing, and it requires that agencies commit to using one contract for certain products and services - such as office products or delivery services - so they can negotiate deeper discounts from vendors. (Alex Wong / Getty Images)

Agencies missed an opportunity to save billions of dollars last year by underutilizing strategic sourcing programs that leverage the government’s buying power, a new report shows.

Four departments — Defense, Homeland Security, Energy and Veterans Affairs — account for 80 percent of federal procurement spending but used strategic sourcing programs for about 5 percent, or $25.8 billion, of their procurements, according to a draft report by the Government Accountability Office to be released Thursday.

Strategic sourcing essentially means bulk purchasing, and it requires that agencies commit to using one contract for certain products and services — such as office products or delivery services — so they can negotiate deeper discounts from vendors. Agencies can award their own strategic sourcing contracts or use governmentwide contracts that are part of the Federal Strategic Sourcing Initiatives, or FSSI.

The four agencies saved $1.8 billion through strategically sourced contracts, according to the report, which was obtained in advance by Federal Times.

However, leading companies strategically source about 90 percent of their procurements, and they report an annual savings of 10 percent to 20 percent, the report said. Had the federal government achieved that rate of savings on the $537 billion it spent on procurements last year, it would have saved more than $50 billion.

“Agencies act more like many unrelated medium-sized businesses and often rely on hundreds of separate contracts for many commonly used items, with prices that vary widely,” the report said.

Budget pressures led procurement officials to focus on efforts such as strategic sourcing that promised savings and increased efficiencies in the procurement system. The Office of Management and Budget directed agencies to use strategic sourcing and established the FSSI program in 2005.

Agencies spent roughly $340 million through FSSI, and they saved $60 million, or about 18 percent, the report said.

Spending through FSSI remains low because agencies are not using the program and officials overseeing the program have not targeted products and services on which the government spends the most, the report said.

For example, DoD was part of the team that helped set up the FSSI contracts but did not commit to using them. Officials said the department’s requirements were more complex than what was offered through the contracts, and other contract vehicles within the department for those items were already in place, the report said.

Most agencies did not focus their strategic sourcing efforts on areas where they spend the most, such as services, the report said.

The four departments reviewed by GAO spent more than half of their procurement dollars to buy services, but their strategic sourcing contracts focus more on products, the report said.

Some in Congress are already calling for greater use of strategic sourcing contracts.

House Oversight and Government Reform Committee Chairman Darrell Issa, R-Calif., has drafted legislation creating a Federal Commodity IT Acquisition Center to explore strategic sourcing opportunities, such as improving DoD’s initiative for buying software. The bill would also require all agencies to first consider purchasing from FSSI contracts before using other contracts.

GAO recommended that agencies apply strategic sourcing practices to their highest spending categories and set targets for use of strategic sourcing contracts.

For example, DHS set a goal to use strategic sourcing for 35 percent of its procurements last year and achieved 20 percent, the highest among the four agencies, the report shows. The Energy Department set a goal to use strategic sourcing for 2.5 percent of its anticipated $10 billion contract spending in fiscal 2012, and the Air Force plans to use strategic sourcing for 50 percent of its installation operation and maintenance spending by 2015, the report said.

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