oversight

Contract Management: Restructuring GSA's Federal Supply Service and Federal Technology Service

Published by the Government Accountability Office on 2003-10-02.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                             United States General Accounting Office

GAO                          Testimony
                             Before the Committee on Government
                             Reform, House of Representatives


For Release on Delivery
Expected at 11:00 a.m. EDT
Thursday, October 2, 2003    CONTRACT
                             MANAGEMENT
                             Restructuring GSA’s
                             Federal Supply Service and
                             Federal Technology Service
                             Statement of William T. Woods, Director
                             Acquisition and Sourcing Management




GAO-04-132T 

                                              October 2, 2003


                                              CONTRACT MANAGEMENT

                                              Restructuring GSA’s Federal Supply
Highlights of GAO-04-132T, a testimony        Service and Federal Technology Service
before the Committee on Government
Reform, House of Representatives




The General Services                          In response to the management consultant’s recommendations, GSA took a
Administration’s (GSA) Federal                number of actions to improve FSS and FTS efficiency.
Supply Service (FSS) and Federal
Technology Service (FTS) play an              •	   First, GSA realigned its marketing, sales, customer account planning,
important role in assisting agencies               and management functions. FSS now has primary responsibility for
procure a wide range of products
and services.
                                                   market research and marketing of all GSA products and services,
                                                   including IT, while FTS has primary responsibility for sales and
Over the past several years, FSS                   customer account planning and management. In addition, GSA
and FTS purchases have                             transferred FTS contract development and maintenance responsibilities
significantly increased, with IT                   to FSS. Through this realignment, GSA hopes to eliminate inefficiencies
products and services being the                    due to overlaps and redundancies, provide best value to more federal
primary source of this growth. In                  customers, and improve customer relations.
April 2002, we identified overlap in
FSS’ and FTS’ IT procurement                  •	   Second, GSA created a Contract Vehicle Review Board to ensure its
programs. A management                             existing contracts are rationalized and to evaluate the need for new
consultant similarly found overlaps                contracts. The Board recently completed its review of IT contracts and
in FTS’ and FSS’ IT sales and
marketing functions and contract
                                                   found that for several of these contracts, the business case was not
offerings. To enhance FSS and FTS                  adequate to recompete them in the future.
operational efficiency and
effectiveness—in both its IT and              •	   Finally, GSA created a new FTS Office of Professional Services to offer
non-IT business lines—GSA has                      assisted procurement services beyond IT and telecommunications. By
undertaken a performance                           opening its assisted procurement offerings to new areas, GSA aims to
improvement initiative.                            expand its business base to new customers and enhance customer
                                                   service. In its first 4 months, the Office of Professional Services had
This testimony focuses on GSA’s                    placed 146 task orders valued at $45 million. GSA expects to achieve
actions to implement its initiative.               $430 million in revenue by 2004.
It also discusses the importance of
enhancing GSA’s ability to help
                                              While these actions should help reduce certain inefficiencies in the federal
agencies strategically purchase
products and services.                        procurement process, we believe GSA needs to take a more active role in
                                              helping federal agencies reduce the overall cost of their FSS and FTS
                                              purchases. Because agencies’ processes for establishing requirements for
                                              FSS and FTS products and services are generally decentralized and
We recommend that as it moves                 uncoordinated, agencies lack knowledge of the extent to which purchases
forward with its current                      overlap and buying power is diluted. GSA is in a unique position to help
performance initiative, GSA                   agencies analyze their spending agencywide and identify opportunities to
develop the capability to provide
                                              coordinate their requirements. By using a more strategic approach to FSS
its customer agencies with
information and analyses they need            and FTS procurement, agencies can leverage their buying power for volume
to leverage their buying power to             discounts and thereby reduce overall purchasing costs. A few federal
reduce procurement costs.                     agencies have begun to analyze their spending patterns and successfully use
                                              a strategic purchasing approach for selected categories of products,
                                              including IT, to leverage their buying power and save money. For example,
                                              the Air Force saved an estimated $3 million using a strategic purchasing
www.gao.gov/cgi-bin/getrpt?GAO-04-132T.       approach to buy more than 13,000 desktop and notebook computers
To view the full product, click on the link   required for multiple units that previously bought such products separately.
above. For more information, contact
William T. Woods at (202) 512-4841 or
woodsw@gao.gov.
Mr. Chairman, Ranking Member Waxman, and Members of the Committee:

Thank you for inviting me here today to discuss the General Services
Administration’s (GSA) ongoing efforts to improve the efficiency and
effectiveness of its Federal Supply Service (FSS) and Federal Technology
Service (FTS). In fiscal year 2002, FSS and FTS helped federal agencies
buy more than $34 billion of products and services ranging from everyday
supplies, equipment, and motor vehicles to information technology (IT),
telecommunications, and travel services. Over the past several years, FSS
and FTS purchases have increased significantly, with IT products and
services being the primary source of this growth.

In April 2002, we testified on the roles of FSS and FTS in federal
purchasing and identified overlap in their IT procurement programs.1
While FSS and FTS had reoriented their purchasing programs to provide
better service to agencies, concerns about overlapping IT acquisition
programs remained, prompting GSA to hire a management consultant to
study how effectively the two were operating. The study confirmed that
while customers and industry partners generally valued GSA, there were
inefficiencies in FTS’ and FSS’ overlapping IT sales and marketing
functions and contract offerings. In response to the study’s
recommendations, GSA announced implementation of a performance
improvement initiative to enhance FSS and FTS operational efficiency and
effectiveness—in both IT and non-IT business lines.

My statement today will focus on the actions GSA has taken to implement
its performance improvement initiative. I will also discuss the importance
of enhancing GSA’s ability to promote strategic purchasing practices—by
analyzing agencies’ purchasing patterns to help identify opportunities that
could better leverage agency buying power and thereby cut overall
purchasing costs. This approach is based on our findings of how leading
companies and other federal agencies have followed strategic purchasing
practices that clearly paid off in terms of dollar savings.

In summary, GSA has taken a number of actions to implement its
performance improvement initiative, but these actions alone will not
provide the best value for government purchasing. GSA has consolidated



1
 U.S. General Accounting Office, Contract Management: Roles and Responsibilities of the
Federal Supply Service and Federal Technology Service, GAO-02-560T (Washington, D.C.,
April 11, 2002).



Page 1                                                                   GAO-04-132T
               and streamlined overlapping operations by restructuring FSS and FTS
               marketing, sales and contracting functions, and evaluated selected
               contracts to identify opportunities to eliminate duplication. If successfully
               implemented, these actions should, over time, help reduce inefficiencies in
               agency operations, but we believe GSA needs to do more. To achieve
               greater savings, GSA needs to help agencies take a more strategic
               approach to coordinating their procurement requirements to better
               leverage their buying power and obtain the most advantageous terms and
               conditions for their purchases.


               GSA plays an important role in assisting agencies in procuring supplies
Background 	   and services. FSS and FTS, in particular, facilitate a wide variety of
               purchases. FSS assists federal agencies in acquiring a full range of
               products—including over 4 million commonly used commercial items,
               ranging from furniture, computers, tools, equipment, and motor vehicles.
               FSS also assists agencies in acquiring services, such as professional
               consulting, travel, transportation, and property management. FTS provides
               customers with telecommunications products and services—voice, data,
               and video—and a full range of IT products and services. Over the past
               several years, FSS and FTS purchases have increased significantly. In
               fiscal year 2002, FSS’ business volume was more than $27 billion, and is
               projected to grow to almost $32 billion by fiscal year 2004. Between fiscal
               years 1995 and 2002, total revenues for FTS purchasing programs more
               than quadrupled from $1.5 billion to $7.1 billion. Sales of IT products and
               services are the primary source of GSA sales growth.

               Historically, FSS and FTS have taken different approaches to filling agency
               requirements. FSS has followed a self-service business model, using
               contracts that are designed to be flexible, simple to use, and consistent
               with commercial buying practices. FSS negotiates master contracts with
               vendors, seeking discounts off commercial list prices that are at least as
               favorable as the discounts offered to their most favored customers. FTS
               has followed a full-service business model, providing assisted
               procurement services to help agencies define and fill their IT and
               telecommunications requirements. FTS is a major user of the FSS
               schedule contracts as well as a range of contract vehicles FTS and other
               federal agencies have awarded—commonly known as governmentwide
               acquisition contracts.

               While their business models differ, FSS and FTS provide similar IT goods
               and services and provide customers access to many of the same vendors.
               Concerns were raised about potential inefficiencies that may result from

               Page 2                                                           GAO-04-132T
                             this overlap—particularly the additional administrative costs incurred by
                             vendors to prepare separate proposals for FSS and FTS, and by GSA to
                             evaluate and select vendors and administer the contracts. To address
                             these concerns, GSA commissioned a management consulting firm to
                             conduct a study of the structure and efficiency of FSS and FTS and the
                             services they provide to agency customers. The consultant found several
                             areas where GSA could realize efficiencies in its operations and made
                             several recommendations, including:

                        •	  Combine and realign certain functions—such as marketing and sales,
                            contract development and maintenance, and customer support—as they
                            relate to IT and telecommunications.
                        • 	 Rationalize overlapping IT contracts currently offered—that is, review
                            existing IT contracts to identify redundancies and eliminate those that do
                            not clearly have a distinct value to GSA’s customers.
                        • Expand FTS’ assisted procurement services to GSA business lines other
                            than IT and telecommunications.


                             In response to the consultant’s study, the GSA Administrator announced in
GSA Has Taken                December 2002 that GSA planned to combine and realign some functions
Actions to Streamline        of FSS and FTS in order to improve efficiencies and to expand FTS-
                             assisted procurement services for customer agencies.
FSS and FTS
Operations                   First, GSA realigned its market research, marketing, customer account
                             planning and management, and sales functions previously carried out
                             separately by FSS and FTS. FSS now has primary responsibility for market
                             research and marketing of all GSA products and services, including IT,
                             while FTS has primary responsibility for sales and customer account
                             planning and management. Through this realignment, GSA hopes to
                             (1) eliminate inefficiencies due to overlaps and redundancies, (2) provide
                             best value to more federal customers by expanding its market share in IT
                             and other product and services areas, and (3) improve customer relations.
                             In addition, GSA transferred FTS contract development and maintenance
                             responsibilities to FSS.

                             Second, GSA created a Contract Vehicle Review Board—with
                             representatives from FSS, FTS, GSA’s Office of Governmentwide Policy,
                             and its regional offices to ensure its existing contracts are rationalized and
                             to evaluate the need for new contracts. The Board recently completed its
                             review of FTS IT contracts. The Board found that for a select number of
                             these contracts the business case was not adequate to recompete them in
                             the future. However, the Board recommended against terminating these


                             Page 3                                                            GAO-04-132T
                      contracts before their scheduled expiration. Therefore, the potential
                      efficiencies to be gained from GSA’s efforts to eliminate redundant
                      contracts will not be realized for several years, after these contracts
                      expire.

                      Finally, GSA created a new FTS Office of Professional Services to offer
                      assisted procurement services beyond IT and telecommunications in three
                      new areas: management organization and business improvement,
                      worldwide logistics, and professional engineering. By opening its assisted
                      procurement offerings to new areas, GSA aims to expand its business base
                      to new customers and enhance customer service by providing consulting
                      and management support in a wider range of categories. In its first
                      4 months, the Office of Professional Services had placed 146 task orders
                      valued at $45 million. GSA expects to achieve $430 million in revenue by
                      2004.


                      While GSA’s recent actions should help improve the management of
Improved Knowledge    federal procurement, these actions focus on achieving administrative and
of FSS and FTS        process efficiencies, not on leveraging the government’s buying power to
                      reduce the cost of government purchasing. Because processes for
Purchasing Could      establishing requirements for products and services at many agencies are
Reveal Significant    generally decentralized and uncoordinated, we believe GSA needs to take
                      a more active role in helping federal agencies to coordinate their
Savings for Federal   purchases and improve their ability to leverage their buying power and
Agencies              obtain the most advantageous terms and conditions. A number of leading
                      companies and federal agencies that we have highlighted in our recent
                      work have used a strategic procurement approach to achieve significant
                      savings.

                      A strategic procurement approach begins with a “spend analysis” to see
                      who is buying what from whom. Through such an analysis, an agency can
                      identify similar goods and services that are being bought from numerous
                      suppliers, often at varying prices. With this knowledge, agencies can
                      coordinate their purchases to leverage their buying power and rationalize
                      their supplier base.

                      A few federal agencies have begun to successfully use a strategic
                      purchasing approach for selected categories of products to leverage their
                      buying power and save money. For example, in 2001, we reported that the




                      Page 4                                                           GAO-04-132T
Department of Veterans Affairs (VA) and the Department of Defense
(DOD) saved over $170 million annually by jointly procuring
pharmaceuticals.2 VA and DOD achieved those savings by agreeing on
particular high-dollar, high-volume drugs that their facilities would
purchase and then contracting with the manufacturers of these drugs for
discounts based on their combined larger volume. The discounts VA and
DOD obtained were, on average, 33 percent lower than FSS prices.

Strategic purchasing of IT products has been particularly promising in
achieving savings. For example, in 2003, following an Air Force-wide
spend analysis that revealed many leverage opportunities for IT
equipment, an Air Force commodity council—which includes
representatives from the major commands, several functional areas, and
the Air Staff—solicited competing offers from five IT vendors with blanket
purchase agreements3 in place for desktop and notebook computers for
multiple Air Force units that previously bought such products separately.
According to an Air Force official involved in this effort, the council
awarded a purchase order for about 13,000 computers to two vendors. The
new purchasing approach achieved significant savings for the Air Force—
an average of about $450 per desktop computer and over $200 for each
notebook computer—for an overall estimated savings of about $3 million.
This was the first of several anticipated IT buys under the Air Force’s new
strategic purchasing approach to take advantage of overall buying power
to achieve mission needs.

Similarly, the Office of Management and Budget (OMB) projects saving as
much as $100 million annually on computer software licenses through its
SmartBUY program, launched in June 2003. According to OMB, more than
4 million desktop, laptop, and networked computers are in use across the
federal government, and federal agencies engage in thousands of software
licensing agreements annually. By coordinating the approach federal
agencies use to acquire common software licenses, OMB expects the
government can achieve significant savings from volume discounts. GSA is
managing the program for OMB through an interagency team that was
established to review the baseline analysis and inventory of software



2
  U.S. General Accounting Office, DOD and VA Pharmacy: Progress and Remaining
Challenges in Jointly Buying and Mailing Out Drugs, GAO-01-588 (Washington, D.C.:
May 25, 2001).
3
 A blanket purchase agreement is a simplified method of filling anticipated repetitive needs
for supplies or services by establishing “charge accounts” with qualified sources of supply.



Page 5                                                                        GAO-04-132T
                   agreements and develop a migration strategy to start replacing those
                   separate agreements with the first round of SmartBUY governmentwide
                   licenses by July 2004.

                   GSA could help other agencies achieve similar savings. We believe that
                   because most agencies have traditionally used a decentralized approach to
                   acquiring FSS and FTS products and services, their knowledge of the
                   amount spent by their program units on the same or similar FSS and FTS
                   products and services is limited, minimizing their ability to identify buying
                   practices that dilute their purchasing power and result in unnecessary
                   costs. GSA is in a unique position to be able to help agencies conduct
                   spend analyses of their FSS and FTS purchases and provide them with the
                   knowledge needed to identify opportunities to better coordinate their
                   purchases and leverage their buying power and thereby reduce their
                   purchasing costs. With agency purchases of FSS and FTS products and
                   services exceeding $34 billion in 2002, these savings could be significant.


                   In conclusion, with the federal government’s critical budget challenges, it
Conclusion 	       is more important than ever that GSA partner with agencies and help them
                   get the most from every federal dollar spent. The potential for increased
                   procurement efficiencies and effectiveness is significant. By learning more
                   about their spending for products and services on an agencywide rather
                   than individual customer basis, GSA can help agencies leverage their
                   buying power, reduce purchasing costs, and better manage their suppliers.


                   We recommend that as it moves forward with its current performance
Recommendation 	   initiative, GSA develop the capability to provide its customer agencies
                   with information and analyses they need to leverage their buying power to
                   reduce procurement costs.


                   Mr. Chairman, this concludes my statement. We performed our work in
                   September 2003 in accordance with generally accepted government
                   auditing standards.4 I will be happy to answer any questions you or other
                   members of the committee may have.




                   4
                    This work followed on that which we performed from October 2002 through September
                   2003, as well as published GAO work.



                   Page 6                                                                 GAO-04-132T
Contact and Acknowledgments
For further information, please contact William T. Woods at
(202) 512-4841. Individuals making key contributions to this testimony
include Ralph Dawn, Carolyn Kirby, Jose Ramos, and Karen Sloan.




Page 7                                                         GAO-04-132T
Related GAO Products 



              Contract Management: High-Level Attention Needed to Transform DOD
              Services Acquisition. GAO-03-935. Washington, D.C.: September 10, 2003.

              Best Practices: Improved Knowledge of DOD Service Contracts Could
              Reveal Significant Savings. GAO-03-661. Washington, D.C.: June 9, 2003.

              VA and Defense Health Care: Potential Exists for Savings through Joint
              Purchasing of Medical and Surgical Supplies. GAO-02-872T. Washington,
              D.C.: June 26, 2002.

              Contract Management: Roles and Responsibilities of the Federal Supply
              Service and Federal Technology Service. GAO-02-560T. Washington, D.C.:
              April 11, 2002.

              Contract Management: Taking a Strategic Approach to Improving
              Service Acquisitions. GAO-02-499T. Washington, D.C.: March 7, 2002.

              Best Practices: Taking a Strategic Approach Could Improve DOD’s
              Acquisition of Services. GAO-02-230. Washington, D.C.: January 18, 2002.

              DOD and VA Pharmacy: Progress and Remaining Challenges in Jointly
              Buying and Mailing Out Drugs. GAO-01-588. Washington, D.C.: May 25,
              2001.




(120294)
              Page 8                                                        GAO-04-132T
This is a work of the U.S. government and is not subject to copyright protection in the
United States. It may be reproduced and distributed in its entirety without further
permission from GAO. However, because this work may contain copyrighted images or
other material, permission from the copyright holder may be necessary if you wish to
reproduce this material separately.
                           The General Accounting Office, the audit, evaluation and investigative arm of
GAO’s Mission              Congress, exists to support Congress in meeting its constitutional responsibilities
                           and to help improve the performance and accountability of the federal
                           government for the American people. GAO examines the use of public funds;
                           evaluates federal programs and policies; and provides analyses,
                           recommendations, and other assistance to help Congress make informed
                           oversight, policy, and funding decisions. GAO’s commitment to good government
                           is reflected in its core values of accountability, integrity, and reliability.


                           The fastest and easiest way to obtain copies of GAO documents at no cost is
Obtaining Copies of        through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full-
GAO Reports and            text files of current reports and testimony and an expanding archive of older
                           products. The Web site features a search engine to help you locate documents
Testimony                  using key words and phrases. You can print these documents in their entirety,
                           including charts and other graphics.
                           Each day, GAO issues a list of newly released reports, testimony, and
                           correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site
                           daily. The list contains links to the full-text document files. To have GAO e-mail
                           this list to you every afternoon, go to www.gao.gov and select “Subscribe to e-mail
                           alerts” under the “Order GAO Products” heading.


Order by Mail or Phone 	   The first copy of each printed report is free. Additional copies are $2 each. A
                           check or money order should be made out to the Superintendent of Documents.
                           GAO also accepts VISA and Mastercard. Orders for 100 or more copies mailed to a
                           single address are discounted 25 percent. Orders should be sent to:
                           U.S. General Accounting Office
                           441 G Street NW, Room LM
                           Washington, D.C. 20548
                           To order by Phone: 	 Voice:      (202) 512-6000
                                                TDD:        (202) 512-2537
                                                Fax:        (202) 512-6061


                           Contact:
To Report Fraud,
                           Web site: www.gao.gov/fraudnet/fraudnet.htm
Waste, and Abuse in        E-mail: fraudnet@gao.gov
Federal Programs           Automated answering system: (800) 424-5454 or (202) 512-7470


                           Jeff Nelligan, Managing Director, NelliganJ@gao.gov (202) 512-4800
Public Affairs 	           U.S. General Accounting Office, 441 G Street NW, Room 7149
                           Washington, D.C. 20548