oversight

Procurement Reform: How Selected Countries Perform Certain GSA Activities

Published by the Government Accountability Office on 1999-07-15.

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

                 United States General Accounting Office

GAO              Report to Congressional Requesters




July 1999
                 PROCUREMENT
                 REFORM
                 How Selected
                 Countries Perform
                 Certain GSA Activities




GAO/GGD-99-109
GAO   United States
      General Accounting Office
      Washington, D.C. 20548

      General Government Division



      B-281162

      July 15, 1999

      The Honorable Stephen Horn
      Chairman, Subcommittee on Government Management,
      Information and Technology
      Committee on Government Reform
      House of Representatives

      The Honorable Tom Davis
      House of Representatives

      This report responds to your July 30, 1998, request for information on how
      foreign governments perform procurement activities that in the United
      States fall under the responsibility of the General Services Administration’s
      (GSA) Federal Supply Service (FSS) and Federal Technology Service
      (FTS). FSS and FTS act on behalf of federal agencies as central buying
      agents for a wide range of goods and services. FSS has four “business
      lines”: supply and procurement, vehicle acquisition and leasing, travel and
      transportation, and personal property management. FTS has two business
      lines: network services, for telecommunications, and IT solutions, for IT
      (information technology) systems and related services. Your offices
      wanted us to focus on the supply and procurement and vehicle acquisition
      and leasing business lines in FSS and the two FTS business lines.

      As you know, FSS and FTS have undergone reforms in recent years aimed
      at incorporating commercial practices to improve the level of service they
      provide to federal customers. In addition, with the exception of vehicle
      acquisitions through FSS, FSS and FTS are now nonmandatory sources,
      meaning that agencies are not required to use them. Despite these reforms,
      you were concerned that because of current government rules and
      regulations, FSS and FTS face several barriers—such as the inability to
      recruit top-level staff and various financial management requirements—
      that can impede the effectiveness of their operations.

      To aid the Subcommittee in its discussions about future FSS and FTS
      reforms, you wanted to know whether other countries had organizations
      similar to FSS and FTS and how they performed similar activities. As
      agreed with your offices, we selected Canada, the United Kingdom (UK),
      Australia, and New Zealand because our preliminary work showed they
      had made a major commitment to procurement reform, and some of the
      reforms were in activities similar to those carried out by FSS and FTS. Our
      objective was to identify the organizations, policies, and programs that




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                   these countries had in place to assist agencies with the procurement of
                   supplies, vehicles, telecommunications, and IT.

                   None of the countries had organizations that completely mirrored FSS and
Results in Brief   FTS. Canada and the UK had the closest models in that they had
                   organizations available to assist agencies in the procurement of supplies,
                   vehicles, telecommunications, and IT. However, these organizations had
                   different features from those of FSS and FTS. For example, in Canada, the
                   organization that performed many activities similar to those of FSS also
                   had a large role in assisting agencies with the acquisition of IT systems and
                   related services, a function performed by FTS in the United States. The
                   two organizations in the UK differed from FSS and FTS because they were
                   given more flexibility than traditional government departments in the
                   personnel and financial areas. Australia and New Zealand had very
                   different models from the United States. Australia had only an organization
                   that performed activities similar to those of FTS, and its role in assisting
                   agencies with the acquisition of IT systems and related services was minor.
                   New Zealand had no government organizations that performed activities
                   similar to those of FSS and FTS because it sold its central procurement
                   agency to the private sector several years ago. This private sector business
                   assisted government agencies with the procurement of supplies, vehicles,
                   telecommunications, and IT and did business only with the government.

                   Our analysis also showed that there were similarities and differences in the
                   programs and policies these countries used in the procurement of supplies,
                   vehicles, telecommunications, and IT compared to those of FSS and FTS.
                   In supply, the procurement organizations in Canada and the UK had
                   prenegotiated contract arrangements, as does FSS, under which agencies
                   deal directly with vendors, to procure goods and services. Australia and
                   New Zealand did not have such arrangements. Also, none of the countries
                   had distribution centers or government stores, like FSS does, that stocked
                                                                   1
                   common-use supplies for resale to agencies. In the vehicle area, only
                   Canada had a requirement that vehicles be purchased through its central
                   procurement organization, like the U.S. requirement for FSS. The other
                   three countries allowed their agencies to acquire vehicles directly from the
                   private sector. None of the countries had a central vehicles fleet, like FSS
                   does. Australia recently sold its fleet to the private sector.

                   In telecommunications, agencies in Canada and the UK—like in the United
                   States—had the option to either use contract arrangements with private

                   1
                     On July 8, 1999, as this report was being prepared for printing, GSA announced that it was phasing out
                   its distribution centers.




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carriers offered by their organizations with activities similar to those of
FTS or to go directly to the private sector, which was the only option in
New Zealand. In Australia, officials told us that agencies were required to
use service providers that had agreed to certain terms and conditions with
the organization like FTS. For IT systems and related services, agencies in
the UK, like agencies in the United States, could either use the
organization like FTS or go directly to the private sector to meet their
needs. However, Canada was unique because major IT projects had to be
procured through the central procurement organization if they exceeded
certain dollar thresholds. In Australia, there was no major, central
government effort to assist agencies in acquiring IT systems and related
services because of a new government initiative to phase out IT systems
ownership and instead have the private sector own and maintain the
systems and the government contract for IT services. In New Zealand, a
government committee was to review and monitor high-dollar, high-risk IT
system acquisitions. Appendix I identifies the key organizations in these
countries and summarizes their activities.

According to officials in these countries, procurement reform evolved over
a number of years and was primarily influenced by a desire to rely more on
the private sector to perform activities of a business nature so that
government could operate more efficiently, improve its services, and focus
on its core mission. As part of their broad reform efforts, Canada and the
UK were using techniques aimed at transforming the way major
procurements are designed and managed. Canada’s benefits-driven-
procurement approach asks the private sector to deliver certain agreed-
upon results instead of following what Canadian officials viewed as the
traditional approach in which a government blueprint with detailed
specifications was used. The UK’s private finance initiative (PFI) is
designed to meet major capital investment needs by having the private
sector finance capital assets and having the government or users pay for
the services.

Information on the various approaches used by these countries provides
insight into how they performed activities similar to those of FSS and FTS.
However, it is important to recognize that such factors as differences in
political and economic environments, the role of social objectives in the
procurement process, and the volume of contracting activity would have to
be considered in a discussion of whether these approaches had
applicability to FSS and FTS operations in the United States. Furthermore,
some reforms were very recent, and performance data on the effectiveness
of the various reforms were generally unavailable or were in the early
stages of development. Consequently, we could not, from an overall



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             perspective, gauge how well these reforms were working. Nonetheless,
             officials we interviewed who were end-users of the procurement
             organizations and policies we observed said they were generally satisfied
             with the reforms and believed their governments were operating more
             efficiently than under old policies.

             GSA was established by the Federal Property and Administrative Services
Background   Act of 1949 to serve as a central procurement and property management
             agency for the federal government. GSA’s diverse activities and programs
             have governmentwide implications that, according to GSA, affect over $52
             billion, which is more than one-fourth of the federal government’s total
             procurement dollars. Through various revolving funds, GSA buys goods
             and services from private vendors and resells them to agencies. GSA has
             four major components—the Public Buildings Service, FSS, FTS, and its
             Office of Governmentwide Policy (OGP)—to carry out its various
             programs and activities.

             FSS provides contract arrangements for commercial products and services
             worth over $17 billion per year through its four business lines: supply and
             procurement, vehicle acquisition and leasing, travel and transportation,
             and personal property management. As previously indicated, we did not
             focus on the travel and transportation and personal property management
             business lines. FTS provides reimbursable services for local and long-
             distance telecommunications. It also assists agencies with acquiring,
             managing, and using IT systems. FTS accomplishes this through two
             business lines: network services, for its telecommunications activities; and
             IT solutions, for its IT systems-related activities.

             In carrying out their duties, FSS and FTS are to follow the Federal
             Acquisition Regulation (FAR), which is the uniform set of policies and
                                             2
             procedures executive agencies are required to follow in procuring goods
             and services. The FAR implements various statutory requirements
             intended to advance national social and economic goals, such as giving
             preferential treatment in awarding contracts to certain groups, such as the
             blind and severely handicapped, small and disadvantaged businesses, and
             the federal prison work program. Governmentwide procurement policy is
             overseen by the Office of Federal Procurement Policy (OFPP) within the
             Office of Management and Budget (OMB). OFPP is responsible for
             prescribing policy and coordinating the development of governmentwide

             2
              In the United States, an executive agency is a civilian or military department, or an independent
             establishment within the meaning of 5 U.S.C 101, 102, and 104(1) respectively, and any wholly owned
             government corporation within the meaning of 31 U.S.C. 9101.




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                         procurement standards. OGP within GSA has a supporting role by creating
                         networks of agency procurement representatives and by providing
                         guidance and policy related to specific areas, such as vehicles, aircraft, and
                         electronic commerce. Each year, the U.S. government spends
                         approximately $200 billion in acquiring goods and services.

FSS Supply and Vehicle   FSS finances its supply and vehicle activities though the General Supply
                         Fund, which is a revolving fund that is sustained by revenues received
Activities               from customer agencies for goods and services. Through its supply and
                         procurement business line, FSS offers federal agencies a choice of more
                         than 4 million commercial products and a range of technology-oriented,
                         financial, environmental, management, and administrative services. FSS’
                         three methods of supply are (1) the stock program, (2) special order sales
                         and (3) federal supply schedules. In the stock program, FSS stores
                         approximately 19,000 common-use items for resale to agencies in 4 major
                         distribution centers, 3 smaller centers, and 19 government stores located
                         throughout the country and overseas. This program had sales of $817
                         million in fiscal year 1998. The special order program, which had sales of
                         $477 million in fiscal year 1998, provides products for special needs or
                         when stocking is not desirable, such as office furniture and appliances.
                         The federal supply schedules program is similar to a commercial catalog
                         business and provides agencies with access to over 6,800 contracts to
                         obtain various goods and services. In addition to covering a vast range of
                         commercial items, the schedules cover IT products and services. FSS
                         prenegotiates terms, conditions, and ceilings on price with vendors;
                         agencies deal directly with the vendors to negotiate final prices and
                         establish deliveries. Supply schedule sales were about $8 billion in fiscal
                         year 1998.

                         The vehicle acquisition and leasing business line in FSS provides agencies
                         with one-stop shopping for purchasing vehicles or leasing them from the
                         FSS-managed interagency fleet. FSS is the federal government’s mandatory
                                                                                  3
                         source for the purchase of new, nontactical vehicles. Although leasing
                         vehicles through the interagency fleet is not mandatory, agencies that
                         choose this option get scheduled replacement, full-service management,
                         and a fleet services card for fuel and repairs, for a fixed monthly fee, as
                         well as a cost per mile charged by vehicle type. In fiscal year 1998, the
                         vehicle acquisition and leasing business line purchased about 56,800
                         vehicles worth about $1 billion; one-half of the vehicles were for the

                         3
                          Nontactical vehicles, which are referred to throughout this report, are motor vehicles primarily of
                         commercial design that are used in support of general transportation services and facility maintenance
                         functions not directly connected with combat or tactical operations.




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                         interagency fleet, with the rest reflecting vehicle purchases for agencies.
                         The interagency fleet comprised over 160,000 automobiles, passenger vans,
                         trucks, buses, ambulances, and special-purpose equipment in fiscal year
                         1998. FSS relies on the private sector for vehicle delivery, fuel,
                         maintenance and repair, and vehicle auctions.

FTS Telecommunications   FTS finances its telecommunications and IT activities through the
                         Information Technology Fund, which is a revolving fund sustained by
and IT Activities        revenues received from customer agencies for goods and services. In fiscal
                         year 1998, FTS had revenues of $3.4 billion. The network services business
                         line in FTS provides customer agencies with telecommunication services,
                         including global voice, data, and video services, supporting both the local
                         and long-distance needs of the federal government. According to FTS
                         officials, the network services business line had revenues of about $1
                         billion in fiscal year 1998. Until the end of 1998, FTS long-distance
                         services—under its FTS2000 arrangements with AT&T and Sprint—were a
                         mandatory source for federal agencies. Under the FTS2001 arrangements
                         with MCI and Sprint that were recently awarded, agencies are able to
                         select their own service provider. According to FTS officials, these are the
                         largest non-Defense government contracts, valued at between $5 and $8
                         billion over 8 years. FTS local telecommunications services also used to be
                         mandatory; however, FTS now offers a range of nonmandatory services in
                         this area, where revenue totaled $266 million in 1998.

                         The IT solutions business line in FTS provides agencies with a range of
                         assistance related to acquiring, managing, and using IT. In fiscal year 1998,
                         the IT solutions business line had revenues of about $2.4 billion. FTS
                         prides itself in this area on being an objective and trusted third party that
                         can provide independent assistance to agencies. For a fee, FTS acts as a
                         consulting agent for agencies in the acquisition of large IT systems and
                         related services, systems integration, software definition and design, and
                         office systems development. It also supports federal systems through risk
                         analysis and information security support. Its Federal Acquisition Services
                         for Technology (FAST) program is intended to provide quick procurement
                         assistance for IT products and services. The FAST program had revenues
                         of $973 million in fiscal year 1998. According to FTS officials, FTS services
                         differ from the IT products and services offered by FSS under the supply
                         schedules in that FTS is involved as a third party. Agencies deal directly
                         with vendors under the FSS schedules. An FTS official added that FTS
                         views its role as that of a value-added reseller of telecommunications and
                         IT. In addition, this official said that FTS recognizes the significance of the
                         evolving integration of telecommunications and IT in meeting customer
                         agency needs, now and in the future.



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Government Reform Has   The federal government has undergone reform and downsizing in response
                        to efforts like the National Performance Review and congressional
Affected FSS and FTS    initiatives to promote efficiency and economy in contracting, such as the
                        Federal Acquisition Streamlining Act of 1994. More recently, the Federal
                        Activities Inventory Reform Act of 1998 (FAIR) required executive
                        agencies to identify functions they perform that are not inherently
                        governmental and could be performed by the private sector.

                        This environment of reform has affected FSS and FTS. GSA, as a whole,
                        has gone from 39,000 employees in 1971 to fewer than 14,000 employees in
                        1999. It also realigned itself organizationally to mirror the private sector
                        and incorporated commercial practices to improve the level of service
                        provided to agencies and to enhance its relationships with the private
                        sector. These changes were evident in FSS and FTS with the establishment
                        of the aforementioned business lines. The changes also manifested
                        themselves in the shift from being a mandatory to nonmandatory source
                        for agencies in such areas as supply procurement, vehicle leasing through
                        the interagency fleet, telecommunications services, and IT acquisition.
                        Also, the Government Performance and Results Act of 1993 increased FSS’
                        and FTS’ focus on performance measurement as a vital component of
                        operating in a more business-oriented environment.

                        Despite the changes that occurred, FSS and FTS believe that several
                        barriers still exist that impede their ability to compete in this new
                        environment and operate in a businesslike manner. Barriers cited by FSS
                        were the inability to recruit and train top-level staff because of various
                        federal personnel requirements, prohibitions on its ability to enter into
                        cooperative purchasing arrangements, the extensive bid protest processes
                        available to federal contractors, and its inability to deal effectively with
                        poor-performing vendors. FTS also cited personnel-related barriers but
                        had more concerns about financial-related barriers, such as the inability to
                        consider accounts receivable the same as cash in managing the
                        Information Technology Fund. An FTS official said this limits FTS’ ability
                        to commit to new business opportunities because payments to FTS from
                        some agencies can take up to 90 days. Another barrier FTS cited was that
                        federal rules related to disposal of property can make agencies less
                        efficient because they cannot exchange the equipment they own for like
                        services. FTS also cited being prohibited from using the standard of
                        “adequate” competition as an alternative to “full and open” competition,
                        which is required by law, in certain multiple award contracting situations
                        as another barrier to operating effectively.




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              In the past, Congress has amended laws to allow agencies to overcome
              various barriers when they were shown to impede effective performance.
              For example, government corporations, including the Tennessee Valley
              Authority (TVA), and dozens of others, serve public functions of a business
              nature and were given some flexibility related to the applicability of
              federal statutes to overcome barriers caused by the laws and implementing
              regulations. Congress authorized TVA, a government corporation, as well
              as federal agencies such as the Department of Veterans Affairs (VA) and
              the Federal Aviation Administration (FAA), to adopt alternative personnel
              systems. Congress also gave FAA authority to implement a streamlined
              procurement system so FAA could more easily deploy new technologies.
                                              4
              Agencies have also outsourced a wide range of functions that typically
              were done in-house. For example, the Office of Personnel Management
              (OPM) now contracts for investigative services, which were formerly done
                                            5
              in-house until OPM privatized its investigative unit.

              The United States is not alone in its efforts to make its agencies more
              businesslike and to address barriers to efficient and streamlined
              government. Governments around the globe have reassessed the role of
              government and have made organizational and operational changes to
              improve the level of service to citizens. Changes that have taken place
              have included greater reliance on the private sector through such methods
              as outsourcing, empowering civil servants to make business decisions,
              adopting a more results-oriented focus, and developing and monitoring
              data on performance.

              To meet our objective, we obtained information on FSS’ and FTS’
Scope and     procurement activities and federal procurement in general. We primarily
Methodology   relied on interviews with, and documents obtained from, officials from
              FSS, FTS, GSA’s OGP, and OFPP within OMB. We conducted research,
              primarily using the Internet, to select countries for the review. We
              identified countries where the government had made a commitment to
              procurement reform and where preliminary work showed reforms were
              made in activities similar to those carried out by FSS and FTS. On the basis
              of this work, we selected Canada, the UK, Australia, and New Zealand. We
              confirmed our selections primarily through discussions with our

              4
               Under outsourcing, the government remains fully responsible for a service or function and retains
              control over management decisions, while another entity, usually the private sector, performs the
              function or operates the service.
              5
               The terms privatize and privatization have generally been defined as any process aimed at shifting
              functions and responsibilities, in whole or in part, from the government to the private sector.




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                        counterpart organizations—the Auditor General offices—in each of the
                        countries.

                        To collect information on the organizations, programs, and policies in
                        these countries, we visited the countries, interviewed key officials about
                        their operations, and obtained a wide range of material. After collecting
                        the information, we compared these countries’ operations to the way FSS
                        and FTS assist agencies with the procurement of supplies, vehicles,
                        telecommunications, and IT.

                        We performed our work between July 1998 and May 1999 in accordance
                        with generally accepted government auditing standards. We requested
                        comments on a draft of this report from the Director of OMB,
                        Administrator of GSA, and responsible officials in the countries we visited.
                        On June 4, 1999, OFPP’s Associate Administrator for Procurement Law
                        and Legislation told us that OMB had no comments. In response to our
                        request for comments from the Administrator of GSA, FSS and FTS
                        officials provided comments. Our FSS liaison orally provided the
                        comments of various FSS components on June 11, 1999, and FTS’ Chief of
                        Staff provided oral comments on June 16, 1999. Various officials from the
                        four countries provided comments via e-mail, facsimile, or letter during
                        June 1999. These comments are discussed near the end of this letter.
                        Appendix II contains a more detailed description of our objective, scope,
                        and methodology and identifies the organizations discussed in this report
                        and their Internet addresses.

                        Canada, with a population of about 31 million, is a federation of 10
Canada: Central         provinces and 3 territories and has a central government that operates as a
Procurement Agency      parliamentary democracy. Canada’s central procurement department—
Has Functions Similar   Public Works and Government Services Canada (PWGSC)—had two
                        organizations—the Supply Operations Service (SOS) and the Government
To FSS and FTS With     Telecommunications and Informatics Services branch (GTIS)—with
Some Differences        activities similar to those carried out by FSS and FTS. Procurement in the
                        Canadian government centered on purchase authority thresholds, which
                                                                 6
                        were delegated by the Treasury Board. That is, agencies had authority to
                        automatically buy goods and services up to certain amounts. For goods
                        purchases above a $5,000 Canadian threshold ($3,425 U.S., assuming that
                        $1 U.S. = $1.46 Canadian), agencies generally were required to use PWGSC
                        as a central purchasing agency.



                        6
                            The Treasury Board is a committee of the Cabinet that sets procurement policy.




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                           SOS arranged governmentwide contracts for supplies, including IT
                           products and services, similar to FSS’ function. However, it no longer
                           operated a stock program with distribution centers or government stores.
                           As with FSS in the United States, agencies were required to use SOS for
                           vehicle acquisitions, although unlike FSS, it did not manage a central
                           vehicle fleet. SOS differed from FSS in the IT area in that it had a unit that
                           provided IT systems acquisition services, similar to FTS’ role. GTIS also
                           provided some services in the IT area, where it assisted mostly smaller
                           agencies in defining their needs, but it was primarily involved in the
                           procurement of telecommunications services, like FTS. In the IT area, the
                           government of Canada was starting to use benefits-driven-procurement
                           (BDP), under which the government asks the private sector to deliver
                           certain agreed-upon results, instead of a more traditional approach under
                           which the private sector is asked to follow a government blueprint with
                           detailed specifications. Greater use of BDP was part of a broad vision for
                                                                                                7
                           reform being developed by the Treasury Board Secretariat (TBS).
                           Appendix I identifies the key organizations in Canada and summarizes
                           their activities.

Central Purchasing and     The central government of Canada meets its procurement needs through a
                           combination of central purchasing and delegated authority to agencies.
Delegations of Authority   PWGSC is the central purchasing agent for the government of Canada.
                           PWGSC’s activities covered both civilian and defense purchasing for
                           approximately 100 departments and agencies of the central government
                           and other jurisdictions. Employing about 11,800 people, PWGSC, among
                           other things, managed approximately 63,000 contracts and was responsible
                           for purchasing some 17,000 categories of goods, services, and
                           construction, with a total annual value in excess of $8 billion Canadian
                           (about $5.5 billion U.S.). This amount is more than one-half of the total
                           amount of all federal government contracting in Canada. In addition,
                           PWGSC had several other governmentwide responsibilities, including
                           those related to real property, personnel, consulting and audit, public
                           information, and translation services. It also banked and dispersed
                           government funds and maintained the government’s accounts.

                           The Treasury Board sets contracting authority levels for departments in
                           the Canadian government. As a central procurement agency, PWGSC had
                           much higher authority than other departments. In addition, the Public
                           Works and Government Services Act of 1996 gave PWGSC exclusive
                           responsibility to purchase goods on behalf of the Canadian government

                           7
                            The Treasury Board Secretariat (TBS) is the central agency that advises the Treasury Board and
                           communicates its decisions.




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                            and also for delegating purchase authority for goods to other departments.
                            PWGSC’s standard delegation of authority for goods to other departments
                            was $5,000 Canadian ($3,425 U.S.) and according to an official with TBS,
                            some departments had authority of $25,000 Canadian ($17,123 U.S.). Each
                            department could procure services within its own authority, although the
                            departments could ask PWGSC to do the procurement for them.
                            Departments had authority to purchase services up to $2 million Canadian
                            (about $1.4 million U.S.) if they used the government’s electronic tendering
                                    8
                            service. Purchases above contracting authorities set by the Treasury
                            Board required approval by the Treasury Board.

                            Government policy in Canada requires that contracting be conducted in a
                            manner that will, among other things, ensure competition and the
                            preeminence of operational requirements. According to TBS officials,
                            government policy also seeks to advance certain national objectives,
                            including regional development and award of some contracts to aboriginal
                            populations. Canada did not, however, appear to use its procurement
                            system to advance social objectives to the extent this is done in the United
                            States.

SOS Supply, Fleet, and IT   SOS—a major component of PWGSC—arranged governmentwide
                            agreements with suppliers through its standing offers and supply
Activities                  arrangements. Standing offers provide goods and services to departments
                            at prearranged prices, under set terms and conditions, without specifying
                            delivery schedules or quantities required up front. Standing offers are
                            employed when one or more purchasers repetitively order the same good
                            or service. Common products offered under the standing offers are food,
                            fuel, plumbing supplies, tires, stationery, and office equipment. Services
                            include repair and overhaul of equipment and temporary help services.
                            Supply arrangements are nonbinding agreements between SOS and
                            suppliers to provide a range of goods or services on an as-required basis.
                            With supply arrangements, departments solicit bids from a pool of
                            prescreened vendors based on their specific scope of work; in this way
                            supply arrangements differ from standing offers, under which departments
                            accept a portion of a requirement already defined and priced. Many supply
                            arrangements include ceilings on prices, which allow departments to
                            negotiate the price downward on the basis of the actual requirement or
                            scope of work.


                            8
                             Known as MERX, this service lists contract opportunities at all levels of government in Canada and
                            includes hundreds of hospitals, universities, and school boards.




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Although we did not do a comprehensive comparison of the supply
activities of SOS and FSS, they were similar in that they aim to simplify the
buying process for the government purchaser by prenegotiating terms,
conditions, and sometimes prices with suppliers. We also noted that like
FSS, SOS had on-line catalogues that purchasers could use to find
products and services. There was, however, a difference in SOS and FSS
supply operations in that SOS no longer operates a stock program with
distribution centers or government stores as FSS does. According to SOS
officials, the government had operated distribution centers at one time, but
they were considered inefficient and the government stopped operating
them several years ago. SOS’ current supply activities rely primarily on
direct delivery from the vendor. According to these officials, the
government also used to operate government stores that at one time were
found in most of the major federal buildings. However, for ideological
reasons, the government decided that it should not be in competition with
the private sector and privatized the stores several years ago. Another
difference we noted was that SOS can be a mandatory source of supply if
the purchase amount exceeds the buyer’s threshold. FSS, in contrast, is a
nonmandatory source of supply, regardless of the purchase amount.

In the vehicle area, SOS’ activities were similar to FSS’ activities in that
departments were required to use SOS for nontactical vehicle acquisition.
According to TBS officials, the Canadian government purchases over 2,250
vehicles each year. The most common method of supply for vehicles is
standing offers, whereby manufacturers provide prices for different
models with different option combinations. For urgent requirements,
departments could access SOS’ inventory of vehicles that were already
purchased by SOS through standing offers and were being held by
manufacturers until needed. The least common method, which required
special approval by the Treasury Board because it was the most expensive,
was direct purchase from dealer stock. Departments could also lease
vehicles from the private sector through SOS.

According to SOS officials, departments generally managed their own
fleets and had arrangements with dealerships and private garages for
vehicle servicing. Under this framework, SOS differed from FSS in that it
did not manage a central fleet like FSS’ interagency fleet. As with most
other goods and services in which PWGSC was involved, SOS acted as the
contract authority on behalf of the buyer and was not involved in delivery
of the goods and services.

Like FSS’ schedules, SOS contracts also covered IT goods and services.
However, SOS had a role in the IT area that went beyond what FSS offers



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                          through its IT schedules and more closely resembled what FTS offers in
                          assisting agencies with the acquisition of IT systems and related services.
                          SOS had a branch called the Science, Informatics, and Professional
                          Services Sector (SIPSS) that managed the IT goods and services contracts
                          mentioned earlier. These contracts included consulting services for IT
                          systems design, research and development, and training as well as goods,
                          such as IT systems infrastructure, electronic data processing systems,
                          hardware, and software. In addition to managing these contracts, which
                          was similar to what FSS does through its IT schedules, SIPSS provided
                          direct assistance to departments with major IT systems acquisitions,
                          similar to what FTS does. A difference between SIPSS and FSS/FTS
                          activities in this area, however, was that SIPSS was often a mandatory
                          source for departments because of the purchasing thresholds. FSS and
                          FTS, on the other hand, are always nonmandatory sources in the IT area.

GTIS Telecommunications   Like FTS, GTIS managed governmentwide telecommunications contracts
                          and sought to aggregate government requirements to save costs. In fiscal
and IT Activities         year 1997/1998, GTIS spent about $275 million Canadian (about $188
                          million U.S.) on telecommunications services. According to GTIS officials,
                          the telecommunications industry in Canada has undergone a great deal of
                          change since the mid-1990s. In 1995, the Canadian Radio-Television and
                          Telecommunications Commission deregulated large segments of the
                          telecommunications industry. According to these officials, prior to this
                          time, the Stentor alliance of regional carriers was the dominant service
                          provider; Bell Canada was the largest provider of services in the provinces
                          of Ontario and Quebec. The deregulation resulted in a more competitive
                          environment and required GTIS to develop a competitive
                          telecommunications supply arrangement.

                          In general, most departments procured local and long distance service
                          through GTIS, although its services were not mandatory. GTIS officials
                          said it was more convenient and less expensive for departments to use
                          GTIS. At the time of our review, however, GTIS officials were evaluating
                          the ongoing impact of deregulation on their optional status and
                          governmentwide bargaining position as departments began procuring
                          services directly from the private sector.

                          GTIS also provided services related to IT systems acquisition that were
                          similar to services offered by FTS. Small agencies or agencies that did not
                          have IT expertise could get assistance from GTIS in defining their needs
                          and procurement objectives. GTIS then interfaced with SIPSS on behalf of
                          these agencies and could bundle their requirements to get a better price.
                          GTIS also was involved in several governmentwide IT initiatives, which



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                     included fostering electronic data interchange and electronic transactions
                     within government.

Benefits-Driven      We noted during our review that in the IT procurement area, the
                     government of Canada was starting to use an approach called benefits-
Procurement          driven procurement (BDP). BDP stresses the results and benefits that the
                     government and suppliers mutually seek to gain from each acquisition.
                     Although we did not do a detailed comparison, BDP has concepts similar
                     to performance based service contracting (PBSC) in the United States in
                     that contractors are given more freedom to determine how to meet the
                     government’s performance objectives. Arising from recognition by the
                     Canadian government that one of the major reasons IT projects fail is that
                     the procurement process is too inflexible, BDP is an alternative to
                     traditional approaches. According to Canadian procurement officials,
                     under traditional procurement approaches, departments could spend
                     months, even years, developing a detailed requirement that, when
                     completed, is often outdated and did not reflect changes that have taken
                     place in the organization. Instead, the BDP approach is to ask the private
                     sector to deliver certain agreed-upon results rather than follow a blueprint
                     with detailed specifications. The private sector is also invited to submit
                     ideas on what sort of project should be undertaken before a formal request
                     for proposals is issued.

                     Another key feature of BDP is up-front planning to remove or mitigate
                     potential problems in the procurement process. Both the front-end
                     planning and the management of the entire acquisition are based on four
                     elements: (1) a solid business case, (2) risk analysis, (3) clear delineation
                     of accountabilities, and (4) a compensation structure tied closely to the
                     contractor’s performance. Appendix III provides a more detailed
                     description of these elements and the BDP approach.

Future Reforms Are   At the time of our review, TBS was in the midst of developing a broad
                     agenda for procurement reform. TBS officials said that the main problem
Planned              with Canada’s procurement system was that it was still too focused on
                     rules and process and not streamlined and results-oriented. The officials
                     said that although key departments had made a good start at modifying
                     and streamlining their processes and focusing on their core missions, more
                     could be done. TBS was planning to take a leadership role in reforming
                     procurement processes and was aiming to create a system in which central
                     policy focused on principles instead of on developing prescriptive rules. In
                     addition, TBS officials said they would support applying BDP principles to
                     other types of acquisitions and would attempt to coordinate the other
                     reforms under way in PWGSC and other departments. TBS and PWGSC



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                        officials said that the government was in the early stages of applying
                        performance measurement principles in assessing the reforms that have
                        taken place and therefore did not have much data available to gauge
                        results.

                        A top procurement official with the Department of National Defence
                        (DND) whom we interviewed agreed that there had been some positive
                        gains as a result of recent procurement reforms. This official cited
                        examples where DND had privatized support functions so it could focus
                        more on its core mission. These included maintenance of vehicles and
                        some weapons systems and pilot training. DND had also used the BDP
                        process for a new information system for its supply network. Also, this
                        official said that DND and PWGSC had a good working relationship. He
                        added that skilled procurement staffs were crucial as departments focused
                        more on their core missions and increasingly relied on the private sector
                        for activities that were traditionally done in-house.

                        The UK, with a population of about 59 million, encompasses England,
United Kingdom:         Wales, Scotland, Northern Ireland, and several dependent areas, and has a
Agencies Like FSS and   central parliamentary government that operates under a constitutional
FTS Have More           monarchy. The central government had two organizations—The Buying
                        Agency (TBA) and the Central Computer and Telecommunications Agency
Flexibility Than        (CCTA)—with activities similar to those of FSS and FTS. However, these
Traditional             agencies had more flexibility in how they managed their financial and
Government Agencies     personnel affairs than if they were traditional government departments.
                        Known as executive or “next steps” agencies because they represented the
                        next steps in reforming government management, they were structured
                        like private businesses and were one part of a broad government reform
                        effort being led by Her Majesty’s Treasury (HM Treasury), which sets
                        procurement policy.

                        Like FSS, TBA had contract arrangements for supplies that departments
                        and agencies could use on a nonmandatory basis. However, TBA did not
                        operate a stock program with distribution centers or government stores as
                        FSS does. Also, the UK did not have a central vehicle fleet like FSS;
                        however, TBA could assist agencies in obtaining fleet management
                        services or with vehicle acquisition. Agencies also could use vehicle
                        acquisition arrangements held by the Ministry of Defence (MOD) or go
                        directly to the private sector. Like FTS, CCTA arranged
                        telecommunications contracts for governmentwide use and provided
                        services in IT systems acquisition on a nonmandatory basis. Across the
                        government, HM Treasury was leading a public-private partnering initiative
                        known as the private finance initiative (PFI) and had other efforts under



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                            way to encourage knowledge sharing and performance measurement in
                            procurement. Appendix I identifies the key organizations in the United
                            Kingdom and summarizes their activities.

Decentralization of         In recent years, the central government of the United Kingdom has
                            undergone a continued program of government reform, where, according
Procurement and the         to UK government officials, the emphasis has been on cost consciousness,
Evolution of “Next Steps”   value for money, downsizing, and greater concentration on the core
Agencies                    businesses of government. With these reforms, the government has
                            decentralized procurement authority to its agencies and ministries, which
                            spend over 20 billion each year for goods and services (about $32.3
                            billion, assuming that $1 U.S. = 0.62).

                            According to officials with HM Treasury, most procurement prior to the
                            reforms went through several central procurement departments, which
                            supplied everything from pencils to large computer systems. Now,
                            agencies and departments are, for the most part, responsible for their own
                            procurement, although they are expected to adhere to standards that are
                            part of HM Treasury’s broad strategy for procurement. These standards
                            include achieving value for money; emphasizing fair competition;
                            incorporating best practices; and carefully assessing and managing
                            business cases, risks, and contracts. HM Treasury officials told us that
                            their procurement system was generally not used to advance any social
                            objectives. However, UK officials pointed out that in the procurement area,
                            the UK cannot act unilaterally and is required to implement laws
                            compatible with directives promulgated by the European Community, such
                            as ensuring that relevant contracts are awarded objectively.

                            As part of the trend toward decentralization and getting government to run
                            more like business, the government separated its service delivery and
                            policy formulation functions. In February 1988, the government launched
                            the “Next Steps” initiative, referring to the next steps in improving
                            government management. Under the initiative, the government identified
                            areas of departmental work that could be grouped together into
                            operational units under single officials who would be accountable directly
                                              9
                            to their ministers for delivering specific objectives, services, and results.
                            The government looked critically at its service delivery functions and
                            determined whether each should be retained, reengineered, privatized,
                            contracted out, or abolished. As a result of this process, several next steps
                            agencies were established.

                            9
                             In parliamentary systems, ministers are high level officers in the government and usually are charged
                            with managing a department or major segment of government activities.




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                            Next steps agencies operate within a framework with targets set by
                            ministers for the task to be done, the results to be achieved, and the
                            resources to be provided. The day-to-day responsibility for running the
                            organization is delegated by ministers to a chief executive, who is to have
                            the management tools and freedoms needed to do the job. Each next steps
                            agency has a public framework document, so that everyone can know the
                            framework within which the agency operates. It includes the aims and
                            objectives of the agency, its financial and accounting processes, and its
                            approaches to pay and personnel issues. The frameworks for each agency
                            vary; however, they generally are intended to provide the chief executive
                            with much greater flexibility than if the units were operating within a
                            traditional government department. As of October 1997, there were about
                            120 next steps agencies with staff numbering about 362,000, or about 77
                            percent of the civil service.

The Buying Agency Is a      TBA was established in 1991 as a next steps agency and is part of the
                            Cabinet Office, which is the UK’s central department for policy
Supply Procurement Source   formulation, government management, and the civil service. TBA was
                            similar to FSS in that it offers departments and agencies nonmandatory
                            supply arrangements for common-use goods and services. TBA sought to
                            provide a center of procurement excellence within the public sector and to
                            help customers secure better value for money than they could otherwise
                            achieve. TBA’s framework document included objectives to provide
                            procurement services so that agencies could receive better value for
                            money than they would otherwise and to bring about improvements in cost
                            effectiveness and the quality that agencies receive from suppliers.

                            TBA offered a range of procurement services that were similar to FSS’
                            supply activities. These included pretendered “direct call-off” contracts
                            covering over 50,000 products and services; the “Pathfinder” service for
                            larger or more complex procurements; and direct sales and spot buying,
                            where TBA coordinates volume purchases or assists with complex items
                            or items that are difficult to source. TBA had a catalogue of goods and
                            services for its direct call-off contracts. TBA was to be self-sufficient
                            financially and derived its income from commissions paid by departments
                            and agencies related to the direct call-off arrangements and direct charges
                            for services. In 1997, TBA had sales of 272 million (about $439 million).

                            A difference between TBA and FSS was that TBA appeared to have more
                            managerial and financial flexibilities because of its status as a next steps
                            agency. Although we did not do a comprehensive analysis of TBA’s status
                            as a next steps agency and FSS’ status within the U.S. government, next
                            steps agencies generally have greater flexibility with regard to how they



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                          manage their finances and human resources than traditional government
                          departments in the UK that operate within a government structure.

                          In the case of TBA, its framework document specifies that the chief
                          executive has the authority to seek flexibility in the personnel area, subject
                          to approval by HM Treasury. According to TBA’s Procurement Director,
                          some specific personnel flexibility that TBA had included the ability to
                          seek its own staffing levels by taking on or releasing staff as the business
                          need arose. TBA also could set its own pay scale. According to this official,
                          if TBA needed to increase the pay of procurement specialists to compete
                          with a tight labor market, it could obtain approval to do so rather quickly.

                          Like FSS, TBA operated on what is called a “trading fund basis” in the area
                          of financial management, which means it was self-supporting and received
                          no revenue from the central government. Unlike FSS, however, TBA could
                          retain its revenue after covering operating costs and other financial
                          obligations. In contrast, FSS generally had to return excess revenue to the
                          U.S. Treasury after recovering its costs. TBA also had the authority to
                          commit to capital expenditures or asset disposals up to 250,000
                          ($403,226). Another difference between FSS and TBA was that TBA did not
                          operate distribution centers or government stores. Also, unlike FSS, TBA
                          provided its services to local government.

                          In addition to TBA, we noted that for some types of office supplies,
                          departments and agencies could use a former government agency that was
                          privatized. In 1996, the government privatized Her Majesty’s Stationery
                          Office (HMSO), now referred to as The Stationery Office (TSO). In addition
                          to being the official publisher of government documents, similar to the
                          Government Printing Office in the United States, HMSO provided
                          letterhead stationary and other office supplies to departments and
                          agencies. Today, TSO is a nonmandatory source in the private sector that
                          departments can also use to meet some of their office supply needs, a
                          function similar to that of FSS.

Vehicle Procurement and   In the UK, departments and agencies purchased and maintained their own
                          vehicles and could go directly to the private sector. According to a TBA
Fleet Management Are      official we interviewed, TBA could assist agencies with vehicle purchases,
Decentralized             if requested. However, these services were not required like they are with
                          FSS. TBA also did not operate, nor does the government have, a central
                          fleet that is similar to the FSS interagency fleet. It is important to note that
                          according to HM Treasury and MOD officials, MOD had the majority of the
                          nontactical vehicles and had purchasing arrangements with vehicle
                          suppliers. These officials said that other departments and agencies often



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                            “piggyback” these contracts to take advantage of the favorable prices MOD
                            gets. We also noted that the government had a small fleet of 160 cars
                            within the Cabinet Office known as the Government Car and Despatch
                            Agency; however, these cars were to be used for courier services and to
                            transport top officials only.

                            In the vehicle area, MOD was in the midst of developing an arrangement
                                                                      10
                            that was like a public-private partnership for its entire “white fleet”
                            vehicles that were used for nontactical, administrative, and support
                            functions. This project was being done as part of a major UK procurement
                            reform effort, known as the private finance initiative (PFI). PFI is designed
                            to meet major capital investment needs by having the private sector
                            finance capital assets and having the government or users pay for the
                            service. HM Treasury had established a special task force to improve the
                            PFI procurement process and to assist departments and agencies with
                            implementing PFI projects. The PFI project for the entire white fleet was
                            under development at the time of our review, and test projects for two
                            portions of the white fleet were among 115 PFI projects that were in
                            progress. According to MOD officials, preliminary data on these test
                            projects showed reductions in cost of 15 and 27 percent for these two
                            portions compared to in-house alternatives. Under the planned PFI
                            arrangement for the entire white fleet, the private sector was to invest in,
                            manage, and operate the vehicles necessary to deliver an agreed-upon level
                            of service to MOD under a long-term contract. MOD officials said that they
                            were pleased the government has given them tools such as PFI and had
                            moved to a decentralized purchasing environment. Appendix IV provides
                            an overview of the PFI initiative and a more detailed description of MOD’s
                            white fleet PFI efforts.

CCTA Offers                 CCTA, which is also part of the Cabinet Office and became a next steps
                            agency in 1996, was similar to FTS in that it assisted departments and
Telecommunications and IT   agencies in acquiring telecommunications services and IT systems and
Services                    related services on a nonmandatory, cost recovery basis. CCTA’s main
                            objective in its framework document was “to develop, maintain, and make
                            available, expertise about IT which public sector organizations will draw
                            on in order to operate more effectively and efficiently.” According to a
                            CCTA official, its new mission statement emphasized “championing
                            electronic government.” CCTA managed contracts to operate about 80
                            percent of the government’s telephone lines, involving almost 45,000

                            10
                               Under a public-private partnership, a contractual arrangement is formed between public and private
                            sector partners that can include a variety of activities that involve the private sector in the
                            development, financing, ownership, and operation of a public facility or service.




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                           extensions. Similar to the FTS telecommunications contracts, CCTA was
                           to charge government users a flat fee for each line. According to the chief
                           executive of CCTA, departments and agencies, especially the smaller ones,
                           liked the simplicity of dealing with CCTA. Some larger agencies, such as
                           MOD, have chosen to procure their own telecommunications services. The
                           telecommunications industry in the UK is dominated by British Telecom,
                           which is a major supplier to CCTA. We noted that unlike FTS, CCTA could
                           provide its services to local government.

                           In the IT area, CCTA was similar to FTS in that for a fee, it advised
                           departments and agencies on, and identified vendors that could assist with
                           IT management, systems analysis and design, and procurement. CCTA’s
                           work also involved full Internet service, including Internet site provision,
                           development, maintenance, and consulting; and advice on electronic
                           commerce. It also had written many publications to help departments and
                           agencies on such topics as IT systems strategy, benchmarking, and
                           business process reengineering. According to an FTS official, GSA’s Office
                           of Governmentwide Policy has activities similar to these. CCTA also had a
                           catalogue of IT products and services, like FSS. We noted that TBA also
                           had contract arrangements for IT products and services; however, a CCTA
                           official told us that CCTA and TBA see the goods and services they offer in
                           the IT area as complementary, with little overlap.

                           Despite the similarities between CCTA and FTS in the telecommunications
                           and IT areas—and FSS in the case of the catalogue of IT products and
                           services—there was a difference related to CCTA’s status as a next steps
                           agency. That is, like TBA, CCTA appeared to have greater managerial and
                           financial flexibility because of its status as a next steps agency. For
                           example, like TBA, responsibility for personnel management, including
                           developing its own pay and grading system, was delegated to CCTA’s chief
                           executive. The chief executive was given the freedom to manage CCTA on
                           a quasi-commercial basis within the framework of government accounting
                           rules. According to a CCTA official, CCTA was, for the most part, left alone
                           to run its own affairs so long as its operations ran smoothly and in
                           accordance with its business plan. Because it was a government
                           organization, however, there were some requirements CCTA had to meet.
                           For example, the business case for its pay and grading system had to be
                           approved by HM Treasury.

Procurement Performance    According to HM Treasury officials, the government of the UK views
                           performance measurement as crucial to any core business activity,
Measurement Is Viewed as   including procurement. However, HM Treasury and the Cabinet Office
Important                  recognized that, in the past, developing performance measures for



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                          procurement was difficult. Difficulties arose over defining universally
                          applicable measures and questions were raised about whether the effort
                          was worth it. In July 1998, HM Treasury and the Cabinet Office jointly
                          reported that changes in the procurement environment, such as the shift to
                          purchasing services instead of investing in capital assets, had opened the
                          door of opportunity for refining and improving procurement performance
                          measurement. This report, entitled Efficiency in Civil Government
                          Procurement, noted that although most departments and agencies
                          measured procurement performance, their practices varied. The majority
                          were using measures that were not very sophisticated, although some
                          progress had been made in the prior 12 to 18 months.

                          As a result, HM Treasury and the Cabinet Office were planning to develop
                          a performance measurement system for procurement that would allow
                          benchmarking across government and would increase the sophistication of
                          the measures used by modeling the government’s efforts after the private
                          sector. The report contained several other recommendations aimed at
                          setting a new agenda for improving the efficiency of government
                          procurement. Also, at the time of our review, HM Treasury was starting an
                          effort to determine how, in a decentralized environment, departments and
                          agencies could share knowledge, capitalize on lessons learned, and ensure
                          that efficiencies gained in one area are utilized in other areas.

                          Although HM Treasury’s report did not address the adequacy of specific
                          performance measures, we noted that TBA and CCTA had some key
                          performance measures that they used to compare performance from year
                          to year. TBA had performance measures that included total sales volume,
                          customer satisfaction, and cost per 1 of savings achieved. For example,
                          TBA reported it cost 4.38 pence for every 1 saved (100 pence is equal to
                          1), exceeding its 1997 target of 4.40 pence. CCTA had performance
                          measures that included the reduction in cost of support services per 1 of
                          salary of project staff and percentage of assignments or services delivered
                          to customers’ satisfaction. CCTA reported a 97 percent customer
                          satisfaction rating for 1998, although it noted that more feedback from
                          customers was needed to make the results statistically significant.

                          Australia, with a population of about 18 million, has a federal-state system
Australia: No Agency      with a central government that operates as a parliamentary democracy.
Like FSS but Has Some     The central government, which has devolved purchasing responsibilities
Central Efforts in FTS-   for goods and services to its agencies, did not have an organization with
                          activities like those of FSS, but did have an agency that performed some
Related Areas             activities similar to those of FTS. In purchasing goods and services,
                          agencies in Australia were encouraged to follow broad principles—such as



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                           achieving value for money—that were set by the Department of Finance
                           and Administration (DOFA). DOFA also administered a vendor
                           certification program for certain goods and services. However, unlike FSS,
                           it did not enter into governmentwide supply contracts with vendors,
                           administer supply schedules, or run a stock program with distribution
                           centers or government stores. Also unlike FSS, Australia did not own and
                           operate a central vehicle fleet, because it had been privatized.

                           In the telecommunications and IT areas, however, Australia did have an
                           agency with activities similar to those of FTS. In telecommunications,
                           officials with the Office for Government Online (OGO) said that OGO had
                           agreements with service providers on certain terms and conditions;
                           however, unlike with FTS in the United States, agencies were required to
                           use these providers. Like FTS, OGO also assisted agencies, on a
                           nonmandatory basis, with IT projects; however, this role was relatively
                           minor. In fact, agencies were moving away from operating and maintaining
                           their own IT infrastructures. The government had undertaken a major
                           initiative to phase out IT systems acquisition and ownership—except for
                           some systems related to national security—-and instead have agencies
                           purchase IT services from the private sector. This outsourcing effort was
                           being done through a multiyear, phased process being administered by the
                           Office of Asset Sales and IT Outsourcing (OASITO). To assess the
                           outcomes of these and other procurement reforms, a committee of the
                           Australian parliament had begun a review of government purchasing
                           policies and practices. Appendix I identifies the key organizations in
                           Australia and summarizes their activities.

Devolution of Purchasing   The government of Australia has devolved purchasing responsibilities to
                           its agencies, which spent about $9 billion Australian for goods and services
Responsibilities           in fiscal year 1997-1998 (about $6 billion U.S., assuming that $1 U.S. = $1.51
                           Australian). With enactment of the Financial Management and
                           Accountability Act of 1997, the government gave agencies the
                           responsibility to handle their affairs and to ensure that the government’s
                           procurement policies were observed. DOFA’s Competitive Tendering and
                           Contracting branch had a key role in Australia’s procurement reform
                           agenda. This branch, among other things, provided assistance to agencies
                           in implementing reforms, surveyed and reported on agencies’
                           implementation efforts, and developed and maintained the government’s
                           purchasing policy framework.

                           The government’s procurement policies were set by DOFA in its March
                           1998 guidance entitled Commonwealth Procurement Guidelines: Core




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                                                             11
                            Policies and Principles. The guidelines stated that the fundamental
                            objective of procurement in the Australian government was to provide the
                            means to efficiently and effectively deliver the government’s programs.
                            This objective, according to the guidance, was supported through several
                            core principles: value for money, open and effective competition, ethics
                            and fair dealing, accountability and reporting, national competitiveness
                            and industry development, and support for other government policies. The
                            guidance also encouraged agencies to provide opportunities for Australian
                            and New Zealand industry. However, DOFA officials said that their
                            procurement system was not used to advance other social objectives.

                            When developing instructions for procurement within their agencies,
                            agency executives were expected to take these core policies and principles
                            into account. According to DOFA officials, the government decided that its
                            agencies should be involved only in core, mission-related activities and
                            should not be performing functions that could be performed by the private
                            sector. DOFA officials said that most agencies were pleased with the
                            devolution that had occurred. An official from a large agency we
                            interviewed, the Department of Family and Community Services, said that
                            they liked having more control over purchasing decisions and were very
                            satisfied with the reforms.

No Centrally Administered   As a result of the devolution of purchasing responsibilities to agencies,
                            Australia did not have an organization like FSS to assist agencies with the
Supply Program              procurement of supplies. In the supply area, DOFA administered a vendor
                            certification process for IT, office machines, office furniture, and auction
                            services known as the Endorsed Supplier Arrangement (ESA). The ESA
                            was to rely on a good faith, self-assessment approach where vendors
                            submitted information about key factors, such as delivery performance
                            and financial viability. According to DOFA officials, DOFA was to assess
                            vendors’ applications in terms of financial capability and compliance with
                            industry standards. These officials told us that DOFA also did random and
                            targeted vendor reviews. A key difference between the ESA and FSS’
                            schedule programs was that DOFA did not establish governmentwide
                            supply contracts with the vendors, as does FSS. Another difference was
                            that unlike FSS’ schedule programs, agencies were required to buy IT from
                            ESA vendors.



                            11
                               These guidelines apply to the procurement of “property and services,” which cover all goods and
                            services, including consulting/professional services, real property activities, construction, equipment
                            and real property leases, training services, public utility services, and outsourcing or contracting-out
                            services.




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                       According to DOFA officials, DOFA and one of its predecessor
                                                                                          12
                       departments, the Department of Administrative Services (DAS), used to
                       administer “common use arrangements” that were replaced with the ESA.
                       The common-use arrangements more closely resembled FSS supply
                       activities in that they were governmentwide contractual agreements
                       administered centrally. The non-IT arrangements were ended in June 1998,
                       and IT and major office machine arrangements were ended in September
                       1998. The officials said that the primary reason for eliminating these
                       arrangements was the government’s ideological decision to devolve
                       financial accountability to agencies. In addition, they said that the
                       arrangements generally were not achieving a level of savings that would
                       justify continuing them. Also, the officials added that the government did
                       not administer a stock program, like FSS does, with supply distribution
                       centers or government stores.

Government Fleet Was   In the vehicle area, DAS used to manage the government’s vehicle fleet,
                       known as DASFLEET, up until its privatization in 1997. DASFLEET was
Privatized             established in the 1920s and was expanded to become the sole supplier of
                       passenger and commercial vehicles for the Australian government.
                       DASFLEET operated three main business areas: long-term vehicle leasing,
                       short-term vehicle rental, and fleet management and maintenance services.
                       Prior to its sale, agencies were free to use private sector operators for their
                       short-term rentals and fleet management and maintenance requirements.
                       In practice, however, these customers used DASFLEET for much of these
                       needs. In early 1997, DASFLEET’s total fleet was valued at $376 million
                       Australian (about $249 million U.S.) and comprised over 17,000 vehicles.
                       DASFLEET owned these vehicles, except for about 700 that were privately
                       financed or managed by DASFLEET for other parties. DASFLEET’s
                       workforce totaled 376 people, and its yearly profits were about $23 million
                       Australian (about $15.2 million U.S.).

                       In 1996, the Department of Finance reviewed DASFLEET’s finances and
                       operations and determined that the government should either refinance
                       the fleet or privatize the business. The privatization option would include a
                       tied contract commitment by the government whereby agencies would be
                       required, for 5 years, to use the new entity for their long-term leasing
                       needs. The short-term vehicle rental business would not be included in the
                       tie. The government ultimately determined that the privatization option
                       provided the best option and assigned responsibility for the sale to the
                       Office of Asset Sales (OAS). In September 1997, DASFLEET was sold to

                       12
                        In 1997, the Department of Finance and Department of Administrative Services merged, creating
                       DOFA.




                       Page 24                                                  GAO/GGD-99-109 Procurement Reform
                         B-281162




                         Macquarie Fleet Leasing Pty. Limited, a wholly owned subsidiary of
                                           13
                         Macquarie Bank. The sale produced proceeds of about $407 million
                         Australian (about $270 million U.S.). At the time of our review, DOFA had
                         responsibility for monitoring the tied contract.

Whole-of-Government      As with other goods and services, agencies in Australia were responsible
                         for acquiring their own telecommunications services. However, officials
Telecommunications       told us that agencies were required to use service providers that had
Arrangements Centrally   agreed to certain terms and conditions with the Office for Government
Managed                  Online (OGO), formerly known as the Office of Government Information
                         Technology (OGIT). Each year, government agencies spend about $365
                         million Australian (about $242 million U.S.) to meet their
                         telecommunications needs, including voice, data, and mobile services.
                         Telstra is the major service provider, accounting for just over 75 percent of
                         government expenditures on telecommunications services, although a
                         number of other smaller companies also compete for the government’s
                         business.

                         OGO sought to aggregate the government’s buying power to achieve a
                         better price for the government as a whole, like FTS does. According to
                         OGO officials, OGO managed centrally administered “whole-of-
                         government” telecommunications arrangements where service providers
                         agreed to certain terms and conditions in “head agreements” negotiated by
                         OGO. The officials said that agencies were to purchase services directly
                         from the service providers under the umbrella of the head agreements and
                         the latest prices negotiated in those agreements. The officials added that
                         for agency-specific requirements, agencies could seek the assistance of
                         OGO in negotiating favorable terms and conditions that became part of the
                         whole-of-government arrangements and were available to other agencies,
                         as appropriate. In this way, the officials said that the government used its
                         aggregated purchasing power to achieve lower prices, competition, and
                         economies of scale. According to the OGO officials, the government has
                         saved in excess of $30 million Australian (about $20 million U.S.) in the
                         last 3 years through the leverage of these arrangements.

All IT Systems to Be     OGO was also a central agency for IT. OGO’s primary objectives in the IT
                         area related to bringing a governmentwide perspective to IT management.
Outsourced               The agency’s main focus was to promote efficient access to government
                         information and services, help agencies avert problems related to the year
                         2000 crisis, and provide policy advice to the government related to online

                         13
                          According to an Australian official, the government retained a fleet of limousines for members of
                         Parliament.




                         Page 25                                                    GAO/GGD-99-109 Procurement Reform
                          B-281162




                          services. Like FTS, OGO officials said that OGO also acted as a third party
                          in providing agencies with advice on the development and implementation
                          of their IT projects, although this role was relatively minor.

                          A major development in the IT area was that agencies were moving away
                          from in-house implementation and management of IT systems. In April
                          1997, the government announced a major initiative to outsource all of its IT
                          systems infrastructure, with the exception of some systems related to
                          national security. The initiative was to be accomplished through a
                          multiyear, phased process currently being administered by the Office of
                                                                       14
                          Asset Sales and IT Outsourcing (OASITO). Appendix V provides a more
                          detailed description of Australia’s IT outsourcing initiative.

Parliamentary Review of   In December 1998, the Australian parliament’s Joint Committee for Public
                          Accounts and Audit announced that it would conduct an inquiry into
Purchasing Policies and   Australian government purchasing policies and practices. The inquiry was
Practices                 to have two general purposes. First, the Committee was interested in
                          whether government entities had achieved effective outcomes, such as
                          value for money, through the new purchasing policies. Second, the
                          Committee was interested in whether the Australian business community
                          had achieved more equitable outcomes as a result of these policies. To
                          determine how government entities had performed, the Committee
                          planned to collect and analyze statistical and performance information
                          showing trends in purchasing opportunities and outcomes and planned to
                          hold a series of hearings.

                          According to DOFA officials, the extent to which agencies maintained this
                          type of information, including information on performance goals and
                          measures, likely varied across government, with some agencies having
                          better data than others. There has, according to these officials, been no
                          central effort to collect and report this type of information. Separate from
                          the parliamentary inquiry, DOFA officials said they had begun surveying
                          agencies on the types of performance data they collected.




                          14
                            In November 1997, information technology outsourcing functions formerly managed by OGIT were
                          transferred to OAS, which was renamed OASITO.




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                        B-281162




                        New Zealand, with a population of about 3.6 million, has a local
New Zealand: No         government structure with counties and districts and a central government
Central Procurement     that operates as a parliamentary democracy. The central government has
Agencies but Uses a     decentralized purchasing authority for goods and services, and did not
                        have any government organizations similar to FSS or FTS because it
Private Business Like   privatized its central procurement agency in 1992. With the exception of
FSS and FTS             some central monitoring for major IT projects, agencies were given
                        complete discretion over how they acquire goods and services while still
                        being expected to follow some general principles, such as ensuring that
                        domestic suppliers were treated fairly. In meeting their needs for goods
                        and services, agencies could go directly to the private sector and had the
                        option of using the private sector business that was created when the
                        central procurement agency was privatized. This business, called GSB
                        Supply Corporation Ltd. (Supplycorp), acted as a purchasing agent for the
                        government by assisting agencies with their procurement needs and did
                        business only with government organizations. Supplycorp was similar to
                        FSS and FTS in that it negotiated contracts on behalf of the government
                        for supply, fleet, telecommunications, and IT products and services, yet it
                        operated completely outside the government sector.

                        One exception to New Zealand’s highly decentralized approach to
                        procurement was in the IT area, where the Treasury and the State Services
                        Commission (SSC) were responsible for examining and monitoring IT
                        projects. SSC was also responsible for assessing overall agency
                        performance with a focus on measuring outputs rather than inputs.
                        Because procurement was viewed as an input, performance data were not
                        readily available to measure progress or gauge the results of the various
                        procurement reforms. Appendix I identifies the key organizations in New
                        Zealand and summarizes their activities.

Agency Accountability   Over the last decade, reform in the central government of New Zealand has
                        centered on shifting accountability for results to departments and relying
Without Centralized     more on the private sector to perform activities of a business nature. The
Procurement             New Zealand government spends about $3 billion New Zealand for goods
                        and services each year (about $1.7 billion U.S., assuming that $1 U.S. =
                        $1.78 New Zealand). With enactment of the State Sector Act of 1988 and
                        Public Finance Act of 1989, departments were given complete discretion
                        over how they managed their affairs, including how they acquired goods
                        and services. The reforms also set up a relationship between each
                        department and SSC, which is a central management agency that reviews
                        and reports on agency performance. Departmental chief executives, who
                        are civil servants who manage the day-to-day affairs of departments, enter
                        into agreements with SSC to deliver results that are defined as an agreed-



                        Page 27                                    GAO/GGD-99-109 Procurement Reform
                          B-281162




                          upon level of outputs. Generally speaking, outputs are measurable units of
                          whatever the department produces, whether it is policy advice or direct
                          services to the public. In return, departments had nearly complete freedom
                          over how much of their budgets they spent on the different types of
                          resources—inputs they need to produce the outputs—and from where they
                          would be purchased.

                          Although departments had these freedoms, they were still expected to
                          operate open, fair, and competitive procurement processes. Guidance by
                          both the Treasury and the Ministry of Commerce outlined the
                          government’s open purchasing policy and principles and recommended
                          procedures that are considered to be consistent with sound business
                          practices. The government’s general purchasing policy was based on the
                          commercial principle of best value for money through open and effective
                          competition and full and fair opportunity for New Zealand and Australian
                          suppliers. According to SSC officials, the policy did not seek to advance
                          any social objectives, which instead were usually funded directly. New
                          Zealand and Australian suppliers could register with the New Zealand
                          Industrial Supplies Office (NZISO), a unit within the Ministry of
                          Commerce. NZISO provided information to purchasers on domestic
                          suppliers and their capabilities. Prospective purchasers were urged, but
                          not required, to contact NZISO, which did not get involved in actual
                          purchasing negotiations or decisions.

                          Within this policy framework for procurement, the government of New
                          Zealand did not have any central procurement agencies. In meeting their
                          supply, fleet, telecommunications, and IT needs, departmental purchasers
                          did not have the same options that exist in the United States with FSS and
                          FTS. That is, within the government, there were no central supply
                          schedules, stock programs with distribution centers or government stores,
                          vehicle acquisition and fleet management services, governmentwide
                          telecommunications arrangements, or IT-related services that were
                          available for governmentwide use like there are in the United States
                          through FSS and FTS.

Central Procurement       The government of New Zealand once had a central procurement agency,
                          but it was reorganized as a state-owned enterprise (SOE) in 1989 and
Function Was Privatized   privatized in 1992. Prior to this time, the Government Stores Board (GSB)
                          acted as a central purchasing agent within the government. Chaired by the
                          Secretary of the Treasury, it consisted of representatives from other
                          departments and was administered by a division of the Treasury. The
                          function of GSB was to act as a central controlling, supervisory, and
                          coordinating authority for the purchase, custody, distribution, use,



                          Page 28                                    GAO/GGD-99-109 Procurement Reform
B-281162




interdepartmental transfer, and disposal of public stores. GSB’s main
service was to award contracts for the supply of goods to government
departments. It did not stock goods; rather, it acted as an agent for the
government by arranging bulk purchase contracts under which
departments were required to purchase specific goods from selected
suppliers. GSB also issued binding instructions to departments to regulate
their purchasing activities.

In 1989, the government reorganized GSB from a government agency to an
SOE, renamed it the Government Supply Brokerage Corporation (NZ) Ltd.
(GSBC), and made its services nonmandatory. The Treasury assumed
responsibility for the former GSB’s control functions but did not issue any
purchasing instructions to departments, leaving these matters to each
department to determine. As an SOE, GSBC gained the ability to act as a
private sector firm, but the New Zealand government owned all the shares
of the corporation. The government eventually sold its shares in 1992 and a
new private business—GSB Supply Corporation Ltd. (Supplycorp)—was
established.

At the time of our review, Supplycorp performed activities similar to those
carried out by FSS and FTS in that it assisted agencies with procurement,
yet it was a private sector business that operated completely outside the
government sector. In fact, Supplycorp only did business with government
organizations, defined as those that receive at least 50 percent of their
funding from a government source. Supplycorp also provided its services
to local governments as well, unlike FSS and FTS. Each year, Supplycorp
has sales of about $350 million to $450 million New Zealand (about $197
million to $253 million U.S.). According to Auditor General staff we
interviewed, more than 90 percent of government departments and local
authorities continued to use Supplycorp after it was privatized to meet at
least some of their needs for goods and services. In the supply area, it
managed over 800 contracts with 1,200 suppliers for a wide range of
common-use commodities, including IT products and services. These
included national purchase contracts, as well as local purchase contracts
tailored to individual regions of the country. It did not, however, operate
distribution centers or government stores like FSS does. In the vehicle
area, Supplycorp services covered the purchase, disposal, and
management of new and used motor vehicles, similar to FSS’ services.
Supplycorp arranged for the purchase of about 3,750 vehicles each year.
Unlike FSS, it did not manage a central fleet for the government.

Like FTS, Supplycorp arranged bulk rate telecommunications contracts. It
is important to note that prior to the formation of Supplycorp as a private



Page 29                                    GAO/GGD-99-109 Procurement Reform
                              B-281162




                              sector business, departments did not use GSB for telecommunications
                              services because the government owned the sole telecommunications
                              provider in New Zealand, Telecom Corporation. Departments simply went
                              to Telecom for telecommunications services. In 1990, the government
                              privatized Telecom and departments began arranging their own
                              telecommunications contracts. In the IT area, like FTS, Supplycorp had a
                              technology team that offered advice and consultations to departments and
                              also had contract arrangements for IT products and services. Supplycorp
                              also prided itself on being positioned to meet the future technology needs
                              of the government. Before GSB was privatized, its Computer Services
                              Division (CSD) was a nonmandatory source that assisted departments with
                              procurement of large IT systems. In 1994, the government privatized CSD
                              separately from Supplycorp. CSD was fully absorbed by the buyer and no
                              longer exists.

Major IT Projects Centrally   One exception to New Zealand’s highly decentralized approach to
                              procurement was in the IT area, where SSC and the Treasury recently set
Monitored                     up a monitoring team to conduct joint reviews of departments’ major IT
                              projects. According to SSC officials, the frequency of review was
                              determined by the monitoring team and depended on the complexity of the
                              project and the capability of the department. Departments were expected
                              to submit external quality assurance reports to the IT monitoring team,
                              which assessed project risks and mitigation strategies, and SSC and
                              Treasury provided program officials with feedback. In addition to this
                              monitoring, SSC and the Treasury conducted higher profile reviews of
                              high-risk projects and reported directly to ministers through what was
                              called the Ad Hoc Officials IT Committee. According to SSC officials,
                              projects reviewed by this Committee cost over $5 million New Zealand
                              (about $2.8 million U.S.), involved strategic and mission-critical
                              application systems, and generally posed a high risk to the government.

Performance Measurement       The State Sector Act of 1988 was designed to introduce the government of
                              New Zealand to many of the positive features of the private sector. The key
Efforts Focus on Outputs      principle was that managers, if they were permitted to make all input
                              decisions—pay, appointments, organizational structures, production
                              systems, etc.—would respond by accepting personal responsibility for
                              producing substantially higher quality outputs—the goods and services
                                                           15
                              provided by the government. As mentioned before, SSC played a key role
                              by entering into performance agreements with departmental executives
                              15
                                 It is interesting to note that in New Zealand, the government made a conscious decision not to focus
                              on outcomes—what the government is trying to achieve—because it believed that holding departments
                              accountable for outcomes would be too difficult. That is, there would be endless debate over
                              measurement and the reasons for outcomes, making accountability enforcement difficult.




                              Page 30                                                    GAO/GGD-99-109 Procurement Reform
              B-281162




              and monitoring performance. According to SSC officials, however,
              information that would enable an assessment of New Zealand’s approach
              to procurement was generally not available. According to these officials,
              procurement processes and approaches were viewed as inputs and
              accordingly were not routinely measured or assessed.

              Officials we contacted who operated in this environment—from the
              Ministry of Health, Health Funding Authority, and Ministry of Defence—
              were very satisfied with being held accountable for outputs while having
              the freedom to control inputs, including how they procured goods and
              services. They said that the reforms have made their departments more
              efficient and effective. It is important to note that although New Zealand’s
              management approach did not focus on regulating procurement practices,
              there were other controls over abuse of purchasing freedoms. These
              included parliamentary inquiries, audits of procurement practices by the
              Auditor General, and obligations set in law for departments to respond to
              any requests for information.

              Information on the various approaches used by these four countries
Conclusions   provides insight into how they performed activities similar to those of FSS
              and FTS. These countries had reassessed the role of their central
              procurement agencies and procured goods and services in a variety of
              ways. None of the countries had government organizations that completely
              mirrored FSS and FTS. For example, in the UK, the government
              organizations that performed activities similar to FSS and FTS were
              different in that they had more flexibility to manage personnel and
              financial matters than traditional government departments. New Zealand
              sold its central procurement agency to the private sector, and agencies
              now could use the private sector business that was created to help meet
              their procurement needs. Also, there were similarities and differences in
              the programs and policies these countries used in the procurement of
              supplies, vehicles, telecommunications, and IT.

              Amending laws and regulations under which agencies operate and
              reforming procurement processes are not new concepts in the United
              States. For example, Congress authorized TVA, a government corporation,
              and some federal agencies such as VA and FAA to adopt alternative
              personnel systems. In addition to modifying requirements to help agencies
              accomplish their missions, the U.S. government has also reformed its
              procurement practices. The Federal Acquisition Streamlining Act of 1994
              was enacted in part to promote efficiency and economy in contracting. In
              recent years, agencies have outsourced, or contracted for, a wide range of
              functions that had been done in-house. For example, the investigative unit



              Page 31                                     GAO/GGD-99-109 Procurement Reform
                  B-281162




                  of OPM was privatized and OPM now contracts for investigative services.
                  To identify future candidates for privatization or outsourcing, the FAIR Act
                  of 1998 requires agencies to identify functions they perform that are not
                  inherently governmental. These reforms and streamlining efforts in the
                  United States, as well as those in the four countries, were designed to
                  make government operate more efficiently, improve service delivery, and
                  focus on government’s core mission.

                  In considering the merits of the approaches used by the countries and their
                  applicability to FSS and FTS, it is important to recognize that such factors
                  as differences in political and economic environments, the role of social
                  objectives in the procurement process, and the volume of contracting
                  activity would have to be considered. Furthermore, although the officials
                  we interviewed in the four countries were generally satisfied with the
                  reforms and believed their governments were better off with them in place,
                  performance data on the effectiveness of the various reforms were
                  generally unavailable or were in the early stages of development.
                  Nonetheless, considering the experiences of these countries in reforming
                  similar activities can serve as a starting point for examining what, if any,
                  alternatives there are to the way FSS and FTS are currently organized and
                  operate.

                  OFPP’s Associate Administrator for Procurement Law and Legislation told
Agency Comments   us that OMB had no comments. Our FSS liaison, FTS’ Chief of Staff, and
                  several responsible officials from each of the four countries provided
                  technical comments on a draft of this report to add clarity and context to
                  how we describe their procurement approaches. We incorporated their
                  comments into the final report where appropriate.

                  As agreed with your offices, unless you publicly announce its contents
                  earlier, we plan no further distribution of this report until 30 days from its
                  issue date. At that time, we will send copies to the Honorable David J.
                  Barram, Administrator of GSA; the Honorable Jacob J. Lew, Director of
                  OMB; the Honorable Deidre A. Lee, Administrator of OFPP; and the key
                  officials in each of the countries we visited. We will also make copies
                  available to others on request.




                  Page 32                                       GAO/GGD-99-109 Procurement Reform
B-281162




Major contributors to this report were Gerald Stankosky, David E.
Sausville, and David W. Bennett. We also greatly appreciate the assistance
provided by the Auditor General staffs in each country as well as the
willingness of the other officials to meet with us and provide information.
If you or your staffs have any questions, please contact me on (202) 512-
8387 or at ungarb.ggd@gao.gov.




Bernard L. Ungar
Director, Government Business
Operations Issues




Page 33                                     GAO/GGD-99-109 Procurement Reform
Contents



Letter                                                                               1


Appendix I                                                                          36

Organizations With
Activities Related to
Supply, Vehicle,
Telecommunications,
and IT Procurement
Appendix II                                                                         38

Objective, Scope, and
Methodology
Appendix III                                                                        43

Canada's Benefits
Driven Procurement
Appendix IV                                                                         46

The UK's Private
Finance Initiative
Appendix V                                                                          50

Australia's IT
Outsourcing Initiative
Tables                   Table II.1: United States                                  41
                         Table II.2: Canada                                         41
                         Table II.3: United Kingdom                                 41
                         Table II.4: Australia                                      41
                         Table II.5: New Zealand                                    42




                         Page 34                      GAO/GGD-99-109 Procurement Reform
Contents




Abbreviations

BDP         benefits-driven procurement
CCTA        Central Computer and Telecommunications Agency
CSD         Computer Services Division
DAS         Department of Administrative Services
DND         Department of National Defence
DOFA        Department of Finance and Administration
ESA         Endorsed Supplier Arrangement
FAA         Federal Aviation Administration
FAIR        Federal Activities Inventory Reform Act of 1998
FAR         Federal Acquisition Regulation
FAST        Federal Acquisition Services for Technology
FSS         Federal Supply Service
FTS         Federal Technology Service
GSA         General Services Administration
GSB         Government Stores Board
GSBC        Government Supply Brokerage Corporation (NZ) Ltd.
GTIS        Government Telecommunications and Informatics Services
HMSO        Her Majesty's Stationery Office
MOD         Ministry of Defence
NZISO       New Zealand Industrial Supplies Office
OAS         Office of Asset Sales
OASITO      Office of Asset Sales and IT Outsourcing
OFPP        Office of Federal Procurement Policy
OGIT        Office of Government Information Technology
OGO         Office for Government Online
OGP         Office of Governmentwide Policy
OMB         Office of Management and Budget
PFI         private finance initiative
PWGSC       Public Works and Government Services Canada
SIPSS       Science, Informatics, and Professional Services Sector
SOE         state-owned enterprise
SOS         Supply Operations Service
SSC         State Services Commission
TBA         The Buying Agency
TBS         Treasury Board Secretariat
TSO         The Stationery Office
TVA         Tennessee Valley Authority
VA          Department of Veterans Affairs
RAF         Royal Air Force
NAO         National Audit Office


Page 35                                    GAO/GGD-99-109 Procurement Reform
Appendix I

Organizations With Activities Related to
Supply, Vehicle, Telecommunications, and IT
Procurement
                                                                                                                    a
                                                 Procurement policy-                            Supply activities
    Country       Procurement organizations      setting organizations
United States   General Services Administration’s
                                               Office of Management          FSS has nonmandatory, prenegotiated contract
                Federal Supply Service (FSS)   and Budget’s Office of        arrangements under which agencies deal directly with
                and Federal Technology Service Federal Procurement           vendors to acquire a range of supplies, including IT
                (FTS)                          Policy (OFPP); GSA’s          goods and services; FSS also stocks supplies for resale
                                               Office of                     to agencies from its distribution centers and government
                                               Governmentwide Policy         stores.
                                               (OGP)
Canada          Public Works and Government    Treasury Board and its        Like FSS, SOS had prenegotiated contract arrangements
                Services Canada’s Supply       operational arm, the          under which agencies dealt directly with vendors for
                Operations Service (SOS) and   Treasury Board                supplies, including IT products and services; however,
                Government Telecommunications Secretariat                    unlike FSS, they were mandatory over certain dollar
                and Informatics Service (GTIS)                               thresholds; also unlike FSS, SOS had no distribution
                branch.                                                      centers or government stores.


United          The Buying Agency (TBA);
                                          b
                                                    Her Majesty’s Treasury   Like FSS, TBA had nonmandatory, prenegotiated
Kingdom         Central Computer and                (HM Treasury)            contract arrangements for supplies, under which
                Telecommunications Agency                                    agencies dealt directly with vendors for supplies,
                        b
                (CCTA)                                                       including some for IT products and services; unlike FSS,
                                                                             TBA did not have distribution centers or government
                                                                             stores.


Australia       Office for Government Online        Department of Finance    Unlike in the United States with FSS, the government did
                (OGO); Office of Asset Sales        and Administration       not have any centrally administered supply contract
                and IT Outsourcing (OASITO)         (DOFA)                   arrangements and had no distribution centers or
                                                                             government stores; DOFA did, however, administer a
                                                                             vendor certification program that was mandatory for IT.



New Zealand     GSB Supply Corporation Ltd.         Commerce Ministry;       Unlike in the United States with FSS, the government did
                            d                                    e
                (Supplycorp)                        The Treasury             not have any centrally administered supply contract
                                                                             arrangements and had no distribution centers or
                                                                             government stores; Supplycorp was a nonmandatory
                                                                             source in the private sector that, like FSS, had similar
                                                                             arrangements under which agencies dealt directly with
                                                                             vendors to acquire a range of supplies, including IT
                                                                             products and services; Supplycorp also did not have
                                                                             distribution centers or government stores.




                                              Page 36                                           GAO/GGD-99-109 Procurement Reform
                                                Appendix I
                                                Organizations With Activities Related to Supply, Vehicle, Telecommunications, and IT
                                                Procurement




                                                                                                                                      a
              Vehicle activities                      Telecommunications activities                                  IT activities

FSS is the mandatory source for vehicle         FTS has nonmandatory, local and                 FTS assists agencies, on a nonmandatory basis,
purchases and operates a nonmandatory,          long distance telecommunications                with acquiring IT systems and related services;
interagency fleet for short-term agency         service arrangements with private               FSS has an IT products and services schedule;
needs.                                          carriers that agencies can use.                 FTS services differ from those of FSS in that FTS
                                                                                                acts as a third party; with the FSS schedule,
                                                                                                agencies deal directly with the IT vendors.

Like FSS, SOS was the mandatory source          Like FTS, GTIS had nonmandatory,                SOS had a mandatory role in assisting agencies
for vehicle purchases but did not operate a     local and long distance                         with IT systems acquisitions if they exceeded
central fleet.                                  telecommunications service                      certain dollar thresholds; SOS also had
                                                arrangements with private carriers              prenegotiated arrangements for IT products and
                                                that agencies could use.                        services, like FSS; GTIS assisted smaller
                                                                                                agencies and those without IT expertise, on a
                                                                                                nonmandatory basis, with identifying their IT
                                                                                                needs.
Unlike in the United States with FSS,           Like FTS, CCTA had nonmandatory,                Like FTS, CCTA assisted agencies, on a
agencies could go directly to the private       local and long distance                         nonmandatory basis, with acquiring IT systems
sector to purchase vehicles                     telecommunications service                      and related services; like FSS and its sister
and there was no central fleet agencies         arrangements with private carriers              agency TBA, CCTA also had a schedule of IT
could use; TBA could assist agencies with       that agencies could use.                        products and services.
vehicle acquisition and agencies could use
vehicle purchase arrangements held by the
                             c
Ministry of Defence (MOD).
Unlike in the United States with FSS,           Like FTS, OGO sought to aggregate       OGO had a minor role assisting agencies in the
agencies went directly to the private sector    the government’s buying power           acquisition of IT systems; there was no major
for vehicles and there was no central fleet;    through agreements it had with          government initiative to assist agencies in
the government used to have a central fleet,    telecommunications service providers;   acquiring IT systems because of a new initiative to
but it was privatized in 1997; agencies were    however, unlike with FTS in the United  phase out IT systems ownership and instead
required to use the privatized fleet for a 5-   States, agencies were required to use   outsource, or contract for, IT services; this
year period to meet their vehicle needs.        those providers.                        initiative was being done through a multiyear,
                                                                                        phased process being administered by OASITO.
Unlike in the United States with FSS,           Unlike with FTS in the United States,   Agencies went directly to the private sector for IT
agencies went directly to the private sector    agencies went directly to the private   systems and had the option of using Supplycorp
for vehicles and there was no central fleet;    sector for telecommunications services; for assistance; Supplycorp had a technology team
Supplycorp had prenegotiated contract           Supplycorp had prenegotiated contract that offered advice and consultations, like FTS
arrangements for vehicle purchases that         arrangements for telecommunications has, and a schedule of IT products and services,
agencies could use, and could assist            services that agencies could use.       like FSS has; major IT projects were to be
agencies in obtaining fleet management                                                  examined and monitored by SSC and the
services.                                                                               Treasury.
                                                a
                                                “Supply activities” can include commercially available IT products and services; “IT activities” refer
                                                primarily to the acquisition of IT systems and related services.
                                                b
                                                 TBA and CCTA are executive or "next steps" agencies, which means they had more flexibility than
                                                traditional government departments in how they managed their finances and personnel.
                                                c
                                                 In the vehicle area, MOD was in the midst of implementing a privately financed partnering
                                                arrangement for its nontactical and administrative support fleet. This effort is described in more detail
                                                in appendix IV.
                                                d
                                                    Supplycorp is a private sector business that sells only to government agencies.
                                                e
                                                 The State Services Commission is also a key central agency that is responsible for reviewing and
                                                reporting on agency performance, but it does not set procurement policy.
                                                Source: GAO analysis of information on organizations with activities related to supply, vehicle,
                                                telecommunications, and IT procurement in the United States and selected countries.




                                                Page 37                                                       GAO/GGD-99-109 Procurement Reform
Appendix II

Objective, Scope, and Methodology


              Our objective was to identify the organizations, policies, and programs that
              Canada, the United Kingdom (UK), Australia, and New Zealand had in
              place to assist agencies with the procurement of supplies, vehicles,
              telecommunications, and IT. To meet this objective, we obtained
              information on FSS’ and FTS’ procurement activities by interviewing top
              FSS and FTS officials as well as program officials in the four business
              lines. We also held discussions with GSA’s OGP and OFPP within OMB.
              We collected information on federal procurement through research on the
              Internet and by reviewing our past work. We also reviewed procurement-
              related laws and regulations, such as the Federal Acquisition Streamlining
              Act of 1994, the Federal Activities Inventory Reform Act of 1998, and the
              Federal Acquisition Regulation.

              To select countries for the review, we first determined, on the basis of
              available resources and the time frames for the assignment, that we could
              collect and analyze information on four countries. We then conducted
              research, relying heavily on the Internet, as well as discussions with
              officials at the World Bank and Department of State, to identify Western
              industrialized countries that had made a commitment to procurement
              reform and would be candidates for selection. On the basis of this work,
              we selected Canada, the UK, Australia, and New Zealand because they had
              made such a commitment, and preliminary work showed they had
              reformed activities similar to those carried out by FSS and FTS. Our work
              was limited to the activities of the central or federal governments in these
              countries.

              We confirmed our selections primarily through further discussions with
              our counterpart organizations—the Auditor General offices—in each of
              the countries as well as the Department of State offices for each of the
              countries. We also held discussions with the embassy of New Zealand in
              Washington, D.C. and the U.S. embassies in Ottawa, Canada, and London,
              UK. It is important to note that the four countries were judgmentally
              selected and were not intended to be representative of how countries
              around the world were reforming similar activities.

              To collect information on the organizations, programs, and policies in
              these countries, we visited them and interviewed key officials about their
              operations. To identify which officials would provide information that
              would help us best meet our objective, we relied heavily on advice from
              the Auditor General staffs. The Auditor General staffs then arranged the
              interviews, provided us with relevant material, and assisted us with other
              logistical matters related to the visits. In Canada, the central procurement
              department also played a vital role in identifying key officials and



              Page 38                                     GAO/GGD-99-109 Procurement Reform
Appendix II
Objective, Scope, and Methodology




arranging the interviews. In each country, we interviewed officials in any
central procurement organizations involved in the procurement of
supplies, vehicles, telecommunications, and IT. We also interviewed
knowledgeable officials in organizations that set procurement policy such
as each country’s Treasury department or equivalent; selected agencies
that were the end-users of the procurement organizations, programs, and
policies in place; and the Auditor General offices. In Australia, we held
discussions with staff from a parliamentary committee conducting an
inquiry into procurement practices. We also interviewed the general
manager of a private sector business in New Zealand that assisted the
government with procurement. In doing our work, we also analyzed a wide
range of material on the organizations, programs, and policies in the four
countries. Tables identifying the organizations in each country discussed
in this report and their Internet addresses appear at the end of this
appendix.

After collecting the information, we compared these countries’ operations
to how FSS and FTS assist agencies with the procurement of supplies,
vehicles, telecommunications, and IT. It is important to note that we did
not do a comprehensive comparison. That is, in each of the four FSS and
FTS business lines, we focused on the major activities that FSS and FTS
perform and determined how each country carried out similar activities.
For example, for supply and procurement, we determined whether there
were central supply contracts in the countries that agencies could use that
were similar to those available through the FSS supply schedules and
special order arrangements and whether the countries had operations
similar to the FSS stock program.

For vehicle acquisition and leasing, we focused on whether vehicles were
purchased centrally and whether each country had a central fleet like the
FSS interagency fleet. For network services and IT solutions, we focused
on whether, in general, the countries had central sources from which
agencies could obtain telecommunications services or assistance with the
acquisition of IT systems and related services. In using this approach, we
recognize that we did not focus on all the specific characteristics of the
activities FSS and FTS perform in each of the business lines. Resource and
time constraints prevented us from doing a detailed comparison, nor did
they allow us to assess the applicability of the approaches used by these
countries to FSS and FTS operations.

We also did not analyze or verify the laws cited by the foreign officials or
contained in documents they provided. Although we did ask the countries
for performance data related to their procurement organizations and



Page 39                                     GAO/GGD-99-109 Procurement Reform
Appendix II
Objective, Scope, and Methodology




activities, we did not independently verify any data we obtained or assess
the effectiveness of the reform initiatives. Finally, we did not verify the
barriers cited by FSS and FTS or assess the effectiveness of reforms
implemented in the United States.

We did our work at FSS and FTS offices in Arlington and Falls Church, VA,
respectively, and OGP and OFPP offices in Washington, D.C. In our visits
to the countries, we did work in the cities of Ottawa and Hull in Canada;
London and Bath in the UK; Canberra, Australia; and Wellington, New
Zealand. In discussing the organizations in the countries, we used terms
such as “agency” and “department” interchangeably. The exchange rates
used throughout the report were as of May 2, 1999; we obtained them from
the Federal Reserve Bank of New York and rounded them to the nearest
cent. We performed our work between July 1998 and May 1999 in
accordance with generally accepted government auditing standards. We
requested comments on a draft of this report from the Director of OMB,
Administrator of GSA, and key officials in the countries we visited. OMB
had no comments. In response to the request for comments from the
Administrator of GSA, FSS and FTS officials provided comments on a draft
of this report, as did responsible officials from the four countries. Tables
II.1 through II.5 identify the organizations in the United States and each of
the four countries discussed in this report and their Internet addresses.




Page 40                                     GAO/GGD-99-109 Procurement Reform
                                              Appendix II
                                              Objective, Scope, and Methodology




Table II.1: United States
General Services Administration (GSA)                              http://www.gsa.gov
GSA/Federal Supply Service (FSS)                                   http://www.fss.gsa.gov
GSA/Federal Technology Service (FTS)                               http://www.fts.gsa.gov
GSA/Office of Governmentwide Policy (OGP)                          http://www.policyworks.gov
Office of Federal Procurement Policy (OFPP)                        http://www.whitehouse.gov/OMB/procurement/index.html




Table II.2: Canada
Department of National Defence (DND)                               http://www.dnd.ca/
Department of Public Works and Government Services Canada          http://w3.pwgsc.gc.ca/
(PWGSC)
PWGSC/ Government Telecommunications and Informatics               http://w3.pwgsc.gc.ca/gtis/
Services (GTIS)
PWGSC/ Supply Operations Service (SOS)                             http://w3.pwgsc.gc.ca/sos/text/sosext-e.htm
Office of the Auditor General of Canada (OAG)                      http://www.oag-bvg.gc.ca/
Treasury Board Secretariat of Canada (TBS)                         http://www.tbs-sct.gc.ca/




Table II.3: United Kingdom
Central Computer and Telecommunications Agency (CCTA)              http://www.ccta.gov.uk/
Her Majesty’s Treasury (HM Treasury)                               http://www.hm-treasury.gov.uk/
HM Treasury’s task force on PFI                                    http://www.treasury-projects-taskforce.gov.uk/
Ministry of Defence (MOD)                                          http://www.mod.uk/
National Audit Office (NAO)                                        http://www.open.gov.uk/nao/home.htm
The Buying Agency (TBA)                                            http://www.open.gov.uk/tba/menu.htm
The Stationery Office (TSO)                                        http://www.tsonline.co.uk/




Table II.4: Australia
Australian National Audit Office (ANAO)                            http://www.anao.gov.au/
Department of Family and Community Services (DFaCS)                http://www.facs.gov.au/
Department of Finance and Administration (DOFA)                    http://www.dofa.gov.au/
Joint Committee for Public Accounts and Audit (JCPAA)              http://www.aph.gov.au/house/committee/jpaa/index.htm
Office of Asset Sales and IT Outsourcing (OASITO)                  http://www.oasito.gov.au/
Office for Government Online (OGO)                                 http://www.ogo.gov.au/




                                              Page 41                                            GAO/GGD-99-109 Procurement Reform
                                             Appendix II
                                             Objective, Scope, and Methodology




Table II.5: New Zealand
GSB Supply Corporation Ltd. (Supplycorp)                              http://www.gsb.co.nz/
Health Funding Authority (HFA)                                        http://www.hfa.govt.nz/
Ministry of Commerce                                                  http://www.moc.govt.nz/
Ministry of Defence (MOD)                                             http://www.defence.govt.nz/
Ministry of Health                                                    http://www.moh.govt.nz/moh.nsf
Office of the Controller and Auditor-General of New Zealand           http://www.netlink.co.nz/~oag
State Services Commission (SSC)                                       http://www.ssc.govt.nz/Welcome.asp
                                             Sources: The sources for tables II.1 through II.5 are the Internet addresses identified, as of the time of
                                             our review.




                                             Page 42                                                      GAO/GGD-99-109 Procurement Reform
Appendix III

Canada's Benefits Driven Procurement


               Benefits Driven Procurement (BDP) is a new approach the Canadian
               government has started to use to help ensure the success of complex
               acquisition projects traditionally characterized as having significant risk.
               BDP stresses a focus on results and on the benefits that the government
               and its suppliers can gain from each acquisition project. Developed by the
               Canadian government in collaboration with Canadian industry, the BDP
               approach is designed to avoid the pitfalls that beset many complex
               projects—delays, cost overruns, and end results that often fall far short of
               expectations. BDP was first developed to solve problems with major IT
               acquisitions; but according to Canadian government officials, the concept
               has a broad application and is relevant to a wide range of complex, high-
               risk acquisitions.

               According to information on BDP from Public Works and Government
                                            1
               Services Canada (PWGSC), Canada’s central procurement agency, major
               IT projects, which are among its most complex procurement projects, have
               a history of failure. Research done in the United States and Canada
               support this assertion. For example, in 1990, the President’s Council on
               Management Improvement cited the “unwieldy procurement process” as a
               reason IT projects often failed. Other reasons cited in this report included
               lack of top management commitment, inadequate planning, inadequate
               user input, and flawed technical approaches. In 1997, KPMG Consulting
               conducted a survey of IT projects in Canada and reported that the reasons
               for failure among IT projects were poor planning, a weak business case,
               and lack of top management involvement. A study by the Standish Group
               in the United States showed that 31.1 percent of U.S. IT development
               projects were cancelled before completion; about 53 percent of the
               projects were likely to cost 189 percent of their original estimates; and
               only 16.2 percent of software development projects were completed on
               time and within budget.

               Concerned about problems with IT acquisition, the Treasury Board of
               Canada developed a framework of management policies in 1996 that
               comprised best practices, principles, methodologies, and tools and
               standards aimed at ensuring a better success rate. Part of this framework
               addressed the procurement process, which the Treasury Board described
               as “too inflexible” and “not conducive to cooperation.” BDP evolved as a
               response to this Treasury Board framework.



               1
                This appendix draws heavily from a PWGSC paper on BDP presented on June 10, 1998, before the
               International Public Procurement Association.




               Page 43                                                 GAO/GGD-99-109 Procurement Reform
                      Appendix III
                      Canada's Benefits Driven Procurement




The BDP Philosophy    BDP focuses on the big picture—the overall desired outcomes—rather
                      than on detailed project requirements. The traditional approach to
                      procurement in a complex IT project was for an organization to spend
                      months, even years, developing a detailed requirement—thousands of
                      pages of specifications to present to the private sector. However,
                      according to Canadian officials, the specifications may be outdated before
                      they are complete, can be out of step with the latest technology, and the
                      organization’s goals may even have changed during the long, drawn-out
                      process of developing specifications. Finally, according to these officials,
                      the private sector may know the project is not feasible, but may present
                      bids anyway in order to obtain work.

                      As a result, the traditional approach tends to be too lengthy, rigid,
                      prescriptive, and costly in terms of time and human resources that have to
                      be dedicated to each project, according to Canadian officials. BDP
                      attempts to address this problem by asking the private sector to deliver
                      certain agreed-upon results rather than follow a government blueprint with
                      detailed specifications. The private sector is also invited to submit ideas on
                      what sort of project should be undertaken before a formal request for
                      proposals is issued. Another feature of BDP is that it is to incorporate
                      rigorous up-front planning to remove potential problems in the
                      procurement process.

Elements of the BDP   Both the front end planning and the management of the entire acquisition
                      life cycle are based on four elements: a business case; risk analysis; clear
Process               delineation of accountabilities; and, a compensation structure closely tied
                      to the contractor’s performance. Under BDP, a department is to prepare a
                      business case justifying the project at the highest level and identifying the
                      outcomes and benefits to be achieved. The business case is also to look at
                      such issues as how much the project will cost, whether there are cheaper
                      ways to realize goals, and what the benefits will be to the taxpayer.
                      According to Canadian officials, under traditional methods, a project was
                      often launched prematurely without a determination of whether it was
                      really needed, whether it fit with the organization’s long-term goals, and
                      without having the support of top management.

                      Risk analysis is used to identify what could go wrong with the project and
                      how to deal with the consequences. The goal is essentially to minimize risk
                      and be prepared with contingencies for containment when problems do
                      arise. Departments are to conduct risk assessments not just during the
                      planning phase, but also throughout implementation. This helps ensure
                      that projects with little chance of success are cancelled or modified as
                      early as possible. Delineation of accountabilities is used to protect the



                      Page 44                                      GAO/GGD-99-109 Procurement Reform
Appendix III
Canada's Benefits Driven Procurement




client department from service delivery problems by identifying the
specific risks each party assumes. For example, if the contract states that
the supplier is responsible for delivering a certain outcome, or level of
service, by a certain date but fails to do so, the supplier could be required
to bear the cost of the delay. Relatedly, BDP encourages the use of a
compensation structure closely tied to the contractor’s performance. For
example, bonus payments may be made for finishing earlier than expected.
A nonmonetary incentive could be intellectual property rights to a
technology developed under government contract.

Although BDP has been used primarily in the IT area, PWGSC and
Treasury Board Secretariat (TBS) officials told us they anticipated greater
usage of BDP in other areas in the future. BDP is part of a broad
framework for procurement reform that TBS was developing at the time of
our review. These officials said, however, that BDP should not always be
used; in many cases, traditional procurement approaches are quite
appropriate. They said that rigorous up-front planning by departments is
done to help identify the most appropriate method. More information on
BDP can be accessed at the PWGSC and TBS Internet addresses,
http://w3.pwgsc.gc.ca/ and http://www.tbs-sct.gc.ca/, respectively.




Page 45                                     GAO/GGD-99-109 Procurement Reform
Appendix IV

The UK's Private Finance Initiative


               The Private Finance Initiative (PFI) is a procurement reform approach
               being used by the United Kingdom to provide services requiring a major
               capital investment. Under a PFI project, the private sector finances the
               capital assets and the government or users pay for the services. Similar to
               what are commonly referred to as public-private partnerships in the United
               States, PFI contracts require the private sector to invest in, manage, and
               operate a capital asset necessary to deliver a defined level of service. By
               way of example, in a PFI project to fill the need for a highway, the
               government would pay for the service of having a fully maintained and
               functional highway instead of constructing and maintaining the highway
               itself. In the IT area, the government would seek an arrangement in which
               the private sector would meet a department’s IT needs through services,
               instead of having the government own and manage an IT system and
               software. An example where the user of the services and not the
               government pays for the service would be a privately financed bridge that
               is paid for directly by tolls from motorists using the bridge.

               The thinking behind PFI includes transfering the risks and rewards of
               ownership of an asset to the private sector, along with the need for capital
               funding. According to HM Treasury officials, it requires government to
               consider not only whether it can afford to pay for the capital asset, but also
               to rigorously consider the long-term financial implications of the asset
               being properly maintained and operated over a period of, frequently, 25
               years or more. PFI also aims to allocate procurement risks more
               appropriately between the supplier and the government customer to
               ensure that the risks rest with the appropriate party. For example, in a
               construction project, the risk of delay or cost overruns would rest with the
               private sector supplier. Alternatively, the risk of changes in legislation that
               could affect the contract would rest with the government customer, who is
               better placed to influence any such changes.

               Under PFI projects, the government also believes it can also potentially
               benefit from the innovation and skills of the private sector. By
               concentrating on the end service required, the government allows the
               private sector supplier to determine innovative ways of delivering the
               service—the government customer specifies the outputs but leaves the
               inputs to the supplier. To ensure value for money under PFI projects, the
               government customer is to demonstrate that the PFI method of
               procurement is likely to be better value for money than alternative means
               of supply—in particular, conventional means of procurement. This
               comparison is to be done by comparing the quality and cost of the service
               required under the different alternative means of supply.




               Page 46                                      GAO/GGD-99-109 Procurement Reform
                        Appendix IV
                        The UK's Private Finance Initiative




                        At the time of our review, the UK was at various stages of implementing
                        115 PFI projects for capital assets valued at about 10.9 billion (about
                        $17.6 billion U.S., assuming that $1 U.S. = 0.62). These projects covered a
                        wide range of services, including highways, prisons, IT services, and part
                        of the Ministry of Defence’s (MOD) vehicle fleet. To improve the PFI
                        procurement process and to assist departments and agencies with
                        implementing PFI projects, HM Treasury had established a PFI task force.

                        The task force sought to ensure that departments’ projects were not placed
                        on the market until it was confident that the service was affordable,
                        project teams had adequate resources, output specifications had been
                        developed, and an acceptable risk allocation had been proposed. The task
                        force issued guidance for carrying out PFI projects and also provided
                        direct assistance to departments and agencies. At the time of our review,
                        task force officials told us they had hired several individuals from the
                        private sector to ensure that the government had high-calibre legal,
                        financial, and other professional skills available to assist departments. HM
                        Treasury’s guidance for PFI projects, as well as more detailed information
                        on the PFI process, can be found at its Internet address that is dedicated to
                        PFI, http://www.treasury-projects-taskforce.gov.uk.

MOD’s White Fleet PFI   At the time of our review, MOD was in various stages of implementing 20
                        PFI projects for capital assets with a total estimated value of about 967
Project                 million (about $1.6 billion U.S.). These projects included services involving
                        IT systems at the Army Logistics Agency and Army Training and
                        Recruitment Agency, training for the Defence Helicopter Flying School,
                        water and sewage at certain Royal Air Force (RAF) bases, and housing at
                        two other MOD bases. Related to the vehicle acquisition and fleet area,
                        two projects involved MOD’s “white fleet” of nontactical, administrative,
                        and support vehicles. The two projects were for white fleet vehicles used
                        by British forces in Germany and a portion of the RAF white fleet vehicles
                        in the UK. This year, MOD planned to expand this project to include all of
                        the white fleet vehicles in the British military.

                        The white fleet PFI project had its origins in 1994, when MOD began a
                        study to identify methods for encouraging greater commercial involvement
                        in vehicle funding and management. The study concluded that there were
                        both the capacity within the private sector and the potential for financial
                        and operational benefits for MOD to expose the support vehicle fleet to
                        industry competition. It was recognized that adopting a PFI approach to
                        the supply of the white fleet would involve the private sector providing
                        complete vehicle service, not just the funding for a substitution of new
                        assets. MOD believed that through PFI, it would be exposed to private



                        Page 47                                     GAO/GGD-99-109 Procurement Reform
Appendix IV
The UK's Private Finance Initiative




sector innovation and management skills and progressively would benefit
from the latest commercial techniques in vehicle management.

MOD selected two portions of the white fleet to test the PFI approach: the
support vehicles for British forces in Germany and a stratified group of
RAF support vehicles in the UK. According to MOD officials, preliminary
data showed that both of these projects were delivering efficiencies in
terms of the number of vehicles operated and the cost of operation. At the
time of our review, MOD officials estimated that in Germany, savings of 27
percent were being realized compared to in-house operation; and in the
UK, savings under PFI were estimated to be about 15 percent. In both
cases, MOD believed it was getting a newer and more reliable fleet, along
with a better information system and commercial fleet management
expertise.

According to MOD officials, they drew on the experience gained from
these two test efforts, did detailed research, and held extensive
discussions with the leading service providers to develop a strategy for
subjecting the rest of the white fleet to competition. Five regional projects
covering approximately 12,000 vehicles were developed inside defined
boundaries to cover all the requirements of all three services (Royal Navy,
Army, and RAF). Each project covered the full range of vehicles in the
white fleet and encompassed short and medium term needs. Under the
PFI arrangements, MOD staff were to assess fluctuating vehicle needs, and
the industry providers are to be under contract to meet all levels of
demand, even on short notice. This was a departure from the traditional
procurement philosophy MOD had in the fleet area, in which vehicle
holdings were to be matched to anticipated maximum usage requirements.
Instead, MOD would be paying for vehicle services as an alternative to
owning and operating them.

As of October 1998, the time of our discussions with MOD officials, the
projects had been advertised and MOD had received expressions of
interest and proposal outlines from a number of leading vehicle suppliers
who were backed by international financial institutions. Binding bids were
to be obtained by the early part of 1999, which would lead to the selection
of a preferred supplier and detailed negotiations before projected contract
signings in September 1999. Implementation of the contracts would then
commence and would be completed in 6 months.

To ensure value for money, MOD has established an in-house cost
benchmark that reflected the best of several other in-house options MOD
has considered for managing the fleet. Should the bids MOD receives be



Page 48                                     GAO/GGD-99-109 Procurement Reform
                             Appendix IV
                             The UK's Private Finance Initiative




                             above the in-house benchmark, MOD officials said they would instead
                             implement the in-house alternatives. Also, MOD was planning to provide
                             the in-house benchmark to industry to prevent providers from submitting
                             bids if they could not provide the required service at a price below the in-
                             house benchmark.

National Audit Office Role   The National Audit Office (NAO), our counterpart organization in the UK,
                             reports to the British parliament on whether individual PFI projects
                             represent good value for money. NAO supports the PFI concept because it
                             offers, in appropriate cases, the prospect of improved value for money.
                             NAO also recognizes that successful implementation will require well-
                             thought innovation and risk-taking by public servants, which it supports.
                             According to NAO officials, the merits of the PFI initiative will be judged
                             on the success of individual projects. To date, these officials said that
                             some projects could have benefited from better up-front planning; as a
                             result, it was questionable whether some projects were achieving value for
                             money. On the other hand, other projects have represented clear value for
                             money and other benefits to the government. Overall, NAO officials said
                             that as time went by, public servants likely would become more adept at
                             using the PFI approach, and the overall gains would be positive.
                             Information on NAO’s findings for individual projects can be accessed at
                             its Internet address, http://www.open.gov.uk/nao/home.htm.




                             Page 49                                      GAO/GGD-99-109 Procurement Reform
Appendix V

Australia's IT Outsourcing Initiative


                In April 1997, Australia’s Minister for Finance announced a major initiative
                to outsource, or contract for, the government’s IT infrastructure. The
                initiative was to cover everything from the large mainframe computers
                agencies operated to the equipment for over 140,000 desktop computers
                                         1
                across the government. According to officials with the Office of Asset
                Sales and IT Outsourcing, this infrastructure had an estimated value of
                between $6 and $7 billion Australian (between about $4 and $4.6 billion
                U.S., assuming that $1 U.S. = $1.51 Australian). Under the initiative, the
                government committed to achieving best value for money for its
                information technology dollar in order to support the delivery of services
                at the lowest cost to the taxpayer.

                This major announcement had its origins in 1996, when the government
                tasked the former Office of Government Information Technology (OGIT)
                with studying the potential savings that could accrue through
                consolidation of systems and potential outsourcing. The resulting study
                indicated that a very strong case for outsourcing existed and led to a
                decision that agencies should undertake extensive market testing.
                Potential savings of $1 billion Australian (about $662 million U.S.) were
                estimated over 7 years if agencies shifted to outsourcing. The April 1997
                announcement reflected the government’s commitment to apply the
                outsourcing concept for IT across government, with the exception of some
                systems related to national security. In November 1997, IT outsourcing
                functions managed by OGIT were transferred to the Office of Asset Sales,
                which was renamed OASITO.

                OASITO was given responsibility for leading and managing the
                implementation of the initiative, with the aim of delivering savings,
                developing the Australian IT industry, and improving service delivery. The
                initiative had clear objectives related to the Australian IT industry. That is,
                OASITO was committed to ensuring substantial and sustainable
                development of the domestic IT industry, encouraging the industry to
                achieve a global focus, and assisting regional development and the
                creation of jobs. OASITO’s executive coordinator told us that in addition to
                the Australian IT industry, firms from overseas, including the United
                States, had been, and would likely continue to be, active participants in the
                initiative.




                1
                 In March 1999, we reported that several agencies in the United States were studying the outsourcing
                option for their information systems (Outsourcing and Privatization: Private Sector Assistance for
                Federal Agency Studies (GAO/GGD-99-52R, March 26, 1999).




                Page 50                                                    GAO/GGD-99-109 Procurement Reform
Appendix V
Australia's IT Outsourcing Initiative




OASITO was managing the initiative through a multi-year, phased process
where agencies’ IT needs were being grouped together and the
requirements offered to the private sector for bids. The government
originally estimated that the initiative would be completed by mid-1999. At
the time of our review, the schedule for outsourcing had to be adjusted to
accommodate the capacity of agencies to prepare for outsourcing and the
capacity of industry to absorb the requirements. OASITO was responsible
for identifying the groupings and structuring them to maximize the
benefits of outsourcing. It also provided guidance and assistance to
agencies and managed the sequence and timing of the offerings to
maximize competition. In addition, OASITO was the central coordinator
for development of project documentation and was to oversee the
financial evaluation of the offers. After contracts were signed, OASITO
planned to remain involved to ensure that issues affecting the overall
success of the initiative were effectively addressed.

In close consultation with OASITO, each agency was responsible for
defining its business and technical requirements, assisting with the
evaluation of bids, participating in negotiations, and otherwise preparing
the agency for transition to an outsourcing relationship and subsequent
contract management. At each step of the process, agencies were expected
to ensure that sufficient resources were dedicated to the process to enable
the project timetable to be met. Agencies were also expected to implement
strategies for internal matters, such as human resource transition, and to
execute the change to the new operating environment. The government
anticipated that IT professionals within government would transfer to the
private sector, thus enhancing their skills and furthering their career
opportunities.

OASITO’s executive coordinator told us that the government undertook
this initiative because of a belief that agencies should focus on their core
missions and allow the private sector to perform government activities of a
business nature. Further, he said that in meeting their IT needs through
purchasing IT services, agencies, and the government as a whole, would
also benefit from access to the latest technologies and current commercial
expertise in information management.




Page 51                                     GAO/GGD-99-109 Procurement Reform
Page 52   GAO/GGD-99-109 Procurement Reform
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