[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
  PUTTING THE STRATEGY IN SOURCING: CHALLENGES AND OPPORTUNITIES FOR 
                       SMALL BUSINESS CONTRACTORS

=======================================================================



                                HEARING

                               before the

               SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS

                             UNITED STATES

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                             JUNE 13, 2013

                               __________

                               [GRAPHIC] [TIFF OMITTED] 
                               

            Small Business Committee Document Number 113-023
              Available via the GPO Website: www.fdsys.gov




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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                       BLAINE LUETKEMER, Missouri
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Richard Hanna...............................................     1
Hon. Grace Meng..................................................     2

                               WITNESSES

Hon. Stan Z. Soloway, President & CEO, Professional Services 
  Council, Arlington, VA.........................................     4
Mr. Robert A. Burton, Senior Partner, Venable LLP, Washington, DC     6
Mr. Roger Waldron, President, The Coalition for Government 
  Procurement, Washington, DC....................................     8
Mr. Trey Hodgkins, Senior Vice President, Global Public Sector, 
  TechAmerica, Washington, DC....................................    10
Hon. Joseph G. Jordan, Administrator, Office of Federal 
  Procurement Policy, Washington, DC.............................    21
Mr. Jeff Koses, Director, Office of Acquisition Operations, 
  Federal Acquisition Service, General Services Administration, 
  Washington, DC.................................................    23

                                APPENDIX

Prepared Statements:
    Hon. Stan Z. Soloway, President & CEO, Professional Services 
      Council, Arlington, VA.....................................    33
    Mr. Robert A. Burton, Senior Partner, Venable LLP, 
      Washington, DC.............................................    40
    Mr. Roger Waldron, President, The Coalition for Government 
      Procurement, Washington, DC................................    53
    Mr. Trey Hodgkins, Senior Vice President, Global Public 
      Sector, TechAmerica, Washington, DC........................    71
    Hon. Joseph G. Jordan, Administrator, Office of Federal 
      Procurement Policy, Washington, DC.........................    75
    Jeff Koses, Director, Office of Acquisition Operations, 
      Federal Acquisition Service, General Services 
      Administration, Washington, DC.............................    81
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    William Balek, Director of Legislative Affairs, ISSA - The 
      Worldwide Cleaning Products Association....................    87
    Bob Griffin, GSA Schedule Consultant, Contractor and Former 
      DOD Schedules Customer.....................................   100
    NOPA, Connecting the Independent Dealer Channel..............   104


  PUTTING THE STRATEGY IN SOURCING: CHALLENGES AND OPPORTUNITIES FOR 
                       SMALL BUSINESS CONTRACTORS

                              ----------                              


                        THURSDAY, JUNE 13, 2013

                  House of Representatives,
               Committee on Small Business,
         Subcommittee on Contracting and Workforce,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2360, Rayburn House Office Building. Hon. Richard Hanna 
[chairman of the subcommittee] presiding.
    Present: Representatives Hanna, Tipton, and Meng.
    Chairman HANNA. Good morning, everyone. This hearing will 
come to order.
    This morning, we are here to talk about strategic sourcing 
and what it means for small business. Strategic sourcing is in 
itself neither good nor bad. It is a tool. It is how we use it 
that matters. It is not the hammer's fault that someone uses it 
to cure a headache; rather, strategic sourcing at its heart is 
about being smarter about how we buy things. It means knowing 
what goods and services we are currently buying, who is buying 
these goods and services, who we are buying them from, and 
where they are in turn acquiring these goods and services. It 
means understanding what we actually need, rather than what we 
are buying. It means clearly communicating those needs to the 
marketplace. It means being aware of the ways the marketplace 
may change, either in what new products and services are 
becoming available or what other forces are operating in that 
market. When you are talking about the federal government, an 
entity that spends $516 billion throughout the year, it also 
means understanding that the way we buy things may irrevocably 
change that market.
    This leads to challenges we are here to discuss and 
address. How can the government buy smarter and realize the 
benefits small businesses bring to the table. I know I do not 
need to remind anyone here that small businesses are our job 
creators and innovators, or that the competition they bring to 
the government marketplace drives down costs and keeps our 
industrial base healthy. If we do strategic sourcing well, it 
can benefit small businesses and taxpayers alike. If we simply 
use strategic sourcing as a synonym for contract bundling and 
consolidation, it may undermine that industrial base.
    In federal contracting, we have winners and losers. No one 
is advocating that ever business is entitled to a contract; 
however, the government should not act in a way that keeps 
small businesses from competing. Likewise, we cannot contract 
in a way that forces the majority of contractors out of the 
market for a long period of time and then expect those same 
businesses to be there when we need them. Make no mistake; we 
will need them to offer competition for the incumbent 
contractors if we want long-term savings. I hope our witnesses 
today will discuss both the long-term and short-term effects of 
strategic sourcing. Additionally, as we discussed at our last 
hearing, not every method of procurement is suited for every 
type of purchase. The more complicated the good or service 
being bought, the harder it is to commoditize it. Given our 
standard strategic sourcing of services poses special 
challenges for small businesses. Therefore, I hope our 
witnesses will address which types of goods and services are 
suitable for strategic outsourcing. Truly strategic outsourcing 
is not simply a quest for the lowest price at any moment; it 
requires an understanding of the long-term dynamics of the 
marketplace and the power wielded by the buyer. As the under 
secretary of defense recently wrote, the first responsibility 
of acquisition workforce is to think.
    I hope today's hearing will help clarify the issues 
surrounding strategic sourcing so that the government does not 
act in a penny wise and pound foolish manner.
    I want to thank your witnesses for being with us today, and 
I turn to Ms. Meng for her opening statement.
    Ranking Member Meng.
    Ms. MENG. Thank you, Mr. Chairman, for holding this 
important hearing.
    Our Committee has long acknowledged the critical role small 
businesses play in the $500 billion a year federal marketplace. 
When small firms are awarded contracts for government agencies, 
the result is a win-win. The government receives good value for 
their money as small companies have the dexterity to provide 
high-quality goods and services at competitive prices. That 
means taxpayers' resources are spent wisely.
    Not only do the agencies benefit by using small businesses, 
but the economy does as well. Equally important, unlike larger 
businesses, small businesses must often add staff to meet 
government demand for their products and services, which 
results in further job creation. With our economy continuing to 
recover, it is vital that we pursue every mechanism possible to 
foster job creation by the federal government and that extends 
to the procurement process.
    As more federal agencies adopt the Strategic Sourcing 
Initiative, questions are arising about whether the SSI 
promotes competition and fosters small business participation 
in the federal marketplace. With 19 agencies moving to make SSI 
mandatory, many small firms are starting to suffer. One 
analysis focused exclusively on suppliers of office products. 
They found that on average, small firms previously competing 
under the GSA schedule for this business lost anywhere between 
$20,000 and $10 million in revenue. The Committee has heard 
from a number of entrepreneurs who suggested that these changes 
are already resulting in layoffs. If SSI is hurting small 
businesses and the economy, we must examine this issue closely.
    I want to make sure businesses like Data Conversion 
Laboratory in Fresh Meadows, New York, or Defender Security 
Services in Regal Park, New York, are still able to compete for 
federal contracts on the same playing field they are today. 
Small firms not included in the blanket purchasing agreement 
tell us they find themselves effectively locked out of a $1.5 
billion market. In the meantime, large corporations, like 
OfficeMax and Staples, are expanding their presence in the 
federal marketplace. If small firms that had previously won 
contracts through the GSA schedule are being denied the 
opportunity to compete even when they could provide the same 
goods at a lower price, then we have to wonder whether SSI 
functions as intended.
    There are also concerns about whether SSI is sacrificing 
long-term competitiveness in order to reduce short-term costs. 
If the vast majority of small business contractors are not 
chosen to participate in SSI and as a result stop bidding on 
federal work, will agencies have fewer options in the future? 
And when prices begin creeping up, would not we want a larger 
pool of small firms to compete for a right to deliver these 
goods and services?
    Without a diverse range of companies in the federal market, 
we may find that over the long term, SSI has failed to reduce 
prices, but instead reduced the number of firms participating 
in the process. Setting aside questions about how this 
initiative impacts entrepreneurs, it is important that SSI not 
be used as a ``one size fits all'' approach to procurement. 
What works for the purchase of physical products may be ill 
suited for contracts related to services.
    Similarly, not every agency may find SSI to be a good 
match. Media reports suggest agencies are feeling increasing 
pressure to adopt the SSI standards for all purchasing 
decisions. Although it remains to be seen whether SSI saves the 
taxpayer money, it seems intuitive that if there are savings, 
the program should be applied only where it works, while the 
former GSA schedule should remain intact where it keeps costs 
low and quality high.
    All of this is not to say that the SSI program is without 
merit. We certainly do not want agencies using less efficient 
and more expensive procurement processes; however, if small 
firms that have been offering quality services are being locked 
out, even having to let go of staff, then it may be time to 
take a hard look at whether this initiative is achieving the 
desired result.
    On that note, I look forward and thank the witnesses for 
being here, and thank them for shedding light on this critical 
topic. I yield back my time.
    Chairman HANNA. Thank you.
    You each have five minutes. The light will go yellow, then 
red. We will be lenient. We want to know what you have to say.
    So with that, our first witness here today is Mr. Stan Z. 
Soloway. Mr. Soloway is president and chief executive officer 
of the Professional Service Council, the National Trade 
Association of Government Professionals and Technical Service 
Industry. Prior to joining PSC in 2001, Mr. Soloway served as 
deputy under secretary of defense directing acquisition reform.
    Mr. Soloway, thank you for being here. You may begin.

STATEMENTS OF STAN Z. SOLOWAY, PRESIDENT AND CEO, PROFESSIONAL 
 SERVICES COUNCIL; ROBERT A. BURTON, SENIOR PARTNER, VENABLE, 
  LLP; ROGER WALDRON, PRESIDENT, THE COALITION FOR GOVERNMENT 
   PROCUREMENT; TREY HODGKINS, SENIOR VICE PRESIDENT, GLOBAL 
                  PUBLIC SECTOR, TECHAMERICA.

                  STATEMENT OF STAN Z. SOLOWAY

    Mr. SOLOWAY. Thank you, Mr. Chairman, Ranking Member Meng. 
Thanks for the opportunity to testify and share our views on 
the potential impacts on small business of the federal 
government's Strategic Sourcing Initiatives. This is a matter 
of significant interest to our community given both the unique 
diversity of our membership base and the equally unique 
diversity of the services our members provide to the federal 
government.
    Our membership of over 360 companies is comprised of firms 
of all sizes, including approximately 25 percent that are 
classified as small businesses, and an additional 25 or 30 
percent that would be classified as small mid-tier firms. It is 
this diversity of function and size that provides the lens 
through which we have viewed strategic sourcing and the full 
range of business policies we address with the Congress and the 
administration and how they will impact all or portions of the 
federal services sector.
    In our view, structured properly, the Federal Strategic 
Sourcing Initiative (FSSI) has the potential to deliver real 
benefits for federal agencies and taxpayers alike. As such, we 
commend the Office of Federal Procurement Policy for making 
strategic sourcing a priority. Yet, while we fully support the 
FSSI's intended objectives, we do have some concerns about its 
practical effects, and those concerns relate more to the way in 
which the term is used and understood, rather than the concept 
itself.
    So along those lines I would like to make a few overarching 
observations and conclude with four specific recommendations.
    First, we need to be clear that strategic sourcing is not 
one ``thing.'' It is a set of multi-layered, flexible 
procurement strategies that evolve and change depending on the 
nature and complexity of what is being bought. For pure 
commodities, where cost is the primary, even sole concern, 
strategic sourcing can be fairly simple. For more complex 
needs, particularly higher-end services where quality and 
technical ability become more central to a decision, the 
challenges and complexities also grow substantially. For 
products, where place of performance of production is 
irrelevant, strategic sourcing may mean one thing, whereas, for 
services where the place of performance is highly relevant, the 
need to deliver services across multiple geographic regions can 
bring with it a different set of issues and challenges, 
especially for small business.
    These variations are not insignificant, and as the 
Government Accountability Office found in their recent report 
on strategic sourcing, our key elements are the way strategic 
sourcing is implemented in the private sector. Our concern is 
not that the senior leadership is unaware of these critical 
variations. In fact, we believe they understand them very well, 
but that the frontline, where we are seeing an increased 
commoditization of even the most complex needs, there are too 
many people who believe that the term really refers solely to 
an aggregation of buying for scale to drive down unit costs. 
Unless and until that frontline awareness and understanding is 
improved and enhanced, we do have concerns that FSSI could 
generate a range of unintended consequences.
    Second, strategic sourcing raises a seminal question. Is 
our principle objective and responsibility to optimize 
government operations or is it to optimize those operations 
without impacting the current environment for small 
disadvantaged HUBZone, veteran-owned, or woman-owned 
businesses? For example, is it better to have fewer small 
businesses receiving a higher volume of work from the 
government, or a larger number of small businesses with smaller 
shares of the volume? Is it more important to perpetuate the 
longstanding tenet of fiscal acquisition in which broad, 
continuous open competition is a primary goal? Or is it more 
important to seek optimization which almost by definition would 
reduce the pool of suppliers of both products and services?
    These are far more than rhetorical questions. They and 
their disposition are essential to assessing the future of 
FSSI. To their credit, the Office of Federal Procurement Policy 
and the Strategic Sourcing Leadership Council recognize this 
dichotomy and have worked hard to factor it into their 
planning, but a much broader conversation is very much needed.
    These issues have also been prominent in the discussion 
about GSA's OASIS solicitation. Among the concerns that it has 
raised is that it will reduce the number of small business 
opportunities and that it is overly, if not principally, 
focused on driving down the unit cost of complex, professional 
services, and less so on overall value, quality, and 
performance. Indeed, some GSA officials stated repeatedly in 
public forums that driving down unit cost was their principal 
goal.
    To GSA's credit, it has conducted extensive outreach to the 
private sector, and it does appear that they have taken to 
heart many of the comments they have received. But even as we 
await GSA's publication of the final OASIS solicitation and 
their explanation of how they reconciled competing policy and 
competitive interest, concern still exists as to how the 
competition and implementation of the awards will ultimately 
play out.
    With all of this in mind, let me just make four basic 
recommendations for the road forward. First, if I could define 
one desired outcome from this hearing it would be to gain much 
more clarity on the question of whether the balance between the 
number of small business providers and the total dollars 
expended with small business is aligned with both the 
administration and Congress's small business agenda. There is 
little doubt about the effectiveness of recent strategic 
sourcing for wireless services, laptops, and office supplies. 
Consensus on that alignment is essential to the effect of an 
efficient expansion of strategic sourcing however far it may 
go. OFPP and the Strategic Sourcing Leadership Council 
recognize this dichotomy and have worked hard to factor it into 
their planning, but as I said earlier, that conversation needs 
to be expanded.
    Second, we should develop and deploy requisite training 
tools to the workforce without delay and require that all 
acquisition personnel involved in any specific strategic 
sourcing effort for other than the most basic commodities first 
complete that training.
    Third, we should be highly judicious in the use of 
strategic sourcing for services, particularly for complex 
services. We should require senior level review of significant 
strategic sourcing efforts to services to ensure that the 
strategies being employed are clearly articulated and are not 
overly focused on simply forcing down labor rates at the 
expense of overall quality.
    And finally, we should pursue a flexible, rather than 
overly prescriptive strategic sourcing initiative. Let us allow 
individual agencies some degree of flexibility to pursue their 
own agency unique initiatives and to develop performance 
measures for both agency-specific and government-wide 
initiatives that will meaningfully inform the future shape 
expansion and/or limitations of the Federal Strategic Sourcing 
Initiative.
    Mr. Chairman, Ms. Meng, the Federal Strategic Sourcing 
Initiative has great potential but also requires careful 
attention. Absent answers to the questions above, it is frankly 
not possible to say with certainty what its impact on small 
business will be. The Office of Federal Procurement Policy, the 
SSLC, GSA, and others are to be congratulated for their 
relentless efforts to ensure that federal agencies buy smart 
and buy well, and we remain fully committed to working with 
them and with you and with individual agencies to ensure that 
we find the right balance and ensure the best possible 
performance on behalf of the taxpayer.
    Thank you once again for the opportunity to be here today, 
and I certainly look forward to your questions.
    Chairman HANNA. Thank you. Any members that have written 
statements may submit them for the record.
    Our second witness is Mr. Robert A. Burton. Mr. Burton is 
senior partner for the Venable LLP in Washington, D.C., where 
he is a nationally recognized federal procurement attorney. 
Prior to joining Venable, Mr. Burton spent seven years at the 
Office of Federal Procurement Policy serving as deputy 
administrator, as well as acting administrator for two years.
    Mr. Burton, you may begin.

                 STATEMENT OF ROBERT A. BURTON

    Mr. BURTON. Chairman Hanna and Ranking Member Meng, I very 
much appreciate the opportunity today to discuss what I term 
the unattended effects of strategic sourcing in small 
businesses.
    Prior to joining the Venable law firm in 2008, I did serve 
as the deputy administrator of the Office of Federal 
Procurement Policy, referred to as OFPP. While serving in this 
capacity, I was closely involved with the first government-wide 
Strategic Sourcing Initiative and the development of the 2005 
Office of Management and Budget memorandum on strategic 
sourcing, which, for the very first time, directed agencies to 
develop and implement appropriate strategic sourcing efforts. A 
lot of discussion with agency acquisition officials and small 
business advocates preceded the issuance of the 2005 strategic 
sourcing policy memorandum. The consensus was that any agency's 
specific or government-wide Strategic Sourcing Initiative had 
to be focused not only on lowering the price of goods and 
services, but also increasing the value of each taxpayer dollar 
spent. This means that agency's strategic sourcing efforts had 
to improve the quality of performance and increase small 
business participation.
    We quickly learned that strategic sourcing is not a simple 
concept; rather, it requires careful analysis, planning, and 
implementation. We rolled out the first government-wide 
Strategic Sourcing Initiative for express and domestic delivery 
services because very few vendors provide these specialized 
services, no small businesses were impacted, and it was 
relatively easy for the government to effectively leverage its 
combined buying power for these services. But as we explored 
the use of other government-wide strategic sourcing vehicles, 
it became much more challenging, and small businesses expressed 
concerns with the use of government-wide strategic sourcing 
vehicles. Specifically, they were concerned that the 
consolidation of contracting vehicles across government would 
reduce competition and opportunities for small businesses.
    Today, existing and proposed government-wide strategic 
sourcing vehicles highlight some of the negative effects 
strategic sourcing can have on small businesses. For example, 
GSA's recently proposed strategic sourcing vehicle for 
janitorial and sanitation supplies, commonly referred to as 
JanSan, manifests several legitimate concerns of small 
businesses. First, nothing in the JanSan strategic sourcing 
vehicle guarantees that small businesses will receive any 
significant contract dollars, even if they are awarded a 
blanket purchased agreement or BPA. Although GSA has set aside 
8 of 15 JanSan BPAs for small businesses, such set-asides do 
not necessarily guarantee small business success. Simply put, 
agencies are not required to place orders under the small 
business set-aside BPAs.
    Second, JanSan will reduce the pool of approximately 540 
small business contractors that provide the government with 
janitorial supplies. Under JanSan, a total of only 15 BPAs can 
be awarded. This means that hundreds of vendors will be 
foreclosed from contracting with the government. This will be 
especially true if agencies are mandated to use the JanSan 
vehicle. Currently, small business vendors who fail to win a 
government-wide strategic sourcing contracting opportunity have 
the ability to maintain their businesses by competing on GSA 
schedule contracts or participating in other forms of open 
competition.
    The JanSan example highlights the importance of not making 
government-wide strategic sourcing vehicles mandatory for use 
by the agencies. And this is why OFPP did not make strategic 
sourcing vehicles mandatory in 2005 when we announced the first 
government-wide strategic sourcing effort. The mandatory use of 
a single strategic sourcing vehicle will reduce contracting 
opportunities for small businesses and the pool of small 
business contractors even if the vehicle incorporates small 
business set-asides and achieves small business goals.
    Finally, the government's Strategic Sourcing Initiative was 
designed not only to increase small business participation, but 
also to ensure best value. The emphasis on value is a 
cornerstone of strategic sourcing. As discussed in the 2005 OMB 
strategic sourcing memorandum, agencies were to maximize the 
value of every dollar spent through strategic sourcing. Because 
some of the strategic sourcing vehicles are constructed as low 
priced, technically acceptable procurements, the government is 
emphasizing price at the expense of overall value.
    In conclusion, the government should carefully plan and 
implement proposed strategic sourcing vehicles to ensure that 
savings are not achieved at the expense of small businesses and 
value for the taxpayers. This is particularly true in cases 
where cost savings may be short term and eliminated in the long 
run because of less competition and fewer small business 
contractors.
    Mr. Chairman, this concludes my statement. I will be 
pleased to answer any questions that you or members of the 
Subcommittee may have. Thank you.
    Chairman HANNA. Thank you, Mr. Burton.
    Our third witness today is Mr. Roger Waldron. Mr. Waldron 
is president of The Coalition for Government Procurement. He 
has over 25 years of government contracting experience, 
including a 20 year tenure at the General Services 
Administration, where he held various positions, including 
acting director, chief acquisition officer.
    Mr. Waldron, you may begin.

                   STATEMENT OF ROGER WALDRON

    Mr. WALDRON. Chairman Hanna, Ranking Member Meng, member of 
the Subcommittee, thank you for the opportunity to appear 
before you to address ``Putting the Strategy in Sourcing: 
Challenge and Opportunities for Small Business Contractors.''
    The Coalition for Government Procurement is a nonprofit 
association of firms selling commercial services and products 
to the federal government.
    Coalition members include small, medium, and large business 
concerns from across the country. Coalition members account for 
approximately 50 percent of the commercial solutions purchased 
annually by the federal government and focus much of their 
access to the federal marketplace through their GSA schedule 
contracts.
    Effectively used, the GSA Schedules program is a highly 
successful strategic source for the government to leverage the 
marketplace and achieve its socioeconomic goals. Year in and 
year out the GSA Schedules program is one of the most 
successful government-wide small business contracting programs 
available. In a typical fiscal year, over 30 percent of the 
dollar volume of purchases under the GSA Schedules program goes 
to small business concerns.
    The fundamental keys to success of the GSA Schedules 
program for small business are: (1) continuous open seasons; 
and (2) ordering procedures and electronic tools that allow 
customer agencies to consider socioeconomic status when 
competing and placing orders. Although the coalition generally 
supports the government's strategic sourcing efforts, we have a 
number of concerns about the impact of GSA's current 
acquisition strategies on businesses of all sizes, but 
particularly on small companies.
    Last year, GSA proposed a mandate-based model that would 
have eliminated continuous open seasons under the GSA Schedules 
program. The coalition submitted comments opposing the closure 
of GSA schedules to new offers. A copy of our comments is 
attached to our written testimony. Coalition members remain 
uniformly opposed to closing the GSA schedule program to new 
offers as it would limit opportunities for small businesses, 
restrict competition, and inhibit access to commercial 
innovation by the government. We are concerned that GSA's 
strategic sourcing initiatives are being used to implement the 
demand-based model's closure of GSA schedules to new offers.
    At the same time, the government is moving towards a 
mandatory use contracting model for blanket purchase agreements 
established under the GSA Schedules program. Mandatory use will 
have the unintended long-term consequence of reducing 
opportunities for small businesses. By its very nature, 
mandatory use limits access of the federal buyer to a small 
group of contractors. Mandatory use will restrict access to the 
federal marketplace for small businesses.
    Rather than imposing mandatory use terms as a means of 
leveraging the government's volume, the coalition supports use 
of volume commitments or guaranteed minimums that are based on 
improved requirements development, which is after all 
commercial practice. Volume commitments create the economic 
incentives to offer lower prices for commercial solutions. At 
the same time, the government maintains the flexibility to 
access a commercial marketplace and compete opportunities for 
small businesses. It is a win-win for government and industry.
    The coalition is also concerned that the current approach 
to strategic sourcing includes the use of generic, government-
wide blanket purchase agreements established under the GSA 
Schedules program, agreements that do not include specific 
requirements or volume commitments upon which effective 
competition can be based. The intermediate step of establishing 
such a agreements results in vertical contract duplication that 
increases bid and proposal costs for government and industry 
and definite hurts small business. These agreements should be 
limited to the maximum extent practicable. Agencies should 
compete task orders or establish blanket purchase agreements 
under the GSA Schedules program based on specific requirements, 
including volume commitments. This approach will enhance 
rational, realistic competition, competitive pricing, and 
improve deficiency. A program of agency-specific blanket 
purchase agreements established under the GSA schedule program 
will also provide greater opportunities for small business 
concerns.
    In summary, when effectively used, the GSA Schedules 
program is a highly successful, strategic source for 
government. At the same time, GSA schedule contracts are a 
powerful marketing tool for small business concerns when 
dealing with contracting offices across federal, state, and 
local governments. However, it appears that rather than 
focusing on the strengths of the program, its openness and 
access to the commercial marketplace, its flexible, streamlined 
ordering procedures and electronic tools, the current strategic 
sourcing approach closes the GSA marketplace, reduces 
competition, and limits access to commercial solutions and 
small business.
    The Coalition for Government Procurement is pleased to 
submit our written testimony for the record, and we stand ready 
to provide you with any additional input you may request. Thank 
you.
    Chairman HANNA. Thank you, Mr. Waldron.
    I yield to Ranking Member Meng to introduce the next 
witness.
    Ms. MENG. It is my pleasure to introduce Mr. Trey Hodgkins. 
Mr. Hodgkins is the senior vice president of the Global Public 
Sector at TechAmerica. TechAmerica represents over 34,000 
member businesses in the information and communications 
technology industry, including many small businesses. Mr. 
Hodgkins is a recognized expert in procurement, cyber security, 
and national security, and he has over 30 years of experience 
in the federal, state, and local government arenas.
    Welcome, Mr. Hodgkins.

                   STATEMENT OF TREY HODGKINS

    Mr. HODGKINS. Good morning, Mr. Chairman and Ms. Meng. I 
appreciate the opportunity to be here. I want to thank you for 
letting us represent some of the challenges and opportunities 
small businesses face in the adoption of strategic sourcing by 
the federal government.
    TechAmerica is uniquely positioned, representing technology 
companies from the IT, communications, and defense industrial-
based sectors, and our members range from large companies whose 
names are common household terms to the most innovative and 
agile of small technology companies from across the nation. 
While many of the companies are oriented with the government as 
a customer, a large number of our members are completely 
outside of the public sector and are commercial in nature, 
offering commercial items developed and manufactured in a 
global economy and distributed and sold around the world. The 
ubiquitous nature and complexity of the goods and services our 
members sell create unique perspectives on strategic sourcing 
in federal government contracting and I would like to share a 
few of those this morning.
    Before I turn to that issue, however, I would like to touch 
on something the chairman noted in his opening remarks, that 
the biggest challenge to small businesses today in the public 
sector market is the tidal wave of government unique 
requirements they face and the burdens those requirements 
create as they try to enter the market or stay in the market. 
Many of the commercial companies mentioned above consider the 
burden too significant and not worth the costs and risks and 
choose to simply forego government work entirely. This 
condition means that the government does not have access to 
many of the most innovative companies offering cutting edge 
technologies and software products and services focused on 
critical issues like cyber security. The condition also results 
in diminished competition and higher prices for the goods and 
services the government does acquire, because the burdens 
created by the government unique requirements end up as part of 
the cost of doing business and are passed along to the buyer. 
To address this and other conditions that hinder achieving best 
value for the taxpayer, TechAmerica would solicit the 
Committee's support for a wholesale review of government 
acquisition, similar in scope and objective to the Section 800 
Panel convened in the early `90s. Without such an effort, we 
are concerned that legislative and administrative attempts to 
address shortcomings in federal acquisition will only have 
limited impact at the edges of the issue.
    As taxpaying corporate citizens who employ millions of 
people around the country, the members of TechAmerica are 
supportive of efforts like the Federal Strategic Sourcing 
Initiative that can derive savings by consolidating the 
acquisition of commoditized goods. We would caution, however, 
that such efforts have diminishing success when goods and 
services of a complex or diverse nature are shoe-horned into 
these vehicles. Strategic sourcing works best when the offering 
is relatively uniform, and that is simply not the way the 
government buys information technology goods and services.
    Many of the products and services in the ICT space do not 
lend themselves well to strategic sourcing. Government does not 
buy technology in a consistent fashion either, and that further 
complicates any effort to fit them into such an initiative. For 
hardware items, like laptops or servers, the government does 
not buy them in large quantities, and when they buy them, they 
do not ask for a consistent configuration. One customer wants 
more memory, another wants a CAC card reader, and a third wants 
a different sized screen.
    For small businesses, we see two direct and immediate 
challenges under the strategic sourcing initiative. Many of 
these companies will face diminished access to the federal 
government market because under FSSI there will be less award 
winners and more losers. The second challenge impacts those 
small businesses that are the most innovative providers of IT 
goods and services, which are frequently offered in response to 
narrow, unique mission requirements or as a specialized 
component to a broader prime contractor activity. The offerings 
of these companies simply do not fit into the commoditized 
labor categories envisioned under strategic sourcing, and these 
companies will face increased market pressures given the 
requirements to drive more and more acquisitions into strategic 
sourcing.
    The One Acquisition Solution for Integrated Services 
(OASIS) GWAC was originally proposed as a new vehicle 
specifically for the acquisition of complex integrations of 
technology and services, but it was announced earlier this year 
that it would become part of the FSSI and the goods and 
services offered under the contract would be commoditized. As 
noted above, complex and specialized goods and services, like 
the ones small technology businesses can deliver, do not lend 
themselves well to strategic sourcing, so industry reacted with 
confusion and apprehension about proceeding with the offering. 
While we await the solicitation to be completed, questions 
remain about how goods and services will be commoditized in the 
future under this contract vehicle.
    Small businesses can and should compete for contracts in 
FSSI, but not all goods and services lend themselves to 
strategic sourcing. Congress should ensure that small business 
opportunities to offer innovative and unique goods and 
specialized services are preserved and that we strike a balance 
as we implement the FSSI.
    Thank you for the opportunity to speak to you today. I 
would be happy to answer your questions.
    Chairman HANNA. Thank you. Thank you.
    For each of you, I mean, clearly, there is general 
agreement that there are problems with the system. I was 
surprised, Mr. Burton, to hear that people can be awarded a 
contract and never be the beneficiary of anything of that 
contract. And Mr. Waldron, you said the same thing. Without 
minimums, this particular--so it is possible to put an enormous 
amount of work in bidding these, understanding them, and then 
being successful, being pleased with that success, and come to 
nothing. For both of you, does that make any sense, and would 
you change that so that there was a guaranteed minimum?
    Mr. BURTON. Mr. Chairman historically, the government has 
really pushed back on guaranteed minimums. I think that will be 
difficult to do. There is a strong history of not doing that. 
But that is one thing the private sector does quite well, and 
that is a distinction between really private sector procurement 
and government procurement. Especially in the area of strategic 
sourcing, we see companies using guaranteed minimums. I 
certainly think that is something that could be explored.
    But I do think that the larger problem is the fact that 
even if you are successful, even if the government meets its 
small business goals, even if some of those businesses get a 
fair amount of work, the small business community as a whole is 
negatively impacted, and you are going to reduce the base of 
small businesses competing. And my biggest concern for the 
government is five years from now when some of these vehicles 
come up from recompetition, will any small businesses--how many 
small businesses will be around to compete? And will the prices 
go up at that point in time? So I think one of the biggest 
concerns, Mr. Chairman, is short-term savings balanced against 
maybe long-term increased costs and a reduced small business 
base. And that is true even if the small businesses are awarded 
opportunities on the BPAs.
    Mr. WALDRON. During my time at GSA, we actually used 
guaranteed minimums. We used them effectively for orders under 
the GSA Schedules program and for blanket purchase agreements. 
It enhanced competition, it created opportunity, and it created 
the right economic incentives for schedule contractors to 
provide price reductions at the order level during competition.
    I think one of the biggest challenges that the government 
and with the use of the GSA schedules is this growth of the 
sort of generic BPAs. So you can think of it as--I think of it 
and characterize it as vertical contract duplication. So you 
have the GSA schedule contract. The intent with those contracts 
is to compete task orders or compete BPAs and establish those 
BPAs generally for recurring requirements. But what happens is, 
and what has happened and exploded over the last few years, is 
you will have the GSA schedule contract. Then the agency or the 
Federal Strategic Sourcing Initiative will have a generic BPA 
with no guarantee of usage as Rob mentioned, and as a company 
you have to compete and expend funds to get on that BPA because 
then they are eventually going to compete orders under the BPA. 
So you have sort of three competitive events--the award of the 
schedule, the award of the generic BPA, and then actual 
competition for the real requirement at the task order level.
    Our members are very concerned about this growth and 
complexity of process. We would much rather see competition for 
orders at the order level and skip this intermediate process.
    Chairman HANNA. Interesting.
    The subjective nature, the more complicated the good or 
service that is being purchased, particularly Mr. Hodgkins, do 
you think that it is being handled appropriately? And do you 
believe that the people who are involved in designing the 
purchase orders or the bidding documents have an appropriate 
handle or balance? Obviously, some of you do not feel they have 
the right balance between ensuring long-term competition and 
making their job easier by limiting that competition. Is there 
in government a natural momentum to deal with those people, 
those companies that are larger, those industries that are more 
available to you as opposed to looking at the long-term goal, 
which is to ensure vibrant competition and yet competent 
competition?
    Mr. HODGKINS. Mr. Chairman, I think you perhaps are 
correct. There is a tendency to move toward companies that the 
government is used to dealing with. That is one of the 
challenges small businesses face. They are not necessarily a 
known name in the market. But the complexities around 
information technology, we believe that there is a dearth of 
organic experience in the acquisition work force in general 
around technologies, market trends, and that puts the 
government at a disadvantage when it is buying those things.
    Additionally, when you look at issues like cyber security 
and you are trying to drill down on specific capabilities or 
counter a specific risk, small businesses frequently can step 
in and offer those kinds of things that a large company, they 
may come in as a subcontractor to the large company or they may 
come in with a unique capability of their own. But I think that 
companies do have the ability--the government, rather, has 
trended toward using larger companies, but that is not to say 
that they are cutting out the small businesses.
    Chairman HANNA. Thank you.
    I yield to----
    Mr. SOLOWAY. Mr. Chairman, may I make a comment on that?
    Chairman HANNA. Certainly.
    Mr. SOLOWAY. I think it might be helpful to step back 
because I think the question you asked is really a critical 
one.
    I think, first of all, if you look at the available data 
and you look across different market sectors, the trends 
relative to your question are different in different spaces. We 
see in certain markets in our membership, that our members work 
in, where the government is entirely setting aside entire 
categories of work, which almost amounts to an industrial 
policy where we are saying, okay, if you are a small business 
and you want to work with us, that is where we are going to let 
you work, no place else. And if you are not a small business 
and you do that work, we are not interested. That is not a very 
healthy balance either.
    I think the second piece is that when we talk about can 
strategic sourcing work, does it do this or whatever, I want to 
come back to one of the key points I tried to make in the 
testimony, which is strategic sourcing is not one thing. And so 
I think the issue that concerns us, and I think Trey was 
probably referring to also, is that there is a tendency across 
government today to look at everything through the prism of 
driving down a unit cost, rather than stepping back and looking 
at overall value, performance, and so forth. And the higher up 
the chain you go of complexity, the more that becomes a 
problematic strategy.
    And so strategic sourcing, you can strategically source the 
most complex requirements on the planet, but in that case you 
would not be doing it on the basis of lower unit price; you 
would be doing it on the basis of technical quality, technical 
history, past performance, all of these other sort of 
discriminators that may not be as applicable when you are doing 
it for simple commodity. So it is a continuum. It is a 
spectrum. It is not one thing, and I think our concern is that 
it is too often seen in just one category through one lens.
    Chairman HANNA. So it is not at all surprising to anybody 
here, I imagine, that people seek to make their job easier, 
rather than less complex. And the more difficult the job, the 
less likely that people are capable of understanding the scope 
and depth of it and breadth of it.
    Mr. SOLOWAY. Well, and that is a general acquisition 
challenge we face in government.
    Chairman HANNA. Sure. How would you change that? What would 
you focus on?
    Mr. SOLOWAY. Well, I think that there is a lot of education 
and training and development issues at stake here, and it is 
not just around strategic sourcing, but it is a good example. 
If you went across the 360-plus member companies that we 
represent and asked them what their number one concern is today 
in the federal market, a small, medium, or large company would 
say that everything is being bought on the basis of the low 
price, not on the basis of quality and value because it is a 
workforce that not only does not have the tools, but frankly, 
they are not encouraged to do that. No one ever got an award 
for paying a little bit more for something because they thought 
it might have better long-term value. When we think about price 
at the government level, we think about how much does it cost 
to operate this system? When Wal-Mart thinks about price, they 
think about what is the impact on the entire company supply 
chain and ability to stock shelves? So they look on an 
enterprise level rather than on the immediate level. So there 
is a lot of education and training involved here. I think it is 
wrapped up. Strategic sourcing is just one part of a bigger set 
of challenges.
    But I guess my point is that strategic sourcing complex 
services makes eminent sense if you understand the disciplines 
and the skills that go into doing that. And we have agencies 
that have done that. But what we see today is an increased 
commoditization across the market and the concern is that is 
what would bleed across, and people's presumptions would 
therefore be incorrect.
    Chairman HANNA. And of course, simplicity, is that--correct 
me if I am wrong, but that is almost human nature. And without 
some kind of formal intervention or processes that guarantee 
that more complicated issues are handled in a more complicated, 
broader way, that is the atrophy that we are going towards.
    Mr. SOLOWAY. Potentially, that is true. Again, on the other 
hand, if we think about the government workforce, the pressures 
they are under today, all the budget reductions and budget 
uncertainty they face, almost all they hear now is drive your 
cost down. Drive your cost down. Drive your cost down. We make 
short-term investment decisions and no consideration for long-
term cost impacts because it is all about that immediate budget 
and those budget pressures. And so they are getting conflicting 
direction and conflicting information also.
    Mr. WALDRON. Just on that note I would suggest that 
requirements development and improving requirements development 
for complex services, integration efforts, is vital at this 
point more than ever given the budgetary constraints we are 
operating under. You have got to get more value for money. It 
is not about low price. It is about well-articulated 
requirements.
    Chairman HANNA. Ranking Member Meng, please.
    Ms. MENG. Mr. Soloway, in your testimony you discussed how 
strategic sourcing incorporates the full spectrum of 
procurement techniques outlined in the FAR. However, you 
indicate that while the Strategic Sourcing Leadership Council 
understands it, that is not the case with those who are 
actually implementing the initiatives. Why do you think this 
disconnect exists?
    Mr. SOLOWAY. The only qualification I would give is it is 
the people who are going to be asked to implement in a lot of 
ways because it is just beginning to mature and roll out.
    Our organization does a survey of federal acquisition 
leaders every two years. We go out and talk to them and ask 
them what is going on in your world? What are your biggest 
concerns? We just issued--it is the tenth year we have done it, 
just a few months ago, and what we found was the same concerns 
come back to us from the acquisition leadership that they have 
been having for the last decade, which are our workforce does 
not have adequate training and skills in negotiations, in 
market research, in pricing. And if you think about the model 
of strategic sourcing, what really is at its heart is really 
good market research, it is really good negotiation, and it is 
really good pricing skills and understanding how pricing models 
work because again, back to the point of value versus low 
price, smart pricing people know that five or six percent more 
might get you a whole lot more value down the road. It might be 
very much worthwhile.
    So we have a skills deficiency, and I again think that the 
workforce is often under conflicting direction. On the one 
hand, Mr. Chairman, you mentioned the admonition from Secretary 
Kendall for the workforce to think. On the other hand, they are 
increasingly being driven into sort of a rigid rules-based 
``check the block'' lack of critical thinking process to the 
compliance regime and other issues that Trey and other 
witnesses have raised. So there is a multitude of issues, which 
is why our view as an organization--and it includes our small 
businesses--is that done right, strategic sourcing can be a 
terrific tool. But do we have yet the workforce ready to 
implement it broadly, particularly as you move up the chain of 
complexity?
    Ms. MENG. Another question for anyone.
    GSA puts numerous upfront requirements on strategic 
sourcing vehicles that must be met if a business hopes to be 
awarded a BPA. These range from delivery method to reporting 
requirements. Do you believe that small businesses have the 
required capabilities or have the money they need to meet these 
types of prerequisites?
    Mr. HODGKINS. Ms. Meng, we think that many companies, not 
just small businesses--of course, the scope and scale of their 
struggle is increased--but all companies trying to sell the 
federal government face very significant burdens trying to meet 
the different requirements, even something as simple as 
information collection. We encountered a Paperwork Reduction 
Act request that was an exemption that we opposed the exemption 
that was being granted because the government estimated that 
for contractors to comply with this one information requirement 
it was going to cost them over a billion dollars a year. There 
are huge costs in government requirements, and as I noted in my 
comments, we think that remains one of the significant 
challenges for any company trying to do business in the public 
sector.
    Mr. BURTON. Ms. Meng, I might add to those comments.
    I do think one of the things that small businesses and the 
government have going on here is really a noncompliance 
situation. These strategic sourcing vehicles generally are 
consolidated procurements and there are certain rules that the 
government is supposed to be following. Most notably, the 
government is supposed to be conducting market research. They 
are supposed to be talking to small businesses and asking the 
questions that you just asked. There is supposed to be 
justification when they decide to consolidate the procurement. 
They are supposed to do a written justification. We are finding 
that these requirements are not being followed. So it is not 
really just a matter of training; it is a matter of compliance. 
And I think this is a very important point; that before these 
vehicles are put into place, robust market research and a 
justification under the FAR are required to be completed. And I 
at least have some knowledge that those requirements are not 
being met.
    Mr. WALDRON. With regard to the government-unique 
requirements, there are barriers to entry for businesses and 
especially for small businesses. In the area, for example, of 
data collection, a lot of the strategic sourcing BPAs include 
robust additional data collection requirements, and data is not 
a free good. It costs the companies money to actually collect 
that data and report it back to the government. And often it is 
data the government already has. And they are essentially 
trying to shift the cost of that collection and report it back. 
Ultimately, I think the taxpayer pays. I mean, it drives prices 
higher and it does reduce competition and create barriers to 
entry.
    And another area I think that hurts businesses of all 
types, but especially small businesses, is that there has sort 
of been a rollback of commercial item contracting, which was 
the Federal Acquisition Streamlining Act in 1994 established 
commercial item contracting. The idea was to gain access to the 
commercial marketplace. Well, as the government has wanted to 
do since enactment, there has been sort of a rollback and a 
layering on of additional unique government laws and 
regulations. That is a barrier to entry to small businesses. 
That increases costs across the federal enterprise. And I think 
it is time to raise comment to take a wholesale look at the 
procurement system, and especially look at commercial item 
contracting because the government is missing out on increased 
competition, access to small businesses, and better value. 
Thank you.
    Ms. MENG. Thank you. I yield back.
    Chairman HANNA. Mr. Tipton.
    Mr. TIPTON. Thank you, Mr. Chairman, Ranking Member. I 
appreciate our panel being here today.
    I just have a couple of questions. Mr. Waldron, you just 
kind of piqued my curiosity a little bit. I come from a 
construction family. You deal in higher tech information, but I 
cannot help but recall a few years back part of the 
construction project was going to be in the Forest Service and 
they were building, for lack of a better description or a nicer 
description, a comfort station. And because of government-
specific requirements, they had to get special equipment to be 
able to build effectively a comfort station. Do you think that 
we are making some real challenges for ourselves in terms of 
the government getting unique in requirements when we could 
certainly streamline that and be able to take advantage of 
products that already exists?
    Mr. WALDRON. Absolutely. That is the whole genesis and 
reason for being on the GSA Schedules program. It is supposed 
to be a commercial item contracting program and it provides the 
government with the opportunity to leverage the commercial 
marketplace. You know, the companies, in doing business out 
there in the commercial marketplace, they know what they sell. 
They know what requirements are. And the problem is, to your 
point, is the government layers on unique requirements, whether 
it is statutory, regulatory compliance requirements or even 
unique requirements in functionality that nobody in the 
commercial marketplace would do. And it does drive up costs. 
And I do not think we can really afford it anymore.
    Mr. TIPTON. I appreciate that.
    That is a little bit of a paradox, and Mr. Soloway, you 
might want to be able to speak to this as well because I think 
that point is well taken. You were talking about unit cost, you 
know, versus value and performance. Would you say that when we 
are getting these unique requirements that are going to be put 
up, are we getting more value in performance? We might, in a 
very unique sense, I guess, be able to drive down the costs, 
but at the same time, as Mr. Waldron is indicating, we are 
actually driving up costs on the other side.
    Mr. SOLOWAY. Well, I think that is a critical element, and 
I think his point about the backsliding since the mid to late 
`90s when we were implementing the reforms to the system, 
creating more access for commercial companies, is really at the 
heart of a lot of this. Some of the unique requirements are 
probably unavoidable given the agency oversight 
responsibilities, congressional oversight responsibilities, and 
so forth. So some of it is sort of an understood and accepted 
form of doing business, but the point of the commercial items 
changes was to reduce those unique requirements to accept, for 
instance, commercial audit reports rather than giving 
government unique audit access or cost accounting standards 
that are very different in the government than they are in the 
commercial world, and so forth. So that has changed, and it 
does drive up costs.
    I would suggest that one of the biggest issues that we have 
today--unfortunately, there are cases of it at GSA but it is 
also in other agencies--is a dramatic expansion of audit 
requirements. Now, I want to be very clear that no company 
doing business with the government, particularly companies that 
are working on other than fixed price contracts, can be 
surprised that they are going to be audited. The government has 
a right and a need to make sure that the cost submissions are 
correct and so forth. But the expansion of audit authority and 
frankly, the quality which has come down while the expansion 
has gone up, has been really dramatic.
    One very, very quick example. When you were working on a 
GSA contracted--and Roger will correct me if I get the 
technical details wrong--when you go to renew your contract, 
the government has a right to see certain information to make 
sure your pricing is fair and reasonable and that the 
government is getting the best possible price. That does not 
mean the government has access--in fact, the rules specifically 
state they do not have access to your entire book. If you are a 
large commercial company, they cannot come in and review all of 
the corporate books.
    Leaving small business aside for whom that can be an issue, 
I know two very large companies that have come very close to 
walking away from their GSA schedule contracts because their 
corporate boards have said we do not show our internal books to 
anybody. I mean, it is a commercial practice. So there has been 
an expansion and a growing intrusion by the audit community for 
return on information and quality that I think is very 
specious. So we are past the point of the value and benefit of 
oversight to added cost with very little value coming back in 
return.
    Mr. TIPTON. I appreciate that.
    And Mr. Hodgkins, I am about out of time but I was very 
curious. In your testimony, you had talked about a lot of 
businesses simply because of the complexity were just simply 
walking away. They would not even participate. Are there some 
recommendations? And I think Ms. Soloway just probably spoke to 
it a little bit--sorry, I am losing my voice--that, you know, 
some of the audit requirements and that. What can we do to make 
sure that we have got a better playing field and are getting 
people excited about having that opportunity to be able to 
create jobs?
    Mr. HODGKINS. Well, I think between us here at the table we 
could probably come up with dozens and dozens of examples where 
there are challenges or divergences from the ordinary 
commercial business models that most of these companies operate 
under. One that many of our members have experienced over the 
last year and a half is dealing with end-user license 
agreements on software. And I think there was pretty uniform 
agreement in the legal community that the license agreements 
were adequately designed so that the government rights were 
protected and the things the government was asserting and 
asking for revisions under those agreements was already taken 
care of. But what many companies have had to do is go through a 
very lengthy and bureaucratic process with GSA and actually 
revise the commercial license that you accept when you buy an 
operating system or a game for your child. Those things have 
all had to be revised if those products are to remain on a GSA 
schedule. It has been a very costly exercise, and it is an 
example my community recently experienced where we had a 
significant divergence from the normal commercial practice that 
costs a lot of money for the government and the companies to 
make the products remain available.
    Mr. TIPTON. Thank you. I yield back.
    Chairman HANNA. Thank you.
    So what we have here is kind of an exercise in the obvious; 
right? Price is definable, discernible. You can see it on a 
page. Everything after that there is an disincentive to provide 
a more complex, subjective, even though we would prefer value 
being the end result, not dollar signs because value is the 
ultimate goal, we have a system that reinforces what we would 
expect, and that is that nobody was ever punished for buying 
something at the cheapest possible price, but there is 
associated risk with using one's subjective or imaginative or 
experientially-based process in coming up with something 
different.
    Do you agree that that is kind of fundamentally maybe what 
is going on here?
    Mr. BURTON. Mr. Chairman, very much so. But I wanted to add 
one point, which I do not think has been covered, and I think 
it is a fundamental point and maybe something that would not 
readily be identifiable.
    I think there is a benefit to having more than one 
strategic sourcing vehicle in the government for any particular 
commodity or service. There seems to be a trend right now to be 
going to a single vehicle and make it mandatory. I think that 
this will be a mistake for the government for a number of 
reasons, some that I have already addressed. But the point that 
has not been addressed is that there is actual benefit to 
competition among vehicles within the government. I mean, you 
do not want 500 of them, and the government does have a 
tendency to have too many of these consolidated procurements, 
but you do want more than one. And we found that the 
competition among agencies with respect to vehicles was very 
productive. It resulted in innovation, efficiencies, best 
practices to be shared among agencies. And so I would encourage 
the government to make sure they do not go to a mandatory, 
single procurement vehicle. And I think competition----
    Chairman HANNA. Mr. Burton, you were involved in the 
government's initial strategic sourcing effort, and I 
understand that you were also involved in the 2003 effort to 
stop bundling. Can you talk a little bit about the tensions 
between strategic sourcing and bundling and how you think they 
might be resolved? Or was that part of your explanation?
    Mr. BURTON. Very much. I mean, it is a highly related topic 
and we did try to address what we called unjustified bundling. 
There is a legal distinction between bundling and consolidated 
procurements. Bundling basically involves a determination that 
a certain commodity or service is simply unsuitable to be 
provided or performed by a small business. And so that is a 
high threshold to make that determination that something is 
simply unsuitable, that small businesses simply cannot perform 
or provide the commodity or service.
    So, but consolidated and bundling procurements both require 
an analysis and justification of why you are pulling these 
requirements together in one procurement. And also, both 
require market research. We found that bundling is a very 
difficult topic to try to get your hands across. Basically, 
agencies have done a poor job in justifying bundled contracts, 
and what we were trying to get to, sir, back in that period of 
time was to make sure those justifications were done. Make sure 
that if you were going to do a bundling contract, which 
basically is saying small businesses cannot participate, what 
we are dealing with here with the strategic sourcing vehicles 
are consolidated procurements, not bundled procurements. And so 
there are set-asides for small businesses recognized that these 
services and commodities can be provided by small businesses, 
which is good, so that is very important. But the problem is 
just ensuring enough small business participation.
    And it was a very difficult initiative. One of the things 
we did with the bundled initiative was try to ensure that if an 
agency did have a justification for a bundled procurement, and 
if they decided that small businesses could not participate, 
then there were some type of mitigation actions they took. For 
example, ensuring that prime contractors enforce their 
subcontracting plans which might involve some type of small 
business participation. And this is an area I think the 
government needs to focus on, is trying to enforce 
subcontracting plans by the prime contractors to ensure that 
small businesses, in fact, have some role to play.
    Chairman HANNA. So along those lines, Mr. Waldron, the 
JanSan draft request for proposal states that the GSA is 
seeking to have FSSI winners become exclusive providers to the 
defense commissaries. So that must concern you. Does it concern 
you I guess is a more appropriate way to----
    Mr. WALDRON. Yes, it does concern me. Again, as I indicated 
in my testimony, the idea of mandatory use, it restricts the 
ability of small businesses to compete. It closes the market 
and reduces the market to a limited number of contractors. And 
I also think it is not in the government's best interest. It 
creates risk for the government from this perspective.
    Back in the dark ages when I was at GSA in the `90s, GSA 
schedules were a mandatory source, and ultimately, various 
agencies decided to use other than GSA contracts for court 
reporting, for example. And that was a breach of those 
contracts, and that is a breach of the agreement. They are 
putting it in this little station, you are going to be an 
exclusive source. Ultimately, the government ended up having to 
pay millions of dollars to various GSA schedule contractors for 
that breach. So again, mandatory use restricts competition. It 
creates risk for the government. I would much rather see real 
volume commitments for real requirements.
    Chairman HANNA. Well, the ultimate outcome is to reduce 
competition by a single source or very low number of sources in 
the long run, which also in the long run raises prices. So it 
is safe to say then generally, and does anybody disagree with 
this, that within the context of everything we do we need to 
foster competition broadly, deeply, and with the idea of 
creating more businesses, not reducing them?
    Mr. WALDRON. Well, that is the GSA schedules is a perfect 
example. It was mandatory, had maybe a couple thousand 
contractors in the early `90s, and $3 or $4 billion was going 
through the program. Today the program accounts for $50 billion 
in purchases on an annual basis and there is literally 20,000 
companies who have contracts, both through the VA and through 
the GSA schedules competing every day for requirements, 
competing at the task order level. That makes your point. It is 
a competitive marketplace that grew when it was made non-
mandatory and the process was streamlined and we went to 
commercial item contracting.
    Chairman HANNA. Thank you.
    Ranking Member Meng?
    Thank you very much for your testimony today. If there are 
no further questions for this panel, I want to thank all the 
witnesses for their testimony and excuse the panel.
    The second panel may now be seated. Thank you, gentlemen.
    Thank you, gentlemen, for being here today.
    Our next witness is Mr. Joseph G. Jordan. Mr. Jordan is the 
administrator at the Office of Federal Procurement Policy, 
which provides overall direction for government-wide 
procurement policies. Previously, Mr. Jordan served as the 
associate administrator of government contracting and business 
development at the SBA.
    Mr. Jordan, you may begin. Thank you.

   STATEMENTS OF JOSEPH G. JORDAN, ADMINISTRATOR, OFFICE OF 
  FEDERAL PROCUREMENT POLICY; JEFF KOSES, DIRECTOR, OFFICE OF 
 ACQUISITION OPERATIONS, FEDERAL ACQUISITION SERVICE, GENERAL 
                    SERVICES ADMINISTRATION.

                 STATEMENT OF JOSEPH G. JORDAN

    Mr. JORDAN. Thank you. Chairman Hanna, Ranking Member Meng, 
and members of the Subcommittee, I appreciate the opportunity 
to appear before you today to discuss initiatives the 
administration is taking to both save money and maximize small 
business participation of federal procurement.
    These efforts are central to the government's ability to 
get the best value for the taxpayer. With approximately one out 
of every $7 the government spends going to contractors, it is 
imperative that our acquisition processes enable us to get the 
highest quality goods and services for the lowest possible 
cost. Equally important, our processes must allow us to 
regularly tap into the creativity, innovation, and technical 
expertise that small businesses offer. The good news is that I 
believe both buying smarter initiatives, like strategic 
sourcing, and maximizing small business opportunities, play 
together to maximize value for the taxpayer.
    Prior to becoming administrator for Federal Procurement 
Policy, as you said Mr. Chairman, I served as associate 
administrator for government contracting and business 
development at the Small Business Administration. In that role, 
I was charged with increasing small business federal 
contracting opportunities. I am proud of the progress that SBA 
made during my tenure to help agencies increase opportunities 
for small businesses as we drove the largest two-year increase 
against small business contracting goals in more than a decade. 
These efforts include partnering with Congress, including this 
Committee, on the historic Small Business Jobs Act.
    Supporting small businesses is especially important during 
this critical time as agencies strive to meet mission needs 
with increasingly tight budgets. From fiscal year 2011 to 
fiscal year 2012, agencies reduced contract spending by more 
than $20 billion, the largest single year dollar decrease in 
federal contract spending on record. Over this same period, 
with strong leadership attention, agencies were able to 
increase the percentage of eligible contract dollars awarded to 
small businesses. My experience at SBA reinforced my belief 
that small business contracting is a win-win. These businesses 
get the revenue they need to create jobs and grow the economy, 
while the government gets access to some of the most innovative 
companies in our supply chain.
    Our efforts to identify better buying practices that save 
money and increase opportunities for small business led us to 
place greater emphasis on strategic sourcing. Strategic 
sourcing, which the private sector has long recognized as a 
successful business practice, requires agencies to bring their 
spend under management.
    Efforts to date illustrate the substantial savings that 
strategic sourcing offers. Government-wide strategic sourcing 
of items, such as office supplies and domestic shipping 
services, has achieved nearly $300 million in direct and 
indirect savings since fiscal year 2010. And agency-level 
strategic sourcing of goods like IT and medical equipment have 
saved hundreds of millions more. Equally important, these 
efforts demonstrate that agencies can increase their spending 
with small business and simultaneously reap the benefits of 
strategic sourcing.
    We are not seeking to strategically source everything the 
government buys, nor will every strategic sourcing decision 
mean fewer participants. The goal is to maximize value for the 
taxpayer and that will take different forms depending on the 
commodity being purchased and the government's cost drivers in 
that space. Our government-wide strategic sourcing of office 
supplies is a compelling example. Thirteen of the 15 winning 
vendors are small businesses, including three service-disabled 
veteran-owned small businesses. According to GSA, total dollars 
going to small business increased from 67 percent prior to 
implementation of the strategic sourcing solution to almost 80 
percent now.
    Many small businesses expressed concern that strategic 
sourcing could harm their participation in the federal 
marketplace. However, the administration is working to ensure 
that competitive small businesses can engage in strategic 
sourcing, and I am confident that these businesses of whom 
there are many will not only hold their own but do even better, 
and those small businesses that are currently less competitive 
will have opportunities to get in the game in the future by 
taking steps to strengthen themselves.
    There are several additional things that the administration 
is doing to increase opportunities for small businesses at the 
same time as we work to maximize the value of strategic 
sourcing. First, agencies are required to seek increased 
participation by small businesses when pursuing strategic 
sourcing. Last December, OMB issued a blueprint for improving 
acquisition through strategic sourcing, which specifically 
requires that all proposed strategic sourcing agreements must 
baseline small business use under current strategies and set 
goals to meet or exceed that baseline participation under the 
new strategic sourcing vehicles.
    Secondly, government-wide strategic sourcing decisions will 
be made by a council that includes the Small Business 
Administration, so small businesses are ensured of a seat at 
the table.
    Third, we are actively promoting the use of tools, such as 
those provided by the Small Business Jobs Act, to facilitate 
greater small business participation on contract vehicles that 
have been strategically sourced.
    OFPP is committed to ensuring that agencies remain vigilant 
in their efforts to buy smarter and achieve best value for our 
taxpayers. OFPP is equally committed to ensuring that agencies 
provide maximum opportunities for small businesses in federal 
contracting and subcontracting, so that they may flourish and 
apply their talents to the many pressing demands facing our 
government. We must pursue these important goals in harmony, as 
we have been doing and will continue to do.
    I would be pleased to address any questions you may have.
    Chairman HANNA. Thank you, Mr. Jordan.
    Our next witness is Mr. Jeff Koses. He is the director of 
acquisition operations, which manages a large portion of the 
schedule programs at the General Services Administration, and 
he is the business line leader for the multiple awards 
schedule.
    Mr. Koses, you may begin.

                    STATEMENT OF JEFF KOSES

    Mr. KOSES. Good morning, Chairman Hanna, Ranking Member 
Meng, members of the Subcommittee.
    Thank you for the opportunity to discuss GSA's 
accomplishments under the Federal Strategic Sourcing 
Initiative, or FSSI, and our efforts to modernize the Multiple 
Award Schedules program. As America's buyer, GSA contracts with 
the private sector to provide commercial services and products 
that support federal agencies. We strive to acquire the best 
possible deal for the taxpayer and to increase small business 
opportunity.
    For many years, strategic sourcing has been a best practice 
in the private sector. The Government Accountability Office has 
found in a series of audits that the federal government can 
save billions of dollars through the application of strategic 
sourcing principles.
    A 2012 OMB memo on strategic sourcing, amongst other 
things, directed GSA to establish 10 new strategic sourcing 
solutions, five each in 2013 and 2014. GSA is working closely 
with OMB and the agencies making up the Strategic Sourcing 
Leadership Council, including the Small Business 
Administration. FSSI seeks to leverage the federal government's 
collective buying power in order to efficiently and effectively 
utilize taxpayer dollars and to increase dollars spent with 
small business.
    There are four primary benefits associated with strategic 
sourcing: reduced costs per unit, decreased consumption, 
improved operating efficiency, and improved focus on 
socioeconomic goals. The office supplies, our OS2 solution, has 
served as a test case for this generation of federal strategic 
sourcing. OS2 has resulted in direct savings of $88.7 million 
on spending of $607.9 million through April 2013. This savings 
is calculated as the difference between what agencies spend 
through strategic sourcing and what they would have spent had 
they received the nonstrategic sourcing prices.
    OS2 provides greater pricing transparency. OS2 contractors 
report transactional data on all program sales. This 
information provides us insight into agency spending behavior. 
GSA has used this data to show their contractors pricing item 
by item. After GSA shared this data, every one of the OS2 
contractors sharply reduced their prices, a potential savings 
of over $12 million annually beginning this month.
    Key successes of the OS2 program include an increase from 
67 percent to the high 70s percent of dollars spent with small 
business; a decrease from more than 250 percent to 10 percent 
price variability; a reduction in contract duplication and 
administrative costs.
    GSA is working towards establishing strategic sourcing 
solutions for fiscal year 2013 in the areas of wireless rate 
plans and devices awarded last month; last desktop publisher 
software; print management phase 2; maintenance, repair, and 
operations supplies; janitorial and sanitation supplies.
    When we research a potential solution, small business 
impact is foundational. Acting Administrator Tangherlini has 
made clear expanded opportunity for small business is a crucial 
strategic sourcing success metric. It is one that we monitored 
closely.
    For both the janitorial-sanitation supplies and the 
maintenance, repair, and operations supplies, we are setting 
aside the majority of awards for small business, and we broke 
the categories down in ways that maximize small business 
opportunities.
    GSA believes the Multiple Awards Schedules program 
represents the best opportunity for well prepared, highly 
competitive small businesses in government procurement. Small 
businesses represent about 80 percent of all schedule vendors, 
and about 34 percent of the dollars go to small business. More 
importantly, most agencies have a higher percentage of spending 
with small business when they use schedules.
    Still, we believe there is substantial room for improvement 
in the schedules program. Over the last year, we have worked 
diligently with both small business and federal agencies, 
asking for input on how the schedules program can better meet 
their needs. We received, and are working to implement, many of 
the important suggestions we have heard. Similarly, we are 
eager to hear your input as we work to achieve taxpayer savings 
and grow small business success.
    One area of such success is our training in the 
discretionary set-aside rule, a result of Section 1331 of the 
Small Business Jobs Act of 2010.
    To date, we have trained more than 9,700 members of the 
acquisition workforce on properties of schedules and 
utilization of small business. Since last April, we have seen 
nearly 16,000 requests for quotes or 19 percent set-asides for 
small business through GSA's e-Buy system. For the month of 
April, this increased to 22-1/2 percent, great progress as the 
buying season kicks into a high.
    As we look to the future, GSA will continue to focus on 
strategic sourcing, modernizing the schedules program, 
improving our pricing and tools, collecting the information and 
data that will help save taxpayer dollars. GSA will continue 
being a leader in opening dialogue with industry and our 
program will remain a doorway to opportunity for highly 
competitive small businesses.
    On behalf of GSA, thank you for this opportunity to appear 
before the Committee, and I would be happy to answer your 
questions.
    Chairman HANNA. Well, you gentlemen sat here through the 
previous panel. It sounds like something that should be more of 
a debate than a panel discussion because clearly there is a 
large difference of opinion between what you believe you are 
producing and the direction you are going in, the direction 
that the previous panel feels you are going.
    I have a transcript from a recent JanSan MRO Industry Day 
at which you had employees representing your office. I would 
like to ask you whether their statements accurately reflect the 
position of your office to be fair.
    First, staff suggested that the JanSan and MRO contracts 
would become mandatory sources for the winners of future 
service contracts. I am concerned that such an approach would 
decimate the subcontracting market, as well as the prime 
contracting market. Do you support the making of JanSan and MRO 
contracts mandatory for other federal agencies--and federal 
contractors, rather? Further, OFPP staff suggested that anyone 
who did not develop a JanSan or MRO contract could simply sell 
off something else to the government, which I find particularly 
strange and troubling. I am hoping that you understand the 
challenges these industries are involved in, and this is not 
making it any easier for them. Perhaps either of you would like 
to comment on that. Maybe Mr. Jordan first.
    Mr. JORDAN. Sure, Mr. Chairman.
    In terms of the comments themselves, it is difficult for me 
to, without context, react to them one by one. What I will say 
is in terms of I think what you are getting at is concerns 
around potential mandating of vehicles, whether it is JanSan or 
any of the future vehicles that are strategically sourced.
    OMB guidance, which we put out last December, does clearly 
say the vehicles that agencies create and that the Strategic 
Sourcing Leadership Council approves should be mandated when 
appropriate. And I think that is important. I think that not 
speaking to JanSan specifically, because I think there are 
still steps to go, and Jeff can talk about where GSA is in the 
leadership of that particular commodity category, but overall, 
strategic sourcing in certain categories--it is different in 
every category what is going to be the cost driver, the savings 
driver, like I said, but in certain categories, it is about 
ensuring that the government buys not as 30 midsize businesses 
and gets pricing accordingly, but buys what we are--the largest 
purchaser of goods and services in the world. And so in those 
commodities, where you can really leverage our scale, you can 
drive significant taxpayer savings by getting volume-based 
discounts. We want to do that. And you only do that if you put 
in all that time and give the winners the spend that they agree 
to.
    Now, there are a number of ways to do that. There is tiered 
pricing, as opposed to some of the guarantees you talked about. 
There is just overall good commodity management and principles, 
but I do think that in certain categories, in order to maximize 
the value of these vehicles, it is appropriate to mandate their 
use.
    Chairman HANNA. For example?
    Mr. JORDAN. I think without getting into any specific money 
because we have not gotten to the maturity level. I mean, this 
effort is in a crawl-walk-run----
    Chairman HANNA. But it is a subjective process by 
definition, I think. Maybe not. Certainly a lot of it is. Who 
decides and how do you decide what is appropriate or is not 
appropriate? And that process?
    Mr. JORDAN. Sure. I think there are two things. One, as I 
mentioned in my testimony, a significant piece of strategic 
sourcing is done at the agency level where currently you have 
various components or offices within the same agency with 
different contracts with the exact same vendor for the exact 
same products that wildly vary in pricing, sometimes different 
terms and conditions. And if that agency stands up an agency-
wide and enterprise-wide agreement, they would expect that 
their various components use that as opposed to create 
duplicative and potentially less optimal agreements and put 
their spend through that.
    Secondly, on who makes the decision on these government-
wide vehicles, it is their Strategic Sourcing Leadership 
Council, which is comprised of the seven largest spending 
agencies who collectively spend about 92 percent of our----
    Chairman HANNA. What is your role on that leadership 
council? Will OFPP have to approve any FSSI initiatives? Has 
your office approved OASIS or OASIS, OSB, JanSan, and MRO?
    Mr. JORDAN. Okay. Let me see if I got them all.
    Chairman HANNA. A few acronyms, I know.
    Mr. JORDAN. Yeah. I'm with that. Let me go in order.
    Chairman HANNA. Okay.
    Mr. JORDAN. I tried to mentally capture all that.
    What is my role? I am the chairman of the Strategic 
Sourcing Leadership Council.
    Will OFPP approve the vehicles that are submitted? Yes. And 
there is a three stage process with key decision points at each 
stage. First is we say--somebody on the council will say, or 
maybe an outside member--we will identify potential 
opportunity. We think there is an opportunity for strategic 
sourcing in commodity area or service area X. And we will say, 
yes. You have presented enough data to show there may be an 
opportunity. We form a commodity team comprised of the 
Strategic Sourcing Leadership Council members, as well as non-
SSLC agencies that have considerable spend. Again, SBA is a 
formal member of the SSLC and participates in all this. The 
commodity team then does an analysis and says we think that 
there is a particular solution. It may be a new contract. It 
may be driving more utilization through a current or set of 
current vehicles, or it may simply be standardizing terms and 
conditions. And we would say, yes, that sounds like the right 
agreement. The SSLC would make that decision. Then they would 
then, if it is a new contract, which is I think where your 
question was going, they would engage with the vendor and that 
is where it is important that the vendors are bidding based on 
some understanding of what volume they are actually going to 
get.
    That is where it differs from the GSA schedule that you 
heard a lot about. The prices on the GSA schedule are simply 
ceiling prices or list prices. You would never walk on the 
dealer's lot and say, yep, I will take that car for what it 
says in the window. You would negotiate. Well, we want to try 
to have some of that prenegotiation, based on not you buying 
one car but us buying a fleet. And so that is where you would 
do that precommitment.
    Chairman HANNA. But you understand the concerns of the 
previous panel; if you continue to buy your fleet from that 
group, eventually you will run out of the opportunity to enjoy 
competition from other groups because you will have 
effectively, because you control so much of the marketplace, 
eliminated the opportunity to have competition some time down 
the line.
    Mr. JORDAN. Yes. Very fair point.
    Chairman HANNA. So, I mean, you generally agree with the 
previous panel in terms of their concerns in the long run?
    Mr. JORDAN. I believe the first--one of the panelists said 
it best where strategic sourcing is absolutely a good thing, 
and as I believe your statement said, or but as your statement 
said, it is a tool. If it is used well, it is a good thing. If 
it is used not well, it will not be a good thing. And so it is 
important in any of these categories to understand the market 
dynamics and do exactly what you say. What is the right set of 
vendors to have on a vehicle? Then, what is the right period 
for that contract to cover such that anybody who was 
unsuccessful at the beginning, especially small businesses, 
have a chance to recompete and get back on, but we give enough 
volume to the winners that it justifies the low price.
    Chairman HANNA. Do you believe that the people in 
purchasing and acquisition have the latitude to be comfortable 
to understand the dynamic differences between value and 
purchase price--value meaning total----
    Mr. JORDAN. Sure.
    Chairman HANNA.--of everything including purchase price? 
And how do they enjoy that latitude? How do you reinforce that, 
if you do?
    Mr. JORDAN. Yes. I believe that the Federal Acquisition 
Regulation, the FAR, gives them the right latitude to choose 
whichever method is appropriate in a particular procurement, be 
it low price technically acceptable or best value. I think 
that, like with everything, it is important to do training 
around, you know, understanding how to make that decision.
    Chairman HANNA. We have heard there is a lack of training 
or lack of understanding about what that means.
    Mr. JORDAN. Well, we always want to increase both the 
quality and the ineffectiveness of our training, and we work 
very hard with the Defense Acquisition University and the 
Federal Acquisition Institute to do that. One of the important 
points of strategic sourcing is, again, having an enterprise 
view of a commodity category so that we do not force numerous 
contracting officers to engage in a one-off contract, creating 
potentially duplicative and different terms and conditions in 
their contracts.
    Chairman HANNA. Thank you.
    Ranking Member Meng.
    Ms. MENG. Thank you to our witnesses for being here.
    I have a question for Mr. Jordan.
    The plan for the new OASIS contract divides the 
requirements into two different contracts--one for large 
businesses with subcontracting goals and another exclusively 
for small businesses. However, this vehicle appears to be 
another attempt to disguise contract bundling as the structure 
prevents small businesses from competing for half of the 
contract, which is valued at $10 billion. Why or how can OFPP 
step in to ensure that small businesses have greater access to 
this contract?
    Mr. JORDAN. Well, I will let Jeff speak to OASIS. It is not 
one of the SSLC covered vehicles at this point, so I do not 
have perfect insight into how it is being created or those 
types of things. I can speak to your question about how is OFPP 
looking to ensure that we do not have bundling. We incorporate 
the right strategic sourcing principles.
    Bundling, as was said in the previous panel, is pretty 
clearly defined as taking two or more contracts that have been 
or could be performed by small businesses and putting them 
together into a contract that is no longer suitable for small 
business performance. As we have seen in all of the vehicles we 
have done thus far, that is just not true. Office supplies, if 
it were bundled, would mean no small business participation. 
Instead, we saw small business participation go up from about 
two-thirds to over three-quarters.
    Wireless is a good example of where all of the vendors 
originally before strategic sourcing were large businesses. We 
were able to carve out the wireless telecommunication expense 
management services, a piece of that business where small 
businesses could handle it, and we elevated them to have a 
prime level on that. So we would like to apply those same 
sources across the board.
    In any vehicle, or in many vehicles I guess I should say, 
there is likely a whole bunch of the requirements that small 
businesses can do, and there are potentially some that they 
cannot. And so it is okay to have a mix of small and large 
businesses in the supplier pool in any of these categories as 
long as when two or more of the small businesses can do it. We 
are using that, and that is where the Section 1331 set-aside 
that Congress gave us that authority has been very helpful, and 
we will continue to push that. It is where the small business 
goals and SBA's Dashboard and Goaling Scorecard is very 
helpful. And obviously, given my background at SBA and now my 
CO of OFPP, I care personally and we care as an office 
passionately about ensuring that we can both save money and 
increase the small business utilization.
    Ms. MENG. Thank you.
    Mr. Koses, under GSA's proposed JanSan and MRO vehicles, 15 
vendors will receive BPAs. While the majority of these have 
been set aside for small businesses, the number does not begin 
to include the thousands of businesses that currently contract 
with the federal government in those industries. While GSA has 
indicated that more businesses might be on-ramped to the 
JanSan, there has been no firm commitment by GSA as to when 
that will, and if it will occur. So can you definitely state 
whether or not more businesses will be added to the contract 
and when in the duration of that contract will it occur?
    Mr. KOSES. Absolutely. And may I take the OASIS question 
first and then also answer the JanSan question?
    In terms of OASIS, we have put tremendous effort and focus 
on the key point that Mr. Burton raised earlier--that of a 
robust market research industry engagement strategy. Key to us 
has been ensuring that we remove geographic barriers and have a 
very broad outreach. We have used an Internet-based platform, 
GSA Interact, featuring weekly blogs from the program manner, 
featuring several opportunities for one-on-one meetings between 
industry and government leaders, and two different rounds of 
white papers, trying to ensure that we have actively listened 
to small business. Not just GSA, but the agencies working with 
us to create the vehicle.
    And so with well over 100 one-on-one meetings with 
industry, we have specifically talked the question--what is the 
best small business strategy? We had that conversation with SBA 
as well, and overwhelmingly, that message was we want to see 
two different vehicles--one set aside for small business, one 
not. We want to see a crossover feature because part of what we 
are after is wildly successful small businesses under OASIS, 
and if some of them outgrow the size standard, they now will 
have the ability to crossover to the OASIS prime vehicle.
    We have tried to use that same type of engagement strategy 
through our FSSI efforts as well. Again, we have used GSA 
Interact to create Internet-based chatrooms to discuss, to 
define, to pursue the goals. We have had our program managers 
doing weekly checks, trying to bring industry to the table and 
hear and identify these small business issues and trying to 
ensure that the different federal agencies have been side by 
side with GSA listening to those industry messages.
    In both of those cases, we have posted a draft request or 
draft solicitation. The purpose of the draft is to get comment, 
to get feedback, because we do not pose that we know all the 
answers. We are pointing out the best information that we have 
had and we are asking for validation, for correction, for 
suggested improvements. We heard definite suggestions for 
improvement in OASIS. We heard definite suggestions for 
improvement in JanSan and MRO. We did hear messages that 15 was 
the wrong number of vendors, and we have had that conversation 
with the commodity team. When we post the revised solicitation 
this summer, the number will be marginally higher than 15. We 
are still finalizing, but we have gotten the sense that we did 
not define the group and the breakdowns exactly correctly. We 
do not have the exact number of vendors, but we are in the 
general neighborhood.
    Ms. MENG. In general, for either witness, how do you 
perceive the balance between the goal of saving the federal 
government money and the desire to contract with small 
businesses? I believe that it is essential that GSA work with 
small businesses and reach the 27 percent goal, but I also 
understand in the short term the cost of these contracts can 
seem higher. How can we ensure that we are striking the right 
balance?
    Mr. JORDAN. From an overall perspective, I think that the 
goals of saving the taxpayer money and increasing our 
utilization of small business are absolutely mutually 
reinforcing. I have seen it over and over again that you can 
absolutely use small business and save money. It means buying 
smarter, standardizing terms and conditions, taking 
administrative costs out of the system. You mentioned earlier, 
Congressman, that when small businesses bid, they have those 
bid and proposal costs. If we can take some of that out of the 
system by not making them compete for all these duplicative 
vehicles, it can be helpful.
    We have seen it in office supplies. We have seen it in 
wireless. We have seen it in the market research we are doing 
on additional categories, so that is why I am a fervent 
believer that we can both save the taxpayers considerable 
amounts of money and increase our utilization of small 
businesses. Like I said, there will be, when you do this type 
of effort, there will be winners and losers. We need to ensure 
that those decisions are made in a transparent way, in a fair 
way, based on quantitative metrics that everybody understands.
    And then for the folks who are unsuccessful, not just leave 
them alone; engage them in additional training, create the 
right onramps and off-ramps for the vehicles that have been set 
up; use all the tools at our disposal to make those small 
businesses that were unsuccessful even more competitive next 
time. And that is how you reinvigorate the system overall.
    Mr. KOSES. In addition, we talked a little bit about the 
market research component. One of the core questions that we 
keep asking industry is what is it that the governments do that 
is adding cost to the process? How are we buying that is more 
expensive for you, and how do we start changing? And that leads 
to some very good conversations with the commodity team as we 
wrestle with what can we change and try and fine tune and 
address some of our longstanding requirements. In our office 
supplies example, we recognize two big cost drivers that harmed 
small business were on overnight delivery time and a very low 
minimum order. Both of those were things we changed coming out 
of those conversations.
    In our print management solution, much like wireless, we 
were looking at an industry that had been dominated by large 
business, and we saw where small business could start playing a 
really critical role and help us save money in the process. We 
built a solution that we called a fleet assessment. It was all 
about trying to go in and get a handle on what solutions 
actually are there? What is the agency inventory? How much are 
we printing today? You know, the biggest cost in printing is 
actually making that decision to hit the print button and run 
the pages through the machine.
    Well, we have learned through our industry engagement that 
we buy way too much. We buy too many machines, too much gold 
plating. And by creating that role for small business to do the 
fleet assessment, to help us figure out what is our inventory, 
what is our print behavior today, we are setting the stage by 
using small business for savings over time.
    Ms. MENG. Thank you. I yield back.
    Chairman HANNA. Thank you.
    This is somewhat of a declarative statement but feel free 
to answer it. If JanSan becomes mandatory, the 500-plus 
companies who did not win BPAs awards will not be able to 
maintain their contracts. They will not be able to make the 
required $25,000 minimum sales each year. So I ask, what 
happens to these companies if that is the case? And what do you 
plan to do about it? If you want to say something, fine. That 
would be great.
    Mr. KOSES. In our office supplies example, we have had 
sales under the schedule program that average about $700 
million a year over the last three years. Collectively, in that 
time period, sales through our FSSI have been about 30 percent 
of that total. We have not seen the entire market move over to 
the strategic sourcing solution. We, frankly, would like to see 
a lot more of it move over.
    Chairman HANNA. And it is not even--office supplies, as you 
know, are not mandatory now.
    Mr. KOSES. Correct.
    Chairman HANNA. Okay. Thank you.
    So you recognize there is a problem with that minimum and 
that you may become your own worst enemy by effectively 
eliminating people from the marketplace that we want to thrive.
    Mr. KOSES. I fully understand the concern, Congressman. We 
do not believe that this will ever be a 100 percent solution. 
In talking to agencies, we are talking about the core areas 
where we are targeting, and we would like to see most of the 
spend able to concentrate through that vehicle. But if we start 
saying every situation, no exceptions, no waivers, everything 
goes through this beyond the payout, we are going to create a 
program that does not make sense.
    Chairman HANNA. So what solutions are you working towards 
then?
    Mr. KOSES. We are working to define the core items that the 
government buys the most frequently or that are the most 
critical for our operations. To start that with several 
thousand core items, between the market basket and extended 
catalogue, to define what is the appropriate delivery time and 
ordering level. But recognize, there are going to be 
exceptions. There are going to be the agencies that need 
something immediately that require the overnight delivery, that 
require a low purchase or some other exception, and they still 
will have the schedule to choose from.
    Chairman HANNA. For the OASIS and OASIS OSB contracts, I 
understand that GSA is not allowing new small businesses' teams 
to compete. As you know, the 2010 Job Act amended the Small 
Business Act to require that any solicitation for multiple 
award contracts above $2 million solicit offers from small 
business concerns and teams or joint ventures.
    Now, I have seen the e-mail that you sent our staff on that 
issue. However, I am having trouble understanding why when the 
law is explicit that GSA feels its contracting strategy is more 
important than the law. Could you please explain that rational 
and how you intend to address it? Mr. Koses.
    Mr. KOSES. Absolutely, Mr. Chairman.
    We believe that OASIS is being designed with the needs, 
with the interests of small business and small business 
opportunity in mind. We have tried to develop a very clear, a 
very straight forward concept and evaluation methodology. We 
believe central is OASIS is about integration of professional 
services, so the contractors who will be successful will need 
to demonstrate that they have been able to integrate 
professional services, that they know how to do it, that they 
have the relationships. Not that they have to have them in 
place today, but they know how to set them up. The know how to 
make them happen. We are very confident that there will be a 
lot of teaming under OASIS. We are just saying you do not have 
to have your team created today; you have to show us you know 
how to create a team and that you have done so successfully.
    Chairman HANNA. How do they go about that if they are not 
already in the process? I mean, how do you encourage new 
businesses to engage in that? Or do you?
    Mr. KOSES. When we are talking about professional, highly 
technical, integrated services that cross numerous disciplines, 
we think it is important that you be able to show us past 
success at having done so; that you have successfully 
integrated smaller projects; that you have successfully 
performed similar types of work. It will be very difficult for 
this to be a first government contract, but it will be a 
tremendous opportunity for small businesses to come in the door 
as team members or subcontractors to the prime contract 
holders.
    Chairman HANNA. Of course, our interpretation would be that 
the law says otherwise. You understand that?
    Mr. KOSES. Chairman, we are confident that we are reading 
the law appropriately, but we look forward to continuing to 
work with your staff as we continue the market research.
    Chairman HANNA. Thank you. Thank you both very much.
    Any further questions?
    I guess we have sat here and we have heard--this has been, 
I think, a productive two and three quarter hours or one and 
three quarter hours. Generally, I take that we are all here in 
earnest and that we want to produce the best value for the 
government, and that is in and of its nature a difficult thing 
to do because it is subjective. But to the extent that the goal 
of this Committee is to broaden opportunity across a wide 
variety of disciplines, companies, et cetera, I think it is 
safe to say that we can agree that the elimination over time of 
competition through whatever means is not a goal that any of us 
share. So you have heard what the previous panel members said. 
I just ask that you commit to analyzing the long-term 
consequences of strategic sourcing and how it affects 
competition and small businesses and all that that entails. I 
will leave you with that.
    Thank you very much for your time today. If there are no 
further questions for the witnesses, I want to thank our 
witnesses for being here today and state that this is an issue 
the Subcommittee will be continuing to monitor carefully. We 
owe it to the taxpayers to make sure we maintain a viable small 
business industrial base so that we can protect competition and 
innovation in federal contracting. I want to make sure that the 
strategic source contracts being proposed capitalize on all 
that small businesses have to offer in order to achieve long-
term savings, rather than focusing on short-term gains and 
savings over long-term growth and savings.
    I ask unanimous consent that members have five legislative 
days to submit statements and supporting materials for the 
record. Without objection, so ordered. Thank you all.


    [Whereupon, at 11:46 a.m., the Subcommittee was adjourned.]

                            A P P E N D I X


[GRAPHIC] [TIFF OMITTED] 81423.001

    Chairman Hanna, Ranking Member Meng and members of the 
subcommittee, thank you for conducting today's hearing and for 
the invitation to share the Professional Services Council's 
(PSC) views about the potential impacts on small businesses of 
the federal government's strategic sourcing efforts. This is a 
matter of significant interest to PSC given both the unique 
diversity of our membership base and the equally unique 
diversity of the services our members provide to the federal 
government.

    Introduction

    PSC is the nation's largest association of companies 
providing services of all kinds to the federal government. Our 
membership of nearly 360 companies is comprised of firms of all 
sizes, including approximately 25 percent that are classified 
as small businesses in their fields, and an additional 25-30 
percent that would be classified as smaller mid-tier firms--
those companies that occupy the exceptionally challenging 
portion of the market in which they are no longer eligible for 
treatment as a small business and must now compete in the 
unrestricted federal procurement market.

    It is this diversity of functions and sizes that provides 
the lens through which we view strategic sourcing initiatives. 
In all of our work, our goal is to provide input and insights 
to both the legislative and executive branches on a wide array 
of business policies and how they will impact all, or portions 
of, the federal services sector. Since services now accounts 
for almost 56 percent of the contract spending at the Defense 
Department and closer to 75 percent in the civilian agencies, 
it is essential that the government fully understand and assess 
the ways its actions and policies will affect the marketplace 
of firms that are so critical to the government's operations. 
Indeed, the government's goal should be to foster an 
environment of robust competition, high performance, agility, 
innovation, balanced opportunities for companies of all sizes, 
and accountability. It is with those objectives in mind that we 
approach federal procurement policy issues like strategic 
sourcing.

    Proper Use of Strategic Sourcing

    We strongly support the premise that the government should 
be using strategic sourcing, in the truest meaning of the term 
which encompasses a universe much larger than the Federal 
Strategic Sourcing Initiative (FSSI), for the vast majority of 
its procurements. If structured properly FSSI has the potential 
to deliver real benefits for federal agencies and taxpayers 
alike. As such, we commend the Office of Federal Procurement 
Policy for making strategic sourcing a priority and we support 
how many agencies have properly applied these techniques to 
specific sourcing opportunities. Yet, while we fully support 
the FSSI's intended objectives, we have significant concerns 
about its practical effects. Those concerns relate more to the 
way in which the term is used and understood and how the 
initiatives are implemented across the government than to the 
concept itself.

    Strategic sourcing is not one ``thing.'' It is a set of 
multi-layered, flexible procurement strategies that evolve and 
change depending on the nature and complexity of what is being 
bought. For pure commodities, strategic sourcing can be fairly 
simple and straightforward; for more complex needs, 
particularly higher-end services, the challenges and 
complexities grow substantially. For products, where place of 
performance or production is irrelevant, there are often plenty 
of options for small business utilization; for services, where 
place of performance is very relevant, the need to deliver 
services over geographic regions as one way of reducing overall 
costs poses a number of challenges to balancing the 
efficiencies of strategic sourcing with the goal of appropriate 
reliance on small businesses. In some cases, when basic quality 
may be adequate, price becomes the principal driver; in other 
cases, quality is of greater importance, and is as important, 
or more important, than price.

    What Are the Objectives of Strategic Sourcing?

    We must first come to a common agreement on the ultimate 
objectives driving strategic sourcing in the federal market. If 
the objective is solely and specifically to optimize government 
operations, that will drive one set of responses. If, however, 
the objective is to optimize government operations without 
impacting current socio-economic or other acquisition policy 
goals, then additional considerations must be taken into 
account. These questions are more than rhetorical and both can 
lead to perfectly rational, yet different conclusions. They go 
to the heart of today's hearing and to the heart of a number of 
other elements of federal acquisition policy and practice.

    For example, is it better to have fewer small businesses 
receiving a higher volume of work from the government or a 
larger number of small businesses with a smaller share of the 
volume? After all, if the government were to optimize its use 
of strategic sourcing, as the term is understood and applied 
throughout the commercial world, the former is the more likely 
outcome, as we have already seen with the federal strategic 
sourcing of commodities such as office supplies.

    The same questions are raised when it comes to the 
government's objective of conducting full and open competitions 
for its procurements. Under the GSA Schedules, for example, 
there is a broad array of suppliers that can be easily accessed 
by any government customer. Almost by definition, strategic 
sourcing will reduce the number of those suppliers. In the 
commercial world, that is the norm. As the Government 
Accountability Office (GAO) noted in its April report on the 
use of strategic sourcing in the commercial sector, companies 
often carefully conduct market research on industry 
capabilities, select one or two suppliers and stick with them, 
and manage them aggressively for many years.\1\ But in the 
government environment, constant competition is a central tenet 
of the procurement process and expanding the breadth of firms 
capable of competing for federal work is a continuous goal.
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    \1\ ``Strategic Sourcing: Leading Commercial Practices Can Help 
Federal Agencies Increase Savings When Acquiring Services;'' GAO-13-
417, 04/15/13. Available at: http://www.gao.gov/products/GAO-13-417

    Any evaluation of strategic sourcing must also take into 
account the impact on the industrial base, since limiting 
private sector participation in federal procurements has the 
potential to erode portions of the federal industrial base. 
When only a few companies are awarded contracts under a 
strategic sourcing initiative and dozens, if not hundreds, of 
companies are excluded from regularly competing for 
opportunities, how will the depth and breadth of the supplier 
base be affected? This dynamic is generally of less concern 
when the sourcing is of commodities since, by definition, they 
tend to be more widely available and the barriers to market 
entry are modest. But it becomes far more pronounced when the 
services being procured through strategic sourcing are complex 
or highly technical, involve capabilities and skills that are 
in short supply across the economy, and for which opportunities 
---------------------------------------------------------------------------
outside of government are plentiful.

    These dynamics are important considerations. The objectives 
of the federal strategic sourcing initiative, and the level of 
support for retaining it in its current form or expanding it to 
additional commodities and services, will hinge on 
policymakers' ability to agree on the objectives of the 
initiative and the policy trade-offs that are willing to be 
made.

    The Key Question

    This statement provides our perspective on these concerns 
and seeks to establish a framework for the ongoing debate 
around the key question of today's hearing: will strategic 
sourcing harm small business?

    In the end, the answer to that question comes back to the 
desired outcomes of the initiative and how we measure success. 
Today there is no consensus on the answer to this question, 
either in Congress or across the agencies. For some, the most 
important goal is to reduce government costs and increase 
quality only. For others, the goal is to reduce government 
costs and increase quality while doing no harm and engendering 
no changes to the current marketplace. Still others believe 
that, while efficiency is important, the government's first and 
foremost priority must be to protect its vital role in 
fostering small and small disadvantaged, veteran, woman-owned, 
or HUBZone businesses.

    Each of these perspectives is valid. But the differences 
they reflect clearly underpin this hearing and other debate and 
discussion about strategic sourcing generally and the more 
focused FSSI specifically.

    Thus, if I could define one desired outcome from this 
hearing, it would be to find a clear consensus on this key 
question so as to determine the future of strategic sourcing.

    Will Strategic Harm Small Business? It Depends.

    It is impossible to say for certain whether federal 
strategic sourcing does, or does not, present a threat to the 
overall small business community. Clearly where companies sit 
in the marketplace drives their view of that question. But as 
the government moves away from the low hanging fruit of 
strategically sourcing commodity products and toward strategic 
sourcing of services, the evaluation of the risk to small 
businesses ultimately depends on the depth and sophistication 
of the government's understanding of strategic sourcing itself.

    In other words, strategic sourcing, in the truest sense of 
the word, incorporates the full spectrum of procurement 
techniques outlined in the Federal Acquisition Regulation 
(FAR)--from lowest price, technically acceptable (LPTA) to full 
cost-technical tradeoffs, also known as ``best value,'' and 
strategic sourcing's manifestations vary across that spectrum. 
This fact appears to be relatively well understood at the most 
senior levels of government and within the Strategic Sourcing 
Leadership Council (SSLC). But on the front lines, where the 
initiatives are actually implemented, that level of awareness 
and understanding is not overtly evident.

    To many people across government, strategic sourcing is 
immediately translated into bulk buying to gain economies of 
purchasing scale--a far too simplistic interpretation of 
``real'' strategic sourcing. Nonetheless, this perception is 
consistent with the disturbing and overwhelming trend we are 
witnessing in virtually every agency toward lowest price, 
minimally technically acceptable contract awards, even for 
complex requirements. Unless and until that limited knowledge 
and understanding is substantially reversed and acquisition 
workforce skills are meaningfully enhanced, the effectiveness 
of what could otherwise be a very smart and thoughtful 
initiative could well be sharply limited and its impacts, 
including but not limited to small business, could be negative.

    This point also came through clearly in the GAO report on 
the use of strategic sourcing in the commercial marketplace. 
GAO reported that strategic sourcing is increasingly being used 
across the commercial sector for everything from basic 
commodities to sophisticated and complex services. But as GAO 
also pointed out, the consideration that go into how strategic 
sourcing is implemented vary according to levels of complexity, 
risk and total cost. Similarly, GAO reported that, in the 
commercial sector, quality is often the most critical 
consideration, since the level of quality of a product or 
service can make or break a company. While that same philosophy 
is a fundamental underpinning of the FAR, recent surveys, 
including PSC's 2012 Biennial Acquisition Policy Survey,\2\ 
have made clear that, across government, there is a growing 
default to lowest price awards in which quality is only a minor 
consideration. Likewise, grave concern exists among acquisition 
leaders and professionals about their workforce's current 
capabilities to do effective market research or conduct 
effective negotiations, two skills that are central to the 
development and implementation of an effective federal 
strategic sourcing effort.
---------------------------------------------------------------------------
    \2\ ``The Balancing Act: Acquisition in an Unabated Crisis;'' The 
2012 PSC Acquisition Policy Survey, December 2012. Available at: http:/
/www.pscouncil.org/i/p/Procurement--Survey/c/p/
ProcurementPolicySurvey/
Procurement--Policy--S.aspx?hkey=835b11ac-Ofe7-
4d23-a0e0-b98529210f7e

    GAO also identified another crucial differentiator between 
the way strategic sourcing is implemented in the commercial 
world and the way the federal government often operates--the 
way each defines ``cost.'' In the commercial world, cost is 
generally defined as the total enterprise-wide, life-cycle 
impact of the act. For example, when a company like Wal-Mart 
makes decisions as to whether to invest in a new logistics 
information system, their focus is not only on how much it will 
cost to build and operate that system, but also includes 
careful analyses of how that new system will impact 
productivity and efficiency elsewhere in the company, from 
asset visibility to stocking shelves in stores. Admittedly, 
that type of analysis can be very complicated but it is 
essential to understanding the full impact on their 
---------------------------------------------------------------------------
organization before implementing a strategic sourcing approach.

    Too often in the government, however, ``cost'' is defined 
solely as the cost of the product or service being acquired, 
and is not viewed through that broader, more relevant, prism. 
Moreover, the very manner in which agency budgets are built can 
frequently inhibit the consideration of total cost. For 
example, when the Defense Department was beginning its effort 
to insource some work being performed by contractors, initial 
cost analyses only looked at the cost to the DoD component's 
budget, not the cost to the overall defense or federal budgets. 
In today's fiscal environment, with sequestration in place and 
even short-term budget clarity elusive, we see a wide range of 
cases in which immediate, highly localized cost reductions are 
being implemented even though they are likely to result in 
higher long-term agency-wide costs.

    Another example is the OASIS procurement at GSA. One of the 
concerns that it has raised is that it is overly focused on 
driving down the unit cost of complex professional services and 
less so on overall value, quality and performance improvements. 
Indeed, some GSA officials stated repeatedly in public forums 
that the principal goal of OASIS is to drive down the labor 
hour costs of companies that provide complex, high-end, 
professional services. While reductions in hourly labor rates 
may or may not be justified in some areas, little was said 
about how OASIS would both drive efficiency and improve the 
quality of service. In both cases, small businesses were or 
would be disproportionately impacted by shortsighted efforts to 
drive down costs, as they typically have less ability to endure 
decreased margins driven by artificial price pressures than do 
larger firms--particularly for firms operating solely in the 
federal space.

    To GSA's credit, their extensive and continuous outreach to 
the private sector has been exceptional and it appears that 
they have taken to heart many of the comments that have been 
offered. Even while we await GSA's publication of the final 
OASIS solicitation and their explanation of how they reconciled 
competing policy interests, concern still exists as to how the 
competition and the implementation of the awards, which GSA has 
identified as part of FSSI, will play out.

    The Road Forward

    As I noted at the outset, PSC recognizes the potential 
benefits of the FSSI. We strongly support the initiative and 
applaud the creation of the Strategic Sourcing Leadership 
Council and the OMB memorandum that guides their work. However, 
we do have concerns that too rapidly expanding the FSSI can, 
and likely will, have deleterious impacts on both government 
and its supplier base, prominently including small business. 
Done right, strategic sourcing can be a win-win; done wrong, it 
is more likely to be a lose-lose.

    Thus, we would make the following recommendations as the 
initiative moves forward:

    1) Ensure the alignment of policy and programmatic 
objectives. There is little doubt about the effectiveness of 
recent strategic sourcing efforts for wireless services, 
laptops, and office supplies. But the question of whether the 
balance between the number of small business providers and the 
total dollars expended with small business is aligned with both 
the administration's and Congress's small business agendas is 
unclear. That alignment is essential to the effective and 
efficient expansion of strategic sourcing.

    2) Develop and deploy the requisite training tools to the 
workforce without delay and require that all acquisition 
personnel involved in any specific strategic sourcing effort 
for other than the most basic commodities first complete the 
training.

    3) Be highly judicious in the use of strategic sourcing for 
services, particularly for complex services. Moreover, require 
senior level (even up to the SSLC) review of significant 
strategic sourcing efforts for services to ensure the 
strategies being employed are clearly articulated and are not 
overly focused on simply forcing down labor rates at the 
expense of overall quality.

    4) Pursue a flexible, rather than overly prescriptive, 
FSSI. Allow individual agencies some degree of flexibility to 
pursue their own, agency-unique, strategic sourcing initiatives 
and develop performance measures for both agency-specific and 
government wide initiatives that generate visibility into 
overall efficiencies, performance outcomes, small business 
impacts and other factors that will meaningfully inform the 
future shape, expansion and/or limitations of the FSSI.

    Conclusion

    Mr. Chairman, members of the committee, this hearing offers 
an important opportunity to discuss and explore a rapidly 
expanding government-wide initiative. The Office of Federal 
Procurement Policy, the SSLC, GSA and others are to be 
congratulated for their relentless efforts to ensure that 
federal agencies buy smart and buy well. That challenges to 
their work remain should come as no surprise. PSC is fully 
committed to working with them, and with you, to find the right 
balance and the best path forward for the government and the 
taxpayer in finding a clear consensus on the objective of the 
Federal Strategic Sourcing Initiative; that consensus will 
then, in large part, drive and govern the future of the 
government's appropriate use of strategic sourcing.

    I look forward to answering any questions you may have.
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    Chairman Hanna, Ranking Member Meng and Members of the 
Panel, my name is Trey Hodgkins and I am the Senior Vice 
President for Global Public Sector at TechAmerica. I want to 
thank you for the opportunity to testify this morning regarding 
challenges and opportunities small businesses face in the 
adoption of strategic sourcing by the Federal government.

    TechAmerica \1\ is uniquely positioned representing 
companies from the information technology (IT), communications 
and defense industrial base sectors and our members range from 
large companies whose names are household terms, to the most 
innovative and agile of small technology companies from across 
the Nation. While many of the companies are oriented with the 
government as a customer, a large number of our members are 
completely outside of the public sector and are commercial in 
nature, offering commercial items developed and manufactured in 
a global economy and distributed and sold around the world. The 
ubiquitous nature and complexity of the goods and services our 
members sell offer unique perspectives on strategic sourcing in 
Federal government contracting and I would like to share a few 
of those this morning.
---------------------------------------------------------------------------
    \1\ TechAmerica is the leading voice for the U.S. technology 
industry--the driving force productivity growth and job creation in the 
United States and the foundation of the global innovation economy. 
Representing premiere technology companies of all sizes, we are the 
industry's only trade association dedicated to advocating for the ICT 
sector before decision makers at the state, federal and international 
levels of government. With offices in Washington, D.C., Silicon Valley, 
Brussels and Beijing, as well as regional offices around the U.S., we 
deliver our members top tier business intelligence and networking 
opportunities on a global scale. We are committed to expanding market 
opportunities and driving the competitiveness of the U.S. technology 
industry around the world. For more information, visit 
www.techamierica.org.

    Before I turn to that issue, however, I would like to take 
this opportunity to reiterate for the committee that the single 
biggest challenge to success for small business in the public 
sector market is the tidal wave of government unique 
requirements they face and the burdens they create. Many of the 
commercial companies mentioned above consider the burden too 
significant and not worth the costs and risks and choose to 
simply forego government work entirely. This condition means 
that the government does not have access to many of the most 
innovative companies offering cutting edge technologies and 
software products and services focused on critical issues like 
cybersecurity. The condition also results in diminished 
competition and higher prices for the goods and services the 
government does acquire, because the burdens created by the 
government unique requirements end up as part of the cost of 
doing business and are passed along to the buyer. To address 
this and other conditions that hinder achieving best value for 
the taxpayer, TechAmerica would solicit the Committee's support 
for a wholesale review of government acquisition, similar in 
scope and objective to the Section 800 Panel convened in the 
early 90s. Without such an effort, we are concerned that 
legislative and administrative attempts to address shortcomings 
in Federal acquisition will have only limited impact at the 
---------------------------------------------------------------------------
edges of the issue.

    Strategic Sourcing

    As taxpaying corporate citizens who employ millions of 
people around the country, the members of TechAmerica are 
supportive of efforts like the Federal Strategic Sourcing 
Initiative (FSSI) that can derive savings by consolidating the 
acquisition of commoditized goods. We could caution, however, 
that such efforts have diminishing success when goods and 
services of a complex or diverse nature are shoe-horned into 
these vehicles. Strategic sourcing only works when the customer 
has uniform and relatively rigid acquisition requirements, and 
that is simply not the way the government buys information 
technology goods and services.

    For small businesses, we see two direct and immediate 
challenges under the strategic sourcing initiative. Many of 
these companies--particularly the thousands of companies 
selling information technology goods and services are resellers 
on GSA schedules--will face diminished access to the Federal 
government market because under FSSI, there will be less award 
winners and more losers. The second challenge impacts those 
small businesses that are the most innovative providers of IT 
goods and services which are frequently offered in response to 
narrow, unique mission requirements or as a specialized 
component of a broader prime contractor activity. The offerings 
of these companies simply do not fit into the commoditized 
labor categories envisioned under strategic sourcing and these 
companies will face increased market pressures, given 
requirements to drive more and more acquisitions into strategic 
sourcing.

    Many of the products and services in the ICT space do not 
lend themselves well to strategic sourcing. Government does not 
buy technology in a consistent fashion either and that further 
complicates any effort to fit them into such an initiative. For 
hardware items like laptops or servers, the government does not 
buy them in large quantities and when buying them, it does not 
ask for a consistent configuration. One customer wants more 
memory; another wants a CAC card reader, and a third wants a 
different sized screen.

    The One Acquisition Solution for Integrated Services 
(OASIS) GWAC is a live example of the shoehorning of 
acquisitions into a strategic sourcing vehicle. Originally 
proposed as a new vehicle specifically for the acquisition of 
complex integrations of technology and services, it was 
announced earlier this year that it would become part of FSSI 
and the goods and services offered under the contract would be 
commoditized. As noted above, complex and specialized goods and 
services, like the ones small business can deliver, do not lend 
themselves well to strategic sourcing, so industry reacted with 
confusion and apprehension about proceeding with the offering. 
While the Draft RFP is out for review and a Final RFP is under 
development, industry remains concerned about how goods and 
services will be treated in the future under this contract 
vehicle.

    Small business can and should compete for contracts in 
FSSI, but not all goods and services lend themselves to 
strategic sourcing. Congress should ensure that small business 
opportunities to offer innovative and unique goods and 
specialized services are preserved and that we strike a balance 
as we implement the Federal Strategic Sourcing Initiative.

    Thank you again for the opportunity to speak with you this 
morning. I would be happy to answer your questions.
                   EXECUTIVE OFFICE OF THE PRESIDENT


                    OFFICE OF MANAGEMENT AND BUDGET


                         WASHINGTON, D.C. 20503


                         www.whitehouse.gov.OMB


                              STATEMENT OF


                     THE HONORABLE JOSEPH G. JORDAN


              ADMINISTRATOR FOR FEDERAL PROCUREMENT POLICY


                    OFFICE OF MANAGEMENT AND BUDGET


                               BEFORE THE


               SUBCOMMITTEE ON CONTRACTING AND WORKFORCE


                      COMMITTEE ON SMALL BUSINESS


                 UNITED STATES HOUSE OF REPRESENTATIVES


                             June 13, 2013


    Chairman Hanna, Ranking Member Meng, and members of the 
Subcommittee, I appreciate the opportunity to appear before you 
today to discuss initiatives the Administration is taking to 
both save money and maximize small business participation in 
federal procurement. These efforts are central to the 
government's ability to get the best value for the taxpayer. 
With approximately one out of every seven dollars the 
government spends going to contractors, it is imperative that 
our acquisition processes enable us to get the highest quality 
goods and services for the lowest possible cost. Equally 
important, our processes must allow us to regularly tap into 
the creativity, innovation, and technical expertise that small 
businesses offer to help agencies accomplish their missions. 
The good news is that I believe buying smarter initiatives like 
strategic sourcing reinforce both the goal of maximizing small 
business opportunities and value for the taxpayer.

    Buying smarter and maximizing opportunities for small 
businesses

    Prior to becoming Administrator for Federal Procurement 
Policy, I served as Associate Administrator for Government 
Contracting and Business Development at the Small Business 
Administration (SBA). In that role, I was charged with 
increasing federal contracting opportunities for small 
businesses, including small disadvantaged businesses, women-
owned small businesses, service-disabled veteran owned small 
businesses (SDVOSB), and small business contractors working in 
Historically Underutilized Business Zones (HUBZones). I am 
proud of the progress that SBA made during my tenure to help 
agencies increase opportunities for small businesses as we 
reversed the downward trend in small business goal achievement 
and drove the largest two-year increase against these goals in 
more than a decade. These efforts included partnering with 
Congress, including this Committee, on the historic Small 
Business Jobs Act (SBJA). This Act strengthened the statutory 
framework for small business contracting by, working with 
senior agency leaders to keep agencies focused on those 
activities that can deliver the most significant improvements 
in the shortest amount of time, such as by expanding the use of 
set-asides, and developing a more transparent, data-driven 
small business scorecard process that holds the government 
accountable to the taxpayer. These efforts also included an 
aggressive campaign to root out waste, fraud and abuse in small 
business contracting programs to ensure that benefits from 
these programs flow to the intended recipients.

    Supporting small businesses is especially important during 
this critical time as agencies strive to meet mission needs 
within increasingly tight budgets. Over the past four years, 
agencies dramatically reversed the unsustainable annual growth 
rate in acquisition that saw contract spending grow by an 
average of 12 percent per year from 200 through 2008. From 
Fiscal Year (FY) 2011 to FY 2012, agencies reduced contract 
spending by more than $20 billion, the largest single year 
dollar decrease in Federal contract spending on record. Over 
this same period, with strong leadership attention, agencies 
were able to increase the percentage of eligible contract 
dollars awarded to small businesses. That said, there is much 
left to be done to ensure we meet our small business goals year 
after year and provide meaningful contract opportunities in 
these challenging economic times. My experience at SBA 
reinforced my belief that small business contracting is a win/
win. These businesses get the revenue they need to create jobs 
and grow the economy, while the government gets access to some 
of the most innovative companies in our supply chain. I 
appreciate the continued help of this Committee, including 
important legislative changes that removed caps on the use of 
set-asides for women-owned small businesses.

    To build on the progress we are achieving to date, we must 
take better advantage of the mutually reinforcing practices 
that foster both greater small business participation and help 
us get better results from our federal contracts. These 
include:

     Conducting effective market research so that small 
businesses are aware of potential opportunities and agencies 
can find capable small businesses;

     Developing clearer requirements through the 
collaborative efforts of program and contracting personnel so 
that vendors can better understand agency needs and make 
informed decisions as to whether and when they compete for 
work;

     Giving interested sources sufficient time to 
develop quality proposals; and

     Taking better advantage of technology to make 
doing business with the government easier and less costly.

    The priorities of the Office of Federal Procurement Policy 
(OFPP) are shaped around strengthening these ties. We are 
working with SBA, other federal agencies, private sector 
experts, and others who follow and represent the interests of 
small business to shape policies and identify best practices 
that allow agencies to buy smarter through the use of proven 
strategies for cutting costs and increasing quality while 
simultaneously strengthening our relationship with contractors, 
especially small business suppliers.

    Taking greater advantage of strategic sourcing

    Our efforts to identify better buying practices that save 
money and increase opportunities for small business led us to 
place greater emphasis on strategic sourcing. Strategic 
sourcing refers to the structured and thoughtful process of 
critically analyzing spending across organizations and using 
this information to achieve price savings, administrative cost 
reductions, and improved contract performance.

    Strategic sourcing, which the private sector long 
recognized as a successful business practice, requires agencies 
to look at the factors that most directly affect their ability 
to optimize value for the taxpayer, such as the level of 
customer demand, the way in which this demand is currently 
being met, variance in prices paid for similar goods and 
services with the same or different vendors, and the agency's 
commodity management practices. Through these efforts, agencies 
drive inefficiencies out of their buying processes. In some 
cases, agencies achieve savings by leveraging demand to attain 
volume-based pricing discounts and eliminate duplicative 
contracts, in other cases by standardizing terms and conditions 
across contracts, or simply through smarter commodity 
management.

    Efforts to date illustrate the substantial savings that 
strategic sourcing offers. Government-wide strategic sourcing 
of items such as office supplies and domestic shipping services 
achieved nearly $300 million in direct and indirect savings 
since FY 2010. And agency-level strategic sourcing of goods 
like IT and medical equipment have saved hundreds of millions 
more. The Department of Homeland Security, for example, saved 
over $386 million in FY 2012 by pooling purchases for a wide 
range of products across the Federal Emergency Management 
Agency, the Coast Guard, Customs and Border Protection, and 
other components.

    Equally important, these efforts demonstrate that agencies 
can increase their spending with small businesses and 
simultaneously reap the benefits of strategic sourcing. Our 
government-wide strategic sourcing of office supplies is a 
compelling example. By engaging the small business community as 
part of its market research, the General Services 
Administration (GSA), which served as the executive agent for 
this sourcing event, learned that the specifications in two 
planned requirements could hamper small business participation: 
overnight delivery (which can give an advantage to large firms 
who operate their own trucking fleets) and very small minimum 
order amounts (which increases administrative costs). GSA also 
learned after talking to its customers that neither of these 
requirements was critical. Based on this analysis, GSA 
eliminated the requirement for next day delivery and instead 
provided for three or four day delivery and increased the 
minimum order size to enable small business to reduce 
administrative costs. GSA also divided the office supplies 
strategic sourcing acquisition (``OS2'') into three functional 
areas, one was set aside for small businesses and another (for 
toner) was set aside for SDVOSBs. These steps enabled small 
businesses to make highly competitive bids without diluting the 
benefits of pooling agency demand. Thirteen of the fifteen 
winning vendors were small businesses, including three SDVOSBs.

    The results from smart acquisition planning and careful 
consideration of small business needs are both telling and 
impressive. According to GSA, total dollars going to small 
businesses increased from 67 percent prior to implementation of 
the strategic sourcing solution to 76 percent through the 
solution, and in recent months, the number has approached 80 
percent. According to GSA's analysis, through April 2013, 
actual savings from OS2 totaled over $88 million, or more than 
14 percent under baseline costs.

    Many small businesses expressed concern that strategic 
sourcing could harm their participation in the federal 
marketplace. However, the Administration is working to ensure 
that competitive small businesses can engage in strategic 
sourcing. Based on the types of experiences I have just 
described and, even more importantly, the steps we are taking 
to move the initiative forward, I am confident that competitive 
small businesses--of which there are many--will not only hold 
their own, but do even better. And, those small businesses that 
are currently less competitive will have opportunities to get 
in the game in the future by taking steps to strengthen 
themselves.

    Here are several key steps that the Administration is 
taking to increase opportunities for small businesses at the 
same time as we work to maximize the value of strategic 
sourcing:

    Agencies are required to seek increased participation by 
small businesses when pursuing strategic sourcing. Last 
December, OMB issued a blueprint for improving acquisition 
through strategic sourcing. M-13-02 (December 5, 2012). This 
document clearly articulates that all strategic sourcing 
opportunities shall seek to increase participation by small 
businesses. It specifically requires that all proposed 
strategic sourcing agreements must baseline small business use 
under current strategies and set goals to meet or exceed that 
baseline participation under the new strategic sourcing 
vehicles.

    These requirements are designed to ensure that small 
business participation is actively considered throughout 
acquisition planning--first by identifying how agencies 
currently use small businesses in meeting requirements for a 
particular commodity, second, by identifying vendors that could 
provide the commodity and the relative presence of small 
businesses in the market and then by receiving input from 
industry, particularly small businesses, to consider how 
requirements or business practices might be adjusted to 
increase small business participation. In addition to office 
supplies, a market where small business participation is 
strong, small business-friendly strategies have been used 
successfully in commodity categories where small business 
participation was traditionally not as strong, such as print 
management and wireless telecommunications [expense management] 
services.

    Government-wide strategic sourcing decisions will be made 
by a council that includes the Small Business Administration 
(SBA). M-13-02 established the Strategic Sourcing Leadership 
Council (SSLC) to facilitate the organized expansion of 
strategic sourcing. Under my direction, the seven largest 
buying agencies (the Departments of Defense, Energy, Homeland 
Security, Health and Human Services, and Veterans Affairs, the 
General Services Administration, and the National Aeronautics 
and Space Administration) along with the SBA have been working 
together and forming teams of commodity experts to analyze 
current spending and potential savings opportunities across the 
government in areas such as desktops and laptops, information 
technology software, janitorial and sanitation supplies and 
building maintenance and operations services.

    It is important to emphasize that OMB created the SSLC to 
ensure that our strategic sourcing efforts are measured and 
focused. We are not seeking to strategically source everything 
the government buys, nor will every strategic sourcing decision 
mean fewer participants. The goal is to maximize value for the 
taxpayer and that will take different forms depending on what 
the spend analysis reveals in terms of the nature of the 
commodity and the government's cost drivers.

    In some cases, commodity teams may recommend developing 
new, government-wide strategic sourcing vehicles to drive 
spending through a smaller number of vehicles that include 
contract-wide tiered pricing, or other appropriate strategies, 
to reduce prices as cumulative sales volume increases. However, 
in other cases, the decision may involve standardizing terms 
and conditions among existing vehicles so that we are better 
positioned for a sourcing event in the future. In all cases, 
agencies will require vendors to provide sufficient pricing, 
usage, and performance data to enable the government to improve 
its commodity management practices and monitor vendor 
performance and pricing changes throughout the life of the 
contract to ensure the benefits of strategic sourcing are 
maintained.

    For its part, SBA will continue to ensure this effort is 
providing maximized opportunities for small business 
contractors. Procurement Center Representatives continue to 
work with agencies and vendors to build awareness of any future 
sourcing events. SBA district offices and resource partners 
will train small businesses on how to most effectively compete. 
And all agencies are held accountable for meeting their small 
business contracting goals through SBA's annual scorecard.

    The Administration is actively promoting the use of tools 
to facilitate greater small business participation on contract 
vehicles that have been strategically sourced. Many strategic 
sourcing vehicles are built around multiple award contracts 
that allow multiple vendors to offer their products and 
services and compete for orders as needs arise. Thanks to the 
SBJA, agencies can now take greater advantage of tools to 
increase the participation of small businesses as prime 
contractors. These include reserves to increase the number of 
small business contract holders on the underlying multiple 
award contracts and set-asides at the order level. Both of 
these tools should help increase the amount of total spending 
that goes to small businesses on both government-wide and 
agency-wide vehicles that have been strategically sourced where 
it is not suitable to make a total business set-aside.

    In addition, we are actively exploring how agencies can 
take advantage of ``on ramps'' and ``off ramps.'' These tools 
allow agencies to enter into longer deals that are often 
required to get better prices and terms and conditions while 
giving small businesses that did not receive an award initially 
an opportunity to get onto the vehicle as slots open up, as may 
be the case where a current small business contractor no longer 
qualifies as a small business or where a current contract 
holder is routinely not participating when the agency asks for 
quotes or offers.

    Finally, we are taking advantage of opportunities for small 
businesses to pool their capabilities and become more 
competitive in responding to agency needs. In the case of 
office supplies, for example, one of the awardees was a 
consortium comprised of more than 100 individual small business 
participants.

    Moving Forward

    OFPP is committed to ensuring that agencies remain vigilant 
in their efforts to maintain fiscal discipline through a 
forward-leaning but measured application of smarter buying 
tools to achieve the best value for our taxpayers. OFPP is 
equally committed to ensuring that agencies provide maximum 
opportunities for small businesses in federal contracting and 
subcontracting, so that they may flourish and apply their 
talents to the many pressing demands facing our government. We 
must pursue these important goals in harmony, as we have been 
doing and will continue to do.

    While there is work ahead, we are making important 
progress. With agency leadership and continued management 
attention coupled with the steps I have outlined above, there 
is every reason to believe that strategic sourcing can generate 
positive results from our contracts and also foster greater 
small business participation. We look forward to working with 
you and other members of Congress on these important endeavors.

    I would be pleased to address any questions you may have.
    [GRAPHIC] [TIFF OMITTED] 81423.034
    
    Good morning Chairman Hanna, Ranking Member Meng, and 
Members of the Subcommittee. My name is Jeffrey Koses and I am 
the Director of Acquisition Operations of the U.S. General 
Services Administration's (GSA) Federal Acquisition Service 
(FAS), General Supplies and Services portfolio.

    I want to thank you for the opportunity to discuss GSA's 
accomplishments under the Federal Strategic Sourcing Initiative 
(or FSSI), our efforts to modernize the Multiple Award 
Schedules (MAS) program to keep pace with federal agency needs 
and industry changes, and small business success with GSA's 
government-wide contracts (GWACs). As America's buyer, GSA 
contracts with the private sector to provide commercial 
services and products that support Federal agencies. We strive 
to acquire the best possible deal for the taxpayer and to 
increase small business opportunity as part of helping federal 
agencies operate more efficiently.

    Several highlights of GSA's success in ensuring significant 
small business participation while delivering high value 
contracts include:

     76 percent of dollars went to small business in 
GSA's strategically sourced solution for office supplies

     34 percent of dollars awarded through the GSA 
Multiple Award Schedule (MAS) going to small business;

     More than 19 percent of Request for Quotes (RFQs) 
set-aside through GSA's E-Buy System for small businesses on 
MAS as a result of the Small Business Jobs Act of 2010;

     An A+ small business rating for GSA by the Small 
Business Administration for two consecutive years; and

     25 percent of all dollars awarded between GSA's 
Alliant and Alliant Small Business contracts are going to small 
businesses.

    Strategic Sourcing

    For many years, strategic sourcing has been a best practice 
in the private sector, and has resulted in significant savings. 
The Government Accountability Office (GAO) has found in a 
series of audits that the federal government can save billions 
of dollars through the application of strategic sourcing 
principles. In 2005, under former President Bush, the Office of 
Management Budget (OMB) launched a formal effort to promote 
strategic sourcing across government through a memorandum to 
Chief Acquisition Officers.

    Strategic sourcing received a renewed emphasis across 
government through a December 2012 memo from former Acting 
Director of OMB Jeffrey Zients creating a Strategic Sourcing 
Leadership Council (SSLC) comprised of the seven largest 
spending agencies, as well the Small Business Administration 
(SBA). This memorandum, among other things, directed GSA to 
establish 10 new strategic sourcing solutions: five each in 
2013 and 2014. To achieve this ambitious goal, GSA is working 
closely with OMB and the agencies making up the SSLC. The 
agencies participating in these efforts have strongly 
emphasized the importance of meeting their small business 
utilization objectives; GSA couldn't agree more. FSSI seeks to 
leverage the federal government's collective buying power in 
order to efficiently and effectively utilize taxpayer dollars 
and to increase dollars spent with small business.

    The Office Supplies (OS2) solution has served as the test 
case for this generation of federal strategic sourcing. GSA has 
used OS2 to realize substantial benefits for taxpayers. In 
audit GAO-12-178, GAO confirmed that agencies were saving money 
through the FSSI OS2 program.

    On June 1, 2010, GSA awarded BPAs to 15 contractors, 13 of 
whom were small businesses. Of these, 11 qualified under a 
socio-economic subcategory. There are 5 women owned small 
businesses, 2 service disabled veteran owned small businesses, 
3 small disadvantaged, and 1 disadvantaged woman-owned small 
business. In the office supplies industry, there are some 
consortia made up as coops of individual small businesses. One 
of the winners was a consortia, with over 100 individual small 
businesses participating in OS2.

    OS2 has resulted in direct savings of $88.7 million on 
spending of $607.9 million through April 2013. This savings is 
calculated as the difference between what agencies spend 
through strategic sourcing and what they would have spent had 
they received non-strategic sourcing pricing.

    GSA found that the FSSI had the added benefit of lowering 
prices charged by non-OS2 vendors. Prices for non-OS2 vendors 
are 10 percent lower, against a standard industry benchmark, 
than they were in 2010. This improved pricing has resulted in 
further savings of over $98 million beyond what's been directly 
saved through OS2.

    One of, if not the most significant, new element of OS2 is 
the ability to have greater transparency into pricing and how 
taxpayer dollars are being spent to drive even greater savings. 
OS2 contractors are required to report transactional data on 
all program sales. This level of financial information 
collection provides us for the first time with a deep vision 
into agency spending behavior. Over the last several months, 
GSA used this data to show contractors their pricing item by 
item, compared with their competitors. This empowered FSSI 
Office Supply contractors to understand their competitive 
position, and in many cases go back to their suppliers and 
strike better deals. After GSA shared this data, every one of 
the OS2 contractors sharply reduced prices. If the same 
ordering pattern holds for the period June 2013 through May 
2014 (same contractor, same item and same quantity) there would 
be a savings of $12 million as a result of these price 
reductions.

    Key successes of OS2 program include:

     An increase from 67 percent to over 76 percent of 
dollars spent with small business.

     A decrease from more than 250 percent to 10 
percent in price variability (the difference between high and 
low price for the same item).

     A reduction in contract duplication and 
administrative costs, a reduction in bid and proposal costs for 
industry, and an increase in time for acquisition professionals 
to work on mission priorities.

     Greater accountability of vendors for meeting 
performance goals.

     Knowledge and experience to help agencies 
implement future strategic sourcing solutions.

    Based on OMB's direction, GSA is working towards 
establishing strategic sourcing solutions for Fiscal Year 2013 
in the areas of:

     Wireless rate plans and devices (awarded May 20, 
2013)

     Large Desktop Publisher Software

     Print Management Phase 2

     Maintenance, Repair, and Operations Supplies, and

     Janitorial and Sanitation Supplies,

    GSA is exploring many other potential solutions for Fiscal 
Year 2014, and will announce these areas as the Strategic 
Sourcing Leadership Council approves standup of a Government-
wide commodity team.

    In conducting the commodity or service overview for 
strategic sourcing, one of our foundational questions addresses 
the impact of the solution on small business. Acting 
Administrator Tangherlini has made clear that expanded 
opportunity for small business is a crucial strategic sourcing 
success metric that will be monitored closely.

    We include the opportunity to expand percent of dollars 
going to small business, directly or as subcontractors, as a 
foundational element of strategic sourcing, and we are 
committed to ensuring small business opportunity all along the 
path of strategic sourcing. GSA believes strategic sourcing and 
small business success not only are not mutually exclusive, but 
can actively be harmonized.

    GSA has taken several specific steps to ensure small 
business opportunity, standardize process, simplify rules, show 
an open and transparent process, and demonstrate that the 
competition is fair.

    In the case of both Janitorial and Sanitation Supplies and 
our Maintenance and Repair Operations Supplies strategic 
sourcing initiatives, we are setting aside the majority of the 
awards for small business and we have broken down these 
categories in ways that maximize the opportunities for small 
business success.

    GSA's commitment to small business goes well beyond FSSI. 
We have received an A+ rating from the Small Business 
Administration for 2010 and 2011, and we look forward to 
building further on these successes.

    Multiple Award Schedules

    GSA believes that the Multiple Award Schedules (MAS) 
program represents the best opportunity for well-prepared, 
highly competitive small businesses anywhere in the government 
procurement world. Small businesses represent an estimated 80 
percent of all MAS vendors, and approximately 34 percent of the 
$38 billion dollars in sales go to small businesses. More 
importantly, when agencies use the MAS program the majority of 
users have a higher percentage of spending that goes to small 
business than when they use other acquisition vehicles.

    Federal agencies tell GSA that they use schedules because 
it saves them time and money. Agencies can experience up to a 
50 percent time savings using schedules over more traditional 
procurement practices. Still, we believe that there is 
substantial room for improvement in the MAS program.

    Over the last year, we have worked diligently with both 
small businesses and federal agencies, asking for input on how 
the MAS program can better meet their needs and how GSA can 
improve its support. We received and are working to implement 
many of the important suggestions yielded in these industry and 
agency conversations. Similarly, we are eager to hear your 
input as we work towards the common goals of achieving taxpayer 
savings and ensuring small business opportunity.

    When small businesses are informed, properly trained and 
ready to compete they succeed. For example, on GSA's National 
Information Technology Commodity Program, GSA awarded 44 BPAs 
to small businesses under schedule 70 for IT Commodities and 
ancillary services. The goals of this program are to drive down 
the cost of acquisition, and establish a more efficient and 
cost-effective buying process. We are only six months into the 
program, but the preliminary results are positive: federal 
agencies are reporting significant savings, an improved, easier 
to use process, and excellent customer service.

    To achieve greater savings, GSA must have greater 
visibility into key data across the MAS program. We know data 
is not a free good. However, if we extrapolate from the Office 
Supplies example and can achieve the same results on our other 
product based schedules, it could result in significant 
savings.

    In addition, by making the right transactional data 
available to small business, we can help them be more 
competitive and make good decisions about when and how to 
pursue federal business.

    Small Business Set-Asides

    One area of success for small business under the Multiple 
Award Schedules program is through our training focused on the 
discretionary set-aside rule, which came about as a result of 
section 1331 of the Small Business Jobs Act of 2010. Since 
April 1, 2012, through GSA's e-Buy system, we have set aside 
15,942 Requests for Quotation (RFQ) (more than 19 percent) for 
small business. For the month of April 2013, we set aside 22.5 
percent of all RFQs--great progress as the buying season kicks 
into high gear.

    GSA employs several methods to deliver our training, 
including classroom training, webinars, blogs, Continuous 
Learning Modules in the Federal Acquisition Institute (FAI) and 
Defense Acquisition University (DAU) portals, and GSA's YouTube 
channel.

    To date, we have trained more than 9,700 members of the 
acquisition workforce on proper use of Multiple Award Schedules 
and the utilization of Small Business, resulting in 32,071 
Continuous Learning Points being issued to acquisition 
workforce members. The government-wide and industry interest in 
this training is growing; more than 1,000 people participated 
in a recent GSA web training on ``GSA Schedules and Small 
Business Utilization.''

    We are very proud of our work to ensure the successful 
implementation of Section 1331. However, the true measure of 
success lies in the results, we are looking to see an increase 
in the percent of dollars going to Small Business.

    Government-Wide Contracts (GWACS)

    In early 2009, GSA awarded two sets of contracts to create 
a GWAC. These contracts, known as Alliant and Alliant Small 
Business, were designed for long term planning of large scale 
customized IT solution while strengthening opportunities for 
small businesses.

    To date, small businesses have won $1.3 billion under 
Alliant Small Business--25.9 percent of all dollars awarded 
between the two programs.

    In addition, under the prime Alliant contract, small 
businesses have been awarded $534 million in subcontracts.

    We are looking to replicate these successes with a new 
government-wide contract vehicle that would provide for 
integrated professional services. We see our proposed One 
Acquisition Solution for Integrated Services (OASIS) contract 
as a key to simplifying the acquisition of integrated 
professional services, and moving us to common labor category 
definitions, thus furthering a better dialogue within 
government and between government and industry.

    Conclusion

    At GSA, it is our goal to be good stewards of taxpayer 
dollars. This includes a focus on increasing small business 
opportunities for vendors committed to delivering the best 
value to the taxpayer.

    As we look to the future, GSA will continue to focus on 
strategic sourcing, modernizing the schedules program, 
improving our pricing and tools, raising our standards, 
offering the best training and customer service we can, and 
collecting the information and data that will help save 
taxpayer dollars. GSA will continue being a leader in opening 
dialogue with industry and our program will remain a doorway to 
opportunity for highly competitive small business.

    On behalf of GSA, thank you for this opportunity to appear 
before the committee and I would be happy to answer your 
questions.
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    June 19, 2013

    To: Chairman of the House Contracting and Workforce 
Subcommittee

    From: Bob Griffin, GSA Schedule Consultant, Contractor and 
Former DOD Schedules Customer

    Subject: Additional Input Re: Strategic Sourcing utilizing 
the GSA FSSI BPA and the GSA Multiple Award Schedule (MAS) 
Program

    Dear Congressman Hanna,

    I attended the June 13, 2013 hearing on Strategic Sourcing 
which you conducted and found it to be very beneficial and 
constructive. I thank you for that.

    I did want to bring to your attention a few more pertinent 
details concerning GSA FASs past performance in this area as 
well as their current policies which quite frankly effect 
businesses of all sizes but particularly Small Business. Lets 
look at two areas:

    1. GSAs internal numbers on FSSI Generated Savings in the 
Office Supplies area

    2. The concept and reality of maintaining ``continuously 
open'' GSA Schedule Solicitations

    FSSI Generated Savings Numbers:

    On June 13, 2013, Mr. Koses of GSA, FAS stated in his 
testimony to your subcommittee that the GSA Office Supplies 
FSSI initiatives had generated $88 million dollars in savings. 
That number was based on a spend of approximately $600 million 
and an average discount (as compared to GSA Schedule Pricing) 
of 12.7%.

    On June 18, 2013 at his Senate Confirmation hearing, Mr. 
Tangherlini, GSAs Acting Administrator, stated in his testimony 
that the GSA Office Supplies FSSI initiatives had generated 
$127 million dollars in savings.

    This morning, June 9, 2013, I went into GSAs own Strategic 
Sourcing Metrics website at https://strategicsourcing.gov and 
found Office Supplies Savings through FSSI of $2.7 million 
based on Spend through FSSI of $17.4 million based on October 
2012 data.

    Which number is correct?? I think we also need to remember 
that those providing these numbers are the same individuals 
that provided a Demand Based Model (DMB) savings of $26 million 
to Congressman Graves in an early 2013 hearing. This number 
then was reduced to the range of $3.6-$6 million dollars due to 
your staff's estimates and GSAs recalculations. GSA has also 
been cited by GAO on past instances where GSAs numbers were far 
off the mark on estimating potential savings. I have been 
involved with GSA, FAS as a Schedules Customer, Contractor and 
Consultant for more than 25 years and their numbers are rarely 
correct. I have generated FOIA requests in this and other areas 
as of May 22nd and have not yet received those results to 
further amplify this point.

    You also need to understand that GSA, FAS is basing their 
prediction/forecast of a 12.7% average discount on Office 
Supplies FSSI OS1 and OS2 as compared with typical GSA Schedule 
75 Contractor pricing. This in my judgement is based on 
incomplete pricing data as far as actual Schedule Purchase 
Prices may have been. GSA Schedule Pricing as awarded is a 
Maximum Not To Exceed Price. Schedule Contractors are 
authorized to provide Spot Discounts off awarded pricing and 
Quantity and Volume Discounts. If you look at the wording of 
almost all product and services RFQs that appear on GSA Ebuy or 
come agency direct, you will see wording that Contractors are 
``highly encouraged'' to give additional pricing discounts in 
this RFQ. This was a norm in prior years on orders that 
exceeded the Maximum Order Threshold or MOT but has in recent 
times been a standard request regardless of the size of the 
order. This means that GSA does not have the pricing 
information necessary to make the claim of a 12.7% savings. If 
they had the information they would already be using it in 
their new Price Right Pricing Tool. They are not. They are 
developing the concept using Delivery Services Pricing.

    Maintaining ``Continuously Open'' GSA Schedule 
Solicitations:

    Lets look at GSA, FASs record on GSA Schedule 75 Office 
Supplies. On October 1, 2010, GSA Schedule 75 was closed with a 
notice that it would be reopened on October 1, 2012 to receive 
new offers. In September 2012, after industry had repeatedly 
inquired, they were told that Schedule 75 would remain closed 
and that its status would be reviewed again in 2013 for 
reopening on October 1, 2013. That is not the whole story 
though. In early 2010, Schedule 75 was refreshed or revised and 
contract wording was placed in the solicitation that stated 
that in order to meet the new pricing metric the offeror would 
have to provide 3 high volume invoices in the past 3 months 
from the Most Favored Customer for each and every product that 
was to be offered on the Schedule. This in effect closed the 
Schedule 75 to many offerors who formerly would have qualified. 
So in reality this schedule was barely open months before 
closing on October 2010. I remember attending a GSA schedule 
presentation at 26 Federal Plaza in New York City that Spring 
and asking the reason for the change which no other schedule 
had put in place. The presenter who was a Schedule 75 
Contracting Officer stated that ``that's just the way it is.'' 
I might add that the GSA National Admin Services and Office 
Supplies Center in New York City is currently using that 
pricing language in all its product schedules.

    Had that pricing language been in place for the past 10 
years Schedule 75 Office Supplies would have bee a very small 
schedule dominated by large business and most if not all of the 
current FSSI BPA Small Business Contractors would not have even 
gained a Schedule 75 contract let alone won an FSSI BPA.

    On June 12, 2013 I provided Ms. Emily Murphy, your stellar 
Senior Contracting Council, with two new examples that are anti 
small business and very restrictive that will in fact allow GSA 
to tell you that the GSA Schedules Program remains 
``continuously open'' with the exception of Schedule 75. 
However, they will be ``continuously open'' in name only for 
Small Business and Large Business alike. These two items of 
contract language changes to GSA schedule offer qualifications 
are probably the most significant in the past 20 years and 
definitely have an effect on the ``continuously open'' status 
of Schedules. This is analogous to a store owner changing his 
admission policy from store capacity of 50 with an entry fee of 
$25 to a store capacity of 5 with an entry fee of $2500. The 
store remains ``continuously open'' but realistically open to 
only a few. It's a game of semantics with the American people 
being the loser.

    The first of these two items is called ``Full Products and 
Broad Services Offerings''. It states that a GSA Schedule 
offeror or prospective new contractor must provide a full and 
broad offering on services and/or products. Offerors will not 
be accepted with only limited item/offering (product, labor 
category, training course, or fixed-price services) unless it 
represents a total solution for the Special Item Number (SINs). 
This will have a direct effect on existing Schedule Contractors 
who may very well have to cross this new requirements bridge on 
contract extension as well as brand new offerors that cannot 
meet this standard. This is particularly true of Small 
Business. Going back to the Office Supplies Schedule 75, we had 
the ability to offer a FULL CATALOG OFFER OR a PARTIAL CATALOG 
OFFER (although the same can be said for other Product 
Schedules). In the area of services Schedules, some schedule 
SINS may have 9-12 tasks or subtasks included within the SIN 
description. Does this new standard mean that a business must 
be able to provide and have provided all 9-12 subtask skills? 
This falls squarely on the back of Small Business.

    The second of these two items is called ``Fair and 
Reasonable Pricing''. It states that in order to determine fair 
and reasonable pricing, the Contracting Officer may consider 
many factors, including pricing on competitor contracts, 
historical pricing and currently available pricing in other 
venues. Offers which provide Most Favored Customer pricing, but 
which are not highly competitive will not be found fair and 
reasonable and will not be accepted. This is huge for existing 
contractors who will in fact have to start over on pricing and 
of course the new contract offerors or applicants. This also 
falls squarely on the back of Small Business. Just what is 
highly competitive pricing? What type of pricing was being 
negotiated and awarded by GSA Contracting Officers in the past? 
Ms. Murphy should be able to provide valuable insight on that 
point from an historical perspective.

    Both items are major paradigm changes in the GSA MAS 
Schedule Program and have appeared in the semi-annual January/
June Schedule Refresh/Revision Process. They are very broad, 
undefined and frankly hard to get your arms around. This is 
exactly what GSA, FAS desires as it will give Contracting 
Officers more discretion in making the decision as to which 
company makes it and which doesn't once again setting the new 
tempo of the ``continuously open'' GSA MAS Schedules program.

    Just how do those that are not able to attain a GSA 
Schedule have the opportunity to participate in level II which 
would be ``bidding on and winning'' an FSSI BPA.? They don't. 
You not only need to look at what happens to your base of 
already awarded GSA Schedule Contractors who drop out of the 
program or do not at least bid on FSSI BPAs like OS2 but also 
these new offerors or applicants who can't even begin in the 
process. The process as is currently optimizes only a very few 
companies, while many other qualified and eager companies are 
denied entry.

    I appreciate the opportunity to provide you with this 
additional detailed information. Thank you again for holding 
these subcommittee hearings. GSA, FAS has always seemed to 
believe that they are less accountable and subject to oversight 
since they generate much of their own funding due to their 
collection of the Industrial Funding Fee. They clearly need the 
level of oversight and supervision that your Subcommittee 
provides.

    Bob Griffin
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