[Senate Hearing 113-208]
[From the U.S. Government Publishing Office]
S. Hrg. 113-208
STRATEGIC SOURCING: LEVERAGING
THE GOVERNMENT'S BUYING POWER TO SAVE BILLIONS
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HEARING
before the
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
JULY 15, 2013
__________
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
THOMAS R. CARPER, Delaware Chairman
CARL LEVIN, Michigan TOM COBURN, Oklahoma
MARK L. PRYOR, Arkansas JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri ROB PORTMAN, Ohio
JON TESTER, Montana RAND PAUL, Kentucky
MARK BEGICH, Alaska MICHAEL B. ENZI, Wyoming
TAMMY BALDWIN, Wisconsin KELLY AYOTTE, New Hampshire
HEIDI HEITKAMP, North Dakota JEFF CHIESA, New Jersey
Richard J. Kessler, Staff Director
John P. Kilvington, Deputy Staff Director
Troy H. Cribb, Chief Counsel for Governmental Affairs
Susan B. Cribb, DHS Detailee
Keith B. Ashdown, Minority Staff Director
Christopher J. Barkley, Minority Deputy Staff Director
Kathryn M. Edelman, Minority Senior Investigator
Laura W. Kilbride, Chief Clerk
Lauren M. Corcoran, Hearing Clerk
C O N T E N T S
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Opening statements:
Page
Senator Carper............................................... 1
Senator Coburn............................................... 3
Senator Johnson.............................................. 16
Senator McCaskill............................................ 19
Prepared statements:
Senator Carper............................................... 37
WITNESSES
Monday, July 15, 2013
Hon. Joseph G. Jordan, Administrator, Office of Federal
Procurement Policy, Office of Management and Budget............ 5
Hon. Daniel M. Tangherlini, Administrator, General Services
Administration................................................. 8
Christina Chaplain, Director, Acquisition and Sourcing
Management, U.S. Government Accountability Office.............. 10
Alphabetical List of Witnesses
Chaplain, Christina:
Testimony.................................................... 10
Prepared statement........................................... 50
Jordan, Hon. Joseph G.:
Testimony.................................................... 5
Prepared statement........................................... 39
Tangherlini, Hon. Daniel M.:
Testimony.................................................... 8
Prepared statement........................................... 46
APPENDIX
Statement submitted for the Record from Roger D. Waldron with
attachment..................................................... 68
STRATEGIC SOURCING: LEVERAGING
THE GOVERNMENT'S BUYING POWER TO SAVE BILLIONS
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MONDAY, JULY 15, 2013
U.S. Senate,
Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 3:02 p.m., in
room SD-342, Dirksen Senate Office Building, Hon. Thomas R.
Carper, Chairman of the Committee, presiding.
Present: Senators Carper, McCaskill, Coburn, and Johnson.
OPENING STATEMENT OF CHAIRMAN CARPER
Chairman Carper. The hearing will remain in order. This is
a very orderly audience and panel. I want to welcome you all
here today.
Last week, you may know, the President announced a new
management initiative for his Administration to be led by
Sylvia Burwell, no stranger to us, the new Director of the
Office of Management and Budget (OMB). The goal of the
initiative is to build a better, smarter, faster government.
Today's hearing topic, Strategic Sourcing, is one that should
be central to that initiative.
Strategic sourcing is a process that moves an organization
from numerous individual procurements to a broader aggregate
and, frankly, a more thoughtful approach to achieve savings. As
my colleagues have heard me say often, I believe there are
three essential elements to solving our Nation's financial
challenges.
We must address both spending and revenues in a balanced
approach, we must rein in the cost of entitlement programs in a
way that does not savage the poor or elderly, and through
better management of government programs, we must deliver
better services to the American people at a lower cost, or at
least the same cost.
The U.S. Government's departments and agencies spend over
$500 billion annually to buy goods and, beyond that, to buy
goods and services in support of their missions. With that much
money at stake, even a small gain in efficiency can save our
taxpayers billions of dollars. The budget deficit this year,
that OMB has revised, is at about $750 billion. We need every
billion that we can save.
Strategic sourcing is an example of the kind of low-hanging
fruit that we ought to grab as we continue to search for ways
to reduce Federal spending and ensure that taxpayer dollars are
used prudently. It is a process that can help move an
organization from numerous individual procurements to a broader
aggregate and, frankly, smarter approach to achieve savings.
At a basic level, strategic sourcing is really just a fancy
way of saying buy in bulk or buy in quantity. But it also goes
beyond that. It involves a careful analysis of spending needs,
detailed market analysis to know what is available in the
private sector, and a constant and rigorous monitoring of
prices and performance to get the best prices and the best
value.
Over the past year, the Government Accountability Office
(GAO) has produced two reports for this Committee showing the
power of strategic sourcing in the private sector and its
promise for the government sector. The companies that GAO
examined rely on detailed data analysis and centralized
procurement systems to drive savings.
In fact, companies interviewed by GAO reported that they
have saved between 4 percent and 15 percent over prior years'
spending through strategic sourcing. If we applied that rate of
savings to the Federal Government, we could save anywhere
between $20 billion to $80 billion annually.
So you would think that the agencies would rush to adopt
strategic sourcing wherever possible. Unfortunately, that has
not been the case. Last fall, GAO examined four agencies that
account for about 80 percent of Federal Government contract
spending, the Department of Defense (DOD), Department of Energy
(DOE), Department of Homeland Security (DHS), and Veterans'
Affairs (VA).
And whereas the private sector companies examined by GAO
were managing almost 90 percent of their spending through
strategic sourcing, these four agencies collectively were
managing only 5 percent of their spending through strategic
sourcing. And only a tiny fraction of Federal spending is made
through the Federal Strategic Sourcing Initiative (FSSI), which
is a project overseen by the Office of Management and Budget
and administered by the General Services Administration (GSA),
with the goal of expanding the use of smarter procurement
practices across the Federal Government.
Last fall, GAO reported that in fiscal year (FY) 2011, only
$339 million out of the total of $537 billion in contract
spending had gone through the Federal Strategic Sourcing
Initiative. But GAO also found that even this small use of
strategic sourcing had saved by $60 million. As GAO has noted,
Federal agencies appear to behave more like medium-sized
unrelated businesses than the largest purchaser in the world,
which is what the United States really is.
Instead of leveraging the buying power of the whole
government, Federal agencies rely on hundreds of duplicative
contracts for commonly used items. And far too often, our
Federal contracting officers pay one price for a product or
service without knowing that another Federal agency, or even
another part of the same agency, is paying a completely
different price for the exact same good or service.
Today we are going to hear from two individuals in the
Administration who are leading the charge to drive the
government toward greater use of strategic sourcing, Joe
Jordan, the Administrator for Federal Procurement Policy at the
Office of Management and Budget, and Dan Tangherlini, who is
newly confirmed, and sworn in as the Administrator of General
Services Administration. Congratulations, Dan.
We will also hear from Cristina Chaplain, the Director of
Acquisition Sourcing and Management at GAO, to hear more about
GAO's illuminating work on this topic. I think there was some
discussion about bringing in a witness or two from the private
sector. I do not think we are going to do that today. I think
the idea would be to do maybe a subsequent hearing and to bring
in a panel from the private sector.
I hope that today's hearing will help us, in the meanwhile,
address several key questions. First, why are agencies not
making greater use of strategic sourcing? GAO found that the
General Services Administration itself purchased less than one-
third of its office supplies through strategic sourcing
contracts--even those who know better--back when it comes to
these issues?
Second, what is the potential for strategic sourcing in the
Federal Government? We need to acknowledge that a good deal of
what the government buys supports programs that are unique to
the government, weapon systems and space technology, for
example. The government may never utilize strategic sourcing to
the extent that the private sector does, but even a small
increase could save billions of dollars.
Mr. Jordan will testify today that the Federal Government
has saved nearly $300 million since fiscal year 2010 through
strategic sourcing. The early signs are promising, but there is
plenty of room for improvement.
The third point would be that I would like for our
witnesses to respond to criticisms that strategic sourcing will
crowd out small business vendors. This is a very real concern
and we hope that the Administration and Congress can work
together to make sure that small businesses have an ample
opportunity to participate in strategic sourcing.
And finally, I hope that this hearing will help chart out a
path for the Congress to play a constructive role in nudging or
pushing agencies to buy smarter and to save taxpayers dollars.
We look forward to hearing from each of you. We thank you for
joining us today. Let me yield now to our Ranking Member, Dr.
Coburn, for any comments he would like to make.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. Well, thank you all for being here, and I
thank GAO again for their great work.
The work is important, and yet, there are tons of
recommendations from 2 years ago that have not been acted upon.
I do not know what the process is, because we cannot find out
what the process is, and I appreciate the Chairman mentioning
that at some point in the future, we are going to have the
business community here to see how they do it, and I think it
is unfortunate that they are not here today, because when Wal-
Mart buys something, I guarantee you they get the best price.
When Honeywell buys something, I guarantee you they get the
best price.
They know how to do it and not having that contrast at this
hearing is unfortunate because there is a lot that we can learn
from the people who are out there every day. Their goal is to
get the best price with the best product on time with the
smallest inventory.
Mr. Jordan, one of the commitments that you told me when we
did your approval was that you would bring data-driven
solutions and results to your work at OMB. I am going to have
some questions specifically about that in terms of what we have
done thus far.
And Administrator Tangherlini, we talked about getting the
best price on everything for the government every time and
limiting some of the options. I look forward to asking a lot of
questions today.
I am not concerned about protecting small business. I am
concerned about getting the best price for this country because
we cannot afford not to.
And if they can compete, great; if they cannot, great. They
will find a market somewhere where they can supply their
product and in a true, free enterprise system, if they cannot
compete, they do not need to be in existence. They need to find
somewhere else to specialize and those resources should be
utilized somewhere else.
One of the things that I am concerned about is the lack of
direction from OMB on how you measure, how you validate savings
and the guidance that should have already come from OMB on
that, so I am looking forward to questions on that. This is an
important topic. We have about $500 billion a year we ought to
be able to save 10 to 15 percent on. That is a lot of money.
That is $75 billion a year that we ought to be able to save,
especially if we start looking at service contracts which
nobody has done yet to any significant degree.
We have $47 billion worth of information technology (IT)
contracts and we have not had an assessment on that, other than
what GAO tells us that half of it is wasted. So, we need to
look not only at performance, but also purchase price. So I
thank the Chairman for having the hearing and I look forward to
our witnesses' testimony.
Chairman Carper. You bet. Let me go ahead and introduce our
witnesses. First of all, the Hon. Joseph G. Jordan,
Administrator of the Office of Federal Procurement Policy
(OFPP) for the Office of Management and Budget. Mr. Jordan was
confirmed as the Administrator for Federal Procurement Policy
about a year ago in May 2012. As the Administrator, Mr. Jordan
is responsible for developing and implementing the acquisition
policies supporting over $500 billion in spending by the U.S.
Government each year.
Prior to serving at OMB, Mr. Jordan was the Associate
Administrator of Government Contracting and Business
Development at the Small Business Administration (SBA). Prior
to his service in government, Mr. Jordan was an Engagement
Manager at McKinsey & Company specializing in purchasing and
supply chain management strategy. Did you work there at all
with Sylvia Burwell?
Mr. Jordan. We did not overlap, no.
Chairman Carper. All right. We thank you very much for
joining us today. We look forward to your testimony.
Our next witness will be Dan Tangherlini, newly confirmed,
newly sworn in, tanned, fit and rested and now ready to resume
his full-time responsibilities, official responsibilities, as
the Administrator for General Services Administration. He was
sworn in July 5, about 10 days ago, following his 15 months of
service as the Acting Administrator of GSA.
Throughout his career, Mr. Tangherlini has been recognized
for fiscal and management leadership before joining GSA. He was
confirmed by the Senate in 2009 as Treasury Department's
Assistant Secretary for Management, Chief Financial Officer
(CFO), and Chief Performance Officer (CPO).
In these roles, Mr. Tangherlini served as the principal
policy advisor on the development and execution of the budget
and performance plans for Treasury and the internal management
of the Treasury and its bureau. We are happy you on board full-
time in your new confirmed position and congratulate you again.
Thanks for joining us.
Our third witness is Ms. Cristina Chaplain. Ms. Chaplain
currently serves as a Director, Acquisition and Sourcing
Manager at the U.S. Government Accountability Office. She has
responsibility for GAO assessment of military space
acquisition, National Aeronautics and Space Administration
(NASA), and the Missile Defense Agency (MDA).
In addition, Ms. Chaplain has led a variety of DOD-wide
contracting-related and best practice evaluations for GAO
including reviews of strategic sourcing practices, program
management best practices, revolving door issues, and conflicts
of interest. She has been with GAO for 21 years. Ms. Chaplain,
I want to welcome you to our hearing. We thank you for the
great work that GAO and you have continued to do for our
country.
Your entire statement will be made part of the record. If
you would like to summarize it, feel free to do so, and try to
keep your comments close to 5 minutes. If you go a little over
that, that is fine. If you go way over that, I will have to
rein you in. But, Mr. Jordan, you are up first. Please proceed.
Thank you. Thank you all again.
TESTIMONY OF THE HON. JOSEPH G. JORDAN,\1\ ADMINISTRATOR,
OFFICE OF FEDERAL PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND
BUDGET
Mr. Jordan. Thank you, Chairman Carper, Ranking Member
Coburn, and Members of the Committee. I appreciate the
opportunity to appear before you today to discuss the steps
that the Administration is taking to deliver more value to the
taxpayer through increased use of strategic sourcing.
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\1\ The prepared statement of Mr. Jordan appears in the Appendix on
page 39.
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Strategic sourcing enables the government to leverage our
vast buying power to save money and improve the management of
commodity goods and services. This Administration has
challenged agencies to buy smarter by ending unnecessary
contracts, reducing duplication, and using the government's
buying power to get the same goods and services at lower
prices. As a result, agencies have saved billions of taxpayer
dollars and strengthened their contracting practices.
In this fiscally constrained environment, we need to do
even more to drive unnecessary cost out of the system. We must
structure our acquisition planning and requirements development
processes to ensure that we are taking advantage of our
position as the world's largest buyer.
To that end, I would like to share with you some of the
actions we have taken to continue to build a stronger strategic
sourcing foundation within and among agencies, and discuss
recent steps to increase the number of solutions available.
Strategic sourcing has long been recognized by the private
sector and the Government Accountability Office as a best
practice, and successful companies around the world routinely
aggregate demand in order to drive costs out of their supply
chain. Federal organizations, however, have historically had
challenges leveraging their spend because agency budgets and
acquisition functions tend to be decentralized, and there is
often a lack of visibility into what other agencies plan to
purchase or what they are paying.
While we are still in the earlier stages, strategic
sourcing is working. Governmentwide strategic sourcing of
office supplies and domestic shipping services has already
achieved over $300 million in direct and indirect savings since
fiscal year 2010. While we continue to build on these initial
efforts, the benefits, both in reduced prices, cost avoidance,
and better commodity management are clear.
First, prices undergo continuous monitoring comparison.
Second, usage data is being provided to the agencies to improve
buying behavior and commodity management. Third, small business
participation has increased. And fourth, contracting officers,
program managers, and contracting officer representatives are
able to redirect their time and attention to acquiring and
managing more mission critical and higher risk contracts.
To build on our initial steps and increase the use of
strategic sourcing across government, last December OMB called
in the seven largest buying agencies as well as the Small
Business Administration, to form the Strategic Sourcing
Leadership Council (SSLC), which I chair. These Federal
agencies are working together to increase the number of
strategic sourcing solutions available, help shape policies and
processes to reduce the number of duplicative contracts, and
improve the government's commodity management practices.
To further strengthen leadership throughout the government
for strategic sourcing, OMB directed all 24 chief financial
officer act agencies to identify an accountable official to
coordinate their agency's internal efforts and to participate
in the Strategic Sourcing Leadership Council initiatives.
The Strategic Sourcing Leadership Council and GSA reviewed
over 20 initial commodity areas to identify those that were
best positioned for strategic sourcing over the next 2 years.
These initial commodity areas included information
technology such as laptops, desktops, and common software,
which represents some of our higher spend areas. Other areas
included janitorial and sanitation supplies, wireless services
and devices, laboratory supplies, and a variety of other
commodities that are generally procured in a decentralized
manner, are common to most agencies, and for which some basic
data were available for analysis.
Teams have been created to analyze each of the initial
commodity areas. These teams have developed preliminary
commodity profiles to better understand the total Federal
spend, savings potential, and small business participation.
For example, through this process, the Strategic Sourcing
Leadership Council learned that in 2012, agencies spent an
estimated $1.3 billion on wireless services and devices, using
more than 4,000 agreements for 800 different wireless plans,
resulting in prices that varied greatly for the same level of
service.
Agencies also spend about $600 million per year on
janitorial and sanitation supplies in a highly decentralized
manner with thousands of purchase cardholders requiring items
ranging from toilet paper to hand soap to motorized floor
buffers in small quantities.
The Strategic Sourcing Leadership Council is working to
ensure that the commodity teams are conducting sound analyses,
developing appropriate requirements, and establishing effective
acquisition strategies to position the government to get the
best deal possible by buying together.
Commodity teams are also well-suited to help identify
standardized terms and conditions for governmentwide use in
agency-specific vehicles. Strategic sourcing, when done right,
is also mutually reinforcing with this Administration's
commitment to increasing small business participation in
Federal contracting.
For example, by actively engaging the small business
community in the office supply strategic sourcing solution,
GSA, which served as the lead agency for this initiative,
increased total dollars going to small businesses from 67
percent prior to implementation of the strategic sourcing
solution to 76 percent in recent months.
To further support the work that the Strategic Sourcing
Leadership Council and many agencies are going to promote
strategic sourcing, the Office of Federal Procurement Policy is
taking a lead role on several initiatives to improve the
information flow among agencies, and to give contracting
officers and program managers the tools they need to make
smarter buying decisions.
These include strengthening the business case process to
reduce the number of overlapping or duplicative contracts for
supplies and services, and developing a prices-paid portal to
improve the transparency of the prices that contracting
officers have negotiated for similar goods and services.
Our understanding of how best to implement and measure the
success of strategic sourcing across large and diverse
organizations for complex and unique commodities is an evolving
process, but one that is making significant strides thanks to
the work of the Strategic Sourcing Leadership Council, the
commodity teams, and all of our agency partners.
OFPP is committed to reducing the cost of acquisition
through greater use of strategic sourcing. It is my top
priority and will continue to be one of the most effective
tools agencies have in making their scarce budget dollars go
farther to meet core mission needs. I would be pleased to
answer any questions that you may have.
Chairman Carper. Thank you, Mr. Jordan. Mr. Tangherlini,
would you please proceed?
TESTIMONY OF THE HON. DANIEL M. TANGHERLINI,\1\ ADMINISTRATOR,
U.S. GENERAL SERVICES ADMINISTRATION
Mr. Tangherlini. Thank you very much, Chairman Carper, Dr.
Coburn, Senator Johnson, Members and staff of the Committee. I
appreciate the opportunity to appear before you today. First, I
would like to take a moment to express my sincere appreciation
for your quick consideration of my nomination last month. I
greatly appreciate the vote of confidence and I look forward to
continuing to work with this Committee and to reform and
improve GSA.
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\1\ The prepared statement of Mr. Tangherlini appears in the
Appendix on page 46.
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Right now as budgets tighten across the Federal Government,
the General Services Administration, is uniquely positioned to
support our partner agencies so that they can focus their
energy and funding on their own important missions such as
securing our borders, keeping our food safe, or protecting air
quality; missions that are critical to the well-being of our
country and its people.
The Federal Strategic Sourcing Initiative is an integral
part of this effort. GSA currently has in place four strategic
sourcing vehicles, express and ground domestic delivery
service, office supplies, print management, and wireless. These
initiatives create significant savings by making purchases as
if we are a single, unified buyer rather than purchasing
through thousands of small, duplicative contracts.
By encouraging agencies to commit to the collective
purchase of certain commodities, GSA is able to negotiate
better prices and services while simultaneously reducing
wasteful contract duplication across government. For example,
by going out to the market as one large buyer for office
supplies, GSA has been able to negotiate prices for those
supplies that are 13 percent below what we have previously
paid. GSA has saved agencies more than $300 million since 2010
through these solutions.
Strategic sourcing also enables us to work with small
businesses across the country. In the area of office supplies
alone, 76 percent of our dollars are going to small businesses,
representing more than $460 million in sales. Through this
initiative, we have been able to save the government $200
million in purchases of common office supplies, while also
supporting small business.
Another benefit of the strategic sourcing program is that
these contracts provide greater visibility into pricing,
allowing the government to further reduce prices within
strategically sourced solutions, as well as other contract
vehicles. Contractors are required to report transactional data
on all program sales. For the first time, this level of
financial information collection provides us with a clear
picture of agency spending behavior.
Strategic sourcing also dramatically reduces agency
contracting cycle times and duplication, saving additional
administrative burden and costs. Based on an analysis of
average contracting timeframes for more than 15 agencies, we
found that using GSA's schedules is up to 50 percent faster for
an agency than pursuing their own often duplicative solution.
Strategic sourcing is able to eliminate the significant amount
of time and money wasted through thousands of duplicative
contracts across the government.
For instance, our work on strategic sourcing allowed us to
replace the more than 4,000 wireless agreements and 800
wireless plans that are currently scattered across agencies
with a single contract structure with four providers.
Significant progress is being made by both GSA and other
agencies to eliminate this duplication, but there is still more
we can do to streamline purchasing, improve service, and pursue
governmentwide contracting goals.
Over the next 2 years, in coordination with the Office of
Management and Budget, GSA will create 10 new governmentwide
strategic sourcing contracts for a range of products and
services commonly purchased by Federal agencies. GSA is working
toward establishing strategic sourcing solutions for fiscal
year 2013, in the areas of large desktop publisher software;
print management phase two; maintenance, repair, and operation
supplies; and janitorial and sanitation supplies.
These efforts, similar to the solutions for office supplies
and delivery services, will save hundreds of millions in
taxpayer dollars and deliver the best value to agency
customers. For these solutions, vendors will provide detailed
data on pricing and usage that allows us to drive even greater
savings for agencies.
In addition, we are working with agencies to show them the
savings that they are leaving on the table by not using
strategic sourcing. This pricing data has allowed us to
negotiate even greater savings from our vendors. GSA estimates
the potential savings from strategic sourcing at a billion
dollars annually when all 10 solutions are in place and
agencies are fully participating.
A key element to our success is that these solutions are
being created by the agencies with a cross-governmental team of
acquisition professionals and experts drafting the requests for
proposals, evaluating the solutions, and helping us to
implement the solutions in their agencies. The team decides
what products will go into the solution, what services they may
require, and which vendors we will select to provide us with
these products and services.
We are fortunate to have an outstanding new Commissioner of
the Federal Acquisition Service (FAS) to support strategic
sourcing in Tom Sharpe. Tom has almost 30 years of experience
in both the private and public sectors as an acquisition
leader. His years as both a vendor and a customer give our
agency a unique understanding of the needs of everyone involved
in the procurement process. I am confident he has the skills
and dedication to guide strategic sourcing moving forward.
We are also focused on increasing agency participation in
these contract vehicles. In order to help partner agencies
achieve greater savings for the taxpayer, I have been meeting
with agency Secretaries and Deputy Secretaries to discuss ways
in which we can collaborate. Among the topics I have been
discussing with them is an analysis of each agency's use of
schedules and opportunities to expand and improve cooperation.
We show the agencies that using GSA schedules is up to 50
percent faster than creating their own contracts, which
translates into millions of dollars saved in time and labor. We
also show them that GSA schedules are an excellent opportunity
to increase their small business participation.
At the same time, we are working with program and
acquisition staff from agencies across government to understand
their concerns about using GSA services so that we can better
tailor the schedules to their needs and show them the vast
array of procurement solutions our agency has to offer.
In the months ahead, GSA will continue to drive savings,
streamline agency procurement operations, and deliver the best
value for our partner agencies and the American people. As part
of this broad commitment to savings and efficiency, GSA will
continue to be a leader in developing and implementing
strategic sourcing solutions.
In fact, it was an early attempt to leverage the scale and
scope of the Federal Government through strategic sourcing that
led to the creation of GSA. Our Federal Acquisition Service
exists exclusively to aggregate the demand and purchases of the
Federal Government to get the best value in price. In that
sense, we kind of are the strategic sourcing agency of the
Federal Government.
I appreciate the opportunity to be here today and am happy
to answer any questions you might have. Thank you.
Chairman Carper. Thanks so much, Dan. Ms. Chaplain, please
proceed. Welcome.
TESTIMONY OF CRISTINA T. CHAPLAIN,\1\ DIRECTOR, ACQUISITION AND
SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Ms. Chaplain. Chairman Carper, Ranking Member Coburn, and
Members of the Committee, thank you for inviting me today to
discuss strategic sourcing in the Federal procurement arena. I
think your openings covered much of what I wanted to say in my
opening, so I am going to just emphasize a few points.
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\1\ The prepared statement of Ms. Chaplain appears in the Appendix
on page 50.
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First, what do leading companies do? We have reported that
commercial firms have saved 10 percent or more by leveraging
bulk purchasing power to negotiate savings on goods and
services. They subject 90 percent of what they buy to strategic
sourcing practices. By contrast, as you have noted, the
government's strategically sourcing about 5 percent.
That is the key to large savings, a modest reduction across
a wide base of purchases. To do so, companies analyze
suppliers, the number of contracts, and prices paid across the
company to identify inefficiencies such as paying different
prices for similar services, or not consolidating purchases
across the company to lower prices.
Monolithic procurement organizations are not needed to be
successful, but rather, a focus on leadership, shared data,
ongoing analysis of spending areas, and accountability. I would
also note that leading companies just do not view strategic
sourcing as bulk buying. There are many things you can do to
services and goods that are more complex that can get better
prices and be smarter buying. They just may be not be bulk, but
they can take you to a much better place for the company.
When Federal agencies do apply strategic sourcing
initiatives, they show they can also save on the order of 10
percent or more. The problem is, as you said, agencies tend to
focus on low-hanging fruit, that is, commodity-like products
such as office supplies. Unlike the private sector, this
approach produces small savings because higher spending
categories are being ignored.
There are many opportunities to expand the use of strategic
sourcing in the Federal arena. Our reports on duplication,
overlap, and the fragmentation across the government in recent
years, for example, have pointed out numerous instances where
the government buys goods and services in a fragmented fashion
with little insight into how purchases are taking place, little
action to standardize or make requirements less complex, and
little thought to leveraging buying power.
These include, just as examples, combat uniforms, foreign
language services, geospatial data investments, electronic
warfare systems and payloads, rocket launch services, unmanned
aerial vehicles (UAV), information technology, among others.
Moreover, we have recently reported that buying is fragmented
for DOD professional health care initiatives, satellite ground
stations, and DOD airships.
This does not mean that these goods and services can be
easily commodotized and bought in bulk, but it does mean, as I
said earlier, there are opportunities to buy them more
strategically, to centralize procurement knowledge, to act as
one buyer instead of many, to simplify requirements to increase
competition, to gain more insight into cost drivers and market
trends so the government is in a better negotiating position.
Our work has identified barriers to wider use of strategic
sourcing practices. These include difficulty collecting and
analyzing data, garnering leadership support and resources, a
reluctance to give up control over spending, and a hesitancy to
apply the approach to more sophisticated services which now
comprise a large share of Federal contract spending.
It has been over 10 years since the Government
Accountability Office first reported on the potential savings
offered by strategic sourcing techniques; yet, agencies have
made far too little progress. Recent actions taken by OMB and
others to improve Federal agency use of strategic sourcing are
promising, but given progress to date, more accountability,
leadership, and oversight is needed. The Congress can play an
important role in this regard.
This concludes my statement and I am happy to answer any
questions you have.
Chairman Carper. Ms. Chaplain, thanks. Thanks very much for
joining us. Thanks for your testimony. We are joined by Senator
McCaskill. Nice to see you, Claire.
Let me start with a question or two for you, Ms. Chaplain,
if we could. When I think of the Federal budget, total Federal
spending, I think of about 50 to 55, maybe 60 percent is for
entitlements. Another roughly, we will say 10, maybe 15 percent
is for interest. I think we have about 30 percent of our
overall spending that goes for discretionary spending. About
half of that is for defense, half of that 30 percent is for
non-defense discretionary.
How realistic is it for us to be able to go to the
entitlement part of our budget--which really is over half of
our budget now and growing, and interest, when you put them
together, they are about two-thirds of our spending. How
realistic is it for us to be able to apply strategic sourcing
and realized savings out of roughly two-thirds of our budget,
entitlements and interest?
Ms. Chaplain. I do not believe our work is saying it should
be pointed to those areas. It is concentrating on discretionary
spending. What we believe is that it should be applied to more
complex services and goods, and just services, for example, are
half of our acquisition spending dollars, which is over $500
billion total.
From there, we think it is realistic that they can be
applied to things, even like technical types of services,
program management support, administrative support, health care
support. There are a lot of services within that discretionary
budget that strategic sourcing is not being applied. There are
a lot of very complex goods that it is not being applied.
When you think of strategic sourcing, the automatic
assumption is, it does mean bulk buying and leverage buying and
then people stop at things like weapon systems, but there are
things you can do in that path to apply strategic sourcing.
Chairman Carper. We have a big Air Force base in Dover. We
have an airlift base. We have C-17s and C-5s. The Air Force is
modernizing all the C-5Bs and we are trying most of the C-5As,
but Dr. Coburn and I have had a hearing or two on C-5
modernization.
One of the things that we learned is, in negotiating with,
in this case, Lockheed and a lot of subcontractors, in
negotiating with them, if the government actually sticks to the
negotiated procurement schedule in terms of rehabbing and
overhauling the aircraft, modernizing the aircraft, we get a
certain price, and it may be the number of six, seven, eight
aircraft a year.
If we end up funding one, two, three, or four, it is
impossible for Lockheed and whoever they are working with to be
able to do the work at the agreed-to price. And I think we have
provisions in our contract with them to be able to move away
from the negotiated position.
So part of the obligation for us in the Congress is to make
sure that we fund in a responsible way the weapon systems that
we have agreed, in this case to modernize, to procure. It is
kind of difficult sometimes because the nature of the threat to
our country changes. So there are things that we can do on our
side in terms of better ensuring that we move toward strategic
sourcing.
One of those is what we are doing today, and that is
oversight hearings, and to continue to put a spotlight on the
agencies that are doing a pretty good job, the ones that are
actually moving in the right direction, and, frankly, those
that are not.
Give us some idea of what more we can do on the legislative
side to make sure that we do not leave all this money on the
table. There is a lot of money left on the table. It may not be
90 percent, 80 percent, or 70 percent that they reach in some
of the larger private companies, but there is real money on the
table. We are making some progress and I appreciate the efforts
that are described here today, but what more can we do to
expedite that and move forward with greater speed?
Ms. Chaplain. I think from our point of view, what is
really needed is more oversight, more pressure. Agencies have
been moving, but the pace has been slow. So Congress can start
by even just holding more oversight hearings, exploring the
issue further, and pressuring agencies. There could be
legislation that actually requires the government to set
governmentwide goals for strategic sourcing. There are none
right now. Goals could be tailored by agencies as well.
There could also be goals separated not just in terms of
how much we should strategically source, but what savings we
hope to get. And then from there, you can break things down in
terms of what should be done at the agency level. Should they
have accountable officials? What should their responsibilities
be? That is something you can ask the executive agencies to do.
Chairman Carper. Dr. Coburn and I, and I think others on
the Committee, are admirers of our new OMB Director. She called
us both a week or two ago and told us that the Administration
is about to write a rule out there in their management agenda.
And she was good enough to ask us what we thought--how should
we interact between the Legislative and Executive Branch to
better ensure that was a robust agenda and it was actually
going to be pursued and implemented.
This is a great area to highlight in terms of the
management agenda. Let me just ask Mr. Jordan, to what extent
has the Administration rolled out their management agenda?
Where does strategic sourcing fit in?
Mr. Jordan. Front and center. It is absolutely going to be
intricately involved in any management agenda, roll out and
execution efforts. Obviously, Director Burwell and the
President and the team have begun the process in a very public
fashion of developing the management agenda and, as you said,
want to reach out to all stakeholders to make sure that we get
the best ideas.
But I am quite confident that strategic sourcing and
furthering the good progress that we have already made will be
at the top of the list of things that you will see highlighted
in any management agenda.
Chairman Carper. We currently do not have a Deputy Director
for Management at OMB, as you know, and I understand that the
Administration is vetting somebody and we are hopeful that
vetting will be concluded soon, if not already, and that we
will have the name of a nominee to consider here.
How will that person, very senior person, within OMB, the
Deputy Director for Management, how will that person interface
with this particular issue of strategic sourcing?
Mr. Jordan. In a number of ways. Most personally to me,
they will be my boss, so they will be the ones lighting the
fire, continuing to light the fire under me, as Chair of the
Strategic Sourcing Leadership Council and Administration for
Federal Procurement Policy, to make sure that we are delivering
on the promise that strategic sourcing has shown in terms of--
--
Chairman Carper. So maybe when we have that hearing for
that nominee, this is something that we should turn to--to make
sure she is lighting that fire, he is lighting that fire?
Mr. Jordan. I leave all nominee-related questions to you,
Mr. Chairman.
Chairman Carper. All right. Let me ask, Mr. Tangherlini,
let me just stop there. I will telegraph my next question that
I want to ask you when we come back, when it is my turn again
to talk. Where are some good examples, some good models,
whether they are in the private sector or in the public sector,
maybe the non-profit community, that we can look to for good
practices that might be exportable that we could use as a model
for ourselves? With that, Dr. Coburn.
Senator Coburn. Mr. Jordan, have you issued guidelines on
how we measure savings in terms of strategic sourcing?
Mr. Jordan. Sir, we did issue guidance on December 6. We
issued an OMB memorandum signed by Jeff Zients that created the
Strategic Sourcing Leadership Council.
Senator Coburn. No, I understand that. I am asking you a
specific question.
Mr. Jordan. Sure.
Senator Coburn. Have you issued guidelines to the agencies
on how they will measure the savings from strategic sourcing
purchasing?
Mr. Jordan. No, because the----
Senator Coburn. OK. The answer is no. So the point is, here
is my question to you.
Mr. Jordan. Sure.
Senator Coburn. How do you know what your savings are?
Because every agency is actually measuring that different
according to what we have looked at.
Mr. Jordan. Well, actually, for the Federal Strategic
Sourcing Initiative vehicles, the governmentwide vehicles, that
the Strategic Sourcing Leadership Council creates and GSA, in
many cases, runs point on, we have a savings methodology by the
category. One of the complicating factors is, the drivers of
cost, and therefore the drivers of savings, are different
depending on what you are buying.
So for domestic shipping services, we have a savings
methodology and that is how we arrived at some of the savings
figures early. Same thing for office supplies, wireless as we
roll that out, print management, et cetera. So we found that it
is critically important to make sure that we are measuring
savings in a consistent way for these governmentwide vehicles,
but we want to leave it to the commodity teams to come up with
how to do that.
And then in terms of the agency-specific efforts, which
were a big piece of this as well, you are absolutely right,
that one of our big challenges is to continue to drive
standardization in the way agencies are calculating the
savings. The challenge there is, there are broad questions
about how exactly you capture strategic sourcing savings. I did
this in the private sector and I know they struggle with the
same things.
GAO's report said for services, the private sector
companies they talked to saved between 4 and 15 percent, but
they specifically said, that is 4 and 15 percent in the first
year versus what they had spent the year before. What do you do
in year two? And do you measure versus a base year? Do you
measure versus just the prior year? How do we appropriately
capture the savings over time is a complicated question and we
care deeply about this.
You are absolutely right. I still remain firmly committed
to data-driven analysis, but first we need a collective
agreement on what are some thorny issues in the methodology.
And second, we need the data, which is why a prices-paid portal
is so important.
Senator Coburn. So when are the agencies going to see the
guidelines with which to make the reporting requirements to
you? I am an accountant by my first training and these are not
hard concepts to me. There are facts, there are assumptions. If
they are going to allocate savings a certain way, they ought to
have to footnote what the assumption was when they did it.
But with an absence of guidelines, you do not know that
your data is right. And that is our problem in the Federal
Government. And my big disappointment is, there have not been
guidelines issued so that we have a uniform and consistent way
in which we measure what the real savings are. How do you
calculate the labor saved? It is not hard to calculate the
price differential, that is the easy part. So that would be one
thing that I am interested in.
One of the other things in reading and preparing for this
hearing that is a real contrast to me versus I see what you all
are doing and what GSA is doing, is business does not go for
the low-hanging fruit first. They go where the money is, where
the biggest money is. And so, you all have done a very good job
in starting this. I am not critical of that. I think the
effort, it has not been there before and I congratulate you
that it is there.
But when you look at contracts, and this Committee has
looked at a lot of contracts, especially IT contracts and
Defense procurement contracts, we actually know on the C-5s
that we could have actually bought the engines for a million
dollars less had we placed an order for them. Nobody in the
government ever called GE and asked them before I did.
So the point is, is the businesses that we have talked to,
and my staff have talked to, they go where the biggest dollars
are first, regardless of how hard it is. That is where the
biggest savings are. And so, if we can go from 4 to 15 percent
somewhere, we have $500 billion, 15 percent of that is $75
billion. We ought to be going where the big money is while you
do this other area.
I would just be interested in, where are you on that in
terms of contracts and trying to get strategic sourcing on
contracts, whether it be information systems or other
categories. No matter what it is, where are we in terms of
looking at the service contracts, over $300 billion a year?
Mr. Jordan. Sure. So I would disaggregate strategic
sourcing into three buckets. The first is the Federal Strategic
Sourcing Initiative, which is where a lot of the focus gets
placed because it is a more formal governmentwide effort, and
that is where you see things like office supplies, domestic
delivery, wireless, things as you correctly said are a little
bit lower on the complexity or value chain. We want to prove
those efforts. We want to make sure we can deliver on
standardized requirements, agency needs, and the savings.
Then there is strategic sourcing which can be done at an
agency-wide level and that is where you begin to look at some
of the efforts that DHS has done, Commerce, others that have
looked absolutely at the IT items that you referenced in ways
that you can really drive either volume-based discounting or
just general buying smarter.
Then there is the third bucket, which is applying strategic
sourcing principles to categories that you would not
strategically source overall like the top category of goods and
services we buy, fixed-wing aircraft. We are probably not going
to just do a bulk rate discount, but there are a number of
these commodity management principles that we are working with
DOD and others to apply.
So we set up the Strategic Sourcing Leadership Council to
vet and agree on and surface the opportunities for
governmentwide strategic sourcing, but then every agency now
has to have, and does have, a strategic sourcing accountable
official so that we can tie all of these things together.
So I absolutely agree that you want to go where the dollars
are, but at the same time, since we are in a crawl-walk-run
progression and we are much more in walk than run at this
point, we want to continue to prove the value to all the
agencies so that we can build the momentum initiative by
initiative and continue to improve.
Senator Coburn. Well, we are 8 years into this. I will just
give you a little tidbit of information. I asked the head of
Lockheed that if we placed the order for a fixed number over a
period of 10 years of F-35s, what would the discount be? He
shook my hand and said, I will give you 15 percent off. Nobody
had ever asked him that question. Nobody at the Pentagon,
nobody in the Administration, nobody ever anywhere had asked
that question.
Now, he is no longer head of Lockheed. I do not know if it
is because he answered that question or not, but the fact is,
being able to get a reliable flow of information, is good for
suppliers as well as good for us. We will come back and talk
about that further.
Chairman Carper. Senator Johnson, you are next and then
Senator McCaskill.
OPENING STATEMENT OF SENATOR JOHNSON
Senator Johnson. Thank you, Mr. Chairman, and thank you all
for your testimony. I came from the business world. I was in
business for 31 years. I think strategic purchasing has been
around certainly all the years I was in business. How long have
we been trying to do this in the Federal Government? How many
different initiatives has the Federal Government tried to
undertake to do strategic purchasing? Mr. Jordan.
Mr. Jordan. I do not know that I have a comprehensive
figure, but I know that 2005 was the first memo that seemed to
kickstart the effort in earnest. But certainly, it has felt
like there is a significant reinvigoration since our December 6
memo and some of the Federal Strategic Sourcing Initiative
(FSSI).
Senator Johnson. I am getting another answer here.
Senator Coburn. It is the Grace Commission.
Senator Johnson. OK. So the question is, why have we not
progressed any further in the Grace Commission, which was the
1980s, right?
Senator Coburn. Yes.
Senator Johnson. I was in business starting in 1979. Ms.
Chaplain, you are exactly right. It is about information, it is
about data, it is about accountability, but let me throw
another word out there, incentives. Why does business do it?
Because business has to make a profit. Now, every business
manager that is undergoing this strategic purchasing does not
necessarily have that profit motive, but they are being driven
by the profit motive because their manager is telling them,
your budget has just been cut by 10 percent.
So that would be the question I have for you. How can we
instill an incentive into a government bureaucracy to actually
start accomplishing some of this stuff, which should have
truthfully been accomplished and implemented decades ago? Mr.
Jordan.
Mr. Jordan. Senator, I absolutely think you hit the nail on
the head with the incentive challenge, and having done this in
the private sector and engaged the President's Management
Advisory Board, private sector Chief Executive Officers (CEOs)
on this question, it all comes down to, how do we align the
incentives with the behaviors we want to drive.
So what are we doing on that absent a profit motive that
exists in the private sector?
Senator Johnson. Well, I will tell you one thing we are
doing, sequester. That is a kind of incentive, is it not? And
it has not been utilized properly. What we have done is, rather
than utilize sequester as an incentive to actually get in here
and do what makes sense in terms of reining in government
spending, we scream about it and we try and create the most
pain for it, or from it. I am sorry I interrupted you.
Mr. Jordan. But what are we doing on incentives, which was
your original question. And one of the big things is shining a
light, increasing the transparency, something Dr. Coburn and I
talked about before I was confirmed, and we are creating a
prices-paid portal because what you can do is show how much we
are paying, different agencies, different contracting officers
are paying----
Senator Johnson. That is absolutely vital, correct.
Mr. Jordan. And then that will help what we have seen over
and over again in the private sector that helps drive the
behavior to the smarter buying techniques and the lower cost
option. So that is what we are trying to do, is use a
combination of our own guidance, my bully pulpit and
transparency to drive these behaviors.
Senator Johnson. I just want to suggest, I have sat through
enough hearings now in 2\1/2\ years of how do you reform
government. I hear methodology, I hear bureaucratic gobbly gook
and it has not worked in 25, 30 years. I do not see that it is
going to work in the next 5 years either. We have actually got
to provide real strong incentives.
Ms. Chaplain, what is the resistance on the part of
agencies? Why are they not taking a look at the information and
looking at a best practice and trying to trim their budgets
utilizing these tried and true techniques from the private
sector?
Ms. Chaplain. There are some negative incentives. If they
do claim savings, they might get their savings taken away from
them.
Senator Johnson. They are budget cut.
Ms. Chaplain. Yes.
Senator Johnson. And they do not want to do that.
Ms. Chaplain. Right.
Senator Johnson. So really, the incentive in government is
failure actually pays off in government, does it not?
Ms. Chaplain. Exactly.
Senator Johnson. OK.
Ms. Chaplain. There is also a resistance just to lose
control over spending. That was told to us a number of times.
When you talk about incentives, DHS did put incentives in the
Senior Executive Service (SES) contracts to use strategic
sourcing, and they are an agency that is ahead of others. They
have about 20 percent of their spending going through strategic
sourcing. And the leading companies likewise put incentives
into executive contracts. That is the best way to get people to
behave and overcome these perceptions.
Senator Johnson. But in terms of--talking about incentives,
are you talking about incentives to the suppliers? Are you
talking about incentives to the managers who are actually
making the decisions to purchase?
Ms. Chaplain. Both. So for managers who are responsible for
spending, acquiring stuff for a company, have incentives in
their contracts to use strategic sourcing techniques, to follow
the vehicles that the company has in place.
Senator Johnson. So give me an example of the incentive for
an SES manager that is in place?
Ms. Chaplain. I would say probably for DHS, it is to use
one of their strategic sourcing vehicles to do their
procurements versus doing the procurements on their own. There
would be incentives in place for that.
Senator Johnson. But what kind of incentives? Are we
talking financial incentives in terms of pay, merit based pay
or they will just get a commendation in their employee file?
Ms. Chaplain. Yes, it is probably part of their bonus
calculation, is what I am assuming.
Senator Johnson. So those have not really worked that well
then. Would that be your conclusion? Do you really think that
is as good an incentive as what the private sector realizes
when it----
Ms. Chaplain. If you look at bonuses in the government,
they are not comparable to the private sector, but for DHS, it
does have better performance on strategic sourcing, so I would
have to imagine their incentives at least are there in an SES
contract. In the private sector world, the incentives might be
more meaningful monetary-wise. And if you do not do it, what
happens? I think the incentives there are more real.
Senator Johnson. OK. So again, I am not trying to beat up
on the witnesses here. I am just trying to point out the
futility--and we are seeing it. We have witnessed the futility
over decades of trying to do this methodology when what we need
is we need strong incentives, and they are financial
incentives, either in pay or in budget cuts to actually start
implementing this.
Mr. Tangherlini, what are the criteria that you are using
in terms of targeting the priorities for these types of
purchasing strategies?
Mr. Tangherlini. So we are participating in the Strategic
Sourcing Leadership Council and bringing the agencies together
and trying to identify opportunities where there are lots of
overlap between what the agencies are buying and seeing
opportunities that perhaps if we buy together, such as wireless
service, basic simple things, that we can begin to build a
track record that allows us then to graduate into the more
complicated things, as Ms. Chaplain was talking about.
Senator Johnson. OK. In case I do not have a second round,
I do want to throw a cautionary tale about the risk to the
supplier base. I think these things work great when you have a
large supplier base. I think you need to be very careful when
you have a very limited supplier base, because I have seen it
in business where you basically ratcheted that thing down so
you have a monopoly buyer. But then pretty soon you end up with
a monopoly provider as well. So that is something that you need
to be careful of. Thank you, Mr. Chairman.
Chairman Carper. And I am planning to have a second round,
and if you want to stick around, you are more than welcome to
participate in it. Senator McCaskill, welcome.
OPENING STATEMENT OF SENATOR MCCASKILL
Senator McCaskill. Thank you, Mr. Chairman. The Contracting
Subcommittee that I have worked on the last several years had a
hearing on this subject matter in 2010, and I am sure that some
of you have had a chance to look at some of what we did in that
hearing.
One of the things that I was shocked to learn was this
bizarre thing we have in the Federal Government where one
agency sells to another agency and makes money off of it, which
is weird. I mean, why is one Federal agency making money off
selling stuff to another Federal agency? Why are they not all
buying out of the same contract and paying less money?
Is that still as common as it was when we did our hearing
back in 2010?
Mr. Jordan. I think agencies buying on behalf of other
agencies and assisting in the acquisition and therefore--
because there is administrative costs to procuring a good,
overseeing the contract, et cetera, taking a small percentage
for that service is something that happens. But selling----
Senator McCaskill. But we found, Mr. Jordan, that they were
advertising. One agency was saying, ``Hey, buy from us,''
because they were depending on--I mean, it was interesting
because it was like a business model within the government
where one agency was out hawking, ``Buy your stuff from us,''
``Go through us for your contracts,'' ``Hire your consultant to
help you with your contracting testimony at the contracting
hearing through our contracting consultant vehicle.'' It was
bizarre.
Mr. Jordan. I think one of the things, too, that has
happened since then, which shows a lot of the strides we have
made in interagency contracting is interagency contracting
itself was on the GAO's high risk list at that time.
This year it was removed from GAO's high risk list. So that
shows that a lot of these things of who is in charge of
managing the procurement of that goods and services, the
oversight, and the shared responsibility between the
acquisition center and the user needs to be robust, and we feel
like we have addressed a number of those things. And
thankfully, GAO agrees and it has really helped promote the
right type of interagency acquisition.
Senator Coburn [Presiding]. Would the Senator from Missouri
yield for a second?
Senator McCaskill. Sure.
Senator Coburn. In the evening driving home--I listen to
WTOP. Have you ever listened to the advertisements for
contractor services on there? And how many purchasing people we
must have in the Federal Government when they are going to
spend that kind of dollars time after time after time to try to
sell their product to somebody, rather than it going through a
process? In other words, they are advertising directly to the
purchasing person that is listening to that radio show hoping
to sell, not on price, but on service.
Senator McCaskill. Let me also, Ms. Chaplain, I wish that
you had data that would show that there has been some impact on
performance bonuses from something like using strategic
sourcing contracts. But our investigation showed, and I know
Mr. Tangherlini has done a very good job of stopping this, but
honestly, Senior Executive Service bonuses, are like the sun
coming up in the morning. I mean, there really were very few
Senior Executive Service people that did not see their bonus as
a right, an entitlement no matter what.
I mean, we had a witness in front of one our hearings that
basically was not completely truthful about something. Guess
what she got that year. She got her performance bonus. I mean,
it was ridiculous! And so, I have a hard time believing, when
we looked, that the vast majority of them were just getting
them. There was not really any analysis going on.
So if there are incentives, I would really appreciate you
getting back to us and telling us what they are, because I
think everybody was getting the bonuses. And if I am wrong
about that, I would like the data to show us that we are wrong
about that, because that has been the common thing in the
Federal Government. If you are SES, you get a five-figure
bonus, no matter what.
Ms. Chaplain. We can provide you data on what we know about
the DHS incentives. We did not explore the actual results of
those incentives, nor have we done anything governmentwide with
respect to that yet.
Senator McCaskill. It would be great because, I mean,
Senator Johnson is right. Until we incentivize this behavior,
the incentive is to buy a lot at the end of the year so it
looks like your budget is tight. The incentive is to not save
money because then the money you have saved might go to another
agency.
It is a counter-incentive and we have to figure out a way
to clean that up, because until we have the right incentives in
place, it is a little bit like the delivery of health care.
Until we have the right incentives in place, we are not going
to really ever do anything other than what they have, with all
due respect, I know you guys are doing better, but there are
still a lot of councils. It is still a lot of hemming and
hawing about guidance. It is still a lot of, ``Hey, there is a
new sheriff in town and you are going to strategically source
what you buy,'' period. I mean, that is what we need to be
saying on this stuff.
On food contracts, we also discovered pretty outrageous
stuff on food contracts in terms of rebates. And basically, I
would like to find out--when I sent Mr. Zients a letter in
December of last year on the rebates the government is failing
to collect from food service contracts, you stated that you
recently met with key industry stakeholders to discuss food
service contracts and see if we cannot increase transparency in
the supply chain and recover some of that money that they are
enriching themselves, I think, unjustly at taxpayer expense.
What came out of those meetings, Mr. Jordan, and what kind
of good news can you tell me on food contracts?
Mr. Jordan. Sure. So as you said, after you wrote the
letter to Acting Administrator Zients, which brought it to our
attention, I convened the industry stakeholders so I could get
their perspective on what was going on, then made sure to
respond promptly.
But since even sending that letter, we convened DOD, VA,
and the U.S. Department of Agriculture (USDA) and they are now
forming a team under the Strategic Sourcing Leadership Council
to baseline their spends, compare their contracts, the rebates
that you focused on, rightfully, in that letter, and determine
what the right path for it is.
So they have identified team members already and plan to
meet in the next 2 or 3 weeks on the SSLC task force. So we did
bring it under this management structure so that we could make
sure to capture any savings that were available.
Senator McCaskill. Do you think that there will be a
governmentwide policy on rebates for food service contracts?
Mr. Jordan. It is too early for me to say what the terms
and conditions of the Strategic Sourcing Leadership Council
solution will be, but I can absolutely keep you and your staff
up to speed as it progresses through the process, yes.
Senator McCaskill. So what do you think, 6 months, 2
months? Can you give us any kind of--I would like, kind of, to
hold your feet to the fire on this.
Mr. Jordan. Sure. Can I----
Senator McCaskill. I am sure you are not surprised at that.
Mr. Jordan. No, ma'am. Can I followup in, say, 2 or 3 weeks
with what the path forward looks like after they have had a
chance to meet?
Senator McCaskill. I would like a timeline so we can have
some accountability, and I want you all to feel like you are
under the deadline of some timelines, because there is real
money there and it is outrageous when you really get in the
weeds and look at what is going on with these food contracts.
Thank you, Mr. Chairman.
Chairman Carper [Presiding]. You bet. Thank you, Senator
McCaskill.
I told you earlier that I telegraphed my pitch and said I
would come back and just ask, what are some good models for us
to look to, to see who we might emulate? Could be within the
Federal Government, maybe in other parts of the public sector.
Could be States that are doing an especially good job at this
kind of thing. Could be in the non-profit world, I suppose.
But what are some good role models for us that we might
actually look to and figure out how do we export that to the
Federal Government? Please.
Mr. Jordan. Well, so I have worked with private sector and
now certainly public sector, non-profits, sports league who
have all engaged in strategic sourcing efforts and I thought
that GAO did quite a good job in highlighting certain private
sector entities that have strategic sourcing at the forefront
of their supply chain management strategy and really their
profit strategy overall.
Wal-Mart was one of the companies called down. Of course,
my new boss, who you spoke favorably of earlier, comes from
there and has a passion for strategic sourcing and furthering
and amplifying the efforts that we have undertaken. Some of the
other companies that are on the list are ones that I have
worked with. The President's Management Advisory Board, we did
site visits with a few of their companies that have had success
in this area.
And there are agencies such as Homeland Security and others
that Ms. Chaplain highlighted and the report highlights that
have had great success here. But I think because each commodity
category is a little bit different and the scale of the
government's buying, which is why this is so important, is so
different where different agencies coming together is not like
one company bringing itself together.
It is like bringing all of these Fortune 500 companies
together. That is why there is so much potential for it, but
also why there are some unique complexities about our spend,
and the Strategic Sourcing Leadership Council having these
folks decide collectively and then we go forward on a unified
path will be so important. So there are a number of places we
are pulling best practices from.
Chairman Carper. Good. Mr. Tangherlini.
Mr. Tangherlini. I would just add to what Joe said, that as
part of our top-to-bottom review of the General Services
Administration, we went and talked to private sector entities.
We talked to a number of IT firms in Silicon Valley and, as the
GAO pointed out in their very helpful report, the focus is less
on the specific contract actions and more about contract
planning and goals for savings.
If we can get to the point where we can actually get
sufficient agency information around what they are going to
buy, how they plan to buy it, we can begin to overlap that with
other agencies, begin to develop a plan. We can begin to set
goals for savings that we can then work to attain and even move
into performance plans for executives.
So I think the real trick is, how do we begin to develop
enough success in this area that agencies want to sign on, that
they can begin to focus on those outcomes, and how can we begin
to actually describe the savings we can generate for them.
Chairman Carper. All right. Ms. Chaplain, same question.
Ms. Chaplain. Some of the other companies not mentioned yet
included Dell, Delphi, Pfizer. All were good examples. Also, as
mentioned earlier, DHS has more dollars going toward strategic
sourcing. They are getting very good savings.
Chairman Carper. What did you tell us, 20 percent?
Ms. Chaplain. Yes, 20 percent.
Chairman Carper. As compared to?
Ms. Chaplain. Five percent or less.
Chairman Carper. Why do you suppose they are four times the
average?
Ms. Chaplain. They are dedicated to it more. There is more
leadership there. There are some incentives trying to be put in
place. And they have more centralized procurement for strategic
sourcing. You can look at DOD and look at the Defense Logistics
Agency (DLA), which by its nature is sort of the bulk buyer for
the Defense Department and they buy everything from fuels to
food to uniforms to kind of complex components, and they have
been doing it for a long time.
They categorized about 40 percent of their spending as
strategic sourcing, but it could be well that they are not
defining some things as strategic sourcing that really are. I
think that agency is worth looking at more in terms of how do
they do it. They have been doing it for a while. Whether they
employ the full range of techniques is another question, but
they seem to me to have been successful at doing this for a
little while.
Chairman Carper. I understand they buy a lot of bullets
over at the Department of Homeland Security. Are they getting a
good price for those bullets?
Ms. Chaplain. I have not looked into that issue, but I know
it is a popular topic.
Chairman Carper. Anybody know? I have heard that they get
pretty deep discounts. They should be because they are buying
quite a few. When you look at the private sector, companies,
they can tell their managers, You have to use strategic
sourcing and strategic purchasing, and they probably have a
better ability to, as Senator Johnson was saying, talking about
aligning the incentives.
One option with respect to mandating that agencies use
strategic sourcing would be not necessarily just to mandate
that they use it, but to say, If you do not want to use it, you
can opt out. If you want to opt out, you have to explain why,
rather than just basically make it an opt in. Say, you have to
opt out.
And did somebody figure out how do we do actually, as
Senator Johnson said, of better aligning the incentives for
managers and for agencies that do that sort of thing? So be
thinking out loud for me about the notion of opt out, saying,
Agencies, we expect you to use strategic sourcing. If you feel
that is not appropriate for some reason, tell us why, tell OMB
why, or tell GSA why. Just react to that, if you would, for me.
Mr. Jordan. You know----
Chairman Carper. Maybe that is too simple.
Mr. Jordan. Well, what I would say is, first of all, in the
memo that OMB put out, it says right in the front section, to
the extent practical, we are going to mandate the solutions,
and I know that has been a topic of much consternation, so we
are in constant back and forth dialogue with the small business
community, the business community at large, and agencies. But
it is certainly the spirit of some of these solutions.
We have to stop buying as if we are 180 mid-sized
businesses and buy like what we are, the largest procurer of
goods and services in the world. So that is in the memo that is
an underpinning of what we are doing. But then to your kind of
more tactical question of how do you do this, how do you
implement this? We have had conversations with your staff even
as recently as last week of what are the things that we can do
so that it gives agencies the flexibility to opt out, as you
say, but perhaps document the file or go through some process
so that the default mechanism and the easiest mechanism,
because it is the best mechanism is using the strategically
sourced solution.
Chairman Carper. Anybody else before I yield to Dr. Coburn?
Please.
Mr. Tangherlini. Very quickly, I think that while GSA is no
longer a mandatory source, I think our job now is, as we take a
leadership position in certain ones of these strategically
sourced efforts, to push up the quality and the nature of the
data so that it makes it easier, frankly, for the agencies to
opt in. They know what they are opting into, they know what the
value of what they are getting is.
Chairman Carper. OK. Dr. Coburn.
Senator Coburn. Mr. Tangherlini, you talked about goals for
savings. Leadership is best modeled by example. Are you going
to have performance goals, specific savings goals in the
performance criteria plans for your senior executives at GSA?
Mr. Tangherlini. Yes, we are. We are actually working on
our performance plans right now, finishing them up for 2013 and
devising a model for 2014.
Senator Coburn. So there will be savings goals in there?
Mr. Tangherlini. Small business participation goals,
savings goals, that is what we are focused on so that we can
demonstrate leadership in that area.
Senator Coburn. Along that line, Mr. Jordan, does the OMB
plan on setting savings targets for agencies?
Mr. Jordan. We did set savings targets through our cross-
agency priority performance goals, so there is a capped goal on
strategic sourcing, and it says, For each agency, through
fiscal years 2013 and 2014, you have to strategically source
two commodities, at least one in IT. I think as we all agree,
that is a commodity--IT is a place ripe for strategic sourcing.
And each of those categories needs to show 10 percent savings
or more.
So that is a first step to get agencies comfortable with
baselining savings, doing strategic sourcing, and tying that
effort all together.
Senator Coburn. And with that, you are going to eventually
notice the requirements for how you measure the savings?
Mr. Jordan. That is right, and we are working closely with
the budget side of OMB as well to make sure that agencies have
the proper incentives throughout the process.
Senator Coburn. Mr. Jordan, you all in OMB and the
Leadership Council set out some goals in December 2012 for
expanding into the new strategic sourcing areas. Did you meet
those goals? If you did not, why? Why not? And when do you
anticipate meeting those goals?
Mr. Jordan. Sure. So we are still in process toward the
milestone dates by which we would meet those objectives, to
stand up 10 new solutions. We have partnered very closely with
GSA, who has taken a real leadership role in executing a number
of those, but also other agencies. So we have a number of
categories that have already been stood up.
Administrator Tangherlini talked about wireless. We have
categories where request for proposals (RFPs) have gone out.
The Library of Congress is leading an effort around information
services, subscriptions, which all agencies buy things like
that, and then we have a number more where the commodity teams
have benched up. So I feel very comfortable that we will have
the number of solutions created and they will be best in class.
Senator Coburn. What would you think--and any of you answer
this--and I would be interested, Ms. Chaplain, in your
response. One of the things you talked about was difficulty
collecting and analyzing data. But we are at 5 percent versus
private industry at 90 percent. How much should we be and when?
What is achievable? I mean, you can say, Tomorrow we are going
to be at 90 percent. We all know that is not achievable. What
is achievable? When we come back here next year, what should be
an acceptable performance in terms of agencies and the
implementation of this?
Mr. Jordan. I mean, I think in terms of overall addressable
spend, the government is somewhere in the $100 to $150 billion
out of that $500 that you talked about that can be
strategically sourced. There are, as we have said, strategic
sourcing principles that can be applied to almost everything,
so we need to define our terms. But it is a smaller subset of
where I think true strategic sourcing in the private sector
context can take place.
Senator Coburn. So $75 billion is what you are saying?
Mr. Jordan. In terms of addressable spend? I think over
$100 billion. And, savings will ramp up over time, but I would
like to quickly be having a discussion with you and the
Committee that we have now saved billions of dollars, and I
think that is absolutely the expectation.
Senator Coburn. An expectation that we have a set of
guidelines on how we----
Mr. Jordan. A defensible and agreed-upon set of metrics,
yes.
Senator Coburn. Mr. Tangherlini.
Mr. Tangherlini. So as I said before, we are not a
mandatory source, so our job is to figure out ways, working
closely with the procurement community, to try to figure out
those solutions that they will actually choose to use. Now,
part of that is going to be getting great data out, the way we
have with the office supply solution, using that as a feedback
mechanism to drive down prices.
In our most recent re-compete in office supplies, every
vendor dropped their prices, and the range of prices collapsed
substantially, and the overall cost was down about 13 percent.
So what we are hoping we can do is demonstrate for agencies
that by collaborating and by bringing our buying power
together, we can get better data and we can get better prices
and we can get better services, and that does not necessarily
mean we have to have fewer small businesses or fewer
opportunities for them.
Again, in the office supply, we have seen the amount of
small business participation actually go up. Why? Because they
can move faster. They have a cheaper ability to deliver the
services. They have less overhead. So this is an opportunity
where we can actually get two things that we want to get done.
Senator Coburn. Ms. Chaplain, did you want to comment on
that?
Ms. Chaplain. Yes. I believe our report said the consensus
was about $130 billion was achievable, and that is with kind of
the hard stuff taken out of that amount. So that is stuff that
could be attacked pretty quickly.
Senator Coburn. OK. Mr. Tangherlini, one other area that
Senator Carper and I have worked on is real property reform,
and we have a problem with the budget of the Federal Government
because if you buy a building, you get it expensed against your
agency in the year, which is stupid. No business does that.
They amortize the cost over the life of the facility.
Are there a lot of savings to be made in terms of space? In
terms of strategic sourcing for space? I know there is in
Oklahoma, because I have seen it, and you and I have had that
discussion, and I have to assume there is throughout the rest
of the country.
Mr. Tangherlini. Well, at some level, GSA is the strategic
source provider for space. We are a mandatory source in terms
of leasing space. But as you pointed out, the lease versus own
decision gets complicated by scoring rules, which----
Senator Coburn. But you would agree, if we did not have the
stupid scoring rules that we have, nobody can lease a building
in this country cheaper than they can own it when interest
rates are where they are. Nobody can. So the fact is, it does
not make sense that we are leasing all this space. Anybody that
is building that building is making a return on investment or
they would not be leasing it to you at that price.
So the point is, is there not a large area where we spend
hundreds and hundreds and hundreds of millions of dollars a
year on leases, where we could not apply better models if we
could change the accounting for it in terms of CBO and OMB?
Mr. Tangherlini. So that the data will speak for itself. We
have dramatically increased the amount of money we have spent
on leases in the last 20 years. The amount of unpaid-for
investment in the property has been growing as well in our own
property. So I think that there are opportunities, as laid out
by some of the legislation that this Committee has put forward,
for us to do a better job of managing our real estate.
Chairman Carper. Before I yield back to Senator Johnson,
just to followup on Senator Coburn's last point, I called over
to your office, I think the day that your nomination was
confirmed in the Senate just to let you know and to
congratulate you. I think the person I spoke to indicated that
you and maybe your family were on a well-deserved break, which
I applaud.
But the person who answered the phone is a lady and she
told me, she said, We are anxious to get to work on surplus
property. Now, I do not know if she even knew that I was
interested in that. Never said anything. But I was impressed.
So I hope that is an indication that you and your team are
raring to go because believe me, we are and have been for some
time.
All right. Dr. Johnson.
Senator Johnson. Thank you, Mr. Chairman. To pick up on
Senator Coburn's point about the amortization rules of the
Federal Government, I mean, the problem I have--and we will get
back to incentives--about the methodology, about the procedures
is, you have some, again, all good intentions, good work on
your part, but then you bump up against other mindless
procedures in the Federal Government and it creates the
gridlock which is probably why we are not, after decades, we
have not really progressed any further than we have.
Profit and loss is a very blunt instrument, which is why it
is so effective. One thing I learned in business is when you
have a problem, you are always looking within that problem. How
can you create an opportunity out of the it? Well, I realized
that sequester is a problem for Federal agencies.
What I would like to see is they take that problem and turn
it into an opportunity to actually drive some of these reforms.
And I think we need that kind of blunt instrument. So what a
good manager would do under sequester is he would take those
dollar amounts and he would allocate those to the agencies, to
the departments and say, You will save this amount of money.
Now let us figure out how to save it most effectively.
And so, you would start, throughout the agencies, all these
department heads, without merit-based pay, they are actually
going, Well, we only have this much to spend, we would like to
preserve as many jobs as possible, we would like to make sure
that we preserve the function of our agencies. What are the
best practices out there?
They have a process, a new program within OMB, within GSA
about how we can consolidate our purchases and they would maybe
actually start implementing that. So I guess that is my
question. Do you really truly believe that just with these
methods--I mean, no offense, Mr. Jordan. Setting a goal of two
commodity items saving 10 percent? I can figure 16 ways on
Sunday to gain that system. Do you understand what I am saying?
What I will not be able to gain is when I realize that my
budget was cut 10 percent and I have only 90 percent to spend
of what I had the year before. Now I am going to actually look
for some real savings. So again, I am asking for your comment.
I mean, do you really think these procedures are going to have
long-term effect?
Mr. Jordan. I do think that the strategic sourcing
procedures will have a long-term beneficial effect, on
agencies. I do think they are the types of things that are
structural, sustainable change that transcend administrative
turnover and that sort of thing, because agencies can plow
these savings back into mission no matter what the fiscal
constraints of the time are, and we can deliver the savings
back to the taxpayer.
You can get the same goods and service at a lower price,
lower cost if you buy it smarter. So as we have certainly had a
reinvigoration of this effort. We have begun to truly prove out
its benefit to agencies. We are shining a light on it.
We are creating the right databases that give agencies the
right incentives to act in this manner. And so, yes, I do think
that they will be beneficial over time regardless of the fiscal
situation.
Senator Johnson. Well, you have some experience in the
private sector. Do you agree that there is a huge difference in
the incentives driving performance in the private sector versus
what you are seeing here in government?
Mr. Jordan. Absolutely.
Senator Johnson. So barring sequester, I mean, is there
some other way to create that type of incentive, that type of
imperative for managers to start saving the types of money that
is really out there?
Mr. Jordan. Yes.
Senator Johnson. These things are available if properly
used, but again, to me it is just the incentive that is really
preventing this from being implemented.
Mr. Jordan. Sure. There is no doubt that there is a much
different incentive structure absent the profit and loss
component that the private sector is driving toward. That being
said, these are dedicated public servants and they want to do
the right thing and the best thing for their agency's mission.
I have not met all 36,000 contracting officers, but I have met
a lot and they care deeply about their agencies and their
agencies' mission.
So when we are in a time of tight fiscal straits, they want
to be part of the solution in helping their agencies in
Senator Johnson. Ms. Chaplain, is it not doing the right
thing by your agency frequently getting a bigger budget? Trust
me, I have talked to enough people out interviewing for
positions and that is not an unusual basic job description: I
want to make sure that I am achieving the priorities of my
boss, and the priority frequently is getting enough budget
money flowing to a particular area.
Ms. Chaplain. Or just keeping your budget. I think that was
the threat that we saw. The fact that they might lose some
money if they were going to get savings was a threat enough not
to even report an initiative that could be strategic sourcing
as strategic sourcing.
With regard to your comments on the sequester and
incentives, we did not see that connection of, we must do this
because of the sequester or because of this year's budget
situation. It is a short-term thing and that seems to be
happening and strategic sourcing seems to be like a long-term
effort. So those two things are not coming together.
We see people trying to take more short-term actions to
deal with what is happening to them this year versus a longer
term thing that could bring savings over a longer period of
time.
Senator Johnson. Do people in the agencies believe
sequester is going to stay? Do they really believe that while
somehow this is going to get taken care of and nobody is going
to be serious about actually not providing us that money we
need long-term?
Ms. Chaplain. I do not know about that. I just know that
because strategic sourcing is a long-term view, right? And I do
believe that sequester is a short-term view, so it is not
really coming together.
Senator Johnson. Well, the Budget Control Act controls
there a longer term view and you could see, in some way, shape,
or form we are trying to adhere to those numbers. Those are
numbers that agencies are going to have to adhere to long-term.
Mr. Jordan, do you believe people are just assuming that this
too shall pass?
Mr. Jordan. Well, I think the sequester is so damaging
because of the way that it has across-the-board cuts and it is
thoughtless and mindless implementation of a percent reduction.
I think that there is no doubt we are in tighter fiscal times.
From 2000 to 2008 contract spending rose at 12 percent a year,
year after year after year.
During this Administration, we have reduced contract
spending by $35 billion. Last year, we reduced it by $20
billion, which is the largest decrease in contract spending in
recorded history. So we absolutely are focused on reducing
contract spending and doing so in a smart, thoughtful way.
But again, as Ms. Chaplain says, it is less about what the
in-the-moment imperative is and more about, this is the right
thing to do. And we do have to work with, and are working with,
the budget side of OMB to make sure that you do not get credit
for not doing the right thing. And that is absolutely part of
this, and you have heard the Director, who is in charge of both
sides, speak to this Committee about that, about strategic
sourcing and the fact that she sees strategic sourcing as a
priority of hers.
So that is why I am so confident that this will continue to
build momentum.
Senator Johnson. OK. Again, thank you for your testimony,
your efforts. I wish you the best of luck, I really do. Thank
you, Mr. Chairman.
Chairman Carper. Thanks, Senator Johnson. Let me turn, if I
could, for any of our panelists, but to the issue of training.
I think in some of the reports and anecdotal articles we have
seen, the issue of competency in contracting for maximizing the
use of strategic sourcing was mentioned. Are there any specific
types of training or qualifications that you are aware of that
are required for enhanced participation in strategic sourcing
in order to try to maximize the use and the savings?
Then this is sort of a followup to that, what are some of
the types of training that private entities, or even small
businesses and for government staff that are available?
Mr. Jordan. So training is absolutely a key component of
this. When you look at the composition of our acquisition
workforce, we are in a critical time. About a third of our
contracting officers have 20 or more years of experience, so
they are bumping right against retirement age.
Chairman Carper. Say that again.
Mr. Jordan. We have about 36,000 contracting officers and
about a third of them, a little over a third have 20 or more
years of experience, meaning they are bumping up against
getting ready to retire. Another third of them have four or
fewer years of experience, because we had a long period where
we have reduced the number of contracting officers. During this
Administration, we made sure to balance that more
appropriately. So we have had some new folks enter.
That means that only one-third of our contracting officer
cadre has between 4 and 20 years of experience, and that is a
challenge because when you talk to agencies, they say, I want
someone who has got 10 to 15 years of experience, has seen and
done everything, services, goods, et cetera. Well, you cannot
just build that.
So we need to focus on training. The Federal Acquisition
Institute, which Dan and I partner with on closely, and the
Defense Acquisition University, to make sure these types of
principles and tools and techniques are integrated in the
curriculum. That can be through on-site classroom learning, but
given these tough budgetary times, we also need to make sure
there is distance learning, online education, and those types
of things, and we are working very closely with both of those
entities to make sure strategic sourcing is part of the
curriculum.
Chairman Carper. Same question, Mr. Tangherlini.
Mr. Tangherlini. I think part of our responsibility is also
to go out and talk to the contracting officers and remind them
about the existing not-quite-exactly strategically sourced
vehicles, but common vehicles that we have at GSA so that
people can save time, effort, and energy around leveraging
existing vehicles.
We are also very closely working with Joe and the Strategic
Sourcing Leadership Council to share more information about the
specific contracts we have. I have been going agency-by-agency
and meeting with Secretaries and Deputy Secretaries and talking
to them about these opportunities.
Chairman Carper. So you have been?
Mr. Tangherlini. I have been.
Chairman Carper. Roughly, how many?
Mr. Tangherlini. I have done over a dozen so far. I have
actually started moving into the bureau level.
Chairman Carper. Have you been to Department of Homeland
Security where they seem to be, according to Ms. Chaplain,
doing a better job than most?
Mr. Tangherlini. Right. We met with DHS just about a month
ago to talk about ways that we can leverage their skills, as
well as----
Chairman Carper. What are some lessons learned there?
Mr. Tangherlini. Well, so, I think it really was
highlighted in the great GAO report about the fact that they do
have a leadership commitment to it. They have resourced the
activity and they have really focused in on where there are
places of maximal opportunity. What we want to do with DHS is
say, ``Can we help you? '' Because our job is to share great
ideas across the entire enterprise. Can we help you leverage
the programs that you have developed, to share them to other
agencies?
And so, what we want to do is kind of serve as the internal
government broker, if you will, of great ideas and best
practices so that agencies can leverage that once and well
approach, and so that we can leverage the scale. When we do not
use the scale is when we lose our ability to kind of help set
prices and help direct the market toward best outcomes for the
Federal Government.
Chairman Carper. All right. Ms. Chaplain, anything you want
to add or take away here before I ask you a different question?
Ms. Chaplain. A couple points. In our review, we found
across the board one of the biggest challenges was a shortage
of strategic sourcing expertise. And then second, in agencies
that were more dedicated, they just had more people dedicated
to the problem. A place like the Army, maybe only had like one
or two, and that makes a big difference.
There is training that needs to be done, because it is a
different skillset than just how to contract or what type of
contract to use. This is up-front analysis. It is analyzing
different kinds of data systems, identifying trends, knowing
cost drivers, and the leading companies, especially Dell, we
visited have very big dedication to training their staff to do
this kind of work.
Chairman Carper. OK, good. I want to go back to something I
mentioned in my opening statement, small businesses. And if I
could, as I mentioned in my opening statement, it is important
to consider how we move forward with strategic sourcing while
providing ample opportunity for small businesses to
participate.
I like to say, on an unrelated matter, but I think there is
a good parallel here, the question is, is it possible to have a
cleaner environment and, at the same time, have a stronger
economy? Some people suggest we have to choose one or the
other. I always say that is a false choice. We can have a
cleaner environment, we can have a stronger economy, and
actually there is plenty of empirical data to show that.
And the corollary here is, is it possible for agencies to
move toward strategic sourcing, but still to do business with
small businesses? Do we have to choose one or the other? Is
that a false choice?
Mr. Jordan. It is a false choice. Strategic sourcing and
small business utilization, when done right, absolutely,
unequivocally, are mutually reinforcing, just like your example
with a stronger economy and a cleaner environment. You do not
need to make the choice. If you do it well, they will drive
each other.
We have seen that with the empirical data in office
supplies. As you mentioned in my introduction, I come from the
Small Business Administration. I care deeply about small
businesses and small business contractors, and I think our
focus needs to be on, when we design any vehicle up front,
making sure we have the right terms and conditions to maximize
small business competition; that when we are getting ready to
move forward, we do everything we can to build awareness among
the small business community that this solution is being set
up, and awareness among the agencies that these small
businesses are out there.
And then we continue to optimize the vehicle over time with
on-ramps and off-ramps, things of that nature.
Chairman Carper. Very briefly, Mr. Tangherlini and Ms.
Chaplain, would you just react briefly to what Mr. Jordan said?
Mr. Tangherlini. So I already mentioned the success we have
seen in office supplies, but I would also say that, as Mr.
Jordan pointed out, there is a continuum of strategic sourcing
that ends up with the type of vehicle, the single vehicle where
you aggregate to spend. Another form of strategic sourcing is
where we reduce the redundant contracts, we reduce the number
of contracts, and that is what GSA, in many ways, does every
day through its schedules program.
Eighty percent of the vendors on our schedules program are
small businesses. And so, agencies can actually do set-aside
competitions within those schedules that focus entirely on
small businesses, that focus on the ability to deliver
opportunity from small business, but also the ability to
deliver price and quality.
And so, what we are out doing is trying to (a) make
agencies more aware of the time savings and the benefits from
using those existing vehicles rather than spending the time,
effort, and energy to go build a new one, and (b) trying to get
better data to aggregate what that spend is so that we can then
push it back to the Strategic Sourcing Leadership Council so we
can go out and get vehicles that really leverage the scale of
the government.
Chairman Carper. Ms. Chaplain, you could respond if you
would like. You do not have to, but if you do, just very
briefly, please.
Ms. Chaplain. Yes, very briefly. It was our observation
that the Federal initiatives were doing a good job of involving
small businesses and including them in the planning process. I
would just note that GAO does have a study ongoing about the
impact of those initiatives on small businesses. So you will
hear more from GAO in the future on that question.
Chairman Carper. OK, good. Thanks. Senator Johnson.
Senator Johnson. Mr. Chairman, I think when it comes to
protecting small businesses, from my standpoint, the best way
of doing that is, as you were indicating, Ms. Chaplain, this is
really about data, about providing information, and more so
involved purchasing. I think these initiatives really need to
be about providing that information, that data, and making sure
that your supplier base is unanimous, I mean, as much as
possible.
So what you do not want to be doing is where you have a
limited supplier base, do things like reverse auction. You
drive three or four suppliers out of the business and you have
to be very mindful from that standpoint.
Mr. Tangherlini, you were talking about contracts with
multiple suppliers. Can you just describe a little bit what you
are talking about there?
Mr. Tangherlini. Very quickly, one of the ways that we can
help agencies save money in terms of the cost to spend, the
amount of money they have to actually spend in order to get
their requirements out into the market, is by them leveraging
our existing vehicles, which are called the Multiple Awards
Schedules. And across certain commodity lines, we have these
schedules in which we have already agreed to a contractual
relationship with a vendor.
Agencies can go into those schedules and engage in
competitions. They can save, we estimate based on agency data,
between a third and a half of the time of getting it from the
market. Eighty percent of the vendors within our schedules are
small businesses. So already you have an ecosystem or a
marketplace where you have a lot of small businesses that can
compete.
What we learned from the office supply schedule, though, is
that by getting good data--and we require all of the vendors
participating to provide what is called Level 3 data. That is
actual spend data. We can take that information and share it
back with the vendors. We can clean it up so no one knows
anyone else's information, and we can demonstrate for them the
price variability and where the best prices are.
When you do that for the vendors, they do something
remarkable. They compete.
Senator Johnson. Right.
Mr. Tangherlini. And it drives down prices, it drives up
quality. We did not lose a single vendor. What we did see,
though, was a dramatic drop in price and a dramatic up in
variation. So small businesses that were participating before
are participating now. They are doing it in a way that really
leverages what they bring to the market, which is innovation,
speed, alacrity, reduced overhead, and really forcing that
competition on others as well.
Senator Johnson. You are really actually describing the
total value proposition, which is not always about cost, but it
is really the total value of having that supplier there. So,
no, that is encouraging to hear, that you are sensitive to
that, that by providing the information, you are not reducing
your supplier base, which in the end, if you start doing that,
will start driving up costs, you are trying to maintain the
number of suppliers by providing them the information and
putting the pressure on them to make sure they are as
competitive as possible. Again, across the full price, customer
service, and quality.
Mr. Tangherlini. That was one of the most interesting
things about the GAO's report to me, was the real value of
good, solid information, pricing information, vendor
information, feedback. The best practices from the private
sector is that there is a continual dialogue and a continual
negotiation, continual sharing of information so that the
private sector knows what they are competing against.
Senator Johnson. So from that viewpoint, continual
information versus contract terms, how do you set that or how
do you view that? Do you warn your contracts through your
contracts or just a basic general contract, an ideal contract
that has that information? In other words, if you are going to
supply us, you will agree to these terms and here is all the
information in terms of pricing and delivery and those types of
things. I mean, is that how it works?
Mr. Tangherlini. In the case of the office supply contract,
we require them to provide us continuous data, and we have a
great group up in New York that is doing an amazing amount of
big data kind of research into what we are getting in the way
of spend, and feeding that then back to the vendors so that we
can do a more meaningful competition the second time around.
It is that kind of knowledge of what actually is being
spent and how people are actually using the contracts that is
going to allow us to be a much better negotiator and, frankly,
vendors to be a better supplier. I cannot say that there is any
one particular contract term that works because of the real
vast nature of the kinds of buy.
I think you just have to be a really smart, thoughtful
buyer who knows your marketplace, who knows the vendors, and
knows your customers, which gets back to the earlier point I
was trying to make about the need for improved planning, a
stronger sense of what the agencies are buying, who might be
buying that and comment using our Strategic Sourcing Leadership
Council to take that information and really come together as a
body and say, look, this is how we are going to buy, this is
what we are going to buy, this is when we are going to buy, and
really build the vehicles that meet the needs. That is why
having agency participation is so important.
Senator Johnson. Let me just suggest, the most important
ingredient is then having a dollar figure that you must save.
Thank you, all, and thank you, Mr. Chairman.
Chairman Carper. You bet. Senator Johnson. Nice that you
could be here for this I was saying going into this hearing, I
was kidding with one of our interns that--one of our staff had
said, ``This is not really the sexiest subject for a hearing,''
and I was asking our intern if he thought that was the case,
and he sort of said, Compared to what? And he mentioned another
hearing that he thought was actually a lot more interesting and
sexy, but this is real important stuff.
Senator Johnson. This has some real potential for some real
dollar savings. So thank you for holding the hearing.
Chairman Carper. Huge potential, and I think you get that.
Certainly Dr. Coburn and Senator McCaskill get that, and I know
others do from our hearing, our Committee, that are not here.
I have two questions. The last one I will just tell you
what it is going to be and you can think about it while I ask
another. Sometimes at the end of a hearing, I like to offer our
panelists to make a closing statement and you will have that
opportunity today, not for 5 minutes, but a statement or two,
something you want to just really reiterate, maybe to go back
to see whether there are areas where you agree or disagree, or
maybe just give us some good advice as we go forward and try to
make sure we are doing our responsibilities on this side of the
equation.
So while you think about that, let me just turn to the
issue of total cost of ownership. Ms. Chaplain, I think in your
testimony you noted that companies in the private sector focus
on the total cost of ownership in making a holistic purchase
decision by considering five factors other than prices.
For example, I think you noted that while Wal-Mart may
award a contract to the lowest bidder, it takes other
considerations into account such as average invoice price,
average time to complete a task, supplier diversity,
sustainability. Mr. Jordan and Mr. Tangherlini, let me just
ask, do you believe that the strategic sourcing initiative
encompasses this concept of total cost of ownership?
Mr. Jordan. Absolutely, Senator. For every solution, we
look not just at the price, but at the total cost of ownership.
Is this a good that needs to be operated in a certain way? What
about the quality? Are there disposal costs? Which is why the
savings methodology is so complicated, because you really need
to look by category.
But I absolutely agree that while price is important, it
cannot be the only factor, and it is certainly not the only
savings driver. We need to look at the total cost of ownership.
Chairman Carper. OK. Mr. Tangherlini.
Mr. Tangherlini. I agree with Mr. Jordan's view. I think
that is absolutely critical. Now, one of the complicating
factors is our annual budget process, which makes it hard to
score the value of total cost of ownership, but those are some
of the challenges that are unique to our environment.
That having been said, by bringing together the Strategic
Sourcing Leadership Council, by having agencies participate in
the development of these contracts, we think we can best
represent what the total cost of ownership is for agencies.
Chairman Carper. Thanks. And just very briefly, Ms.
Chaplain, are there any other lessons that come to mind, other
lessons from the private sector or maybe some other specific
examples from the private sector that illustrate the concept of
total cost of ownership?
Ms. Chaplain. The total cost of ownership is just there in
everything they do and a lot of them spend a lot of time rating
suppliers and the quality of the services and that gets
factored into that feedback loop. So it is just part of their
philosophy across the board.
Chairman Carper. All right. Last thoughts? This is the
chance to make a closing statement, just a short one if you
would, but anything else you would like to emphasize, re-
emphasize, maybe raise a new one, just respond differently than
maybe you had a chance to before?
Ms. Chaplain. I would like to close with just two things of
most importance. First, to not be afraid to go beyond the low-
hanging fruit to try to apply strategic sourcing to these
higher spend categories. We spend nearly $300 billion a year on
services. That is a place to try. And I do think it can be
done. It might be difficult and it might have to start at the
agency level, but it is possible and that is where you are
going to get a lot of savings.
The second point is not just to think of strategic sourcing
as bulk buying. There are a lot of techniques that can be
applied to more complex services and products, and some of
those involve developing new suppliers so that you have more
competition, understanding cost drivers, just a lot of things
to put yourself in a better negotiating position.
So there should be more holistic thinking when we talk
about strategic sourcing and not just to think of it as office
supplies and doing bulk purchases. And maybe just to add one
more thing is to really seek to get some accountability to do
this so that we have more progress, a better pace of it. That
does involve setting goals and finding the right incentives.
Chairman Carper. OK, thanks. Thanks for that and thanks for
the good work that GAO does on this front and so many others.
Thank you. Mr. Tangherlini, just a closing thought, please.
Mr. Tangherlini. Chairman Carper, I want to close by
thanking you for having this hearing and bringing this issue,
this complicated issue, to light, but doing it in a way that I
think also makes clear what the obvious opportunities are. You
mentioned the Grace Commission earlier as one place where this
issue had come up before.
Well, the GSA was created through something called the
Hoover Commission, which back in the 1940s recognized the
benefit and the value of leveraging the scale and the scope of
the Federal Government, buying things once and well, and
thinking about ways that we could begin to eliminate
duplication across agencies. It is a dialogue that has been
going on for some time. We have made progress in some areas.
Obviously, there is much more progress to be made.
But I would just like to say that GSA stands by its
original mission, and working closely with Joe and the entire
acquisition community, we hope to develop the solutions that
will allow us to really realize these benefits, because they
are absolutely necessary right now.
Chairman Carper. OK. Thank you. Thanks very much. Mr.
Jordan.
Mr. Jordan. Thank you, Mr. Chairman, and thank you for
holding this important discussion. To synthesize, strategic
sourcing is my top priority, as I said. It is something that I
came in from the private sector having seen this as best
practice. It saves money. Agencies can plow that back into
mission critical needs. They can deliver savings back to the
taxpayer. We have seen increased small business utilization and
it really helps us do business with the right suppliers, those
with good past performance, those with good integrity.
We have made some important initial steps. The creation of
the Strategic Sourcing Leadership Council, making sure every
agency has someone focused on this. We have improved business
case process. We are standing up on prices paid portal, all
things recognized by the GAO when they took interagency
contracting off the high risk list.
We are going to continue to push this aggressively going
forward. I will continue to push this aggressively going
forward, and it will absolutely be part of any future
management agenda, which we will work together to create.
Chairman Carper. Well, when your boss is finally vetted and
nominated and that man or woman comes before us, we are going
to return to this subject. Just make sure that he or she
understands how important this is and to you----
Mr. Jordan. I will have them well-prepped, sir.
Chairman Carper [continuing]. And certainly to us. All
right. I think that is going to do it for today. Again, thank
you all for joining us today, for your preparation for today,
responding to our questions, and even more important, for what
appears to be a strong commitment to making sure that we
actually get this done. There is a lot--like I say, everything
I do I know I can do better. The same is true for most Federal
programs and it is certainly true for strategic sourcing. We
can do this better. We have to do this better. There is a lot
depending on it.
The hearing record will remain open for another 15 days,
that is until July 30 at 5 p.m., for the submission of
statements and questions for the record. With that, this
hearing is adjourned. Thank you so much.
[Whereupon, at 4:48 p.m., the Committee was adjourned.]
A P P E N D I X
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