[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 

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

                                HEARING

                               before the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS


                             FIRST SESSION

                               __________

                             JULY 15, 2013

                               __________

        Available via the World Wide Web: http://www.fdsys.gov/

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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

                                 ------                                
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

                              ----------                              


                         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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Jordan appears in the Appendix on 
page 39.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Tangherlini appears in the 
Appendix on page 46.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Chaplain appears in the Appendix 
on page 50.
---------------------------------------------------------------------------
    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.]



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