Contract Management: Restructuring GSA's Federal Supply Service  
and Federal Technology Service (02-OCT-03, GAO-04-132T).	 
                                                                 
The General Services Administration's (GSA) Federal Supply	 
Service (FSS) and Federal Technology Service (FTS) play an	 
important role in assisting agencies procure a wide range of	 
products and services. Over the past several years, FSS and FTS  
purchases have significantly increased, with IT products and	 
services being the primary source of this growth. In April 2002, 
we identified overlap in FSS' and FTS' IT procurement programs. A
management consultant similarly found overlaps in FTS' and FSS'  
IT sales and marketing functions and contract offerings. To	 
enhance FSS and FTS operational efficiency and effectiveness--in 
both its IT and non-IT business lines--GSA has undertaken a	 
performance improvement initiative. This testimony focuses on	 
GSA's actions to implement its initiative. It also discusses the 
importance of enhancing GSA's ability to help agencies		 
strategically purchase products and services.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-132T					        
    ACCNO:   A08658						        
  TITLE:     Contract Management: Restructuring GSA's Federal Supply  
Service and Federal Technology Service				 
     DATE:   10/02/2003 
  SUBJECT:   Federal procurement				 
	     Federal procurement policy 			 
	     Program evaluation 				 
	     Strategic planning 				 
	     Internal controls					 

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GAO-04-132T

United States General Accounting Office

GAO Testimony

Before the Committee on Government Reform, House of Representatives

For Release on Delivery

Expected at 11:00 a.m. EDT CONTRACT

Thursday, October 2, 2003

MANAGEMENT

Restructuring GSA's Federal Supply Service and Federal Technology Service

Statement of William T. Woods, Director Acquisition and Sourcing Management

GAO-04-132T

Highlights of GAO-04-132T, a testimony before the Committee on Government
Reform, House of Representatives

The General Services Administration's (GSA) Federal Supply Service (FSS)
and Federal Technology Service (FTS) play an important role in assisting
agencies procure a wide range of products and services.

Over the past several years, FSS and FTS purchases have significantly
increased, with IT products and services being the primary source of this
growth. In April 2002, we identified overlap in FSS' and FTS' IT
procurement programs. A management consultant similarly found overlaps in
FTS' and FSS' IT sales and marketing functions and contract offerings. To
enhance FSS and FTS operational efficiency and effectiveness-in both its
IT and non-IT business lines-GSA has undertaken a performance improvement
initiative.

This testimony focuses on GSA's actions to implement its initiative. It
also discusses the importance of enhancing GSA's ability to help agencies
strategically purchase products and services.

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

www.gao.gov/cgi-bin/getrpt?GAO-04-132T.

To view the full product, click on the link above. For more information,
contact William T. Woods at (202) 512-4841 or [email protected].

October 2, 2003

CONTRACT MANAGEMENT

Restructuring GSA's Federal Supply Service and Federal Technology Service

In response to the management consultant's recommendations, GSA took a
number of actions to improve FSS and FTS efficiency.

o  	First, GSA realigned its marketing, sales, customer account planning,
and management functions. FSS now has primary responsibility for market
research and marketing of all GSA products and services, including IT,
while FTS has primary responsibility for sales and customer account
planning and management. In addition, GSA transferred FTS contract
development and maintenance responsibilities to FSS. Through this
realignment, GSA hopes to eliminate inefficiencies due to overlaps and
redundancies, provide best value to more federal customers, and improve
customer relations.

o  	Second, GSA created a Contract Vehicle Review Board to ensure its
existing contracts are rationalized and to evaluate the need for new
contracts. The Board recently completed its review of IT contracts and
found that for several of these contracts, the business case was not
adequate to recompete them in the future.

o  	Finally, GSA created a new FTS Office of Professional Services to
offer assisted procurement services beyond IT and telecommunications. By
opening its assisted procurement offerings to new areas, GSA aims to
expand its business base to new customers and enhance customer service. In
its first 4 months, the Office of Professional Services had placed 146
task orders valued at $45 million. GSA expects to achieve $430 million in
revenue by 2004.

While these actions should help reduce certain inefficiencies in the
federal procurement process, we believe GSA needs to take a more active
role in helping federal agencies reduce the overall cost of their FSS and
FTS purchases. Because agencies' processes for establishing requirements
for FSS and FTS products and services are generally decentralized and
uncoordinated, agencies lack knowledge of the extent to which purchases
overlap and buying power is diluted. GSA is in a unique position to help
agencies analyze their spending agencywide and identify opportunities to
coordinate their requirements. By using a more strategic approach to FSS
and FTS procurement, agencies can leverage their buying power for volume
discounts and thereby reduce overall purchasing costs. A few federal
agencies have begun to analyze their spending patterns and successfully
use a strategic purchasing approach for selected categories of products,
including IT, to leverage their buying power and save money. For example,
the Air Force saved an estimated $3 million using a strategic purchasing
approach to buy more than 13,000 desktop and notebook computers required
for multiple units that previously bought such products separately.

Mr. Chairman, Ranking Member Waxman, and Members of the Committee:

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

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

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

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

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

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

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

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

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

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

o  	Combine and realign certain functions-such as marketing and sales,
contract development and maintenance, and customer support-as they relate
to IT and telecommunications.

o  	Rationalize overlapping IT contracts currently offered-that is, review
existing IT contracts to identify redundancies and eliminate those that do
not clearly have a distinct value to GSA's customers.

o  Expand FTS' assisted procurement services to GSA business lines other

  GSA Has Taken Actions to Streamline FSS and FTS Operations

than IT and telecommunications.

In response to the consultant's study, the GSA Administrator announced in
December 2002 that GSA planned to combine and realign some functions of
FSS and FTS in order to improve efficiencies and to expand FTS-assisted
procurement services for customer agencies.

First, GSA realigned its market research, marketing, customer account
planning and management, and sales functions previously carried out
separately by FSS and FTS. FSS now has primary responsibility for market
research and marketing of all GSA products and services, including IT,
while FTS has primary responsibility for sales and customer account
planning and management. Through this realignment, GSA hopes to (1)
eliminate inefficiencies due to overlaps and redundancies, (2) provide
best value to more federal customers by expanding its market share in IT
and other product and services areas, and (3) improve customer relations.
In addition, GSA transferred FTS contract development and maintenance
responsibilities to FSS.

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

  Improved Knowledge of FSS and FTS Purchasing Could Reveal Significant Savings
  for Federal Agencies

contracts before their scheduled expiration. Therefore, the potential
efficiencies to be gained from GSA's efforts to eliminate redundant
contracts will not be realized for several years, after these contracts
expire.

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

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

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

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

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

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

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

2 U.S. General Accounting Office, DOD and VA Pharmacy: Progress and
Remaining Challenges in Jointly Buying and Mailing Out Drugs, GAO-01-588
(Washington, D.C.: May 25, 2001).

3A blanket purchase agreement is a simplified method of filling
anticipated repetitive needs for supplies or services by establishing
"charge accounts" with qualified sources of supply.

agreements and develop a migration strategy to start replacing those
separate agreements with the first round of SmartBUY governmentwide
licenses by July 2004.

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

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

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

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

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

Contact and Acknowledgments

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

Related GAO Products

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

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

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

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

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

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

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

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