Procurement Reform: How Selected Countries Perform Certain GSA Activities
(Letter Report, 07/15/1999, GAO/GGD-99-109).
The General Services Administration's (GSA) Federal Supply Service (FSS)
and Federal Technology Service (FTS) act on behalf of federal agencies
as central buying agents for a wide range of goods and services. FSS has
four business lines: supply and procurement, vehicle acquisition and
leasing, travel and transportation, and personal property management.
FTS has two business lines: network services (for telecommunications)
and information technology solutions. This report provides information
on how foreign governments perform procurement activities that in the
United States fall under the responsibility of FSS and FTS. GAO focuses
on the supply and procurement and vehicle acquisition and leasing
business lines in FSS and two of FTS' business lines.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-99-109
TITLE: Procurement Reform: How Selected Countries Perform Certain
GSA Activities
DATE: 07/15/1999
SUBJECT: Federal procurement
Comparative analysis
Foreign governments
Procurement regulations
Federal supply systems
Federal procurement policy
IDENTIFIER: National Performance Review
Information Technology Fund
FTS Federal Acquisition Services for Technology Program
General Supply Fund
United Kingdom
Australia
New Zealand
Canada
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO report. This text was extracted from a PDF file. **
** Delineations within the text indicating chapter titles, **
** headings, and bullets have not been preserved, and in some **
** cases heading text has been incorrectly merged into **
** body text in the adjacent column. Graphic images have **
** not been reproduced, but figure captions are included. **
** Tables are included, but column deliniations have not been **
** preserved. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
** A printed copy of this report may be obtained from the GAO **
** Document Distribution Center. For further details, please **
** send an e-mail message to: **
** **
** **
** **
** with the message 'info' in the body. **
******************************************************************
United States General Accounting Office GAO Report
to Congressional Requesters July 1999 PROCUREMENT REFORM
How Selected Countries Perform Certain GSA Activities GAO/GGD-99-
109 United States General Accounting Office GAO Washington,
D.C. 20548 General Government Division B-281162 July 15, 1999 The
Honorable Stephen Horn Chairman, Subcommittee on Government
Management, Information and Technology Committee on Government
Reform House of Representatives The Honorable Tom Davis House of
Representatives This report responds to your July 30, 1998,
request for information on how foreign governments perform
procurement activities that in the United States fall under the
responsibility of the General Services Administration's (GSA)
Federal Supply Service (FSS) and Federal Technology Service (FTS).
FSS and FTS act on behalf of federal agencies as central buying
agents for a wide range of goods and services. FSS has four
"business lines": supply and procurement, vehicle acquisition and
leasing, travel and transportation, and personal property
management. FTS has two business lines: network services, for
telecommunications, and IT solutions, for IT (information
technology) systems and related services. Your offices wanted us
to focus on the supply and procurement and vehicle acquisition and
leasing business lines in FSS and the two FTS business lines. As
you know, FSS and FTS have undergone reforms in recent years aimed
at incorporating commercial practices to improve the level of
service they provide to federal customers. In addition, with the
exception of vehicle acquisitions through FSS, FSS and FTS are now
nonmandatory sources, meaning that agencies are not required to
use them. Despite these reforms, you were concerned that because
of current government rules and regulations, FSS and FTS face
several barriers-such as the inability to recruit top-level staff
and various financial management requirements- that can impede the
effectiveness of their operations. To aid the Subcommittee in its
discussions about future FSS and FTS reforms, you wanted to know
whether other countries had organizations similar to FSS and FTS
and how they performed similar activities. As agreed with your
offices, we selected Canada, the United Kingdom (UK), Australia,
and New Zealand because our preliminary work showed they had made
a major commitment to procurement reform, and some of the reforms
were in activities similar to those carried out by FSS and FTS.
Our objective was to identify the organizations, policies, and
programs that Page 1 GAO/GGD-
99-109 Procurement Reform B-281162 these countries had in place to
assist agencies with the procurement of supplies, vehicles,
telecommunications, and IT. None of the countries had
organizations that completely mirrored FSS and Results in Brief
FTS. Canada and the UK had the closest models in that they had
organizations available to assist agencies in the procurement of
supplies, vehicles, telecommunications, and IT. However, these
organizations had different features from those of FSS and FTS.
For example, in Canada, the organization that performed many
activities similar to those of FSS also had a large role in
assisting agencies with the acquisition of IT systems and related
services, a function performed by FTS in the United States. The
two organizations in the UK differed from FSS and FTS because they
were given more flexibility than traditional government
departments in the personnel and financial areas. Australia and
New Zealand had very different models from the United States.
Australia had only an organization that performed activities
similar to those of FTS, and its role in assisting agencies with
the acquisition of IT systems and related services was minor. New
Zealand had no government organizations that performed activities
similar to those of FSS and FTS because it sold its central
procurement agency to the private sector several years ago. This
private sector business assisted government agencies with the
procurement of supplies, vehicles, telecommunications, and IT and
did business only with the government. Our analysis also showed
that there were similarities and differences in the programs and
policies these countries used in the procurement of supplies,
vehicles, telecommunications, and IT compared to those of FSS and
FTS. In supply, the procurement organizations in Canada and the UK
had prenegotiated contract arrangements, as does FSS, under which
agencies deal directly with vendors, to procure goods and
services. Australia and New Zealand did not have such
arrangements. Also, none of the countries had distribution centers
or government stores, like FSS does, that stocked common-use
supplies for resale to agencies.1 In the vehicle area, only Canada
had a requirement that vehicles be purchased through its central
procurement organization, like the U.S. requirement for FSS. The
other three countries allowed their agencies to acquire vehicles
directly from the private sector. None of the countries had a
central vehicles fleet, like FSS does. Australia recently sold its
fleet to the private sector. In telecommunications, agencies in
Canada and the UK-like in the United States-had the option to
either use contract arrangements with private 1 On July 8, 1999,
as this report was being prepared for printing, GSA announced that
it was phasing out its distribution centers. Page 2
GAO/GGD-99-109 Procurement Reform B-281162 carriers offered by
their organizations with activities similar to those of FTS or to
go directly to the private sector, which was the only option in
New Zealand. In Australia, officials told us that agencies were
required to use service providers that had agreed to certain terms
and conditions with the organization like FTS. For IT systems and
related services, agencies in the UK, like agencies in the United
States, could either use the organization like FTS or go directly
to the private sector to meet their needs. However, Canada was
unique because major IT projects had to be procured through the
central procurement organization if they exceeded certain dollar
thresholds. In Australia, there was no major, central government
effort to assist agencies in acquiring IT systems and related
services because of a new government initiative to phase out IT
systems ownership and instead have the private sector own and
maintain the systems and the government contract for IT services.
In New Zealand, a government committee was to review and monitor
high-dollar, high-risk IT system acquisitions. Appendix I
identifies the key organizations in these countries and summarizes
their activities. According to officials in these countries,
procurement reform evolved over a number of years and was
primarily influenced by a desire to rely more on the private
sector to perform activities of a business nature so that
government could operate more efficiently, improve its services,
and focus on its core mission. As part of their broad reform
efforts, Canada and the UK were using techniques aimed at
transforming the way major procurements are designed and managed.
Canada's benefits-driven- procurement approach asks the private
sector to deliver certain agreed- upon results instead of
following what Canadian officials viewed as the traditional
approach in which a government blueprint with detailed
specifications was used. The UK's private finance initiative (PFI)
is designed to meet major capital investment needs by having the
private sector finance capital assets and having the government or
users pay for the services. Information on the various approaches
used by these countries provides insight into how they performed
activities similar to those of FSS and FTS. However, it is
important to recognize that such factors as differences in
political and economic environments, the role of social objectives
in the procurement process, and the volume of contracting activity
would have to be considered in a discussion of whether these
approaches had applicability to FSS and FTS operations in the
United States. Furthermore, some reforms were very recent, and
performance data on the effectiveness of the various reforms were
generally unavailable or were in the early stages of development.
Consequently, we could not, from an overall Page 3
GAO/GGD-99-109 Procurement Reform B-281162 perspective, gauge how
well these reforms were working. Nonetheless, officials we
interviewed who were end-users of the procurement organizations
and policies we observed said they were generally satisfied with
the reforms and believed their governments were operating more
efficiently than under old policies. GSA was established by the
Federal Property and Administrative Services Background Act of
1949 to serve as a central procurement and property management
agency for the federal government. GSA's diverse activities and
programs have governmentwide implications that, according to GSA,
affect over $52 billion, which is more than one-fourth of the
federal government's total procurement dollars. Through various
revolving funds, GSA buys goods and services from private vendors
and resells them to agencies. GSA has four major components-the
Public Buildings Service, FSS, FTS, and its Office of
Governmentwide Policy (OGP)-to carry out its various programs and
activities. FSS provides contract arrangements for commercial
products and services worth over $17 billion per year through its
four business lines: supply and procurement, vehicle acquisition
and leasing, travel and transportation, and personal property
management. As previously indicated, we did not focus on the
travel and transportation and personal property management
business lines. FTS provides reimbursable services for local and
long- distance telecommunications. It also assists agencies with
acquiring, managing, and using IT systems. FTS accomplishes this
through two business lines: network services, for its
telecommunications activities; and IT solutions, for its IT
systems-related activities. In carrying out their duties, FSS and
FTS are to follow the Federal Acquisition Regulation (FAR), which
is the uniform set of policies and procedures executive agencies2
are required to follow in procuring goods and services. The FAR
implements various statutory requirements intended to advance
national social and economic goals, such as giving preferential
treatment in awarding contracts to certain groups, such as the
blind and severely handicapped, small and disadvantaged
businesses, and the federal prison work program. Governmentwide
procurement policy is overseen by the Office of Federal
Procurement Policy (OFPP) within the Office of Management and
Budget (OMB). OFPP is responsible for prescribing policy and
coordinating the development of governmentwide 2 In the United
States, an executive agency is a civilian or military department,
or an independent establishment within the meaning of 5 U.S.C 101,
102, and 104(1) respectively, and any wholly owned government
corporation within the meaning of 31 U.S.C. 9101. Page 4
GAO/GGD-99-109 Procurement Reform B-281162 procurement standards.
OGP within GSA has a supporting role by creating networks of
agency procurement representatives and by providing guidance and
policy related to specific areas, such as vehicles, aircraft, and
electronic commerce. Each year, the U.S. government spends
approximately $200 billion in acquiring goods and services. FSS
finances its supply and vehicle activities though the General
Supply FSS Supply and Vehicle Fund, which is a revolving fund
that is sustained by revenues received Activities
from customer agencies for goods and services. Through its supply
and procurement business line, FSS offers federal agencies a
choice of more than 4 million commercial products and a range of
technology-oriented, financial, environmental, management, and
administrative services. FSS' three methods of supply are (1) the
stock program, (2) special order sales and (3) federal supply
schedules. In the stock program, FSS stores approximately 19,000
common-use items for resale to agencies in 4 major distribution
centers, 3 smaller centers, and 19 government stores located
throughout the country and overseas. This program had sales of
$817 million in fiscal year 1998. The special order program, which
had sales of $477 million in fiscal year 1998, provides products
for special needs or when stocking is not desirable, such as
office furniture and appliances. The federal supply schedules
program is similar to a commercial catalog business and provides
agencies with access to over 6,800 contracts to obtain various
goods and services. In addition to covering a vast range of
commercial items, the schedules cover IT products and services.
FSS prenegotiates terms, conditions, and ceilings on price with
vendors; agencies deal directly with the vendors to negotiate
final prices and establish deliveries. Supply schedule sales were
about $8 billion in fiscal year 1998. The vehicle acquisition and
leasing business line in FSS provides agencies with one-stop
shopping for purchasing vehicles or leasing them from the FSS-
managed interagency fleet. FSS is the federal government's
mandatory source for the purchase of new, nontactical vehicles.3
Although leasing vehicles through the interagency fleet is not
mandatory, agencies that choose this option get scheduled
replacement, full-service management, and a fleet services card
for fuel and repairs, for a fixed monthly fee, as well as a cost
per mile charged by vehicle type. In fiscal year 1998, the vehicle
acquisition and leasing business line purchased about 56,800
vehicles worth about $1 billion; one-half of the vehicles were for
the 3 Nontactical vehicles, which are referred to throughout this
report, are motor vehicles primarily of commercial design that are
used in support of general transportation services and facility
maintenance functions not directly connected with combat or
tactical operations. Page 5
GAO/GGD-99-109 Procurement Reform B-281162 interagency fleet, with
the rest reflecting vehicle purchases for agencies. The
interagency fleet comprised over 160,000 automobiles, passenger
vans, trucks, buses, ambulances, and special-purpose equipment in
fiscal year 1998. FSS relies on the private sector for vehicle
delivery, fuel, maintenance and repair, and vehicle auctions. FTS
finances its telecommunications and IT activities through the FTS
Telecommunications Information Technology Fund, which is a
revolving fund sustained by and IT Activities revenues
received from customer agencies for goods and services. In fiscal
year 1998, FTS had revenues of $3.4 billion. The network services
business line in FTS provides customer agencies with
telecommunication services, including global voice, data, and
video services, supporting both the local and long-distance needs
of the federal government. According to FTS officials, the network
services business line had revenues of about $1 billion in fiscal
year 1998. Until the end of 1998, FTS long-distance services-under
its FTS2000 arrangements with AT&T and Sprint-were a mandatory
source for federal agencies. Under the FTS2001 arrangements with
MCI and Sprint that were recently awarded, agencies are able to
select their own service provider. According to FTS officials,
these are the largest non-Defense government contracts, valued at
between $5 and $8 billion over 8 years. FTS local
telecommunications services also used to be mandatory; however,
FTS now offers a range of nonmandatory services in this area,
where revenue totaled $266 million in 1998. The IT solutions
business line in FTS provides agencies with a range of assistance
related to acquiring, managing, and using IT. In fiscal year 1998,
the IT solutions business line had revenues of about $2.4 billion.
FTS prides itself in this area on being an objective and trusted
third party that can provide independent assistance to agencies.
For a fee, FTS acts as a consulting agent for agencies in the
acquisition of large IT systems and related services, systems
integration, software definition and design, and office systems
development. It also supports federal systems through risk
analysis and information security support. Its Federal Acquisition
Services for Technology (FAST) program is intended to provide
quick procurement assistance for IT products and services. The
FAST program had revenues of $973 million in fiscal year 1998.
According to FTS officials, FTS services differ from the IT
products and services offered by FSS under the supply schedules in
that FTS is involved as a third party. Agencies deal directly with
vendors under the FSS schedules. An FTS official added that FTS
views its role as that of a value-added reseller of
telecommunications and IT. In addition, this official said that
FTS recognizes the significance of the evolving integration of
telecommunications and IT in meeting customer agency needs, now
and in the future. Page 6
GAO/GGD-99-109 Procurement Reform B-281162 The federal government
has undergone reform and downsizing in response Government Reform
Has to efforts like the National Performance Review and
congressional Affected FSS and FTS initiatives to promote
efficiency and economy in contracting, such as the Federal
Acquisition Streamlining Act of 1994. More recently, the Federal
Activities Inventory Reform Act of 1998 (FAIR) required executive
agencies to identify functions they perform that are not
inherently governmental and could be performed by the private
sector. This environment of reform has affected FSS and FTS. GSA,
as a whole, has gone from 39,000 employees in 1971 to fewer than
14,000 employees in 1999. It also realigned itself
organizationally to mirror the private sector and incorporated
commercial practices to improve the level of service provided to
agencies and to enhance its relationships with the private sector.
These changes were evident in FSS and FTS with the establishment
of the aforementioned business lines. The changes also manifested
themselves in the shift from being a mandatory to nonmandatory
source for agencies in such areas as supply procurement, vehicle
leasing through the interagency fleet, telecommunications
services, and IT acquisition. Also, the Government Performance and
Results Act of 1993 increased FSS' and FTS' focus on performance
measurement as a vital component of operating in a more business-
oriented environment. Despite the changes that occurred, FSS and
FTS believe that several barriers still exist that impede their
ability to compete in this new environment and operate in a
businesslike manner. Barriers cited by FSS were the inability to
recruit and train top-level staff because of various federal
personnel requirements, prohibitions on its ability to enter into
cooperative purchasing arrangements, the extensive bid protest
processes available to federal contractors, and its inability to
deal effectively with poor-performing vendors. FTS also cited
personnel-related barriers but had more concerns about financial-
related barriers, such as the inability to consider accounts
receivable the same as cash in managing the Information Technology
Fund. An FTS official said this limits FTS' ability to commit to
new business opportunities because payments to FTS from some
agencies can take up to 90 days. Another barrier FTS cited was
that federal rules related to disposal of property can make
agencies less efficient because they cannot exchange the equipment
they own for like services. FTS also cited being prohibited from
using the standard of "adequate" competition as an alternative to
"full and open" competition, which is required by law, in certain
multiple award contracting situations as another barrier to
operating effectively. Page 7
GAO/GGD-99-109 Procurement Reform B-281162 In the past, Congress
has amended laws to allow agencies to overcome various barriers
when they were shown to impede effective performance. For example,
government corporations, including the Tennessee Valley Authority
(TVA), and dozens of others, serve public functions of a business
nature and were given some flexibility related to the
applicability of federal statutes to overcome barriers caused by
the laws and implementing regulations. Congress authorized TVA, a
government corporation, as well as federal agencies such as the
Department of Veterans Affairs (VA) and the Federal Aviation
Administration (FAA), to adopt alternative personnel systems.
Congress also gave FAA authority to implement a streamlined
procurement system so FAA could more easily deploy new
technologies. Agencies have also outsourced4 a wide range of
functions that typically were done in-house. For example, the
Office of Personnel Management (OPM) now contracts for
investigative services, which were formerly done in-house until
OPM privatized5 its investigative unit. The United States is not
alone in its efforts to make its agencies more businesslike and to
address barriers to efficient and streamlined government.
Governments around the globe have reassessed the role of
government and have made organizational and operational changes to
improve the level of service to citizens. Changes that have taken
place have included greater reliance on the private sector through
such methods as outsourcing, empowering civil servants to make
business decisions, adopting a more results-oriented focus, and
developing and monitoring data on performance. To meet our
objective, we obtained information on FSS' and FTS' Scope and
procurement activities and federal procurement in general. We
primarily Methodology relied on interviews with, and documents
obtained from, officials from FSS, FTS, GSA's OGP, and OFPP within
OMB. We conducted research, primarily using the Internet, to
select countries for the review. We identified countries where the
government had made a commitment to procurement reform and where
preliminary work showed reforms were made in activities similar to
those carried out by FSS and FTS. On the basis of this work, we
selected Canada, the UK, Australia, and New Zealand. We confirmed
our selections primarily through discussions with our 4Under
outsourcing, the government remains fully responsible for a
service or function and retains control over management decisions,
while another entity, usually the private sector, performs the
function or operates the service. 5 The terms privatize and
privatization have generally been defined as any process aimed at
shifting functions and responsibilities, in whole or in part, from
the government to the private sector. Page 8
GAO/GGD-99-109 Procurement Reform B-281162 counterpart
organizations-the Auditor General offices-in each of the
countries. To collect information on the organizations, programs,
and policies in these countries, we visited the countries,
interviewed key officials about their operations, and obtained a
wide range of material. After collecting the information, we
compared these countries' operations to the way FSS and FTS assist
agencies with the procurement of supplies, vehicles,
telecommunications, and IT. We performed our work between July
1998 and May 1999 in accordance with generally accepted government
auditing standards. We requested comments on a draft of this
report from the Director of OMB, Administrator of GSA, and
responsible officials in the countries we visited. On June 4,
1999, OFPP's Associate Administrator for Procurement Law and
Legislation told us that OMB had no comments. In response to our
request for comments from the Administrator of GSA, FSS and FTS
officials provided comments. Our FSS liaison orally provided the
comments of various FSS components on June 11, 1999, and FTS'
Chief of Staff provided oral comments on June 16, 1999. Various
officials from the four countries provided comments via e-mail,
facsimile, or letter during June 1999. These comments are
discussed near the end of this letter. Appendix II contains a more
detailed description of our objective, scope, and methodology and
identifies the organizations discussed in this report and their
Internet addresses. Canada, with a population of about 31 million,
is a federation of 10 Canada: Central provinces and
3 territories and has a central government that operates as a
Procurement Agency parliamentary democracy. Canada's
central procurement department- Public Works and Government
Services Canada (PWGSC)-had two Has Functions Similar
organizations-the Supply Operations Service (SOS) and the
Government To FSS and FTS With Telecommunications and
Informatics Services branch (GTIS)-with Some Differences
activities similar to those carried out by FSS and FTS.
Procurement in the Canadian government centered on purchase
authority thresholds, which were delegated by the Treasury Board.6
That is, agencies had authority to automatically buy goods and
services up to certain amounts. For goods purchases above a $5,000
Canadian threshold ($3,425 U.S., assuming that $1 U.S. = $1.46
Canadian), agencies generally were required to use PWGSC as a
central purchasing agency. 6 The Treasury Board is a committee of
the Cabinet that sets procurement policy. Page 9
GAO/GGD-99-109 Procurement Reform B-281162 SOS arranged
governmentwide contracts for supplies, including IT products and
services, similar to FSS' function. However, it no longer operated
a stock program with distribution centers or government stores. As
with FSS in the United States, agencies were required to use SOS
for vehicle acquisitions, although unlike FSS, it did not manage a
central vehicle fleet. SOS differed from FSS in the IT area in
that it had a unit that provided IT systems acquisition services,
similar to FTS' role. GTIS also provided some services in the IT
area, where it assisted mostly smaller agencies in defining their
needs, but it was primarily involved in the procurement of
telecommunications services, like FTS. In the IT area, the
government of Canada was starting to use benefits-driven-
procurement (BDP), under which the government asks the private
sector to deliver certain agreed-upon results, instead of a more
traditional approach under which the private sector is asked to
follow a government blueprint with detailed specifications.
Greater use of BDP was part of a broad vision for reform being
developed by the Treasury Board Secretariat (TBS).7 Appendix I
identifies the key organizations in Canada and summarizes their
activities. The central government of Canada meets its procurement
needs through a Central Purchasing and combination of central
purchasing and delegated authority to agencies. Delegations of
Authority PWGSC is the central purchasing agent for the
government of Canada. PWGSC's activities covered both civilian and
defense purchasing for approximately 100 departments and agencies
of the central government and other jurisdictions. Employing about
11,800 people, PWGSC, among other things, managed approximately
63,000 contracts and was responsible for purchasing some 17,000
categories of goods, services, and construction, with a total
annual value in excess of $8 billion Canadian (about $5.5 billion
U.S.). This amount is more than one-half of the total amount of
all federal government contracting in Canada. In addition, PWGSC
had several other governmentwide responsibilities, including those
related to real property, personnel, consulting and audit, public
information, and translation services. It also banked and
dispersed government funds and maintained the government's
accounts. The Treasury Board sets contracting authority levels for
departments in the Canadian government. As a central procurement
agency, PWGSC had much higher authority than other departments. In
addition, the Public Works and Government Services Act of 1996
gave PWGSC exclusive responsibility to purchase goods on behalf of
the Canadian government 7 The Treasury Board Secretariat (TBS) is
the central agency that advises the Treasury Board and
communicates its decisions. Page 10
GAO/GGD-99-109 Procurement Reform B-281162 and also for delegating
purchase authority for goods to other departments. PWGSC's
standard delegation of authority for goods to other departments
was $5,000 Canadian ($3,425 U.S.) and according to an official
with TBS, some departments had authority of $25,000 Canadian
($17,123 U.S.). Each department could procure services within its
own authority, although the departments could ask PWGSC to do the
procurement for them. Departments had authority to purchase
services up to $2 million Canadian (about $1.4 million U.S.) if
they used the government's electronic tendering service.8
Purchases above contracting authorities set by the Treasury Board
required approval by the Treasury Board. Government policy in
Canada requires that contracting be conducted in a manner that
will, among other things, ensure competition and the preeminence
of operational requirements. According to TBS officials,
government policy also seeks to advance certain national
objectives, including regional development and award of some
contracts to aboriginal populations. Canada did not, however,
appear to use its procurement system to advance social objectives
to the extent this is done in the United States. SOS-a major
component of PWGSC-arranged governmentwide SOS Supply, Fleet, and
IT agreements with suppliers through its standing offers and
supply Activities arrangements. Standing offers
provide goods and services to departments at prearranged prices,
under set terms and conditions, without specifying delivery
schedules or quantities required up front. Standing offers are
employed when one or more purchasers repetitively order the same
good or service. Common products offered under the standing offers
are food, fuel, plumbing supplies, tires, stationery, and office
equipment. Services include repair and overhaul of equipment and
temporary help services. Supply arrangements are nonbinding
agreements between SOS and suppliers to provide a range of goods
or services on an as-required basis. With supply arrangements,
departments solicit bids from a pool of prescreened vendors based
on their specific scope of work; in this way supply arrangements
differ from standing offers, under which departments accept a
portion of a requirement already defined and priced. Many supply
arrangements include ceilings on prices, which allow departments
to negotiate the price downward on the basis of the actual
requirement or scope of work. 8 Known as MERX, this service lists
contract opportunities at all levels of government in Canada and
includes hundreds of hospitals, universities, and school boards.
Page 11
GAO/GGD-99-109 Procurement Reform B-281162 Although we did not do
a comprehensive comparison of the supply activities of SOS and
FSS, they were similar in that they aim to simplify the buying
process for the government purchaser by prenegotiating terms,
conditions, and sometimes prices with suppliers. We also noted
that like FSS, SOS had on-line catalogues that purchasers could
use to find products and services. There was, however, a
difference in SOS and FSS supply operations in that SOS no longer
operates a stock program with distribution centers or government
stores as FSS does. According to SOS officials, the government had
operated distribution centers at one time, but they were
considered inefficient and the government stopped operating them
several years ago. SOS' current supply activities rely primarily
on direct delivery from the vendor. According to these officials,
the government also used to operate government stores that at one
time were found in most of the major federal buildings. However,
for ideological reasons, the government decided that it should not
be in competition with the private sector and privatized the
stores several years ago. Another difference we noted was that SOS
can be a mandatory source of supply if the purchase amount exceeds
the buyer's threshold. FSS, in contrast, is a nonmandatory source
of supply, regardless of the purchase amount. In the vehicle area,
SOS' activities were similar to FSS' activities in that
departments were required to use SOS for nontactical vehicle
acquisition. According to TBS officials, the Canadian government
purchases over 2,250 vehicles each year. The most common method of
supply for vehicles is standing offers, whereby manufacturers
provide prices for different models with different option
combinations. For urgent requirements, departments could access
SOS' inventory of vehicles that were already purchased by SOS
through standing offers and were being held by manufacturers until
needed. The least common method, which required special approval
by the Treasury Board because it was the most expensive, was
direct purchase from dealer stock. Departments could also lease
vehicles from the private sector through SOS. According to SOS
officials, departments generally managed their own fleets and had
arrangements with dealerships and private garages for vehicle
servicing. Under this framework, SOS differed from FSS in that it
did not manage a central fleet like FSS' interagency fleet. As
with most other goods and services in which PWGSC was involved,
SOS acted as the contract authority on behalf of the buyer and was
not involved in delivery of the goods and services. Like FSS'
schedules, SOS contracts also covered IT goods and services.
However, SOS had a role in the IT area that went beyond what FSS
offers Page 12 GAO/GGD-99-
109 Procurement Reform B-281162 through its IT schedules and more
closely resembled what FTS offers in assisting agencies with the
acquisition of IT systems and related services. SOS had a branch
called the Science, Informatics, and Professional Services Sector
(SIPSS) that managed the IT goods and services contracts mentioned
earlier. These contracts included consulting services for IT
systems design, research and development, and training as well as
goods, such as IT systems infrastructure, electronic data
processing systems, hardware, and software. In addition to
managing these contracts, which was similar to what FSS does
through its IT schedules, SIPSS provided direct assistance to
departments with major IT systems acquisitions, similar to what
FTS does. A difference between SIPSS and FSS/FTS activities in
this area, however, was that SIPSS was often a mandatory source
for departments because of the purchasing thresholds. FSS and FTS,
on the other hand, are always nonmandatory sources in the IT area.
Like FTS, GTIS managed governmentwide telecommunications contracts
GTIS Telecommunications and sought to aggregate government
requirements to save costs. In fiscal and IT Activities
year 1997/1998, GTIS spent about $275 million Canadian (about $188
million U.S.) on telecommunications services. According to GTIS
officials, the telecommunications industry in Canada has undergone
a great deal of change since the mid-1990s. In 1995, the Canadian
Radio-Television and Telecommunications Commission deregulated
large segments of the telecommunications industry. According to
these officials, prior to this time, the Stentor alliance of
regional carriers was the dominant service provider; Bell Canada
was the largest provider of services in the provinces of Ontario
and Quebec. The deregulation resulted in a more competitive
environment and required GTIS to develop a competitive
telecommunications supply arrangement. In general, most
departments procured local and long distance service through GTIS,
although its services were not mandatory. GTIS officials said it
was more convenient and less expensive for departments to use
GTIS. At the time of our review, however, GTIS officials were
evaluating the ongoing impact of deregulation on their optional
status and governmentwide bargaining position as departments began
procuring services directly from the private sector. GTIS also
provided services related to IT systems acquisition that were
similar to services offered by FTS. Small agencies or agencies
that did not have IT expertise could get assistance from GTIS in
defining their needs and procurement objectives. GTIS then
interfaced with SIPSS on behalf of these agencies and could bundle
their requirements to get a better price. GTIS also was involved
in several governmentwide IT initiatives, which Page 13
GAO/GGD-99-109 Procurement Reform B-281162 included fostering
electronic data interchange and electronic transactions within
government. We noted during our review that in the IT procurement
area, the Benefits-Driven government of Canada was starting
to use an approach called benefits- Procurement driven
procurement (BDP). BDP stresses the results and benefits that the
government and suppliers mutually seek to gain from each
acquisition. Although we did not do a detailed comparison, BDP has
concepts similar to performance based service contracting (PBSC)
in the United States in that contractors are given more freedom to
determine how to meet the government's performance objectives.
Arising from recognition by the Canadian government that one of
the major reasons IT projects fail is that the procurement process
is too inflexible, BDP is an alternative to traditional
approaches. According to Canadian procurement officials, under
traditional procurement approaches, departments could spend
months, even years, developing a detailed requirement that, when
completed, is often outdated and did not reflect changes that have
taken place in the organization. Instead, the BDP approach is to
ask the private sector to deliver certain agreed-upon results
rather than follow a blueprint with detailed specifications. The
private sector is also invited to submit ideas on what sort of
project should be undertaken before a formal request for proposals
is issued. Another key feature of BDP is up-front planning to
remove or mitigate potential problems in the procurement process.
Both the front-end planning and the management of the entire
acquisition are based on four elements: (1) a solid business case,
(2) risk analysis, (3) clear delineation of accountabilities, and
(4) a compensation structure tied closely to the contractor's
performance. Appendix III provides a more detailed description of
these elements and the BDP approach. At the time of our review,
TBS was in the midst of developing a broad Future Reforms Are
agenda for procurement reform. TBS officials said that the main
problem Planned with Canada's procurement system was
that it was still too focused on rules and process and not
streamlined and results-oriented. The officials said that although
key departments had made a good start at modifying and
streamlining their processes and focusing on their core missions,
more could be done. TBS was planning to take a leadership role in
reforming procurement processes and was aiming to create a system
in which central policy focused on principles instead of on
developing prescriptive rules. In addition, TBS officials said
they would support applying BDP principles to other types of
acquisitions and would attempt to coordinate the other reforms
under way in PWGSC and other departments. TBS and PWGSC Page 14
GAO/GGD-99-109 Procurement Reform B-281162 officials said that the
government was in the early stages of applying performance
measurement principles in assessing the reforms that have taken
place and therefore did not have much data available to gauge
results. A top procurement official with the Department of
National Defence (DND) whom we interviewed agreed that there had
been some positive gains as a result of recent procurement
reforms. This official cited examples where DND had privatized
support functions so it could focus more on its core mission.
These included maintenance of vehicles and some weapons systems
and pilot training. DND had also used the BDP process for a new
information system for its supply network. Also, this official
said that DND and PWGSC had a good working relationship. He added
that skilled procurement staffs were crucial as departments
focused more on their core missions and increasingly relied on the
private sector for activities that were traditionally done in-
house. The UK, with a population of about 59 million, encompasses
England, United Kingdom: Wales, Scotland, Northern
Ireland, and several dependent areas, and has a Agencies Like FSS
and central parliamentary government that operates under a
constitutional monarchy. The central government had two
organizations-The Buying FTS Have More Agency
(TBA) and the Central Computer and Telecommunications Agency
Flexibility Than (CCTA)-with activities similar to
those of FSS and FTS. However, these Traditional
agencies had more flexibility in how they managed their financial
and Government Agencies personnel affairs than if they were
traditional government departments. Known as executive or "next
steps" agencies because they represented the next steps in
reforming government management, they were structured like private
businesses and were one part of a broad government reform effort
being led by Her Majesty's Treasury (HM Treasury), which sets
procurement policy. Like FSS, TBA had contract arrangements for
supplies that departments and agencies could use on a nonmandatory
basis. However, TBA did not operate a stock program with
distribution centers or government stores as FSS does. Also, the
UK did not have a central vehicle fleet like FSS; however, TBA
could assist agencies in obtaining fleet management services or
with vehicle acquisition. Agencies also could use vehicle
acquisition arrangements held by the Ministry of Defence (MOD) or
go directly to the private sector. Like FTS, CCTA arranged
telecommunications contracts for governmentwide use and provided
services in IT systems acquisition on a nonmandatory basis. Across
the government, HM Treasury was leading a public-private
partnering initiative known as the private finance initiative
(PFI) and had other efforts under Page 15
GAO/GGD-99-109 Procurement Reform B-281162 way to encourage
knowledge sharing and performance measurement in procurement.
Appendix I identifies the key organizations in the United Kingdom
and summarizes their activities. In recent years, the central
government of the United Kingdom has Decentralization of
undergone a continued program of government reform, where,
according Procurement and the to UK government officials,
the emphasis has been on cost consciousness, Evolution of "Next
Steps" value for money, downsizing, and greater concentration
on the core Agencies businesses of government.
With these reforms, the government has decentralized procurement
authority to its agencies and ministries, which spend over 20
billion each year for goods and services (about $32.3 billion,
assuming that $1 U.S. = 0.62). According to officials with HM
Treasury, most procurement prior to the reforms went through
several central procurement departments, which supplied everything
from pencils to large computer systems. Now, agencies and
departments are, for the most part, responsible for their own
procurement, although they are expected to adhere to standards
that are part of HM Treasury's broad strategy for procurement.
These standards include achieving value for money; emphasizing
fair competition; incorporating best practices; and carefully
assessing and managing business cases, risks, and contracts. HM
Treasury officials told us that their procurement system was
generally not used to advance any social objectives. However, UK
officials pointed out that in the procurement area, the UK cannot
act unilaterally and is required to implement laws compatible with
directives promulgated by the European Community, such as ensuring
that relevant contracts are awarded objectively. As part of the
trend toward decentralization and getting government to run more
like business, the government separated its service delivery and
policy formulation functions. In February 1988, the government
launched the "Next Steps" initiative, referring to the next steps
in improving government management. Under the initiative, the
government identified areas of departmental work that could be
grouped together into operational units under single officials who
would be accountable directly to their ministers9 for delivering
specific objectives, services, and results. The government looked
critically at its service delivery functions and determined
whether each should be retained, reengineered, privatized,
contracted out, or abolished. As a result of this process, several
next steps agencies were established. 9 In parliamentary systems,
ministers are high level officers in the government and usually
are charged with managing a department or major segment of
government activities. Page 16
GAO/GGD-99-109 Procurement Reform B-281162 Next steps agencies
operate within a framework with targets set by ministers for the
task to be done, the results to be achieved, and the resources to
be provided. The day-to-day responsibility for running the
organization is delegated by ministers to a chief executive, who
is to have the management tools and freedoms needed to do the job.
Each next steps agency has a public framework document, so that
everyone can know the framework within which the agency operates.
It includes the aims and objectives of the agency, its financial
and accounting processes, and its approaches to pay and personnel
issues. The frameworks for each agency vary; however, they
generally are intended to provide the chief executive with much
greater flexibility than if the units were operating within a
traditional government department. As of October 1997, there were
about 120 next steps agencies with staff numbering about 362,000,
or about 77 percent of the civil service. TBA was established in
1991 as a next steps agency and is part of the The Buying Agency
Is a Cabinet Office, which is the UK's central department
for policy Supply Procurement Source formulation, government
management, and the civil service. TBA was similar to FSS in that
it offers departments and agencies nonmandatory supply
arrangements for common-use goods and services. TBA sought to
provide a center of procurement excellence within the public
sector and to help customers secure better value for money than
they could otherwise achieve. TBA's framework document included
objectives to provide procurement services so that agencies could
receive better value for money than they would otherwise and to
bring about improvements in cost effectiveness and the quality
that agencies receive from suppliers. TBA offered a range of
procurement services that were similar to FSS' supply activities.
These included pretendered "direct call-off" contracts covering
over 50,000 products and services; the "Pathfinder" service for
larger or more complex procurements; and direct sales and spot
buying, where TBA coordinates volume purchases or assists with
complex items or items that are difficult to source. TBA had a
catalogue of goods and services for its direct call-off contracts.
TBA was to be self-sufficient financially and derived its income
from commissions paid by departments and agencies related to the
direct call-off arrangements and direct charges for services. In
1997, TBA had sales of 272 million (about $439 million). A
difference between TBA and FSS was that TBA appeared to have more
managerial and financial flexibilities because of its status as a
next steps agency. Although we did not do a comprehensive analysis
of TBA's status as a next steps agency and FSS' status within the
U.S. government, next steps agencies generally have greater
flexibility with regard to how they Page 17
GAO/GGD-99-109 Procurement Reform B-281162 manage their finances
and human resources than traditional government departments in the
UK that operate within a government structure. In the case of TBA,
its framework document specifies that the chief executive has the
authority to seek flexibility in the personnel area, subject to
approval by HM Treasury. According to TBA's Procurement Director,
some specific personnel flexibility that TBA had included the
ability to seek its own staffing levels by taking on or releasing
staff as the business need arose. TBA also could set its own pay
scale. According to this official, if TBA needed to increase the
pay of procurement specialists to compete with a tight labor
market, it could obtain approval to do so rather quickly. Like
FSS, TBA operated on what is called a "trading fund basis" in the
area of financial management, which means it was self-supporting
and received no revenue from the central government. Unlike FSS,
however, TBA could retain its revenue after covering operating
costs and other financial obligations. In contrast, FSS generally
had to return excess revenue to the U.S. Treasury after recovering
its costs. TBA also had the authority to commit to capital
expenditures or asset disposals up to 250,000 ($403,226). Another
difference between FSS and TBA was that TBA did not operate
distribution centers or government stores. Also, unlike FSS, TBA
provided its services to local government. In addition to TBA, we
noted that for some types of office supplies, departments and
agencies could use a former government agency that was privatized.
In 1996, the government privatized Her Majesty's Stationery Office
(HMSO), now referred to as The Stationery Office (TSO). In
addition to being the official publisher of government documents,
similar to the Government Printing Office in the United States,
HMSO provided letterhead stationary and other office supplies to
departments and agencies. Today, TSO is a nonmandatory source in
the private sector that departments can also use to meet some of
their office supply needs, a function similar to that of FSS. In
the UK, departments and agencies purchased and maintained their
own Vehicle Procurement and vehicles and could go directly to
the private sector. According to a TBA Fleet Management Are
official we interviewed, TBA could assist agencies with vehicle
purchases, Decentralized if requested. However, these
services were not required like they are with FSS. TBA also did
not operate, nor does the government have, a central fleet that is
similar to the FSS interagency fleet. It is important to note that
according to HM Treasury and MOD officials, MOD had the majority
of the nontactical vehicles and had purchasing arrangements with
vehicle suppliers. These officials said that other departments and
agencies often Page 18
GAO/GGD-99-109 Procurement Reform B-281162 "piggyback" these
contracts to take advantage of the favorable prices MOD gets. We
also noted that the government had a small fleet of 160 cars
within the Cabinet Office known as the Government Car and Despatch
Agency; however, these cars were to be used for courier services
and to transport top officials only. In the vehicle area, MOD was
in the midst of developing an arrangement that was like a public-
private partnership10 for its entire "white fleet" vehicles that
were used for nontactical, administrative, and support functions.
This project was being done as part of a major UK procurement
reform effort, known as the private finance initiative (PFI). PFI
is designed to meet major capital investment needs by having the
private sector finance capital assets and having the government or
users pay for the service. HM Treasury had established a special
task force to improve the PFI procurement process and to assist
departments and agencies with implementing PFI projects. The PFI
project for the entire white fleet was under development at the
time of our review, and test projects for two portions of the
white fleet were among 115 PFI projects that were in progress.
According to MOD officials, preliminary data on these test
projects showed reductions in cost of 15 and 27 percent for these
two portions compared to in-house alternatives. Under the planned
PFI arrangement for the entire white fleet, the private sector was
to invest in, manage, and operate the vehicles necessary to
deliver an agreed-upon level of service to MOD under a long-term
contract. MOD officials said that they were pleased the government
has given them tools such as PFI and had moved to a decentralized
purchasing environment. Appendix IV provides an overview of the
PFI initiative and a more detailed description of MOD's white
fleet PFI efforts. CCTA, which is also part of the Cabinet Office
and became a next steps CCTA Offers agency in
1996, was similar to FTS in that it assisted departments and
Telecommunications and IT agencies in acquiring telecommunications
services and IT systems and Services
related services on a nonmandatory, cost recovery basis. CCTA's
main objective in its framework document was "to develop,
maintain, and make available, expertise about IT which public
sector organizations will draw on in order to operate more
effectively and efficiently." According to a CCTA official, its
new mission statement emphasized "championing electronic
government." CCTA managed contracts to operate about 80 percent of
the government's telephone lines, involving almost 45,000 10 Under
a public-private partnership, a contractual arrangement is formed
between public and private sector partners that can include a
variety of activities that involve the private sector in the
development, financing, ownership, and operation of a public
facility or service. Page 19
GAO/GGD-99-109 Procurement Reform B-281162 extensions. Similar to
the FTS telecommunications contracts, CCTA was to charge
government users a flat fee for each line. According to the chief
executive of CCTA, departments and agencies, especially the
smaller ones, liked the simplicity of dealing with CCTA. Some
larger agencies, such as MOD, have chosen to procure their own
telecommunications services. The telecommunications industry in
the UK is dominated by British Telecom, which is a major supplier
to CCTA. We noted that unlike FTS, CCTA could provide its services
to local government. In the IT area, CCTA was similar to FTS in
that for a fee, it advised departments and agencies on, and
identified vendors that could assist with IT management, systems
analysis and design, and procurement. CCTA's work also involved
full Internet service, including Internet site provision,
development, maintenance, and consulting; and advice on electronic
commerce. It also had written many publications to help
departments and agencies on such topics as IT systems strategy,
benchmarking, and business process reengineering. According to an
FTS official, GSA's Office of Governmentwide Policy has activities
similar to these. CCTA also had a catalogue of IT products and
services, like FSS. We noted that TBA also had contract
arrangements for IT products and services; however, a CCTA
official told us that CCTA and TBA see the goods and services they
offer in the IT area as complementary, with little overlap.
Despite the similarities between CCTA and FTS in the
telecommunications and IT areas-and FSS in the case of the
catalogue of IT products and services-there was a difference
related to CCTA's status as a next steps agency. That is, like
TBA, CCTA appeared to have greater managerial and financial
flexibility because of its status as a next steps agency. For
example, like TBA, responsibility for personnel management,
including developing its own pay and grading system, was delegated
to CCTA's chief executive. The chief executive was given the
freedom to manage CCTA on a quasi-commercial basis within the
framework of government accounting rules. According to a CCTA
official, CCTA was, for the most part, left alone to run its own
affairs so long as its operations ran smoothly and in accordance
with its business plan. Because it was a government organization,
however, there were some requirements CCTA had to meet. For
example, the business case for its pay and grading system had to
be approved by HM Treasury. According to HM Treasury officials,
the government of the UK views Procurement Performance
performance measurement as crucial to any core business activity,
Measurement Is Viewed as including procurement. However, HM
Treasury and the Cabinet Office Important
recognized that, in the past, developing performance measures for
Page 20 GAO/GGD-99-109
Procurement Reform B-281162 procurement was difficult.
Difficulties arose over defining universally applicable measures
and questions were raised about whether the effort was worth it.
In July 1998, HM Treasury and the Cabinet Office jointly reported
that changes in the procurement environment, such as the shift to
purchasing services instead of investing in capital assets, had
opened the door of opportunity for refining and improving
procurement performance measurement. This report, entitled
Efficiency in Civil Government Procurement, noted that although
most departments and agencies measured procurement performance,
their practices varied. The majority were using measures that were
not very sophisticated, although some progress had been made in
the prior 12 to 18 months. As a result, HM Treasury and the
Cabinet Office were planning to develop a performance measurement
system for procurement that would allow benchmarking across
government and would increase the sophistication of the measures
used by modeling the government's efforts after the private
sector. The report contained several other recommendations aimed
at setting a new agenda for improving the efficiency of government
procurement. Also, at the time of our review, HM Treasury was
starting an effort to determine how, in a decentralized
environment, departments and agencies could share knowledge,
capitalize on lessons learned, and ensure that efficiencies gained
in one area are utilized in other areas. Although HM Treasury's
report did not address the adequacy of specific performance
measures, we noted that TBA and CCTA had some key performance
measures that they used to compare performance from year to year.
TBA had performance measures that included total sales volume,
customer satisfaction, and cost per 1 of savings achieved. For
example, TBA reported it cost 4.38 pence for every 1 saved (100
pence is equal to 1), exceeding its 1997 target of 4.40 pence.
CCTA had performance measures that included the reduction in cost
of support services per 1 of salary of project staff and
percentage of assignments or services delivered to customers'
satisfaction. CCTA reported a 97 percent customer satisfaction
rating for 1998, although it noted that more feedback from
customers was needed to make the results statistically
significant. Australia, with a population of about 18 million, has
a federal-state system Australia: No Agency with a
central government that operates as a parliamentary democracy.
Like FSS but Has Some The central government, which has devolved
purchasing responsibilities for goods and services to its
agencies, did not have an organization with Central Efforts in
FTS- activities like those of FSS, but did have an agency that
performed some Related Areas activities similar
to those of FTS. In purchasing goods and services, agencies in
Australia were encouraged to follow broad principles-such as Page
21 GAO/GGD-99-109
Procurement Reform B-281162 achieving value for money-that were
set by the Department of Finance and Administration (DOFA). DOFA
also administered a vendor certification program for certain goods
and services. However, unlike FSS, it did not enter into
governmentwide supply contracts with vendors, administer supply
schedules, or run a stock program with distribution centers or
government stores. Also unlike FSS, Australia did not own and
operate a central vehicle fleet, because it had been privatized.
In the telecommunications and IT areas, however, Australia did
have an agency with activities similar to those of FTS. In
telecommunications, officials with the Office for Government
Online (OGO) said that OGO had agreements with service providers
on certain terms and conditions; however, unlike with FTS in the
United States, agencies were required to use these providers. Like
FTS, OGO also assisted agencies, on a nonmandatory basis, with IT
projects; however, this role was relatively minor. In fact,
agencies were moving away from operating and maintaining their own
IT infrastructures. The government had undertaken a major
initiative to phase out IT systems acquisition and ownership-
except for some systems related to national security--and instead
have agencies purchase IT services from the private sector. This
outsourcing effort was being done through a multiyear, phased
process being administered by the Office of Asset Sales and IT
Outsourcing (OASITO). To assess the outcomes of these and other
procurement reforms, a committee of the Australian parliament had
begun a review of government purchasing policies and practices.
Appendix I identifies the key organizations in Australia and
summarizes their activities. The government of Australia has
devolved purchasing responsibilities to Devolution of Purchasing
its agencies, which spent about $9 billion Australian for goods
and services Responsibilities in fiscal year 1997-1998
(about $6 billion U.S., assuming that $1 U.S. = $1.51 Australian).
With enactment of the Financial Management and Accountability Act
of 1997, the government gave agencies the responsibility to handle
their affairs and to ensure that the government's procurement
policies were observed. DOFA's Competitive Tendering and
Contracting branch had a key role in Australia's procurement
reform agenda. This branch, among other things, provided
assistance to agencies in implementing reforms, surveyed and
reported on agencies' implementation efforts, and developed and
maintained the government's purchasing policy framework. The
government's procurement policies were set by DOFA in its March
1998 guidance entitled Commonwealth Procurement Guidelines: Core
Page 22 GAO/GGD-99-109
Procurement Reform B-281162 Policies and Principles.11 The
guidelines stated that the fundamental objective of procurement in
the Australian government was to provide the means to efficiently
and effectively deliver the government's programs. This objective,
according to the guidance, was supported through several core
principles: value for money, open and effective competition,
ethics and fair dealing, accountability and reporting, national
competitiveness and industry development, and support for other
government policies. The guidance also encouraged agencies to
provide opportunities for Australian and New Zealand industry.
However, DOFA officials said that their procurement system was not
used to advance other social objectives. When developing
instructions for procurement within their agencies, agency
executives were expected to take these core policies and
principles into account. According to DOFA officials, the
government decided that its agencies should be involved only in
core, mission-related activities and should not be performing
functions that could be performed by the private sector. DOFA
officials said that most agencies were pleased with the devolution
that had occurred. An official from a large agency we interviewed,
the Department of Family and Community Services, said that they
liked having more control over purchasing decisions and were very
satisfied with the reforms. As a result of the devolution of
purchasing responsibilities to agencies, No Centrally Administered
Australia did not have an organization like FSS to assist agencies
with the Supply Program procurement of supplies. In
the supply area, DOFA administered a vendor certification process
for IT, office machines, office furniture, and auction services
known as the Endorsed Supplier Arrangement (ESA). The ESA was to
rely on a good faith, self-assessment approach where vendors
submitted information about key factors, such as delivery
performance and financial viability. According to DOFA officials,
DOFA was to assess vendors' applications in terms of financial
capability and compliance with industry standards. These officials
told us that DOFA also did random and targeted vendor reviews. A
key difference between the ESA and FSS' schedule programs was that
DOFA did not establish governmentwide supply contracts with the
vendors, as does FSS. Another difference was that unlike FSS'
schedule programs, agencies were required to buy IT from ESA
vendors. 11 These guidelines apply to the procurement of "property
and services," which cover all goods and services, including
consulting/professional services, real property activities,
construction, equipment and real property leases, training
services, public utility services, and outsourcing or contracting-
out services. Page 23
GAO/GGD-99-109 Procurement Reform B-281162 According to DOFA
officials, DOFA and one of its predecessor departments, the
Department of Administrative Services (DAS),12 used to administer
"common use arrangements" that were replaced with the ESA. The
common-use arrangements more closely resembled FSS supply
activities in that they were governmentwide contractual agreements
administered centrally. The non-IT arrangements were ended in June
1998, and IT and major office machine arrangements were ended in
September 1998. The officials said that the primary reason for
eliminating these arrangements was the government's ideological
decision to devolve financial accountability to agencies. In
addition, they said that the arrangements generally were not
achieving a level of savings that would justify continuing them.
Also, the officials added that the government did not administer a
stock program, like FSS does, with supply distribution centers or
government stores. In the vehicle area, DAS used to manage the
government's vehicle fleet, Government Fleet Was known as
DASFLEET, up until its privatization in 1997. DASFLEET was
Privatized established in the 1920s and was expanded
to become the sole supplier of passenger and commercial vehicles
for the Australian government. DASFLEET operated three main
business areas: long-term vehicle leasing, short-term vehicle
rental, and fleet management and maintenance services. Prior to
its sale, agencies were free to use private sector operators for
their short-term rentals and fleet management and maintenance
requirements. In practice, however, these customers used DASFLEET
for much of these needs. In early 1997, DASFLEET's total fleet was
valued at $376 million Australian (about $249 million U.S.) and
comprised over 17,000 vehicles. DASFLEET owned these vehicles,
except for about 700 that were privately financed or managed by
DASFLEET for other parties. DASFLEET's workforce totaled 376
people, and its yearly profits were about $23 million Australian
(about $15.2 million U.S.). In 1996, the Department of Finance
reviewed DASFLEET's finances and operations and determined that
the government should either refinance the fleet or privatize the
business. The privatization option would include a tied contract
commitment by the government whereby agencies would be required,
for 5 years, to use the new entity for their long-term leasing
needs. The short-term vehicle rental business would not be
included in the tie. The government ultimately determined that the
privatization option provided the best option and assigned
responsibility for the sale to the Office of Asset Sales (OAS). In
September 1997, DASFLEET was sold to 12 In 1997, the Department of
Finance and Department of Administrative Services merged, creating
DOFA. Page 24
GAO/GGD-99-109 Procurement Reform B-281162 Macquarie Fleet Leasing
Pty. Limited, a wholly owned subsidiary of Macquarie Bank.13 The
sale produced proceeds of about $407 million Australian (about
$270 million U.S.). At the time of our review, DOFA had
responsibility for monitoring the tied contract. As with other
goods and services, agencies in Australia were responsible Whole-
of-Government for acquiring their own telecommunications
services. However, officials Telecommunications told us
that agencies were required to use service providers that had
Arrangements Centrally agreed to certain terms and conditions
with the Office for Government Managed Online
(OGO), formerly known as the Office of Government Information
Technology (OGIT). Each year, government agencies spend about $365
million Australian (about $242 million U.S.) to meet their
telecommunications needs, including voice, data, and mobile
services. Telstra is the major service provider, accounting for
just over 75 percent of government expenditures on
telecommunications services, although a number of other smaller
companies also compete for the government's business. OGO sought
to aggregate the government's buying power to achieve a better
price for the government as a whole, like FTS does. According to
OGO officials, OGO managed centrally administered "whole-of-
government" telecommunications arrangements where service
providers agreed to certain terms and conditions in "head
agreements" negotiated by OGO. The officials said that agencies
were to purchase services directly from the service providers
under the umbrella of the head agreements and the latest prices
negotiated in those agreements. The officials added that for
agency-specific requirements, agencies could seek the assistance
of OGO in negotiating favorable terms and conditions that became
part of the whole-of-government arrangements and were available to
other agencies, as appropriate. In this way, the officials said
that the government used its aggregated purchasing power to
achieve lower prices, competition, and economies of scale.
According to the OGO officials, the government has saved in excess
of $30 million Australian (about $20 million U.S.) in the last 3
years through the leverage of these arrangements. OGO was also a
central agency for IT. OGO's primary objectives in the IT All IT
Systems to Be area related to bringing a governmentwide
perspective to IT management. Outsourced The
agency's main focus was to promote efficient access to government
information and services, help agencies avert problems related to
the year 2000 crisis, and provide policy advice to the government
related to online 13 According to an Australian official, the
government retained a fleet of limousines for members of
Parliament. Page 25
GAO/GGD-99-109 Procurement Reform B-281162 services. Like FTS, OGO
officials said that OGO also acted as a third party in providing
agencies with advice on the development and implementation of
their IT projects, although this role was relatively minor. A
major development in the IT area was that agencies were moving
away from in-house implementation and management of IT systems. In
April 1997, the government announced a major initiative to
outsource all of its IT systems infrastructure, with the exception
of some systems related to national security. The initiative was
to be accomplished through a multiyear, phased process currently
being administered by the Office of Asset Sales and IT Outsourcing
(OASITO).14 Appendix V provides a more detailed description of
Australia's IT outsourcing initiative. In December 1998, the
Australian parliament's Joint Committee for Public Parliamentary
Review of Accounts and Audit announced that it would conduct an
inquiry into Purchasing Policies and Australian government
purchasing policies and practices. The inquiry was Practices
to have two general purposes. First, the Committee was interested
in whether government entities had achieved effective outcomes,
such as value for money, through the new purchasing policies.
Second, the Committee was interested in whether the Australian
business community had achieved more equitable outcomes as a
result of these policies. To determine how government entities had
performed, the Committee planned to collect and analyze
statistical and performance information showing trends in
purchasing opportunities and outcomes and planned to hold a series
of hearings. According to DOFA officials, the extent to which
agencies maintained this type of information, including
information on performance goals and measures, likely varied
across government, with some agencies having better data than
others. There has, according to these officials, been no central
effort to collect and report this type of information. Separate
from the parliamentary inquiry, DOFA officials said they had begun
surveying agencies on the types of performance data they
collected. 14 In November 1997, information technology outsourcing
functions formerly managed by OGIT were transferred to OAS, which
was renamed OASITO. Page 26
GAO/GGD-99-109 Procurement Reform B-281162 New Zealand, with a
population of about 3.6 million, has a local New Zealand: No
government structure with counties and districts and a central
government Central Procurement that operates as a
parliamentary democracy. The central government has decentralized
purchasing authority for goods and services, and did not Agencies
but Uses a have any government organizations similar to FSS
or FTS because it Private Business Like privatized its central
procurement agency in 1992. With the exception of FSS and FTS
some central monitoring for major IT projects, agencies were given
complete discretion over how they acquire goods and services while
still being expected to follow some general principles, such as
ensuring that domestic suppliers were treated fairly. In meeting
their needs for goods and services, agencies could go directly to
the private sector and had the option of using the private sector
business that was created when the central procurement agency was
privatized. This business, called GSB Supply Corporation Ltd.
(Supplycorp), acted as a purchasing agent for the government by
assisting agencies with their procurement needs and did business
only with government organizations. Supplycorp was similar to FSS
and FTS in that it negotiated contracts on behalf of the
government for supply, fleet, telecommunications, and IT products
and services, yet it operated completely outside the government
sector. One exception to New Zealand's highly decentralized
approach to procurement was in the IT area, where the Treasury and
the State Services Commission (SSC) were responsible for examining
and monitoring IT projects. SSC was also responsible for assessing
overall agency performance with a focus on measuring outputs
rather than inputs. Because procurement was viewed as an input,
performance data were not readily available to measure progress or
gauge the results of the various procurement reforms. Appendix I
identifies the key organizations in New Zealand and summarizes
their activities. Over the last decade, reform in the central
government of New Zealand has Agency Accountability centered on
shifting accountability for results to departments and relying
Without Centralized more on the private sector to perform
activities of a business nature. The Procurement New
Zealand government spends about $3 billion New Zealand for goods
and services each year (about $1.7 billion U.S., assuming that $1
U.S. = $1.78 New Zealand). With enactment of the State Sector Act
of 1988 and Public Finance Act of 1989, departments were given
complete discretion over how they managed their affairs, including
how they acquired goods and services. The reforms also set up a
relationship between each department and SSC, which is a central
management agency that reviews and reports on agency performance.
Departmental chief executives, who are civil servants who manage
the day-to-day affairs of departments, enter into agreements with
SSC to deliver results that are defined as an agreed- Page 27
GAO/GGD-99-109 Procurement Reform B-281162 upon level of outputs.
Generally speaking, outputs are measurable units of whatever the
department produces, whether it is policy advice or direct
services to the public. In return, departments had nearly complete
freedom over how much of their budgets they spent on the different
types of resources-inputs they need to produce the outputs-and
from where they would be purchased. Although departments had these
freedoms, they were still expected to operate open, fair, and
competitive procurement processes. Guidance by both the Treasury
and the Ministry of Commerce outlined the government's open
purchasing policy and principles and recommended procedures that
are considered to be consistent with sound business practices. The
government's general purchasing policy was based on the commercial
principle of best value for money through open and effective
competition and full and fair opportunity for New Zealand and
Australian suppliers. According to SSC officials, the policy did
not seek to advance any social objectives, which instead were
usually funded directly. New Zealand and Australian suppliers
could register with the New Zealand Industrial Supplies Office
(NZISO), a unit within the Ministry of Commerce. NZISO provided
information to purchasers on domestic suppliers and their
capabilities. Prospective purchasers were urged, but not required,
to contact NZISO, which did not get involved in actual purchasing
negotiations or decisions. Within this policy framework for
procurement, the government of New Zealand did not have any
central procurement agencies. In meeting their supply, fleet,
telecommunications, and IT needs, departmental purchasers did not
have the same options that exist in the United States with FSS and
FTS. That is, within the government, there were no central supply
schedules, stock programs with distribution centers or government
stores, vehicle acquisition and fleet management services,
governmentwide telecommunications arrangements, or IT-related
services that were available for governmentwide use like there are
in the United States through FSS and FTS. The government of New
Zealand once had a central procurement agency, Central Procurement
but it was reorganized as a state-owned enterprise (SOE) in 1989
and Function Was Privatized privatized in 1992. Prior to this
time, the Government Stores Board (GSB) acted as a central
purchasing agent within the government. Chaired by the Secretary
of the Treasury, it consisted of representatives from other
departments and was administered by a division of the Treasury.
The function of GSB was to act as a central controlling,
supervisory, and coordinating authority for the purchase, custody,
distribution, use, Page 28
GAO/GGD-99-109 Procurement Reform B-281162 interdepartmental
transfer, and disposal of public stores. GSB's main service was to
award contracts for the supply of goods to government departments.
It did not stock goods; rather, it acted as an agent for the
government by arranging bulk purchase contracts under which
departments were required to purchase specific goods from selected
suppliers. GSB also issued binding instructions to departments to
regulate their purchasing activities. In 1989, the government
reorganized GSB from a government agency to an SOE, renamed it the
Government Supply Brokerage Corporation (NZ) Ltd. (GSBC), and made
its services nonmandatory. The Treasury assumed responsibility for
the former GSB's control functions but did not issue any
purchasing instructions to departments, leaving these matters to
each department to determine. As an SOE, GSBC gained the ability
to act as a private sector firm, but the New Zealand government
owned all the shares of the corporation. The government eventually
sold its shares in 1992 and a new private business-GSB Supply
Corporation Ltd. (Supplycorp)-was established. At the time of our
review, Supplycorp performed activities similar to those carried
out by FSS and FTS in that it assisted agencies with procurement,
yet it was a private sector business that operated completely
outside the government sector. In fact, Supplycorp only did
business with government organizations, defined as those that
receive at least 50 percent of their funding from a government
source. Supplycorp also provided its services to local governments
as well, unlike FSS and FTS. Each year, Supplycorp has sales of
about $350 million to $450 million New Zealand (about $197 million
to $253 million U.S.). According to Auditor General staff we
interviewed, more than 90 percent of government departments and
local authorities continued to use Supplycorp after it was
privatized to meet at least some of their needs for goods and
services. In the supply area, it managed over 800 contracts with
1,200 suppliers for a wide range of common-use commodities,
including IT products and services. These included national
purchase contracts, as well as local purchase contracts tailored
to individual regions of the country. It did not, however, operate
distribution centers or government stores like FSS does. In the
vehicle area, Supplycorp services covered the purchase, disposal,
and management of new and used motor vehicles, similar to FSS'
services. Supplycorp arranged for the purchase of about 3,750
vehicles each year. Unlike FSS, it did not manage a central fleet
for the government. Like FTS, Supplycorp arranged bulk rate
telecommunications contracts. It is important to note that prior
to the formation of Supplycorp as a private Page 29
GAO/GGD-99-109 Procurement Reform B-281162 sector business,
departments did not use GSB for telecommunications services
because the government owned the sole telecommunications provider
in New Zealand, Telecom Corporation. Departments simply went to
Telecom for telecommunications services. In 1990, the government
privatized Telecom and departments began arranging their own
telecommunications contracts. In the IT area, like FTS, Supplycorp
had a technology team that offered advice and consultations to
departments and also had contract arrangements for IT products and
services. Supplycorp also prided itself on being positioned to
meet the future technology needs of the government. Before GSB was
privatized, its Computer Services Division (CSD) was a
nonmandatory source that assisted departments with procurement of
large IT systems. In 1994, the government privatized CSD
separately from Supplycorp. CSD was fully absorbed by the buyer
and no longer exists. One exception to New Zealand's highly
decentralized approach to Major IT Projects Centrally
procurement was in the IT area, where SSC and the Treasury
recently set Monitored up a monitoring team
to conduct joint reviews of departments' major IT projects.
According to SSC officials, the frequency of review was determined
by the monitoring team and depended on the complexity of the
project and the capability of the department. Departments were
expected to submit external quality assurance reports to the IT
monitoring team, which assessed project risks and mitigation
strategies, and SSC and Treasury provided program officials with
feedback. In addition to this monitoring, SSC and the Treasury
conducted higher profile reviews of high-risk projects and
reported directly to ministers through what was called the Ad Hoc
Officials IT Committee. According to SSC officials, projects
reviewed by this Committee cost over $5 million New Zealand (about
$2.8 million U.S.), involved strategic and mission-critical
application systems, and generally posed a high risk to the
government. The State Sector Act of 1988 was designed to introduce
the government of Performance Measurement New Zealand to
many of the positive features of the private sector. The key
Efforts Focus on Outputs principle was that managers, if
they were permitted to make all input decisions-pay, appointments,
organizational structures, production systems, etc.-would respond
by accepting personal responsibility for producing substantially
higher quality outputs-the goods and services provided by the
government.15 As mentioned before, SSC played a key role by
entering into performance agreements with departmental executives
15 It is interesting to note that in New Zealand, the government
made a conscious decision not to focus on outcomes-what the
government is trying to achieve-because it believed that holding
departments accountable for outcomes would be too difficult. That
is, there would be endless debate over measurement and the reasons
for outcomes, making accountability enforcement difficult. Page 30
GAO/GGD-99-109 Procurement Reform B-281162 and monitoring
performance. According to SSC officials, however, information that
would enable an assessment of New Zealand's approach to
procurement was generally not available. According to these
officials, procurement processes and approaches were viewed as
inputs and accordingly were not routinely measured or assessed.
Officials we contacted who operated in this environment-from the
Ministry of Health, Health Funding Authority, and Ministry of
Defence- were very satisfied with being held accountable for
outputs while having the freedom to control inputs, including how
they procured goods and services. They said that the reforms have
made their departments more efficient and effective. It is
important to note that although New Zealand's management approach
did not focus on regulating procurement practices, there were
other controls over abuse of purchasing freedoms. These included
parliamentary inquiries, audits of procurement practices by the
Auditor General, and obligations set in law for departments to
respond to any requests for information. Information on the
various approaches used by these four countries Conclusions
provides insight into how they performed activities similar to
those of FSS and FTS. These countries had reassessed the role of
their central procurement agencies and procured goods and services
in a variety of ways. None of the countries had government
organizations that completely mirrored FSS and FTS. For example,
in the UK, the government organizations that performed activities
similar to FSS and FTS were different in that they had more
flexibility to manage personnel and financial matters than
traditional government departments. New Zealand sold its central
procurement agency to the private sector, and agencies now could
use the private sector business that was created to help meet
their procurement needs. Also, there were similarities and
differences in the programs and policies these countries used in
the procurement of supplies, vehicles, telecommunications, and IT.
Amending laws and regulations under which agencies operate and
reforming procurement processes are not new concepts in the United
States. For example, Congress authorized TVA, a government
corporation, and some federal agencies such as VA and FAA to adopt
alternative personnel systems. In addition to modifying
requirements to help agencies accomplish their missions, the U.S.
government has also reformed its procurement practices. The
Federal Acquisition Streamlining Act of 1994 was enacted in part
to promote efficiency and economy in contracting. In recent years,
agencies have outsourced, or contracted for, a wide range of
functions that had been done in-house. For example, the
investigative unit Page 31
GAO/GGD-99-109 Procurement Reform B-281162 of OPM was privatized
and OPM now contracts for investigative services. To identify
future candidates for privatization or outsourcing, the FAIR Act
of 1998 requires agencies to identify functions they perform that
are not inherently governmental. These reforms and streamlining
efforts in the United States, as well as those in the four
countries, were designed to make government operate more
efficiently, improve service delivery, and focus on government's
core mission. In considering the merits of the approaches used by
the countries and their applicability to FSS and FTS, it is
important to recognize that such factors as differences in
political and economic environments, the role of social objectives
in the procurement process, and the volume of contracting activity
would have to be considered. Furthermore, although the officials
we interviewed in the four countries were generally satisfied with
the reforms and believed their governments were better off with
them in place, performance data on the effectiveness of the
various reforms were generally unavailable or were in the early
stages of development. Nonetheless, considering the experiences of
these countries in reforming similar activities can serve as a
starting point for examining what, if any, alternatives there are
to the way FSS and FTS are currently organized and operate. OFPP's
Associate Administrator for Procurement Law and Legislation told
Agency Comments us that OMB had no comments. Our FSS liaison,
FTS' Chief of Staff, and several responsible officials from each
of the four countries provided technical comments on a draft of
this report to add clarity and context to how we describe their
procurement approaches. We incorporated their comments into the
final report where appropriate. As agreed with your offices,
unless you publicly announce its contents earlier, we plan no
further distribution of this report until 30 days from its issue
date. At that time, we will send copies to the Honorable David J.
Barram, Administrator of GSA; the Honorable Jacob J. Lew, Director
of OMB; the Honorable Deidre A. Lee, Administrator of OFPP; and
the key officials in each of the countries we visited. We will
also make copies available to others on request. Page 32
GAO/GGD-99-109 Procurement Reform B-281162 Major contributors to
this report were Gerald Stankosky, David E. Sausville, and David
W. Bennett. We also greatly appreciate the assistance provided by
the Auditor General staffs in each country as well as the
willingness of the other officials to meet with us and provide
information. If you or your staffs have any questions, please
contact me on (202) 512- 8387 or at [email protected]. Bernard L.
Ungar Director, Government Business Operations Issues Page 33
GAO/GGD-99-109 Procurement Reform Contents 1 Letter 36 Appendix I
Organizations With Activities Related to Supply, Vehicle,
Telecommunications, and IT Procurement 38 Appendix II Objective,
Scope, and Methodology 43 Appendix III Canada's Benefits Driven
Procurement 46 Appendix IV The UK's Private Finance Initiative 50
Appendix V Australia's IT Outsourcing Initiative Table II.1:
United States 41 Tables
Table II.2: Canada 41
Table II.3: United Kingdom 41
Table II.4: Australia 41
Table II.5: New Zealand 42
Page 34 GAO/GGD-99-109 Procurement Reform
Contents Abbreviations BDP benefits-driven procurement
CCTA Central Computer and Telecommunications Agency CSD
Computer Services Division DAS Department of
Administrative Services DND Department of National Defence
DOFA Department of Finance and Administration ESA
Endorsed Supplier Arrangement FAA Federal Aviation
Administration FAIR Federal Activities Inventory Reform Act
of 1998 FAR Federal Acquisition Regulation FAST
Federal Acquisition Services for Technology FSS Federal
Supply Service FTS Federal Technology Service GSA
General Services Administration GSB Government Stores
Board GSBC Government Supply Brokerage Corporation (NZ)
Ltd. GTIS Government Telecommunications and Informatics
Services HMSO Her Majesty's Stationery Office MOD
Ministry of Defence NZISO New Zealand Industrial Supplies
Office OAS Office of Asset Sales OASITO Office of
Asset Sales and IT Outsourcing OFPP Office of Federal
Procurement Policy OGIT Office of Government Information
Technology OGO Office for Government Online OGP
Office of Governmentwide Policy OMB Office of Management
and Budget PFI private finance initiative PWGSC
Public Works and Government Services Canada SIPSS Science,
Informatics, and Professional Services Sector SOE state-
owned enterprise SOS Supply Operations Service SSC
State Services Commission TBA The Buying Agency TBS
Treasury Board Secretariat TSO The Stationery Office TVA
Tennessee Valley Authority VA Department of Veterans
Affairs RAF Royal Air Force NAO National Audit
Office Page 35 GAO/GGD-99-
109 Procurement Reform Appendix I Organizations With Activities
Related to Supply, Vehicle, Telecommunications, and IT Procurement
Procurement policy- Supply activitiesa
Country Procurement organizations setting
organizations United States General Services Administration's
Office of Management FSS has nonmandatory,
prenegotiated contract Federal Supply Service (FSS) and
Budget's Office of arrangements under which agencies deal
directly with and Federal Technology Service Federal Procurement
vendors to acquire a range of supplies, including IT (FTS)
Policy (OFPP); GSA's goods and services; FSS also stocks
supplies for resale Office of to agencies
from its distribution centers and government Governmentwide Policy
stores. (OGP) Canada Public Works and Government
Treasury Board and its Like FSS, SOS had prenegotiated
contract arrangements Services Canada's Supply
operational arm, the under which agencies dealt directly
with vendors for Operations Service (SOS) and Treasury
Board supplies, including IT products and
services; however, Government Telecommunications Secretariat
unlike FSS, they were mandatory over certain dollar and
Informatics Service (GTIS)
thresholds; also unlike FSS, SOS had no distribution branch.
centers or government stores. United The Buying Agency
(TBA);b Her Majesty's Treasury Like FSS, TBA
had nonmandatory, prenegotiated Kingdom Central Computer
and (HM Treasury) contract
arrangements for supplies, under which Telecommunications Agency
agencies dealt directly with vendors for supplies, (CCTA)b
including some for IT products and services; unlike FSS, TBA did
not have distribution centers or government stores. Australia
Office for Government Online Department of Finance
Unlike in the United States with FSS, the government did (OGO);
Office of Asset Sales and Administration not
have any centrally administered supply contract and IT Outsourcing
(OASITO) (DOFA) arrangements and
had no distribution centers or government stores; DOFA did,
however, administer a vendor certification program that was
mandatory for IT. New Zealand GSB Supply Corporation Ltd.
Commerce Ministry; Unlike in the United States with
FSS, the government did (Supplycorp)d The
Treasurye not have any centrally administered
supply contract arrangements and had no distribution centers or
government stores; Supplycorp was a nonmandatory source in the
private sector that, like FSS, had similar arrangements under
which agencies dealt directly with vendors to acquire a range of
supplies, including IT products and services; Supplycorp also did
not have distribution centers or government stores. Page 36
GAO/GGD-99-109 Procurement Reform Appendix I Organizations With
Activities Related to Supply, Vehicle, Telecommunications, and IT
Procurement Vehicle activities Telecommunications
activities IT activitiesa FSS
is the mandatory source for vehicle FTS has nonmandatory,
local and FTS assists agencies, on a nonmandatory
basis, purchases and operates a nonmandatory, long
distance telecommunications with acquiring IT systems
and related services; interagency fleet for short-term agency
service arrangements with private FSS has an IT
products and services schedule; needs.
carriers that agencies can use. FTS services differ
from those of FSS in that FTS acts as a third party; with the FSS
schedule, agencies deal directly with the IT vendors. Like FSS,
SOS was the mandatory source Like FTS, GTIS had
nonmandatory, SOS had a mandatory role in assisting
agencies for vehicle purchases but did not operate a local
and long distance with IT systems
acquisitions if they exceeded central fleet.
telecommunications service certain dollar
thresholds; SOS also had arrangements with private carriers
prenegotiated arrangements for IT products and that agencies could
use. services, like FSS; GTIS assisted
smaller agencies and those without IT expertise, on a nonmandatory
basis, with identifying their IT needs. Unlike in the United
States with FSS, Like FTS, CCTA had nonmandatory,
Like FTS, CCTA assisted agencies, on a agencies could go directly
to the private local and long distance
nonmandatory basis, with acquiring IT systems sector to purchase
vehicles telecommunications service
and related services; like FSS and its sister and there was no
central fleet agencies arrangements with private carriers
agency TBA, CCTA also had a schedule of IT could use; TBA could
assist agencies with that agencies could use.
products and services. vehicle acquisition and agencies could use
vehicle purchase arrangements held by the Ministry of Defence
(MOD).c Unlike in the United States with FSS, Like FTS,
OGO sought to aggregate OGO had a minor role assisting
agencies in the agencies went directly to the private sector
the government's buying power acquisition of IT
systems; there was no major for vehicles and there was no central
fleet; through agreements it had with
government initiative to assist agencies in the government used to
have a central fleet, telecommunications service providers;
acquiring IT systems because of a new initiative to but it was
privatized in 1997; agencies were however, unlike with FTS in the
United phase out IT systems ownership and instead required to use
the privatized fleet for a 5- States, agencies were required to
use outsource, or contract for, IT services; this year period to
meet their vehicle needs. those providers.
initiative was being done through a multiyear, phased process
being administered by OASITO. Unlike in the United States with
FSS, Unlike with FTS in the United States,
Agencies went directly to the private sector for IT agencies went
directly to the private sector agencies went directly to the
private systems and had the option of using Supplycorp for
vehicles and there was no central fleet; sector for
telecommunications services; for assistance; Supplycorp had a
technology team Supplycorp had prenegotiated contract
Supplycorp had prenegotiated contract that offered advice and
consultations, like FTS arrangements for vehicle purchases that
arrangements for telecommunications has, and a schedule of IT
products and services, agencies could use, and could assist
services that agencies could use. like FSS has; major
IT projects were to be agencies in obtaining fleet management
examined and monitored by SSC and the services.
Treasury. a"Supply activities" can include commercially available
IT products and services; "IT activities" refer primarily to the
acquisition of IT systems and related services. bTBA and CCTA are
executive or "next steps" agencies, which means they had more
flexibility than traditional government departments in how they
managed their finances and personnel. cIn the vehicle area, MOD
was in the midst of implementing a privately financed partnering
arrangement for its nontactical and administrative support fleet.
This effort is described in more detail in appendix IV.
dSupplycorp is a private sector business that sells only to
government agencies. eThe State Services Commission is also a key
central agency that is responsible for reviewing and reporting on
agency performance, but it does not set procurement policy.
Source: GAO analysis of information on organizations with
activities related to supply, vehicle, telecommunications, and IT
procurement in the United States and selected countries. Page 37
GAO/GGD-99-109 Procurement Reform Appendix II Objective, Scope,
and Methodology Our objective was to identify the organizations,
policies, and programs that Canada, the United Kingdom (UK),
Australia, and New Zealand had in place to assist agencies with
the procurement of supplies, vehicles, telecommunications, and IT.
To meet this objective, we obtained information on FSS' and FTS'
procurement activities by interviewing top FSS and FTS officials
as well as program officials in the four business lines. We also
held discussions with GSA's OGP and OFPP within OMB. We collected
information on federal procurement through research on the
Internet and by reviewing our past work. We also reviewed
procurement- related laws and regulations, such as the Federal
Acquisition Streamlining Act of 1994, the Federal Activities
Inventory Reform Act of 1998, and the Federal Acquisition
Regulation. To select countries for the review, we first
determined, on the basis of available resources and the time
frames for the assignment, that we could collect and analyze
information on four countries. We then conducted research, relying
heavily on the Internet, as well as discussions with officials at
the World Bank and Department of State, to identify Western
industrialized countries that had made a commitment to procurement
reform and would be candidates for selection. On the basis of this
work, we selected Canada, the UK, Australia, and New Zealand
because they had made such a commitment, and preliminary work
showed they had reformed activities similar to those carried out
by FSS and FTS. Our work was limited to the activities of the
central or federal governments in these countries. We confirmed
our selections primarily through further discussions with our
counterpart organizations-the Auditor General offices-in each of
the countries as well as the Department of State offices for each
of the countries. We also held discussions with the embassy of New
Zealand in Washington, D.C. and the U.S. embassies in Ottawa,
Canada, and London, UK. It is important to note that the four
countries were judgmentally selected and were not intended to be
representative of how countries around the world were reforming
similar activities. To collect information on the organizations,
programs, and policies in these countries, we visited them and
interviewed key officials about their operations. To identify
which officials would provide information that would help us best
meet our objective, we relied heavily on advice from the Auditor
General staffs. The Auditor General staffs then arranged the
interviews, provided us with relevant material, and assisted us
with other logistical matters related to the visits. In Canada,
the central procurement department also played a vital role in
identifying key officials and Page 38
GAO/GGD-99-109 Procurement Reform Appendix II Objective, Scope,
and Methodology arranging the interviews. In each country, we
interviewed officials in any central procurement organizations
involved in the procurement of supplies, vehicles,
telecommunications, and IT. We also interviewed knowledgeable
officials in organizations that set procurement policy such as
each country's Treasury department or equivalent; selected
agencies that were the end-users of the procurement organizations,
programs, and policies in place; and the Auditor General offices.
In Australia, we held discussions with staff from a parliamentary
committee conducting an inquiry into procurement practices. We
also interviewed the general manager of a private sector business
in New Zealand that assisted the government with procurement. In
doing our work, we also analyzed a wide range of material on the
organizations, programs, and policies in the four countries.
Tables identifying the organizations in each country discussed in
this report and their Internet addresses appear at the end of this
appendix. After collecting the information, we compared these
countries' operations to how FSS and FTS assist agencies with the
procurement of supplies, vehicles, telecommunications, and IT. It
is important to note that we did not do a comprehensive
comparison. That is, in each of the four FSS and FTS business
lines, we focused on the major activities that FSS and FTS perform
and determined how each country carried out similar activities.
For example, for supply and procurement, we determined whether
there were central supply contracts in the countries that agencies
could use that were similar to those available through the FSS
supply schedules and special order arrangements and whether the
countries had operations similar to the FSS stock program. For
vehicle acquisition and leasing, we focused on whether vehicles
were purchased centrally and whether each country had a central
fleet like the FSS interagency fleet. For network services and IT
solutions, we focused on whether, in general, the countries had
central sources from which agencies could obtain
telecommunications services or assistance with the acquisition of
IT systems and related services. In using this approach, we
recognize that we did not focus on all the specific
characteristics of the activities FSS and FTS perform in each of
the business lines. Resource and time constraints prevented us
from doing a detailed comparison, nor did they allow us to assess
the applicability of the approaches used by these countries to FSS
and FTS operations. We also did not analyze or verify the laws
cited by the foreign officials or contained in documents they
provided. Although we did ask the countries for performance data
related to their procurement organizations and Page 39
GAO/GGD-99-109 Procurement Reform Appendix II Objective, Scope,
and Methodology activities, we did not independently verify any
data we obtained or assess the effectiveness of the reform
initiatives. Finally, we did not verify the barriers cited by FSS
and FTS or assess the effectiveness of reforms implemented in the
United States. We did our work at FSS and FTS offices in Arlington
and Falls Church, VA, respectively, and OGP and OFPP offices in
Washington, D.C. In our visits to the countries, we did work in
the cities of Ottawa and Hull in Canada; London and Bath in the
UK; Canberra, Australia; and Wellington, New Zealand. In
discussing the organizations in the countries, we used terms such
as "agency" and "department" interchangeably. The exchange rates
used throughout the report were as of May 2, 1999; we obtained
them from the Federal Reserve Bank of New York and rounded them to
the nearest cent. We performed our work between July 1998 and May
1999 in accordance with generally accepted government auditing
standards. We requested comments on a draft of this report from
the Director of OMB, Administrator of GSA, and key officials in
the countries we visited. OMB had no comments. In response to the
request for comments from the Administrator of GSA, FSS and FTS
officials provided comments on a draft of this report, as did
responsible officials from the four countries. Tables II.1 through
II.5 identify the organizations in the United States and each of
the four countries discussed in this report and their Internet
addresses. Page 40 GAO/GGD-
99-109 Procurement Reform Appendix II Objective, Scope, and
Methodology Table II.1: United States General Services
Administration (GSA)
http://www.gsa.gov GSA/Federal Supply Service (FSS)
http://www.fss.gsa.gov GSA/Federal Technology Service (FTS)
http://www.fts.gsa.gov GSA/Office of Governmentwide Policy (OGP)
http://www.policyworks.gov Office of Federal Procurement Policy
(OFPP)
http://www.whitehouse.gov/OMB/procurement/index.html Table II.2:
Canada Department of National Defence (DND)
http://www.dnd.ca/ Department of Public Works and Government
Services Canada http://w3.pwgsc.gc.ca/ (PWGSC) PWGSC/
Government Telecommunications and Informatics
http://w3.pwgsc.gc.ca/gtis/ Services (GTIS) PWGSC/ Supply
Operations Service (SOS)
http://w3.pwgsc.gc.ca/sos/text/sosext-e.htm Office of the Auditor
General of Canada (OAG) http://www.oag-
bvg.gc.ca/ Treasury Board Secretariat of Canada (TBS)
http://www.tbs-sct.gc.ca/ Table II.3: United Kingdom Central
Computer and Telecommunications Agency (CCTA)
http://www.ccta.gov.uk/ Her Majesty's Treasury (HM Treasury)
http://www.hm-treasury.gov.uk/ HM Treasury's task force on PFI
http://www.treasury-projects-taskforce.gov.uk/ Ministry of Defence
(MOD) http://www.mod.uk/
National Audit Office (NAO)
http://www.open.gov.uk/nao/home.htm The Buying Agency (TBA)
http://www.open.gov.uk/tba/menu.htm The Stationery Office (TSO)
http://www.tsonline.co.uk/ Table II.4: Australia Australian
National Audit Office (ANAO)
http://www.anao.gov.au/ Department of Family and Community
Services (DFaCS) http://www.facs.gov.au/
Department of Finance and Administration (DOFA)
http://www.dofa.gov.au/ Joint Committee for Public Accounts and
Audit (JCPAA)
http://www.aph.gov.au/house/committee/jpaa/index.htm Office of
Asset Sales and IT Outsourcing (OASITO)
http://www.oasito.gov.au/ Office for Government Online (OGO)
http://www.ogo.gov.au/ Page 41
GAO/GGD-99-109 Procurement Reform Appendix II Objective, Scope,
and Methodology Table II.5: New Zealand GSB Supply Corporation
Ltd. (Supplycorp)
http://www.gsb.co.nz/ Health Funding Authority (HFA)
http://www.hfa.govt.nz/ Ministry of Commerce
http://www.moc.govt.nz/ Ministry of Defence (MOD)
http://www.defence.govt.nz/ Ministry of Health
http://www.moh.govt.nz/moh.nsf Office of the Controller and
Auditor-General of New Zealand
http://www.netlink.co.nz/~oag State Services Commission (SSC)
http://www.ssc.govt.nz/Welcome.asp Sources: The sources for tables
II.1 through II.5 are the Internet addresses identified, as of the
time of our review. Page 42
GAO/GGD-99-109 Procurement Reform Appendix III Canada's Benefits
Driven Procurement Benefits Driven Procurement (BDP) is a new
approach the Canadian government has started to use to help ensure
the success of complex acquisition projects traditionally
characterized as having significant risk. BDP stresses a focus on
results and on the benefits that the government and its suppliers
can gain from each acquisition project. Developed by the Canadian
government in collaboration with Canadian industry, the BDP
approach is designed to avoid the pitfalls that beset many complex
projects-delays, cost overruns, and end results that often fall
far short of expectations. BDP was first developed to solve
problems with major IT acquisitions; but according to Canadian
government officials, the concept has a broad application and is
relevant to a wide range of complex, high- risk acquisitions.
According to information on BDP from Public Works and Government
Services Canada (PWGSC),1 Canada's central procurement agency,
major IT projects, which are among its most complex procurement
projects, have a history of failure. Research done in the United
States and Canada support this assertion. For example, in 1990,
the President's Council on Management Improvement cited the
"unwieldy procurement process" as a reason IT projects often
failed. Other reasons cited in this report included lack of top
management commitment, inadequate planning, inadequate user input,
and flawed technical approaches. In 1997, KPMG Consulting
conducted a survey of IT projects in Canada and reported that the
reasons for failure among IT projects were poor planning, a weak
business case, and lack of top management involvement. A study by
the Standish Group in the United States showed that 31.1 percent
of U.S. IT development projects were cancelled before completion;
about 53 percent of the projects were likely to cost 189 percent
of their original estimates; and only 16.2 percent of software
development projects were completed on time and within budget.
Concerned about problems with IT acquisition, the Treasury Board
of Canada developed a framework of management policies in 1996
that comprised best practices, principles, methodologies, and
tools and standards aimed at ensuring a better success rate. Part
of this framework addressed the procurement process, which the
Treasury Board described as "too inflexible" and "not conducive to
cooperation." BDP evolved as a response to this Treasury Board
framework. 1 This appendix draws heavily from a PWGSC paper on BDP
presented on June 10, 1998, before the International Public
Procurement Association. Page 43
GAO/GGD-99-109 Procurement Reform Appendix III Canada's Benefits
Driven Procurement BDP focuses on the big picture-the overall
desired outcomes-rather The BDP Philosophy than on detailed
project requirements. The traditional approach to procurement in a
complex IT project was for an organization to spend months, even
years, developing a detailed requirement-thousands of pages of
specifications to present to the private sector. However,
according to Canadian officials, the specifications may be
outdated before they are complete, can be out of step with the
latest technology, and the organization's goals may even have
changed during the long, drawn-out process of developing
specifications. Finally, according to these officials, the private
sector may know the project is not feasible, but may present bids
anyway in order to obtain work. As a result, the traditional
approach tends to be too lengthy, rigid, prescriptive, and costly
in terms of time and human resources that have to be dedicated to
each project, according to Canadian officials. BDP attempts to
address this problem by asking the private sector to deliver
certain agreed-upon results rather than follow a government
blueprint with detailed specifications. The private sector is also
invited to submit ideas on what sort of project should be
undertaken before a formal request for proposals is issued.
Another feature of BDP is that it is to incorporate rigorous up-
front planning to remove potential problems in the procurement
process. Both the front end planning and the management of the
entire acquisition Elements of the BDP life cycle are based on
four elements: a business case; risk analysis; clear Process
delineation of accountabilities; and, a compensation structure
closely tied to the contractor's performance. Under BDP, a
department is to prepare a business case justifying the project at
the highest level and identifying the outcomes and benefits to be
achieved. The business case is also to look at such issues as how
much the project will cost, whether there are cheaper ways to
realize goals, and what the benefits will be to the taxpayer.
According to Canadian officials, under traditional methods, a
project was often launched prematurely without a determination of
whether it was really needed, whether it fit with the
organization's long-term goals, and without having the support of
top management. Risk analysis is used to identify what could go
wrong with the project and how to deal with the consequences. The
goal is essentially to minimize risk and be prepared with
contingencies for containment when problems do arise. Departments
are to conduct risk assessments not just during the planning
phase, but also throughout implementation. This helps ensure that
projects with little chance of success are cancelled or modified
as early as possible. Delineation of accountabilities is used to
protect the Page 44 GAO/GGD-
99-109 Procurement Reform Appendix III Canada's Benefits Driven
Procurement client department from service delivery problems by
identifying the specific risks each party assumes. For example,
if the contract states that the supplier is responsible for
delivering a certain outcome, or level of service, by a certain
date but fails to do so, the supplier could be required to bear
the cost of the delay. Relatedly, BDP encourages the use of a
compensation structure closely tied to the contractor's
performance. For example, bonus payments may be made for
finishing earlier than expected. A nonmonetary incentive could be
intellectual property rights to a technology developed under
government contract. Although BDP has been used primarily in the
IT area, PWGSC and Treasury Board Secretariat (TBS) officials told
us they anticipated greater usage of BDP in other areas in the
future. BDP is part of a broad framework for procurement reform
that TBS was developing at the time of our review. These
officials said, however, that BDP should not always be used; in
many cases, traditional procurement approaches are quite
appropriate. They said that rigorous up-front planning by
departments is done to help identify the most appropriate method.
More information on BDP can be accessed at the PWGSC and TBS
Internet addresses, http://w3.pwgsc.gc.ca/ and http://www.tbs-
sct.gc.ca/, respectively. Page 45
GAO/GGD-99-109 Procurement Reform Appendix IV The UK's Private
Finance Initiative The Private Finance Initiative (PFI) is a
procurement reform approach being used by the United Kingdom to
provide services requiring a major capital investment. Under a PFI
project, the private sector finances the capital assets and the
government or users pay for the services. Similar to what are
commonly referred to as public-private partnerships in the United
States, PFI contracts require the private sector to invest in,
manage, and operate a capital asset necessary to deliver a defined
level of service. By way of example, in a PFI project to fill the
need for a highway, the government would pay for the service of
having a fully maintained and functional highway instead of
constructing and maintaining the highway itself. In the IT area,
the government would seek an arrangement in which the private
sector would meet a department's IT needs through services,
instead of having the government own and manage an IT system and
software. An example where the user of the services and not the
government pays for the service would be a privately financed
bridge that is paid for directly by tolls from motorists using the
bridge. The thinking behind PFI includes transfering the risks and
rewards of ownership of an asset to the private sector, along with
the need for capital funding. According to HM Treasury officials,
it requires government to consider not only whether it can afford
to pay for the capital asset, but also to rigorously consider the
long-term financial implications of the asset being properly
maintained and operated over a period of, frequently, 25 years or
more. PFI also aims to allocate procurement risks more
appropriately between the supplier and the government customer to
ensure that the risks rest with the appropriate party. For
example, in a construction project, the risk of delay or cost
overruns would rest with the private sector supplier.
Alternatively, the risk of changes in legislation that could
affect the contract would rest with the government customer, who
is better placed to influence any such changes. Under PFI
projects, the government also believes it can also potentially
benefit from the innovation and skills of the private sector. By
concentrating on the end service required, the government allows
the private sector supplier to determine innovative ways of
delivering the service-the government customer specifies the
outputs but leaves the inputs to the supplier. To ensure value for
money under PFI projects, the government customer is to
demonstrate that the PFI method of procurement is likely to be
better value for money than alternative means of supply-in
particular, conventional means of procurement. This comparison is
to be done by comparing the quality and cost of the service
required under the different alternative means of supply. Page 46
GAO/GGD-99-109 Procurement Reform Appendix IV The UK's Private
Finance Initiative At the time of our review, the UK was at
various stages of implementing 115 PFI projects for capital assets
valued at about 10.9 billion (about $17.6 billion U.S., assuming
that $1 U.S. = 0.62). These projects covered a wide range of
services, including highways, prisons, IT services, and part of
the Ministry of Defence's (MOD) vehicle fleet. To improve the PFI
procurement process and to assist departments and agencies with
implementing PFI projects, HM Treasury had established a PFI task
force. The task force sought to ensure that departments' projects
were not placed on the market until it was confident that the
service was affordable, project teams had adequate resources,
output specifications had been developed, and an acceptable risk
allocation had been proposed. The task force issued guidance for
carrying out PFI projects and also provided direct assistance to
departments and agencies. At the time of our review, task force
officials told us they had hired several individuals from the
private sector to ensure that the government had high-calibre
legal, financial, and other professional skills available to
assist departments. HM Treasury's guidance for PFI projects, as
well as more detailed information on the PFI process, can be found
at its Internet address that is dedicated to PFI,
http://www.treasury-projects-taskforce.gov.uk. At the time of our
review, MOD was in various stages of implementing 20 MOD's White
Fleet PFI PFI projects for capital assets with a total
estimated value of about 967 Project million
(about $1.6 billion U.S.). These projects included services
involving IT systems at the Army Logistics Agency and Army
Training and Recruitment Agency, training for the Defence
Helicopter Flying School, water and sewage at certain Royal Air
Force (RAF) bases, and housing at two other MOD bases. Related to
the vehicle acquisition and fleet area, two projects involved
MOD's "white fleet" of nontactical, administrative, and support
vehicles. The two projects were for white fleet vehicles used by
British forces in Germany and a portion of the RAF white fleet
vehicles in the UK. This year, MOD planned to expand this project
to include all of the white fleet vehicles in the British
military. The white fleet PFI project had its origins in 1994,
when MOD began a study to identify methods for encouraging greater
commercial involvement in vehicle funding and management. The
study concluded that there were both the capacity within the
private sector and the potential for financial and operational
benefits for MOD to expose the support vehicle fleet to industry
competition. It was recognized that adopting a PFI approach to the
supply of the white fleet would involve the private sector
providing complete vehicle service, not just the funding for a
substitution of new assets. MOD believed that through PFI, it
would be exposed to private Page 47
GAO/GGD-99-109 Procurement Reform Appendix IV The UK's Private
Finance Initiative sector innovation and management skills and
progressively would benefit from the latest commercial techniques
in vehicle management. MOD selected two portions of the white
fleet to test the PFI approach: the support vehicles for British
forces in Germany and a stratified group of RAF support vehicles
in the UK. According to MOD officials, preliminary data showed
that both of these projects were delivering efficiencies in terms
of the number of vehicles operated and the cost of operation. At
the time of our review, MOD officials estimated that in Germany,
savings of 27 percent were being realized compared to in-house
operation; and in the UK, savings under PFI were estimated to be
about 15 percent. In both cases, MOD believed it was getting a
newer and more reliable fleet, along with a better information
system and commercial fleet management expertise. According to MOD
officials, they drew on the experience gained from these two test
efforts, did detailed research, and held extensive discussions
with the leading service providers to develop a strategy for
subjecting the rest of the white fleet to competition. Five
regional projects covering approximately 12,000 vehicles were
developed inside defined boundaries to cover all the requirements
of all three services (Royal Navy, Army, and RAF). Each project
covered the full range of vehicles in the white fleet and
encompassed short and medium term needs. Under the PFI
arrangements, MOD staff were to assess fluctuating vehicle needs,
and the industry providers are to be under contract to meet all
levels of demand, even on short notice. This was a departure from
the traditional procurement philosophy MOD had in the fleet area,
in which vehicle holdings were to be matched to anticipated
maximum usage requirements. Instead, MOD would be paying for
vehicle services as an alternative to owning and operating them.
As of October 1998, the time of our discussions with MOD
officials, the projects had been advertised and MOD had received
expressions of interest and proposal outlines from a number of
leading vehicle suppliers who were backed by international
financial institutions. Binding bids were to be obtained by the
early part of 1999, which would lead to the selection of a
preferred supplier and detailed negotiations before projected
contract signings in September 1999. Implementation of the
contracts would then commence and would be completed in 6 months.
To ensure value for money, MOD has established an in-house cost
benchmark that reflected the best of several other in-house
options MOD has considered for managing the fleet. Should the
bids MOD receives be Page 48
GAO/GGD-99-109 Procurement Reform Appendix IV The UK's Private
Finance Initiative above the in-house benchmark, MOD officials
said they would instead implement the in-house alternatives.
Also, MOD was planning to provide the in-house benchmark to
industry to prevent providers from submitting bids if they could
not provide the required service at a price below the in- house
benchmark. The National Audit Office (NAO), our counterpart
organization in the UK, National Audit Office Role reports to
the British parliament on whether individual PFI projects
represent good value for money. NAO supports the PFI concept
because it offers, in appropriate cases, the prospect of improved
value for money. NAO also recognizes that successful
implementation will require well- thought innovation and risk-
taking by public servants, which it supports. According to NAO
officials, the merits of the PFI initiative will be judged on the
success of individual projects. To date, these officials said
that some projects could have benefited from better up-front
planning; as a result, it was questionable whether some projects
were achieving value for money. On the other hand, other projects
have represented clear value for money and other benefits to the
government. Overall, NAO officials said that as time went by,
public servants likely would become more adept at using the PFI
approach, and the overall gains would be positive. Information on
NAO's findings for individual projects can be accessed at its
Internet address, http://www.open.gov.uk/nao/home.htm. Page 49
GAO/GGD-99-109 Procurement Reform Appendix V Australia's IT
Outsourcing Initiative In April 1997, Australia's Minister for
Finance announced a major initiative to outsource, or contract
for, the government's IT infrastructure. The initiative was to
cover everything from the large mainframe computers agencies
operated to the equipment for over 140,000 desktop computers
across the government.1 According to officials with the Office of
Asset Sales and IT Outsourcing, this infrastructure had an
estimated value of between $6 and $7 billion Australian (between
about $4 and $4.6 billion U.S., assuming that $1 U.S. = $1.51
Australian). Under the initiative, the government committed to
achieving best value for money for its information technology
dollar in order to support the delivery of services at the lowest
cost to the taxpayer. This major announcement had its origins in
1996, when the government tasked the former Office of Government
Information Technology (OGIT) with studying the potential savings
that could accrue through consolidation of systems and potential
outsourcing. The resulting study indicated that a very strong case
for outsourcing existed and led to a decision that agencies should
undertake extensive market testing. Potential savings of $1
billion Australian (about $662 million U.S.) were estimated over 7
years if agencies shifted to outsourcing. The April 1997
announcement reflected the government's commitment to apply the
outsourcing concept for IT across government, with the exception
of some systems related to national security. In November 1997, IT
outsourcing functions managed by OGIT were transferred to the
Office of Asset Sales, which was renamed OASITO. OASITO was given
responsibility for leading and managing the implementation of the
initiative, with the aim of delivering savings, developing the
Australian IT industry, and improving service delivery. The
initiative had clear objectives related to the Australian IT
industry. That is, OASITO was committed to ensuring substantial
and sustainable development of the domestic IT industry,
encouraging the industry to achieve a global focus, and assisting
regional development and the creation of jobs. OASITO's executive
coordinator told us that in addition to the Australian IT
industry, firms from overseas, including the United States, had
been, and would likely continue to be, active participants in the
initiative. 1 In March 1999, we reported that several agencies in
the United States were studying the outsourcing option for their
information systems (Outsourcing and Privatization: Private Sector
Assistance for Federal Agency Studies (GAO/GGD-99-52R, March 26,
1999). Page 50
GAO/GGD-99-109 Procurement Reform Appendix V Australia's IT
Outsourcing Initiative OASITO was managing the initiative through
a multi-year, phased process where agencies' IT needs were being
grouped together and the requirements offered to the private
sector for bids. The government originally estimated that the
initiative would be completed by mid-1999. At the time of our
review, the schedule for outsourcing had to be adjusted to
accommodate the capacity of agencies to prepare for outsourcing
and the capacity of industry to absorb the requirements. OASITO
was responsible for identifying the groupings and structuring them
to maximize the benefits of outsourcing. It also provided guidance
and assistance to agencies and managed the sequence and timing of
the offerings to maximize competition. In addition, OASITO was the
central coordinator for development of project documentation and
was to oversee the financial evaluation of the offers. After
contracts were signed, OASITO planned to remain involved to ensure
that issues affecting the overall success of the initiative were
effectively addressed. In close consultation with OASITO, each
agency was responsible for defining its business and technical
requirements, assisting with the evaluation of bids, participating
in negotiations, and otherwise preparing the agency for transition
to an outsourcing relationship and subsequent contract management.
At each step of the process, agencies were expected to ensure that
sufficient resources were dedicated to the process to enable the
project timetable to be met. Agencies were also expected to
implement strategies for internal matters, such as human resource
transition, and to execute the change to the new operating
environment. The government anticipated that IT professionals
within government would transfer to the private sector, thus
enhancing their skills and furthering their career opportunities.
OASITO's executive coordinator told us that the government
undertook this initiative because of a belief that agencies should
focus on their core missions and allow the private sector to
perform government activities of a business nature. Further, he
said that in meeting their IT needs through purchasing IT
services, agencies, and the government as a whole, would also
benefit from access to the latest technologies and current
commercial expertise in information management. Page 51
GAO/GGD-99-109 Procurement Reform Page 52 GAO/GGD-99-109
Procurement Reform Ordering Information The first copy of each GAO
report and testimony is free. Additional copies are $2 each.
Orders should be sent to the following address, accompanied by a
check or money order made out to the Superintendent of Documents,
when necessary. VISA and MasterCard credit cards are accepted,
also. Orders for 100 or more copies to be mailed to a single
address are discounted 25 percent. Order by mail: U.S. General
Accounting Office P.O. Box 37050 Washington, DC 20013 or visit:
Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S.
General Accounting Office Washington, DC Orders may also be placed
by calling (202) 512-6000 or by using fax number (202) 512-6061,
or TDD (202) 512-2537. Each day, GAO issues a list of newly
available reports and testimony. To receive facsimile copies of
the daily list or any list from the past 30 days, please call
(202) 512-6000 using a touch-tone phone. A recorded menu will
provide information on how to obtain these lists. For information
on how to access GAO reports on the INTERNET, send e-mail message
with "info" in the body to: [email protected] or visit GAO's World
Wide Web Home Page at: http://www.gao.gov United States General
Accounting Office Bulk Rate Washington, D.C. 20548-0001
Postage & Fees Paid GAO Permit No. G100 Official Business Penalty
for Private Use $300 Address Correction Requested (240316)
*** End of document. ***