[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
PUTTING THE STRATEGY IN SOURCING: CHALLENGES AND OPPORTUNITIES FOR
SMALL BUSINESS CONTRACTORS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CONTRACTING AND WORKFORCE
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
JUNE 13, 2013
__________
[GRAPHIC] [TIFF OMITTED]
Small Business Committee Document Number 113-023
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMER, Missouri
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Richard Hanna............................................... 1
Hon. Grace Meng.................................................. 2
WITNESSES
Hon. Stan Z. Soloway, President & CEO, Professional Services
Council, Arlington, VA......................................... 4
Mr. Robert A. Burton, Senior Partner, Venable LLP, Washington, DC 6
Mr. Roger Waldron, President, The Coalition for Government
Procurement, Washington, DC.................................... 8
Mr. Trey Hodgkins, Senior Vice President, Global Public Sector,
TechAmerica, Washington, DC.................................... 10
Hon. Joseph G. Jordan, Administrator, Office of Federal
Procurement Policy, Washington, DC............................. 21
Mr. Jeff Koses, Director, Office of Acquisition Operations,
Federal Acquisition Service, General Services Administration,
Washington, DC................................................. 23
APPENDIX
Prepared Statements:
Hon. Stan Z. Soloway, President & CEO, Professional Services
Council, Arlington, VA..................................... 33
Mr. Robert A. Burton, Senior Partner, Venable LLP,
Washington, DC............................................. 40
Mr. Roger Waldron, President, The Coalition for Government
Procurement, Washington, DC................................ 53
Mr. Trey Hodgkins, Senior Vice President, Global Public
Sector, TechAmerica, Washington, DC........................ 71
Hon. Joseph G. Jordan, Administrator, Office of Federal
Procurement Policy, Washington, DC......................... 75
Jeff Koses, Director, Office of Acquisition Operations,
Federal Acquisition Service, General Services
Administration, Washington, DC............................. 81
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
William Balek, Director of Legislative Affairs, ISSA - The
Worldwide Cleaning Products Association.................... 87
Bob Griffin, GSA Schedule Consultant, Contractor and Former
DOD Schedules Customer..................................... 100
NOPA, Connecting the Independent Dealer Channel.............. 104
PUTTING THE STRATEGY IN SOURCING: CHALLENGES AND OPPORTUNITIES FOR
SMALL BUSINESS CONTRACTORS
----------
THURSDAY, JUNE 13, 2013
House of Representatives,
Committee on Small Business,
Subcommittee on Contracting and Workforce,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building. Hon. Richard Hanna
[chairman of the subcommittee] presiding.
Present: Representatives Hanna, Tipton, and Meng.
Chairman HANNA. Good morning, everyone. This hearing will
come to order.
This morning, we are here to talk about strategic sourcing
and what it means for small business. Strategic sourcing is in
itself neither good nor bad. It is a tool. It is how we use it
that matters. It is not the hammer's fault that someone uses it
to cure a headache; rather, strategic sourcing at its heart is
about being smarter about how we buy things. It means knowing
what goods and services we are currently buying, who is buying
these goods and services, who we are buying them from, and
where they are in turn acquiring these goods and services. It
means understanding what we actually need, rather than what we
are buying. It means clearly communicating those needs to the
marketplace. It means being aware of the ways the marketplace
may change, either in what new products and services are
becoming available or what other forces are operating in that
market. When you are talking about the federal government, an
entity that spends $516 billion throughout the year, it also
means understanding that the way we buy things may irrevocably
change that market.
This leads to challenges we are here to discuss and
address. How can the government buy smarter and realize the
benefits small businesses bring to the table. I know I do not
need to remind anyone here that small businesses are our job
creators and innovators, or that the competition they bring to
the government marketplace drives down costs and keeps our
industrial base healthy. If we do strategic sourcing well, it
can benefit small businesses and taxpayers alike. If we simply
use strategic sourcing as a synonym for contract bundling and
consolidation, it may undermine that industrial base.
In federal contracting, we have winners and losers. No one
is advocating that ever business is entitled to a contract;
however, the government should not act in a way that keeps
small businesses from competing. Likewise, we cannot contract
in a way that forces the majority of contractors out of the
market for a long period of time and then expect those same
businesses to be there when we need them. Make no mistake; we
will need them to offer competition for the incumbent
contractors if we want long-term savings. I hope our witnesses
today will discuss both the long-term and short-term effects of
strategic sourcing. Additionally, as we discussed at our last
hearing, not every method of procurement is suited for every
type of purchase. The more complicated the good or service
being bought, the harder it is to commoditize it. Given our
standard strategic sourcing of services poses special
challenges for small businesses. Therefore, I hope our
witnesses will address which types of goods and services are
suitable for strategic outsourcing. Truly strategic outsourcing
is not simply a quest for the lowest price at any moment; it
requires an understanding of the long-term dynamics of the
marketplace and the power wielded by the buyer. As the under
secretary of defense recently wrote, the first responsibility
of acquisition workforce is to think.
I hope today's hearing will help clarify the issues
surrounding strategic sourcing so that the government does not
act in a penny wise and pound foolish manner.
I want to thank your witnesses for being with us today, and
I turn to Ms. Meng for her opening statement.
Ranking Member Meng.
Ms. MENG. Thank you, Mr. Chairman, for holding this
important hearing.
Our Committee has long acknowledged the critical role small
businesses play in the $500 billion a year federal marketplace.
When small firms are awarded contracts for government agencies,
the result is a win-win. The government receives good value for
their money as small companies have the dexterity to provide
high-quality goods and services at competitive prices. That
means taxpayers' resources are spent wisely.
Not only do the agencies benefit by using small businesses,
but the economy does as well. Equally important, unlike larger
businesses, small businesses must often add staff to meet
government demand for their products and services, which
results in further job creation. With our economy continuing to
recover, it is vital that we pursue every mechanism possible to
foster job creation by the federal government and that extends
to the procurement process.
As more federal agencies adopt the Strategic Sourcing
Initiative, questions are arising about whether the SSI
promotes competition and fosters small business participation
in the federal marketplace. With 19 agencies moving to make SSI
mandatory, many small firms are starting to suffer. One
analysis focused exclusively on suppliers of office products.
They found that on average, small firms previously competing
under the GSA schedule for this business lost anywhere between
$20,000 and $10 million in revenue. The Committee has heard
from a number of entrepreneurs who suggested that these changes
are already resulting in layoffs. If SSI is hurting small
businesses and the economy, we must examine this issue closely.
I want to make sure businesses like Data Conversion
Laboratory in Fresh Meadows, New York, or Defender Security
Services in Regal Park, New York, are still able to compete for
federal contracts on the same playing field they are today.
Small firms not included in the blanket purchasing agreement
tell us they find themselves effectively locked out of a $1.5
billion market. In the meantime, large corporations, like
OfficeMax and Staples, are expanding their presence in the
federal marketplace. If small firms that had previously won
contracts through the GSA schedule are being denied the
opportunity to compete even when they could provide the same
goods at a lower price, then we have to wonder whether SSI
functions as intended.
There are also concerns about whether SSI is sacrificing
long-term competitiveness in order to reduce short-term costs.
If the vast majority of small business contractors are not
chosen to participate in SSI and as a result stop bidding on
federal work, will agencies have fewer options in the future?
And when prices begin creeping up, would not we want a larger
pool of small firms to compete for a right to deliver these
goods and services?
Without a diverse range of companies in the federal market,
we may find that over the long term, SSI has failed to reduce
prices, but instead reduced the number of firms participating
in the process. Setting aside questions about how this
initiative impacts entrepreneurs, it is important that SSI not
be used as a ``one size fits all'' approach to procurement.
What works for the purchase of physical products may be ill
suited for contracts related to services.
Similarly, not every agency may find SSI to be a good
match. Media reports suggest agencies are feeling increasing
pressure to adopt the SSI standards for all purchasing
decisions. Although it remains to be seen whether SSI saves the
taxpayer money, it seems intuitive that if there are savings,
the program should be applied only where it works, while the
former GSA schedule should remain intact where it keeps costs
low and quality high.
All of this is not to say that the SSI program is without
merit. We certainly do not want agencies using less efficient
and more expensive procurement processes; however, if small
firms that have been offering quality services are being locked
out, even having to let go of staff, then it may be time to
take a hard look at whether this initiative is achieving the
desired result.
On that note, I look forward and thank the witnesses for
being here, and thank them for shedding light on this critical
topic. I yield back my time.
Chairman HANNA. Thank you.
You each have five minutes. The light will go yellow, then
red. We will be lenient. We want to know what you have to say.
So with that, our first witness here today is Mr. Stan Z.
Soloway. Mr. Soloway is president and chief executive officer
of the Professional Service Council, the National Trade
Association of Government Professionals and Technical Service
Industry. Prior to joining PSC in 2001, Mr. Soloway served as
deputy under secretary of defense directing acquisition reform.
Mr. Soloway, thank you for being here. You may begin.
STATEMENTS OF STAN Z. SOLOWAY, PRESIDENT AND CEO, PROFESSIONAL
SERVICES COUNCIL; ROBERT A. BURTON, SENIOR PARTNER, VENABLE,
LLP; ROGER WALDRON, PRESIDENT, THE COALITION FOR GOVERNMENT
PROCUREMENT; TREY HODGKINS, SENIOR VICE PRESIDENT, GLOBAL
PUBLIC SECTOR, TECHAMERICA.
STATEMENT OF STAN Z. SOLOWAY
Mr. SOLOWAY. Thank you, Mr. Chairman, Ranking Member Meng.
Thanks for the opportunity to testify and share our views on
the potential impacts on small business of the federal
government's Strategic Sourcing Initiatives. This is a matter
of significant interest to our community given both the unique
diversity of our membership base and the equally unique
diversity of the services our members provide to the federal
government.
Our membership of over 360 companies is comprised of firms
of all sizes, including approximately 25 percent that are
classified as small businesses, and an additional 25 or 30
percent that would be classified as small mid-tier firms. It is
this diversity of function and size that provides the lens
through which we have viewed strategic sourcing and the full
range of business policies we address with the Congress and the
administration and how they will impact all or portions of the
federal services sector.
In our view, structured properly, the Federal Strategic
Sourcing Initiative (FSSI) has the potential to deliver real
benefits for federal agencies and taxpayers alike. As such, we
commend the Office of Federal Procurement Policy for making
strategic sourcing a priority. Yet, while we fully support the
FSSI's intended objectives, we do have some concerns about its
practical effects, and those concerns relate more to the way in
which the term is used and understood, rather than the concept
itself.
So along those lines I would like to make a few overarching
observations and conclude with four specific recommendations.
First, we need to be clear that strategic sourcing is not
one ``thing.'' It is a set of multi-layered, flexible
procurement strategies that evolve and change depending on the
nature and complexity of what is being bought. For pure
commodities, where cost is the primary, even sole concern,
strategic sourcing can be fairly simple. For more complex
needs, particularly higher-end services where quality and
technical ability become more central to a decision, the
challenges and complexities also grow substantially. For
products, where place of performance of production is
irrelevant, strategic sourcing may mean one thing, whereas, for
services where the place of performance is highly relevant, the
need to deliver services across multiple geographic regions can
bring with it a different set of issues and challenges,
especially for small business.
These variations are not insignificant, and as the
Government Accountability Office found in their recent report
on strategic sourcing, our key elements are the way strategic
sourcing is implemented in the private sector. Our concern is
not that the senior leadership is unaware of these critical
variations. In fact, we believe they understand them very well,
but that the frontline, where we are seeing an increased
commoditization of even the most complex needs, there are too
many people who believe that the term really refers solely to
an aggregation of buying for scale to drive down unit costs.
Unless and until that frontline awareness and understanding is
improved and enhanced, we do have concerns that FSSI could
generate a range of unintended consequences.
Second, strategic sourcing raises a seminal question. Is
our principle objective and responsibility to optimize
government operations or is it to optimize those operations
without impacting the current environment for small
disadvantaged HUBZone, veteran-owned, or woman-owned
businesses? For example, is it better to have fewer small
businesses receiving a higher volume of work from the
government, or a larger number of small businesses with smaller
shares of the volume? Is it more important to perpetuate the
longstanding tenet of fiscal acquisition in which broad,
continuous open competition is a primary goal? Or is it more
important to seek optimization which almost by definition would
reduce the pool of suppliers of both products and services?
These are far more than rhetorical questions. They and
their disposition are essential to assessing the future of
FSSI. To their credit, the Office of Federal Procurement Policy
and the Strategic Sourcing Leadership Council recognize this
dichotomy and have worked hard to factor it into their
planning, but a much broader conversation is very much needed.
These issues have also been prominent in the discussion
about GSA's OASIS solicitation. Among the concerns that it has
raised is that it will reduce the number of small business
opportunities and that it is overly, if not principally,
focused on driving down the unit cost of complex, professional
services, and less so on overall value, quality, and
performance. Indeed, some GSA officials stated repeatedly in
public forums that driving down unit cost was their principal
goal.
To GSA's credit, it has conducted extensive outreach to the
private sector, and it does appear that they have taken to
heart many of the comments they have received. But even as we
await GSA's publication of the final OASIS solicitation and
their explanation of how they reconciled competing policy and
competitive interest, concern still exists as to how the
competition and implementation of the awards will ultimately
play out.
With all of this in mind, let me just make four basic
recommendations for the road forward. First, if I could define
one desired outcome from this hearing it would be to gain much
more clarity on the question of whether the balance between the
number of small business providers and the total dollars
expended with small business is aligned with both the
administration and Congress's small business agenda. There is
little doubt about the effectiveness of recent strategic
sourcing for wireless services, laptops, and office supplies.
Consensus on that alignment is essential to the effect of an
efficient expansion of strategic sourcing however far it may
go. OFPP and the Strategic Sourcing Leadership Council
recognize this dichotomy and have worked hard to factor it into
their planning, but as I said earlier, that conversation needs
to be expanded.
Second, we should develop and deploy requisite training
tools to the workforce without delay and require that all
acquisition personnel involved in any specific strategic
sourcing effort for other than the most basic commodities first
complete that training.
Third, we should be highly judicious in the use of
strategic sourcing for services, particularly for complex
services. We should require senior level review of significant
strategic sourcing efforts to services to ensure that the
strategies being employed are clearly articulated and are not
overly focused on simply forcing down labor rates at the
expense of overall quality.
And finally, we should pursue a flexible, rather than
overly prescriptive strategic sourcing initiative. Let us allow
individual agencies some degree of flexibility to pursue their
own agency unique initiatives and to develop performance
measures for both agency-specific and government-wide
initiatives that will meaningfully inform the future shape
expansion and/or limitations of the Federal Strategic Sourcing
Initiative.
Mr. Chairman, Ms. Meng, the Federal Strategic Sourcing
Initiative has great potential but also requires careful
attention. Absent answers to the questions above, it is frankly
not possible to say with certainty what its impact on small
business will be. The Office of Federal Procurement Policy, the
SSLC, GSA, and others are to be congratulated for their
relentless efforts to ensure that federal agencies buy smart
and buy well, and we remain fully committed to working with
them and with you and with individual agencies to ensure that
we find the right balance and ensure the best possible
performance on behalf of the taxpayer.
Thank you once again for the opportunity to be here today,
and I certainly look forward to your questions.
Chairman HANNA. Thank you. Any members that have written
statements may submit them for the record.
Our second witness is Mr. Robert A. Burton. Mr. Burton is
senior partner for the Venable LLP in Washington, D.C., where
he is a nationally recognized federal procurement attorney.
Prior to joining Venable, Mr. Burton spent seven years at the
Office of Federal Procurement Policy serving as deputy
administrator, as well as acting administrator for two years.
Mr. Burton, you may begin.
STATEMENT OF ROBERT A. BURTON
Mr. BURTON. Chairman Hanna and Ranking Member Meng, I very
much appreciate the opportunity today to discuss what I term
the unattended effects of strategic sourcing in small
businesses.
Prior to joining the Venable law firm in 2008, I did serve
as the deputy administrator of the Office of Federal
Procurement Policy, referred to as OFPP. While serving in this
capacity, I was closely involved with the first government-wide
Strategic Sourcing Initiative and the development of the 2005
Office of Management and Budget memorandum on strategic
sourcing, which, for the very first time, directed agencies to
develop and implement appropriate strategic sourcing efforts. A
lot of discussion with agency acquisition officials and small
business advocates preceded the issuance of the 2005 strategic
sourcing policy memorandum. The consensus was that any agency's
specific or government-wide Strategic Sourcing Initiative had
to be focused not only on lowering the price of goods and
services, but also increasing the value of each taxpayer dollar
spent. This means that agency's strategic sourcing efforts had
to improve the quality of performance and increase small
business participation.
We quickly learned that strategic sourcing is not a simple
concept; rather, it requires careful analysis, planning, and
implementation. We rolled out the first government-wide
Strategic Sourcing Initiative for express and domestic delivery
services because very few vendors provide these specialized
services, no small businesses were impacted, and it was
relatively easy for the government to effectively leverage its
combined buying power for these services. But as we explored
the use of other government-wide strategic sourcing vehicles,
it became much more challenging, and small businesses expressed
concerns with the use of government-wide strategic sourcing
vehicles. Specifically, they were concerned that the
consolidation of contracting vehicles across government would
reduce competition and opportunities for small businesses.
Today, existing and proposed government-wide strategic
sourcing vehicles highlight some of the negative effects
strategic sourcing can have on small businesses. For example,
GSA's recently proposed strategic sourcing vehicle for
janitorial and sanitation supplies, commonly referred to as
JanSan, manifests several legitimate concerns of small
businesses. First, nothing in the JanSan strategic sourcing
vehicle guarantees that small businesses will receive any
significant contract dollars, even if they are awarded a
blanket purchased agreement or BPA. Although GSA has set aside
8 of 15 JanSan BPAs for small businesses, such set-asides do
not necessarily guarantee small business success. Simply put,
agencies are not required to place orders under the small
business set-aside BPAs.
Second, JanSan will reduce the pool of approximately 540
small business contractors that provide the government with
janitorial supplies. Under JanSan, a total of only 15 BPAs can
be awarded. This means that hundreds of vendors will be
foreclosed from contracting with the government. This will be
especially true if agencies are mandated to use the JanSan
vehicle. Currently, small business vendors who fail to win a
government-wide strategic sourcing contracting opportunity have
the ability to maintain their businesses by competing on GSA
schedule contracts or participating in other forms of open
competition.
The JanSan example highlights the importance of not making
government-wide strategic sourcing vehicles mandatory for use
by the agencies. And this is why OFPP did not make strategic
sourcing vehicles mandatory in 2005 when we announced the first
government-wide strategic sourcing effort. The mandatory use of
a single strategic sourcing vehicle will reduce contracting
opportunities for small businesses and the pool of small
business contractors even if the vehicle incorporates small
business set-asides and achieves small business goals.
Finally, the government's Strategic Sourcing Initiative was
designed not only to increase small business participation, but
also to ensure best value. The emphasis on value is a
cornerstone of strategic sourcing. As discussed in the 2005 OMB
strategic sourcing memorandum, agencies were to maximize the
value of every dollar spent through strategic sourcing. Because
some of the strategic sourcing vehicles are constructed as low
priced, technically acceptable procurements, the government is
emphasizing price at the expense of overall value.
In conclusion, the government should carefully plan and
implement proposed strategic sourcing vehicles to ensure that
savings are not achieved at the expense of small businesses and
value for the taxpayers. This is particularly true in cases
where cost savings may be short term and eliminated in the long
run because of less competition and fewer small business
contractors.
Mr. Chairman, this concludes my statement. I will be
pleased to answer any questions that you or members of the
Subcommittee may have. Thank you.
Chairman HANNA. Thank you, Mr. Burton.
Our third witness today is Mr. Roger Waldron. Mr. Waldron
is president of The Coalition for Government Procurement. He
has over 25 years of government contracting experience,
including a 20 year tenure at the General Services
Administration, where he held various positions, including
acting director, chief acquisition officer.
Mr. Waldron, you may begin.
STATEMENT OF ROGER WALDRON
Mr. WALDRON. Chairman Hanna, Ranking Member Meng, member of
the Subcommittee, thank you for the opportunity to appear
before you to address ``Putting the Strategy in Sourcing:
Challenge and Opportunities for Small Business Contractors.''
The Coalition for Government Procurement is a nonprofit
association of firms selling commercial services and products
to the federal government.
Coalition members include small, medium, and large business
concerns from across the country. Coalition members account for
approximately 50 percent of the commercial solutions purchased
annually by the federal government and focus much of their
access to the federal marketplace through their GSA schedule
contracts.
Effectively used, the GSA Schedules program is a highly
successful strategic source for the government to leverage the
marketplace and achieve its socioeconomic goals. Year in and
year out the GSA Schedules program is one of the most
successful government-wide small business contracting programs
available. In a typical fiscal year, over 30 percent of the
dollar volume of purchases under the GSA Schedules program goes
to small business concerns.
The fundamental keys to success of the GSA Schedules
program for small business are: (1) continuous open seasons;
and (2) ordering procedures and electronic tools that allow
customer agencies to consider socioeconomic status when
competing and placing orders. Although the coalition generally
supports the government's strategic sourcing efforts, we have a
number of concerns about the impact of GSA's current
acquisition strategies on businesses of all sizes, but
particularly on small companies.
Last year, GSA proposed a mandate-based model that would
have eliminated continuous open seasons under the GSA Schedules
program. The coalition submitted comments opposing the closure
of GSA schedules to new offers. A copy of our comments is
attached to our written testimony. Coalition members remain
uniformly opposed to closing the GSA schedule program to new
offers as it would limit opportunities for small businesses,
restrict competition, and inhibit access to commercial
innovation by the government. We are concerned that GSA's
strategic sourcing initiatives are being used to implement the
demand-based model's closure of GSA schedules to new offers.
At the same time, the government is moving towards a
mandatory use contracting model for blanket purchase agreements
established under the GSA Schedules program. Mandatory use will
have the unintended long-term consequence of reducing
opportunities for small businesses. By its very nature,
mandatory use limits access of the federal buyer to a small
group of contractors. Mandatory use will restrict access to the
federal marketplace for small businesses.
Rather than imposing mandatory use terms as a means of
leveraging the government's volume, the coalition supports use
of volume commitments or guaranteed minimums that are based on
improved requirements development, which is after all
commercial practice. Volume commitments create the economic
incentives to offer lower prices for commercial solutions. At
the same time, the government maintains the flexibility to
access a commercial marketplace and compete opportunities for
small businesses. It is a win-win for government and industry.
The coalition is also concerned that the current approach
to strategic sourcing includes the use of generic, government-
wide blanket purchase agreements established under the GSA
Schedules program, agreements that do not include specific
requirements or volume commitments upon which effective
competition can be based. The intermediate step of establishing
such a agreements results in vertical contract duplication that
increases bid and proposal costs for government and industry
and definite hurts small business. These agreements should be
limited to the maximum extent practicable. Agencies should
compete task orders or establish blanket purchase agreements
under the GSA Schedules program based on specific requirements,
including volume commitments. This approach will enhance
rational, realistic competition, competitive pricing, and
improve deficiency. A program of agency-specific blanket
purchase agreements established under the GSA schedule program
will also provide greater opportunities for small business
concerns.
In summary, when effectively used, the GSA Schedules
program is a highly successful, strategic source for
government. At the same time, GSA schedule contracts are a
powerful marketing tool for small business concerns when
dealing with contracting offices across federal, state, and
local governments. However, it appears that rather than
focusing on the strengths of the program, its openness and
access to the commercial marketplace, its flexible, streamlined
ordering procedures and electronic tools, the current strategic
sourcing approach closes the GSA marketplace, reduces
competition, and limits access to commercial solutions and
small business.
The Coalition for Government Procurement is pleased to
submit our written testimony for the record, and we stand ready
to provide you with any additional input you may request. Thank
you.
Chairman HANNA. Thank you, Mr. Waldron.
I yield to Ranking Member Meng to introduce the next
witness.
Ms. MENG. It is my pleasure to introduce Mr. Trey Hodgkins.
Mr. Hodgkins is the senior vice president of the Global Public
Sector at TechAmerica. TechAmerica represents over 34,000
member businesses in the information and communications
technology industry, including many small businesses. Mr.
Hodgkins is a recognized expert in procurement, cyber security,
and national security, and he has over 30 years of experience
in the federal, state, and local government arenas.
Welcome, Mr. Hodgkins.
STATEMENT OF TREY HODGKINS
Mr. HODGKINS. Good morning, Mr. Chairman and Ms. Meng. I
appreciate the opportunity to be here. I want to thank you for
letting us represent some of the challenges and opportunities
small businesses face in the adoption of strategic sourcing by
the federal government.
TechAmerica is uniquely positioned, representing technology
companies from the IT, communications, and defense industrial-
based sectors, and our members range from large companies whose
names are common household terms to the most innovative and
agile of small technology companies from across the nation.
While many of the companies are oriented with the government as
a customer, a large number of our members are completely
outside of the public sector and are commercial in nature,
offering commercial items developed and manufactured in a
global economy and distributed and sold around the world. The
ubiquitous nature and complexity of the goods and services our
members sell create unique perspectives on strategic sourcing
in federal government contracting and I would like to share a
few of those this morning.
Before I turn to that issue, however, I would like to touch
on something the chairman noted in his opening remarks, that
the biggest challenge to small businesses today in the public
sector market is the tidal wave of government unique
requirements they face and the burdens those requirements
create as they try to enter the market or stay in the market.
Many of the commercial companies mentioned above consider the
burden too significant and not worth the costs and risks and
choose to simply forego government work entirely. This
condition means that the government does not have access to
many of the most innovative companies offering cutting edge
technologies and software products and services focused on
critical issues like cyber security. The condition also results
in diminished competition and higher prices for the goods and
services the government does acquire, because the burdens
created by the government unique requirements end up as part of
the cost of doing business and are passed along to the buyer.
To address this and other conditions that hinder achieving best
value for the taxpayer, TechAmerica would solicit the
Committee's support for a wholesale review of government
acquisition, similar in scope and objective to the Section 800
Panel convened in the early `90s. Without such an effort, we
are concerned that legislative and administrative attempts to
address shortcomings in federal acquisition will only have
limited impact at the edges of the issue.
As taxpaying corporate citizens who employ millions of
people around the country, the members of TechAmerica are
supportive of efforts like the Federal Strategic Sourcing
Initiative that can derive savings by consolidating the
acquisition of commoditized goods. We would caution, however,
that such efforts have diminishing success when goods and
services of a complex or diverse nature are shoe-horned into
these vehicles. Strategic sourcing works best when the offering
is relatively uniform, and that is simply not the way the
government buys information technology goods and services.
Many of the products and services in the ICT space do not
lend themselves well to strategic sourcing. Government does not
buy technology in a consistent fashion either, and that further
complicates any effort to fit them into such an initiative. For
hardware items, like laptops or servers, the government does
not buy them in large quantities, and when they buy them, they
do not ask for a consistent configuration. One customer wants
more memory, another wants a CAC card reader, and a third wants
a different sized screen.
For small businesses, we see two direct and immediate
challenges under the strategic sourcing initiative. Many of
these companies will face diminished access to the federal
government market because under FSSI there will be less award
winners and more losers. The second challenge impacts those
small businesses that are the most innovative providers of IT
goods and services, which are frequently offered in response to
narrow, unique mission requirements or as a specialized
component to a broader prime contractor activity. The offerings
of these companies simply do not fit into the commoditized
labor categories envisioned under strategic sourcing, and these
companies will face increased market pressures given the
requirements to drive more and more acquisitions into strategic
sourcing.
The One Acquisition Solution for Integrated Services
(OASIS) GWAC was originally proposed as a new vehicle
specifically for the acquisition of complex integrations of
technology and services, but it was announced earlier this year
that it would become part of the FSSI and the goods and
services offered under the contract would be commoditized. As
noted above, complex and specialized goods and services, like
the ones small technology businesses can deliver, do not lend
themselves well to strategic sourcing, so industry reacted with
confusion and apprehension about proceeding with the offering.
While we await the solicitation to be completed, questions
remain about how goods and services will be commoditized in the
future under this contract vehicle.
Small businesses can and should compete for contracts in
FSSI, but not all goods and services lend themselves to
strategic sourcing. Congress should ensure that small business
opportunities to offer innovative and unique goods and
specialized services are preserved and that we strike a balance
as we implement the FSSI.
Thank you for the opportunity to speak to you today. I
would be happy to answer your questions.
Chairman HANNA. Thank you. Thank you.
For each of you, I mean, clearly, there is general
agreement that there are problems with the system. I was
surprised, Mr. Burton, to hear that people can be awarded a
contract and never be the beneficiary of anything of that
contract. And Mr. Waldron, you said the same thing. Without
minimums, this particular--so it is possible to put an enormous
amount of work in bidding these, understanding them, and then
being successful, being pleased with that success, and come to
nothing. For both of you, does that make any sense, and would
you change that so that there was a guaranteed minimum?
Mr. BURTON. Mr. Chairman historically, the government has
really pushed back on guaranteed minimums. I think that will be
difficult to do. There is a strong history of not doing that.
But that is one thing the private sector does quite well, and
that is a distinction between really private sector procurement
and government procurement. Especially in the area of strategic
sourcing, we see companies using guaranteed minimums. I
certainly think that is something that could be explored.
But I do think that the larger problem is the fact that
even if you are successful, even if the government meets its
small business goals, even if some of those businesses get a
fair amount of work, the small business community as a whole is
negatively impacted, and you are going to reduce the base of
small businesses competing. And my biggest concern for the
government is five years from now when some of these vehicles
come up from recompetition, will any small businesses--how many
small businesses will be around to compete? And will the prices
go up at that point in time? So I think one of the biggest
concerns, Mr. Chairman, is short-term savings balanced against
maybe long-term increased costs and a reduced small business
base. And that is true even if the small businesses are awarded
opportunities on the BPAs.
Mr. WALDRON. During my time at GSA, we actually used
guaranteed minimums. We used them effectively for orders under
the GSA Schedules program and for blanket purchase agreements.
It enhanced competition, it created opportunity, and it created
the right economic incentives for schedule contractors to
provide price reductions at the order level during competition.
I think one of the biggest challenges that the government
and with the use of the GSA schedules is this growth of the
sort of generic BPAs. So you can think of it as--I think of it
and characterize it as vertical contract duplication. So you
have the GSA schedule contract. The intent with those contracts
is to compete task orders or compete BPAs and establish those
BPAs generally for recurring requirements. But what happens is,
and what has happened and exploded over the last few years, is
you will have the GSA schedule contract. Then the agency or the
Federal Strategic Sourcing Initiative will have a generic BPA
with no guarantee of usage as Rob mentioned, and as a company
you have to compete and expend funds to get on that BPA because
then they are eventually going to compete orders under the BPA.
So you have sort of three competitive events--the award of the
schedule, the award of the generic BPA, and then actual
competition for the real requirement at the task order level.
Our members are very concerned about this growth and
complexity of process. We would much rather see competition for
orders at the order level and skip this intermediate process.
Chairman HANNA. Interesting.
The subjective nature, the more complicated the good or
service that is being purchased, particularly Mr. Hodgkins, do
you think that it is being handled appropriately? And do you
believe that the people who are involved in designing the
purchase orders or the bidding documents have an appropriate
handle or balance? Obviously, some of you do not feel they have
the right balance between ensuring long-term competition and
making their job easier by limiting that competition. Is there
in government a natural momentum to deal with those people,
those companies that are larger, those industries that are more
available to you as opposed to looking at the long-term goal,
which is to ensure vibrant competition and yet competent
competition?
Mr. HODGKINS. Mr. Chairman, I think you perhaps are
correct. There is a tendency to move toward companies that the
government is used to dealing with. That is one of the
challenges small businesses face. They are not necessarily a
known name in the market. But the complexities around
information technology, we believe that there is a dearth of
organic experience in the acquisition work force in general
around technologies, market trends, and that puts the
government at a disadvantage when it is buying those things.
Additionally, when you look at issues like cyber security
and you are trying to drill down on specific capabilities or
counter a specific risk, small businesses frequently can step
in and offer those kinds of things that a large company, they
may come in as a subcontractor to the large company or they may
come in with a unique capability of their own. But I think that
companies do have the ability--the government, rather, has
trended toward using larger companies, but that is not to say
that they are cutting out the small businesses.
Chairman HANNA. Thank you.
I yield to----
Mr. SOLOWAY. Mr. Chairman, may I make a comment on that?
Chairman HANNA. Certainly.
Mr. SOLOWAY. I think it might be helpful to step back
because I think the question you asked is really a critical
one.
I think, first of all, if you look at the available data
and you look across different market sectors, the trends
relative to your question are different in different spaces. We
see in certain markets in our membership, that our members work
in, where the government is entirely setting aside entire
categories of work, which almost amounts to an industrial
policy where we are saying, okay, if you are a small business
and you want to work with us, that is where we are going to let
you work, no place else. And if you are not a small business
and you do that work, we are not interested. That is not a very
healthy balance either.
I think the second piece is that when we talk about can
strategic sourcing work, does it do this or whatever, I want to
come back to one of the key points I tried to make in the
testimony, which is strategic sourcing is not one thing. And so
I think the issue that concerns us, and I think Trey was
probably referring to also, is that there is a tendency across
government today to look at everything through the prism of
driving down a unit cost, rather than stepping back and looking
at overall value, performance, and so forth. And the higher up
the chain you go of complexity, the more that becomes a
problematic strategy.
And so strategic sourcing, you can strategically source the
most complex requirements on the planet, but in that case you
would not be doing it on the basis of lower unit price; you
would be doing it on the basis of technical quality, technical
history, past performance, all of these other sort of
discriminators that may not be as applicable when you are doing
it for simple commodity. So it is a continuum. It is a
spectrum. It is not one thing, and I think our concern is that
it is too often seen in just one category through one lens.
Chairman HANNA. So it is not at all surprising to anybody
here, I imagine, that people seek to make their job easier,
rather than less complex. And the more difficult the job, the
less likely that people are capable of understanding the scope
and depth of it and breadth of it.
Mr. SOLOWAY. Well, and that is a general acquisition
challenge we face in government.
Chairman HANNA. Sure. How would you change that? What would
you focus on?
Mr. SOLOWAY. Well, I think that there is a lot of education
and training and development issues at stake here, and it is
not just around strategic sourcing, but it is a good example.
If you went across the 360-plus member companies that we
represent and asked them what their number one concern is today
in the federal market, a small, medium, or large company would
say that everything is being bought on the basis of the low
price, not on the basis of quality and value because it is a
workforce that not only does not have the tools, but frankly,
they are not encouraged to do that. No one ever got an award
for paying a little bit more for something because they thought
it might have better long-term value. When we think about price
at the government level, we think about how much does it cost
to operate this system? When Wal-Mart thinks about price, they
think about what is the impact on the entire company supply
chain and ability to stock shelves? So they look on an
enterprise level rather than on the immediate level. So there
is a lot of education and training involved here. I think it is
wrapped up. Strategic sourcing is just one part of a bigger set
of challenges.
But I guess my point is that strategic sourcing complex
services makes eminent sense if you understand the disciplines
and the skills that go into doing that. And we have agencies
that have done that. But what we see today is an increased
commoditization across the market and the concern is that is
what would bleed across, and people's presumptions would
therefore be incorrect.
Chairman HANNA. And of course, simplicity, is that--correct
me if I am wrong, but that is almost human nature. And without
some kind of formal intervention or processes that guarantee
that more complicated issues are handled in a more complicated,
broader way, that is the atrophy that we are going towards.
Mr. SOLOWAY. Potentially, that is true. Again, on the other
hand, if we think about the government workforce, the pressures
they are under today, all the budget reductions and budget
uncertainty they face, almost all they hear now is drive your
cost down. Drive your cost down. Drive your cost down. We make
short-term investment decisions and no consideration for long-
term cost impacts because it is all about that immediate budget
and those budget pressures. And so they are getting conflicting
direction and conflicting information also.
Mr. WALDRON. Just on that note I would suggest that
requirements development and improving requirements development
for complex services, integration efforts, is vital at this
point more than ever given the budgetary constraints we are
operating under. You have got to get more value for money. It
is not about low price. It is about well-articulated
requirements.
Chairman HANNA. Ranking Member Meng, please.
Ms. MENG. Mr. Soloway, in your testimony you discussed how
strategic sourcing incorporates the full spectrum of
procurement techniques outlined in the FAR. However, you
indicate that while the Strategic Sourcing Leadership Council
understands it, that is not the case with those who are
actually implementing the initiatives. Why do you think this
disconnect exists?
Mr. SOLOWAY. The only qualification I would give is it is
the people who are going to be asked to implement in a lot of
ways because it is just beginning to mature and roll out.
Our organization does a survey of federal acquisition
leaders every two years. We go out and talk to them and ask
them what is going on in your world? What are your biggest
concerns? We just issued--it is the tenth year we have done it,
just a few months ago, and what we found was the same concerns
come back to us from the acquisition leadership that they have
been having for the last decade, which are our workforce does
not have adequate training and skills in negotiations, in
market research, in pricing. And if you think about the model
of strategic sourcing, what really is at its heart is really
good market research, it is really good negotiation, and it is
really good pricing skills and understanding how pricing models
work because again, back to the point of value versus low
price, smart pricing people know that five or six percent more
might get you a whole lot more value down the road. It might be
very much worthwhile.
So we have a skills deficiency, and I again think that the
workforce is often under conflicting direction. On the one
hand, Mr. Chairman, you mentioned the admonition from Secretary
Kendall for the workforce to think. On the other hand, they are
increasingly being driven into sort of a rigid rules-based
``check the block'' lack of critical thinking process to the
compliance regime and other issues that Trey and other
witnesses have raised. So there is a multitude of issues, which
is why our view as an organization--and it includes our small
businesses--is that done right, strategic sourcing can be a
terrific tool. But do we have yet the workforce ready to
implement it broadly, particularly as you move up the chain of
complexity?
Ms. MENG. Another question for anyone.
GSA puts numerous upfront requirements on strategic
sourcing vehicles that must be met if a business hopes to be
awarded a BPA. These range from delivery method to reporting
requirements. Do you believe that small businesses have the
required capabilities or have the money they need to meet these
types of prerequisites?
Mr. HODGKINS. Ms. Meng, we think that many companies, not
just small businesses--of course, the scope and scale of their
struggle is increased--but all companies trying to sell the
federal government face very significant burdens trying to meet
the different requirements, even something as simple as
information collection. We encountered a Paperwork Reduction
Act request that was an exemption that we opposed the exemption
that was being granted because the government estimated that
for contractors to comply with this one information requirement
it was going to cost them over a billion dollars a year. There
are huge costs in government requirements, and as I noted in my
comments, we think that remains one of the significant
challenges for any company trying to do business in the public
sector.
Mr. BURTON. Ms. Meng, I might add to those comments.
I do think one of the things that small businesses and the
government have going on here is really a noncompliance
situation. These strategic sourcing vehicles generally are
consolidated procurements and there are certain rules that the
government is supposed to be following. Most notably, the
government is supposed to be conducting market research. They
are supposed to be talking to small businesses and asking the
questions that you just asked. There is supposed to be
justification when they decide to consolidate the procurement.
They are supposed to do a written justification. We are finding
that these requirements are not being followed. So it is not
really just a matter of training; it is a matter of compliance.
And I think this is a very important point; that before these
vehicles are put into place, robust market research and a
justification under the FAR are required to be completed. And I
at least have some knowledge that those requirements are not
being met.
Mr. WALDRON. With regard to the government-unique
requirements, there are barriers to entry for businesses and
especially for small businesses. In the area, for example, of
data collection, a lot of the strategic sourcing BPAs include
robust additional data collection requirements, and data is not
a free good. It costs the companies money to actually collect
that data and report it back to the government. And often it is
data the government already has. And they are essentially
trying to shift the cost of that collection and report it back.
Ultimately, I think the taxpayer pays. I mean, it drives prices
higher and it does reduce competition and create barriers to
entry.
And another area I think that hurts businesses of all
types, but especially small businesses, is that there has sort
of been a rollback of commercial item contracting, which was
the Federal Acquisition Streamlining Act in 1994 established
commercial item contracting. The idea was to gain access to the
commercial marketplace. Well, as the government has wanted to
do since enactment, there has been sort of a rollback and a
layering on of additional unique government laws and
regulations. That is a barrier to entry to small businesses.
That increases costs across the federal enterprise. And I think
it is time to raise comment to take a wholesale look at the
procurement system, and especially look at commercial item
contracting because the government is missing out on increased
competition, access to small businesses, and better value.
Thank you.
Ms. MENG. Thank you. I yield back.
Chairman HANNA. Mr. Tipton.
Mr. TIPTON. Thank you, Mr. Chairman, Ranking Member. I
appreciate our panel being here today.
I just have a couple of questions. Mr. Waldron, you just
kind of piqued my curiosity a little bit. I come from a
construction family. You deal in higher tech information, but I
cannot help but recall a few years back part of the
construction project was going to be in the Forest Service and
they were building, for lack of a better description or a nicer
description, a comfort station. And because of government-
specific requirements, they had to get special equipment to be
able to build effectively a comfort station. Do you think that
we are making some real challenges for ourselves in terms of
the government getting unique in requirements when we could
certainly streamline that and be able to take advantage of
products that already exists?
Mr. WALDRON. Absolutely. That is the whole genesis and
reason for being on the GSA Schedules program. It is supposed
to be a commercial item contracting program and it provides the
government with the opportunity to leverage the commercial
marketplace. You know, the companies, in doing business out
there in the commercial marketplace, they know what they sell.
They know what requirements are. And the problem is, to your
point, is the government layers on unique requirements, whether
it is statutory, regulatory compliance requirements or even
unique requirements in functionality that nobody in the
commercial marketplace would do. And it does drive up costs.
And I do not think we can really afford it anymore.
Mr. TIPTON. I appreciate that.
That is a little bit of a paradox, and Mr. Soloway, you
might want to be able to speak to this as well because I think
that point is well taken. You were talking about unit cost, you
know, versus value and performance. Would you say that when we
are getting these unique requirements that are going to be put
up, are we getting more value in performance? We might, in a
very unique sense, I guess, be able to drive down the costs,
but at the same time, as Mr. Waldron is indicating, we are
actually driving up costs on the other side.
Mr. SOLOWAY. Well, I think that is a critical element, and
I think his point about the backsliding since the mid to late
`90s when we were implementing the reforms to the system,
creating more access for commercial companies, is really at the
heart of a lot of this. Some of the unique requirements are
probably unavoidable given the agency oversight
responsibilities, congressional oversight responsibilities, and
so forth. So some of it is sort of an understood and accepted
form of doing business, but the point of the commercial items
changes was to reduce those unique requirements to accept, for
instance, commercial audit reports rather than giving
government unique audit access or cost accounting standards
that are very different in the government than they are in the
commercial world, and so forth. So that has changed, and it
does drive up costs.
I would suggest that one of the biggest issues that we have
today--unfortunately, there are cases of it at GSA but it is
also in other agencies--is a dramatic expansion of audit
requirements. Now, I want to be very clear that no company
doing business with the government, particularly companies that
are working on other than fixed price contracts, can be
surprised that they are going to be audited. The government has
a right and a need to make sure that the cost submissions are
correct and so forth. But the expansion of audit authority and
frankly, the quality which has come down while the expansion
has gone up, has been really dramatic.
One very, very quick example. When you were working on a
GSA contracted--and Roger will correct me if I get the
technical details wrong--when you go to renew your contract,
the government has a right to see certain information to make
sure your pricing is fair and reasonable and that the
government is getting the best possible price. That does not
mean the government has access--in fact, the rules specifically
state they do not have access to your entire book. If you are a
large commercial company, they cannot come in and review all of
the corporate books.
Leaving small business aside for whom that can be an issue,
I know two very large companies that have come very close to
walking away from their GSA schedule contracts because their
corporate boards have said we do not show our internal books to
anybody. I mean, it is a commercial practice. So there has been
an expansion and a growing intrusion by the audit community for
return on information and quality that I think is very
specious. So we are past the point of the value and benefit of
oversight to added cost with very little value coming back in
return.
Mr. TIPTON. I appreciate that.
And Mr. Hodgkins, I am about out of time but I was very
curious. In your testimony, you had talked about a lot of
businesses simply because of the complexity were just simply
walking away. They would not even participate. Are there some
recommendations? And I think Ms. Soloway just probably spoke to
it a little bit--sorry, I am losing my voice--that, you know,
some of the audit requirements and that. What can we do to make
sure that we have got a better playing field and are getting
people excited about having that opportunity to be able to
create jobs?
Mr. HODGKINS. Well, I think between us here at the table we
could probably come up with dozens and dozens of examples where
there are challenges or divergences from the ordinary
commercial business models that most of these companies operate
under. One that many of our members have experienced over the
last year and a half is dealing with end-user license
agreements on software. And I think there was pretty uniform
agreement in the legal community that the license agreements
were adequately designed so that the government rights were
protected and the things the government was asserting and
asking for revisions under those agreements was already taken
care of. But what many companies have had to do is go through a
very lengthy and bureaucratic process with GSA and actually
revise the commercial license that you accept when you buy an
operating system or a game for your child. Those things have
all had to be revised if those products are to remain on a GSA
schedule. It has been a very costly exercise, and it is an
example my community recently experienced where we had a
significant divergence from the normal commercial practice that
costs a lot of money for the government and the companies to
make the products remain available.
Mr. TIPTON. Thank you. I yield back.
Chairman HANNA. Thank you.
So what we have here is kind of an exercise in the obvious;
right? Price is definable, discernible. You can see it on a
page. Everything after that there is an disincentive to provide
a more complex, subjective, even though we would prefer value
being the end result, not dollar signs because value is the
ultimate goal, we have a system that reinforces what we would
expect, and that is that nobody was ever punished for buying
something at the cheapest possible price, but there is
associated risk with using one's subjective or imaginative or
experientially-based process in coming up with something
different.
Do you agree that that is kind of fundamentally maybe what
is going on here?
Mr. BURTON. Mr. Chairman, very much so. But I wanted to add
one point, which I do not think has been covered, and I think
it is a fundamental point and maybe something that would not
readily be identifiable.
I think there is a benefit to having more than one
strategic sourcing vehicle in the government for any particular
commodity or service. There seems to be a trend right now to be
going to a single vehicle and make it mandatory. I think that
this will be a mistake for the government for a number of
reasons, some that I have already addressed. But the point that
has not been addressed is that there is actual benefit to
competition among vehicles within the government. I mean, you
do not want 500 of them, and the government does have a
tendency to have too many of these consolidated procurements,
but you do want more than one. And we found that the
competition among agencies with respect to vehicles was very
productive. It resulted in innovation, efficiencies, best
practices to be shared among agencies. And so I would encourage
the government to make sure they do not go to a mandatory,
single procurement vehicle. And I think competition----
Chairman HANNA. Mr. Burton, you were involved in the
government's initial strategic sourcing effort, and I
understand that you were also involved in the 2003 effort to
stop bundling. Can you talk a little bit about the tensions
between strategic sourcing and bundling and how you think they
might be resolved? Or was that part of your explanation?
Mr. BURTON. Very much. I mean, it is a highly related topic
and we did try to address what we called unjustified bundling.
There is a legal distinction between bundling and consolidated
procurements. Bundling basically involves a determination that
a certain commodity or service is simply unsuitable to be
provided or performed by a small business. And so that is a
high threshold to make that determination that something is
simply unsuitable, that small businesses simply cannot perform
or provide the commodity or service.
So, but consolidated and bundling procurements both require
an analysis and justification of why you are pulling these
requirements together in one procurement. And also, both
require market research. We found that bundling is a very
difficult topic to try to get your hands across. Basically,
agencies have done a poor job in justifying bundled contracts,
and what we were trying to get to, sir, back in that period of
time was to make sure those justifications were done. Make sure
that if you were going to do a bundling contract, which
basically is saying small businesses cannot participate, what
we are dealing with here with the strategic sourcing vehicles
are consolidated procurements, not bundled procurements. And so
there are set-asides for small businesses recognized that these
services and commodities can be provided by small businesses,
which is good, so that is very important. But the problem is
just ensuring enough small business participation.
And it was a very difficult initiative. One of the things
we did with the bundled initiative was try to ensure that if an
agency did have a justification for a bundled procurement, and
if they decided that small businesses could not participate,
then there were some type of mitigation actions they took. For
example, ensuring that prime contractors enforce their
subcontracting plans which might involve some type of small
business participation. And this is an area I think the
government needs to focus on, is trying to enforce
subcontracting plans by the prime contractors to ensure that
small businesses, in fact, have some role to play.
Chairman HANNA. So along those lines, Mr. Waldron, the
JanSan draft request for proposal states that the GSA is
seeking to have FSSI winners become exclusive providers to the
defense commissaries. So that must concern you. Does it concern
you I guess is a more appropriate way to----
Mr. WALDRON. Yes, it does concern me. Again, as I indicated
in my testimony, the idea of mandatory use, it restricts the
ability of small businesses to compete. It closes the market
and reduces the market to a limited number of contractors. And
I also think it is not in the government's best interest. It
creates risk for the government from this perspective.
Back in the dark ages when I was at GSA in the `90s, GSA
schedules were a mandatory source, and ultimately, various
agencies decided to use other than GSA contracts for court
reporting, for example. And that was a breach of those
contracts, and that is a breach of the agreement. They are
putting it in this little station, you are going to be an
exclusive source. Ultimately, the government ended up having to
pay millions of dollars to various GSA schedule contractors for
that breach. So again, mandatory use restricts competition. It
creates risk for the government. I would much rather see real
volume commitments for real requirements.
Chairman HANNA. Well, the ultimate outcome is to reduce
competition by a single source or very low number of sources in
the long run, which also in the long run raises prices. So it
is safe to say then generally, and does anybody disagree with
this, that within the context of everything we do we need to
foster competition broadly, deeply, and with the idea of
creating more businesses, not reducing them?
Mr. WALDRON. Well, that is the GSA schedules is a perfect
example. It was mandatory, had maybe a couple thousand
contractors in the early `90s, and $3 or $4 billion was going
through the program. Today the program accounts for $50 billion
in purchases on an annual basis and there is literally 20,000
companies who have contracts, both through the VA and through
the GSA schedules competing every day for requirements,
competing at the task order level. That makes your point. It is
a competitive marketplace that grew when it was made non-
mandatory and the process was streamlined and we went to
commercial item contracting.
Chairman HANNA. Thank you.
Ranking Member Meng?
Thank you very much for your testimony today. If there are
no further questions for this panel, I want to thank all the
witnesses for their testimony and excuse the panel.
The second panel may now be seated. Thank you, gentlemen.
Thank you, gentlemen, for being here today.
Our next witness is Mr. Joseph G. Jordan. Mr. Jordan is the
administrator at the Office of Federal Procurement Policy,
which provides overall direction for government-wide
procurement policies. Previously, Mr. Jordan served as the
associate administrator of government contracting and business
development at the SBA.
Mr. Jordan, you may begin. Thank you.
STATEMENTS OF JOSEPH G. JORDAN, ADMINISTRATOR, OFFICE OF
FEDERAL PROCUREMENT POLICY; JEFF KOSES, DIRECTOR, OFFICE OF
ACQUISITION OPERATIONS, FEDERAL ACQUISITION SERVICE, GENERAL
SERVICES ADMINISTRATION.
STATEMENT OF JOSEPH G. JORDAN
Mr. JORDAN. Thank you. Chairman Hanna, Ranking Member Meng,
and members of the Subcommittee, I appreciate the opportunity
to appear before you today to discuss initiatives the
administration is taking to both save money and maximize small
business participation of federal procurement.
These efforts are central to the government's ability to
get the best value for the taxpayer. With approximately one out
of every $7 the government spends going to contractors, it is
imperative that our acquisition processes enable us to get the
highest quality goods and services for the lowest possible
cost. Equally important, our processes must allow us to
regularly tap into the creativity, innovation, and technical
expertise that small businesses offer. The good news is that I
believe both buying smarter initiatives, like strategic
sourcing, and maximizing small business opportunities, play
together to maximize value for the taxpayer.
Prior to becoming administrator for Federal Procurement
Policy, as you said Mr. Chairman, I served as associate
administrator for government contracting and business
development at the Small Business Administration. In that role,
I was charged with increasing small business federal
contracting opportunities. I am proud of the progress that SBA
made during my tenure to help agencies increase opportunities
for small businesses as we drove the largest two-year increase
against small business contracting goals in more than a decade.
These efforts include partnering with Congress, including this
Committee, on the historic Small Business Jobs Act.
Supporting small businesses is especially important during
this critical time as agencies strive to meet mission needs
with increasingly tight budgets. From fiscal year 2011 to
fiscal year 2012, agencies reduced contract spending by more
than $20 billion, the largest single year dollar decrease in
federal contract spending on record. Over this same period,
with strong leadership attention, agencies were able to
increase the percentage of eligible contract dollars awarded to
small businesses. My experience at SBA reinforced my belief
that small business contracting is a win-win. These businesses
get the revenue they need to create jobs and grow the economy,
while the government gets access to some of the most innovative
companies in our supply chain.
Our efforts to identify better buying practices that save
money and increase opportunities for small business led us to
place greater emphasis on strategic sourcing. Strategic
sourcing, which the private sector has long recognized as a
successful business practice, requires agencies to bring their
spend under management.
Efforts to date illustrate the substantial savings that
strategic sourcing offers. Government-wide strategic sourcing
of items, such as office supplies and domestic shipping
services, has achieved nearly $300 million in direct and
indirect savings since fiscal year 2010. And agency-level
strategic sourcing of goods like IT and medical equipment have
saved hundreds of millions more. Equally important, these
efforts demonstrate that agencies can increase their spending
with small business and simultaneously reap the benefits of
strategic sourcing.
We are not seeking to strategically source everything the
government buys, nor will every strategic sourcing decision
mean fewer participants. The goal is to maximize value for the
taxpayer and that will take different forms depending on the
commodity being purchased and the government's cost drivers in
that space. Our government-wide strategic sourcing of office
supplies is a compelling example. Thirteen of the 15 winning
vendors are small businesses, including three service-disabled
veteran-owned small businesses. According to GSA, total dollars
going to small business increased from 67 percent prior to
implementation of the strategic sourcing solution to almost 80
percent now.
Many small businesses expressed concern that strategic
sourcing could harm their participation in the federal
marketplace. However, the administration is working to ensure
that competitive small businesses can engage in strategic
sourcing, and I am confident that these businesses of whom
there are many will not only hold their own but do even better,
and those small businesses that are currently less competitive
will have opportunities to get in the game in the future by
taking steps to strengthen themselves.
There are several additional things that the administration
is doing to increase opportunities for small businesses at the
same time as we work to maximize the value of strategic
sourcing. First, agencies are required to seek increased
participation by small businesses when pursuing strategic
sourcing. Last December, OMB issued a blueprint for improving
acquisition through strategic sourcing, which specifically
requires that all proposed strategic sourcing agreements must
baseline small business use under current strategies and set
goals to meet or exceed that baseline participation under the
new strategic sourcing vehicles.
Secondly, government-wide strategic sourcing decisions will
be made by a council that includes the Small Business
Administration, so small businesses are ensured of a seat at
the table.
Third, we are actively promoting the use of tools, such as
those provided by the Small Business Jobs Act, to facilitate
greater small business participation on contract vehicles that
have been strategically sourced.
OFPP is committed to ensuring that agencies remain vigilant
in their efforts to buy smarter and achieve best value for our
taxpayers. OFPP is equally committed to ensuring that agencies
provide maximum opportunities for small businesses in federal
contracting and subcontracting, so that they may flourish and
apply their talents to the many pressing demands facing our
government. We must pursue these important goals in harmony, as
we have been doing and will continue to do.
I would be pleased to address any questions you may have.
Chairman HANNA. Thank you, Mr. Jordan.
Our next witness is Mr. Jeff Koses. He is the director of
acquisition operations, which manages a large portion of the
schedule programs at the General Services Administration, and
he is the business line leader for the multiple awards
schedule.
Mr. Koses, you may begin.
STATEMENT OF JEFF KOSES
Mr. KOSES. Good morning, Chairman Hanna, Ranking Member
Meng, members of the Subcommittee.
Thank you for the opportunity to discuss GSA's
accomplishments under the Federal Strategic Sourcing
Initiative, or FSSI, and our efforts to modernize the Multiple
Award Schedules program. As America's buyer, GSA contracts with
the private sector to provide commercial services and products
that support federal agencies. We strive to acquire the best
possible deal for the taxpayer and to increase small business
opportunity.
For many years, strategic sourcing has been a best practice
in the private sector. The Government Accountability Office has
found in a series of audits that the federal government can
save billions of dollars through the application of strategic
sourcing principles.
A 2012 OMB memo on strategic sourcing, amongst other
things, directed GSA to establish 10 new strategic sourcing
solutions, five each in 2013 and 2014. GSA is working closely
with OMB and the agencies making up the Strategic Sourcing
Leadership Council, including the Small Business
Administration. FSSI seeks to leverage the federal government's
collective buying power in order to efficiently and effectively
utilize taxpayer dollars and to increase dollars spent with
small business.
There are four primary benefits associated with strategic
sourcing: reduced costs per unit, decreased consumption,
improved operating efficiency, and improved focus on
socioeconomic goals. The office supplies, our OS2 solution, has
served as a test case for this generation of federal strategic
sourcing. OS2 has resulted in direct savings of $88.7 million
on spending of $607.9 million through April 2013. This savings
is calculated as the difference between what agencies spend
through strategic sourcing and what they would have spent had
they received the nonstrategic sourcing prices.
OS2 provides greater pricing transparency. OS2 contractors
report transactional data on all program sales. This
information provides us insight into agency spending behavior.
GSA has used this data to show their contractors pricing item
by item. After GSA shared this data, every one of the OS2
contractors sharply reduced their prices, a potential savings
of over $12 million annually beginning this month.
Key successes of the OS2 program include an increase from
67 percent to the high 70s percent of dollars spent with small
business; a decrease from more than 250 percent to 10 percent
price variability; a reduction in contract duplication and
administrative costs.
GSA is working towards establishing strategic sourcing
solutions for fiscal year 2013 in the areas of wireless rate
plans and devices awarded last month; last desktop publisher
software; print management phase 2; maintenance, repair, and
operations supplies; janitorial and sanitation supplies.
When we research a potential solution, small business
impact is foundational. Acting Administrator Tangherlini has
made clear expanded opportunity for small business is a crucial
strategic sourcing success metric. It is one that we monitored
closely.
For both the janitorial-sanitation supplies and the
maintenance, repair, and operations supplies, we are setting
aside the majority of awards for small business, and we broke
the categories down in ways that maximize small business
opportunities.
GSA believes the Multiple Awards Schedules program
represents the best opportunity for well prepared, highly
competitive small businesses in government procurement. Small
businesses represent about 80 percent of all schedule vendors,
and about 34 percent of the dollars go to small business. More
importantly, most agencies have a higher percentage of spending
with small business when they use schedules.
Still, we believe there is substantial room for improvement
in the schedules program. Over the last year, we have worked
diligently with both small business and federal agencies,
asking for input on how the schedules program can better meet
their needs. We received, and are working to implement, many of
the important suggestions we have heard. Similarly, we are
eager to hear your input as we work to achieve taxpayer savings
and grow small business success.
One area of such success is our training in the
discretionary set-aside rule, a result of Section 1331 of the
Small Business Jobs Act of 2010.
To date, we have trained more than 9,700 members of the
acquisition workforce on properties of schedules and
utilization of small business. Since last April, we have seen
nearly 16,000 requests for quotes or 19 percent set-asides for
small business through GSA's e-Buy system. For the month of
April, this increased to 22-1/2 percent, great progress as the
buying season kicks into a high.
As we look to the future, GSA will continue to focus on
strategic sourcing, modernizing the schedules program,
improving our pricing and tools, collecting the information and
data that will help save taxpayer dollars. GSA will continue
being a leader in opening dialogue with industry and our
program will remain a doorway to opportunity for highly
competitive small businesses.
On behalf of GSA, thank you for this opportunity to appear
before the Committee, and I would be happy to answer your
questions.
Chairman HANNA. Well, you gentlemen sat here through the
previous panel. It sounds like something that should be more of
a debate than a panel discussion because clearly there is a
large difference of opinion between what you believe you are
producing and the direction you are going in, the direction
that the previous panel feels you are going.
I have a transcript from a recent JanSan MRO Industry Day
at which you had employees representing your office. I would
like to ask you whether their statements accurately reflect the
position of your office to be fair.
First, staff suggested that the JanSan and MRO contracts
would become mandatory sources for the winners of future
service contracts. I am concerned that such an approach would
decimate the subcontracting market, as well as the prime
contracting market. Do you support the making of JanSan and MRO
contracts mandatory for other federal agencies--and federal
contractors, rather? Further, OFPP staff suggested that anyone
who did not develop a JanSan or MRO contract could simply sell
off something else to the government, which I find particularly
strange and troubling. I am hoping that you understand the
challenges these industries are involved in, and this is not
making it any easier for them. Perhaps either of you would like
to comment on that. Maybe Mr. Jordan first.
Mr. JORDAN. Sure, Mr. Chairman.
In terms of the comments themselves, it is difficult for me
to, without context, react to them one by one. What I will say
is in terms of I think what you are getting at is concerns
around potential mandating of vehicles, whether it is JanSan or
any of the future vehicles that are strategically sourced.
OMB guidance, which we put out last December, does clearly
say the vehicles that agencies create and that the Strategic
Sourcing Leadership Council approves should be mandated when
appropriate. And I think that is important. I think that not
speaking to JanSan specifically, because I think there are
still steps to go, and Jeff can talk about where GSA is in the
leadership of that particular commodity category, but overall,
strategic sourcing in certain categories--it is different in
every category what is going to be the cost driver, the savings
driver, like I said, but in certain categories, it is about
ensuring that the government buys not as 30 midsize businesses
and gets pricing accordingly, but buys what we are--the largest
purchaser of goods and services in the world. And so in those
commodities, where you can really leverage our scale, you can
drive significant taxpayer savings by getting volume-based
discounts. We want to do that. And you only do that if you put
in all that time and give the winners the spend that they agree
to.
Now, there are a number of ways to do that. There is tiered
pricing, as opposed to some of the guarantees you talked about.
There is just overall good commodity management and principles,
but I do think that in certain categories, in order to maximize
the value of these vehicles, it is appropriate to mandate their
use.
Chairman HANNA. For example?
Mr. JORDAN. I think without getting into any specific money
because we have not gotten to the maturity level. I mean, this
effort is in a crawl-walk-run----
Chairman HANNA. But it is a subjective process by
definition, I think. Maybe not. Certainly a lot of it is. Who
decides and how do you decide what is appropriate or is not
appropriate? And that process?
Mr. JORDAN. Sure. I think there are two things. One, as I
mentioned in my testimony, a significant piece of strategic
sourcing is done at the agency level where currently you have
various components or offices within the same agency with
different contracts with the exact same vendor for the exact
same products that wildly vary in pricing, sometimes different
terms and conditions. And if that agency stands up an agency-
wide and enterprise-wide agreement, they would expect that
their various components use that as opposed to create
duplicative and potentially less optimal agreements and put
their spend through that.
Secondly, on who makes the decision on these government-
wide vehicles, it is their Strategic Sourcing Leadership
Council, which is comprised of the seven largest spending
agencies who collectively spend about 92 percent of our----
Chairman HANNA. What is your role on that leadership
council? Will OFPP have to approve any FSSI initiatives? Has
your office approved OASIS or OASIS, OSB, JanSan, and MRO?
Mr. JORDAN. Okay. Let me see if I got them all.
Chairman HANNA. A few acronyms, I know.
Mr. JORDAN. Yeah. I'm with that. Let me go in order.
Chairman HANNA. Okay.
Mr. JORDAN. I tried to mentally capture all that.
What is my role? I am the chairman of the Strategic
Sourcing Leadership Council.
Will OFPP approve the vehicles that are submitted? Yes. And
there is a three stage process with key decision points at each
stage. First is we say--somebody on the council will say, or
maybe an outside member--we will identify potential
opportunity. We think there is an opportunity for strategic
sourcing in commodity area or service area X. And we will say,
yes. You have presented enough data to show there may be an
opportunity. We form a commodity team comprised of the
Strategic Sourcing Leadership Council members, as well as non-
SSLC agencies that have considerable spend. Again, SBA is a
formal member of the SSLC and participates in all this. The
commodity team then does an analysis and says we think that
there is a particular solution. It may be a new contract. It
may be driving more utilization through a current or set of
current vehicles, or it may simply be standardizing terms and
conditions. And we would say, yes, that sounds like the right
agreement. The SSLC would make that decision. Then they would
then, if it is a new contract, which is I think where your
question was going, they would engage with the vendor and that
is where it is important that the vendors are bidding based on
some understanding of what volume they are actually going to
get.
That is where it differs from the GSA schedule that you
heard a lot about. The prices on the GSA schedule are simply
ceiling prices or list prices. You would never walk on the
dealer's lot and say, yep, I will take that car for what it
says in the window. You would negotiate. Well, we want to try
to have some of that prenegotiation, based on not you buying
one car but us buying a fleet. And so that is where you would
do that precommitment.
Chairman HANNA. But you understand the concerns of the
previous panel; if you continue to buy your fleet from that
group, eventually you will run out of the opportunity to enjoy
competition from other groups because you will have
effectively, because you control so much of the marketplace,
eliminated the opportunity to have competition some time down
the line.
Mr. JORDAN. Yes. Very fair point.
Chairman HANNA. So, I mean, you generally agree with the
previous panel in terms of their concerns in the long run?
Mr. JORDAN. I believe the first--one of the panelists said
it best where strategic sourcing is absolutely a good thing,
and as I believe your statement said, or but as your statement
said, it is a tool. If it is used well, it is a good thing. If
it is used not well, it will not be a good thing. And so it is
important in any of these categories to understand the market
dynamics and do exactly what you say. What is the right set of
vendors to have on a vehicle? Then, what is the right period
for that contract to cover such that anybody who was
unsuccessful at the beginning, especially small businesses,
have a chance to recompete and get back on, but we give enough
volume to the winners that it justifies the low price.
Chairman HANNA. Do you believe that the people in
purchasing and acquisition have the latitude to be comfortable
to understand the dynamic differences between value and
purchase price--value meaning total----
Mr. JORDAN. Sure.
Chairman HANNA.--of everything including purchase price?
And how do they enjoy that latitude? How do you reinforce that,
if you do?
Mr. JORDAN. Yes. I believe that the Federal Acquisition
Regulation, the FAR, gives them the right latitude to choose
whichever method is appropriate in a particular procurement, be
it low price technically acceptable or best value. I think
that, like with everything, it is important to do training
around, you know, understanding how to make that decision.
Chairman HANNA. We have heard there is a lack of training
or lack of understanding about what that means.
Mr. JORDAN. Well, we always want to increase both the
quality and the ineffectiveness of our training, and we work
very hard with the Defense Acquisition University and the
Federal Acquisition Institute to do that. One of the important
points of strategic sourcing is, again, having an enterprise
view of a commodity category so that we do not force numerous
contracting officers to engage in a one-off contract, creating
potentially duplicative and different terms and conditions in
their contracts.
Chairman HANNA. Thank you.
Ranking Member Meng.
Ms. MENG. Thank you to our witnesses for being here.
I have a question for Mr. Jordan.
The plan for the new OASIS contract divides the
requirements into two different contracts--one for large
businesses with subcontracting goals and another exclusively
for small businesses. However, this vehicle appears to be
another attempt to disguise contract bundling as the structure
prevents small businesses from competing for half of the
contract, which is valued at $10 billion. Why or how can OFPP
step in to ensure that small businesses have greater access to
this contract?
Mr. JORDAN. Well, I will let Jeff speak to OASIS. It is not
one of the SSLC covered vehicles at this point, so I do not
have perfect insight into how it is being created or those
types of things. I can speak to your question about how is OFPP
looking to ensure that we do not have bundling. We incorporate
the right strategic sourcing principles.
Bundling, as was said in the previous panel, is pretty
clearly defined as taking two or more contracts that have been
or could be performed by small businesses and putting them
together into a contract that is no longer suitable for small
business performance. As we have seen in all of the vehicles we
have done thus far, that is just not true. Office supplies, if
it were bundled, would mean no small business participation.
Instead, we saw small business participation go up from about
two-thirds to over three-quarters.
Wireless is a good example of where all of the vendors
originally before strategic sourcing were large businesses. We
were able to carve out the wireless telecommunication expense
management services, a piece of that business where small
businesses could handle it, and we elevated them to have a
prime level on that. So we would like to apply those same
sources across the board.
In any vehicle, or in many vehicles I guess I should say,
there is likely a whole bunch of the requirements that small
businesses can do, and there are potentially some that they
cannot. And so it is okay to have a mix of small and large
businesses in the supplier pool in any of these categories as
long as when two or more of the small businesses can do it. We
are using that, and that is where the Section 1331 set-aside
that Congress gave us that authority has been very helpful, and
we will continue to push that. It is where the small business
goals and SBA's Dashboard and Goaling Scorecard is very
helpful. And obviously, given my background at SBA and now my
CO of OFPP, I care personally and we care as an office
passionately about ensuring that we can both save money and
increase the small business utilization.
Ms. MENG. Thank you.
Mr. Koses, under GSA's proposed JanSan and MRO vehicles, 15
vendors will receive BPAs. While the majority of these have
been set aside for small businesses, the number does not begin
to include the thousands of businesses that currently contract
with the federal government in those industries. While GSA has
indicated that more businesses might be on-ramped to the
JanSan, there has been no firm commitment by GSA as to when
that will, and if it will occur. So can you definitely state
whether or not more businesses will be added to the contract
and when in the duration of that contract will it occur?
Mr. KOSES. Absolutely. And may I take the OASIS question
first and then also answer the JanSan question?
In terms of OASIS, we have put tremendous effort and focus
on the key point that Mr. Burton raised earlier--that of a
robust market research industry engagement strategy. Key to us
has been ensuring that we remove geographic barriers and have a
very broad outreach. We have used an Internet-based platform,
GSA Interact, featuring weekly blogs from the program manner,
featuring several opportunities for one-on-one meetings between
industry and government leaders, and two different rounds of
white papers, trying to ensure that we have actively listened
to small business. Not just GSA, but the agencies working with
us to create the vehicle.
And so with well over 100 one-on-one meetings with
industry, we have specifically talked the question--what is the
best small business strategy? We had that conversation with SBA
as well, and overwhelmingly, that message was we want to see
two different vehicles--one set aside for small business, one
not. We want to see a crossover feature because part of what we
are after is wildly successful small businesses under OASIS,
and if some of them outgrow the size standard, they now will
have the ability to crossover to the OASIS prime vehicle.
We have tried to use that same type of engagement strategy
through our FSSI efforts as well. Again, we have used GSA
Interact to create Internet-based chatrooms to discuss, to
define, to pursue the goals. We have had our program managers
doing weekly checks, trying to bring industry to the table and
hear and identify these small business issues and trying to
ensure that the different federal agencies have been side by
side with GSA listening to those industry messages.
In both of those cases, we have posted a draft request or
draft solicitation. The purpose of the draft is to get comment,
to get feedback, because we do not pose that we know all the
answers. We are pointing out the best information that we have
had and we are asking for validation, for correction, for
suggested improvements. We heard definite suggestions for
improvement in OASIS. We heard definite suggestions for
improvement in JanSan and MRO. We did hear messages that 15 was
the wrong number of vendors, and we have had that conversation
with the commodity team. When we post the revised solicitation
this summer, the number will be marginally higher than 15. We
are still finalizing, but we have gotten the sense that we did
not define the group and the breakdowns exactly correctly. We
do not have the exact number of vendors, but we are in the
general neighborhood.
Ms. MENG. In general, for either witness, how do you
perceive the balance between the goal of saving the federal
government money and the desire to contract with small
businesses? I believe that it is essential that GSA work with
small businesses and reach the 27 percent goal, but I also
understand in the short term the cost of these contracts can
seem higher. How can we ensure that we are striking the right
balance?
Mr. JORDAN. From an overall perspective, I think that the
goals of saving the taxpayer money and increasing our
utilization of small business are absolutely mutually
reinforcing. I have seen it over and over again that you can
absolutely use small business and save money. It means buying
smarter, standardizing terms and conditions, taking
administrative costs out of the system. You mentioned earlier,
Congressman, that when small businesses bid, they have those
bid and proposal costs. If we can take some of that out of the
system by not making them compete for all these duplicative
vehicles, it can be helpful.
We have seen it in office supplies. We have seen it in
wireless. We have seen it in the market research we are doing
on additional categories, so that is why I am a fervent
believer that we can both save the taxpayers considerable
amounts of money and increase our utilization of small
businesses. Like I said, there will be, when you do this type
of effort, there will be winners and losers. We need to ensure
that those decisions are made in a transparent way, in a fair
way, based on quantitative metrics that everybody understands.
And then for the folks who are unsuccessful, not just leave
them alone; engage them in additional training, create the
right onramps and off-ramps for the vehicles that have been set
up; use all the tools at our disposal to make those small
businesses that were unsuccessful even more competitive next
time. And that is how you reinvigorate the system overall.
Mr. KOSES. In addition, we talked a little bit about the
market research component. One of the core questions that we
keep asking industry is what is it that the governments do that
is adding cost to the process? How are we buying that is more
expensive for you, and how do we start changing? And that leads
to some very good conversations with the commodity team as we
wrestle with what can we change and try and fine tune and
address some of our longstanding requirements. In our office
supplies example, we recognize two big cost drivers that harmed
small business were on overnight delivery time and a very low
minimum order. Both of those were things we changed coming out
of those conversations.
In our print management solution, much like wireless, we
were looking at an industry that had been dominated by large
business, and we saw where small business could start playing a
really critical role and help us save money in the process. We
built a solution that we called a fleet assessment. It was all
about trying to go in and get a handle on what solutions
actually are there? What is the agency inventory? How much are
we printing today? You know, the biggest cost in printing is
actually making that decision to hit the print button and run
the pages through the machine.
Well, we have learned through our industry engagement that
we buy way too much. We buy too many machines, too much gold
plating. And by creating that role for small business to do the
fleet assessment, to help us figure out what is our inventory,
what is our print behavior today, we are setting the stage by
using small business for savings over time.
Ms. MENG. Thank you. I yield back.
Chairman HANNA. Thank you.
This is somewhat of a declarative statement but feel free
to answer it. If JanSan becomes mandatory, the 500-plus
companies who did not win BPAs awards will not be able to
maintain their contracts. They will not be able to make the
required $25,000 minimum sales each year. So I ask, what
happens to these companies if that is the case? And what do you
plan to do about it? If you want to say something, fine. That
would be great.
Mr. KOSES. In our office supplies example, we have had
sales under the schedule program that average about $700
million a year over the last three years. Collectively, in that
time period, sales through our FSSI have been about 30 percent
of that total. We have not seen the entire market move over to
the strategic sourcing solution. We, frankly, would like to see
a lot more of it move over.
Chairman HANNA. And it is not even--office supplies, as you
know, are not mandatory now.
Mr. KOSES. Correct.
Chairman HANNA. Okay. Thank you.
So you recognize there is a problem with that minimum and
that you may become your own worst enemy by effectively
eliminating people from the marketplace that we want to thrive.
Mr. KOSES. I fully understand the concern, Congressman. We
do not believe that this will ever be a 100 percent solution.
In talking to agencies, we are talking about the core areas
where we are targeting, and we would like to see most of the
spend able to concentrate through that vehicle. But if we start
saying every situation, no exceptions, no waivers, everything
goes through this beyond the payout, we are going to create a
program that does not make sense.
Chairman HANNA. So what solutions are you working towards
then?
Mr. KOSES. We are working to define the core items that the
government buys the most frequently or that are the most
critical for our operations. To start that with several
thousand core items, between the market basket and extended
catalogue, to define what is the appropriate delivery time and
ordering level. But recognize, there are going to be
exceptions. There are going to be the agencies that need
something immediately that require the overnight delivery, that
require a low purchase or some other exception, and they still
will have the schedule to choose from.
Chairman HANNA. For the OASIS and OASIS OSB contracts, I
understand that GSA is not allowing new small businesses' teams
to compete. As you know, the 2010 Job Act amended the Small
Business Act to require that any solicitation for multiple
award contracts above $2 million solicit offers from small
business concerns and teams or joint ventures.
Now, I have seen the e-mail that you sent our staff on that
issue. However, I am having trouble understanding why when the
law is explicit that GSA feels its contracting strategy is more
important than the law. Could you please explain that rational
and how you intend to address it? Mr. Koses.
Mr. KOSES. Absolutely, Mr. Chairman.
We believe that OASIS is being designed with the needs,
with the interests of small business and small business
opportunity in mind. We have tried to develop a very clear, a
very straight forward concept and evaluation methodology. We
believe central is OASIS is about integration of professional
services, so the contractors who will be successful will need
to demonstrate that they have been able to integrate
professional services, that they know how to do it, that they
have the relationships. Not that they have to have them in
place today, but they know how to set them up. The know how to
make them happen. We are very confident that there will be a
lot of teaming under OASIS. We are just saying you do not have
to have your team created today; you have to show us you know
how to create a team and that you have done so successfully.
Chairman HANNA. How do they go about that if they are not
already in the process? I mean, how do you encourage new
businesses to engage in that? Or do you?
Mr. KOSES. When we are talking about professional, highly
technical, integrated services that cross numerous disciplines,
we think it is important that you be able to show us past
success at having done so; that you have successfully
integrated smaller projects; that you have successfully
performed similar types of work. It will be very difficult for
this to be a first government contract, but it will be a
tremendous opportunity for small businesses to come in the door
as team members or subcontractors to the prime contract
holders.
Chairman HANNA. Of course, our interpretation would be that
the law says otherwise. You understand that?
Mr. KOSES. Chairman, we are confident that we are reading
the law appropriately, but we look forward to continuing to
work with your staff as we continue the market research.
Chairman HANNA. Thank you. Thank you both very much.
Any further questions?
I guess we have sat here and we have heard--this has been,
I think, a productive two and three quarter hours or one and
three quarter hours. Generally, I take that we are all here in
earnest and that we want to produce the best value for the
government, and that is in and of its nature a difficult thing
to do because it is subjective. But to the extent that the goal
of this Committee is to broaden opportunity across a wide
variety of disciplines, companies, et cetera, I think it is
safe to say that we can agree that the elimination over time of
competition through whatever means is not a goal that any of us
share. So you have heard what the previous panel members said.
I just ask that you commit to analyzing the long-term
consequences of strategic sourcing and how it affects
competition and small businesses and all that that entails. I
will leave you with that.
Thank you very much for your time today. If there are no
further questions for the witnesses, I want to thank our
witnesses for being here today and state that this is an issue
the Subcommittee will be continuing to monitor carefully. We
owe it to the taxpayers to make sure we maintain a viable small
business industrial base so that we can protect competition and
innovation in federal contracting. I want to make sure that the
strategic source contracts being proposed capitalize on all
that small businesses have to offer in order to achieve long-
term savings, rather than focusing on short-term gains and
savings over long-term growth and savings.
I ask unanimous consent that members have five legislative
days to submit statements and supporting materials for the
record. Without objection, so ordered. Thank you all.
[Whereupon, at 11:46 a.m., the Subcommittee was adjourned.]
A P P E N D I X
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Chairman Hanna, Ranking Member Meng and members of the
subcommittee, thank you for conducting today's hearing and for
the invitation to share the Professional Services Council's
(PSC) views about the potential impacts on small businesses of
the federal government's strategic sourcing efforts. This is a
matter of significant interest to PSC given both the unique
diversity of our membership base and the equally unique
diversity of the services our members provide to the federal
government.
Introduction
PSC is the nation's largest association of companies
providing services of all kinds to the federal government. Our
membership of nearly 360 companies is comprised of firms of all
sizes, including approximately 25 percent that are classified
as small businesses in their fields, and an additional 25-30
percent that would be classified as smaller mid-tier firms--
those companies that occupy the exceptionally challenging
portion of the market in which they are no longer eligible for
treatment as a small business and must now compete in the
unrestricted federal procurement market.
It is this diversity of functions and sizes that provides
the lens through which we view strategic sourcing initiatives.
In all of our work, our goal is to provide input and insights
to both the legislative and executive branches on a wide array
of business policies and how they will impact all, or portions
of, the federal services sector. Since services now accounts
for almost 56 percent of the contract spending at the Defense
Department and closer to 75 percent in the civilian agencies,
it is essential that the government fully understand and assess
the ways its actions and policies will affect the marketplace
of firms that are so critical to the government's operations.
Indeed, the government's goal should be to foster an
environment of robust competition, high performance, agility,
innovation, balanced opportunities for companies of all sizes,
and accountability. It is with those objectives in mind that we
approach federal procurement policy issues like strategic
sourcing.
Proper Use of Strategic Sourcing
We strongly support the premise that the government should
be using strategic sourcing, in the truest meaning of the term
which encompasses a universe much larger than the Federal
Strategic Sourcing Initiative (FSSI), for the vast majority of
its procurements. If structured properly FSSI has the potential
to deliver real benefits for federal agencies and taxpayers
alike. As such, we commend the Office of Federal Procurement
Policy for making strategic sourcing a priority and we support
how many agencies have properly applied these techniques to
specific sourcing opportunities. Yet, while we fully support
the FSSI's intended objectives, we have significant concerns
about its practical effects. Those concerns relate more to the
way in which the term is used and understood and how the
initiatives are implemented across the government than to the
concept itself.
Strategic sourcing is not one ``thing.'' It is a set of
multi-layered, flexible procurement strategies that evolve and
change depending on the nature and complexity of what is being
bought. For pure commodities, strategic sourcing can be fairly
simple and straightforward; for more complex needs,
particularly higher-end services, the challenges and
complexities grow substantially. For products, where place of
performance or production is irrelevant, there are often plenty
of options for small business utilization; for services, where
place of performance is very relevant, the need to deliver
services over geographic regions as one way of reducing overall
costs poses a number of challenges to balancing the
efficiencies of strategic sourcing with the goal of appropriate
reliance on small businesses. In some cases, when basic quality
may be adequate, price becomes the principal driver; in other
cases, quality is of greater importance, and is as important,
or more important, than price.
What Are the Objectives of Strategic Sourcing?
We must first come to a common agreement on the ultimate
objectives driving strategic sourcing in the federal market. If
the objective is solely and specifically to optimize government
operations, that will drive one set of responses. If, however,
the objective is to optimize government operations without
impacting current socio-economic or other acquisition policy
goals, then additional considerations must be taken into
account. These questions are more than rhetorical and both can
lead to perfectly rational, yet different conclusions. They go
to the heart of today's hearing and to the heart of a number of
other elements of federal acquisition policy and practice.
For example, is it better to have fewer small businesses
receiving a higher volume of work from the government or a
larger number of small businesses with a smaller share of the
volume? After all, if the government were to optimize its use
of strategic sourcing, as the term is understood and applied
throughout the commercial world, the former is the more likely
outcome, as we have already seen with the federal strategic
sourcing of commodities such as office supplies.
The same questions are raised when it comes to the
government's objective of conducting full and open competitions
for its procurements. Under the GSA Schedules, for example,
there is a broad array of suppliers that can be easily accessed
by any government customer. Almost by definition, strategic
sourcing will reduce the number of those suppliers. In the
commercial world, that is the norm. As the Government
Accountability Office (GAO) noted in its April report on the
use of strategic sourcing in the commercial sector, companies
often carefully conduct market research on industry
capabilities, select one or two suppliers and stick with them,
and manage them aggressively for many years.\1\ But in the
government environment, constant competition is a central tenet
of the procurement process and expanding the breadth of firms
capable of competing for federal work is a continuous goal.
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\1\ ``Strategic Sourcing: Leading Commercial Practices Can Help
Federal Agencies Increase Savings When Acquiring Services;'' GAO-13-
417, 04/15/13. Available at: http://www.gao.gov/products/GAO-13-417
Any evaluation of strategic sourcing must also take into
account the impact on the industrial base, since limiting
private sector participation in federal procurements has the
potential to erode portions of the federal industrial base.
When only a few companies are awarded contracts under a
strategic sourcing initiative and dozens, if not hundreds, of
companies are excluded from regularly competing for
opportunities, how will the depth and breadth of the supplier
base be affected? This dynamic is generally of less concern
when the sourcing is of commodities since, by definition, they
tend to be more widely available and the barriers to market
entry are modest. But it becomes far more pronounced when the
services being procured through strategic sourcing are complex
or highly technical, involve capabilities and skills that are
in short supply across the economy, and for which opportunities
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outside of government are plentiful.
These dynamics are important considerations. The objectives
of the federal strategic sourcing initiative, and the level of
support for retaining it in its current form or expanding it to
additional commodities and services, will hinge on
policymakers' ability to agree on the objectives of the
initiative and the policy trade-offs that are willing to be
made.
The Key Question
This statement provides our perspective on these concerns
and seeks to establish a framework for the ongoing debate
around the key question of today's hearing: will strategic
sourcing harm small business?
In the end, the answer to that question comes back to the
desired outcomes of the initiative and how we measure success.
Today there is no consensus on the answer to this question,
either in Congress or across the agencies. For some, the most
important goal is to reduce government costs and increase
quality only. For others, the goal is to reduce government
costs and increase quality while doing no harm and engendering
no changes to the current marketplace. Still others believe
that, while efficiency is important, the government's first and
foremost priority must be to protect its vital role in
fostering small and small disadvantaged, veteran, woman-owned,
or HUBZone businesses.
Each of these perspectives is valid. But the differences
they reflect clearly underpin this hearing and other debate and
discussion about strategic sourcing generally and the more
focused FSSI specifically.
Thus, if I could define one desired outcome from this
hearing, it would be to find a clear consensus on this key
question so as to determine the future of strategic sourcing.
Will Strategic Harm Small Business? It Depends.
It is impossible to say for certain whether federal
strategic sourcing does, or does not, present a threat to the
overall small business community. Clearly where companies sit
in the marketplace drives their view of that question. But as
the government moves away from the low hanging fruit of
strategically sourcing commodity products and toward strategic
sourcing of services, the evaluation of the risk to small
businesses ultimately depends on the depth and sophistication
of the government's understanding of strategic sourcing itself.
In other words, strategic sourcing, in the truest sense of
the word, incorporates the full spectrum of procurement
techniques outlined in the Federal Acquisition Regulation
(FAR)--from lowest price, technically acceptable (LPTA) to full
cost-technical tradeoffs, also known as ``best value,'' and
strategic sourcing's manifestations vary across that spectrum.
This fact appears to be relatively well understood at the most
senior levels of government and within the Strategic Sourcing
Leadership Council (SSLC). But on the front lines, where the
initiatives are actually implemented, that level of awareness
and understanding is not overtly evident.
To many people across government, strategic sourcing is
immediately translated into bulk buying to gain economies of
purchasing scale--a far too simplistic interpretation of
``real'' strategic sourcing. Nonetheless, this perception is
consistent with the disturbing and overwhelming trend we are
witnessing in virtually every agency toward lowest price,
minimally technically acceptable contract awards, even for
complex requirements. Unless and until that limited knowledge
and understanding is substantially reversed and acquisition
workforce skills are meaningfully enhanced, the effectiveness
of what could otherwise be a very smart and thoughtful
initiative could well be sharply limited and its impacts,
including but not limited to small business, could be negative.
This point also came through clearly in the GAO report on
the use of strategic sourcing in the commercial marketplace.
GAO reported that strategic sourcing is increasingly being used
across the commercial sector for everything from basic
commodities to sophisticated and complex services. But as GAO
also pointed out, the consideration that go into how strategic
sourcing is implemented vary according to levels of complexity,
risk and total cost. Similarly, GAO reported that, in the
commercial sector, quality is often the most critical
consideration, since the level of quality of a product or
service can make or break a company. While that same philosophy
is a fundamental underpinning of the FAR, recent surveys,
including PSC's 2012 Biennial Acquisition Policy Survey,\2\
have made clear that, across government, there is a growing
default to lowest price awards in which quality is only a minor
consideration. Likewise, grave concern exists among acquisition
leaders and professionals about their workforce's current
capabilities to do effective market research or conduct
effective negotiations, two skills that are central to the
development and implementation of an effective federal
strategic sourcing effort.
---------------------------------------------------------------------------
\2\ ``The Balancing Act: Acquisition in an Unabated Crisis;'' The
2012 PSC Acquisition Policy Survey, December 2012. Available at: http:/
/www.pscouncil.org/i/p/Procurement--Survey/c/p/
ProcurementPolicySurvey/
Procurement--Policy--S.aspx?hkey=835b11ac-Ofe7-
4d23-a0e0-b98529210f7e
GAO also identified another crucial differentiator between
the way strategic sourcing is implemented in the commercial
world and the way the federal government often operates--the
way each defines ``cost.'' In the commercial world, cost is
generally defined as the total enterprise-wide, life-cycle
impact of the act. For example, when a company like Wal-Mart
makes decisions as to whether to invest in a new logistics
information system, their focus is not only on how much it will
cost to build and operate that system, but also includes
careful analyses of how that new system will impact
productivity and efficiency elsewhere in the company, from
asset visibility to stocking shelves in stores. Admittedly,
that type of analysis can be very complicated but it is
essential to understanding the full impact on their
---------------------------------------------------------------------------
organization before implementing a strategic sourcing approach.
Too often in the government, however, ``cost'' is defined
solely as the cost of the product or service being acquired,
and is not viewed through that broader, more relevant, prism.
Moreover, the very manner in which agency budgets are built can
frequently inhibit the consideration of total cost. For
example, when the Defense Department was beginning its effort
to insource some work being performed by contractors, initial
cost analyses only looked at the cost to the DoD component's
budget, not the cost to the overall defense or federal budgets.
In today's fiscal environment, with sequestration in place and
even short-term budget clarity elusive, we see a wide range of
cases in which immediate, highly localized cost reductions are
being implemented even though they are likely to result in
higher long-term agency-wide costs.
Another example is the OASIS procurement at GSA. One of the
concerns that it has raised is that it is overly focused on
driving down the unit cost of complex professional services and
less so on overall value, quality and performance improvements.
Indeed, some GSA officials stated repeatedly in public forums
that the principal goal of OASIS is to drive down the labor
hour costs of companies that provide complex, high-end,
professional services. While reductions in hourly labor rates
may or may not be justified in some areas, little was said
about how OASIS would both drive efficiency and improve the
quality of service. In both cases, small businesses were or
would be disproportionately impacted by shortsighted efforts to
drive down costs, as they typically have less ability to endure
decreased margins driven by artificial price pressures than do
larger firms--particularly for firms operating solely in the
federal space.
To GSA's credit, their extensive and continuous outreach to
the private sector has been exceptional and it appears that
they have taken to heart many of the comments that have been
offered. Even while we await GSA's publication of the final
OASIS solicitation and their explanation of how they reconciled
competing policy interests, concern still exists as to how the
competition and the implementation of the awards, which GSA has
identified as part of FSSI, will play out.
The Road Forward
As I noted at the outset, PSC recognizes the potential
benefits of the FSSI. We strongly support the initiative and
applaud the creation of the Strategic Sourcing Leadership
Council and the OMB memorandum that guides their work. However,
we do have concerns that too rapidly expanding the FSSI can,
and likely will, have deleterious impacts on both government
and its supplier base, prominently including small business.
Done right, strategic sourcing can be a win-win; done wrong, it
is more likely to be a lose-lose.
Thus, we would make the following recommendations as the
initiative moves forward:
1) Ensure the alignment of policy and programmatic
objectives. There is little doubt about the effectiveness of
recent strategic sourcing efforts for wireless services,
laptops, and office supplies. But the question of whether the
balance between the number of small business providers and the
total dollars expended with small business is aligned with both
the administration's and Congress's small business agendas is
unclear. That alignment is essential to the effective and
efficient expansion of strategic sourcing.
2) Develop and deploy the requisite training tools to the
workforce without delay and require that all acquisition
personnel involved in any specific strategic sourcing effort
for other than the most basic commodities first complete the
training.
3) Be highly judicious in the use of strategic sourcing for
services, particularly for complex services. Moreover, require
senior level (even up to the SSLC) review of significant
strategic sourcing efforts for services to ensure the
strategies being employed are clearly articulated and are not
overly focused on simply forcing down labor rates at the
expense of overall quality.
4) Pursue a flexible, rather than overly prescriptive,
FSSI. Allow individual agencies some degree of flexibility to
pursue their own, agency-unique, strategic sourcing initiatives
and develop performance measures for both agency-specific and
government wide initiatives that generate visibility into
overall efficiencies, performance outcomes, small business
impacts and other factors that will meaningfully inform the
future shape, expansion and/or limitations of the FSSI.
Conclusion
Mr. Chairman, members of the committee, this hearing offers
an important opportunity to discuss and explore a rapidly
expanding government-wide initiative. The Office of Federal
Procurement Policy, the SSLC, GSA and others are to be
congratulated for their relentless efforts to ensure that
federal agencies buy smart and buy well. That challenges to
their work remain should come as no surprise. PSC is fully
committed to working with them, and with you, to find the right
balance and the best path forward for the government and the
taxpayer in finding a clear consensus on the objective of the
Federal Strategic Sourcing Initiative; that consensus will
then, in large part, drive and govern the future of the
government's appropriate use of strategic sourcing.
I look forward to answering any questions you may have.
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Chairman Hanna, Ranking Member Meng and Members of the
Panel, my name is Trey Hodgkins and I am the Senior Vice
President for Global Public Sector at TechAmerica. I want to
thank you for the opportunity to testify this morning regarding
challenges and opportunities small businesses face in the
adoption of strategic sourcing by the Federal government.
TechAmerica \1\ is uniquely positioned representing
companies from the information technology (IT), communications
and defense industrial base sectors and our members range from
large companies whose names are household terms, to the most
innovative and agile of small technology companies from across
the Nation. While many of the companies are oriented with the
government as a customer, a large number of our members are
completely outside of the public sector and are commercial in
nature, offering commercial items developed and manufactured in
a global economy and distributed and sold around the world. The
ubiquitous nature and complexity of the goods and services our
members sell offer unique perspectives on strategic sourcing in
Federal government contracting and I would like to share a few
of those this morning.
---------------------------------------------------------------------------
\1\ TechAmerica is the leading voice for the U.S. technology
industry--the driving force productivity growth and job creation in the
United States and the foundation of the global innovation economy.
Representing premiere technology companies of all sizes, we are the
industry's only trade association dedicated to advocating for the ICT
sector before decision makers at the state, federal and international
levels of government. With offices in Washington, D.C., Silicon Valley,
Brussels and Beijing, as well as regional offices around the U.S., we
deliver our members top tier business intelligence and networking
opportunities on a global scale. We are committed to expanding market
opportunities and driving the competitiveness of the U.S. technology
industry around the world. For more information, visit
www.techamierica.org.
Before I turn to that issue, however, I would like to take
this opportunity to reiterate for the committee that the single
biggest challenge to success for small business in the public
sector market is the tidal wave of government unique
requirements they face and the burdens they create. Many of the
commercial companies mentioned above consider the burden too
significant and not worth the costs and risks and choose to
simply forego government work entirely. This condition means
that the government does not have access to many of the most
innovative companies offering cutting edge technologies and
software products and services focused on critical issues like
cybersecurity. The condition also results in diminished
competition and higher prices for the goods and services the
government does acquire, because the burdens created by the
government unique requirements end up as part of the cost of
doing business and are passed along to the buyer. To address
this and other conditions that hinder achieving best value for
the taxpayer, TechAmerica would solicit the Committee's support
for a wholesale review of government acquisition, similar in
scope and objective to the Section 800 Panel convened in the
early 90s. Without such an effort, we are concerned that
legislative and administrative attempts to address shortcomings
in Federal acquisition will have only limited impact at the
---------------------------------------------------------------------------
edges of the issue.
Strategic Sourcing
As taxpaying corporate citizens who employ millions of
people around the country, the members of TechAmerica are
supportive of efforts like the Federal Strategic Sourcing
Initiative (FSSI) that can derive savings by consolidating the
acquisition of commoditized goods. We could caution, however,
that such efforts have diminishing success when goods and
services of a complex or diverse nature are shoe-horned into
these vehicles. Strategic sourcing only works when the customer
has uniform and relatively rigid acquisition requirements, and
that is simply not the way the government buys information
technology goods and services.
For small businesses, we see two direct and immediate
challenges under the strategic sourcing initiative. Many of
these companies--particularly the thousands of companies
selling information technology goods and services are resellers
on GSA schedules--will face diminished access to the Federal
government market because under FSSI, there will be less award
winners and more losers. The second challenge impacts those
small businesses that are the most innovative providers of IT
goods and services which are frequently offered in response to
narrow, unique mission requirements or as a specialized
component of a broader prime contractor activity. The offerings
of these companies simply do not fit into the commoditized
labor categories envisioned under strategic sourcing and these
companies will face increased market pressures, given
requirements to drive more and more acquisitions into strategic
sourcing.
Many of the products and services in the ICT space do not
lend themselves well to strategic sourcing. Government does not
buy technology in a consistent fashion either and that further
complicates any effort to fit them into such an initiative. For
hardware items like laptops or servers, the government does not
buy them in large quantities and when buying them, it does not
ask for a consistent configuration. One customer wants more
memory; another wants a CAC card reader, and a third wants a
different sized screen.
The One Acquisition Solution for Integrated Services
(OASIS) GWAC is a live example of the shoehorning of
acquisitions into a strategic sourcing vehicle. Originally
proposed as a new vehicle specifically for the acquisition of
complex integrations of technology and services, it was
announced earlier this year that it would become part of FSSI
and the goods and services offered under the contract would be
commoditized. As noted above, complex and specialized goods and
services, like the ones small business can deliver, do not lend
themselves well to strategic sourcing, so industry reacted with
confusion and apprehension about proceeding with the offering.
While the Draft RFP is out for review and a Final RFP is under
development, industry remains concerned about how goods and
services will be treated in the future under this contract
vehicle.
Small business can and should compete for contracts in
FSSI, but not all goods and services lend themselves to
strategic sourcing. Congress should ensure that small business
opportunities to offer innovative and unique goods and
specialized services are preserved and that we strike a balance
as we implement the Federal Strategic Sourcing Initiative.
Thank you again for the opportunity to speak with you this
morning. I would be happy to answer your questions.
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
www.whitehouse.gov.OMB
STATEMENT OF
THE HONORABLE JOSEPH G. JORDAN
ADMINISTRATOR FOR FEDERAL PROCUREMENT POLICY
OFFICE OF MANAGEMENT AND BUDGET
BEFORE THE
SUBCOMMITTEE ON CONTRACTING AND WORKFORCE
COMMITTEE ON SMALL BUSINESS
UNITED STATES HOUSE OF REPRESENTATIVES
June 13, 2013
Chairman Hanna, Ranking Member Meng, and members of the
Subcommittee, I appreciate the opportunity to appear before you
today to discuss initiatives the Administration is taking to
both save money and maximize small business participation in
federal procurement. These efforts are central to the
government's ability to get the best value for the taxpayer.
With approximately one out of every seven dollars the
government spends going to contractors, it is imperative that
our acquisition processes enable us to get the highest quality
goods and services for the lowest possible cost. Equally
important, our processes must allow us to regularly tap into
the creativity, innovation, and technical expertise that small
businesses offer to help agencies accomplish their missions.
The good news is that I believe buying smarter initiatives like
strategic sourcing reinforce both the goal of maximizing small
business opportunities and value for the taxpayer.
Buying smarter and maximizing opportunities for small
businesses
Prior to becoming Administrator for Federal Procurement
Policy, I served as Associate Administrator for Government
Contracting and Business Development at the Small Business
Administration (SBA). In that role, I was charged with
increasing federal contracting opportunities for small
businesses, including small disadvantaged businesses, women-
owned small businesses, service-disabled veteran owned small
businesses (SDVOSB), and small business contractors working in
Historically Underutilized Business Zones (HUBZones). I am
proud of the progress that SBA made during my tenure to help
agencies increase opportunities for small businesses as we
reversed the downward trend in small business goal achievement
and drove the largest two-year increase against these goals in
more than a decade. These efforts included partnering with
Congress, including this Committee, on the historic Small
Business Jobs Act (SBJA). This Act strengthened the statutory
framework for small business contracting by, working with
senior agency leaders to keep agencies focused on those
activities that can deliver the most significant improvements
in the shortest amount of time, such as by expanding the use of
set-asides, and developing a more transparent, data-driven
small business scorecard process that holds the government
accountable to the taxpayer. These efforts also included an
aggressive campaign to root out waste, fraud and abuse in small
business contracting programs to ensure that benefits from
these programs flow to the intended recipients.
Supporting small businesses is especially important during
this critical time as agencies strive to meet mission needs
within increasingly tight budgets. Over the past four years,
agencies dramatically reversed the unsustainable annual growth
rate in acquisition that saw contract spending grow by an
average of 12 percent per year from 200 through 2008. From
Fiscal Year (FY) 2011 to FY 2012, agencies reduced contract
spending by more than $20 billion, the largest single year
dollar decrease in Federal contract spending on record. Over
this same period, with strong leadership attention, agencies
were able to increase the percentage of eligible contract
dollars awarded to small businesses. That said, there is much
left to be done to ensure we meet our small business goals year
after year and provide meaningful contract opportunities in
these challenging economic times. My experience at SBA
reinforced my belief that small business contracting is a win/
win. These businesses get the revenue they need to create jobs
and grow the economy, while the government gets access to some
of the most innovative companies in our supply chain. I
appreciate the continued help of this Committee, including
important legislative changes that removed caps on the use of
set-asides for women-owned small businesses.
To build on the progress we are achieving to date, we must
take better advantage of the mutually reinforcing practices
that foster both greater small business participation and help
us get better results from our federal contracts. These
include:
Conducting effective market research so that small
businesses are aware of potential opportunities and agencies
can find capable small businesses;
Developing clearer requirements through the
collaborative efforts of program and contracting personnel so
that vendors can better understand agency needs and make
informed decisions as to whether and when they compete for
work;
Giving interested sources sufficient time to
develop quality proposals; and
Taking better advantage of technology to make
doing business with the government easier and less costly.
The priorities of the Office of Federal Procurement Policy
(OFPP) are shaped around strengthening these ties. We are
working with SBA, other federal agencies, private sector
experts, and others who follow and represent the interests of
small business to shape policies and identify best practices
that allow agencies to buy smarter through the use of proven
strategies for cutting costs and increasing quality while
simultaneously strengthening our relationship with contractors,
especially small business suppliers.
Taking greater advantage of strategic sourcing
Our efforts to identify better buying practices that save
money and increase opportunities for small business led us to
place greater emphasis on strategic sourcing. Strategic
sourcing refers to the structured and thoughtful process of
critically analyzing spending across organizations and using
this information to achieve price savings, administrative cost
reductions, and improved contract performance.
Strategic sourcing, which the private sector long
recognized as a successful business practice, requires agencies
to look at the factors that most directly affect their ability
to optimize value for the taxpayer, such as the level of
customer demand, the way in which this demand is currently
being met, variance in prices paid for similar goods and
services with the same or different vendors, and the agency's
commodity management practices. Through these efforts, agencies
drive inefficiencies out of their buying processes. In some
cases, agencies achieve savings by leveraging demand to attain
volume-based pricing discounts and eliminate duplicative
contracts, in other cases by standardizing terms and conditions
across contracts, or simply through smarter commodity
management.
Efforts to date illustrate the substantial savings that
strategic sourcing offers. Government-wide strategic sourcing
of items such as office supplies and domestic shipping services
achieved nearly $300 million in direct and indirect savings
since FY 2010. And agency-level strategic sourcing of goods
like IT and medical equipment have saved hundreds of millions
more. The Department of Homeland Security, for example, saved
over $386 million in FY 2012 by pooling purchases for a wide
range of products across the Federal Emergency Management
Agency, the Coast Guard, Customs and Border Protection, and
other components.
Equally important, these efforts demonstrate that agencies
can increase their spending with small businesses and
simultaneously reap the benefits of strategic sourcing. Our
government-wide strategic sourcing of office supplies is a
compelling example. By engaging the small business community as
part of its market research, the General Services
Administration (GSA), which served as the executive agent for
this sourcing event, learned that the specifications in two
planned requirements could hamper small business participation:
overnight delivery (which can give an advantage to large firms
who operate their own trucking fleets) and very small minimum
order amounts (which increases administrative costs). GSA also
learned after talking to its customers that neither of these
requirements was critical. Based on this analysis, GSA
eliminated the requirement for next day delivery and instead
provided for three or four day delivery and increased the
minimum order size to enable small business to reduce
administrative costs. GSA also divided the office supplies
strategic sourcing acquisition (``OS2'') into three functional
areas, one was set aside for small businesses and another (for
toner) was set aside for SDVOSBs. These steps enabled small
businesses to make highly competitive bids without diluting the
benefits of pooling agency demand. Thirteen of the fifteen
winning vendors were small businesses, including three SDVOSBs.
The results from smart acquisition planning and careful
consideration of small business needs are both telling and
impressive. According to GSA, total dollars going to small
businesses increased from 67 percent prior to implementation of
the strategic sourcing solution to 76 percent through the
solution, and in recent months, the number has approached 80
percent. According to GSA's analysis, through April 2013,
actual savings from OS2 totaled over $88 million, or more than
14 percent under baseline costs.
Many small businesses expressed concern that strategic
sourcing could harm their participation in the federal
marketplace. However, the Administration is working to ensure
that competitive small businesses can engage in strategic
sourcing. Based on the types of experiences I have just
described and, even more importantly, the steps we are taking
to move the initiative forward, I am confident that competitive
small businesses--of which there are many--will not only hold
their own, but do even better. And, those small businesses that
are currently less competitive will have opportunities to get
in the game in the future by taking steps to strengthen
themselves.
Here are several key steps that the Administration is
taking to increase opportunities for small businesses at the
same time as we work to maximize the value of strategic
sourcing:
Agencies are required to seek increased participation by
small businesses when pursuing strategic sourcing. Last
December, OMB issued a blueprint for improving acquisition
through strategic sourcing. M-13-02 (December 5, 2012). This
document clearly articulates that all strategic sourcing
opportunities shall seek to increase participation by small
businesses. It specifically requires that all proposed
strategic sourcing agreements must baseline small business use
under current strategies and set goals to meet or exceed that
baseline participation under the new strategic sourcing
vehicles.
These requirements are designed to ensure that small
business participation is actively considered throughout
acquisition planning--first by identifying how agencies
currently use small businesses in meeting requirements for a
particular commodity, second, by identifying vendors that could
provide the commodity and the relative presence of small
businesses in the market and then by receiving input from
industry, particularly small businesses, to consider how
requirements or business practices might be adjusted to
increase small business participation. In addition to office
supplies, a market where small business participation is
strong, small business-friendly strategies have been used
successfully in commodity categories where small business
participation was traditionally not as strong, such as print
management and wireless telecommunications [expense management]
services.
Government-wide strategic sourcing decisions will be made
by a council that includes the Small Business Administration
(SBA). M-13-02 established the Strategic Sourcing Leadership
Council (SSLC) to facilitate the organized expansion of
strategic sourcing. Under my direction, the seven largest
buying agencies (the Departments of Defense, Energy, Homeland
Security, Health and Human Services, and Veterans Affairs, the
General Services Administration, and the National Aeronautics
and Space Administration) along with the SBA have been working
together and forming teams of commodity experts to analyze
current spending and potential savings opportunities across the
government in areas such as desktops and laptops, information
technology software, janitorial and sanitation supplies and
building maintenance and operations services.
It is important to emphasize that OMB created the SSLC to
ensure that our strategic sourcing efforts are measured and
focused. We are not seeking to strategically source everything
the government buys, nor will every strategic sourcing decision
mean fewer participants. The goal is to maximize value for the
taxpayer and that will take different forms depending on what
the spend analysis reveals in terms of the nature of the
commodity and the government's cost drivers.
In some cases, commodity teams may recommend developing
new, government-wide strategic sourcing vehicles to drive
spending through a smaller number of vehicles that include
contract-wide tiered pricing, or other appropriate strategies,
to reduce prices as cumulative sales volume increases. However,
in other cases, the decision may involve standardizing terms
and conditions among existing vehicles so that we are better
positioned for a sourcing event in the future. In all cases,
agencies will require vendors to provide sufficient pricing,
usage, and performance data to enable the government to improve
its commodity management practices and monitor vendor
performance and pricing changes throughout the life of the
contract to ensure the benefits of strategic sourcing are
maintained.
For its part, SBA will continue to ensure this effort is
providing maximized opportunities for small business
contractors. Procurement Center Representatives continue to
work with agencies and vendors to build awareness of any future
sourcing events. SBA district offices and resource partners
will train small businesses on how to most effectively compete.
And all agencies are held accountable for meeting their small
business contracting goals through SBA's annual scorecard.
The Administration is actively promoting the use of tools
to facilitate greater small business participation on contract
vehicles that have been strategically sourced. Many strategic
sourcing vehicles are built around multiple award contracts
that allow multiple vendors to offer their products and
services and compete for orders as needs arise. Thanks to the
SBJA, agencies can now take greater advantage of tools to
increase the participation of small businesses as prime
contractors. These include reserves to increase the number of
small business contract holders on the underlying multiple
award contracts and set-asides at the order level. Both of
these tools should help increase the amount of total spending
that goes to small businesses on both government-wide and
agency-wide vehicles that have been strategically sourced where
it is not suitable to make a total business set-aside.
In addition, we are actively exploring how agencies can
take advantage of ``on ramps'' and ``off ramps.'' These tools
allow agencies to enter into longer deals that are often
required to get better prices and terms and conditions while
giving small businesses that did not receive an award initially
an opportunity to get onto the vehicle as slots open up, as may
be the case where a current small business contractor no longer
qualifies as a small business or where a current contract
holder is routinely not participating when the agency asks for
quotes or offers.
Finally, we are taking advantage of opportunities for small
businesses to pool their capabilities and become more
competitive in responding to agency needs. In the case of
office supplies, for example, one of the awardees was a
consortium comprised of more than 100 individual small business
participants.
Moving Forward
OFPP is committed to ensuring that agencies remain vigilant
in their efforts to maintain fiscal discipline through a
forward-leaning but measured application of smarter buying
tools to achieve the best value for our taxpayers. OFPP is
equally committed to ensuring that agencies provide maximum
opportunities for small businesses in federal contracting and
subcontracting, so that they may flourish and apply their
talents to the many pressing demands facing our government. We
must pursue these important goals in harmony, as we have been
doing and will continue to do.
While there is work ahead, we are making important
progress. With agency leadership and continued management
attention coupled with the steps I have outlined above, there
is every reason to believe that strategic sourcing can generate
positive results from our contracts and also foster greater
small business participation. We look forward to working with
you and other members of Congress on these important endeavors.
I would be pleased to address any questions you may have.
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Good morning Chairman Hanna, Ranking Member Meng, and
Members of the Subcommittee. My name is Jeffrey Koses and I am
the Director of Acquisition Operations of the U.S. General
Services Administration's (GSA) Federal Acquisition Service
(FAS), General Supplies and Services portfolio.
I want to thank you for the opportunity to discuss GSA's
accomplishments under the Federal Strategic Sourcing Initiative
(or FSSI), our efforts to modernize the Multiple Award
Schedules (MAS) program to keep pace with federal agency needs
and industry changes, and small business success with GSA's
government-wide contracts (GWACs). As America's buyer, GSA
contracts with the private sector to provide commercial
services and products that support Federal agencies. We strive
to acquire the best possible deal for the taxpayer and to
increase small business opportunity as part of helping federal
agencies operate more efficiently.
Several highlights of GSA's success in ensuring significant
small business participation while delivering high value
contracts include:
76 percent of dollars went to small business in
GSA's strategically sourced solution for office supplies
34 percent of dollars awarded through the GSA
Multiple Award Schedule (MAS) going to small business;
More than 19 percent of Request for Quotes (RFQs)
set-aside through GSA's E-Buy System for small businesses on
MAS as a result of the Small Business Jobs Act of 2010;
An A+ small business rating for GSA by the Small
Business Administration for two consecutive years; and
25 percent of all dollars awarded between GSA's
Alliant and Alliant Small Business contracts are going to small
businesses.
Strategic Sourcing
For many years, strategic sourcing has been a best practice
in the private sector, and has resulted in significant savings.
The Government Accountability Office (GAO) has found in a
series of audits that the federal government can save billions
of dollars through the application of strategic sourcing
principles. In 2005, under former President Bush, the Office of
Management Budget (OMB) launched a formal effort to promote
strategic sourcing across government through a memorandum to
Chief Acquisition Officers.
Strategic sourcing received a renewed emphasis across
government through a December 2012 memo from former Acting
Director of OMB Jeffrey Zients creating a Strategic Sourcing
Leadership Council (SSLC) comprised of the seven largest
spending agencies, as well the Small Business Administration
(SBA). This memorandum, among other things, directed GSA to
establish 10 new strategic sourcing solutions: five each in
2013 and 2014. To achieve this ambitious goal, GSA is working
closely with OMB and the agencies making up the SSLC. The
agencies participating in these efforts have strongly
emphasized the importance of meeting their small business
utilization objectives; GSA couldn't agree more. FSSI seeks to
leverage the federal government's collective buying power in
order to efficiently and effectively utilize taxpayer dollars
and to increase dollars spent with small business.
The Office Supplies (OS2) solution has served as the test
case for this generation of federal strategic sourcing. GSA has
used OS2 to realize substantial benefits for taxpayers. In
audit GAO-12-178, GAO confirmed that agencies were saving money
through the FSSI OS2 program.
On June 1, 2010, GSA awarded BPAs to 15 contractors, 13 of
whom were small businesses. Of these, 11 qualified under a
socio-economic subcategory. There are 5 women owned small
businesses, 2 service disabled veteran owned small businesses,
3 small disadvantaged, and 1 disadvantaged woman-owned small
business. In the office supplies industry, there are some
consortia made up as coops of individual small businesses. One
of the winners was a consortia, with over 100 individual small
businesses participating in OS2.
OS2 has resulted in direct savings of $88.7 million on
spending of $607.9 million through April 2013. This savings is
calculated as the difference between what agencies spend
through strategic sourcing and what they would have spent had
they received non-strategic sourcing pricing.
GSA found that the FSSI had the added benefit of lowering
prices charged by non-OS2 vendors. Prices for non-OS2 vendors
are 10 percent lower, against a standard industry benchmark,
than they were in 2010. This improved pricing has resulted in
further savings of over $98 million beyond what's been directly
saved through OS2.
One of, if not the most significant, new element of OS2 is
the ability to have greater transparency into pricing and how
taxpayer dollars are being spent to drive even greater savings.
OS2 contractors are required to report transactional data on
all program sales. This level of financial information
collection provides us for the first time with a deep vision
into agency spending behavior. Over the last several months,
GSA used this data to show contractors their pricing item by
item, compared with their competitors. This empowered FSSI
Office Supply contractors to understand their competitive
position, and in many cases go back to their suppliers and
strike better deals. After GSA shared this data, every one of
the OS2 contractors sharply reduced prices. If the same
ordering pattern holds for the period June 2013 through May
2014 (same contractor, same item and same quantity) there would
be a savings of $12 million as a result of these price
reductions.
Key successes of OS2 program include:
An increase from 67 percent to over 76 percent of
dollars spent with small business.
A decrease from more than 250 percent to 10
percent in price variability (the difference between high and
low price for the same item).
A reduction in contract duplication and
administrative costs, a reduction in bid and proposal costs for
industry, and an increase in time for acquisition professionals
to work on mission priorities.
Greater accountability of vendors for meeting
performance goals.
Knowledge and experience to help agencies
implement future strategic sourcing solutions.
Based on OMB's direction, GSA is working towards
establishing strategic sourcing solutions for Fiscal Year 2013
in the areas of:
Wireless rate plans and devices (awarded May 20,
2013)
Large Desktop Publisher Software
Print Management Phase 2
Maintenance, Repair, and Operations Supplies, and
Janitorial and Sanitation Supplies,
GSA is exploring many other potential solutions for Fiscal
Year 2014, and will announce these areas as the Strategic
Sourcing Leadership Council approves standup of a Government-
wide commodity team.
In conducting the commodity or service overview for
strategic sourcing, one of our foundational questions addresses
the impact of the solution on small business. Acting
Administrator Tangherlini has made clear that expanded
opportunity for small business is a crucial strategic sourcing
success metric that will be monitored closely.
We include the opportunity to expand percent of dollars
going to small business, directly or as subcontractors, as a
foundational element of strategic sourcing, and we are
committed to ensuring small business opportunity all along the
path of strategic sourcing. GSA believes strategic sourcing and
small business success not only are not mutually exclusive, but
can actively be harmonized.
GSA has taken several specific steps to ensure small
business opportunity, standardize process, simplify rules, show
an open and transparent process, and demonstrate that the
competition is fair.
In the case of both Janitorial and Sanitation Supplies and
our Maintenance and Repair Operations Supplies strategic
sourcing initiatives, we are setting aside the majority of the
awards for small business and we have broken down these
categories in ways that maximize the opportunities for small
business success.
GSA's commitment to small business goes well beyond FSSI.
We have received an A+ rating from the Small Business
Administration for 2010 and 2011, and we look forward to
building further on these successes.
Multiple Award Schedules
GSA believes that the Multiple Award Schedules (MAS)
program represents the best opportunity for well-prepared,
highly competitive small businesses anywhere in the government
procurement world. Small businesses represent an estimated 80
percent of all MAS vendors, and approximately 34 percent of the
$38 billion dollars in sales go to small businesses. More
importantly, when agencies use the MAS program the majority of
users have a higher percentage of spending that goes to small
business than when they use other acquisition vehicles.
Federal agencies tell GSA that they use schedules because
it saves them time and money. Agencies can experience up to a
50 percent time savings using schedules over more traditional
procurement practices. Still, we believe that there is
substantial room for improvement in the MAS program.
Over the last year, we have worked diligently with both
small businesses and federal agencies, asking for input on how
the MAS program can better meet their needs and how GSA can
improve its support. We received and are working to implement
many of the important suggestions yielded in these industry and
agency conversations. Similarly, we are eager to hear your
input as we work towards the common goals of achieving taxpayer
savings and ensuring small business opportunity.
When small businesses are informed, properly trained and
ready to compete they succeed. For example, on GSA's National
Information Technology Commodity Program, GSA awarded 44 BPAs
to small businesses under schedule 70 for IT Commodities and
ancillary services. The goals of this program are to drive down
the cost of acquisition, and establish a more efficient and
cost-effective buying process. We are only six months into the
program, but the preliminary results are positive: federal
agencies are reporting significant savings, an improved, easier
to use process, and excellent customer service.
To achieve greater savings, GSA must have greater
visibility into key data across the MAS program. We know data
is not a free good. However, if we extrapolate from the Office
Supplies example and can achieve the same results on our other
product based schedules, it could result in significant
savings.
In addition, by making the right transactional data
available to small business, we can help them be more
competitive and make good decisions about when and how to
pursue federal business.
Small Business Set-Asides
One area of success for small business under the Multiple
Award Schedules program is through our training focused on the
discretionary set-aside rule, which came about as a result of
section 1331 of the Small Business Jobs Act of 2010. Since
April 1, 2012, through GSA's e-Buy system, we have set aside
15,942 Requests for Quotation (RFQ) (more than 19 percent) for
small business. For the month of April 2013, we set aside 22.5
percent of all RFQs--great progress as the buying season kicks
into high gear.
GSA employs several methods to deliver our training,
including classroom training, webinars, blogs, Continuous
Learning Modules in the Federal Acquisition Institute (FAI) and
Defense Acquisition University (DAU) portals, and GSA's YouTube
channel.
To date, we have trained more than 9,700 members of the
acquisition workforce on proper use of Multiple Award Schedules
and the utilization of Small Business, resulting in 32,071
Continuous Learning Points being issued to acquisition
workforce members. The government-wide and industry interest in
this training is growing; more than 1,000 people participated
in a recent GSA web training on ``GSA Schedules and Small
Business Utilization.''
We are very proud of our work to ensure the successful
implementation of Section 1331. However, the true measure of
success lies in the results, we are looking to see an increase
in the percent of dollars going to Small Business.
Government-Wide Contracts (GWACS)
In early 2009, GSA awarded two sets of contracts to create
a GWAC. These contracts, known as Alliant and Alliant Small
Business, were designed for long term planning of large scale
customized IT solution while strengthening opportunities for
small businesses.
To date, small businesses have won $1.3 billion under
Alliant Small Business--25.9 percent of all dollars awarded
between the two programs.
In addition, under the prime Alliant contract, small
businesses have been awarded $534 million in subcontracts.
We are looking to replicate these successes with a new
government-wide contract vehicle that would provide for
integrated professional services. We see our proposed One
Acquisition Solution for Integrated Services (OASIS) contract
as a key to simplifying the acquisition of integrated
professional services, and moving us to common labor category
definitions, thus furthering a better dialogue within
government and between government and industry.
Conclusion
At GSA, it is our goal to be good stewards of taxpayer
dollars. This includes a focus on increasing small business
opportunities for vendors committed to delivering the best
value to the taxpayer.
As we look to the future, GSA will continue to focus on
strategic sourcing, modernizing the schedules program,
improving our pricing and tools, raising our standards,
offering the best training and customer service we can, and
collecting the information and data that will help save
taxpayer dollars. GSA will continue being a leader in opening
dialogue with industry and our program will remain a doorway to
opportunity for highly competitive small business.
On behalf of GSA, thank you for this opportunity to appear
before the committee and I would be happy to answer your
questions.
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June 19, 2013
To: Chairman of the House Contracting and Workforce
Subcommittee
From: Bob Griffin, GSA Schedule Consultant, Contractor and
Former DOD Schedules Customer
Subject: Additional Input Re: Strategic Sourcing utilizing
the GSA FSSI BPA and the GSA Multiple Award Schedule (MAS)
Program
Dear Congressman Hanna,
I attended the June 13, 2013 hearing on Strategic Sourcing
which you conducted and found it to be very beneficial and
constructive. I thank you for that.
I did want to bring to your attention a few more pertinent
details concerning GSA FASs past performance in this area as
well as their current policies which quite frankly effect
businesses of all sizes but particularly Small Business. Lets
look at two areas:
1. GSAs internal numbers on FSSI Generated Savings in the
Office Supplies area
2. The concept and reality of maintaining ``continuously
open'' GSA Schedule Solicitations
FSSI Generated Savings Numbers:
On June 13, 2013, Mr. Koses of GSA, FAS stated in his
testimony to your subcommittee that the GSA Office Supplies
FSSI initiatives had generated $88 million dollars in savings.
That number was based on a spend of approximately $600 million
and an average discount (as compared to GSA Schedule Pricing)
of 12.7%.
On June 18, 2013 at his Senate Confirmation hearing, Mr.
Tangherlini, GSAs Acting Administrator, stated in his testimony
that the GSA Office Supplies FSSI initiatives had generated
$127 million dollars in savings.
This morning, June 9, 2013, I went into GSAs own Strategic
Sourcing Metrics website at https://strategicsourcing.gov and
found Office Supplies Savings through FSSI of $2.7 million
based on Spend through FSSI of $17.4 million based on October
2012 data.
Which number is correct?? I think we also need to remember
that those providing these numbers are the same individuals
that provided a Demand Based Model (DMB) savings of $26 million
to Congressman Graves in an early 2013 hearing. This number
then was reduced to the range of $3.6-$6 million dollars due to
your staff's estimates and GSAs recalculations. GSA has also
been cited by GAO on past instances where GSAs numbers were far
off the mark on estimating potential savings. I have been
involved with GSA, FAS as a Schedules Customer, Contractor and
Consultant for more than 25 years and their numbers are rarely
correct. I have generated FOIA requests in this and other areas
as of May 22nd and have not yet received those results to
further amplify this point.
You also need to understand that GSA, FAS is basing their
prediction/forecast of a 12.7% average discount on Office
Supplies FSSI OS1 and OS2 as compared with typical GSA Schedule
75 Contractor pricing. This in my judgement is based on
incomplete pricing data as far as actual Schedule Purchase
Prices may have been. GSA Schedule Pricing as awarded is a
Maximum Not To Exceed Price. Schedule Contractors are
authorized to provide Spot Discounts off awarded pricing and
Quantity and Volume Discounts. If you look at the wording of
almost all product and services RFQs that appear on GSA Ebuy or
come agency direct, you will see wording that Contractors are
``highly encouraged'' to give additional pricing discounts in
this RFQ. This was a norm in prior years on orders that
exceeded the Maximum Order Threshold or MOT but has in recent
times been a standard request regardless of the size of the
order. This means that GSA does not have the pricing
information necessary to make the claim of a 12.7% savings. If
they had the information they would already be using it in
their new Price Right Pricing Tool. They are not. They are
developing the concept using Delivery Services Pricing.
Maintaining ``Continuously Open'' GSA Schedule
Solicitations:
Lets look at GSA, FASs record on GSA Schedule 75 Office
Supplies. On October 1, 2010, GSA Schedule 75 was closed with a
notice that it would be reopened on October 1, 2012 to receive
new offers. In September 2012, after industry had repeatedly
inquired, they were told that Schedule 75 would remain closed
and that its status would be reviewed again in 2013 for
reopening on October 1, 2013. That is not the whole story
though. In early 2010, Schedule 75 was refreshed or revised and
contract wording was placed in the solicitation that stated
that in order to meet the new pricing metric the offeror would
have to provide 3 high volume invoices in the past 3 months
from the Most Favored Customer for each and every product that
was to be offered on the Schedule. This in effect closed the
Schedule 75 to many offerors who formerly would have qualified.
So in reality this schedule was barely open months before
closing on October 2010. I remember attending a GSA schedule
presentation at 26 Federal Plaza in New York City that Spring
and asking the reason for the change which no other schedule
had put in place. The presenter who was a Schedule 75
Contracting Officer stated that ``that's just the way it is.''
I might add that the GSA National Admin Services and Office
Supplies Center in New York City is currently using that
pricing language in all its product schedules.
Had that pricing language been in place for the past 10
years Schedule 75 Office Supplies would have bee a very small
schedule dominated by large business and most if not all of the
current FSSI BPA Small Business Contractors would not have even
gained a Schedule 75 contract let alone won an FSSI BPA.
On June 12, 2013 I provided Ms. Emily Murphy, your stellar
Senior Contracting Council, with two new examples that are anti
small business and very restrictive that will in fact allow GSA
to tell you that the GSA Schedules Program remains
``continuously open'' with the exception of Schedule 75.
However, they will be ``continuously open'' in name only for
Small Business and Large Business alike. These two items of
contract language changes to GSA schedule offer qualifications
are probably the most significant in the past 20 years and
definitely have an effect on the ``continuously open'' status
of Schedules. This is analogous to a store owner changing his
admission policy from store capacity of 50 with an entry fee of
$25 to a store capacity of 5 with an entry fee of $2500. The
store remains ``continuously open'' but realistically open to
only a few. It's a game of semantics with the American people
being the loser.
The first of these two items is called ``Full Products and
Broad Services Offerings''. It states that a GSA Schedule
offeror or prospective new contractor must provide a full and
broad offering on services and/or products. Offerors will not
be accepted with only limited item/offering (product, labor
category, training course, or fixed-price services) unless it
represents a total solution for the Special Item Number (SINs).
This will have a direct effect on existing Schedule Contractors
who may very well have to cross this new requirements bridge on
contract extension as well as brand new offerors that cannot
meet this standard. This is particularly true of Small
Business. Going back to the Office Supplies Schedule 75, we had
the ability to offer a FULL CATALOG OFFER OR a PARTIAL CATALOG
OFFER (although the same can be said for other Product
Schedules). In the area of services Schedules, some schedule
SINS may have 9-12 tasks or subtasks included within the SIN
description. Does this new standard mean that a business must
be able to provide and have provided all 9-12 subtask skills?
This falls squarely on the back of Small Business.
The second of these two items is called ``Fair and
Reasonable Pricing''. It states that in order to determine fair
and reasonable pricing, the Contracting Officer may consider
many factors, including pricing on competitor contracts,
historical pricing and currently available pricing in other
venues. Offers which provide Most Favored Customer pricing, but
which are not highly competitive will not be found fair and
reasonable and will not be accepted. This is huge for existing
contractors who will in fact have to start over on pricing and
of course the new contract offerors or applicants. This also
falls squarely on the back of Small Business. Just what is
highly competitive pricing? What type of pricing was being
negotiated and awarded by GSA Contracting Officers in the past?
Ms. Murphy should be able to provide valuable insight on that
point from an historical perspective.
Both items are major paradigm changes in the GSA MAS
Schedule Program and have appeared in the semi-annual January/
June Schedule Refresh/Revision Process. They are very broad,
undefined and frankly hard to get your arms around. This is
exactly what GSA, FAS desires as it will give Contracting
Officers more discretion in making the decision as to which
company makes it and which doesn't once again setting the new
tempo of the ``continuously open'' GSA MAS Schedules program.
Just how do those that are not able to attain a GSA
Schedule have the opportunity to participate in level II which
would be ``bidding on and winning'' an FSSI BPA.? They don't.
You not only need to look at what happens to your base of
already awarded GSA Schedule Contractors who drop out of the
program or do not at least bid on FSSI BPAs like OS2 but also
these new offerors or applicants who can't even begin in the
process. The process as is currently optimizes only a very few
companies, while many other qualified and eager companies are
denied entry.
I appreciate the opportunity to provide you with this
additional detailed information. Thank you again for holding
these subcommittee hearings. GSA, FAS has always seemed to
believe that they are less accountable and subject to oversight
since they generate much of their own funding due to their
collection of the Industrial Funding Fee. They clearly need the
level of oversight and supervision that your Subcommittee
provides.
Bob Griffin
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