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S. Hrg. 113–208 

STRATEGIC SOURCING: LEVERAGING 

THE GOVERNMENT’S BUYING POWER TO SAVE 

BILLIONS 

HEARING 

BEFORE THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

JULY 15, 2013 

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

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 
(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

THOMAS R. CARPER, Delaware Chairman 

CARL LEVIN, Michigan 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

MARK BEGICH, Alaska 

TAMMY BALDWIN, Wisconsin 

HEIDI HEITKAMP, North Dakota 

TOM COBURN, Oklahoma 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

MICHAEL B. ENZI, Wyoming 

KELLY AYOTTE, New Hampshire 

JEFF CHIESA, New Jersey 

RICHARD J. KESSLER, Staff Director 

JOHN P. KILVINGTON, Deputy Staff Director 

TROY H. CRIBB, Chief Counsel for Governmental Affairs 

SUSAN B. CRIBB, DHS Detailee 

KEITH B. ASHDOWN, Minority Staff Director 

CHRISTOPHER J. BARKLEY, Minority Deputy Staff Director 

KATHRYN M. EDELMAN, Minority Senior Investigator 

LAURA W. KILBRIDE, Chief Clerk 

LAUREN M. CORCORAN, Hearing Clerk 
(III) 

C O N T E N T S 

Opening statements: Page 

Senator Carper ................................................................................................. 1 

Senator Coburn ................................................................................................. 3 

Senator Johnson ............................................................................................... 16 

Senator McCaskill ............................................................................................ 19 

Prepared statements: 

Senator Carper ................................................................................................. 37 

WITNESSES 

MONDAY, JULY 15, 2013 

Hon. Joseph G. Jordan, Administrator, Office of Federal Procurement Policy, 

Office of Management and Budget ..................................................................... 5 

Hon. Daniel M. Tangherlini, Administrator, General Services Administration . 8 

Christina Chaplain, Director, Acquisition and Sourcing Management, U.S. 

Government Accountability Office ...................................................................... 10 

ALPHABETICAL LIST OF WITNESSES

Chaplain, Christina: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 50 

Jordan, Hon. Joseph G.: 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 39 

Tangherlini, Hon. Daniel M.: 

Testimony .......................................................................................................... 8 

Prepared statement .......................................................................................... 46 

APPENDIX 

Statement submitted for the Record from Roger D. Waldron with attachment . 68 

(1) 

STRATEGIC SOURCING: LEVERAGING 

THE GOVERNMENT’S BUYING POWER TO 

SAVE BILLIONS 

MONDAY, JULY 15, 2013 

U.S. SENATE,

COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 3:02 p.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Thomas R. Carper, 

Chairman of the Committee, presiding. 

Present: Senators Carper, McCaskill, Coburn, and Johnson. 

OPENING STATEMENT OF CHAIRMAN CARPER 

Chairman CARPER. The hearing will remain in order. This is a 

very orderly audience and panel. I want to welcome you all here 

today. 

Last week, you may know, the President announced a new management initiative for his Administration to be led by Sylvia 

Burwell, no stranger to us, the new Director of the Office of Management and Budget (OMB). The goal of the initiative is to build 

a better, smarter, faster government. Today’s hearing topic, Strategic Sourcing, is one that should be central to that initiative. 

Strategic sourcing is a process that moves an organization from 

numerous individual procurements to a broader aggregate and, 

frankly, a more thoughtful approach to achieve savings. As my colleagues have heard me say often, I believe there are three essential 

elements to solving our Nation’s financial challenges. 

We must address both spending and revenues in a balanced approach, we must rein in the cost of entitlement programs in a way 

that does not savage the poor or elderly, and through better management of government programs, we must deliver better services 

to the American people at a lower cost, or at least the same cost. 

The U.S. Government’s departments and agencies spend over $500 billion annually to buy goods and, beyond that, to buy goods 

and services in support of their missions. With that much money 

at stake, even a small gain in efficiency can save our taxpayers billions of dollars. The budget deficit this year, that OMB has revised, 

is at about $750 billion. We need every billion that we can save. 

Strategic sourcing is an example of the kind of low-hanging fruit 

that we ought to grab as we continue to search for ways to reduce 

Federal spending and ensure that taxpayer dollars are used prudently. It is a process that can help move an organization from nu-
2 

merous individual procurements to a broader aggregate and, frankly, smarter approach to achieve savings. 

At a basic level, strategic sourcing is really just a fancy way of 

saying buy in bulk or buy in quantity. But it also goes beyond that. 

It involves a careful analysis of spending needs, detailed market 

analysis to know what is available in the private sector, and a constant and rigorous monitoring of prices and performance to get the 

best prices and the best value. 

Over the past year, the Government Accountability Office (GAO) 

has produced two reports for this Committee showing the power of 

strategic sourcing in the private sector and its promise for the government sector. The companies that GAO examined rely on detailed data analysis and centralized procurement systems to drive 

savings. 

In fact, companies interviewed by GAO reported that they have 

saved between 4 percent and 15 percent over prior years’ spending 

through strategic sourcing. If we applied that rate of savings to the 

Federal Government, we could save anywhere between $20 billion 

to $80 billion annually. 

So you would think that the agencies would rush to adopt strategic sourcing wherever possible. Unfortunately, that has not been 

the case. Last fall, GAO examined four agencies that account for 

about 80 percent of Federal Government contract spending, the Department of Defense (DOD), Department of Energy (DOE), Department of Homeland Security (DHS), and Veterans’ Affairs (VA). 

And whereas the private sector companies examined by GAO 

were managing almost 90 percent of their spending through strategic sourcing, these four agencies collectively were managing only 

5 percent of their spending through strategic sourcing. And only a 

tiny fraction of Federal spending is made through the Federal Strategic Sourcing Initiative (FSSI), which is a project overseen by the 

Office of Management and Budget and administered by the General Services Administration (GSA), with the goal of expanding the 

use of smarter procurement practices across the Federal Government. 

Last fall, GAO reported that in fiscal year (FY) 2011, only $339 

million out of the total of $537 billion in contract spending had 

gone through the Federal Strategic Sourcing Initiative. But GAO 

also found that even this small use of strategic sourcing had saved 

by $60 million. As GAO has noted, Federal agencies appear to behave more like medium-sized unrelated businesses than the largest 

purchaser in the world, which is what the United States really is. 

Instead of leveraging the buying power of the whole government, 

Federal agencies rely on hundreds of duplicative contracts for commonly used items. And far too often, our Federal contracting officers pay one price for a product or service without knowing that 

another Federal agency, or even another part of the same agency, 

is paying a completely different price for the exact same good or 

service. 

Today we are going to hear from two individuals in the Administration who are leading the charge to drive the government toward 

greater use of strategic sourcing, Joe Jordan, the Administrator for 

Federal Procurement Policy at the Office of Management and 

Budget, and Dan Tangherlini, who is newly confirmed, and sworn 
3 

in as the Administrator of General Services Administration. Congratulations, Dan. 

We will also hear from Cristina Chaplain, the Director of Acquisition Sourcing and Management at GAO, to hear more about 

GAO’s illuminating work on this topic. I think there was some discussion about bringing in a witness or two from the private sector. 

I do not think we are going to do that today. I think the idea would 

be to do maybe a subsequent hearing and to bring in a panel from 

the private sector. 

I hope that today’s hearing will help us, in the meanwhile, address several key questions. First, why are agencies not making 

greater use of strategic sourcing? GAO found that the General 

Services Administration itself purchased less than one-third of its 

office supplies through strategic sourcing contracts—even those 

who know better—back when it comes to these issues? 

Second, what is the potential for strategic sourcing in the Federal Government? We need to acknowledge that a good deal of 

what the government buys supports programs that are unique to 

the government, weapon systems and space technology, for example. The government may never utilize strategic sourcing to the extent that the private sector does, but even a small increase could 

save billions of dollars. 

Mr. Jordan will testify today that the Federal Government has saved nearly $300 million since fiscal year 2010 through strategic 

sourcing. The early signs are promising, but there is plenty of room 

for improvement. 

The third point would be that I would like for our witnesses to 

respond to criticisms that strategic sourcing will crowd out small 

business vendors. This is a very real concern and we hope that the 

Administration and Congress can work together to make sure that 

small businesses have an ample opportunity to participate in strategic sourcing. 

And finally, I hope that this hearing will help chart out a path 

for the Congress to play a constructive role in nudging or pushing 

agencies to buy smarter and to save taxpayers dollars. We look forward to hearing from each of you. We thank you for joining us 

today. Let me yield now to our Ranking Member, Dr. Coburn, for 

any comments he would like to make. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. Well, thank you all for being here, and I thank 

GAO again for their great work. 

The work is important, and yet, there are tons of recommendations from 2 years ago that have not been acted upon. I do not 

know what the process is, because we cannot find out what the 

process is, and I appreciate the Chairman mentioning that at some 

point in the future, we are going to have the business community 

here to see how they do it, and I think it is unfortunate that they 

are not here today, because when Wal-Mart buys something, I 

guarantee you they get the best price. When Honeywell buys something, I guarantee you they get the best price. 

They know how to do it and not having that contrast at this 

hearing is unfortunate because there is a lot that we can learn 

from the people who are out there every day. Their goal is to get 
4 

the best price with the best product on time with the smallest inventory. 

Mr. Jordan, one of the commitments that you told me when we 

did your approval was that you would bring data-driven solutions 

and results to your work at OMB. I am going to have some questions specifically about that in terms of what we have done thus 

far. 

And Administrator Tangherlini, we talked about getting the best 

price on everything for the government every time and limiting 

some of the options. I look forward to asking a lot of questions 

today. 

I am not concerned about protecting small business. I am concerned about getting the best price for this country because we cannot afford not to. 

And if they can compete, great; if they cannot, great. They will 

find a market somewhere where they can supply their product and 

in a true, free enterprise system, if they cannot compete, they do 

not need to be in existence. They need to find somewhere else to 

specialize and those resources should be utilized somewhere else. 

One of the things that I am concerned about is the lack of direction from OMB on how you measure, how you validate savings and 

the guidance that should have already come from OMB on that, so 

I am looking forward to questions on that. This is an important 

topic. We have about $500 billion a year we ought to be able to 

save 10 to 15 percent on. That is a lot of money. That is $75 billion 

a year that we ought to be able to save, especially if we start looking at service contracts which nobody has done yet to any significant degree. We have $47 billion worth of information technology (IT) contracts and we have not had an assessment on that, other than 

what GAO tells us that half of it is wasted. So, we need to look 

not only at performance, but also purchase price. So I thank the 

Chairman for having the hearing and I look forward to our witnesses’ testimony. 

Chairman CARPER. You bet. Let me go ahead and introduce our 

witnesses. First of all, the Hon. Joseph G. Jordan, Administrator 

of the Office of Federal Procurement Policy (OFPP) for the Office 

of Management and Budget. Mr. Jordan was confirmed as the Administrator for Federal Procurement Policy about a year ago in 

May 2012. As the Administrator, Mr. Jordan is responsible for developing and implementing the acquisition policies supporting over 

$500 billion in spending by the U.S. Government each year. 

Prior to serving at OMB, Mr. Jordan was the Associate Administrator of Government Contracting and Business Development at 

the Small Business Administration (SBA). Prior to his service in 

government, Mr. Jordan was an Engagement Manager at 

McKinsey & Company specializing in purchasing and supply chain 

management strategy. Did you work there at all with Sylvia 

Burwell? 

Mr. JORDAN. We did not overlap, no. 

Chairman CARPER. All right. We thank you very much for joining 

us today. We look forward to your testimony. 

Our next witness will be Dan Tangherlini, newly confirmed, 

newly sworn in, tanned, fit and rested and now ready to resume 
5 

1The prepared statement of Mr. Jordan appears in the Appendix on page 39. 

his full-time responsibilities, official responsibilities, as the Administrator for General Services Administration. He was sworn in July 

5, about 10 days ago, following his 15 months of service as the Acting Administrator of GSA. 

Throughout his career, Mr. Tangherlini has been recognized for 

fiscal and management leadership before joining GSA. He was confirmed by the Senate in 2009 as Treasury Department’s Assistant 

Secretary for Management, Chief Financial Officer (CFO), and 

Chief Performance Officer (CPO). 

In these roles, Mr. Tangherlini served as the principal policy advisor on the development and execution of the budget and performance plans for Treasury and the internal management of the Treasury and its bureau. We are happy you on board full-time in your 

new confirmed position and congratulate you again. Thanks for 

joining us. 

Our third witness is Ms. Cristina Chaplain. Ms. Chaplain currently serves as a Director, Acquisition and Sourcing Manager at 

the U.S. Government Accountability Office. She has responsibility 

for GAO assessment of military space acquisition, National Aeronautics and Space Administration (NASA), and the Missile Defense 

Agency (MDA). 

In addition, Ms. Chaplain has led a variety of DOD-wide contracting-related and best practice evaluations for GAO including reviews of strategic sourcing practices, program management best 

practices, revolving door issues, and conflicts of interest. She has 

been with GAO for 21 years. Ms. Chaplain, I want to welcome you 

to our hearing. We thank you for the great work that GAO and you 

have continued to do for our country. 

Your entire statement will be made part of the record. If you 

would like to summarize it, feel free to do so, and try to keep your 

comments close to 5 minutes. If you go a little over that, that is 

fine. If you go way over that, I will have to rein you in. But, Mr. 

Jordan, you are up first. Please proceed. Thank you. Thank you all 

again. 

TESTIMONY OF THE HON. JOSEPH G. JORDAN,1 ADMINISTRATOR, OFFICE OF FEDERAL PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET 

Mr. JORDAN. Thank you, Chairman Carper, Ranking Member 

Coburn, and Members of the Committee. I appreciate the opportunity to appear before you today to discuss the steps that the Administration is taking to deliver more value to the taxpayer 

through increased use of strategic sourcing. 

Strategic sourcing enables the government to leverage our vast 

buying power to save money and improve the management of commodity goods and services. This Administration has challenged 

agencies to buy smarter by ending unnecessary contracts, reducing 

duplication, and using the government’s buying power to get the 

same goods and services at lower prices. As a result, agencies have 

saved billions of taxpayer dollars and strengthened their contracting practices. 
6 

In this fiscally constrained environment, we need to do even 

more to drive unnecessary cost out of the system. We must structure our acquisition planning and requirements development processes to ensure that we are taking advantage of our position as the 

world’s largest buyer. 

To that end, I would like to share with you some of the actions 

we have taken to continue to build a stronger strategic sourcing 

foundation within and among agencies, and discuss recent steps to 

increase the number of solutions available. 

Strategic sourcing has long been recognized by the private sector 

and the Government Accountability Office as a best practice, and 

successful companies around the world routinely aggregate demand 

in order to drive costs out of their supply chain. Federal organizations, however, have historically had challenges leveraging their 

spend because agency budgets and acquisition functions tend to be 

decentralized, and there is often a lack of visibility into what other 

agencies plan to purchase or what they are paying. 

While we are still in the earlier stages, strategic sourcing is 

working. Governmentwide strategic sourcing of office supplies and 

domestic shipping services has already achieved over $300 million 

in direct and indirect savings since fiscal year 2010. While we continue to build on these initial efforts, the benefits, both in reduced 

prices, cost avoidance, and better commodity management are 

clear. 

First, prices undergo continuous monitoring comparison. Second, 

usage data is being provided to the agencies to improve buying behavior and commodity management. Third, small business participation has increased. And fourth, contracting officers, program 

managers, and contracting officer representatives are able to redirect their time and attention to acquiring and managing more mission critical and higher risk contracts. 

To build on our initial steps and increase the use of strategic 

sourcing across government, last December OMB called in the 

seven largest buying agencies as well as the Small Business Administration, to form the Strategic Sourcing Leadership Council 

(SSLC), which I chair. These Federal agencies are working together 

to increase the number of strategic sourcing solutions available, 

help shape policies and processes to reduce the number of duplicative contracts, and improve the government’s commodity management practices. 

To further strengthen leadership throughout the government for 

strategic sourcing, OMB directed all 24 chief financial officer act 

agencies to identify an accountable official to coordinate their agency’s internal efforts and to participate in the Strategic Sourcing 

Leadership Council initiatives. 

The Strategic Sourcing Leadership Council and GSA reviewed 

over 20 initial commodity areas to identify those that were best positioned for strategic sourcing over the next 2 years. 

These initial commodity areas included information technology 

such as laptops, desktops, and common software, which represents 

some of our higher spend areas. Other areas included janitorial and 

sanitation supplies, wireless services and devices, laboratory supplies, and a variety of other commodities that are generally pro-
7 

cured in a decentralized manner, are common to most agencies, 

and for which some basic data were available for analysis. 

Teams have been created to analyze each of the initial commodity areas. These teams have developed preliminary commodity 

profiles to better understand the total Federal spend, savings potential, and small business participation. 

For example, through this process, the Strategic Sourcing Leadership Council learned that in 2012, agencies spent an estimated 

$1.3 billion on wireless services and devices, using more than 4,000 

agreements for 800 different wireless plans, resulting in prices that 

varied greatly for the same level of service. Agencies also spend about $600 million per year on janitorial and 

sanitation supplies in a highly decentralized manner with thousands of purchase cardholders requiring items ranging from toilet 

paper to hand soap to motorized floor buffers in small quantities. 

The Strategic Sourcing Leadership Council is working to ensure 

that the commodity teams are conducting sound analyses, developing appropriate requirements, and establishing effective acquisition strategies to position the government to get the best deal possible by buying together. 

Commodity teams are also well-suited to help identify standardized terms and conditions for governmentwide use in agency-specific vehicles. Strategic sourcing, when done right, is also mutually 

reinforcing with this Administration’s commitment to increasing 

small business participation in Federal contracting. 

For example, by actively engaging the small business community 

in the office supply strategic sourcing solution, GSA, which served 

as the lead agency for this initiative, increased total dollars going 

to small businesses from 67 percent prior to implementation of the 

strategic sourcing solution to 76 percent in recent months. 

To further support the work that the Strategic Sourcing Leadership Council and many agencies are going to promote strategic 

sourcing, the Office of Federal Procurement Policy is taking a lead 

role on several initiatives to improve the information flow among 

agencies, and to give contracting officers and program managers 

the tools they need to make smarter buying decisions. 

These include strengthening the business case process to reduce 

the number of overlapping or duplicative contracts for supplies and 

services, and developing a prices-paid portal to improve the transparency of the prices that contracting officers have negotiated for 

similar goods and services. 

Our understanding of how best to implement and measure the 

success of strategic sourcing across large and diverse organizations 

for complex and unique commodities is an evolving process, but one 

that is making significant strides thanks to the work of the Strategic Sourcing Leadership Council, the commodity teams, and all of 

our agency partners. 

OFPP is committed to reducing the cost of acquisition through 

greater use of strategic sourcing. It is my top priority and will continue to be one of the most effective tools agencies have in making 

their scarce budget dollars go farther to meet core mission needs. 

I would be pleased to answer any questions that you may have. 

Chairman CARPER. Thank you, Mr. Jordan. Mr. Tangherlini, 

would you please proceed? 
8 

1The prepared statement of Mr. Tangherlini appears in the Appendix on page 46. 

TESTIMONY OF THE HON. DANIEL M. TANGHERLINI,1

ADMINISTRATOR, U.S. GENERAL SERVICES ADMINISTRATION 

Mr. TANGHERLINI. Thank you very much, Chairman Carper, Dr. 

Coburn, Senator Johnson, Members and staff of the Committee. I 

appreciate the opportunity to appear before you today. First, I 

would like to take a moment to express my sincere appreciation for 

your quick consideration of my nomination last month. I greatly 

appreciate the vote of confidence and I look forward to continuing 

to work with this Committee and to reform and improve GSA. 

Right now as budgets tighten across the Federal Government, 

the General Services Administration, is uniquely positioned to support our partner agencies so that they can focus their energy and 

funding on their own important missions such as securing our borders, keeping our food safe, or protecting air quality; missions that 

are critical to the well-being of our country and its people. 

The Federal Strategic Sourcing Initiative is an integral part of 

this effort. GSA currently has in place four strategic sourcing vehicles, express and ground domestic delivery service, office supplies, 

print management, and wireless. These initiatives create significant savings by making purchases as if we are a single, unified 

buyer rather than purchasing through thousands of small, duplicative contracts. 

By encouraging agencies to commit to the collective purchase of 

certain commodities, GSA is able to negotiate better prices and 

services while simultaneously reducing wasteful contract duplication across government. For example, by going out to the market 

as one large buyer for office supplies, GSA has been able to negotiate prices for those supplies that are 13 percent below what we 

have previously paid. GSA has saved agencies more than $300 million since 2010 through these solutions. 

Strategic sourcing also enables us to work with small businesses 

across the country. In the area of office supplies alone, 76 percent 

of our dollars are going to small businesses, representing more 

than $460 million in sales. Through this initiative, we have been 

able to save the government $200 million in purchases of common 

office supplies, while also supporting small business. 

Another benefit of the strategic sourcing program is that these 

contracts provide greater visibility into pricing, allowing the government to further reduce prices within strategically sourced solutions, as well as other contract vehicles. Contractors are required 

to report transactional data on all program sales. For the first 

time, this level of financial information collection provides us with 

a clear picture of agency spending behavior. 

Strategic sourcing also dramatically reduces agency contracting 

cycle times and duplication, saving additional administrative burden and costs. Based on an analysis of average contracting timeframes for more than 15 agencies, we found that using GSA’s 

schedules is up to 50 percent faster for an agency than pursuing 

their own often duplicative solution. Strategic sourcing is able to 

eliminate the significant amount of time and money wasted 

through thousands of duplicative contracts across the government. 
9 

For instance, our work on strategic sourcing allowed us to replace the more than 4,000 wireless agreements and 800 wireless 

plans that are currently scattered across agencies with a single 

contract structure with four providers. Significant progress is being 

made by both GSA and other agencies to eliminate this duplication, 

but there is still more we can do to streamline purchasing, improve 

service, and pursue governmentwide contracting goals. 

Over the next 2 years, in coordination with the Office of Management and Budget, GSA will create 10 new governmentwide strategic sourcing contracts for a range of products and services commonly purchased by Federal agencies. GSA is working toward establishing strategic sourcing solutions for fiscal year 2013, in the 

areas of large desktop publisher software; print management phase 

two; maintenance, repair, and operation supplies; and janitorial 

and sanitation supplies. 

These efforts, similar to the solutions for office supplies and delivery services, will save hundreds of millions in taxpayer dollars 

and deliver the best value to agency customers. For these solutions, 

vendors will provide detailed data on pricing and usage that allows 

us to drive even greater savings for agencies. 

In addition, we are working with agencies to show them the savings that they are leaving on the table by not using strategic 

sourcing. This pricing data has allowed us to negotiate even greater savings from our vendors. GSA estimates the potential savings 

from strategic sourcing at a billion dollars annually when all 10 solutions are in place and agencies are fully participating. 

A key element to our success is that these solutions are being 

created by the agencies with a cross-governmental team of acquisition professionals and experts drafting the requests for proposals, 

evaluating the solutions, and helping us to implement the solutions 

in their agencies. The team decides what products will go into the 

solution, what services they may require, and which vendors we 

will select to provide us with these products and services. 

We are fortunate to have an outstanding new Commissioner of 

the Federal Acquisition Service (FAS) to support strategic sourcing 

in Tom Sharpe. Tom has almost 30 years of experience in both the 

private and public sectors as an acquisition leader. His years as 

both a vendor and a customer give our agency a unique understanding of the needs of everyone involved in the procurement 

process. I am confident he has the skills and dedication to guide 

strategic sourcing moving forward. 

We are also focused on increasing agency participation in these 

contract vehicles. In order to help partner agencies achieve greater 

savings for the taxpayer, I have been meeting with agency Secretaries and Deputy Secretaries to discuss ways in which we can collaborate. Among the topics I have been discussing with them is an 

analysis of each agency’s use of schedules and opportunities to expand and improve cooperation. 

We show the agencies that using GSA schedules is up to 50 percent faster than creating their own contracts, which translates into 

millions of dollars saved in time and labor. We also show them that 

GSA schedules are an excellent opportunity to increase their small 

business participation. 
10 

1The prepared statement of Ms. Chaplain appears in the Appendix on page 50. 

At the same time, we are working with program and acquisition 

staff from agencies across government to understand their concerns 

about using GSA services so that we can better tailor the schedules 

to their needs and show them the vast array of procurement solutions our agency has to offer. 

In the months ahead, GSA will continue to drive savings, streamline agency procurement operations, and deliver the best value for 

our partner agencies and the American people. As part of this 

broad commitment to savings and efficiency, GSA will continue to 

be a leader in developing and implementing strategic sourcing solutions. 

In fact, it was an early attempt to leverage the scale and scope 

of the Federal Government through strategic sourcing that led to 

the creation of GSA. Our Federal Acquisition Service exists exclusively to aggregate the demand and purchases of the Federal Government to get the best value in price. In that sense, we kind of 

are the strategic sourcing agency of the Federal Government. 

I appreciate the opportunity to be here today and am happy to 

answer any questions you might have. Thank you. 

Chairman CARPER. Thanks so much, Dan. Ms. Chaplain, please 

proceed. Welcome. 

TESTIMONY OF CRISTINA T. CHAPLAIN,1 DIRECTOR, ACQUISITION AND SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. CHAPLAIN. Chairman Carper, Ranking Member Coburn, and 

Members of the Committee, thank you for inviting me today to discuss strategic sourcing in the Federal procurement arena. I think 

your openings covered much of what I wanted to say in my opening, so I am going to just emphasize a few points. 

First, what do leading companies do? We have reported that commercial firms have saved 10 percent or more by leveraging bulk 

purchasing power to negotiate savings on goods and services. They 

subject 90 percent of what they buy to strategic sourcing practices. 

By contrast, as you have noted, the government’s strategically 

sourcing about 5 percent. 

That is the key to large savings, a modest reduction across a 

wide base of purchases. To do so, companies analyze suppliers, the 

number of contracts, and prices paid across the company to identify 

inefficiencies such as paying different prices for similar services, or 

not consolidating purchases across the company to lower prices. 

Monolithic procurement organizations are not needed to be successful, but rather, a focus on leadership, shared data, ongoing 

analysis of spending areas, and accountability. I would also note 

that leading companies just do not view strategic sourcing as bulk 

buying. There are many things you can do to services and goods 

that are more complex that can get better prices and be smarter 

buying. They just may be not be bulk, but they can take you to a 

much better place for the company. 

When Federal agencies do apply strategic sourcing initiatives, 

they show they can also save on the order of 10 percent or more. 

The problem is, as you said, agencies tend to focus on low-hanging 
11 

fruit, that is, commodity-like products such as office supplies. Unlike the private sector, this approach produces small savings because higher spending categories are being ignored. 

There are many opportunities to expand the use of strategic 

sourcing in the Federal arena. Our reports on duplication, overlap, 

and the fragmentation across the government in recent years, for 

example, have pointed out numerous instances where the government buys goods and services in a fragmented fashion with little 

insight into how purchases are taking place, little action to standardize or make requirements less complex, and little thought to 

leveraging buying power. 

These include, just as examples, combat uniforms, foreign language services, geospatial data investments, electronic warfare systems and payloads, rocket launch services, unmanned aerial vehicles (UAV), information technology, among others. Moreover, we 

have recently reported that buying is fragmented for DOD professional health care initiatives, satellite ground stations, and DOD 

airships. 

This does not mean that these goods and services can be easily 

commodotized and bought in bulk, but it does mean, as I said earlier, there are opportunities to buy them more strategically, to centralize procurement knowledge, to act as one buyer instead of 

many, to simplify requirements to increase competition, to gain 

more insight into cost drivers and market trends so the government is in a better negotiating position. 

Our work has identified barriers to wider use of strategic 

sourcing practices. These include difficulty collecting and analyzing 

data, garnering leadership support and resources, a reluctance to 

give up control over spending, and a hesitancy to apply the approach to more sophisticated services which now comprise a large 

share of Federal contract spending. 

It has been over 10 years since the Government Accountability 

Office first reported on the potential savings offered by strategic 

sourcing techniques; yet, agencies have made far too little progress. 

Recent actions taken by OMB and others to improve Federal agency use of strategic sourcing are promising, but given progress to 

date, more accountability, leadership, and oversight is needed. The 

Congress can play an important role in this regard. 

This concludes my statement and I am happy to answer any 

questions you have. 

Chairman CARPER. Ms. Chaplain, thanks. Thanks very much for 

joining us. Thanks for your testimony. We are joined by Senator 

McCaskill. Nice to see you, Claire. 

Let me start with a question or two for you, Ms. Chaplain, if we 

could. When I think of the Federal budget, total Federal spending, 

I think of about 50 to 55, maybe 60 percent is for entitlements. Another roughly, we will say 10, maybe 15 percent is for interest. I 

think we have about 30 percent of our overall spending that goes 

for discretionary spending. About half of that is for defense, half of 

that 30 percent is for non-defense discretionary. 

How realistic is it for us to be able to go to the entitlement part 

of our budget—which really is over half of our budget now and 

growing, and interest, when you put them together, they are about 

two-thirds of our spending. How realistic is it for us to be able to 
12 

apply strategic sourcing and realized savings out of roughly twothirds of our budget, entitlements and interest? 

Ms. CHAPLAIN. I do not believe our work is saying it should be 

pointed to those areas. It is concentrating on discretionary spending. What we believe is that it should be applied to more complex 

services and goods, and just services, for example, are half of our 

acquisition spending dollars, which is over $500 billion total. 

From there, we think it is realistic that they can be applied to 

things, even like technical types of services, program management 

support, administrative support, health care support. There are a 

lot of services within that discretionary budget that strategic 

sourcing is not being applied. There are a lot of very complex goods 

that it is not being applied. 

When you think of strategic sourcing, the automatic assumption 

is, it does mean bulk buying and leverage buying and then people 

stop at things like weapon systems, but there are things you can 

do in that path to apply strategic sourcing. 

Chairman CARPER. We have a big Air Force base in Dover. We 

have an airlift base. We have C–17s and C–5s. The Air Force is 

modernizing all the C–5Bs and we are trying most of the C–5As, 

but Dr. Coburn and I have had a hearing or two on C–5 modernization. 

One of the things that we learned is, in negotiating with, in this 

case, Lockheed and a lot of subcontractors, in negotiating with 

them, if the government actually sticks to the negotiated procurement schedule in terms of rehabbing and overhauling the aircraft, 

modernizing the aircraft, we get a certain price, and it may be the 

number of six, seven, eight aircraft a year. 

If we end up funding one, two, three, or four, it is impossible for 

Lockheed and whoever they are working with to be able to do the 

work at the agreed-to price. And I think we have provisions in our 

contract with them to be able to move away from the negotiated 

position. 

So part of the obligation for us in the Congress is to make sure 

that we fund in a responsible way the weapon systems that we 

have agreed, in this case to modernize, to procure. It is kind of difficult sometimes because the nature of the threat to our country 

changes. So there are things that we can do on our side in terms 

of better ensuring that we move toward strategic sourcing. 

One of those is what we are doing today, and that is oversight 

hearings, and to continue to put a spotlight on the agencies that 

are doing a pretty good job, the ones that are actually moving in 

the right direction, and, frankly, those that are not. 

Give us some idea of what more we can do on the legislative side 

to make sure that we do not leave all this money on the table. 

There is a lot of money left on the table. It may not be 90 percent, 

80 percent, or 70 percent that they reach in some of the larger private companies, but there is real money on the table. We are making some progress and I appreciate the efforts that are described 

here today, but what more can we do to expedite that and move 

forward with greater speed? 

Ms. CHAPLAIN. I think from our point of view, what is really 

needed is more oversight, more pressure. Agencies have been moving, but the pace has been slow. So Congress can start by even just 
13 

holding more oversight hearings, exploring the issue further, and 

pressuring agencies. There could be legislation that actually requires the government to set governmentwide goals for strategic 

sourcing. There are none right now. Goals could be tailored by 

agencies as well. 

There could also be goals separated not just in terms of how 

much we should strategically source, but what savings we hope to 

get. And then from there, you can break things down in terms of 

what should be done at the agency level. Should they have accountable officials? What should their responsibilities be? That is something you can ask the executive agencies to do. 

Chairman CARPER. Dr. Coburn and I, and I think others on the 

Committee, are admirers of our new OMB Director. She called us 

both a week or two ago and told us that the Administration is 

about to write a rule out there in their management agenda. And 

she was good enough to ask us what we thought—how should we 

interact between the Legislative and Executive Branch to better 

ensure that was a robust agenda and it was actually going to be 

pursued and implemented. 

This is a great area to highlight in terms of the management 

agenda. Let me just ask Mr. Jordan, to what extent has the Administration rolled out their management agenda? Where does strategic sourcing fit in? 

Mr. JORDAN. Front and center. It is absolutely going to be intricately involved in any management agenda, roll out and execution 

efforts. Obviously, Director Burwell and the President and the 

team have begun the process in a very public fashion of developing 

the management agenda and, as you said, want to reach out to all 

stakeholders to make sure that we get the best ideas. 

But I am quite confident that strategic sourcing and furthering 

the good progress that we have already made will be at the top of 

the list of things that you will see highlighted in any management 

agenda. 

Chairman CARPER. We currently do not have a Deputy Director 

for Management at OMB, as you know, and I understand that the 

Administration is vetting somebody and we are hopeful that vetting will be concluded soon, if not already, and that we will have 

the name of a nominee to consider here. 

How will that person, very senior person, within OMB, the Deputy Director for Management, how will that person interface with 

this particular issue of strategic sourcing? 

Mr. JORDAN. In a number of ways. Most personally to me, they 

will be my boss, so they will be the ones lighting the fire, continuing to light the fire under me, as Chair of the Strategic 

Sourcing Leadership Council and Administration for Federal Procurement Policy, to make sure that we are delivering on the promise that strategic sourcing has shown in terms of—— 

Chairman CARPER. So maybe when we have that hearing for that 

nominee, this is something that we should turn to—to make sure 

she is lighting that fire, he is lighting that fire? 

Mr. JORDAN. I leave all nominee-related questions to you, Mr. 

Chairman. 

Chairman CARPER. All right. Let me ask, Mr. Tangherlini, let me 

just stop there. I will telegraph my next question that I want to 
14 

ask you when we come back, when it is my turn again to talk. 

Where are some good examples, some good models, whether they 

are in the private sector or in the public sector, maybe the nonprofit community, that we can look to for good practices that might 

be exportable that we could use as a model for ourselves? With 

that, Dr. Coburn. 

Senator COBURN. Mr. Jordan, have you issued guidelines on how 

we measure savings in terms of strategic sourcing? 

Mr. JORDAN. Sir, we did issue guidance on December 6. We 

issued an OMB memorandum signed by Jeff Zients that created 

the Strategic Sourcing Leadership Council. 

Senator COBURN. No, I understand that. I am asking you a specific question. 

Mr. JORDAN. Sure. 

Senator COBURN. Have you issued guidelines to the agencies on 

how they will measure the savings from strategic sourcing purchasing? 

Mr. JORDAN. No, because the—— 

Senator COBURN. OK. The answer is no. So the point is, here is 

my question to you. 

Mr. JORDAN. Sure. 

Senator COBURN. How do you know what your savings are? Because every agency is actually measuring that different according 

to what we have looked at. 

Mr. JORDAN. Well, actually, for the Federal Strategic Sourcing 

Initiative vehicles, the governmentwide vehicles, that the Strategic 

Sourcing Leadership Council creates and GSA, in many cases, runs 

point on, we have a savings methodology by the category. One of 

the complicating factors is, the drivers of cost, and therefore the 

drivers of savings, are different depending on what you are buying. 

So for domestic shipping services, we have a savings methodology 

and that is how we arrived at some of the savings figures early. 

Same thing for office supplies, wireless as we roll that out, print 

management, et cetera. So we found that it is critically important 

to make sure that we are measuring savings in a consistent way 

for these governmentwide vehicles, but we want to leave it to the 

commodity teams to come up with how to do that. 

And then in terms of the agency-specific efforts, which were a big 

piece of this as well, you are absolutely right, that one of our big 

challenges is to continue to drive standardization in the way agencies are calculating the savings. The challenge there is, there are 

broad questions about how exactly you capture strategic sourcing 

savings. I did this in the private sector and I know they struggle 

with the same things. 

GAO’s report said for services, the private sector companies they 

talked to saved between 4 and 15 percent, but they specifically 

said, that is 4 and 15 percent in the first year versus what they 

had spent the year before. What do you do in year two? And do you 

measure versus a base year? Do you measure versus just the prior 

year? How do we appropriately capture the savings over time is a 

complicated question and we care deeply about this. 

You are absolutely right. I still remain firmly committed to datadriven analysis, but first we need a collective agreement on what 
15 

are some thorny issues in the methodology. And second, we need 

the data, which is why a prices-paid portal is so important. 

Senator COBURN. So when are the agencies going to see the 

guidelines with which to make the reporting requirements to you? 

I am an accountant by my first training and these are not hard 

concepts to me. There are facts, there are assumptions. If they are 

going to allocate savings a certain way, they ought to have to footnote what the assumption was when they did it. 

But with an absence of guidelines, you do not know that your 

data is right. And that is our problem in the Federal Government. 

And my big disappointment is, there have not been guidelines 

issued so that we have a uniform and consistent way in which we 

measure what the real savings are. How do you calculate the labor 

saved? It is not hard to calculate the price differential, that is the 

easy part. So that would be one thing that I am interested in. 

One of the other things in reading and preparing for this hearing 

that is a real contrast to me versus I see what you all are doing 

and what GSA is doing, is business does not go for the low-hanging 

fruit first. They go where the money is, where the biggest money 

is. And so, you all have done a very good job in starting this. I am 

not critical of that. I think the effort, it has not been there before 

and I congratulate you that it is there. 

But when you look at contracts, and this Committee has looked 

at a lot of contracts, especially IT contracts and Defense procurement contracts, we actually know on the C–5s that we could have 

actually bought the engines for a million dollars less had we placed 

an order for them. Nobody in the government ever called GE and 

asked them before I did. 

So the point is, is the businesses that we have talked to, and my 

staff have talked to, they go where the biggest dollars are first, regardless of how hard it is. That is where the biggest savings are. 

And so, if we can go from 4 to 15 percent somewhere, we have $500 

billion, 15 percent of that is $75 billion. We ought to be going 

where the big money is while you do this other area. 

I would just be interested in, where are you on that in terms of 

contracts and trying to get strategic sourcing on contracts, whether 

it be information systems or other categories. No matter what it is, 

where are we in terms of looking at the service contracts, over $300 

billion a year? 

Mr. JORDAN. Sure. So I would disaggregate strategic sourcing 

into three buckets. The first is the Federal Strategic Sourcing Initiative, which is where a lot of the focus gets placed because it is 

a more formal governmentwide effort, and that is where you see 

things like office supplies, domestic delivery, wireless, things as 

you correctly said are a little bit lower on the complexity or value 

chain. We want to prove those efforts. We want to make sure we 

can deliver on standardized requirements, agency needs, and the 

savings. 

Then there is strategic sourcing which can be done at an agencywide level and that is where you begin to look at some of the efforts 

that DHS has done, Commerce, others that have looked absolutely 

at the IT items that you referenced in ways that you can really 

drive either volume-based discounting or just general buying 

smarter. 
16 

Then there is the third bucket, which is applying strategic 

sourcing principles to categories that you would not strategically 

source overall like the top category of goods and services we buy, 

fixed-wing aircraft. We are probably not going to just do a bulk 

rate discount, but there are a number of these commodity management principles that we are working with DOD and others to 

apply. 

So we set up the Strategic Sourcing Leadership Council to vet 

and agree on and surface the opportunities for governmentwide 

strategic sourcing, but then every agency now has to have, and 

does have, a strategic sourcing accountable official so that we can 

tie all of these things together. 

So I absolutely agree that you want to go where the dollars are, 

but at the same time, since we are in a crawl-walk-run progression 

and we are much more in walk than run at this point, we want 

to continue to prove the value to all the agencies so that we can 

build the momentum initiative by initiative and continue to improve. 

Senator COBURN. Well, we are 8 years into this. I will just give 

you a little tidbit of information. I asked the head of Lockheed that 

if we placed the order for a fixed number over a period of 10 years 

of F–35s, what would the discount be? He shook my hand and said, 

I will give you 15 percent off. Nobody had ever asked him that 

question. Nobody at the Pentagon, nobody in the Administration, 

nobody ever anywhere had asked that question. 

Now, he is no longer head of Lockheed. I do not know if it is because he answered that question or not, but the fact is, being able 

to get a reliable flow of information, is good for suppliers as well 

as good for us. We will come back and talk about that further. 

Chairman CARPER. Senator Johnson, you are next and then Senator McCaskill. 

OPENING STATEMENT OF SENATOR JOHNSON 

Senator JOHNSON. Thank you, Mr. Chairman, and thank you all 

for your testimony. I came from the business world. I was in business for 31 years. I think strategic purchasing has been around certainly all the years I was in business. How long have we been trying to do this in the Federal Government? How many different initiatives has the Federal Government tried to undertake to do strategic purchasing? Mr. Jordan. 

Mr. JORDAN. I do not know that I have a comprehensive figure, 

but I know that 2005 was the first memo that seemed to kickstart 

the effort in earnest. But certainly, it has felt like there is a significant reinvigoration since our December 6 memo and some of the 

Federal Strategic Sourcing Initiative (FSSI). 

Senator JOHNSON. I am getting another answer here. 

Senator COBURN. It is the Grace Commission. 

Senator JOHNSON. OK. So the question is, why have we not progressed any further in the Grace Commission, which was the 

1980s, right? 

Senator COBURN. Yes. 

Senator JOHNSON. I was in business starting in 1979. Ms. Chaplain, you are exactly right. It is about information, it is about data, 

it is about accountability, but let me throw another word out there, 
17 

incentives. Why does business do it? Because business has to make 

a profit. Now, every business manager that is undergoing this strategic purchasing does not necessarily have that profit motive, but 

they are being driven by the profit motive because their manager 

is telling them, your budget has just been cut by 10 percent. 

So that would be the question I have for you. How can we instill 

an incentive into a government bureaucracy to actually start accomplishing some of this stuff, which should have truthfully been 

accomplished and implemented decades ago? Mr. Jordan. 

Mr. JORDAN. Senator, I absolutely think you hit the nail on the 

head with the incentive challenge, and having done this in the private sector and engaged the President’s Management Advisory 

Board, private sector Chief Executive Officers (CEOs) on this question, it all comes down to, how do we align the incentives with the 

behaviors we want to drive. 

So what are we doing on that absent a profit motive that exists 

in the private sector? 

Senator JOHNSON. Well, I will tell you one thing we are doing, 

sequester. That is a kind of incentive, is it not? And it has not been 

utilized properly. What we have done is, rather than utilize sequester as an incentive to actually get in here and do what makes sense 

in terms of reining in government spending, we scream about it 

and we try and create the most pain for it, or from it. I am sorry 

I interrupted you. 

Mr. JORDAN. But what are we doing on incentives, which was 

your original question. And one of the big things is shining a light, 

increasing the transparency, something Dr. Coburn and I talked 

about before I was confirmed, and we are creating a prices-paid 

portal because what you can do is show how much we are paying, 

different agencies, different contracting officers are paying—— 

Senator JOHNSON. That is absolutely vital, correct. 

Mr. JORDAN. And then that will help what we have seen over 

and over again in the private sector that helps drive the behavior 

to the smarter buying techniques and the lower cost option. So that 

is what we are trying to do, is use a combination of our own guidance, my bully pulpit and transparency to drive these behaviors. 

Senator JOHNSON. I just want to suggest, I have sat through 

enough hearings now in 21⁄2 years of how do you reform government. I hear methodology, I hear bureaucratic gobbly gook and it 

has not worked in 25, 30 years. I do not see that it is going to work 

in the next 5 years either. We have actually got to provide real 

strong incentives. 

Ms. Chaplain, what is the resistance on the part of agencies? 

Why are they not taking a look at the information and looking at 

a best practice and trying to trim their budgets utilizing these tried 

and true techniques from the private sector? 

Ms. CHAPLAIN. There are some negative incentives. If they do 

claim savings, they might get their savings taken away from them. 

Senator JOHNSON. They are budget cut. 

Ms. CHAPLAIN. Yes. 

Senator JOHNSON. And they do not want to do that. 

Ms. CHAPLAIN. Right. 

Senator JOHNSON. So really, the incentive in government is failure actually pays off in government, does it not? 
18 

Ms. CHAPLAIN. Exactly. 

Senator JOHNSON. OK. 

Ms. CHAPLAIN. There is also a resistance just to lose control over 

spending. That was told to us a number of times. When you talk 

about incentives, DHS did put incentives in the Senior Executive 

Service (SES) contracts to use strategic sourcing, and they are an 

agency that is ahead of others. They have about 20 percent of their 

spending going through strategic sourcing. And the leading companies likewise put incentives into executive contracts. That is the 

best way to get people to behave and overcome these perceptions. 

Senator JOHNSON. But in terms of—talking about incentives, are 

you talking about incentives to the suppliers? Are you talking 

about incentives to the managers who are actually making the decisions to purchase? 

Ms. CHAPLAIN. Both. So for managers who are responsible for 

spending, acquiring stuff for a company, have incentives in their 

contracts to use strategic sourcing techniques, to follow the vehicles 

that the company has in place. 

Senator JOHNSON. So give me an example of the incentive for an 

SES manager that is in place? 

Ms. CHAPLAIN. I would say probably for DHS, it is to use one of 

their strategic sourcing vehicles to do their procurements versus 

doing the procurements on their own. There would be incentives in 

place for that. 

Senator JOHNSON. But what kind of incentives? Are we talking 

financial incentives in terms of pay, merit based pay or they will 

just get a commendation in their employee file? 

Ms. CHAPLAIN. Yes, it is probably part of their bonus calculation, 

is what I am assuming. 

Senator JOHNSON. So those have not really worked that well 

then. Would that be your conclusion? Do you really think that is 

as good an incentive as what the private sector realizes when 

it—— 

Ms. CHAPLAIN. If you look at bonuses in the government, they 

are not comparable to the private sector, but for DHS, it does have 

better performance on strategic sourcing, so I would have to imagine their incentives at least are there in an SES contract. In the 

private sector world, the incentives might be more meaningful 

monetary-wise. And if you do not do it, what happens? I think the 

incentives there are more real. 

Senator JOHNSON. OK. So again, I am not trying to beat up on 

the witnesses here. I am just trying to point out the futility—and 

we are seeing it. We have witnessed the futility over decades of trying to do this methodology when what we need is we need strong 

incentives, and they are financial incentives, either in pay or in 

budget cuts to actually start implementing this. 

Mr. Tangherlini, what are the criteria that you are using in 

terms of targeting the priorities for these types of purchasing strategies? 

Mr. TANGHERLINI. So we are participating in the Strategic 

Sourcing Leadership Council and bringing the agencies together 

and trying to identify opportunities where there are lots of overlap 

between what the agencies are buying and seeing opportunities 

that perhaps if we buy together, such as wireless service, basic 
19 

simple things, that we can begin to build a track record that allows 

us then to graduate into the more complicated things, as Ms. Chaplain was talking about. 

Senator JOHNSON. OK. In case I do not have a second round, I 

do want to throw a cautionary tale about the risk to the supplier 

base. I think these things work great when you have a large supplier base. I think you need to be very careful when you have a 

very limited supplier base, because I have seen it in business 

where you basically ratcheted that thing down so you have a monopoly buyer. But then pretty soon you end up with a monopoly 

provider as well. So that is something that you need to be careful 

of. Thank you, Mr. Chairman. 

Chairman CARPER. And I am planning to have a second round, 

and if you want to stick around, you are more than welcome to participate in it. Senator McCaskill, welcome. 

OPENING STATEMENT OF SENATOR MCCASKILL 

Senator MCCASKILL. Thank you, Mr. Chairman. The Contracting 

Subcommittee that I have worked on the last several years had a 

hearing on this subject matter in 2010, and I am sure that some 

of you have had a chance to look at some of what we did in that 

hearing. 

One of the things that I was shocked to learn was this bizarre 

thing we have in the Federal Government where one agency sells 

to another agency and makes money off of it, which is weird. I 

mean, why is one Federal agency making money off selling stuff to 

another Federal agency? Why are they not all buying out of the 

same contract and paying less money? 

Is that still as common as it was when we did our hearing back 

in 2010? 

Mr. JORDAN. I think agencies buying on behalf of other agencies 

and assisting in the acquisition and therefore—because there is administrative costs to procuring a good, overseeing the contract, et 

cetera, taking a small percentage for that service is something that 

happens. But selling—— 

Senator MCCASKILL. But we found, Mr. Jordan, that they were 

advertising. One agency was saying, ‘‘Hey, buy from us,’’ because 

they were depending on—I mean, it was interesting because it was 

like a business model within the government where one agency was 

out hawking, ‘‘Buy your stuff from us,’’ ‘‘Go through us for your 

contracts,’’ ‘‘Hire your consultant to help you with your contracting 

testimony at the contracting hearing through our contracting consultant vehicle.’’ It was bizarre. 

Mr. JORDAN. I think one of the things, too, that has happened 

since then, which shows a lot of the strides we have made in interagency contracting is interagency contracting itself was on the 

GAO’s high risk list at that time. 

This year it was removed from GAO’s high risk list. So that 

shows that a lot of these things of who is in charge of managing 

the procurement of that goods and services, the oversight, and the 

shared responsibility between the acquisition center and the user 

needs to be robust, and we feel like we have addressed a number 

of those things. And thankfully, GAO agrees and it has really 

helped promote the right type of interagency acquisition. 
20 

Senator Coburn [Presiding]. Would the Senator from Missouri 

yield for a second? 

Senator MCCASKILL. Sure. 

Senator COBURN. In the evening driving home—I listen to 

WTOP. Have you ever listened to the advertisements for contractor 

services on there? And how many purchasing people we must have 

in the Federal Government when they are going to spend that kind 

of dollars time after time after time to try to sell their product to 

somebody, rather than it going through a process? In other words, 

they are advertising directly to the purchasing person that is listening to that radio show hoping to sell, not on price, but on service. 

Senator MCCASKILL. Let me also, Ms. Chaplain, I wish that you 

had data that would show that there has been some impact on performance bonuses from something like using strategic sourcing contracts. But our investigation showed, and I know Mr. Tangherlini 

has done a very good job of stopping this, but honestly, Senior Executive Service bonuses, are like the sun coming up in the morning. 

I mean, there really were very few Senior Executive Service people 

that did not see their bonus as a right, an entitlement no matter 

what. 

I mean, we had a witness in front of one our hearings that basically was not completely truthful about something. Guess what she 

got that year. She got her performance bonus. I mean, it was ridiculous! And so, I have a hard time believing, when we looked, that 

the vast majority of them were just getting them. There was not 

really any analysis going on. 

So if there are incentives, I would really appreciate you getting 

back to us and telling us what they are, because I think everybody 

was getting the bonuses. And if I am wrong about that, I would 

like the data to show us that we are wrong about that, because 

that has been the common thing in the Federal Government. If you 

are SES, you get a five-figure bonus, no matter what. 

Ms. CHAPLAIN. We can provide you data on what we know about 

the DHS incentives. We did not explore the actual results of those 

incentives, nor have we done anything governmentwide with respect to that yet. 

Senator MCCASKILL. It would be great because, I mean, Senator 

Johnson is right. Until we incentivize this behavior, the incentive 

is to buy a lot at the end of the year so it looks like your budget 

is tight. The incentive is to not save money because then the money 

you have saved might go to another agency. 

It is a counter-incentive and we have to figure out a way to clean 

that up, because until we have the right incentives in place, it is 

a little bit like the delivery of health care. Until we have the right 

incentives in place, we are not going to really ever do anything 

other than what they have, with all due respect, I know you guys 

are doing better, but there are still a lot of councils. It is still a 

lot of hemming and hawing about guidance. It is still a lot of, ‘‘Hey, 

there is a new sheriff in town and you are going to strategically 

source what you buy,’’ period. I mean, that is what we need to be 

saying on this stuff. 

On food contracts, we also discovered pretty outrageous stuff on 

food contracts in terms of rebates. And basically, I would like to 
21 

find out—when I sent Mr. Zients a letter in December of last year 

on the rebates the government is failing to collect from food service 

contracts, you stated that you recently met with key industry 

stakeholders to discuss food service contracts and see if we cannot 

increase transparency in the supply chain and recover some of that 

money that they are enriching themselves, I think, unjustly at taxpayer expense. 

What came out of those meetings, Mr. Jordan, and what kind of 

good news can you tell me on food contracts? 

Mr. JORDAN. Sure. So as you said, after you wrote the letter to 

Acting Administrator Zients, which brought it to our attention, I 

convened the industry stakeholders so I could get their perspective 

on what was going on, then made sure to respond promptly. 

But since even sending that letter, we convened DOD, VA, and 

the U.S. Department of Agriculture (USDA) and they are now 

forming a team under the Strategic Sourcing Leadership Council to 

baseline their spends, compare their contracts, the rebates that you 

focused on, rightfully, in that letter, and determine what the right 

path for it is. 

So they have identified team members already and plan to meet 

in the next 2 or 3 weeks on the SSLC task force. So we did bring 

it under this management structure so that we could make sure to 

capture any savings that were available. 

Senator MCCASKILL. Do you think that there will be a governmentwide policy on rebates for food service contracts? 

Mr. JORDAN. It is too early for me to say what the terms and conditions of the Strategic Sourcing Leadership Council solution will 

be, but I can absolutely keep you and your staff up to speed as it 

progresses through the process, yes. 

Senator MCCASKILL. So what do you think, 6 months, 2 months? 

Can you give us any kind of—I would like, kind of, to hold your 

feet to the fire on this. 

Mr. JORDAN. Sure. Can I—— 

Senator MCCASKILL. I am sure you are not surprised at that. 

Mr. JORDAN. No, ma’am. Can I followup in, say, 2 or 3 weeks 

with what the path forward looks like after they have had a chance 

to meet? 

Senator MCCASKILL. I would like a timeline so we can have some 

accountability, and I want you all to feel like you are under the 

deadline of some timelines, because there is real money there and 

it is outrageous when you really get in the weeds and look at what 

is going on with these food contracts. Thank you, Mr. Chairman. 

Chairman Carper [Presiding]. You bet. Thank you, Senator 

McCaskill. 

I told you earlier that I telegraphed my pitch and said I would 

come back and just ask, what are some good models for us to look 

to, to see who we might emulate? Could be within the Federal Government, maybe in other parts of the public sector. Could be States 

that are doing an especially good job at this kind of thing. Could 

be in the non-profit world, I suppose. 

But what are some good role models for us that we might actually look to and figure out how do we export that to the Federal 

Government? Please. 
22 

Mr. JORDAN. Well, so I have worked with private sector and now 

certainly public sector, non-profits, sports league who have all engaged in strategic sourcing efforts and I thought that GAO did 

quite a good job in highlighting certain private sector entities that 

have strategic sourcing at the forefront of their supply chain management strategy and really their profit strategy overall. 

Wal-Mart was one of the companies called down. Of course, my 

new boss, who you spoke favorably of earlier, comes from there and 

has a passion for strategic sourcing and furthering and amplifying 

the efforts that we have undertaken. Some of the other companies 

that are on the list are ones that I have worked with. The President’s Management Advisory Board, we did site visits with a few 

of their companies that have had success in this area. 

And there are agencies such as Homeland Security and others 

that Ms. Chaplain highlighted and the report highlights that have 

had great success here. But I think because each commodity category is a little bit different and the scale of the government’s buying, which is why this is so important, is so different where different agencies coming together is not like one company bringing 

itself together. 

It is like bringing all of these Fortune 500 companies together. 

That is why there is so much potential for it, but also why there 

are some unique complexities about our spend, and the Strategic 

Sourcing Leadership Council having these folks decide collectively 

and then we go forward on a unified path will be so important. So 

there are a number of places we are pulling best practices from. 

Chairman CARPER. Good. Mr. Tangherlini. 

Mr. TANGHERLINI. I would just add to what Joe said, that as part 

of our top-to-bottom review of the General Services Administration, 

we went and talked to private sector entities. We talked to a number of IT firms in Silicon Valley and, as the GAO pointed out in 

their very helpful report, the focus is less on the specific contract 

actions and more about contract planning and goals for savings. 

If we can get to the point where we can actually get sufficient 

agency information around what they are going to buy, how they 

plan to buy it, we can begin to overlap that with other agencies, 

begin to develop a plan. We can begin to set goals for savings that 

we can then work to attain and even move into performance plans 

for executives. 

So I think the real trick is, how do we begin to develop enough 

success in this area that agencies want to sign on, that they can 

begin to focus on those outcomes, and how can we begin to actually 

describe the savings we can generate for them. 

Chairman CARPER. All right. Ms. Chaplain, same question. 

Ms. CHAPLAIN. Some of the other companies not mentioned yet 

included Dell, Delphi, Pfizer. All were good examples. Also, as mentioned earlier, DHS has more dollars going toward strategic 

sourcing. They are getting very good savings. 

Chairman CARPER. What did you tell us, 20 percent? 

Ms. CHAPLAIN. Yes, 20 percent. 

Chairman CARPER. As compared to? 

Ms. CHAPLAIN. Five percent or less. 

Chairman CARPER. Why do you suppose they are four times the 

average? 
23 

Ms. CHAPLAIN. They are dedicated to it more. There is more leadership there. There are some incentives trying to be put in place. 

And they have more centralized procurement for strategic sourcing. 

You can look at DOD and look at the Defense Logistics Agency 

(DLA), which by its nature is sort of the bulk buyer for the Defense 

Department and they buy everything from fuels to food to uniforms 

to kind of complex components, and they have been doing it for a 

long time. 

They categorized about 40 percent of their spending as strategic 

sourcing, but it could be well that they are not defining some 

things as strategic sourcing that really are. I think that agency is 

worth looking at more in terms of how do they do it. They have 

been doing it for a while. Whether they employ the full range of 

techniques is another question, but they seem to me to have been 

successful at doing this for a little while. 

Chairman CARPER. I understand they buy a lot of bullets over at 

the Department of Homeland Security. Are they getting a good 

price for those bullets? 

Ms. CHAPLAIN. I have not looked into that issue, but I know it 

is a popular topic. 

Chairman CARPER. Anybody know? I have heard that they get 

pretty deep discounts. They should be because they are buying 

quite a few. When you look at the private sector, companies, they 

can tell their managers, You have to use strategic sourcing and 

strategic purchasing, and they probably have a better ability to, as 

Senator Johnson was saying, talking about aligning the incentives. 

One option with respect to mandating that agencies use strategic 

sourcing would be not necessarily just to mandate that they use it, 

but to say, If you do not want to use it, you can opt out. If you 

want to opt out, you have to explain why, rather than just basically 

make it an opt in. Say, you have to opt out. 

And did somebody figure out how do we do actually, as Senator 

Johnson said, of better aligning the incentives for managers and for 

agencies that do that sort of thing? So be thinking out loud for me 

about the notion of opt out, saying, Agencies, we expect you to use 

strategic sourcing. If you feel that is not appropriate for some reason, tell us why, tell OMB why, or tell GSA why. Just react to that, 

if you would, for me. 

Mr. JORDAN. You know—— 

Chairman CARPER. Maybe that is too simple. 

Mr. JORDAN. Well, what I would say is, first of all, in the memo 

that OMB put out, it says right in the front section, to the extent 

practical, we are going to mandate the solutions, and I know that 

has been a topic of much consternation, so we are in constant back 

and forth dialogue with the small business community, the business community at large, and agencies. But it is certainly the spirit 

of some of these solutions. 

We have to stop buying as if we are 180 mid-sized businesses 

and buy like what we are, the largest procurer of goods and services in the world. So that is in the memo that is an underpinning 

of what we are doing. But then to your kind of more tactical question of how do you do this, how do you implement this? We have 

had conversations with your staff even as recently as last week of 

what are the things that we can do so that it gives agencies the 
24 

flexibility to opt out, as you say, but perhaps document the file or 

go through some process so that the default mechanism and the 

easiest mechanism, because it is the best mechanism is using the 

strategically sourced solution. 

Chairman CARPER. Anybody else before I yield to Dr. Coburn? 

Please. 

Mr. TANGHERLINI. Very quickly, I think that while GSA is no 

longer a mandatory source, I think our job now is, as we take a 

leadership position in certain ones of these strategically sourced efforts, to push up the quality and the nature of the data so that it 

makes it easier, frankly, for the agencies to opt in. They know what 

they are opting into, they know what the value of what they are 

getting is. 

Chairman CARPER. OK. Dr. Coburn. 

Senator COBURN. Mr. Tangherlini, you talked about goals for 

savings. Leadership is best modeled by example. Are you going to 

have performance goals, specific savings goals in the performance 

criteria plans for your senior executives at GSA? 

Mr. TANGHERLINI. Yes, we are. We are actually working on our 

performance plans right now, finishing them up for 2013 and devising a model for 2014. 

Senator COBURN. So there will be savings goals in there? 

Mr. TANGHERLINI. Small business participation goals, savings 

goals, that is what we are focused on so that we can demonstrate 

leadership in that area. 

Senator COBURN. Along that line, Mr. Jordan, does the OMB 

plan on setting savings targets for agencies? 

Mr. JORDAN. We did set savings targets through our cross-agency 

priority performance goals, so there is a capped goal on strategic 

sourcing, and it says, For each agency, through fiscal years 2013 

and 2014, you have to strategically source two commodities, at 

least one in IT. I think as we all agree, that is a commodity—IT 

is a place ripe for strategic sourcing. And each of those categories 

needs to show 10 percent savings or more. 

So that is a first step to get agencies comfortable with baselining 

savings, doing strategic sourcing, and tying that effort all together. 

Senator COBURN. And with that, you are going to eventually notice the requirements for how you measure the savings? 

Mr. JORDAN. That is right, and we are working closely with the 

budget side of OMB as well to make sure that agencies have the 

proper incentives throughout the process. 

Senator COBURN. Mr. Jordan, you all in OMB and the Leadership Council set out some goals in December 2012 for expanding 

into the new strategic sourcing areas. Did you meet those goals? If 

you did not, why? Why not? And when do you anticipate meeting 

those goals? 

Mr. JORDAN. Sure. So we are still in process toward the milestone dates by which we would meet those objectives, to stand up 

10 new solutions. We have partnered very closely with GSA, who 

has taken a real leadership role in executing a number of those, 

but also other agencies. So we have a number of categories that 

have already been stood up. 

Administrator Tangherlini talked about wireless. We have categories where request for proposals (RFPs) have gone out. The Li-
25 

brary of Congress is leading an effort around information services, 

subscriptions, which all agencies buy things like that, and then we 

have a number more where the commodity teams have benched up. 

So I feel very comfortable that we will have the number of solutions created and they will be best in class. 

Senator COBURN. What would you think—and any of you answer 

this—and I would be interested, Ms. Chaplain, in your response. 

One of the things you talked about was difficulty collecting and 

analyzing data. But we are at 5 percent versus private industry at 

90 percent. How much should we be and when? What is achievable? I mean, you can say, Tomorrow we are going to be at 90 percent. We all know that is not achievable. What is achievable? When 

we come back here next year, what should be an acceptable performance in terms of agencies and the implementation of this? 

Mr. JORDAN. I mean, I think in terms of overall addressable 

spend, the government is somewhere in the $100 to $150 billion out 

of that $500 that you talked about that can be strategically 

sourced. There are, as we have said, strategic sourcing principles 

that can be applied to almost everything, so we need to define our 

terms. But it is a smaller subset of where I think true strategic 

sourcing in the private sector context can take place. 

Senator COBURN. So $75 billion is what you are saying? 

Mr. JORDAN. In terms of addressable spend? I think over $100 

billion. And, savings will ramp up over time, but I would like to 

quickly be having a discussion with you and the Committee that 

we have now saved billions of dollars, and I think that is absolutely 

the expectation. 

Senator COBURN. An expectation that we have a set of guidelines 

on how we—— 

Mr. JORDAN. A defensible and agreed-upon set of metrics, yes. 

Senator COBURN. Mr. Tangherlini. 

Mr. TANGHERLINI. So as I said before, we are not a mandatory 

source, so our job is to figure out ways, working closely with the 

procurement community, to try to figure out those solutions that 

they will actually choose to use. Now, part of that is going to be 

getting great data out, the way we have with the office supply solution, using that as a feedback mechanism to drive down prices. 

In our most recent re-compete in office supplies, every vendor 

dropped their prices, and the range of prices collapsed substantially, and the overall cost was down about 13 percent. So what we 

are hoping we can do is demonstrate for agencies that by collaborating and by bringing our buying power together, we can get better data and we can get better prices and we can get better services, and that does not necessarily mean we have to have fewer 

small businesses or fewer opportunities for them. 

Again, in the office supply, we have seen the amount of small 

business participation actually go up. Why? Because they can move 

faster. They have a cheaper ability to deliver the services. They 

have less overhead. So this is an opportunity where we can actually get two things that we want to get done. 

Senator COBURN. Ms. Chaplain, did you want to comment on 

that? 

Ms. CHAPLAIN. Yes. I believe our report said the consensus was 

about $130 billion was achievable, and that is with kind of the 
26 

hard stuff taken out of that amount. So that is stuff that could be 

attacked pretty quickly. 

Senator COBURN. OK. Mr. Tangherlini, one other area that Senator Carper and I have worked on is real property reform, and we 

have a problem with the budget of the Federal Government because if you buy a building, you get it expensed against your agency in the year, which is stupid. No business does that. They amortize the cost over the life of the facility. 

Are there a lot of savings to be made in terms of space? In terms 

of strategic sourcing for space? I know there is in Oklahoma, because I have seen it, and you and I have had that discussion, and 

I have to assume there is throughout the rest of the country. 

Mr. TANGHERLINI. Well, at some level, GSA is the strategic 

source provider for space. We are a mandatory source in terms of 

leasing space. But as you pointed out, the lease versus own decision gets complicated by scoring rules, which—— 

Senator COBURN. But you would agree, if we did not have the 

stupid scoring rules that we have, nobody can lease a building in 

this country cheaper than they can own it when interest rates are 

where they are. Nobody can. So the fact is, it does not make sense 

that we are leasing all this space. Anybody that is building that 

building is making a return on investment or they would not be 

leasing it to you at that price. 

So the point is, is there not a large area where we spend hundreds and hundreds and hundreds of millions of dollars a year on 

leases, where we could not apply better models if we could change 

the accounting for it in terms of CBO and OMB? 

Mr. TANGHERLINI. So that the data will speak for itself. We have 

dramatically increased the amount of money we have spent on 

leases in the last 20 years. The amount of unpaid-for investment 

in the property has been growing as well in our own property. So 

I think that there are opportunities, as laid out by some of the legislation that this Committee has put forward, for us to do a better 

job of managing our real estate. 

Chairman CARPER. Before I yield back to Senator Johnson, just 

to followup on Senator Coburn’s last point, I called over to your office, I think the day that your nomination was confirmed in the 

Senate just to let you know and to congratulate you. I think the 

person I spoke to indicated that you and maybe your family were 

on a well-deserved break, which I applaud. 

But the person who answered the phone is a lady and she told 

me, she said, We are anxious to get to work on surplus property. 

Now, I do not know if she even knew that I was interested in that. 

Never said anything. But I was impressed. So I hope that is an indication that you and your team are raring to go because believe 

me, we are and have been for some time. 

All right. Dr. Johnson. 

Senator JOHNSON. Thank you, Mr. Chairman. To pick up on Senator Coburn’s point about the amortization rules of the Federal 

Government, I mean, the problem I have—and we will get back to 

incentives—about the methodology, about the procedures is, you 

have some, again, all good intentions, good work on your part, but 

then you bump up against other mindless procedures in the Federal Government and it creates the gridlock which is probably why 
27 

we are not, after decades, we have not really progressed any further than we have. 

Profit and loss is a very blunt instrument, which is why it is so 

effective. One thing I learned in business is when you have a problem, you are always looking within that problem. How can you create an opportunity out of the it? Well, I realized that sequester is 

a problem for Federal agencies. 

What I would like to see is they take that problem and turn it 

into an opportunity to actually drive some of these reforms. And I 

think we need that kind of blunt instrument. So what a good manager would do under sequester is he would take those dollar 

amounts and he would allocate those to the agencies, to the departments and say, You will save this amount of money. Now let us figure out how to save it most effectively. 

And so, you would start, throughout the agencies, all these department heads, without merit-based pay, they are actually going, 

Well, we only have this much to spend, we would like to preserve 

as many jobs as possible, we would like to make sure that we preserve the function of our agencies. What are the best practices out 

there? 

They have a process, a new program within OMB, within GSA 

about how we can consolidate our purchases and they would maybe 

actually start implementing that. So I guess that is my question. 

Do you really truly believe that just with these methods—I mean, 

no offense, Mr. Jordan. Setting a goal of two commodity items saving 10 percent? I can figure 16 ways on Sunday to gain that system. Do you understand what I am saying? 

What I will not be able to gain is when I realize that my budget 

was cut 10 percent and I have only 90 percent to spend of what 

I had the year before. Now I am going to actually look for some 

real savings. So again, I am asking for your comment. I mean, do 

you really think these procedures are going to have long-term effect? 

Mr. JORDAN. I do think that the strategic sourcing procedures 

will have a long-term beneficial effect, on agencies. I do think they 

are the types of things that are structural, sustainable change that 

transcend administrative turnover and that sort of thing, because 

agencies can plow these savings back into mission no matter what 

the fiscal constraints of the time are, and we can deliver the savings back to the taxpayer. 

You can get the same goods and service at a lower price, lower 

cost if you buy it smarter. So as we have certainly had a reinvigoration of this effort. We have begun to truly prove out its benefit 

to agencies. We are shining a light on it. 

We are creating the right databases that give agencies the right 

incentives to act in this manner. And so, yes, I do think that they 

will be beneficial over time regardless of the fiscal situation. 

Senator JOHNSON. Well, you have some experience in the private 

sector. Do you agree that there is a huge difference in the incentives driving performance in the private sector versus what you are 

seeing here in government? 

Mr. JORDAN. Absolutely. 

Senator JOHNSON. So barring sequester, I mean, is there some 

other way to create that type of incentive, that type of imperative 
28 

for managers to start saving the types of money that is really out 

there? 

Mr. JORDAN. Yes. 

Senator JOHNSON. These things are available if properly used, 

but again, to me it is just the incentive that is really preventing 

this from being implemented. 

Mr. JORDAN. Sure. There is no doubt that there is a much different incentive structure absent the profit and loss component 

that the private sector is driving toward. That being said, these are 

dedicated public servants and they want to do the right thing and 

the best thing for their agency’s mission. I have not met all 36,000 

contracting officers, but I have met a lot and they care deeply 

about their agencies and their agencies’ mission. 

So when we are in a time of tight fiscal straits, they want to be 

part of the solution in helping their agencies in 

Senator JOHNSON. Ms. Chaplain, is it not doing the right thing 

by your agency frequently getting a bigger budget? Trust me, I 

have talked to enough people out interviewing for positions and 

that is not an unusual basic job description: I want to make sure 

that I am achieving the priorities of my boss, and the priority frequently is getting enough budget money flowing to a particular 

area. 

Ms. CHAPLAIN. Or just keeping your budget. I think that was the 

threat that we saw. The fact that they might lose some money if 

they were going to get savings was a threat enough not to even report an initiative that could be strategic sourcing as strategic 

sourcing. 

With regard to your comments on the sequester and incentives, 

we did not see that connection of, we must do this because of the 

sequester or because of this year’s budget situation. It is a shortterm thing and that seems to be happening and strategic sourcing 

seems to be like a long-term effort. So those two things are not 

coming together. 

We see people trying to take more short-term actions to deal with 

what is happening to them this year versus a longer term thing 

that could bring savings over a longer period of time. 

Senator JOHNSON. Do people in the agencies believe sequester is 

going to stay? Do they really believe that while somehow this is 

going to get taken care of and nobody is going to be serious about 

actually not providing us that money we need long-term? 

Ms. CHAPLAIN. I do not know about that. I just know that because strategic sourcing is a long-term view, right? And I do believe 

that sequester is a short-term view, so it is not really coming together. 

Senator JOHNSON. Well, the Budget Control Act controls there a 

longer term view and you could see, in some way, shape, or form 

we are trying to adhere to those numbers. Those are numbers that 

agencies are going to have to adhere to long-term. Mr. Jordan, do 

you believe people are just assuming that this too shall pass? 

Mr. JORDAN. Well, I think the sequester is so damaging because 

of the way that it has across-the-board cuts and it is thoughtless 

and mindless implementation of a percent reduction. I think that 

there is no doubt we are in tighter fiscal times. From 2000 to 2008 
29 

contract spending rose at 12 percent a year, year after year after 

year. 

During this Administration, we have reduced contract spending by $35 billion. Last year, we reduced it by $20 billion, which is the 

largest decrease in contract spending in recorded history. So we absolutely are focused on reducing contract spending and doing so in 

a smart, thoughtful way. 

But again, as Ms. Chaplain says, it is less about what the in-themoment imperative is and more about, this is the right thing to do. 

And we do have to work with, and are working with, the budget 

side of OMB to make sure that you do not get credit for not doing 

the right thing. And that is absolutely part of this, and you have 

heard the Director, who is in charge of both sides, speak to this 

Committee about that, about strategic sourcing and the fact that 

she sees strategic sourcing as a priority of hers. 

So that is why I am so confident that this will continue to build 

momentum. 

Senator JOHNSON. OK. Again, thank you for your testimony, your 

efforts. I wish you the best of luck, I really do. Thank you, Mr. 

Chairman. 

Chairman CARPER. Thanks, Senator Johnson. Let me turn, if I 

could, for any of our panelists, but to the issue of training. I think 

in some of the reports and anecdotal articles we have seen, the 

issue of competency in contracting for maximizing the use of strategic sourcing was mentioned. Are there any specific types of training or qualifications that you are aware of that are required for enhanced participation in strategic sourcing in order to try to maximize the use and the savings? 

Then this is sort of a followup to that, what are some of the types 

of training that private entities, or even small businesses and for 

government staff that are available? 

Mr. JORDAN. So training is absolutely a key component of this. 

When you look at the composition of our acquisition workforce, we 

are in a critical time. About a third of our contracting officers have 

20 or more years of experience, so they are bumping right against 

retirement age. 

Chairman CARPER. Say that again. 

Mr. JORDAN. We have about 36,000 contracting officers and about 

a third of them, a little over a third have 20 or more years of experience, meaning they are bumping up against getting ready to retire. Another third of them have four or fewer years of experience, 

because we had a long period where we have reduced the number 

of contracting officers. During this Administration, we made sure 

to balance that more appropriately. So we have had some new folks 

enter. 

That means that only one-third of our contracting officer cadre 

has between 4 and 20 years of experience, and that is a challenge 

because when you talk to agencies, they say, I want someone who 

has got 10 to 15 years of experience, has seen and done everything, 

services, goods, et cetera. Well, you cannot just build that. 

So we need to focus on training. The Federal Acquisition Institute, which Dan and I partner with on closely, and the Defense Acquisition University, to make sure these types of principles and 

tools and techniques are integrated in the curriculum. That can be 
30 

through on-site classroom learning, but given these tough budgetary times, we also need to make sure there is distance learning, 

online education, and those types of things, and we are working 

very closely with both of those entities to make sure strategic 

sourcing is part of the curriculum. 

Chairman CARPER. Same question, Mr. Tangherlini. 

Mr. TANGHERLINI. I think part of our responsibility is also to go 

out and talk to the contracting officers and remind them about the 

existing not-quite-exactly strategically sourced vehicles, but common vehicles that we have at GSA so that people can save time, 

effort, and energy around leveraging existing vehicles. 

We are also very closely working with Joe and the Strategic 

Sourcing Leadership Council to share more information about the 

specific contracts we have. I have been going agency-by-agency and 

meeting with Secretaries and Deputy Secretaries and talking to 

them about these opportunities. 

Chairman CARPER. So you have been? 

Mr. TANGHERLINI. I have been. 

Chairman CARPER. Roughly, how many? 

Mr. TANGHERLINI. I have done over a dozen so far. I have actually started moving into the bureau level. 

Chairman CARPER. Have you been to Department of Homeland 

Security where they seem to be, according to Ms. Chaplain, doing 

a better job than most? 

Mr. TANGHERLINI. Right. We met with DHS just about a month 

ago to talk about ways that we can leverage their skills, as well 

as—— 

Chairman CARPER. What are some lessons learned there? 

Mr. TANGHERLINI. Well, so, I think it really was highlighted in 

the great GAO report about the fact that they do have a leadership 

commitment to it. They have resourced the activity and they have 

really focused in on where there are places of maximal opportunity. 

What we want to do with DHS is say, ‘‘Can we help you? ’’ Because 

our job is to share great ideas across the entire enterprise. Can we 

help you leverage the programs that you have developed, to share 

them to other agencies? 

And so, what we want to do is kind of serve as the internal government broker, if you will, of great ideas and best practices so 

that agencies can leverage that once and well approach, and so 

that we can leverage the scale. When we do not use the scale is 

when we lose our ability to kind of help set prices and help direct 

the market toward best outcomes for the Federal Government. 

Chairman CARPER. All right. Ms. Chaplain, anything you want to 

add or take away here before I ask you a different question? 

Ms. CHAPLAIN. A couple points. In our review, we found across 

the board one of the biggest challenges was a shortage of strategic 

sourcing expertise. And then second, in agencies that were more 

dedicated, they just had more people dedicated to the problem. A 

place like the Army, maybe only had like one or two, and that 

makes a big difference. 

There is training that needs to be done, because it is a different 

skillset than just how to contract or what type of contract to use. 

This is up-front analysis. It is analyzing different kinds of data systems, identifying trends, knowing cost drivers, and the leading 
31 

companies, especially Dell, we visited have very big dedication to 

training their staff to do this kind of work. 

Chairman CARPER. OK, good. I want to go back to something I 

mentioned in my opening statement, small businesses. And if I 

could, as I mentioned in my opening statement, it is important to 

consider how we move forward with strategic sourcing while providing ample opportunity for small businesses to participate. 

I like to say, on an unrelated matter, but I think there is a good 

parallel here, the question is, is it possible to have a cleaner environment and, at the same time, have a stronger economy? Some 

people suggest we have to choose one or the other. I always say 

that is a false choice. We can have a cleaner environment, we can 

have a stronger economy, and actually there is plenty of empirical 

data to show that. 

And the corollary here is, is it possible for agencies to move toward strategic sourcing, but still to do business with small businesses? Do we have to choose one or the other? Is that a false 

choice? 

Mr. JORDAN. It is a false choice. Strategic sourcing and small 

business utilization, when done right, absolutely, unequivocally, 

are mutually reinforcing, just like your example with a stronger 

economy and a cleaner environment. You do not need to make the 

choice. If you do it well, they will drive each other. 

We have seen that with the empirical data in office supplies. As 

you mentioned in my introduction, I come from the Small Business 

Administration. I care deeply about small businesses and small 

business contractors, and I think our focus needs to be on, when 

we design any vehicle up front, making sure we have the right 

terms and conditions to maximize small business competition; that 

when we are getting ready to move forward, we do everything we 

can to build awareness among the small business community that 

this solution is being set up, and awareness among the agencies 

that these small businesses are out there. 

And then we continue to optimize the vehicle over time with onramps and off-ramps, things of that nature. 

Chairman CARPER. Very briefly, Mr. Tangherlini and Ms. Chaplain, would you just react briefly to what Mr. Jordan said? 

Mr. TANGHERLINI. So I already mentioned the success we have 

seen in office supplies, but I would also say that, as Mr. Jordan 

pointed out, there is a continuum of strategic sourcing that ends 

up with the type of vehicle, the single vehicle where you aggregate 

to spend. Another form of strategic sourcing is where we reduce the 

redundant contracts, we reduce the number of contracts, and that 

is what GSA, in many ways, does every day through its schedules 

program. 

Eighty percent of the vendors on our schedules program are 

small businesses. And so, agencies can actually do set-aside competitions within those schedules that focus entirely on small businesses, that focus on the ability to deliver opportunity from small 

business, but also the ability to deliver price and quality. 

And so, what we are out doing is trying to (a) make agencies 

more aware of the time savings and the benefits from using those 

existing vehicles rather than spending the time, effort, and energy 

to go build a new one, and (b) trying to get better data to aggregate 
32 

what that spend is so that we can then push it back to the Strategic Sourcing Leadership Council so we can go out and get vehicles that really leverage the scale of the government. 

Chairman CARPER. Ms. Chaplain, you could respond if you would 

like. You do not have to, but if you do, just very briefly, please. 

Ms. CHAPLAIN. Yes, very briefly. It was our observation that the 

Federal initiatives were doing a good job of involving small businesses and including them in the planning process. I would just 

note that GAO does have a study ongoing about the impact of those 

initiatives on small businesses. So you will hear more from GAO 

in the future on that question. 

Chairman CARPER. OK, good. Thanks. Senator Johnson. 

Senator JOHNSON. Mr. Chairman, I think when it comes to protecting small businesses, from my standpoint, the best way of doing 

that is, as you were indicating, Ms. Chaplain, this is really about 

data, about providing information, and more so involved purchasing. I think these initiatives really need to be about providing 

that information, that data, and making sure that your supplier 

base is unanimous, I mean, as much as possible. 

So what you do not want to be doing is where you have a limited 

supplier base, do things like reverse auction. You drive three or 

four suppliers out of the business and you have to be very mindful 

from that standpoint. 

Mr. Tangherlini, you were talking about contracts with multiple 

suppliers. Can you just describe a little bit what you are talking 

about there? 

Mr. TANGHERLINI. Very quickly, one of the ways that we can help 

agencies save money in terms of the cost to spend, the amount of 

money they have to actually spend in order to get their requirements out into the market, is by them leveraging our existing vehicles, which are called the Multiple Awards Schedules. And across 

certain commodity lines, we have these schedules in which we have 

already agreed to a contractual relationship with a vendor. 

Agencies can go into those schedules and engage in competitions. 

They can save, we estimate based on agency data, between a third 

and a half of the time of getting it from the market. Eighty percent 

of the vendors within our schedules are small businesses. So already you have an ecosystem or a marketplace where you have a 

lot of small businesses that can compete. 

What we learned from the office supply schedule, though, is that 

by getting good data—and we require all of the vendors participating to provide what is called Level 3 data. That is actual spend 

data. We can take that information and share it back with the vendors. We can clean it up so no one knows anyone else’s information, 

and we can demonstrate for them the price variability and where 

the best prices are. 

When you do that for the vendors, they do something remarkable. They compete. 

Senator JOHNSON. Right. 

Mr. TANGHERLINI. And it drives down prices, it drives up quality. 

We did not lose a single vendor. What we did see, though, was a 

dramatic drop in price and a dramatic up in variation. So small 

businesses that were participating before are participating now. 

They are doing it in a way that really leverages what they bring 
33 

to the market, which is innovation, speed, alacrity, reduced overhead, and really forcing that competition on others as well. 

Senator JOHNSON. You are really actually describing the total 

value proposition, which is not always about cost, but it is really 

the total value of having that supplier there. So, no, that is encouraging to hear, that you are sensitive to that, that by providing the 

information, you are not reducing your supplier base, which in the 

end, if you start doing that, will start driving up costs, you are trying to maintain the number of suppliers by providing them the information and putting the pressure on them to make sure they are 

as competitive as possible. Again, across the full price, customer 

service, and quality. 

Mr. TANGHERLINI. That was one of the most interesting things 

about the GAO’s report to me, was the real value of good, solid information, pricing information, vendor information, feedback. The 

best practices from the private sector is that there is a continual 

dialogue and a continual negotiation, continual sharing of information so that the private sector knows what they are competing 

against. 

Senator JOHNSON. So from that viewpoint, continual information 

versus contract terms, how do you set that or how do you view 

that? Do you warn your contracts through your contracts or just a 

basic general contract, an ideal contract that has that information? 

In other words, if you are going to supply us, you will agree to 

these terms and here is all the information in terms of pricing and 

delivery and those types of things. I mean, is that how it works? 

Mr. TANGHERLINI. In the case of the office supply contract, we require them to provide us continuous data, and we have a great 

group up in New York that is doing an amazing amount of big data 

kind of research into what we are getting in the way of spend, and 

feeding that then back to the vendors so that we can do a more 

meaningful competition the second time around. 

It is that kind of knowledge of what actually is being spent and 

how people are actually using the contracts that is going to allow 

us to be a much better negotiator and, frankly, vendors to be a better supplier. I cannot say that there is any one particular contract 

term that works because of the real vast nature of the kinds of buy. 

I think you just have to be a really smart, thoughtful buyer who 

knows your marketplace, who knows the vendors, and knows your 

customers, which gets back to the earlier point I was trying to 

make about the need for improved planning, a stronger sense of 

what the agencies are buying, who might be buying that and comment using our Strategic Sourcing Leadership Council to take that 

information and really come together as a body and say, look, this 

is how we are going to buy, this is what we are going to buy, this 

is when we are going to buy, and really build the vehicles that 

meet the needs. That is why having agency participation is so important. 

Senator JOHNSON. Let me just suggest, the most important ingredient is then having a dollar figure that you must save. Thank you, 

all, and thank you, Mr. Chairman. 

Chairman CARPER. You bet. Senator Johnson. Nice that you 

could be here for this I was saying going into this hearing, I was 

kidding with one of our interns that—one of our staff had said, 
34 

‘‘This is not really the sexiest subject for a hearing,’’ and I was asking our intern if he thought that was the case, and he sort of said, 

Compared to what? And he mentioned another hearing that he 

thought was actually a lot more interesting and sexy, but this is 

real important stuff. 

Senator JOHNSON. This has some real potential for some real dollar savings. So thank you for holding the hearing. 

Chairman CARPER. Huge potential, and I think you get that. Certainly Dr. Coburn and Senator McCaskill get that, and I know others do from our hearing, our Committee, that are not here. 

I have two questions. The last one I will just tell you what it is 

going to be and you can think about it while I ask another. Sometimes at the end of a hearing, I like to offer our panelists to make 

a closing statement and you will have that opportunity today, not 

for 5 minutes, but a statement or two, something you want to just 

really reiterate, maybe to go back to see whether there are areas 

where you agree or disagree, or maybe just give us some good advice as we go forward and try to make sure we are doing our responsibilities on this side of the equation. 

So while you think about that, let me just turn to the issue of 

total cost of ownership. Ms. Chaplain, I think in your testimony 

you noted that companies in the private sector focus on the total 

cost of ownership in making a holistic purchase decision by considering five factors other than prices. 

For example, I think you noted that while Wal-Mart may award 

a contract to the lowest bidder, it takes other considerations into 

account such as average invoice price, average time to complete a 

task, supplier diversity, sustainability. Mr. Jordan and Mr. 

Tangherlini, let me just ask, do you believe that the strategic 

sourcing initiative encompasses this concept of total cost of ownership? 

Mr. JORDAN. Absolutely, Senator. For every solution, we look not 

just at the price, but at the total cost of ownership. Is this a good 

that needs to be operated in a certain way? What about the quality? Are there disposal costs? Which is why the savings methodology is so complicated, because you really need to look by category. 

But I absolutely agree that while price is important, it cannot be 

the only factor, and it is certainly not the only savings driver. We 

need to look at the total cost of ownership. 

Chairman CARPER. OK. Mr. Tangherlini. 

Mr. TANGHERLINI. I agree with Mr. Jordan’s view. I think that 

is absolutely critical. Now, one of the complicating factors is our 

annual budget process, which makes it hard to score the value of 

total cost of ownership, but those are some of the challenges that 

are unique to our environment. 

That having been said, by bringing together the Strategic 

Sourcing Leadership Council, by having agencies participate in the 

development of these contracts, we think we can best represent 

what the total cost of ownership is for agencies. 

Chairman CARPER. Thanks. And just very briefly, Ms. Chaplain, 

are there any other lessons that come to mind, other lessons from 

the private sector or maybe some other specific examples from the 

private sector that illustrate the concept of total cost of ownership? 
35 

Ms. CHAPLAIN. The total cost of ownership is just there in everything they do and a lot of them spend a lot of time rating suppliers 

and the quality of the services and that gets factored into that feedback loop. So it is just part of their philosophy across the board. 

Chairman CARPER. All right. Last thoughts? This is the chance 

to make a closing statement, just a short one if you would, but anything else you would like to emphasize, re-emphasize, maybe raise 

a new one, just respond differently than maybe you had a chance 

to before? 

Ms. CHAPLAIN. I would like to close with just two things of most 

importance. First, to not be afraid to go beyond the low-hanging 

fruit to try to apply strategic sourcing to these higher spend categories. We spend nearly $300 billion a year on services. That is 

a place to try. And I do think it can be done. It might be difficult 

and it might have to start at the agency level, but it is possible and 

that is where you are going to get a lot of savings. 

The second point is not just to think of strategic sourcing as bulk 

buying. There are a lot of techniques that can be applied to more 

complex services and products, and some of those involve developing new suppliers so that you have more competition, understanding cost drivers, just a lot of things to put yourself in a better 

negotiating position. 

So there should be more holistic thinking when we talk about 

strategic sourcing and not just to think of it as office supplies and 

doing bulk purchases. And maybe just to add one more thing is to 

really seek to get some accountability to do this so that we have 

more progress, a better pace of it. That does involve setting goals 

and finding the right incentives. 

Chairman CARPER. OK, thanks. Thanks for that and thanks for 

the good work that GAO does on this front and so many others. 

Thank you. Mr. Tangherlini, just a closing thought, please. 

Mr. TANGHERLINI. Chairman Carper, I want to close by thanking 

you for having this hearing and bringing this issue, this complicated issue, to light, but doing it in a way that I think also 

makes clear what the obvious opportunities are. You mentioned the 

Grace Commission earlier as one place where this issue had come 

up before. 

Well, the GSA was created through something called the Hoover 

Commission, which back in the 1940s recognized the benefit and 

the value of leveraging the scale and the scope of the Federal Government, buying things once and well, and thinking about ways 

that we could begin to eliminate duplication across agencies. It is 

a dialogue that has been going on for some time. We have made 

progress in some areas. Obviously, there is much more progress to 

be made. 

But I would just like to say that GSA stands by its original mission, and working closely with Joe and the entire acquisition community, we hope to develop the solutions that will allow us to really realize these benefits, because they are absolutely necessary 

right now. 

Chairman CARPER. OK. Thank you. Thanks very much. Mr. Jordan. 

Mr. JORDAN. Thank you, Mr. Chairman, and thank you for holding this important discussion. To synthesize, strategic sourcing is 
36 

my top priority, as I said. It is something that I came in from the 

private sector having seen this as best practice. It saves money. 

Agencies can plow that back into mission critical needs. They can 

deliver savings back to the taxpayer. We have seen increased small 

business utilization and it really helps us do business with the 

right suppliers, those with good past performance, those with good 

integrity. 

We have made some important initial steps. The creation of the 

Strategic Sourcing Leadership Council, making sure every agency 

has someone focused on this. We have improved business case process. We are standing up on prices paid portal, all things recognized 

by the GAO when they took interagency contracting off the high 

risk list. 

We are going to continue to push this aggressively going forward. 

I will continue to push this aggressively going forward, and it will 

absolutely be part of any future management agenda, which we 

will work together to create. 

Chairman CARPER. Well, when your boss is finally vetted and 

nominated and that man or woman comes before us, we are going 

to return to this subject. Just make sure that he or she understands how important this is and to you—— 

Mr. JORDAN. I will have them well-prepped, sir. 

Chairman CARPER [continuing]. And certainly to us. All right. I 

think that is going to do it for today. Again, thank you all for joining us today, for your preparation for today, responding to our 

questions, and even more important, for what appears to be a 

strong commitment to making sure that we actually get this done. 

There is a lot—like I say, everything I do I know I can do better. 

The same is true for most Federal programs and it is certainly true 

for strategic sourcing. We can do this better. We have to do this 

better. There is a lot depending on it. 

The hearing record will remain open for another 15 days, that is 

until July 30 at 5 p.m., for the submission of statements and questions for the record. With that, this hearing is adjourned. Thank 

you so much. 

[Whereupon, at 4:48 p.m., the Committee was adjourned.] 
(37) 

A P P E N D I X 

Opening Statement of Chairman Thomas R. Carper 

"Strategic Sourcing: Leveraging the G1Jvernment's Buying Power to Save Billions" 

July 15,2013 

As preparedjor delivery: 

Last week, the President announced a new management initiative for his Administration, to be 

led by Sylvia Burwell, the Director of the Office of Management and Budget. The goal of the 

initiative is to build a better, smarter, faster government. Today's hearing topic - strategic 

sourcing - is one that should be central to that initiative. 

Strategic sourcing is a process that moves an organization from numerous individual 

procurements to a broader, aggregate - and, frankly, more thoughtful- approach to achieve 

savings. As my colleagues have heard me say often, I believe there are three essential elements 

to solving our nation's financial challenges. We must address both spending and revenues in a 

balanced approach. We must rein in the costs of entitlement programs in a way that does not 

savage the poor or elderly. And through better management of government programs, we deliver 

better services to the American people at a lower cost. 

The U.S. government's departments and agencies spend over $500 billion annually to buy goods 

and services in support of their missions. With that much money at stake, even a small gain in 

efficiency can save the taxpayers billions of dollars. Strategic sourcing is an example of the kind 

of low hanging fruit we can grab as we continue to search for ways to reduce federal spending 

and ensure taxpayer dollars are used prudently. It's a process that can help move an organization 

from numerous individual procurements to a broader, aggregate - and, frankly, smarterapproach to achieve savings. 

At a basic level, strategic sourcing is really just a fancy way of saying 'buy in bulk.' But it also 

goes beyond that. It involves a careful analysis of spending needs, detailed market analysis to 

know what is available in the private sector, and a constant and rigorous monitoring of vendor 

prices and performance to get the best prices and best value. Over the past year, the Government 

Accountability Office (GAO) has produced two reports for this Committee showing the power of 

strategic sourcing in the private sector, and its promise for the government sector. The 

companies that GAO examined rely on detailed data analysis and centralized procurement 

systems to drive savings. In fact, companies interviewed by GAO reported that they have saved 

between 4 percent and 15 percent over prior year spending through strategic sourcing. Ifwe 

applied that rate of savings to the federal government, we would save between $20 and $80 

billion annually! 

So you would think that agencies would rush to adopt strategic sourcing wherever possible. 

Unfortunately that has not been the case. Last fall, GAO examined four agencies that account 

for 80 percent of federal contract spending - the Departments of Defense, Energy, Homeland 

Security and the Veterans Administration. Whereas the private sector companies examined by 

GAO were managing almost 90 percent of their spending through strategic sourcing, these four 

agencies, collectively, were managing only 5 percent of their spending through strategic 

sourcing. 
38 

And only a tiny fraction of federal spending is made through the Federal Strategic Sourcing 

Initiative, which is a project overseen by the Office of Management and Budget and 

administered by the General Services Administration with a goal of expanding the use of smarter 

procurement practices across the federal government. Last fall, GAO reported that, in Fiscal 

Year 2011, only $339 million out of the total of$537 billion in contract spending had gone 

through the Federal Strategic Sourcing Initiative. But GAO also found that even this small use 

of strategic sourcing had saved $60 million. 

As GAO has noted, federal agencies appear to behave more like medium-sized, unrelated 

businesses than the largest purchaser in the world - which is what the U.S. government is. 

Instead of leveraging the buying power of the whole government, federal agencies rely on 

hundreds of duplicative contracts for commonly used items. And far too often our federal 

contracting officers pay one price for a product or service without knowing that another federal 

agency - or even another part of the same agency is paying a completely different price for the 

exact same good or service. 

Today we will hear from the two individuals in the Administration who are leading the charge to 

drive the government toward greater use of strategic sourcing - Joe Jordan, who is the 

Administrator for Federal Procurement Policy at the Office of Management and Budget, and Dan 

Tangherlini, who is the Administrator of the General Services Administration. We will also hear 

from Cristina Chaplain, Director, Acquisition Sourcing and Management at GAO, to hear more 

about GAO's illuminating work on this topic. 

I hope that today's hearing will help address several key questions. First, why are agencies not 

making greater use of strategic sourcing? GAO found that the General Services Administration 

itself purchased less than one-third of its office supplies through the strategic sourcing 

contracts. What is holding agencies - even those that know better - back when it comes to this 

issue? 

Second, what is the potential for strategic sourcing in the federal government? We need to 

acknowledge that much of government procurement supports programs that are unique to the 

government - weapons systems and space technology, for example. The government may never 

utilize strategic sourcing to the extent that the private sector does. But even a small increase 

could save billions of dollars. Mr. Jordan will testify today that the federal government has 

saved nearly $300 million since Fiscal Year 2010 through strategic sourcing. The early signs are 

promising but there is much room for improvement. 

Third, I would like our witnesses to respond to criticism that strategic sourcing will crowd out 

small business vendors. This is a very real concern and I hope that the Administration and 

Congress can work together to make sure that small businesses have ample opportunity to 

participate in strategic sourcing. And finally, I hope that this hearing will help chart out a path 

for the Congress to playa constructive role in pushing agencies to buy smarter and save tax 

payer dollars. 

### 
39 

STATEMENT OF 

THE HONORABLE JOSEPH G. JORDAN 

ADMINISTRATOR FOR FEDERAL PROCUREMENT POLICY 

OFFICE OF MANAGEMENT AND BUDGET 

BEFORE THE 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

July 15,2013 

Chairman Carper, Ranking Member Coburn, and members of the Committee, I appreciate 

the opportunity to appear before you today to discuss the steps that the Administration is taking 

to deliver more value to the taxpayer through greater use of strategic sourcing. When agencies 

bring spending under management, they are able to achieve lower costs for administrative and 

commodity goods and services. Thus, strategic sourcing enables the government to leverage our 

vast buying power to save money and improve the management of commodity goods. This 

Administration has challenged agencies to buy smarter by ending unnecessary contracts, 

reducing duplication, and using the government's buying power to get the same goods and 

services at lower prices. As a result, agencies have saved billions of taxpayer dollars and 

strengthened their contracting practices. 

In this fiscally constrained environment, we need to do even more to drive unnecessary 

cost out of the system. We must structure our acquisition planning and requirements 

development processes to ensure we are taking advantage of our position as the world's largest 

buyer. To that end, I'd like to share with you some of the actions we have taken to continue to 

build a stronger strategic sourcing foundation within and among agencies, and discuss recent 

steps to increase the number of solutions available. 

Setting the Foundation for Effective Strategic Sourcing 

Strategic sourcing has long been recognized by the private sector and the Government 

Accountability Office (GAO)! as a best practice, and successful companies around the world 

routinely aggregate demand, drive costs out of the supply chain, and develop supplier 

relationships that directly benefit the company's bottom line. Federal organizations are often 

challenged to leverage their spend because agency budgets and acquisition functions tend to be 

decentralized, procurement information can be difficult to analyze, and there is often a lack of 

visibility into what other agencies plan to purchase or what they are paying. 

1 http://www.gao.gov/assets/660/653770.pdf 

1 
40 

To help agencies work through these challenges, the Office of Management and Budget 

(OMB) issued its first guidance memorandum in 2005 directing agencies to establish internal 

strategic sourcing programs? Since then, agencies have taken important steps to establish 

commodity councils and identify opportunities, and the Chief Acquisition Officers Council 

partnered with the General Services Administration (GSA) to lead several first-generation 

Federal Strategic Sourcing Initiative (FSSI) efforts to develop Government-wide solutions for 

buying common goods and services. 

The initial FSSI efforts focused on a small number of efforts - domestic delivery 

services, office supplies, and telecommunications expense management. Agency participation 

was modest, but the experience in planning, negotiating, and managing these vehicles was 

critical. Over the last several years, through a renewed focus on strategic sourcing, follow-on 

contracts for these and other efforts have shown even greater promise. Government-wide 

strategic sourcing of office supplies and domestic shipping services has already achieved nearly 

$300 million in direct and indirect savings since FY 20 I O. While we continue to build on these 

early efforts, the benefits - both in reduced prices, cost avoidance, and better commodity 

management - are clear: 

• Prices undergo continuous monitoring and comparison. For example, the price of a 

representative group of office supplies - or market basket - was reduced initially on the 

second office supplies effort (OS2) by over 13% and is re-examined on an ongoing basis 

to ensure prices stay low. 

• Usage data is being provided to the agencies to improve buying behavior and commodity 

management. For example, shipping information is now available from the governmentwide domestic delivery contract (DDS2) that shows when an agency paid for express 

delivery when ground delivery was less expensive for the same delivery time. 

• Small business participation and utilization of other important procurement programs 

have increased. For example, on the OS2 effort, dollars to small businesses have 

increased by 9percent compared to pre-strategic sourcing levels, compliance with 

AbilityOne requirements has improved, and agencies are better able to satisfy their 

sustainability needs. 

• Participation in these efforts also has benefits for contracting officers, program managers, 

and contracting officer representatives, who can redirect their time and attention to 

acquiring and managing more mission critical or higher risk contracts. 

Concurrently, agency-level strategic sourcing improved since our initial efforts began. 

For example, the Department of Homeland Security saved over $386 million in FY 2012 by 

pooling purchases for a wide range of products across the Federal Emergency Management 

'http://www.whitehouse.gov/sites/default/files/omb/procurement/comp src/implementing strategic sourcing.p 

ill 

2 
41 

Agency, the Coast Guard, Customs and Border Protection, and other components. The 

Department of Commerce has put significant focus on reducing costs and changing behavior to 

better manage spending. Efforts have resulted in savings of up to 40 percent on personal 

computers and accessories and almost five million dollars annually by printing double-sided and 

in black and white only. 

Expanding the Use of Strategic Sourcing 

As GAO noted in their 2012 report, Strategic Sourcing- Improved and Expanded Use 

Could Save Billions in Annual Procurement Costs/ agencies have an opportunity to take even 

greater advantage of this important management tool going forward. To build on our initial steps 

and increase the use of strategic sourcing across Government, last December OMB called on the 

largest buying agencies to form the Strategic Sourcing Leadership Council (SSLC).4 Led by the 

Administrator for Federal Procurement Policy, the SSLC is working together to increase the 

number of strategic sourcing solutions available, help shape policies and processes to reduce the 

number of duplicative contracts, and improve the Government's commodity management 

practices. To further strengthen leadership throughout the Government for strategic sourcing, 

OMB directed all twenty-four of the Chief Financial Officers Act agencies to identifY an 

accountable official to coordinate their agency's internal efforts and to participate in SSLC 

initiatives. 

The SSLC and GSA reviewed over twenty initial commodity areas - totaling 

approximately $10 billion in annual spend - to identify those that were best positioned for 

strategic sourcing over the next two years. These initial commodity areas included information 

technology, such as desktops and laptops and common software, which represent some of our 

highest spend areas and are the focus of the PortfolioStat reviews being conducted by OMB's Egovernment Office.5 Other areas included janitorial and sanitation supplies; maintenance, repair, 

and operations supplies; information services; wireless services and devices; laboratory supplies; 

and a variety of other commodities that are generally procured in a decentralized manner, are 

common to most agencies, and for which some basic data were available for analysis. 

Teams have been created to analyze each of the initial commodity areas. These teams 

have developed preliminary commodity profiles to better understand the total federal spend, 

savings potential, and small business participation. They quantified the degree of fragmentation 

in the market - both the number of unique vendors in the space and the number of contract 

actions throughout the Government for the same or similar goods and services. Potential lead 

3 http://www.gao.gov/products/D03318 

4 http://www.whitehouse.gov/sites/default/files/omb/memoranda/2013/m-13-02 O.pdf, The Department of 

Defense, National Aeronautics and Space Administration, Department of Veterans Affairs, Department of Health 

and Human Services, Department of Homeland Security, General Services Administration, Department of Energy, 

and the Small Business Administration make up over 90% of the federal spend. 

s http://www.whitehouse.gov/sites/default/files/omb/memoranda/2013/m-13-09.pdf 

3 
42 

agencies were identified and any unique market conditions, such as a high number of resellers or 

highly variable terms and conditions, were noted. For example, through this process the SSLC 

learned that: 

• In 2012, GSA estimated that agencies spent $1.38 on wireless services and devices using 

more than 4,000 agreements for 800 different wireless plans resulting in prices that varied 

greatly for the same level of service. An earlier study by their Integrated Technology 

Services (ITS) Mobility Program concluded that savings of 13 to 20 percent were 

possible from strategic sourcing over the next five years. 

• Agencies spend about $600 million per year on janitorial and sanitation supplies in a 

highly decentralized manner with thousands of purchase card holders acquiring items 

ranging from toilet paper to hand soap to motorized floor buffers in small quantities. 

According to a GSA analysis, the savings potential could range from 10 to 20 percent. 

The SSLC is working to ensure that the commodity teams are conducting sound analyses, 

developing appropriate requirements, and establishing effective acquisition strategies to position 

the Government to get the best deal possible by buying together. 

While many of these initial efforts are focused on standing up new government-wide 

vehicles, there are additional options available that could improve how we buy and manage 

certain goods and services. For example, driving spending through a smaller number of existing 

vehicles such as blanket purchase agreements (BPAs) or government-wide acquisition 

contracts (GWACs) - provide an opportunity for agencies to take advantage of suitable existing 

contracts while we get smarter about the commodity. Another aspect involves agencies 

analyzing demand to better manage what is required. 

Commodity teams are also well suited to help identify standardized terms and conditions 

for government-wide use in agency-specific vehicles. Such standardization has multiple 

benefits: it allows each agency to reap the benefit of terms and conditions that are considered to 

be most effective; it helps an agency pool its own resources to secure lower prices and eliminate 

the administrative cost of maintaining duplicative vehicles; it can also help lower transaction 

costs for vendors - which can be especially beneficial for small businesses; and finally, 

standardization may also better position us at the government-wide level for a sourcing event in 

the future. 

Core Characteristics of Strategic Sourcing 

While each strategic sourcing solution and commodity is unique, there are several core 

principles of buying smarter that must be included in government-wide strategic sourcing 

solutions. For example, the action must: 

4 
43 

• reflect the input from a large number of potential users so that the demand, strategy, and 

commodity management approaches align with customers' needs; 

• drive towards getting the Govemment credit for all sales provided under that vehicle, 

regardless of payment method, unless the sales are identified with other government 

contracts; 

• include tiered pricing, or other appropriate strategies, at the contract level (not just at the 

order level) to reduce prices as cumulative sales volume increases; 

• require vendors to provide sufficient pricing, usage, and performance data so that we can 

continuously assess the results of the initiative and look for ways to improve, including 

reductions in demand that exceeds mission requirements; 

• include post award commodity management plan to monitor vendor performance and 

pricing changes throughout the contract life cycle; and 

• baseline small business participation and seek to meet or exceed current levels. 

A Commitment to Small Businesses within Strategic Sourcing 

[ recently testified before the House Small Business Committee6 to discuss with 

Members of Congress and the public how this Administration is committed to increasing small 

business participation in federal contracting, and working to ensure that competitive small 

businesses can engage in - and grow through - strategic sourcing. To accomplish this goal, we 

must take advantage of best practices that promote small business participation and ensure we 

understand how to reduce barriers to entry in certain commodity areas to allow small businesses 

to compete. Best practices include: 

• conducting effective market research so that small businesses can more easily find 

potential contracting opportunities and agencies can find capable small businesses; 

• engaging industry early in the process to identify ways to improve the requirements or the 

acquisition process to promote small business participation; 

• giving interested sources adequate time and information to respond to requests for 

proposals; and 

• using technology to make doing business with the government easier and less costly. 

By actively engaging the small business community in the Office Supplies Strategic 

Sourcing Solution, GSA, which served as the lead agency for this initiative, increased total 

dollars going to small businesses from 67 percent prior to implementation of the strategic 

sourcing solution to 76 through the strategically sourced solution. 

• http://smalibusiness.house.gov/uploadedfiles/6 13 13 ofpp testimony jordan hsbc.pdf 

5 
44 

Additional Efforts to Support Transparency 

To further support the work that the SSLC and many agencies are doing to promote more 

strategic sourcing, OFPP is taking a lead role on several initiatives to improve the information 

flow among agencies and to give contracting officers and program managers the tools they need 

to make smarter buying decisions: 

Establishing a Business Case Process - To reduce the number of overlapping or 

duplicative contracts for supplies or services, OMB issued guidance in 2011 7 requiring the 

development of business cases for the establishment and renewal of GW ACs, and high-dollar 

multi-agency contracts, BPAs, and agency-specific contracts that could overlap with existing 

strategic sourcing vehicles. The business case must identify the existing vehicles that the agency 

evaluated and explain how the proposed vehicle differs from the identified existing vehicles. 

Before agencies issue a solicitation, they must post a copy of their business case for review by 

other agencies. This process has greatly improved information sharing and was a factor in 

GAO's removing interagency contracting from its high risk list earlier this year. 

Developing a Prices Paid Portal - Many agencies negotiate better prices than those on 

the GSA schedule or other interagency contract if they are ordering a large quantity. However, 

this information is generally not shared among agencies as there is no central data collection 

requirement or system. To improve transparency of the prices that contracting officers have 

negotiated for similar goods and services, OFPP, working with GSA and other agencies, is 

developing a prices paid portal pilot that will show how agencies' deals compare. This aligns 

with a new Fiscal Year (FY) 2013 National Defense Authorization Act requirement for OFPP to 

begin collecting this information.s 

Price visibility is critical to ensuring that the Government gets the best prices and that 

agencies are not paying more for the same products or services being bought under the same 

circumstances. As agencies face increasingly constrained budgets, it is critical that they share 

more pricing information with their Federal colleagues to ensure that the Government is 

negotiating the best prices for the taxpayer. 

The Path Ahead 

Our understanding of how best to implement and measure the success of strategic 

sourcing across large and diverse organizations for complex and unique commodities is an 

7 http:Uwww.whitehouse.gov!sites!default!files!omb!procurement!memo!development-review-and-approval-ofbusiness-cases-for-certain-interagencv-and-agency-specific-acquisitions-memo.pdf 

8 http:Uwww.gpo.gov!fdsys!pkg!BILLS-1l2hr431Oenr!pdf !SI LLS-112 h r4310enr .pdf 

6 
45 

evolving process, but one that is making significant strides thanks to the work of the SSLC, the 

commodity teams, and all our agency SSAOs. GAO noted in their 2012 report, having clear 

guidance on measuring success is critical to advancing this effort. Strategic sourcing utilization 

data, such as baseline spending, adoption rates, cost avoidance and savings calculations - while 

imperfect are all vital to continued success of these solutions and improvements to our 

acquisition and management practices. Currently, the SSLC is measuring adoption rates for 

existing solutions that will be tracked using the OFPP's Acquisition Status (AcqStat) reviews, 

and we will work with the SSLC to develop the appropriate savings methodologies and adoption 

baselines for future efforts as these measures may vary by commodity. 

OFPP is committed to reducing the cost of acquisition through greater use of strategic 

sourcing. It is my top priority and will continue to be one of the most effective tools agencies 

have in making their scarce budget dollars go farther to meet core mission needs. 

I would be pleased to address any questions you may have. 

7 
46 

STATEMENT OF 

THE HONORABLE DANIEL M. TANGHERLINI 

ADMINISTRATOR FOR GENERAL SERVICES ADMINISTRATION 

BEFORE THE 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

July 15, 2013 

Chairman Carper, Ranking Member Coburn, and members of the Committee, thank you for the 

opportunity to appear before you today. 

Today, as budgets tighten, the U.S. General Services Administration (GSA) is uniquely 

positioned to help federal agencies get better outcomes from their program dollars by leveraging 

the scope and scale of the federal government to deliver common sense solutions and 

significant savings. By utilizing GSA solutions, agencies can free up valuable resources that 

allow them to focus on their core missions. GSA is pursuing a number of common sense 

initiatives to help agencies reduce their costs, from assisting agencies to shrink their real estate 

footprints, right size their fleet, or ensure cost effective travel, by utilizing GSA solutions. 

The Federal Strategic Sourcing Initiative (FSSI) is an integral part of this effort. This program is 

a structured and collaborative process of critically analyzing an organization's spending patterns 

to better leverage its purchasing power, reduce cost and improve overall performance. By going 

out to the market as one large buyer, an approach common to the private sector and even state 

governments, the federal government will enhance buying power, streamline acquisition 

operations, improve service, and create significant savings. 

Current Solutions -

GSA currently has in place four strategic sourcing vehicles: 

• Express and Ground Domestic Delivery Services (FSSI DDS2); 

• Office Supplies; 

• Print Management; and 

• Wireless 

These initiatives create significant savings by making purchases as if we are a single, unified 

buyer, rather than purchasing through thousands of small, duplicative contracts. By encouraging 

agencies to commit to the collective purchase of certain commodities, GSA is able to negotiate 

better prices and services, while simultaneously reducing wasteful contract duplication across 

1 
47 

government. For example, by going out to the market as one large buyer for office supplies, 

GSA has been able to negotiate prices for these supplies that are 13 percent below what we 

have previously paid. We have also saved agencies the time and money that would otherwise 

be devoted to their own office supply contracts. To date, GSA has saved agencies more than 

$330 million since 2010 through these solutions. 

Strategic sourcing also enables us work with small businesses across the country. The program 

not only allows us to access the savings and services they offer, but also provide them with an 

invaluable opportunity to work with the federal government. In the area of office supplies alone, 

GSA has increased the total dollars going to small businesses from 67% prior to the strategic 

sourcing solution to 76% through the solution, representing more than $461 million in sales. 

Through this initiative, we have been able to save the government $200 million on purchases of 

common office supplies while also supporting small businesses. 

Another benefit of the strategic sourcing program is that these contracts provide greater visibility 

into pricing, allowing the government to further reduce prices within strategically sourced 

solutions, as well as other contract vehicles. Contractors are required to report transactional 

data on all program sales. For the first time, this level of financial information collection provides 

us with a clear picture of agency spending behavior. Over the last several months, GSA has 

used this data to show contractors their pricing item by item, compared with their competitors in 

an anonymous fashion. This has empowered contractors to understand their competitive 

position, and in many cases offer better deals. For instance, after GSA shared this data with 

office supply contractors, every one of them sharply reduced prices. As a result, we expect our 

savings for office supplies to increase to 20 percent heading into the next fiscal year. GSA also 

found that by creating competition through this strategic sourcing solution, even vendors not 

participating in it lowered their prices by 10 percent compared to 2010. This improved pricing 

has resulted in an additional $98 million in savings. 

Finally, strategic sourcing also dramatically reduces agency contracting cycle times and 

duplication, saving additional administrative burden and cost. Strategic sourcing is able to 

eliminate the significant amount of time and money wasted by putting in place thousands of 

duplicative contracts across the government, and even within agencies, for similar items and 

with many of the same vendors. For instance, our work through FSSI identified large pricing and 

service disparities in agency wireless contracts that is costing the government millions in 

unnecessary spending. We even found vastly different pricing with the same carrier, for the 

same plan, in the same agency. 

In the case of the just mentioned wireless plans, to assist agencies and eliminate unnecessary 

duplication, GSA recently awarded a strategically sourced solution for wireless service plans 

and devices. This new solution provides a single acquisition vehicle for the more than 4,000 

wireless agreements and 800 wireless plans that are currently scattered across the agencies. 

Not only will this contract save agencies $300 million over five years, it will allow agencies to run 

these plans and services at least as effiCiently as your typical family plan. We will now be able to 

pool minutes, shut down lines with zero usage, and receive an inventory of devices. 

2 
48 

This is not isolated to wireless services. We have thousands of duplicative contracts across 

governrnent for cleaning supplies, power tools and software licenses, all with vastly different 

prices. In the area of IT and professional services alone, we have 16,000 contracts scattered 

across agencies with nearly 5,000 vendors. Significant progress is being made by both GSA 

and other agencies to eliminate this duplication but there is still more we can do to streamline 

purchasing, improve service and pursue government-wide contracting goals. 

Strategic Sourcing Moving Forward -

Over the next two years, in coordination with the Office of Management and Budget (OMB), 

GSA will create ten new government-wide strategic sourcing contracts for a range of products 

and services commonly purchased by federal agencies. GSA is working towards establishing 

strategic sourcing solutions for FY 2013 in the areas of: 

Large Desktop Publisher Software; 

Print Management Phase 2; 

• Maintenance, Repair, and Operations Supplies; and 

• Janitorial and Sanitation Supplies. 

These efforts, similar to the solutions for office supplies and delivery services, will save 

hundreds of millions in taxpayer dollars and deliver the best value to agency customers. For 

these solutions, vendors will provide detailed data on pricing and usage that allows us to drive 

even greater savings for agencies, and also makes it clear to agencies the savings that they are 

leaving on the table by not using strategic sourcing. We are also able to use the pricing data to 

negotiate eVEm greater savings from our vendors. GSA estimates the potential savings from 

strategic sourcing at $1 billion annually when all ten solutions are in place and agencies are fully 

participating. 

A key element to our success is that these solutions are being created by the agencies, with a 

cross governmental team of acquisition professionals, program officials, and subject matter 

experts to identify agency needs, requirements, draft the requests for proposals, evaluate the 

solutions, and manage agency implementation. This team decides what products will go into the 

solution, what services they may require, and which vendors we will select to provide us with 

these products and services. 

Increasing Utilization -

We are also focused on increasing agency participation in these strategically sourced contract 

vehicles. In order to help partner agencies achieve greater savings for the taxpayer, I have 

been meeting with agency Secretaries and Deputy Secretaries to discuss ways in which we can 

collaborate. Among the topics I have been discussing with them is an analysis of each agency's 

3 
49 

use of schedules and opportunities to expand and improve cooperation. We show the agencies 

that using GSA schedules save time and money over creating their own contracts. We also 

show them that GSA schedules are an excellent opportunity to increase their small business 

participation and this is also the case for our strategically sourced solutions. 

At the same time, we are working with program and acquisition staff from agencies across 

government to understand their concerns about using GSA's services so that we can better 

tailor the schedules to their needs and show them the vast array of procurement solutions our 

agency has to offer. GSA offers a wide range of solutions through its strategic sourcing 

initiatives, schedules, and government-wide acquisitions (GWACs). We are constantly 

exploring new ways to make our partners more aware of not only the savings that can be 

achieved through use of these vehicles, but also the cost of replicating existing, available 

vehicles. Finally, we are developing a continuous reporting framework to provide agency 

leadership with feedback on agency use of GSA vehicles and the available opportunities to 

reduce workload and save time in both developing contracts and fulfilling the agency's need. 

Conclusion -

In the months ahead, GSA will continue to drive savings, streamline agency procurement 

operations, and deliver the best value for our partner agencies and the American people. As 

part of this broad commitment to savings and efficiency, GSA will continue to take a leadership 

role in developing and implementing strategic sourcing solutions. In fact, it was an early attempt 

to leverage the scale and scope of the Federal Government through strategic sourcing that led 

to the creation of GSA. Our Federal Acquisition Service exists exclusively to aggregate the 

demand and purchases of the Federal Government to get the best value and price. We are one 

of the key players in strategic sourcing for the Federal Government. 

I appreciate the opportunity to be here today and I am happy to answer any questions you have. 

Thank you. 

4 
50 

For Release on Delivery 

Expected at 3:00 p.m. EST Monday, July 15, 2013 

GAO-13-765T 

United States Government Acconntability Office 

Testimony 

Before the Committee on Homeland 

Security and Governmental Affairs, 

U.S. Senate 

STRATEGIC SOURCING 

Improved and Expanded 

Use Could Provide 

Significant Procurement 

Savings 

Statement of Cristina Chaplain, Director 

Acquisition and Sourcing Management 
51 

Why GAO Did This Study 

GAO has reported Ihat tM government 

is nol ful!y leveraging itsag'gregate 

buying power, Strategic squrcing, a 

process that moves 'an organizatfon 

away from numerous, indiV[dual 

procurements to a proad"r aggregate 

approach, has allowed leading 

compEmies tp achieve savings of 10 

percent or more, A savings rate of 10 

percent of total federal procurement 

spending would represent mOre Ihan 

$50 billion annually, WhilesIrategic 

sourcing makes good sense and t}o!ds 

the potential to achieve, significant 

savings\ federal agencies have, been 

slow to embrace it, even in a time of 

great fiscal pressuie, 

This statement highlights GAO's recent 

findingii related to the use, of strate\jlc 

$Ourc![19 ac:ro~s government, best 

practices leading companies ar" 

adopting to increase savings when 

a'c:quJring services) and rec~nt actions 

lhat eQuid facilitate greater USe of 

strategiC sourcing, GAO's testimony is 

base.d largely on GAO's September 

.2012 repprt On strateglc sourcing and 

GAO's AprH20f3' report on leading 

praCtiCe'S for acquiMn9 services, as well 

as'bther GAO rspurts on contracting 

and aCquisition. 

What GAO RecQmmends 

GAO is not making any new 

recommendations in this'testlmony, 

GAO.has made recommendations to OMB, DOD, VA, and other agenCies on 

key aspects of strategiC sourcing and 

acquisition of products and services in 

the past These recommendations 

addressed such matters as setting 

goals aild establishing metrics, OMB 

and the agencies concurred with the 

recommendations, and are in the 

process of implementing them, 

STRATEGIC SOURCING 

Improved and Expanded Use Could Provide 

Significant Procurement Savings 

What GAO Fouud 

Most of the agencies GAO reviewed for its September 2012 report leveraged a 

fraction of their buying power. More specifically, in fiscal year 2011, the 

Departments of Defense (DOD), Homeland Security, Energy, and Veterans 

Affairs accounted for 80 percent of the $537 billion in federal procurement 

reported managing about 5 percent of that spending, Or $25.8 

strategiC sourcing efforts, Similarly, GAO found that the Federal 

Strategic Sourcing Initiative had only managed a small amount of spending 

through its four government-wide strategiC sourcing initiatives in fiscal year 2011, 

although it reported achieving significant savings on those efforts, Further, we 

found that most selected agencies' efforts did not address their highest spending 

areas, such as services, which may provide opportunities for significant savings 

Companies' keen analysis of spending is key to their savings, coupled with 

centra! management and knowledge sharing about the services they buy. Their 

analYSis of spendjng patterns comprises two essenHal variables: the complexity 

of the service and the number of suppliers for that service, Knowing these 

variables for any given service, companies tailor their tactics to fit the Situation, 

and do not treat all services the same, Leading companies generally agreed that 

foundational principles-maintaining spend visibility, centralizing procurement, 

developing category strategies, focusing on total cost of ownership, and regularly 

reviewing strategies and tactics-are all important to achieving successful 

services acquisition outcomes. Taken together, these principles enable 

companies to better identify and share information on spending and increase 

market knowledge about suppliers to gain situational awareness of their 

procurement environment and make more informed contracting decisions. Like 

the federal government, leading companies have experienced growth in 

spending on services, and over the last 5 to 7 years have been examinjng ways 

to better manage spending, Officials from seven leading companies GAO spoke 

with reported saving 4 to 15 percent over prlor year spending through 

strategically sourcing the full range of services they buy, including those very 

similar to what the federal government buys-for example, facilities 

management, engineering, and information technology, 

Agencies have not fully adopted a strategiC sourcing approach but some have 

actions under way, For example, in April 2013, DOD was assessing the need for 

additional resources to support strategic sourcing efforts, and noted a more 

focused targeting of top procurement spending categories for supplies, 

equipment, and services, VA reported that it had taken steps to better measure 

spending through strategiC sourcing contracts and was in the process of 

reviewing business cases for new strategiC sourcing initiatives, In 2012, the 

Office of Management and Budget (OMB) released a Cross-Agency Priority Goal 

Statement, which called for agencies to strategically source at least two new 

products Or services in both 2013 and 2014 that yield at least 10 percent savings, 

In December 2012, OMS further directed agencies to reinforce senior leadership 

commitment by designating an official responsible for coordinating the agency's 

strategiC sourcing activities, In addition, OMS identified agencies that should take 

a leadership role on strategic sourcing, OMS directed these agencies to 

strategic Sourcing practices inside their agencies by taking actions 

collecting data on procurement spending 

, __________ United States Government Accountability Office 
52 

Chairman Carper, Ranking Member Coburn, and Members of the 

Committee: 

I am pleased to be here today to testify on the value of strategic sourcing 

as an important tool to achieve greater savings and efficiencies in 

government procurements of products and services. Generally speaking, 

strategic sourcing is a procurement process that seeks to move an 

organization away from numerous individual procurements to a broader 

aggregate approach. The tools and techniques that come with strategic 

sourcing enable organizations to 

develop a better picture of what they are spending on goods and 

services, 

better understand cost drivers, 

prioritize their requirements, 

better manage suppliers, 

take advantage of market trends, and 

target savings. 

Leading companies strategically manage 90 percent of their procurement 

spending, and report savings of 10 percent or more of total procurement 

costs. We have previously reported that leaders across the government 

need to embrace a strategic sourcing approach, and that saving 10 

percent of the total federal procurement spending would produce more 

than $50 billion in savings annually. 1 

While strategic sourcing inherently makes good sense and holds the 

potential to achieve significant savings, federal agencies have been slow 

to embrace it, even in a time of great fiscal pressure. Reasons for this 

include a lack of leadership commitment within agencies, a desire on the 

part of agency officials to maintain control over their contracting, a lack of 

strategic sourcing expertise, data barriers, and perceptions about 

strategic sourcing that increase the hesitancy to use it, such as a fear that 

1 GAO, 2013 Annual Report: Actions Needed to Reduce Fragmentation, Overlap. and 

Duplication and Achieve Other Financial Benefits, GAO-13-279SP (Washington D.C.: Apr. 

9,2013). 

Page 1 GAO·13·765T 
53 

Background 

reporting savings will lead to budget cuts. My testimony today will 

highlight GAO's recent findings related to the use of strategic sourcing 

across government, best practices leading companies have been 

adopting to increase savings when acquiring services, and recent actions 

that could facilitate greater use of strategic sourcing. 

This testimony is based largely on GAO's September 2012 report on 

strategic sourcing and GAO's April 2013 report on leading practices for 

acquiring services, as well as other GAO reports on contracting and 

acquisition. 2 In conducting work on the government side, we spoke with 

four agencies and analyzed relevant data. On the company side, we 

visited seven companies and identified key practices. Details of the scope 

and methodology are available in the September 2012 and April 2013 

reports. All work on which this testimony is based was performed in 

accordance with generally accepted government auditing standards. 

GAO has been assessing strategic sourcing and the potential value of 

applying these techniques to federal acquisitions for more than a decade. 

In 2002, GAO reported that leading companies of that time committed to 

a strategic approach to acquiring services-a process that moves a 

company away from numerous individual procurements to a broader 

aggregate approach-including developing knowledge of how much they 

were spending on services and taking an enterprise-wide approach to 

services acquisition. ' As a result, companies made structural changes 

with top leadership support, such as establishing commodijy managersresponsible for purchasing services within a category-and were better 

able to leverage their buying power to achieve SUbstantial savings. 

Strategic sourcing can encompass a range of tactics for acquiring 

products and services more effectively and efficiently. In addition to 

leveraged buying, tactics include managing demand by changing 

2GAO, Strategic Sourcing: Improved and Expanded Use Could Save Billions in Annual 

Procurement Costs, GA0-12-919 (Washington, D.C.: Sept. 20, 2012): Strategic Sourcing: 

Leading Commercial Practices Can Help Federal Agencies Increase Savings When 

Acquiring Services, GAO-13-417 (Washington, D.C.: Apr. 15,2013): and Strategic 

Sourcing: Improved and Expanded Use Could Provide Procurement Savings for Federal 

Information Technology, GAO-13-408T (Washington, D.C.: Feb. 27, 2013). 

'GAO, Best Practices: Taking a Strategic Approach Could Improve ~OD's Acquisition of 

Services, GAO-02-230 (Washinglon, D.C: Jan. 18, 2002). 

Page 2 GAO-13-765T 
54 

behavior, achieving efficiencies through standardization of the acquisition 

process, evaluating total cost of ownership, and better managing supplier 

relationships. We have particularly emphasized the importance of 

comprehensive spend analysis for efficient procurement since 2002. 

Spend analysis provides knowledge about how much is being spent for 

goods and services, who the buyers are, who the suppliers are, and 

where the opportunities are to save money and improve performance. 

Private sector companies are using spend analysis as a foundation for 

employing a strategic approach to procurement. 

We have previously reported that because procurement at federal 

departments and agencies is generally decentralized, the federal 

government is not fully leveraging its aggregate buying power to obtain 

the most advantageous terms and conditions for its procurements. 4 

Agencies act more like many unrelated, medium-sized businesses and 

often rely on hundreds of separate contracts for many commonly used 

items, with prices that vary widely. Recognizing the benefits of strategic 

sourcing, the Office of Management and Budget (OMB) issued a 

memorandum in 2005 that implemented strategic sourcing practices. 5 

Agencies were directed to develop and implement strategic sourcing 

efforts based on the results of spend analyses. 

In addition to individual agency efforts, a government-wide strategic 

sourcing program-known as the Federal Strategic Sourcing Initiative 

(FSSI)-was established in 2005. FSSI was created to address 

government-wide opportunities to strategically source commonly 

purchased products and services and eliminate duplication of efforts 

across agencies. The FSSI mission is to encourage agencies to 

aggregate requirements, streamline processes, and coordinate purchases 

of like products and services to leverage spending to the maximum extent 

possible. At the time of our 2012 report, four FSSI efforts were ongoingfocused on office supplies, domestic delivery of packages, 

telecommunications, and print management-and three were planned 

Opportunities to Reduce Potential Duplication in Government Programs, Save Tax 

Dollars, and Enhance Revenue, GAO-11-318SP (Washington, D. C.: Mar. 1, 2011). 

50MB, Memorandum for Chief Acquisition Officers, Chief Financial Officers, and Chief 

Information Officers, Subject: Implementing StrategiC Sourcing (Washington, D.C.: May 

20,2005). 

Page 3 GAO-13-765T 
55 

Expanded Use of 

Strategic Sourcing 

Could Save Billions in 

Federal Procurement 

Costs 

related to SmartBUY, Wireless plans and devices, and publication 

licenses. 

In our September 2012 report, we found that most of the agencies we 

reviewed leveraged a fraction of their buying power through strategic 

sourcing. More specifically, in fiscal year 2011, the Department of 

Defense (DOD), Department of Homeland Security (DHS), Department of 

Energy, and Department of Veterans Affairs (VA) accounted for 80 

percent of the $537 billion in federal procurement spending, but reported 

managing about 5 percent of that spending, or $25.8 billion, through 

strategic sourcing efforts. Similarly, we found that the FSSI program had 

only managed a small amount of spending through its four governmentwide strategic sourcing initiatives in fiscal year 2011, aHhough it reported 

achieving significant savings on those efforts. Further, we found that most 

selected agencies' efforts did not address their highest spending areas, 

such as services, which provides opportunities for significant savings. 

We found that when strategically sourced contracts were used, agencies 

generally reported achieving savings. For example, selected agencies 

generally reported savings ranging from 5 percent to over 20 percent of 

spending through strategically sourced contracts. In fiscal year 2011, 

DHS reported managing 20 percent of its spending and achieving savings 

of $324 million. At the government-wide level, the FSSI program reported 

managing $339 million through several government-wide initiatives in 

fiscal year 2011 and achieving $60 million in savings, or almost 18 

percent of the procurement spending it managed through these initiatives. 

After strategic sourcing contracts are awarded, realizing cost savings and 

other benefits depends on utilization of these contracts. We found that 

only 15 percent of government-wide spending for the products and 

services covered by the FSSI program went through FSSI contracts in 

fiscal year 2011. Agencies cited a variety of reasons for not participating, 

such as wanting to maintain control over their contracting activities, or 

because the agency had unique requirements. FSSI use is not mandatory 

and agencies face no consequences for not using FSSI contract vehicles. 

Page 4 GAO·13·765T 
56 

Barriers to Strategic 

Sourcing 

There are a variety of impediments to strategic sourcing in the federal 

setting but several stood out prominently in our 2012 review. 6 Specifically, 

agencies faced challenges in obtaining and analyzing reliable and 

detailed data on spending as well as securing expertise, leadership 

support, and developing metrics. 

Data: Our reports have consistently found that the starting point for 

strategic sourcing efforts is having good data on current spending and 

yet this is the biggest stumbling block for agencies. A spending 

analysis reveals how much is spent each year, what was bought, from 

whom it was bought, and who was purchasing it. The analysis also 

identifies where numerous suppliers are providing similar goods and 

services-often at varying prices-and where purchasing costs can 

be reduced and performance improved by better leveraging buying 

power and reducing the number of suppliers to meet needs. The FSSI 

program and selected agencies generally cited the Federal 

Procurement Data System-Next Generation (FPDS-NG)-the federal 

government's current system for tracking information on contracting 

actions-as their primary source of data, and noted numerous 

deficiencies with these data for the purposes of conducting strategic 

sourcing research. Agencies reported that when additional data 

sources are added, incompatible data and separate systems often 

presented problems. We have previously reported extenSively on 

issues agencies faced in gathering data to form the basis for their 

spend analysis. 7 However, some agencies have been able to make 

progress on conducting enterprise-wide opportunity analyses despite 

flaws in the available data. For example, both the FSSI Program 

Management Office and DHS told us that current data, although 

imperfect, provide sufficient information for them to begin to identify 

high spend opportunities. DHS has in fact evaluated the majority of its 

7 GAO, Opportunities to Reduce Potential Duplication in Government Programs, Save Tax 

Dollars, and Enhance Revenue, GAO-11-318SP (Washington. D.C.: Mar. 1,2011); 

Defense Acqulsitions.< Tailored Approach Needed to Improve Service Acquisition 

Outcomes. GAO-07-20 (Washington, D.C.: Nov. 9, 2008); Homeland Security: Successes 

and Challenges in DHS's Efforts to Create an Effective Acquisition Organization, 

GAO-05-179 (Washington, D.C.; Mar. 29, 2005); Best Practices: Using Spend Analysis to 

Help Agencies Take a More StrategiC Approach to Procurement, GAO-04-870 

(Washington, D.C.: Sept. 16,2004); and Best Practices: Improved Knowledge of DOD 

Service Contracts Could Reveal Signiffcant Savings. GAO-03-661 (Washington, D.C.: 

June 6, 2003). 

Page 5 GAO-13·765T 
57 

10 highest-spend commodities and developed sourcing strategies for 

seven of those based on its analysis of primarily FPDS-NG data. 

Further, we have previously reported that the General Services 

Administration estimated federal agencies spent about $1.6 billion 

during fiscal year 2009 purchasing office supplies from more than 

239,000 vendors. 8 GSA used available data on spending to support 

development of the Office Supplies Second Generation FSSI, which 

focuses office supply spending to 15 strategically sourced contracts. 

Expertise: Officials at several agencies also noted that the lack of 

trained acquisition personnel made it difficult to conduct an 

opportunity analysis and develop an informed sourcing strategy. For 

example, Army officials cited a need for expertise in strategic sourcing 

and spend analysis data, and OMS officials echoed that a key 

challenge is the dearth of strategic sourcing expertise in government. 

VA and Energy also reported this challenge. A few agencies have 

responded to this challenge by developing training on strategic 

sourcing for acquisition personnel. For example, the Air Force noted 

that it instituted training related to strategic sourcing because it is 

necessary to have people who are very strong analytically to do the 

front-end work for strategic sourcing, and these are the hardest to 

find. The training course facilitates acquisition personnel in obtaining 

the strong analytical skills to perform steps like market evaluation. VA 

has also begun to develop training to address this challenge. 

Leadership commitment: We also found in 2012 that most of the 

agencies we reviewed were challenged by a lack of leadership 

commitment to strategic sourcing, although improvements were under 

way.9 We have reported that in the private sector, the support and 

commitment of senior management is viewed as essential to 

facilitating companies' efforts to re-engineer their approaches to 

acquisition as well as to ensuring follow through with the strategic 

sourcing approach. However, we found in 2012 that leaders at some 

agencies were not dedicating the resources and providing the 

incentives that were necessary to build a strong foundation for 

strategic sourcing. 

8GAO. StrategiC Sourcing: Office Supplies Pricing Study Had Limitations, but New 

Initiative Shows Potentialfor Savings, GAO-12·178 (Washington, D.C.: Dec. 20, 2011). 

9GAO·12·919. 

PageS GAO·13·765T 
58 

Metrics: A lack of clear guidance on metrics for measuring success 

has also impacted the management of ongoing FSSI efforts as well as 

most selected agencies' efforts. We found that agencies were 

challenged to produce utilization rates and other metrics-such as 

spending through strategic sourcing contracts and savings achievedthat could be used to monitor progress. Several agencies also 

mentioned a need for sustained leadership support and additional 

resources in order to more effectively monitor their ongoing initiatives. 

Agency officials also mentioned several disincentives that can discourage 

procurement and program officials from proactively partiCipating in 

strategic sourcing, and at many agencies, these disincentives have not 

been fully addressed by leadership. Key disincentives identified by 

agency officials include the following: 

A perception that reporting savings due to strategic sourcing could 

lead to program budgets being cut in subsequent years, 

Difficulty identifying existing strategic sourcing contracts that are 

available for use as there is no centralized source for this information, 

A perception that strategically sourced contract vehicles may limit the 

ability to customize requirements, 

A desire on the part of agency officials to maintain control of their 

contracting, 

Program officials' and contracting officers' relationships with existing 

vendors, and 

The opportunity to get lower prices by going outside of strategically 

sourced contracts. 

Leaders at some agencies have proactively introduced practices that 

address these disincentives to strategically source. For example, DHS 

and VA reported increasing personal incentives for key managers by 

adding strategic sourcing performance measures to certain executives' 

performance evaluations. In addition, several agencies including DOD, 

DHS, and VA have instituted policies making use of some strategic 

sourcing contracts mandatory or mandatory "with exception," aHhough the 

extent to which these policies have increased use of strategic sourcing 

vehicles is not yet clear. Some agencies have made use of automated 

systems to direct spending through strategic sourcing contracts. For 

example, FSSI issued a blanket purchase agreement through its office 

Page 7 GAO-13-76ST 
59 

Agencies Are Reluctant to 

Apply Strategic Sourcing 

to Purchase of Services 

supplies initiative that included provisions requiring FSSI prices to be 

automatically applied to purchases made with government purchase 

cards. VA reported that its utilization rate for the office supplies FSSI 

contracts increased from 12 percent to 90 percent after these measures 

took effect. 

In fiscal year 2012, the federal government obligated $307 billion to 

acquire services ranging from the management and operations of 

government facilities, to information technology services, to research and 

development. This represents over half of all government procurements. 

Making services procurement more efficient is particularly relevant given 

the current fiscal environment, as any savings from this area can help 

agencies mitigate the adverse effects of potential budget reductions on 

their mission. Moreover, our reports have shown that agencies have 

difficulty managing services acquisition and have purchased services 

inefficiently, which places them at risk of paying more than necessary.1O 

These inefficiencies can be attributed to several factors. First, agencies 

have had difficulty defining requirements for services, such as developing 

clear statements of work which can reduce the government's risk of 

paying for more services than needed. Second, agencies have not always 

leveraged knowledge of contractor costs when selecting contract types. 11 

Third, agencies have missed opportunities to increase competition for 

services due to overly restrictive and complex requirements; a lack of 

access to proprietary, technical data; and supplier preferences. 12 

We found that strategic sourcing efforts addressed products Significantly 

more often than services and that agencies were particularly reluctant to 

apply strategic sourcing to the purchases of services. 13 For example, of 

the top spending categories that DOD components reported targeting 

through implemented strategic sourcing initiatives, only two are services. 

Officials reported that they have been reluctant to strategically source 

10GAO, Defense Acquisition: Actions Needed to Ensure Value for Service Contracts, 

GAO·09·643T (Washington, D.C.: Apr. 23, 2009). 

11Contract types include time-and-materials contracts, performancewbased contracts, and 

undefinitized contracts, 

12GAO, Defense Contracting: Competition for $eNices and Recent Initiatives to Increase 

Competitive Procurements, GAO·12·384 (Washington, D.C.: Mar. 15,2012). 

"GAO·12·919. 

PageS GAO·13·765T 
60 

Leading Company 

Practices Generate 

Significant Savings by 

Strategically Sourcing 

Services 

services for a variety of reasons, such as difficulty in standardizing 

requirements or a decision to focus on less complex commodities that 

can demonstrate success. Yet, like the commercial sector, federal 

agencies can be strategic about buying services. For example, DHS has 

implemented a strategic sourcing initiative for engineering and technical 

services, which is also in the top 10 spending categories for the Army, Air 

Force, and Navy. 

The reluctance of federal agencies to apply strategic sourcing to services 

stands in sharp contrast to leading companies. As described below, 

leading companies perceive services as prime candidates for strategic 

sourcing, though they tailor how they acquire these services based on 

complexity and availability. 

Given the trend of increased federal government spending on services 

and today's constrained fiscal environment, this Committee asked that we 

identify practices used by large commercial organizations in purchasing 

services. We reported on the results of this review in April 2013. ,. Like 

the federal government, leading companies have experienced growth in 

spending on services, and over the last 5 to 7 years, have been 

examining ways to better manage them. Officials from seven leading 

companies GAO spoke with reported saving 4 to15 percent over prior 

year spending through strategically sourcing the full range of services 

they buy, including services very similar to what the federal government 

buys: facilities management, engineering, and information technology, for 

example. Leading company practices suggest that it is critical to analyze 

all procurement spending with equal rigor and with no categories that are 

off limits. Achieving savings can require a departure from the status quo. 

Companies' keen analysis of spending, coupled with central management 

and knowledge sharing about the services they buy, is key to their 

savings. Their analysis of spending patterns can be described as 

comprising two essential variables: the complexity of the service and the 

number of suppliers for that service. Knowing these variables for any 

given service, companies tailor their tactics to fit the situation; they do not 

treat all services the same. In our 2013 report, we highlighted quotes from 

company officials that illuminate what their approach to increasing 

procurement efficiency means to them (see table 1). 

Page 9 GAO-13-765T 
61 

Table 1: Quotes from Company Officials about Increasing Procurement Efficiency 

"If you measure it, savings will happenll 

~Savin9s is in our DNN 

HUnmanaged spend equals inefficiency" 

"Centralize the knowledge. not the activity" 

~You must eliminate rogue buying" 

"You cannot just go with a 'three bids and a buy' contracting approach" 

"When purchasing a service, you are essentially paying for the quality of the 

suppliers' management processes~ 

"You must continually stay ahead of suppliers or they will figure you ouf 

"Complexity drives cost" 

Source lntefViewswrthcompanyofflcr81s 

Leading companies generally agreed that the following foundational 

principles are all important to achieving successful services acquisition 

outcomes: 

maintaining spend visibility. 

centralizing procurement, 

developing category strategies, 

focusing on total cost of ownership, and 

regularly reviewing strategies and tactics. 

Taken together, these principles enable companies to better identify and 

share information on spending and increase market knowledge about 

suppliers to gain situational awareness of their procurement environment. 

This awareness positions companies to make more informed contracting 

decisions. 

For example, in addition to leveraging knowledge about spending, leading 

companies centralize procurement decisions by aligning, prioritizing, and 

integrating procurement functions within the organization. The companies 

we spoke with overcame the challenge of having a decentralized 

approach to purchasing services, which had made it difficult to share 

knowledge internally or use consistent procurement tactics. Without a 

centralized procurement process, officials told us, companies ran the risk 

that different parts of the organization could be unwittingly buying the 

same item or service, thereby missing an opportunity to share knowledge 

Page 10 GAO·13·765T 
62 

of procurement tactics proven to reduce costs, Company officials noted 

that centralizing procurement does not necessarily refer to centralizing 

procurement activity, but to centralizing procurement knowledge, This is 

important because there is a perception in the federal community that 

strategic sourcing requires the creation of a large, monolithic buying 

organization, 

Companies also develop category-specific procurement strategies with 

stakeholder buy-in in order to use the most effective sourcing strategies 

for each category, Category-specific procurement strategies describe the 

most cost-effective sourcing vehicles and supplier selection criteria to be 

used for each category of service, depending on factors such as current 

and projected requirements, volume, cyclicality of demand, risk, the 

services that the market is able to provide, supplier base competition 

trends, the company's relative buying power, and market price trends, 

Company officials told us that category strategies help them conduct their 

sourcing according to a proactive strategic plan and not just on a reactive, 

contract-by-contract basis, One company's Chief Procurement Officer 

referred to the latter as a "three bids and a buy" mentality that can be very 

narrowly focused and result in missed opportunities such as not 

leveraging purchases across the enterprise or making decisions based 

only on short term requirements, Similarly, Boeing says it sometimes 

chooses to execute a short-term contract to buy time if market research 

shows a more competitive deal can be obtained later. 

In addition, companies focus on total cost of ownership-making a holistic 

purchase decision by considering factors other than price. This is also 

contrary to a perception that strategic sourcing can lose a focus on best 

value, For example, while Walmart may often award a contract to the 

lowest bidder, it takes other considerations into account-such as 

average invoice price, time spent on location, average time to complete a 

task, supplier diversity, and sustain ability-when awarding contracts. 

Humana is developing internal rate cards for consulting services that 

would help the company evaluate contractors' labor rates based on their 

skill level. Pfizer's procurement organization monitors compliance with 

company processes and billing guidelines. The company considers its 

procurement professionals as essentially risk managers rather than 

contract managers because they need to consider what is best for the 

company and how to minimize total cost of ownership while maintaining 

flexibility. 

Page 11 GAO-13·765T 
63 

Companies Tailor Their 

Procurement Tactics to 

Each Type of Service 

Depending on Complexity 

and Availability of 

Suppliers 

By following the foundational principles to improve knowledge about their 

procurement environment, companies are well positioned to choose 

procurement tactics tailored to each service. While companies emphasize 

the importance of observing the principles, including category strategies, 

they do not take a one-size-frts-all approach to individual service 

purchase decisions. Two factors-the degree of complexity of the service 

and the number of available suppliers-determine the choice of one of 

four general categories of procurement tactics appropriate for that 

service: leveraging scale, standardizing requirements, prequalifying 

suppliers, and understanding cost drivers. Figure 1 below shows how the 

two factors help companies categorize different services and select 

appropriate tactics. 

Figure 1: Companies' Transactional Framework 

Few 

Number of 

suppliers 

Many 

Soon::e.GAO<lllaiYSls 

Standardize 

requirements 

Understand 

cost drivers 

>WW*M~' •••••••••••••••••••••••••• ,. .... ., ••••••••••••• 0 •••••••••••• __ 

Prequalify 

suppliers 

Commodity Knowledge-based 

Service type by degree of complexity 

For commodity services with many suppliers, such as administrative 

support, facilities maintenance, and housekeeping, companies generally 

focus on leveraging scale and competition to lower cost. Typical tactics 

applicable to this quadrant of services include consolidating purchases 

across the organization; using fixed price contracts; developing 

procurement catalogs with pre-negotiated prices for some services; and 

Page 12 GAO-13-76ST 
64 

varying bidding parameters such as volume and scale in order to find new 

ways to reduce costs. 

For commodity services with few suppliers, such as specialized logistics 

and utilities, companies focus on standardizing requirements. Typical 

tactics applicable to this quadrant of services include paring back 

requirements in order to bring them more in line with standard industry 

offerings, and developing new suppliers to maintain a competitive 

industrial base. For example, Walmart holds pre-bid conferences with 

suppliers such as those supplying store security for "Black Friday" -the 

major shopping event on the day after Thanksgiving-to discuss 

requirements and what suppliers can provide. Delphi makes an effort to 

maintain a competitive industrial base by dual-sourcing certain services in 

order to minimize future risk-a cost trade-off. 

For knowledge-based services with many suppliers, such as information 

technology, legal, and financial services, companies prequality and 

prioritize suppliers to highlight the most competent and reasonable 

suppliers. Typical tactics applicable to this quadrant of services include 

prequalitying suppliers by skill level and labor hour rates; and tracking 

supplier performance over time in order to inform companies' prioritization 

of suppliers based on efficiency. For example, PfIZer Legal Alliance was 

created to channel the majority of legal services to pre-selected firms. 

Delphi only awards contracts to companies on their Category Approved 

Supplier List. The list is approved by Delphi leadership and is reviewed 

annually. 

For knowledge-based services with few suppliers, such as engineering 

and management support and research and development services, 

companies aim to maximize value by better understanding and 

negotiating individual components that drive cost. Typical tactics 

applicable to this quadrant of services include negotiating better rates on 

the cost drivers for a given service; closely monitoring supplier 

performance against pre-defined standards; benchmarking supplier rates 

against industry averages in order to identity excess costs; and improving 

collaboration with suppliers (see table 2). 

Page 13 GAO-1H65T 
65 

Table 2: Examples of Services Based on Complexity and Number of Suppliers 

Few suppliers 

Many suppliers 

Commodity services 

Certain types of security 

Specialized logistics 

Specialized maintenance and repair 

Utilities 

Administrative support 

Automated data processing 

Contract and contingent labor 

Facilities construction and operations 

General maintenance and repair 

Housekeeping and janitorial 

Landscaping 

Telecommunications 

Travel and transportation 

Source" GAO analysiS based on company inteNlaw$ 

Knowledge·based services 

Engineering and management support 

High~end consulting 

Intelligence 

Research and development 

Specialty legal 

Specialty training 

Advertising and marketing 

Education and training 

Financial 

Health care 

Human resources 

Information technology 

Legal 

Public relations 

Companies we reviewed are not content to remain limited by their 

environment; over the long term, they generally seek to reduce the 

complexity of requirements and bring additional suppliers into the mix in 

order to commoditize services and leverage competition. This dynamic, 

strategic approach has helped companies demonstrate annual, sustained 

savings. Companies generally aim to commoditize services over the long 

term as much as possible because, according to them, the level of 

complexity directly correlates with cost. Companies also aim to increase 

competition, whether by developing new suppliers or reducing 

requirements complexity, which could allow more suppliers to compete. In 

doing so, companies can leverage scale and competition to lower costs. 

Page 14 GAO·13·765T 
66 

Recent Actions May 

Facilitate Agencies' 

Greater Use of 

Strategic Sourcing 

OMS and other agencies have recently taken actions to expand the use 

of strategic sourcing. In September 2012, GAO recommended that the 

Secretary of Defense, the Secretary of Veterans Affairs, and the Director 

of OMS take a series of detailed steps to improve strategic sourcing 

efforts. 15 More specifically, we recommended that 

DOD evaluate the need for additional guidance, resources, and 

strategies, and focus on DOD's highest spending categories; 

VA evaluate strategic sourcing opportunities, set goals, and establish 

metrics; and 

OMS issue updated government-wide guidance on calculating 

savings, establish metrics to measure progress toward goals, and 

identify spending categories most suitable for strategic sourcing. 

In commenting on the September 2012 report, DOD, VA, and OMS 

concurred with the recommendations and stated they would take action to 

adopt them. We reported in April 2013 that DOD and VA had not fully 

adopted a strategic sourcing approach but had actions under way. 16 For 

example, at that time, DOD had developed a more comprehensive list of 

the department's strategic sourcing efforts, was creating additional 

guidance that includes a process for regular review of proposed strategic 

sourcing initiatives, noted a more focused targeting of top procurement 

spending categories for supplies, equipment, and services, and was 

assessing the need for additional resources to support strategic sourcing 

efforts. VA reported that it had taken steps to better measure spending 

through strategic sourcing contracts and was in the process of reviewing 

business cases for new strategic sourcing initiatives, and adding 

resources to increase strategic sourcing efforts. 

In 2012, OMS released a Cross-Agency Priority Goal Statement, which 

called for agencies to strategically source at least two new products or 

services in both 2013 and 2014 that yielded at least 10 percent savings. 

At least one of these new initiatives is to target information technology 

commodities or services. In December 2012, OMS further directed certain 

agencies to reinforce senior leadership commitment by designating an 

official responsible for coordinating the agency's strategic sourcing 

16GAO-13_279SP. 

Pag915 GAO-i3-76ST 
67 

(121161) 

activities. In addHion, OMB identified agencies that should take a 

leadership role on strategic sourcing. OMB called upon these agencies to 

lead government-wide strategic sourcing efforts by taking steps such as 

recommending management strategies for specific goods and services to 

ensure that the federal government receives the most favorable offer 

possible. OMB directed these agencies to promote strategic sourcing 

practices inside their agencies by taking actions including collecting data 

on procurement spending. 

In closing, current fiscal pressures and budgetary constraints have 

heightened the need for agencies to take full advantage of strategic 

sourcing. These practices drive efficiencies and yield benefits beyond 

savings, such as increased business knowledge and better supplier 

management. Government-wide strategic sourcing efforts have been 

initiated, and federal agencies have improved and expanded upon their 

use of strategic sourcing to achieve cost savings and other benefits. 

However, little progress has been made over the past decade and much 

more needs to be done to better incorporate strategic sourcing leading 

practices, increase the amount of spending through strategic sourcing, 

and direct more efforts at high spend categories, such as services. 

Companies have shown that it is possible to save money by strategically 

managing services. They have done so not just by consolidating 

purchases of simple, commodity-like services; they have devised 

strategies and tactics to manage sophisticated services. Companies have 

also shown that savings come over a wide base and that results can be 

achieved with leadership, shared data, and a focus on strategic 

categories that is dynamic rather than static. Strategic sourcing efforts to 

date have targeted a small fraction of federal procurement spending. As 

budgets decline, however, it is important that the cost culture in federal 

agencies change. Adopting leading practices can enable agencies to 

provide more for the same budget. 

Chairman Carper, Ranking Member Coburn, and Members of the 

Committee, this concludes my statement. I would be pleased to answer 

any questions at this time. 

Page 16 GAO·13·765T 
68 

WRITTEN TESTIMONY FOR THE RECORD 

SUBMITTED BY ROGER D. WALDRON 

PRESIDENT OF THE COALITION FOR GOVERNMENT PROCUREMENT 

FOR THE 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

JULY 30, 2013 
69 

Chairman Carper, Ranking Member Coburn, and Members of the Committee: The 

Coalition for Government Procurement (the Coalition) appreciates the opportunity to 

provide written testimony to address "Strategic Sourcing: Leveraging the Government's 

Buying Power to Save Billions." Included in this testimony are specific 

recommendations that will result in even greater taxpayer savings than the current 

strategic sourcing approach. 

The Coalition is a non-profit association of firms selling commercial services and 

products to the Federal government. Collectively, our members account for about half 

the commercial item solutions purchased annually by the Federal government. 

Members include small, medium, and large businesses from across the commercial 

marketplace including office supply, furniture, professional services, information 

technology, and maintenance and repair companies. Our members have been involved 

in many of the government's strategic sourcing acquisitions to date. Next year will 

mark our 35th anniversary as an association. We are proud to have worked with 

government officials during these years toward the goal of common sense acquisition 

that delivers best value to customer agencies and the American people. 

The Federal government has a significant opportunity to "buy smarter and save" 

through the adoption of certain strategic sourcing principles. The current strategic 

sourcing approach used by the government focuses on reducing the supplier base, 

collecting transactional data, and driving unit prices down. The strategy misses 

significant opportunities to save taxpayer dollars by: 

• Improving the way items are managed, 

• Better developing government technical requirements, 

• More effectively leveraging volume, and 

• Streamlining procurement processes. 
70 

Strategic sourcing savings estimates focus on the final prices paid by Federal agencies 

but do not account for taxpayer investment in the creation and long term management 

of new strategic sourcing programs government-wide. The government reports large 

savings due to strategic sourcing efforts to date. The Coalition urges that there be 

greater transparency in how these savings are calculated. Moreover, as the government 

looks to increase its use of strategic sourcing, the Coalition recommends a broader 

approach to achieving savings that: 1) measures and reduces total acquisition costs, 2) 

addresses the growth of duplicative contracts government-wide, and 3) maintains a 

competitive Federal supply chain in the long term. 

I. Measure Total Acquisition Costs 

Strategic acquisition involves effectively managing the total acquisition costs 

throughout the procurement process. Total acquisition costs include not only the prices 

paid for products and services, but also transactional and administrative costs incurred 

by Federal agencies that are less visible. Examples include the costs of planning and 

conducting acquisitions as well as contract management throughout the life of the 

contract. Total acquisition cost also focuses on more than the contract process. It 

considers what the agency buys, and how an item is managed. These costs and 

opportunities for savings can be far more significant than reductions in the unit price of 

an item. 

Government unique contract and procedural requirements also increase the 

procurement system's total acquisition costs. The last decade has seen a layering on of 

government unique clauses, regulations and performance requirements for commercial 

items. In particular, over the years there has been a significant increase in additional 

government clauses on commercial item contracts in the Federal Acquisition 

Regulation. In turn, agencies have also added their own unique requirements that are 

inconsistent with what is available in the commercial market. These government 

unique provisions increase risk and operational costs for contractors, resulting in higher 

2 
71 

prices for government. Due to the additional costs associated government unique 

requirements, rather than getting the best competitive pricing for a specific requirement 

the best the government can achieve is the "best of the worst market pricing." 

The current Federal Strategic Sourcing Initiative (FSSI) involves the use of governmentwide Federal Supply Schedule (FSS) Blanket Purchase Agreements (BPAs). The 

Coalition supports the use of Federal Supply Schedules as a platform for governmentwide strategic sourcing initiatives. The current strategies however do not effectively 

leverage the benefits of the Schedule vehicles. 

FSSI BP As do not include specific customer requirements. The BP As include a host of 

costly and complex administrative terms and conditions. Moreover, the process for 

planning, competing and establishing these FSSI BPAs is very costly. In order to 

recoup its costs of establishing these BP As, the General Services Administration (GSA) 

has included an additional fee to customer agencies, beyond the FSS's industrial 

funding fee, for use of the government-wide FSSI BPAs. As a result, a GSA customer 

agency pays a higher fee for competing orders under the FSSI BP A than when 

competing orders under FSS contracts. At the same time, competing the order under 

the FSS contracts will likely result in similar price savings as utilizing a competition 

under the FSSI BP As. 

A more cost effective strategiC sourcing approach would be the promotion and use of 

agency-specific BP As that are based on firm requirements and volume commitments. 

This would allow those closest to the requirements, the end-user agencies, to craft BP As 

that are fully responsive to their needs. This approach provides the opportunity to 

include volume commitments that would enhance competition and deliver greater 

agency savings. These agency savings in tum could be reported to the Office of 

Management and Budget as part of FSSI. 

With regard to the savings associated with the current FSSI BPAs, the accuracy of 

strategic sourcing savings estimates available today is unclear. As noted in GAO 

3 
72 

Report 12-178 "Strategic Sourcing: Office Supplies Pricing Study Had Limitations, but 

New Initiative Shows Potential for Savings" published in December 2011, GSA has 

relied upon a comparison between FSSI BP A pricing and FSS contract level pricing in 

order to calculate strategic sourcing savings. However, in many respects this is a 

misleading comparison in that Federal agencies rarely pay the FSS Schedule price for 

orders with specific requirements. Instead, the final prices paid by the Federal agencies 

under the FSS program are typically discounted from the FSS contract price through 

task or delivery order and! or BP A competitions for specific agency requirements. 

Indeed, there are statutory and regulatory mandates requiring competition for task 

orders under FSS contracts. A more accurate approach would require the government 

to calculate strategic sourcing savings by comparing actual prices paid by Federal 

agencies under task orders and BP As with FSSI BP A prices. 

Measuring total acquisition cost is critical to understanding how much taxpayers are 

actually saving and the associated costs and benefits of strategic sourcing programs. 

That is why the Coalition supports the transparent review of the costs and purported 

savings associated with establishing the FSSI government-wide BP As. 

II. Reduce Non-value Added Contract Duplication Costs 

A significant cost driver for the entire Federal procurement system is contract 

duplication. Across the Federal enterprise there are too many contract vehicles that 

offer the same or similar services and products. According to Bloomberg Government, 

the number of multiple award contracts (MACs) government-wide increased by more 

than 750 between 2006 and 2011. When both the government and private companies 

invest in duplicative contracts, the result is increased government and contractor 

administrative, bid and proposal costs without added value for the American taxpayer. 

Overlapping, redundant contracts also have to be managed by both the public and 

private sectors causing inefficiencies within and across Federal agencies and in 

companies for the life of these contracts. 

4 
73 

The bid and proposal costs that contract duplication compounds for companies include, 

but are not limited to, business development, teaming, capture management, proposal 

development, pricing, negotiations, and decision-making. The costs of these efforts are 

multiplied by new procurements and exasperated by the extension of these 

procurements. 

In addition, contract administrative costs include overseeing subcontractors, 

responding to task and delivery orders, compliance and reporting, as well as marketing 

for new opportunities. Typically contractors will establish a program office to manage 

individual contracts. Contractors that hold multiple contracts for the same goods and 

services must increase investment in these overhead activities to accommodate the 

unique requirements of each contract. These contract administration functions can 

account for millions of dollars in non-value added costs. Not only does the government 

pay for these costs in prices offered by the contractor, but it also covers significant preaward and post-award costs involved in the administration and management of 

duplicative contracts. 

To reduce the number of duplicative contracts across the Federal enterprise, agencies 

should utilize pre-existing government-wide contract vehicles like the GSA FSS 

program and the information technology government-wide acquisition contracts 

(GWACs). The Coalition strongly supports the use of the agency specific BPAs 

established throughout the FSS program for strategic sourcing. GSA's FSS program is 

the most successful shared services model in government. Agencies can compete and 

order items directly from existing contracts rather than go through the long and costly 

process of establishing their own contracts. FSS contracts account for over $50 billion in 

government purchases annually (including GSA and FSS contracts delegated to the 

Department of Veterans Affairs). Customer agencies rely on the FSS contracting 

framework to compete and place tens of thousands of delivery and! or task orders 

effectively each year. It is a shared services framework that empowers customer 

agencies and contractors to focus on requirements and pricing at the task order 

5 
74 

competition level rather than through lengthy, cumbersome and costly contracting 

processes and procedures. 

Rather than creating new strategic sourcing vehicles for products and services, like the 

FSSI contracts, the Office of Federal Procurement Policy should direct customer 

agencies to utilize GSA's FSS program for requirements and avoid creating duplicative 

multiple award contracts. Competing orders and/ or establishing BP As under the FSS 

program for agency specific requirements will reduce costs in the Federal procurement 

system and drive efficiency. 

III. Long Term Impact of the Federal Strategic Sourcing Initiative 

The Coalition is concerned that the FSSI program will have a negative impact on the 

Federal supply chain in the long term-by reducing the number of suppliers (in pursuit 

of short term lower pricing) and by closing the Federal market to businesses 

nationwide. 

Today GSA's FSS program provides more than 20,000 established contracts that bring 

millions of commercial services and products to the Federal marketplace. The FSS 

program's continuous open season policy allows companies to enter the Federal market 

everyday like the commercial marketplace. Under continuous open seasons, companies 

can submit offers to GSA any work day of the fiscal year. This model provides new 

commercial firms of all sizes with an ongoing opportunity to participate in the vital 

Federal marketplace. In particular, continuous open seasons provide opportunities for 

small businesses seeking to enter the federal market. As . a result, competition is 

enhanced, and the government gains access to the latest commercial services and 

products. 

The current practice of closing FSS contracts to new offers after a FSSI contract is 

established shuts out potential new entrants and innovation from the Federal market. 

This departure from the policy of continuous open seasons makes it difficult for new 

6 
75 

companies, especially small businesses, to enter the Federal market and limits 

competition which is the basis for driving lower prices. Symbolically, it also represents 

a lack of faith in the dynamic competition of the commercial marketplace. 

Finally, of great concern is the potential move by GSA and OMB to government-wide 

mandatory use contracting vehicles. Mandatory use represents a closing of the federal 

market to commercial firms. This is especially a concern for small businesses that rely 

on the government market. Mandatory use is also high risk to the government as it 

creates the potential for contract breach liability if a customer agency acquires items 

from other than the mandatory contractors. Significantly, in the 1990's certain FSS 

contracts were mandatory use for all government. GSA paid these mandatory use 

contractors millions of dollars in contract breach claims as a result of customer agencies 

acquiring items from other sources. 

IV. Recommendations 

As the government increases its use of strategic sourcing, the Coalition recommends the 

following to maximize savings and increase efficiencies in the Federal procurement 

system: 

1. Reduce Contract Duplication: The Office of Management and Budget should 

require Federal agencies to utilize pre-existing government-wide contract 

vehicles to procure services and products like FSS contracts and the information 

technology government-wide acquisition contracts to the maximum extent 

practicable. 

2. Measure and Reduce Total Acquisition Costs: Include total acquisition cost 

when calculating the savings achieved through strategic sourcing. The total 

acquisition cost should include the government's administrative costs for 

planning, conducting acquisitions, data collection, and contract management. 

3. Put "Commercial" back in Commercial Item Contracting: Identifying and 

eliminating government-unique requirements in favor of commercial practices 

7 
76 

will greatly reduce the additional costs involved in doing business with the 

Federal government and drive more competitive pricing for agencies and the 

American taxpayer. 

4. Utilize BP A Best Practices: Adopt the best practices outlined in Attachment 1 

with a focus on utilizing agency-level strategic sourcing BP As with specific 

volume commitments rather than generic government-wide contracts. 

V. Conclusion 

Mr. Chairman and Members of the committee, the Coalition for Government 

Procurement is encouraged that you are focusing on how strategic sourcing principles 

can best be used to leverage the buying power of the Federal government. 

Implemented appropriately, strategic sourcing presents a significant opportunity to 

drive considerable cost savings and improve the efficiency and effectiveness of the 

Federal procurement system. We appreciate the opportunity to offer written testimony 

on this important subject and stand ready to provide you with additional input at your 

request. Thank you. 

8 
77 

The Coalition 

for Government 

Procurement 

Attachment 1 

Best Practices for Establishing Blanket 

Purchase Agreements 

The GSA Schedule program provides agencies with an excellent platform to acquire commercial 

services, solutions and products at reasonable prices. Agencies can forge relationships with 

commercial partners and further leverage their buying power by establishing Blanket Purchase 

Agreements (BPAs). The regulatory requirements for establishing BPAs are set forth in FAR 

8.4. In addition to complying with the regulatory requirements, there are specific strategies 

that have proven to be successful in allowing an agency to structure BP As in a manner that 

increases the ability of GSA Schedule contractors to respond in a more competitive manner. 

This paper sets forth best practices that have resulted in BPAs that are successful for both 

federal agencies and GSA Schedule contractors. 

Overview 

Commercial contractors overwhelmingly report that they offer their best terms and prices to 

customers who provide the most detailed information about their requirements and usage. 

Commercial customers that get the best deals share the following traits. They have: 

1. Known, requirements which they share with potential suppliers 

2. Commitment to acquire a specific volume 

3. Centralized program management 

4. Strategies for partnering with suppliers 

Specific information about the factors listed above, when included in a statement of work, have 

great potential to enhance the Government and industry's ability to provide best value to the 

taxpayer. 

Specific requirements, volume commitments and! or guaranteed minimums for BP As will lead 

to enhanced competition and better pricing. Generic BP As that rely on subsequent task order 

competitions introduce a level of complexity and cost that is counterproductive. 
78 

Best BPA Practices 

The following practices have resulted in BP As that improve efficiency and enhance real 

competition while providing best value to the government 

1. Focus on requirements. BP As should be structured with a focused set of requirements to 

enhance effective competition and pricing. Real requirements lead to real price competition in 

the FSS ordering process. 

• BP As reflecting single agency requirements should be preferred over multiple agency or 

government-wide BPAs. Single agency BPAs allow the government to state specific, 

realistic, authentic requirements that can be accurately priced. 

• Include maximum as well as minimum requirements. This information enables bidders 

to provide targeted pricing and avoid the need to build in cushions to cover risks and 

changes that may never materialize. 

• Include a sound estimate of the government's anticipated usage 

2. Include real economic incentives for competition. Commercial pricing policies commonly 

extend favorable pricing to customers with terms and guarantees that offer the company an 

economic benefit Economic incentives include: 

• A commitment to acquire a guaranteed minimum volume. 

• Absent a guaranteed minimum the BP A can include a list of required users 

• If an agency cannot commit to a guaranteed minimum or list of required user, the BPA 

should be evaluated based on technical requirements only; price can be established 

based on competition among technically qualified BP A holders at task order level 

3. Pay attention to BP A management. Major BP As should have a program manager assigned 

to ensure effective execution, implementation and administration. Too often BPAs are 

established without a focused management plan for effective use. Program Managers can be 

particularly effective in: 

• Establishing robust communication between the contractors and end users to 

continually improve the contract administration 

• Eliminating unnecessary administrative requirements that add unnecessary costs to the 

process 

• Monitoring agency ordering 

• Periodically reviewing BP As to ensure continued best value. 

4. To the extent allowable, involve industry partners in the development of acquisition 

strategy. The Government should use industry meetings and statements of work to share 

statements of the agency objectives. In some cases, agencies are focused entirely on negotiating 

low price and may miss opportunities to acquire new commercial solutions that could improve 
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the delivery of services or provide cutting edge technology. Agencies may also be focused on 

lowering the unit price of products or services without considering more significant 

opportunities to lower the total cost of operations by changing what or how they buy. Fully 

incorporating industry discussions early in the process can open opportunities for suggestion 

new, cost saving strategies from commercial partners. 

5. Eliminate "generic BPAs" (no stated users, no minimum volume, broad statement of 

requirements). Generic multiple award BP As that rely on subsequent task order competitions 

add an extra level to the FSS ordering process that is unnecessary and should be avoided. These 

BP As represent vertical contract duplication and increase costs for both government and 

industry. Moreover, any price competition when establishing these BP As is illusory. Subsequent 

BP A task order competitions for specific requirements establish the real price paid by the 

government-it is more efficient to compete these requirements directly against GSA Schedule 

contracts.