United States General Accounting Office 

GAO Testimony 

Before the Committee on Government 

Reform, House of Representatives 

For Release on Delivery 

Expec

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T CONTRACT

MANAGEMENT 

Restructuring GSA’s 

Federal Supply Service and 

Federal Technology Service 

Statement of William T. Woods, Director 

Acquisition and Sourcing Management 

GAO-04-132T 

Highlights of GAO-04-132T, a testimony 

before the Committee on Government 

Reform, House of Representatives 

The General Services 

Administration’s (GSA) Federal 

Supply Service (FSS) and Federal 

Technology Service (FTS) play an 

important role in assisting agencies 

procure a wide range of products 

and services. 

Over the past several years, FSS 

and FTS purchases have 

significantly increased, with IT 

products and services being the 

primary source of this growth. In 

April 2002, we identified overlap in 

FSS’ and FTS’ IT procurement 

programs. A management 

consultant similarly found overlaps 

in FTS’ and FSS’ IT sales and 

marketing functions and contract 

offerings. To enhance FSS and FTS 

operational efficiency and 

effectiveness—in both its IT and 

non-IT business lines—GSA has 

undertaken a performance 

improvement initiative. 

This testimony focuses on GSA’s 

actions to implement its initiative. 

It also discusses the importance of 

enhancing GSA’s ability to help 

agencies strategically purchase 

products and services. 

We recommend that as it moves 

forward with its current 

performance initiative, GSA 

develop the capability to provide 

its customer agencies with 

information and analyses they need 

to leverage their buying power to 

reduce procurement costs. 

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

To view the full product, click on the link 

above. For more information, contact 

William T. Woods at (202) 512-4841 or 

woodsw@gao.gov. 

October 2, 2003 

CONTRACT MANAGEMENT 

Restructuring GSA’s Federal Supply 

Service and Federal Technology Service 

In response to the management consultant’s recommendations, GSA took a 

number of actions to improve FSS and FTS efficiency. 

• 	 First, GSA realigned its marketing, sales, customer account planning, 

and management functions. FSS now has primary responsibility for 

market research and marketing of all GSA products and services, 

including IT, while FTS has primary responsibility for sales and 

customer account planning and management. In addition, GSA 

transferred FTS contract development and maintenance responsibilities 

to FSS. Through this realignment, GSA hopes to eliminate inefficiencies 

due to overlaps and redundancies, provide best value to more federal 

customers, and improve customer relations. 

• 	 Second, GSA created a Contract Vehicle Review Board to ensure its 

existing contracts are rationalized and to evaluate the need for new 

contracts. The Board recently completed its review of IT contracts and 

found that for several of these contracts, the business case was not 

adequate to recompete them in the future. 

• 	 Finally, GSA created a new FTS Office of Professional Services to offer 

assisted procurement services beyond IT and telecommunications. By 

opening its assisted procurement offerings to new areas, GSA aims to 

expand its business base to new customers and enhance customer 

service. In its first 4 months, the Office of Professional Services had 

placed 146 task orders valued at $45 million. GSA expects to achieve 

$430 million in revenue by 2004. 

While these actions should help reduce certain inefficiencies in the federal 

procurement process, we believe GSA needs to take a more active role in 

helping federal agencies reduce the overall cost of their FSS and FTS 

purchases. Because agencies’ processes for establishing requirements for 

FSS and FTS products and services are generally decentralized and 

uncoordinated, agencies lack knowledge of the extent to which purchases 

overlap and buying power is diluted. GSA is in a unique position to help 

agencies analyze their spending agencywide and identify opportunities to 

coordinate their requirements. By using a more strategic approach to FSS 

and FTS procurement, agencies can leverage their buying power for volume 

discounts and thereby reduce overall purchasing costs. A few federal 

agencies have begun to analyze their spending patterns and successfully use 

a strategic purchasing approach for selected categories of products, 

including IT, to leverage their buying power and save money. For example, 

the Air Force saved an estimated $3 million using a strategic purchasing 

approach to buy more than 13,000 desktop and notebook computers 

required for multiple units that previously bought such products separately. 
Mr. Chairman, Ranking Member Waxman, and Members of the Committee: 

Thank you for inviting me here today to discuss the General Services 

Administration’s (GSA) ongoing efforts to improve the efficiency and 

effectiveness of its Federal Supply Service (FSS) and Federal Technology 

Service (FTS). In fiscal year 2002, FSS and FTS helped federal agencies 

buy more than $34 billion of products and services ranging from everyday 

supplies, equipment, and motor vehicles to information technology (IT), 

telecommunications, and travel services. Over the past several years, FSS 

and FTS purchases have increased significantly, with IT products and 

services being the primary source of this growth. 

In April 2002, we testified on the roles of FSS and FTS in federal 

purchasing and identified overlap in their IT procurement programs.1 

While FSS and FTS had reoriented their purchasing programs to provide 

better service to agencies, concerns about overlapping IT acquisition 

programs remained, prompting GSA to hire a management consultant to 

study how effectively the two were operating. The study confirmed that 

while customers and industry partners generally valued GSA, there were 

inefficiencies in FTS’ and FSS’ overlapping IT sales and marketing 

functions and contract offerings. In response to the study’s 

recommendations, GSA announced implementation of a performance 

improvement initiative to enhance FSS and FTS operational efficiency and 

effectiveness—in both IT and non-IT business lines. 

My statement today will focus on the actions GSA has taken to implement 

its performance improvement initiative. I will also discuss the importance 

of enhancing GSA’s ability to promote strategic purchasing practices—by 

analyzing agencies’ purchasing patterns to help identify opportunities that 

could better leverage agency buying power and thereby cut overall 

purchasing costs. This approach is based on our findings of how leading 

companies and other federal agencies have followed strategic purchasing 

practices that clearly paid off in terms of dollar savings. 

In summary, GSA has taken a number of actions to implement its 

performance improvement initiative, but these actions alone will not 

provide the best value for government purchasing. GSA has consolidated 

1

 U.S. General Accounting Office, Contract Management: Roles and Responsibilities of the 

Federal Supply Service and Federal Technology Service, GAO-02-560T (Washington, D.C., 

April 11, 2002). 

Page 1 GAO-04-132T 
and streamlined overlapping operations by restructuring FSS and FTS 

marketing, sales and contracting functions, and evaluated selected 

contracts to identify opportunities to eliminate duplication. If successfully 

implemented, these actions should, over time, help reduce inefficiencies in 

agency operations, but we believe GSA needs to do more. To achieve 

greater savings, GSA needs to help agencies take a more strategic 

approach to coordinating their procurement requirements to better 

leverage their buying power and obtain the most advantageous terms and 

conditions for their purchases. 

Background 	 GSA plays an important role in assisting agencies in procuring supplies 

and services. FSS and FTS, in particular, facilitate a wide variety of 

purchases. FSS assists federal agencies in acquiring a full range of 

products—including over 4 million commonly used commercial items, 

ranging from furniture, computers, tools, equipment, and motor vehicles. 

FSS also assists agencies in acquiring services, such as professional 

consulting, travel, transportation, and property management. FTS provides 

customers with telecommunications products and services—voice, data, 

and video—and a full range of IT products and services. Over the past 

several years, FSS and FTS purchases have increased significantly. In 

fiscal year 2002, FSS’ business volume was more than $27 billion, and is 

projected to grow to almost $32 billion by fiscal year 2004. Between fiscal 

years 1995 and 2002, total revenues for FTS purchasing programs more 

than quadrupled from $1.5 billion to $7.1 billion. Sales of IT products and 

services are the primary source of GSA sales growth. 

Historically, FSS and FTS have taken different approaches to filling agency 

requirements. FSS has followed a self-service business model, using 

contracts that are designed to be flexible, simple to use, and consistent 

with commercial buying practices. FSS negotiates master contracts with 

vendors, seeking discounts off commercial list prices that are at least as 

favorable as the discounts offered to their most favored customers. FTS 

has followed a full-service business model, providing assisted 

procurement services to help agencies define and fill their IT and 

telecommunications requirements. FTS is a major user of the FSS 

schedule contracts as well as a range of contract vehicles FTS and other 

federal agencies have awarded—commonly known as governmentwide 

acquisition contracts. 

While their business models differ, FSS and FTS provide similar IT goods 

and services and provide customers access to many of the same vendors. 

Concerns were raised about potential inefficiencies that may result from 

Page 2 GAO-04-132T 
this overlap—particularly the additional administrative costs incurred by 

vendors to prepare separate proposals for FSS and FTS, and by GSA to 

evaluate and select vendors and administer the contracts. To address 

these concerns, GSA commissioned a management consulting firm to 

conduct a study of the structure and efficiency of FSS and FTS and the 

services they provide to agency customers. The consultant found several 

areas where GSA could realize efficiencies in its operations and made 

several recommendations, including: 

• 	 Combine and realign certain functions—such as marketing and sales, 

contract development and maintenance, and customer support—as they 

relate to IT and telecommunications. 

• 	 Rationalize overlapping IT contracts currently offered—that is, review 

existing IT contracts to identify redundancies and eliminate those that do 

not clearly have a distinct value to GSA’s customers. 

• Expand FTS’ assisted procurement services to GSA business lines other 

GSA Has Taken 

Actions to Streamline 

FSS and FTS 

Operations 

than IT and telecommunications. 

In response to the consultant’s study, the GSA Administrator announced in 

December 2002 that GSA planned to combine and realign some functions 

of FSS and FTS in order to improve efficiencies and to expand FTSassisted procurement services for customer agencies. 

First, GSA realigned its market research, marketing, customer account 

planning and management, and sales functions previously carried out 

separately by FSS and FTS. FSS now has primary responsibility for market 

research and marketing of all GSA products and services, including IT, 

while FTS has primary responsibility for sales and customer account 

planning and management. Through this realignment, GSA hopes to 

(1) eliminate inefficiencies due to overlaps and redundancies, (2) provide 

best value to more federal customers by expanding its market share in IT 

and other product and services areas, and (3) improve customer relations. 

In addition, GSA transferred FTS contract development and maintenance 

responsibilities to FSS. 

Second, GSA created a Contract Vehicle Review Board—with 

representatives from FSS, FTS, GSA’s Office of Governmentwide Policy, 

and its regional offices to ensure its existing contracts are rationalized and 

to evaluate the need for new contracts. The Board recently completed its 

review of FTS IT contracts. The Board found that for a select number of 

these contracts the business case was not adequate to recompete them in 

the future. However, the Board recommended against terminating these 

Page 3 GAO-04-132T 
Improved Knowledge 

of FSS and FTS 

Purchasing Could 

Reveal Significant 

Savings for Federal 

Agencies 

contracts before their scheduled expiration. Therefore, the potential 

efficiencies to be gained from GSA’s efforts to eliminate redundant 

contracts will not be realized for several years, after these contracts 

expire. 

Finally, GSA created a new FTS Office of Professional Services to offer 

assisted procurement services beyond IT and telecommunications in three 

new areas: management organization and business improvement, 

worldwide logistics, and professional engineering. By opening its assisted 

procurement offerings to new areas, GSA aims to expand its business base 

to new customers and enhance customer service by providing consulting 

and management support in a wider range of categories. In its first 

4 months, the Office of Professional Services had placed 146 task orders 

valued at $45 million. GSA expects to achieve $430 million in revenue by 

2004. 

While GSA’s recent actions should help improve the management of 

federal procurement, these actions focus on achieving administrative and 

process efficiencies, not on leveraging the government’s buying power to 

reduce the cost of government purchasing. Because processes for 

establishing requirements for products and services at many agencies are 

generally decentralized and uncoordinated, we believe GSA needs to take 

a more active role in helping federal agencies to coordinate their 

purchases and improve their ability to leverage their buying power and 

obtain the most advantageous terms and conditions. A number of leading 

companies and federal agencies that we have highlighted in our recent 

work have used a strategic procurement approach to achieve significant 

savings. 

A strategic procurement approach begins with a “spend analysis” to see 

who is buying what from whom. Through such an analysis, an agency can 

identify similar goods and services that are being bought from numerous 

suppliers, often at varying prices. With this knowledge, agencies can 

coordinate their purchases to leverage their buying power and rationalize 

their supplier base. 

A few federal agencies have begun to successfully use a strategic 

purchasing approach for selected categories of products to leverage their 

buying power and save money. For example, in 2001, we reported that the 

Page 4 GAO-04-132T 
Department of Veterans Affairs (VA) and the Department of Defense 

(DOD) saved over $170 million annually by jointly procuring 

pharmaceuticals.2

 VA and DOD achieved those savings by agreeing on 

particular high-dollar, high-volume drugs that their facilities would 

purchase and then contracting with the manufacturers of these drugs for 

discounts based on their combined larger volume. The discounts VA and 

DOD obtained were, on average, 33 percent lower than FSS prices. 

Strategic purchasing of IT products has been particularly promising in 

achieving savings. For example, in 2003, following an Air Force-wide 

spend analysis that revealed many leverage opportunities for IT 

equipment, an Air Force commodity council—which includes 

representatives from the major commands, several functional areas, and 

the Air Staff—solicited competing offers from five IT vendors with blanket 

purchase agreements3

 in place for desktop and notebook computers for 

multiple Air Force units that previously bought such products separately. 

According to an Air Force official involved in this effort, the council 

awarded a purchase order for about 13,000 computers to two vendors. The 

new purchasing approach achieved significant savings for the Air Force— 

an average of about $450 per desktop computer and over $200 for each 

notebook computer—for an overall estimated savings of about $3 million. 

This was the first of several anticipated IT buys under the Air Force’s new 

strategic purchasing approach to take advantage of overall buying power 

to achieve mission needs. 

Similarly, the Office of Management and Budget (OMB) projects saving as 

much as $100 million annually on computer software licenses through its 

SmartBUY program, launched in June 2003. According to OMB, more than 

4 million desktop, laptop, and networked computers are in use across the 

federal government, and federal agencies engage in thousands of software 

licensing agreements annually. By coordinating the approach federal 

agencies use to acquire common software licenses, OMB expects the 

government can achieve significant savings from volume discounts. GSA is 

managing the program for OMB through an interagency team that was 

established to review the baseline analysis and inventory of software 

2

 U.S. General Accounting Office, DOD and VA Pharmacy: Progress and Remaining 

Challenges in Jointly Buying and Mailing Out Drugs, GAO-01-588 (Washington, D.C.: 

May 25, 2001). 

3

A blanket purchase agreement is a simplified method of filling anticipated repetitive needs 

for supplies or services by establishing “charge accounts” with qualified sources of supply. 

Page 5 GAO-04-132T 
agreements and develop a migration strategy to start replacing those 

separate agreements with the first round of SmartBUY governmentwide 

licenses by July 2004. 

GSA could help other agencies achieve similar savings. We believe that 

because most agencies have traditionally used a decentralized approach to 

acquiring FSS and FTS products and services, their knowledge of the 

amount spent by their program units on the same or similar FSS and FTS 

products and services is limited, minimizing their ability to identify buying 

practices that dilute their purchasing power and result in unnecessary 

costs. GSA is in a unique position to be able to help agencies conduct 

spend analyses of their FSS and FTS purchases and provide them with the 

knowledge needed to identify opportunities to better coordinate their 

purchases and leverage their buying power and thereby reduce their 

purchasing costs. With agency purchases of FSS and FTS products and 

services exceeding $34 billion in 2002, these savings could be significant. 

Conclusion 	 In conclusion, with the federal government’s critical budget challenges, it 

is more important than ever that GSA partner with agencies and help them 

get the most from every federal dollar spent. The potential for increased 

procurement efficiencies and effectiveness is significant. By learning more 

about their spending for products and services on an agencywide rather 

than individual customer basis, GSA can help agencies leverage their 

buying power, reduce purchasing costs, and better manage their suppliers. 

Recommendation 	 We recommend that as it moves forward with its current performance 

initiative, GSA develop the capability to provide its customer agencies 

with information and analyses they need to leverage their buying power to 

reduce procurement costs. 

Mr. Chairman, this concludes my statement. We performed our work in 

September 2003 in accordance with generally accepted government 

auditing standards.4 I will be happy to answer any questions you or other 

members of the committee may have. 

4

 This work followed on that which we performed from October 2002 through September 

2003, as well as published GAO work. 

Page 6 GAO-04-132T 
Contact and Acknowledgments 

For further information, please contact William T. Woods at 

(202) 512-4841. Individuals making key contributions to this testimony 

include Ralph Dawn, Carolyn Kirby, Jose Ramos, and Karen Sloan. 

Page 7 GAO-04-132T 
Related GAO Products 


Contract Management: High-Level Attention Needed to Transform DOD 

Services Acquisition. GAO-03-935. Washington, D.C.: September 10, 2003. 

Best Practices: Improved Knowledge of DOD Service Contracts Could 

Reveal Significant Savings. GAO-03-661. Washington, D.C.: June 9, 2003. 

VA and Defense Health Care: Potential Exists for Savings through Joint 

Purchasing of Medical and Surgical Supplies. GAO-02-872T. Washington, 

D.C.: June 26, 2002. 

Contract Management: Roles and Responsibilities of the Federal Supply 

Service and Federal Technology Service. GAO-02-560T. Washington, D.C.: 

April 11, 2002. 

Contract Management: Taking a Strategic Approach to Improving 

Service Acquisitions. GAO-02-499T. Washington, D.C.: March 7, 2002. 

Best Practices: Taking a Strategic Approach Could Improve DOD’s 

Acquisition of Services. GAO-02-230. Washington, D.C.: January 18, 2002. 

DOD and VA Pharmacy: Progress and Remaining Challenges in Jointly 

Buying and Mailing Out Drugs. GAO-01-588. Washington, D.C.: May 25, 

2001. 

(120294) Page 8 GAO-04-132T 
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