Strategic Sourcing: Selected Agencies Should Develop Performance Measures on Inclusion of Small Businesses and OMB Should Improve Monitoring
Published: 2014-01-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since 2005, OMB has emphasized using strategic sourcing to improve efficiency in federal procurement. Strategic sourcing is a process that moves an organization away from numerous individual procurements toward a broader aggregate approach. GAO was asked to review how strategic sourcing affects small businesses, including small disadvantaged businesses. This report discusses (1) how OMB, GSA, and selected agencies have considered small businesses in their strategic sourcing efforts and (2) the extent to which data and performance measures are available on the inclusion of small businesses in strategic sourcing initiatives. GAO reviewed guidance and documentation from OMB, GSA, and five other agencies selected based on factors such as dollars awarded to small businesses. GAO also reviewed GSA data as of 2013, DHS data from fiscal year 2005 through the first quarter of fiscal year 2013, and agency reports from fiscal years 2005 to 2012.
section_title: What GAO Found
paragraphs: The Office of Management and Budget (OMB), the General Services Administration (GSA), and selected agencies have taken steps to consider small businesses, including small disadvantaged businesses, in their strategic sourcing efforts. (Small disadvantaged businesses are those unconditionally owned and controlled by socially and economically disadvantaged individuals.) OMB and GSA have developed guidance on strategic sourcing that stresses the importance of including small businesses. GAO's review of documentation for three ongoing government-wide strategic sourcing initiatives showed that GSA considered the inclusion of small businesses in the strategic sourcing process. For example, when developing strategic sourcing initiatives for office supplies and print management, GSA identified the current market share of small businesses with these products and also set aside specific contracts for various categories of small businesses, such as service-disabled veteran-owned small businesses. In addition, GAO's review of agency-wide strategic sourcing initiatives at each of five agencies--Departments of Defense (DOD), specifically Army and the Defense Logistics Agency; Homeland Security (DHS); Housing and Urban Development (HUD); and the Interior and the National Aeronautics and Space Administration (NASA)--showed that the agencies generally considered the inclusion of small businesses.
Data and performance measures that would provide a more precise understanding of the inclusion of small and disadvantaged businesses in strategic sourcing initiatives are limited. Although GSA has collected baseline data on proposed government-wide initiatives, it has not developed a performance measure to determine changes in small business participation going forward. Further, DHS has collected some data on contracts awarded to small businesses under strategic sourcing initiatives, but it and the other agencies in GAO's review generally did not have baseline data and performance measures to determine how small businesses were affected by strategic sourcing. OMB guidance requires agencies to establish baselines for small business participation prior to implementing strategic sourcing and set goals for small business participation. In addition, federal internal control standards state that information is needed to determine whether the agency is achieving its compliance requirements under various laws and regulations. Without baseline data and performance measures, the effect of strategic sourcing initiatives on small businesses will be difficult to determine. Moreover, OMB has not monitored agencies' compliance in reporting baseline data and performance measures on the inclusion of small businesses in government-wide and agency-wide strategic sourcing initiatives. OMB required agencies to submit annual reports on the implementation of strategic sourcing from fiscal years 2005 through 2007 and prepare information for acquisition status sessions from fiscal years 2010 through 2012. (No reporting was in place for fiscal years 2008 or 2009.) However, virtually none of this information included baseline data or measures of the effect of strategic sourcing on small businesses. Federal internal control standards state that effective monitoring should assess the quality of performance over time. Without effective monitoring, it will be difficult for OMB to help ensure that agencies are tracking the impact of strategic sourcing on small businesses.
section_title: What GAO Recommends
paragraphs: GAO makes recommendations to GSA, selected agencies, and OMB to improve data collection and performance measures related to the inclusion of small businesses in strategic sourcing. DOD, DHS, GSA, HUD, and OMB agreed with GAO’s recommendation. Interior partially agreed, suggesting that a more effective approach would be to work with OMB and other agencies to develop common approaches. NASA disagreed, stating it already tracks related spending for the agency. GAO believes its recommendations remain valid as discussed in the report.

section_title: Letter
paragraphs: In fiscal year 2012, the federal government obligated approximately $517  billion for products and services, approximately $100 billion of which was  obligated to small businesses. Since 2005, the Office of Management and  Budget (OMB) has put increased emphasis on making federal  procurement more efficient and achieving greater cost savings for the  taxpayer through strategic sourcing. Strategic sourcing is a process— sometimes led by a central procurement organization—that moves an  organization away from numerous individual procurements for the same  or similar products or services toward a broader aggregate approach. The  benefits of strategic sourcing can include cost savings and less  duplication of effort. However, because strategic sourcing can reduce the  number of available contracting opportunities, some members of the  small business community are concerned that small businesses may be  negatively affected.
Given these views, you requested that we review how strategic sourcing  has affected small businesses. This report discusses (1) the ways in  which OMB and the General Services Administration (GSA) have  considered small businesses in their strategic sourcing guidance and  GSA and selected agencies have considered small businesses in their  strategic sourcing initiatives and (2) the extent to which data and  performance measures are available on the inclusion of small businesses  in government-wide and selected agencies’ internal strategic sourcing  initiatives. Small businesses include those unconditionally owned and  controlled by socially and economically disadvantaged individuals (small  disadvantaged businesses).
To describe the ways in which OMB, GSA, and selected agencies have  considered various categories of small businesses in their strategic  sourcing guidance and efforts, we reviewed OMB and GSA guidance on  strategic sourcing. We also reviewed documentation on three  government-wide strategic sourcing initiatives managed by GSA  (domestic delivery services, office supplies, and print management) to  determine steps taken to consider small businesses. At selected  agencies, we reviewed guidance on strategic sourcing and  documentation on a sample of specific initiatives to determine how small  businesses were considered in the strategic sourcing process. The  selected agencies included in our review were the Departments of  Defense (DOD), specifically the Department of the Army (Army) and the  Defense Logistics Agency (DLA); Homeland Security (DHS); Housing and  Urban Development (HUD); and the Interior (Interior) and the National  Aeronautics and Space Administration (NASA). We selected these  agencies to ensure a range of agencies based on the dollars they  awarded to small businesses in fiscal year 2012, the extent to which they  had adopted strategic sourcing, scores on the Small Business  Administration’s (SBA) procurement scorecards in fiscal years 2010 and  2011, and membership in the Strategic Sourcing Leadership Council.  Finally, we interviewed officials from OMB, GSA, SBA, and selected  agency procurement offices and Offices of Small and Disadvantaged  Business Utilization about the extent to which the agencies have  considered small businesses in the implementation of strategic sourcing.
To evaluate the extent to which data and performance measures were  available on the inclusion of small businesses in government-wide and  selected agencies’ internal strategic sourcing initiatives, we reviewed the  data elements in the Federal Procurement Data System-Next Generation  (FPDS-NG) to determine if there were data on strategic sourcing. In  addition, we analyzed GSA data as of 2013 on government-wide strategic  sourcing initiatives. We also determined whether GSA had taken steps to  track the effect of recently proposed strategic sourcing initiatives on small  businesses by reviewing relevant documentation on these initiatives. In  addition, we reviewed documentation at the selected agencies to identify  any data and performance measures that track the inclusion of small  businesses. This documentation included a strategic sourcing dashboard  from DHS that contained data on its initiatives from fiscal year 2005  through the first quarter of fiscal year 2013. We assessed the reliability of  data from FPDS-NG, GSA, and DHS by interviewing knowledgeable  officials, reviewing documents about the sources of the data, and  comparing selected data to other sources and determined they were  sufficiently reliable for the purpose of reporting government-wide and  agency strategic sourcing spending. We compared available data and  performance measures to OMB’s guidance and federal internal control  standards. Further, we interviewed OMB, GSA, SBA, and selected  agency officials about current and planned efforts to collect data and track  performance measures on strategic sourcing and the inclusion of small  businesses. Appendix I contains additional information on our scope and  methodology.
We conducted this performance audit from February 2013 to January  2014 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: Small Business
paragraphs: The federal government has a long-standing policy of maximizing  procurement opportunities for small businesses, including small  disadvantaged businesses. To encourage the award of federal contracts  to small businesses, Congress has set an annual government-wide goal  of awarding not less than 23 percent of prime contract dollars to small  businesses. SBA negotiates specific goals with each agency to help  ensure that the federal government collectively meets this statutory goal.  In addition, Congress has established statutory goals for various  socioeconomic categories of small businesses. The current goals are
5 percent of prime contract and subcontract dollars are to be awarded  to women-owned small businesses,
5 percent of prime contract and subcontract dollars are to be awarded  to small disadvantaged businesses,
3 percent of prime contracts and subcontract dollars are to be  awarded to service-disabled veteran-owned small businesses, and
3 percent of prime contract and subcontract dollars are to be awarded  to small businesses in Historically Underutilized Business Zones  (HUBZone).
To increase small businesses’ visibility within federal agencies, in 1978  Congress amended the Small Business Act to require that all federal  agencies with procurement powers establish an Office of Small and  Disadvantaged Business Utilization (OSDBU), which would advocate for  small businesses within the agencies. The OSDBU is managed by a  director who is responsible for implementing and executing the agency’s  functions and duties related to the award of contracts and subcontracts to  small and disadvantaged businesses. The Small Business Act lists a  number of functions that OSDBU directors are responsible for carrying  out, including making recommendations to contracting officers as to  whether particular contract requirements should be set aside for small  businesses.business specialists, who are responsible for working with OSDBUs and  agency contracting officers to advocate for small businesses.
section_title: Strategic Sourcing
paragraphs: In general, a strategic sourcing effort begins with an opportunity  assessment—an analysis of spending (spend analysis) and the  identification of products and services for which strategic sourcing should  be implemented. Spend analysis provides knowledge about how much is  being spent for which products and services, who the buyers are, who the  suppliers are, and where the opportunities are for leveraged buying and  other tactics to save money and improve performance. Data on spending  are analyzed on a continual basis to support decisions on strategic  sourcing and procurement management in areas such as cutting costs  and streamlining operations. Based on this analysis, organizations  evaluate and prioritize commodities to create a list of top products or  services to target for strategic sourcing. This list typically includes the  products or services on which most of the organization’s spending is  focused. In addition to spending, criteria such as potential savings and  relative ease of implementation are considered. Once a product or  service is selected for strategic sourcing, a general process is followed  that includes steps such as developing, implementing, and managing the  sourcing strategy for that product or service. A strategic sourcing initiative  can involve multiple contracts.
Recognizing the benefits of strategic sourcing, OMB issued a  memorandum in 2005 that directed federal agencies to develop and  implement a strategic sourcing effort to help control spending. This  memorandum defined strategic sourcing as the “collaborative and  structured process of critically analyzing an organization’s spending and  using this information to make business decisions about acquiring  commodities and services more effectively and efficiently.” According to  the memorandum, the process helps agencies optimize performance,  minimize price, increase achievement of socioeconomic acquisition goals,  evaluate total life-cycle management costs, improve vendor access to  business opportunities, and otherwise increase the value of each dollar.  The memorandum also stated that any strategic sourcing plan must be  balanced with goals for small businesses. Finally, the memorandum  required agencies to identify at least three commodities that could be  strategically sourced and develop agency-wide strategic sourcing plans to  implement their strategic sourcing programs.
In subsequent memorandums, OMB offered further guidance on  implementing strategic sourcing. Most recently, in December 2012 OMB  issued a memorandum reiterating the importance of strategic sourcing  and emphasizing that to the extent practicable, all strategic sourcing  opportunities should seek to increase participation by small businesses.  In addition, the guidance created a new Strategic Sourcing Leadership  Council consisting of the seven largest procurement agencies and SBA.The council was charged with leading the government’s efforts to  increase the use of strategic sourcing. OMB’s guidance related to  strategic sourcing and small businesses is discussed in greater detail in  the next section of this report.
In addition to individual agency efforts, a government-wide strategic  sourcing program known as the Federal Strategic Sourcing Initiative  (FSSI) was established in 2005 as a direct result of the OMB  memorandum. FSSI was created to address government-wide  opportunities to strategically source commonly purchased products and  services and eliminate duplication of efforts across agencies. The Office  of Federal Procurement Policy—the office within OMB assigned to  oversee the FSSI program—is ultimately responsible for providing  oversight and guidance, as well as ensuring the overall effectiveness of  FSSI. In addition, there is an FSSI Program Management Office located  within GSA. The mission of the FSSI program is to encourage agencies to  aggregate contract requirements, streamline processes, and coordinate  purchases of like products and services to leverage spending to the  maximum extent possible. Four government-wide initiatives had been  implemented as of fiscal year 2012: office supplies, print management,  telecommunications expense management services, and domestic  delivery services. Office supplies offers a catalogue of consumable  office supplies; print management reduces equipment needed for printing,  copying, scanning, and faxing; telecommunications expense  management services works to optimize wireless telecommunications  expenses and plan selection; and domestic delivery services offers  delivery service for small packages.
We have previously reported on strategic sourcing. For example, we  found in September 2012 that the agencies we reviewed—DOD, DHS,  and the Departments of Veterans Affairs and Energy—leveraged only a  fraction of their buying power through strategic sourcing and achieved  limited savings. DOD and the Department of Veterans Affairs evaluate the best ways to  strategically source their highest spending categories. These agencies  agreed with the recommendation and have since told us that they are  analyzing spending data. However, they had not completed this analysis  as of August 2013. We also found that a few agencies had experienced  challenges in meeting requirements unique to government procurements,  such as meeting small business goals. However, while acknowledging  that reducing the number of vendors providing a product or service  means that some vendors will be unable to participate, agency officials  reported finding ways to conduct strategic sourcing efforts that allow for  maximum feasible small business participation.
GAO, Strategic Sourcing: Improved and Expanded Use Could Save Billions in Annual  Procurement Costs, GAO-12-919 (Washington, D.C.: Sept. 20, 2012). At DOD, the review  included four components: Air Force, Army, DLA, and Navy.
section_title: OMB, GSA, and Selected Agencies Have Taken Steps to Consider Small Businesses in Their Strategic Sourcing Efforts
paragraphs: OMB and GSA have developed guidance on strategic sourcing that  emphasizes the importance of including small businesses and small  disadvantaged businesses. In addition, our review of documentation for  three ongoing government-wide strategic sourcing initiatives showed that  GSA considered the inclusion of small and disadvantaged businesses in  the strategic sourcing process. Our review of agency-wide strategic  sourcing initiatives at each of five agencies showed that the agencies also  generally considered the inclusion of small and disadvantaged  businesses.
subsections: section_title: OMB and GSA Have Issued Guidance on Strategic Sourcing That Addresses the Importance of Including Small Businesses
paragraphs: Both OMB and GSA have issued guidance on strategic sourcing that  discusses the importance of including small businesses and small  disadvantaged businesses. Since 2005, OMB’s Office of Federal  Procurement Policy has issued five memorandums on carrying out  strategic sourcing:
2005 memorandum: This memorandum laid out the general  framework for establishing and implementing agency-wide strategic  sourcing programs. The memorandum called for the creation of a  strategic sourcing governance structure, goals (including small  business goals), and performance measures, among other things. It  also indicated that agencies should develop baseline data on such  factors as small business spending and report annually on changes in  relation to the baseline.
2007 memorandum: This memorandum listed some accomplishments  or “best practices” from selected agencies’ strategic sourcing  initiatives, including some involving small businesses. For example,  the memorandum noted that DOD reported in fiscal year 2006 that 41  percent of $4.3 billion awarded through strategic sourcing went to  small businesses. The memorandum also strongly encouraged  agencies to participate in government-wide initiatives, such as the  office supplies initiative.
December 2006 and March 2008 memorandums: These  memorandums provided guidance on the information that should be  included in annual strategic sourcing reports for fiscal years 2006 and  2007, respectively. The memorandums asked agencies to provide,  among other things, goals and performance measures used to assess  the agencies’ strategic sourcing activity and the methodologies used  to calculate them. The goals and measures generally were to include  the impact on small business.
2012 memorandum: This memorandum established the Strategic  Sourcing Leadership Council to lead the government’s efforts to  increase the use of government-wide strategic sourcing of goods and  services. SBA was included in the council because of the role small  businesses play in federal procurement. The memorandum required  the designation of a Strategic Sourcing Accountable Official at 24  agencies to coordinate agencies’ internal strategic sourcing  activities. It also placed added responsibilities on GSA to  promulgate requirements, regulations, and best practices for acquiring  and using strategic sourcing initiatives, among other things. In  addition, the memorandum stated that to the maximum extent  practicable, all strategic sourcing opportunities should seek to  increase participation by small businesses and that all proposed  agreements must establish a baseline for small business use under  current strategies and set goals to meet or exceed that baseline under  the new vehicles.
GSA issued guidance (an FSSI Concept of Operations) in May 2008 on  the structure, management, and operations of government-wide strategic  sourcing initiatives. For example, the guidance suggested that in the  governance of strategic sourcing initiatives, a small business  representative, such as an OSDBU official or small business specialist,  be involved early to ensure that small businesses’ concerns are  addressed throughout the process. GSA’s guidance sets out four core  goals for government-wide strategic sourcing initiatives. One of the goals  is to establish mechanisms to increase savings, value, and  socioeconomic participation. More specifically, the goal is to minimize the  total cost for the federal government while ensuring the utilization of small  businesses and the fulfillment of socioeconomic goals by matching small  business capabilities to the government’s requirements. The guidance  calls for a performance measure that measures the total small business  and socioeconomic spending for commodities being strategically sourced  versus baseline spending levels.
In addition to OMB’s and GSA’s guidance, some agencies have issued  their own guidance on strategic sourcing. DOD, DHS, and NASA have  guidance on implementing strategic sourcing within their agencies that  mentions small businesses. For example, similar to GSA’s guidance,  DOD’s June 2013 guidance calls for a performance measure to identify  the change in small business and socioeconomic utilization as a result of  strategic sourcing. DHS’s strategic sourcing guidance states that one of  the goals of its strategic sourcing program is to improve the agency’s  ability to meet its overall small business goals. NASA’s guidance notes  that an OSDBU representative is a member of the agency’s strategic  sourcing team. At the time of our review, Interior and HUD did not have  specific guidance related to developing or implementing internal strategic  sourcing initiatives. However, Interior and HUD, as well as Army, DLA,  and DHS, have issued memorandums mandating the use of the office  supplies II government-wide initiative. HUD and DLA’s memorandums  also require their contracting officers to purchase office supplies from the  13 small business contractors in the initiative before purchasing from the  2 large business contractors.
section_title: GSA Has Taken Steps to Consider Small Businesses in Selected Government-wide Strategic Sourcing Initiatives
paragraphs: Our review of documentation for three ongoing government-wide strategic  sourcing initiatives—office supplies II, print management functional areas  I and II, and domestic delivery services—showed that GSA considered  the inclusion of small businesses and small disadvantaged businesses in  the strategic sourcing process. For example, when developing the office  supplies II and print management initiatives, GSA identified the current  market share for small businesses and specific opportunities that could  be set aside for socioeconomic categories, such as service-disabled  veteran-owned businesses. In addition, GSA held presolicitation meetings  with potential vendors in which small businesses discussed barriers to  their participation. According to GSA officials, the agency then made  changes to the contract requirements for the office supplies initiative— such as increasing the required delivery time from 3 days to 4 days and  the minimum order requirement from $50 to $100—that allowed small  businesses to be more competitive. In the domestic delivery services  initiative, GSA identified that the market did not include many small  businesses, but looked for opportunities in the contract to include small  businesses as subcontractors. In addition, GSA OSDBU officials  explained they take additional steps on government-wide strategic  sourcing initiatives to ensure the consideration of small businesses.  Specifically, they get involved earlier in the acquisition process by  reviewing the business cases for the initiatives, and they involve more  people in the review of the contracting process for these initiatives. We  discuss more detailed information collected by GSA on the inclusion of  small businesses in strategic sourcing later in this report.
In addition to these ongoing initiatives, GSA is the lead agency for three  initiatives proposed in fiscal year 2013: janitorial and sanitation supplies;  maintenance, repair, and operations; and print management functional  areas III and IV.government-wide strategic initiatives found that GSA considered the  inclusion of small businesses. For example, market research conducted  on janitorial and sanitation supplies indicated that about 90 percent of the  approximately 200 contractors capable of meeting the requirements of the  janitorial and sanitation supply categories were small businesses. In  addition, GSA held a small business partnership session on the janitorial  and sanitation supplies and maintenance, repair, and operations  initiatives in order to obtain input on these two planned initiatives.  According to minutes from the meeting, officials stated that if GSA could  not be assured that the small business market share would be increased,  the initiatives would not go forward. For print management functional  areas III and IV, GSA’s research revealed that small businesses typically  had the ability to provide service to printer-based equipment but that  copier-based equipment typically was dominated by large businesses. In  addition to small business language in business cases, acquisition plans,  and requests for quotation, GSA created small business set-asides in  these three initiatives.
section_title: Selected Agencies Have Generally Considered Small Businesses in Their Agency-wide Strategic Sourcing Initiatives
paragraphs: For each initiative examined, we reviewed documents such as the market research,  acquisition plan, request for proposals or quotations, small business review form, and  contract excerpts. We selected a total of 12 strategic sourcing initiatives. More specifically,  from each of the selected agencies (DOD, specifically Army and DLA; DHS; HUD; Interior;  and NASA), we chose two initiatives that were undertaken between fiscal year 2005 and  fiscal year 2012, generally one that included only large businesses and one that also  included small businesses. At DHS, HUD, and Interior, we had to request replacement  initiatives due to a lack of information on the initial initiative(s) we selected. At DLA, both of  the initiatives we examined involved only large businesses. HUD and Interior were able to  provide information on one initiative involving only large businesses. As a result, our final  sample consisted of 10 initiatives.
For NASA’s Solutions for Enterprise-Wide Procurement IV contract for  information technology awarded in November 2005, the agency  considered small businesses in multiple stages of the contracting  process by setting a goal of 30 percent small business participation in  its acquisition strategy documentation and setting aside part of the  contract for small businesses.
DHS’s FirstSource II contract for information technology products  awarded in September 2012 included set-asides for all five categories  of small businesses (small businesses in general and more  specifically for 8(a) firms, service-disabled veteran-owned, women- owned, and HUBZone small businesses).
Army’s Expedited Professional and Engineering Support Services  program awarded contracts to small businesses, including small  disadvantaged businesses, 8(a) small businesses, and woman-owned  small businesses. Since the program started in January 2005, 42  percent of obligations have gone to small businesses.
For agency-wide strategic sourcing initiatives that did not include contract  awards to small businesses, in general the agencies showed  consideration of small businesses through subcontracting requirements or  by including small business officials in the approval process. For  example, NASA and Army determined that small businesses might be  unable to provide the services needed for their Enterprise Application  Service Technology and Next Generation Wireless initiatives,  respectively. However, small businesses were identified as being able to  provide specialty services, and large businesses were encouraged to  partner with small businesses. In addition, for NASA, the robustness of  subcontracting plans was part of its evaluation of proposals received by  potential applicants. For initiatives involving a weapons system and gun  parts, DLA required the subcontracting plans to include small businesses.
DHS and HUD determined that initiatives for vaccines for a pandemic  outbreak and multifunctional printing devices, respectively, did not have  opportunities for small businesses, but an OSDBU representative was  included in the planning for the contract and approved documents such  as the acquisition plan or contract award. For an initiative involving printer  devices, Interior documented on a small business form its determination  that small businesses could not provide the services needed.
The role of the OSDBU in strategic sourcing initiatives varied among the  agencies we reviewed. DOD, HUD, Interior, and NASA officials noted that  the role of the OSDBU in strategic sourcing was the same as its role in  traditional procurement. At DHS, the OSDBU has a role in determining  whether to implement a strategic sourcing initiative and signs the  business case for initiatives. It also coordinates with the department’s  strategic sourcing program office and working group. Further, some  agencies—such as DOD (including Army and DLA), NASA, and Interior— had strategic sourcing committees or councils in place that included the  OSDBU.
section_title: Agency Data and Measures on Inclusion of Small Businesses in Strategic Sourcing Are Limited, and OMB Has Not Monitored Agencies’ Efforts
paragraphs: While our review of agency documentation indicates that agencies do  generally consider small businesses and small disadvantaged businesses  in their strategic sourcing initiatives, agency data and performance  measures that would provide a more precise understanding of the  inclusion of small businesses in strategic sourcing are limited. FPDS- NG—the federal government’s current system for tracking information on  contracting actions—cannot be used to track the extent of strategic  sourcing across the federal government and its effects on small  businesses because there is no strategic sourcing category or  designation in the system. As a result, each individual agency must  maintain data on its own strategic sourcing initiatives if it wants to track  them. Although GSA has collected baseline data on proposed  government-wide initiatives, it has not developed a performance measure  to determine changes in small business participation going forward.  Further, DHS has collected some data on contracts awarded to small  businesses under strategic sourcing initiatives, but it and the other  agencies in our review generally did not have baseline data and  performance measures to determine how small businesses were affected  by strategic sourcing.
For ongoing government-wide strategic sourcing initiatives, GSA was able  to provide us with data on the total number of vendors, the number of  small business vendors, and small business spending (see table 1). GSA  also had some data on two of its planned initiatives for fiscal year 2013.  For example, the agency expected to award 16 of 23 contracts under the  maintenance, repair, and operations initiative to small businesses. In  addition, it expected 17 of 21 contracts awarded under the janitorial and  sanitation supplies initiative to go to small businesses. Because all three  initiatives planned for fiscal year 2013 are in the beginning phases, GSA  has not yet started to collect data on small business spending.
Most of the selected agencies in our review collect only limited  information on their agency-wide strategic sourcing initiatives. DHS, the  one exception, collects information on its strategic sourcing initiatives in a  quarterly strategic sourcing dashboard, which includes information on  small business participation. The dashboard data show that from fiscal  year 2005 through the first quarter of fiscal year 2013, DHS implemented  72 strategic sourcing initiatives, and 43 percent of the spending went to  small businesses. In addition, DHS was able to produce a report that  broke down spending to small businesses by socioeconomic categories  such as women-owned and HUBZone small businesses. Army, DLA,  NASA, Interior, and HUD were able to provide lists of their strategic  sourcing initiatives at our request, but were not able to provide data on  small business spending through all of the initiatives.
We also found that GSA could provide some baseline data, but had not  developed performance measures to determine the extent to which small  businesses had been affected by strategic sourcing initiatives. Our review  of three current government-wide strategic sourcing initiatives showed  that GSA did not include the baseline information on small business  participation in key documents used in developing and tracking the  initiatives. However, in a congressional testimony on GSA’s initiatives,  OMB stated that total dollars going to small businesses for one of the  initiatives, office supplies, increased from a baseline of 67 percent prior to  the strategic sourcing initiative to 76 percent after strategic sourcing.  Our review of documentation for three proposed government-wide  initiatives showed that GSA had developed baselines for small business  use prior to strategic sourcing. For instance, with the janitorial and  sanitation supplies initiative, the baseline for small business participation  was 26 percent of the spending in fiscal year 2011. For the maintenance,  repair, and operations initiative, the baseline for small business  participation was 55 percent of the spending in fiscal year 2012. For print  management functional areas III and IV, the baseline for small business  participation was 5 percent. However, GSA had not yet developed the  performance measure it plans to use to determine changes in small  business participation going forward, as outlined in its 2008 guidance and  OMB’s December 2012 memorandum. GSA officials stated one of GSA’s  goals was to improve how it measures small business participation.
Moreover, our review of selected agencies’ documentation, including  strategic sourcing reports provided to OMB and information prepared for  OMB’s acquisition status sessions, found that the agencies generally did  not include baseline data or performance measures on changes in the  use of small businesses. DHS’s dashboard does not include such  information. The agencies’ strategic sourcing reports generally provided a  broad overview of their strategic sourcing programs, but did not provide  specific baseline data on the inclusion of small businesses prior to  strategic sourcing or performance measures for the inclusion of small  businesses going forward. Similarly, the information prepared for  acquisition status sessions contained a section on strategic sourcing that  did not include such baseline data and performance measures. In a  previous report on strategic sourcing, we found that DOD and the  Department of Veterans Affairs were challenged to produce utilization  rates and other metrics—such as spending through strategic sourcing  contracts and savings achieved—that could be used to monitor  progress. Therefore, we recommended that these agencies set goals  and establish metrics to monitor and track progress towards strategic  sourcing goals. Both agencies agreed with the recommendation and have  since told us they are working to develop goals and metrics. However, the  agencies had not completed their efforts as of August 2013. Similarly, we  found in this review that agencies lacked baseline data and performance  measures on the inclusion of small businesses in strategic sourcing.
As previously discussed, OMB’s 2005 memorandum requires agencies to  develop baseline data, such as data on small business spending, and  report annually on changes in relation to the baseline. Also, its 2012  memorandum states that all proposed strategic sourcing agreements  must establish a baseline for small business use under current strategies  and set goals to meet or exceed that baseline under the new vehicles. In  addition, federal internal control standards state that operating information  is needed to, among other things, determine whether the agency is  achieving its compliance requirements under various laws and  regulations. Although our review indicates that GSA has collected  baseline data on proposed government-wide initiatives, it has not  developed a performance measure to determine changes in small  business participation going forward. Further, we found that the data and  measures maintained by the other agencies in our review do not meet the  OMB reporting requirements. Officials at most of these agencies told us  that they generally limit their tracking of strategic sourcing initiatives to  what OMB specifically requested for the acquisition status sessions.  Officials at two agencies also cited the fact that their total small business  spending had increased since they started implementing strategic  sourcing as an indication that small businesses had not been negatively  impacted. However, the OMB memorandums require baseline data and a  measure of the change in small business spending for each individual  initiative. The absence of such data and measures makes it difficult to  determine the effect of strategic sourcing initiatives on small businesses.
In addition, although OMB’s memorandums state that agencies should  report baseline data and performance measures on the inclusion of small  businesses in strategic sourcing, OMB has not monitored agencies’  compliance in reporting baseline data and performance measures. OMB  has monitored the implementation of strategic sourcing by having  agencies submit annual strategic sourcing reports from fiscal year 2005 to  fiscal year 2007 and prepare information for acquisition status sessions  from fiscal year 2010 to fiscal year 2012. (There was no reporting in place  for fiscal years 2008 or 2009.) Virtually none of this information included  baseline data or measures of the effect of strategic sourcing on small  businesses. According to OMB staff, the most recent acquisition status  sessions were held prior to issuance of the December 2012  memorandum. They stated that they plan to modify the information  required to collect information on strategic sourcing and small  businesses.sourcing with small business. Federal internal control standards state that   However, the current template does not link strategic  monitoring should assess the quality of performance over time.effective monitoring, it will be difficult for OMB to help ensure that  agencies are tracking the impact of strategic sourcing on small  businesses.
section_title: Conclusions
paragraphs: Since 2005, OMB has encouraged federal agencies to implement  strategic sourcing in order to increase cost savings and to consider the  effects of strategic sourcing on goals for small businesses. As recently as  December 2012, OMB reiterated the importance of strategic sourcing and  stated that agencies should seek to increase participation by small  businesses. In addition, OMB guidance states that agencies must  develop the baseline data and performance measures necessary to  determine how strategic sourcing initiatives have affected small  businesses. Despite this guidance and federal internal control standards  stating that information is necessary to determine whether agencies are in  compliance with requirements under various laws and regulations, the  agencies in our review generally did not have baseline data and  performance measures to determine how small businesses had been  affected by strategic sourcing. GSA had collected baseline data on  proposed government-wide initiatives, but had not developed a  performance measure to track the change in small business participation  going forward. DHS had collected some data on contracts awarded to  small businesses under strategic sourcing initiatives, but it and the other  agencies in our review generally did not have baseline data and  performance measures to determine how small businesses were affected  by strategic sourcing. Without such data and measures, it is difficult to  determine the effect of strategic sourcing initiatives on small businesses.  Moreover, OMB has not monitored agencies’ compliance with its  requirements to report baseline data and performance measures on the  inclusion of small businesses. Without effective monitoring, it will be  difficult for OMB to help ensure that agencies are tracking the impact of  strategic sourcing on small businesses. Such tracking will be increasingly  important as the use of strategic sourcing in future federal procurement  grows.
section_title: Recommendations for Executive Action
paragraphs: Consistent with OMB guidance and to track the effect of strategic  sourcing on small businesses, we recommend that (1) the Administrator  of GSA establish performance measures on the inclusion of small  businesses in strategic sourcing initiatives and (2) the Secretaries of  DOD, DHS, HUD, and the Interior, and the Administrator of NASA collect  baseline data and establish performance measures on the inclusion of  small businesses in strategic sourcing initiatives.
To help ensure that agencies are tracking the effect of strategic sourcing  on small businesses, we recommend that OMB’s Administrator for  Federal Procurement Policy monitor agencies’ compliance with the  requirement to maintain baseline data and performance measures on  small business participation in strategic sourcing initiatives.
section_title: Agency Comments and Our Evaluation
paragraphs: We sent a draft of this report to eight agencies for their review and  comment. DOD, DHS, HUD, GSA, NASA, and SBA provided written  comments, which are reproduced in appendixes II through VII. Interior  and OMB provided comments by e-mail. DHS, DLA (a component within  DOD), and OMB also provided technical comments, which have been  incorporated as appropriate. DOD, DHS, HUD, GSA, and OMB agreed  with our conclusions and recommendations. Interior partially agreed, and  NASA disagreed. Although we did not make a recommendation to SBA, it  agreed with our observations. The agencies’ specific comments and our  responses are summarized below.
DOD agreed with our recommendation to collect baseline data and  establish performance measures on the inclusion of small businesses  in strategic sourcing initiatives and acknowledged the lack of complete  baseline data on strategic sourcing initiatives and small business  utilization. The agency also mentioned examples of strategic sourcing  initiatives that have included 100 percent set-asides for small  businesses. To address our recommendation, DOD stated that  strategic sourcing teams will be required to begin building baseline  data for future initiatives to provide metrics on small business  participation. In one of its technical comments, DLA disagreed with  our statement that it could not provide data on small business  spending through its strategic sourcing initiatives, noting that it had  provided data on total small business spending over time. However,  as we noted in the report, the OMB memorandums require baseline  data and a measure of the change in small business spending for  each individual initiative. Therefore, we made no change to the report.
DHS agreed with our recommendation to collect baseline data and  establish performance measures on the inclusion of small businesses  in strategic sourcing initiatives and stated that in addition to its current  collection of small business spend data and analysis performed on  strategic sourcing initiatives, the agency plans to review how it  collects baseline data and establishes performance measures and  intends to make changes to more clearly meet OMB’s requirements.  DHS stated that it intends to complete this effort by March 31, 2014.  DHS also stated many of its strategic sourcing vehicles are set-aside  100 percent for small business or include substantial small business  tracks. As we noted in the report, from fiscal year 2005 through the  first quarter of fiscal year 2013, DHS implemented 72 strategic  sourcing initiatives, and 43 percent of the spending went to small  businesses.
HUD agreed with our recommendation to collect baseline data and  establish performance measures on the inclusion of small businesses  in strategic sourcing initiatives and issued guidance on December 17,  2013, to document the process for collecting baseline data and  establishing metrics on small business participation in strategic  sourcing initiatives going forward. Implementing and following through  on this guidance should help in tracking the effects of HUD’s strategic  sourcing initiatives on small businesses.
GSA agreed with our findings and recommendation to establish  performance measures on the inclusion of small businesses in  strategic sourcing initiatives and commented that it would coordinate  internally to collect small business participation metrics against  baseline data for its government-wide strategic sourcing initiatives and  provide the results to OMB in order for OMB to monitor compliance  with its requirements.
In an e-mail received on December 24, 2013, OMB staff stated that  OMB agreed with the recommendation to monitor agencies’  compliance with the requirement to maintain baseline data and  performance measures on small business participation in strategic  sourcing initiatives.
In an e-mail received on December 18, 2013, the audit liaison for the  Department of the Interior stated that Interior partially agreed with the   recommendation to collect baseline data and establish performance  measures on the inclusion of small businesses in strategic sourcing  initiatives. The agency acknowledged it does not currently collect data  that specifically track the impact of strategic sourcing on small  businesses and agreed with the need for effective planning and  monitoring of strategic sourcing initiatives, including establishing  performance measures and small business goals. Interior suggested  that a more effective approach would be to work with OMB and other  agencies similar to Interior to develop common approaches for  collecting baseline data and setting performance measures. We  believe such action would be consistent with the intent of the  recommendation.
NASA disagreed with our recommendation to collect baseline data  and establish performance measures on the inclusion of small  businesses in strategic sourcing initiatives and stated it already tracks  small business spending for the entire agency. In addition, NASA  cited specific regulations that it follows in the Federal Acquisition  Regulation that are related to small business and stated that its  acquisition process allows for all contracting, including strategic  sourcing, to set small business goals. However, as we noted in the  report, the OMB memorandums require baseline data and a measure  of the change in small business spending for each individual initiative.  In addition, we concluded that such tracking will be increasingly  important as the use of strategic sourcing grows. Therefore, we  continue to believe that our recommendation is valid and should be  implemented.
SBA noted that agencies have generally considered small business  participation as a percentage of total contract dollars and stated that it  has been an advocate for establishing a baseline of small business  performance, with triggers requiring small business participation  where agencies fall below those baselines. SBA also noted that  although strategic sourcing may result in savings for the federal  government, strategic sourcing generally reduces the number of  participating suppliers and vendors, including small businesses, and  the impact on small businesses has not been quantified.
As agreed with your offices, unless you publically announce the contents  of this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Director of OMB; the  Secretaries of DOD, DHS, HUD, and the Interior; the Administrators of  GSA, NASA, and SBA; and other interested parties. This report will also  be available at no charge on GAO’s website at http://www.gao.gov.
If you or your staff have any questions about this report or need additional  information, please contact me at (202) 512-8678 or shearw@gao.gov.
Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this report. Staff  acknowledgements are provided in appendix VIII.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives for this report were to discuss (1) the ways in which the  Office of Management and Budget (OMB) and the General Services  Administration (GSA) have considered small businesses in their strategic  sourcing guidance and GSA and selected agencies have considered  small businesses in their strategic sourcing initiatives and (2) the extent to  which data and performance measures are available on the inclusion of  small businesses in government-wide and selected agencies’ internal  strategic sourcing initiatives. Small businesses include those  unconditionally owned and controlled by socially and economically  disadvantaged individuals (small disadvantaged businesses).
To describe the ways in which OMB, GSA, and selected agencies have  considered various categories of small businesses in their strategic  sourcing guidance and efforts, we reviewed OMB and GSA guidance on  strategic sourcing. These documents included OMB memorandums and  GSA’s Concept of Operations for government-wide strategic sourcing  efforts. We also reviewed documentation on three ongoing government- wide strategic sourcing initiatives managed by GSA (domestic delivery  services, office supplies, and print management) to determine steps taken   In addition, we reviewed documentation on  to consider small businesses.three proposed initiatives managed by GSA (janitorial and sanitation  supplies; maintenance, repair, and operations; and print management  functional areas III and IV). At selected agencies, we reviewed any  guidance on strategic sourcing and documentation on a sample of  specific agency-wide initiatives to determine how small businesses were  considered in the strategic sourcing process. The type of documentation  we reviewed for GSA and our selected agencies generally included spend  analyses, business case documentation, acquisition plans, requests for  quotations, small business review forms, and excerpts from the awarded  contracts. The selected agencies included in our review were the  Departments of Defense (DOD), specifically the Department of the Army  (Army) and the Defense Logistics Agency (DLA); Homeland Security  (DHS); Housing and Urban Development (HUD); and the Interior (Interior)  and the National Aeronautics and Space Administration (NASA). We  selected these agencies to ensure a range of agencies in terms of dollars  they awarded to small businesses in fiscal year 2012, the extent to which  they have adopted strategic sourcing, scores on the Small Business  Administration’s (SBA) procurement scorecards in fiscal years 2010 and 2011, and membership in the Strategic Sourcing Leadership Council.Finally, we interviewed OMB, GSA, SBA, and selected agency officials  from procurement offices and Offices of Small and Disadvantaged  Business Utilization about the extent to which the agencies have  considered small businesses in the implementation of strategic sourcing.
To evaluate the extent to which data and performance measures were  available on the inclusion of small businesses in government-wide and  selected agencies’ internal strategic sourcing initiatives, we reviewed the  data elements in the Federal Procurement Data System-Next Generation  (FPDS-NG) to determine if there were data on strategic sourcing. In  addition, we analyzed GSA data as of 2013 on government-wide strategic  sourcing initiatives. We also determined whether GSA had taken steps to  track the effect of recently proposed strategic sourcing initiatives on small  businesses by reviewing relevant documentation on these initiatives. In  addition, we reviewed available documentation at the selected agencies,  including strategic sourcing reports provided to OMB and information  prepared for OMB’s acquisition status sessions, to identify any data and  performance measures that track the inclusion of small businesses. At  DHS, we also reviewed the agency’s strategic sourcing dashboard, which  contained data on its initiatives from fiscal year 2005 through the first  quarter of fiscal year 2013. We assessed the reliability of data from  FPDS-NG, GSA, and DHS by interviewing knowledgeable officials,  reviewing documents about the sources of the data, and comparing  selected data to other sources and determined they were sufficiently  reliable for the purpose of reporting government-wide and agency  strategic sourcing spending. We also compared available data and  performance measures to OMB’s guidance and federal internal control  standards.agency officials about current and planned efforts to collect data and track  performance measures on strategic sourcing and the inclusion of small  businesses.
Further, we interviewed OMB, GSA, SBA, and selected  We conducted this performance audit from February 2013 to January  2014 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Comments from the Department of Defense
section_title: Appendix III: Comments from the Department of Homeland Security
section_title: Appendix IV: Comments from the Department of Housing and Urban Development
section_title: Appendix V: Comments from the General Services Administration
section_title: Appendix VI: Comments from the National Aeronautics and Space Administration
section_title: Appendix VII: Comments from the Small Business Administration
section_title: Appendix VIII: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Paige Smith (Assistant Director),  Pamela Davidson, Meredith Graves, Julia Kennon, Nadine Garrick  Raidbard, William Russell, Jessica Sandler, Jennifer Schwartz, and  William T. Woods made key contributions to this report.