Federal Procurement: Smarter Buying Initiatives Can Achieve Additional Savings, but Improved Oversight and Accountability Needed
Published: 2016-10-26T00:00:00

Fast Facts:
The federal government saved nearly $500 million over the past 5 years through "smarter buying"—such as leveraging the government's collective buying power for things like office supplies. But that's small change compared to what it could have saved.
Smarter buying initiatives have the potential to transform how the government buys, but we found that agencies are not participating at the levels they could be—potentially leaving billions of dollars in savings on the table.
As the Office of Management and Budget implements smarter buying for big-ticket items like IT, it should hold agencies accountable for actually using the initiatives.

Highlights:
section_title: Why GAO Did This Study
paragraphs: Each year, federal agencies obligate over $400 billion on goods and services, but they miss out on savings when they do not leverage their collective buying power. In 2005, the Office of Management and Budget (OMB) directed agencies to leverage spending through strategic sourcing. In 2014, OFPP, an office in OMB, announced its category management initiative, which is intended to further streamline and manage entire categories of spending across the government more like a single enterprise.
GAO was asked to examine the current status of the FSSI program and the extent to which OFPP has incorporated lessons learned from the program into its category management initiative. This report addresses (1) savings and other benefits the FSSI program has achieved, and (2) lessons identified and incorporated into OFPP's category management initiative. GAO analyzed FSSI spending, savings, and adoption data for all seven active FSSIs for fiscal years 2011 through 2015; reviewed OMB, OFPP, Leadership Council, and GSA strategic sourcing and category management guidance; and interviewed GSA and FSSI program officials and OFPP staff.
section_title: What GAO Found
paragraphs: From fiscal year 2011 through 2015, federal agencies reported spending almost $2 billion through the Federal Strategic Sourcing Initiatives (FSSI) GAO reviewed and reported an estimated total of $470 million in savings. Federal agencies' low use of the FSSIs, however, diminished the potential savings that could have been achieved. For example, in fiscal year 2015, federal agencies spent an estimated $6.9 billion on the types of goods and services available through these FSSIs. Of this amount, $4.5 billion was considered “addressable” and could have been spent through the FSSIs, but just $462 million was. While total savings reported for fiscal year 2015 came in at $129 million—a savings rate of 28 percent—had all of the agencies directed their addressable spending through FSSIs, up to $1.3 billion in savings could have been achieved, assuming the same savings rate. See figure.
GAO found that FSSI use has been low, in part, because Leadership Council agencies, a cohort of large federal agencies responsible for FSSI governance, directed only 10 percent of their collective spending to the FSSIs. FSSI guidance requires agencies to develop plans to transition from existing agency vehicles to FSSIs, but Office of Federal Procurement Policy (OFFP) staff and General Services Administration (GSA) officials stated such plans were not collected or used to monitor FSSI use. Ensuring agencies submit these plans and monitoring them is consistent with internal control standards to evaluate and hold agencies accountable for performance.
OFPP's category management initiative largely incorporates key lessons learned from the FSSIs into guidance, such as addressing small business concerns and obtaining data on prices paid. OFPP, however, has not yet ensured that agency-specific targets and performance measures for adoption of FSSI and category management solutions are set. Until OFPP takes action to do so, it is at risk of agencies underutilizing existing FSSI and category management solutions and, in turn, of diminished cost savings.
section_title: What GAO Recommends
paragraphs: To increase potential savings, GAO is making 6 recommendations, including that OFPP ensure agencies submit transition plans, monitor their use, and ensure agency specific targets and performance metrics to measure adoption of FSSI and category management solutions are set. OMB and GSA concurred with the recommendations.

section_title: Letter
paragraphs: Federal agencies obligate over $400 billion annually on goods and  services. For over a decade we have issued reports on how the private  sector has used strategic sourcing—which moves away from numerous  individual procurements of goods and services to a broader aggregate  approach—to reduce costs and improve quality. In 2005, the Office of  Management and Budget (OMB) tasked the Office of Federal  Procurement Policy (OFPP) to identify commodities (goods and services)  to be purchased more effectively and efficiently through strategic  sourcing. In response, the General Services Administration (GSA) and  Department of the Treasury established the Federal Strategic Sourcing  Initiative  (FSSI) program to address government-wide opportunities to  strategically source commonly purchased goods and services and  eliminate duplication of efforts across agencies. OFPP is ultimately  responsible for providing oversight and guidance as well as ensuring the  overall effectiveness of the program.
In 2012, we found that the FSSI program managed little spending through  its initiatives, but reported considerable savings. Specifically, we found  that through the end of fiscal year 2011, the FSSI program managed  $339 million through four government-wide initiatives and reported  achieving $60 million in savings. We reported, however, that the program  faced key challenges in obtaining agency commitments to use new FSSIs  and in increasing the level of agency spending directed through FSSI  vehicles.
In December 2014, OFPP issued a memorandum that directed agencies  to take specific actions to implement category management—an  approach based on industry leading practices—to further streamline and  manage entire categories of spending across government more like a  single enterprise. This approach includes strategic sourcing, but also  includes a broader set of strategies, such as developing common  standards in practices and contracts, and improving data analysis and  information sharing to better leverage the government’s buying power and  reduce unnecessary contract duplication and yield other benefits. Under  the category management initiative, federal procurement spending is  organized into 10 common categories such as information technology  (IT), travel, and construction, which, according to OFPP, altogether  accounted for $275 billion in fiscal year 2014 federal spending. Each  category is led by a team of senior government executives who is to  develop a government-wide strategic plan for smarter buying with clear  metrics and outcomes. Category management is also a Cross-Agency  Priority (CAP) goal.
Given the potential savings that could be achieved with category  management, you asked us to examine the FSSI program and lessons  learned. This report addresses (1) the extent to which savings and other  benefits have been achieved by the FSSI program, and (2) lessons, if  any, from OFPP and GSA implementation of the FSSI program and the  extent to which those lessons have been incorporated into OFPP’s  category management initiative.
We focused our review on seven FSSIs that were active between fiscal  years 2011 and 2015: (1) Office Supplies; (2) Domestic Delivery Services;  (3) Print Management; (4) Wireless; (5) Maintenance,  Repair, and  Operations Supplies; (6) Janitorial and Sanitation Supplies; and (7)  Information Retrieval. This timeframe covers the period since we last  assessed FSSI implementation through the last full year for which data  was available. GSA is the executive agent for all the FSSIs except  Information Retrieval which is administered by the Library of Congress.  We excluded the Telecommunications Expense Management FSSI which  ceased operations at the end of fiscal year 2014 because limited data on  the program were available. FSSIs establish multiple award blanket  purchase agreements, basic ordering agreements, and/or indefinite  delivery, indefinite quantity contracts, through which federal agencies may  obtain the specific goods and services they need. Most FSSIs, such as  Office Supplies, are established with GSA federal supply schedule  vendors. Appendix  I further describes the FSSIs we reviewed.
To determine the extent to which savings and other benefits have been  achieved through the seven FSSIs, we collected, reviewed, and assessed  the reliability  of agency reported data on spending, saving, and adoption.  For the GSA FSSIs which report spending based on vendor reported  transactional data, we obtained documentary and testimonial evidence on  the internal controls used by vendors, the FSSI teams, and the FSSI  Program Management Office to ensure the accuracy of the spending  data. For three of the six GSA FSSIs, we also collected and reviewed a  non-generalizable sample of transactional data reports. For Information  Retrieval, we reviewed quarterly spending reports and interviewed  relevant officials about the process used to collect and review data. We  determined that the spending data for the GSA FSSIs were sufficiently  reliable for our purposes but that the spending data for Information  Retrieval lacked internal controls, were inconsistent, and contained  errors. As a result, the Information Retrieval data were not sufficiently  reliable and we excluded the information from our analyses.
For savings data, we reviewed the methodologies used by each FSSI to  calculate savings and compared them with savings principles approved in  2014. Each of the current GSA FSSIs uses transactional data to calculate  the difference between a baseline unit price and the FSSI price.  Information Retrieval does not calculate savings based on changes in  price, but rather, reports administrative savings as discussed later in the  report. Due in part to the inconsistent spending data, we were also not  able to independently  verify the savings data reported for Information  Retrieval and did not include these figures in our report. We also collected  and reviewed data on FSSI adoption, as well as OMB and GSA efforts to  obtain agency commitments to use the FSSIs and increase FSSI  adoption. We interviewed OMB and GSA officials to identify factors that  explain agency adoption of the FSSIs. We also interviewed GSA  procurement officials about the factors affecting their use of the FSSIs  and obtained documents from the FSSIs explaining why certain agencies  did not use specific FSSIs, but we did not interview officials from the  largest and highest spending procurement agencies responsible for FSSI  approval and oversight regarding the factors affecting their respective  agencies’ use of the seven FSSIs we reviewed. We also assessed the  extent to which the seven FSSIs incorporated key characteristics  identified by OMB to include the collection and use of transactional data,  the calculation of savings based on price, and the use of tiered pricing to  reduce prices as cumulative sales volume increases.
To determine what lessons, if any, OFPP and GSA have identified from  the FSSI program we reviewed the seven current FSSIs and conducted  interviews with GSA and Library of Congress officials responsible FSSI  implementation, as well as GSA officials and OFPP staff responsible for  oversight. Based on this review, we identified lessons learned and  corroborated our findings with GSA officials and OFPP staff responsible  for the implementation and oversight of the FSSI program to determine  which lessons were key. To determine the extent to which these key  lessons learned are addressed by OFPP under its category management  initiative, we reviewed and analyzed category management policies and  guidance. We also interviewed officials from GSA’s Category  Management Program Management Office and OFPP staff. We also  reviewed the CAP goal quarterly progress updates for fiscal years 2012  through 2016 as posted on Performance.Gov for both strategic sourcing  and category management. See appendix II for a more in-depth  description of our scope and methodology.
We conducted this performance audit from November 2015 to October  2016 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
paragraphs: Our prior work has shown how leading companies use strategic  sourcing—a process that moves an organization away from making  numerous individual  procurements to purchasing through a broader  aggregate approach—to manage up to 90 percent of their procurements  and achieve savings of 10 to 20 percent on the goods and services they  buy. A strategic sourcing effort begins after an opportunity is identified,  usually through a spend analysis. Spend analyses provide knowledge  about how much is being spent for given products and services, who the  buyers and suppliers are, and where opportunities exist for leveraged  buying and other tactics to save money and improve performance. Based  on such analysis, organizations evaluate and prioritize commodities for  strategic sourcing.
In 2013, we identified five foundational principles critical to carrying out an  effective strategic sourcing approach: maintaining spend visibility,  centralizing procurement, developing category strategies, focusing on  total cost of ownership, and regularly reviewing strategies and tactics.  Within those principles, leading companies highlighted the importance of  identifying the most cost effective sourcing vehicles, clearly defining and  communicating policies in order to eliminate unapproved purchases, or  “rogue buying,” and ensuring that spending goes through approved  contracts. Taken together, these principles enable companies to identify  market trends, share knowledge about suppliers, make more informed  contracting decisions, and take advantage of opportunities to save money  and buy more efficiently. See appendix III  for a full list of leading  companies’ foundational principles for strategic sourcing.
subsections: section_title: Federal Strategic Sourcing Initiative
paragraphs: Since 2005, OMB has issued several memorandums to establish a  framework, standards, and governance for government-wide strategic  sourcing efforts. In its May 2005 memorandum, OMB 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,” and directed agencies to take action to  leverage and control government spending through strategic sourcing. In  response to OMB direction, the Department of the Treasury and GSA,  with support from OFPP, partnered to launch the FSSI program in  November 2005 to strategically source commonly purchased products  and services. The FSSI program was chartered under the purview of the  Chief Acquisition Officer’s Council and the Strategic Sourcing Working  Group with OFPP ultimately responsible for providing oversight and  guidance as well as ensuring the overall effectiveness of the program.  The Working Group, comprised of representatives of various agencies,  was responsible for vetting and approving initiatives and sourcing  strategies, and establishing standards, processes, and policies. The FSSI  Program Management Office within GSA was established to support the  Working Group and coordinate the efforts of the agencies designated as  executive agents to implement individual  FSSI initiatives; provide  guidance and oversight; review information and recommendations; and  makes strategic program decisions.
In December 2012, OMB issued guidance that formalized a governance  structure, provided additional requirements, and identified key  characteristics of federal strategic sourcing efforts. For example, key  characteristics included the use of tiered pricing or other appropriate  strategies to reduce prices as cumulative sales volume increases, and  contractual requirements with vendors to provide sufficient pricing, usage,  and performance data to enable the government to improve commodity  management practices on an ongoing basis. Noting that the majority of  federal spending is driven by a small number of large agencies, OMB  established the Strategic Sourcing Leadership Council (Leadership  Council) and called on the seven largest and highest spending agencies  and the Small Business Administration to take a leadership role on  strategic sourcing. The Leadership Council is chaired by the  Administrator of OFPP and comprised of representatives from the  Departments of Defense (DOD), Energy, Health and Human Services,  Homeland Security, and Veterans Affairs; GSA; the National Aeronautics  and Space Administration (NASA); and the Small Business  Administration. See appendix IV for key provisions from the 2012 OMB  strategic sourcing memorandum.
The Leadership Council is expected to propose plans and management  strategies to maximize the use of strategic sourcing efforts. For example,  in 2013, the Leadership Council established a three step key decision  point process for developing, approving, and overseeing the FSSIs which  is described in GSA’s FSSI guidance. The Leadership Council must  provide approval at each step in order for a prospective FSSI to progress  through the strategic sourcing process and obtain the requisite  designation. Figure 1 summarizes the key decision point process.
For the first key decision point, any interested agency can present a high  level opportunity analysis for a commodity which they believe may be a  FSSI candidate. If the Leadership Council approves the candidate at the  first key decision point, a commodity team is formed to develop and refine  the commodity strategy and develop a solution strategy. If the Leadership  Council approves the second key decision point, the commodity team is  allowed to execute the strategy. After execution, the commodity team is to  summarize the solution and assess success. If the new solution proves  valuable, then it is approved at the third decision point and given “FSSI”  designation and, it is to become mandatory to the maximum extent  practicable. Because the key decision point process is relatively new, it  has not been fully applied to all of the current FSSIs in our review. For  example, Janitorial and Sanitation Supplies and Maintenance, Repair,  and Operations Supplies are listed on GSA’s FSSI website although they  have not been formally approved as FSSIs at the third key decision point.
After determining the scope and the total government-wide spending on  the commodities covered by the proposed solution, the commodity team  is to refine the scope by establishing a baseline for the amount of  spending that can potentially be addressed by the solution. This baseline,  referred to as addressable spend, is to be used to measure FSSI  adoption by calculating the amount of actual spending through the FSSI  compared to the total addressable spend and is required for approval at  the second key decision point. Addressable spend may identify some  spending as non-addressable to accommodate agency needs or unique  circumstances such as existing agency contractual arrangements where  termination costs would be prohibitive and legislative or other authorities  unique to an agency. If an agency seeks to exclude a portion of spending  from the addressable spend total, the agency must provide the basis for  the exclusion to the commodity team. If resolution is not reached at the  commodity team level, the request for exclusions will be presented to the  Leadership Council for discussion and resolution.
Using the approved addressable spend as a baseline, Leadership Council  agencies are required to provide the lead agency with non-binding  commitment letters stating an agency’s intended volume of purchases  through the proposed solution, for purposes of negotiation and pricing,  prior to award. These letters do not obligate the agency to use a solution  if, for example, the pricing, terms, and conditions, are not aligned with  expectations. Nonetheless, the lead agency is to describe how each  Leadership Council agency will transition from existing vehicles to the  new solution. The lead agency is also responsible for ongoing  management of the FSSI including keeping prices competitive, monitoring  vendor performance, tracking agency adoption, and managing to  performance metrics including savings and small business achievement  against benchmarks, among other things. According to OMB’s  addressable spend guidance, identifying addressable spend, determining  conditional commitment levels, and measuring adoption rates are critical  to the success of strategic sourcing.
Further, the Leadership Council is to continuously monitor information on  performance and promote agency adoption, among other things. To  assist their effort, GSA established the FSSI Program Management Office  to monitor overall FSSI program usage for all commodities, to collect and  analyze performance data, and to provide an assessment to the  Leadership Council. The office is also tasked with disseminating best  practices, providing guidance on performance measures and data  collection, and recommending improvements to the FSSIs.
In addition to formalizing the governance structure for government-wide  strategic sourcing efforts, OMB also identified an interim CAP goal for  strategic sourcing in February 2012. CAP goals were introduced in the  fiscal year 2013 federal budget and focused on 14 major issues including  strategic sourcing. The strategic sourcing CAP goal statement for fiscal  years 2013 and 2014 directed agencies to increase their use of FSSI  vehicles by at least 10 percent in both fiscal years 2013 and 2014. For  fiscal years 2014-2015, OMB established new measures for the strategic  sourcing CAP goal to measure Leadership Council agency savings,  adoption, small business use, and reduction in duplication.
Further, federal agencies have also initiated strategic sourcing efforts that  do not fall within the purview of the FSSI program. For example, the  Department of Veterans Affairs reported that its strategic sourcing efforts  generated $1.4 billion in cost avoidances in fiscal year 2015, including  savings from pharmaceutical purchases and medical supplies. The  Department of Homeland Security reports that it saved $466 million in  fiscal year 2015 through a range of agency- and government-wide  strategic sourcing vehicles including FSSIs.
section_title: Category Management
paragraphs: In December 2014, OFPP issued a memorandum that directs agencies to  take specific actions to implement category management, an approach  which is intended to manage entire categories of spending across  government for commonly purchased goods and services.
The memorandum notes that despite some progress in implementing  strategic sourcing efforts, agencies continue to duplicate procurement  efforts and award contracts for similar services to the same vendors,  which imposes significant costs on contractors and agencies. In May  2015, the Leadership Council approved government-wide category  management guidance which describes category management as a  fundamental shift from the practice of handling purchasing, pricing  analysis, and vendor relationship management in thousands of  procurement units across government. According to the guidance, the  federal government will “buy as one” under category management by  creating common categories of products and services across agencies  and manage each category as a mini-business with its own set of  strategies, led by a category manager and supporting senior team with  expertise in their assigned category. This approach includes not only  strategic sourcing, but also a broader set of strategies, such as  developing common standards in practices and contracts, improved data  analysis and information sharing to better leverage the government’s  buying power and reduce unnecessary contract duplication.
In December 2014, the Leadership Council approved organizing federal  procurement spending into 10 common categories such as IT, travel, and  construction. According to OFPP, these 10 categories collectively  accounted for $275 billion in fiscal year 2014 federal spending. Figure 2  identifies the 10 common categories.
In December 2014, the Leadership Council was given responsibility for  approving government-wide categories of spend, prioritizing categories  for management, and establishing guiding principles, among other duties.  Category managers—government-wide leaders who are to develop and  oversee category-specific strategies and encourage and drive category  management principles and practices—are approved by OFPP and the  Leadership Council. The effort is supported by GSA’s Category  Management Program Management Office, and the Acquisition Gateway,  an IT portal that supports category management by sharing contract  information such as terms and conditions, transactional pricing data, and  contracting best practices. Table 1 identifies the key roles and  responsibilities for category management governance.
In February 2016, OFPP announced the Category Managers who will be  overseeing the 10 categories of federal procurement spending. Category  Managers’ first responsibility has been to prepare category strategic plans  for Leadership Council approval. The category strategic plan is to identify  category strategies, the reasons for selecting those strategies, how the  category team plans to execute the strategies, and anticipated results  (benefits, costs, and risks) associated with the strategies. The category  strategic plan is then to be reviewed and approved by the Leadership  Council before the category team assembles resources and teams as  required to execute the strategies. The Leadership Council approved  strategic plans for all 10 categories in June 2016.
According to Leadership Council category management guidance,  performance reviews are to be conducted for each category at the  beginning of each year. This review is to assess performance over the  previous year and establish goals and targets for the upcoming year.  Category reviews are to be briefed to the Leadership Council to share  strategies, successes, and progress towards established goals and  targets. OMB also established a CAP goal for category management with  goal elements focused on savings, small business goals, reduction in  contract duplication and “spend under management.” Spend under  management is a model designed to assess agency- and government- wide category management maturity, and to highlight successes as well  as development areas across all categories and federal agencies. For  example, agency-level maturity can be characterized by the use of  agency-level solutions and the implementation of policies to drive  behavior change, among other characteristics. Government-wide maturity  is characterized by the adherence to Leadership Council approved  strategies, the collection of prices paid data, and analysis of outstanding  opportunity spend relative to actual spend.
section_title: Related GAO Work
paragraphs: In September 2012, we reported that in fiscal year 2011 the FSSI  program managed $339 million out of roughly $537 billion of total federal  spending—or less than 1 percent—but reported achieving $60 million in  savings. We also reported that the program faced key challenges in  obtaining agency commitments to use new FSSIs and in increasing the  level of agency spending directed through FSSI vehicles. Further, we  found that the FSSI program had not yet targeted any of the  government’s 50 highest-spend products and services for strategic  sourcing. As such, we concluded that the focus only on low-risk, low- return efforts diminished the government’s ability to fully leverage its  enormous buying power and achieve other efficiencies. To help ensure  that government-wide strategic sourcing efforts further reflect leading  practices, we recommended that OMB and OFPP issue an updated  memorandum or other directive to federal agencies on calculating savings  and establish metrics to measure progress toward goals; and direct the  FSSI program to assess whether each top spend product and service  government-wide is suitable for an FSSI, with a plan to address those  products or services that were suitable for strategic sourcing. OMB and  OFPP implemented our recommendation in part by establishing the  Leadership Council to lead efforts to increase the government-wide  management and sourcing of goods and services. The Leadership  Council subsequently approved general principles for calculating savings  for federal strategic sourcing initiatives in February 2014, and has begun  to implement category management.
In January 2014, we reported on the extent to which data and  performance measures are available on the inclusion of small businesses  in government-wide strategic sourcing initiatives. We found that GSA  generally considered small businesses and small disadvantaged  businesses, but lacked data and performance measures. For example,  although GSA collected baseline data on proposed FSSIs, it had not  developed a performance measure to determine changes in small  business participation going forward. Consistent with OMB guidance and  to track the effect of strategic sourcing on small businesses, we  recommended that the Administrator of GSA establish performance  measures on the inclusion of small businesses in strategic sourcing  initiatives. In response to this recommendation, GSA issued guidance in  April 2015 that provided information on how to determine baseline data  for small business participation in strategic sourcing initiatives and annual  requirements for assessing small business participation relative to that  baseline. Moreover, the guidance requires a corrective action plan if a  strategic sourcing initiative falls below the baseline for two consecutive  quarters. GSA also created a strategic sourcing template to track baseline  small business participation and monitor the change in small business  spending for each individual strategic sourcing initiative, as required by  OMB. To help ensure that agencies are tracking the effect of strategic  sourcing on small businesses, we recommended that OFPP monitor  agencies’ compliance with the requirement to maintain baseline data and  performance measures on small business participation in strategic  sourcing initiatives. As of July 2016, OFPP staff stated that they are in the  process of addressing this recommendation.
In September 2015, we found that the efforts of DOD, the Department of  Homeland Security, and NASA to strategically manage spending for IT  services, such as software design and development, have improved in  recent years but still missed opportunities to leverage their buying  power. Each of the agencies we reviewed designated officials  responsible for strategic sourcing and created offices to identify and  implement strategic sourcing opportunities, including those specific to IT  services. Most of these agencies’ IT services spending, however,  continued to be obligated through hundreds of potentially  duplicative  contracts that diminish the government’s buying power. These agencies  managed between 10 and 44 percent of their IT services spending— which collectively accounted for about $11.1 billion in fiscal year 2013— through preferred strategic sourcing contracts in fiscal year 2013. Further,  most of these agencies’ efforts to strategically source IT services had not  followed leading commercial practices, such as clearly defining the roles  and responsibilities of the offices responsible for strategic sourcing;  conducting an enterprise-wide spend analysis; monitoring the spending  going through the agencies’ strategic sourcing contract vehicles; or  establishing savings goals and metrics. As a result, the agencies were  missing opportunities to leverage their buying power and more effectively  acquire IT services. We made a series of recommendations to each  agency to improve their efforts to strategically source IT services. Each  agency concurred with the recommendations addressed to their agency  and have actions underway to implement them.
section_title: FSSIs Achieved Savings and Other Benefits, but Low Federal Agency Use of FSSIs Diminished Opportunities for Significant Savings
paragraphs: Over the last 5 years, GSA officials responsible for the FSSI program  reported that federal agencies spent almost $2 billion through seven  FSSIs and achieved an estimated $470 million in savings, an overall  savings rate of about 25 percent, comparable to savings reported by  leading commercial companies. Overall agency adoption of the FSSIs,  however, has remained low, resulting in reduced potential savings. For  example, in fiscal year 2015, the first year for which all seven FSSIs had  performance data, only $462 million of the $4.5 billion—or about 10  percent—in addressable spending targeted by the seven FSSIs we  reviewed went through the FSSIs. In contrast, leading commercial  companies historically manage 90 percent of their procurement spending  through strategic sourcing approaches. Low adoption of the FSSIs by the  large agencies that make up the Leadership Council—as well as  government-wide adoption more generally—was due to a variety of  reasons, including weaknesses in FSSI oversight and execution. The  FSSIs generally incorporated the minimum characteristics of strategic  sourcing vehicles identified by OMB guidance, such as collecting vendor  transactional data, but not all FSSIs fully complied with OMB direction  and maximized potential savings.
subsections: section_title: FSSIs Achieved Savings and Other Benefits, but Low Federal Agency Spending through the FSSIs Continues to Limit Potential Savings
paragraphs: From fiscal year 2011 to fiscal year 2015, GSA reported that agencies  spent almost $2 billion through the FSSIs and achieved an estimated total  of $470 million in savings, an overall savings rate of about 25 percent. In  our prior work, we found that leading commercial companies achieved  sustained savings rates of 10 to 20 percent using strategic sourcing  approaches. As shown in table 2, reported annual spending through the  FSSI program increased from $308 million in fiscal year 2011, when two  FSSIs were in place, to $462 million in fiscal year 2015, when seven were  in place. Four FSSIs experienced significant growth between fiscal year  2014 and 2015, though the Office Supplies FSSI experienced a decline of  nearly 30 percent. For example, the Wireless FSSI grew from about $4  million in 2014 to over $26 million in fiscal year 2015. Average estimated  savings rates for individual FSSIs over the period ranged from 11 to 55  percent which met or exceeded savings achieved by leading commercial  companies.
Moreover, FSSIs such as Domestic Delivery Services and Print  Management achieved savings through demand management which  involves working with federal buyers and policy makers to identify and  standardize requirements and specifications and eliminate unnecessary  purchases and inefficient purchasing behaviors. For example, through  use of the Print Management FSSI, GSA procurement officials explained  that GSA significantly reduced its spending on print-related products and  services by reducing its staff to printer ratio from 2 to1 to 14 to 1 and  successfully reduced overall printing costs from an estimated $1.8 million  in fiscal year 2011 to $0.6 million in fiscal year 2015. Domestic Delivery  Services program officials reported that use of data from the FSSI helped  agencies identify and reduce the number of express shipments and  increased the use of more affordable ground services resulting in cost  savings.
While the FSSIs generated savings and other benefits, federal agency  adoption rates for the FSSIs remained far lower than the 90 percent  achieved by leading commercial companies and reduced potential  savings. For example, in fiscal year 2015, government-wide spending on  the commodities covered by the FSSIs in our review was estimated by  GSA officials to be $6.9 billion, with the amount identified as addressable  to be about $4.5 billion, a fraction of the $439 billion in fiscal year 2015  federal procurement spending. Furthermore, only about $462 million of  the $4.5 billion in addressable spend—or slightly more than 10 percent,  went through the FSSIs (see table 3).
In fiscal year 2015, GSA reported that agencies spent $462 million  through the FSSIs and saved $129 million, a savings rate of 28 percent.  Had agencies spent the entire $4.5 billion of addressable spending  through the FSSIs and achieved a similar savings rate of 28 percent, we  estimate that up to $1.3 billion in fiscal year 2015 savings could have  been achieved (see figure 3).
We identified several factors that contributed to low utilization including  weaknesses in OFPP and Leadership Council oversight and various  factors unique to the individual FSSIs. For example, in fiscal year 2015,  the seven large procurement agencies within the Leadership Council  reported spending $268 million through the FSSIs, less than 10 percent of  the $2.8 billion that GSA estimated was the combined addressable  spending for those agencies during the same period. In 2012, OMB  directed Leadership Council agencies to promote, to the maximum extent  practicable, strategic sourcing practices within their agencies including  issuing and enforcing mandatory use policies for government-wide  solutions, such as the FSSIs. FSSI guidance on the key decision point  process requires information from each Leadership Council agency  concerning how each Leadership Council agency will transition from  existing vehicles to the FSSIs. While some Leadership Council agencies  provided commitment letters and issued mandatory use policies for  FSSIs, most that did used the FSSIs far less than their letters suggested  and none of the FSSIs included individual agency transition plans from  Leadership Council agencies to increase FSSI adoption as required. In  addition, according to OFPP staff and GSA officials, neither OFPP nor the  Leadership Council revisited those commitments or held agencies  accountable for meeting them or provided monitoring to ensure that  transition plans from existing agency vehicles to the FSSIs were provided.  Standards for internal control in the government highlight the need to  enforce accountability by evaluating performance and holding  organizations accountable.
Similarly, for fiscal years 2014 and 2015, OMB established new measures  for the strategic sourcing CAP goal to include Leadership Council agency  adoption of the FSSIs, but did not establish targets and performance  measures either at the aggregate or agency level, as discussed later in  the report. OFPP staff reported that the Leadership Council agencies  provided input into spending projections for fiscal years 2015 and 2016  which are being used for internal management purposes although the  Leadership Council agencies did not, at an aggregate level, meet their  spend targets in fiscal year 2015. As of the first quarter of fiscal year  2016, FSSI CAP goal measures are no longer tracked although existing  FSSIs will not expire for years to come. In addition to accountability,  federal internal control standards call for agencies to monitor and  evaluate results. OFPP in coordination with the Leadership Council,  however, had not set targets and measures for individual Leadership  Council agencies to gauge progress over time and hold individual  Leadership Council agencies accountable for results. Until the Leadership  Council and OFPP create a means to incentivize Leadership Council  agencies to use FSSIs that they help create and approve, and measure  results against individual agency targets, the FSSIs are at risk of  continuing to experience low use and by extension missed opportunities  for savings.
Additionally,  several of the individual  FSSIs experienced challenges that  affected, to varying degrees, their efforts. For example:
The Office Supplies FSSI estimated Leadership Council agencies’  addressable spend to be $410 million, but these agencies only spent  $55 million through the FSSI in fiscal year 2015. Office Supplies  officials attributed the low spending in fiscal year 2015 to delays  during the acquisition process which compressed the amount of  overlap between the second and third generation of the FSSI. As a  result, when the FSSI contracts were awarded and unsuccessful  offerors filed bid protests, the FSSI experienced a 6-month lapse in  service. For example, the Air Force, with an estimated $36 million in  addressable spending in fiscal year 2015, suspended its mandatory  use policy due to the protests and did not reinstate it until March 2015.  Office Supplies officials also attributed low spending through the FSSI  to an overall decline in the government-wide market for office supplies  which according to officials has shrunk from $1.5 billion in fiscal year  2012 to $1.3 billion in fiscal year 2015 due to factors such as  increased telework and reductions in agency procurement budgets.
The Wireless FSSI estimated that the combined addressable spend of  Leadership Council agencies to be nearly $700 million, but they only  spent $12 million through the vehicle in fiscal year 2015. The Wireless  program reported that although six Leadership Council agencies were  buying off the vehicle, there had been few large enterprise buys due  to the limited ability of agency acquisition teams to centralize the  funding which pays for these service plans and devices. Wireless  program officials also noted that they did not fully take into account  when existing agency contracts would expire. For example, the  program noted that several agencies needed up to 3 years to migrate  from existing agency contracts to the FSSI.
section_title: FSSIs Generally Incorporated OMB Characteristics to Help Foster Savings
paragraphs: In 2012, OMB identified the minimum characteristics of strategic sourcing  vehicles to increase savings and enable the government to improve its  commodity management practices. These characteristics include the  collection and use of transactional data to support continuous government  analysis of pricing, usage and performance data and the use of tiered  pricing to reduce prices as cumulative sales volume increases.  Transactional data refers to the information generated when the  government purchases goods or services from a vendor including specific  details such as descriptions, part numbers, quantities, and prices paid for  the items purchased. The collection and use of transactional data is  foundational to strategic sourcing as it allows the government to perform  active commodity management, monitor pricing changes to ensure that  the benefits of strategic sourcing are maintained, and to calculate savings  based on changes in price. The six GSA FSSIs generally incorporated  these minimum characteristics, whereas the Library of Congress’s  Information Retrieval FSSI did so to a limited extent.
subsections: section_title: Transactional Data and Savings
paragraphs: Each of the GSA FSSIs currently collects vendor-reported transactional  data to report total spending and to report total spending and to help  calculate adoption rates and savings based on changes between a  baseline unit price and the FSSI price. Prior to the creation of the  Leadership Council in 2012, legacy FSSIs including the first and second  generations of Office Supplies and Domestic Delivery Services, as well as  Print Management, calculated savings based on methods approved by  their respective commodity teams in accordance with guidelines approved  by the Strategic Sourcing Working Group, the governance body which  preceded the Leadership Council. These approaches generally consisted  of comparing prices offered under the FSSI program to the prices offered  under GSA’s Federal Supply Schedule program. Office Supplies  officials acknowledged that this approach may have overstated savings  by four to five percent because the schedule price represents a ceiling  price that GSA negotiates with vendors and not the prices paid which can  include additional discounts. Further, as we have recently reported,  published schedule rates may not represent the actual prices paid under  the schedule which can include additional discounts and better pricing  due to competition at the task order level.
In 2012, we recommended that OFPP issue direction to federal agencies  that includes guidance on calculating savings. In 2014, the Leadership  Council approved savings principles to include savings based on price,  cost avoidance, and administrative savings. According to the guidance,  the baseline unit price used to calculate price savings should be either the  current schedule lowest quartile price, the lowest price on any contract for  similar quantity, or a lower price available from an existing vehicle or data  source identified by a commodity team member and agreed to by the  Leadership Council. Further, savings methods are to be proposed and  approved as part of second key decision point and approved by the  Leadership Council.
Office Supplies, now in its third generation, has used the transactional  data it has collected over time to refine its savings methodology and  reduce price variation. Office Supplies program officials told us that  starting in fiscal year 2014, the Office Supplies FSSI began to use the  lowest quartile price from the schedule as a baseline when four or more  price points are established. Office Supplies also uses transactional data  to reduce price variance for identical goods. Referred to as the dynamic  pricing model, the program requires vendors to offer prices that fall within  10 percent of the lowest price offered. As an example, an FSSI official  stated that an identical toner cartridge might be listed for anywhere from  $100 to $300. Dynamic pricing reduces this variability  by capping the  price for goods offered to no more than 10 percent greater than the  lowest price. GSA officials emphasized that it took 3 years for the Office  Supplies FSSI to collect and standardize sales data to include part  numbers, manufacture name, and quantity which has allowed them to  implement a more precise methodology. A senior GSA official reported  that the Janitorial and Sanitation Supplies FSSI and the Maintenance,  Repair, and Operations Supplies FSSI will both adopt the lowest quartile  method of calculating savings and dynamic pricing once they have the  data to do so.
Wireless FSSI officials told us that they collect and analyze transactional  data from vendors, and can share the average discount available through  the FSSI, but that contractual terms prohibit the FSSI from sharing the  actual prices paid that ordering agencies pay which are often lower,  unless a federal agency requests such information from the FSSI. The  officials told us that this restriction inhibits the FSSI’s ability to  demonstrate to agencies savings that could be achieved through use of  the FSSI. Until this issue is addressed by clarifying the contract terms, the  program will remain limited in its ability to make a business case to  agencies on the potential cost savings from using the Wireless FSSI.
Information Retrieval officials reported that they collect transactional data  from a limited number of vendors, but do not use that data to report  spending or as the basis to calculate savings based on changes in price.  Information Retrieval officials reported that after obtaining Leadership  Council approval for FSSI designation, the program negotiated  transactional data reporting requirements with 5 of its 69 vendors, those  with aggregate sales above $3 million as of fiscal year 2014. Because  Information Retrieval does not collect transactional data from all of its  vendors, it lacks the data needed to calculate savings based on price.  Rather, Information Retrieval calculates and reports administrative  savings based on a methodology it developed which estimates savings  based on assumptions about the number of hours a typical agency would  spend on similar procurements and agency labor rates for contracting  staff. While the Leadership Council recognizes administrative savings in  its 2014 savings principles, we excluded Information Retrieval’s savings  figures from our report in part because of inconsistencies and errors in its  spending data that impeded our ability to independently  verify the savings  data.
The GSA FSSI Program Management Office is responsible for ensuring  oversight and support of the FSSIs including monitoring compliance with  FSSI standards. Under the 2012 OMB memorandum and the 2014  Leadership Council guidance for calculating savings, FSSIs are expected  to collect transactional data use that information to calculate savings  based on cost difference. Officials from the GSA FSSI Program  Management Office, however, indicated that they previously had not  collected or reviewed data from the Information Retrieval FSSI to ensure  compliance with FSSI standards, but have begun to engage with the  Library of Congress staff during the course of our review to gather more  information on implementation of the FSSI. Until the GSA FSSI Program  Management Office takes steps to ensure that the Information Retrieval  FSSI meets these requirements, GSA and OFPP will not have the data or  insight necessary to monitor and assess whether savings and other  benefits are being achieved through the Information Retrieval FSSI.
section_title: Tiered Pricing
paragraphs: According to OMB and GSA guidance, a tenet of strategic sourcing is that  higher volume generally translates to lower prices. Tiered pricing is a  mechanism to capture volume-based savings in contracts where the  volume is unknown and allows customers to obtain percent discounts that  increase as aggregate purchasing tiers are reached. As a result of low  FSSI adoption, FSSI mechanisms such as tiered price discounts  negotiated with vendors that were intended to drive further savings were  not reached. Table 4 illustrates an example of a tiered pricing model.
While six of the seven FSSIs we reviewed established tiered pricing  agreements with at least some vendors, Office Supplies is the only FSSI  with an active contract where purchases were sufficient to meet a tiered  pricing threshold. Office Supplies officials reported that spending with one  of the FSSI’s 24 vendors reached the $25 million tier triggering a two  percent discount on all subsequent purchases. Officials expect spending  with six to eight other vendors to reach the $10 million tier during fiscal  year 2016 triggering a one percent discount. Print Management does not  include tiered discounts and no changes are planned to the program  since it is scheduled to end in September 2016. Information Retrieval  negotiated tiered discounts with 5 of its 69 vendors, those with aggregate  sales over $3 million.
section_title: OFPP’s Category Management Initiative Incorporates FSSI Lessons Learned but Faces Implementation Challenges
paragraphs: Based on our review of seven current FSSIs and interviews with OFPP  staff and GSA officials, we identified four key lessons which can be  generally applied to category management. These are the need for (1)  stronger enforcement mechanisms to drive category management  success; (2) targets and measures to hold agencies accountable for  results; (3) the collection and use of transactional data to ensure that the  benefits of strategic sourcing are achieved; and (4) strategies to increase  small business participation. While the category management initiative  incorporates many of these key lessons in its guidance and  memorandums, it does not establish expectations or a process to set  specific targets and measures for Leadership Council agencies to use  approved vehicles.
subsections: section_title: Key Lesson Learned: Stronger Enforcement Mechanisms to Drive Category Management Success
paragraphs: Our work found that the FSSIs achieved limited adoption and savings  because individual agencies were not held accountable for results, in part  because OMB and the Leadership Council did not exercise mechanisms  to monitor agency use of the FSSIs, or drive or enforce agency  compliance with commitment letters, transition plans, or the subsequent  establishment of mandatory use or consideration policies. OFPP staff  agreed with our assessment that a key lesson learned from the FSSIs is  that stronger enforcement mechanisms are needed to increase agency  compliance with category management plans and goals. A senior OFPP  staff noted that the early premise of strategic sourcing was that agencies  would readily use new strategic sourcing vehicles, but that level of use  has been inconsistent.
OFPP staff stated that individual  category management memorandums  include stronger compliance requirements and mechanisms than were  present under the FSSI program to drive compliance. For example,  OMB’s October 2015 policy for workstations, June 2016 policy for  software licenses, and August 2016 policy for mobile devices all direct  agency Chief Information Officers to take specific actions within their  agencies using new authorities and responsibilities provided to them  under the Federal Information Technology Acquisition Reform Act to  improve their agencies’ IT management policies and practices. For  example, OMB’s October 2015 memorandum on workstations includes  several provisions intended to encourage agency compliance such as  prohibiting agencies from issuing new solicitations for laptops and  desktops and directing them to leverage three existing solutions. It also  directs agency Chief Acquisition Officers and Chief Information Officers to  work together to develop transition and implementation plans for both the  technical and acquisition aspects of the policy. Specifically, Chief  Acquisition Officers were directed to provide baseline spend data for  purchases made through the approved vehicles and identify when the  agency will phase out existing contracts for workstations and transition to  the preferred vehicles. Chief Information Officers were directed to develop  implementation instructions for the use of standard configurations, the  prohibition on new awards, oversight, compliance, and other  management measures. Table 5 describes some of the key provisions of  OMB’s category management policy for workstations.
OMB’s June 2016 memorandum on enterprise software and August 2016  memorandum on mobile devices and services follow a similar approach  to the workstation policy in that they specify key responsibilities and  requirements. For example, the Enterprise Software Category Team was  established under category management and is co-managed by GSA,  DOD, and OMB to guide the development of government-wide software  license agreements for mandatory agency use. Under the policy, OMB is  to encourage or direct use of existing best in class software licensing  agreements. The memorandum further requires agencies to develop  implementation plans, in accordance with guidance, to address how  agencies will move from their existing agreements to those mandated  under category management. Agencies must also justify and obtain  approval to pursue new agreements that overlap or conflict with the  mandated agreements. Similarly, the mobile devices and services  memorandum directs agencies to baseline their usage for devices and  services; reduce the number of contracts for mobile devices and services  and transition to a government-wide solution or solutions; and modify  demand management practices to optimize plan pricing and device  refresh schedules.
To help drive category management success, OFPP staff told us that they  anticipate requiring the use of specific vehicles or agreements and  requiring agencies to develop transition and implementation plans in  subsequent category management memorandums. OFPP staff  acknowledged that the IT category is unique in that it leverages efforts  under the PortfolioStat initiative as well as the authorities provided to  Chief Information Officers under the Federal Information Technology  Acquisition Reform Act. However, OFPP staff indicated that OFPP can  exercise its authority provided to the Administrator under the Office of  Federal Procurement Policy Act to direct agencies to take certain  actions. For example, under the Act, the Administrator is to provide  overall direction of procurement policy and promote economy and  efficiency in federal procurements.
Additionally,  OFPP is also reviewing and updating its business case  guidance for new interagency and agency-specific acquisitions to ensure  awareness and appropriate coordination with the Leadership Council.  This policy outlines required elements of a business case analysis as well  as a process for developing,  reviewing, and approving business cases to  support the establishment and renewal of government-wide acquisition  contracts and certain multi-agency contracts, multi-agency blanket  purchase agreements under the federal supply schedules program,  agency-specific contracts, and agency-specific blanket purchase  agreements over a certain threshold. The purpose of the policy is to  ensure that the expected return from investment in a contract or  agreement is worth the effort and cost associated with planning,  awarding, and managing a new vehicle, and to address unjustified  duplication among contracts. Under the revised policy, category  managers will be responsible for reviewing new agency business cases  and advising the Leadership Council of potential duplication or  opportunities for new or expanded strategic sourcing initiatives.
While OFPP’s October 2015 workstation memorandum established  aggregate goals for adoption, it did not establish specific adoption goals  or targets for individual  agencies to achieve. Specifically, the  memorandum calls for civilian agencies to increase their spending  through Leadership Council-approved vehicles to 75 percent by the end  of fiscal year 2018, but it did not provide specific targets for the  Leadership Council agencies to achieve. Further, the overarching  guidance to implement category management—the Leadership Council  charter as updated in April 2016 and the Leadership Council’s May 2015  category management guidance—do not specify the extent to which  specific Leadership Council agencies should adopt category management  solutions. For example, the April 2016 Leadership Council charter asks  agencies to adopt approved strategies, but does not set an expectation to  develop agency-specific targets for expected levels of Leadership Council  agency use of the solutions approved. Moreover, the May 2015 guidance  explains that Leadership Council agencies should advocate for advancing  category management initiatives and increasing adoption of solutions, but  does not include a process to specify a minimum level of use or other  targets and performance measures by agency. Moreover,  standards for  internal control in the government highlight the need to evaluate  performance and hold organizations accountable. Given the low use of  FSSIs by the Leadership Council agencies, OFPP may be at risk of  repeating that outcome unless it clarifies expectations and establishes a  process in guidance regarding agency-specific targets and measures for  Leadership Council agency adoption of category management initiatives  and FSSIs and ensures that these targets and measures are set.
section_title: Key Lesson Learned: Targets and Measures to Increase Agency Accountability
paragraphs: Our work found that the FSSI program lacked agency-specific targets and  measures to increase agency accountability. OMB directed Leadership  Council agencies to use and promote federal strategic sourcing efforts to  the maximum extent possible, and established CAP goals to encourage  agency adoption but did not establish agency-specific targets and  measures by which to monitor and hold agencies accountable for using  solutions that are strategically sourced or identified as best in class under  category management.
OFPP staff identified several strategies under category management that  resulted from lessons learned under the FSSI program which they expect  will help increase agency accountability and results. For example, OFPP  staff recognized the importance of establishing specific targets as a basis  for holding agencies accountable for results. Specifically, the category  management CAP goal aims to increase civilian agency spending on  workstations through Leadership Council-approved vehicles from a  baseline of 39 percent in 2015 to 75 percent by the end of calendar year  2019 and to reduce the number of new/renewed contracts for  workstations by 30 percent. OFPP reports CAP goal progress quarterly  during the fiscal year. As of July 2016, OMB reported that agencies have  spent $171 million on laptops and desktops and 58 percent of this spend  has gone through the approved vehicles but acknowledged that most of  the spending in this category was expected to occur in the fourth quarter  of the fiscal year and were uncertain whether this level of adoption will  continue. OMB’s category management CAP goal, however, does not  report agency-specific targets and measures to monitor whether agencies  adopted specific FSSI and category management vehicles. Given the low  agency usage of the FSSIs, reporting agency specific usage of category  management-approved vehicles is important to understand whether the  category management effort is achieving results. Standards for internal  control in the government highlight the need to enforce accountability by  evaluating performance and holding organizations accountable. Without  reporting on agency specific targets and measures in the CAP goal, OMB  will continue to lack the means to monitor progress and hold agencies  accountable for using best in class solutions or adopting category  management principles.
On a more general level, OFPP staff also noted that the “spend under  management” model tracks attributes such as leadership and strategy  based on a tiered maturity model to measure agency- and government- wide progress toward meeting category management goals. OFPP staff  reported that they are using spend under management dashboards in  management meetings to provide greater visibility into agency-level data  by category. Data calls will be completed at least annually and agencies  will be tracked and monitored on their progress toward agency- and  government-wide maturity, according to OFPP staff.
section_title: Key Lesson Learned: Collection and Use of Transactional Data
paragraphs: Our work found that another key lesson learned from the FSSI program  was collecting and using transactional data to perform active commodity  management, monitor pricing changes to ensure that the benefits of  strategic sourcing are maintained and to calculate savings based on  changes in price. Under category management, OFPP, GSA, and the  Leadership Council have taken a number of steps to institutionalize the  collection and use of transactional data:
Category management guidance emphasizes the importance of  collecting transactional data to determine prices actually paid to  support comparative analytics (i.e., normalizes for quantity or delivery  term variances) and usage/business intelligence and performance  data and enable agencies to improve their commodity management  practices on an ongoing basis.
The Leadership Council charter establishes the expectation that  member agencies share agency prices offered, transactional prices  paid data, and contract terms and conditions, as requested.
GSA launched an online portal called the Acquisition Gateway to  house contract and pricing information for each of the categories in  one central location. Content gathered from across government, and  validated by the category manager, will provide information and  expertise on data, acquisition vehicles, market intelligence, prices- paid information, sustainability-related information, and analysis.
In June 2016, GSA published a rule on transactional data reporting.  The rule creates new contract clauses requiring vendors to report  transactional data such as part numbers, quantities, and prices paid.  The new clauses will be initially implemented on a pilot basis for  federal supply schedule contracts, and will apply to all new GSA  government-wide acquisition contracts and GSA government-wide  indefinite-delivery,  indefinite-quantity  contracts.
OMB’s policy memorandum for workstations was informed by an  interagency Workstation Category Team, established by the Leadership  Council, led by NASA and comprised of subject matter experts and  managers of large government-wide and agency-wide hardware  contracts. The Workstation Category Team performed research into  pricing, terms, and conditions. OMB’s 2015 workstation memorandum  directs agencies to consolidate workstation acquisitions through three  government-wide solutions to reduce administrative costs and drive  greater transparency into pricing by simplifying the collection and  comparison of this data. OMB determined that the three government-wide  solutions were generally awarded and are managed according to  category management principles, including the monitoring of prices paid,  usage, and performance data. According to the policy, as well as  category management guidance, the Leadership Council will evaluate the  performance and value of these approved contracts on an annual basis  and revise as necessary. In June 2016, OMB reported that ceiling  catalogue prices for personal computers had dropped by up to 50 percent  since the release of the workstation policy.
To gain better visibility into prices for software agreements, OMB’s June  2016 software policy directs executive agents of government-wide  software agreements to post and maintain standard pricing and terms and  conditions for the agreements on the Acquisition Gateway. This  information will be used by the Enterprise Software Category Team—co- managed by GSA, DOD, and OMB—to identify existing agreements for  approval and endorsement as best in class agreements for government- wide use until new government-wide software agreements can be  established. According to the software policy, these efforts will provide  increased visibility into government-wide spending on software licenses  which will be posted on the Acquisition Gateway to further assist in the  creation of new software agreements and the development of other tools.
section_title: Key Lesson Learned: Small Business Concerns
paragraphs: As we have previously reported, because strategic sourcing can reduce  the number of available contracting opportunities, some members of the  small business community have expressed concern about the impact of  federal strategic sourcing initiatives on small businesses. Consequently,  ensuring that small business concerns are appropriately addressed under  the category management initiative is the fourth key lesson learned.
Category management guidance and policy emphasizes the goal of  maintaining or increasing small business participation and requires all  proposed strategic sourcing vehicles and category management  strategies to baseline small business use and set goals to meet or exceed  that baseline. For example, the May 2015 category management  guidance reiterates OMB’s 2012 policy to increase participation by small  businesses to the maximum extent practicable by baselining small  business use under current strategies and setting goals to meet or  exceed that baseline participation under the new strategic sourcing  vehicles. The Leadership Council also approved draft guidance pertaining  to best in class criteria to include having a small business plan that  baselines current participation rates and seeks to maintain or increase  them.
In its October 2015 workstation memorandum, OMB established a small  business baseline and goal to increase small business participation.
According to OMB’s policy on workstations, the percentage of workstation  work (in dollars) awarded to small businesses in fiscal year 2014 under  the three vehicles identified as best in class was 64 percent, or nearly 10  percent greater than the small business participation rate for these  commodities overall, and nearly 85 percent of the vendors on these  solutions are small businesses. To maintain and increase this  participation, the workstation category team, in consultation with the  Small Business Administration and the Leadership Council, will review  small business participation rates and work with the managers of the  three vehicles to evaluate opportunities to increase participation.
OMB’s June 2016 software policy differs from the workstation policy in  that it does not identify best in class vehicles, but rather directs the  Enterprise Software Category Team to guide the development of  government-wide software license agreements for mandatory agency  use, and states that OMB will encourage or direct use of best in class  existing software licensing agreements. OMB’s draft criteria for best in  class vehicles states that specific criteria for determining best in class  contracts will vary depending on the category and commodity, but such  solutions should generally include a small business plan that baselines  current participation rates and seeks to maintain or increase them.
GSA officials noted that each of the 10 government-wide categories will  have a small business goal and that the category management program  as a whole will consider the needs of small business when formulating  procurement strategies. Further, category managers are expected to  actively engage the small business community for their commodity area in  order to address these businesses concerns. GSA officials also noted  that they may consider new vendor management strategies such as small  business on-ramping. Although not specifically addressed in category  management guidance, officials noted that they consider small business  on-ramping to be a best practice which will likely be featured as a strategy  under category management. As an example, GSA’s One Acquisition  Solution for Integrated Services contract vehicle includes on-ramping  which GSA describes as a competitive process that can be conducted as  necessary to address competition at the task order level, mergers and  acquisitions that shrink the number of vendors, customer-driven request  for a more focused sub-pool, and/or small businesses outgrowing their  small business size. The purpose of the process is to ensure that there  remain an adequate number of contractors eligible to compete for task  orders to meet the government’s requirements.
section_title: Conclusions
paragraphs: The FSSI program has led to procurement savings of nearly $500 million  over the last 5 years and achieved a savings rate comparable to that  achieved by leading commercial companies. But unlike leading  companies that use their strategic sourcing vehicles 90 percent of the  time, federal agencies directed less than 10 percent of their spending on  the goods and services offered under the FSSIs, resulting in a missed  opportunity to potentially have saved billions of dollars over the last 5  years. In fiscal year 2015 alone, GSA reported that agencies saved $129  million out of the $462 million spent through the FSSIs, representing a  savings rate of 28 percent. Had agencies spent the entire amount of  addressable spending through the FSSI and achieved a similar rate of 28  percent, we estimate that up to $1.3 billion in fiscal year 2015 savings  could have been achieved. The low usage rates for the FSSI program are  not unique. For example, our prior work found that agencies managed  only 10 to 44 percent of their IT services spending through their preferred  strategic sourcing contracts.
OFPP’s category management initiative dwarfs the size and scope of the  FSSI program by targeting two-thirds of federal spending. Given the scale  of category management, it is imperative that the lessons of implementing  the FSSIs are learned and addressed. Chief among those lessons is that  the large procurement agencies that make up the Leadership Council and  govern the FSSI and category management initiatives must themselves  be more accountable for achieving results. These agencies fell short in  using the very same FSSIs that they approved, including providing  transition plans for how agencies would migrate to use of FSSI solutions  as required under FSSI guidance. While many of the lessons learned  during the course of the FSSI program have been reflected in the initial  category management efforts, neither the April 2016 Leadership Council  charter nor the Leadership Council’s May 2015 category management  guidance establish expectations and a process for setting agency-specific  targets and measures to assess adoption of solutions and performance.  Moreover, since the category management CAP goal provides regular  updates on progress, agency accountability for results would be  enhanced by including agency specific progress against targets and  performance measures. Given the low agency usage of the FSSIs,  without such actions, and ensuring these targets and measures are set,  OMB, and specifically the Office of Federal Procurement Policy, will lack  the means to monitor progress and hold large procurement agencies  accountable for using existing FSSIs or best in class solutions identified  under subsequent category management efforts. Considering the  magnitude of spending targeted by category management, taking these  actions will increase the likelihood that category management will deliver  on its promise to substantially change the federal procurement landscape  and generate substantial savings and other benefits for federal  customers.
At a tactical level, the GSA FSSI Program Management Office is  responsible for ensuring oversight of the FSSIs, including monitoring  compliance with FSSI standards. In two cases, more engagement by the  office may be beneficial. For example, the Library of Congress’s  Information Retrieval FSSI collects transactional data to only a limited  extent and does not use that data to calculate savings. GSA FSSI  Program Management Office officials, however, indicated that they had  not, until recently, engaged with the Information Retrieval FSSI to ensure  compliance with FSSI standards. Similarly, the Wireless FSSI negotiated  contractual terms that limit its ability to share actual prices paid with other  federal agencies. Collecting and using transactional data and sharing  prices paid information across federal agencies are key provisions of  strategic sourcing and are identified in current strategic sourcing  guidance. The FSSI Program Management Office, in collaboration with  the Information Retrieval and Wireless FSSIs, could enhance the  performance of these FSSIs by making sure their practices are fully  aligned with current guidance, to the maximum extent practicable.
section_title: Recommendations for Executive Action
paragraphs: To better promote federal agency accountability for implementing the  FSSI and category management initiatives, we recommend that the  Administrator of Federal Procurement Policy take the following four  actions:
Ensure that transition plans are submitted and monitored as required  by FSSI guidance and guidance governing specific category  management initiatives;
Update the Leadership Council charter to establish an expectation  that Leadership Council agencies develop agency-specific targets for  use of the solutions approved;
Revise the 2015 category management guidance to establish a  process for setting targets and performance measures for each  Leadership Council agency’s adoption of proposed FSSIs and  category management solutions and ensure agency specific targets  and measures are set; and
Report on agency specific targets and metrics as part of the category  management CAP goal.
To improve the management of current FSSIs, we recommend that the  GSA FSSI program management office take the following two actions:
Provide oversight and support to the Information Retrieval FSSI to  better align their practices with current strategic sourcing guidance  related to collecting and using transactional data to calculate savings ;  and  In collaboration with the Wireless FSSI, determine whether the  initiative should modify its contract terms to enable the FSSI to share  prices paid data with other federal agencies.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of our report to OMB, GSA, and the Library of  Congress. OMB and GSA concurred with our recommendations to  improve oversight and accountability of FSSI and category management  efforts. The agencies’ comments are summarized below and written  comments from GSA and the Library of Congress are reproduced in  appendix V and VI respectively. We also received technical comments  from OMB and GSA which we incorporated, as appropriate.
OMB did not provide written comments on the draft report, but in oral  comments, OMB staff generally agreed with our recommendations and  identified several actions to address them. OMB actions include in part,  the October 2016 issuance of a draft circular for public comment to  implement category management practices.
Regarding our recommendation that OFPP ensure that transition plans  are submitted and monitored as required by guidance, OMB staff agreed  that transition plans should comply with guidance. OMB staff indicated,  however, that retroactively requiring agencies to submit FSSI transition  plans is not needed because all of the FSSIs are currently being  evaluated against category management best in class criteria as part of  the migration to a category management approach. OMB staff stated that  for example, the Office Supplies FSSI has been designated as a best in  class solution, which will require agencies to submit transition plans. The  OMB draft circular on category management also provides that OMB will  issue policy on the agency migration process to best in class solutions.
We believe these actions, if implemented, meet the intent of our  recommendation. Given that transition plans were also required under  FSSI guidance but were not submitted, it will be important for OMB to  assure that agencies follow through on submitting required plans going  forward.
Regarding our second and third recommendations that OFPP establish  an expectation that Leadership Council agencies develop agency-specific  targets for use of solutions approved and revise guidance to establish a  process for setting targets and performance measures, OMB staff agreed  with the need for agency-specific targets for use of best in class solutions.   OMB staff noted that they plan to establish targets by large spend  agencies for best in class solutions and update category management  governance and reporting procedures and processes as needed. OMB  staff also agreed that Leadership Council agency progress toward  implementing category management should be tracked and measured.  Both OMB staff and the draft circular on category management indicate  that spend under management will be used as the principal measure by  which OMB will assess adoption of category management.  As noted  earlier in our report, spend under management tracks progress in areas  such as data and metrics to monitor adoption of category management  practices. OMB staff indicated that they plan to evaluate at least annually  agencies’ spend under management results, which includes agency  adoption of best in class solutions, and then review with agency leaders  progress toward meeting goals.
Regarding our fourth recommendation to report on agency specific  targets and metrics as part of the category management CAP goal, OMB  staff indicated that results achieved relative to CAP goal targets will be  reported on a quarterly basis on Performance.Gov. In addition, OMB will  track agency spend through best in class contracts and these data will  likely be used as an internal category metric and shared with the  agencies. Taken together, these actions are responsive to our  recommendations; however, given the low use of the FSSIs, OMB should  continue to carefully monitor category management implementation as it  moves forward and ensure that OFPP uses the planned targets and  measures noted above to hold agencies accountable for individual  results. In short, greater accountability can lead to increased savings.
In GSA’s written comments, GSA agreed with our recommendations to  provide oversight and support to the Information Retrieval FSSI and  determine whether the Wireless FSSI should modify contract terms to  better share prices paid data. GSA plans to conduct a gap analysis of the  Information Retrieval FSSI and its compliance to FSSI standards to  include determining unmet practices required for collecting and using  transactional data for the FSSI program management office government- wide oversight and reporting, as well as providing the Library of Congress  with FSSI best practice tools and resources related to collecting  transactional data and calculating savings. With respect to our  recommendation regarding the Wireless FSSI, GSA told us they would  conduct an assessment to determine the best approach to share Wireless  FSSI prices paid data with other federal agencies.
In written comments, the Library of Congress concurred with the report’s  findings and noted that initial progress has been made to ensure that its  partnership with GSA results in enhanced analysis and transparency of  the Information Retrieval FSSI.
We are sending copies of this report to the appropriate congressional  committees; the Administrator of General Services; the Inspector  General, Library of Congress; and the Director, Office of Management  and Budget. In addition, the report is available at no charge on the GAO  website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me on (202) 512-4841 or dinapolit@gao.gov.  Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix VII.
section_title: Appendix I: Summary of Federal Strategic Sourcing Initiatives Included in Our Review
section_title: Appendix II: Objectives, Scope, and Methodology
paragraphs: We were asked to examine the Federal Strategic Sourcing Initiative  (FSSI) program and lessons learned. This report addresses (1) the extent  to which savings and other benefits have been achieved by the FSSI  program, and (2) lessons, if any, from the Office of Federal Procurement  Policy (OFPP) and General Services Administration (GSA)  implementation of the FSSI program and the extent to which those  lessons have been incorporated into OFPP’s category management  initiative.
We focused our review on seven FSSIs that were active between fiscal  years 2011 and 2015: (1) Office Supplies; (2) Domestic Delivery Services;  (3) Print Management; (4) Wireless; (5) Maintenance,  Repair, and  Operations Supplies; (6) Janitorial and Sanitation Supplies; and (7)  Information Retrieval. This covers the period since we last assessed FSSI  implementation through the last full year for which FSSI spending and  savings data was available. GSA is the executive agent for all the FSSIs  except Information Retrieval which is administered by the Library of  Congress. We excluded the Telecommunications Expense Management  FSSI which ceased operations in the third quarter of fiscal year 2014  because limited data on the program were available. FSSIs establish  multiple award blanket purchase agreements, basic ordering agreements,  and/or indefinite delivery, indefinite quantity contracts, through which  federal agencies may obtain the specific goods and services they need.
To determine the extent to which savings and other benefits have been  achieved through the seven FSSIs, we collected and reviewed agency  reported data on spending, savings, and adoption. We also reviewed  FSSI guidance on the key decision point process and program  documents, and interviewed officials responsible for each of the FSSIs  under our review as well as the FSSI Program Management Office within  GSA which is responsible for monitoring overall FSSI program  performance and usage regardless of the lead agency managing the  initiatives.
For government-wide and addressable spending data, we reviewed  agency reported data, acquisition plans, business case analyses, and key  decision point documents prepared for Leadership Council review. We  also reviewed relevant Office of Management and Budget (OMB) and  GSA guidance and interviewed FSSI program officials to clarify our  understanding of how each program developed its government-wide  spending figures. These figures were typically based on a variety of data  sources including data from the Federal Procurement Data System-Next  Generation, and purchase card data. Since government-wide spending  figures are estimates and not actual performance, we reviewed the  methods used to formulate them and found them to be reasonable and  the data sufficiently reliable for providing appropriate context for the  actual spending that went through the FSSI vehicles. We also reviewed  program documents and interviewed FSSI program officials to better  understand the basis and rationale for spending excluded from  addressable spending. This baseline, referred to as addressable spend,  is to be used to measure FSSI adoption by calculating the amount of  actual spending through the FSSIs as a percentage of the total  addressable spending through the FSSIs and is required for approval at  the second key decision point.
For FSSI spending and savings data, we took a number of steps to  assess the reliability of the data reported by each FSSI. For the GSA  FSSIs which report spending based on vendor reported transactional  data, we obtained documentary and testimonial evidence on the internal  controls used by vendors, the FSSI teams, and the FSSI Program  Management Office to ensure the accuracy of the spending data  reported. For three of the six GSA FSSIs, we also collected and reviewed  a non-generalizable sample of transactional data reports. The Library of  Congress does not report spending through the Information Retrieval  FSSI based on vendor reported data although it collects a limited amount  of such data, and we took similar steps to assess their reliability. We  determined that the spending data for the GSA FSSIs were sufficiently  reliable for our purposes but that the spending data for Information  Retrieval lacked internal controls, were inconsistent, and contained  errors. As a result, the Information Retrieval spending data were not  sufficiently reliable and we excluded it from our analyses.
For savings data, we reviewed the methodologies used by each FSSI to  calculate savings and compared them with the savings principles  approved by the Leadership Council in 2014, which include price savings,  cost avoidance, and administrative savings. Each of the GSA FSSIs uses  transactional data to calculate the difference between a baseline unit  price and the FSSI price. While the FSSIs varied in the precision of their  methods, we verified that they generally complied with Leadership  Council guidance for calculating savings and confirmed with GSA officials  that these methods were approved by their respective commodity teams  or the Leadership Council. Information Retrieval does not calculate  savings based on price, but rather reports administrative savings. While  guidance allows FSSIs to report administrative savings, due in part to the  inconsistencies and errors in the Information Retrieval’s spending data,  we could not independently  verify the savings data reported and did not  include those figures in our report.
For adoption rates reported by the FSSIs, we focused our analysis on  fiscal year 2015. We verified that the adoption rates reported by GSA  were calculated correctly based on the addressable and actual spending  reported. We also performed our own calculations to determine the  adoption rates for Leadership Council agencies based on the addressable  and actual spend data reported by GSA.
To better understand the factors that explain agency adoption of the  FSSIs, we reviewed guidance on the key decision point process which  was established by the Leadership Council in 2013 as a framework for  the development, approval, and oversight of the FSSIs. We identified  requirements for Leadership Council agencies to provide the FSSIs with  commitment letters based on their addressable spending and to issue  mandatory use policies as appropriate and assessed the extent to which  those agencies actually used the FSSIs in accordance with the  commitments they provided and mandatory use policies they  implemented. We also interviewed GSA procurement officials about the  factors affecting their use of the FSSIs and obtained documents from the  FSSIs in which agencies explained their rationale for not using specific  FSSIs, but we did not interview officials from each agency within the  Leadership Council regarding the factors affecting their respective  agencies’ use of the seven FSSIs we reviewed. In addition, we  interviewed FSSI program officials and senior leadership officials within  GSA and OMB about Leadership Council agency adoption of the FSSIs,  as well as government-wide adoption more generally.
We also assessed the extent to which the seven FSSIs incorporated key  characteristics identified by OMB to include the collection and use of  transactional data, the calculation of savings based on changes in price,  and the use of tiered pricing to reduce prices as cumulative sales volume  increases. For each FSSI we interviewed FSSI program officials and  collected program documents such as acquisition plans, contract  documents specifying contractual terms requiring vendors to provide  certain data and information on the use of tiered discounts.
To determine what lessons, if any, from OFPP and GSA implementation  of the FSSI program and the extent to which those lessons have been  incorporated into OFPP’s category management initiative we reviewed  the seven current FSSIs and conducted interviews with GSA and Library  of Congress officials responsible FSSI implementation, as well as GSA  officials and OFPP staff responsible for oversight. Based on this review,  we identified lessons learned which can be generally applied to category  management and corroborated our findings with GSA officials and OFPP  staff responsible for the implementation and oversight of the FSSI  program to determine which lessons were key. We also reviewed  category management policy and guidance and independently  assessed  the extent to which these lessons had been incorporated. We also  reviewed the CAP goal quarterly progress updates for fiscal years 2012  through 2016 as posted on Performance.Gov for both strategic sourcing  and category management.
We conducted this performance audit from November 2015 to October  2016 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 III: Leading Companies’ Foundational Approaches for Strategic Sourcing
paragraphs: Appendix III: Leading Companies’  Foundational Approaches for Strategic  Sourcing Principle 1: Maintain Spend Visibility  Automate and integrate procurement and financial systems across the organization  Establish a catalogue of defined services and related terminology to be applied  consistently across invoice line items to allow for more efficient spend analysis  Principle 2: Centralize Procurement   Centralize procurement knowledge and decisions by aligning, prioritizing, and  integrating procurement functions within the organization  Ensure that spending goes through approved contracts, which is the key to an  effective centralized process  Clearly define and communicate policies to eliminate unapproved purchases, or  “rogue buying”
section_title: Appendix IV: Key Provisions from the Office of Management and Budget 2012 Strategic Sourcing Memorandum
paragraphs: Appendix IV: Key Provisions from the Office of  Management and Budget 2012 Strategic  Sourcing Memorandum identify at least five products and/or services for which new government-wide acquisition vehicles  or management approaches should be developed and made mandatory, to the maximum extent  practicable, for the Leadership Council agencies;  for these identified commodities, provide supporting spend analysis, estimate savings  opportunities, and define metrics for tracking progress;  develop transition strategies to the new solutions;  identify agencies to serve as “executive agents” to lead the development of these new solutions;  propose plans and management strategies to maximize the use of each strategic sourcing effort;  and  propose vendor management or other strategies to reduce the variability in the prices paid for  similar goods and services, where the development of new government-wide vehicles may not be  immediately feasible.  in consultation with the Leadership Council, implement at least five new government-wide  strategic sourcing solutions in fiscal years 2013 and 2014;  increase the transparency of prices paid for common goods and services for use by agency  officials in market research and negotiations; and  promulgate requirements, regulations, and best practices.  reflect input from a large number of potential agency users regarding demand for the goods and  services being considered, the acquisition strategy (including contract pricing, delivery and other  terms and conditions, and performance requirements), and the commodity management  approach;  ensure that the federal government gets credit for all sales, regardless of payment method, so  that volume-based pricing discounts can be applied;  include tiered pricing, or other appropriate strategies, to reduce prices as cumulative sales  volume increases;  require vendors to provide sufficient pricing, usage, and performance data to enable the  government to improve commodity management practices on an ongoing basis; and  are supported by a contract administration plan that demonstrates commitment by the executive  agent to perform active commodity management and monitor vendor performance and pricing  changes throughout the life of the contract.  all proposed strategic sourcing agreements must baseline small business use under current  strategies and set goals to meet or exceed that baseline participation.
section_title: Appendix V: Comments from the General Services Administration
section_title: Appendix VI: Comments from the Library of Congress
section_title: Appendix VII: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, W. William Russell (Assistant  Director), Emily Bond, Peter Haderlein, Kristine Hassinger, Julia Kennon,  Angie Nichols-Friedman, Max Sawicky, Roxanna Sun, and Holly Williams  made key contributions to this report.