Veterans Affairs Contracting: Improvements in Policies and Processes Could Yield Cost Savings and Efficiency
Published: 2016-09-20T00:00:00

Fast Facts:
The Department of Veterans Affairs spends billions of dollars annually to buy goods and services that serve veterans. However, VA's contracting staff must contend with policies that are out of date, as well as a complicated organizational structure, to fulfill their mission. VA also can't take full advantage of discounts for medical supplies due to issues such as obsolete systems.
To address these concerns, we recommended (in the report this testimony is based on) that VA clarify its policy framework, and increase the use of discounted pricing when purchasing medical supplies.

Highlights:
section_title: Why GAO Did This Study
paragraphs: This testimony summarizes the information contained in GAO's September 2016 report, entitled Veterans Affairs Contracting: Improvements in Policies and Processes Could Yield Cost Savings and Efficiency ( GAO-16-810 ).
section_title: What GAO Found
paragraphs: GAO found opportunities for the Department of Veterans Affairs (VA) to improve the efficiency and effectiveness of its multi-billion dollar annual procurement spending in several areas including data systems, procurement policies and oversight, acquisition workforce, and contract management.
Shortcomings in VA's recording of procurement data limit its visibility into the full extent of its spending. A recent policy directing that medical-surgical supply orders be captured in VA's procurement system is a step in the right direction, but proper implementation is at risk because procedures are not in place to ensure all obligations are recorded.
VA's procurement policy framework is outdated and fragmented. As a result, contracting officers are unclear where to turn for current guidance. VA has been revising its overarching procurement regulation since 2011 but completion is not expected until 2018. Meanwhile, contracting officers must consult two versions of this regulation, as well as other policy related documents. Clear policies are key to ensuring VA conducts procurements effectively on behalf of veterans. The figure below depicts the various sources of regulations, policy, and guidance.
Sources of Veterans Affairs (VA) Procurement Policy as of June 2016
Managing workload is a challenge for VA's contracting officers and their representatives in customer offices. A 2014 directive created contract liaisons at medical centers in part to address this issue, but medical centers have not consistently implemented this initiative, and VA officials have not identified the reasons for uneven implementation.
VA can improve its procurement processes and achieve cost savings by complying with applicable policy and regulation to obtain available discounts when procuring medical supplies; leveraging its buying power through strategic sourcing; ensuring key documents are included in the contract file, as GAO found that more than a third of the 37 contract files lacked key documents; and ensuring that compliance reviews identify all contract file shortcomings.

section_title: Letter
paragraphs: The Department of Veterans Affairs (VA) spent about $20 billion on goods  and services in fiscal year 2015. The wide range of goods and services  that VA procures—including construction, information technology, medical  supplies, and many other categories—is essential to meeting its mission  to provide health care, pensions, and other benefits to the nation’s military  veterans. Prior assessments of VA management, both internal and  external, have found shortcomings in VA procurement. In 2015, GAO  added VA Health Care to our High Risk list because of issues including  ambiguous policies, inconsistent processes, and inadequate oversight  and accountability.
My remarks today are based on our recently issued report on VA  contracting, and I will summarize a few key findings from that report. I  will address 1) the organizational structure of VA’s procurement function,  2) VA procurement policies, and 3) the extent to which opportunities exist  to improve VA’s key procurement functions and to save money.
As part of our work for our September 2016 report, in order to evaluate  VA’s procurement organizational structure, we reviewed policy  documents and interviewed officials in leadership, local contracting office  management, and contracting officer roles. To assess VA’s procurement  policies, we obtained and analyzed policy documents, and interviewed  officials responsible for making and implementing procurement policy. To  assess opportunities to improve VA’s key procurement functions and to  save money, we obtained and analyzed information regarding VA’s  medical-surgical prime vendor program and interviewed officials with  roles in management, contracting, and operations for the program. We  also reviewed a non-generalizable sample of 37 contracts and 19  associated task orders from fiscal years 2013 through 2015. The selected  contracts were chosen from the national contracting offices and local  Veterans Health Administration (VHA) contracting offices we visited, and  the basis for selection included dollar value and whether these contracts  were competed or not. Additionally, we interviewed contracting officers  responsible for each of the selected contracts.
More detailed information on our objectives, scope, and methodology for  our work can be found in our September 16, 2016 report. We conducted  the work on which this statement is based 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: VA serves veterans of the U.S. armed forces, and provides health,  pension, burial, and other benefits. In fiscal year 2015, VA spent about  $20 billion on goods and services via contracts—more than a quarter of  its discretionary budget. As shown in the organizational chart below,  these contracts were awarded by VA’s eight heads of contracting activity  (HCAs). The department’s three operational administrations—VHA, the  Veterans Benefits Administration, and the National Cemetery  Administration—operate largely independently from one another.
In addition to the operating administrations, several VA procurement  organizations have department-wide roles:
The Office of Acquisition, Logistics, and Construction (OALC) is a VA  headquarters organization responsible for directing the acquisition,  logistics, construction, and leasing functions within VA.
The Office of Acquisition Operations (OAO), which falls under OALC’s  purview, conducts procurement activities for customers across the  department and has two primary operating divisions—the Technology  Acquisition Center (TAC), which focuses on IT purchasing, and the  Strategic Acquisition Center (SAC), which is responsible for  procurement of certain types of goods and services for the operating  administrations, such as VHA.
The Office of Acquisition and Logistics (OAL) is responsible for  oversight of contracting across VA, including setting policy and issuing  warrants to contracting officers.  o  The National Acquisition Center (NAC) is an OAL contracting  organization which serves VHA by providing contracting for certain  health care-related goods and services.
VHA provides medical care to veterans and is by far the largest  administration in VA, with a budget of $61.1 billion for fiscal year 2016,  representing the majority of VA’s $75 billion discretionary budget. Its 167  medical centers are currently organized into 19 Veterans Integrated  Service Networks (VISN), regional networks that manage some aspects  of operations. VHA has 19 Network Contracting Offices, each of which  serves one of the 19 VISNs.
VA has some organizational and programmatic changes in progress that  affect procurement. In July 2015, the Secretary of Veterans Affairs  announced an organizational transformation for the department called  MyVA. In a related effort, responsibility for the medical-surgical prime  vendor (MSPV) program—a logistics provider that facilitates ordering and  delivery of supplies to medical centers from many different contractors— was recently transferred from NAC to SAC.
section_title: VA’s Complex Procurement Structure Creates Challenges for Users
paragraphs: Given VA procurement’s highly decentralized structure, a given  customer—such as a department in a medical center or a program  office—may need to work with multiple contracting entities to meet its  procurement needs. Figure 2 illustrates the complex working relationship  between contracting offices and their customers across VA.
This can contribute to confusion. Several of the contracting officials we  spoke with stated that they were, at times, uncertain about which  contracting office handled what requirements. VA issued a memorandum  in 2013 to clarify areas of responsibility for the national contracting  organizations, but confusion remains. VA’s Acting Chief Acquisition  Officer stated that he is aware of overlap in the functions of some  contracting organizations, especially the NAC and the SAC. At one VISN  we visited, an official reported procuring one type of high-tech medical  equipment through the SAC even though this area is specifically  designated as NAC’s responsibility because she expected that the SAC  could execute the purchase more quickly.
Without clearly delineated organizational roles and customer  relationships—beyond what was provided in the 2013 memorandum—the  possibility of duplication in these roles and relationships is increased, and  customers lack clear guidance on which organization to approach for  certain types of procurements. In our September 2016 report, we  recommended that OALC assess whether additional policy or guidance is  needed to clarify the roles of VA’s national contracting organizations. The  Acting Chief Acquisition Officer, OALC said that the department agreed  with this recommendation.
section_title: VA Procurement Policies Are Outdated and Not Always Cohesive and Effectively Communicated
paragraphs: Key VA procurement policies are outdated and difficult for contracting  officers to use. Standards for Internal Control in the Federal Government  state that it is important for an organization’s management to update its  policies over time to reflect changing statutes or conditions, and that  those policies should be communicated to those who need to implement  them. However, many of VA’s regulations and policies are outdated,  most notably the VA Acquisition Regulation (VAAR), which has not been  updated since 2008. The department has issued a patchwork of policy  documents in the interim to fill this gap. VA asks contracting officers to  refer to two different versions of the VAAR, one from 1997 and the other  from 2008. This causes confusion among contracting officers. In addition,  VA communicates interim procurement policies in a number of different  forms, some of which can be duplicative. Figure 3 illustrates the  numerous sources that contracting officers must turn to for guidance.
The sheer volume and number of different forms of communications— many of which are outdated—are confusing and present challenges for  contracting officials seeking appropriate guidance. While VA recently fully  rescinded the 1997 VAAR after our inquiries, the 2008 version remains  out of date. A new revision of the VAAR is also in development, but has  faced delays. VA began the process in 2011 but does not plan to finalize  the new VAAR until December 2018, including the required rulemaking  process. The lengthy delay in updating this fundamental source of policy  impedes contracting officers’ abilities to effectively carry out their duties.  In our September 2016 report, we recommended that VA identify  measures to expedite the revision of the VAAR, and take interim steps to  clarify its policy framework; the Acting Chief Acquisition Officer, OALC  stated that the department agreed with both of these recommendations.
section_title: VA Can Improve Its Processes for Medical Supply Purchasing and Identify Other Cost Savings Opportunities
paragraphs: VA medical centers use contractors called medical-surgical prime  vendors to obtain many of the supplies they use on a daily basis, such as  bandages and surgical sutures. Officials known as ordering officers, who  work at the medical centers, regularly place orders. In turn, the prime  vendor delivers those orders via a local warehouse. The prices for these  medical supplies are established by VA national contracts, which typically  provide significant discounts over the Federal Supply Schedule prices— an estimated 30 percent on average, according to a senior NAC official.  Use of these national contracts is also required by VA policy and  regulation. Figure 4 provides an overview of the MSPV process.
However, the current MSPV process is confusing and cumbersome. Most  orders are placed through the Integrated Funds Distribution Control Point  Activity, Accounting and Procurement (IFCAP) system, a decades-old IT  system with a text-based interface, which does not include a tool to look  up items that are available on the national contracts. For instance,  ordering officers must know the exact item number—which is different for  each vendor—to enter into IFCAP. The existing tools to look up available  national contracts are also cumbersome. Along with discounted items on  national contracts, the MSPV system also allows ordering officers to buy  thousands of items directly from VA’s Federal Supply Schedule contracts,  which lack the degree of discounted pricing of the national contracts.  Because of the challenges posed by the system, ordering officers in some  cases purchase items directly from the Federal Supply Schedules, and  might miss opportunities to obtain discounts on the national contracts.
Administration of the MSPV program is being transferred from NAC to  SAC, and, along with this transfer, VHA and SAC are making changes to  the MSPV program in an effort to address the issues discussed above  and streamline the process. To support the next generation MSPV, SAC  has already awarded new prime vendor contracts and is in the process of  awarding the supporting national contracts for individual types of supplies.
VHA and SAC also plan to implement a new online ordering interface,  developed by a contractor for VHA, which will provide ordering officers a  more intuitive interface for the outdated and difficult-to-use IFCAP  system. Further, unlike the current system, this new interface will only  permit ordering officers to purchase items from a specific catalog of items,  not the wider range of Federal Supply Schedule items. VA estimates that  this catalog will eventually contain 8,000 to 10,000 items to meet the  needs of its medical centers. However, there have been some delays in  VHA’s development of supply requirements and SAC’s award of new  supply contracts, with only about 1,800 items on national contracts as of  July 2016. VA does not anticipate that SAC will be able to award  contracts for the full catalog by the time the new MSPV contracts become  operational in December 2016. In the interim, SAC and VHA officials  stated that they will allow ordering of Federal Supply Schedule items  (approximately 4,500) that are not on national contracts, to ease the  transition.
Work remains to ensure that the transition to this new approach will be  successful. Updating the MSPV process affects how essential supplies  are ordered and delivered at 167 medical centers on a daily basis, and  facility logistics staff, including ordering officers, must be able to  implement the new approach. VHA has an outreach plan in place, but  chief logistics officers at medical centers we visited expressed some  concerns about the transition—for instance, one reported that his office’s  analysis found 14 items deemed critical to the function of the medical  center were not on a preliminary list of supplies available through the new  MSPV, nor were acceptable substitutes. If medical centers instead  purchase items through their local contracting offices because the new  MSPV does not meet their needs, it will undermine the program’s  potential to increase efficiency and cost savings.
In our September 2016 report, we recommended that VA take steps to  facilitate the transition to the new MSPV process, including ensuring that  SAC collects data to monitor the use of national contracts in the new  system, that SAC and VHA establish achievable time frames for  eliminating Federal Supply Schedule items from the MSPV catalog once  national contracts are in place, and that the new ordering interface clearly  distinguish between items on national contracts and the 4,500 items on  the Federal Supply Schedules. The Acting Chief Acquisition Officer,  OALC said that the department agreed with this recommendation.
VA’s substantial buying power presents many opportunities for  procurement cost savings, but the department has not consistently taken  advantage of them. A key aspect of strategic sourcing is consolidating  similar requirements to manage them collectively, reaping cost savings  and efficiency gains. VA has done this successfully in some areas, such  as pharmaceuticals, and the planned changes to the MSPV program  could result in greater use of discounted national contracts for medical  supplies if they are successfully implemented.
There are opportunities to better apply strategic sourcing principles at the  regional level, as well. Within VHA, each of the 19 VISNs is responsible  for a regional network of multiple medical centers and clinics. Individual  medical centers within each VISN procure many goods and services  separately, despite the fact that their requirements are similar.  Consolidating these requirements—such as security services, elevator  maintenance, and eyeglasses for patients—can realize both cost savings  and greater efficiency in awarding and administering contracts.
We found efforts underway to consolidate requirements at the regional  level, but local autonomy and limited planning capacity pose obstacles.  For instance, one VISN we visited recently began an initiative to  consolidate requirements for purchases made by all of its medical  centers, especially services. VISN managers explained that they began  with the easiest requirements, such as landscaping services and parking  administration. They issued a draft memorandum with plans to broaden  this approach to most purchases, but medical center staff provided  feedback that they preferred their own local contracts and did not want  VISN-wide contracts to become the default approach. In our review of 37  selected contracts, we did find several instances of VISN and contracting  officials consolidating requirements for greater efficiency and to obtain  better pricing. This indicates that consolidating procurement is possible  with leadership buy-in, and that there are opportunities to share lessons  learned across VISNs. Within VHA, in VISNs where there is not a  consistent push by local leadership to pursue consolidation, it is  challenging for efforts driven by individual departments or contracting  personnel to overcome cultural obstacles.
To provide the necessary leadership commitment to take advantage of  these opportunities, we recommended in our September 2016 report that  VHA Procurement and Logistics conduct a review of VISN-level strategic  sourcing efforts, identify best practices, and, if needed, issue guidance.  The Acting Chief Acquisition Officer, OALC said that the department  agreed with this recommendation.
Chairman Coffman, Ranking Member Kuster, and Members of the  Subcommittee, this concludes my prepared statement. I would be  pleased to respond to any questions that you may have at this time.
section_title: GAO Contacts and Staff Acknowledgements
paragraphs: If you or your staff have any questions about this statement, please  contact Michele Mackin at (202) 512-4841 or MackinM@gao.gov. In  addition, contact points for our Offices of Congressional Relations and  Public Affairs may be found on the last page of this statement. Individuals  who made key contributions to the report on which this testimony is based  are Lisa Gardner, Assistant Director; Emily Bond; George Bustamante;  Margaret Hettinger; Julia Kennon; Katherine Lenane; Ethan Levy; Teague  Lyons; Jean McSween; Sylvia Schatz; Erin Stockdale; and Roxanna Sun.
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