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Billions Lost in Potential Savings Through Lack of Strategic Sourcing

Statement

By:
Date:
Location: Washington, DC

The federal government could significantly reduce contracting costs through the increased use of "strategic sourcing," according to a report issued Thursday at the request of Homeland Security and Governmental Affairs Committee Chairman Joe Lieberman, ID-Conn., Ranking Member Susan Collins, R-Maine, Oversight and Government Reform Chairman Darrell Issa, R-Cal., and Ranking Member Elijah Cummings, D-Maryland.

Strategic sourcing is the analytical assessment of needs across an agency or across the government, followed by the negotiation of contracts that provide discounted prices based on volume purchases.

The report by the Government Accountability Office (GAO) found that instead of leveraging the buying power of the whole government, agencies act more like many unrelated, medium-sized businesses and often rely on hundreds of separate contracts for commonly used items, with prices that vary widely.

Lieberman: "Leveraging the buying power of the federal government is much too important a tool to be bypassed by federal agencies, particularly in this era of tight budgeting. Private sector companies have been able to shave 10 to 20 percent off their costs by aggregating their procurements, through strategic sourcing, and if the government would follow suit we would save $50 billion!
Yet, only a small percentage of the government's contracting is done by this method. Given the potential savings, the federal government must get serious about strategic sourcing. The Department of Homeland Security is a leader in this area. Other agencies should look to DHS as a model and fall into line."

Collins: "No entity on earth has the buying power of the United States government. Yet, the government lags behind the private sector in harnessing buying power to achieve economies of scale. There's no excuse for this -- bureaucratic and cultural obstacles when it comes saving money must be demolished. The taxpayers deserve to get the best deal for their dollar. During these tough economic times, American families are buying in bulk and shopping at warehouse discount stores. Their government should be doing the same."

Issa: "The federal government must do better when purchasing commonly-used goods and services- especially information technology- where inefficiency and waste is substantial. My draft IT acquisition reform legislation would mandate priority consideration of strategically sourced goods and services. As the GAO has underscored, leading private sector companies have successfully used strategic sourcing since the 1980s and saved billions of dollars. It is time the federal government catches up."

Cummings: "In these tough fiscal times, the federal government needs now, more than ever, to make sure every dollar it spends is done so effectively and efficiently," Cummings said. "Strategic sourcing is a proven private sector method that has the potential to save American taxpayers over $50 billion a year and federal agencies should be encouraged to aggressively adopt it."

GAO found:

n The four agencies examined by GAO (the Departments of Defense, Energy, Homeland Security and the Veterans Administration) accounted for 80 percent of spending last year but reported managing only 5 percent of that spending through strategic sourcing.
n Leading companies strategically manage about 90 percent of their procurements for savings of 10 to 20 percent.
n The Department of Homeland Security used strategic sourcing at a much higher rate than the other agencies -- 20 percent of its FY 2011 spending.
n Only a small volume of spending goes through contracts established by OMB's "Federal Strategic Sourcing Initiative" (FSSI) -- $339 million out of a total $537 billion in spending in FY 2011. Even this small amount of spending generated considerable savings of $60 million.
n FSSI is underutilized. Only 15% of governmentwide spending for the products and services covered by FSSI initiatives went through the FSSI contracts in FY 2011.
n The FSSI program has not targeted any of the government's top 50 products and services for strategic sourcing and therefore is missing the potential for significant savings.


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