strategic sourcing | The Contracting Education Academy

September 15, 2011 By AMK

OMB announces final guidance on inherently governmental functions

Long-anticipated final guidance on “inherently governmental functions” is set for publication on Monday and should clarify confusion over blurred lines in agencies’ understanding of which types of work should be outsourced, top officials at the Office of Management and Budget told reporters on Friday.

The final policy letter, said Chief Performance Officer Jeffrey Zients, “helps agencies do better at balancing contracting out with management by federal employees. The mix was out of balance and we think this protects the public interest. Given our fiscal situation today, it is important more than ever that taxpayer money be well spent.”

With a few exceptions, the guidance, which takes effect Oct. 12, is similar to the draft released in March 2010, said Dan Gordon, administrator of the Office of Federal Procurement Policy. “But it is a milestone” that follows up on a memorandum of understanding about reducing waste in contracting issued by President Obama in March 2009.

The document includes lengthy lists of functions that are clearly inherently governmental and separate lists of “functions closely associated with the performance of inherently governmental functions” — where agencies can use more discretion.

One difference in the new guidance is a provision intended to “clarify the confusing and controversial” policy on the contracting out of military security operations, Gordon said. If a function is part of combat or could evolve into combat, then contractors can’t be used. “We benefited on this issue from public comments from the private sector, agencies, nonprofits and the Hill,” he added.

A second departure is a provision intended to help small businesses. “It places a lower priority on in-sourcing if the function is not inherently governmental,” Gordon said. “Insourcing is not a goal, but agencies need to understand that if an inherently governmental function is improperly contracted,” they can lose control of the work.

The administration “is sensitive” to realities of the current budget crunch, Gordon acknowledged. “We need to demonstrate fiscal responsibility on both sides” of the contracting process, he said. “We don’t want to dramatically increase [full-time equivalent] levels on the federal side, but in today’s fiscal world, the solution is not massive contracting out,” nor is it massive insourcing.

Zients presented the letter in the context of the administration’s two-and-a-half-year-old effort to trim waste by curbing contracting “after its uncontrolled growth under the prior administration.” One in six federal dollars is contracted out, and the rate, mostly in services, doubled since 2008, he said. But 2010 marked the first time in a decade that the level of contracting decreased, by $80 billion.

Examples of smarter contracting, Zients said, include “strategic sourcing,” such as pooling purchases of office supplies, which can save as much as 40 percent. “Rather than buying like 100 medium-sized businesses, take advantage of the fact that the United States is the world’s largest purchaser,” he said.

Another means is cutting spending on management support, which quadrupled over the past 10 years, he added. “In information technology and acquisition, management support produces many wasteful and unnecessary consultants’ reports that sit on a shelf.” That approach will reduce expenses by 15 percent, or $7 billion in fiscal 2012, he said.

Focusing on interaction with contractors, the administration also has “strengthened suspension and debarment” processes, Zients said, stressing, however, that “contractors do valuable work and will continue to do so.”

Over the past year and a half, Gordon said, the outsourcing-insourcing issue has been reviewed most thoroughly by the Defense and Homeland Security departments, a process now largely complete. Most agencies have already been working under the principles of the final guidance, he said, so its release won’t prompt major shifts.

Critical functions differ by agency, Gordon said, but the letter provides “clear direction to managers responsible for policy on the closely associated functions to make sure that the agency can control it and that the work doesn’t expand.”

The problem, he said, though “now largely corrected,” has been that some agencies, for example, would have a contractor write a statement of work and then award the contract to that same company. In managing IT functions, he added, he’s heard federal managers say that “no one in-house understands the work and that they’re completely dependent on the contractor. It’s intolerable.” The solution, he said, might be limited insourcing, adding two to three people, or simply applying more attention.

The guidance’s definition of inherently governmental, as in the draft, is based on the 1998 Federal Activities Inventory Reform Act, and Zients said the letter’s other changes, though small, would require adjusting the Federal Acquisition Regulation to conform.

Dozens of interest groups had been following the evolution of final guidance on what is inherently governmental. “We are pleased OFPP has retained flexibilities for agencies to determine what functions are considered closely associated with inherently governmental functions or are critical functions to agency missions and to provide for these functions in a way that best meets their needs and capabilities,” said Stan Soloway, president of the industry group the Professional Services Council. “However, we are concerned that the list of closely associated functions could be misconstrued as a ‘do not contract’ list, even though it is not the case, nor OFPP’s intent. The checklist that identifies closely associated functions must not become a barrier to contracting for work where it is appropriate to do so.”

Scott Amey, general counsel of the watchdog group the Project on Government Oversight, said he is impressed with the guidance. “The policy comes clean about the government’s over-reliance on contractors and improves the categories of activities and functions that shouldn’t be performed by contractors,” he said. “Private security in combat areas was never a good policy, and OFPP’s changes will ensure that properly trained and mission-responsible government personnel conduct such work.” He wonders, however, whether agencies will actually retain or insource work that his group believes should be performed by public servants.

Steve Amitay, federal legislative counsel of the National Association of Security Companies, said on Friday that absence of any mention of “building security” in the guidance “validates the continued successful use of contract security by federal agencies. Furthermore, given the decades of effective and efficient use of contract security by federal agencies, any agency that is considering insourcing security jobs should, as the policy states, be required to conduct an in-depth, comprehensive cost-analysis of such a move.”

— by Charles S. Clark – Government Executive – September 9, 2011 – http://www.govexec.com/dailyfed/0911/090911cc1.htm?rss=getoday&oref=rss

September 7, 2011 By AMK

Let’s argue procurement. It’s healthy.

A few weeks ago, a little debate broke out between two of the country’s leading procurement experts — both of whom have been close friends and colleagues of mine for some 20 years.

Steve Kelman, former administrator of federal procurement policy, is a leading advocate of procurement contests and sees them as highly innovative procurement strategies that offer enormous opportunities for the government to rapidly acquire innovative solutions.

Alan Chvotkin, who has also been my partner at the Professional Services Council for the past decade, took a slightly more cautious approach. Although PSC has consistently advocated for more innovation in federal acquisition, Chvotkin also argued in a recent Washington Business Journal column that innovative strategies such as contests should not inappropriately ignore or sidestep the basic tenets of federal procurement. Kelman took Chvotkin and PSC to task for the WBJ column in his Federal Computer Week blog.

That these two icons of procurement might have a disagreement, especially one that involves relatively insignificant differences, is unsurprising — and it is healthy. Indeed, in the end, their debate is refreshing and reminds me why both are men I have long considered mentors.

There is no doubt that today’s procurement environment is generally hostile to innovation. It has actually been spiraling in quite the opposite direction. A range of external and internal pressures have increasingly limited the ability of acquisition professionals to exercise their judgment and expertise, too often driving them back to the old days when lowest cost rather than reasoned, thoughtful, best-value solutions prevailed.

As such, when innovative techniques emerge, enjoy some early successes and gain official support — as has been the case with the Office of Management and Budget’s blessing of contests — it is only natural that a lot of excitement and buzz will result, especially from leading innovators such as Kelman. But successes aside, innovations such as contests don’t apply everywhere and are not without potential significant risks to the government and/or industry, a point stressed by Chvotkin.

That’s why Kelman’s advocacy for rapidly increased adoption of promising acquisition strategies and Chvotkin’s cautions about how best to proceed represents precisely the kind of balanced dialogue we need to be having.

Think about the early days of reverse auctions. I witnessed the great enthusiasm that emerged as a result of the Navy’s early successes with auctions for the procurement of commodities. However, that enthusiasm also led others to immediately begin suggesting that reverse auctions should be used across a much broader swath of the procurement spectrum.

Fortunately, thanks to dialogues like the one taking place between Kelman and Chvotkin, a more balanced approach took hold. And when strategic sourcing, which at the time was really a form of bulk buying, first gained popularity, some immediately began to advocate its use for the acquisition of higher-end services. Today’s more rational and appropriate use of strategic sourcing has resulted from a similarly thoughtful dialogue among smart folks who both know procurement and understand the need for innovation.

In other words, what makes the debate between Kelman and Chvotkin most significant is that it is a dialogue about how to make innovation work — at a time when such dialogues are all too rare. The most successful procurement innovations of the past 20 years — as one example, the emergence of commercial acquisitions under FAR Part 12 in the 1990s — have succeeded precisely because they benefited from the kind of dialogue and dissection that recently took place between Chvotkin and Kelman.

Conversely, the landscape is littered with examples of potentially effective innovative ideas that died because they were either too blithely embraced or too quickly dismissed, with little of the kind of thoughtful dialogue designed to overcome perceived or real shortcomings in ways that would enable success.

So, to my friends and colleagues, keep up the conversation and debate. By doing so, you will only help make federal procurement better and drive more successful innovation.

About the Author: Stan Soloway is president and chief executive officer of the Professional Services Council. Published Aug. 31, 2011 by Washington Technology at http://washingtontechnology.com/articles/2011/08/29/insights-soloway.aspx?s=wtdaily_010911

March 3, 2011 By AMK

GSA improving acquisition slowly, steadily

The Federal Acquisition Service is pursuing initiatives in digitization, cloud computing and strategic sourcing aimed at reducing costs and improving productivity.

“I think the challenges facing the federal government have certainly increased,” said Steve Kempf, commissioner of the General Services Administration’s FAS, during an interview with the Coalition for Government Procurement‘s Off-the-Shelf program on Federal News Radio.

“The challenges in respect to the complexity of the market place and the changes in the market place. For internally, for us, some of the workforce issues that we are still facing in terms of retaining great people to run our programs and finally some of our systems,” Kempf said.

Kempf, who has been on the job for a year, has been working on these issues. In three months, FAS added 200 people to their workforce.

“We have a lot new people, we’ve got some new regional commissioners but I will say this, they’re great people who are really starting to work together well and I am really looking forward to some really great results from this team,” Kempf said.

With his new leadership team in place, Kempf said he has been focusing on modernizing the service while continuing to deliver to their customers.

Kempf said communication is key. First, he said he focused on stakeholders and employees to “make sure they knew what we were doing, they were on board and they knew what was going to be happening.”

Second, Kempf said he reached out to customers and industry to make sure they’re on the same page. Among the priorities Kempf discussed were:

Strategic Sourcing Initiatives
With a focus on office supplies and domestic delivery options, Kempf said the government is leveraging their purchasing to secure the lowest prices.

Other projects include printers, copiers and multi-function devices in a program called print management. As well as wireless plans and the telecommunications expense management service. All of which are part of the GSA’s schedules program.

Kempf said that “even the losers on these contracts have gone back in and dropped their prices so people who are not even using the strategic sourcing are actually getting some benefit from this.”

Cloud computing
FAS has also taken initiatives in infrastructure-as-a-service, software-as-a-service and are working on an e-mail contract through the schedules program.

“It’s really looking at how could we provide some value add to what is already existing on the schedules program already,” he said. “So with infrastructure-as-a-service, can we align the service offerings from the commercial vendors in a way that the government wants to buy it in order to meet its cloud computing objectives.”

Digitization and customers
FAS’s “enterprise acquisition solution” is working for full scale electronic contracting in almost all of their programs. As well as the “supply chain modernization,” that will update the broad infrastructure of supply operations.

“I really think that we are seeing some things like customers wanting more data, more transparency and again that feeds into improving our systems so we will be able to supply them with better information,” Kempf said.

In updating their systems, along with dynamic pricing, Kempf said customers are able to benefit more from the services.

The schedules program Kempf said FAS will continue improving the schedules program. He said customers have a well known complaint that the schedules program is difficult to use.

“We are beginning to work very carefully on the training around the schedules program…working with customers on how to use the schedules properly and how to use it for advanced purchasing,” Kempf said.

Kempf said GSA will hold training May 10-12 in San Diego at the GSA Expo.

— by John Buckner, Federal News Radio, Feb. 22, 2011

December 16, 2010 By AMK

New Congress could put the brakes on insourcing

The 112th Congress is unlikely to let the Obama administration move full-speed ahead on its initiative to bring contractor jobs back in-house, a consultant and a Republican Senate staff member said on Thursday.

Jonathan Etherton, president and owner of the consultancy Etherton and Associates Inc. and a former Senate Armed Services Committee staffer, told an audience of contractors at a Coalition for Government Procurement breakfast he has heard at least three congressional panels plan to look at whether insourcing is being implemented strategically and whether agencies are focusing on critical positions.

Bill Wright, Republican staff director for the Senate Homeland Security and Governmental Affairs Ad Hoc Subcommittee on Contracting Oversight, noted insourcing is on the radar of ranking member Sen. Scott Brown, R-Mass. Brown is concerned the initiative is moving forward too quickly and without enough consideration of its effect on small businesses, Wright said during the breakfast discussion.

More generally, Brown is looking for ways to improve efficiency during times of mounting national debt, Wright said. The senator is developing an acquisition savings plan that could include expanding strategic sourcing, an approach in which agencies analyze purchasing trends and buy common commodities and services in bulk; rewarding high-performing acquisition teams; and promoting a more specialized acquisition workforce by requiring officials to obtain certifications in certain areas of expertise.

New Congress could put the brakes on insourcing Much of the subcommittee’s oversight work to date has been bipartisan, Wright added, and Brown is working with the administration on the efficiency initiatives.

Etherton noted, however, that Congress’ overall relationship with the executive branch is likely to grow more adversarial in 2011 with Republicans in control of the House and lawmakers aggressively scheduling oversight hearings.

In addition to insourcing, Etherton said, the next Congress is likely to examine implementation of the 2009 Weapons System Acquisition Reform Act; the relationship between the Defense Contract Audit Agency and the Defense Contract Management Agency; the definition of inherently governmental work; how to best ensure adequate contractor controls against waste, fraud and abuse; and how Defense Department savings initiatives will affect the industrial base.

Wright predicted lawmakers also would focus on transparency surrounding contractor profit incentives and subcontractor performance; tracking contract-related earmarks; and enhancing competition and limiting risk through fixed-price arrangements.

– by Amelia Gruber – Government Executive – December 16, 2010

November 11, 2010 By AMK

Air Force ramps up new strategic sourcing office

The Air Force has established a new unit to leverage the purchasing power of its 70 U.S.-based installations and save up to $2.3 billion during the next five years.

The Enterprise Sourcing Group, launched in late October, will follow a strengthened strategic sourcing strategy in which it buys commodities and services that are common to most Air Force bases in bulk. The goal, officials said, is to streamline the acquisition process while obtaining better prices.

“We are creating efficiencies across the Air Force as a whole, which is a good thing for everybody,” Mario J. Troncoso, the unit’s director, told Government Executive earlier this week. “Centrally procuring gives us good control. We can do continuous improvement cycles and relook at these things while at the same time being transparent to taxpayers and our government.”

The initiative has gone through a number of changes in recent years. The Air Force in 2007 announced plans to open five regional strategic sourcing contracting centers, but the economic downturn, along with various issues on bases, made the idea less “palatable than it originally looked on paper,” Troncoso said.

The service then shifted its strategy and concentrated on developing a more centrally located unit at Wright-Patterson Air Force base in Ohio. The Enterprise Sourcing Group will house about 400 contracting officials and include a small business office, a business support group and three enterprise sourcing squadrons. Six commodity councils will manage the acquisition process. The Air Force also is standing up satellite offices for the unit in Texas, Alabama, Florida and Nebraska.

Expectations are high. Domestic Air Force bases spend about $10 billion on contracts for commodities and services annually and the Enterprise Sourcing Group will manage roughly half that total within the next five years. Internal estimates show the unit could save up to 15 percent of what the service now spends for common goods and services by standardizing requirements, better analyzing past purchases and eliminating redundant acquisition efforts.

For example, the group’s Information Technology Council has begun awarding centralized procurements for desktop computers while its Force Protection Council has issued contracts for gear and equipment for security personnel, Troncoso said. Agreements for office supplies, furniture and medical services also are under way.

“We will be saving money and manpower by approaching installation contracting from a strategic perspective,” Gen. Donald Hoffman, commander of the Air Force Materiel Command, said during an Oct. 28 activation ceremony. “However, we will not lose sight of small business. That’s been my pledge and my challenge to the new group to motivate, stimulate and encourage small business.”

Getting small firms involved often has been difficult for agencies implementing wide-ranging strategic sourcing plans. Typically, when small contracts are bundled together, the total cost and labor required to complete the work are out of reach for small businesses, leaving midsize and large firms as the primary bidders.

But, Troncoso said the Air Force is willing to make cost trade-offs in an effort to consider small businesses. Other times, the service might have to expand its market research to seek out new candidates, he said.

“There is no one cookie-cutter answer to how we can structure contracts in a way to make it more or less small business friendly,” he said. “It’s something we are going to have to roll into our entire process.”

Strategic sourcing, which gained steam during the George W. Bush administration, is part of a larger Defense Department effort to reduce overhead spending and redirect $100 billion to the warfighter. The Pentagon plan also includes closing the U.S. Joint Forces Command, a 10 percent reduction on service support contractors during each of the next three years, and decreasing funding for intelligence advisory and assistance contracts.

In addition to contracting at bases, the Enterprise Sourcing Group will award procurements for the Air Force Center for Engineering and Environment, the Air Force Civil Engineer Support Agency and the Defense Technical Information Center. The group also will support Air Force medical contracting.

– By Robert Brodsky – GovExec.com – November 11, 2010

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