Best Practices: Using Spend Analysis to Help Agencies Take a More Strategic Approach to Procurement

The Department of Veterans Affairs (VA) concurs with GAO's recommendations. In April 2005, VA's Deputy Secretary wrote GAO that the Veterans Health Administration (VHA) established a workgroup to evaluate current and planned contracting databases and to develop management applications that will provide consistent information on health-related services contracts. According to the VA, this initiative will lead to a more strategic approach to services contracting throughout VHA. By October 2005, the VHA clinical logistics headquarters expects to complete an agency-wide system upgrade that will support an automated spend analysis capability that will capture data on health care services as well as medical supplies and equipment. With this upgrade, VHA clinical logistics headquarters and business office staff will have a spend analysis tool that for the first time automates, extracts, organizes, and analyzes spending trends for clinical care and support services. VHA clinical logistics headquarters has also prepared advanced procurement plans for fiscal years 2006 through 2010 that call for more regional and national contracts to be awarded for clinical care and support services. In addition to VA's action, in May 2005, the Office of Management and Budget (OMB), in part in response to this report, adopted a new policy directing federal agencies to implement strategic sourcing, beginning with a spend analysis. Specifically, the OMB Deputy Director for Management sent a memorandum to agency Chief Acquisition Officers (CAO), Chief Financial Officers (CFO), and Chief Information Officers (CIO), directing them to take several actions for implementing strategic sourcing. For example, OMB directs the agencies to do a spend analysis of their procurement data and use this information to make business decisions about buying supplies and services more effectively and efficiently. Not later than October 2005, agencies' CAOs are to identify at least three commodities that could be strategically sourced, and may include existing strategic sourcing efforts for this purpose. Agency CAOs are to collaborate with their CIOs, CFOs, small business offices, and other key stakeholders to develop agency-wide strategic sourcing plans. OMB is requiring that the new agency-wide plans include processes, structures, and roles for governing strategic sourcing efforts as well as goals, objectives, and performance measures for monitoring and improving strategic sourcing programs. Beginning in January 2006, OMB is requiring agency CAOs to report annually to the Office of Federal Procurement Policy (OFPP) on their strategic sourcing outcomes, including price reductions for goods and services; total procurement cost savings; and changes in small and disadvantaged acquisition goal achievement. OMB's actions are responsive to our March 2004 briefing for OMB procurement policy officials on spend analysis and other best practices of leading companies. During this briefing, we advised OMB that wider adoption of such practices across the federal government could result in significant savings and other procurement performance benefits. OMB's action with the May 2005 strategic sourcing policy is responsive to matters GAO raised in the earlier briefing as well as the findings, and recommendations in this report focused on civilian agencies and the prior reports focused on the defense department's services acquisitions.

The Department of Health and Human Services (HHS) had no comments on a draft of GAO's report. In December 2004 however, the Secretary wrote GAO to comment that HHS has subsequently taken major actions considered to be in line with the report's recommendations. For example, GAO recommended that the Secretary direct headquarters procurement officials to eliminate redundant management activities associated with their separate strategic sourcing initiatives for products and services. As a result, by December 2004, HHS reorganized under the initiative Acquisition Integration and Modernization, merging the earlier strategic sourcing initiative for products and acquisition consolidation workgroup for services contracting, as well as overhaul of the departmental procurement information system. According to the HHS Secretary, this new initiative reflects a more strategic and cohesive purchasing approach and relies upon detailed spend analysis. HHS also established a new governance structure for senior leaders and managers to collaborate across HHS units, monitor progress, and approve new strategic sourcing projects. In addition, since December 2004, HHS created an internal strategic sourcing web site to communicate and share policies, procedures, and status of departmentwide initiatives for strategic acquisition and lower costs. For example, the HHS strategic sourcing website now includes a centralized listing and electronic portal to all HHS-wide contracting vehicles, along with ordering procedures, so that HHS users can buy from existing contracts and obtain volume discounts, rather than initiating new, standalone contracts for similar products or services. To measure progress and track benefits from their strategic sourcing efforts, HHS procurement headquarters has also established a portfolio of commodities that are being leveraged across the department and is continuously monitoring spend data to measure use of HHS-wide contracts and discount agreements with key suppliers. As of June 2005, HHS has six commodities in its Strategic Sourcing Portfolio, leveraging $85 million in annual departmentwide spend, and plans to award 3 more agreements in July. According to HHS procurement headquarters, these efforts will yield $7,500,000 in savings in fiscal year 2005; another $7,500,000 in savings is projected for fiscal year 2006, plus the savings attributed to the three new categories that are being sourced by July 2005. The agency is now making maximum use of its Departmental Contract Information System (DCIS) to support spend analysis and is in the process of studying creation of a data warehouse to capture automated and repeatable spend data. Finally, HHS plans to adhere fully to the strategic sourcing planning and reporting requirements in the Office of Management and Budget's (OMB) May 20, 2005, memorandum to Chief Acquisition Officers, Chief Financial Officers, and Chief Information Officers.

In 2008, USDA expanded its spend analysis capability through their purchase card program known as SmartPay, which involved awarding a new contract with a national bank credit card vendor. With this action, USDA is able to obtain detailed, repeatable, and actionable spend analysis from the SmartPay vendor based on USDA's purchase card spending data, which includes some of USDA's contract payment spending as well. According to USDA procurement headquarters, USDA will use this enhanced spend analysis to identify additional commodities for strategic sourcing. USDA officials anticipate the enhanced and expanded SmartPay spend analysis capability will enable the department to leverage its buying power across several more commodities. In addition to USDA's action, in May 2005 OMB, in part in response to this report, adopted a new policy directing federal agencies to implement strategic sourcing, beginning with a spend analysis. Since January 2006, OMB has required agencies to report annually to the Office of Federal Procurement Policy on their strategic sourcing outcomes, including price reductions for goods and services; total procurement cost savings; and changes in small and disadvantaged acquisition goal achievement. OMB's actions are also responsive to the findings and recommendations in this report focused on civilian agencies.

The Department of Justice agreed with the report's findings and recommendations. According to Justice's November 2004 statement of actions taken, the agency has already begun implementing GAO's recommendations. Consistent with GAO's recommendation, Justice is assessing the automated and repeatable use of current procurement systems as the Federal Procurement Data System (FPDS) and purchase card data and identifying categories of goods and services that can be strategically sourced. Specifically, Justice conducted a spend analysis of fiscal year 2003 federal procurement system and purchase card data and used the results to identify categories of products and services (i.e., commodities), high-dollar/high-volume suppliers of those commodities, and common vendors in each commodity. Justice is in the process of identifying potential savings areas where discount agreements can be negotiated with suppliers. Justice is reviewing the spend data and will develop acquisition strategies from which to leverage buying power with those vendors and commodities for agency-wide discount agreements. Justice has also taken action to improve the quality of its FPDS and purchase card spend data upon which future spend analyses will be made. For example, the guidance and policy was issued in an effort to improve the reliability and quality of the department's federal procurement data. Between October 2005 and November 2006, Justice anticipates completing spend data improvements and identification of categories of products and services where buying power can be leveraged. In the meantime, Justice officials will also have to adhere to the strategic sourcing planning and reporting requirements in the Office of Management and Budget's (OMB) May 20, 2005, memorandum to Chief Acquisition Officers, Chief Financial Officers, and Chief Information Officers.

In its November 2004 reply to the final GAO report, the Department of Transportation (DOT) concurred with GAO's recommendations intended to improve the agency's spend analysis capabilities to support a more strategic approach to procurement. DOT has taken several actions to improve its spend analysis capabilities and expand its strategic sourcing efforts to leverage buying power for products and services from suppliers, gain efficiencies, reduce costs, and facilitate mission accomplishment. For example, in December 2004, DOT's senior procurement executive, with active support from the Chief Financial Officer, implemented a new automated spend analysis tool with the agency's purchase card vendor that is used to do spend analysis of DOT-wide purchase card buys. According to DOT, discount agreements are being developed with some vendors. The senior procurement executive also hired a contractor to review the agency's federal procurement data for accuracy and conduct quarterly spend analyses. According to DOT, the results of this broad-based spend analysis will be used in the near future to start identifying categories of supplies and services to strategic source. Finally, DOT will also have to adhere to the strategic sourcing planning and reporting requirements in the Office of Management and Budget's May 20, 2005, memorandum to Chief Acquisition Officers, Chief Financial Officers, and Chief Information Officers.

The Department of Justice agreed with the report's findings and recommendations. According to Justice's November 2004 statement of actions taken, the agency has already begun implementing GAO's recommendations. Between October 2005 and November 2006, Justice anticipates completing spend data improvements and identification of categories of products and services where buying power can be leveraged. By April 2007, once these spend analyses are completed, Justice plans to assess its current procurement structure, processes, functions, and roles to determine their adequacy to support a more strategic approach to buying goods and services. In the meantime, Justice officials will also have to adhere to the strategic sourcing planning and reporting requirements in the Office of Management and Budget's (OMB) May 20, 2005, memorandum to Chief Acquisition Officers, Chief Financial Officers, and Chief Information Officers.

In its November 2004 reply to the final GAO report, the Department of Transportation (DOT) concurred with GAO's recommendation intended to improve the agency's organizational structure, processes, and roles to support a more strategic approach to procurement. According to DOT, and as reflected in GAO's report, the agency is creating support structures for strategic sourcing starting with information technology products and services. For example, DOT's senior procurement executive continues to work with the Chief Information Officer (CIO) to create a commodity council process that includes cross-functional representatives from technical and procurement staff. To further support the IT commodity councils, the senior procurement executive brought together a team of procurement staff from DOT's operational bureaus. In addition, the CIO, Chief Financial Officer (CFO), and the senior procurement executive meet regularly to evaluate strategic procurement alternatives. Strategic sourcing has been incorporated into DOT's overarching Procurement Performance Management System. DOT plans to start up additional commodity councils for non-IT goods and services once the IT commodity council process matures and will establish metrics and goals for the strategic sourcing effort. Finally, DOT will also have to adhere to the strategic sourcing planning and reporting requirements in the Office of Management and Budget's May 20, 2005, memorandum to Chief Acquisition Officers, Chief Financial Officers, and Chief Information Officers.