Strategic Sourcing:

Opportunities Exist to Better Manage Information Technology Services Spending

GAO-15-549: Published: Sep 22, 2015. Publicly Released: Oct 22, 2015.

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What GAO Found

Efforts by the Departments of Defense (DOD), Homeland Security (DHS), and the National Aeronautics and Space Administration (NASA) to strategically manage spending for information technology (IT) services, such as software design and development, have improved in recent years. Each of the agencies GAO reviewed has 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, continues 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 through preferred strategic sourcing contracts in fiscal year 2013. In contrast, GAO previously reported that leading companies generally strategically managed about 90 percent of their procurement spending, including services.

Fiscal Year 2013 IT Services Obligations through Strategic Sourcing Contracts

Agency

Army

Navy

Air Force

DHS

NASA

Total IT services obligations ($ in millions)

$3,454

3,251

1,394

2,219

855

Percentage obligated through preferred IT strategic sourcing contract vehicles

27%

10

17

44

35

Source: GAO analysis of FPDS-NG data | GAO-15-549

Further, most of these agencies' efforts to strategically source IT services have 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 are missing opportunities to leverage their buying power and more effectively acquire IT services.

Contracting officials from the agencies GAO reviewed generally had limited insights into the labor rates paid for similar IT services. GAO's analysis of 30 contract actions for similar IT services in fiscal year 2013 found that the agencies paid widely varying labor rates for similar services with the same contractors. The average difference between the lowest and highest labor rate for the categories GAO reviewed was 62 percent, in part due to geographic or work location, unique security, education or skill requirements, and the contractor unit performing the work. Further, for the 30 contract actions for IT services that GAO reviewed, the two contractors proposed more than 117 discrete labor categories—some with multiple variations—which complicated efforts to compare labor rates. Prior GAO reports on leading commercial practices have noted that companies use standardized labor categories for IT services to enable comparison of labor rates and ultimately realize cost savings. Several government-wide and agency-specific efforts to address aspects of these challenges, including providing tools to assess labor rate variations or streamlining labor categories, are under development or in their early implementation stages.

Why GAO Did This Study

GAO reported in 2012 that the government is not fully leveraging its buying power for high-spending areas such as IT services, which accounted for more than $30 billion in fiscal year 2013. Leading commercial companies use strategic sourcing—a process that moves them away from numerous individual purchases to an aggregate approach—to better manage the services they acquire and achieve savings of 4 to 15 percent annually.

GAO was asked to review strategic sourcing of IT services. This report addresses the extent to which selected agencies (1) manage IT services through strategic sourcing approaches, and (2) have insight into labor rates for similar IT services.

GAO reviewed DOD (including the three military departments), DHS, and NASA, which collectively accounted for 53 percent of reported federal fiscal year 2013 IT services obligations. GAO analyzed agency policies, procurement and contracting data, and interviewed agency and contractor officials. GAO identified a high-spend IT service category and obtained labor rate information from a nongeneralizable sample of 30 contract actions awarded to two of the largest contractors common to these agencies.

What GAO Recommends

To improve efforts to strategically source IT services, GAO recommends that each agency conduct spend analysis, monitor spending, develop savings goals and metrics, and consider the use of standardized labor categories, as appropriate for their agency. The agencies concurred with these recommendations.

For more information, contact Timothy J. DiNapoli at (202) 512-4841 or dinapolit@gao.gov.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Priority recommendation

    Comments: DOD concurred with our recommendation. As of May 2018, the Army reported that it conducted an in-depth analysis of spending for IT services and is expanding CHESS capabilities to reduce duplicative contracts for services. Further, the Army reported that it will continue to monitor spending trends, and seek additional opportunities to drive spending to managed solutions.

    Recommendation: To improve efforts to strategically source IT services within the Army, the Secretary of the Army should direct its strategic sourcing accountable official to conduct a comprehensive analysis of Army IT services spending to determine the extent to which requirements can be addressed by Computer Hardware, Enterprise Software and Solutions (CHESS) or other strategic sourcing approaches, and based on this analysis, consider opportunities to reduce duplicative contracts.

    Agency Affected: Department of Defense: Department of the Army

  2. Status: Closed - Implemented

    Comments: DOD concurred with our recommendation. As of May 2018, the Army reported that it assessed its IT services spending and set a target to increase utilization of CHESS, a mandatory source for IT hardware and a preferred source for IT services. The Army also issued a policy in 2015 that requires buyers to consider an approved list of preferred sources during market research. The Army reported that it measures utilization of mandatory and preferred sources including best-in-class solutions, which are those determined by the Office of Management and Budget to meet certain strategic sourcing characteristics.

    Recommendation: To improve efforts to strategically source IT services within the Army, the Secretary of the Army should direct its strategic sourcing accountable official to implement utilization metrics and mandatory use or consideration policies.

    Agency Affected: Department of Defense: Department of the Army

  3. Status: Open

    Comments: DOD concurred with our recommendation. The Army established guidance to improve efforts to strategically source IT services under the CHESS program and decrease duplication of contracts for IT services and hardware. It requires all acquisition requirements for IT services and hardware to be acquired under CHESS or be granted a waiver or exception by the Army Chief Information Officer. As of May 2018, the Army reported that it will continue to monitor the usage of the CHESS contracts and identify cost savings goals and metrics. The Army expects to complete these actions in 2019.

    Recommendation: To improve efforts to strategically source IT services within the Army, the Secretary of the Army should direct its strategic sourcing accountable official to develop guidance and overarching goals and metrics for savings.

    Agency Affected: Department of Defense: Department of the Army

  4. Status: Open

    Comments: DOD concurred with our recommendation. As of May 2018, the Army reported that it is in the process of determining if standardized labor categories should be used to ensure realistic and reasonably priced labor rates for CHESS and other strategic sourcing contracts for IT services. The Army expects to complete these actions in 2019.

    Recommendation: To improve efforts to strategically source IT services within the Army, the Secretary of the Army should direct its strategic sourcing accountable official to conduct a review of the benefits and disadvantages of standardized labor categories for CHESS or future contracts.

    Agency Affected: Department of Defense: Department of the Army

  5. Status: Closed - Implemented

    Priority recommendation

    Comments: DOD concurred with our recommendation. In March 2018, the Navy completed an analyses of information technology services spending and established metrics to monitor progress and reduce duplicative contracts.

    Recommendation: To improve efforts to strategically source IT services within the Navy, the Secretary of the Navy should direct its strategic sourcing accountable official to conduct a comprehensive analysis of IT services spending to determine the extent to which requirements can be addressed by the existing contracts or other strategic sourcing approaches and based on this analysis, reduce duplicative contracts.

    Agency Affected: Department of Defense: Department of the Navy

  6. Status: Closed - Implemented

    Comments: DOD concurred with our recommendation. In March 2018, the Navy completed an analyses of information technology services spending and established metrics to monitor progress and assess compliance with existing IT services use policies.

    Recommendation: To improve efforts to strategically source IT services within the Navy, the Secretary of the Navy should direct its strategic sourcing accountable official to implement utilization metrics and monitor agency efforts to comply with the Navy's existing use policies for IT services.

    Agency Affected: Department of Defense: Department of the Navy

  7. Status: Closed - Implemented

    Priority recommendation

    Comments: DOD concurred with our recommendation. In 2015, the Air Force established the Information Technology (IT) Business Analytics Office which subsequently conducted an in-depth analysis of spending on IT hardware, software, and services. The Air Force has also taken several steps to incorporate this analysis into its business practices. For example, in 2017 the Air Force instituted a formal Category Management Program and appointed an IT Category Manager who is responsible for developing strategies to reduce contract duplication.

    Recommendation: To improve efforts to strategically source IT services within the Air Force, the Secretary of the Air Force should direct its strategic sourcing accountable to conduct a comprehensive analysis of IT services spending to determine the extent to which requirements can be addressed by Network-Centric Solutions (NETCENTS) or other strategic sourcing approaches, and based on this analysis, reduce duplicative contracts.

    Agency Affected: Department of Defense: Department of the Air Force

  8. Status: Closed - Implemented

    Comments: DOD concurred with our recommendation. In 2015, the Air Force established the Information Technology (IT) Business Analytics Office which subsequently conducted an in-depth analysis of spending on IT hardware, software, and services. As part of this effort, the Air Force monitors and reports on utilization for strategically sourced contract vehicles.

    Recommendation: To improve efforts to strategically source IT services within the Air Force, the Secretary of the Air Force should direct its strategic sourcing accountable to implement utilization metrics.

    Agency Affected: Department of Defense: Department of the Air Force

  9. Status: Closed - Implemented

    Comments: DOD concurred with our recommendation. In 2015, the Air Force established the IT Business Analytics Office which subsequently conducted an in-depth analysis of spending on information technology (IT) hardware, software, and services. As part of this effort, the Air Force established an overarching goal to reduce IT costs by 20 percent and reported that it has achieved savings of 5 to 20 percent using its strategically sourced contracts compared with other sources. In 2017, the Air Force also instituted a formal Category Management Program which is to develop standard processes, procedures, and best practices and to facilitate data analysis, as well as performance measurement and reporting.

    Recommendation: To improve efforts to strategically source IT services within the Air Force, the Secretary of the Air Force should direct its strategic sourcing accountable to develop guidance and overarching goals and metrics for savings.

    Agency Affected: Department of Defense: Department of the Air Force

  10. Status: Closed - Implemented

    Comments: DOD partially concurred with our recommendation. The Air Force reviewed labor categories under certain IT services contracts in 2016 and did not identify opportunities for standardization, however, the Air Force reported that it has collaborated with the Office of Management and Budget's Category Management initiative to share and analyze data on IT service labor rates to inform federal strategic sourcing efforts.

    Recommendation: To improve efforts to strategically source IT services within the Air Force, the Secretary of the Air Force should direct its strategic sourcing accountable to conduct a review of the benefits and disadvantages of standardized labor categories for primary strategic sourcing vehicles such as NETCENTS.

    Agency Affected: Department of Defense: Department of the Air Force

  11. Status: Closed - Implemented

    Priority recommendation

    Comments: NASA agreed with this recommendation. NASA implemented its planned actions, including (1) implementing new strategic sourcing policies in the NASA federal acquisition regulation supplement, (2) revising the 2014 spend analysis and (3) requiring use of a strategic sourcing vehicle for IT services such as mobile communications, telecommunications, cloud computing, and seat management.

    Recommendation: To improve efforts to strategically source IT services within NASA, the Administrator of NASA should direct its strategic sourcing accountable official to use its 2014 spend analysis to determine the extent to which requirements can be addressed by the IT Infrastructure Integration Program or other strategic sourcing approaches, and based on this analysis, reduce duplicative contracts.

    Agency Affected: National Aeronautics and Space Administration

  12. Status: Closed - Implemented

    Priority recommendation

    Comments: NASA partially agreed with this recommendation. Specifically, NASA agreed to establish metrics, but sought to employ mandatory consideration policies, where applicable, instead of mandatory use policies. We agreed that the proposed approach would meet the intent of our recommendation. NASA implemented its planned actions, including (1) revising the NASA strategic sourcing guide to include establishment of utilization metrics, and (2) issuing updated strategic sourcing policies in the NASA federal acquisition regulation supplement to include mandatory use policies.

    Recommendation: To improve efforts to strategically source IT services within NASA, the Administrator of NASA should direct its strategic sourcing accountable official to implement utilization metrics and mandatory use policies.

    Agency Affected: National Aeronautics and Space Administration

  13. Status: Closed - Implemented

    Priority recommendation

    Comments: NASA agreed with this recommendation and implemented its planned actions, including (1) issuing updated strategic sourcing policies in the NASA federal acquisition regulation supplement, (2) updating its strategic sourcing website, and (3) updating the NASA strategic sourcing guide to include the setting of goals or baselines as a method of evaluating the strategic sourcing approach.

    Recommendation: To improve efforts to strategically source IT services within NASA, the Administrator of NASA should direct its strategic sourcing accountable official to develop guidance and overarching goals and metrics for savings.

    Agency Affected: National Aeronautics and Space Administration

  14. Status: Closed - Implemented

    Comments: In response to our recommendation, the DHS Office of Chief Procurement Officer assessed its portfolio of strategic sourcing contract vehicles related to information technology services and established a target utilization goal for fiscal year 2016.

    Recommendation: To improve efforts to strategically source IT services within DHS, the Secretary of Homeland Security should direct its strategic sourcing accountable official to establish a utilization goal for the portfolio of strategic sourcing contracts related to IT services.

    Agency Affected: Department of Homeland Security

  15. Status: Closed - Implemented

    Comments: In response to our recommendation, the DHS Office of Chief Procurement Officer assessed its portfolio of strategic sourcing contract vehicles related to information technology services and established a target savings goal for fiscal year 2016.

    Recommendation: To improve efforts to strategically source IT services within DHS, the Secretary of Homeland Security should direct its strategic sourcing accountable official to establish a savings goal for the portfolio of strategic sourcing contracts related to IT services.

    Agency Affected: Department of Homeland Security

 

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