Uninformed Procurement Decisions for Commercial Products Are Costly

PSAD-77-170: Published: Oct 26, 1977. Publicly Released: Oct 26, 1977.

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Federal Government expenditures for commercial products will command a sizable portion of the $66 billion estimated for federal procurement in fiscal year (FY) 1977. Although the government is usually able to buy products at a lower unit price if purchased for stock in large volume, the use of commercial distribution channels is frequently more advantageous. The Commission on Government Procurement recommended in 1972 that, in making procurement and stockage decisions, the Defense Logistics Agency (DLA), General Services Administration (GSA), and the Veterans Administration (VA) should consider the full cost of any government distribution system involved. These three agencies are the government's primary supply agencies; during FY 1975, they spent about $8.1 billion on commercial and commercial-type supplies and had an ending inventory valued at about 4.1 billion.

Many items purchased, stocked, and distributed by these supply agencies are seldom, if ever, in demand. During 1975, 37 percent of the 1.4 million items stocked by DLA were not requested. For another 28 percent of the items, annual requisitions totalled less than $17 each. Purchasing, stocking, and disposing of seldom-used items is costly. From FY 1971 to 1975, DLA scrapped $658 million worth of new but obsolete goods at a loss of from 92 to 95 percent of the original purchase price. Money may have been saved if the items had been obtained through the commercial distribution system. However, the supply agencies, particularly GSA and DLA, have been reluctant to develop and/or use cost data necessary to evaluate which method of procurement and distribution would be more effective. VA has developed and is using cost data, but some improvements are needed in its system to make sure all cost elements are considered. Policy of the Office of Procurement Policy requires agencies to use commercial distribution channels unless it is cost effective to do otherwise.

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