Contract Management: Agencies Can Achieve Significant Savings on Purchase Card Buys

GAO-04-430 Published: Mar 12, 2004. Publicly Released: Apr 28, 2004.
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Highlights

From 1994 to 2003, the use of government purchase cards exploded from $1 billion to $16 billion. Most purchase card transactions are for small purchases, less than $2,500. While agencies estimate that using purchase cards saves hundreds of millions of dollars in administrative costs, the rapid growth of the purchase card presents opportunities for agencies to negotiate discounts with major vendors, thereby better leveraging agencies' buying power. To discover whether agencies were doing this, we examined program management and cardholder practices at the Departments of Agriculture, Army, Navy, Air Force, Interior, Justice, Transportation, and Veterans Affairs. GAO also examined why agencies may not have explored these opportunities.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Office of Management and Budget To focus governmentwide management attention on taking advantage of opportunities to achieve savings on purchase card buys, the Director of OMB should require agencies to report--either through the current quarterly reports or another mechanism--on the steps they are taking to leverage their purchase card buys in areas such as (1) negotiating discount agreements with major purchase card vendors, (2) implementing initiatives to better inform cardholders of opportunities to achieve savings,(3) conducting analyses to identify such opportunities, and (4) assessing, through mechanisms such as vendor reports, whether cardholders are taking advantage of savings opportunities.
Closed - Implemented
On August 5, 2005, the Office of Management and Budget issued as a new appendix B to OMB Circular 123 to consolidate and update government-wide charge card requirements. The OMB directive also establishes standard minimum requirements and suggested best practices for government charge card programs.
Office of Management and Budget To focus governmentwide management attention on taking advantage of opportunities to achieve savings on purchase card buys, the Director of OMB should annually report to Congress on the government's progress in identifying and taking advantage of opportunities for savings on purchase card micropurchases.
Closed - Implemented
On August 5, 2005, the Office of Management and Budget issued as a new appendix B to OMB Circular 123 to consolidate and update government-wide charge card requirements. The OMB directive also establishes standard minimum requirements and suggested best practices for government charge card programs.
General Services Administration To assist agencies in identifying opportunities to achieve savings on purchase card buys and to facilitate cardholder access to discounted prices, the Administrator of GSA should direct the purchase card program manager to continue efforts to improve reporting by the banks that provide purchase cards so that GSA will have the data it needs--including basic information such as top vendors and level 3 data where feasible--to assist agencies in effectively identifying opportunities to leverage their purchasing power.
Closed - Not Implemented
GSA awarded new contracts for SmartPay 2 in June 2007. However, GSA states that, as a practical matter, it is not feasible for GSA to obtain level 3 data at the program level.
Department of Agriculture To more effectively capture the significant potential for savings that agencies can achieve, the Secretaries of Agriculture, Defense, the Interior, Justice, Transportation, and Veterans Affairs should direct their purchase card program managers--in coordination with officials responsible for procurement, finance, small business utilization, and other appropriate stakeholders--to develop mechanisms that provide cardholders more favorable pricing from major vendors or for key commodity groups, such as agencywide discount agreements with major vendors or simpler mechanisms that capitalize on trade discounts offered by local merchants. In designing such mechanisms, purchase card program managers should consider the need to (1) take full advantage of competitive forces to assure the most favorable prices, (2) ensure that agreements cover an adequate range of the products cardholders are likely to buy, (3) coordinate negotiation activities within the department to reduce duplication of effort, and (4) ensure that agreements appropriately support agencies' efforts to meet governmentwide socioeconomic requirements.
Closed - Implemented
USDA completed a spend analysis and will use the spend analysis results to develop discount agreements with vendors.
Department of Defense To more effectively capture the significant potential for savings that agencies can achieve, the Secretaries of Agriculture, Defense, the Interior, Justice, Transportation, and Veterans Affairs should direct their purchase card program managers--in coordination with officials responsible for procurement, finance, small business utilization, and other appropriate stakeholders--to develop mechanisms that provide cardholders more favorable pricing from major vendors or for key commodity groups, such as agencywide discount agreements with major vendors or simpler mechanisms that capitalize on trade discounts offered by local merchants. In designing such mechanisms, purchase card program managers should consider the need to (1) take full advantage of competitive forces to assure the most favorable prices, (2) ensure that agreements cover an adequate range of the products cardholders are likely to buy, (3) coordinate negotiation activities within the department to reduce duplication of effort, and (4) ensure that agreements appropriately support agencies' efforts to meet governmentwide socioeconomic requirements.
Closed - Implemented
DoD believes that less emphasis should be placed on agency-wide contract agreements to leverage its buying power, because DoD views them as costly to establish and maintain and may work at cross purposes to the Department's small business goals. Instead, DoD believes the same results can be achieved through less formal measures both at the local level and on a DoD-wide basis. DoD intends to promote and encourage efforts similar to the Air Force best practice cited in the report whereby a number of AF bases elicited significant discounts from local vendors who value the business opportunity provided by these DoD activities. DoD is also in exploratory discussions with both card associations to determine the potential for negotiating DoD-wide pricing discounts at the point-of-sale with its larger purchase card vendors. The Army issued a memo encouraging contracting offices to leverage their buying power. The Navy has also taken similar action by working with Defense and Civilian agencies to develop strategic sourcing solutions for commodities.
Department of the Interior To more effectively capture the significant potential for savings that agencies can achieve, the Secretaries of Agriculture, Defense, the Interior, Justice, Transportation, and Veterans Affairs should direct their purchase card program managers--in coordination with officials responsible for procurement, finance, small business utilization, and other appropriate stakeholders--to develop mechanisms that provide cardholders more favorable pricing from major vendors or for key commodity groups, such as agencywide discount agreements with major vendors or simpler mechanisms that capitalize on trade discounts offered by local merchants. In designing such mechanisms, purchase card program managers should consider the need to (1) take full advantage of competitive forces to assure the most favorable prices, (2) ensure that agreements cover an adequate range of the products cardholders are likely to buy, (3) coordinate negotiation activities within the department to reduce duplication of effort, and (4) ensure that agreements appropriately support agencies' efforts to meet governmentwide socioeconomic requirements.
Closed - Implemented
DOI issued an update to its DOI Integrated Charge Card Cardholder Guide that provides best practices on how to be a smart buyer when using the purchase card. Also, DOI identified five products or services that they could consolidate in order to leverage DOI's buying power and obtain discounts from vendors. They are realizing savings in PC buys due to this initiative. DOI is preparing to leverage its procurement of wireless services in the future.
Department of Justice To more effectively capture the significant potential for savings that agencies can achieve, the Secretaries of Agriculture, Defense, the Interior, Justice, Transportation, and Veterans Affairs should direct their purchase card program managers--in coordination with officials responsible for procurement, finance, small business utilization, and other appropriate stakeholders--to develop mechanisms that provide cardholders more favorable pricing from major vendors or for key commodity groups, such as agencywide discount agreements with major vendors or simpler mechanisms that capitalize on trade discounts offered by local merchants. In designing such mechanisms, purchase card program managers should consider the need to (1) take full advantage of competitive forces to assure the most favorable prices, (2) ensure that agreements cover an adequate range of the products cardholders are likely to buy, (3) coordinate negotiation activities within the department to reduce duplication of effort, and (4) ensure that agreements appropriately support agencies' efforts to meet governmentwide socioeconomic requirements.
Closed - Implemented
Justice has put in place a corrective action plan with completion dates to address the recommendations.
Department of Transportation To more effectively capture the significant potential for savings that agencies can achieve, the Secretaries of Agriculture, Defense, the Interior, Justice, Transportation, and Veterans Affairs should direct their purchase card program managers--in coordination with officials responsible for procurement, finance, small business utilization, and other appropriate stakeholders--to develop mechanisms that provide cardholders more favorable pricing from major vendors or for key commodity groups, such as agencywide discount agreements with major vendors or simpler mechanisms that capitalize on trade discounts offered by local merchants. In designing such mechanisms, purchase card program managers should consider the need to (1) take full advantage of competitive forces to assure the most favorable prices, (2) ensure that agreements cover an adequate range of the products cardholders are likely to buy, (3) coordinate negotiation activities within the department to reduce duplication of effort, and (4) ensure that agreements appropriately support agencies' efforts to meet governmentwide socioeconomic requirements.
Closed - Implemented
In FY07, DOT's purchase card program expanded the use of discounts that card holders can take advantage of. DOT added another major vendor that allows card holders to receive significant discounts (Software Spectrum), joining with its already established vendors, Fed Ex, Staples and Office Max. Cardholders made over 63,000 transactions with these vendors saving, according to DOT, more than $738,000.
Department of Veterans Affairs To more effectively capture the significant potential for savings that agencies can achieve, the Secretaries of Agriculture, Defense, the Interior, Justice, Transportation, and Veterans Affairs should direct their purchase card program managers--in coordination with officials responsible for procurement, finance, small business utilization, and other appropriate stakeholders--to develop mechanisms that provide cardholders more favorable pricing from major vendors or for key commodity groups, such as agencywide discount agreements with major vendors or simpler mechanisms that capitalize on trade discounts offered by local merchants. In designing such mechanisms, purchase card program managers should consider the need to (1) take full advantage of competitive forces to assure the most favorable prices, (2) ensure that agreements cover an adequate range of the products cardholders are likely to buy, (3) coordinate negotiation activities within the department to reduce duplication of effort, and (4) ensure that agreements appropriately support agencies' efforts to meet governmentwide socioeconomic requirements.
Closed - Not Implemented
After multiple unsuccessful attempts to obtain documentation on actions taken, we are closing the recommendation.
General Services Administration To assist agencies in identifying opportunities to achieve savings on purchase card buys and to facilitate cardholder access to discounted prices, the Administrator of GSA should direct the purchase card program manager to work with GSA's acquisition center contracting officers to pursue point-of-sale discounts with large vendors.
Closed - Implemented
The General Services Administration concurs with the recommendation. The SmartPay Program office has increased the number of companies that offer Point of Sale discounts and published a list of vendors that offer these discounts.
General Services Administration To assist agencies in identifying opportunities to achieve savings on purchase card buys and to facilitate cardholder access to discounted prices, the Administrator of GSA should direct the purchase card program manager to, as part of the existing cross-agency forums for purchase card discussions, encourage agencies to share information on their successes in leveraging the purchase card to obtain better prices as well as strategies for overcoming challenges that could hinder agencies' ability to achieve purchase card savings.
Closed - Implemented
GSA published a best practices guide that incorporates innovative purchase card management approaches used by other agencies.
Department of Agriculture To more effectively capture the significant potential for savings that agencies can achieve, the Secretaries of Agriculture, Defense, the Interior, Justice, Transportation, and Veterans Affairs should direct their purchase card program managers--in coordination with officials responsible for procurement, finance, small business utilization, and other appropriate stakeholders--to revise programs for communicating with cardholders to ensure that the programs provide cardholders the information they need to effectively take advantage of mechanisms the agency has established to achieve savings. Such information would include telling cardholders about the GSA Schedule contracts or agency-specific agreements chosen as vehicles for leveraging the agency's buying power, and procedures cardholders should follow to access and use these vehicles when they plan to make a purchase from these vendors.
Closed - Not Implemented
Agriculture agreed with the recommendation. However, after multiple unsuccessful attempts to obtain documentation on this recommendation, we are closing it.
Department of Defense To more effectively capture the significant potential for savings that agencies can achieve, the Secretaries of Agriculture, Defense, the Interior, Justice, Transportation, and Veterans Affairs should direct their purchase card program managers--in coordination with officials responsible for procurement, finance, small business utilization, and other appropriate stakeholders--to revise programs for communicating with cardholders to ensure that the programs provide cardholders the information they need to effectively take advantage of mechanisms the agency has established to achieve savings. Such information would include telling cardholders about the GSA Schedule contracts or agency-specific agreements chosen as vehicles for leveraging the agency's buying power, and procedures cardholders should follow to access and use these vehicles when they plan to make a purchase from these vendors.
Closed - Implemented
DoD has developed a web-based tutorial that is used to train all "new" cardholders and billing officials. Included in this tutorial is a section which prioritizes the use of various sources of supply for purchase card buys. Additionally, detailed instructions are provided in the training tutorial regarding the accessing and use of GSA Advantage and other Federal Supply Schedules.
Department of the Interior To more effectively capture the significant potential for savings that agencies can achieve, the Secretaries of Agriculture, Defense, the Interior, Justice, Transportation, and Veterans Affairs should direct their purchase card program managers--in coordination with officials responsible for procurement, finance, small business utilization, and other appropriate stakeholders--to revise programs for communicating with cardholders to ensure that the programs provide cardholders the information they need to effectively take advantage of mechanisms the agency has established to achieve savings. Such information would include telling cardholders about the GSA Schedule contracts or agency-specific agreements chosen as vehicles for leveraging the agency's buying power, and procedures cardholders should follow to access and use these vehicles when they plan to make a purchase from these vendors.
Closed - Not Implemented
After multiple, unsuccessful attempts to obtain documentation, we are closing the recommendation.
Department of Justice To more effectively capture the significant potential for savings that agencies can achieve, the Secretaries of Agriculture, Defense, the Interior, Justice, Transportation, and Veterans Affairs should direct their purchase card program managers--in coordination with officials responsible for procurement, finance, small business utilization, and other appropriate stakeholders--to revise programs for communicating with cardholders to ensure that the programs provide cardholders the information they need to effectively take advantage of mechanisms the agency has established to achieve savings. Such information would include telling cardholders about the GSA Schedule contracts or agency-specific agreements chosen as vehicles for leveraging the agency's buying power, and procedures cardholders should follow to access and use these vehicles when they plan to make a purchase from these vendors.
Closed - Implemented
While engaged in negotiating discounts with vendors for express mail, wireless services, and office supplies, Justice became aware of GSA's Federal Strategic Sourcing Initiative and has joined that effort for office supplies. Justice has evaluated the options and issued its own solicitation for express mail based on its unique requirements. It is in the process of examining its requirements for wireless services and expects that effort to be completed in June 2009.
Department of Transportation To more effectively capture the significant potential for savings that agencies can achieve, the Secretaries of Agriculture, Defense, the Interior, Justice, Transportation, and Veterans Affairs should direct their purchase card program managers--in coordination with officials responsible for procurement, finance, small business utilization, and other appropriate stakeholders--to revise programs for communicating with cardholders to ensure that the programs provide cardholders the information they need to effectively take advantage of mechanisms the agency has established to achieve savings. Such information would include telling cardholders about the GSA Schedule contracts or agency-specific agreements chosen as vehicles for leveraging the agency's buying power, and procedures cardholders should follow to access and use these vehicles when they plan to make a purchase from these vendors.
Closed - Not Implemented
Transportation addressed our other recommendations but did not have plans to implement this one.
Department of Veterans Affairs To more effectively capture the significant potential for savings that agencies can achieve, the Secretaries of Agriculture, Defense, the Interior, Justice, Transportation, and Veterans Affairs should direct their purchase card program managers--in coordination with officials responsible for procurement, finance, small business utilization, and other appropriate stakeholders--to revise programs for communicating with cardholders to ensure that the programs provide cardholders the information they need to effectively take advantage of mechanisms the agency has established to achieve savings. Such information would include telling cardholders about the GSA Schedule contracts or agency-specific agreements chosen as vehicles for leveraging the agency's buying power, and procedures cardholders should follow to access and use these vehicles when they plan to make a purchase from these vendors.
Closed - Not Implemented
After multiple unsuccessful attempts to obtain documentation,we are closing the recommendation.
Department of Agriculture To more effectively capture the significant potential for savings that agencies can achieve, the Secretaries of Agriculture, Defense, the Interior, Justice, Transportation, and Veterans Affairs should direct their purchase card program managers--in coordination with officials responsible for procurement, finance, small business utilization, and other appropriate stakeholders--to, to the extent possible using available data, such as information on major vendors, analyze purchase card expenditure patterns to identify opportunities to achieve additional savings and to assess whether cardholders are getting good prices. Where available data are not sufficient for such analyses, the Secretaries should investigate the feasibility of gathering additional information. In evaluating options for gathering additional information, purchase card program managers should carefully consider the costs and benefits of obtaining comprehensive information and imposing unwarranted burdens on cardholders, vendors, and other stakeholders.
Closed - Not Implemented
Agriculture agreed with the recommendation. However, after multiple unsuccessful attempts to obtain documentation on actions taken, we are closing the recommendation.
Department of Defense To more effectively capture the significant potential for savings that agencies can achieve, the Secretaries of Agriculture, Defense, the Interior, Justice, Transportation, and Veterans Affairs should direct their purchase card program managers--in coordination with officials responsible for procurement, finance, small business utilization, and other appropriate stakeholders--to, to the extent possible using available data, such as information on major vendors, analyze purchase card expenditure patterns to identify opportunities to achieve additional savings and to assess whether cardholders are getting good prices. Where available data are not sufficient for such analyses, the Secretaries should investigate the feasibility of gathering additional information. In evaluating options for gathering additional information, purchase card program managers should carefully consider the costs and benefits of obtaining comprehensive information and imposing unwarranted burdens on cardholders, vendors, and other stakeholders.
Closed - Not Implemented
DoD partially agreed with the recommendation stating that until transaction level 3 data is widely available, a persuasive business case associated with this recommendation cannot be constructed that would result in informed and cost-effective strategic sourcing decisions. DoD maintains that the availability of level 3 data is controlled by merchant card readers and is out of the Department's control. However, DoD continues to stress to both card associations its desire to obtain this data. They will continue to encourage the card associations to identify ways to persuade their merchants to provide level 3 data. DoD points out that the purchase card was not created to bundle purchases, the result of which would be reduced opportunities for small businesses. However, targeting DoD's largest purchase card suppliers for point-of-sale discount agreements would largely have the same impact without the associated infrastructure burden. DoD maintains that level 3 data is controlled by the card readers used by the merchants and continues to encourage the card association to persuade merchants to provide level 3 data. Given that DOD plans no additional action on this matter, we consider the recommendation closed but not implemented.
Department of the Interior To more effectively capture the significant potential for savings that agencies can achieve, the Secretaries of Agriculture, Defense, the Interior, Justice, Transportation, and Veterans Affairs should direct their purchase card program managers--in coordination with officials responsible for procurement, finance, small business utilization, and other appropriate stakeholders--to, to the extent possible using available data, such as information on major vendors, analyze purchase card expenditure patterns to identify opportunities to achieve additional savings and to assess whether cardholders are getting good prices. Where available data are not sufficient for such analyses, the Secretaries should investigate the feasibility of gathering additional information. In evaluating options for gathering additional information, purchase card program managers should carefully consider the costs and benefits of obtaining comprehensive information and imposing unwarranted burdens on cardholders, vendors, and other stakeholders.
Closed - Not Implemented
After multiple unsuccessful attempts to obtain documentation, we are closing the recommendation.
Department of Justice To more effectively capture the significant potential for savings that agencies can achieve, the Secretaries of Agriculture, Defense, the Interior, Justice, Transportation, and Veterans Affairs should direct their purchase card program managers--in coordination with officials responsible for procurement, finance, small business utilization, and other appropriate stakeholders--to, to the extent possible using available data, such as information on major vendors, analyze purchase card expenditure patterns to identify opportunities to achieve additional savings and to assess whether cardholders are getting good prices. Where available data are not sufficient for such analyses, the Secretaries should investigate the feasibility of gathering additional information. In evaluating options for gathering additional information, purchase card program managers should carefully consider the costs and benefits of obtaining comprehensive information and imposing unwarranted burdens on cardholders, vendors, and other stakeholders.
Closed - Implemented
DOJ has been working with its charge card service provider and has analyzed information from its account payable system. Based on the analysis DOJ will increase its use of charge cards as payment methods, and it has determined which vendors may be amenable to negotiating discounts based on DOJ's total spend with them. It is now analyzing a second set of more recent data to validate the earlier conculsions.
Department of Transportation To more effectively capture the significant potential for savings that agencies can achieve, the Secretaries of Agriculture, Defense, the Interior, Justice, Transportation, and Veterans Affairs should direct their purchase card program managers--in coordination with officials responsible for procurement, finance, small business utilization, and other appropriate stakeholders--to, to the extent possible using available data, such as information on major vendors, analyze purchase card expenditure patterns to identify opportunities to achieve additional savings and to assess whether cardholders are getting good prices. Where available data are not sufficient for such analyses, the Secretaries should investigate the feasibility of gathering additional information. In evaluating options for gathering additional information, purchase card program managers should carefully consider the costs and benefits of obtaining comprehensive information and imposing unwarranted burdens on cardholders, vendors, and other stakeholders.
Closed - Implemented
DOT states that it is using both US Bank's reporting tool and Master Card's Enhanced Merchant Reporting tool to identify additional savings opportunities.
Department of Veterans Affairs To more effectively capture the significant potential for savings that agencies can achieve, the Secretaries of Agriculture, Defense, the Interior, Justice, Transportation, and Veterans Affairs should direct their purchase card program managers--in coordination with officials responsible for procurement, finance, small business utilization, and other appropriate stakeholders--to, to the extent possible using available data, such as information on major vendors, analyze purchase card expenditure patterns to identify opportunities to achieve additional savings and to assess whether cardholders are getting good prices. Where available data are not sufficient for such analyses, the Secretaries should investigate the feasibility of gathering additional information. In evaluating options for gathering additional information, purchase card program managers should carefully consider the costs and benefits of obtaining comprehensive information and imposing unwarranted burdens on cardholders, vendors, and other stakeholders.
Closed - Not Implemented
Veterans Affairs agreed with the recommendation. However, after multiple unsuccessful attempts to obtain documentation on actions taken, we are closing the recommendation.

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