The US Government Accountability Office has issued the "Strategic Procurement: Improved and Expanded Use Could Save Billions in Annual Procurement Costs" report (Sept 2012, http://www.gao.gov/products/GAO-12-919), where it analyses the procurement activities of the Departments of Defense (DoD), Homeland Security (DHS), Energy, and Veterans Affairs (VA) during 2011 and finds that US Federal Agencies are not reaping the benefits of a more strategic exercise of their buyer power.
According to GAO, the federal agencies included in the report leveraged only a fraction of their buying power through strategic sourcing (a process that moves an agency away from numerous individual procurements to a broader aggregate approach) and achieved limited savings. "In fiscal year 2011, the four largest federal departments accounted for 80 percent of the $537 billion in federal procurement spending, but reported managing about 5% or $25.8 billion through strategic sourcing efforts. These agencies reported savings of $1.8 billion—less than one-half of one percent of procurement spending."
GAO considers this situation unsatisfactory because "While strategic sourcing may not be suitable for all procurement spending, leading companies strategically manage about 90 percent of their procurements and report annual savings of 10 percent or more. Further, most agencies’ efforts do not address their highest spending areas such as services, which may provide opportunities for additional savings."
Therefore, GAO issues a series of recommendations for a more strategic use of the leverage that the high volume of expenditure provides to the largest federal agencies. In particular, GAO refers to the DoD Office of the Undersecretary of Defense's 2010 "Better Buying Power" Guidelines (http://tinyurl.com/DoDBetterBuyingPower) which are designed in pro-competitive terms and indicate to procurement officials that they have to promote real competition if they truly want to achieve savings and obtain long-term superior procurement results.
I find these guidelines interesting and worth reading, particularly as regards this:
Real competition is the single most powerful tool available to the Department to drive productivity. Real competition is to be distinguished from a series of directed buys or other contrived two-source situations which do not harness the full energy of competition. Competition is not always available, but evidence suggests that the government is not availing itself of all possible competitive situations.[...]
Remove obstacles to competition. In recent years, the Department has achieved the highest rates of competition in its history. Having said that, the fact is that a significant fraction of those competitive procurements have involved what is termed “ineffective competition,” since only one offer to a solicitation was received even when publicized under full and open competition. This occurs in about $55 billion of Department contracts annually. One step the Department can take is to mitigate this loss of savings from the absence of competition. A common practice has been to conclude that either a bid or proposal submitted by a single offeror in response to a full and open competition met the standard for adequate price competition because the bid or proposal was submitted with the expectation of competition. As a result, no certified cost or pricing data was requested, no cost or price analysis was undertaken, and often, no negotiations were conducted with that single offeror. Henceforth I expect contracting officers to conduct negotiations with all single bid offerors and that the basis of that negotiation shall be cost or price analysis, as the case may be, using non-certified data.
A more important approach is to remove obstacles to competitive bidding. For example, the Air Force’s PEO for Services reviewed the Air Force's Design and Engineering Support Program (DESP) for effective competition. She found 39 percent of the task order competitions under the Indefinite Delivery/Indefinite Quantity (IDIQ) contract resulted in one bid. The Air Force team undertook an analysis to determine why they were getting the one bid and made two changes. First, they amended their source selection methodology so that technical, cost, and past performance factors were more equally weighted. No one factor can be less than 25 percent or more than 50 percent. This served to lessen the advantage of the incumbent contractor since the technical factor could not overshadow past performance and cost. Second, the team provided a monthly report to all DESP IDIQ holders listing all known requirements in the pipeline. The report includes sufficient information to allow contractors to evaluate whether or not to bid and to start to prepare a bid package. The team has effectively added an additional 45 days to the time a requirement is made known to the potential offerors and the bid due date. These two changes have reduced the percentage of task orders receiving one bid by 50 percent. The team continues to evaluate its processes to further reduce the percentage.
Each service component and agency has a competition advocate. I am directing each competition advocate to develop a plan to improve both the overall rate of competition and the rate of effective competition. Those plans should establish an improvement rate of at least 2 percent per year for overall competition and an improvement rate of at least 10 percent per year for effective competition. Those plans are to be approved by the CAEs. The Department’s competition advocate shall brief me on the overall progress being made to achieve those goals.
Even if some of the recommendations are hinting towards potential exploitation of suppliers (such as the mandate to negotiate when a single offer is received), the particularities of the defense industry (where supplier concentration is high and increasing over time) may justify them as an exercise of countervailing seller and buyer power. In any case, in my view, the importance of the message particularly lies in the need to find creative ways of lifting barriers to effective participation (particularly by revising tender requirements) and the existence and key role of the competition advocates within each of the federal agencies conducting major procurement activities.
In my opinion, the creation of a similar position within main domestic procurement agencies would be desirable [see Sanchez Graells, Public Procurement and the EU Competition Rules (Oxford, Hart Publishing, 2011) 387-388], but this is an issue that, unfortunately, has not found space in the current revision of the EU public procurement Directives (where the more general proposal to create oversight bodies under Art 87 of the 2011 Proposal has been scrapped from the July 2012 Compromise text, most likely due to lack of funding and/or to concerns about the Member States organisational autonomy).
However, in view of the evidence reported at the other side of the Atlantic, maybe we will at some point realize the relevance of having dedicated officials overseeing the competitiveness of public procurement processes (whether we call them competition advocates, auditors or something else is a discussion for another day). As GAO points out, the potential economic benefits should act as a strong incentive to move in that direction. Particularly in times of economic crisis, it seems clear that you need to invest (in human capital) if you want to save and, ultimately, to grow.