Is There a Downside to Strategic Sourcing?

Published: September 11, 2013

GSAOMBPolicy and LegislationStrategic Sourcing

Under OMB’s direction, GSA is driving hard to implement strategic sourcing initiatives for a number of areas of federal spending. Many in Washington believe broad implementation of strategic sourcing across federal spending could save the government billions each year. However, could there be a downside to strategic sourcing in the federal space?

A small contingent of industry experts has expressed their concerns about the initiative’s impact on the small business community.  Stan Soloway, President and CEO of the Professional Services Council, testified at a June hearing of the House Subcommittee on Contracting and Workforce on Small Business stating, “If the objective is solely and specifically to optimize government operations, that will drive one set of responses.  If however, the objective is to optimize government operations without impacting current socio-economic or other acquisition policy goals, then additional considerations must be taken into account.”  Soloway fears that on the acquisition front-lines, strategic sourcing may be simplistically interpreted to mean “bulk buying to gain economies of purchasing scale,” even for complex requirements.  Soloway cautions that until the acquisition workforce is substantially educated, the effectiveness of strategic sourcing will be limited and could be negative. 

Industry expert and former Deltek colleague, Ray Bjorklund, now president of Birchgrove Consulting, wrote that he questioned “the statistical foundation for federal initiated strategic sourcing programs” in a March Washington Business Journal Article.  Bjorklund points out that commodity purchases below $3,000, or “micro-purchases,” are perfect candidates for strategic sourcing, however data on these purchases is limited at best.  Bjorklund goes onto say that it can be inferred that a number of these purchases are being made with small businesses, and that small business should “expect and demand that the government use the most complete and robust data possible in designing strategic sourcing programs.

Additionally, I’ve had the privilege of becoming acquainted with Sam Bornstein, a professor of accounting and taxation at Kean University in Union, N.J., and a partner with the firm Bornstein and Song CPAs and Consultants, who has been studying the impact of strategic sourcing on small businesses for several years.  According to Bornstein, initial savings presented by agencies for the Federal Strategic Sourcing Initiative (FSSI) as it relates to Office Supplies (OS2) doesn’t present the whole picture.

While federal agencies may experience savings, what is not being taken into account is the broader economic impact, according to Bornstein.  For example, when OS2 was implemented in June of 2010, there were 569 schedule holders.  OS2 BPAs were awarded to only 15 contractors.  Bornstein’s firm has interviewed many of the other contractors and the loss of business and jobs has been devastating.  Bornstein believes the federal government should use cost benefit analysis to take into account the economic impact of strategically sourcing each area of products or services before moving ahead with additional strategic sourcing initiatives.  He also encourages small businesses to fight the passage of two bills, HR 2694 and S 1304, that would make FSSI mandatory and implement it across all federal spending.

GSA maintains its commitment to small business through the FSSI and believes that strategic sourcing success and small business success are not mutually exclusive, according to statements made by Jeffrey Koses, GSA FAS Director of Acquisition Operations, before the House Subcommittee on Contracting and Workforce on Small Business in June.

Personally, I’m remaining neutral on the pros and cons of strategic sourcing, while trying to present both sides of the issue.  But I do advocate that small business federal schedule holders educate themselves on the subject and determine the potential impact on their business prior to implementation of an FSSI program in their business area.