Is Strategic Sourcing and Professional Services a Bad Mix?

Published: February 07, 2013

Acquisition ReformIT ServicesOMBPolicy and LegislationSmall BusinessStrategic Sourcing

Strategic sourcing has become a critical means for agencies to reduce costs, but for industry those words can mean disaster when applied to services. This is especially true for professional services, which was the topic of an event I recently attended, co-hosted by the Professional Services Council, TechAmerica, IAC/ACT and the Coalition for Government Procurement.

The collaboration between these industry associations ensured a solid industry representation, and various GSA representatives also participated in the discussion. 
OFPP Administrator Joe Jordan outlined his priorities – buying smarter, building supplier relationships, and improving the acquisition workforce. However, it quickly became evident that industry and government are not on the same page when it comes to strategic sourcing efforts, particularly GSA’s $10 billion One Acquisition Solution for Integrated Services (OASIS) program.

While the tone was mostly collegial, it was evident that many contractors were frustrated with how agencies’ were approaching contracting in the new strategic sourcing/LPTA world. The major concern: agencies’ will sacrifice quality for low price, and impact contractors’ ability to deliver innovative solutions. A major element of the discussion was the structure of GSA’s proposed OASIS contract.
The main selling point of OASIS, as defined by GSA, is that it fills a gap in the market by providing a single, government-wide avenue for procuring integrated services, particularly those supporting cross discipline projects requiring expertise in service such as program management and consulting, logistics, professional engineering, and financial services. Other benefits include access to non-commercial services, ability to convert recurring non-fixed price task orders to fixed price, and better insight into spending decisions and patterns. A major driver for OASIS was agencies’ concern about the variability in prices presented by the same contractor holding several contracts with the same agency. This is one reason for GSA transitioning OASIS into a strategic sourcing initiative; the need to standardize pricing across similar services was, according to GSA, compelling to agencies’ included in their market research.
While there are undoubtedly benefits from institutionalizing strategic sourcing, the industry groups represented raised some issues of their own.
Standardizing labor rates.
The OASIS business case discusses providing a set of standardized labor categories. While this may be reasonable for some commodity services, industry representatives are concerned about this treatment for more complex services. OASIS program director Jim Ghiloni said that he envisioned the labor prices to be represented by a bell curve, which gives agencies a common language across services. Pricing could then vary based on the level of experience needed (or more likely, the level of pricing the agency can tolerate based on budget limitations). Ghiloni noted that this bell curve would give agencies the data needed to determine acceptable pricing and give contractors data against which they can compare themselves. Although GSA’s Lena Trudeau, Associate Commissioner, Office of Strategic Innovations agreed that variability in pricing would have to occur as the complexity of the services change, one potential risk I see is that the standardized pricing could set unreasonable expectations among Contracting Officers who may not be well versed in the relationship between complexity and cost.
Acquisition workforce.
Speaking of Contracting Officers, the lack thereof was also a point of concern. Strategy is one thing, execution is another. Strategic sourcing will be executed by an acquisition workforce that is both understaffed and “undertrained.” This is one of Jordan’s priorities, and he made the point in his remarks that the acquisition training should go beyond those in the 1102 job category (traditional contract personnel) to include the program officers, program managers and Contracting Officers Technical Representatives (COTRs). There are skill gaps that must be identified and addressed in current certification requirements. ASI Government President and CEO Kimberly McCabe noted that 34% of contracting officers have less than 5 years of experience and a lack of experience in buying complex services.
Stifling innovation.
Dale Luddeke, SVP and Chief Growth Officerfor TASC, raised the issue of contractor innovation. As labor prices decline, contractors are hard pressed to invest in innovation. Trudeau admitted that there was no easy answer for that, and that agencies are better at thinking of risk on a contract level, not business level and may miss out on innovative ideas because of the level of specificity uses in requirements development.
Small business impact.
This has been a major concern industry-wide. Industry is of the mind that strategic sourcing limits competition for all, but will have a particularly harmful impact on small businesses (especially those that may skew towards the higher part of the pricing bell curve). GSA asserts that OASIS will actually increase competition because the information small businesses can gain from losing will help them improve how they bid in the future. That’s assuming that there is a next bid. Ghiloni also points to the fact that OASIS will have a small business set-aside.
Federal News Radio did a great series on federal contracting last summer in which the strategic sourcing of office supplies and the impact on small providers seemed to raise concerns about the lack of cost-benefit analysis related to the economic impact on small businesses. Read GovWin’s Angie Petty’s blog on the topic. 
Strategic sourcing is the future of federal procurement. OMB has mandated the creation of a Strategic Sourcing Leadership Council to identify five products and services appropriate for new government-wide acquisition vehicles and identify existing and overlapping contracts and their renewals dates to determine transition strategies (read GovWin analyst Kyra Kozemchak’s blog). From the industry perspective, the best case scenario is that GSA and other federal agencies are equipped to develop robust strategies to minimize risk and economic impact. That will take industry’s assistance in helping them understand the unintended consequences of acting too quickly because of budgetary and policy pressures.