Program Management in an Era of Tight Budgets – How Strategic Sourcing Could Loosen the Squeeze

By Tom Kuhn, PhD and Fellow, DAWIA III from Integrity Matters blog

For a better part of twelve years the federal budget has been pretty ample and programs were free to operate in a much more flexible environment. “Supplemental” allotments of funding were in large supply at the Department of Defense (DoD). Then the faucet began to close as the wars have begun to wind down and fiscal restraints have begun to reappear.

The 2010 Ashton Carter “Better Buying Power” memo challenged the defense Acquisition Community to rethink how we procure goods and services with ever decreasing budgets. The mandate is to be smarter with how we buy things for the Federal Government while providing what the warfighter needs.

How is it Going?

A recent GAO report, found that four agencies, which account for 80 percent of the total procurement spent across government, weren’t taking the best advantage of applying economy of order and multi-sourcing contracting. The report concluded that “selected agencies leveraged only a fraction of their buying power through strategic sourcing and achieved limited savings.” The Department of Homeland Security spent 20 percent of its budget through strategic sourcing contracts and saved about 2.3 percent. The DoD spent 5.8 percent of its budget through strategic sourcing vehicles, but saved only 0.06 percent. The Department of Energy used volume buys for 9.3 percent of its acquisition budget, and saved 1.34 percent, and the Department of Veterans Affairs spent 1.4 percent of its budget through strategic sourcing, saving 0.32 percent.

Ways to Improve

The report highlights that 10 to 20 percent savings may be realized through utilizing strategic sourcing. To maintain your program in a time of declining budgets, consider these steps to make strategic sourcing a success:

  • Conduct market research. With strategic sourcing it is important to identify opportunities upfront to meet program needs. Strategic sourcing after the fact is not effective at saving money
  • Use spend analyses to better improve selection of products and services for strategic sourcing
  • Devote resources to strategic sourcing efforts
  • Continuously measure success and progress of efforts

Tight-Budget Techniques I’ve Found that Work at DoD

  • The Warfighter will work with a less than 100% solution as long as the most critical needs are met. Work with them through the requirements process to develop an equitable solution within the current budget cuts.
  • Use strategic sourcing contracts effectively, particularly when buying services from government schedules. Take advantage of the government’s volume buying power.
  • Rethink how we acquire goods and services. In other words – look at consolidating service contracts into one. Rather than having several individual integration contracts in support of projects within a program, consolidate into one overarching contract across the portfolio to leverage cost sharing resulting in tangible cost savings.
  • Demand your potential offerors apply an Agile approach to their contract. By requiring Agile methodologies you can achieve efficiencies in work products and the execution of tasks.
  • Use the proper contract type for the type of service or procurement. Use Firm Fixed Price (FFP) when requirements are mature – Cost Reimbursable (CR) when not. Be open to the concept of Hybrid Contracting in that we combine a FFP piece for the mature requirements then apply a CR type for the immature pieces.
  • Identify and eliminate non-value-added overhead charged to contracts. Look at ways to cost share within your PMO. For example, if you have multiple service contracts housed within one PMO, they should all share the overhead and be accounted for to ensure equitable cost sharing.
  • Develop will-cost and should-cost development. This is a FAR requirement and will go a long way when you have to “sell” your concept for your new project or program.
  • Cost considerations must shape requirements and design. In other words, rethink your design. Don’t go for the top of the line design when perhaps changing a tactic or two and you can have a different less costly design to meet the same requirement.

Think Long-term and Short-term

The budget process begins with a sound cost estimate utilizing some of the thoughts and techniques mentioned previously. Cost estimating is a science of sorts and with a few sound techniques coupled with the appropriate contract type for the procurement, one can go a long way in obtaining the right amount of funding to execute your program.

Finally, consider using an Agile approach. Plan for instance to buy initial capabilities in an initial increment and then plan for the follow on development of product while phasing in the budget. It’s another method for managing incrementally, in times of incremental budgets.

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Jaime Gracia

These are good recommendations, but I am concerned at the suggestion and mandating of “bundling” which will not only eliminate opportunities for small businesses, but also firewall competition through the use of strategic sourcing contracts that further eliminate competition through SSI award holders.

The major issue I see is the lack of any strategic data analysis to allow for strategic sourcing decision to be made. Although these suggestions are proven techniques for effective contract and program management, they are not necessarily related to the proper execution of strategic sourcing.

Data analysis (spend analysis) is job one for strategic sourcing to be effective. The problem is the ocean of incorrect, redundant, or simply missing data. Granted GAO’s recent report outlined the issues (Improved and Expanded Use Could Save Billions in Annual Procurement Costs, GAO-12-919, Sep 20, 2012), why is no one following the money?

Putting aside the “Big Data” problem associated with missed cost savings through strategic sourcing, the lack of collaboration and communications between industry and government is appalling. The recent Better Buying Power v 2.0 launched at DoD scantly mentions this issue.

How does DoD, or the federal government for that matter, expect to improve cost savings and performance if contractors are shut out of the process?

It is a continuation of the meme “Contractors and profit are evil.” This attitude is pervasive in federal buying circles, and at the expense of the taxpayers and warfighters alike.