	Background

GSA estimated that federal agencies spent about $1.6 billion during fiscal  year 2009 purchasing office supplies from more than 239,000 vendors. Alternatively, agencies can use the  Federal Supply Schedule program (schedules program), a simplified  process for procuring office supplies where GSA awards contracts to  multiple vendors for a wide range of commercially available goods and  services to take advantage of price discounts equal to those that vendors  offer their “most favored customers.” The schedules program can  leverage the government’s significant aggregate buying power. The  GSA report estimated that during fiscal year 2009, the 10 agencies the highest spending on office supplies accounted for about $1.3 billion,  or about 81 percent, of the total $1.6 billion spent governmentwide in the  14 categories of office supplies. Further, it stated that about 58 percent of  office supply purchases were made outside of the GSA schedules  program, mostly at retail stores. Additionally, GSA reported that agencies  paid an average of 75 percent more (a price premium) than schedule  prices and 86 percent more than OS II prices, for their retail purchases. GSA Report Had Data and Other Limitations

While the GSA report acknowledged some limitations with the data, we  identified additional data and other limitations that lead us to question the  magnitude of some of GSA’s reported price premiums. We were not able  to fully quantify the impact of these limitations. Additionally, other  agencies questioned the study’s specific findings related to price  premiums, but their own studies of price premiums support GSA’s  conclusion that better prices can be obtained through consolidated,  leveraged purchasing. For example, it removed duplicate  purchases and items that did not meet its definition of office supplies. We also identified additional data and other limitations in GSA’s study,  including:
GSA may not have been able to properly control for purchases of  different quantities of the same item. Two different formulas were used for calculating price premium  estimates. However, the study only described one of these specific  formulas. GSA concluded that  purchase cardholders compared costs at some level prior to making a  purchase based on its interviews with senior-level acquisition officials. New Strategic Sourcing Initiative for Office Supplies Shows Potential for Generating Savings

According to initial available data, GSA’s OS II blanket purchase  agreements have produced savings. The OS II initiative, more so than  past efforts, is demonstrating that leveraged buying can produce greater  savings and has provided improvements for managing ongoing and future  strategic sourcing initiatives. GSA’s Analysis of OS II Data Shows Savings Are Being Achieved

On the basis of the sales data provided by OS II vendors, GSA estimates  the federal government saved $39.2 million between June 2010 and  March 2012 by using the 15 blanket purchase agreements established for  this program. In  addition to the savings from the blanket purchase agreements, GSA  representatives told us that they are also seeing prices decrease on  schedules program contracts as vendors that were not selected for the  OS II program react to the additional price competition created by the OS  II initiative. GSA is capturing lessons learned from OS II and is attempting to  incorporate these lessons into other strategic sourcing initiatives. Additional savings are expected as more government agencies  participate in the OS II initiative and further leverage the government’s  buying power.
Why GAO Did This Study

The GSA estimated that federal agencies spent about $1.6 billion during fiscal year 2009 purchasing office supplies from more than 239,000 vendors. Concerned that federal agencies may not be getting the best prices available, Congress directed GSA to study office supply purchases by the 10 largest federal agencies. GSA delivered the results of its study in November 2010. The study also discussed GSAs efforts to implement an initiative focused on leveraging the governments buying power to realize savings when buying office supplies, known as OS II. Congress directed GAO to assess the GSA study, with particular attention to the potential for savings.
This testimony is based on the findings and conclusions of GAOs December 2011 report, G AO-12-178, and focuses on (1) the support for the findings and conclusions in GSAs study, and (2) how GSA's new office supply contracts support the goal of leveraging the governments buying power to achieve savings.

What GAO Found

In 2010, the General Services Administrations (GSA) pricing study found that during fiscal year 2009, the 10 largest federal agencies accounted for about $1.3 billion, or about 81 percent, of the total $1.6 billion spent governmentwide in 14 categories of office supplies. About 58 percent of their office supply purchases were made outside of the GSA schedules programa simplified process to take advantage of price discounts equal to those that vendors offer most favored customers. Most of these purchases were made at retail stores. GSA also reported that agencies paid an average of 75 percent more (a price premium) than schedule prices for their retail purchases and 86 percent more compared to Office Supplies II (OS II) prices.
While the GSA acknowledged some limitations with the study data, we identified additional data and other limitations that lead us to question the magnitude of some of GSAs reported price premiums and assertions. More specifically, we determined that the study may not have properly controlled for quantities, used two different formulas to calculate price premium estimates, and relied on interviews with senior level acquisition officials instead of purchasers to determine whether buyers compared prices before making purchases. We were not able to fully quantify the impact of these limitations. Additionally, other agencies questioned the studys specific findings related to price premiums, but their own studies of price premiums support GSAs conclusion that better prices can be obtained through consolidated, leveraged purchasing.
Available data show that the OS II initiative has produced savings of $39.2 million from June 2010 through March 2012. According to GSA, the OS II initiative is demonstrating that leveraged buying can produce greater savings and has provided improvements for managing ongoing and future strategic sourcing initiatives. For example, GSA reports that OS II allowed it to negotiate discounts with vendors who were selected for the initiative. As governmentwide sales surpass certain targets, additional discounts are applied to purchase prices. Further, OS II has spurred competition among schedule vendors that were not selected for OS II, resulting in decreased schedule prices. The initiative is also expected to lower governmentwide supply costs through more centralized contract management. Another key aspect of the initiative is that participating vendors provide sales and other information to GSA to help monitor prices, savings, and vendor performance. Finally, GSA is capturing lessons learned from OS II and is attempting to incorporate these lessons into other strategic sourcing initiatives.

What GAO Recommends

GAO did not make any recommendations in its report, and is not making any in this testimony.