Agencies Generally Have Not Taken Advantage of Opportunities to Obtain Savings

Although we found some initiatives under way to obtain vendor discounts  from major purchase card vendors, agencies generally had not seized  opportunities to obtain more favorable prices on purchase card buys— opportunities that could yield hundreds of millions of dollars in savings. Agency efforts to obtain more favorable prices for purchase cardholders  had generally been limited to a few agencywide agreements with major  vendors—that is, vendors with whom an agency spent $1 million or more  in fiscal year 2002. As a  result, cardholders often paid higher prices than necessary. Second, some agency discount agreements covered a limited range of  products and therefore did not provide cardholders more favorable prices  on all the items they purchase from a vendor. However, most of the guidance and training programs did not provide  cardholders with practical information to help them get better pricing by  using Schedule contracts or agency discount agreements, as in the  following examples. Given the range of savings under discount agreements  currently in place with major vendors (8 to 35 percent) at the agencies we  reviewed, a conservative approach indicates that, if these agencies were to  achieve savings of just 10 percent on their purchase card expenditures  with major vendors, annual savings of $300 million could be realized. Lack of Management Focus Has Limited Efforts to Capture Savings

The primary reason that agencies have not taken advantage of potential  opportunities to capture savings through the purchase card program is the  lack of management focus on this issue. Further, OMB has not leveraged  its governmentwide oversight role by collecting and disseminating  information on the successful initiatives some agencies have undertaken. Despite these concerns, some agencies have been able to leverage  purchasing power while providing opportunities for small businesses, as  highlighted in the following examples. For  example, we obtained from the banks a listing of all fiscal year 2002  purchase card transactions for each agency we reviewed. Recommendations for Executive Action

We are making the following eight recommendations to OMB, GSA, and  the agencies we reviewed:  To focus governmentwide management attention on taking advantage of  opportunities to achieve savings on purchase card buys, we recommend  that the director of OMB take the following two actions:    Require agencies to report—either through the current quarterly  reports or another mechanism—on the steps they are taking to  leverage their purchase card buys in areas such as    negotiating discount agreements with major purchase card vendors,  implementing initiatives to better inform cardholders of  opportunities to achieve savings,    conducting analyses to identify such opportunities, and    assessing, through mechanisms such as vendor reports, whether  cardholders are taking advantage of savings opportunities. To assist agencies in identifying opportunities to achieve savings on  purchase card buys and to facilitate cardholder access to discounted  prices, we recommend that the administrator of GSA direct the purchase  card program manager to take the following three actions    continue efforts to improve reporting by the banks that provide  purchase cards so that GSA will have the data it needs—including basic  information such as top vendors and level 3 data where feasible—to  assist agencies in effectively identifying opportunities to leverage their  purchasing power;    work with GSA’s acquisition center contracting officers to pursue  point-of-sale discounts with large vendors; and    as part of the existing cross-agency forums for purchase card  discussions, encourage agencies to share information on their  successes in leveraging the purchase card to obtain better prices as  well as strategies for overcoming challenges that could hinder  agencies’ ability to achieve purchase card savings. We also performed our work at the Departments of  Agriculture, Defense (DOD), the Interior, Justice, Transportation, and  Veterans Affairs. Discounts  offered under these agreements varied—for example, 8 percent under an  Interior agreement for desktop computers, 10 percent under an  Agriculture agreement for office supplies, and 35 percent under an Interior  agreement for laptop computers. Nonetheless, we  believe it is reasonable to anticipate that the federal government could  save hundreds of millions of dollars if agencies negotiated discounts with  major purchase card vendors. 11, 2003). 21, 2003).
Why GAO Did This Study

From 1994 to 2003, the use of government purchase cards exploded from $1 billion to $16 billion. Most purchase card transactions are for small purchases, less than $2,500. While agencies estimate that using purchase cards saves hundreds of millions of dollars in administrative costs, the rapid growth of the purchase card presents opportunities for agencies to negotiate discounts with major vendors, thereby better leveraging agencies' buying power. To discover whether agencies were doing this, we examined program management and cardholder practices at the Departments of Agriculture, Army, Navy, Air Force, Interior, Justice, Transportation, and Veterans Affairs. GAO also examined why agencies may not have explored these opportunities.

What GAO Found

Although some agencies have begun to take actions to achieve savings through their purchase card programs, most have not identified and taken advantage of opportunities to obtain more favorable prices on purchase card buys--opportunities that could yield hundreds of millions of dollars in savings. For example, most agencies have established some discount agreements with major purchase card vendors (those vendors with whom they did more than $1 million in purchase card business in fiscal year 2002), but these agreements cover only a few of the hundreds of major vendors and a limited number of products. Further, because agency purchase card training programs lack practical information to help cardholders take advantage of existing discount agreements or GSA's Federal Supply Schedule contracts, cardholders paid higher prices than necessary. The agencies that have taken steps to obtain better prices by negotiating discounts with their major vendors have achieved notable savings on purchase card buys. For example, in fiscal year 2003, the Agriculture Department negotiated a discount agreement for office supplies that yielded savings of $1.8 million--about 10 percent off Schedule contract prices--and the Interior Department recently negotiated agreements with information technology vendors for discounts up to 35 percent off Schedule prices. A conservative approach indicates that, if the agencies we reviewed obtained discounts of only 10 percent with their major vendors, annual savings of up to $300 million could be achieved. Most agencies have not more aggressively pursued savings through the purchase card because of a lack of management focus--simply put, this issue has not been the center of attention for managers. Further, the Office of Management and Budget has not leveraged its governmentwide oversight role by collecting and disseminating information on the successful initiatives some agencies have undertaken. Agency officials also expressed concerns that imposing additional requirements on cardholders would undermine the program's intent to streamline acquisitions and that pursuing discount agreements with large suppliers would limit their ability to provide opportunities for small businesses. They also cited poor data as a barrier to identifying savings opportunities. However, as individual agencies have demonstrated, these concerns are not insurmountable. For example, the Air Force's Air Mobility Command provides its cardholders a list of community vendors--many of which are small businesses--that offer discounts, making it easy for the cardholders to obtain discounts from local small businesses. Despite data limitations, information such as vendor sales reports could be used to identify major vendors with whom to pursue discount agreements and to provide insight into cardholder activity.