	Background

		Leading Commercial Strategic Sourcing Practices

Strategic sourcing is a process that moves an organization away from  numerous individual procurements to a broader aggregate approach. While strategic sourcing may not be suitable for all procurements, we  found that leading companies generally strategically manage about 90  percent of their procurement spending, including the full range of services  they buy. This allows companies  to more aggressively leverage their buying power for all types of services. At the enterprise level, each  agency has designated officials responsible for strategic sourcing and  have offices dedicated to identifying and implementing strategic sourcing  opportunities, including those specific to IT. Some agency  efforts to strategically source IT services have been executed in a  decentralized manner and without clearly identifying the roles and  resources needed to carry out leading practices such as enterprise-wide  spend analysis or measuring progress in implementing strategic sourcing  approaches based on goals and metrics. Specifically, the Army, Navy, Air  Force, DHS, and NASA collectively obligated more than $11 billion for IT  services in fiscal year 2013, but managed only between 10 to 44 percent  of their respective IT services spending through strategically sourced  vehicles. A senior DHS official responsible for strategic sourcing noted  that fiscal year 2013 was a transition year between EAGLE I and EAGLE  II and not fully representative of the agency’s spending through the  contract vehicles. Agencies Lacked Insight into Labor Rates Paid for Similar IT Services and Paid Widely Varying Rates

Contracting officials from the agencies we reviewed generally had limited  insights into the labor rates paid for similar IT services. Our analysis  of 30 IT services contract actions for similar IT services found that the  agencies we reviewed paid widely varying rates for 12 similar labor  categories with the same contractors, with the average difference  between the lowest and highest labor rate being 62 percent. Agency  contracting and contractor officials identified a number of factors that  could contribute to such differences, including geographic or work  location, unique security, education or skill requirements, and the  contractor unit performing the work. Further, we found that the 30 contract  actions for IT services that were awarded to two contractors contained  more than 117 discrete labor categories, many with multiple variations to  account for experience levels. Several government-wide and agency- specific efforts are under way to address certain aspects of these  challenges, but none are currently addressing the range of challenges our  work identified, which may limit their utility in providing contracting officers  with readily available information that would facilitate labor rate  comparisons. Specifically, we analyzed rates paid for IT strategy and  architecture services in fiscal year 2013 from a sample of 30 contract  actions with the same two contractors, and identified 12 labor categories  and levels that were common to at least two contract actions. At the enterprise level, most agencies have  opportunities to better adopt leading commercial practices by conducting  spend analysis for IT services, monitoring the use of their strategic  sourcing vehicle in comparison to their total spending on IT services,  establishing utilization goals and metrics; establishing policies requiring  the mandatory use or consideration of their preferred strategic sourcing  contract vehicle and taking steps to monitor compliance with such  policies, and identifying methods for calculating savings and setting  savings goals. Following these  leading practices enabled commercial companies to achieve annual  savings of 4 to 15 percent. To improve efforts to strategically source IT services within the Navy, the  Secretary of the Navy should direct its strategic sourcing accountable  official to take the following two actions:
Conduct a comprehensive analysis of IT services spending to  determine the extent to which requirements can be addressed by the  existing contracts or other strategic sourcing approaches and based  on this analysis, reduce duplicative contracts. DOD, DHS, and NASA  concurred with our recommendations to improve efforts to strategically  source IT services within their agencies. To evaluate agency strategic sourcing efforts, we selected three  agencies—Department of Defense (DOD), Department of Homeland  Security (DHS), and National Aeronautics and Space Administration  (NASA)—which accounted for 53 percent of total fiscal year 2013 federal  IT services procurement spending, based on data reported in the Federal  Procurement Data System-Next Generation (FPDS-NG). To assess the extent to which agency acquisition personnel have insights  into labor rates for similar IT services, we used FPDS-NG to identify one  high-spend IT service category—IT strategy and architecture services— that was among the top five IT service spend categories at each of the  agencies we selected and among the top two government-wide. Test Engineer - Senior  We compared labor rates for each of these 12 categories.
Why GAO Did This Study

GAO reported in 2012 that the government is not fully leveraging its buying power for high-spending areas such as IT services, which accounted for more than $30 billion in fiscal year 2013. Leading commercial companies use strategic sourcing—a process that moves them away from numerous individual purchases to an aggregate approach—to better manage the services they acquire and achieve savings of 4 to 15 percent annually.
GAO was asked to review strategic sourcing of IT services. This report addresses the extent to which selected agencies (1) manage IT services through strategic sourcing approaches, and (2) have insight into labor rates for similar IT services.
GAO reviewed DOD (including the three military departments), DHS, and NASA, which collectively accounted for 53 percent of reported federal fiscal year 2013 IT services obligations. GAO analyzed agency policies, procurement and contracting data, and interviewed agency and contractor officials. GAO identified a high-spend IT service category and obtained labor rate information from a nongeneralizable sample of 30 contract actions awarded to two of the largest contractors common to these agencies.

What GAO Found

Efforts by the Departments of Defense (DOD), Homeland Security (DHS), and the National Aeronautics and Space Administration (NASA) to strategically manage spending for information technology (IT) services, such as software design and development, have improved in recent years. Each of the agencies GAO reviewed has designated officials responsible for strategic sourcing and created offices to identify and implement strategic sourcing opportunities, including those specific to IT services. Most of these agencies' IT services spending, however, continues to be obligated through hundreds of potentially duplicative contracts that diminish the government's buying power. These agencies managed between 10 and 44 percent of their IT services spending through preferred strategic sourcing contracts in fiscal year 2013. In contrast, GAO previously reported that leading companies generally strategically managed about 90 percent of their procurement spending, including services.
Further, most of these agencies' efforts to strategically source IT services have not followed leading commercial practices, such as clearly defining the roles and responsibilities of the offices responsible for strategic sourcing; conducting an enterprise-wide spend analysis; monitoring the spending going through the agencies' strategic sourcing contract vehicles; or establishing savings goals and metrics. As a result, the agencies are missing opportunities to leverage their buying power and more effectively acquire IT services.
Contracting officials from the agencies GAO reviewed generally had limited insights into the labor rates paid for similar IT services. GAO's analysis of 30 contract actions for similar IT services in fiscal year 2013 found that the agencies paid widely varying labor rates for similar services with the same contractors. The average difference between the lowest and highest labor rate for the categories GAO reviewed was 62 percent, in part due to geographic or work location, unique security, education or skill requirements, and the contractor unit performing the work. Further, for the 30 contract actions for IT services that GAO reviewed, the two contractors proposed more than 117 discrete labor categories—some with multiple variations—which complicated efforts to compare labor rates. Prior GAO reports on leading commercial practices have noted that companies use standardized labor categories for IT services to enable comparison of labor rates and ultimately realize cost savings. Several government-wide and agency-specific efforts to address aspects of these challenges, including providing tools to assess labor rate variations or streamlining labor categories, are under development or in their early implementation stages.

What GAO Recommends

To improve efforts to strategically source IT services, GAO recommends that each agency conduct spend analysis, monitor spending, develop savings goals and metrics, and consider the use of standardized labor categories, as appropriate for their agency. The agencies concurred with these recommendations.