A $400 Billion Opportunity: 10 Strategies to Cut the Fat Out of Federal Procurement

The federal government can save between $25 billion and $54 billion a
year by changing the way it buys goods and services, according to a new
analysis from the Center for American Progress. That's roughly $400
billion in savings over 10 years on average, or a 7.5 percent annual
reduction from current federal procurement spending levels of more than
$500 billion a year.

As the White House and Congress fight over how to reduce the budget
deficit amid growing demand for government services, the reduction of
procurement costs offers an attractive path forward for all sides,
especially in light of privatesector successes in this arena. Indeed,
business-affiliated groups including McKinsey & Co., the Tech CEO
Council, and the IBM Center for the Business of Government have all also
issued reports in the last two years identifying billions of dollars in
potential savings.

The good news: The cost-saving approaches we identify are proven to
work and make common sense. And every dollar saved by making procurement
more efficient is a dollar that doesn't have to come from cutting vital
government programs or raising taxes.

The caveat: It's hard. The government's sheer size and multitude of
interests are a challenge to any meaningful procurement reform.
Coordinating and monitoring activities across multiple agencies and
bureaus that employ 1.9 million people is a massive challenge.

To make the challenge less daunting, this paper distills a
comprehensive procurement- reform agenda into 10 proven strategies that
can be applied by anyone in an agency looking to improve performance and
reduce costs. To be sure, some of these approaches are more applicable
to certain types of goods and services but collectively they form a
roadmap to addressing the problem of procurement waste. These 10
strategies are coordinated with the three phases of the procurement
(more broadly referred to as "acquisition") process:

• Planning: Program managers and end-users define what and how much they need to buy.
• Negotiation: Procurement officers, along with other parties, plan
  the purchase, invite potential suppliers to bid for government work,
  negotiate with suppliers, and write a contract.
• Management: Program managers, procurement officers, and others make
  sure the product or service is delivered and used as expected.

The 10 strategies

This paper details the following 10 strategies to cut costs in
federal procurement. We identify successful examples currently underway
and list specific steps to implement each approach.

• Estimate demand--know how much you need. So-called
  accurate-needs estimates help set budgets, predict required operational
  capacity, and provide suppliers accurate demand information that can
  improve government's ability to negotiate better pricing.
• Plan better, use less--separate what you need from what you want. The
  easiest way to reduce costs is often simply to consume less. That
  starts by tying every purchase requirement to an identified need, not
  merely a desire.
• Buy commercial--buy what people are already selling. It's
  almost always less expensive and less risky to buy an "off the shelf "
  product than to commission a customized version. But it requires
  extensive research and discipline to stick to what the market offers.
• Source strategically--coordinate and consolidate your purchases.
  Instead of purchasing something whenever a need arises, "strategic
  sourcing" means coordinating across offices and taking a step back to
  determine the best way to purchase a good or service on an ongoing
  basis.
• Maximize competition--make it easy for vendors to save you money.
  Competition lowers costs, promotes innovation, and improves
  performance, so procurement officers should always strive to structure
  orders that attract multiple serious bidders.
• Negotiate intelligently--know everything about your bidders.
  Smart buyers understand every aspect of cost for a product or service
  and arrive at the negotiation table armed with extensive knowledge of
  the bidders.
• Simplify and automate--keep it simple, stupid. Procurement
  officials should eliminate bureaucratic hurdles that deter competition
  and they should automate processes wherever possible.
• Manage supplier relationships--get what you paid for. The
  buzz phrase "supplier relationship management" refers to a conscious
  effort at proactively managing supplier performance and relationships
  across an organization. This improves management of suppliers across
  multiple contracts and gives buyers better insight into vendor
  operations.
• Manage costs jointly--lower your supplier's costs to lower your own.
  Working with suppliers to increase efficiencies and remove waste across
  the entire supply chain can ultimately reduce costs for government.
• Manage internal and contract compliance--show me the money.
  When agencies don't ensure cost-saving strategies are being used and
  suppliers are complying with contract terms, predicted savings can
  "leak" out. Compliance management requires an unrelenting focus on
  implementation to ensure "identified" savings become "real."

By adopting these 10 strategies, the federal government could rein in
the growing share of the federal budget that goes toward procurement
costs, which ballooned in the first decade of the 21st century under the
Bush administration. (see Figure 1)

But a cost-containment initiative will only work if agency heads are
required to reduce their budgets to account for estimated savings. It
must be a use-it-or-lose-it proposition: Either you use these strategies
to cut costs--or you cut your budgets elsewhere.

In the pages that follow, this report will detail the current
procurement problem to highlight the opportunities available to the
federal government to operate more efficiently and effectively, then
offer the cost-cutting framework needed to make these reforms happen. We
then detail our 10 strategies for procurement reform to demonstrate
that progressive reforms to the procurement process can ensure the
federal government is doing what works to help rein in unnecessary
government spending.

Raj Sharma is a Visiting Fellow at American Progress focusing on
improving government procurement and supply chain management practices
with the ultimate goal of driving significant returns on the use of
taxpayer dollars.

To download the full report, click here.