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the purchasing. The competence of an agency's principal procurement staff in evaluating and developing operational systems also contributes greatly to the effectiveness of the total function.
the practice benefits the Government. Because of its exemption from the Robinson-Patman Act, 16 the Government can use the “benchmark discount" technique.
DSA Supply Bulletins are mandatory multiple-award contracts for brand-name food products that provide for delivery direct to resale commissary stores of DOD activities. These contracts contain a price clause that ensures prices as favorable as those of the supplier's customers with comparable sales. The mandatory nature of these contracts assures system orderliness, but it precludes consideration by station purchasing offices of alternative techniques that may be more cost-effective. Brands of products not covered by Supply Bulletins may be procured locally to meet consumer preference.
The Overseas Support Systems section of this report discusses BUSH contracts. These contracts are negotiated by the Air Force for overseas use by all Federal agencies for procurement of products made in the United States from overseas outlets of U.S. companies. Their use is optional, and they often parallel GSA Federal Supply Schedules in product and price. A basic goal of BUSH contract negotiations is to obtain prices for overseas delivery by the contractor that are lower than the price to the Government for purchase and delivery in the continental United States, plus the cost of further overseas delivery through the Government distribution systems.
The availability of commercial sources at the location where requirements are generated and work is performed provides major opportunities for economical purchasing. This requires consideration of such procurement techniques as leasing and service contracting. Consideration of alternatives also requires a reasonable degree of comparative cost analysis. This use must not be overly constrained by mandatory interagency requirements, and the procurement staff must be qualified and authorized to implement the results of the analysis. If a competent procurement staff is not readily available to choose among alternatives, there is a tendency for either the user or a functional manager to direct an arbitrary course of action that may not be the most effective.
The comments of a laboratory technician at the Bureau of Mines were typical of the dilemma of many users. He gave the example of equipment needed for mineral analysis. The technician knew the purpose for which he needed the instrument, but could not precisely describe or identify it. Before submitting a purchase request, he spent several months surveying the market for equipment that could perform the required function. The local contracting officer formally advertised for the instrument on a brand-name or equal basis. This action, which resulted in only one acceptable bid, further delayed the procurement and increased the administrative cost to the Government. Adequate negotiation authority and coordinated effort between the technician and the local contracting officer in solicitation and negotiation, on a performance specification basis, would have filled the need in one operation. This example is typical of station-level operations where negotiation authority is limited to small purchases. By limiting fieldactivity authority, agencies provide for central procurement of high-value requirements, but field activities can usually procure sporadic
Recommendation 5. Encourage agencies to use headquarters procurement staff personnel in the conduct of on-the-job training of field procurement personnel to (a) implement techniques adapted to specific field activity needs and (b) identify possibilities for procurement innovation and transfusion.
The overall effectiveness of a procurement system depends on having the appropriate office make the purchase, on placing procurement functions at their proper level in an organization, and on having qualified personnel do
16 15 U.S.C. 13 (1970); 38 Ops. Att'y Gen. 539 (1936).
of authority, and qualifications of personnel. The most notable variation at the station level is in the use of procurement techniques. Some activities rely primarily on imprest funds and blanket purchase orders and others develop functional-support requirements contracts to reduce individual small purchases. Generally, there appears to be a lack of consideration of the varying administrative costs among differing procurement techniques. The ability of field procurement personnel to analyze total support requirements and to develop innovative and effective procurement systems is limited but can be enhanced by the agency's central procurement staff.
AGENCY-LEVEL SUPPORT AND MANAGEMENT
commercially available requirements more effectively than a higher level purchasing office.
Automated supply management and accountability are essential for weapon system support. Commercial product requirements and resources may not be compatible with highly automated systems because a full consideration of alternatives is not possible. At some stations, prescribed use of automated systems prevents the use of blanket-delivery orders against requirement contracts.
One of the most effective procurement organizations noted in the Commission field studies was that of the five State hospitals of the University of California. Each hospital has its own purchase authority and is responsible for a portion of the combined support of all five hospitals. The headquarters staff exercises policy guidance that uses total cost as the primary basis for selecting methods of support for each function. The results of product-line studies by each of the hospitals strongly favored requirements-type contracts for a product line. Each hospital is able to provide more effective technical and procurement support for its assigned product than could be provided by an outside activity. This is primarily due to a clearer understanding and better communication of needs within the activity. Additionally, each hospital procurement staff competes with the others in performing its procurement assignment.
Station-level procurement staffs can also improve overall effectiveness by coordinating their operations with those of other agencies in the local area. The extent of this coordination and cooperation among station procurement offices varies widely. We noted that most procurement offices lack knowledge about the activity of other Federal procurement offices in the same community. Greater effectiveness could result from consolidation of local purchase offices in an area where several Government activities use the same sources of supply and service.17
The effectiveness of field procurement offices varies widely among agencies and even within agencies. The disparity is attributed to complexities of items and services, organization of the procurement function, delegations
Procurement activity at agency level includes staff responsibilities in managing the agency's total procurement program. Generally it also includes operational support for the agency's depots and for agencywide variable quantity contracts and direct delivery programs. Some agencies also provide special supply or service support to other Federal agencies.
The effectiveness and economy of the total agency logistic operation for commercial products depends on the staff's knowledge of user requirements and the degree of its participation in consideration of agency-level alternatives through total economic cost analyses. Agency-level procurement staffs are in an ideal position to monitor the effectiveness of various purchasing methods and distribution systems; they should be authorized to challenge costly requirements or uneconomical distribution systems. They also are able to exchange concepts and philosophies with their peers in Government and industry. Most importantly, they understand the needs of the people they serve. This spirit enables them to communicate effectively in making and promulgating agency procurement policy. The procurement staff at agency headquarters is also in an ideal position to evaluate use of mandatory sources of supply and other interagency procurement arrangements. To accomplish these things most effectively, agency-level staffs should include procurement specialists with stationlevel experience.
17 Study Group 5 (Organization and Personnel), Final Report, Feb. 1972, vol. I, pp. 409–431.
SUPPLY DISTRIBUTION SYSTEMS AND ALTERNATIVES
During field visits, it was noted that many procuring offices at the field level are unsure of their authority to develop procedures to simplify operations and provide more effective support. There is a reluctance, especially in small field offices, to deviate from established procedures or to submit requests through channels for authorization to use innovative techniques. Agency staff visits should identify areas needing on-the-job training and support development of solutions to specific field needs. Mobile cadres would provide a means of implementing proven techniques and would alert the agency head to operational needs. This practice is used effectively by the Navy in training to improve troop feeding operations on board ship and at isolated locations.
Various procurement techniques are available for use by agencies in acquiring supplies and services.
By increasing the ceiling for small purchases to $10,000, the Government will achieve substantial administrative savings.
Agency solicitation and contracting practices contribute to the bulk and complexity of bid packages and contracts.
Requirements contracts designed to provide total supply support for a function can potentially reduce the number of individual actions and improve work-force productivity through more responsive delivery.
Wide variations in station-level procedures and the resulting differences in operational costs can be attributed to differences in procurement authority, organization, and personnel qualifications at the station level.
The professionalism and organizational placement of the procurement staff and the extent to which it is used at the agency level are of primary importance in considering and selecting among alternative methods of procurement and distribution.
Increased professionalism at station level requires a dynamic agency program for onthe-job training and development of skills among procurement personnel.
The commercial products covered by this discussion are those that are commonly stored and issued by a Government distribution system. The acquisition and distribution of specialpurpose equipment is not addressed in this section except for leasing or rental of such equipment as an alternative in filling specific requirements.
Recommendation 6. Provide statutory authority and assign to the Office of Federal Procurement Policy responsibility for policies to achieve greater economy in the procurement, storage, and distribution of commercial products used by Federal agencies. Until statutory authority is provided and until such responsibility is assigned to the Office of Federal Procurement Policy, the following actions should be taken: (a) Establish reasonable standards to permit local using installations to buy directly from commercial sources if lower total economic costs to the Government can be achieved. However, decentralization of items for local purchase should not be permitted to affect adversely centralized procurement and distribution management required for purposes such as mobilization planning, military readiness, and product quality assurance. (b) Develop and implement on an orderly basis industrial funding of activities engaged in interagency supply support of commercial products and services, to the fullest practical extent, so that (1) determination and recoupment of the true costs for providing such products and services will be facilitated, and (2) efficiency in the use of resources will be fostered. (c) Evaluate continuously the efficiency, economy, and appropriateness of the procurement and distribution systems on a total economic cost basis at all levels, without prej. udice to mobilization reserve and other national requirements.
A procurement action generally begins with a purchase request that identifies the requirement and the point of delivery. In acting on the request, attention too often is focused on
the price of the item requested rather than on the total cost incurred by the Government, including a share of the cost of the distribution system involved.
Delivery of products to the user entails the use of a Government or a commercial distribution system, or a combination of both. In nearly every case, delivery accounts for a large part of the total cost of an item at the point of use. Distribution costs should be evaluated in relation to the purchase-price savings and other benefits of Government distribution.
At the point the Government takes title to property, it generally assumes all responsibil ity for loss, damage, deterioration, obsolescence, excesses, and all costs of handling, warehousing, and distribution. Commercial distribution provides a means of acquiring delivery services with a corresponding reduction in assumption of risks and delivery costs. The evaluation of alternative distribution systems should be based on comparative delivered or landed costs to the user.
Figure 2 shows the levels of support now used in relation to the user. At each level of
support both stock and nonstock alternatives are available. Requirements are filled from depot or warehouse stocks or are ordered from suppliers for direct delivery to the user.
Although the unit price of an item tends to decrease as requirements are consolidated and better volume discounts are obtained, the cost of operations of large and more complex levels of support tends to increase the cost. Regardless of the level of support used, there is a true or "landed cost” to the Government at the point of use.
Many activities believe that Government warehousing at or near the local station is essential for adequate support. This is not always true. The stock level at the station depends on the criticality of the potential need, the leadtime for replenishment, and the physical characteristics of the product. One alternative to local stock is direct delivery from commercial sources.
The most obvious cost factors at the station level affected by the distribution system include:
• Administrative costs in processing requisitions, purchases, receipts, and payments • Work-force productivity losses due to nonavailability of material • Pickup, warehousing, and distribution costs, including investment capital in stock • Disposal of excess property generated due to various ordering and operational factors.
Agency-level warehousing and distribution systems vary from those agencies that do not have any to those that have extensive systems. Some systems duplicate the warehousing of interagency, station-level, and commercial systems.18 Even among DOD activities there are vast differences in policy, logistics organizations, and support systems at the agency level.
The variation in the methods used to provide users with commercial products has a significant impact on the economy and effectiveness of this support. Landed-cost studies outlined in Chapter 6 indicate that the lack of consideration of total system cost is the main reason for not moving to less costly methods of supply support.
18 U.S. Comptroller General, Report B-146828, Savings Available to the Government Through Elimination of Duplicate Inventories, May 1968, pp. 5–7.
Source: Developed by the Commission on Government Procurement.
SOURCE OF VA FIELD STATION REQUIREMENTS
FOR SUPPLIES AND EQUIPMENT
• OPEN MARKET 39.6% * • AGENCY CONTRACTS 18.7% **. GSA FSS SCHEDULE 9.5%
• FEDERAL PRISON .1%
The Veterans Administration (VA) is one agency that operates its support system on the basis of total cost. The VA operates 237 field activities including the largest hospital system in the Nation consisting of 166 hospitals with more than 102,000 beds. The Marketing Center in Hines, Illinois, is the agency's central commodity-management point. Contracts for depot stock, direct delivery, and indefinite delivery contracts for station delivery are made at this point.
Comments on VA station-level procurement from agency users are reviewed for consideration of supply alternatives, including consolidation of orders against existing contracts to take advantage of quantity discounts. Only 1,968 items (27 of which are nonexpendable equipment) are centrally stocked. Careful selection of items for depot stock on a total cost basis has reduced VA depot costs to about 16 percent of item cost. This cost is far below that of all other activities studied. 19 Figure 3 shows the sources and methods used by the VA to provide total requirements to hospitals and the ratio of these levels of support.
AGENCY PURCHASES ---+- 26.0%
• VA DEPOT 22.3%
INTERAGENCY PURCHASES - +-6.1%
• GSA DEPOTS 5.4%
* Indefinite Delivery Contracts Written at Agency
Level for use by Station Procuring Activities. ** Indefinite Delivery Contracts Written by FSS (or
VA by Delegation) for use by Station Procuring
Source: VA Field Station Acquisition Report Fiscal 1971.
FSS and GSA interagency support activities were developed to provide greater economy and efficiency by reducing duplication, consolidating requirements, standardizing product lines, and optimizing technical capability. These objectives are valid and have been achieved for a great many items, but it is difficult to evaluate the overall results. These agencies cite many examples of favorable prices obtained through the use of definitive specifications and quantity purchases. However, net savings to the Government through standardization actions cannot be determined unless all costs associated with the transactions are considered.
A review of GAO reports for the past ten years reveals perpetual problems in stocking and managing thousands of commercial products of low dollar value and very little de
mand.20 To resolve the problem, various programs have been established to select new items for stock, and special effort has been made to eliminate low-demand items. These programs have resulted in the decentralization of procurement of thousands of items, but the basic criteria used to determine depot stock are item demand and value of the items rather than the cost-effectiveness of the distribution method.
Because direct appropriations finance operational costs and mandatory agency use as
20 U.S. Comptroller General, Report B-146828, Uneconomical Management of Commercially Available Items. Nov. 29, 1963; Report B-133118, Substantial Savings Available by Eliminating Low-Cost, Low Demand Spare Parts from Defense Supply System, Oct. 31, 1967; and Report B-114807, Opportunities for Savings Through the Elimination of Nonessential Stock Items, May 22, 1970.
19 See Chapter 6.