Feds buy into charge cards

After years of only playing a minor role in federal information technology procurement, the government charge card has become a popular tool for agencies looking to give their employees a quick way to make simple purchases without losing the ability to track those costs.

With a government charge card, federal employees can purchase paper clips, fax machines, coffee machines and computers—just like the credit card used by businesses and individuals every day. Combined with the proliferation of World Wide Web-based procurement programs and increasing consumer comfort with electronic commerce, the charge card program presents a growing market opportunity few want to miss, agencies and vendors say.

Alan Bechara, vice president and chief operating officer at Comark Federal Systems, said that use of the credit card for federal purchases from his company went from less than $1 million in 1997 to $5 million in 1998. "This is a huge increase," Bechara said. "While it still represents a small portion of our business, it's as close to a commercial process as you can get."

For fiscal 1998, the General Services Administration tracked approximately $371 million in IT spending with government credit cards. But Sue McIver, director of the Service Acquisition Center at GSA, estimates that total card spending on IT is actually higher.

Many merchants who sell IT products and services to the government, including direct-marketing companies and office supply stores, are not identified as IT merchants, she said. Consequently, current IT calculations do not include some government IT purchases made with credit cards through those vendors.Mark Amtower, a direct-marketing consultant specializing in the government market, thinks the missed portion of IT spending is significant. Amtower reports that direct-marketing sales to the government—which includes catalog sales of IT equipment—reached more than $1 billion in 1998.

Streamlining Procurement

Launched in 1989, the government purchase card program was designed to expedite the acquisition of essential supplies and services, streamline payment procedures and reduce administrative costs associated with traditional paper-based payment methods.

In November 1998, GSA consolidated the management of the three government charge card programs: the purchase card (originally the International Merchant Purchase Authorization Card, or IMPAC), for IT and other standard purchases; the travel card, for travel expenses; and the fleet card, for gasoline and other automobile expenses.

Through the program, now known as GSA SmartPay, federal agencies have issued 340,000 government charge cards to federal employees. GSA estimates that using these cards saves taxpayers $54 per transaction by reducing the costs associated with processing large volumes of small purchases.

"GSA SmartPay eliminates the regulatory, statutory and process impediments that have hindered government acquisition for too long," said William Shook, a partner at the Washington, D.C., law firm Preston, Gates & Ellis LLP. Shook, head of the firm's procurement practice, calls GSA SmartPay a great idea. "It gets you as close to a commercial transaction as possible."

Defining Limits

Agencies do place some limits on how the credit cards can be used.

Although McIver said she knows of no agency that precludes the purchase of IT products and services, many agencies do require prior approval on purchases that are more than a so-called micropurchase—$2,500—which is not enough for many IT buys.

Yvonne Jackson, program manager at the Army Small Computer Program Office, which runs PC-3, Portable-2 and other contracts, said her office has seen a large increase in the number of credit card transactions, from 117 in 1997 to 5,700 in 1998. But Jackson said that most of the cards authorized at her agency have a limit too low for the bulk of the IT buying.

"Our IT purchase needs often exceed the limit," Jackson said. "But when you can order off the computer using a card vs. dealing on paper, it's easier, and you get the product faster."

Agencies put a variety of other restrictions on card use. For example, the U.S. Postal Service, which issued about 15,000 cards for micropurchases, requires that IT purchases with the card be routed through its information systems department to ensure consistency with national purchase agreements.And while some government agencies, including USPS and the Department of Veterans Affairs, allow users to buy products in the open market—such as from a local computer store—other agencies, including the Defense Department, restrict cardholders to buying items that already are stocked by the government or that are available through government contracts.

"The beauty of the program," said Martha Orr, chief of program services at the VA, "is that agencies can authorize various levels of control."

Picking Plastic

But despite such limits, federal IT buyers have put their cards to good use.

GTSI, which reported $604 million in total sales for 1998, said its charge card business grew 350 percent between 1995 and 1998. In 1998, federal customers conducted 33,000 credit card transactions with GTSI, 80 percent of which were micropurchases.

"Micropurchasers are end users who are looking to get products quickly and easily," said Ken Grimsley, vice president of inside sales and sales operations at GTSI. "Micropurchases are increasing because the prices of information technology products are falling."

The average government credit card purchase from GTSI hovered at $1,400 for 1996 and 1997. In 1998, the average spiked to $2,000. On a recent visit to one of the government's own Web-based IT catalogs, $2,500 would be enough to buy all but three of 26 monitors listed and half of the first 14 laser printers listed.

Federal customers who buy from Unisys Corp. use charge cards for both open-market micropurchases as well as purchases through government contracts such as the Scientific Engineering Workstation Program. In 1997, credit card orders represented only 0.4 percent of orders under Unisys' SEWP contract. In 1998, credit card orders jumped to 1.5 percent of total orders.

"Using credit cards, federal employees are able to take advantage of the latest prices and [buy] the latest technology," said Patricia Chilson, SEWP program manager at Unisys.

Amtower calls GSA SmartPay a "win-win-win" situation for government, vendors and taxpayers. "Any legitimate product or service has an audience in government," he said. "The credit card program reduces paperwork, gets money into vendors hands more quickly and collapses the time between product order and delivery."

Amtower notes that this is particularly beneficial for micropurchases that carry relatively small dollar amounts but that require the same amount of time to process on paper as large buys.

The 1997 Defense Reform Initiative also focused on the benefits of using government charge cards for micropurchases. The DRI requires 90 percent of all DOD payments for small transactions—which represent almost 50 percent of annual DOD purchases—to be paperless by the Year 2000.

Trending Up

Use of the GSA SmartPay purchase card for small buys is increasing governmentwide. In fiscal 1997, government agencies used the purchase card to make 11 million micropurchases worth $5 billion. In 1998, micropurchase transactions reached 17 million and were worth about $8 billion. Amtower estimates that the totals for 1999 will be 25 million transactions worth $13 billion.

"The trend in card usage is up, up, up," said Russell Cosentino, senior market analyst at market research firm Federal Sources Inc., which reports that micropurchases accounted for 98 percent of all government charge card purchases in 1998.

Many federal buyers are using the cards to make purchases electronically, buying products over the Internet through vendor or agency Web sites.

In January 1998, the Defense Logistics Agency opened the doors to the DOD E-Mall. The E-Mall enables military personnel to search through and order from electronic catalogs with more than 2.2 million items that either are in government stock or can be ordered directly from vendors.

"The E-Mall gives military shoppers a single Internet source for accessing many procurement vehicles negotiated by arms of the Department of Defense," said John Christensen, program manager of the E-Mall. "Military shoppers can use their government purchase cards in the E-Mall just like any shopper in any store anywhere."

SelectIT, Unisys' e-commerce site, launched in June 1997, functions like a commercial e-commerce outlet, making popular open-market items such as notebook computers, desktops, servers, printers and software from 1,200 vendors available to federal customers. Unisys said 90 percent of orders made through SelectIT are with government credit cards.

"We developed this electronic system to meet federal customer needs at competitive prices," said Jim Tulley, director of market development at Unisys. "The open-market channel is the channel our government customers want," he said.

CDW Government Inc., the government subsidiary of reseller CDW Computer Centers Inc., offers federal government customers an e-commerce site that features more than 40,000 brand-name products. CDW-G ships 98 percent of all online credit-approved, in-stock orders the same day the purchase is made. CDW-G fully implements Internet technology on behalf of its federal customers through a free service called CDW-G@Work.

As part of this service, the company develops customized extranets for federal agency customers. Through the extranets, agencies have 24-hour access to product information tailored to their needs and specifications. Agencies also have access to personalized online ordering and account tracking.

"In an age when people want information at their fingertips and rapid response, using Web technology this way is a logical step," said CDW-G senior vice president Larry Kirsch.

GTSI has developed a similar site as part of a program called gtsi.com. Customers can order products off the open market or through any of GTSI's various contracts through a single procurement, with the site automatically sorting out the orders to reflect the buying rules and fees of each contract.

Observers say such programs will become increasingly popular because GSA has made a point of encouraging agencies to move into e-commerce as part of the SmartPay program.

Christopher Pieroth, senior vice president of government products at US Bank, one of the GSA-approved card issuers, said, "GSA SmartPay puts a very heavy emphasis on electronic access capabilities—particularly the Internet. The program gives the government the ability to order, do maintenance and tracking on their accounts and receive electronic reports via the Internet."

"GSA SmartPay gives the government a virtually bureaucracy-free way to do business," procurement expert Shook said. "In terms of making purchases, the government should be able to get the same technology advantages that are available in the commercial world."

-- Norman is a free-lance writer and public relations strategist based in Washington, D.C. She can be reached at michele@laylinecomm.com.

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