How procurement can help tackle the federal deficit

Insourcing, strategic sourcing and contract consolidation could provide more opportunities to help agencies reduce their procurement costs

Steve Kelman is professor of public management at Harvard University’s Kennedy School of Government and former administrator of the Office of Federal Procurement Policy.

At the risk of making a partisan statement (something I try hard to avoid in my columns), I will say that in my judgment — and more importantly, that of most professional economists — the Obama administration’s economic stimulus package, along with the equally unpopular bank rescue, saved our economy from a frightening descent into depression.

However, we all should know that the federal deficit is unsustainable. In the medium term, we will need to find ways to save money.

We will never reduce the deficit significantly through contracting savings — or, frankly, even make a major dent — unless significant programs funded through contracts are cancelled. Contracting folks in government, like other civil servants, have a responsibility to do their part to deal with this national problem. Luckily, the call for contracting to get better deals also resonates with the frugal culture of the profession. While in government, I often took surveys of contracting folks to ask how many of them used cents-off coupons when they shopped. Typically, 90 percent did.

I recently attended the World Congress of the National Contract Management Association, the professional association for contracting. I was chairman of two breakout groups on procurement savings issues: one on agency contracting savings plans submitted to the Office of Management and Budget and the other on strategic sourcing.

Four panelists discussed their agencies' savings plans, and there were some common features in the techniques that different agencies were using. One was greater use of reverse auctions. Participants were trying to expand the use of reverse auctions beyond commodities to include some services, such as janitorial services or conference planning and management.

Another common approach was contract consolidation. After a period when the idea of saving money by combining service contracting requirements was denounced as bundling, cost-saving consolidation seems to be back on the upswing. A State Department representative said the department now groups embassy visa-issuance support contracts by regions, rather than asking each embassy to oversee the contracts, and consolidated its help-desk contracts. In both cases, the department saw significant savings on staffing costs because a centralized staff can more efficiently meet demand than small numbers of not fully occupied bodies in many locations can.

Insourcing also was a topic of discussion. The panelists thought that, in some cases, using government employees rather than contractors could save money, counting net costs including benefits. There are easy ways to make it appear as if insourcing is saving money, such as not counting benefits for civil servants. And there are also legitimate topics for debate, such as how or whether to count a share of agency overhead costs. Panelists felt savings are especially likely when contractors augment a staff for ongoing requirements rather than merely provide surge capacity for temporary use.

The strategic sourcing discussion also was interesting. I was disappointed to hear that contracting representatives from the Homeland Security Department and National Institutes of Health do not believe the base prices on their IT hardware and services vehicles are better than General Services Administration schedule prices. To me, that suggests that these organizations haven’t been sufficiently aggressive in price negotiations because those vehicles, particularly the DHS contract, carry an implicit commitment of significant sales, while GSA prices are based on the best price for a quantity of one. It also underlines the need to do second-stage reverse auctions for individual orders, as DHS is doing on its First Source IT hardware contract.

Participants also reported that many front-line buyers do not negotiate discounts off GSA schedule prices. That is partially because of the misperception that schedule prices are the lowest available, while in fact — as mentioned above — they are only said to be the lowest for a quantity of one. Agencies need to do a better job educating buyers about this issue.

Check out my blog for results of some audience polls that I took on these topics at the two panels.


About the Author

Kelman is professor of public management at Harvard University’s Kennedy School of Government and former administrator of the Office of Federal Procurement Policy. Connect with him on Twitter: @kelmansteve

The Fed 100

Save the date for 28th annual Federal 100 Awards Gala.


  • computer network

    How Einstein changes the way government does business

    The Department of Commerce is revising its confidentiality agreement for statistical data survey respondents to reflect the fact that the Department of Homeland Security could see some of that data if it is captured by the Einstein system.

  • Defense Secretary Jim Mattis. Army photo by Monica King. Jan. 26, 2017.

    Mattis mulls consolidation in IT, cyber

    In a Feb. 17 memo, Defense Secretary Jim Mattis told senior leadership to establish teams to look for duplication across the armed services in business operations, including in IT and cybersecurity.

  • Image from

    DHS vague on rules for election aid, say states

    State election officials had more questions than answers after a Department of Homeland Security presentation on the designation of election systems as critical U.S. infrastructure.

  • Org Chart Stock Art - Shutterstock

    How the hiring freeze targets millennials

    The government desperately needs younger talent to replace an aging workforce, and experts say that a freeze on hiring doesn't help.

  • Shutterstock image: healthcare digital interface.

    VA moves ahead with homegrown scheduling IT

    The Department of Veterans Affairs will test an internally developed scheduling module at primary care sites nationwide to see if it's ready to service the entire agency.

  • Shutterstock images (honglouwawa & 0beron): Bitcoin image overlay replaced with a dollar sign on a hardware circuit.

    MGT Act poised for a comeback

    After missing in the last Congress, drafters of a bill to encourage cloud adoption are looking for a new plan.

Reader comments

Wed, Jul 28, 2010

With centralized help desks, sometimes the one needing help is so far down the queue money is lost with the down time. It is a numbers game.

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above

More from 1105 Public Sector Media Group