By Steve Kelman

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Good news: Progress on strategic sourcing

I was happy to see a recent story the other day about the General Services Administration’s progress in negotiating governmentwide strategic sourcing agreements for office supplies. Office supplies are a low-hanging fruit for leveraging the government’s buying power and gaining quantity discounts – this is an easy way to generate noticeable savings (if I’m doing my arithmetic right from the story, the government will save approximately 25 percent on office supplies or $50 million in a year). In turn, consolidating purchases to gain quantity discounts is taken straight out of Purchasing 101, and is something private-sector purchasing managers seek to do on an ongoing basis.

There are a number of innovative features of this agreement about which GSA and the government team working on these contracts should be proud. The feature I like best will automatically grant the contract-negotiated discounts to any purchaser using a government credit card that appears at the retail outlet of a contract holder. (This builds on a deal GSA negotiated, I believe, with Ace Hardware several years ago that credit card holders would automatically get a modest discount of 10 percent when buying from an Ace outlet.) I like the fact there are separate contracts for seven small businesses and for three service-disabled small businesses – not the least so it becomes transparent if the government is paying a price penalty for dealing with smaller businesses that might not be able to offer the same discounts.

I also like the fact that the mainstream contracts are also multiple-award rather than single-award. Given the government’s purchasing power, my instinct is that the government would not gain further discounts by guaranteeing all the business to one supplier. And the advantages of continuous competition and the ability to get temporary discounts because of vendor overstocks or whatever – including, in some cases, second-stage reverse auctions among contract holders for specific delivery orders, especially when large quantities are involved – outweigh any small price disadvantage from having one supplier. (Full disclosure: I am on the advisory board of Fedbid, which does such second-stage reverse auctions under the DHS FirstSource IT contracts.)

The challenge now will be to ensure that government agencies use this contract. GSA actually negotiated some good BPAs for office supplies in the late 1990s and encouraged agencies to seek further discounts in exchange for giving the supplier assured orders at that agency. The IRS and a few other agencies took advantage of this, but most didn’t – a failure I characterized at the time, as OFPP Administrator, as “bordering on procurement malpractice.” It is unclear from the article if there are any provisions to require or at least encourage agency use – something that will strongly influence the kinds of discounts vendors offer. Why can’t we configure agency automated procurement systems not to accept orders for items covered by these contracts that are not placed through them?

Posted by Steve Kelman on Jun 10, 2010 at 12:08 PM


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