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By Steve Kelman

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What to make of OMB's crackdown on 'rogue' laptop and desktop purchases

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For as long as I have hung around government, tensions have existed between centralized management/compliance organizations, such as the Office of Management and Budget or the General Services Administration, and customers in individual agencies, about the extent to which buying decisions should be made centrally or decentralized to the end-agency customer. The tension has traditionally been seen as being between, on the one hand, doing high-quantity buying and leveraging the government's buying power to get lower prices (suggesting purchasing centralization) and, on the other, avoiding a one-size-fits-all straightjacket on what customers can buy (suggesting decentralization). Both approaches have merits, and wise policy involves striking a balance.

When I came into the government in 1993 as administrator of the Office of Federal Procurement Policy, IT commodity buying, under what was called the "Brooks Act" after its godfather, then-Rep. Jack Brooks (D-Texas), was very centralized in GSA. (I realize this is a blast from the past for long-time veterans of the federal IT marketplace. The Brooks Act was repealed in 1996, after Brooks lost a re-election bid in 1994.)

Under the Brooks Act, agencies needed to obtain a "delegation of procurement authority" from GSA before they could buy IT, and for hardware buys, GSA required agencies either to use the GSA schedules or to allow GSA to do the buying itself. This had a compliance purpose: Brooks was afraid that agencies, if allowed to choose for themselves, would favor IBM over its competitors (another blast from the past: "nobody ever got fired for buying IBM"). As a Texas populist who hated "monopolies," Brooks wanted to be sure challenger IT companies were given a fair shake.

Then came Al Gore's "reinventing government" movement during President Bill Clinton's administration. That effort was much more dominated by agency customers, and took a more pro-decentralization perspective.

The original reinventing government report in 1993 railed against a different monopoly: that of GSA. It argued that decentralization not only limited customer choices but also, by giving GSA a monopoly, made that agency lazy -- and unmotivated to leverage quantity purchases to actually get better prices in reality. There was a view among the reinventors that no centralized buying should done at all – that agency customers should just go to a local retail store and purchase what they needed. (This was the original philosophy, in fact, behind the government purchase card.) At the beginning of that administration, GSA announced it was voluntarily relinquishing its monopoly.

The problem this led to – which, frankly, has plagued the government since 1993 -- is excessive decentralization. (And I say that as an official from the time who supported the policy when first announced.) The government now uses, as the latest OMB memo notes, a plethora of contract vehicles and open-market buys that produce a staggering array of different prices (varying by as much as 300 percent) for the same item. This has reduced the ability of the government to leverage its buying power through quantity buying.

It is absurd to think, as unfortunately many in the first generation of reinventors did, that the U.S. government, the largest buyer in the world, should be able to do no better than the prices I would get as an individual consumer walking into a retail store.

Now OMB has weighed in on this issue through a memo to agencies from Office of Federal Procurement Policy Administrator Anne Rung and federal CIO Tony Scott (see the FCW story from late Friday afternoon for additional details). Interestingly, the policy was announced not in a press release -- so last century! -- but on the White House blog.

Rung and Scott vote on the side of centralization. The headline in the memo is to cut back on the number of vehicles. The memo itself states both that "all agencies are prohibited from issuing new solicitations for laptops and desktops," and that civilian agencies "shall leverage" three favored Government-Wide Acquisition Contracts, i.e. GSA Schedule 70, NASA SEWP, and NIH CIO CS (plus, at least temporarily, approved mandatory source single-agency vehicles). The goal is to have 75 percent of spending on laptops and desktops run through these three vehicles by fiscal year 2018.

I agree with the tradeoff OMB makes on trying to move the government towards a greater use of a small number of vehicles. In the commercial world, most large companies require that internal customers use one of a small number of vehicles and vendors specified by the central purchasing function. (The range of choices for those private firms, in fact, would typically be far narrower than that offered by the proliferation of vendors available on these "big three" contracts.)

In corporate America, customer efforts to buy outside this small number of contracts is referred to with the colorful phrase, "rogue buying." In government, reducing the number of vehicles has the potential to improve prices and curb rogue buying without significantly limiting what agencies buy.

The second new policy the memo announces involves standardizing desktops and laptops around five basic configurations, which will be refreshed twice a year by an interagency Workstation Category Team. The memo argues that "one of the quickest ways to drive savings for common, everyday IT commodities is to standardize … configurations (e.g., memory, processor speed, etc.)."

This, the memo states, is because standardizing laptop and desktop configurations means the government spends less time and money buying, managing, and maintaining a diverse hardware portfolio." The new policy is that "CIOs shall ensure that at least 80% of their agency's new basic laptop and desktop use these configurations."

I believe this standard configuration policy -- unlike the effort to reduce the number of purchasing vehicles agencies use -- does not represent a good balance of leveraging buying power and avoiding one-size-fits-all. If OMB is correct that the government saves time and money by not developing separate requirements and managing many diverse configurations, then why not let agencies move in this direction voluntarily, especially if the standard configurations are advertised and promoted on the Common Acquisition Portal being developed? (One could even imagine a "nudge" approach, whereby the default option, if nothing else was specified, was one of the standardized configurations.) And, while non-standard additional features will of course cost extra (a 2TB hard drive costs more than a 1.5TB) the cost of special settings on the hardware itself to set up the new features is likely to be trivial.

The 80 percent requirement, if it actually is implemented, will likely require a time- and paperwork-intensive justification and review process involving the customer and the agency's CIO shop, which I doubt will on net add value. It would be better to respect the ability of agency customers to make decentralized decisions about what configurations meet their needs, although there is a risk of poor vendor pricing, as noted in my recent blog, on what in effect are change orders on the original contract.

The memo itself doesn't say too much about a big problem with the "big three" vehicles, which is that they themselves do not sufficiently leverage the government's buying power. As I understand it, all three vehicles provide a fixed baseline price based on buying only one of an item; these contracts do not seem currently to provide for tiered pricing (discounts for larger quantity buys).

Although agencies are already informally encouraged to do a second-stage competition for providing discounts off of the vehicles' list prices, the memo includes no discussion of techniques, such as reverse auctions among contract holders, to drive prices for larger quantities down. (Full disclosure: I am on the Board of Advisors of FedBid, one provider of such services.)

A related, interesting feature of the new policy is asking agencies to "focus the bulk of their acquisition of laptops and desktops on publicized buying events to maximize the government's collective buying power. A best practice is to host semi-annual buying events where requirements across agencies are consolidated to leverage buying and drive down costs." The Army has already been applying this approach to its IT commodity buying. It is a good idea, a way to better leverage buying power in practice as well as in theory.

As I understand it, OMB hopes that tiered pricing will be formally introduced into future iterations of these contracts; meanwhile, OMB expects that additional information will be made public on prices actually paid, for a given quantity of an item.

Finally, one worry is that OMB has made statements about leveraging buying power, similar to this memo, many times before, without much effect. We will see if this one actually changes behavior and, if so, how great the cost is in terms of more paperwork for agency customers when they buy.

Correction: This post was updated on Oct. 19 to correct the year in which the Brooks Act was repealed.

Posted by Steve Kelman on Oct 19, 2015 at 2:19 PM

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Reader comments

Fri, Oct 23, 2015 Gorvan

Compliance w the law or regs is one thing--and it's important. But the core problem of Federal IT acquisition today is actually competence and corruption. The revelations at VA earlier this year, and in a smattering of other cases, suggest that some significant, if minor, fraction of executives are really bad for business and the law. The top levels of depts. and agencies are loathe to fire anyone or call the FBI, regardless of the long-term damage that each miscreant does. This is the 900 lb. gorilla in the room. It swamps the importance of consolidated buying and more transparent, rational processing of commodity buys. The current Administration would be the very last one to do anything about this, and predictably, they have not. Loyalty appears to trump the National Interest in many areas. Even at VA, where, theoretically, the WH is publicly committed to make improvements, and every victory will be ballyhooed, the ranks of IT managers and execs are only slightly changed. The organization limps along, hardly with an innovation vector, but rather just trying to stay out of yet more trouble. And VA remains another agency with IT system management failures have really blocked improvements.

Wed, Oct 21, 2015 Al

I think the objective should be to consolidate requirements from diparate agencies into larger orders- not to obsess over the number of contract vehicles. Until these requirements are wrangled effectively, all of this just seems like window dressing. Fewer and larger orders- not fewer vehicles . . . Also I agree that Govt wide standardization is too Procrustean. The agency level seems like the sweet spot for standardization for now. Federal level consolidation seems like trying to eat dessert first . . .

Wed, Oct 21, 2015 Larry Allen

I think the OMB attempt is laudable, but like Dr. Kelman, I am not sure how effective it will be. He is correct in saying that true enforcement would require hours of intensive oversight to weed out unauthorized vehicles. Chances are good most agencies won't due that, but will spend that time trying to justify the existence of their own IDIQ's. My only disagreement with the article is that there are now rules in place in the FAR that require agency users of the Schedules and other IDIQ's to seek a price reduction from contractors at every level of purchasing. They don't have to get one, but they do have to ask. So, if this in the regs, it more than a "nudge". Whether or not agency users understand those rules is another question.

Tue, Oct 20, 2015

I'm sure any savings an agency might see by centralized purchasing will be eaten away by overhead charged back to the agency for covering costs associated with the new staff and programs required to make this work. Also, not every agency purchases on the same schedule. I don't see how this will save money for agencies in the long run.

Tue, Oct 20, 2015 Washington DC

Steve, Welcome back. I think you missed a couple of considerations. Today, workstation acquisition (laptops and desktops) is not an even distribution throughout the year. Too frequently agencies are buying their workstations in the last month of the fiscal year because they know they can make these purchases quickly. Thus the buying event is codifying what is already the normal behavior for most agencies. Also, when they are all buying around the same time, they are all buying, generally, the same thing. As such, the hard drive on one may be slightly bigger, or have a little more RAM, but will that impact performance? Most government machines are performing the same tasks. With the increased reliance on virtualization, (storing and processing on a virtualized drive), these perceived deficiencies will not materialize into a lack of productivity. As such, centering on a limited number of models on a limited number of contracts and buying at about the same time should give the government a good opportunity to achieve the economy of scale that you and I and the taxpayers need us to achieve.

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