The federal government purchases over $500 billion annually, making it the world’s largest customer. That staggering amount grew from a “mere” $200 billion in 2001, when government went on a buying binge. Now with fiscal and budget pressures, government spending will undoubtedly decline. But beyond spending cuts, government has a huge opportunity to reduce waste and drive improvements into the way it purchases. President Obama has recognized this, pointing out, “We are spending money on things that we don’t need, and we’re paying more than we need to pay.”
Consider one example from my report, “A $400 Billion Opportunity,” written for the Center for American Progress (CAP): “More than 400 active information technology projects, representing more than $25 billion in spending, were poorly planned or poorly performing, according to the Government Accountability Office. Some of the projects had been delayed for more than a decade and cost billions more than originally budgeted.”
Based on analysis for the report, the federal government can save anywhere from $25 billion to $54 billion a year, or roughly $400 billion over 10 years. This is not a small amount, and it could go towards reducing the federal deficit. To be sure, policy makers have recognized the problem and have made reducing waste a priority. And there seems to be some progress, with procurement spending actually declining under the Obama Administration over the last year.
However, getting to the bigger savings numbers won’t be easy. Unlike the private sector, where top-down directives can be implemented and employees can be incentivized to cut costs, the government faces a number of challenges in getting to the full savings potential.
For one, procurement is relegated to a lower-tier function, much like it was in the private sector three decades ago. Procurement professionals, however skilled and motivated they are, don’t control budgets or have the power to make things happen on a large scale. While many procurement cost cutting initiatives are underway, they all fall under the domain of this too-often overlooked function.
Another key challenge is the decentralized organization and funding structure of federal agencies. Most federal agencies are funded by Congress through a convoluted and political decision-making process. “Appropriated” dollars are typically marked with specifics on how they should be spent, leaving agency leaders and managers little control over shifting resources to their most productive uses. As a result, centralization or at least ability to move funds is extremely challenging, albeit not impossible. It requires the top leadership to commit and work actively with Congress to make change happen.
Perhaps the most important challenge is the way the procurement workforce is structured, organized primarily by process (e.g., purchases under $100,000) rather than by categories of goods and services (e.g., IT, Professional Services). This structure has profound implications, from the primary focus of training and development on learning the Federal Acquisition Regulations, to lack of expertise related to the goods and services an agency purchases. While some agencies have started establishing “portfolio managers,” many still do not have the power to drive change.
So what can be done? The CAP paper laid out suggestions that can be implemented now, so that government agencies can start to save immediately.
Start at the top. Department secretaries (same as CEO) must champion procurement cost-reduction efforts, and deputy secretaries, not procurement officials, must lead and be held accountable for these initiatives if we hope to translate savings into budget reductions. In fact, the president needs to further reinforce this commitment, much like he did at the beginning of his administration.
Make procurement reform a high-priority performance goal and give it the same oversight as other top goals. Procurement is central to the performance of most government programs, and improvements in purchasing can improve how the government does its work and what it delivers to the taxpayers.
Craft and manage a well-articulated plan that identifies proven cost-reduction strategies. Every agency should have a procurement reform plan that targets cost centers, mandates strategic sourcing of common purchases, and builds savings into agency budget projections. If the savings are not achieved, agency officials must find the savings elsewhere.
Create agency SWAT teams for procurement reform. The teams should be led by an operations deputy or the chief operating officer and include the most senior officials in charge of programs, finance, information technology and procurement. The government should also create interagency SWAT teams that can assist in complicated acquisitions that require specialized negotiation skills or market knowledge.
Communicate successes and reward employees for saving the taxpayer money. The department secretary and other senior leadership must ensure that successes are communicated as they happen, and that people see tangible rewards — such as time off — for achieving them. Procurement reform successes (or failures) should be part of every senior executive’s annual performance assessment.
These actions can place procurement reform in the spotlight now and show that the federal government means what it says. Over the longer term, more extensive changes will be required to address the underlying problems and truly transform procurement. These changes include:
Elevating acquisition and procurement to a leadership role and holding top leaders accountable.
Restructuring the workforce, organizing it around goods and services and focusing on core skills development.
Centralizing indirect procurement and giving HQ procurement more power.
Incentivizing risk-taking and innovation, and balancing these with current policies that primarily focus on process compliance.
Washington may be locked in policy fights over taxes and how quickly to shrink the federal budget deficit, but no one disputes the principle that each dollar collected from a taxpayer should be put to good use. With less of these dollars to go around and a growing demand for government services, wringing the waste out of the federal government’s $500 billion annual procurement budget is more critical today than ever.