Step 3: Streamlining Procurement

Every year, Washington spends about $200 billion buying goods and services. That's $800 per American. With a price tag like that, taxpayers have a right t Our system relies on rigid rules and procedures, extensive paperwork, detailed design specifications, and multiple inspections and audits. It is an extraordinary example of bureaucratic red tape.ore pages of agency-specific supplements.

These numbers document what most federal workers and many taxpayers already know: Our system relies on rigid rules and procedures, extensive paperwork, detailed design specifications, and multiple inspections and audits. It is an extraordinary example of bureaucratic red tape.

Like the budget and personnel systems, the procurement system was designed with the best of intentions. To prevent profiteering and fraud, it includes rigid safeguards. To take advantage of bulk purchasing, it is highly centralized. But the government wrote its procurement rules when retailing was highly stratified, with many markups by intermediaries. Today the game has changed considerably. Retail giants like Wal-Mart, Office Depot and Price Club are vertically integrated, eliminating the markups of intermediaries. Federal managers can buy 90 percent of what they need over the phone, from mail-order discounters. Bulk purchasing still has its advantages, but it is not always necessary to get the best price.

Our overly centralized purchasing system takes decisions away from managers who know what they need, and allows strangers--often thousands of miles away--to make purchasing decisions. The frequent result: Procurement officers, who make their own decisions about what to buy and how soon to buy it, purchase low-quality items, or even the wrong ones, that arrive too late.

This "secondhand" approach to purchasing creates another problem. When line managers' needs and experiences are not understood by the procurement officer, the government is unable to make decisions that reward good vendors and punish bad ones. As a result, vendors often "game" contracts--exploiting loopholes to require expensive changes. For example, in a major government contract for a computerized data network a few years ago, a vendor used slight underestimates of system demand in the contract specifications as an excuse to charge exorbitant prices for system upgrades. In the private sector, a manager could have used the incentive of future contracts to prevent such gaming; in the government, there is no such leverage.

The symptoms of what's wrong are apparent, too, from stories about small purchases.

One story that Vice President Gore has repeated in Washington over the past six months concerns steam traps. Steam traps remove condensation from steam lines in heating systems. Each costs about $100. But when one breaks, it leaks as much as $50 of steam a week. Obviously, a leaking steam trap should be replaced quickly.

When plumbers at the Sacramento Army Depot found leaking traps, however, their manager followed standard operating procedure. He called the procurement office, where an officer, who knew nothing about steam traps, followed common practice. He waited for enough orders to buy in bulk, saving the government about $10 per trap. There was no rule requiring him to wait-- just a powerful tradition. So the Sacramento Depot didn't get new steam traps for a year. In the meantime, each of their leaking traps spewed $2,500 of steam. To save $10, the central procurement system wasted $2,500. As the Vice President visited government agencies, he heard many more stories of wasteful spending--most of them produced by the very rules we have designed to prevent it. Take the case of government travel.

Because GSA selects a "contract airline" for each route, federal employees have few choices. If Northwest has the Washington-Tampa route, for instance, federal employees get routed through Detroit. If Northwest has the Boston-Washington route, employees have to use Northwest--even if USAir has more frequent flights at more convenient times. Workers told the Vice President of being routed through thousands of miles out of their way even if it cost them a day's worth of time--and a day's worth of taxpayers' money. Others told of being unable to take advantage of cheap "special fares" because they were not "government fares." And one worker showed the National Performance Review a memo from the Resolution Trust Corporation explaining that RTC workers would not be reimbursed for any travel expenses unless they signed their travel vouchers in blue ink!

"Ash receivers, tobacco (desk type)..."

Our federal procurement system leaves little to chance. When the General Services Administration wanted to buy ashtrays, it has some very specific ideas how those ashtrays--better known to GSA as "ash receivers, tobacco (desk type)," should be constructed. In March 1993, the GSA outlined, in nine full pages of specifications and drawings, the precise dimensions, color, polish and markings required for simple glass ashtrays that would pass U.S. government standards. A Type I, glass, square, 41/2 inch (114.3 mm) ash receiver must include several features: "A minimum of four cigarette rests, spaced equidistant around the periphery and aimed at the center of the receiver, molded into the top. The cigarette rests shall be sloped toward the center of the ash receiver. The rests shall be parallel to the outside top edge of the receiver or in each corner, at the manufacturer's option. All surfaces shall be smooth." Government ashtrays must be sturdy too. To guard against the purchase of defective ash receivers, the GSA required that all ashtrays be tested. "The test shall be made by placing the specimen on its base upon a solid support (a 1 3/4 inch, 44.5mm maple plank), placing a steel center punch (point ground to a 60-degree included angle) in contact with the center of the inside surface of the bottom and striking with a hammer in successive blows of increasing severity until breakage occurs." Then, according to paragraph 4.5.2., "The specimen should break into a small number of irregular shaped pieces not greater in number than 35, and it must not dice." What does "dice" mean? The paragraph goes on to explain: "Any piece 1/4 inch (6.4 mm) or more on any three of its adjacent edges (excluding the thickness dimension) shall be included in the number counted. Smaller fragments shall not be counted."

Regulation AA-A-710E, (superseding Regulation AA-A-710D).

Beyond travel, at every federal agency the Vice President visited, employees told stories about not getting supplies and equipment they needed, getting them late, or watching the government spend too much for them. At the Department of Health and Human Services, a worker told the Vice President that no matter how much his office needed a FAX machine--and how much time the machine would save workers--the purchase wouldn't be possible "without the signature of everyone in this room." An engineer from the National Institutes of Health added that in his agency, it takes more than a year to buy a computer, not a mainframe, but a personal computer! At the Transportation Department, a hearing-impaired employee told the Vice President of watching with dismay as her agency spent $600 to buy her a Telephone Device for the Deaf (TDD), when she knew she could buy one off the shelf for $300.

Anecdotes like these were documented in January 1993, when the Office of Federal Procurement Policy and the U.S. Merit Systems Protection Board collaborated on a survey of the procurement system's customers: federal managers. More than 1,000 responded. Their message: The system is not achieving what its customers want. It ignores its customers' needs, pays higher prices than necessary, is filled with peripheral objectives, and assumes that line managers cannot be trusted. A study by the Center for Strategic and International Studies added several other conclusions. The procurement system adds costs without adding value; it impedes government's access to state-of-the-art commercial technology; and its complexity forces businesses to alter standard procedures and raise prices when dealing with the government. See Note 31

There is little disagreement that federal procurement must be reconfigured. We must radically decentralize authority to line managers, letting them buy much of what they need. We must radically simplify procurement regulations and processes. We must empower the system's customers by ending most government service monopolies, including those of the General Services Administration. As we detailed in Chapter 1, we must make the system competitive by allowing managers to use any procurement office that meets their needs.

As we take these actions, we must embrace these fundamental principles: integrity, accountability, professionalism, openness, competition--and value.

Action: Simplify the procurement process by rewriting federal regulations--shifting from rigid rules to guiding principles.

See Note 32

The Federal Acquisition Regulation (FAR), the government's principal set of procurement regulations, contains too many rules. Rules are changed too often and are so process-oriented that they minimize discretion and stifle innovation, according to a Merit Systems Protection Board survey. See Note 33 As one frustrated manager noted, the FAR does not even clearly state the main goal of procurement policy: "Is it to avoid waste, fraud, and abuse? Is it to implement a social-economic agenda? Is it to procure the government's requirements at a fair and reasonable cost?"

This administration will rewrite the 1,600-page FAR, the 2,900 pages of agency supplements that accompany it, and Executive Order 12352, which governs federal procurement. The new regulations will:

shift from rigid rules to guiding principles;

promote decision making at the lowest possible level; end unnecessary regulatory requirements;

foster competitiveness and commercial practices;

shift to a new emphasis on choosing "best value" products;

facilitate innovative contracting approaches; and

recommend acquisition methods that reflect information technology's short life cycle.

develop a more effective process to listen to its customers: line managers, government procurement officers and vendors who do business with the government.

Action: The GSA will significantly increase its delegated authority to federal agencies for the purchase of information technology, including hardware, software, and services.

See Note 34 In 1965, when "automated data processing" meant large, mainframe computers --often developed specifically for one customer--Congress passed the Brooks Act. It directed GSA to purchase, lease, and maintain such equipment for the entire federal government. The Act also gave GSA authority to delegate to agencies these same authorities. In 1986, Congress extended the requirement to software and support services.

Today, with most computer equipment commercially available in highly competitive markets, the advantages of centralized purchasing have faded and the disadvantages grown. The federal government takes, on average, more than four years to buy major information technology systems; the private sector takes 13 months. Due to rapidly changing technology, the government often buys computers that are state-of-the-art when the purchase process begins and when prices are negotiated, but which are almost obsolete when computers are delivered. The phenomenon is what one observer calls "getting a 286 at a 486 price."

Currently, the GSA authorizes agencies to make individual purchases up to $2.5 million in equipment and services on their own. The GSA Administrator will raise authorization levels to $50 million, $20 million and $5 million. These levels will be calculated according to each agency's size, the size of its information technology budget, and its management record. In some cases, GSA may grant an agency greater or unlimited delegation. GSA will also waive requirements that agencies justify their decisions to buy information technology items under $500,000 that are mass-produced and offered on the open market.

Action: GSA will simplify the procurement process by allowing agencies to buy where they want, and testing a fully 'electronic marketplace.'

See Note 35

The government buys everything from forklifts and snowplows to flak jackets and test tubes through a system called the Multiple Award Schedule program, which includes more than one million separate items.

Under this program, GSA negotiates and awards contracts to multiple vendors of comparable products and services, at varying prices. GSA then creates a "supply schedule" for a particular good or service, identifying all vendors that have won contracts as well as the negotiated prices. Of GSA's 154 schedules, civilian agencies must must buy from 117. In ordering from schedules, agencies still must comply--in addition- -with the Federal Acquisition Regulation, Federal Information Resources Management Regulation, and Federal Property Management Regulation.

In most cases, we should not limit managers to items on the supply schedules. If they can find the same or a comparable product for less, they should be free to buy it. Mandatory schedules should apply only when required by law, to ensure standardization, or when agencies voluntarily create team pools that buy in bulk for lower prices. In addition, GSA should revise regulations that currently limit agencies from buying more than $300,000 of information technology items on supply schedules, raise them to $500,000 and provide a higher limit for individual items costing more than $500,000.

To make supply schedules more user-friendly, GSA should conduct several pilot tests. One should test an "electronic marketplace," in which GSA would not negotiate prices. Instead, suppliers would list products and prices electronically, and agencies would electronically order the lowest-priced item that met their needs. Suppliers, at any time, would be able to add new products and change prices. Such a pilot would test whether visible price competition will cut prices and give line managers easier access to rapidly changing products.

Action: Allow agencies to make purchases under $100,000 through simplified purchase procedures.

See Note 36

Under current law, agencies are allowed to make purchases of less than $25,000 on their own, using simple procurement procedures. These small purchases, on average, take less than a month to complete; purchases of more than $25,000 normally take more than three months. If Congress raised the threshold to $100,000, agencies could use simplified procedures on another 45,550 procurements--with a total value of $2.5 billion.

Congress should keep current rules that reserve small purchases for small businesses and should improve access to information on procurements of more than $25,000. To ensure that small business receives adequate notice of possible procurements, the federal government, with OMB as the lead agency, should adopt an electronic notification system.

Action: Rely more on the commercial marketplace.

See Note 37

The government can save enormous amounts of money by buying more commercial products instead of requiring products to be designed to government-unique specifications. Our government buys such items as integrated circuits, pillows, and oil pans, designed to government specifications--even when there are equally good commercial products available.

We recommend that all agency heads be instructed to review and revise internal purchasing procedures and rules to allow their agencies to buy commercial products whenever practical and to take advantage of market conditions. We will ask the Office of Management and Budget to draft a new federal commercial code with commercial-style procedures, and then ask Congress to adopt the new code and remove impediments to this money-saving approach to procurement.

Action: Bring federal procurement laws up to date.

See Note 38

There are four federal labor laws implemented through the federal procurement process. Each was passed because of valid and well founded concerns about the welfare of working Americans. But as part of our effort to make the government's procurement process work more efficiently, we must consider whether those laws are still necessary- -and whether the burdens they impose on the procurement system are reasonable ones.

The Davis-Bacon Act of 1931 requires that each repair or construction contract in excess of $2,000 for work on a public building specify that the prevailing area minimum wage be paid to workers on that contract. The law was passed because Congress feared that without it, federal contracts awarded through a sealed bid process could undermine local prevailing wages. While Congress shifted the government's focus to an open bidding process in 1984, we acknowledge that concerns about the impact of government contracts on prevailing wages are still valid.

Recognizing that the original $2,000 threshold in the law was set more than 60 years ago, we recommend that Congress modify the Davis-Bacon Act by raising the threshold for compliance to $100,000, a change similar to that proposed by Senator Kennedy in March 1993.

The Service Contract Act of 1965 has purposes similar to those of the Davis-Bacon Act, and applies to service contracts in excess of $2,500. It requires contractors to pay the minimum prevailing wage and specified fringe benefits. To keep contractors from "locking in" their wage agreements at low levels, the law imposes a five-year limit on service contracts and requires new wage determinations every two years.

We suggest that the five-year limit is inconsistent with the government's interest in entering into long-range contracts. We will urge Congress to increase the limit up to 10 years while retaining the two-year wage adjustment requirement.

The Copeland Anti-Kickback Act of 1934 regulates payroll deductions on federal and federally assisted construction. The law prohibits anyone from inducing employees to give up any part of their compensation and requires contractors to submit weekly statements of compliance and detailed weekly payroll reports to the Labor Department.

We suggest that such detailed reporting is an unreasonable burden on federal contractors, and we will urge Congress to modify the act. We suggest eliminating requirements for weekly reports and requiring contractors instead to certify with each payment that they have complied with the law. Contractors would also be required to keep records to prove their compliance for three years.

The Walsh-Healey Public Contracts Act requires contractors that supply materials to the federal government through contracts in excess of $10,000 to pay all workers the federal minimum wage, to agree that no employee is required to work more than 40 hours a week, and to avoid using convict labor or workers under the age of 16.

Over time, each of the requirements of the Walsh-Healey Act--with the exception of the provision relating to convict labor--has been superseded by other federal legislation. We therefore urge Congress to remove the burden of certifying compliance with redundant laws from federal contractors. Within 30 days of the repeal of that law, the President should amend Executive Order 11755 to include the convict labor provisions of the Walsh-Healey Act.