GSA Global Supply's Direct Vendor Delivery Proposal Addresses Declining Office Product Sales, but Annual Reviews May Be Needed to Monitor Impact on Small Business Participation
Gao ID: GAO-09-230R February 6, 2009In fiscal year 2007, the General Services Administration (GSA) purchased $853 million in supplies from businesses--large and small--for its Global Supply system for subsequent resale to federal agencies. Of this amount, $194 million was for office products sold through the Global Supply Stock Program (Stock Program). The Stock Program allows federal customers to purchase thousands of products, ranging from office supplies to firefighting equipment, from two GSA distribution centers. In an effort to reduce delivery times and cut costs, GSA has worked for several years to develop a new business model for the Stock Program. In November 2008, GSA issued a solicitation for proposals that would remove one-third, or about 550, of its office supply products from the Stock Program and require businesses to ship these office products directly to GSA customers. Under the proposed Direct Vendor Delivery (DVD) Program, blanket purchase agreements (BPA) would be put in place between GSA and vendors, with the aim of allowing customers to receive additional price discounts, save time, and reduce paperwork. Small businesses and others have raised concerns about the impact of the proposed shift to DVD on small businesses' participation in office product sales. In fiscal year 2007, GSA purchased $76 million in office products from small businesses, or about 39 percent of the total purchases of office products under the Stock Program. In response to Congressional request, this report addresses three questions: (1) What are the factors behind GSA's proposal to migrate some office products from its Stock Program to DVD? (2) How will small businesses likely be affected by GSA's proposal to migrate some office products from its Stock Program to DVD? (3) How will GSA's removal of some office products from the Stock Program affect the ability of agencies to meet their needs during emergencies or disasters?
GSA officials identified declining office product sales to federal agencies, increased competition from other procurement alternatives, and the need to update its Global Supply business model as the key factors behind its decision to develop its DVD Program proposal. Stock Program office product sales to federal agencies dropped from about $488 million in fiscal year 1996 to about $162 million in fiscal year 2007, in constant fiscal year 2007 dollars. A GSA-commissioned study of Global Supply found that Stock Program items (including office supplies) had the highest markups of any products sold through the Global Supply system. The study also found that these items were often priced considerably higher than the same items in the commercial marketplace. GSA officials explained that these high price markups, as well as slow delivery times, made the Stock Program a less attractive procurement alternative for potential federal customers than other options. GSA officials told us, for example, that office product procurement alternatives, such as BPAs and purchase cards, had increased competition for office product sales to federal agencies. Although purchasing supplies from GSA had previously been required, since 1988, federal agencies have been able to procure supplies from other sources. GSA officials told us that its Stock Program was based on an outdated business model for procuring office products and should be modernized in order to provide products at more competitive prices with faster delivery. In addition, the commissioned study of Global Supply's operations suggested that GSA update its Stock Program business model to reduce the costs of stocking products. As such, GSA officials told us that the proposed DVD Program would reduce the inventory held in the Stock Program, in an attempt to lower GSA's costs; improve delivery time; and encourage federal agencies to procure office products through Global Supply.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: William B. Shear Team: Government Accountability Office: Financial Markets and Community Investment Phone: (202) 512-8246GAO-09-230R, GSA Global Supply's Direct Vendor Delivery Proposal Addresses Declining Office Product Sales, but Annual Reviews May Be Needed to Monitor Impact on Small Business Participation
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GAO-09-230R:
United States Government Accountability Office:
Washington, DC 20548:
February 6, 2009:
The Honorable Mary L. Landrieu:
Chair:
The Honorable Olympia J. Snowe:
Ranking Member:
Committee on Small Business and Entrepreneurship:
United States Senate:
The Honorable John F. Kerry:
United States Senate:
Subject: GSA Global Supply's Direct Vendor Delivery Proposal Addresses
Declining Office Product Sales, but Annual Reviews May Be Needed to
Monitor Impact on Small Business Participation:
In fiscal year 2007, the General Services Administration (GSA)
purchased $853 million in supplies from businesses--large and small--
for its Global Supply system for subsequent resale to federal agencies.
Of this amount, $194 million was for office products sold through the
Global Supply Stock Program (Stock Program). The Stock Program allows
federal customers to purchase thousands of products, ranging from
office supplies to firefighting equipment, from two GSA distribution
centers. In an effort to reduce delivery times and cut costs, GSA has
worked for several years to develop a new business model for the Stock
Program. In November 2008, GSA issued a solicitation for proposals that
would remove one-third, or about 550, of its office supply products
from the Stock Program and require businesses to ship these office
products directly to GSA customers. Under the proposed Direct Vendor
Delivery (DVD) Program, blanket purchase agreements (BPA) would be put
in place between GSA and vendors, with the aim of allowing customers to
receive additional price discounts, save time, and reduce paperwork.
[Footnote 1]
Small businesses and others have raised concerns about the impact of
the proposed shift to DVD on small businesses' participation in office
product sales. In fiscal year 2007, GSA purchased $76 million in office
products from small businesses, or about 39 percent of the total
purchases of office products under the Stock Program. In response to
your request, this report addresses three questions: (1) What are the
factors behind GSA's proposal to migrate some office products from its
Stock Program to DVD? (2) How will small businesses likely be affected
by GSA's proposal to migrate some office products from its Stock
Program to DVD? (3) How will GSA's removal of some office products from
the Stock Program affect the ability of agencies to meet their needs
during emergencies or disasters?
To assess the factors behind GSA's DVD Program proposal, we reviewed
data from GSA's Federal Supply Service Automated Supply System (FSS-19)
on total Stock Program office product sales for fiscal years 1996
through 2007 and a study that GSA used in developing its DVD Program
proposal. Additionally, we reviewed documents related to the
development of the proposal and conducted interviews with GSA
officials. We also conducted interviews with federal agency officials
regarding other federal office product procurement alternatives. We
conducted a site visit to one of GSA's two distribution centers, the
eastern distribution center in Burlington, New Jersey, and interviewed
distribution center officials to learn about stocking, inventory, and
shipping processes. We selected this facility because it is the larger
of the two distribution centers. To assess how small businesses will
likely be affected by GSA's DVD proposal, we reviewed FSS-19 data on
small businesses' participation in the Stock Program during fiscal
years 2005 through 2007. We also interviewed GSA and Small Business
Administration (SBA) officials regarding the solicitation for proposals
and small business participation; reviewed documentation on the DVD
Program proposal, the DVD Program solicitation for contract proposals,
laws related to small business participation in federal procurement,
and comments that small businesses submitted to GSA; and interviewed
six small business vendors with various levels of office product sales
to the Stock Program during fiscal year 2007. To assess how GSA's
proposal will affect the ability of agencies to meet their needs during
emergencies or disasters, we reviewed documents and conducted
interviews with agency officials at GSA and the Federal Emergency
Management Agency (FEMA). We also analyzed data from two recent
disasters to determine whether the products that GSA provided were on
the proposed list of products to be removed from the Stock Program. We
assessed the reliability of the FSS-19 data through electronic and
manual testing (e.g., examining data for inconsistencies) and
interviews with GSA officials and found the data to be sufficiently
reliable for the purposes of this report. We conducted this performance
audit from July 2008 to February 2009, in accordance with generally
accepted government auditing standards. These standards require that we
plan and perform the audit to obtain sufficient, appropriate evidence
to provide a reasonable basis for our findings and conclusions based on
our audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives.
Results in Brief:
GSA officials identified declining office product sales to federal
agencies, increased competition from other procurement alternatives,
and the need to update its Global Supply business model as the key
factors behind its decision to develop its DVD Program proposal. Stock
Program office product sales to federal agencies dropped from about
$488 million in fiscal year 1996 to about $162 million in fiscal year
2007, in constant fiscal year 2007 dollars. A GSA-commissioned study of
Global Supply found that Stock Program items (including office
supplies) had the highest markups of any products sold through the
Global Supply system. The study also found that these items were often
priced considerably higher than the same items in the commercial
marketplace. GSA officials explained that these high price markups, as
well as slow delivery times, made the Stock Program a less attractive
procurement alternative for potential federal customers than other
options. GSA officials told us, for example, that office product
procurement alternatives, such as BPAs and purchase cards, had
increased competition for office product sales to federal agencies.
Although purchasing supplies from GSA had previously been required,
since 1988, federal agencies have been able to procure supplies from
other sources. GSA officials told us that its Stock Program was based
on an outdated business model for procuring office products and should
be modernized in order to provide products at more competitive prices
with faster delivery. In addition, the commissioned study of Global
Supply's operations suggested that GSA update its Stock Program
business model to reduce the costs of stocking products. As such, GSA
officials told us that the proposed DVD Program would reduce the
inventory held in the Stock Program, in an attempt to lower GSA's
costs; improve delivery time; and encourage federal agencies to procure
office products through Global Supply.
While the precise effect is currently unclear, GSA's proposed DVD
Program would likely decrease the number of small businesses selling
office supplies under Global Supply. The Small Business Act requires
federal agencies to take steps to ensure that small businesses are
provided with opportunities to compete for and receive federal
government contracts. Accordingly, the solicitation for the DVD Program
BPAs stated that (1) GSA is committed to assuring that the maximum
practicable opportunity is provided to small businesses to participate
in the BPAs and (2) the greatest preference will be to award to small
prime vendors. During fiscal year 2007, about 60 small businesses sold
to Global Supply the office products proposed to transition to the
proposed DVD Program. In comparison, GSA officials told us that, going
forward, they expect to award a limited number of BPAs in order to take
advantage of quantity discounts offered by vendors. SBA officials with
whom we spoke indicated that they had concerns regarding potentially
limited small business participation opportunities for the proposed DVD
Program and, as of mid-December 2008, GSA and SBA officials were
engaged in ongoing discussions regarding SBA's concerns on the DVD
solicitation. Our analysis of comments submitted by small business
representatives during an opportunity to comment on the proposal, and
from interviews we conducted with six small businesses regarding the
proposed DVD program, identified four primary concerns--(1) increases
in their shipping costs, (2) shortened delivery times, (3) a lack of
minimum order amounts, and (4) implementation costs of the proposed DVD
Program. GSA officials told us that they had taken steps to address
these concerns. For example, to address small businesses' concern about
the shortened delivery times, GSA increased the required delivery time
by vendors to locations within the continental United States from 3
days to 4 days. In its solicitation, GSA indicated that it planned to
perform annual performance reviews of the proposed DVD Program to
determine if additional companies should be awarded BPAs. While GSA
officials stated that they expect the overall dollar value for
purchases from small businesses to remain the same or increase under
the proposed DVD Program, the agency has not developed a specific plan
for monitoring the impact of the DVD Program on the current level of
small business sales of office supplies to Global Supply. To address
this concern about small business participation levels, we are
recommending that GSA establish a monitoring process for small business
participation in the proposed DVD Program and report the findings to
Congress for the first three full fiscal years of the program.
GSA's proposal to shift hundreds of office products from its Stock
Program to the proposed DVD Program would likely not affect the ability
of federal agencies to respond to emergencies or disasters. GSA's
proposed DVD Program does not include any products the agency considers
emergency or "insurance" items, such as fire suppression items and tool
kits. GSA officials also stated that they currently do not have plans
to migrate any items the agency considers to be emergency or insurance
items to the proposed DVD Program. Finally, a GSA review of products
purchased from Global Supply for the federal response to Hurricanes Ike
and Gustav, compared with those products proposed to be transitioned to
direct vendor delivery, found that the items purchased were not on the
list of products transitioning to the proposed DVD Program.
Background:
GSA's Global Supply system provides federal agencies with the ability
to order office and computer products, tools, firefighting equipment,
and other items through a variety of delivery programs--Stock Program,
Special Order, and Expanded Direct Delivery. In fiscal year 2007,
Global Supply purchased $853 million in products from businesses, of
which $194 million was for office products provided through the Stock
Program. For Stock Program items, Global Supply obtains products from
its contracted vendors and later ships the products from GSA's
distribution centers in New Jersey and California.[Footnote 2] For
Special Order and Expanded Direct Delivery orders, GSA receives the
agencies' requests for products and places the orders directly with
vendors, rather than keeping the products in the distribution centers
and issuing the products from that inventory.[Footnote 3] Agencies can
also purchase Global Supply products from customer supply stores
located worldwide.[Footnote 4]
Vendors typically have contracts with GSA to provide inventory for the
Stock Program. Small business vendors accounted for almost 40 percent
of office product sales to the Stock Program during fiscal year 2007
(see figure 1).
Figure 1: Sources and Costs of Stock Program Office Product Purchases,
Fiscal Year 2007:
[Refer to PDF for image: pie-chart]
Sources and Costs of Stock Program Office Product Purchases, Fiscal
Year 2007:
AbilityOne[A]: 45%, $87,452,549;
Small business (non-AbilityOne): 39%, $76,267,388;
Large business (non-AbilityOne): 16%, $30,123,280.
Source: GAO analysis of GSA data.
[A] AbilityOne, previously known as the Javits-Wagner-O'Day (JWOD)
Program, provides employment opportunities for people who are blind or
have other severe disabilities in the manufacture and delivery of
products and services to the federal government. Federal agencies are
required to purchase certain supplies and services from designated
nonprofit agencies serving people with disabilities.
[End of figure]
GSA's proposed DVD Program would remove from the Stock Program about
550 office supply products (or about one-third of the office products)
that are considered to be readily available commercially such as pens,
copier paper, and tape. Under the proposal, GSA would contract with
vendors using BPAs to deliver these products directly to federal
agencies. In order to be eligible to participate, vendors must already
have a multiple award schedule contract.[Footnote 5] According to the
DVD solicitation issued on November 7, 2008, BPA winners would be
required to (1) offer nearly all of the 550 items that would no longer
be stocked in the distribution centers, as well as an array of products
from the vendor's catalog; (2) package, label, and ship items according
to GSA specifications; (3) provide electronic order tracking
information; (4) deliver items to continental United States customers
within 4 business days of receiving the order; and (5) offer a discount
from its multiple award schedule contract prices for items purchased
under the BPA.
GSA Developed the Proposed DVD Program in Response to Declining Sales,
Market Competition, and an Outdated Business Model:
GSA developed its DVD Program proposal to respond to declining office
product sales to federal agencies, competition from other procurement
alternatives, and the need to update its business model. Stock Program
office product sales to federal agencies have declined in recent years,
in part because of high product markups and slow delivery times,
relative to other procurement alternatives. According to GSA data,
office product sales through the Stock Program dropped from about $488
million in fiscal year 1996 to about $162 million in fiscal year 2007,
in terms of the cost of merchandise sold to customers (cost of goods
sold) in constant fiscal year 2007 dollars (see fig. 2). Over the same
period, sales of other Global Supply product lines (general products
and hardware) did not encounter a similar drop in sales. Similarly, a
GSA-commissioned study of Global Supply's operations found that
although the Stock Program (which includes office supplies) was the
largest contributor to Global Supply sales, it had high operating costs
in comparison with other delivery alternatives.[Footnote 6] The study
further found that markups on products were applied across the Stock
Program to help cover operating costs and attempt to break even on
sales. As a result, products in the Stock Program had the highest
markups of the products sold by Global Supply and were often priced
considerably higher than in the commercial marketplace. According to
GSA, the markups for office products were in the range of 45 to 48
percent. In addition, delivery of Stock Program items from the
distribution centers to the customer generally took about 7 to 10
business days, which is longer than other procurement alternatives
available to potential federal customers, according to GSA officials.
Figure 2: Stock Program Office Product Sales to Federal Agencies (in
Cost of Goods Sold), Fiscal Years 1996 through 2007 (in constant FY07
dollars):
[Refer to PDF for image: line graph]
Fiscal Year: 1996;
Constant FY07 dollars: $488.24 million.
Fiscal Year: 1997;
Constant FY07 dollars: $422.6 million.
Fiscal Year: 1998;
Constant FY07 dollars: $359.86 million.
Fiscal Year: 1999;
Constant FY07 dollars: $317.34 million.
Fiscal Year: 2000;
Constant FY07 dollars: $287.15 million.
Fiscal Year: 2001;
Constant FY07 dollars: $243.61 million.
Fiscal Year: 2002;
Constant FY07 dollars: $214.8 million.
Fiscal Year: 2003;
Constant FY07 dollars: $231.88 million.
Fiscal Year: 2004;
Constant FY07 dollars: $192.17 million.
Fiscal Year: 2005;
Constant FY07 dollars: $171.32 million.
Fiscal Year: 2006;
Constant FY07 dollars: %163.99 million.
Fiscal Year: 2007;
Constant FY07 dollars: $162.01 million.
Source: GSA data.
[End of figure]
Procurement alternatives, including federal strategic sourcing
initiatives, have increased Global Supply's competition for office
product sales to federal agencies. Previously, GSA was a mandatory
source of supply but, since 1988, federal agencies have been able to
procure supplies from other sources. A 2005 memorandum from the Office
of Management and Budget's (OMB) Office of Federal Procurement Policy
required agencies to analyze their spending and identify commodities
that could be purchased more efficiently through strategic sourcing.
[Footnote 7] As a result, GSA began the Federal Strategic Sourcing
Initiative (FSSI) in November 2005 and established 13 FSSI BPAs for
office supply procurements under the initiative in 2007.[Footnote 8]
Although GSA awarded the FSSI BPAs for use by other federal agencies,
these BPAs are separate from the BPAs that would be awarded as part of
the proposed DVD Program. Since the FSSI BPAs were awarded before GSA
had moved forward with its proposed DVD Program, a Global Supply
official said that the FSSI BPAs established under the initiative
represented competition for Global Supply. Office product sales under
the FSSI BPAs have increased, accounting for $3.2 million between
October 2007 and March 2008, and a total of $4.1 million between April
2008 and June 2008. Additionally, some federal agencies have
established their own purchasing arrangements directly with businesses
providing office products. An official representing one of these
agencies told us that it established its own BPAs because such
contracts would lower the cost of the office products that its
employees typically needed. Other procurement alternatives available to
federal agencies include in-person and online purchasing using
government purchase cards and the Department of Defense's DOD E-Mall--
an Internet ordering site for military and other federal customers to
order various parts and supplies.
Global Supply officials told us that the proposed DVD Program is
designed to replace the Stock Program business model for certain office
products, in order to improve prices and delivery times for federal
customers. A GSA memorandum stated that the business model for
supplying certain products through their distribution centers was
outdated and needed to be changed in order for GSA to stay competitive
in the office products marketplace. The memorandum also stated that the
proposed DVD Program would allow Global Supply to rely on more
efficient channels to provide certain products. Similarly, the GSA-
commissioned study of Global Supply suggested that the agency update
its business model to reduce costs of stocking products and to respond
to customer expectations for competitive prices and faster delivery. It
suggested that the Stock Program should continue to store and deliver
items that are not readily available in the commercial marketplace,
such as government forms and items with military insignia, but shift to
direct delivery from the vendor for items that are easy to ship and
readily available commercially.
According to GSA officials, many office products have these
characteristics and should be transitioned to the proposed DVD Program.
GSA officials stated that the cost savings they have identified through
the proposed DVD Program will allow the agency to reduce office product
markups to approximately 17 percent. GSA officials stated that this
reduction in costs and markups will make the prices of Stock Program
office products more competitive.
GSA's Proposed DVD Program Would Likely Decrease the Number of Small
Businesses Selling Office Supplies to Global Supply, but GSA has Taken
Some Steps to Address Small Businesses' Concerns:
While the precise effect is currently unclear, GSA's proposed DVD
Program would likely result in fewer small businesses selling office
products through GSA's Global Supply system. During fiscal years 2005
through 2007, about 100 small businesses sold to Global Supply the
office products that would transition from the Stock Program to the
proposed DVD Program[Footnote 9]. For fiscal year 2007, specifically,
about 60 small businesses sold these products to GSA. Small businesses
accounted for between 47 and 56 percent of the annual sales for these
products during these three fiscal years (see fig. 3).
Figure 3: Vendor Sales, by Business Size, for Office Products Proposed
to Transition to the DVD Program, Fiscal Years 2005 through 2007:
[Refer to PDF for image: illustration]
Fiscal year: 2005;
Small business: $22.7 million (47%);
Large business: $25.8 million (53$).
Total: $48.6 million.
Fiscal year: 2006;
Small business: $26.0 million (56%);
Large business: $20.7 million (44%);
Total: $46.7 million.
Fiscal year: 2007;
Small business: $23.6 million (52%);
Large business: $21.8 million (48%);
Total: $45.3 million.
Source: GSA data.
Note: The rounding for fiscal years 2005 and 2007 sales caused the
total to be different than the sum of the dollar values for small and
large businesses.
[End of figure]
GSA plans to award a limited number of BPAs for the office products
that would be sold under the proposed DVD Program and expects prices to
be discounted because a smaller number of vendors would be supplying
larger quantities.[Footnote 10] GSA officials told us that the specific
number of BPAs to be awarded was unknown because the agency would need
to evaluate received bids, but the purpose of BPAs is to leverage the
federal government's buying power by establishing an agreement with
fewer vendors for multiple products in order to obtain quantity
discounts.
The Small Business Act of 1958 requires federal agencies to take steps
to insure that small businesses are provided with opportunities to
compete for and receive federal government contracts.[Footnote 11]
GSA's solicitation for proposals for the DVD Program's BPAs stated that
GSA is committed to assuring that the maximum practicable opportunity
is provided to small businesses to participate in the BPAs and that
evaluation for the awards would be made on four factors, in order of
importance: socioeconomic status, technical and price (with technical
and price being equal in importance), and past performance. The
solicitation further stated that business size would be an evaluation
factor for consideration of award, and that "the greatest preference
will be to award to small prime vendors." However, GSA officials told
us that the agency plans to award a limited number of DVD Program BPAs.
While the precise outcome remains unclear, it is likely that fewer
small businesses would be able to sell office products to GSA under the
proposed DVD Program than under the current Stock Program.
SBA officials with whom we spoke stated that since the number of small
businesses selling office products to the proposed DVD Program would
likely be smaller than the number currently participating in the Stock
Program, fewer small businesses would have opportunities to sell these
products to GSA. They added that small businesses already compete for a
multiple award schedule contract to sell these office products through
Global Supply and that the proposed DVD Program would represent an
impediment to these small businesses' efforts to continue selling these
products since they would have to compete for a BPA. SBA officials told
us that they had communicated these concerns verbally to GSA before it
issued its DVD solicitation but had not provided formal written
comments. As of mid-December 2008, GSA and SBA officials were engaged
in ongoing discussions regarding SBA's concerns on the DVD
solicitation.
Similarly, representatives of small businesses raised concerns when GSA
provided an opportunity to comment on the proposed DVD Program before
the solicitation was issued. Our analysis of those comments and the
interviews we conducted with small business representatives identified
the following four primary concerns:
* Increased shipping costs. Small businesses' representatives stated
that the proposed DVD Program would require vendors to ship office
products to various locations instead of the two distribution centers
that they currently ship to under the Stock Program. The
representatives raised concerns that shipping to various locations
would be more costly, particularly since vendors are less likely to be
able to consolidate shipping to one location.
* Increased costs to meet shorter delivery times. They further stated
that the requirement to have shorter delivery times for products
ordered through the proposed DVD Program would lead to the vendor
incurring additional costs for faster shipping. Initially, GSA planned
to require that vendors deliver items procured through the proposed DVD
Program within 3 days to customers within the continental United
States. For vendors, this would be a decrease from their delivery times
to the GSA distribution centers under the current Stock Program, where
according to GSA officials, GSA monitors the stock levels and places
orders (replenishments) against contracts far enough in advance to
allow for ample delivery time of the products to the distribution
centers. The most common time frame for vendors to deliver products to
the distribution centers is generally around 30 days.
* Lack of a minimum order size. Small businesses' representatives
commented that, without a minimum order requirement, a vendor could
lose money on low-volume orders since shipping could cost more than the
revenue generated from the sale of the products. Some also suggested
that they would incur further costs because they would need to maintain
larger inventories in order to offer the required 95 percent of the
office products available from the Stock Program and deliver them
directly to the customer. While small businesses can partner with a
wholesaler of office supplies to obtain products quickly to meet
delivery time requirements and avoid maintaining larger inventories,
small business representatives told us that this can be costly to the
vendor. They explained that wholesalers' prices are typically higher
than manufacturers' prices, and they would have to offer these products
to GSA at higher prices (than under the Stock Program) in order to
account for the increased cost of obtaining them. According to GSA
officials, however, the majority of office product vendors with a
multiple award schedule contract currently utilize wholesalers as a
source for the office products they sell.
* Additional costs of implementing the proposed DVD Program. Small
businesses' representatives indicated that incorporating information
system requirements, implementing packaging and shipping requirements,
and restructuring facilities could also result in additional costs if
they participate in the proposed DVD Program. They stated that such
implementation costs could affect the ability of some small businesses
to participate. Further, they noted that small businesses awarded a BPA
may not be able to sustain their sales because these additional costs
could affect their ability to price their products competitively or
could lead to unsustainable pricing.
GSA has taken some steps to address small businesses' concerns
regarding the DVD Program proposal. For example, our review of GSA
documentation on the proposal showed that GSA changed the required
delivery time from 3 days to 4 days, in response to small businesses'
concerns about shipping costs associated with the faster delivery time.
GSA officials told us that a 4-day delivery requirement continues to
provide a reasonable delivery time for customers, while helping to
lower shipping costs for small businesses since some shipments can be
shipped by ground transportation within 4 days. To address concerns
about the lack of a minimum order amount, GSA included a stipulation
that it would compensate vendors incurring an average order amount of
less than $50 for the first year of the proposed DVD Program. After the
first year, if a business's average order is less than $50, GSA would
pay a $10 handling fee for each order that was less than $50, and would
make these payments up to a total of $50,000 in handling fees. However,
some small business officials with whom we spoke stated that while an
extra day for required delivery could lower some shipping costs, cross-
country shipments would still be costly under this time frame, and that
an annual payment to offset the lack of a minimum order requirement may
be too infrequent since the vendor would have to absorb any losses on
small orders throughout the entire year. GSA officials also told us
that the agency would assist DVD Program vendors with the costs
incurred in implementing certain information system requirements. GSA
also anticipates providing additional opportunities for businesses to
participate in the BPAs. Specifically, the agency plans to conduct
annual performance-based reviews to determine whether there is a need
for allocation readjustments among BPA vendors, new BPA awards, or
both. Finally, GSA officials stated that the 13 FSSI BPAs for office
products previously discussed in this report had similar requirements
to the DVD BPAs (for example, discounted prices and shorter delivery
times), and small businesses were awarded 11 of the 13 FSSI BPAs and
currently provide office products under these requirements.
The potential effects of these steps by GSA notwithstanding, the dollar
amount of future sales to small businesses participating in the
proposed DVD Program remains uncertain. As mentioned previously, the
Small Business Act requires agencies to provide small businesses with
opportunities to compete for and receive federal government contracts.
GSA officials indicated that small businesses could collectively
account for the same or a greater amount of office product sales (in
dollars) after transitioning to the proposed DVD Program; but, the
agency would award fewer BPAs for the Program, relative to the number
of small businesses recently providing these products to GSA. While GSA
officials indicated that they plan to review purchases under the
individual DVD Program BPAs annually to determine whether the BPAs
provide a best value to the federal government, they did not have a
specific plan for monitoring and reporting on the extent of small
business participation in the proposed program.
The Proposed DVD Program Should Not Affect the Ability of Agencies to
Obtain Necessary Products During Emergencies or Disasters:
The ability of agencies to meet their readiness needs during
emergencies or disasters would not likely be affected by GSA's proposed
DVD program since products designated as emergency or insurance items
would remain in the Stock Program at the two distribution centers.
According to GSA officials, the proposed DVD Program would only include
office products that GSA has identified as readily and commercially
available. The officials explained that GSA designates products as
emergency and insurance products (e.g., fire suppression items and
specific tool kits) based on its experience and analyses of Stock
Program products that are not readily available commercially. GSA
officials also explained that, currently, the agency has no plans to
migrate any of the items it considers to be emergency or insurance
products to the proposed DVD Program in future years.
Items that agencies procured from Global Supply during two recent
hurricanes were not included on the list of products transitioning to
the proposed DVD Program. A GSA review of the items ordered for
Hurricanes Ike and Gustav in 2008 showed that none of the items were
proposed to transition to the DVD Program. Further, a FEMA official we
interviewed stated that, in cases of emergencies or disasters, FEMA
typically only orders office supplies when it establishes a joint field
office at the disaster or emergency site location. The official added
that these products, however, are typically delivered through
prepositioned contracts that GSA has established with vendors and not
through the Stock Program.
Conclusions:
According to GSA officials, the Stock Program's outdated business model
has resulted in high product markups and slower delivery times for
readily available, commercial office products offered under Global
Supply, when compared with other purchasing alternatives for these
products. GSA has proposed transitioning some of the office products
offered under the Stock Program to a direct vendor delivery model--
excluding items and products that are used by federal agencies to
respond to emergencies and disasters. Any changes to the Stock Program
would, however, need to be made with due consideration to the Small
Business Act, which requires federal agencies to provide small
businesses with the opportunity to compete for and receive federal
government contracts. Small businesses have raised concerns, such as
shorter delivery time requirements and the lack of minimum order
quantities, with GSA's DVD proposal that could impact their price
competitiveness. GSA revised its solicitation before it was issued in
an attempt to mitigate these concerns. GSA's solicitation for proposals
for the DVD Program's BPAs stated that GSA is committed to assuring
that maximum practicable opportunity is provided to small businesses to
participate in the BPAs and that the greatest preference will be to
award to small prime vendors. However, GSA officials told us that the
agency plans to award a limited number of DVD Program BPAs. While the
precise outcome remains unclear, it is likely that fewer small
businesses would be able to sell office products to GSA under the
proposed DVD Program than under the current Stock Program. GSA's
solicitation for the proposed DVD Program stated that GSA plans to
annually review individual DVD Program BPAs, but it does not explicitly
call for the monitoring and reporting of small business participation
levels. The absence of these important components could result in
limited transparency in terms of small businesses' participation in the
proposed DVD Program.
Recommendation for Executive Action:
To increase oversight and transparency, GAO recommends that the GSA
Administrator monitor and report to Congress on the annual level of
small business participation in the proposed DVD Program for the first
three full fiscal years of the program. This action could be
accomplished, for example, as part of GSA Global Supply's annual
performance review of the DVD BPAs.
Agency Comments and Our Evaluation:
We provided a draft of this report to GSA's Acting Administrator for
review and comment. GSA provided written comments that are summarized
below and reprinted in the enclosure to this report. GSA agreed with
our findings and recommendation. In its response, GSA stated that it
was committed to monitoring and providing reports to Congress annually
on the level of actual small business participation in the DVD Program
for each of the first full three fiscal years of the program.
As we agreed with your office, unless you publicly announce the
contents of this report earlier, we plan no further distribution of it
until 30 days from the date of this letter. The report also will be
available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact me at (202) 512-8678 or edwardsj@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. Major contributors to this report were
Harry Medina, Assistant Director; Tania Calhoun; Emily Chalmers; Philip
Farah; Dana Hopings; Tarek Mahmassani; Carl Ramirez; and William Woods.
Signed by:
Jack E. Edwards:
Acting Director, Financial Markets and Community Investment:
Enclosure:
[End of section]
Enclosure: Comments from the General Services Administration:
GSA Administrator:
U.S. General Services Administration:
1800 F Street NW:
Washington, DC 20405-0002:
Telephone: (202) 501-0800:
Fax: (202) 219-1243:
[hyperlink, http://www.gsa.gov]
February 4, 2009:
The Honorable Gene L. Dodaro:
Acting Comptroller General of the United States:
Government Accountability Office:
Washington, DC 20548:
Dear Mr. Dodaro:
The U.S. General Services Administration (GSA) appreciates the
opportunity to review and comment on the draft report, "GSA Global
Supply Stock Program" (GAO-09-230R). The Government Accountability
Office (GAO) recommends that the GSA Administrator monitor and report
to Congress on the annual level of small business participation in the
proposed Direct Vendor Delivery (DVD) Program for the first three full
fiscal years of the program.
We agree with the findings and recommendation. GSA commits to
monitoring and providing reports to Congress annually on the level of
actual small business participation in the DVD Program for each of the
first full three fiscal years of the program.
I would like to take this opportunity to thank the GAO team for the
professionalism, diligence and consideration shown throughout the
review process.
Should you have any questions, please contact me. Staff inquiries may
be directed to Mr. Joseph Jeu, Assistant Commissioner, Office of
General Supplies and Services at (703) 605-5515.
Sincerely,
Signed by:
Paul F. Prouty:
Acting Administrator:
cc:
Jack Edwards, Acting Director, Financial Markets and Community
Investment:
[End of enclosure]
Footnotes:
[1] A BPA is a simplified method of filling anticipated repetitive
needs for supplies or services by establishing an account with a
qualified source of supply.
[2] When a single order quantity exceeds a predetermined threshold for
Stock Program products, the items are delivered directly from the
vendor through Stock Direct Delivery.
[3] The Special Order and Expanded Direct Delivery Programs both
deliver items directly to customers. The Expanded Direct Delivery
Program is an arrangement that utilizes more recent advances in
electronic commerce transaction methods which provide faster processing
and delivery for the vendor's commercial, largely part-numbered
catalog. The Expanded Direct Delivery Program is a forerunner of the
proposed DVD Program.
[4] In addition to domestic locations, GSA maintains customer supply
centers in international locations such as Japan, Korea, Germany,
Belgium, the Netherlands, and Djibouti.
[5] Under the GSA Multiple Award Schedule Program, GSA establishes long-
term governmentwide contracts with businesses to provide access to over
11 million commercial supplies (products) and services that can be
ordered directly from GSA Schedule contractors. GSA Schedule 75 offers
federal agencies access to purchase a wide array of office products
(such as pens, pencils, markers, shredders, and printer paper). Vendors
may offer their entire commercial catalog or a limited line of
products.
[6] Deloitte Consulting LLP, General Services Administration, Office of
Global Supply: New Business Models and Business Case Analysis
(Washington, D.C.: Nov. 9, 2006).
[7] OMB, Implementing Strategic Sourcing (Washington, D.C.: May 20,
2005). This memorandum defined strategic sourcing as the collaborative
and structured process of critically analyzing an organization's
spending and using the resulting information to make business decisions
about acquiring commodities and services more effectively and
efficiently.
[8] Twelve federal agencies met regularly with GSA to develop the BPA
solicitation and signed a formal project charter agreeing to
participate in the FSSI. The 12 agencies are not required to use the
BPAs, and other agencies may use them. The BPAs provide additional
discounts to the negotiated prices already available through the GSA
Schedule Program due to the expected increase in the volume of sales to
the business receiving the BPA.
[9] The total number of small businesses reflects the number that sold
the transitioning office products during any of the three fiscal years
(2005, 2006, and 2007). The total number of small businesses selling
these products in each of those years was less than 100. Some small
businesses participated only for 1 or 2 years.
[10] The BPA would be for one base year, with the possibility of four 1-
year options, for a total of 5 years. At the end of the base period and
for each option period, GSA may consider awarding additional BPAs.
[11] Pub. L. No. 85-536, § 2(a), 72 Stat. 384 (1958), codified at 15
U.S.C. § 631(a).
[End of section]
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