To improve management of its procurement process, the Defense Department plans to create an automated system for collecting data on services purchased from contractors, a department official announced in response to a new report from the General Accounting Office.
Data from the automated system will help Defense purchasers make better strategic decisions, Deidre Lee, the department's director of procurement and acquisition policy, said in a May 21 letter to GAO. The watchdog agency had recommended the system in the new report (GAO-03-661) as one way Defense could improve management of the nearly $100 billion the department spends on service contracts. Data collected through the new system will help Defense analyze its current procurement spending patterns and find places to save money, according to the report.
Private companies use automated data collection systems as part of a "spend analysis" approach to contracting, according to GAO. This approach has benefited the private sector, according to the GAO report. A 2002 survey of 147 companies in 22 industries, conducted by A.T. Kearney Inc., a management consulting firm, found that companies that analyzed their procurement spending saved more than $13.5 billion in 2000.
In February, the Defense Department unveiled a pilot program to analyze procurement data. The project is scheduled to end in September 2004. But despite the pilot program, Defense still has problems managing its acquisitions, GAO said.
Current management of services purchased from contractors is "inefficient and ineffective and the dollars are not always spent well," the report said. This is partly because Defense's system of accounting for purchases is "decentralized, insufficiently rigorous and unreliable," according to GAO. The department often does not shop around enough for the best bargain. In addition it does not oversee contractors sufficiently, the report said.
Over the past year, GAO researchers looked at five companies that successfully use "spend analysis" to see if they could offer any advice to Defense as its pilot project unfolds. The five companies-IBM, ChevronTexaco Corp., Bausch and Lomb, Delta Air Lines and Dell Computer Corp.-collectively saved between $92 and $94 billion in 2001 by analyzing their procurement processes.
The five companies used spend analysis to tally up exactly how much they spent to acquire specific services and then studied the data, looking for patterns and identifying places where they could have got a better price by having several departments join in a bulk purchase or through buying more services from the same provider.
The companies used automated systems like the one Defense plans on implementing to collect data. These took information directly from the company's electronic accounting system and used the information, supplemented by data from the service contractors, to generate financial reports. Managers could then use these reports to come up with strategic plans for a more efficient, cost-effective procurement process.
Defense would do well to adopt this system, GAO recommended. The department would face some "deep-rooted" challenges in doing so, the watchdog agency acknowledged. For instance, Defense spending data is currently scattered across multiple departments, making it difficult to collect. These challenges are not insurmountable though, and are not that different from obstacles that the private companies faced, GAO said.
Defense should also outline a plan for changing the procedures for handing out service contracts and should submit this plan to Congress as part of the 2005 budget process, GAO recommended. Defense did not agree with this recommendation, according to Lee's letter, because the department has already taken steps to improve its procurement process and does not see a need to rewrite the procedures again.
Defense will continue to work toward analyzing procurement data, as recommended, Lee said. "The commercial best practice of spend analysis is important to the design of viable, strategic acquisition solutions and has allowed for substantial savings in the commercial sector," Lee wrote. "We share your optimism that this type of analysis will allow us to obtain similar results."