o emphasize the size and breadth of the General Services Administration's supply schedules, Nicholas Economou, acquisition management center director for GSA's Federal Supply Service, likes to grab an audience's attention by dropping a 3-inch-thick J.C. Penney catalog from the speaker's podium. As the landing thwack echoes, he tells the startled assembly, "We have enough items on the schedules to fill 1,000 of these." The sound effects are appropriate, since the 4-million-item schedules are booming. (See the schedules catalog at http://pub.fss.gsa.gov/pub.)
Sales have increased by nearly 100 percent in just the past four fiscal years, from $4 billion in 1995 to $7.7 billion in 1998, and are on track to best $10 billion for fiscal 1999. Burgeoning sales have swelled the schedules' operating funds from $40 million in fiscal 1995 to a predicted $100 million this year. All funds to operate the schedules and pay the 432 FSS employees working on them come from a 1 percent fee vendors pay GSA on schedule sales.
The multiple-award schedules operate as government's Wal-Mart. Agencies can use schedule contracts with more than 6,300 vendors to buy everything from test tubes to inner tubes, generally at below-market prices. Using the schedules dramatically eases and speeds purchasing, relieving agencies of the need for full-blown, open-market procurements of many items and services in amounts both large and small. But using the schedules wasn't always so easy.
As recently as five years ago, the schedules more closely resembled a musty old neighborhood Woolworth's store than a sleek discount superstore. The buying was slow, the rules were rigid, quantities were limited, the inventory often wasn't state of the art, and prices were mediocre. Buyers used the schedules mostly for small purchases or to get base prices from which they would negotiate better deals directly with vendors. "The schedules used to be the equivalent to the sticker price on a new car. You knew that wasn't the real price," says Chip Mather, senior vice president of Acquisition Solutions Inc., a Chantilly, Va., consulting firm. "You could pick up the phone and get 20 percent to 30 percent less."
All that began changing four years ago when reinvention targeted GSA and government procurement processes as examples of bureaucracy gone bad. Already downsized and facing possible elimination, the agency remade itself from top to bottom. Benchmarked against Fortune 100 companies, FSS had no choice but to shape up. "Four years ago we adopted a business planning process," says William N. Gormley, FSS' assistant administrator for acquisition. "As part of that, we harnessed the whole organization to have a unified vision." Gormley says customers are the focus of that vision, and judging by the subsequent growth in the popularity of the schedules, he's not just mouthing platitudes.
Ahead of Customers
By all accounts, Gormley has led nothing short of a schedules revolution by changing rules, practices, product offerings and relations with both agency customers and vendors. "Bill Gormley forced people to start looking at customer needs," Mather says. "He removed the requirement that every purchase be published in the Commerce Business Daily. They had a maximum order limitation; he changed it so now if you hit [the limit], GSA says it's worth asking for a discount at that limit, but you can still order above it.
"He removed the requirement that if a vendor offered a discount to one customer, he had to lower his schedule price. He opened the schedules so any company can apply and not have to wait for a [new request for proposals]."
These changes and others kick-started the schedules' evolution from Woolworth's to Wal-Mart. "In the past, we would sell one D-cell battery if you wanted it. The schedules now are being recognized not as a place for onesies and twosies, but as a large-requirement acquisition vehicle for agencies," Gormley boasts. "Moving to a non-mandatory environment was our springboard to reality. It made us conscious that there's a customer out there. Now this is what we have to offer: more breadth and balance, and you make the choice."
"We're constantly bringing in new items and removing them," he adds. "If we see trends, we pursue them. Our objective is to be in front of the customer, to be there before the customers know they have the need. As an item comes into the private sector, we now have the ability to let the companies offer it on the schedules immediately. Our business line is refreshed daily. It's not exactly being there before the customer, but it's damn near to it."
Creating Cost Consciousness
FSS staffers didn't learn by magic how to read customers' minds. Rather, it is an ongoing and sometimes difficult process, says Sue McIver, director of the FSS services acquisition center in Arlington, Va., which handles contracts for employee relocation, the government charge card, clerical support, financial asset management, human resources assistance, small package delivery and other services. "The 60 people to my left have a very different perspective of their role than they did five to 10 years ago. [But] it wasn't sudden, it has been evolutionary." FSS employees became riveted on their customers' desires as they learned the costs of their own programs, McIver says. Once they understand that costs must be covered by revenues, staffers quickly grasp the importance of doing whatever it takes to increase sales and thereby the fees that FSS collects.
"I have a financial manager who pulls together data and presents it in town hall meetings so people can see the revenue and costs their products are creating," says McIver. "It's been fascinating to watch people taking ownership." Employees get to see revenue for each of the center's 12 programs. "We want people to feel they're contributing overall to the center's achievements," McIver adds. Service center employees have gotten into the spirit. At their request, McIver created a financial award for reaching centerwide sales goals. Employees agreed that the award would be equally divided among them and that the money would come from the center's funds for individual employee bonuses.
Realigning the schedules to meet and anticipate customer needs sometimes has been painful for employees. For example, last year, Gormley radically changed the work of the FSS center in Auburn, Wash., which for 20 years had been running contracts for paint and chemicals. "They had a little over 100 people and were doing a couple of million dollars in sales. It was not a growth area," Gormley says. "With that many people, we felt we could have a greater impact." Gormley gave the center a year's notice that it had to improve its return. He shifted Auburn to an entirely new line of business in October, after negotiating with center unions and setting up a relocation program for displaced staffers. Now, as the Management Services Center, Auburn runs the Management, Organizational and Business Improvement Services (MOBIS) contract and several related contracts.
At the same time, Gormley moved Auburn's prior responsibilities in a way that would make more sense for customers. "From a customer perspective, there could be a fit at another center with what Auburn had been doing, so we moved Paint and Chemicals to Kansas City, to what had been Tools and Appliances and it became Paint and Appliances," he says. The moves freed McIver's center, which had been home to MOBIS, to pursue other opportunities and gave Auburn a chance at immediate success with an established program. The shift also moved Auburn out of a stagnant, product-oriented business line and into services-the schedules' hottest growth area, according to Gormley. In addition, Auburn's staffing level went down.
Moving MOBIS initially left some of McIver's troops a bit sour, since they had initiated the successful contract. The team is now crafting human resources services contracts-whose vendors will provide HR planning, pre-employment screening, classification, training, employee assistance pro- grams, outplacement, employee relations and other HR services-to be in place this summer. Without MOBIS, however, the team is a bit tense about bringing in revenues to cover costs in the interim before the new HR line ramps up.
"We try not to have them be nervous about not bringing in revenue but [still] being a cost," McIver says. "We're not going to put a schedule in place and cover $100 million in costs in a year." She tries to spread the cost of expanding contracting business across the center's perennial money-makers. "Some programs are going to be bigger revenue producers than others," she says. "My credit card contracts are always going to be revenue producers."
Customers as Catalysts
Despite the cushion of successful programs, however, the services center is careful to consult with customers to make sure demand is sufficient to support new lines of business. "We discuss agencies' needs-in other words, 'Is there a business case?'-and whether we could bring in enough fees to support it," McIver says. It's FSS policy not to create a schedule unless its anticipated one-year sales total at least $1 million, and vendors must do a minimum of $25,000 in sales to retain their contracts. "We've dropped things and canceled contracts, " Gormley says. "We will cancel 400 this year for not doing more than $25,000. We may raise the threshold this year."
As the government's chief procurement arm, the schedules are forced to offer some items that aren't cost-effective-fire support and suppression equipment, for example. But whenever possible, center directors choose contracts that will cover their costs. "In services we don't have that kind of Washington Monument item, so we pretty much have free rein to say, 'What makes sense?'" McIver says.
Customer interest is a common catalyst for new schedule offerings. The media and marketing schedule was born, McIver says, "when the [Office of National Drug Control Policy] came over to talk to us about their advertising campaign and asked, 'Do you have a schedule for this?'" The center didn't then, but McIver's staff called agencies to assess their current spending on such services and whether they were satisfied with what they already were buying on their own. "If they're already happy, regardless of [the potential] volume [of business] we wouldn't do it," she says. Canvassing agencies revealed significant demand for media services. That was no surprise to GSA, which buys many advertisements for its services and hires firms to create brochures, exhibit booths for conventions and many other promotional items. The media services contract is under way. "We'll be our own first customer," McIver says.
Schedule innovations aren't confined to adding, dropping and reorganizing business lines. FSS constantly refines its deal-driving skills, as well. For example, noticing that federal employees use their purchase cards for a large number of hardware-store purchases-about $500 million worth in 1997-FSS convinced large national hardware chains to offer point-of-sale discounts of 10 percent to 20 percent for federal workers proffering the cards. The resulting "Hardware Store" contract covers four vendors: W. W. Grainger, Maintenance Warehouse (a division of Home Depot), Hardware Associates and Tri-City Hardware. FSS is negotiating a similar arrangement for photo services with Ritz Camera, Gormley says.
To improve vendor relations, FSS created a continuous open season for contracts, allowing companies to apply at any time, not just during scheduled bidding. "If you're a new company or you have a customer that wants to use the schedule, whenever you make the decision you can go on the Internet and make an offer," says Gormley. "You still have to qualify, but the ability to have access to the government when you are ready is unique." As they are renegotiated, contracts also are becoming evergreen: good for five years, plus three five-year options. "A longer relationship gives you a better understanding of each other, a better opportunity to work things out instead of harboring all your problems and dealing with them during renegotiations," Gormley says.
Perhaps the best-known and most controversial schedule innovation is the blanket purchase agreement (BPA), essentially an account established with a schedule vendor for a recurring need. FSS doesn't know how many BPAs have been struck for how much money in the few years since the agency began promoting them, but interest is high. A recent FSS conference on BPA best practices had to be offered twice in the same day due to over-registration. It played to crowds of hundreds each time.
BPAs are fast and easy to create, and they allow agencies to negotiate prices well below the already reduced schedule prices. BPAs have won plaudits and some raspberries. Smart negotiators who really know what they want can use purchasing history to get great deals using BPAs. But less canny agency buyers risk being had, some observers say, because of FSS' laissez faire approach to BPAs.
"The marketeers say "yes" to all questions about BPAs, but it's hard to find guidance about how to conduct the competition, what's the rule on late bids, or when it's OK to talk to a vendor," says acquisition consultant Mather. Downsizing in agency contracting offices has left purchasing decisions increasingly in the hands of program staffers less familiar with how to use various purchasing vehicles, including the schedules, he argues. "You have to know the advantages and disadvantages of the vehicle."
"We have fewer and fewer contracting officers, but program managers need procedures and policies to follow before you get rid of all the contracting officers," Mather adds. "Somebody has to be the dad."
Naivete leads program managers to make mistakes, especially when buying from the booming information technology schedule, such as failing to specify the results sought when purchasing IT services. "That's just buying bodies," Mather says. "You're supposed to have goals and objectives. You should hire people to do something."
Mather would like to see FSS do more handholding on the schedules. For example, he'd like to see FSS help customers recognize that they will need to buy installation services in addition to purchasing hardware and software for IT systems, or that the underlying contracts negotiated by FSS may not provide for special needs such as overseas delivery. Mather points out that the overheated market in governmentwide IT contracts leads all players, not just FSS, to reticence about their shortcomings. "There is little incentive for GSA or the [sponsors of governmentwide acquisition contracts operated by other agencies] to talk about the less attractive aspects of their contracts," he says. "Senior agency people need to know they are being marketed [to]. It's buyer beware."
Gormley bristles at the criticism. "I'm not going to hold your hand on IT. I want you to do it. You have that responsibility," he says. "The IT schedule is a direct buying vehicle like Dell or Gateway. If you want your hand held, you have to go to CompUSA." But Gormley concedes that he is working more closely with his GSA sister organization, the Federal Technology Service, to provide assistance for unwary techno-shoppers. "We feel that we're the acquisition arm, and we view [FTS] as having the knowledge," he says. "We're the self-service store and FTS is the general contractor and will use our store."
Nevertheless, says Mather, "I think that if I award a government contract, it's my responsibility to see that orders are conducted properly. Sometimes the best service to the customer is to say "no," and that's missing now."
Regardless of criticism that use of the schedules is becoming too fast and too loose, Gormley is forging ahead. He boldly advertises that it takes just 49 days, on average, to establish a BPA; 15 days to issue a regular schedule order; and 13 days to order under a BPA vs. 268 days for an agency to let its own contract. He boasts that the schedule contracts with office superstores providing next-day delivery have been growing 20 percent to 30 percent a year, to $40 million in sales today, after just three years in existence. He crows that the IT schedule is aiming for $6.2 billion in sales this year and that early indications are that a new financial assets management schedule crafted by McIver's shop could top that in a few years.
In addition, FSS has created an online university for schedule users, both novices and pros. MAS Virtual Campus is a source of deep and broad information about almost every aspect of the schedules. Customers interested in comparing prices and buying really fast can pop online and head for GSA Advantage, FSS' World Wide Web ordering tool, where 1,437 schedule contractors list 645,281 products. More and more schedule vendors are being added to Advantage each year, and many of them accept purchase card orders online. FSS has become even more wired with the creation of an electronic posting system giving vendors and buyers round the clock access to information about open contracts and newly added companies.
"We've been around since 1949," Gormley says. "It took us a little while to get good, but I'm really proud of what we're doing."