Acquisition Academy

Strategic Sourcing with Small Business in Mind

Acquisition Academy

Lora GrossLora GrossMay, 2011

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4. TITLE AND SUBTITLE Strategic Sourcing With Small Business In Mind

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13. SUPPLEMENTARY NOTES Presented at the 8th Annual Acquisition Research Symposium, May 11-12, Monterey, CA

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Standard Form 298 (Rev. 8-98) Prescribed by ANSI Std Z39-18

Agenda

Strategic Sourcing Memorandum and Opportunities

Small Business Concerns

Single Award SourcingSingle Award Sourcing

Better Ways for Small Business Inclusion

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Strategic Sourcing Memorandum

Save Money, Improve PerformanceConsolidate RequirementsLeverage Buying PowerBecome a “Best Customer”

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Strategic Sourcing Memorandum

Definition

“Collaborative and structured process of critically analyzing an organization’s spendin and using this information to make businessorganization’s spending and using this information to make business decisions about acquiring commodities and services more effectively and efficiently.”

Meant to “help agencies optimize performance, minimize price increase achievement of socio-economic acquisition goals, evaluate total life cyc gement costs improve ve dor access tototal life cycle management costs, improve vendor access to business opportunities, and otherwise increase the value of each dollar spent.”

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Reference: Johnson III, C. (2005). Implementing Strategic Sourcing. Memorandum for the Chief Acquisition Officers, Chief Financial Officers, and Chief Information Officers. Washington, DC: Executive Office of the President, Office of Management and Budget.

Strategic Sourcing

Air Force Strate ic Sourcin Exam leg g

Information Technology

Reduced 1,000 IT contracts to seven;Dollar savings of $65 1 millioDollar savings of $65.1 million;Cost avoidance of more than $155 million between FY2004 and 2008; Decreased workload of contracting departments; andIncreased spending toward small businesses.

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Importance of Small Businesses

Small Businesses Statistics

Made up for little more than half of the US private sector workforce.Paid 44% of the total US private payrollPaid 44% of the total US private payroll.Generated 64% of new jobs.Out-produced large businesses in innovation.

• Applied for patents 13 times more per employee than large firms.

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Strategic Sourcing vs. Small Businesses

Strategic Sourcing generally involves procurementsLarge in scope or volume;Geographically dispersed customers; andHigh in dollar value.

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Consolidation, not Bundling

Consolidation – takin on previousl erformed actions g p yunder two or more separate contracts, and combines them into one contract.

Reduces the number of available contract opportunitiesReduces the number of available contract opportunitiesNarrows the potential pool of vendorsBenefits must be documented, justified and approved prior to being implemented

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Consolidation, not Bundling

Bundling – FAR 2.101 consolidates “two or more g ( )procurement requirements for goods or services previously provided or performed under separate, small contracts into a solicitation o o f n ra t l lsolicitation of offers for a single contract that is unlikely to be suitable for award to a small business concern due to:

1. The diversity, size or specialized nature of the elements of the performance specified;

2. The aggregate dollar value of the anticipated award;3. The geographical dispersion of the contract performance sites; or4. Any combination of these factors”

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Small Business Concerns Regarding Bundling

Durin FY 1992 throu h 2001g gFor every 100 bundled contracts, 60 individual contracts are no longer available to small businesses.For every $100 awarded on a bundled contract there is a $12For every $100 awarded on a bundled contract, there is a $12 decrease to small businesses (Murphy, 2000).

While bundled actions w 6%While bundled actions decreased between FY 2005 and 2006 by 6%, the total dollars under these actions increased by almost 42% (NASB, 2008).

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Strategic Sourcing Impact on Small Business

Contract Management – An end goal of Strategic Sourcing is to “limit the number of vendors and …[offer] exclusivity of contract as a means of aggregati r ocontract as a means of aggregating volume in return for lower prices.”

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Strategic Sourcing Impact on Small Business

Washington Report – “Strategic Sourcing is nothing more than an effort to limit the number of sellers of goods and services to a very select few, none of which, if present trends continue, will be small, independetrends continue, will be small, independe p dealers…simply a more severe version of contract bundling ....”

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Single Award Sourcing

Allowable under FAR– Justified– Congressional notification within 30 days of determination

FAR 16 504(c)(1)(ii)(D) provides exceptions– FAR 16.504(c)(1)(ii)(D) provides exceptions

2008 statute for awards exceeding $100 million– Requires multiple awards– Encourages competition at the ta rder (TO) and delivery order– Encourages competition at the task order (TO) and delivery order

(DO) level

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Single Award Sourcing

Challen es for Sin le Awardsg g

Do not permit competition at the TO/DO level

No incentives for further price reductions

Not in alignment with political agendas for competition

Office of Management Budget oversight for non-competitive awards

Limits otential for innovative solutions for a encies

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Better Way for Small Business Inclusion

Small Business Contractin Partici ationg

– FY 2007 to 2008

• Increase of 12% in prime contract awards

• Only 8 of 15 Cabinet-level agencies met the Government-wide goal of 23% of total contract dollars awarded to small businesses

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Better Way for Small Business Inclusion

Incorporate agency’s small business subcontracting goals into the contract.

Levera e ast erformance as an evaluation factor relative to the rime g p p , pcontractor’s ability to comply with its proposed small business subcontracting goals on prior contracts similar in size, scope and complexity.

Use performance-based contracting and performance incentives.

Leverage contract option clauses contingent on compliance with small business subcontracting goals.

100% set-aside GWACs15

Better Way for Small Business Inclusion

Incor orate a enc ’s small business g ysubcontracting goals into the contract.

FAR 19.702, purchases > SAT must agree to include small businesses to the maximum extent practicable.

FAR 52.219-9 instructs contractors to submit contracting lans that clearl define the ercenta e and total dollars set y g

aside for a small business.

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Better Way for Small Business Inclusion

Incor orate a enc ’s small business g ysubcontracting goals into the contract.

Agenc Le el Reg lationsAgency Level Regulations

VA’s Final Rule regarding Veteran’s First Program instructing evaluation credit for SDVOSB and VOSB participationfor SDVOSB and VOSB participation.

VAAR 819.704 – subcontracting goals must be commensurate with the annual VA SDVOSB/VO me contracting goal for the total value of plannedVA SDVOSB/VOSB prime contracting goal for the total value of planned subcontracts.

DTAR rovides bonus score when ro osals include a mentor- roté é garrangement with a small business.

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Better Way for Small Business Inclusion

Levera e ast performance as an evaluation factor g p ,relative to the prime contractor’s ability to comply with

its proposed small business subcontracting goals on prior contracts similar in s a ycontracts similar in size, scope and complexity.

Request and evaluate certified letters from previous contracts as part of their past performance evaluationpast performance evaluation.

More weight on this factor = greater compliance

Agency requirement of certification for an annual deliverable.

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Better Way for Small Business Inclusion

Use performance-based contracting p gand performance incentives.

Subcontracting accountability by withholding a small percentage (~1%) of the total subcontracting dollars (vs. total contract) from the contractor until they provide evidencetotal contract) from the contractor until they provide evidence of their subcontracting efforts.

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Better Way for Small Business Inclusion

Levera e contract o tion clauses contin ent on g gcompliance with small business subcontracting goals.

Withhold the exercise of options until the contractor submits certified evidence he t their tcertified evidence that they met their subcontracting goals for the preceding period of performance, in accordance with their proposals.

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Better Way for Small Business Inclusion

100% Set-Aside GWACs

Competitively Awarded

Multiple AwardsMultiple Awards

Interagency Use

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Conclusion

Obama administration and OMB ac uisition a endas: gEncourage reductions in overall contract spending;

Increased com etitionp ;

Increased Small Business opportunities

Procure more efficiently and effectivelProcure more efficiently and effectively

Effective Strategic Sourcing can meet all of these requirements and leverage buying power, encouraging economic support to Small Businesses.

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Questions?

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