How Federal Strategic Sourcing Differs From The Private Sector

This is the fourth part of a six-part article on upcoming changes in federal contracting.

Strategic sourcing is commonly used in the private sector. Larger companies often leverage their vast buying power to control the supply chain and negotiate decreased costs.

In the short term, the process typically results in savings for the business. In the long term, this artificial shrinking of the supply pool decreases competition and can even lead to increased prices, says Bornstein.

This is the “dirty side of the strategic sourcing, the dark side,” he says.

In the private sector, when prices begin to climb back up, a large company will just reopen the bidding and start the strategic sourcing process all over again.

The practice can seem unfair and some businesses that lose out on those few contracts may be forced to shut down, but “that’s life” in the private sector, says Bornstein.

The ethics behind strategic sourcing change, however, when implemented in the public sector, says Cotton III. The federal government, with its enormous purchasing power, has a sort of Hippocratic Oath to “do no harm” to the nation’s industrial base, he says.

And harm, according to Bornstein, is exactly what will befall BSCs if the BMO Services initiative goes forth unchecked.

Again, the expected number of BPAs available under BMO Services is not yet known, nor is the number of those contracts that will be awarded specifically to BSCs, according to Battaglini. But if the BMO Services FSSI follows the path laid forth by previous FSSI rollouts, only a small portion of the roughly 2,500 BSCs that currently service federal government agencies will be awarded BPAs. Those that aren’t chosen may be forced to close, says Bornstein.

What’s more, if the reduced competition ultimately leads to higher prices down the road, as happens in the private sector, GSA could award new BPAs, but it may receive fewer qualified bids, since a number of contractors will have been forced to close, says Bornstein.

The goal of FSSI is to save money, and GSA has been vocal about implementing FSSI in the name of saving taxpayer dollars.

“Any criticism of strategic sourcing in the public sector may come from parties whose primary interest is not fostering a more efficient federal government and providing savings to the American taxpayer,” says Battaglini.

But a factor GSA has ignored, says Bornstein, is that the ultimate cost to taxpayers may increase if contractors are put out of business, since unemployment costs and other social safety net program costs will rise.

Bornstein has conducted extensive research on the economic costs of job loss. He says when an employee loses his or her job, the employee’s new job typically pays 15 to 30 percent less than the initial job, which tends to have an impact over 15 to 20 years. These effects are particularly harsh in a struggling economy.

All of these long-term burdens on the taxpayer, says Bornstein, make GSA “penny wise and pound foolish” in implementing FSSI in its current format.