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BSCAI Newsletter: How the Federal Strategic Sourcing Initiative (FSSI) May Affect Your Business

How the Federal Strategic Sourcing Initiative (FSSI) May Affect Your Business

The U.S. General Services Administration (GSA) is working with the Office of Management and Budget (OMB) and partner agencies to implement 10 new government-wide strategic initiatives in the 2013-2014 fiscal year for a range of commonly purchased products and services, with janitorial and sanitation (JanSan) and maintenance, repair and operations (MRO) products being one of the first.

The FSSI for JanSan and MRO, along with the FSSI for building maintenance and operations (BMO), expected in the 2014 fiscal year, will impact building service contractors, according to Professor Samuel D. Bornstein, Kean University School of Business, and Jung I. Song, CPA, both of Bornstein & Song in Oakhurst, N.J.

“There is a sense of urgency as GSA is moving on a fast track to implement the FSSI for JanSan and MRO in August 2013,” Bornstein said. “GSA is holding an FSSI JanSan and MRO Pre-Solicitation Industry Conference on May 15, which will precede the Request for Quotations expected in June with implementation in August.”

Strategic Sourcing in the Public Sector
Strategic sourcing is a procurement process that continuously re-evaluates the purchasing activities of a company in order to make business decisions about acquiring supplies and services more efficiently.

Bornstein said that strategic sourcing has mostly been used in the private sector to derive savings when purchasing goods and services from vendors. In this program, the private sector leveraged buying by seeking the lowest price through volume discounts and other procedures that saved them money, at the risk of shrinking their base of vendors with whom they previously conducted business.

Bornstein, who, along with Song, has been researching small business issues since 2000, said: “Strategic sourcing made a few ‘winners,’ but created substantially more ‘losers.’ The winners got the business, and the losers lost the business and suffered the consequences of lost revenues that they previously relied on to pay their bills and employee salaries.

“The problem with strategic sourcing when applied to the public sector is that the government cannot share the same indifference to the plight of the people who lost business because a business that suffers financial distress and forces the loss of employee jobs will impact income tax revenues, unemployment, social safety-net costs and other costs. Most important, however, is the economic cost to the U.S. economy, especially as the economy is struggling to recover from staggering unemployment and the recession, from which many believe we have not yet recovered.”

In 2005, the federal government decided to implement the Federal Strategic Sourcing Initiative (FSSI) for government procurement, thereby trying to duplicate this policy that was saving billions in the private sector.

“Unfortunately, strategic sourcing applied to the public sector is not the same as the private sector,” Bornstein said. “The private sector does not have the same socio-economic responsibilities to small business and U.S. economic growth as the public sector.”

FSSI in Office Supplies
The FSSI vehicle was initially applied in 2010 to GSA MAS Schedule 75 Office Supplies (OS2). Bornstein and Song conducted research on this FSSI in order to determine the impact on these government contractors and vendors.

Bornstein said: “We noticed that FSSI had caused the displacement of a significant number of small businesses and the resulting loss of employee jobs. We found that the FSSI for office supplies was a self-inflicted wound that caused a significant economic cost to the U.S. economy.

“GSA was only interested in the savings derived from getting the lowest price on office supply purchases. The FSSI for Schedule 75 Office Supplies shrunk the base of small business federal contractors and vendors from 569 to only 15 who were awarded Blanket Purchase Agreements (BPA). The claimed savings were touted by GSA, but there was no attempt to consider the other side of this issue, which was the impact on small businesses and the cost-benefit analysis. Lacking these analyses, GSA and OMB had no idea of the downside to the economy — and the picture was not pretty.”

Potential Effect on BSCs
In 2011, GSA had recorded $1.6 billion in government sales related to JanSan and MRO in the GSA Schedules 51V, 56, 73, 75, and 81IB. Bornstein said that the OMB and GSA expect to reap approximately 15-20 percent in savings by leveraging lowest prices from contractors and vendors. “It can be expected initially that there will be at least $220 million in lost federal government sales for JanSan and MRO contractors and vendors,” he said.

In order to provide a better perspective on the level of involvement of BSCs in the total federal contracting environment, Bornstein stated that total annual GSA sales was only 7 percent of the annual $500-plus billion in federal government spending.

“The JanSan and MRO community, which sells through the GSA schedules, is only a fraction of the overall JanSan and MRO community selling to the federal government,” he said. “This means that a significant number of BSCs may be selling directly to federal government agencies through other contract vehicles such as 8a, HubZone, SDVOSBs, IDIQs, BPAs, etc. As the OMB intends to make FSSI mandatory for the big seven government agencies that collectively spend more than 90 percent of the annual $500-plus billion in overall federal government spending, it behooves all those who sell to the federal government to take notice of FSSI.”

Bornstein and Song will continue to conduct research to help make the FSSI counter argument, but Bornstein suggests that building service contractors be educated in federal strategic sourcing and learn how it may affect them.

For more information, please contact Professor Samuel Bornstein at bornsteinsong@aol.com.


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