Contracting issues at GSA go beyond administrator's office

The General Services Administration's buying services and contracts are supposed to work like a self-lubricating machine. In come orders for goods and services from across the government, out go purchasing orders to companies on GSA's schedules. Off to the ordering agencies go products and assistance. Money to make the machine hum comes directly from customers in the form of fees paid to GSA.

But lately, GSA more closely resembles a sputtering Rube Goldberg contraption.

A Jan. 19 front-page story in The Washington Post detailed an attempt by the agency's chief, Administrator Lurita Doan, to award a no-bid contract to the company of a longtime friend. That has led to questions about her future at the agency.

A seemingly ceaseless run of problems and missteps has sent customers scurrying in the past several years, sucking away operating funds.

Investigations in 2003 revealed the agency's procurement organizations, particularly its Federal Technology Service regional shops, had parlayed their reputation for quick turnaround with few questions asked into a scandalous misuse of technology contracts. Worried buyers began shopping elsewhere. In response, in 2004, GSA began a stick-to-the-rules crackdown, the Get It Right program, which drove off more customers by adding time to the buying process.

In 2005, agencies were stunned to learn that GSA no longer would allow them to use the FTS information technology fund as an off-the-books savings account to park money from one fiscal year to be spent in another. GSA's abrupt return of parked funds angered customers further since the old money no longer could be spent on programs.

Meanwhile, also in 2005, then-Administrator Stephen A. Perry ordered FTS and the Federal Supply Service, a catalog of private sector goods and services for sale to agencies, to merge, creating a new Federal Acquisition Service. Partly an effort to exert more control over buying operations, partly a move to offset FTS losses with FSS surpluses, the merger languished for a year awaiting congressional approval.

Audacious

Doan, who stepped in more than half a year after Perry quit on Oct. 31, 2005, was expected to clean up the mess. She seemed primed for the job.

Doan exudes energy. She leans forward to emphasize points. She gesticulates. She visibly reacts with displeasure or pleasure. Her voice grows animated. She groans audibly when she hears something or encounters someone she doesn't like. She is not shy.

But within weeks of her Senate confirmation, she picked a fight with NASA over the future of its Scientific and Engineering Workstation Procurement. She was accused of saying that the GSA inspector general's staff "terrorized" regional administrators. She angered an already irritated Defense Department by resisting limitations on using Defense dollars.

"Lurita is a bit of a lightning rod," said Jim Williams, commissioner of the GSA's newly combined acquisition service, during a fall conference. A ripple of murmurs passed through the audience.

Despite her energy, some of Doan's efforts have backfired. The Office of Management and Budget renewed NASA's governmentwide procurement contract and told her to "avoid unnecessary discordant publicity on this matter." Late last year, she capitulated to the Pentagon on how quickly its funds must be disbursed.

What's more, Doan has been unable to halt the decline of GSA's services business. The cost of operating IT services outstripped the fees collected from customers by $111 million in fiscal 2006. The pain of the downturn was softened only by better than expected results from the supply schedules.

Doan appears unruffled. "I think it's been a great seven months," she said during a mid-January interview at GSA headquarters. Would she have done anything different, knowing now what she knows? "I don't spend a lot of time on regrets," she said.

Doan "may seem audacious," says Stan Soloway, president of the Professional Services Council, an Arlington, Va.-based group that represents contractors. But her actions and optimism are part of the process of "rebuilding and restoring confidence internally and externally to the agency," he says.

If her growing notoriety hadn't fazed Doan, the Post's attention did. The paper reported she signed off on a no-bid contract with Public Affairs Group Inc. and its divisions, the Business Women's Network and Diversity Best Practices, to do a 24-page, $20,000 report promoting GSA's use of minority- and woman-owned businesses.

GSA lawyers and officials pointed out possible procurement violations and the contract was terminated. Edie Fraser, a longtime friend of Doan's, founded and heads Public Affairs, the Post found.

"I made a mistake," Doan told the Post. "I thought I was moving this along. I was immediately informed that I wasn't necessarily moving it along in the way that was best for it. So at which point they canceled it, life went on, no money exchanged hands, no contract exchanged hands.

"I'm stunned, absolutely stunned by the amount of legs that this has taken, you know, how this has like kind of jumped up and run away with things," she said.

"If reports are accurate, I would expect the head of the agency in charge of government procurement not only to follow federal procurement regulations but to possess better judgment than she has shown," Sen. Joseph Lieberman, I-Conn., chairman of the Senate Homeland Security and Governmental Affairs Committee, said the day the story broke.

Rep. Henry Waxman, D-Calif., issued formal requests for documents and communications about the deal from Doan, Fraser and former GSA general counsel Alan R. Swendiman, now director of the White House's Office of Administration. "The story raises questions the committee needs to follow up on, and we will be doing that over the next several weeks," said Waxman spokeswoman Karen Lightfoot.

Dissatisfied

Doan's style, her publicity, even her decisions won't make or break GSA. Its fortunes depend on larger forces. The years of investigations, increasing restraints on agencies' spending, and protracted internal reorganization, could hinder the agency's attempt to move from being a middleman for agency purchases to partnering with agencies in improving their operations.

But GSA won't disappear. If it didn't exist government would have to invent it, says a Defense official, speaking on background because of department policy. Indeed, the schedules remain popular despite all GSA's setbacks. They generated a 2006 net operating result of about $123 million instead of a projected loss of approximately $54 million.

Market analysis firm INPUT, based in Reston, Va., nevertheless argues that the numbers contain evidence of dissatisfaction with GSA, noting that schedule sales have slowed faster than governmentwide spending. "The decline in schedule spending reflects a conspicuous move by buyers to other contract vehicles," says INPUT analyst Ashlea Higgs.

Contracts specific to a department or function of government, such as the Navy's Seaport, a 2004 IT contract, and the Homeland Security's Enterprise Acquisition Gateway for Leading Edge Solutions, an indefinite-delivery, indefinite-quantity technology acquisition, compete with GSA. For years, agencies other than GSA have run technology contracts open to all agencies. Doan contends they waste tax dollars.

"We just don't want duplications," she says. "If it's a unique requirement that's being supplied by a particular [agency's governmentwide contract], that's fine." Otherwise, procurement should go through GSA, Doan says. Only GSA covers its costs by collecting fees as opposed to using appropriated funds, she asserts. Other agencies might say they're not using appropriated money to support contracts open to all, "but unless you absolutely carve out your costs for your rent, you carve out your costs for the air you breathe, practically . . . then there's an added burden to the taxpayer," she says.

The proliferation of contracts raises prices, too, she adds. Companies jump to get onto all of them. That drives up their bid and development costs, "and then they pass [those costs] back to their government customers, which means the government is paying more money and the American taxpayer is paying more money," she says.

Not true, say proponents of multiple contracts. Aggregating demand allows agencies to press vendors to cut prices, but only by agreeing on a standard list of supplies and services. Few agencies can agree on the same requirements for a product or service, says Steve Kelman, a former federal procurement chief and a professor at Harvard University.

"In most cases, probably the furthest you'll be able to go [with standardization] is the agency level, and other contract vehicles can do that as well as GSA can," he adds. "It is simply false to state that if the competing programs went out of business the prices on the GSA schedule would be any lower than they are now."

Reluctant

Defense reluctance to buy through GSA has contributed significantly to declining business. Defense buyers-GSA's biggest customers-became upset when GSA abruptly reversed the long-standing practice of parking agencies' dollars in its IT fund. Defense lost between $1 billion and $2 billion when GSA began cleaning up its books to remove the parked dollars. Defense and GSA then locked horns over whether GSA could spend any Pentagon money across more than one fiscal year, even just 90 days after a fiscal year, in order to tie up procurements from the previous year.

Defense and GSA publicly kissed and made up in late 2006 when GSA capitulated and promised to abide by the Defense interpretation for all its purchases. Still, layers of Defense policy direction to reduce use of outside acquisition shops won't disappear. Since 2005, Defense contracting officers have had to write justifications when using other than Defense contracts, an extra time-consuming step.

The 2006 agreement could be a drag on GSA's bottom line. Agencies often have more than a quarter of their budgets left to spend in the last three months of the fiscal year, whether because of poor planning, unexpected circumstances or congressional tardiness in approving spending bills. But the agreement means Defense must place its GSA orders earlier so they can be completed by year's end. That's likely to be an incentive to use homegrown contracts rather than GSA's.

Nevertheless, Doan is ready to move on. GSA "has repaired the relationship with DoD," she says. "We are not going to let these issues get away from us in the future."

Doubtful

Just as well, since bigger problems loom. Among them, a growing chorus of skeptics suggesting that GSA's current model isn't sustainable. Under the new GSA structure, the IT schedule, by far the biggest moneymaker, is part of Integrated Technology Services, which is focused largely on assisted and network services. Fans of the schedules fear they will be left unattended. Doan's promise to reduce the time companies must spend getting schedule contracts and winning modifications has won plaudits, but doubts remain.

And Doan shows no deep concern about reversals suffered by her lagging services programs, contending they are "a huge growth area for GSA." She adds that a task group is putting together a strategic plan for changing the services model. But asked about the declining revenue and inability to cover costs, she responds, "I don't know about that. What I know about is now."

"Whether the [assisted services] sales levels are exactly as high as they've been, they're just as critical in the future as they've been in the past," says the Professional Services Council's Soloway. Even though the schedules have been around for decades, some agencies still need help using them or knowing exactly what to buy. GSA is a source for that help, Soloway says.

Nevertheless, the slide from the glory days-when, for example, revenue from GSA's IT Solutions program peaked at $7.2 billion-might not have ended. Assisted services brought in only $4.9 billion in fiscal 2006. A former GSA official estimates revenue could bottom out at $2 billion to $3 billion a year.

When former GSA administrator Perry sent a memo to employees announcing his resignation in 2005, some acquisition officials applauded, according to a consultant close to the agency. High expectations greeted Doan. "I don't fault her for being bold. GSA needed bold, that's for sure," says Frank P. Pugliese, a former GSA acquisition commissioner and now managing director of government business development for DuPont. And no one would deny that Doan has succeeded in drawing attention to the agency. But can her tactics aren't doing much to repair GSA's reputation or save its business model.

Daniel Pulliam contributed to this story.