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In this episode we discuss the Department of Veterans Affairs (VA) progress towards implementing the Federal Government’s policies relating to the use of category management.
Come for a peek behind the federal acquisition curtain as we gain insights from acquisition professionals at the US Department of Veterans Affairs and dissect varying relevant topics. In this five-episode series we will explore topics such as proposal evaluations, innovation, debriefs, and more!
TAC Talks is premiering Tuesday, September 29th!
The Department of Veterans Affairs does not endorse or officially sanction any entities that may be discussed in this podcast, nor any media, products or services they may provide.
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Charles Ross (CR): Welcome to the Technology Acquisition Center Podcast, which we affectionately call TAC Talks. Join us as we discuss highly relevant and compelling acquisition topics with highly esteemed industry professionals and attempt to share information with you, the 1102 workforce, program officials and our contractor friends. We hope that you find these topics and discussions helpful. So, turn up the volume on your ear buds and get ready for TAC Talks.
CR: Hello friends and welcome to another edition of TAC Talks. My name is Chuck Ross, a Service Director at the VA Technology Acquisition Center. We have an exciting discussion for you today that I hope you'll find informative regarding the Department of Veterans Affairs progress toward implementing the federal government's policies relating to the use of category management. OMB defines category management as the business practice of buying common goods and services as an enterprise to eliminate redundancies, increase efficiency and deliver more value and savings from the government's acquisition programs. The topic of category management is not a new one. On December 4th, 2014 OMB's Office of Federal Procurement Policy issued a memorandum entitled, Transforming the Marketplace, Simplifying Federal Procurement to Improve Performance, Drive Innovation, and Increase Savings. In the memo, OFPP recognized that while significant progress was being made toward implementing smarter buying strategies to deliver better value for the American people, there was still more work to do. The memorandum identified 3 core elements to drive greater innovation and a more efficient and effective acquisition system. Since then, the federal government has made great progress towards implementing key guidance and policies to meet government wide category management goals. Here with me today to discuss the steps that VA has taken to implement category management as well as some of the achievements and challenges that have been faced along the way are Dr. Ernest Reed, the Director of VA's Category Management Support Office within the Office of Procurement, Acquisition and Logistics; Mr. Randy Padal, the Acting Executive Director of the Acquisition and Category Management within the Office of Information & Technology's Office of Strategic Sourcing and; Ms. Lateefah Parker, the Director of IT Services Category Management within OI&T's Office of Strategic Sourcing. So, thank you all for being here with me today. Ernest, we'll start with you. Can you explain to our listeners who may not be familiar with category management what it is and what exactly we are trying to achieve?
Dr. Ernest Reed (ER): Sure, and, an, you know, thank you for having us. Um, you know, category management is the federal government's approach to uh, do business as a singular unit instead of multiple agencies or, or even multiple administrations within an agency. Category management allows the federal government to uh, harness its awesome buying power to obtain better pricing and terms on the contracts. So, consider this, in fiscal year 2020, the federal government spent 397 billion dollars on goods and services, 74 billion of that was for IT spend. So, OMB designated that each agency take specific steps to execute category management, including implementing demand and vendor management practices, reducing duplicative contracts through strategic sourcing and training the acquisition workforce on the tenants of category management, and maybe most importantly, data sharing through, throughout the agency and across all agencies within the federal government. And by implementing those objectives, the federal government can, can and really has seen a very substantial cost avoidance on goods and services uh, that it needs and uses to meet the needs of the taxpayer. So, to put this in terms of dollars saved, or as we call it in category management, cost avoidance, through the end of fiscal year 2020, OMB calculated we had over 40 billion dollars in costs avoidance through uh, the execution of category management. And one thing I really want to add really quickly is that category management and small businesses are not mutually exclusive. In fact, one of my major goals each year is to increase the number of small businesses engaged in category management and for the VA that means Veteran owned small businesses and service disabled uh, Veteran owned small businesses which we want to get onto our strategic vehicles.
CR: Wow, 40 billion dollars in cost avoidance. That is impressive and um, I think that's a good foundation you set here for our discussion today. Uh, so now let's talk a little bit more specifically about VA and how has VA implemented category management practices.
ER: So, like every other agency, VA is taking a really hard look at category management and where the opportunities are. And comparative to the numbers that I provided, the government wide spending fiscal year 2020, VA in fiscal year 20 spent 36 billion dollars for goods and services needed to meet the strategic and operational needs of the agency. And for our IT requirements 5.2 billion dollars, in terms of hardware, software and IT support. And so, you can see, we're really talking some astronomical numbers. The VA took these expenditures and the challenge to reduce our cost very seriously. And in 2020, we were among the first federal agencies to establish actual category managers outside of the acquisition channels. And were among the first agencies to actually stand up a PMO or Program Management Office to support these managers and the development of goals and strategies for each of the categories. Now my boss, Mr. Phil Christy gave me two missions, create collaboration, and make VA number one in category management. And to that we're breaking down our traditional silos and that we've seen, we've always seen these in our administrations. And we're doing that by working together to identify what we call unmanaged spend and move that unmanaged spend to appropriate contract vehicles. And my office is also conducting what we call product intelligence reports where we're working with stakeholders to look at specific goods and services, and by implementing demand and vendor management strategies and coupling those with good data analysis based on the total cost of ownership, we can identify the best value for those goods and services for our stakeholders. And finally, VA is looking very hard at training for category management. We've trained over 3000 acquisition professionals within the last year. However, our training is expanding to really inform anyone that is in the acquisition lifecycle, what the best practices should be in terms of containing the goods and services. There are many more things that the VA is doing, uh, for category management, but honestly, I don't want to put your listeners to sleep while I rant on about something I am extremely passionate about.
CR: Well, I appreciate that but, um it sounds like category management is in full motion at the VA and a lot of good things are happening. So, how do you envision the implementation of VA category management to evolve now while moving forward in the future.
ER: Yeah, as I stated a couple of times category management is really about collaboration and data sharing. And as category management matures in the future, we, we really want to truly become an innovative network that maximizes collaboration and data. And we work with other Federal agencies such as Department of Defense, DHS, HHS, GSA, and, and a lot of others to share best practices. And quite honestly, we are collaborating with internal org, offices also, OIT, VHA, the Office of Enterprise Integration and of course, the Office of Acquisition and Logistics. Ahh, and we're creating, in my office, what we are calling the Category Management Analytics and Decision Support Tool, or what we call CMADS. And by understanding the similar and even complementary programs that are being executed we can capitalize and ensure we are either reducing contracts and creating strategic vehicles which can handle the agency's needs. And we want to move from a reactive decision making based on historical data to prescriptive capabilities. Making data driven decisions and having a requirement-based budget. And we'll be using data that we have amassed from procurement databases, inventory management databases, as well as credit card and other databases to help drive decision making based on standardized tacit properties. The total cost of ownership, demand in vendor management information and this provides requirements generators and owners as well as acquisition professionals an authoritative capability to ensure the best value is obtained during the acquisition process.
CR: So, one thing you stated, ahh, earlier was that category management and small business are not mutually exclusive. So I just want to pull on that thread a little bit and ask, you know, how are you balancing the needs of OMB requirements for category management while also looking to ensure that Veteran owned businesses are involved as it relates to ahh, potential consolidation and bundling?
ER: Yeah, it's, that's a great question and, and I will start off saying, VA has a specific mission to Veterans. Whether it is the Veterans we serve through our programs, the Veterans we utilize to help meet the operational and strategic needs of the agency. Whichever mission it is. Additionally, as this audience well knows, we have the mandates of Public Law 109-461, the Veteran Benefits Healthcare and Information Technology Act of 2006. Which identifies that the VA must, to the greatest extent possible, use Veteran owned businesses in the execution of its mission. And to codify this and map this process, ahh, our Office of Procurement Policy um, published Procurement Policy Memorandum 2016-05 which is the implementing the Veterans First Contracting Program. So, in this policy or in this memorandum actually, it is clearly identified that during our market research, we should be seeking Veteran owned businesses on these BIC and tiered vehicles prior to going to open market. And, one of the issues that we had was we were not identifying this in our market research. It's really a key component for capturing these contracts under what is known as Tier 1 Small Business. And, it's also important for creating more strategic vehicles that have our Veteran owned businesses on it. We should be looking for innovative ways to use as many Veteran owned businesses as we can to meet the agency's requirement, and this is actually not just a goal for VA but a prime goal for OMB, ahh, that we discussed during their Small Business Symposium recently. As for bundling and consolidating contracts or, or, requirements. It really comes down to meeting the FAR requirements by doing a good job in our market research and creating multi-award vehicles to meet the needs of the organization. Consolidating and bundling provide many opportunities to the agency based on volume buys, a reduction in administrative cost by creating fewer contracts and then reduction in the cycle times. We also know that many of our small businesses and particularly our Veteran owned businesses rely on their contracts with VA as a major source of the income. So FAR 7.107 - 2 and - 3 identified that there are specific steps that must be taken to ensure that small businesses remain relevant and engaged in strategically sourced contracts and that offices like the TAC should ensure steps are taken to include small business concerns in the acquisition strategy. So, for the VA, this means that we are creating strategic vehicles and specifically looking to include Veteran owned businesses on those vehicles. We must do our market research, we must move away from single award contracts, and we must include opportunities on those vehicles for small businesses. And, this is all coupled with a good written approval from the strategic or ah for the strategic vehicle by that senior procurement executive.
CR: Yeah, it is interesting because uh one of the uh things that OMB pushes in category management is uh, for consolidation and buying smarter and um, however, the Far under FAR 7.107 dash2 has some strict uh, guidelines in place for um, what is required in a written determination by the SPE or CAO prior to doing the consolidation, uh uh some of which are, you know, the agency has to prove that there will be a cost avoidance of 10 percent, uh at least 10 percent on contracts with an estimated value of 94 million or less, or 5 percent of the estimated value or 9.4 million in cost avoidance whichever is greater, if the contract estimate is supposed to be greater than 94 million. So, it's not as if an agency can just say, it makes sense for us to consolidate wherever we can, there actually has to be a written uh determination that shows these um, these savings as well as the impact on small business. And, I know Lateefah and Randy have had experience recently with this uh, as well in some of the um strategic sourcing contracts and I think we're going to touch on those in a little bit. But um Ernest does the Department have any uh enterprise contracts that fall under category management initiatives where they've, they've done this analysis?
ER: You know we do. Uh, since 2016 we've actually created over 90 contracts, um, that are considered strategic level contracts and I'll tell you it has an 81 billion dollar spend against managed contracts and that that's an incredible amount if you think about it. 81 billion dollars and these include you know, contracts like our own VA T4NG. That is an interagency tier 2 vehicle and we've obligated over 6.7 billion dollars in spend against just that vehicle since 2016. And, these are vehicles that are either mandatory use across the VA or available for all other agencies to use, and each of these vehicles must prove that the negotiated value of the contract is lower, like you said, than what the commercial or similar government contracts would cost, that there is a leadership and oversight to them and that we can share the data related to the contract terms and prices with other agencies. So, yes, we do have a lot of them.
CR: Great, and you did mention uh the tiered contracts and, and you know there's the best in class contracts and um everybody um talks about you know tier ones, tier twos. Can you explain a little bit how that works and um if VA has any uh, of those tiered contracts?
ER: Sure, so you know a lot of people outside of category management have never heard of, even managed or unmanaged spend, and so when OMB established category management it established four separate tiers of spend. Each of the designations are approved by OMB after the submission of supporting document. So, Tier 3 or what is now known as Best in Class or BIC, ah has the highest of the tiers, or was the highest rated. It provides the maximum cost avoidance, and each of the contract vehicles has established the best terms relevant to delivery and cost. A BIC designation is strictly controlled by, and approved by, OMB. It is available across all government agencies. Now, a Tier 2 is almost as good. But it does not have the strict oversight requirements, as the BIC. However, there is still a requirement to show cost avoidance, governance, and data sharing, just like a BIC. And like a BIC the Tier 2 is available to agencies across the federal landscape. Now, moving down to a Tier 1. Tier 1 is actually an
agency solution, and this means that it is only available in our case to the VA. It still must have documentation that supports the metrics, the governance and the data sharing across the agency. Now an important piece is that the solution or vehicle must have a mandatory use ah memorandum for the agency. So finally, there's Tier 1 or Tier 1 Small Business. Now remember, I stated at the beginning of our conversation that this small business and category management are not mutually exclusive. Because there is a legislative requirement for VA to use Veteran Owned Businesses, OMB established Tier 1 Small Business. Now this allows the VA to meet its regulatory requirement, while supporting category management. And there are specific processes that must be followed, including searching for Veteran Owned Businesses on Strategic BIC or Tier 2 vehicles. Of course, we then have Tier 0, which is unmanaged spend. Tier 0 are, are those contracts which are open market and they really don't have the strict terms or data
tracking that strategic vehicles have. I'd like to add in that you know, just within the last three weeks we were able to move over 850 million dollars of Tier 0 spend to Tier 1 SB because the proper market research had been completed.
CR: Oh, that's impressive. Now, do you have any other examples of where the Department has realized, ah some of these savings as a result of category management approach to acquisitions?
ER: So Chuck, I, I don't know if you could tell, ah, through my voice today, how passionate I am about this and I can really go on all day about some of our vehicles, ah, that we have in the VA, like our BIC High-Tech Medical Equipment, our Hearing Aids contract, which has literally had cost avoidance in the billions, in some of our Federal Supply Schedules which are Tier 2s. But I think it might be better to have Randy or Lateefah respond to this actual question. And the reason I say that is I've been engaged with Randy and Lateefah for, for several initiatives recently. And, and, I found them absolutely amazing. And, and they're all IT focused and they're driving amazing cost avoidance for the VA and in the federal government as a whole. So, I'd really like to hand this to them.
CR: Great and, and I can hear the passion in your voice, and you are in the right forum, because ah the listeners of TAC Talks are all passionate about government acquisition and contracting. And, and Randy and Lateefah I've worked with them before and they are equally as passionate, so now is a good time to ah turn our attention over to the Office of Strategic Sourcing within OI and T and introduce Randy and Lateefah. Um, can you guys give a little explanation to our listeners of what action the Office of Information and Technology has taken to meet VA's goals?
Randy Padal (RP): Well thanks Chuck. Ah OIT started our journey in category management and strategic sourcing back in 2016. And it took a few years to get that ball rolling. Today our strategic sourcing organization in IT has a staff goal of 169 this year and we're more than 75 percent staffed at this point and adding people every day. Within our Acquisition and Category Management Directorate, which I'm currently leading. We have category management centers of excellence and high IT hardware, IT software, IT services and IT professional services. We also have a team dedicated to customer engagement that handles our intake, outreach, and our reporting functions. Having dedicated teams looking at the unique facets of the information technology category management diamond is definitely a start. But ultimately those teams have to develop new strategic approaches to the problem to achieve some of the lofty goals that we have spoke about earlier.
CR: And Lateefah what have been some of the biggest achievements in implementing a category management approach for VA's hardware procurements?
Lateefah Parker (LP): Well as Randy said before, having a dedicated team of IT hardware specialists helps. But as you peel the orange you quickly notice that there are further sub-specialties within each space. Ah, for example, our Hardware Center of Excellence team is grouped into four main product categories. Um, those are networking, unified communications, end user devices, and compute infrastructure. Um, this is because our product line management teams often have expertise in these four broad areas too. Um, so, let's look at an example. Uh, VA has over two thousand facilities where staff are housed from our large Medical Center campuses to our small outpatient clinics, all of which have within them critical networking gear. Everybody knows when the network is down, the business grinds to a halt. A major portion of our IT networks are the access layer switches, which provides the wire connectivity to the hundreds of thousands of PCs, printers, wireless access points, and a host of other connected
devices. When you plug a piece of equipment into the jack on the wall, what you don't realize is that those wires aggregate to equipment closets all across the enterprise, and those closets contain network, switch, switches that provide the backbone of all the connectivity. In fact, VA has over thirty thousand network switches in closets, and the vast majority of them were due for a technical refresh. So, in FY20 our strategic sourcing experts worked with the network engineering and network operations staff to look at a problem from an enterprise wide view. This resulted in a multi-year contract in support of the IT modernization effort that generates standardization, which of course supports sustainability as well as significant favorable price variance. This caused our IT engineering and IT operations team to rethink their approach to be more vendor agnostic, and to remove unnecessary features which were driving up costs, and to look at facility wide refresh approaches. So, the final contract that we
awarded reduced feature costs by as much as 75 percent over recent historical pricing. In fact, last year, OIT was able to buy two years of modernization efforts with a single year of funding due to this amazing success story, which really helps make a dent in our IT technical debt. And as a bonus, the contract utilizes a best in class vehicle, so we get full category management credit for the strategic acquisition's success story.
CR: Wow, that is, that is a great story. Now can you provide some examples of where OI and T has been able to remove some redundancy, and increase efficiency in the way VA buys hardware? Um, we'll go to Randy.
RP: Yeah, actually in the PC and laptop space OIT has been doing this sort of strategic sourcing for years. We just didn't call it category management or strategic sourcing at the time. About 15 years ago the agency used to buy PCs on a site by site basis, which happened as the money originated from the facilities, but when Congress reorganized the Office of Information and Technology into a cohesive entity, VA did a couple national purchases, trial balloons so to speak, of an enterprise wide PC contract. One three-year contract involved leasing and the follow-on contract involved cash purchasing, uh strategy, but it was still only a four-year national scope contract. In that era, PCs made up 90 percent of our enterprise so laptops were still considered decentralized purchases. In the early part of the last decade, the Technology Acquisition Center partnered with OIT to put in place a commodities enterprise contract, or CEC, which still did spot purchasing to a pre-selected group of three resellers. Um,
which, though happenstance, happened to represent the three different PC OEMs. The CEC contract was utilized in conjunction with quarterly purchases orchestrated by our Executive Chief Technology Management Office to improve standardization and rationalization of purchasing activity that happens under category management principles. Once the PC contract ended, those were moved over to the commodities enterprise contract, and the quarterly buys continued, but increased in quantity and total contract value, which ended up generating some significant favorable price variance for the agency. The Office of Strategic Sourcing built upon the CEC contract approach and put in place some short term PC and laptop contracts recently of one or two years in length to find the sweet spot between standardization and industry competition for VA's valuable end user device business.
CR: Right, and this might be a good time Randy, if, if you want to maybe elaborate or explain to our listeners too, its, uh, you guys are really buying um, just smart and, and trying to look at the way commercial, uh the commercial environment is, is procuring laptops and commodities as well, and, and I think recently you've actually issued a number of contracts that aren't just buying the commodities, but are buying more of a combined solution that encompasses some services as well. Can, do you just want to elaborate a little bit on that?
RP: Absolutely Chuck. And, and we know in industry there's a big push to buy more things as a service uh, to move to more of what we call consumption-based billing. It works extremely well in doing what one of our leaders often says to promote consumption with consequence so that your business partners understand the real cost of, uh, the IT products and services that they're asking for to produce their outcomes. Uh, in the PC space it's an area that several large corporations have, uh, dived into and the government has started too, to buy PCs as a service. What that basically involves is having a vendor provide a usable device on-demand, uh, to an agency need. Um, that required VA to look at how would we not just get the hardware, but the configured hardware delivered to the right place at the right point. So, in one of our recent PC and laptop purchases we added, uh, some additional value added services to where now when VA area managers at one of our facilities ask for, let's say 10 new laptops or 100 new desktops for a facility modernization effort they can ask the vendor to provide that device with the appropriate VA image that's unique to that site. Uh, why, why it's important to say unique to that site, VA has over 320 separate image end states, uh, that are currently handled by our end user operations organization. So, it was quite a lift, but, it's a foundational step to move to that managed services. Us figuring this out will help us move to that next phase and maybe a future contract.
CR: Yeah, that's very good, that's interesting and you know, I'm sure that when you push the envelope like that, you run into challenges and, um, I'm sure you've faced some challenges implementing category management practices. How have you mitigated those and, uh, resolved those challenges?
RP: And, honestly, in the IT hardware space logistics is one of the major challenges. Let's face it, we run hospital systems, not Amazon distribution warehouses. So um, optimizing our contracts to allow for more of a just-in-time delivery is an area we're continuing to look at and, uh, will focus on more in the future. Uh, you know, very quickly, um, when somebody orders 100 PCs and 200 monitors it doesn't sound like a lot, but, when you find out that only like 25 of those products fit on a pallet you just basically said the site is now going to receive a half a truckload of equipment and uh, and our facilities aren't really setup for that. So, it's an area we're definitely going to be investigating further.
LP: Thanks Randy, I'd like to add another example of how category management works extremely well when you have brand-agnostic requirements. If you can come up with relevant salient characteristics to use in your specifications and then have a solid handle on future demand drivers you can achieve some excellent outcomes, but it gets harder on brand name requirements. We often find that the government ends up needing enough advanced features of a product that we often specify the platinum version of the product or service and that drives an awful lot of the cost. In effect the government may be a price taker. Recently, we had success in our wired networking appliance space through a joint IT engineering, IT Operations and Strategic Sourcing collaboration. We were able to distill the salient outcomes of what use to be a brand name requirement to open up industry competition while at the same time removing features that VA had no roadmap to implement. The combination of these factors allowed multiple OEM's to bid on what was previously brand specific devices and the results of that competition really drove down cost as compared to recent price experience. Of course, there were other changes our engineering and operations team had to implement at the same time such as, a whole facility or whole campus refresh approach that if the incumbent OEM had changed, this would avoid or alleviate any interoperability issues. We also included additional testing processes and staff training in the requirement in the event they were necessary depending on the final solution awarded. So far, it has been good, and we're pleased with the approach we have taken on this requirement.
CR: That's great, and, and so, uh, I think that probably brings us to a close here with our panel today. And, I just want to thank, Ernest, and Randy and Lateefah just for providing insight into how the VA is managing category management. So, thank you very much.
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CR: As always, we must remind you the Department of Veteran's Affairs does not endorse or officially sanction any entities that may be discussed in this podcast, nor any media, products, or services that they may be providing. We thank you for listening to this episode of TAC Talks and hope you found it helpful as well as enjoyable. You may direct any questions or feedback to me, Chuck Ross at charles.ross@va.gov. And remember, if you are passionate about government acquisition, are a continuous learner and enjoy fruitful dialogue then keep tuning into TAC Talks.
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