HHS FY 2014 Service Contract Inventory Analysis Report

1. Background

The Department of Health and Human Services (HHS) takes its responsibility to be thoughtful stewards of the public’s funds seriously, and sees the opportunities presented under the Administration’s priorities for efficient spending and delivering an efficient, effective, and accountable Government as a way to reinforce this responsibility. 

As required by Division C, Section 743 of the Fiscal Year (FY) 2010 Consolidated Appropriations Act (P.L. 111-117) and further guidance from the Office of Management and Budget (OMB) – Office of Federal Procurement Policy (OFPP) Memorandum to Chief Acquisition Officers (CAO) and Senior Procurement Executives (SPE), entitled “Service Contract Inventories” - dated November 5, 2010, HHS’ FY 2014 service contract inventory was submitted to OMB in January 2015 (in accordance with statutory requirements) and posted on HHS’ Service Contracts website.  HHS Senior Officials and the Service Acquisition Initiative (SAI) Team assessed the Department’s service contract inventory, coordinated their internal analysis, and collaborated on various department-wide SAI efforts.   The results are summarized in this report.

2. Purpose

HHS is responsible for executing highly important and politically visible programs.  Additionally, the Department’s management processes are more complex.  In compliance with the FY 2010 Consolidated Appropriations Act, HHS completed a thorough analysis of its FY2014 inventory to:

1. gauge whether contracts for services are being used appropriately to support the HHS mission;
2. determine the effectiveness of HHS’ use of support contractors; and
3. identify future improvements to our service-related acquisition practices.

HHS is submitting this report, in accordance with OMB’s guidance and the GAO Report #GAO-12-1007, to present its analysis and the SAI’s methodologies, significant findings, accomplishments, and future actions required for continued improvements. 

3. Analysis of FY 2014 Service Contract Inventories

The Department continues to strengthen its financial stewardship throughout the acquisition life-cycle.  The HHS SAI Team completed the analysis of their 2014 service contract inventory assuring service contracts supported valid program requirements along with considering the balance between federal employees and service contractors.  The results of the agency-level analysis were then brought forward to the Department to conduct an enterprise-wide assessment and promote the sharing of best-practices along with lessons-learned.

The Department recognizes that the ongoing critical success of the services that HHS acquires to support its missions require definitive processes to execute services acquisitions and ensure governance and oversight.  In 2014, HHS conducted mandatory reviews of service contracts which were designed to invigorate new acquisition processes to support the mission without causing (1) significant impact on the mission, (2) a waste of resources, or (3) increased risks.  These challenges have implications across budget, programmatic, financial, human resources, information technology, and contracting portfolios.  The ongoing review processes create opportunities to engage customers early on in the acquisition planning process which enables them to develop effective, results-oriented strategies that meet the need with solutions and incentives for efficient innovation throughout the acquisition process. 

The following sections address the specific aspects of the SAI as requested by OMB.  HHS FY2014 Special Interest Functions (See Attachment 1) resulted in the award of 22,824 actions with a total estimated value of $6.4B.    

Special Interest Functions

Based upon a mix of random and judgmental sampling, the SAI Team reviewed approximately 370 contract files focused on special interest functions in three categories:

1. OMB Special Interest Functions – based upon Product Service Codes (PSCs) designated by OMB/OFPP as being of high-risk federal-wide;
2. HHS Special Interest Functions – HHS identified specific PSCs with overall high dollar-value of service contract awards as reported in its FY2014 inventory; which may be a particular management interest, such as studies and legal services; or individual contracts of a high-value; and
3. “Other Services” Acquisitions – based upon HHS’ FY 2014 acquisition spending by the generic PSCs designations (i.e., R499- Other Professional Services; R699- Other Administrative; R799-Other Management Support Services; and D399- Other ADP and teleconferencing); several of which were within the top ten highest overall dollar-value PSCs for 2014.

See Attachment 1, “Special Interest Functions,” for a summary of HHS’ FY 2014 dollars obligated by the PSCs referenced above.  The rationale for focusing on these special interest functions include the requirement from OFPP for certain mandated PSCs, along with HHS’ decision to focus on high dollar value awards, use of “other” services codes, and other mission related specialty areas such as those noted above.  The 370 contracts reviewed were valued at $1.6B and represent 25% of the FY2014 special interest functions.

Management of Support Services

Management Support Services,” was issued to agencies to highlight the objective of reducing expenditures for Management Support Services as a vital component of the Campaign to Cut Waste and the Executive Ordering on Delivering an Efficient, Effective, and Accountable OMB Memorandum dated November 7, 2011 entitled “Reduced Contract Spending for Government.

During the 2011 White House Forum on Accountability in Federal Contracting, OMB announced a goal of reducing spending on management support services contracts by 15 percent by the end of FY 2012. For the purposes of this initiative, OMB identified the aforementioned services as functions covered by twelve PSCs which are identical to the Special Interest Function codes listed in the Service Contract Inventory guidance.

In order to better align the OMB/OFPP service contract-related initiatives to include the OMB management support services reduction initiative, the list of Special Interest Functions was expanded for use with the Department identified spending reduction initiatives.

Between FY2013 and FY2014, spending reductions occurred in 67 percent of the OMB and Department identified PSCs. This resulted in an overall reduction of $43M, reflected in the chart below:

OMB-Identified PSCs

HHS Special Interest Functions

HHS Use of Other Services

FY 2013 Total: $1,178,574,622.14

FY 2014 Total: $1,135,416,641.68

Difference: $(43,157,980.46)

Methodology Used to Support Analysis

The methodology continues from FY2011 and builds upon the success of the SAI Team (Department-wide oversight and agency specific multi-disciplinary teams – comprised of experts in budget, program management, information technology, acquisition, finance and human resources).   This secures support and buy-in from senior officials throughout the Department.  The SAI Team completed a retrospective analysis of the FY 2014 service contract inventory and provided coordination and collaboration across the Department.  The process occurred as follows:

1. The Associate Deputy Assistant Secretary for Acquisition, serving as HHS’ Senior Procurement Executive (SPE), continues to improve on prior year successes;
2. Initial Meeting June 2015 – The first Department-wide SAI Team meeting was held; reviewing timelines, reporting templates, SAI survey results, and inventory review protocols for all team members;
3. November 2015 –The results of the preliminary analysis conducted by the SAI Team were submitted to the Department for review; feedback and guidance was provided and changes were incorporated;
4. (6) November-December 2015 - Fact finding and validation interviews were conducted with senior officials across the Department and multi-disciplinary team members at each Operating and Staff  Division to ensure that the findings captured in their reports were accurate and complete.
5. January 2016 –Final analyses were submitted to the SPE; and

The inventory review protocol and methods included:

1. interviewed program managers, budget managers, contracting officer representatives, and contracting officers;
   • The interview questions addressed:
     • Whether the services were necessary
     • Inherently governmental functions performed
     • Functions closely related to inherently government functions and oversight methods
     • Procedures used for inspecting and assessing performance
     • The effectiveness of the services performed
     • Whether the services were balanced
2. data mining;
3. random sampling of service contracts in the special interest areas identified above;
4. validated inherently governmental – performance by contractor or government;
5. assessed need driven by mission;
6. looked for opportunities to reduce duplication; and
7. identified challenges and opportunities.

As evidenced by the results achieved during the previous fiscal years, the Department completed the OMB required preliminary analysis of the FY2014 inventory and HHS continues to make significant improvements which include visibility and insight into the Department’s service acquisition portfolio, greater efficiencies, and improved transparency and accountability among all SAI Team members who have demonstrated commitment to this ongoing effort.

HHS’ Findings

Process improvement and prior year success stories enable HHS to analyze and validate a meaningful representative sample of contracts. The analyses were completed using the protocol and methods outlined above. Brief discussions of the SAI Team findings, which met the desired outcomes described in 743(e) (2), are outlined below:

• Of the contracts HHS reviewed, all were deemed necessary and in direct support of the HHS mission.
• The SAI Team proactively reviewed service contracts which were relative to the performance of (a) inherently governmental functions; (b) closely associated with inherently governmental (CAIG) functions; and (c) personal services:
  • During FY2014, the SAI Team did not identify any contracts with inherently governmental functions.
  • In FY2014, the SAI Team identified 12 service contracts that included CAIG functions. These were in the areas of inspection services, scientific and technical support, and acquisition support services. In each case, the contract delineated clear roles and responsibilities between government and contractor personnel. Contract management and oversight were enhanced to ensure greater scrutiny and safeguards for monitoring the services contracts. Measures to keep the services from crossing over to inherently governmental functions are in place, to include COR oversight and an adequate mix of government personnel and contractor employees. In one contract, the contractor works closely with the government and other contractors as part of an Integrated Project Team.
  • In FY2014, the SAI Team did not identify any improper personal service contracts.
• All contracts reviewed as part of this analysis met performance expectations and contractual requirements. The SAI Team reviewed the effectiveness of contractor performance and found no service contracts identified as having cost, schedule, or performance deviations exceeding 10%. HHS reported that all services obtained met the “bona fide needs rule” and any contract specific challenges identified were resolved.
• Continuing upon best practices previously established; the FY2014 review found adequate oversight capacity to monitor its service contracts. The SAI Team reviewed programs and contracts to identify potential instances where the mix of FTEs versus contractor was unreasonable, or where there might otherwise exist an undue reliance upon contractor personnel – assuring the mission is not compromised.
• Opportunities were taken to eliminate redundant requirements.
  • In FY 2104 ASPA awarded an enterprise-wide BPA for web services/software solutions, and is available for use throughout HHS.
  • CDC consolidated the maintenance of their laboratory equipment under one contract for each maintenance company, as opposed to several smaller contracts. This equipment consolidation has additional long term benefits based on the addition of many new instruments. CMS has realized a cost savings of $1.2M.
• In FY-2014, the SAI Team identified a net savings of $5.9 by utilizing enhanced market research; increased competition and more effective negotiation methods.
• Examples of these savings include:
  • CDC realized a savings of approximately $4 Million resulting from a Task Order competition among contract holders of their Information Management Services (CIMS) contract.
  • FDA negotiated a cost savings in the amount of $747,390 for an inspection contract.

Planned Actions for Continued Improvement

Following the guidance from OFPP, the Department analyzed its FY2014 services contract inventory obtaining valuable information about the services procured and why the services were acquired.  This information assists in future acquisition decisions and opportunities for collaboration across HHS.  The results from the FY2014 SAI efforts were:

• CDC realized a savings of approximately $4 Million resulting from a Task Order competition among contract holders of their Information Management Services (CIMS) contract.
• FDA negotiated a cost savings in the amount of $747,390 for an inspection contract.
• A reduction in services that were duplicated across the Department.
• An increase in the number, variety, and utilization of buying smarter and buying less which includes taking advantage of FSSI and HHS Strategic Sourcing vehicles.
• Implemented opportunities for in-sourcing or where contractors are properly positioned to meet agency needs and enable HHS to re-purpose its FTEs.
• Improved the transparency into department-wide service portfolios.
• Continued reinforcing the need of quality data (i.e. assigning the correct PSCs and providing clear, concise service descriptions).
• On-going service acquisition review protocols and processes.
• Review and assess performance metrics to improve the SAI performance.
• Set up quarterly reviews to share effective practices and lessons learned.
• Actively monitor and promote efficient spending.

The Department improved the service acquisition processes, analysis protocol, and methodology of the service inventory through:

• A continuous effort to implement automated Acquisition Plan (AP) templates to enhance visibility into budgetary/program areas, providing the ability to:
  • identify PSCs and flag those related to specific service contracts;
  • consolidate and analyze requirements data; resolving issues early in the acquisition lifecycle;
  • increase the use of performance-based acquisition methodologies; and
  • Increase Acquisition Workforce efficiencies by maintaining the capacity and enhancing the skills of our acquisition workforce through training and development opportunities, which continues to be a top priority in HHS.
• Regularly update checklists that address key considerations for service acquisitions (e.g., inherently governmental functions, CAIG functions, and personal services) to enhance acquisition strategies and implement the guidance associated with OFPP Policy Letter 11-01 addressing the performance of inherently governmental and other critical functions.

4. Summary

HHS Senior Officials and the Service Acquisition Initiative (SAI) Team are committed to the Department Service Acquisition Initiative and meeting the requirements and intent of Division C, Section 743 of the Fiscal Year (FY) 2010 Consolidated Appropriations Act (P.L. 111-117). The Department continues to focus its efforts on achieving HHS mission and the priorities of the Administration, as we prepare to analyze the FY2015 inventory of service contracts and apply the best practices realized from the FY2014 results.

Overall HHS continues to effectively utilize service contracts to support its agency operations without becoming overly reliant or dependent on contract support. The contract documents reviewed ensured the roles and responsibilities between the agency and supporting contractors were clearly delineated and cover allowable contractor functions. Properly trained and appointed contractor officer representatives were present in all cases and were present in all cases and were effectively carrying out their contract oversight responsibilities.

Overall responsibility for the Service Contract Inventory resides with Dr. Angela Billups, Associate Deputy Assistant Secretary for Acquisition. She can be reached at 202-260-6187 or [email protected].