FY 2010 HHS 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.  Similarly, the requirements of Division C, Section 743 of the Fiscal Year (FY) 2010 Consolidated Appropriations Act (P.L. 111-117) was another such opportunity.

The Act requires Federal Agencies and Departments to prepare an annual inventory of their service contracts and make the inventory available to the public.  The Act also requires that agencies and departments conduct an analysis of their spending and report its findings to the Office of Management and Budget (OMB).  This requirement was further guided by an 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” and dated November 5, 2010.  

As required by the FY 2010 Consolidated Appropriations Act, HHS’ FY 2010 service contract inventory was submitted to the OMB in December 2010 and posted on HHS’ website in January 2011 (http://www.hhs.gov/grants/servicecontractsfy10.html).  To assess the Department’s service contract inventory, HHS established a cross-departmental “Service Acquisition Initiative (SAI)”, thereby assuring support from Senior Officials at HHS and buy-in at the agency level.  To accomplish this effort under the SAI, each HHS agency developed a multi-disciplinary team to coordinate their internal analysis and collaborate with the department-wide SAI efforts.   The results of this effort are summarized in this report.

2.  Purpose

HHS is responsible for executing highly important and visible programs.   We designed, developed, and implemented the HHS SAI to facilitate this effort and foster communication across the Department.  In compliance with the FY 2010 Consolidated Appropriations Act, HHS completed a thorough analysis of its FY 2010 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, to present its analysis and the SAI’s methodologies, significant findings, accomplishments and future actions required for continued improvements. 

3.  Analysis of FY 2010 Service Contract Inventories

The Department is committed to strengthening its financial stewardship throughout the acquisition life-cycle.  The HHS SAI teams from each agency analyzed their respective service contract inventories to determine whether their service contracts supported valid program requirements and were appropriate and effective, and if the mix of federal employees and service contractors is balanced.  The results of the agency-level analysis were then brought forward to the department-level to conduct an overall assessment and promote the sharing of best-practices and lessons-learned.

Throughout this process, the teams recognized that critical to the success of the services that HHS acquires to support its missions are definitive processes to execute services acquisitions and ensure governance and oversight.  The challenge, therefore, was to create a department-wide review of services contracts with the intent of invigorating new acquisition processes that support the mission without also causing (1) significant impact on the mission, (2) a waste of resources, or (3) increased risks.  Given that this challenge has implications across budget, programmatic, financial, human resources, information technology, and contracting portfolios, the establishment of the SAI and the new review processes created an opportunity to engage customers early enough to develop the effective, results-oriented strategies to meet the need with solutions that provided incentives for efficiency and innovation through the acquisition process. 

The following sections address the specific aspects of the SAI as requested by OMB.

• Special Interest Functions

Based upon a mix of random and judgmental sampling, the SAI Teams reviewed approximately 350 contract files and focused on three categories of special interest functions: 

(1) OMB Special Interest Functions – based upon PSCs designated by OMB/OFPP as being of high-risk federal-wide;

(2) HHS Special Interest Functions – HHS supplemented the OMB list of Special Interest Functions by identifying the PSCs where HHS had a high overall dollar-value of service contract awards as reported in its FY2010 inventory;  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 2010 acquisition spending by the generic services Product and Service Code (PSC) designations (i.e., R499 – other professional services; R699 – other administrative; R799 – other management support services; and D399 – other ADP and teleconferencing); several which were within the top ten highest overall dollar-value PSCs for FY2010.

See Attachment 1, “Special Interest Functions,” for a summary of HHS’ FY 2010 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, its agencies’ use of “other” services codes, and other mission related specialty areas such as those noted above.

• Methodology Used to Support Analysis

As mentioned above, HHS formed SAI Teams, which included a Department Oversight team and agency specific multi-disciplinary teams – comprised of experts in budget, program management, information technology, acquisition, finance and human resources.   This assured support from the Department senior officials along with getting buy-in from the agencies’ leadership.  The SAI Charter was established to uphold the quality, effectiveness, and integrity of the Department’s service contract portfolio along with related business functions and decisions.  The SAI teams were tasked with completing a retrospective analysis of the FY 2010 service contract inventory and provided coordination and collaboration across the Department.  The process occurred as follows:

(1) February 2011 – the Assistant Secretary for Financial Resources, who serves as HHS’ Chief Acquisition officer (CAO) issued a memorandum to HHS’ agency Heads, outlining the requirements of this initiative;

(2) April 2011– the initial SAI Team kick-off meeting was held; each agency identified key focal points who in-turn worked with the Department Oversight team to develop a charter, timelines, report templates, inventory review protocol and methods for involving all SAI team members;

(3) May 2011 – the Department Oversight team meet separately with each agency-level SAI team to assess progress and provide further guidance;

(4) June 2011 – the HHS Senior Procurement Executive (SPE) issued policy memorandum to Head of Contracting Activities (HCAs) requiring reviews of new requirement for services and continued analysis of the service contract inventory by the agency-level SAI teams;  

(5) July 2011 – results of preliminary analysis by the SAI teams were submitted to the oversight team; feedback was provided and changes were incorporated; and

(6) August 2011 – all agencies submitted their final preliminary analyses to the SPE. 

The inventory review protocol and methods included:

1. interviews with program managers, budget managers, contracting officer representatives, and contracting officers;
2. data mining;
3. random sample of service contracts in the special interest areas identified above;
4. validating inherently governmental – performance by contractor or government;
5. assessing need driven by mission;
6. looking for opportunities to reduce duplication; and
7. identifying challenges and opportunities. 

As a result, visibility and insight into the Department’s service acquisition portfolio was improved, greater efficiencies, transparency and accountability was fostered and the SAI team members are committed to this effort as evidenced by the results achieved to date – the Department completed the OMB required preliminary analysis of the FY 2010 inventory and significant improvements were realized.

• HHS’ Findings

The SAI Teams reviewed a representative sample of contracts identified in the special interest function areas.  The analyses were completed using the protocol and methods outlined above.  Brief discussions of the SAI Team findings, which meet the desired outcomes described in 743(e) (2), are outlined below:

1. The vast majority of service contracts were deemed necessary and in direct support of the HHS mission.  Those services determined to be no longer needed due to mission change or some other finding were identified and will not be included in future acquisitions.
2. HHS’ service contracts were appropriate relative to the performance of (a) inherently governmental functions; (b) closely associated with inherently governmental (CAIG) functions; and (c) personal services:
   
   • • The SAI Teams identified two functions provided via a service contract that, although not strictly considered to be inherently governmental, were determined to be susceptible to such encroachment.  These were in the areas of grants compliance monitoring services and executive consultation services and where contractors reserved a high degree of independent judgment and authority in the execution of their related duties.  HHS is in the process of taking corrective action by:  (1) further defining contractor roles and responsibilities; and (2) in-sourcing Full Time Equivalents (FTEs) as necessary to alleviate these concerns.
       
     • The SAI Teams identified two functions provided via a service contract that were determined to be CAIG functions.  These were in the areas of acquisition assistance and human resource classification specialists, which are more appropriately suited for execution by FTEs.  HHS took corrective action by:  (1) hiring 14 government employees; (2) eliminating unnecessary contractor support; and (3) reorganizing and/or reassigning work to Federal employees as necessary to alleviate these concerns.  Additionally and as a result of these actions, HHS saved approximately 2.2 Million.
       
       • The SAI Teams did not identify any improper personal service contracts, all of the contracts reviewed were authorized by statute.

1. The vast majority of HHS’ contracts were meeting performance expectations and contractual requirements.  Under HHS’ approach, the SAI Teams were tasked to review the effectiveness of contractor performance by looking for any indications of cost, schedule, and performance deviations exceeding 10%.  Any concerns in these areas would then require further inquiry and analysis to assess contributing factors such as: (1) high-risk contract type (cost reimbursement, time and materials/labor-hour); (2) non-competitive awards; (3) ambiguous statements of work; and/or (4) lack of performance-based acquisition methods.  However, no specific service contracts in the sample were identified as having cost, schedule, or performance deviations exceeding 10%.  Therefore, in-depth analyses of the four factors above were not required.  HHS also specifically looked for any contracts that were terminated for cause.  There were two such terminations, one for the convenience of the government and the other for default; indicating that any performance issues were effectively dealt with by the agencies.  Indeed, all HHS agencies reported they were obtaining services that met their needs and were able to work through any contract-specific challenges.    
2. HHS found that it had adequate oversight capacity to monitor its service contracts.  The SAI Teams 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 – such that control of Departmental missions may have been compromised.  Although under HHS’ Acquisition Workforce Human Capital Plan the Department still plans to increase acquisition workforce hiring over the next few years, the SAI analysis did not identify concerns with HHS’ ability to oversee and administer its service contracts.   
3. There were opportunities to eliminate redundant requirements.  The SAI Teams identified 15 contracts with similar requirements for compliance monitoring services and recommended consolidation.  The 15 contracts were consolidated into four contracts, resulting in an estimated savings $20M.  There were also several contract renewals that were reviewed, and as a result of the SAI process, resulted in enhanced competition and aggressive negotiations through which HHS achieved an estimated $65M in savings.  Additional similar savings may have also since been realized, and it is believed that repeating this process can result in future savings for the Department.

• Planned Actions for Continued Improvement

Following the guidance from OFPP, HHS analyzed its FY2010 services contract inventory and in doing so obtained valuable information that about the services its agencies are procuring and why the services are being acquired.  This will inform acquisition decisions and future opportunities for collaboration across-HHS.  Some of the results from the SAI efforts are:

1. Assessed and reduced services that are duplicated across the Department.
2. Identified services where HHS can increase the number, variety, and utilization of strategic sourcing acquisition vehicles.
3. Identified opportunities for possible in-sourcing or where contractors are properly positioned to meet agency needs and will enable HHS to re-purpose its FTEs.
4. Improved visibility and insight into department-wide service portfolio.
5. Reinforced the need for quality data, such as in assigning the correct PSCs and providing clear, concise service descriptions.
6. Established repeatable service acquisition review protocols and processes.
7. Utilized performance metrics to gauge SAI performance.
8. Developed and shared effective practices and lessons learned.
9. Enhanced HHS’ ability to achieve the required 15% reduction in Management Support Services spending in FY2012 from FY2010.

The SAI team also proposed improvements to enhance the existing service inventory analysis protocol and methodology and to improve HHS’ service acquisition processes:

1. Automate Annual Acquisition Plans (AAPs) to enhance visibility into budgetary/program areas, thereby providing the enhanced ability to: 
   
   • • readily identify Product and Service Codes and flag those related to Management Support Services;  
     • consolidate and analyze requirements data; identify and resolve issues earlier in the acquisition lifecycle;
     • increase use of performance-based acquisition methodologies; and
     • identify similar requirements department-wide to facilitate strategic sourcing efforts.

1. Establish Centers of Excellence to leverage best practices and capabilities across the Department.
2. Create decision trees and checklists that address key considerations for service acquisitions (e.g., inherently governmental functions, CAIG functions, and personal services) to enhance acquisition strategies.
3. Improve tools for monitoring of contractor performance.

4.  Way-Ahead

HHS is committed to its 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 will continue to focus its efforts on achieving the priorities of the Administration, and those internal to the Department, as we prepare to analyze the FY 2011inventory of service contracts, and apply the best practices realized from the FY 2010 results and any new practices identified during the FY 2011 analysis to achieve the 15% savings in our Management Support Services contracts.

HHS FY 2010 Special Interest Functions