Agencies don't account for all program costs, experts say

The government is trying to operate like a business, but unlike most private-sector firms, some service providers can’t be sure what to charge their customers, experts said.

Auditors at the Government Accountability Office said several agencies with interagency contracts and those that help other agencies with acquisitions don’t carefully account for all the costs of their programs, according to a report released Sept. 12.

For example, the General Services Administration doesn’t account for the costs of each contract in its Networx multi-agency contract (MAC), a major telecommunications service offering for federal customers. GSA officials told GAO that they track the total direct and indirect costs of operations for Networx only as part of a larger program because it’s jointly managed with the long-distance services program. Similarly, the Interior Department doesn’t assign its overhead costs proportionately between its offices in Arizona and Virginia.

Yet, tracking and identifying costs is a key element in deciding what to charge customers, GAO said.

“Therefore, these agencies cannot ensure that all their fee rates are set appropriately and may be missing opportunities to identify program inefficiencies,” wrote William Woods, director of acquisition and sourcing management at GAO.

Businesses need precision and accuracy to operate as well as possible, said Ray Bjorklund, senior vice president and chief knowledge officer at FedSources.

“If you don’t know your costs, then you don’t know how well you’re doing or what price to charge your customers,” he added.

The process of managing and setting fee rates for interagency contracts involves balancing the costs of operating the program and the revenues needed to cover those costs, Woods wrote.

GSA, Interior, NASA’s Solutions for Enterprisewide Procurement (SEWP) program, and the National Institutes of Health have fee-based MACs and assistance services. Their fee rates for the selected interagency contract programs range from 0.25 percent to 12 percent of the value of the order for fiscal 2011. They also vary depending on the level of service and type of acquisition services provided.

Fees have remained stable since fiscal 2007 at four of the six programs GAO reviewed — three at GSA and one at Interior. Two programs — one at NASA and one at NIH — lowered their rates.

Through the years, agencies have used those MACs and other services. Sales totaled nearly $49 billion for the selected programs in fiscal 2010. However, only half of the six programs increased in sales volume since 2007. The largest percentage increase in sales was NASA’s SEWP, which grew from $997 million in 2007 to $2.4 billion in 2010 — a 137.4 percent increase, the report states.

On the other side, the largest decrease was in the NIH governmentwide acquisition contact program. Its sales decreased from $914 million in 2007 to $756 million in 2010, a 17.4 percent decline, the report states.

In these tough budgetary times, agency officials considering whether to use MACs or get help with their acquisitions will likely look for more details about where their money is going.