Category Management: A Mix of Risks and Rewards
By Alan Chvotkin, PSC Executive Vice President and Counsel

There are three questions PSC is assessing as we evaluate the impact of Category Management and potential changes to the current process. They are:

• How has Category Management impacted the ability of federal agencies to meet their mission needs? 
• Are there sufficient safeguards to ensure competition in the marketplace, both now and in the future? 
• Does Category Management meet the government’s objectives of assisting small businesses? 

Category Management’s Evolution  

Category Management (CM) has evolved through four major phases. It began as a federal initiative intended to develop and provide the federal acquisition community with more efficient acquisition strategies based on major categories of federal procurement by capitalizing on subject matter expertise and lessons learned across the government. It has transitioned into a combination of both management information analysis and federal purchasing strategies.  

The four phases of CM are:

First Phase: Establishment and Spending Analysis

First was the establishment of Category Management. When CM was initiated, it was intended to provide acquisition executives—both within each purchasing organization and across the “category”—with better visibility into agencies’ spending per category and thereby enable the federal government to approach the purchase of goods and services as if it were a single enterprise.

PSC has supported, and continues to support these goals, even though the metrics for success are hard to articulate and even harder to validate. 

Second Phase: Designation of “Best-In-Class” Contract Vehicles

The second phase was the determination by OMB that certain contract vehicles satisfy key criteria defined by OMB to earn the designation of “Best-In-Class” (B-I-C).  As of April 23, 2018, thirty-two contracts have been designated by OMB as “B-I-C” awards.  But it is also important to recognize that many of the B-I-C designations have very specific scopes of work or have limited application in the federal purchasing world. 

Third Phase: Institution of “Spend Under Management” Tiers and Targets

The third phase was the imposition of agency quotas for spending through category management principles, referred to as “spend under management.” Agency contract spend through any of the three tiers of OMB-designated contracts counts as “spend under management.” Where agency contract dollars are obligated through contracts that do not fit into any of those tiers, awards are designated as “unmanaged contracts” and agencies are urged to do further analysis of their spend to “find opportunities” for shifting to solutions that qualify as “spend under management.”  

OMB has also established government-wide targets of awarding 35 percent of available spend through B-I-C contracts and decreasing the available spend categorized as “unmanaged” by 20 percent. 

Category Management is also an important component of the March 2018 President’s Management Agenda. Cross-agency goal #7 establishes as an objective “leveraging common contracts and best practices to drive savings and efficiencies.” 

But nothing in the CM evolution detracts from the agencies’ responsibility to achieve their individually negotiated small business contracting and subcontracting goals pursuant to the Small Business Act. 

Fourth Phase: Mandatory Use “Best-in-Class” Contracts

The current phase adds the requirement for the mandatory use of specifically designed B-I-C awards. These vehicles are the exclusive method by which agencies must purchase covered goods and services. As of February 5, 2018, six contracts across four of the ten categories have been designated as “mandatory use” for the agencies.  Mandatory use of certain contracts is not new, but it remains controversial. 

Distinction between Products and Services 

With CM’s focus on lowering prices, PSC is concerned that the government may begin to purchase complex services in the same manner as common office supplies—which will limit value and reduce innovation. In addition, these techniques may have the effect of limiting the number of firms—small or other-than-small—able to compete for the specific goods or services provided for under these “spend under management” contracts.  




Issues for Consideration  

Five years ago, PSC testified before the House Small Business Committee on the use of Strategic Sourcing and stated that “the government’s goal should be to foster an environment of robust competition, high performance, agility, innovation, balanced opportunities for companies of all sizes, and accountability.”  

PSC cautioned then, and we do so again here, that more needs to be done to prevent unintended consequences on the small and other-than-small companies that are—or that are capable of—meeting the government’s needs. Particularly as CM has transitioned into a procurement policy, there have been negative consequences for the supplier base and for the marketplace. 

These include:  

1. Implementing a One-Size-Fits-All Approach Across Government
2. Limiting the Flexibility of Agencies to Pursue Unique Solutions 
3. Narrowing Competition in the Marketplace 
4. Focusing Too Heavily on Low Price
5. Focusing Too Heavily on Inputs, not Outcomes.

Additionally, many of the competitions and awards for what are now designated as “Best-In-Class” occurred before the B-I-C designation (and any mandatory use designation) was established. This raises two additional issues: 

• Are the B-I-C contracts structured in a way to provide on-ramps for companies who are not currently a holder of the vehicle? 

• When the B-I-C contracts are recompeted, will non-contract holder offerors be able to successfully compete for future opportunities?   

Conclusion
PSC is continuing to work with OMB and the federal agencies on the development of CM and its implementation. It is a policy that has benefits relating to understanding the nature of the government’s spending patterns but also risks when it is used as a procurement preference program.     

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This article appeared in PSC's Summer 2018 Service Contractor Magazine. Click here to view the PDF of this article on pages 13-14. 

Watch PSC's Alan Chvotkin's June 13, 2018 testimony before the House Small Business Committee on Category Management.