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Bidding Wars Heat Up Under VA Buyer’s Centralized Strategy

October 24, 2011

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Oct. 13 (Bloomberg) -- Retired U.S. Army Colonel Jan Frye says he loves a mission, and he’s passionate about this one: squeezing savings from the $16 billion a year the Department of Veterans Affairs spends on contracts.

Since becoming the VA’s deputy assistant secretary for acquisition and logistics in 2005, Frye, 61, has moved to centralize the operation, which purchases products and services as varied as artificial limbs, information technology and urinary drainage bags.

He’s pushed to expand the number of federal employees who award and manage VA contracts to the current 2,500 from about 2,200 five years ago, and to improve their training through a specialized academy he established. He’s trying to consolidate contracts, because, he says, the best way to rein in costs is to buy in bulk and avoid having to manage hundreds of contracts for similar products.

“Congress is looking for trillions of dollars in savings and this would be our contribution,” Frye said.

The streamlining, which is likely to intensify competition among contractors to hang onto work, is part of a 2010 VA mandate from Secretary Eric Shinseki and in sync with the Obama administration push to save money by redirecting the roughly $530 billion in annual U.S. contract spending into fewer awards.

Patient Choice

The approach has drawn criticism from some who say patient care may suffer if there are fewer products to choose from, and from others who say centralized purchasing can reduce innovation and, in the long run, drive up prices. It has also spawned lawsuits from bidders locked out of long-term deals, such as one filed by a unit of International Business Machines Corp. when it lost out on a $12 billion technology contract.

Among Frye’s initiatives is a plan to set up a prosthetics and surgical products contracting hub in Fredericksburg, Virginia where a staff of about 150 will look for ways to reduce contract awards by buying in bulk or standardizing product use.

Tom Guth, who owns San Diego, California-based RGP Prosthetic Research Center, said the approach may jeopardize patient care. His prosthetics development company did business with the VA for 60 years and recently lost its contract because its prices were too high, Guth said.

Consolidation of IT

“I’m worried they’re looking at prosthetics like anything else, without acknowledging people need to walk around on these things,” Guth said.

Frye said each decision will involve clinician recommendations, and there is no goal to restrict purchases to a specific number of products.

He used a similar approach to centralize and consolidate the VA’s information technology spending through a facility in Eatontown, New Jersey. When Frye started at the VA, the agency relied on about two dozen employees in an Austin, Texas, office to manage information technology spending, he said.

“With a budget of over several billion, that small organization was impossibly swamped and unable to complete the mission,” said Frye, who holds a master’s degree in contracting and acquisition management from the Florida Institute of Technology.

Fort Monmouth

He heard about a military reorganization that was sending people based at New Jersey’s Fort Monmouth to Maryland’s Aberdeen Proving Ground; so he acted quickly to hire engineers, contracting professionals and others working at Fort Monmouth and set up the VA’s information technology purchasing center in the same area.

“He is a change agent,” said Ford Heard, who reports to Frye as the acting associate deputy assistant secretary for procurement policy, systems and oversight. “He can see where organizations need to move quickly, and can seal a deal in a heartbeat.”

Frye’s information technology contract consolidation efforts resulted in a $12 billion contract awarded this year and known as the Transformation Twenty-One Total Technology program, or T-4, designed to streamline technology orders.

Fifteen companies won spots on the deal, which the VA plans to use to buy many of its IT products and services over the next five years, including units of Booz Allen Hamilton Holding Corp., CACI International Inc., SAIC Inc. and others.

IBM Lawsuit

The IBM unit and a closely held Virginia company, Standard Communications Inc., are suing the VA in the U.S. Court of Federal Claims in Washington after being excluded from the $12 billion contract.

A U.S. Court of Federal Claims judge sided with the VA last week in a related lawsuit by D&S Consultants Inc., a closely held New Jersey company that is partly owned by a unit of Lehman Brothers Holdings Inc., that sued the government after it was excluded from the contract.

“We’ve thwarted all attempts that have come toward us,” Frye said, noting the Government Accountability Office has already dismissed a handful of protests related to the project.

Vendors Driven Out

While contract consolidation will typically lead to short- term savings, in the long run it may reduce the number of companies capable of providing a product or service, said Mark Amtower, who owns Amtower & Company of Highland, Maryland. The company advises federal contractors on how to win government business.

Some vendors may be driven out of business after not winning government work or decide they don’t want to spend the time or money to bid on federal contracts in the future, Amtower said.

“If you reduce the gene pool from which you’re purchasing, you may also be eliminating the best products,” Amtower said in a phone interview.

In addition to overseeing the agency’s contract spending, which totaled $16 billion in the 12 months ending Sept. 30, 2010, Frye, who reports to the VA’s chief acquisition officer, Glenn Haggstrom, is responsible for about $15 billion in products and services the VA “sells” each year to other government agencies through so-called federal supply schedules.

Frye, who attended high school in Chester, Nebraska, a town so small he said had no stoplights, prefers fieldwork to being in the limelight. During his 30 years in the military, he mostly worked on contracting issues.

Critical IG Report

Not everything has gone smoothly during his tenure. The department’s inspector general’s office told members of a U.S. House subcommittee this year that VA employees aren’t following orders to use a $20 million computer system to track spending on goods and services.

Employees find the system cumbersome and need more training, according to a survey by auditors.

In response, Frye said he provided additional training and backed a change in policies that stipulates some senior officials may lose raises if their staffers spurn the record- keeping program.

He’s tried to encourage VA staffers involved in purchasing to follow a common doctrine through the creation of the Frederick, Maryland-based VA Acquisition Academy. The training center has graduated more than 12,000 professionals to award contracts, manage programs, and search for savings across agency spending.

“He has this strategic vision from being in the military of what’s necessary to lead the troops,” said Lisa Doyle, who was hired by Frye to run the academy. “He’s no bones about it, get the job done.”

(For more information on Bloomberg Government, visit bgov.com.)

--Editor: Jon Morgan, Mark Rohner

-0- Oct/24/2011 14:27 GMT

To contact the reporter on this story: Kathleen Miller in Washington at kmiller01@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net


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