New Government-Wide Category Management Policy for Package Delivery Services Could Signal Changes for Other Industries

August 22, 2017

By Timothy F. Valley
Practice Area: Government Contracts Law

Despite the change in Administration, the Government’s efforts to implement category management continue and are about to have a major impact in how the Government contracts for package delivery services. What is category management? Essentially, it is a Government initiative to reduce contract duplication to save money on common goods and services that the Government purchases through the federal procurement system and is also called strategic sourcing. (For more information about what category management entails, click here.)    

In July 2017, the Office of Management and Budget (“OMB”) issued a memorandum to the heads of departments and agencies requiring use of the Department of Defense’s Next Generation Delivery Services contract (“NGDS”) mandatory contract sourcing solution for package delivery services. Annually, the Federal Government spends over $358 million on package delivery services with three vendors, and agencies have approximately 100 contracts for shipping. This initiative will consolidate the majority of those purchases to NGDS, which has been labelled the “Best-in-Class contract for package delivery services. Unless required by law to use a different contract, agencies have until September 1, 2017, to develop transition plans to use NGDS for existing package delivery service contracts. 

Agencies choosing not to use this vehicle must have approval from the agency head and provide a detailed justification to OMB and DOD’s Transportation and Logistics Services Category Manager. The justification must provide details for each exception, the duration of the exception, and discuss why the exception provides a better value to the Government. Notably, agencies can also justify an exception by citing their small business contracting goals. For task orders, agencies must submit their justifications at least six months in advance. The agency must provide notice eighteen months prior to any re-competition.

Even if the agencies do not use NGDS, they still must implement category management principles with their existing package delivery contract vehicles. Agencies must start consolidating requirements, collecting and analyzing contract data and prices, and contend with noncompliant spending. In other words, the Federal Government is moving forward with category management. 

The impacts of category management’s implementation are hard to predict. The Federal Government hopes to save millions of federal tax dollars and make federal procurements more efficient. However, it is too soon to determine whether agencies will meet their transition plan deadlines or if they will seek exceptions, especially when the exception process requires quite a bit of paperwork and advanced planning. Ultimately, package delivery service contractors should be aware that OMB intends to reduce the number of contracts by 95% by 2019 because NGDS will be used for the vast majority of the Government’s shipping needs. 

These contracts remain problematic for small businesses because they are highly competitive, have longer terms, and present fewer competition opportunities. While OMB’s specific reference to meeting small business goals signals that it intends to maximize small business participation while streamlining the procurement process, in the past we have seen that use of these large contracting vehicles increases barriers to entry for small businesses and results in many small businesses that don’t have the vehicle being forced out of business. We would love to hear any concerns you have about category management and whether you have seen any impact on your business. 

About the Author:
Tim Valley is an associate with PilieroMazza in the Government Contracting and Litigation Law groups. He may be reached at tvalley@pilieromazza.com.
 
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