Government Purchase Cards:
Putting the "U" Back Into Purchasing
by Bruce Sullivan
By authorizing nonprocurement personnel to buy supplies and services with a Government purchase card, the Army has conserved diminishing resources and increased efficiencies.
Corporal Spanner is working on a vehicle brought into the motor pool yesterday for routine maintenance and repair. The vehicle needs a new manifold gasket. Looking in the supply room for a replacement gasket, Corporal Spanner finds that none is available. He then goes to the computer terminal in the motor pool office, logs onto the Web, and orders the $80 part directly from Trak-Auto. He uses his Government purchase card to pay for it, and the part is delivered later that afternoon.
Does this scenario sound futuristic? It isand it isn't. Today, many soldiers and Army civilians order commercial supplies directly over the phone or via the World Wide Web and pay for the goods with their purchase card. Throughout the Department of Defense (DOD), more than 150,000 uniformed and civilian personnel72,000 of them soldiers and Army civilianshave been issued purchase cards. During fiscal year (FY) 1997, the Army made 2.4 million card purchases totaling more than $1 billion.
Purchase cards first were proposed for Federal Government use in the early 1980's as part of an effort to cut the cost of buying goods and services. In 1986, several agencies piloted the use of a Government commercial purchase card to reduce such costs.
The results of the pilot program concluded that the purchase card had advantages over other procurement methods. Specifically, the card provided a less costly and more efficient way to buy low-cost commercial goods and services, because Government personnel could purchase items directly from vendors instead of going through procurement offices.
The first Government-wide commercial purchase card contract was awarded by the General Services Administration in 1989, and DOD entered the program at that time. In 1993, the Vice President's National Performance Review (NPR) identified use of purchase cards as a major acquisition reform and encouraged all Federal agencies to increase their use. Using the card was emphasized again by the Federal Acquisition Streamlining Act of 1994 and Executive Order 12931, issued on 13 October 1994, on Federal procurement reform.
Before the card came into use, anyone with a requirementregardless of its dollar valuehad to fill out a purchase request. The purchase request was presented to the individual's supervisor for approval, then forwarded to the supply manager. The supply manager determined if the item was available in local inventories or was being inventoried by an item manager. The supply manager also determined if the item was made by industries for the blind or severely handicapped and if it required property book accountability. At the same time, the supply manager captured demand statistics for the item, which would be used to determine whether or not it should be added to local inventories to meet future needs. The requisition then was forwarded to the financial office to determine if funding was available and, if so, an entry was made in the accounting records to identify the individual purchase. An accounting citation was placed on the requisition, and then it was forwarded to the contracting or purchasing office for action. For purchases under $25,000, the contracting office was required to solicit three quotes from small, disadvantaged businesses and award a contract. The contract included numerous clauses and contractor compliance provisions, as required by law.
The Federal Acquisition Streamlining Act of 1994 (FASA) established the "micropurchase threshold." FASA eliminated the need to incorporate clauses and provisions previously required by law for purchases under that threshold. This change, which was the single most important modification of purchasing regulations, acted as the catalyst for greater use of the card. Without the need to convey contractual clauses and provisions in writing, orders now could be placed orally and charged to a purchase card. Reengineering the business practices in contracting, logistics, base operations, and resource management became key to achieving internal savings.
The Army reengineered its procurement process and delegated procurement authority for low-cost services and supplies to user organizations. The delegation of authority empowers noncontracting individuals to make purchases valued at $2,500 and below with a VISA purchase card. By authorizing nonprocurement personnel to buy supplies and services within the micropurchase threshold ($2,500), the Army has been able to conserve diminishing resources and increase efficiencies. Cardholders have pre-approved authority to purchase a broad range of supplies, and they are provided bulk funds on a routine basis (for example, monthly or semiannually) instead of for each purchase.
By moving the acquisition of many supplies and services directly to the using organization, the Army has streamlined the purchasing process. The Army Audit Agency has found that, when these streamlined procedures are used, there is a 60-percent saving over the use of a purchase order. The average saving when the card is used instead of a purchase order is $92. The largest percentage of those savings occur in contracting offices (46 percent); however, significant savings also are realized in supply (22 percent), budget (19 percent), and using (12 percent) organizations.
While most items purchased today by cardholders are commercial, cardholders also are buying more items that are available through the integrated materiel management system. Under current regulations, cardholders may buy centrally managed items valued at $2,500 and below if they are not critical, sensitive, or classified and if doing so is in the Government's best interest. This means that a cardholder can buy a centrally managed item by ordering directly from the supplier if it is less expensive or can be obtained faster than through the supply system.
Since the card was implemented, the Army has been the leader in finding ways to expand the program. For the last several years, the Army has led DOD in purchases, both in dollars and number of transactions. In FY 1997, half of the $2 billion spent by DOD in charge card purchases was spent by the Army. Over 2 million of the 5 million charge card transactions made by DOD were made by the Armyalmost eight times the number of purchases made in FY 1994. However, through the third quarter of FY 1998, the Army and Air Force were neck and neck, with over 95 percent of their simplified acquisitions being made with the card.
The Government purchase card allows personnel to buy items directly from vendors instead of going through procurement offices.
When the DOD Electronic Mall (E-Mall) is fully operational, the Government purchase card will become even more important. Users such as Corporal Spanner will be able to search the E-Mall on the World Wide Web for supplies of any dollar value (both commercial and military unique) and use a purchase card to pay for them. (See "A-Mart: Army Shopping On Line," on page 68, for more information on the E-Mall.)
Where will we be tomorrow? Seeing the savings that have occurred in the acquisition community, the Deputy Secretary of Defense, in a 20 July 1998 memorandum, directed the Services to expand their use of the card into other areas. The purchase card now is to be considered for all previously contracted actions costing $2,500 and below. In addition, training costs up to $25,000 and interdepartmental fund transfers and transportation actions amounting to $2,500 or less must be paid with the card.
On 4 May 1998, the Secretary of Defense, together with the Under Secretary of Defense for Acquisition and Technology, presented the Army with the David Packard Excellence in Acquisition Award. The award recognized the Army's dedicated efforts to reengineer the acquisition process, which provided Army personnel with the tools for making purchases better, faster, and cheaper. The award marked a high point for the Army after many years of developing and perfecting purchase card use. The award is a tribute to the many soldiers and Army civilians who developed a system that works better and costs less. ALOG
Bruce Sullivan is the program manager of the Department of Defense Joint Purchase Card Program in the Office of the Assistant Secretary of the Army for Research, Development, and Acquisition.