Feds Struggle to Tame E-Commerce

WASHINGTON (04/18/2000) - The rise of e-commerce is causing U.S. government agencies all sorts of unexpected grief these days even as many of them strive to do more business online in the name of improved efficiency.

Not only are government employees using the Internet to circumvent federally negotiated buying contracts, but agencies are also having difficulty tracking Web purchases and are being slammed by some parties for competing too aggressively online with private industry.

This surely isn't what Vice President Al Gore had in mind when he began prodding federal agencies into e-commerce in the early 1990s.

Take, for example, the U.S. General Services Administration (GSA), an agency facing an erosion of its power largely due to the explosion of e-commerce sites. The GSA, which negotiates large-volume supply and services contracts that both Defense Department and civilian agencies can use, has found that when hundreds of thousands of federal employees can easily make online purchases with government-supplied credit cards, they don't always buy at Web sites with GSA-negotiated government contracts. That's bad news for the GSA, which earns a 1 percent fee on vendor sales made under contracts with the agency.

The rise of online business-to-business exchanges also is cause for concern, says Mary Mitchell, the GSA's e-commerce policy chief for the civilian government agencies.

"The agencies, such as the Veterans Administration hospitals and the National Institutes of Health labs, are using these market makers, such as Chemdex, because their suppliers are there," says Mitchell, who works with the White House to set e-commerce policies for the U.S. government. Though she's willing to accept that "ultimately the market will decide," she wonders how the government is going to be able to take advantage of its collective buying power in the future to establish favorable contracts or accomplish social goals.

Through GSA-negotiated contracts, called GSA Schedules, the government is able to exert influence to see that some portion of its $22 billion in purchases each year is spent on products and services supplied through minority, women-owned, small businesses or industries employing the disabled. Though the trading exchanges may bring in efficiencies, "the government may lose influence," Mitchell says.

What a site

The GSA, which must be self-sustaining under federal rules, operates GSA Advantage, a 4-year-old homegrown e-commerce site that only handled $16 million of the $17 billion spent under GSA contracts last year.

"The site is very archaic and not user-friendly," says Maryann Hirsch, senior vice president at Federal Sources, a research firm in Tyson Corner, Virginia.

By August, the GSA intends to have a new Web site in place based on technology from BroadVision, E.piphany and Sybase that would give each government buyer a more personalized Web view and buying history. Last week, GSA announced a mall-style Web site for small businesses, called SmallBizMall. gov, to promote small businesses to government buyers.

Last month, the Department of Veterans Affairs and the National Industries for the Blind, along with other nonprofit agencies for the disabled, began operating a new federal procurement site called JWOD. com. It's named after the Javits-Wagner-O'Day legislation of years back to furnish the government with supplies from industries employing the blind or otherwise disabled.

President Clinton issued a memo to federal agencies pleading with them to buy from, noting the proliferation of federal credit cards and the evolution of e-commerce has created a serious challenge for the JWOD program.

In the cards

One federal e-commerce effort that has taken off is the distribution of government credit cards, which can be used on and off the Web for any purchase less than $2,500 without GSA contracts or competitive bidding. More than a half million government employees are now armed with these Visa and MasterCard cards.

The problem is that Visa, MasterCard and the banks that issue the cards have so far failed on a commitment to provide procurement details, making it difficult for agencies to track what employees are buying with the cards.

"They can't supply the purchasing detail because the credit card infrastructure just isn't ready," GSA's Mitchell says. The only information the government gets on each card transaction is the vendor name and purchase amount, but not the item bought.

Even as the U.S. government struggles to cope with the unforeseen consequences of e-commerce, some in private industry are complaining that the federal government's activities go beyond what's appropriate for organizations supported by taxpayers' dollars.

"The government is entering into areas not proper for the government, intruding on areas currently occupied by private- sector participants in competition," says Jason Mahler, vice president and general counsel at the Computer and Communications Industry Association (CCIA), a Washington, D.C., trade group.

CCIA objects to new e-commerce activities of the U.S. Postal Service announced earlier this month.

The agency says it will change from to to operate an e-commerce service portal. The first service is expected to be online bill payment supplied with help from CheckFree.

"This competes with the Intuit and Yahoo portals," Mahler says. "They shouldn't be allowed to cross-subsidize money-making ventures with taxpayer money."

The Postal Service says it simply wants its portal to pay off.

CCIA also opposes the Internal Revenue Service's plans to let citizens prepare and file forms directly online, arguing this is unfair competition against private-sector Web sites doing this.

Though it's seldom mentioned publicly, the U.S. government is often pressured by the private sector to expand its role in e-commerce. Within the CIO Council, a forum where the government's IT leaders regularly meet, there's much discussion about the high cost of providing Web-based services to citizens, Mitchell says. Chief information officers swap tales about how private companies offer to help.

"The private sector would love to sell advertising on government sites," Mitchell says, noting that though there's no official policy ban on it, agencies so far have had "an emotional resistance to advertising."

"I had several companies, including the Redskins [football team] contact us this month," says Al Iagnemmo, project manager for GSA Advantage. "I just said no."

In addition, private companies are always coming up with proposals, such as offering money to run Web sites because they want to influence how the government conducts business with citizens.

Resisting these siren calls becomes harder as federal agencies are forced to spend huge sums on Web sites as part of the Administration's "Access America" plan to provide government information and services online.