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CHAPTER 5

Special Products and Services

The commercial products study covered pol icies, procedures, and practices used in the acquisition of a wide range of products and services. Our findings, conclusions, and recommendations apply generally to all commercial product acquisitions made by the Government. However, certain products and services require special treatment due either to their nature or to that of the marketplace. These unique characteristics apply to automatic data processing equipment (ADPE), food, and products and services of regulated industries.

ADPE procurement is unique because of its recent dramatic growth as an industry and its importance to all Government operations. These characteristics have resulted in special organizational and regulatory treatment by Congress and the executive branch. In contrast to ADPE as the newest major industry, food processing and distribution is probably the oldest of industries.

Several other products and services, such as public utilities, have come under Government regulation to provide the public with protection from monopolistic endeavors and to ensure the economic health of these vital resources.

requirements for software (computer programs), peripheral equipment, systems maintenance, and compatibility with other equipment or systems. Due to the extraordinary growth of this industry, the market has become highly competitive. This has resulted in reduced equipment prices, while personnel expenditures related to the acquisition and use of ADPE have increased. These factors, when coupled with lengthy interagency procedures, extend acquisition time and increase the total cost to the Government.

The U.S. Government is the world's largest single user of ADPE. From June 30, 1960, to June 30, 1971, the number of systems in the Government's inventory increased from 531 to 5,961. Of the 5,961 systems, 4,296 were owned wholly or partially and 1,665 were leased.' As of June 30, 1971, the Government owned or leased ADPE valued at $3.1 billion.” This growth is much slower than for the Nation as a whole. During this same period, the total number of computers used in the United States increased from 6,000 to 73,077.3 In fiscal 1971, total expenditures for ADPE in the Government approached $800 million as shown in figure 1.

Prior to 1965, Federal agencies independently procured ADPE in accordance with policy guidance from OMB and technical guidance from the National Bureau of Standards (NBS), but without central control. The rapid

AUTOMATIC DATA PROCESSING EQUIPMENT

Government acquisition of ADPE represents a large and rapidly growing portion of a dynamic market. The equipment is commercial. There are no standard Government procurement specifications. In addition to basic control and computer units, there are

1 U.S. General Services Administration, Inventory of Automatic Data Processing Equipment for Fiscal Year 1971, pp. 13, 16.

2 U.S. General Services Administration, Automated Data and Telecommunication Service, Summary of Federal ADP Activities for Fiscal Year 1971, June 1972, pp. 35–36.

* Supplemental Views of Senator Percy, in: U.S. Congress, Joint Economic Committee, Economy in Government: Automatic Data Processing Equipment, report of the Subcommittee on Priorities and Economy in Government, 92d Cong., 1st sess., May 21, 1971, p. 13. • President's Report to Congress, Federal Policy and Practices in the Acquisition and Utilization of Electronic Computers in Government, Mar. 25, 1965.

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processing centers. OMB exercises fiscal and policy control over all aspects of ADPE acquisition, including feasibility studies. GSA negotiates Federal schedules for use by all agencies, makes specific purchases for agencies, establishes acquisition controls and procedures, and delegates procurement authority on a case-by-case basis. FPASA also authorizes the Secretary of Commerce to (1) provide agencies and the Administrator of GSA with scientific and technological advisory services for ADP and related systems and (2) make recommendations to the President for the establishment of uniform Federal ADP standards. The National Bureau of Standards (NBS) provides advisory services to agencies regarding technical aspects of the selection and use of ADPE in Federal Information Processing Standards Publications (FIPS PUB).

Agencies are responsible for requirements determination and also for procurement when authorized by GSA. Agencies have established organizational controls including staff review of all actions required by GSA. Some agencies, such as DOD, have also established high-level source selection procedures patterned after the process used in selection of a major weapon system.

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The ADPE Acquisition Cycle

increase in agency procurement of ADPE without adequate central direction led to deficiencies cited by GAO and by a special executive report to Congress. As a result of these reports and of deliberations of Congress, the Federal Property and Administrative Services Act (FPASA) 5'was amended to provide for a coordinated Government-wide program for the acquisition of general-purpose ADPE.

Under the FPASA, the Office of Management and Budget (OMB) is responsible for fiscal and general policy, and the General Services Administration (GSA) is responsible for the economic and efficient purchase, lease, and maintenance of ADPE and for establishing and operating equipment pools and data

Recommendation 11. Reevaluate GSA and agency ADPE acquisition procedures, from identification of requirements to delivery of an operational system, for consideration of all appropriate elements on the basis of total economic cost.

The Commission reviewed the acquisition cycle for ADPE but did not evaluate every element by agency. ADPE acquisition procedures are currently being reevaluated by GSA. A step-by-step analysis of the main causes of lengthy acquisition cycles is summarized below:

Feasibility Studies The acquisition cycle starts with a feasibility study that determines if a valid need exists and if it can be filled most effectively by a computer. The study often restricts

540 U.S.C. 759 (1970).

or even fixes the equipment ultimately procured. This phase of the cycle was not analyzed in detail, but comments reviewed indicated that agencies generally lack ability to make feasibility studies without industry assistance and that the process generally is not completed in a timely manner. The quality of these studies varies widely, and adequate standard guidelines are not available.

Existing Resources OMB and GSA policies require agency review of Federal ADPE resources to determine if needs can be met by transfer or by interagency use of excess equipment or time. Agency reviews include:

Use of Excess ADPE Capacity. Federal Property Management Regulations require agencies to consider excess ADPE within the Government to meet their needs." The system is well covered by the FPMR and has been operating for several years with apparent success. We found no major criticisms of the present operation. Communications with GSA and other ADPE facilities are flexible and effective. If excess equipment is available, it is relatively easy to obtain and in less time than it would take to procure new equipment. GSA acts as a central clearing facility to assist all agencies.

ADP Services. The demands for ADP services are not uniform among agencies nor are they constant for an agency over a period of time. Some ADP tasks may be required only three months of the year. Others peak one or two times a year. In these cases, it may be more economical for the Government to acquire only the ADP service required and not obtain equipment to meet peak requirements.

ADPE Sharing. Many agencies share single computers or single systems with other agencies. The requirement for computational capability need not be filled by equipment within the user's organization. GSA has ADP sharing exchanges in each GSA region to serve as a clearinghouse for information on available excess time by type of equipment for all agencies. This review works quite well. It identifies and makes readily available

excess computer time, without using an elaborate reporting system. Sharing of existing equipment also provides a means of reducing agency purchase of capability that it only needs sporadically. The one limitation is that it only effectively identifies available hours and does not identify underutilization of machine processing capabilities. • Specification Development Specifications are developed when a determination is made to fill a need through a new acquisition. This phase is not only timeconsuming, but if not done well, its effects will extend throughout the acquisition process and later use of the equipment. By necessity, this effort must be performed by the user or with his close coordination. It also must be coordinated with procurement. Here again, industry has been relied on heavily for guidance in the absence of Government capability. It is during this time that capabilities of equipment are evaluated. The scope and method of evaluating proposed equipment are also determined in the preparation of specifications. Agencies, especially those with recurring requirements, are steadily improving their ability to master this phase of the process, but it is still fraught with inefficiency. It is also characterized by staff reviews and approvals at high levels, with inadequate attention paid to technical assistance. This phase is made more complicated by the need for submission of the requirement to an outside agency (GSA) for approval and possible delegation to the submitting agency for purchase. A further complication is the requirement to specify the telecommunications capability. Separate procedures have been developed to specify these factors, thus reducing the ability to merge both ADPE and communications costs on a common basis. Separate optimization of hardware and communications requirements can result in increased total system costs. • Submission to GSA for Purchase

or Delegation Each procurement that is not automatically delegated to operating agencies, through use of Federal Property Management Regulations (FPMR), must be submitted to GSA.

• FPMR 101-82.801-3.

Delegation Policies

The FPMR specifies the conditions and requirements for this submittal which include: applicable solicitation and amendments, data systems specifications, equipment performance requirements, attendant software re

e requirements, attendant software requirements, and existing resource analysis. GSA will presume that all OMB policy and guidance directives including lease versus purchase decisions have been met. The agencies that have procuring capability request delegation in this submittal, but they are not certain that it will be granted since there is no standard GSA policy. GSA policy authorizes delegation automatically if a reply to the request is not made in 20 days. This time can be extended by GSA through requests for additional data. If GSA elects to make the purchase, the operating agency's technical personnel are made available for coordination and technical evaluation of proposed equipment. If the procurement action is delegated, the agencies then process the procurement in accordance with their procedures, subject to GSA qualifications. • Procurement Action Agency procedures vary considerably in the manner in which the procurement is accomplished. Most of the delegations are made to DOD activities that rely heavily on source selection procedures. The technical evaluation of proposals by Source Selection Boards includes an analysis of costs by various acquisition alternatives. This type of evaluation is essential to contract award, but the cost and time of using high-level boards and award directives in lieu of technical evaluation advisory boards on low dollar purchases lengthens the procurement process. • Technical Evaluation During the selection process, reliance is often placed on live tests of the equipment. These tests include running a set of operations designed by the agency to measure performance, simulating performance with a predesigned set of programs, analysis through mathematical techniques, etc. There are no standards for the use of tests, and little cross-utilization of test data occurs between agencies. There are significant costs involved since each agency develops anew its own testing techniques.

Recommendation 12. Require that GSA establish ADPE procurement delegation policy that would promote (a) effective preplanning of requirements by agencies and (b) optimum use of manpower.

The legislative history of FPASA ? indicates that highly centralized procurement of all ADPE for Federal agencies was anticipated. This has not materialized and may never be feasible due to the scope of activity involved and the special treatment required for various agency applications. The coordinated procurement process which does exist is difficult to standardize for the same reasons. Where GSA does not procure ADPE, its policy is to delegate authority to agencies on a caseby-case basis. In deciding to delegate ADPE authority, GSA considers its own workload, the agency's existing capability, and the complexities of the proposed procurement.

Agencies with staffs that are proficient in the evaluation, selection, and procurement of ADPE complain that case-by-case delegation precludes orderly preplanning and optimum use of manpower and that administrative reviews lengthen acquisition schedules and increase costs. They believe a delegation policy that is less restrictive would shorten the acquisition cycle and reduce the total cost of acquisition.

Civilian agencies that have sporadic requirements for ADPE did not criticize specific delegation procedures, but some agencies that have a greater volume of procurement or ADPE procurement expertise were concerned about the complexity of the approval and delegation cycle.

Financing ADPE Acquisition

Recommendation 13. Revise funding policies regarding multi-year leasing contracts, in addition to use of the ADPE Fund, to permit Government agencies to procure ADPE on a cost-effective basis.

140 U.S.C. 759 (1970).

s Meetings at the headquarters of the U.S. Department of Agriculture, May 24, 1971, and of the National Aeronautics and Space Administration, May 18, 1971.

GSA's ADPE Fund, with an initial capital investment of $10 million in 1967, has been augmented by the transfer of assets from the Federal Data Processing Centers. For fiscal 1970, GSA requested a $30 million increase in the Fund's capitalization. The same request was made for fiscal 1971. After GSA submitted examples of $18.1 million in savings involving two agencies, $20 million was authorized in the 1971 Supplemental Appropriation.'

The main use of the ADPE Fund is to finance four Government programs: 10

Federal Data Processing Centers (FDPC). The objective is to make the FDPC the primary source of supply for ADP time whenever the FDPC can meet agency requirements economically. • Maintenance Program. At present ADPE maintenance normally is obtained from the equipment supplier. This program considers the possibility of in-house Government maintenance programs when they offer lower cost alternatives. • Software Program. The ADPE Fund is used both to purchase and to develop generalpurpose software when such software has a known multi-user application. Current applications include a manpower and payroll program and an automatic flow-charting program. • Lease Program. The ADPE Fund can be used to acquire ADPE for an agency if the agency's lease versus purchase analysis indicates that leasing is preferable but potential later use of the equipment by other agencies would make purchase more economical for the Government. Sometimes purchase options expire before the agency is able to acquire funds through the usual budgetary processes.

To optimize the use of its limited purchase funds and to support a coordinated Government-wide purchase program, GSA, in conjunction with OMB and other Federal agencies, is revising its Management Information System (MIS). The revised MIS will contain the

basic report elements needed to make detailed lease versus purchase analyses and to prepare a Government-wide “best buy” list.

Most Federal agencies lease ADPE using funds appropriated for a single fiscal year. Complications arise when leases run beyond the fiscal year for which Congress has appropriated funds. GAO has held that in the absence of specific statutory authorization an agency does not have the authority to enter into a multi-year lease using annual funds. 11

Most industrial firms obtain ADPE on longterm lease rather than on a lease for one year or less and thereby often obtain a monthly rental rate substantially lower than that paid by the Government for one-year rentals. Longterm leases can be obtained for less than 80 percent of the cost of a one-year lease. In a GAO report, seven major manufacturers were cited who offered multi-year lease options for installed ADPE. If the Government had chosen those options, the cost of ADPE rental to the Government could have been reduced by as much as $26 million for a three-year period. If the system had been covered by five-year leases, leasehold savings as high as $70 million could have resulted. 12

Often the monthly rental rates shown in the Federal Supply Schedule for single systems are used by the Government in making purchase versus rental analyses. These one-year rates are not realistic for a true purchase versus rental analysis which covers a longterm requirement. If the industry offers lower monthly rental rates for multi-year leases, such rates should be used in these analyses. Use of the long-term rates will change the lowest cost lease or purchase alternative as illustrated in Appendix E, tables E-4 and E-5.

Cost of Money and Time in Acquisition

The cost of money, when associated with the elapsed time from an agency's determination of a need to installation, is another factor that must be considered. A one million dollar saving this year is more valuable than a one million dollar saving five years from now. The

U.S. Comptroller General, B-116369, Multi-Year Leasing and Government-wide Purchasing of ADPE Should Result in Significant Savings, Apr. 30, 1971, p. 30.

10 Enclosure 2 to a letter from the General Services Administration to the Commission concerning Business Equipment Manufacturers Association (BEMA), Nov, 1971.

11 Note 9, supra, p. 21.
12 Note 9, supra, pp. 16–17.

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