is sold commercially. Statutory exemptions of the act permit: • Purchases of commercial items usually bought in the open market • Purchases of perishables, including dairy, livestock, and nursery products • Purchases of agricultural or farm products placed for first sale by the original producer • Purchases of agricultural commodities by USDA. DOD's largest food program is the call-contract program for brand-name merchandise used by all military activities in the commissary resale program. These multiple-award contracts are controlled centrally by the Defense Personnel Support Center of DSA. The contracts, called Supply Bulletins, are made with packers and producers and provide for direct delivery to the installation by means of delivery orders placed by the installation contracting officer. The prices in the bulletins are negotiated, but the negotiations are limited to review and acceptance of proposed price lists, with the determination of reasonableness based on incorporation in the bulletin of a price warranty provision. The price warranty provision commits the supplier to furnishing these brandname items to the destination point at prices that are as favorable as those charged to any other customer under the same delivery conditions. Since there are probably no other customers that procure these commodities under the same conditions, the price warranty clause is of limited value. A review was made of the prices being paid under the Supply Bulletins with those that would be available to installations if they were authorized to procure the same items through various alternatives provided by the commercial distribution system. The results of this survey are outlined in Chapter 6. With few exceptions, a station probably can negotiate a tailored delivery system contract for food products on more favorable terms than those currently available through the Supply Bulletins. One of the advantages of the current centralized call-contract program is that standard prices prevail within an area for all activities regardless of the volume purchased. This may be a marginal advantage from the standpoint of total cost since the contract system is mandatory and there is no cost information available regarding alternative methods of acquisition. 23 In addition to the alternatives currently available for acquisition of food for delivery to the point of need, other alternatives also are available that may include total processing costs, including food preparation and serving. DOD currently is testing this concept at an installation in the Washington, D.C. area under a contract that costs $2.93 per man per day. Under this arrangement, a food service contractor procures all the food, prepares it, serves it, and washes the dishes. This method is used by the Coast Guard and Merchant Marine Academies and on a limited scale by other Federal agencies. In the case of DOD, it cannot be easily determined if this alternative is cost-effective compared with the traditional method of military distribution and preparation, since there are no current statistics on what it costs DOD to provide a meal at the table. The pricing of the contract food service method is by the meal, provided in accordance with a predetermined menu that includes flexibility for customer preference. Between the extremes of total food distribution servicing by a military activity and a full food service contract, some of the services have chosen to contract for one or more steps such as food preparation, cooking, and kitchen police service. These contractual arrangements probably result more through necessity due to lack of available military personnel to perform the services than from an economic analysis of various alternatives. The second largest food buyer in the Government is USDA. Except for food procured by the Forest Service, the USDA food acquisition program is for distribution to activities outside the Government. These programs range from commodities provided to schools, needy persons, and nonprofit institutions, to those made available through the Agriculture Trade Development and Assistance Act of 1954 2+ for foreign sale or donation. As in the case of DOD, USDA choice of commodity distribution systems disregards total economic cost. The basic reason for ignoring the economics of alternative distribution systems is the traditional 24 23 U.S. Department of the Army, Fort Myer, Virginia, Latex Food Service Supply Contract Test Program. Contract Number DABG 13-71-C-00115. 268 Stat. 454; 7 U.S.C. 1704 and 1721 (1970). principle of acquiring the commodities in large lots as close as possible to the point of production in order to further a socioeconomic program of price stabilization. In our review of distribution systems, we did not analyze the basis for the programs, but examined program effectiveness specifically regarding procurement and distribution. In supplying food products to schools and institutions, USDA draws from Government depots and procures for direct delivery. These commodities are distributed to States rather than to the final recipient. Various methods are used by the States in redistribution. Some States have their own distribution system, some use commercial distribution, and some have arrangements with USDA for multilocation delivery to recipients. USDA adapts to State distribution systems. A firm of management consultants recently analyzed the redistribution aspects of the program for USDA.25 Except for data identified in the cited report, the costs of the redistribution program are not available or considered in the method of acquisition. Costs of delivery of products to the first destination are carefully considered in the USDA award process, which has been computerized for least-cost determination. In fact, USDA was the only agency visited that used ADP techniques in evaluating delivery alternatives for award. The largest civilian agency user, the Veterans Administration (VA), buys more than two-thirds of its food requirements locally. Only 325 items are procured for depot distribution in addition to medical items. These items are procured in carload quantities to take advantage of the low combined freight rates. VA was the only agency visited that considered total economic cost in selecting its methods of procurement and distribution. Specifications Food specifications are the most unusual and confusing of all the Federal specifications in the procurement system. The Second Hoover 25 A. T. Kearney and Company, Inc., A Study of the Distribution of Donated Food Commodities, conducted for the U.S. Department of Agriculture, Food and Nutrition Service, June 3, 1971. Commission, in April 1955, recommended that the Federal agencies adopt uniform specifications for food products.26 Little progress has been achieved in the 17 years that have elapsed since that recommendation was made. GSA, when it was established in 1949, was given the oversight responsibility for establishing uniform food specifications. DOD, by agreement with GSA, retained the right to prepare and to use Military Specifications for food procurements. GSA delegated to USDA the responsibility for the preparation of Federal food specifications. As a matter of policy, GSA circulates the USDA-proposed Federal Specification to all other affected procuring agencies (about 15) and to the agencies having statutory responsibilities for food inspection, such as the Food and Drug Administration, Public Health Service, and the National Oceanic and Atmospheric Administration. DOD coordinates on these Federal Specifications and supplements them with Military Specifications. We were advised by the Army Natick Laboratories that from 20 to 25 percent of the food industry contributes to the development of Military Specifications in the areas of product characteristics, production practices, and the relationship of specification requirements to product functions and performance. Because a food specification must satisfy such a diverse number of interests, of necessity it becomes a wide umbrella encompassing the whole spectrum of characteristics that identify the product. For example, a specification usually includes the gamut of grades, style of pack, class, variety, point of origin, size, and kind of containers and packaging materials. Hence, the purpose of definitively describing a single product in a single specification is defeated. Many times a specification is promulgated that results in excessive cost to the taxpayer because to conform with it a production line must be changed. This occurs when a Government specification is substantially different from that used in regular commerce. Usually such a specification is designed to conform with some particular requirement established by a using agency that has little understand 26 U.S. Commission on Organization of the Executive Branch of Government, Final Report, June 1955. ing or experience with how the commodity is produced. The requirement could very well be valid, as in the case of menu planning and portion control, but to conform with it may require the supplier to use different production or packaging techniques. Many times overly rigid Government specifications are applied to food products without regard to the end use. These specifications tend to (1) limit competition, (2) increase cost unnecessarily, (3) reduce the quality of the end product, and (4) increase the labor required to prepare the product. Federal Food Inspection The inspection of food products is performed in accordance with Federal laws, regulations, voluntary programs, and contract provisions. The responsibility for administering the inspection requirements has been placed in several agencies and is a significant and demanding factor in the food acquisition programs of these agencies. 28 The legislation that put the Government in the food inspection business was enacted as a result of Upton Sinclair's book, The Jungle, published in 1906. This book focused the attention of the American people on the unwholesomeness of the meat then being produced. In 1906, Congress also enacted legislation concerning the adulteration and misbranding of food products. Both laws required inspection but only for food products involved in interstate commerce. These laws placed inspection mandates on USDA for wholesomeness of meat and on FDA for adulteration and misbranding of all foods, including meat. It took from 1906 through 1967, a period of 61 years, before Government inspection of meat processing plants used in intrastate commerce became mandatory. Federal agency food inspection activity is summarized in the introduction to a document prepared for the Industrial College of the Armed Forces: A number of agencies of the Federal Gov 27 34 Stat. 1261, 21 U.S.C. 606 (1970). 23 Act of June 30, 1906, ch. 3915, 34 Stat. 768; for current provision, see 21 U.S.C. 331 (1970). ernment are engaged in the inspection of subsistence (food) for their own procurement, for regulatory purposes, or as a service to industry. The Department of Agriculture inspects for wholesomeness all meat and poultry entering interstate commerce. It also inspects and grades agricultural commodities for quality as a voluntary service to industry and consumers, or in connection with Government procurement or price support operations. The Department of Interior operates a similar program for fishery products. The Department of Defense inspects food acquired for troop feeding, commissaries, and military assistance programs. The Public Health Service collaborates with State and local health agencies in programs for the inspection of fresh milk products and shellfish.29 Food Imports 30 About $15 billion is spent each year by consumers on food imports. Many of these food items are acquired by the Federal agencies for troop issue or resale in commissaries or they enter the country as "brand-name" products of U.S. companies. Jurisdiction over the inspection of imported food is split between FDA and USDA. USDA inspects food manufacturing and processing plants in foreign countries for meat and poultry products only. This is a quality assurance program inspection and is not a continual day-to-day inspection as is the inspection of U.S. meat products. However, FDA has no authority to inspect food product manufacturing or processing plants in foreign countries. FDA's jurisdiction begins at the point of entry to the United States. 29 Blum, Subsistence Inspection Programs of the U.S. Department of Defense and the U.S. Department of Agriculture, a thesis presented to the U.S. Industrial College of the Armed Forces, Mar. 31, 1966. 30 U.S. Congress, House, Committee on Interstate and Foreign Commerce, Oversight Hearing on Food Inspection Activities of the Food and Drug Administration, Hearings before the Subcommittee on Public Health and Environment, 92d Cong., 1st sess., statements of Dr. Charles C. Edwards, U.S. Food and Drug Administration, Aug. 3, 1971, p. 37. FDA and USDA inspection of imported food has become complicated because of extensive use of containerized shipments. For example, a container might arrive in San Francisco and remain unopened until it arrived at Denver, so the port of entry effectively becomes Denver. FDA officials stated that only 6-1/2 percent of all food lots entering the United States are inspected, and that only 43 inspectors, who are also responsible for drugs, cosmetics, and product safety, are engaged in this entire activity. These 43 inspectors cover primarily nine major ports of entry: New York, Newark, Houston, New Orleans, Miami, San Francisco, San Diego, the Los Angeles area, and Seattle.1 Conclusions The scope and substance of the food market is of such importance that it demands constant attention at the highest levels of Government to assure that all operations are consistent with the everchanging national interest, as determined by Congress. Food acquisition systems for Federal agency use, and those established to further socioeconomic objectives, overemphasize initial price of a food product without sufficient consideration of total cost to provide the product to the user. Current procurement reporting systems do not provide industry, Congress, or the executive branch with the data on food procurement needed for effective evaluation of the total system. Federal inspection and acceptance procedures governing food procurements for Government use should be more closely coordinated with Federal and State procedures governing food procurements for public use. The resources involved in the inspection of food in interstate commerce could be utilized more effectively if each food processor were required to have a quality assurance program. Many food products are purchased by the Government using Government specifications when a suitable commercial product is availa 31 Ibid., pp. 12, 16. ble to fill the requirement. When the food specification contains special requirements, they increase production costs and reduce competition. Packaging requirements are specified without adequate consideration of commercial packaging methods. The Walsh-Healey Act has varied applications for Federal agencies and programs. These different applications are costly and unduly complicate the process. PRODUCTS AND SERVICES OF REGULATED INDUSTRIES The products and services of regulated industries include those provided by industries normally under Federal, State, and local government regulation and those provided by State, municipal, and other local government units (such as sewer and water authorities). The special characteristics of the products and services of regulated industries are that: • Prices are not set by competition, and participation in the market is restricted. • Procurements are necessarily sole source. • Procurements are made from State or local governments that provide products or control producers. The products and services involved include: Energy Electricity Gas Steam Chilled water Garbage collection Communication Telephone Transportation Air passenger charter Rail cargo space Truck common carriage Water passenger charter Water cargo charter Water passenger space Water cargo space Government procurement from regulated industries is generally not subject to rules governing similar purchases by industry and the general public.32 The policy has been to accom 32 ASPR 5-801. 33 modate to regulatory body requirements insofar as the general laws governing procurement will permit. Recommendation 18. Encourage procuring activities, when it is deemed in the best interests of the Government, to purchase supplies or services from public utilities by accepting the commercial forms and provisions that are used in the utilities' sales to industry and the general public, provided the service contract provisions are not in violation of public law. Recommendation 19. Review transportation procurement techniques to determine whether more innovative procurement methods are warranted when alternative sources and modes are available. Except for transportation, most procurements of regulated services include a requirement for physical connection of the user's equipment to the regulated industry's system. The cost of connection can be borne separately or covered partially or wholly by the rates paid for the service. For new facilities, the connection agreement and construction required for obtaining service must be coordinated with the overall construction program. The connection may be made under the general construction contract, under a separate contract, or by the regulated supplier. The lack of data on Federal procurement by agency and product (discussed in Chapter 2) also applies to procurement from regulated industries. Federal agencies spend more than $1.4 billion a year on Government bills of lading and transportation requests alone.34 The total Federal procurement of regulated products and services is estimated to exceed $6 billion annually. This estimate does not account for (1) the products and services of the Tennessee Valley Authority (TVA), Bonneville Power Administration (BPA), or similar Government utility operations that buy and transfer services or Federal installations that produce their own regulated industry services, (2) transportation procured as part of FOB destination price procurements, or (3) use of the U.S. Postal Service. 33 See extensive regulatory power of the Interstate Commerce Commission (ICC), 49 U.S.C. 1-22 (1970). "See Chapter 2, table 3. The Government has numerous regulatory programs; for example, in the fields of communications (Federal Communications Commission), energy (Federal Power Commission), air transportation (Civil Aeronautics Board), commercial interstate surface transportation (Interstate Commerce Commission), and sea transportation (Federal Maritime Commission). The Government has no major regulatory. program in the field of sanitation. This does not take into account the long-term programs of the Environmental Protection Agency (EPA) and other Federal programs to combat water pollution. The States generally supplement the Federal regulation of energy, communication, and transportation. State regulation is important in the fields of energy and communication where there is a large volume of intrastate transactions. State regulation does not appear to be of primary importance in the sanitation services and transportation industries. Local regulation is of major importance only in the field of sanitation. Sanitation services are often provided by a local government and are paid for through service fees or general taxation. management The Federal Property and Administrative Services Act of 1949 (FPASA) gives GSA the basic responsibility for management of the Government's effort to provide “an economical and efficient system for . . . . . transportation and traffic management, of public utility services, and representation before Federal and State regulatory bodies." In July 1972, GSA transferred responsibility for these functions to its Federal Supply Service from its Transportation and Communication Services. Programs have been developed to advise and assist Federal agencies in obtaining regulated industry services, to develop areawide requirements contracts for utilities, and to represent the Government as a consumer before State and Federal regulatory bodies. DOD is the largest user of regulated industry services. Pursuant to the provisions of FPASA, the Secretary of Defense has exempted DOD from the transportation aspects of the act. He has reached agreements 35 governing the relationship of GSA with DOD in the procure 35 FPR 1-4.402(b); FPMR 101-35.102(a). |