i’ ’ ,.-. - , COMPTROLLER GENERAL OF THE UNI _~_ ,- _--_. . (___. -.* . -, Y WASHINGTON. D.C. u)348 B-115369 I,’ Dear Senator ~Proxmire: At hearings before the Subcommittee onEconomy ‘9... in Gov- T1s41”r.s7~/-; ernment, Joint Economic Committee, on July 1, 1970, you asked the General Accounting Office to look into the use of auto- matic data --l---.--rw.-w% processing ~-.-u~c~~““‘.~~~~,..~~.- (ADP) equipment operated by thre%-& four typical Government contractors ----“-a,ri.r, and ‘.a,-”e.mz.aI. to provide you with information regarding who owns the equipment, how the equip- ment is used, and what regulations govern its purchase. In a report dated May 21, 1971, by the Subcommittee on P??‘orities .., and Economy in Government, Joint Economic Committee, you re- quested that the General Accounting Office obtain additional information concerning Government owned and leased ADP equip- ment used by contractors. ADP equipment used for carrying out-Government contracts may be furnished to contractors by the Government or may be owned or rented by the contractors. We have examined into the acquisition, utilization, and disposal of (1) Government- furnished ADP equipment-at the Lawrence Radiation Laboratory, ’ ! Berkeley and Livermore, California, and (2) contractor- furnished ADP equipment at three contractor locations-- Aerojet-General Corporation, Sacramento, California; Lockheed Missiles and Space Company, Sunnyvale, California; and Philco- Ford Corporation, Palo Alto, California. We will respond at a later date to the request made in the Subcommittee report dated May 21, 1971. At each location we reviewed the contractor\s policies, procedures, and controls concerning the acquisition, utiliza- tion, and disposal of ADP equipment used maTrying ~uF’~~ G?ZernmentTT~TZ*c t s . We also reviewed the work performed by the Defense Contract Audit Agency (DCAA) of the costs charged to the Government by the three contractors for use of the contractor-furnighed ADP equipment. We interviewed contractor officials and officials of the Atomic Energy Commission (AEC) , Y’ 5 DCAA, the Department of Defense (DOD), the General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA). 50TH ANNIVERSARY 1921.1971 : B-115369 Government-furnishe’d ADP equipment Lawrence Radiation Laboratory performs 100 percent of its work under contract with AEC. Most of the ADP equipment operated by the Laboratory was Government owned. AEC contrac- tors are required to submit to AEC feasibility studies and proposals for the acquisition of ADP equipment. AEC reviews the contractors ’ requests, approves or denies the requests, and monitors bids or participates in negotiations with equip- ment suppliers. AEC officials advised us that they relied on the contrac- / tors 1 internal controls and procedures for ensuring that Government-furnished ADP equipment was used in accordance with the terms of the contracts. Since all of the work performed by the Lawrence Radiation Laboratory was under contract with the Government, it appeared that there was little likelihood that the Government-furnished ADP equipment would be used for commercial purposes. During our examination we saw no evi- dence that Government-furnished ADP equipment at the Labora- tory was used for commercial purposes. Under AEC procedures, contractors may use Government- furnished ADP equipment to provide services to Government agencies and other Government contractors on a reimbursable basis when excess equipment time is available. Also excess equipment time may be provided to other organizations, such as State governments, on a reimbursable basis, upon approval by AEC. AEC procedures provide that reimbursements in excess of the costs incurred by contractors are to be refunded to AEC. We noted that the Lawrence Radiation Laboratory at Berkeley had provided computer services to other Government agencies and to Government contractors on a reimbursable ba- sis. Office of Management and Budget Circular A-83, issued in April 1967, prescribed the establishment of a Government-wide ADP management information system to be administered by GSA to facilitate and to improve the management of the Government’s ADP resources. The circular prescribed the data that agencies 2 B-115369 were to submit to GSA, including (1) an inventory of equip- ment, (2) reports showing installations and releases of equip- ment, and (3) utilization data. Agencies are required to report to GSA data regarding ADP equipment furnished to con- tractors for use under reimbursement-type contracts or sub- contracts. Inventory and utilization data regarding ADP equipment used at the Lawrence Radiation Laboratory had been reported to GSA by AEC. GSA’s inventory of ADP equipment showed that ds of June 30, 1970, there were 1,079 systems furnished by the Government to various contractors, of which 749 were furnished to contrac- tors by AEC. Most of the Government-furnished ADP systems were being used by contractors that performed work almost ex- clusively for AEC, DOD, or NASA. Because the Government retains title to Government- furnished ADP equipment, excess equipment is disposed of in accordance with the provisions of the Federal Property Manage- ment Regulations. The regulations provide that excess equip- ment be made available for redistribution within an agency or for use by other agencies. Contractor -furnished ADP equipment Most contractor-furnished ADP equipment used by the con- tractors we visited was leased rather than purchased. Title to purchased equipment rested with the contractors. Certain of the lease agreements provided for the earning of purchase credits on the equipment, and ownership o,f the equipment would rest with the contractor in the event that the contrac- tor exercised the option to purchase the equipment. The contractors operated ADP service centers, and the Government was charged for use of the equipment. DCAA reviews payments to DOD contractors. The Armed Services Procurement Regulations provide that, in determining the charges to the Government for use of contractor-furnished equipment, rental costs are allowable only up to the amounts that the contrac- tor would have incurred had the equipment been purchased. 3 B-115369 At each of the contractor locations we visited, DCAA had reviewed the contractors’ billing rates being charged to the Government or was in the process of reviewing the billing rates. In addition, at one location, a committee composed of officials of the contractor, the Air Force, the Navy, and DCM had been established to review the acquisition, utiliza- tion, and disposal of ADP equipment. Data concerning ~ contractor-furnished equipment is not required to be reported to GSA. We found only one instance where contractor-owned ADP equipment had been disposed of. Officials c-of this contrac- tor advised us that the equipment had been disposed of under their normal policies for disposal of company-owned fixed as- sets. Two of the contractors visited did not have formal written policies regarding the disposal of contractor-owned ADP equipment. At the time of our examination, neither of these contractors had disposed of their ADP equipment that had been used for Government contract work. Rented equipment that was no longer needed was returned to suppliers. We plan to make no further distribution of this report unless copies are specifically requested and then we shall make distribution only after your agreement has been obtained or public announcement has been made by you concerning the contents of the report. We trust that the information provided has answered sat- isfactorily your questions. If we can be of further assis- tance, please let us know. of the United States The Honorable William Proxmire, Chairman Subcommittee on Priorities and Economy in Government Joint Economic Committee 4
Use of ADP Equipment Operated by Three or Four Typical Government Contractors
Published by the Government Accountability Office on 1971-11-24.
Below is a raw (and likely hideous) rendition of the original report. (PDF)