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)

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                                          COMPTROLLER     GENERAL     OF      THE       UNI
            _~_ ,-   _--_.        . (___. -.*  . -, Y
                                                        WASHINGTON.    D.C.         u)348

     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%
     ~-.-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   :

    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-

          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


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.


         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