oversight

Multiyear Leasing and Government-Wide Purchasing of Automatic Data Processing Equipment Should Result in Significant Savings

Published by the Government Accountability Office on 1971-04-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

BY THE COMPTROLLER GENERAL
OF THE UNITED STATES


                  A/-wL30,   b 97 1
                  COMFTROLLER      CENERPh       OF    THE       UNITED    STATES
                                 WASHINGTON       DC         20548




B- 115369




To the      President       of the Senate     and the
Speaker       of the     House    of Representatrves

         This    IS our report      entltled     “Multiyear      Leasing     and
Government-        wide Purchasing           of Automatic      Data Processm
mg Equipment         Should    Result       m Slgmflcant      Savmgs     tt Our
review      was made     pursuant       to the Budget       and Accounting
Act,   l9Zl    (31 U.S C. 53), and the Accounting                and Auditing
Act of 1950 (31 U.S.C.          67)

        Copies    of this report              are being    sent to the Director,
Office   of Management       and             Budget;   the Admmlstrator        of
General    Services;     and the             heads   of Federal    departments
and agencies.




                                                      Comptroller                 General
                                                      of the United               States




                           50 TH ANWERSARY                     1921-      1971-
COibPTROLLER
           GEil'ERAL'S                               MULTIYEAR LEASING AND GOVERNMENT-WIDE
REPORTTO THE CONGRESS                                PURCHASING OF AUTOMATIC DATA PROCESSING
                                                     EQUIPMENT SHOULD RESULT IN SIGNIFICANT
                                                     SAVINGS B-115369


 DIGEST
------

WHYTHE REVIEW WASMADE
        The General Accounting Office   (GAO) has reviewed the Government-wide    pro-
        gram for acquiring   automatic data processing   (ADP) equipment because*

               --There   1s continuing   and widespread    congressional     interest.

               --The Federal Government, largest    user of ADP equipment in the world,
                  has increased its inventory   of computer systems from 531 in June
                  1960 to 5,277 ln June 1970, when lt owned ADP equipment which cost
                  $1.9 bllllon  and rented equipment which would cost $1 2 billion   to
                  purchase.

               --Expenditures     for the purchase and rental of equipment amounted to
                  $560 mllllon    In fiscal year 1969 and have been lncreaslng annually.

        The Congress enacted Public Law 89-306 (Brooks Bill),          to provide for the
        establishment  of a coordinated     Government-wide   program for the efflclent
        and economical acqulsltlon      of general-purpose   ADP equipment.      The law
        made the Offlce of Management and Budget (OMB) responsible           for fiscal
        and policy control    and the General Services Admlnlstratlon        (GSA) respon-
        sible for operations.      To assist GSA in carrying     out its responslblll-
        ties, the law directed     that an ADP Fund be established,

                                                                                         R
FINDIflGS AND CONCLVSIOil%'                                                                             0
                                                                                             b;
        MuZ-hyem         leases

         ADP equipment may be purchased, rented for short terms (1 year or less),
         or leased for terms of more than 1 year under leases referred  to as mul-
         tlyear  leases

        There are many sources for acqulnng               ADP equipment,    including     system
        manufacturers,       peripheral      component manufacturers,     and suppliers       who do
        no manufacturing.         The Government continues to obtain most of its equip-
        ment from system manufacturers              under negotiated  contracts      through either
        purchases or short-term           rentals.     Almost all of the $390 million         that
        the Government spent to rent ADP equipment in fiscal                 year 1969 was for
        short-term     rentals--generally          the most cost7y acquisltlon      method.      (See
        p. 12.)
Tear   Sheet
                                                                                  .

Despite the wide use of short-term   rentals,  the needs for equipment
tend to be for more than 1 year.    Of 42 systems rented on a short-term
basis and returned to manufacturers   in 1969, 29 had been rented for pe-
rlods of at least 3 years.    (See P. 14.)
Most manufacturers    offer discounts under multiyear leases.   Suppliers
other than manufacturers    have entered the same market, making competi-
tlon possible.     (See pp* 16 and 19.)

The rental of equipment under multlyear          leases, as an alternative       to
short-term    rentals,   has become essential      lf the Government 1s to make
maximum use of its limited      funds for acquiring      ADP equipment.       In GAO's
opinion,   multlyear   leasing 1s a more economical alternatlve          than short-
term rentals when equipment cannot be purchased.             In many cases, how-
ever9 agencies are barred by law from entering           into multlyear     leases
because equipment acquisitions       must be financed from l-year funds which
are available     only during a specific    fiscal year.       (See p 27. )
The ADP Fund administered      by GSA appears to be the appropriate           vehicle
for the Government to use when agencies are barred from entering                 into
multiyear  leases.     Unless GSA were given new authority,           however, money
would have to be obligated      to cover total antlclpated         payments under
the leases     Accordingly,    before the ADP Fund could be used extensively
to obtain the benefits      of multiyear    leasing,    its capitalization     would
have to be increased substantially         or GSA would have to be given author-
ity to contract    on a multiyear     basis without obligating        the total an-
ticipated  payments at the time of entering          into the leases.       (See p. 26.)

To obtain an lndicatlon    of potential   savings by      entering    into multiyear
leases, GAO compared multiyear      rates offered   by    manufacturers    and other
suppliers  with short-term   rental rates for 1,066        systems in the Govern-
ment's inventory   ln June 1969. Included ln this          comparison were 430
systems for which multlyear     leases were legally       possible and 636 for
which they were not.

The comparison indicated  that the rental costs for the 430 systems might
be reduced during the lease periods by as much as $16 million     under
3-year leases and by as much as $28 million    under 5-year leases.     For
the 636 systems, rental costs might be reduced during the lease periods
by as much as $54 million   under 3-year leases and by as much as
$127 million  under &year leases.     (See p. 24.)

Government-wade    purchaszng

The Government 1s not making maximum use of its ADP equipment purchase
funds, primarily     because agencies continue to make purchase decisions
on the basis of their lndlvidual      funding capabilities    and needs.  Of
$169 million    spent by the Government in fiscal      year 1969 for ADP equlp-
ment purchases, $166 million     was spent by lndlvldual     agencies and
$3 million   was spent by GSA through the ADP Fund. Systematic analyses




                                     2
      were not made to determine         the best buys from the Government-wide                   vlew-
      point.   (See p. 29 )
      If the ADP Fund 1s to be the central     vehicle     for the achievement of sub-
      stantial  economies through the development       of the coordinated    purchase
      program Intended by Public Law 89-306, the fund's capitalization            ~111
      have to be increased.     OMB and GSA should present to the Congress plans
      showing the potential    reduction ln costs to be derived from various
      levels of spending through the ADP Fund for equipment purchases.             It
      could be shown that appropriations    for lncreaslng       the ADP Fund would be
      largely  offset  by decreases in agencies'     funding for equipment purchases.

      Also, the availability       of equipment from numerous suppliers        makes com-
      petltlon    possible   In purchasing     equipment.   An example of savings
      through purchase after competition           was the action taken by one agency
      renting    two ADP systems      It   requested   bids for the lease or purchase
      of similar     equipment,    One bid was received     from the manufacturer     and
      three from suppliers      that did no manufacturing.        Analysis of the bids
      Indicated    that purchase was the most economical choice.            The purchase
      bids from the three suppliers         were lower than the manufacturer's       bid;
      the bid that was accepted was $335,000 (34 percent)            lower.    (See p. 35.)


RECOlklMEflDATIONS
                 OR SUGGESTIOX?
      A Government-wide   effort       is needed to make the maximum use of funds                      for
      acquiring  ADP equipment,

      Leasing
      GSA should:

          --By taking a more active role in contracting   for ADP equipment, make
             sure that multiyear  leases are used to the extent lawful and prac-
             ticable.

          --Require  agencies to submit for GSA evaluation                   their    decisions   to ac-
             quire ADP equipment under short-term  rentals.

          --Ensure that competitlon        IS obtained        in acquiring       ADP equipment     under
             multiyear leases.

       Federal   departments      and agencies       should   make sure that.

          --Maximum practicable       use is made of multiyear           leases.

          --Competition    is obtalned     in acquiring        ADP equipment         under multlyear
             leases.

 Tear Sheet




                                                 3
     PLixchaszng

     OMB and GSA should:
        --Request addltional    capital   for the ADP Fund from the Congress, pre-
           sentlng specific  plans for the expenditure      of requested funds and
           describing the potential     economies from various    levels of spending.

        --Use a Government-wide,     best-buy approach on purchases.    The analyses
           to identify   best buys should Include conslderatlon   of (1) both
           rented equipment and planned acqulsitlons    and (2) potential   redls-
           tribution   of equipment.

        --Consider  all available  supply sources       ln purchasing   equipment   and
           use competition  to the maximum extent       practicable.


AGENCY ACTIQlUS    AND UNRESOLVED    ISSUES

     Leash7

     GSA said that it had sent notices to agencies informing            them of available
     multlyear  lease plans and that it was the responslbillty           of each agency
     to act accordingly.    (See p. 27.)

     GAO's review indicated     that agencies had not often acted on GSA's no-
     tices.    (See p, 24,)   In GAO's view, GSA's responsiblllty    does not end
     with the issuance of the notices.       GAO believes  that GSA should assume
     a more active role by requiring     agencies to submit for its evaluation
     their declslons   to acquire ADP equipment under short-term     rentals.
     {See p. 28.)



     GSA submitted to OMB an        amendment to its fiscal    year 1971 budget re-
     questing $30 mllllon     to    increase the ADP Fund. The supplemental        ap-
     propriation    bill, which     included $20 mllllon    for the ADP Fund, was en-
     acted ln January 1971.         {See p. 30.)   That was the first     request to the
     Congress to increase the        ADP Fund since an Initial     $10 mllllon   was ap-
     propriated   ln 1967.

     GSA agreed that a coordinated   purchase program 1s essential  lf the Gov-
     ernment 1s to make the best use of its ADP purchase funds.     GSA stated
     that the Government's  ADP equipment acqulsltlons   could be made from one
     central  fund with all agencies required  to use the fund.

     OMB agreed that the ADP Fund has not been fully developed but cited              in-
     stances where progress has been made. (See pp. 49 and 53.)




                                              4
       OMB and GSA said that a Government-wide,      best-buy list would be prepared
       for the purchase of ADP equipment.     (See pp. 49 and 55.)     These agencies
       cited several actlons taken or planned to promote supply sources other
       than system manufacturers--mainly   peripheral     component manufacturers.
        (See pp. 49 and 53.)

MATTERSFOR CONSIDERATIONBY THE CONGRESS
       In many instances the Government cannot take advantage of substantial
       savings available     through multiyear     leaslng of ADP equipment.    The Con-
       gress may wish, therefore,       to consider legislation     authorizing GSA,
       through the ADP Fund, to contract        on a multiyear   basis wlthout  the ne-
       cessity of obllgatlng      the total antlclpated     payments at the time of en-
       tering  into the leases.

       Use of the ADP Fund for multiyear     leaslng would not d lsturb agencies'
       traditional  flnanclal patterns.     GSA could enter into multiyear   leases.
       The ADP Fund would then be obligated      for payments, at multiyear  leasing
       rates, for l-year periods.     Agencies would, ln turn, lease the equipment
       from GSA and reimburse the ADP Fund from their l-year funds but still
       receive the multlyear   leasing discounts.




Tear Sheet
                            Contents
                                                                             Page

DIGEST                                                                         1

CHAPTER

   1      INTRODUCTION                                                         6
              ADP equipment acquisition        prior    to enact-
                 ment of Public Law 89-306
                    OME!activities
                    GSA activities
                    Department     of Commerce activities
              Major provisions       of Public Law 89-306
              First   steps toward implementation         of a
                 Government-wide      ADP equipment acquisi-
                 tion program                                                 10

   2      MDLTIYEAR LEASING OFFERS OPPORTUNITIES FOR
          SIGNIFICANT COST REDUCTIONS                                         12
               Expenditures       for short-term         rentals              12
               Duration     of periods        that ADP equipment
                  remains rented                                              14
               Multiyear      leasing      from manufacturers                 16
                     Financial      risks                                     17
               Multiyear      leasing      from nonmanufacturing
                  suppliers                                                   19
                     Financial      risks                                     20
               Restrictions        on use of multiyear           leases       21
                     GSA efforts         to make multiyear         leas-
                         ing discounts         available    to agencies       22
               Conclusions                                                    25
               Recommendation          to the Congress                        27
               Recommendations           to the Administrator           of
                   General Services                                            27
               Recommendationstothe              heads of Federal
                   departments       and agencies                              27
               GSA comments and our evaluation                                 27

   3      COORDINATED GOVERNMENT-WIDE APPROACH TO PUR-
          CHASING NEEDED                                                       29
              Capitalization     of ADP Fund                                   29
              Activities     of ADP Fund                                       31
                                                                       Page
CHAPTER

                     Equipment purchased by ADP Fund                    31
                     GSA studies      of rented equipment               31
                     Management information          system             32
                OMB activities      relating      to the purchase
                  of equipment                                          34
                Opportunities     to purchase equipment         from
                  nonmanufacturing         suppliers                    35
                Conclusions                                             36
                Recommendations       to the Director,      OMB,
                  and to the Administrator           of General
                  Services                                              38
                OMB and GSA comments and our evaluation                 38

        4   INTERNAL AUDIT                                              40
                GSA comments                                            40

        5   SCOPE OF REVIEW                                             41

APPENDIX

        I   General Accounting    Office reports     on studies
              which illustrated     and summarized improve-
              ments which could be made in the Gcvernment-
              wide coordination     of certain   aspects of au-
              tomatic   data processing    management                   45

   II       Automatic   Data Processing     Fund comparative
              statement   of financial     condition                    46

 III        Letter  dated September 11,       1970, from the
              Administrator   of General      Services  to the
              General Accounting   Office                               47

   IV       Letter    dated November 18, 1970, from the
               Associate    Director, Office of Management
               and Budget, to the General Accounting
               Office                                                   53
*
APPENDIX                                                                 Page

    V      Princrpal      officrals     of the Office     of Manage-
              ment and Budget and the General Services
              Adminrstration        responsible   for the
              adminrstratlon        of activities     drscussed   rn
              this report                                                 57
                                  ABBREVIATIONS

ADP        automatic       data    processing

DOD        Department       of Defense

GAO        General     Accounting       Office

GSA        General      Services     Admlnlstration

IBM        International          Business      Machines   Corporation

OMl3       Office      of Management         and Budget
   I



COMPTROLLERGENERAL'S                                MULTIYEAR LEASING AND GOVERNMENT-WIDE
REPORTTO THE CONGRESS                               PURCHASING OF AUTOMATIC DATA PROCESSING
                                                    EQUIPMENT SHOULD RESULT IN SIGNIFICANT
                                                    SAVINGS B-115369


DIGEST
------

WHYTHE REVIEW WASMADE
       The General Accounting Offlce   (GAO) has reviewed the Government-wide    pro-
       gram for acquiring   automatic data processing   (ADP) equipment because*

         --There    1s continuing     and widespread     congressional      Interest

         --The Federal Government, largest    user of ADP equipment in the world,
            has increased its inventory   of computer systems from 531 ln June
            1960 to 5,277 in June 1970, when lt owned ADP equipment which cost
            $1 9 btlllon  and rented equipment which would cost $1.2 bllllon   to
            purchase.

         --Expenditures      for the purchase and rental of equipment amounted to
            $560 mllllon     ln fiscal year 1969 and have been increasing annually.

       The Congress enacted Public Law 89-306 (Brooks Bill),          to provide for the
       establishment  of a coordinated     Government-wide   program for the efficient
       and economical acqulsltlon      of general-purpose   ADP equipment       The law
       made the Office of Management and Budget (OMB) responsible           for fiscal
       and policy control   and the General Services Admlnlstratlon         (GSA) respon-
       sible for operations       To assist GSA ln carrying     out its responslblll-
       ties, the law directed     that an ADP Fund be established.


FIMDINGS AND COflCLUSIONS
       Multiyear    Zeases

       ADP equipment may be purchased, rented for short terms (1 year or less),
       or leased for terms of more than 1 year under leases referred  to as mul-
       tiyear leases.

       There are many sources for acquiring               ADP equipment,   lncludlng     system
       manufacturers,       peripheral     component manufacturers,       and suppliers      who do
       no manufacturing.         The Government continues to obtain most of its equlp-
       ment from system manufacturers               under negotiated  contracts     through either
       purchases or short-term           rentals.      Almost all of the $390 million        that
       the Government spent to rent ADP equipment in f-rscal year 1969 was for
       short-term     rentals--generally          the most costly acquisltlon      method.      (See
       p. 12.)
                                                                                 .

Despite the wide use of short-term   rentals,   the needs for equipment
tend to be for more than 1 year.    Of 42 systems rented on a short-term
basis and returned to manufacturers    in 1969, 29 had been rented for pe-
nods of at least 3 years.     (See p- 14.)

Most manufacturers    offer discounts under multiyear  leases.  Suppliers
other than manufacturers    have entered the same market, making competl-
tion possible.     (See pp. 16 and 19.)
The rental of equipment under multiyear          leases, as an alternative       to
short-term    rentals,   has become essential      if the Government is to make
maximum use of its limited      funds for acquiring      ADP equipment.       In GAO's
opinion,   multiyear   leasing is a more economical alternative          than short-
term rentals when equipment cannot be purchased.             In many cases, how-
ever, agencies are barred by law from entering           into multiyear     leases
because equipment acqulsltlons       must be financed from l-year funds which
are available     only during a specific    fiscal year.       (See p. 21.)

The ADP Fund administered      by GSA appears to be the appropriate           vehicle
for the Government to use when agencies are barred from entering                into
multiyear  leases      Unless GSA were given new authority,           however, money
would have to be obligated      to cover total anticipated         payments under
the leases     Accordingly,    before the ADP Fund could be used extensively
to obtain the benefits      of multiyear    leasing,    its capttalizatlon     would
have to be increased substantially         or GSA would have to be given author-
ity to contract   on a multiyear      basis without obligating        the total an-
ticipated  payments at the time of entering          into the leases.       (See p. 26.)

To obtain an indication    of potential      savings by    entering   into multiyear
leases, GAO compared multiyear      rates offered    by    manufacturers   and other
suppliers  with short-term   rental rates for 1,066         systems in the Govern-
ment's inventory   in June 1969.      Included in this      comparison were 430
systems for which multiyear     leases were legally        possible and 636 for
which they were not.

The comparison indicated  that the rental costs for the 430 systems might
be reduced during the lease periods by as much as $16 million     under
3-year leases and by as much as $28 million    under 5-year leases.    For
the 636 systems, rental costs might be reduced during the lease periods
by as much as $54 million   under 3-year leases and by as much as
$127 million  under &year leases,     (See p. 24.)

Government-wade    purehaszng

The Government is not making maximum use of its ADP equipment purchase
funds, primarily     because agencies continue to make purchase decisions
on the basis of their individual      funding capabilities    and needs. Of
$169 million    spent by the Government in fiscal year 1969 for ADP equlp-
ment purchases, $166 million     was spent by individual     agencies and
$3 million   was spent by GSA through the ADP Fund         Systcmatlc analyses
     were not made to determine        the best buys from the Government-wide              view-
     point.   (See p. 29.)

     If the ADP Fund is to be the central      vehicle     for the achievement of sub-
     stantial  economies through the development        of the coordinated    purchase
     program intended by Public Law 89-306, the fund's capltallzation             will
     have to be Increased.      OMB and GSA should present to the Congress plans
     showing the potential    reduction  in costs to be derived from various
     levels of spending through the ADP Fund for equipment purchases.              It
     could be shown that appropriations     for increasing       the ADP Fund would be
     largely  offset  by decreases in agencies'      funding for equipment purchases.

     Also, the avallabllity       of equipment from numerous suppliers       makes com-
     petition    possible   in purchasing   equipment.    An example of savings
     through purchase after competition         was the action taken by one agency
     renting    two ADP systems.     It requested bids for the lease or purchase
     of similar     equipment     One bid was received    from the manufacturer     and
     three from suppliers      that did no manufacturing.      Analysis of the bids
     indicated    that purchase was the most economical choice            The purchase
     bids from the three suppliers        were lower than the manufacturer's       bid;
     the bid that was accepted was $335,000 (34 percent)           lower.    (See p. 35.)


RECOMMEflDATIOXi'OR SUGGESTIONS
     A Government-wide   effort     is needed to make the maximum use of funds for
     acquiring  ADP equipment.

     Leasing

     GSA should:

       --By taking     a more active role in contracting   for ADP equipment, make
          sure that    multiyear   leases are used to the extent lawful and prac-
          ticable

       --Require  agencies to submit for GSA evaluation               their    decisions   to ac-
          quire ADP equipment under short-term  rentals.

       --Ensure that competition        is obtained    in acquiring       ADP equipment     under
          multiyear leases.

     Federal   departments     and agencies   should   make sure that

       --Maximum practicable       use is made of multiyear       leases

       --Competition     is obtained    in acquiring    ADP equipment         under multiyear
          leases.
     Purchasing

     OMB and GSA shouJd:

       --Request addltlonal   capital   for the ADP Fund from the Congress, pre-
          senting specJfJc plans for the expenditure      of requested funds and
          descrlblng the potential    economies from various    Jevels of spending.

       --Use a Government-wide,     best-buy approach on purchases.    The analyses
          to identify   best buys should inc7ude consideration   of (1) both
          rented equipment and p7anned acqulsltions    and (2) potential   redls-
          trlbutlon   of equipment.

       --Consider  all available  supply sources      in purchasing   equipment   and
          use competltlon  to the maximum extent      practicable.


AGENCYACSTIONSAA'D UNRESOLVEDISSUES
     Leasing

    GSA satd that it had sent notlces to agencies informing           them of available
    multiyear  lease plans and that it was the responslblllty          of each agency
    to act accordingly.    (See p. 27.)

    GAO's review indicated     that agencies had not often acted on GSA's no-
    tlces.    (See p, 24,)   In GAO's view, GSA's responsibility   does not end
    with the issuance of the notices.       GAO believes that GSA should assume
    a more active role by requiring     agencies to submit for tts evaluation
    their decisions   to acquire ADP equipment under short-term    rentals.
    (See p. 28.)



    GSA submitted to OMB an       amendment to its fiscal year 7977 budget re-
    questing $30 mllllon     to   increase the ADP Fund. The supplemental       ap-
    propriatlon    bill, which    included $20 million   for the ADP Fund, was en-
    acted in January 1971.        (See p. 30.)    That was the first   request to the
    Congress to Increase the        ADP Fund since an lnlttal   $10 mllllon   was ap-
    proprlated   in 7967.

    GSA agreed that a coordinated   purchase program is essential  if the Gov-
    ernment IS to make the best use of its ADP purchase funds.     GSA stated
    that the Government's  ADP equipment acqulsltlons   could be made from one
    central  fund with all agencies required  to use the fund.

    OMB agreed that the ADP Fund has not been fully developed but cited            in-
    stances where progress has been made. (See pp. 49 and 53,)




                                          4
     OMB and GSA said that a Government-wide,      best-buy list would be prepared
     for the purchase of ADP equipment.     (See pp. 49 and 55.)     These agencies
     cited several actions taken or planned to promote supply sources other
     than system manufacturers--mainly   peripheral     component manufacturers.
     (See pp. 49 and 53.)


MATTERS FOR CONSIDERATION BY THE CONGRESS

     In many instances the Government cannot take advantage of substantial
     savings available     through multlyear     leastng of ADP equipment.       The Con-
     gress may wish, therefore,       to consider    legislation     authorizing GSA,
     through the ADP Fund, to contract on a multiyear             basis without the ne-
     cessity of obllgatlng      the total anticipated        payments at the time of en-
     tering into the leases.
     Use of the ADP Fund for multlyear     leasing would not disturb    agencies'
     tradltlonal  financial patterns.     GSA could enter into multlyear     leases.
     The ADP Fund would then be obligated      for payments, at multiyear    leasing
     rates, for l-year periods.     Agencies would, in turn, lease the equipment
     from GSA and reimburse the ADP Fund from their l-year funds but still
     receive the multlyear  leasing discounts.
                                    CHAPTER 1

                                  INTRODUCTION

      The Federal Government is the largest          single user of
automatic  data processing    equipment    in the world.         From
June 30, 1960, to June 30, 1970, the number of systems in
the Government's   inventory   Increased     from 531 to 5,277.        Of
the 5,277 systems, 3,372 were owned wholly           or partially     and
1,905 were rented.     At June 30,1970,      the Government owned
ADP equipment which cost $lo9 billion          and rented ADP equip-
ment which would cost $1.2 billion       to purchase.

ADP EQUIPMENT ACQUISITION PRIOR TO
ENACTMENT OF PUBLIC LAW 89-306

      Several years before      the enactment of Public Law 89-306,
a need was recognized    within    the legislative      and executrve
branches of Government for specializ?d           and dynamic leadership
in the management of ADP activities.            The need was particu-
larly  noted in connection     with the acquisition       of equipment.

        The Government's          ADP equipment was acquired             in essen-
tially    the same manner as other personal                  property      items.
Each agency was responsible                for the acquisition          of its own
equipment     requirements         subject     to statutory,      regulatory,      and
budgetary     restrictions.          Acquisition       decisions      were made
largely     on a decentralized           basis--that      is, from the viewpoint
of an individual         activity      rather     than from the viewpoint          of
the equipment's         usefulness       to other activities          of the agency
as well as to other agencies.

      Three central-type   agencies were involved,       within  their
own spheres of interest,    with the acquisition     of the Govern-
ment's ADP equipment.     Descriptions   of the activities      of
these agencies-- the Office    of Management and Budget, the

1Between 1958 and 1965, the General Accounting           Office    sub-
 mitted   to the Congress five reports     on comprehensive        studies
 which illustrated   and summarized improvements         which could
 be made in the Government-wide     coordination       of certain     as-
 pects  of ADP management, including      acquisition.        (See
 app. I.>
General Services       Administration,        and the Department            of
Commerce--follow.

OMB activities

         OMb issued policies    and guldellnes,    lnqulred   Into ADP
actlvltles      during  Its annual budget reviews,       and sponsored
interagency      groups for the resolution      of ADP management
problems.

      In 1961, OMB issued Circular    A-54, entltled  "Policies
on Selection   and Acqulsltion   of Automatic  Data Processing
(ADP) Equipment,"   which discussed    the

       --desirability     of selecting    equipment on the basis                 of
          system specifications       and overall  costs,

       --need for equal opportunity  and appropriate                   consider-
          ation of all equipment manufacturers,    and

       --need for evaluations         of acquisition        alternatives,
          such as rent versus        purchase.

        In March 1965 the President    approved and sent to the
Congress an Om report        on the management of ADP in the Gov-
ernment.     The report  cited some of the more serious ADP
management problems along with recommendations         for their  so-
lution.     These matters were considered      by the Congress in
the enactment of Public Law 89-306.

GSA activltles

        GSA's role in acquiring        ADP equipment was consonant with
Its general      procurement      and contracting      responslbllitles
under the Federal        Property    and Admlnlstratlve        Services        Act
of 1949, as amended (40 U.S.C. 471).                Under the act GSA is
responsible      for providing      an efficient     and economical          sys-
tem for the procurement           of a wide variety       of goods and
services     needed by agencies.         The Federal Supply Service               op-
erates GSA's Government-wide           procurement       system which in-
cludes (1) a stores stock program,               (2) a nonstores        direct
delivery     program,    and (3) a Federal        Supply Schedule con-
tract program.
       Under the Schedule contract      program, certain     supplies
are made available     to agencies under indefinite-quantity
contracts.     The contracts   are listed    by commodity classifi-
cations      In Schedules        which        are publlshed       in catalog      form.
Each Schedule sets forth for each contract          the specific
items that may be procured,         the prices,  and other contract
terms and conditions      essential    for agencres to place orders
directly  wrth suppliers.

       GSA's responsibility        for acquirrng                ADP equipment,    as
defined     by OMB, was limited        to provrding              annual Schedule
contracts     for the rental,      purchase,      and           maintenance    of
equipment.       Until   fiscal   year    1965,   the           Department   of Defense
(DOD) and certain        civilian    agencies were               permitted   to con-
tract    for their     own ADP requirements.

Department      of Commerce activities

       The National     Bureau of Standards       of the Department      of
Commerce provided       advisory     services  to agencies regarding
technical   aspects of the selection          and acqulsltion     of ADP
equipment.     The Bureau also conducted research             to improve
equipment   compatibility        and recommended uniform       Federal
standards   for equipment,        techniques   for use, and computer
languages.

MAJOR PROVISIONS OF PUBLIC LAW 89-306

         Public Law 89-306 provided        the authority         and specified
organizational      responsibilities       for the purpose of improving
the management of the Government's              ADP activities.           The
legislation     conferred     Government-wide        authorities        and re-
sponsibilities      on OMB, the Department           of Commerce, and GSA
that were consonant with their           traditional         functions.

      OMB was to retain              fiscal      and policy      control   over     all
aspects of ADP management to the extent      that any action   of
any agency under the authority     of the law is subject    to
CMB's review and approval.     QM8 was not granted   any opera-
tional  responsrbilities   for the ADP management program.

     The technical    aspects of ADP management remained with
the Department    of Commerce which was to represent   the Gov-
ernment   In    Its     standardization              efforts   and to coordinate          the
Government's          ADP research        efforts.
        The law gave GSA the operatlonal           responsibility       for
coordinating      a Government-wide        ADP management program.          An
Important     aspect of the law was that it abrogated,               for the
acquisition      of general-purpose        ADP equipment,       any exceptions
to GSA     s procurement     authority     under  the   1949    act.   Thus
GSAwas given exclusive           authority     to acquire    all general-
purpose ADP equipment         for use by other agencies.

        GSA was to "coordinate       and provide    for the economic and
efficient      purchase,   lease,   and maintenance     of equipment    by
Federal     agencies."     To carry out this function,        GSA was to
admlnlster      an ADP Fund for the acqulsrtion         of agencies'
equipment requirements.           The agencies were to obtain        annual
appropriations        from the Congress to reimburse       the ADP Fund.

          The law also provided          for the establishment          of a man-
agement lnformatlon            system of inventory           and fiscal     data.
The leglslatlve         history     indicated        that the Congress and
CMB needed current           and reliable        information      to maintain
policy      and budgetary       control     over ADP expenditures.             It also
has indicated        that such information              1s essential    to GSA m
Its Government-:Jide          coordination         efforts    to achieve     optimum
utilization        of ADP resources         and to ensure that the Govern-
ment evaluates         all acquisition         alternatives       so that equlp-
ment is acquired          in the most economical             manner practicable.
OMB assigned GSA the responslbllity                     for operating     the In-
formatron       system.

       The legislative   history      of Public    Law 89-306            indicated
that   the ADP equipment    acquisition      program should              involve

       --improving        the Government's       bargaining      position
           through     volume acquisitions;

       --basing       rental-versus-purchase        evaluations      on the
          value      of equipment       to the Government as a whole
          rather       than on its anticipated       useful     life  to the
          initial        user; and

       --selecting    equipment    for purchase which, on a
          Government-wide    basis,    offers  the greatest purchase
          advantage.
  Thus, the acquisition    program         was to b~~~oorJin&ted        by GSA,
  and the purchase and rental      of       both pew andJns%alled           equip-
  ment was to be evaluated     from        a Gov&nment-wide       viewpoint
  to ensure that available     funds        were useqin      take most econom-
  ical manner.                                              0
                                                       c
           The Congress directed       that GSA's* authority      be exercised
   subject    to direction      by the President     and to OMB's fiscal
Y, and policy    control.       The law stated    th!!t the authority        con-
   ferred    upon GSA should not be construed            so as to interfere
   with agencies'       determinations     of     ir equipment      requlre-
   ments and uses.         Cases of disagreement       between GSA and agen-
   cies are subject        to review and decision        by OMB.

          With recognition        that the i&lementation           of a
  Government-wide         equipment      acquisition      program would be
  gradual,      the  Congress     provided       that   GSA  could delegate      its
  procurement       authority     to agencies.          Through the prudent        use
  of this delegation          authority,      G!!A cou&d implement a more
  effective       ADP management progfam on an orderly,               step-by-step
  basis.      It was intended         that once an accurate        and current
  management information            system was established         and the ADP
  Fund was operational,           GSAwould         then begin to coordinate
  Government equipment           acquisitions         to achieve substantial
  savings.

   FIRST STEPS TOWARDIMPLl$I!JENTATION *
  ,OF A GOVERNMENT-WIDE                  ~/xJ- D'S>? " - -- r;- Pir'hE~ pf-i E
   ilDP EQUIPMENT ACQUISITION PROGRAM

          OMB issued policy       guidellnes'in        May 1966 to establish
  the direction      of GSA's efforts          under Public Law 89-306.
  The guidelines      established       h basic premise that all major
  changes in existing         practices      should be based on careful
  evaluatio       f alternative        courses of action      and should be
  made only       ter close coordination            with and full  inclusion
  of the viewpoints       of agencies using ADP equipment.

         In addition,     GSA was to use the ADP Fund to finance
  interagency     use of equipment and related             services.    GSA
  was to explore      the possibilities         of using the ADP Fund to
  (1) obtain    needed equipment         at reduced costs and (2) fi-
  nance procurements        t% take advantage        of price reductions
  which involved      t-Lme limitations       inconsistent       with agencies'
  normal funding      cycles.
                                        4
      Also, GSA was to evaluate  equipment  acquisition                     pro-
cedures to determine  areas wherein revised    techniques                    and
methods could achieve economies.     GSA was to consider                     the

       --appropriateness          of continuing      the use of Schedule
          contracts      for   the rental,      purchase,  and maintenance
          of equipment;

       --possibility   of procurlng    equipment             and software      (com-
          puter programs,   etc.)   as separate            items; and

       --possibility        that additional      procurement   sources
          could be cultivated          to serve as competitive      alterna-
          tives      to the exclusive     procurement     of equipment    di-
          rectly       from manfacturers.

       Frnally,     GSA was to assrst agencies    In negotlatlng      ADP
equipment      procurements.    OMB  emphasized that  GSA   was    to
ensure that acqulrlng        agencies make the equipment       selec-
tions.

        In June 1967, GSA assumed responsibility                  for the op-
eration    and maintenance       of an ADP management information
system which was developed           by GMB and prescribed            in April
1967 by 0MB Circular         A-83.    The Information          system was
developed     around a master inventory            of computers and related
equipment.       In addition      to submlttlng      annual equipment          in-
ventories,     agencies     are requrred       to provide     GSA with semi-
annual reports       of anticipated      acqulsitlons       and releases         of
equipment,     reports     of actual   equipment       acquisltlons      and
releases,     and hlstories       of acquisitions       which indicate
contractor     performance.        GSA 1s responsible          for the consol-
idation    and processing       of the data.

       In November 1967 the Congress appropriated                       $10 million
as initial      capltallzatlon          for the ALIP Fund authorized              by
Public     Law 89-306.         The budget submlsslon          requesting        the
$10 million      stated      that the ADP Fund would provide                economies
In the acquisition           of ADP equipment         and related       services
and that all costs,            including    depreciation        and obsolescence,
would be recovered.              The submission       stated further         that
decisions     regarding        equipment    acquisitions        would be based
on overall      Government benefits           rather     than on each agency's
needs, desires,          and ablllties      to finance       acquisitions.

                                         11
                                     CHAPTER 2

               MULTIYEAR LEASING OFFERS OPPORTUNITIES

                     FOR SIGNIFICANT          COST REDUCTIONS

       Almost exclusively   the Government's       rented ADPlequip-
ment has been contracted      for on a short-term        basis.      This
method, under usual conditions,         is the most costly       method
of equipment acquisition.        Although    rented on a short-term
basis,   the Government's   rented equipment usually           is used for
varrous    periods  of time in excess of 1 year,

        Most manufacturers          and several    nonmanufacturing          suppli-
ers offer      discounts      from short-term      rental     rates under
multiyear      leases.      In some cases agencies may obtain                equip-
ment under multiyear            leases.    In many cases, however,             agen-
cies are precluded         by law from entering           into multiyear
leases,     because equipment acquisitions             are financed        with
l-year    funds which are available            for incurring       obligations
during a specific        fiscal      year.   If the Government did use
multiyear     leases,    when practicable,        as an alternative           to
short-term      rentals,     signrficant     cost reductions        would be
achieved.

EXPENDITURES FOR SHORT-TERM RENTALS

        Although     the percentage      of owned ADP systems in the
Government's       inventory     has increased     from 18 percent    in fis-
cal year 1960 to 60 percent            in fiscal     year 1969 (see p. 13),
the Government's         expenditures     for rentals     of AUP equipment
were significant         and have been increasing         annually.   Expen-
ditures      for the rental      of equipment under Schedule contracts
for fiscal      years 1966 through        1969 are shown on page 14.



1Under the terms of GSA's Schedule contracts,        agencies issue
 annual orders for the rental    of ADP equipment which may be
 cancelled  with 30-days' notice   without  penalty.




                                         12
                                                                                     NUMBER OF SYSTEMS PURCHASED AND RENTED
                                                                                       FISCAL YEARS ENDING JUNE 30,1960- 197OV
                NO. OF SYSTEMS
                     5,500          -
                                                                                                                                                                                                                                               5.277

                    5,000           -




                                                                                                                                                          ,,
                    4,500


                    4,000       8
                                                                      KEY
                                                                                                                                                                                                          4,232          r                     I,9oZ




                                                                                                                                                                                     r
                                                                            RENTED                                                                                                     3,692
                                                             I
                                                                                                                                                                                                                               ,a7
                    3,500       '
                                                                             PURCHASED                                                                                                                    1,791
                                                                                                                                                                 31,007
                    3,000


                    2,500
                                -


                                                                                                                                                 2,412
                                                                                                                                                                rI                                                             -




                                                                                                                                                r


                                                                                                                                                           1
                               I-                                                                                                                                     ,40:


                                                                                                                                                                                                                                               ),372

                                                                                                                 1,326                                                                                                         !,h
                                                                                                                                                                                                          2,45


                                                                                                                 1,044                                            ,604




                                                                                                                  282
                                                                                                                                                                                                                               -
              FlSCAL       YEAR                   1960                     1961                 1962              1963          1964              1965            1966                 1967                1968            1969                1970
                                         P-P-----P--




PERCENT        PURCHASED                          18.5                     15.4                 17 0              21.3          39.7              50.0           53.3                  58 1               57.5             59 8                63 9
     PERCENTRENTED                                81.5                     84.6                 83.0              78.7          60.3              50 0           46 7                  41.9               42.5             40 2                36.1

YE       xc ldd
              u e      are     (I)      analog                   computers,              (2)     computers          built   to special          government            design        speclflcatlons,               and    (3)         certain
     contractor-operated                               equipment

SOURCE            “Jnventory                   of Automatic                       Data         Processing           Equipment          In the    United      States          Government,              Fiscal      Year     1970,”
                  published             by             the       General           Services            AdmInIstratIon
                                                Rental
                   Fiscal                   expenditures
                    year                      (millions)

                     1966                        $235
                     1967                         249
                     1968                         277
                     1969                         344

       The above rental  expenditures     include    cost of mainte-
nance services    but do not include    expenditures      for rentals
outside   of Schedule contracts.      During fiscal      year 1969
such expenditures    were about $46 million.

     Almost exclusively,       the Government rents             its ADP equip-
ment on a short-term     basis,    Only 54 of 1,876             rented1 sys-
tems, as of June 30, 1969, were under multlyear                   leases,

DURATION OF PERIODS THAT ADP
EQUIPMENT REMAINS RENTED

        The rental    periods       for the Government's          ADP equipment
vary widely      and are affected           by such factors       as budgetary,
financial,      and technical         considerations.        After   equipment
is installed       and successfully          operative,    agencies    tend to
retain     that equipment until           requirements     outstrip    the equip-
ment's capacities--        usually      a period      in excess of 1 year,

        Agencies reported          to GSA that 42 systems which had been
obtained     on a short-term         rental   basis had been returned           to
manufacturers         during calendar       year 1969.       Of these systems
29, or 69 percent,            had been rented for periods           exceeding
3 years and 13 had been rented less than 3 years.                         Of the
13 systems, nine were installed                on an interim      basis as part
of planned programs which contemplated                   the installation       of
newer or larger           equipment and the remaining          four systems
were installed         for short periods        of time in Government con-
tractors'     facilities.         The retention      periods     for the 42
systems are shown in the following                table.


1The Government‘s inventory            included an additional    580        sys-
 tems which were partially           leased and partially     owned.


                                       14
                                 Number    Percentage
                                   of            of
Number of years    rented        systems       total

   Less    than 1
   1 but     less than 2            6            14
   2 but     less than 3            7            17
   3 but     less than 4            9            21
   4 but     less than 5           11            26
   5 but     less than 6            2             5
   6 but     less than 7            2             5
   7 but     less than 8            4            10
   8 or    more                    -1             2

       Total                       2-           -100




                            15
MULTIYEAR,IEASING        FROM MANUFACTURERS

        A consultant,  hired by GSA to conduct a comprehensive
study of the Government's      ADP equipment   acquisition   practices,
concluded     in March 1967 that rental   agreements of 1 year or
less placed an economic constraint       on the Government's     ac-
qulsition     processs

       At the time of       the study, three manufacturers      offered
to their      commercial    customers drscounts   from short-term
rental     rates under     3-year leases.    The consultant    estimated
that the Government         could save $4 million    annually   if It
were to enter into         3-year leases for its equipment which was
then under short-term          rental agreements with the three man-
ufacturers.

        The same three manufacturers        and two others offered
discounts     under 5-year leases.      Although    recognizing      that
an agency with an anticipated       usage of 5 years should gen-
erally    purchase the equipment,     the consultant       estrmated      that
the Government could save $11 million            annually    if it were to
enter into 5-year leases for its equipment which was then
under short-term     rental  agreements with the five manufac-
turers.

        In fiscal    year 1961 the Schedule contract            with one man-
ufacturer,      Burroughs     Corporation,     included    a multiyear       leas-
 ing plan for certain         equipment.     In fiscal     years 1969 and
1970, six additional          major manufacturers--Control            Data Cor-
poration;     General Electric        Company; Honeywell,       Inc.;     National
Cash Register       Company; RCA Corporation;           and Univac Division
of Sperry Rand Corporation--            were awarded Schedule contracts
which contained        multiyear    leasing    plans.     These plans were
generally     applicable      to both new and installed         equipment,
but in some cases they did not cover the manufacturers'                        full
lines of equipment.

        To obtain    an lndlcation      of the potential       cost reductions
available     to the Government through          the use of multiyear
leases,    we applied      the seven manufacturers'         multiyear    lease
rates-- available       under Schedule contracts         or to non-
Government      customers --to their      respective     portions     of the
Government's      inventory      of 1,876 rented     systems as of June 30,
1969. The inventory          contained   1,138 systems under short-term


                                         16
rentals   from the seven manufacturers.   Multiyear    leases
were offered   for 871 of the 1,138 systems--623    covered by
both 3- and 5-year leases,    205 covered only by 3-year leases,
and 43 covered only by 5-year leases.     No multiyear     leases
were offered   for 267 systems.

       Our analyses    showed that,      if 828 systems were under
3-year leases,     costs could be reduced by as much as $26 mil-
lion over the periods        of the leases.       Similarly,       if 666
systems were under 5-year leases,            costs could be reduced by
as much as $70 million         over the periods      of the leases.         Be-
cause of statutory      limitations,       which are drscussed on page
21, some of the savings cannot be realized                 at this time.
Also, because of continuous          changes in the Government's            ADP
equipment   Inventory,     a number of systems included              in our
analyses will     not be retained      for periods       long enough for
the Government to take advantage            of avaIlable      leasing    dis-
counts.

Financial    risks

       There are no financial   risks involved           in the Government's
use of the multlyear     leases offered  by the          seven manufac-
turers   under the 1970 Schedule contracts.

       The Schedule contract        with one manufacturer         provrdes
for the Government to receive            a discount    from the short-
term rental     rates beginning       In the first     month of the lease.
If the Government later         chooses not to retain          the equipment
for the specified     period,     it is required       to pay to the man-
ufacturer    an amount equal to the total           discounts     received
from the beginning     of the lease to the point of its termina-
tion.     The Government,     therefore,      even If it terminates        the
agreement,    is not obligated        for payments exceeding         what
would have been paid if it had originally                rented the equip-
ment on a short-term       basis.

      Four Schedule contracts      require    the Government to pay
the basic short-term      rental  rates until    the end of the lease
is either   reached or approached,       at which time the Govern-
ment receives    the benefits    of multiyear     leasing  In the form
of either   (1) free use of the equipment        for a number of
months, (2) d iscounts      for subsequent    months during which
the equipment    1s retained,    or (3) lump-sum rebates.        Under


                                        14
these     agreements,  no penalty             payments         are required   in the
event     of early termination,

        The multiyear     leases     offered         under      the two remaining
Schedule      contracts    provrde      for        discounts       from the short-
term rates but do not require                  penalty         payments in the event
of early  termination.




                                              18
.


MULTIYEAR LEASING FROM
NONMANUF'ACTURING SUPPLIERS

        In recent years,         nonmanufacturing        suppllers    have en-
tered the ADP equipment market and offer                    multiyear     leases
for certain      International         Business Machines Corporation              (IBM)
equipment.      These suppllers             purchase both new and used IBM
equipment     and then lease the equipment under multiyear
leases at discounts           as much as 30 percent below IBM's short-
term rental      rates.       IBM does not offer         multiyear    leases to
either    commercial        customers or to the Government.               A manage-
ment research       firm stated        in a December 1967 study that non-
manufacturing       suppliers       offer      discounts  from IBM rates be-
cause of their        willingness         to gamble that the useful          life
of the equipment           1s longer than the period over which IBM
has chosen to recover            its costs and make a profit            through
short-term     rentals.

        To obtain  an indication      of the potential        savings avail-
able to the Government through           selective     use of multiyear
leasing     from nonmanufacturing       suppliers,     we applied      lease
rates-- offered    by one of the leading           nonmanufacturing       sup-
pliers    for its 3-year and 5-year leases--to             195 of the 651
systems in the Government's         inventory       of equipment     rented
from IBM at June 30, 1969.          The 195 systems are recent
models of IBM equipment most commonly offered                 for leasing
by nonmanufacturing      suppliers.

           If the Government were to lease the 195 systems from
    nonmanufacturing        suppliers,     it would reduce its rental.          costs
    by as much as $44 million          over 3-year lease periods.             Under
    5-year leases,       cost reductions      would total        as much as
    $85 million.       Because of statutory         limitations,       which are
    discussed      on page 21, some of the savings cannot be realized
    at this time.        Also, because of continuous             changes in the
    Government's      ADP equipment      inventory,      a number of systems
    included     in our analyses may not be retained               for periods
    long enough for the Government to take advantage                    of avail-
    able leasing      discounts.

          There are about 100 nonmanufacturing        suppliers      in the
    equipment   leasing  market,   This  large    number  of   suppliers
    has made it possible     for commercial    lessees to take advan-
    tage of competitive    factors  which exist     among the


                                            19
nonmanufacturing      suppliers  and IBM and particularly            among
the suppliers     themselves.    The introduction         of competitive
sources of supply for the Government's            requirements       of goods
and services     has often resulted       in substantial     savings.
Also,  the use of competition       (either    formal advertising        pro-
cedures or open solicitation        of proposals,        as appropriate)
by the Government in acquiring          IBM equipment under multi-
year leases would appear desirable.

Financial      risks

        Because the Government has seldom entered                     into multi-
year leases with nonmanufacturing                  suppliers,      the financial
risks    involved      in early terminations          are somewhat specula-
tive.      The multiyear       leasing      plans offered        by these sup-
pliers     to their      non-Government        customers generally          contain
termination        provisions     which require       the payment of penal-
ties in the event of early               termination.         Trade publications
indicate       that the penalties          vary from supplier         to supplier
and appear to be influenced                by such factors        as (1) the fi-
nancial      circumstances       under which the supplier             acquires      the
equipment        and (2) the extent         to which the termination            clause
is made a subject           of negotiations.




                                          20
RESTRICTIONS ON USE OF MULTIYEAR LEASES

        In many cases agencies are precluded              by law from enter-
ing into multiyear        leases because payments for rented ADP
equrpment are made from l-year             appropriations      which are
available     for incurring     obligations      only during a specified
fiscal    year.   The governing       laws provide,       in part,   that:

      "No officer     or employee of the United States
      shall make or authorize         an expenditure     from or
      create or authorrze       an obligation      under any ap-
      propriation     or fund in excess of the amount
      available   therein;     nor shall any such officer        or
      employee involve      the Government rn any contract
      or other obllgatron,        for the payment of money
      for any purpose,      in advance of appropriations
      made for such purpose unless such contract              or
      obligation    is authorized      by law,"      (31 U.S.C.
      665)
           *            *            *             *            *

      "No contract     or purchase on behalf  of the United
      States shall be made, unless the same is autho-
      rized by law or 1s under an appropriation      adequate
      to its fulfillment,      ***." (41 U.S.C. 11)
         Of the 1,876 rented       systems in the Government's        inven-
tory as of June 30, 1969, 54 systems were leased under mul-
tiyear     (either     3-year or 5-year)   contracts.       The Government
was obtaining        discounts   of about $5 million       over the periods
of the contracts.           The contracts  under which 21 of these
systems were leased were financed            by an agency with l-year
funds.      This agency is achieving       cost reductions       of $181,000
over 3-year periods          for the 21systems--discountsof         about
10 percent.         Because the contracts     are not authorized        by
law, however,        we have advised the agency that,          upon the ex-
piration      of the contract      periods involved,     the use of such
contracts       should be discontinued,

      Occasionally   the Congress has granted         specific      author-
ity to depart from the limitations         prescribed    by law      for
the procurement    of specified  supplies      and services.         For ex-
ample, an agency was granted     authority       to enter into       certain


                                         21
multiyear service contracts  outside             the continental       Unlted
States and make payments with l-year               funds.

        The Government's   revolving   funds,     such as the ADP Fund,
can generally     enter into multiyear     leases.     The law, how-
ever, requires     that obligations    be established      to cover an-
ticipated    payments for the entire      periods    of the leases.

GSA efforts   to make multiyear   leasing
discounts   avarlable to agencies

        In 1963, GSA took an important        step to make multiyear
leasing    discounts     available  to agencies.     The solicitation
for the fiscal       year 1969 Schedule contracts      requested       manu-
facturers     to offer    lease plans for 2-year and 3-year periods.
GSA composed the proposed language of the multiyear                 plans
with the purpose of allowing         agencies using l-year        funds to
legally    make use of the plans.

       Seven maJor manufacturers       (names on p. 16) were awarded
Schedule contracts      which contained    multiyear   plans.    The
language    of these plans varied      and appeared to represent
compromises between the multiyear         plans requested     by GSA and
those offered     by the manufacturers      to their non-Government
customers.

        In July 1968, GSA submitted           to the Comptroller     General
 the multiyear      plans offered      by three manufacturers       and re-
 quested an opinion        as to whether agencies       could make use of
 them with l-year       funds.    The Comptroller      General replied      in
January 1969 that only one of the plans contained                 language
which would permit agencies to use l-year               funds without     vro-
latlng    the law.      This plan, which was offered         by RCA, re-
quired    the Government to approach completion             of the full
lease period      In order to qualify        for the discount.       In dis-
cussing the Government's          obligation     under the plan,     the Comp-
troller     General stated that:

      I'*** Under this arrangement          the Government would
      not be obligated       to continue      the rental     beyond
      the fiscal   year in which made, or beyond any suc-
      ceeding fiscal     year, unless or until           a purchase
      order is issued expressly          continuing      such rental
      during   the following     fiscal    year.     In effect,      the

                                        22
       company is proposing    a one-year            rental    contract
       with option  to renew."

        In April     1969, GSA requested      agencies not to refuse         to
enter into any multryear           leases solelyon    the grounds that
such leases are barred by legal or fiscal               conslderatlons
without    GSA's prior      concurrence.     GSA advised the agencies
that it might make use of the ADP Fund which, as previously
mentioned,       could legally     be used for entering       into multiyear
leases.

        During our review,      we noted that agencres were renting
several      RCA systems on a short-term      basis.     It appeared to
us that these systems should have been under multiyear               leas-
ing plans.       In September 1969 we brought        this matter to the
attention      of GSA officials    and suggested     that GSA take spe-
cific     steps to ensure that the Government was taking           maximum
advantage      of the multiyear    leasing  plans offered     by RCA.

         In October 1969, GSA issued a special                notice   to agencies
informing       them of the RCA multiyear        leasing       plans,    their     ap-
plicability,        and the discounts    available.           GSA also sent
letters      to known users of RCA equipment,             emphasizing        the
benefits      of the plans and requesting          notification        of agencies'
decisions      on use of them.      Three agencies          subsequently        took
advantage      of the plans for 26 RCA systems and reported                     cost
avoidances       of about $2 million     over periods          ranging     from
2 to 4 years.

        GSA patterned     the proposed language         for multiyear       plans
under the fiscal       year 1970 Schedule contracts            after   the lan-
guage of the multiyear          plans contained      in RCA's 1969 Sched-
ule contract.        In addition     to RCA, four major manufacturers--
Burroughs Corporation,          Control    Data Corporation,        General
Electric    Company, and the National           Cash Register       Company--
agreed to multiyear         plans for fiscal      year 1970 contracts
which allowed      agencies     to legally     use l-year    funds.

       GSA   followed      its normal practice     of issuing    notices   to
agencies     pointing      out the multiyear    lease plans contained        in
the fiscal       year   1970 Schedule contracts.        Contrary    to what
was done     in the     case of the RCA contract      in October 1969,
however,     GSA did     not send letters     to known users of the
equipment      of the    additional   four manufacturers       emphasizing


                                          23
the benefits     of the plans and requesting  notification                 of
agencies'    decisions  on the use of the plans.

        In June 1970 we discussed with a GSA official                   the use
being made of the multiyear             leasing     plans offered     for the
first     time by the four manufacturers              in fiscal   year 1970
Schedule contracts.        1 We were advised that GSA had not taken
any specific        action  to promote use of the plans,            other than
the notices      mentioned     above.      Further,     GSA was not aware of
any actions       taken by agencies        to make use of the multiyear
phns.        We obtained    information       from two of the four manu-
facturers      in July and September 1970 which showed that no
equipment      had been ordered by agencies under the fiscal                  year
1970 Schedule contract           plans and from the remaining             two
manufacturers        in July 1970 which showed that 15 systems had
been ordered under the fiscal              year 1970 Schedule contract
plans.

      Our analyses  showed that 430 systems2 under short-term
leases as of June 30, 1969, were covered by the 1970 multi-
year plans offered   by the five manufacturers--267       under 3-
and 5-year plans,   143 under 3-year plans only, and 20 under
5-year plans only.    If these 410 systems (267 and 143) were
leased under 3-year plans,    costs would be reduced by as
much as $16 million   over the lease periods.       If 287 systems
 (267 and 20) were leased under 5-year plans,       costs would be
reduced by as much as $28 million    over the lease periods.

      Multiyear leases,  however, cannot be entered  into le-
gally  for an additional  636 systems--441 of the 1,138 sys-
tems on page 17 and the 195 systems on page 19. For the


1The fiscal   year 1970 Schedule contracts    for the four manu-
 facturers  were approved by GSA on the following      dates:
 Burroughs  Corporation,  December 3, 1969; Control      Data Cor-
 poration,  December 4, 1969; General Electric      Company,
 March 9, 1970; and National    Cash Register    Company, Febru-
 ary 4, 1970.
2
 These 430 systems        are   included        in the 1,138   systems   dis-
 cussed on p. 17.



                                           24
636 systems, rental   costs might be reduced during    the                    lease
periods  by as much as $54 million    under 3-year leases                     and
as much as $127 millron    under 5-year leases.

CONCLUSIONS

        Because of budgetary          limitations,         evaluation       and use
of multryear       leasrng     of ADP equipment          takes on added impor-
tance as an alternative           to short-term          rental     if the Govern-
ment 1s to optimize          the use of its equipment               acquisition
funds.      In many cases agencies have determined                     that it would
have been better         to purchase equipment             but have been forced
to resort      to short-term      rentals       because of a lack of funds.
In our opinion,        multiyear      leasing       would be a more economical
alternative      than the short-term            rental     agreements normally
entered     into when equipment          cannot be purchased.               The poten-
tial    economies available         through       the selective        use of multi-
year leasing       are substantial.
      Another  advantage     of multlyear      leasing     is that the
Government would encourage additional             competitive     supply
sources --nonmanufacturing      suppliers--which,          to date, have
remained largely     untapped.

       On the one hand, GSA's recent             action    to provide multi-
year leasing      plans,    applicable      to 430 systems in inventory
at June 30, 1969, that can be entered                 into by agencies using
l-year    funds represents        an important      step toward making
multiyear     leasing    discounts     available      to the Government.
We believe,      however,     that it is incumbent upon GSA to assume
a more active       role in the use of these plans as was done in
the case of the RCA equipment             In October 1969.
       On the other hand, a large segment of the Government's
rented ADP equipment --636 systems in inventory         at June 30,
1969 --remains   outside   the scope of the multiyear      plans which
can legally    be entered    into by agencies using l-year      funds.
In our opinion,      the implementation   of a program under which
the Government can take maximum advantage         of multiyear     leas-
ing discounts    offered   in the ADP equipment    market is contin-
gent upon its ability      to make firm contracts    for periods      in
excess of 1 year.




                                           25
        We believe      that the ADP Fund 1s the appropriate           vehicle
to use in making such contracts.             The use of the ADP Fund
for entering       Into multiyear     leases for ADP equipment would
serve to accomplish          one of the primary     objectives     of Its
establishment       under Public     Law 89-306--that       of promotrng     the
economrcal      acquisition     of the Government's      ADP equipment.

        Because of the legal requirement                   that revolving      funds
must be obligated           to cover anticipated             payments for the full
periods       of contracts,        the ADP Fund would require             substan-
teal additional          capital      if it were to be used extensively
for entering        into multiyear         leases.       We believe     that,    as an
alternative       to appropriating           additional       capital   for the ADP
Fund, specific         legislative        authority       could be granted       for
the ADP Fund to contract                on a multiyear        basis wlthout     obli-
gating      monies to cover the full              periods     at the time of en-
tering      into the leases.

        Use of the ADP Fund for multiyear            leasing     would not
disturb     agencies'  tradltional     financial       patterns.        GSA could
enter into multiyear        leases.    The ADP Fund would then be
obligated      for payments --at multiyear        leasing     rates--for
l-year    periods.    Agencies,     in turn,     would lease the equip-
ment from GSA and would reimburse            the ADP Fund from their
l-year    funds but still      would receive      the multiyear         leasing
discounts.

        If the Congress authorizes       the ADP Fund to enter into
multlyear     leases along the lines discussed         above, we believe
that GSA and Federal         departments   and agencies    should ensure
that multryear      leasing     becomes an effective    acquisition   al-
ternative     and is used to the maximum extent         practicable   in
lieu of short-term        rentals.




                                         26
RECOMMENDATION TO THE CONGRESS

       In many instances          the Government cannot take advantage
of substantial      savings available             through multiyear        leasing
of AD? equipment.          We   recommend9        therefore,    that    the   Con-
gress consider      legislation          authorizing       GSA, through the ADP
Fund, to contract        on a multiyear           basis without      the necessity
of obligating     the total         anticipated        payments at the time of
entering     into the leases.

RECOMMENDATIONS TO THE ADMINISTRATOR
OF GENERAL SERVICES

      We recommend that            GSA:

       --By taking   a more active      role in contracting               for ADP
          equipment,  make  sure   that    multiyear  leases             are used
          to the extent  lawful    and practicable.

       --Require    agencies   to submit for GSA evaluation  their
          decisions   to acquire ADP equipment under short-term
          rentals.

       --Ensure    that competition is obtained                  in acquiring        ADP
          equipment under multryear   leases.

RECOMMENDATIONS TO THE HEADS OF
FEDERAL DEPARTMENTS AND AGENCIES

     We recommend that             Federal        departments    and agencies
make sure that:

       --Maximum     practicable          use is made of multiyear              leases.

       --Competition     is obtained              in acquiring    ADP equipment
          under multiyear    leases.

GSA COMMENTS AND OUR EVALUATION

      In a letter      dated September 11, 1970 (see app. III),
the Administrator       of General Services      advised us that no-
tices had been sent to agencies         advising     them of the ADP
equipment multiyear        lease plans that were available      and that,
upon receipt      of the notices,    it was the responsibility     of

                                             27
each agency to act accordingly.             Our review indicated    that
agencies had not, in many cases,            acted on GSA's notlces.

         In our opinion,      GSA's responsibility     under Public Law
89-306 does not end with the issuance of notices                advising
agencies       of the availability      of multiyear   leases.    We be-
lieve      not only that GSA should make agencies          aware of the
multiyear       lease plans but also that GSA should assume a more
active      role by requiring      agencies   to submit for its evalua-
tion their        decisions   to rent equipment under short-term
rentals.

        The Associate      Director,   OMB, in    a letter  dated Novem-
ber 18, 1970, did not offer           comments    on the issues raised
in this report      relating      to nnsltiyear   leasing  because, he
stated,    GSA was in a better        position    to respond to these
issues (see app. IV).




                                     28
                                  CHAPTER 3

               COORDINATED GOVERNMENT-WIDE APPROACH

                          TO PURCHASING NEEDED

        In enactlng  Public Law 89-306,     the Congress provided
for a coordinated,     Government-wade     approach to the acqul-
sition    of ADP equipment.    Our review has shown that the
purchasing     of the Government's   ADP equipment      is done in es-
sentially    the same manner as it was prior        to the enactment
of Public Law 89-306--at      agency and subagency levels.
Agencies control     most of the available      purchase funds and
decide whether to purchase or rent equipment.

      For example, Government expenditures             for the purchase
of ADP equipment were estimated          at $169 mllllon       during fls-
cal year 1969--$166         million by individual      agencies     and
$3 million   through      the ADP Fund.     We believe     that the Gov-
ernment continues       to lack the assurance that its purchase
funds are being expended for those purchases which offer
the greatest    benefit      to the Government as a whole.

        In previous     reports     to the Congress, we have cited
examples where equipment was purchased                 at the same time that
similar    equipment,       the purchase of which would have been
more advantageous         to the Government,        was retained      on a
rental    basis.      In these reports      we pointed      out that,    without
the establishment         of a coordinated       program for the purchase
of equipment,       the Government cannot optimize             the use of
avarlable     purchase funds.         (See our reports       entitled    "Study
of Financial      Advantages       of Purchasing     Over Leasing of Elec-
tronic    Data Processrng        Equipment    in the Federal Government"
and "Review of Problems Relating              to Management and Admlnis-
tration    of Electronic        Data Processing      in the Federal Govern-
ment" which are listed           in app. I of this report.)

CAPITALIZATION      OF ADP FUND

       In its fiscal      year 1968 budget request     to OMB, GSA
proposed that the ADP Fund initially          be capitalized   at
$30 million.     GSA stated      that this amount would permit      it,
In its inrtlal     effort     to develop  a Government-wide   program

                                       29
for equipment           acquisition,        to purchase about 4 percent     of
the 1,400 sys terns then being rented by the Government.
OMB reduced GSA's request                 to $10 million,    and the Congress
appropriated          that amount in November 1967.            OMB advised us
that the reduction             had been made because Government-wide
fiscal     limitations         had existed      at the time.    Because the
ADP Fund represented               a new budget item and plans for the
expenditure         of the funds were somewhat nebulous,             it had
been one of the first                requests   to be reduced.

       GSA submltted    a memorandum to OMB with its fiscal              year
1969 budget request which included           a 5-year plan for in-
creased capitalization       of the ADP Fund.        GSA planned for
annual appropriated      increases     of $20 mlllion       to the ADP Fund
through fiscal      year 1973.     According   to the plan,       the bulk
of the appropriated      capital--   which would amount to $110 mll-
lion in fiscal      year 1973-- would be used to sustain what was
projected   to be a growing ADP equipment           acquisition      program.

        In accordance with the plan, GSA requested             $20 million
for the ADP Fund in its fiscal          year 1969 budget request          to
OMB. This request was denied for the same reasons that the
initial    request was reduced in the previous           year.    GSA did
not request     any funds for the ADP Fund in its initial             budget
request    to OMB for fiscal     year 1970.       GSA did request     a
$30 million     supplemental   appropriation        for the ADP Fund,
however, which GSA stated was based on valid               equipment    re-
quirements.       This supplemental     appropriation      request was
not submitted      to the Congress.

       GSA did not request       funds in its initial         budget re-
quest for fiscal      year 1971 but amended the budget to in-
clude $30 million      for the ADP Fund.           In November 1970, OMB
advised us that the fiscal          year 1971 supplemental           appropri-
atlon request would include            $20 million     for the ADP Fund.
In the supplemental       appropriation       hearings,     GSA presented
examples of equipment       purchases      of $18.1 million       for two
agencies   that would result         in savings of $18.9 million            to
the Government.       The supplemental        appropriation     bill,     which
included   $20 million     for the ADP Fund, was enacted in Jan-
uary 1971.




                                      30
ACTIVITIES     OF ADP FUND

        The ADP Fund has been used primarily          to finance     GSA
in-house    ADP activities.        In July 1968, GSA donated to the
ADP Fund GSA-owned ADP equipment           that had an estimated
fair market value of $9.7 million.              The ADP Fund operates
equipment    and furnishes      services   to agencies,    prrmarily    to
GSA which has provided         about 85 percent     of the ADP Fund's
revenues.     A comparative      statement    of the ADP Fund's fi-
nancial    condition     at June 30, 1968, 1969, and 1970, is
shown as appendix        II.

Equipment     purchased     by ADP Fund

       As of January        31, 1971, GSA had negotiated          with various
agencies     10 lease agreements which were generally                 for periods
of 5 years.       GSA purchased      from manufacturers        the previously
rented equipment and leased the equipment               to the agencies
at rates lower than those which would have been paid to the
manufacturers.        The purchases      involved   ADP Fund expendi-
tures of $9.2 million.           On the basis of present          value anal-
YSlS Y we estimate        that the Government will        realize       savings
of $9 million      over 5-year lease periods.           The Government
will   realize    additional     savings if the equipment           is used
for more than 5 years by either             the lessees or other agen-
cles.

       The 10 equipment    purchases were considered   economic
buys by GSA. The purchases,         however, were not based on sys-
tematic   comparative    analyses   to determine the best buys from
a Government-wide     viewpoint-l

GSA studies     of rented     equipment

      GSA has made two special studies              to identify  potential
economic buys of rented ADP equipment               in the Government's         '


1
    The term t'economic buy" refers  to equipment      for which pur-
    chase is found to be the least costly    acquisition     alterna-
    tive on the basis of analysis   of economic data and agen-
    cies'  retention  plans. The term "best buys" refers         to the
    optima of economic buys.

                                       31
inventory.       In June 1968 and in March 1969, GSA supplied
llstlngs    of potential     economic buys to three agencies            and
requested    validation     of its findings.        In identifying
equipment     for its listings    --which    included    a total     of 62 po-
tential    economic buys --GSA considered          only the anticipated
usage by the current        users of the equipment.           Potential
secondary usage by other agencies was not considered.

      GSA estimated that the purchase of the 62 economic
buys would require  $14 million.   GSA advised the agencies
that If they did not have funds to purchase the equipment,
GSA would consider  using the ADP Fund to finance    the pur-
chases and then would lease the equipment     to the agencies
at rates lower than those being paid.

        GSA received       no response from two of the agencies.
DOD--which was renting           60 of the 62 potential    economic
buys--responded       both in 1968 and 1969.         DOD's 1968 response
indicated     that,    although     some of the recommended purchases
were invalid       because of Inaccurate       data used in GSA's anal-
YSlS, It would consider            usage of the ADP Fund for others.
DOD stated      in 1969 that it was making analyses         of its rented
equipment     to identify       economic buys for which funds would
be sought through reprogramming            or through budget requests.

       Four of the 62 economic buys recommended by GSA were
reported   as having been purchased as of July 1969.  The ADP
Fund was not used to make any such purchases.

Management    information     system

       The means to determine     best buys on a Government-wide
basis is the management information        system.    GSA has been
unable to systematically      make these determinations     because
the management information       system was not providing    timely,
accurate,     or sufficient information    to make valid   best-buy
computations.

       In June 1970 we made several        suggestions    to GSA for
improving    the relrability    and usefulness      of the information
system.    GSA advised us in September 1970 that our sugges-
tions had been brought       to the attention      of two interagency
groups that had been established         to review and recommend


                                       32
changes in the content       and structure   of the information      sys-
tem.     GSA also Informed    us that issuance of a revised       policy
circular    was planned.

      We were subsequently   advised by OMB and GSA that some
rmprovements  had been made to the management information
system and that it was being improved further    to provide   the
basic elements necessary   to prepare a Government-wIderbest-
buy list.
     We plan    to review from time to time the progress          made
in improving    the management informatlon  system.




                                    33
 OMB ACTIVITIES RELATING TO
 THE PURCHASE OF EXJIPMENT

       As previously        mentroned,       in 1961 OMB issued Circular
A-54 which pertained,           in part,       to the need for agencies to
evaluate    all available         acquisition       alternatives prior  to
entering    into contracts         for ADP equipment and provided        gen-
eral guidelines       to agencies making these evaluations.              OMB
has on two occasions          issued amendments to the circular
which provided       additional       guidance to agencies making rent-
versus-purchase       evaluations.

         In the most recent amendment to the circular                  in Janu-
ary 1969, OME!directed             agencies to review certain         rented
equipment      to determine        whether the most economical          means of
acquisition       were being used.           OMF3stated that the review
should coincide        with the submission          of agencies'     annual bud-
get requests        so that,     if purchase was indicated          and funds
were not available,           requests     for funds could be made at the
earliest      possible     date.     OMB stated further       that,   when spe-
cial purchase opportunities              arose, efforts     to secure neces-
sary funds should be made by reprogramming                  existing     funds
or, failing       in this,     by requesting      GSA to consider       purchases
through     the ADP Fund.

       In response to the amendment, DOD reviewed            its rented
equipment    to identify  that equipment which should be pur-
chased if funds were available         and compiled a listing       of
60 systems, or parts of systems, recommended for purchase
as of July 1, 1969.      DOD estimated     that the purchase of this
equipment would require      expenditures     of $46 million     and that
savings of $47 million      could be realized.

         As of December 1969, the equipment          included     in DOD's
 listing    was still    being rented.      We were informed        by a DOD
official     in February     1970 that,    because of a lack of funds,
no purchases had been made. The official                stated that funds
were not available        through reprogramming        of existing     pro-
curement funds,       that requests     for appropriated       procurement
funds were not permitted          by OMB because of ceilings          placed
on budget requests,         and that the ADP Fund did not have suffi-
cient funds to purchase the equipment.




                                       34
        OMB officials     informed us that they did not require
specific    responses from agencies         to the January 1969 circu-
lar amendment.        They stated that,       if the agencies  required
funds for purchases of specific            equipment,  the agencies     were
to request      such funds through      the normal budgetary     proce-
dures.    They indicated        that they were not aware of specific
purchase requests       resulting    from the issuance of the amend-
ment.

OPPORTUNITIES TO PURCHASE EQUIPMENT
FROM NONMANUFACTURING SUPPLIERS

        As discussed   in chapter      2, nonmanufacturing    suppliers
offer    ADP equipment      for lease at rates lower than 1BM's
commercial     rates.    These suppliers     are also, on occasion,
willing    to sell equipment--complete         systems, and/or system
components.       In addition     there are firms in the business       of
buying and selling        IBM and other manufacturers'      equipment.

        The Government has not made extensive             use of these sup-
ply sources.      Most Government equipment          purchases have been
made directly     from manufacturers       either    after   periods   of
rental    or as new acquisitions.         Credits    on rents paid, which
are applied    against   the purchase price,         have tended to re-
inforce    the manufacturers'     positions       as the primary     sources
for purchased equipment.

      The availability  of additional     equipment     suppliers    af-
fords the Government opportunities,       in certain     instances,
to obtain  competition   (either   formal advertising       procedures
or open solicitation   of proposals,     as appropriate)       in the
purchase of equipment.

      We noted,     as an example,     that,     during fiscal year 1969,
an agency which was renting          two systems took action      to re-
duce costs.      Bids were requested         for the lease or purchase
of similar     equipment.      Four bids were received--three       from
nonmanufacturing      suppliers     and one from the manufacturer.

       Analysis  of the bids indicated   that purchase was the
most economic alternative.      The purchase bids from the three
nonmanufacturing    suppllers  were lower than the manufacturer's
bid; the bid that was accepted was $335,000       (34 percent)
lower.

                                     35
       Further     positive  action    toward the implementation      of a
coordinated      Government-wide      ADP equipment    purchase program
appears to be essential          if the Government is to optimize
the use of its limited         purchase funds.      The Congress,   in
enacting     Public Law 89-306,       expressly  provided    for the im-
plementation       of such a program.

        The ADP Fund appears to be the appropriate               vehicle   for
the achievement      of potential       cost reductions     through a coor-
dinated    Government-wide      purchase program.         The ADP Fund,
however,    cannot be extensively         used for equipment       purchases
because of its relatively          low capitalization.         The estab-
lishment    of an effective       equipment    purchasing     program is,
in our opinion,      contingent      upon the augmentation        of the ADP
Fund's capital     through appropriations.

        In requesting     additional     capital     for the ADP Fund, GSA,
in cooperation       with OME3, should present          to the Congress
specific     plans for the expenditures           of requested        funds.
These plans should be based on analyses which show those
purchases offering        the greatest     potential       financial      advan-
tages from a Government-wide           viewpoint,       taking     into consid-
eration    both planned acquisitions           of new equipment and po-
tential    purchases of rented equipment.

       Potential     redistribution        of equipment       is generally      not
considered       by GSA in making purchase decisions.               Government-
owned equipment        no longer needed at one installation                can,
in many cases, be used at another                installation     to avoid
new procurements        or to replace       rented equipment.         For exam-
ple, GSA reported         that,     during  fiscal      year 1969, excess
Government-owned        ADP equipment,        which had cost $68 million,
was redistributed        within      the Government.

         Some types and models of equipment            offer    greater    po-
tential      for secondary and tertiary        usage than other equip-
ment.      The Government,    with its large inventory             of various
types and models of equipment,            should be in a position           to
identify--      on the basis of experience--that            equipment which
offers     the best potential      for redistribution.           We believe
that GSA should consider         the redistribution          potential     of
equipment       in making best-buy     determinations.

                                        36
        In addition      to being based on a best-buy               approach to
purchasing,      we believe     that the plans presented                to the Con-
gress in support         of requested      capital       for the ADP Fund
should include       a presentation        of the potential           economies
associated      with various      levels    of expenditures.             The Con-
gress would then be in a position                 to consider       alternative
levels    of capitalization         for the ADP Fund.            Plans for the
use of the ADP Fund should be formulated                     so as to demon-
strate    to the Congress the potential                reduction      in rental
costs to be derived         from various        levels      of spending through
the ADP Fund for equipment             purchases.          The plans could dem-
onstrate     that the appropriated          increases        in the ADP Fund's
capital     could be largely        offset    by corresponding            decreases
in the amounts of funds appropriated                   to agencies        for the
purchase of equrpment.

        In summary, the ability     of the Government to obtain       the
optimum results      from its equipment     purchase funds is contln-
gent upon its ability       to determine    Its potential    best buys
and then to make them on a timely         basis,    taking into consid-
eration    all available    supply sources.




                                         37
RECOMMENDATIONS TO THE DIRECTOR, OMB, AND
TO THE ADMINISTRATOR OF GENERAL SERVICES

       We recommend that         OMB and GSA:

       --Request    additional     capital      for the ADP Fund from the
          Congress,   presenting     specific      plans for the expendi-
          ture of requested      funds and describing          the potential
          economies from various         levels     of spending.

       --Use a Government-wide,      best-buy   approach on purchases,
          The analyses   to identify   best buys should include     con-
          sideration   of (1) both rented equipment and planned
          acquisitions   and (2) potential    redistribution   of
          equipment.

       --Consider      all available  supply        sources in purchasing
          equipment     and use competition         to the maximum extent
          practicable.

OMB AND GSA COMMENTSAND OUR EVALUATION

        The Administrator        stated that GSA requested            a $30 mil-
 lion supplemental        appropriation        for fiscal   year 1970 and an
amendment to GSA's fiscal             year 1971 budget was submitted              to
OMR requesting       $30 million        to augment the ADP Fund.          He in-
dicated     that the request was based on valid               equipment re-
quirements.      The Associate         Director,     OMB, stated that the
1971 supplemental        appropriation        request would include        $2Omil-
lion for the ADP Fund.            The supplemental        appropriation     bill,
which included      $20 million        for GSA's ADP Fund, was enacted
in January 1971.

        The Administrator       of General Services    agreed that a co-
ordinated    purchase program is essential          if the Government is
to optimize     the use of its limited        ADP purchase funds.       He
stated that the Government's           ADP equipment acquisitionmonies
could be contained          in one central  fund and all agencies
could be required         to use this fund for their      requirements.
The Associate      Director,     OMB, agreed that the ADP Fund has
not been fully      developed     but did cite instances      where pro-
gress had been made.



                                        38
        The Associate      Director,      OMB, and the Administrator          of
General     Services    stated that a Government-wide,              best-buy
list    would be prepared        for the purchase of ADP equipment.
They stated that improvements              to the management information
system would make available             the necessary     data to make de-
tailed    lease-versus-purchase           analyses  and to prepare         a best-
buy list.       They did not comment specifically,               however,    as to
whether the analyses          to identify      best buys should include
consideration       of (1) both rented equipment           and planned ac-
quisition     of equipment       and (2) potential      redistribution        of
equipment.

      The Associate    Director and the Administrator     cited sev-
eral instances    where actions  had been taken or were planned
to promote supply sources other than system manufacturers--
mainly peripheral     component manufacturers.      (See apps. III
and IV.>

       The Administrator    stated     that nonmanufacturing      sup-
pliers   are not precluded      from bidding     on Government con-
tracts   and that,    when ADP equipment     is being initially       ac-
quired on the basis of specifications            not oriented   to spe-
cific   makes or models,      it is not always technically         fea-
sible for nonmanufacturing         suppliers   to make proposals.

         We believe     that,    in those instances         where installed
rented equipment          is to be purchased,         the Government should
not purchase the equipment               from the supplier        on a sole-
source basis,        as is done in most cases, but should open the
proposed purchase to competition                 in order to give nonmanu-
facturing      suppliers      the opportunity       to bid.       We recognize
that,     when ADP equipment          is being initially        acquired,    it is
not always technically             feasible    for nonmanufacturing         sup-
pliers     to make proposals.            In those cases where the make and
model of equipment is known, however,                 the purchase of equip-
ment should be opened to competition                  rather    than obtained
directly     from the manufacturer.




                                        39
                                 CHAPTER4

                             INTERNAL AUDIT

       We discussed      wrth GSA internal      auditors     GSA's
Government-wide      ADP equipment acquisition           program.    The au-
ditors    advised us that they had not reviewed              the program.
We believe      that internal      audit reviews can be of assistance
to the officials       responsible      for the management of the pro-
gram,and,therefore,          we proposed to GSA that the internal
auditors    direct   their    attention    to this program.

GSA COMMENTS

         The Administrator      of General Services          stated that the
internal     auditors     had made a number of reviews of GSA's
internal     ADP activities.        The Administrator         stated that the
internal     auditors     were working     toward the development        of
sufficient      resources     to provide     audit coverage of GSA's
internal     and Government-wide        ADP responsibilities         and that
specific     attention     would be given to GSA's Government-wide
ADP equipment acquisition           program.




                                     40
                                    CHAPTER 5

                                SCOPE OF REVIEW

        Our review was directed         toward identifying         specific
problem areas withrn         the Government's         current   ADP equipment
acquisition      program,     We reviewed      the legislative        history     of
Public Law 89-306, ON3 circulars             and guidelines,        GSA regula-
tions and procedures,          and selected      agencies'     procedures      per-
taining     to the acquisrtron       of equipment.         We intervrewed       of-
ficials     of OMB, GSA, and several         civilian       and defense agen-
cies which procure        and use ADP equrpment,            and we held dis-
cussions with representatives             of the computer Industry.             We
reviewed     records    in the selected      agencies       and examined docu-
ments supplied       by industry     representatives.          The review was
made primarily       at the GSA Central        Office     and the headquarters
offices     of the selected      agencies    In the Washington,          D.C.,
area.

        In making estimates          of Government expenditures             for the
rental    and purchase of ADP equipment,               we used data from
GSA's management information               system, manufacturers'          reports
of sales under GSA's Schedule contracts,                   and GSA procure-
ment records.         Certain     data appeared questionable,             and we
believe    that,    in reality,       the total      expenditures      for the ac-
quisition     of the Government's           ADP equipment       is unknown.        The
lack of sufficient          current     data regarding       agencies'     reten-
tion plans for individual             equipment units precluded            more
precise    estimates      of potential        savings available        through     the
use of multiyear        leasing.
                                                                                 c
        Our review did not include             an examination      of the agen-
cies' justifications           for the acquisition         of equipment        or the
uses being made of the equipment.




                                          41
APPENIXXES




 43
                                                         APPENDIX I

                GENERAL ACCOUNTING OFFICE REPORTS

        ON STUDIES WHICH ILLUSTRATED AND SUMMARIZED

           IMPROVEMENTS WHICH COULD BE MADE IN THE

           GOVERNMENT--WIDE COORDINATION OF CERTAIN

      ASPECTS OF AUTOMATIC DATA PROCESSING MANAGEMENT


                                                                Date
       Titles    of reports   to the Congress                 issued
Survey of Progress and Trend of Development
  and Use of Automatic  Data Processing    in
  Business and Management Control    Systems of
  the Federal Government as of December 1957
   (B-115369)                                          June 27,        1958
Review of Automatic  Data Processing    Develop-
  ments in the Federal Government    (B-115369)        Dec. 30,        1960
Study of Financial    Advantages  of Purchasing
   Over Leasing of Electronic    Data Processing
   Equipment   in the Federal Government
   (B-115369)                                          Mar.      6, 1963
Review of Problems Relating      to Management
  and Administration    of Electronic    Data
  Processing    in the Federal   Government
  (B-115369)                                           Apr.      30,   1964

Management of Automatic     Data Processing      Fa-
  cilities   in the Federal   Government
  (B-115369)                                           Aug.     31,    1965




                                  45
APPENDIX II


                                        AUTOMllTIC DATA PROCESSING FUND

                            COMPARATIVE STATEMENT OF FINANCIAL               CONDITION

                                                                                               As of June 30
                                                                                       1968         1969     p7cJ

                                                                                   -(OOO                      omltted)-
                                        ASSETS

      CURRENT ASSETS.
          Cash                                                                 $ 9,196              $10,646               $10,348
          Accounts recervable                                                        54                  376                   397
          Advances and work In process                                                                   194                     15
          Deferred charges and prepard                expenses                     AA                                          107

                  Total   current       assets                                         9.250             11,216            10,867
      EQUIPMENT AND IMPROVEMENTS.
          Owned equipment   leased to agencres                                         1,835                 4,969         11,150
          Less allowance  for depreclatron                                                134                1,488          3,226

                                                                                    1,701                 3,481             7,924
           Equipment   In Federal Data Processrng                Centers           11,690                11,906            12,516
           Less allowance   for deprecratron                                        2,960                 4.500             6,536

                                                                                       8,730                 7,406          5,980

           Mrscellaneous         programs                                                                        95              628
           Less allowance          for deprecration                                A                     3                 45
                                                                                                                 92              583

                  Total   equrpment       and improvements                         10.431                10.979            14.487

                  Total   assets                                               $19,681              $22.195
                                                                                                     -                    $25,354
                                                                                                                           ___
                                    LIADILITIES

      Accounts     payable                                                     s        -           $ 1,235               $ 3,182
      Advances     and deferred         credits                                             512       1.068                    626

                  Total   lrabllltles                                                       512              2.303          3,808

                     INVESTMENT OF U-S, GOVERNMENT

      Appropriated       capital                                                   10,000                10,000            10,000
      Donated assets                                                                9,679                10,239             8,785
      Revaluation       (equrpment)                                                                           24            3,171
      Allowance     for unantxrpated        dlscontlnuance
          of equipment                                                                                           48               102
      Provlsron     for unamortized       annual leave liability                        -512                  -434              -401
      Retained     earnings      (note a)                                          2                     15                     -111

                  Total   investment        of U.S.   Government                   19.169                39,892            21.546

                  Total lrabrlltres           and investment     of
                     U S. Government                                           $19.681
                                                                                ---                 $22,195               $25,354

      aDeposrts     of $17,000 were          made to Mrscellaneous         Receipts,              U.S.        Treasury,
       through     June 30, 1970.




                                                        46
                                                                        APPENDIX   III   :


                            UNITED     STATES OF AMERICA
                       GENERAL SERVICES ADMINISTRATION
                                WASHINGTON,    D C   20405




    SEP 11 1970
.
    Honorable Elmer B. Staats
    Comptroller  General of the
      Unrted States
    General Accounting Offrce
    Washington, DC 20548

    Dear Mr. Staats.

    We have reviewed the draft report "Revrew of the Acquisxtion      of
    General Purpose Automatx Data Processrng Equipment by the Federal
    Government",   as requested in your letter    of June 29, 1970, and
    attached are our comments pertarnlng     to this report.

    Our comments are broken    down by chapters       for    easy reference




Robert L. Kunzig
Administrator
    Enclosure




                   Keep Freedom an Your Future Wzth US Savtng.r Bonds




                                              47
APPENDIX III

CJ3APTER2
                                         I                     e
MULTI-YEAR LEASING OFFERS OPPORTUNITIES FOR SIGNIFIdNT                    COST REDUCTIONS




                             [See GAOnote,           p- 51.1




As stated in the report,          GSA took specific      action highlighting         the
availability      of RCA's extended rental plan in FY 70 by sending
letters      to agencies who were leasing RCA equipment.               However, the
report 1s incorrect         when it stated that GSA did not take any further
action on promoting use of other contractors'                 extended rental plans.
GSA did in fact issue a special notice to ordering                  offices    indicating
each contract award which contained not only extended rental plans,
but prompt payment discounts as well.                Upon receipt    of this notice,
highlighting      these areas, it is a responsibility             of each agency to act
accordingly.       Further,upon     receipt    of the Comptroller        General Decision,
B 164908, dated January 31, 1969, in response to our request of July
22, 1968, relating        to multi-year     leasing,    GSA sent a letter        to all
agencies on April 4, 1969. Agencies were requested not to refuse to
enter into any long-term         lease plan or installment          purchase plans solely
on the grounds that such a plan is barred by legal or fiscal                       consldera-
tlon without prior consultation            with and concurrence of GSA since GSA
may decide to make use of the ADP Revolving               Fund. Use of the ADP Fund
for such transactions         is not barred by the Comptroller            General Decision.
In addition,      the content of this letter          was incorporated      in a Federal
Procurement Management Regulation             (Section 101-32.403-4).




                                             48
CHAPTER 3


COORDINATED GOVERNMENT-WIDEAPPROACHTO PURCHASING NEEDED


This section of the report needs to reflect         additional      actions
taken by GSA. The report states that "GSA requested no addItiona
money for the Fund in its budget request to Bureau of the Budget (BOB)
for FY 70 and FY 71, because of continuing        fiscal    limitations      and
because the need for addItIona      capital   could not be reasonably
demonstrated " It is true that GSA's origIna             N 70 and FY 71 budget
request did not include addltronal      monies for the ADP Fund. However,
the report should reflect    that GSA requested a $30 million            supple-
mental appropriation    for FY 70 and amended their N 71 budget to the
same amount. A justification      was included based on valzd equipment
requirements   for ADP Fund considerations     totaling     $22.5 million       and
estimated equipment requirements     of $7.5 million.

We agree with the conclusion       that a coordinated     Government-wide
purchase program is essential        if the Government 1s to optimize the
use of Its limited     purchase funds.     To support this program ADPE
monies could be contained in one central         fund and all agencies would
be requzred to use this fund for their ADPE requzrements.              To further
support this Government-wide       program, GSA, in conjunction       with Office
of Management and Budget (OMB) and Government agencies, is revising
the Management Information       System (MIS).     The revised MIS ~111 con-
tain the basic reporting      elements necessary to m&e detailed          lease
versus purchase analysis,       and to prepare a Government-wide        "Best
Buy" List.   To fully Implement this concept, consideration            must also
be given to the substantial       manpower resources required      to review all
procurement  requests,     and to perform a detailed      analysis of each
request.

The conclusion     that "equipment purchases from nonmanufacturing
suppliers   has not been fully         explored by the Government",           and that
"the admittance of additional           supply sources for the Government's
equipment requirements        would offer opportunities          for the use of
competitive    contracting      procedures     for obtaining     lower prices"       is not
completely    accurate.      Nonmanufacturing       suppliers    are not precluded
from bidding on Government contracts.               However, it must be recognzzed
that In those cases that computer systems are being acquired based
upon data systems specifications            not oriented      to specific     makes or
models it is not always technically              or economically     feasible    for
nonmanufacturing      suppliers     (other than original        equipment manufacturers)




                                              49
APPENDIX III

to propose.    We are studying the entire area to determine the technical
and economical feaslbllity        of a new method of procurement.     To reach
valid conclusions    regarding      this matter, we determined to operationally
test this method of procurement and make comparisons with the currently
used procurement   techniques          We, therefore, constructed a Request for
Proposal which was issued on May 1, 1970, and a competitive           procurement
is now underway for the purpose of acquiring          a computer system which
will permit competitive      offers by independent     peripheral manufacturers
and others during initial       system acquisition.

In addition,   there have been numerous actions         taken to create and
provide   for supply sources other than original          equipment manufacturers.
Some examples follow.

1.   In the area of independent  peripheral    procurements,    we have continued
to provide opportunity   for the smaller manufacturers       of ADP peripheral
and accessorial  equipments to furnish     part of the Government's     require-
ments.

During FY 70 we made additional        progress in awarding Federal Supply
Schedule (FSS) contracts     to Independent      manufacturers   of peripheral       and
accessorial    equipments used with Automatic Data Processing Equipment
 (ADPE). During FY 70 we had a total of 71 such contracts with an estimated
annual volume of $12 million,        as compared to 42 In the previous        fiscal
year with a volume of $10.7 million.           Among these were contracts with
four manufacturers     and suppliers    of plug-to-plug     compatible   tape and disk
drives and SZLX independent     suppliers    of disk packs at prices lower than
available   from computer manufacturers.

2. We now have FSS contracts        for disk packs at considerably    lower prices
than those offered     by computer manufacturers.     These contracts were
issued pending the development of a Federal Specification          and a
Qualified  Products List (QPL) for six high disk packs to permit com-
petitive  procurements    for future use requirements.

It is felt that the use of the specification         and qualification      testing
will provide    a better quality    product at lower prices         We have
required    the agencies to determine and report to GSA their replacement
and additional     FY 71 requirements.     We have prepared and issued an
appropriate    solicitation    for this Government-wide    requirement,      We
plan to do the same thing for eleven high disk packs as soon as we
complete work on the development of a Federal Speclflcation.




                                          50
                                                                                        n   TV+>   6” c




                                                                    APPENDIX III

3. In August of 1969 we sent a letter           to the several agencies polntlng
out the recommendatxons contarned m the Comptroller              General's  report to
the Congress on a "Study of the Acquxsltlon           of Peripheral   Equipment
for use with Automatic Data Processxng Equipment" - June 24, 1969, and
offered    GSA assistance    m puttrng recommendatx.ons xnto effect        pendIng
issuance of more speclfx        pollcles    by Office of Management and Budget
and GSA. We delegated procurement authority            to the Veterans Adminlstra-
tlon to competltlvely      procure plug-to-plug      compatible replacements      for
75 orIgIna     computer manufacturer      tape droves.    This action has been
completed wrth a reported       savings of $300,000 annually.        We also dele-
gated procurement authority        to Defense Supply Agency for replacement
of 57 tape drives.       This action has been completed with a reported savings
of $220,000 annually.

4. We Implemented Bureau of the Budget Bulletin           No.. 70-9, SubJect,
"Acqulsitlon     of Peripheral   Components for Installed     ADP Systems," by
ldentlfymg      2,876 such units, which zf determlned by the using agencies
to be replaceable,      would at least equal the $5.0 mllllon       annual cost
reduction    estimated by the Comptroller     General m hzs report to the
Congress on this SubJeCt No, B-115369, dated June 24, 1969.



   GAO note:       Deleted comments relate    to matters   which were dis-
                   cussed in the draft report    but omitted    from the
                   final  report.




                                           51
APPENDIX     III


 CHAPTER 5

 INTERNAD AUDIT


 Chapter 5 of the GAO draft report recommends that the GSA internal
 auditors be given the tralnlng     necessary to review GSA's ADP equip-
 ment acqulsltlon    program, and that the internal    auditors    direct
 attention   to this program    The GSA Internal    Audits Dlvlslon     has the
 tralnlng   necessary for such work. A misunderstanding         on this point
 apparently    arose during our dlscusslon with GAO of the llrmtatlons
 any audit staff faces in relation      to Its total audit workload.

 The Office of Audits and Compliance 1s constantly                working toward
 development of sufflclent            resources to provide   audit coverage of
 the GSA internal         ADP systems as well as GSA's Government-wide
 responslbilltles          under the Brooks Bill.     This requires      not only
 appropriate      training      - 51 of the 90 internal    auditors have received
 ADP training       - but also the programing of avallable          staff resources
 to provide necessary audit coverage for the many significant                  and
 diversified      actlvltles      throughout   all of GSA ADP actlvitles         have
 received      a share of these resources.

 In response to a Federal Supply Service request,     the GSA Internal
 Audits Dlvlslon   provided assistance and advisory   service In the
 evaluation   and selection of ADP equipment for the St. Lous Federal
 Data Processing Center     In addition,  a comprehensive internal     audit
 report was Issued last year on the appraisal     of ADP applications    used
 in the Federal Supply System.

 In matters of Government-mde     ADP application,     Internal    Audits has
 recently   Issued special reports on GSA's ADP in-house maintenance
 test program and on the Remote Access Multi-User         System pr0Jec-t
 through which GSA 1s providing    interactive     ADP time-sharing     to
 Federal agencies natlonwlde.

 Further,    audits have been scheduled this fiscal year to cover other
 ADP-related     areas    In accordance with the GAO recommendation, the
 internal    auditors will also direct specific   attention to the GSA ADP
 equipment acquisition      program.




                                            52
                                                                 Jd?PEMDfX IV




Mr. V. L, Hall
Assistant Duzectos                                           NOV 3-8 1970
ClVll   DlVlSlOPl
United States General
  Accounting  Offace
Washangton, B.C.     20548
Dear Mr.     Hill:
We have renewed   your draft  report entatled     "Review of the
Acquasat3.on of General Purpose Automatrc     Data Processang
Equipment by the Federal Government"    and have the following
comments :
      1. Your proposed     fsndang that "Lbttle       progress    has been
made toward implementing      a coordinated    Government-wide       ADP
equapment acqu%sation    program as envlsloned        by the Congress
3.n 1965." appears to disregard       the substantial     advancements
that have been made toward the nsrngle-purchaser~              concept as
the result  of actfons   such as the fo2lowing:
            a. A maximum order limktation    has been placed on
the equzpment that can be acquired      by agewcaes without  GSA's
review for centralized    purchase action OK a delegation    of
procurement    authoratyo
          ba Multiple  procurements    handled in a centralized
basis resulted  In a cost savrng during PY 1970 over Federal
Supply Schedule or commercial    ps~~es of $20,000,000.
          c. the Government-wide  program for replacement of
punch card equxpment beang leased from IBM wsth equrpment
provrded  at lower cost by third party suppliers.
             d, the Government-wade             program prescrzbed       by OMB
 Bulletan    70-9 to acquire         lower cost compatible        peripheral
 equipment     to replace     existing      "systems supplies       equlpmentn
 at actual     savangs estimated         to be at Least $4-4 million,
 GSA has delegated        the procurement         to Veterans    Adminzstratzon
 and the Navy Department           and has an RET for al.1 other agencies
 now out for bbds,          Further,     GSA PS currently      testrng     the
 feaslbllaty      and results      of procarlng       computer systems under
 condltaons      zn whfch independent          suppl~.ers can offer      proposals
 on all or any part of the system,
APPENDIX IV

            e. Steps have been lnrtlated            to coordanate         the
Federal   software      requirements     and consolidate        the acqulsltlon
of widely    used common software         packages.       Some such general
purpose packages have been placed on Federal                  Supply Schedules.
GSA 1s taking      action     to acquire   a "system/equipment          simulator
package" to replace         the variety    of such packages currently
in use.     Experience      galned in this pilot        prolect    will     provide
a base for future        practice    in this relatively         new technological
procurement     area.
            f.   The ADP Fund has been used to take advantage  of
rental   credits   accrued on equipment  being phased out of one
agency   to meet the requirements    of another agency.

           g*   Procurement     and testing   (through     a magnetic
testing  laboratory    established     by GSA/NBS) of all magnetic
tapes have been centralized.          Similar  conslderatlon     is being
given to the procurement        of magnetic disks.
           h. The competitive      procurement  policies    for ADP
have resulted   in a shift    in the percentage    of Government
equipment acquired   from the dominant supplier         from 61 percent
rn 1964 to 26.5 percent     in 1970.


GAO note:      Deleted comments relate           to matters whrch were
               discussed in the draft          report   but omitted from
               the final report.




                                      54
                                                                        APPENDIX IV


        3. Your observation          that the Government's             ADP management
 rnformation     system    "has   not    been   sufficiently        developed      and
refined      to serve as an effective           tool for ensurxng that
avallable      equipment    acqulsltxon        monies are properly            channeled
to achieve optimum economies"               is not treated        with rn speclfxc
terms since the draft          report     says that "we are reviewing               the
 information     system as a separate           sub-ject."       However, we would
agree that the performance             of the management          Information
 system has been generally            unsatisfactory         for certain       aspects
of the management of the Federal                ADP program.          Recognxzing
this,     a concerted    drive was started           early thus year by GM3
and GSA which has resulted             in the following:
            a* The inventory    files as of June 30, 1970, were
validated    by August 5, and the published    document released
by the Public Prxnter      on August 28, about eight months
earlxer   than prior   years.
             b.   The   inventory     data    AS,   for   the   first     time,
sufficiently    timely     to use specialized    outputs    In the budget
review process.       Particular    emphasis this year is being paid
in the budget review process to a review of the continuation
of rentals   where purchase or alternative          techniques    of rental,
such as multi-year      leases,   IS in order.
           C.     The system has been the basis for determining
requarements      for and implementing    both the Government-wide
peripheral      equipment  replacement  program and the punch card
equipment     replacement    program mentioned   in paragraph  1 above.
            d. Task forces have been working          to further   improve
the timeliness       and content     of the system.   Emphasis 1s being                   .
given to the development          of data that will    (a) provide   a
technxcal    proflle      of the Federal ADP inventory     (programming
languages,     software     packages,   data management systems, etc.),
and (b) identify        the inventory     and related costs according    to
Government functions         being served.
          e.     Now that the inventory    data LS current,  it
provades GSA with a basis for analyzing         alternative procure-
ment opportunities      in considering  the use of the ADP Fund.
          f.  The agency forecast     of gains and losses contained
in the management information     system, as modified    by the
actions taken by 0Ml3 in the budget review process,        will
provide the basis for GSA to develop a procurement         profile
for the coming fiscal   year.   This action    can be further




                                         55
APPENDIX IV


 adjusted   by appropriation   actions       and then used to plan and
 coordinate   the procurement   actions       for the fiscal   year.    In
 this manner the "single-purchaser"           concept will   be further
 enhanced.
        4. Your observation          that the ADP Fund has not been
 fully   developed     is accurate.       The Fund, with an initial
capital     investment     of $10,000,000      in 1967, has been augmented
by the transfer        of assets of the Federal          Data Processing
Service     Centers and is in the process of a further              augmenta-
tion by the inclusion         of $20,000,000        in the 1971 Supplemental
Appropriation       request.      The Fund has been used to purchase
equipment      where Government-wide        benefits     were demonstrable
and to take advantage         of opportunities        which were not possible
under the regular        appropriations      process
            The opportunities       for further     use of the Fund have
been enhanced by the improvements             in the management informa-
tion system indicated         in paragraph      3. Not only has the
system been used in this year's            budget review,    but it now
can be used in agency planning           and in GSA to evaluate         current
procurement    options     and estimate     future   Fund opportunities.
            Even though the ADP Fund has not been "fully
developed,"     it should be noted that substantial        progress
has been made in achieving      the objectives      of the Fund, namely
advancement of the single-purchaser         concept as described       in
the earlier    paragraphs  of this letter,      and increased     purchas-
ing of computers as evidenced      by the fact that the percentage
of owned computers in the Government inventory            has increased
from 39 percent     in FY 1964 to 64 percent      in FY 1970.
We have not offered   any comments on the specific  issues
raised  in the report  or on the use of multi-year  leasing
since GSA 1s in a better   position to respond to these issues.
 The management of ADP is a complex task due in large measure
 to the relative  youth of the technology,    the dynamic nature
pf its evolution,    and the interaction   of the technology   and
 its application.   We believe    that the Federal  Government has
 and is making progress    in its management.




                                       Associate     Director
                                                               APPENDIX V


                    PRINCIPAL   OFFICIALS     OF

             THE OFFICE OF MANAGEMENT AND BUDGET

           AND THE GENERAL SERVICES ADMINISTRATION

     RESPONSIBLE FOR THE ADMINISTRATION            OF ACTIVITIES

                   DISCUSSED IN THIS REPORT


                                               Tenure       of office
                                               From                     To
                                                                        -
                OFFICE OF MANAGEMENT AND BUDGET (note              Y
                                                                       a)

DIRECTOR, OFFICE OF MANAGEMEW AND
  BUDGET:
    George P. Shultz              July               1970      Present

DIRECTOR, BUREAU OF THE BUDGET
   (note a):
      Robert P. Mayo                        Jan.     1969      June          1970
      Charles J. Zwick                      Jan.     1968      Jan.          1969
      Charles L. Schultze                   June     1965      Jan.          1968


                GENERAL SERVICES ADMINISTRATION

ADMINISTRATOR OF GENERAL SERVICES:
    Robert L. Kunzig                        Mar.     1969       Present
    Lawson B. Knott, Jr.                    Nov.     1964       Feb.    1969

COMMISSIONER, FEDERAL SUPPLY SER-
  VICE:
     H. A. Abersfeller                      Mar.     1970      Present
     Lewis E. Spangler (acting)             Dec.     1969      Mar.    1970



"vdn er the President's    Reorganization    Plan 2 effective
  July 1, 1970, the Bureau of the Budget was incorporated
  into the newly established     Office   of Management and Budget.


                                 57
APPENDIXV

                                        Tenure     of offlce
                                        From                     To
                                                                 -
              GENERALSERVICESADMINISTRATION (contmued)
COMMISSIONER,FEDERALSUPPLYSER-
  VICE:
   Arthur F. Sampson                 June   1969      Dec.            1969
   Lewis E. Spangler (acting)        May    1969      June            1969
   H. A. Abersfeller                 May    1964      May             1969




                                                      US   GAO   Wesh,D   C

                                58