\ UNITED ST141 &~W?AL~ACCOUNTING OFFICE REGIONAL OFFICE ROOM 1800 FEDERAL OFFiCE BUILDING 911 WALNUT STREET KANSAS CITY, MISSOURI 64106 , July 9, 1971 , Colonel Seymour Stearns r Commander Defense Commercial Communications Office Scott Air Force Base, Illinois 62225 Dear Colonel Stearns: L o' ortunities This letter is a summary of the L?P for reducing costs which our staff has discussed with you and other personnel of the Defense 2 ommercial Communications Offlee (DECCO). Briefly, the staff observed that costs could be reduced through: --avoidance of interstate routzag of antrastate services, --improved evaluations of competitive quotations, --se-evaluation of service contracts when changes occur in tariffs or policies of carriers, . --avoidance of polar1 operation charges, where feasible, --use of Telpak application 1-n lieu of certain higher cost local channel and interexchange services, and --use of Government-fmanced facllitles where practzcable. Details concerning these matters follow. ROUTING OF INTRASTATE SERVICES Clrcults were,belng routed interstate in the Telpak2 network when they ' . could be routed intrastate. This mcreases the cost of services because charges associated with interstate circuits are usually higher than those for intrastate circuits. Although conditions may require that clrcu~ls be initially routed or rerouted interstate, conditions often change so that zntrastate routing can be used. But there were no established procedures in DECCOfor re-examining clrcult routing. The benefits from re-exarmnlng the routzngs are demonstrated by circuit SB 3OP 01206 which was being leased to provzde service between Eglm, MacDlll, and Homestead Air Force Bases, all In Florida. For several years the circuit lPolar operation is the use of directional current to trsnsrmt telegraph signals thereby providing quality service between termmals. 2Telpak is an industry term for reduced pricing arrangement offered to users leasing quantities of czrcuits between rate centers. 507-HANNIVERSARY1921 , was routed in Telpak through Georgza and the carrier charged interstate rates of $105 a month for the three service terminals. After we brought this to the attention of the proper DECCOaccount manager the circuit was routed intrastate and service terminal charges were reduced to $45 a month, or $720 a year less. We referred to DECCOpersonnel 55 other circuits with terminal poznts m the same states but being leased at interstate rates. Forty-four of these czrcuits were rerouted intrastate in Telpak and annual costs were reduced $21,120. Of the 11 clrcwts not rerouted, 2 had been dzsconnected, intrastate Telpak routing was not available for 4, and 5 were more economical An interstate routmg. We understand that under new procedures circuits having terminal points in the same state but routed interstate will be identified and reviewed at 90-day intervals to determine whether they can be changed to intrastate. EVALUATIONS OF COMPETITIVE QUOTATIONS Although competitive quotations are to be obtained when more than one carrier can provide services, we found instances where services were not leased at-the lowest possible costs because DECCOdid not adequately evaluate the quotations. 4 A contract for service between Andrews, Maryland and Ft. Meade, Maryland (circuit WU T 03441) was awarded to one carrier whzch quoted a monthly re- curring price of $70 for the two service terrmnals. The quotation contained no circuit mleage charge, indicating that the carrzer assumed the circuit would be placed in Telpak. Another carrPer quoted a monthly recurring charge of $100.80 comprised of $60 termznal service charges and $40.80 for interexchange circuit mileage. Although this is higher in total, the terminal service charges are lower. Therefore, the secondlcarrler's quotation containing the interexchange mileage charge shuuld not have been compared with the fjrst carrier's quo- tation until DECCOdetermined whether the circuit could have been placed in an intrastate Telpak. The rou%ing of circuits in an intrastate Telpak would have permtted DECCOto lease the service from the second carrier at $10 a month less costs, since the intrastate Telpak charge of $6.09 a month 18 the same for both carriers. But DECCO's procedures do not require a preaward determination as to whether a required service can be placed in Telpak although DECCOcontrols the leasing and routing of Telpak. Circuits CPB 06T 00320, 00321 and 00322 are other examples where DECCO awarded contracts for services to the seemingly low bidder when a competing carrier would have been cheaper had the routmgs been determined prior to awards. 2 RE-EVALUATING SERVICE CONTRACTS DECCOcontinues to lease services from carriers who received orders several years ago although the services can now be obtained from other carriers at less costs. Tnere 1s no procedure in DECCOfor re-evaluating service contracts in the light of changes made in tariffs of competing carriers, and differences u1 how the carriers classify services as inter- state or intrastate. Circuit WtJ T 03338 provides service between Ft. Meade and Andrews Air Force 3ase, both with switching facilities. The carrier's policy IS to charge interstate rates for services between switching facilities and has charged such rates for this service since 1968. A competing carrier charges intrastate rates for services I between termrnal points within a state. The award was made to the first carrier because Its interstate rate was $15 a month less than the competitor's. Since the award interstate rates have increased, but the intrastate rates have renamed rather constant. As a result the second carrier 1s providing comparable service between these two locations for $25 a month less than the first. We identified 66 other services of this type and examined into 26 of them, 1S of which were leased under competitive procedures. Of the 26 services; 23 appear to be available from carriers, other than those holding the contracts, at a reduction of about $5,120 a year. Information on these services has been furnished to DECCOofficials. HIGHER COSTSFOR POLAR OPERATIONS Teletype circuits with polar transmission capability ara being leased from a carrier at prices in excess of those charged by a competitor. The tariffs of the lessor specify a monthly polar charge for each terminal whereas the competing,carrler's do not. In a test we identified 15 circuits with polar transmission capability between the Pentagon and Ft. Meade, Maryland. Nine of these circuits are furnished by a carrier which charges $35 a month for each servzce terminal plus $15 for each polar operation, Another carrier provides the other six , circuits at $35 a month including the polar capability, If these 15 circuits were provided by this carrier costs would be reduced $1,980 a year. These 15 circuits represent only a small number of the total being leased with polar charges. DECCO's records for one of several polar classi- ' fications show annual costs of $46,000. The reason for leasing the more costly service was not evident from an examination of records. Many of the services were leased before DECCO implemented competitive leasing procedures, and DECCOhas no review pro- cedures that would uncover such situations. 3 APPLYING TELPAK TO -- INAL CBANNEL AND INTERJXCHANGESEFNDXS -- Glrcuits are being leased to provide services in the Washington, D.C., area on a fractional mileage basis - local channel service. These services u1 some instances can be provided by a different carrier at lower costs by applying Telpak. The more costly services were leased, and continued to be leased, because DEGCOprocedures do not provide either at the start of service, or thereafter, for considering Telpak application when carriers state that local channel service is to be furnished. The lack of such a procedure is based on the premise that services classified as local channel by carriers are not eligible for Telpak. But some services in the Washington area classified as local channel are interexchange channel services subject to Telpak. For example, since April 1964 circuit CPB 70T 00350 has beea leased as a local channel at a monthly recurring cost of $134.20 for service between Andrews, Maryland and Langley, Virginia. The only quote received by DECCO shows that the carrier was to provide local channel service and it has been so classified in DECCOrecords. But a circuit between these locations leased from another carrier is in Telpak end the monthly charge is $64.20 less. Therefore-, sn annual cost reduction of $770 IS likely to be realized by changing the local channel service to Telpak. We Identified 13 other circuits in the Washington area that are leased on a fractional mileage basis although they appear-to be eligible for Telpak. If these services can be changed to Telp,ak, costs could be reduced an estz- mated $5,100 a year., Information on these circuits has been furnished to DECCOofficials. 1 The lack of renew also permits errors in service classification to continue undetected resulting in higher costs. For mstance, for circuits CPB 70T 00606 and 00607 the carrier furnished DECCOproper interexchange mileage quotes. These circuits, however, are shown in DECCO1srecords as local channels, apparently because of erroneous input data, and have been excluded from Telpak application. Information on the circuits was brought to the attention of DECCOemployees and the services are now provided by Telpak at an annual reduction u1 charges of $423. We also noted th~x?e interexchange services that were recorded prOp8rly in DECCOrecords but apparently not considered for Telpak applzcation. After discussing these services with DECCOemployees they were placed m Telpak which reduced the charges $1,467 a year. In another instance we found that the cost of interexchange mileage was recorded u1 DECCO's records as equipment costs. This excluded the service from being considered for Telpak application. When brought to the attention of DEN0 employees the service was changed, and 1s now provided by Telpak a% an annual savings of $1,221. . 4 USE OF GOvE!Q@ENTFINANCED FACILITIES Although we did not make an in-depth review of this area, we noted that three circuits were being leased when Government financed and controlled facilities had spare capacity to meet these requirements. We discussed these with DSCCOofficials and the three leased circuits were disconnected and the sp,are channels used to provide the service, This will result in an annual savings of $1,512. I CONCLUSIONS DFCCOshould establish procedures for re-examining: --existing contracts for service, considering changes in tariff rates and carriers' policies, 'to assure that the most economic services are currently being leased, --local channel services to assure that they are properly classified and, if not, whether they can be incorporated into Telpak at reduced costs, and --spare Government facilities to detemnsne whether they can replace leased circuits. To-assure that awards are made to low bidders the procedures for evaluating quotes should be improved so that adequate consideration is given to the different means of providing service proposed by competing carriers. We shall appreciate your comments and information on any actions taken on the above discussed matters. A copy of this letter is being sent to the Director, Defense Communi- cations Agency. q Sincerely yours, X. L, Weary Regional Manager 5.
Opportunities for Reducing Costs
Published by the Government Accountability Office on 1971-07-09.
Below is a raw (and likely hideous) rendition of the original report. (PDF)