oversight

Substantial Savings by Obtaining Competition in the Rental of the Government's Punched Card Accounting Machine Equipment

Published by the Government Accountability Office on 1971-07-15.

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

Substant,iaI Savings By Obtaining
Competition In The Rental Of The
Govet%ment’s Punched Card
Accounting Machine Equipment              @
                               0-115369




BY THE COMPTROLLER   GENERAL
OF THE UNITED STATES



                         JULY15194b
                     COMPTROLLER     GENERAL      OF      THE      UNITED   STATES
                                   WASHINGTON.     D.C.         20548




      B-l   15369




      To the    President      of the Senate    and the
k /   Speaker     of the    House   of Representatives
/
               This is our report       on substantial    savings      by obtaining      com-
      petition    in the rental    of the Government~s         punched    card account-
      ing machine       equipment.      Our review     was made pursuant            to the
      Budget    and Accounting       Act,  1921 (31 U.S.C.        53), and the Account-
      ing 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 Administrator         of General  Ser-
      vices;  and the heads of other    Federal    departments      and agencies.




                                                 Comptroller                General
                                                 of the United              States




                             50TH ANNIVERSARY ?921- 1971
1
I
I
 I
 I
 I
 I
 I                      COMPTROLLER
                                  GENERAL'S                   SUBSTANTIAL SAVINGS BY OBTAINING
 I
 I
                        REPORT
                             TO THECONGRESS                   COMPETITION IN THE RENTAL OF THE
  I                                                           GOVERNMENT'SPUNCHEDCARDACCOUNTING
  I
  I
                                                              MACHINE EQUIPMENTB-115369
  I
  I
  I
  I                     DIGEST
                        ------
  I
  I
  I
  I                     WHYTHEREVIEWWASMADE
  I                                                                     I?
   I
   I                       1 The General Services Administration (GSA) is responsible f~.~~quj.rl
   I                      / ing the Government's automatic data processing equipment--including
   I
   I                         punched card accounting machine (PCAM) equipment--economically
                                                                                   -.__ _-..   and
   I                         efficiently.
    I
      I
      I                       PCAMequipment can be purchased or rented from.leasing     companies and
       I
       I
                              manufacturers.    Leasing companies purchase the equipment from the lead-
       I                      ing manufacturer-- International  Business Machines Corporation (IBM)--
       4                      and then lease it at rates lower than IBM’s.     (See p. 6.)
       I
        I
        I                      Because the Government   spends a large amount of money for the rental
        I                      of PCAMequipment from    IBM--$47 million during fiscal year 1970--
        I
        I                      the General Accounting   Office (GAO) ex~.~~.~ed_intq~GSA's effortsto
        I                      obtain savings through   competition in the rental of PCAM
                                                                                        _._ "requipment.
                                                                                              .- __^1
          I
          I
           I

          ;
                        FINDINGSANDCONCLU,%.ONS
           I
           I                   Competitive renting                                                              a
           I
           I
           I                   Potential savings to the Government through the competitive   rental        of
           I
           I
                               PCAMequipment are substantial,    but GSA's efforts to achieve such
           I                   savings have had limited success.
           I
           I
            I                 At various times between 1966 and 1969, GSA furnished technical assis-
            I
                              tance to several agencies which obtained PCAMequipment from leasing
               I
               I              companies, but there was no Government-wide response by agencies to
               I              use leasing companies as a competitive  source for the equipment.     Leas-
               I
               I              ing companies indicated to GSA that, if given the opportunity,    they
               I              could have supplied considerably more of the Government's PCAMequip-
               1
                I
                              ment needs. (See p. 9.)
                I
                I              GSA solicited    proposals in January 1969 for the rental of 30,600
                I
                I              units of PCAMequipment that agencies had been renting from IBM.
               I               The solicitation    resulted in the award of a Government-wide require-
                I
                I              ments contract to five leasing companies for 2,144units      of equipment,
                I              about 7 percent of the total desired.
                I
                I
                I              GSA estimated that, by renting the 2,144 units from the leasing com-
                 I             panies, the annual rental costs would be reduced from $6.6 million to
                 I
                 I
                I       Tear Sheet

                                                                  1

                    I
     $4 million--an         annual    saving   of $2.6 million.        GSA planned    to period,-   ,      i
     ically    solicit      proposals      for the rental    of additional     equipment    after          I
     agencies      acquired     the equipment      offered   under the requirements       contract.        i
     (See pp. 9 and 70.)                                                                                   I
                                                                                                           I
                                                                                                           I
    Agencies'      use of requirements            contract                                                 I
                                                                                                           I
                                                                                                           I
     In April    1969, GSA told Federal            agencies      of the requirements      contract         I
     and the potential       savings      from leasing       equipment     under the contract.             I
     The agencies,     ho::ever,      have shown reluctance           to acquire    their  equipment       1
     under the contract        &spite       the fact     that use of the contract         as the           I
     source   of supply     was mandatory         under GSA regulations.          As of January            I
                                                                                                           I
     1970, less than one third            of the units       offered    under the requirements             I
     contract    had been ordered.            (See p. 13.)

     Several     agencies      told GAO that         they were concerned        with a possible
                                                                                                           I
     problem--could         equipment     with     the special    features       needed be obtained
     from the leasing          companies.        The GSA official        responsible       for the day-    I
     to-day    administration         of the     requirements     contract,       however,     said that   f
     there    had been relatively          few     instances   of this      problem.       (See p. 11.)    I

     The agencies     were concerned      also about possible        administrative           burdens      I
     and increased     costs  if,   because     of limited     models and/or        quantities             I
     offered   by a leasing      company,    equipment     would be rented        from more
     than one supplier.       GAO's review        did not indicate     a basis for this
     concern.     (See p. 11.)

    In August   and September     1970, GSA issued        further    instructions             which
    required  agencies   to rent     the equipment      available      under the           require-
    ments contract.     But, as of December 31, 1970, the agencies                         had or-
    dered less than hslf      the 2,144 units      offered.       (See p. 14.)

                                                             .                                                 I

RECi2WkfENDATIONS
                OR SUGGESTIONS                                                                                 I
                                                                                                               I
                                                                                                               I
    GSA should     closely   monitor   the effectiveness               of its   actions    to determine        1
    whether   additional     measures    are necessary            to   obtain   maximum    competition         I
    in the rental       of PCAM equipment.

                                                                                                               I
AGENCYACTIONS AND UNRESOL?ZDISSUES                                                                             I


    GSA agreed      and said     that    it   had:

       --Reviewed    the agencies'      PCAM-equipment   inventories    to specifically                        I
                                                                                                               I
          identify   equipment     that could be replaced      at lower cost by leasing                        I
          companies.                                                                                           I
                                                                                                               I

       --Sent      telegrams        to agencies   that had not fully           used the requirements           i
                                                                                                               I
          contract,        advising     them that    they had no authority          to continue     to         I
          contract       with     IBM for leased     equipment       if similar    equipment    was            I
          available       under the requirements           contract.


                                                     2
I
I           *                --Sent     letters     to the same agencies requesting        individual     meetings
I                               between      agencies'    officials     and GSA officials    in order   to reach
I
I                               determinations         on each specific     unit of equipment.

                             --Issued      a solicitation     to   provide    for a greater   supply  of PCAM
                                 equipment    on a competitive        basis   during fiscal   year 1372,


                MATTERS
                      FORCONSIDERATION
                                    BY THECONGRESS
                       GAO believes         that.this   report    will'be   of interest    to the Congress    be-
                       cause of the         potential   savings that can be effected          by renting  the
                       Government's         PCAM equipment     through    competitive   contracting.




    I




    I




                Tear Sheet



        I
                              Contents
                                                                    Page

DIGEST                                                                1

CHAPTER

  1            INTRODUCTION
                   Processing data with PCAM equipment
                   PCAM equipment in the Government
                       Authorities    and responsibilities
                          for acquisition    of PCAM equipment

  2            SUBSTANTIAL SAVINGS BY OBTAINING COMPECI-
               TION IN THE RENTAL OF PCAM EQUIPMENT                  9
                   Establishment      of Government-wide re-
                       quirements contract                           9
                    Initial   reactions   to requirements    con-
                       tract                                        10
                  'Ag encies' views on requirements       con-
                       tract                                        10
                   Leasing companies' views on require-
                       ments contract                               12
                    GSA efforts     to have agencies use
                       equipment available    under require-
                       ments contract                               13

  3            CONCLUSIONSAND RECOMMENDATION                        16
                  Conclusions                                       16
                  Recommendation to the Administrator          of
                    General Services                                17
                  GSA comments                                      17

  4            SCOPEOF REVIEW                                       18

APPENDIX

           I   PCAM equipment used by the Government as of
                 June 30, 1968, 1969, and 1970                       21

      II       PCAM equipment used by agencies       as of
                 June 30, 1970                                       22
    APPENDIX                                                             Page

        III        PCAM equipment by manufacturer and type
                     used by the Government as of June 30,
                     1970                                                23

          IV       PCAk e~~i~~ent offered by leasing companies
                     under tha requirements  contract and agen-
                     ciesq crders at various dates through De-
                     cember 31, 1970                                     24

              V    Letter dated June 5, 1969, from GSA to agen-
                     cies concerning requirements contract for
                      PGAM equipment                                     25

         VI        Letter  dated July    7, 1969, from GSA to agen-
                      cies concerning    requirements contract for
                      PCAM equipment                                     26

        VII        GSA bulletin  dated August 21, 1970, to agen-
                     cies concerning use of requirements  con-
                     tract for PCAM equipment                            27

     VIII          Letter   dated September 18, 1970, to agencies
                      concerning use of requirements  contract
                      for PCAM equipment                                 29

         IX        Letter dated March 11, 1971, from the Ad-
                     ministrator  of General Services to the
                      General Accounting Office                          30

              x!   Principal    officials     of the General Services
                      Administration      responsible  for the activi-
                      ties discussed in this report                      34
B
                                    ABBREVIATIQHS

s G&O              General Accounting Office
0 GSA              General Services Administration
  IBM              International  Business Machines Corporation
  OMB              Office of Management and Budget
  PCAM             punched card accounting machine
. COMFYROLLER
            GENERA&',?                           SUBSTANTIAL SAVINGS BY OBTA I NI NG
  R&PORT
       TO THECONGRESS                            COMPETITION IN THE RENTAL OF THE
                                                 GOVERNMENT'S PUNCHED CARD ACCOUNTING
                                                 MACHINE EQUIPMENT B-115369


 DIGEST
 -----_

 WHYTEEREVIEHWASIMDE
        The General   Services     Administration       (GSA) is responsible          for acatir-
        ing the Goveinment's       autbmatic      data processing     equipment--including
        punched card.accountirrgmachine             (PCAM) equipment--economically           and
        efficiently.

        PCAM equipment       can be purchased         or rented   from leasing      companies     and
        manufacturers.         Leasing      companies   purchase    the equipment       from the lead-
        ing manufacturer       --International        Business   Machines    Corporation      (IBM)--
        and then lease       it at rates       l.ower than IBM's.       (See p. 6.)

       Because the Government           spends   a large    amount of money for the rental
       of PCAM equipment        from    IBM--$47 million      during     fiscal year 1970--
     1 Fhe General     Accounting       Office     (GAO) examined    into GSA's efforts        to
       obtain  savings     through      competition     in %%'%$-~~df~f%AM          equipment.


 FINDINGSANDCONCLUSIONS
        Competitive renting
        Potential   savings    to the Government      through   the      competiti   .c: rental     of
        PCAM equipment      are substantial,      but GSA's efforts        to achieve      such
        savings   have had limited       success.

        At various    times between          1966 and 1969, GSA furnished         technical    assis-
 4      tance to several        agencies      which obtained      PCAM equipment     from leasing
        companies,    but there       was no Government-wide          response   by agencies    to
        use leasing     dompanies       as a competitive       source    for the equipment.       Leas-
        ing companies      indicated       to GSA that,     if given the opportunity,        they .
        could have sup$lied          considerably     more of the Government's          PCAM equip-
        ment needs.       (See p. 9.)

        GSA solicited    proposals       in January     1969 for the rental    of 30,600        ~
        units  of PCAM equipment         that  agencies     had been renting   from IBM.
        The solicitation      resulted      in the award of a Government-wide        require-
        ments contract    to five      leasing    companies    for 2,14edunits    of equipment,
        about 7 percent     of the total       desired.

        GSA estimated      that,     by renting    the 2,144 units  from the leasing     com-
        panies,   the   annual     rental    costs would be reduced    from $6.6 million     to
    $4 million--an         annual    saving   of $2.6 million.        GSA planned    to period-
    ically    solicit      proposals      for the rental    of additional     equipment    after'
    agencies      acquired     the equipment      offered   under the requirements       contract.
    (See pp. 9 and 10.)

   Agencies' use of requiremen-bscontract
    In April 1969, GSA told Federal agencies of the requirements.contract
    and the potential      savings     from leasing      equipment    under the contract.
    The agencies,     however,     have shown reluctance         to acquire   their  equipment
    under the contract      despite      the fact    that use of the contract       as the
    source   of supply   was mandatory         under GSA regulations.       As of January
    1970, less than one third          of the units      offered   under the requirements
    contract   had been ordered.           (See p. 13.)

    Several     agencies       told-GAO    that   they were concerned          with a possible
     problem--could         equipment     with the special       features.needed          be obtained
    from the leasing           companies;       The GSA official        responsible       for the day-
    to-day     administration         of the requirements        contract,       however,      said that
    there     had been relatively          few instances      of this      problem.        (See p. 11.)
                   4
    The agencies     were concerned      also about possible        administrative           burdens
    and increased     costs  if,   because of limited         models and/or        quantities
    offered   by a leasing      company,    equipment     would be rented        from more
    than one supplier.      GAO's     review     did  not  indicate   a  basis      for thjs
    concern.     (See p. 11.)

    In’August and September 1970,    GSA issued       further    instructions                 which        9
   required  agencies  to rent   the equipment      available      under the               require-
   ments contract.    But, as of December 31, 1970, the agencies                           had or-
   dered less than half    the 2,144 units     offered.       (See p. 14.)                            f)

RECOMMENDATIONS
            ORSUGGESTIONS
   GSA should     closely    monitor   the effectiveness            of its     actions     to determine
   whether   additional      measures    are necessary           to obtain     maximum     competition
   in the rental        of PCAM equipment.        ,


AGENCY
     ACTIONSANDUNRESOLVED
                       ISSUES
   GSA agreed       and said     that   it   had:

       --Reviewed    the agencies'     PCAM-equipment    inventories    to specifically
          identify   equipment     that could be replaced      at lower cost by leasing
          companies.

      --Sent     telegrams       to agencies   that had not fully          used the requirements
         contract,       advising    them that    they had no authority         to continue     to
         contract       with IBM for leased equipment            if similar    equipment    was
         available       under the requirements        contract.


                                                    2
     =-Sent letters to the same agencies requesting individual    meetings
       between agencies' officials    and GSA officials in order to reach
       determinations  on each specific   unit of equipment.

     --Issued a solicitation   to provide for a greater   supply of PCAM
       equipment on a competitive   basis during fiscal   year 1372.


MATTERS
      FORCONSJDERATION
                    BY THECONGRESS
   GAO tielieves that this report will be of interest   to the Congress be-   '
   cause of the potential  savings that can be effected by renting the
   Government's PCAM.equipment through competitive    contracting.




                                                                                  ,:i
                               CHAPTER 1

                             INTRODUCTION

PROCESSINGDATA WITH PCAM EQUIPMENT

      PCAM equipmen t has been used by Government and industry
for three quarters   of a century.  Its role has changed, how-
ever, since the advent of the electronic    computer in the
early 1950's.   Although PCAM equipment was once the primary
means for the automatic processing of data, today electronic
computers are used for the majority    of such tasks.

      With the tremendous growth in computer data processing,
the need for certain    types of PCAM equipment has also in-
creased--such    as card punches and verifiers  used to prepare
data for input into computers.     The need for other PCAM
equipment,    such as accounting machines, has.decreased   as
the use of computers has increased.

        Government   and industry   use 600,000' units   of PCAM equip-
ment:

        --In support of computers i-to punch, verify,     and se-
9           quence cards for input to computers and td perform
            partial processing,such  as editing, listing,   and
            proving data.

        --As stand-alone   systems --to serve the needs of small
           activities  when it is not economical to use computers.

        --For special applications   --to perform low-volume work
           and one-time jobs to avoid the need for more expen-
           sive means of processing.                         1

      Although devices are being developed andmarketedwhich
will provide more efficient  methods of doing the work per-
formed by PCAM equipment, it appears that PCAM equipment
will continue to be used for many applications   in the years
to come by both Government and industry.

      A data processing facility in a Government agency
using PCAM equipment in support of a computer system is
shown in the photographs on the following  pages,

                                    4
     AN ELECTRONIC   COMPUTER      SYSTEM WHICH INCLUDES           A CENTRAL     PROCESSOR       AND    A VARIETY       OF
     INPUT-OUTPUT    DEVICES,    SUCH AS MAGNETIC    TAPE          UNITS AND     PRINTER.
-_                                                                                                                  ,
                                                                                             ___~         --
                                                    ---        - ---_.- --                                                   __--.
                                                                                                               -.       .




      CARD PUNCH MACHINES       ON WHICH   DATA   FROM    SOURCE     DOCUMENTS      IS ENTERED         ON CARDS     FOR
      MACHINE  PROCESSING.


                                                          5
   ACCOUNTING MACHINES AND RELATED PCAM EQUIPMENT THAT PERFORM DATA PROCESSING
   STEPS SUCH AS TABULATING, SORTING, MERGING, AND MATCHING OF CARDS.




       PCAM equipment can be purchased or rented from leasing
companies and manufacturers.     Leasing companies purchase the
equipment of the leading manufacturer     of PCAM equipment, IBM.
The companies then lease their equipment at rates below
those offered by IBM for similar    equipment.  A management
research firm stated in a December 1967 study that leasing
companies offered discounts   from IBM's rates because they
believed that the equipment would have a longer useful life
than the period allowed by IBM to recover its costs and
make a profit.

      About 100 companies are in the business of leasing au-
tomatic data processing  equipment.  Some deal mainly in com-
puters and others in PCAM equipment.   The largest  of the
companies leasing PCAM equipment has an inventory   of about
40,000 units.

PCAM EQUIPMENT IN THE GOVERNMENT

     GSA negotiates  Federal Supply Schedule contracts  each
year with PCAM equipment manufacturers  for the purchase and

                                          6
        rental of PCAM equipment.      The Schedule contracts    are pub-
        lished in catalog form and show the manufacturers'        prices
        for all types and models of equipment‘offered        and the terms
        and conditions    for rental,  maintenance,   and purchase of the
        equipment.     Agencies may place orders for their individual
        equipment needs against these contracts.        During fiscal    year
        1970, expenditures     for PCAM equipment rented under Schedule
        contracts   amounted to $55 million    of which $47 million    was
        for equipment rented from IBM. Information        was not avail-
        able at GSA concerning Government expenditures        for PCAM
        equipment rented from leasing companies outside of Schedule
        contracts.

              At June 30, 1970, the Government was using 37,902 units
        of PCAM equipment at 2,541 installations.       The number of
        PCAM units has decreased slightly     during recent years.    (See
        app* I.)   An inventory of PCAM equipment owned and rented by
        Federal agencies as of 3une 30, 1970, is shown in appen-
        dix II.

              Of the 37,902 units of PCAM equipment, 36,755, or about
        97 percent,  were manufactured    by IBM. Of the 36,755 units,
        28,192 were rented--an   estimated   91 percent from IBM and
        9 percent from leasing companies.      (See app. III.)  s

        Authorities   and responsibilities      fur
        acquisition   of PCAM equipment

              Public Law 89-306, enacted in October 1965, gave GSA
        the responsibility       for the efficient     and economic acquisi-
        tion of the Government's general-purpose           automatic  data
        processing      equipment, subject to policy and fiscal       control
        of the' Off-ice    of Management and Budget (OMB). The law pro-
        vides that GSA is not to interfere          with agencies'   determina-
        tions of equipment requirements          and uses. , Disagreements    be-
        tween GSA and the agencies are subject to review and deci-
        sion by QMB,

               OM8 issued policy guidelines    in May 1966 to establish
        the direction     of GSA's efforts  under Public Law 89-306.      The
        guidelines    provided that GSA assist    the agencies in acquir-
        ing equipment and review their      equipment acquisition    proce-
I       dures to determine areas where revised techniques         and meth-
    B   ods could achieve economies.       The guidelines   provided
specifically    that GSA consider     (1) the appropriateness     of
continuing   the use of Schedule contracts       for the rental,
purchase, and maintenance of equipment and (2) the possibil-
ity that additional     sources of supply could be cultivated        to
serve as competitive     alternatives    to exclusively   acquiring
equipment directly    from manufacturers.

      OME3amended tht policy guidelines       in July 1966 to pro-        .
vide that GSA be responsible     for specific    guidance to agen-
cies for contractual    arrangements with leasing companies.
Specifically,    GSA was to develop and monitor a program of
contracting   with leasing companies in lieu of contracting
with equipment manufacturers     when it was determined that
this approach was in the best interest        of the Government.

      An amendment to OMB Circular      No. A-54 dated June 27,
1967, requires  agencies to consider leasing companies as a
source of supply for ADP equipment,       including  PCAM equip-
ment.   In 1966 and 1967, GSA advised agencies that leasing
companies were offering    ADP equipment--computers      and PCAM
equipment-- at substantial   reductions     from IBM rental  rates.
       .
                                      CHAPTER 2

             SUBSTANTIAL SAVINGSBY OBTAINING COMPETITION

                     IN THE RENTAL OF PCAM EQUIPMENT

          At various times between 1966 and 1969,GSA furnished
    technical   assistance    to several agencies which obtained
    PCAM equipment from leasing companies, but there was no
    Government-wide response by agencies to use leasing compa-
    nies as a competitive       source for this equipment..  As a re-
    sult,   the Government continued to rent nearly all of its
    PCAM equipment from IBM. Leasing companies had PCAM equip-
.   ment available     and indicated   to GSA that they could have
    supplied considerably      more of the Government's needs if
    given the opportunity.
                                  .
            GSA, therefore,  in the latter      part of 1968 decided to
    solicit   proposals for the Government's PCAM equipment which
    was being rented under GSA's Schedule contract            with IBM.
    GSA informed us that, because substantial           discounts    were ex-
    pected and because the amount of equipment available              from
    Leasing companies at that time was less than the Government's
    overall    needs, it believed that agencies would quickly ob-
    tain any equipment available         under a competitive     contract.
    GSA planned to periodically         solicit  proposals for additional
    equipment after agencies obtained the equipment offered un-
    der the requirements     contract,,

    ESTABLISHMENTOF GOVERNMENT-WIDE
    REQUIREMENTSCONTRACT

           GSA solicited     proposals in January 1969 for the rental
    of 30,600 units of PCAM equipment that agencies were renting
    from IBM under GSA's Schedule contract.           The solicitation
    resulted     in awards to five leasing companies under a
    Government-wide requirements          contract. Under the terms of
    the contract,      the leasing companies were committed to fur-
    nish the quantities        and models of equipment offered,        and re-
    lated maintenance services,         to any agency at any location
    within    the 48 contiguous States and Washington, D.C.             The
    contract,     which initially     covered the period from March 21,
    1969, through June 30, 1970, has been extended to June 30,
     1971.

                                          9
       The five companies offered to lease 2,144 units of IBM
equipment,    about 7 percent of the units for which proposals
were solicited.       (See app. IV.)   GSA estimated  that, by
renting   the 2,144 units from the leasing companies, rather
than under the Schedule contract       with IBM, the Government's
annual rental     costs for the units would be reduced from
$6.6 million    to $4 million--an    annual savings of $2.6 mil-
lion,   or 39 percent.
                                                                      ,.
INITIAL   REACTIONS TO REQUIREMENTSCONTRACT

        In April 1969, GSA sent special notices to agencies ad-
vising     them of the requirements       contract    and of the poten-
tial    savings from leasing PCAM equipment under the contract.
Because agencies had placed few orders under the contract,
GSA sent letters         to the heads of agencies in June and July
1969 calling       attention    to the neglible     action being taken.
 (See apps. V and VI.)         GSA advised the agencies that the
lack of action indicated          that there may have been some mis-
understandings        as to the use of the contract.           GSA pointed
out that use of the contract          was mandatory as the source of
supply for the models of equipment offered               for lease in the
contract      for both new requirements       and substitutions       for in-
stalled     equipment rented from IBM. GSA also clarified                the
contract's       maximum order limitation1       of 75 units.      The con-
tract was not clear as to whether the limitation                 was appli-
cable to an entire         agency, a bureau, a program, or other or-
ganizational       segment.    GSA informed the agencies. that the
limitation       applied to individual     ordering     offices.

AGENCIES' VIEWS ON REQUIREMENTSCONTRACT

        During the first     year the requirements    contract    was in
effect,     we asked several agencies why they had not ordered
the equipment offered by the leasing companies,             These dis-
cussions confirmed       that there were misunderstandings         con-
cerning certain     provisions    of the requirements     contract


1GSA places    maximum order limitations    in many of its con-
 tracts    in order that large volume purchases can be given
 individual    attention with the objective    of obtaining price
 concessions.


                                     10
dealing with the mandatory         use of the contract        and the maxi-
mum order limitation.

        The agencies expressed concern as to whether the leas-
ing companies could furnish      equipment with needed special
features.     They expressed concern also about possible        admin-
istrative    burdens and increased costs at the installation
level if, because of limited      quantities    or models of equip-
ment available     at any given time from one leasing company,
equipment were rented from more than one supplier.           They
stated than an installation      would have to deal with more
than one supplier     for maintenance services and billings.
The agencies, however, did not cite any examples of actual
problems that had been experienced in obtaining          special fea-
tures or of increased administrative         burdens and costs.

        The GSA official   responsible     for the day-to-day     admin-
istration    of the requirements      contract   advised us that he
had encountered relatively        few instances where an agency was
unable to obtain equipment from a leasing company because
required    special features were not available.          An official
of the leasing company offering         the largest    number of units
under the requirements       contract   informed us that his company
had equipment having the most common special features               and
had made every effort      to furnish     special features    needed by
its customers.

       The GSA official       also informed us that representatives
of the agencies'      installations      had not indicated      that any
significant   administrative        burdens and increased costs were
attributable   to the installations         having to deal with more
than one supplier.        Our observations      at agencies'      installa-
tions also indicated        that no particular      administrative        bur-
dens or increased costs had resulted            from multiple-supplier
support.

      During our review we noted that six agencies with GSA
technical   assistance    had requested proposals for the rental
of PCAM equipment from leasing companies at various times
between 1966 and 1969. These agencies provided potential
suppliers   with listings     of installed     equipment rented from
IBM and specified      the type, model, special features,       and lo-
cation of the equipment.        Suppliers were given the alterna-
tive of purchasing the installed          equipment from IBM and

                                       11
leasing it back to the agencies or replacing    the installed
equipment with company-owned units,   Contracts    awarded by
these agencies resulted  in estimated annual savings of
$473,000.




       We talked with officials      of the three leasing companies
which had offered most of the equipment under the requise-
ments contract,       Each of these compE2nies had also supplied
equipment under the individual        agency contracts  mentioned
above,    The officials    expressed concern about the limitzd
number of units that had been ordered by agencies under- 2,:~:
requirements    contract.    They pointed out that their combo-
nies were required      to have available    through the period of
the contract    all the units offered      and that, conse
they had a large quantity       of idle equipment in storage.

        The officials    advised us that the most favorable     rental
rates for equipment could be offered when proposals were a~-
licited    for specific    items of equipment at specific    loca-
tions.     They stated that such information      enabled the com-
panies to estimate costs more closely than when proposals
were solicited,       as in the case of the requirements    contract,
without    regard to what, when, and where equipment would be
installed,
    GSA EFFORTSTO HAVE AGENCIES USE EQUIPMENT
    AVAILABLE UNDER REQUIREMENTSCONTRACT

           Although GSA had emphasized to agencies the mandatory
    aspects of the requirements       contract and the savings avail-
    able, as of January 1970 less than one third of the units
    offered had been ordered.       In March 1970 we suggested to
    GSA that consideration      be given to soliciting  proposals  on
    an installation      basis.  We pointed out that this method of
    contracting     might offer several advantages over the require-
    ments contract     method, such as

         --minimizing    rental  rates because suppliers     would be
            better able to estimate      costs when specific   equipment
            requirements    and specific   locations were known,

         --providing    continuing  opportunities to obtain addi-'
            tional   equipment which would be available   from the
            suppliers,    and

         --increasing    competition by permitting     participation of
             smaller leasing companies that could provide equip-
            ment only in certain geographical      areas.

    This method of procurement appeared to overcome some of the
    problems that concerned both the agencies and the leasing
    companies.

          GSA advised us in April 1970 that it shared our con-
    cern about the lack of use of the requirements   contract and
    that it was exploring  alternate methods of contracting,  in-
    cluding the method we had suggested.           0
                                                                             1
          By June 1970 agencies had ordered only 826 of the
    2,144 units of equipment offered by the five leasing com-
    panies.   GSA negotiated  l-year extensions of the require-
    ments contract  with the companies to allow additional    time
    for age&Yes to order the remaining units of equipment.

            GSA issued a Federal Property Management Regulation
    bulletin,     dated August 21, 1970, which reiterated      and further
    clarified     its restrictions  against agencies'   placing orders
    for the rental of new equipment or renewing the rental           of
    installed     equipment under the Schedule contract     with IBM if
9
                                      1.3
like equipment was available      under the requirements     con-
tract.   (See app. VII.>

      In September 1970, GSA provided each agency with a list-
ing of the PCAM equipment being rented by the agency from
IBM and requested that a review be made to identify           those
units that could be economically      replaced under the require-
ments contract.    Agencies were instructed       that, if for some
reason the equipment under the requirements          contract   could
not be used, it would be necessary for the agencies to re-
quest from GSA a delegation     of procurement authority        to re-
tain the installed   equipment.    (See app. VIII.>        By Septem-
ber 30, 1970, agencies had ordered only 921 of the 2,144
units offered under the requirements       contract.

       In December 1970 we discussed with GSA officials     the
agencies'   responses to the August and September 1970 instruc-
tions.    We were informed that the following     actions were be-
ing taken which, officials    believed,    would help ensure the
full use of the requirements     contract.    GSA was:

      --Restricting   the scope of the Schedule contract      with
         IEN to exclude types and models of PCAM equipment
         available  under the requirements   contract.     For this
         equipment, the Schedule contract    with IBM, approved
         in October 1970, contained the provision      that a dele-
         gation of procurement authority   from GSA would be re-
         quired before (1) renewing equipment rentals       or (2)
         placing new equipment orders against the Schedule con-
         tract.

      --Advising   IBM that purchase orders from agencies
         should not be approved for equipment that was avail-
         able under the requirements    contract unless accom-
         panied by a delegation   of procurement authority  from
         GSA.

        GSA officials  also informed us that preliminary'steps
had been taken to readvertise      the Government's PCAM-
equipment needs for a new requirements       contract  to become
effective    in July 1971. They stated that GSA expected that
the new requirements      contract would result   in additional
quantities     and models of equipment becoming available       to the


                                  14
Government.  They stated also that proposals would be re-
quested on a regional    basis, which should provide for in-
creased competition   from smaller leasing companies that
cannot compete on a nationwide    basis.

        We also asked the GSA officials       for their views on ob-
taining    proposals on an individual      installation    basis, as
suggested by us in March 1970.- They advised us that this
method of contracting     would entail     some additional     admin-
istrative     costs and, therefore,    that an evaluation      of the
results    of the actions being taken and planned would be
necessary before giving further       consideration     to contract-
ing on an installation     basis.

       During the period    October 1, 1970, to December 31, 1970,
agencies placed orders      for an additional    109 units under the
requirements    contract,   with the result   that orders were made
for 1,030 of the 2,144      units offered.




                                                                    t




                                  15
                                       CHAPTER 3

                         CONCLUSIONSAND PECOMJ!iENDATION

        CONcLUSIOMS

                The Government spends about $47 million   annually for
        the rental    of PCAM equipment under IBM's Schedule contract.
        Agencies, for the most part, have taken only limited       advan-
        tage of opportunities     to obtain PCAM equipment through com-
        petitive    contracting,

               We believe that the limited       use of the requirements
        contract     by agencies has had an adverse effect           on GSA's ef-
        forts    to foster   increased competition      for the rental      of the
        Governmentss PCAM equipment.          In our opinion,      the amount of
        equipment offered by leasing companies to the Government is
        largely     dependent upon convincing      potential    suppliers    that
        Government agencies are willing         to rent equipment from them
        rather than from the manufacturer.           On the basis of dis-
        counts averaging about 39 percent offered by suppliers                un-
        der the requirements       contract,   we believe that substantial
        savings can be realized       by obtaining     competition     in the
        rental     of a large portion    of the Government's PCAM equip-
        ment.

               Agencies have expressed concern about possible problems
        by obtaining    PCAM equipment from leasing companies, although
P
        they did not cite any examples of such problems.      Agencies
        renting   equipment from leasing companies have found that the
    ?   equipment and services provided were satisfactory.
                                                                                     i
               GSA has taken certain     actions which it believes      should
        result   in agencies'  obtaining     more of their equipment from
        leasing companies.     In view of past difficulties,         we believe
        that GSA should closely monitor the effectiveness            of the
        actions to determine whether additional          measures are neces-
        sary.    It may be that the method of contracting         that we sug-
        gested in March 1970--competitive        contracting    on an instal-
        lation   basis --may be more effective.




                                            16
~EC~~DATION         TO THE
~MINIST~T~~      OF GENEW SERVICES

      We recommend that GSA.closely monitor the effectiveness
 f fes actions to dete   '   whether additional   measures are
necessary to obtain mazP,1 cc3mpetitisn    in the rata1   of




      By letter dated March 11, 1971 gsee appe IX), the Ad-
ministrator    of General Services infomed us that GSA agreed
with Q”UFfindings                 endaticiw     tand stated     that   GSA
Ii-Ed:
      - -Reviewed      e status of agencies il PC -equipment ii-l-
        vm=it63bies to specifically        deternine      the action   re-
        quired to identify  equipment that could               be replaced
        at lower cost by leasing companies.

      --Sent telegrams to agencies which, according         to GSA
         records,  had not fully    utilized  equipment available
         under the requirements     contract.   These telegrams
         advised the agencies that they had no authority         to
         continue to contract    with IBM for leased equipment if
         similar  equipment was available     under the require-
         ments contract.

      --Sent letters    to the same agencies requesting   individ-
         ual meetings between agencies8 officials     and GSA of-
         ficials  in order to reach determinations    on each
         specific  unit of equipment.

      --Issued    a solicitation  to provide           for supplying   PCAM
          equipment on a competitive    basis          during fiscal   year
          1972,




                                      17
                            CHAPTER4

                         SCOPEOF REVIEW

       Our review included an examination       of the provisions
of Public Law 89-306, OMJ3circulars        and guidelines,    GSA
regulations    and contracting   procedures,    and selected agen-
cies' procedures relating      to the acquisition     of PCAM equip-
ment.

.      We interviewed    officials    of GSA; the Departments of the
Army, Navy, and Air Force; the Department of Agriculture;
the Department of Commerce; the Department of Health, Edu-
cation,   and Welfare; the Department of the Treasury;         and
the Veterans Administration.          We also held discussions    with
representatives     of three leasing companies.       We reviewed
records of the selected agencies and examined documents
supplied by leasing companies.          Our review was made primarily
in the Washington, D.C., area, at the central          offices  of .
GSA, the headquarters'        offices  of the selected agencies,
and the offices     to two of the three leasing companies.

      Our review did not include an examination  of the agen-
cies‘ justifications  for the acquisition  of PCAM equipment
or of the uses being made of the equipment.




                                  18
APPENDIXES




 19
                                                            APPENDIX I


                 PCAM EQUIPMENT USED BY THE GOVERNMENT

                  AS OF J-ONE 30., 1968, 1969, AND 1970




                                      Number of units at June 30
        Type of unit               1968
                                   --            1969         1970

    Card punches                  21,300          21,595       21,384
    Card verifiers       .         7,299           7,227        6,691
    Tape-punch verifiers              409             344          357
    Sorters                        3,385    '      3,403        3,173
    Collators                      1,759           1,673        1,444
    Reproducers        .           1,760           1,714        1,550
    Interpreters                   2,036           2,038        1,960
    Accounting machines            1,043              927          769
    Media converters                  589             481          574

        Total                    39,580         * __--
                                                  39,402       37,902
                                                               -_-




t
                                    21
APPENDIX II


    PCAM EQUIPMENT USED BY AGENCIES AS OF JUNE 30, 1970


                                              Units. of equipment
                                             Rented Owned Total

IBM EQUIPMENT:
    Defense departments and agencies:
         Air Force                            6,441          306         6,747
         AsmY                                 6,135       3,377          9,512         .
         Navy                                 5,671          559         6,230
         Defense agencies                        769         111            880
    Civil departments and agencies:
         Agriculture                                517      399            916
         Atomic Energy Commission                   577   1,629          2,206
         Commerce                                   421      264            685
         District    of Columbia Govern-
            ment                                    257                    257
         General Services Administra-         * -
            tion                                    167           124      291
         Health, Education,       and Wel-                I   ‘

            fare        '                     2,249               197    2,446 .
         Housing and Urban Development           103                        103        _
         Interior                                408               54       462
         Labor                                   102                        102  (
         National Aeronautics       and
            Space Administration                 470          531        1,001
         Post Office                             207           47           254
         Transportation                          326          130           456'   .
         Treasury                             2,412           200        2,612
         Veterans Administration                 280          54            826
         Other civil     agencies                680           88           769

         Total                               28,192       8,563         36,755

EQUIPMENT OF OTHER i%%V-UFACTURERS                  790       357        1,147

TOTAL                                        28,982       8,920
                                                          --            37,902




                                22
                                                           APPENDIX III


            PCAM EQUIPMENT BY MANUFACTURERANDTYPE

                    USED BY THE GOVERNMENT

                      AS OF JUNE 30, 1970


                          Number of                Number of
                        rented units              owned units
                      manufactured    by        manufactured    by    Total
    Type of units      IBM       Others          IBM       Others     units

Card punches           16,094          263      4,955         72     21,384
Card verifiers          '5,106          66      1,509         10      6,691
Tape-punch verifi-
   ers                      61         102          19      175          357
Collators               1,074           24         342        4       1,444
Sorters                 2,293           57         816        7       3,173
Reproducers             1,108 p         58         379        5       1,550
Interpreters            1,682           11         261        6       1,960
Accounting machines        526          70         169        4          769
Media converters           248         139         113       74          574

    Total              28,192a         790       8,563      357      37,902    q
                                                                                   T
                                                  _I
aAn estimated  2,600 units of this           equipment   are being
 rented from leasing companies.




                                 23'
  APPENDIXIV


                                EAM EQLJIFMEJNT
                                              OFFERED BY LEASING COMPANIES
                            UNDER THE REQUIREMENTSCONTRACTAND AGENCIES' ORDERS
                                AT VAEIOUS DATES THROUGHDECEMBER31, 1970



                                                   Number
                                        Number    of units
                                      of units     offered         Cumulative units ordered through
                                     solicited   by leasing         1969                   1970
             Type of unit               by GSA    companies   6-30 9-30 ----12-31 3-31 6-30 9-30 12-31
Card punches                           11,164           512    24      57    117   183      214    224     243

Card verifiers                          3,890           349    22     133    185   190      212    227     241

Collators                                 316            87       2    14     22       26     27    32      41

Sorters                                 2,447           145       9    56     95   103      109    121     i34
Accounting       machines                 713           500       2    41    105   120      122    133     150
Reproducers                             1,239           426       8    56    112   132      138    176     211
          d
Calculators                                45            45   z       -- 1     3   4        - 4    - a      10

      Total units of 34 models on
        which bids were received       19,822       2,144     67      358    639   758      826    921   1,030

      Total units of 54 models on
        which no bids were re-
        ceived                         10,789       &
Tow                                    30,611       2,144                                   826
                                                                                            -




                                                        24
                                                                                                          APPENDIX v

                                UNITED    STATES        OF      AMERICA

                     GENERAL         SERWCES ADMIMISTRATION
                                                                     Federal        supply      Service
                                                                     Washington,         D.C.     20406




                     COPYOF LEXTERSENTTO AGENCIES




Dear

Recently,  the General Services Administration     awarded                                a Requirement
Contract  for thirty-four     selected types and models of                                Punched Card
Accounting Equipment at prices lower than the current                                     IBM Federal
Supply Schedule.      A special notice to this effect   was                               mailed to all
ordering  offices   on April   1, 1969. On May 9, 1969, a                                 schedule of
this Requirements Contract Award was mailed.

The instructions     contained   in the above referenced    material   requested
agencies to contact the General Services Administration           for information
as to who the orders should be placed with.          To date agency reaction
has been negligible.        There are approximately   2000 machines in these
                                                                                                                 c
awards and price discounts       from the IBM Federal Supply Schedule range
from 5% to 51% depending upon the type and model of equipment.              These
contracts    are a primary source of supply and considerable         savings can
be made, not only on the installed        leased equipment,    but also if new
requirements     were for these specific     types and models.

Attached for your use is a summary tabulation       prepared from the Manage-
ment Information    System.   It represents selected types and models of
equipment installed    and being leased by your agency as of June 30, 1968,
and which are comparable to the equipment included in the contract       awards.

In view of above, we suggest that immediate consideration    be given toward
gaining maximum advantage of the more favorable   prices.  If additional
information  or assistance is required, Mr. Charles Lynham, Code 16-78510
may be contacted.

Sincerely,

(Signed)     L. E. Spangler

L. E. SPANGLER
Acting Commissioner




                    Keep   Freedom   in Tour   Future    With     U.S.    Savings     Bonds




                                                                25
    APPENDIX VI
                                          UNITED    STATES   OF     AMERiCA
                                GENERAL        SERWICES      ADMINISTRATION
                                              WASHINGTON.    D.C.    2oy[15

                                 COPYOF LETTERSENTTO AGENCIES

          JTJL 7 1969

      .



          Dear

        Recently the General Services Admicistration     awarded a Requirement Contract
        for thirty-four  selected  types and models of Punched Card Accounting      Equip-
      * ment at prices lower than the current     IBM Federal Supply Schedule.    A
        special notice to this effect    was mailed to all Government ordering    offices
        on April 1, 1969.    On May 9, 1969, a copy of this Requirements    Contract
        Award was mailed to these offices.    'On June 5, 1969, by letter   to your
        agency, Mr. L. E. Spangler,    Acting Commissioner of the Federal Supply
        Service at that time, advised your agency of.the      benefits that the
        Government could obtain from the use of the contract.

       The continued      lack of agency reaction     indicates  that there may be some
       misunderstanding       as to the use of this contract     by the Government.       The
       contract    is a mandatory source of supply for all Federal agencies.              It
       requires    agencies to order machines to replace currently         installed
       leased machines of the same type and model , as well as for new rental
       requirements     for the same type and model when the requirements           fall within
       the maximum order limitation       contained     in the contract.   Agencies should
     ' not place orders against existing         Federal Supply Schedule Contracts        or
       enter into any separate contract        for the items in the Requirements         Contract
       until   advised to the contrary     by the General Services Administration.

          An additional      point which may require clarification               is the Maximum Order
          Limitation.      It pertains       to individual       ordering  offices,    e.g.,‘ if an
          individual    ordering     office's      requirements      do not exceed a total of 75
          machines, then the contract             must be used.       However, if the total requirements
          of an individual       ordering     office     exceed 75 machines, or where feasible,           the
          agency, in its judgment,           consolidates      the requirement      and it exceeds 75
          machines, a request to the General Services Administration                      for a delegation
          of procurement      authority      to proceed should be submitted.

          I urge your immediate consideration       and action to gain maximum advantage of
          the more favorable     prices contained   in the Requirements  Contract.    If
          additional  information     or assistance   is required by your staff;   Mr. Charles
          Lynhsm, Code 16-78510, may be contacted.

          Sincerely,

          (Signed)     Robert   L. Kunzig

      Robert L. Kunzig
      Administrator

                                Keep Freedom in Tour Future With U.S. SaviprgrBonds

F



                                                              26
                                                                                APPENDIX VII   .




          GENERAL        SERVICES       ABMlNlSl-RATION
                    WASHINGTON,        D.   C.   20402




                                                                           August 21, 1970
                                            GSABULLETINFPMRE-84
                                            SUPPLYAND PRocTJRENENT

    To         :   Heads of Federal Agencies

    SUBJECT:       Use of GSA requirements type contracts            for punched card
                   accounting.mschines  (PCAM) .

    1. Purpose, This bulletin   announces the availability  of requirements
    type contracts executed by GSA for PCAM rental and provides guidance for
    the use.of such contracts.

    2. Expiration   date.  This bulletin  contains' information              of a continuing
    nature and will remain.i.n effect until canceled.

'   3. Background.    GSA has executed requirements type contracts with five
    leasing firms pof certain types and models of PCAMmanufactured by
    International  Business Machines Corp. (IBM) ateprices lower than those
    in the current IBM Federal Supply Schedule contract.

    4. Mandatory use. These GSA requirements type contracts are mandatory
    on all Federal agencies and contain provisions          for their use. Due to the
    limited    quantities  of machines available,    instructions    to ordering offices
    require that they obtain an authorizat&on from'GSA prior to placing orders
    against these contracts.       Any deviation  from the provisions     of the contracts,
    including renewal of leases with IBM or the establishment           of new leases for
    additional    PCAM equipment, may be pursued only after a delegation of ADPE
    procurement authority has been obtained from GSA in accordance with the
    provisions     of FPMR 101-32.404,   Agencies should consolidate their require-
    ments for PCAMwhen requesting a delegation of procurement authority.               The
    following    types of PCAM are covered by the contracts:

    Machine Type                  Model No.               Machine Type          Model No.

         024                       1, 2                        403                   Al
         047                       1                           407             Al, A2, A3,
         056                       1, 2                                           E4, E8
         077                       1                           419                 Al
         082                       1, 50                       5x4               1, 2, 3
         084                       1                           519               1, 2; 3
         085                       1                           523               1, 2
         088                       2                           602               1
         089                       1                           604               1
         402                       Al, 550
                                                          27
a.,   .,
            APPENDIX VII


           T. AvaiJability.      Copjes of the contracts (not contractors'       price lists)
           ZT distributed     to recipients    of the schedule FSC Group 'j'it, Part VI.
           Additional   copies are available     from GSAregional offices or from the
           General Services Administration       (FTPG), Washington, D.C. 20&06 or '0~ calling
           (703) 5574777. Additional        information  concerning use of these contracts
           may be dbtained by writing to the above address.




                                                                            .




                                                   28
                                                                              APPENDIXVIII

                              UNITED   STATES   OF   AMERICA

                     GENERAL       SERVICES     ADMINISTRATION
                                                         Federal Supfily Service
                                                          Washington, D.G. 20406


                        COPY OF 3XTTER          SENT TO AGENCIES




SEP 18 1970




Dear

On August 21, 1970, the General Services Administration                  released a
Federal Property Management      Regulation     Bulletin     E-84,    which restricts
the procurement authority    of all agencies from making              new procurements
or renewing the lease of presently        installed      punched     card accounting
machine (P&W equipment,       if similar     gear is located         on one of the
five existing   P!XM requirements    contracts.

We are attaching    a Management Information          System (MIS1 printout   of the
PCAM equipment,    by type, model and location,          which is being leased by
your agency from IBM. It is requested           that you review the attached
list and ascertain    those pieces of equipment that can be economically
replaced from the requirements       contracts,      and place your request in
accordance with existing    instructions.         If, for some reason, the
equipment located on the requirements         contracts      can not or should not
be used as a replacement,     it will be necessary for you to request a
delegation   of ADPE procurement authority          to retain   the presently
installed  equipment.

If     you do not have copies of the requirements  contracts, we suggest
that     you obtain them from the GSA Regional Office serving your  area.

Questions should be directed  to Mr. James F. Hennessey                (IDS 16-78777
or 557-8777) of our ADP Procurement Division.

Sincerely,

(Signed)     L. L. Leeper

Acting Commissioner
Federal Supply Service




                     Keep Freedom in Your Future With U.S. Savings Bonds




                                                29
  APPENDIX IX


                                     UNITED     STATES          OF AMERICA
                           GENERAL       SERViCES               ADMINISTRATION
                                         WASHINGTON,            DC.    20405




MAR    11      1971


Honorable       Elmer     B. Staats
Comptroller        General    of the
United    States
General     Accounting      Office
Washington,        DC 20548

Dear    Mr.      Staats:

This is %I reply      to your letter      of January     22, 1971, enclosing       a copy of
a proposed      draft   report    to the Congress       on “Unrealized     Savings     in the
Rental    of the Government’s          Punched    Card Accounting       Equipment.”         You
asked for our review           and comments      before     releasing  the report.

We have reviewed         the draft   report   and in general          agree   with it and the
conclusions      and recommendations          contained     therein.        Accordingly,    we
are enclosing      as separate     enclosures      the actions       that we have taken     on
these    recommendations       0

If we can provide            any additional            explanatory             information,    please   let
us know.

Siqice rely,




Robert L. Kunzig
;Ildministrator



3 Enclosures




                       I-CC/I Freedom   in Your Future          With   U.S. Savings    Bonds



                                                           30
                                                                                             APPENDIX              IX


                                                                                        Enclosure         1

In regard       to the first      recommendation              on page 13 of the draft               report     that
GSA “monitor           the effectiveness          of its recent          actions      to determine          whether
additional       actions    are necessary           to obtain      maximum.            competition        for the
rental     of the Government’s             PCAM        equipment         needs,      ‘I GSA has reviewed
the status       of all agencies       ’ inventories         of punched          card accounting           machine
 (PCAM)       equipment        to specifically        determine          what additional           steps would
be required         to identify      equipment        currently        in the inventory            which     could
be replaced         with lower       cost equipment            supplied       by leasing         companies.

Telegrams      were  se,nt to nine (9) civil agencies                        on December           24, 1970, who,
according    to our records,      had not fully   utilized                    equipment        available    from
the five existing    PCAM     requirements      contracts.                      A similar        telegram      was
 sent to the Department      of Defense.

These telegrams      (copy of one enclosed          as Enclosure      2), advi.jed the agencies
that they had no authority        to continue     to contract    with IBM for the PSA?\/I
equipment     they were    still leasing     if that same equipment       was available    from
the requirements      contract’s.

On January       20, 1971, we sent letters      to the same agencies,             requesting     that
individual    meetings      be held with members         of their    staffs   and the Commis-
sioner,    Federal      Supply  Service, General       Services     Administration,          in order
to reach    determinations       on each specific     piece     of equipment.                                             0

To date  we have held meetings    with five                       (5) agencies.       Additional           meetings
are scheduled   with the other agencies.                         We expect      to finish     these        meetings
within the next ten days.                                         !
                                                                E
Our meetings     with officials     of the              Department     of Defense     (the largest     user
of PCAM    equipment)     have resulted                  in a commitment       from     the Assistant
Secretary    of Defense    (Comptroller)                  to compleie    all required      actions    within
the next 30 days.      .


                                               [See    GAO note.]



hi order     to provide    for future    sources       of supply    for PCAM     equipment     on
a competitive       basis,    we issued    a solicitation        on January   14, 1971, for Fiscal
Year 1972.       While this solicitation        does not envision         the specific   methods   of


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


                                                       31             P
                 APPENDIX IX

                 contracting       suggested       in the March      27, 1970,   GAO letter,       it does contain
                 some of the methods             suggested      and will provide     for offerors      to respond
                 on a geographical          regional     basis.      We feel this will provide        us with an
                 effective     contract,       The closing       date of this solicitation      is March     12, 1971,
                  (copy enclosed         as Enclosure       3).’ We plan to expeditiously          negotiate    con-
                 tracts     to be effective       July 1, 1971.




                                                                                           .




 ; *;,   I
 ,:,::
:            1
                 GAO note:       Enclosure        3 has not be:n           included      in this      report.



                 B




                                                              32
                                                        APPENDIX IX

                             COPY OF

                           ENCLOSURE2


IN MARCH1969 THE GENERALSERVICES ADMINISTRATION ENTEREDINTO

REQLJIRE.iENTSCONTRACTSFOR THE SUPPLY OF IBM MANUFACTURED
                                                        PUNCHED

CARDACCOUNTINGMACHINESWITH FIVE FIRMS OTHERTHAN IBM.     THESE

CONTRACTSWERENEGOTIATEDIN AN EFFORT TO SAVE MONEYFOR GOVERNMENT

AGENCIES AND DFFER SUBSTANTIAL SAVINGS UNDERTHE PRICING CHARGEDBY

IBM FOR IDENTICAL EQUIPMENTWHICH IT LEASES.

THIS TWX CONCERNSTHE PERSISTANT PROBLEMOF THE FAILURE OF AGENCIES

TO ORDERITE!S.OF EQUIPMENTFROrl THESE FIVE REQUIREMENTSCONTRACTS,

WHILE CONTINUINGTO USE IDENTICAL.EQUIPMENT AT HIGHER PRICES FROM , n

IBM.   ALTHOUGHWE HAVE ATTEMPTEDON SEVERALPRIOR OCCASLONSTO URGE

ACTION IN THIS MATTER, FULL ADVANTAGEHAS NOT BEEN TAKEN OF THE

P3SSIBLE SAVINGS AFFORDEDUNDERTHE REQUIREMENTSCONTRACTS. WE HAVE

INSTRUCTEDIBM THAT IT CAN NOT HOXORORDERSFOR FUTURE PERIODS OF

RENTAL WITHOUTA GSA DELEGATIONOF PROCURE"IENT
                                            AUTHORITY, AS REQUIRED

BY GSA BULLETIN FPMR E-84, DATED AUGUST21, 1970.   IBM MAY REMOVEITS

EQUIPMENTFROMYOURINSTALLATIONS IN THE ABSENCEOF A VALID ORDER

BASED ON A GSA DELEGATIONOF PROCUREMENT
                                      AUTHORITY AND TAKE RECOURSE

TO CLAIMS FOR USE OF ITS HIGHER COST RLJIPMENT WHICH CLAIMS WILL BE-

COMETHE RESPONSIBILITY OF ORDERINGOFFICES.    QUESTIONSSHOULDBE

REFERREDTO MR. JAMES F. HENNESSEYON AREA CODE703-557-8777.

ELLIOTT GOLD
DIRECTOR, ADP PROCUREMENT
                        DIVISION                              12/24/70

(Signed) L. E. Spangler
Acting Commissioner, FSS

                                   33
APPENDIXX

                 PRINCIPALOFFICIALS OF
   THE GENERALSERVICESADMINISTRATION
                                   RESPONSIBLE
                                             FOR
         THE ACTIVITIES DISCUSSEDIN THIS REPORT

                                            Tenure of office
                                            From           To
                                                           -
ADMINISTRATOROF GENERALSERVICES:
   Robert L. Kunzig              Mar.          1969   Present
   Lawson B. Knott, Jr.          Nov.          1964   Feb. 1969
COMMISSIONER,FEDERALSUPPLY
 SERVICE:
   H. A. Abersfeller                 Mar.      1970   Present
   Lewis E. Spangler (acting)        Dec.      1969   Mar. 1970
   Arthur F. Sampson                 June      1969   Dec. 1969
   Lewis E.%Spangler (acting)        May       1969   June 1969                   --
   H. A. Abersfeller                 %Y        1964   May 1969




                                                      KS   GAO.   Vasb..   D.C.

                                34
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