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 I Copies of this report are available from the U. S. Genera I Accounting Office, Room 6417, 441 G Street, N W., Washington, D.C., 20548. Copies are provided without charge to Mem- bers of Congress, congressional committee staff members, Government officia Is, members of the press, college libraries, faculty mem- bers and students. The price to the general public is $1.00 a copy. Orders should be ac- companied by cash or check.
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)