GAO and Federal Government ADP Procurement

Published by the Government Accountability Office on 1977-06-08.

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

                               DOCUPIENT   RESU~E

02638 -     [~1152116]

GAO   ~nd   Federal   G~vernment   ADP Procurement. June 8, 1977. 29 pp.
Speech before American lnst. of Industrial Engineers, Arlington,
VA; by Paul G. Dembling, General Ccunse1.
Issue Area: Federal Procurem _nt of Goods and Servic€s (1900).
Contact: Office of the General Counsel.
Budget Function: ~iscellaneous: Automatic Data Proc~ssing
      (1001) •
Authority: Budget and Acc-.ounting Act of 1921 (31 U.S.C. 53).
   Brooks Act (P.L. 89-306). 40 U.S.C. 759(f) (2). 31 u.s.c.
   665(a). 31 u.s.c. 7~2a. 41 U.S.C. 11. F.P.~.R. 101·32.
   Executive Order '1717. 4 C.F.R. 2n. 51 Comp. Gen. 609. 51
   Comp. Gen. 613. 54 Comp. Gen. 930. 54 Comp. Gen. 196. 55
   comp. l~ en. 60. 55 Comp. Gen. 1043. 56 Comp. Gen. 142.
   B-186313 (1977). B-115369 (1974). B-'15369 (1915). B-115369
    (1976). B-183182 (1975). B-186755 (1977). B-187435 {1977).
    B-186313 (1977).
         The General Accounting Office (GAO) has increased the
scope of its audit activities in the last few years in an
attempt to improve procurement and management of the
Government's automatic data processin~ (lDP) resources. GAO has
also received a steadily increasing number of bid ~rotests
involving ADP procurements. Findings/Conclusions: Both
individual ADP procurements and general policies and procedures
have been reviewed in an attempt to test their efficiency and
economy. The revolving fund specially created by the Brooks Act
to facilitate the financing of the acquisition of Government lDP
equipment should eventually be fully utilized for Government lDP
equipment purchases and leases and for operation of Federal
computer centers. Neither of these objectives has been achieved
to date. There is a need for standardization in ADP management
to improve the ecoaomy and efficiency of Government ADP
operations. Issues that have been presented in bid protests
involving ADP procurements include a bid provision disclaiming
implied warranties of the merchant's ability and fitness for a
particular purpose and excluding the bidder from liability to
the Government for consequential dama~es; procurement that
called for a facilities lIa nagemen t services contract to cov~r an
agency's ADP needs for an 18-month period; and the technical
acceptability of a proposal for a large-scale scientific
computer system. (SC)
       . A\
                                           PAUL G. DEMBLING
                                           GENERAL COUNSEL
                                  U. S. GENERAL ACCOUNTING OFFICE
                                         ARLINGTON, VIRGINIA
                                            JUNE 8, 1977

 • "         I•   BACKGROUND
                      The genesis of the General Accounting Office lies in
                  Article I of the United States Constitution which provides
                          No money shall be drawn from the Treasury
                      but in consequence of appro~riations made by
                      law   * * *
                      The design of      ~ his   provision as explained by
                  Alexander Hamilton, was -to secure these important ends--
                  that the purpose, the limit, and the fund of every expend-
                  iture should be ascertained by a previous 1aw. H
                      Under the Constitution, then, control over the public
                  pur se was placed in the hands of the Congress.
                      After a history of fiscal responsibility lodged in the
                  executive branch, the Congress enacted the Budget and
                  Accounting Act of 1921.         This Act created the General
                  Accounting Office as a nonpolitical, independent arm of
                  the Congress      he~ded   by a Comptroller General of     t~e   United
                  States, who is appointed for a term of 15 years by the


      ,   Presi~ent     with the advice and consent of the Senate.              Be
          is not eli1ib1e for         re~ppoint~ent    and can be removed    fro~

          office only by         ~pe~chrnent   or by joint resolution of the
          Consress for specifie.d cause.
                When the General Accounting Office was created in
          1921, two broad separate purposes were subserved.               The
          firs! was to achieve independence of the executive branch
          with respect to the function of administering oversight
          of the expenditure of public funds and the settlement of
          public accounts.
                The second broad        pu-~ose   was to provide the     Con;~2ss

          an arm with which to probe the manner in which executive
          branch financial responsibilities were being discharged--
          a   mean~    for develoFing information needed in the lesis-
          lative      proce~s.     The Act requires the Comptroller' General

          to investigate all matters relating to             ~~e   receipt, dis-
          bcrseme~t,      and a?plication of public funds and to m&ke
          reports to the Congress, containing recomcendations for
          legisla~ion ~~:         recommendations looking to greater economy
          or efficiency in public expenditures.
                 Cver the years; many statutes have been enacted
          providL~g      for GAO ' to study the efficiency, effectiveness,
          and   eco~omy    of    Gove~~ent     activities.


    We in the GAO have lonq recognized that the Congress,
if it is to   legislat~   intelligently regarding complex
programs calling for large expenditures, must have
available to it meaningful information aD administrative
performance under existing laws -a nd sound analyses of
executive branch   propo.al.~

     In this era of $400 billion annual budgets the
Congress confronts information needs of unprecedented
proportions in carrying out its responsibilities.         The
Members of the Congress recognize this need for more
infor.mation and increased capability to make independent
analyses not only of new executive branch proposals but
also the effectiveness of programs, that is, whether the
objectives sought- by Congress are or are not being
    During the past decade we have experienced a tremendous
growth in practically all major Government functionz.
Between 1950 and 1970 expenditures by the Federal Government
increased almost fourfold.          From 1960 to 1976, the budget
quadrupled from    ~98   billion to $395 billion.     Since we are
here concerned with the field of automatic data processing,
some relevant numbers may be of interest.
     It is predicted that, in the United States alone over
566,200 computers will be in operation by 1979, aSSuming

                            - 3 -
              an annual growth rate of                     27~98   percent during the next
              5 years.              At present our country's total             capi~al    invest-
              ment in computers is                   approxim~tely     $38 billion.      An

              additional $22.8 billion ia spent to install, operate,
              and maintain the 209,800 computers that are calculated
              to be ,: n use.                By 1979, these costs .are expected to
              exceed $28.8 billion.
                      The growtn in the Government's use of the computer
              is exp'f :'ted to keep pace with industry trends.                          Seventeen
              years    Co' , ~[ O   the Government reported an inventory of only
              121 computers.                  Today, that number is over 7,800.               By
              1979, it is expected that over 15,000 computers will be
              in use t :lroughout. the Government.                     The Government now
              spends over $10 billion                     L~nually   to install, operate,
              and maintain these t!evices.                       By 1979, these costs are
              expected to exceed $15 billion.
        II.   INTRC~UCTrON

                      GAO is becoming increasingly involved in the Federal
              ADP'procur~~ent p~ocess.                       In the last fe. years, we have
              increased             t   ne scope of our audi t       acti '~i ties   in an attempt
              to improve                , ~, rocurement   and management of the Government's
              ADP resourC : . 5.               in addition, our Office has received' a
              steadily inc::-easing nUInber of bie. protests involving ADP
              procurements.                  Today,: hope to summarize cu= =e1e in the
              ADP procureme:, t process by discussing a number of recent

                                                     - 4 -

  I - ~'------' ----- -                                    ---
          .iqnificant audit reports, a number in proce.ss, and bid
          protest decisions.

              Under our audit role, we have reviewed individual ADP
         procurettents and genera! policies and        proc~dures   to test
         their efficiency and economy.      In   80   dOing, we have
         attempted to offer constructive criticism of the present
         process in the hope of improving the system.
              From an early date GAO ha~ been involved in the ADP
         procurement process.     GAO took an active role in the con-
         sideration of \:ne Brooks Act, Public Law 89-306, which
         authorized and directed GSA to coordinate and provide for
         the economic and efficient purchase of ADP equipment by
         Federal agencies.     Prior to passage of the Brooks Act,
         GAO had issued about 100 aucit reports revealing defi-
         ciencies in the acquisition and use of ADP.         These
         reports in this area provided some impetus for enactment
         of the legislation.

             Our report entitled -Further Actions Needec to Cen-
         tralize Procurement of Automati~ Oa a Processing Equipment
        to CO~llply with Objectives of Public Law 89-306 (Brooks
        Act)R B-115369, October 1, 1975, stated that cen~ral­
        ization of the ADPE management and procure!T'le:l~ a\.:t!lori~y

                                  -   5 -

      in the General Services Administration pursuant to the
      Brooks Act has resulted in significant savings and improve-
      ments.   However, the report stated that additional savings
      could be realized by full implementation of the Brooks Act
      as intended by the Congress.        The le)islative history of the
      Act clearly indicates an intention that GSA eventually become
      the single purchaser of ADPE for the Government.         GSA would
      delegate its pr?curement authority to the using agencies
      only in limited cases.
          The revolving fund specially created by the Brooks Act
      to facili t.ste the financing of the acquisi tion of Gove:nment
      ADPE should eventually be fully utilized for Government ADPE
      purchases and leases and operation of Federal computer centers.
      Neither of these    objective~   has been achieved.    OVer 80 per-
      cent of the 1974 ADPE procurements were made by the ADP l1sing
      agencies rather than by GSA.        Only 1 percent of the procure-
      ment utilized the revolving lund.        GAO found that the fu!l
      implementation of the original intent of the Brooks Act had
      been hampered because the Office of Management and Budget:
      (1) neither approved nor      disappl~ved   GSA's plans for full
      capitalization of    ~he   ADP fund; (2) denied GSA's requests for
      resources to carry out its functions; and (3) placed limita-
      tions on capital expenditure        out of the ADP revolving fund.
      In February 1977, OMB eased its restrictions on use of the
      revolving fund by authorizing, on a temporary trial basis,
      capital purchases using the fund for proposed acquisitions
      whose rate of return is at least 30 percent.          (This liberalized
      OMB's prior criterion of 40 percent rate of return.) We found

  ,                                    - 6 -
      that significant savings could be realized if GSA were allowed
      to achieve this "single purchaser" status.          ADPE acquisitions
      could then be more efficient and economical since GSA would
      t:-~ve    a greater ability t.o make volume purchases (and take
      advantage of the accompanying          volume discounts), and could
      better utilize the information it has collected regarding the
      Government's ADP resources,      ~.,      by having the knowledge and
      ability to make "opportunity lease-purchase" buys of ADPE.
               The House Government Operations Committee, in its recently
      issued report on the administration of the Brooks Act (House
      Report 94-1746, October 1, 1976) agreed with our position that
      the revolving fund should be more fully capitalized to allow
      for opportunity buys,      ~ultiyear    leasing and to support Govern-
      ment data processing centers.          In a recent letter report,
      B-115369, May 6, 1977, on the revolving fund, we concurred
      with the Committee's position that there are circumstances in
      which it may be more practical to have using agencies procure
      their ADP equipment directly under a GSA delegation of pro-
      curement authority.
               Much of the ADPE is purchased by procuring agencies
      from schedule contracts.       In the ordinary case, any
      supplier who wants · to can be listed on an ADPE schedule
      contract.       In our audit report, wMore Competition Needed
      in the Federal Procurement of ADPE."          B-115369, May 7,
      1974, jt was found that, in many cases, agencies were
      placing orders or renewing leases or purchasing installed
      leased equipment from schedule contracts without seeking
      competition or making an adequate determination of lowest

                                      - 7 -
           ov~rall    cost.    These actions violated GSA's Federal
           Property Management Regulations (FPMR) 101-32.         On the
           other hand, in those cases where procuring agencies did
           make an effort to obtain competition significant cost
           savings were achieved.
                The Federal Government is acquiring minicomputers ,at
           an accelerated pace.        As discussed in ·Uses of Minicomputers
           in the Federal Government:         Trends, Benefits' Problems,·
           B-ll5369, April 22, 1976, the use of minicomputers by
           Federal agencies can enhance productivity.         User agencies
           and the computer industry have complained of administrative
           difficulties surrounding the acqulsition of minicomputers
           and other relatively low cost ADP items.         GAO recommended
           that Government-wide procurement requirements for mini-
           computers having a low aggregate dollar value be simpli!ied.
                The use of non-mandatory schedule contracts may be one
           way of solving      ~~ese   problems, so long as applicable pro-
           curement rules and regulations are complied with.          We

           understand that this sc!ction has been proposed by GSA.
           In its October 1 report, the Bouse Government Operations
           Commi ttee has recommended that new procf.!r.ures be established
           ~hereby    use: agencies could procure ADP items below $250,000
           (~xcept ce~~~~l      ?~ocessin~ c~its)   without the neea to obtain

               In a    n~~er    0:   audit reports, we have stressed the
           need for atandardization in ADP management to improve

                                          - 8 -
    i_ -
           . on the economy and efficiency of Government ADl' operations.
           This i. related to congressional concern             expres~ea       in
            40   u.s.c ••   7S9(f) (2) (1970), which requires the 3ecretary
            of Commerce to undertake .tudies in order to make a?pro-
            priate recommendations relating to the establishment of
            unifor.m Federal ADP standards.      In Executive Order 11717,
            Commerce was al.( given the power to promulgate ADP
                       For example, in • report titled, -Emphasis Needed
            on Government'. Efforts to Standardize Data Elements and
            Codes for Computer Systems,- B-115369, May 16, 1974, we
            found that significant benefits and             ~provements       in the
            use of the Government's ADP resources could accrue from
            standardizing data elements and codes.             This would
            facilitate information exchanges ' in machine readable fornl
            among various ADP systems.       Data elements are in!ormation
            units having a unique meaning based on a natural or assigned
            relationship.      A date code may be the        n~~e=,        letter,    s~~ol,

            or any combination of these used to represent a data element
            or item.     For example , the code for the c£ta elerner.t
            -Alabama- may be -AL.-      Our review revealed that the
            National Bureau of Standards has assigned a high priority
            to data and code standardization which we believe is a
            step in the right direction.        ~~s    is    st~ll   considering
            this standardization     pro=l~.     Nece~~~=~!y,         L~e    cooperation
            of other agencies is     re~~ired   to    e!!e=~ua~e L~y         such

                                      - ,-
                                                                       -   - -~-. -

- - - --                 - - -- -- - --
                         In a report titled -Improvement       Needed in
             Documenting    Computer Systems,- B-115359, October 8,
             1974, we found there was a lack of Government-wide
             policies, . guidance or Atandards for the documentation
             of computer systems.      -Documentation- is the informa-
             tion recorded explaining the pertinent Aspects of an
             ADP system--including its purposes, methods, logic,

             relationships, capabilities and limitations.           We found
             that there vas a need for standard procedures to           all~

             for maximum efficient management and use of the Govern'·
             !Dent ADP resources.     We again l .~cOCJnized that the National

             Bureau of   St~dards    was in the process of formulating and
             issuing standards fer the documentation of various aspects
             of ccmputer systems.      The standards, once compiled, should
             provide the guidance needed by using agencies not only to
             document their ADP systems but also to do so in a manner
             that will be readily     usabl~   by other Government organi-
                . Durin9 the hearings before the Bouse Government
             Operations Committee regarding the administration of the
             Brooks Act, GAO again voiced our concern over the lack of
             progress being   m~de   by the National Bureau    o~   Stancards in
             the development of ADP standards.        In its   =e?~=~   or.   ~~e

             Brooks Act's admini stration, the Committee        incica~ec      t~at

             such standards woulJ allow for fuller ane more          e:=e=~~ve

                                         - 10 -

1_ _ -   -
    competition and greater savings.             The Committee recommended
    ~~ ~t   the National    B~reau    of Standards Rmust develop necessary
    hardware and software standards. R The Committee also recorn-
    mended that OMB establish          procedure~   to   i~sure   that user
    agencies would comply with          th~   ADP standards set.
            GAO is continuing audit work on the need for and status
    of ADP standards.
            Recently we issued three re?Qrts concerning computer
    se~urity    in   Fed~ra1    Government ADP installations.            In
    -Improvements      ~eeded I~     Managing Automated     Decisi onm~king

    By   Compu~ers   Throughout The Federal Government," B-115369,
    April 23, 1976, we identified a number of              instan ~ es    of
    incorrect unreviewed computer actions and decisions caused
    by software and data problems.            We also found there are no
    Federal-wide policy, guidance or other instructions on how
    computers issuing unreviewed actions should be managed by
    Federal agencies.          Also, there is little checking or
    monitoring of computer output by user agencies.                Moreover,
    internal audit reviews of computer actions are only made
    sporadically, if a·t all.          In the current imperfect environ-
    ment the chances of continuing bad deci sions by computers
    and resultant unnecessary costs are great.               Con sequently,
    we recommended that appropriate guidelines on reviewing
    computer actions be promulgated.
            In ·Computer Related Crimes In Federal Programs,-
    B-115369, April 27, 1976, we identified a number of
    computer    crllM~s   committed by Federal ADP systems users.

                                        - 11 -

      Contrary to widespread belief, most of these acts were
      co~tted    by persons with limited technical knowledge of
      computers, i.e., users of the ADP system rather than
      programmers, operators, or analysts.           We recommended that
      the reviewed Federal agencies take various steps to improve
      the internal   secu~ity    of their ADP systems.         For example,
      the agencies should establish for their ADP systems (1)
      an organizational plan segregating the duties of individuals
      to minimize the   oppol·~ ·o ~ nity   for misuse or misappropriation
      tlf the system's resources, (2) adequate system authoriza-
      tion and record procedures, and (3) an effective internal
      review system.
           In the third report titled "Managers Need To Provide
      Better Prot,ection For Federal Automatic Data Processing
      Facilities," B-ll5369, May 10, 1976, we notec catastrophic
      losses had occurred to Government sponsored ADP installations.
      Our review also indicated that the physical security of many
      installations to protect Against such losses was inadequate.
          Where we have found it warranted we have recom-
      mended the canceliation-of ADP procurements after a
      complete audit review.        For example, we     rec~mmended   can-
      cellation of a GSA procurement to satisfy the ADP needs
      of the   Depa~~ent   of Agriculture in "Improved Planning--
      A Must Before a Department-wide Automatic Data Processing

                                     - 12 -

                                                 - --- - ~--
       System i . acquired for the Department of Agriculture,"
       1-115369, June 3, 1975.     In that case, we found that
       Agriculture had not adequately analyzed its data           p~oces­

       sing or communications requirements for the computer
       .ystem, even though proposals were received by November 29,
       1974, and award of the contract was targeted for mid-June
       1975.    Agriculture only made an analysis of the ADP needs
       of one of its major suhaqencies prior to issuing the RFP.
       Agriculture had no basis for determining the optimum ADP
       system design and location, since it did not make the
       communications study required by GSA's regulations.             In
       addition, Agriculture did not adequately consider security
       an~.   privacy requirements to assux'e that personal or other
       sensitive data on the system would be reasonably protectec
       from unauthorized access.     Finally, we found that Agriculture
       did not make the economic studies required by Government
       regulations before it issued the RFP to assure the proposed
       procurer-ent would achieve the highest possible degree of
       economy &rjd effectiveness.       There was no detailed compara-
       tive cost data for the existing and proposed ADP systems
       and there was no analysis of the       bene~its   and   cost~   of the
       proposed system design or consideration of possible alter-
       natives to satisfy    Ag~iculture's    ADP needs.       It was improper
       to have the "afte r the fact" justifications for the procure-
       ment, which were made here after the proposals had already

                                - 13 -
L --                       --- _.. - - ---
            been received, since an    informe~    judgment as to the most
            viable and economic alternative for this system should
            have been made prior to the RFP's issuance.
               After the issuance of our report, Agriculture canceled
            this procurement in October 1975.
               Also, in December 1975, after GAO recommended thp.t
            the Air Force Logistics Command Advanced Logistics System
            (ALS), a very large complex      ~omputer   system, be terminated,
            the House and Senate Committees on Appropriations instructed
            the Air Force to terminate ALS.        The termination of this
            effort was tv be made after 9 years and about $250 million in
            expenditures because software, computer equipment and
            system design problems prevented the Air Force from
            achieving the system's original design objeotives, notwith-
            standing numerous modifications to the original contract.
            See "Problems in Developing the Advanced Logistics Systems,"
            B-163074, June 17, 1976.
                We have recently been asked to look at the propriety and
            legality of "Project Max"--a subsystem of ALS--which the
            Air Force has apparently continued after the Appropriation
            Committees' report. because the Air Force has determined that
            "Project Max" is   ~mission   essential."
                In the past few years we have received an increasing
            number of bid protests against procurements of ADP equipment
            or services.   As you   prob~b1y   know, disappointed b i dders can
            obtain fair unbiased review of a procurement by filing a bid
                                          - 14 -

    protest in the GAO.        A primary role of our Office in this
    regard is to protect the integrity of the procurement
         We handled 840 protests during the 6- month period from
    October 1976 t o March 1977, and a substantial number of
    these cases involved ADP procurements.         Of the 325 decisions
    which dealt with the merits of these protests (i.e., not
    including decisions dismissing protests as untimely or because
    GAO lacks jurisdiction), 4'1 protests (14 percent) were sustained.
         We have established a goal of 25 working days for our-
    selves in the Bid Protest Procedures (4 C.F.R. part 20) to
    issue a decision after all parties have had an opportunity
    to submit their comments to our Office and the record is com-
    plete.     In the decisions issued from October 1976         through
    March 1977, we met this goal--averaging 22.3 days.
         The Bid Protest Procedures are intended to provide a
    comprehensive scheme for our consideration of protests in a
    timely manner.
         Under the procedures, a disappointed bidder must pursue
    Q   protest against procurement actions in a timely manner if
    he wants the protest to be considered on the merits.         The
    GAO time liness rules governing the submission of protests
    can be    summari ~ ed   in two basic propositions:
          (1) If you have a problem with the solicitation, make
    your objections known either to the agency or GAO before
    bids or proposals are submitted and (2) if you have any other

                                      - 15 -

problem, you must protest within 10 working days after you
know or should have known a.bout the problem.     These rules
are intended to assure that we receive protests in time that
some effective remedial action can be taken where warranted.
Where a firm does   ~ot   apprise the Government within a reason-
able time that it objects to a procurement action, it is
generally not in the Government's best interest to allow that
firm to hamper the Government's business of procuring goods
and services.   Such standards also help assure the rights of
the procuring agency and other interested parties     (~.,      the
contractor) are protectec--just as are those of the protester.
For example, a firm should not be allowed to participate
[without objection] in a procurement and then have the firm
protest a solicitation requirement after it l earns it was
not the successful b i dder.   See Airco, Inc. v. Energy Research
and Development Administration, 528 F.2d 1294, 1300, (1975),
where the 7th Circuit adopted the same rationale of our
timeliness rules in finding that a firm waived its right to
object to a second round of negotiations where the firm
willingly participated and only objected when informed that
it was not successful.
     We do encourage protesters to go to the procuring
agency first with their problems: however, we will consider
appeals of unsuccessful agency protests if filed within 10
working days of their denial.     Also, our procedures have
provision for considering untimely protests, which raise

                                - 16 -
    issues significant to the procurement community or where
    good cause has been shown.
           We have had a wide array of interesting issues presented
    to us in bid protests involving ADP procurements.             I would
    like to discuss aome of these as illustrative of the role we
    play in the procurement process in this          area~

           In S1 Comp. Gen. 609 (1972): Sl Comp. Gen. 613 (1972), IBM
    protested a number of GSA procurements in which GSA declined
    to consider IBM's proposals which contained a            pr~vision

    disclaiming implied warranties of merchant's ability and
    fitness for a particular purpose and excluding IBM from
    liability to the Government for consequential damages.                We
    denied IBM's protest since we regarded GSA's position as a
    matter of procurement policy and since there was no statutory
    oregulatory provision prohibiting such an arrangement.                 While
    we had reservations regarding the policy, we concluded that
    it was within GSA's discretion to adopt and therefore we could
    not find the awards to be illegal.          However, we recommended
    that GSA restudy its position particularly since lower prices
    could result if        th~   contractor'. possible liability were
    elim.inated.     GSA subsequently modified its position .        Its
    ADPE   cont~ a cts    now exclude any implied warranty of fitness
    for a particular purpose and the contractor is not liable for
    consequential damages.          However, the implied warranty of
    .erchantability has been retained.
           In   ~enneth   R. Bland, 5. Comp. Gen. '30 (1975), we recog-
    nized that in _ procurement of ADPE under $50,000            (wh~re

                                      - 17 -

procuring agencie. ordinarily need not receive a delegation
of   procurement au ' 'b ority from GSA) the Federal Power Com-
mission could formulate its own policy with regard to the

type and extent of warranty provisions included in the con-
tract, in the absence of other          stan~ard   clauees in the FPMR
and FPR applicable to ADPE procurements.
     In Comdisco, Inc., 54 Comp. Gen. 196 (1974), involving
the Army's ALPHA program, the Army utilized a long-term
contractual arrangement with IBM to acquire additional ADP
systems.     The Army ent ered into     mo~ifications    of this con-
tract to purchase several additional systems at a reduced
price.     These modifications were protested as being in vio-
lation of the Brooks Act and implementing regulations since
the Army did not receive prior authorization from GSA for
the acquisition of the ADPE.           GSA agreed with the protester
and indicated that it did not authorize the procurement.                We
concluded that this procurement was unauthorized because the
Army did not obtain         _ prior approval of GSA pursuant to
FPMR 101-32.     We found these provisions to be applicable
because the Army was acquiring ADPE albeit through the
guise of an    exist.i~g   schedule contract.      Al though we
d i d not feel justified in taking any action with
respect to installed systems, we concluded that no
additional systems for the ALPHA program should be
acquir~d    without a delegation of procurement authority
for these procurements from GSA.

                              - 18 -
              SubsequentlY4 IBM and the Government modified
    the arrangement to   siqnifi8an~ly      reduce the cost to the
    Government of the additional systems already i . stalled
    b:r IBM. 'l'he remainir,g three ADP systems to be procured
    for the ALPHA program were to be bought on the open
          In PRC Computer Center, Inc., SS Comp. Gen. 60 (1975),
    • number of interesting issues were. involved which entailed
    an in-depth revi ew of the entire procurement.         In   80   doing,
    we utilized the technical assistance of ADP specialists at
    GAO as we have done in a number of bid protest cases.              This
    procurement by the Federal Energy Administration            call~d     for
    a facilities management services contract to cover FEA'S
    ADP   needs for an 18-month period.
               One of the major issues raised was FEAts com-
    ~liance   with the Brooks Act and implementing regulations.
    It was contended that FEA had not received a proper dele-
    gation of procurement authority from GSA.         We recognized
    that'the facilities management wservices w contracts,
    especially where there is an option to purchase the
    installed equipment, could well be used as a ploy to
    avoid the Brooks Act's coverage.        ~hat   is, a much greater
    scope qf review and justification and GSA         involv~nt       is
    ordinarily necessary to receive a delegation of         a~thority

                               -   ..J.~-

L                                                                                _ J
f01" the purchase of ADPE    ~   ,. 3 opposed to services).     However,
vhile we recognized that this type of services contract. could
be used as a ·loophole" in the regulations, we could not object
to the FEA procurement because FEA was entitled to rely upon
the GSA and OMB authorizations to proceed with the procure-
ment which were only given        aft~r    complete reviews.
    GSA ;.ssued Amendment. E-173 to its regulations governing
procurements of ADP services, which would have the effect of
increasing the   GS~   review role in       ag~ncy   procurements of ADP
services, particularly where the Government will or may acquire
title to ADP equipment through a ·service" contract.
    A related question regarding the BrooKs Act's applicability
to ADP services contracts is currently under consideration
by our Office.     This in olves a difference between the Depart-
ment of Transportation and GSA concerning the Act's applica-
bility to a contract for supporting services for a Government-
owned computer facility.         OMB had determined in December 1976
that the Act did not apply to this procurement.
    There were a number of procurement deficiencies in the
FEA procurement,    ~.,    the existence of a predetermined cut-
off point for establishing the competitive range, and the
failure to indicate in the RFP the relative weight of cost
in the evaluation scheme.        Although these deficiencies were
not in accordance with sound procurement practice, they were
not prejudicial in this case.         More seriously, we found failures
t o comply with RFP requirements in the contractor'. pro-
posal relating to the security of the FEA ADP system.
In our review in this regard we utilized GAO ADP specialists

                                  - 20 -
and an independent consultant who specializes in computer
security.    Although we found that the contract awarded
generally complied with the solicitation requirements re-
lating to the security of the computer system from access
by persons not authorized to utilize the FEA computer, we
did find that the contractor's proposal failed to comply
to   a solicitation requirement relating to the internal
security of the computer system that the system provide pro-
tection from read access by FEA users to other FEA users'
programs and codes and the computer's operating system located
in its main memory.    However, in view of several countervailing
factors,    ~.,   lack of any indication of prejudice   t~   the
other offerors, prohibitive reprocurement costs, lack of
further FEA funding, etc., we were compelled to conclude that
the award should not be disturbed.
     In December 1975, a former contractor employee success-
fully removed system software from the FEA system before being
apprehended and subsequently convicted of the theft.
     We also made good use of our technical experts in
resolving the difficult technical issues involved in
Sperry Univac, B-183l82, November 6, 1975.     In this case,
Sperry Univac protested the rejection of its technical
proposal for a large-scale Army scientific computer
syst~~.     Sperry Univac had been declared technically
unacceptable after approximately 3 months of intensive
negotiations on the basis that it could not comply with

                              - 21 -
       the RFP benchmark requirements, specifically a requirement
       for the use of ANS FORTRAN statements in the benchmark
       programs.   The Army insisted that its requirements for
       ANS FORTRAN were "necessary: (1) to preserve the concept
       of a uniform benchmark, (2) to promote the interchange-
       ability of the resulting programs for use on a variety
       of ADP systems; and (3) to avoid the adverse impact
       which a system dependent on non-ANS FORTRAN might have
       on Army operations.     Sperry Univac maintained that the
       Army's requirement was unduly restrictive of competition.
       Moreover, Univac argued ·that the other two offerors--
       Control Data Corporation (CDC) and IBM--made changes
       similar to those made by Sperry Univac but were con-
       sidered by the A--my to have submitted technically
       acceptable proposals.
            GAO's review involved a comparison by GAO ADP
       technical experts of the benchmark programs     submit~ed

       by Sperry Univac, CDC, and IBM 'with those which were
       provided to the offerors in order to determine whether
       any changes were" made.    The benchmark provided to      ~e

       offerors consisted of ten programs containing, by very
       conservative estimate, approximately $0,000 statements.
       From our review, we conclude that (1) only Sperry Univac
       "had made changes to ANS FORTRAN statements in viol ation
       of the mandatory RFP requirements: (2) the requirement

                             - 2.2. -

                                            - - -- "   -   --   --- -.-   - -"
that the benchmark be performed within the stated guide-
lines was justified since the benchmark guidelines
legitimately reflected the agency's needs: and (3) that
IBM had not violated the mandatory RFP requirements.
Consequently, we denied the protest and upheld the award
which had been made to IBM.
     A more recent case, International Computerprint Cor-
poration,   5~    Comp. Gen. 1043 (1976), involved the Depart-
ment of Commerce's procurement for the reduction of patent
data to computer tapes.        The invitation for bids contained
a requirement that a pilot patent production demonstration
be successfully accomplished by the prospective contractor
to establish its technical ability to perform the work in a
responsible      ma ~ner.   The low bidder's (Informatics) bid of
$9,947,224 was much lower than the only other responsive bid
(of ICC) of $17,829,317.         However, despite repeated efforts,
the low bidder was never able to accomplish successfully
the demonstration in accordance with the IFB requirements.
Nevertheless, Commerce proposed an award to the low bidder,
since Commerce was convinced by the bidder's efforts to pass
the pilot demonstration that the firm possessed the technical
capability to perform the contract.         The proposed award was
p~otested   by the high bidder to our Office.       Ordinarily,
absent fraud, GAO will not review protests against a con-
tracting officer's affirmative determination of a bidder's

                                 - 23 -
      responsibility   (~.,   its ability to perform a contract).

      However, we will consider such protests where the question
      of responsibility revolves around a bidder's meeting or
      failing to meet certain specific and objective responsi-
      bility criteria expressed in the solicitation.     We con-
      sidered the IFB demonstration requirement to be such an
      objective responsibility criteria.     To waive such a
      requirement would be prejudicial to other bidders who bid
      under the IFB as issued or to prospective bidders who
      failed to bid because of doubts as to their ability to
      comply with the demonstration requirements.     Consequently,
      we recommended that Commerce resolicit this requirement
      based upon its actual minimum needs.
           In response to our recommendation, Commerce solicitee
      ICC and Informatics to recompete the requirement.        In
      Electronics Composition, Inc., B-186755, February 15, 1977,
      we found that in view of the urgency of the need, Commerce's
      failures to publish the requirement in the Commerce Business
      Daily or specifically solicit ECI--which Commerce did not
      know was interested--were not improper under the circumstances.
           However, in Informatics, Inc., a-187435, March 15, 1977,
      56 Comp. Gen. ____ , we found the award to ICC under the
      recompetition was improperly based on a defective solicitation.
      We found that although the solicitation indicated that offerors
      were required to assume in their proposed systems the incumbent's

                                   - 24 -

     file system which was estimated at 20,000 files, both Conunerce
     and ICC (the incumbent) were well aware that the system con-
     tained less than 1,500 files.    Informatics stated that it was
     misled by the 20,000 figure--which ICC knew was excessive--in
     preparing its offer in that it incorporated a significar.       sum
     into its price to establish the capability to meet this re-
     quirement.   Since Informatic's offer was only $8,000 higher
     than ICC's low offer of $10,883,166, we recommended that
     another round of best and final offers be solicited.     This
     would allow voth offerors to submit realistic price proposals
     based on the Govp.rnment's actual    requiremen~s.

          Requests for reconsideration of this decision are currently
     pending in our Office.
          In the recent decisions in Burroughs Corporation, S6 Comp.
     Gen. 142 (1976) and Hc·neywell Information Systems, Inc., 56
     Comp. Gen. (1976), we found that the wfixed-price options·
     clause provided for multiyear ADP system procurements in the
     Federal Property Management Regulations was inappropriate,
     misleading, and unclear.
          This clause essentially invited offerors to propose
     ·separate charges· payable in the event the system was terminated
     prior to the end of the intended wsystems life. w However, the
     clause did not even imply that   payme~t   of certain separate
     charges, such as those proposed by Honeywell in the cited cases,
     would violate 31 U.S.C. I 665(8) 31 U.S.C •• 7l2a and 41 U.S.C.

                                 - 25 -

I 11 (1970).      The statutes prohibit the expenditure of current
fiscal year moneys for future yea," needs.     The Honeywell
separate charges represented a significant     percentag~   of its
proposed future year "list price" rentals on the system        e~uipment.

If some were valid and others were not, the proposers should
be told.   Since these charges - presented a part of the price
of future years' ADP requirements rather than the reasonable
value of actually performed, current fiscal year requirements,
payment of the charges is prohibited.      Liability for such sub-
atantial separate charges where the Government does not exercise
an option would render the Government's option "rights" illusory.
Moreover, payment of the Honeywell separate charges would seem
to be inconsistent with the mandatory termination for con-
venience clause.     We never said that all &eparate charges were
illegal, however. For example, payment of those separate charges
which reasonably relate to the value of current, actually per-
formed fiscal year requirements are proper.      Since certain
separate charges are prohibited, the clause's "invitation" of
such charge was inappropriate.
     Also, the clause did not clearly indicate how -separate
charges" were to be evaluated.      For example, in the Honeywell
case, Honeywell's offer was rejected as "unbalanced" after a
"worst case analysis," although the clause indicated no
mechanism for determining when separate charges make an offer
·u.nbalanced. "    Faced wi th the existing clause, offerors were
clearly unable to propose separate charges with any assurance
that their offers would not be rejected because of -unbalancing.-

                                 - 26 -
          GSA has suspended the use of the FPMR clause and is in
     the process of drafting a new "fixed-price options" regulation.
          In sustaining the preaward protest in Honeywell, a new
     round of best and final offers was recommended.      I understand
     that Sperry Univac--the low offeror after the new best and
     final offers--was awarded the contract for the seven Navy
     ADP sy stems.
          The   Burrou~hs   protest was sustained because the Honeywell
     award was based on a best and final offer submitted     aft~r    the
     closing date.    The offer modified a timely submitted but
     acceptable best and final price offer which stated it contained
     an error of "approximately $120,000."
          This offer did not propose "fixed or finitely determinable"
     price in violation of the solicitation.      Furthermore, the
     proposed best and final equipment configuration was unacceptable
     because it was significantly different from that benchmark
     tested.    Since the equipment installed was that which was
     benchm~rked,    Honeywell was clearly allowed to oorrect this
     additional deficiency after the closing date.      Inasmuch as
     the offerors were not competing on an equal basis because
     Honeywell was permitted to correct its proposal after the
     closing date, a new round of best and final offers was recom-
     mended and if Honeywell turned out not to be the low offeror
     its contract be terminated.
          This decision was substantially affirmed in Honeywell
     Information Systems, Inc., B-l8631J, April 13, 1977, S6 Comp.

                                      - 27 -

     Gen.         , notwithstanding claimed substantial adverse mission
     and cost impacts.     However, since Burroughs had been supplied
     information revealing Honeywell's initial equipment configura-
     tion and pricing structure, Burrough's participation in the
     recompetition was conditioned on its agreeing to the release
     of the same data from its price proposal.     Although        his will
     create an auction situation, this is necessary to allow for
     a nonprejudicial recornpetition, insofar as possible, and to
     thereby overcome the prejudicial effects of the implVper award.

            It can be seen from the foregoing discussion that we at
     GAO are significantly involved in the ADP procurement process
     in a variety of ways.     Since one of GAO's responsibilities is
     to make studies leading to the establishment or modification
     of Government-wide policies regarding computers, we are con-
     tinuing to address:
            (1) the application of technology to Government work,
            (2) efficiency and economy in acquiring and using
               computer systems,
            (3) the proper use of results generated by computer
                systems, and
            (4) social implications of the computer.
            Plans are also in process to 8tudy the impact     ~f   advanced
     data entry techniques on Federal computer operations.          Con-
     aiderable work is being conducted in the electronic fund transfer
     area, with its attendant privacy considerationa.

                                    - 28 -
     We hope we will continue to make contributions to increasing
the efficiency, economy, and competitive practices in ADP

                            - 29 -