oversight

Cooperative Purchasing: Effects Are Likely to Vary Among Governments and Businesses

Published by the Government Accountability Office on 1997-02-10.

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

                United States General Accounting Office

GAO             Report to Congressional Committees
                and the Administrator of General
                Services


February 1997
                COOPERATIVE
                PURCHASING
                Effects Are Likely to
                Vary Among
                Governments and
                Businesses




GAO/GGD-97-33
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      General Government Division

      B-274544

      February 10, 1997

      The Honorable Fred Thompson, Chairman
      The Honorable John Glenn, Ranking Minority Member
      Committee on Governmental Affairs
      United States Senate

      The Honorable Strom Thurmond, Chairman
      The Honorable Carl Levin, Ranking Minority Member
      Committee on Armed Services
      United States Senate

      The Honorable Dan Burton, Chairman
      The Honorable Henry Waxman, Ranking Minority Member
      Committee on Government Reform and Oversight
      House of Representatives

      The Honorable Floyd Spence, Chairman
      The Honorable Ronald Dellums, Ranking Minority Member
      Committee on National Security
      House of Representatives

      The Honorable David J. Barram
      Acting Administrator
      General Services Administration

      Under the cooperative purchasing program authorized by section 1555 of the Federal
      Acquisition Streamlining Act of 1994, the Administrator of General Services was permitted to
      allow state and local governments, the government of the Commonwealth of Puerto Rico, and
      Indian tribal governments to purchase items available through the federal supply schedules. As
      directed by section 4309 of the Clinger-Cohen Act of 1996 and the conference report for that act,
      this report assesses the potential effects of a cooperative purchasing program on these
      nonfederal governments and federal agencies; and on industry, including small businesses and
      dealers. Because these effects depend on how the program is implemented, we have also
      assessed the preliminary implementation plan prepared by the General Services Administration.

      We are sending copies of this report to the Director of the Office of Management and Budget;
      the Attorney General; the Secretaries of Defense, Health and Human Services, the Interior, and
      Veterans Affairs; and interested congressional committees. We will make copies available to
      others upon request.

      We are issuing a separate report on the potential effects of cooperative purchasing of
      pharmaceuticals.
B-274544

Please contact me at (202) 512-4232 if you or your staff have any questions. Major contributors
to this report are listed in appendix VIII.




Bernard L. Ungar
Associate Director, Federal Management
  and Workforce Issues




                     Page 2                                     GAO/GGD-97-33 Cooperative Purchasing
B-274544




           Page 3   GAO/GGD-97-33 Cooperative Purchasing
Executive Summary


             In 1993, the National Performance Review (NPR) reported that
Purpose      consolidating government purchasing actions would benefit the taxpayer
             through greater volume discounts and simplified administration. In 1994,
             Congress established a cooperative purchasing program that authorized
             the General Services Administration (GSA) to allow state, local, Indian
             tribal, and the Puerto Rican governments access to its supply schedules
             program. Little debate occurred over possible adverse effects of allowing
             nonfederal governments access to federal supply schedules, but such
             concerns did emerge after the cooperative purchasing program was
             enacted.

             As a result, in 1996 Congress suspended GSA’s authority for this program
             and mandated that GAO assess the effects cooperative purchasing may
             have on state, local, Indian tribal, the Puerto Rican, and federal
             governments; and on industry, including small businesses and local
             dealers. Since these effects would depend in large part on the program’s
             implementation and discretionary choices yet to be made by GSA, vendors,
             and potentially affected state and local governments, GAO developed an
             audit approach that depended heavily on these groups’ assessments of the
             potential effects of cooperative purchasing and included an assessment of
             GSA’s tentative implementation plans. GAO surveyed state and Puerto Rican
             purchasing officials; conducted case studies in California, Montana, New
             York, and West Virginia and in selected local governments in those states
             to examine their purchasing practices and to compare prices that these
             governments paid for selected items with federal supply schedule prices;
             interviewed major federal users of the schedules program and several
             Indian tribal governments; interviewed businesses that now supply state
             and local governments (some of which are also vendors selling to federal
             agencies under the schedules program) and several industry associations;
             and interviewed GSA officials and reviewed public comments on GSA’s
             proposed implementation plan. GAO is reporting separately on the potential
             effects of cooperative purchasing of pharmaceuticals.


             In fiscal year 1996, 146 federal supply schedules listed vendors that had
Background   contracted with GSA or with the Department of Veterans Affairs (VA), which
             administers part of the program, to sell commercial supplies and services
             to federal agencies. Total sales through the schedules program were about
             $6.7 billion in fiscal year 1996 for items ranging from computers and
             furniture to medical supplies and auditing services. The goal of the
             schedules program is to take advantage of the total volume of federal
             purchases to negotiate the lowest possible prices for needed supplies and



             Page 4                                    GAO/GGD-97-33 Cooperative Purchasing
                   Executive Summary




                   make these prices available to all federal agencies through a procedure
                   that conforms or is consistent with the Competition in Contracting Act of
                   1984.

                   Participation in the cooperative purchasing program would be optional for
                   any nonfederal government and any GSA or VA vendor that sells through the
                   federal schedules program. In its plan to implement the cooperative
                   purchasing program, GSA said that it would make particular schedules
                   available to eligible nonfederal users unless it decided that doing so would
                   not be in the interests of the federal government.


                   The potential effects of the cooperative purchasing program are likely to
Results in Brief   vary among state, local, and the Puerto Rican governments. Since
                   participation is voluntary, these governments would use the schedules
                   only if they perceived benefits, such as lower prices, from doing so. Most
                   of the nonfederal entities GAO surveyed anticipated that they would
                   participate. Although some of these governments may experience such
                   benefits as cost savings and a reduction in the time to procure items,
                   several factors, such as state contracting laws and preferences to purchase
                   from in-state sellers, may limit the extent of these benefits. The program is
                   likely to have little if any effect on Indian tribal governments because the
                   schedules program is already available to them under separate authority. If
                   GSA effectively implements its plan to exclude schedules from the program
                   when adverse effects on federal agencies are indicated, there is little risk
                   that the program will negatively affect the federal government, but
                   whether it will have positive effects depends largely on whether increased
                   use of the schedules by state and local governments would lead to lower
                   prices and reduced administrative charges by GSA. It is unclear at this time
                   whether either of these would occur.

                   The potential effects of the cooperative purchasing program on industry,
                   including small businesses and dealers, are also likely to vary, although
                   sufficient data are not available to conclusively predict these effects. Some
                   businesses, particularly GSA vendors, expect to benefit from increased
                   sales or reduced administrative costs, while other businesses expect to
                   lose sales or have lower profits. Still other businesses do not believe they
                   will be affected by the program. Most of the concerns that businesses have
                   expressed about significant adverse effects involve only a few GSA
                   schedules, such as airlines and fire fighting vehicles, and some medical
                   schedules administered by VA.




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                            Executive Summary




                            GSA’s plan to implement the cooperative purchasing program is still
                            evolving. In 1995, it published its initial approach and has been considering
                            changes while implementation has been suspended. GSA has not yet
                            completed a more current, detailed plan, but such a plan would better
                            enable Congress to weigh the merits of cooperative purchasing since so
                            much depends on implementation decisions. Although the approach GSA
                            has been considering appears reasonable in key respects, GAO believes a
                            number of improvements would better position GSA to make decisions on
                            making particular schedules available to nonfederal users. These
                            improvements include the preparation of a written implementation plan
                            and guidance to staff on the data, affected parties’ views, and other factors
                            for GSA and VA to consider when making decisions.



Principal Findings

Governments Expect          Puerto Rico and the majority of state and local governments GAO contacted
Benefits, but These Could   indicated that they want access to the federal supply schedules because
Be Limited                  they perceive benefits from cooperative purchasing. Of the 48 states and 2
                            territories that responded to GAO’s survey, 34 said they would use the
                            program for purchases. Of the 26 state and local agencies GAO obtained
                            information from in California, Montana, New York, West Virginia, and in
                            Puerto Rico, all favored having access to the schedules. Reasons that they
                            cited for favoring access included the potential for (1) obtaining lower
                            prices on popular items they purchase, such as computers, furniture, and
                            office equipment; (2) having a greater selection of items available to them;
                            or (3) realizing administrative savings of both time and money by ordering
                            through the federal supply schedules as a convenient alternative to current
                            procurement procedures.

                            Even though Puerto Rico and the majority of state and local governments
                            GAO contacted favored the option of using the federal supply schedules,
                            several factors could limit the benefits they achieve in practice. These
                            factors include (1) state or local laws, ordinances, mandated preferences,
                            or procedures that would limit their ability to use the program; (2) the
                            unavailability of certain heavily used items or products through the
                            program; and (3) the availability of lower prices for some items from
                            current or other sources. Potential savings on administrative costs would
                            also be limited by the need to retain procurement operations for those
                            items that will not be purchased through the schedules program. GAO’s




                            Page 6                                     GAO/GGD-97-33 Cooperative Purchasing
                          Executive Summary




                          examination of state and local governments’ purchasing patterns suggests
                          that those items for which nonfederal governments spend the most money
                          are generally not available through the schedules program.

                          Allowing Indian tribal governments to use the federal supply schedules
                          program would appear likely to have little effect on them because
                          Congress has already provided many of these governments with the
                          authority to use GSA supply schedules. Programs for tribes whose
                          governments do not have this authority continue to be the responsibility of
                          federal agencies with access to the schedules.

                          GSA believes that the increased sales from participation of nonfederal
                          governments will enable it to negotiate better prices with GSA vendors and
                          possibly reduce administrative fees charged to schedule users. However,
                          the extent to which nonfederal purchases would actually increase the
                          volume of GSA sales is unclear because of the noted limiting factors.
                          Adverse effects on the federal government appear unlikely if GSA
                          effectively implements its plan to exclude schedules from the program
                          when adverse effects on federal agencies are indicated.


Effects on Industry Are   The potential effect of cooperative purchasing on industry, including small
Likely to Vary            businesses and dealers, is likely to vary among industries and businesses.
                          Some industries, such as construction and electric utility services, that
                          have provided substantial portions of their output to state and local
                          governments will not be affected by cooperative purchasing because their
                          products are not available through the schedules program. Other
                          industries whose products are covered by the schedules program provide
                          varying proportions of their output to state and local governments, but
                          most have provided less than 6 percent of their output to nonfederal
                          government customers.

                          There was no consensus about the potential effect of cooperative
                          purchasing among the 59 state or local government contractors GAO
                          contacted. Of these 59 contractors, 22 predicted a positive effect, 10
                          believed that they would be negatively affected, 13 predicted no effect, and
                          14 said that they did not know how they would be affected. Although none
                          of the contractors provided any data to support their predictions, they did
                          provide some reasons for their beliefs. For example, the contractors
                          predicting a positive effect cited the prospect of increased sales and
                          customer bases, as well as the advantages of not having to go through a
                          bidding process. The contractors who said they would be negatively



                          Page 7                                    GAO/GGD-97-33 Cooperative Purchasing
                          Executive Summary




                          affected were concerned that they would lose sales to GSA vendors. The
                          contractors who believed that they would not be affected cited the unique
                          nature of the products they sold or their ability to offer competitive prices
                          as the reasons they would not be affected. Finally, the contractors who did
                          not know how cooperative purchasing would affect them pointed to the
                          potential for both gains and losses.

                          Several other businesses have also expressed concern about significant
                          potential adverse effects of cooperative purchasing. These include
                          companies largely represented on some of VA’s schedules and three of
                          GSA’s schedules that provide certain types of heavy equipment, such as fire
                          fighting vehicles and construction and highway maintenance equipment;
                          and airline services. These companies were concerned that if schedules
                          for these goods and services were made available to nonfederal users and
                          GSA or VA vendors exercised their option to participate in the program,
                          sales would be diverted to other vendors or would be at lower prices,
                          potentially leading to lower revenues or profits.

                          GSA  recognizes that the cooperative purchasing program has the potential
                          to negatively affect some industries and businesses. It announced its plan,
                          based on VA’s recommendations, to exclude two schedules that are
                          managed by VA and that include pharmaceuticals and certain other medical
                          equipment and supplies. VA had contended that prices for items covered in
                          those schedules would increase if the schedules were opened to
                          nonfederal governments because of unique statutory requirements
                          imposed by the Veterans Health Care Act of 1992. Because of concern that
                          airlines might no longer participate in the schedules program, substantially
                          increasing travel costs for federal agencies, GSA intends to exclude the
                          airline schedule from the program. In recognition that some businesses
                          that provide products on one heavy equipment schedule could face
                          adverse effects, GSA also intends to exclude the fire fighting vehicles
                          schedule. GSA plans to evaluate other schedules before any additional
                          decisions are made.


GSA’s Proposed Approach   In April 1995, GSA published a Federal Register notice outlining its initial
Appears Reasonable but    plan for implementing the program. In that notice, GSA stated that its
Could Benefit From        contracting officers would make case-by-case determinations on whether
                          it would be appropriate to include schedules in the program. The notice
Refinements               also said that individual schedule vendors would be able to elect whether
                          or not to make their products or services they sell available to authorized
                          nonfederal users, and that schedule contracts would continue to focus on



                          Page 8                                     GAO/GGD-97-33 Cooperative Purchasing
                       Executive Summary




                       the needs of federal agencies. Working with interested parties, GSA has
                       continued to develop its approach for implementing the cooperative
                       purchasing program while the program is in suspension. As a matter of
                       policy, GSA said it would not make schedules available if doing so would
                       adversely affect the federal government. GSA officials are also considering
                       (1) the option of excluding portions of individual schedules, (2) having
                       contracting officers conduct analyses to determine whether the negative
                       effects on industry are outweighed by the benefits to nonfederal
                       governments, (3) elevating the decisionmaking authority to a higher level
                       official in GSA or VA than initially proposed, and (4) using the Commerce
                       Business Daily and/or the Federal Register to announce its intent to open
                       schedules.

                       The approach GSA is considering generally appears reasonable. However,
                       given the uncertainties over the extent to which state and local
                       governments and businesses actually would exercise their options to
                       participate in the program and purchase items from vendors listed on the
                       schedules, the lack of sufficient data on the potential beneficial and
                       adverse effects, and conflicting views that GSA and VA would be likely to
                       encounter for some schedules, GSA and VA are likely to have great difficulty
                       in making quantitative assessments of the potential beneficial and negative
                       effects of opening schedules. Thus, they will be required to make
                       recommendations or decisions on including particular schedules in the
                       cooperative purchasing program or excluding them based on limited
                       information. In this situation, should the program be implemented as the
                       law now provides, a detailed written implementation plan would assist
                       both outside affected parties and GSA and VA staff.

                       GSA has not completed an implementation plan to guide it in making these
                       decisions because of the program’s suspension. GAO believes, however,
                       that an assessment of the effects of the program would depend heavily on
                       the kinds of implementation choices and decisions that would be reflected
                       in such a plan and that such a plan would help inform Congress on the
                       program’s implementation. GSA is required to report to Congress with its
                       views on GAO’s findings.


                       GAO recommends that the Administrator provide a detailed plan
Recommendation to      emphasizing the optional nature of the program and setting forth the steps
the Administrator of   that GSA would take to implement it, as part of the Administrator’s report
General Services       on the cooperative purchasing program to Congress. GAO identifies several
                       minimum elements the plan should include, such as the guidance that GSA



                       Page 9                                     GAO/GGD-97-33 Cooperative Purchasing
                  Executive Summary




                  will provide to its staff on what needs to be analyzed, including the
                  available quantitative data, affected parties’ views, and other factors, in an
                  assessment of the benefits and negative effects of opening up schedules.
                  (See ch. 5.)


                  In written comments on a draft of this report, GSA and VA agreed that the
Agency Comments   effects of cooperative purchasing on nonfederal users and businesses are
                  uncertain. These agencies concurred with GAO’s recommendation for a
                  written implementation plan that would define a decisionmaking process
                  that would consider the effects of opening particular schedules on federal
                  and nonfederal governments and on businesses. In its comments, the
                  National Association of State Purchasing Officials agreed that cooperative
                  purchasing has the potential to create a positive effect on state and local
                  governments; the Association also noted areas of concern that could limit
                  the use of the program. Similarly, in oral comments, the Coalition for
                  Government Procurement generally agreed with the report’s findings,
                  conclusions, and recommendation and emphasized the importance of a
                  written implementation plan. It also noted several problems that might
                  arise in GSA’s implementation of the program.




                  Page 10                                     GAO/GGD-97-33 Cooperative Purchasing
Page 11   GAO/GGD-97-33 Cooperative Purchasing
Contents



Executive Summary                                                                                 4


Chapter 1                                                                                        14
                        Overview of GSA’s Supply Schedules Program                               15
Introduction            The Federal Cooperative Purchasing Program                               18
                        Objectives, Scope, and Methodology                                       21

Chapter 2                                                                                        29
                        State and Local Governments Perceive Potential Benefits                  29
Several Factors Are     A Variety of Factors Could Limit the Potential Benefits of the           32
Likely to Limit           Program for Nonfederal Users
                        Effect on Indian Tribal Governments Would Likely Be Minimal              45
Potential Benefits to   Effect of Program on Federal Government Depends on How                   47
Nonfederal and            Much Other Governments Use It and the Response of Vendors
Federal Users           Agency Comments                                                          50

Chapter 3                                                                                        52
                        The Magnitude of State and Local Government Sales Varies by              52
Potential Effect on       Industry
Industry, Including     Some Businesses Perceive Potential Benefits From the                     56
                          Cooperative Purchasing Program
Small Businesses and    Some Businesses and Industries Perceive Potential Negative               58
Dealers, Is Likely to     Effects of Cooperative Purchasing Program
Vary                    Some Businesses Predicted Cooperative Purchasing Would Have              66
                          No Effect on Them
                        Some Businesses Did Not Know What Effect Cooperative                     67
                          Purchasing Could Have on Them
                        Industry Associations’ Views on Cooperative Purchasing Vary              68
                        Agency Comments                                                          69

Chapter 4                                                                                        71
                        GSA’s Approach to Implement the Program Is Evolving                      71
GSA’s Approach to       GSA’s Planned Approach Appears Reasonable but Could Benefit              73
Implementing              From Refinements
                        Agency Comments                                                          78
Cooperative
Purchasing




                        Page 12                                 GAO/GGD-97-33 Cooperative Purchasing
                  Contents




Chapter 5                                                                                    80
                  Recommendation to the Administrator of General Services                    84
Conclusions and   Agency Comments                                                            84
Recommendation
Appendixes        Appendix I: Federal Supply Schedule Sales, Fiscal Year 1996                86
                  Appendix II: State Responses to Our Survey on the Potential Use            97
                    of GSA’s Schedules
                  Appendix III: Government and Industry Associations’ Views                  99
                    Obtained During the Course of Our Work
                  Appendix IV: Comparability of State and Local Agencies’                   101
                    Procurements to GSA Schedule Items
                  Appendix V: Comments From the General Services                            106
                    Administration
                  Appendix VI: Comments From the Department of Veterans                     108
                    Affairs
                  Appendix VII: Comments From the National Association of State             110
                    Purchasing Officials
                  Appendix VIII: Major Contributors to This Report                          114

Tables            Table 3.1: Twenty-Eight Industries Providing More Than 3                   54
                    Percent of Their Output to State and Local Governments During
                    1987
                  Table IV.1: Comparison of State and Local Procurement Prices              101
                    with Federal Supply Schedule Prices


Figure            Figure 1.1: Fiscal Year 1996 Sales for GSA’s Schedules, Stock, and         15
                    Special Order Programs




                  Abbreviations

                  BIA        Bureau of Indian Affairs
                  FASA       Federal Acquisition Streamlining Act of 1994
                  GSA        General Services Administration
                  NPR        National Performance Review
                  VA         Department of Veterans Affairs


                  Page 13                                   GAO/GGD-97-33 Cooperative Purchasing
Chapter 1

Introduction


               Pursuant to the Federal Property and Administrative Services Act of 1949,
               the General Services Administration (GSA) was created to manage and
               acquire federal government space and administrative and operating
               supplies in order to eliminate duplicative functions within government and
               to establish a professional resource that would maximize the government’s
               effectiveness in obtaining supplies and services. Today, GSA’s Federal
               Supply Service is responsible for supplying and procuring goods and
               services through three major programs—the special order, stock, and
               schedules programs. In the special order program, agencies order items
               from GSA; GSA places the agencies’ orders with vendors; and the vendors
               deliver the items to the agencies.1 In the stock program, GSA orders items
               from vendors who deliver the items to GSA’s warehouses. Agencies order
               the items from GSA and receive the items from the warehouses. In the
               schedules program, agencies place orders directly with vendors holding
               GSA contracts, who deliver the items directly to the agencies.


               The Federal Acquisition Streamlining Act of 1994 (FASA) revised and
               streamlined the procurement laws of the federal government.2 Section
               1555 of FASA (40 U.S.C. 481 (b) (2)) gives GSA the authority to establish a
               cooperative purchasing program through which state, local, Indian tribal,
               and the Puerto Rican governments could use GSA’s federal supply
               schedules program to purchase needed goods and services. Under section
               1555, eligible governments, upon their request, could purchase items
               directly from supply schedule vendors under the same terms and
               conditions that GSA has established for federal agency purchases. The
               conference report on FASA indicated that individual supply schedule
               vendors would not have to make the products or services on the supply
               schedules available to nonfederal users, such as state and local
               governments, unless the terms of the schedule contract would so provide.3
                FASA explicitly precludes GSA from authorizing any state, local, Indian
               tribal, or the Puerto Rican government to order existing stock or inventory
               from federally owned and operated, or federally owned and contractor
               operated, supply depots, warehouses, or similar facilities. Thus, FASA
               excludes these governments from purchasing goods and services from
               GSA’s federal stock program.4



               1
                In this report, the term “vendor” is used to refer to a business, including a manufacturer or distributor
               of goods or services, that is a federal contractor.
               2
                Public Law 103-355, Oct. 13, 1994.
               3
                H. Rep. Conf. Rep. No. 103-712 (103rd Cong., 2d Sess., Aug. 21, 1994).
               4
                Many Indian tribal governments have access to GSA’s stock program under separate authority; this
               access is discussed below.



               Page 14                                                     GAO/GGD-97-33 Cooperative Purchasing
                                         Chapter 1
                                         Introduction




                                         The federal supply schedules program is one of GSA’s largest programs for
Overview of GSA’s                        providing goods and services to federal agencies. In fiscal year 1996, GSA’s
Supply Schedules                         sales through the schedules program accounted for about 72 percent, or
Program                                  about $4.8 billion, of the approximately $6.6 billion in agency purchases
                                         through GSA’s schedules, stock, and special order programs. As shown in
                                         figure 1.1, fiscal year 1996 stock program sales of about $579 million
                                         accounted for only about 9 percent of GSA’s sales, while fiscal year 1996
                                         special order program sales of about $1.3 billion accounted for only about
                                         19 percent of GSA’s sales.


Figure 1.1: Fiscal Year 1996 Sales for
GSA’s Schedules, Stock, and Special
Order Programs                                                                 Schedules program
                                                                               ($4.8 billion)




                                                        72.4%


                                                                        8.7%   Stock program
                                                                               ($579 million)
                                                                18.9%




                                                                               Special order
                                                                               program ($1.3 billion)

                                         Source: GSA.




                                         Products from the supply schedules program are available on single-award
                                         schedules, multiple-award schedules, and new introductory product
                                         schedules, depending on the commodity. Single-award schedules consist
                                         of contracts with one vendor for the delivery of a particular product or
                                         service to a specified geographic area. Prospective vendors compete for
                                         the GSA contract to provide the product or service to government agencies,
                                         normally at the lowest price. Multiple-award schedules consist of
                                         contracts awarded to more than one vendor for comparable (but not
                                         necessarily identical) commercial supplies or services for delivery within
                                         the same geographic area. New introductory product schedules provide
                                         the means for new or improved products to enter the federal supply



                                         Page 15                                      GAO/GGD-97-33 Cooperative Purchasing
Chapter 1
Introduction




system. Once a vendor’s product is accepted for inclusion on a new
introductory product schedule, if sufficient demand for that item is
generated after a 3-year period, the item is to be transferred to one of GSA’s
other supply programs.

GSA’s Federal Supply Service negotiates and awards contracts for products
and services available through the majority of federal supply schedules.
The Service issues solicitations, receives offers from prospective vendors,
negotiates with them on product and service prices as well as terms and
conditions of sale, and awards the contracts.5 The contracts are
indefinite-delivery contracts that give vendors the right to sell goods and
services to the government during the period of time that the contract is in
effect.6 Contracts commonly are in effect for more than a 1-year period.
Federal agencies order products and services directly from a vendor and
pay the vendor directly. In fiscal year 1996, there were 146 schedules.7 GSA
has responsibility for managing 133 schedules, and it has given the
Department of Veterans Affairs (VA) responsibility for managing 13
schedules, including the schedule for pharmaceuticals and 12 schedules
for medical equipment, devices, and supplies and certain food items, such
as cookies and cereals. Fiscal year 1996 sales through VA’s schedules
totaled about $1.9 billion.

A large number of vendors negotiate contracts with the Federal Supply
Service or VA in order to provide products to federal agencies. Vendors
include businesses that manufacture products as well as dealers or
distributors that sell and service products. In fiscal year 1996, GSA had
about 5,300 contracts with vendors that supply goods or services either
through its single-award or multiple-award schedules, while VA had about
1,257 contracts. About 74 percent of these contracts were with small
businesses. (See app. I for a listing of the 146 schedules as well as sales
made through the schedules to large and small vendors.)

The supply schedules program provides several advantages to both federal
agencies and vendors. For example, agencies have the option of ordering

5
 Terms and conditions of sale can include such factors as delivery and payment requirements,
warranty requirements, timing of price increases, and functions performed for the government by the
vendor. According to the Acquisition Management Center Director, these terms and conditions can
vary by vendor and by product.
6
 The Acquisition Management Center Director said that GSA is in the process of converting contracts
to multiyear contracts. However, these contracts, like most other federal contracts, can be amended at
any time.
7
 The number and identity of schedules can vary from year to year due to the creation of new
schedules, the elimination of old schedules, and the merging of schedules.



Page 16                                                  GAO/GGD-97-33 Cooperative Purchasing
                           Chapter 1
                           Introduction




                           small quantities of commonly used goods and services without using the
                           traditional procurement process. Also, agencies know that GSA is
                           responsible for ensuring that all procurement regulations have been
                           followed in awarding the schedules contracts and making items available.
                           For example, multiple-award schedules conform to the requirements of
                           the Competition in Contracting Act and are competitive in that
                           participation has been open to all responsible sources.8 In addition, prices
                           negotiated by the Federal Supply Service and the vendors are to be based
                           on each vendor’s best discounts within certain categories of customers
                           and sales information on top-selling items within product or service
                           groups. Vendors also benefit because their commercial products are
                           exposed to a large number of potential customers. Also, the vendors
                           expend less effort to sell products to federal agencies if their items are
                           available through the schedules program because of the reduced
                           paperwork. For example, a business would not have to prepare a separate
                           offer in response to agency solicitations for every federal agency it wants
                           to supply.


Recent Changes to the      Since 1994, GSA has taken several actions that were intended to make it
Federal Schedule Program   easier for federal agencies to obtain commercial goods and services
                           through its supply schedules program. For example, GSA has simplified
                           ordering procedures to reduce the amount of paperwork involved. In
                           addition, agencies have the option of placing orders of $2,500 or less with
                           any schedule vendor of their choice. Also, when placing orders of more
                           than $2,500, agencies are no longer required to fully justify when an item is
                           not purchased at the lowest price. Instead, agencies are to review at least
                           three price lists or consider other alternatives on the schedules. To further
                           simplify ordering through the schedules program, GSA is in the process of
                           deploying an electronic ordering system for customer access to the full
                           range of GSA supplies and services. GSA plans to have this system, which is
                           to be available through the Internet, fully operational by the end of fiscal
                           year 1997.9 GSA is also making the use of the supply schedules program
                           optional on the part of all executive branch agencies and is eliminating
                           mandatory use provisions in its contracts. In addition, GSA is requesting
                           that vendors be as expeditious as possible and identify items that can be
                           delivered faster than both normal and expedited delivery times. Vendors
                           are also requested to identify items that can be delivered overnight or
                           within 2 days. Maximum order limitations are also being removed, and GSA
                           has developed new procedures allowing vendors to accept “any size”

                           8
                            41 U.S.C. 253.
                           9
                            Under GSA’s plan the system will not include schedules for which VA is responsible.



                           Page 17                                                  GAO/GGD-97-33 Cooperative Purchasing
                           Chapter 1
                           Introduction




                           order. In addition, customers are encouraged to request price decreases
                           from vendors before placing orders exceeding a certain size. Also, vendors
                           are allowed to offer individual agencies price reductions without passing
                           these reductions on to all other federal agencies.


Other Organizations Have   The federal supply programs were initially for use primarily by federal
Been Authorized to Use     agencies and the District of Columbia. However, since 1949, Congress has
GSA’s Services             authorized a variety of other entities to use GSA’s procurement services,
                           including the federal supply schedules. For example, the Foreign
                           Assistance Act of 1961 provides that the president may authorize certain
                           countries, international organizations, the American Red Cross, and
                           voluntary nonprofit relief agencies to use GSA’s sources of supply.10 Many
                           Indian tribal governments also have been authorized to make purchases
                           from GSA under the Indian Self-Determination and Education Assistance
                           Act of 1975.11 In 1978, Gallaudet College, Howard University, and certain
                           other charitable institutions or nonprofit organizations;12 as well as fire
                           fighting organizations cooperating with the Forest Service,13 were
                           authorized to make purchases through GSA. In 1992, Congress provided the
                           governments of American Samoa, Guam, the Northern Mariana Islands,
                           the Trust Territory of the Pacific Islands, and the Virgin Islands the
                           authority to make purchases through GSA.14 In 1993, Congress authorized
                           law enforcement agencies involved in counter-drug activities to make
                           purchases through GSA.15


                           The 1993 report of the National Performance Review (NPR) recommended
The Federal                that state and local governments, grantees, and certain nonprofit agencies
Cooperative                be allowed to use federal supply sources.16 In addition, NPR recommended
Purchasing Program         that federal agencies be allowed to enter into cooperative agreements to

                           10
                             Public Law 87-195, Sept. 4, 1961.
                           11
                             Public Law 93-638, Jan. 4, 1975.
                           12
                             Public Law 95-355, Sept. 8, 1978.
                           13
                             Public Law 95-313, July 1, 1978.
                           14
                             Public Law 102-247, Feb. 24, 1992.
                           15
                             Public Law 103-160, Nov. 30, 1993.
                           16
                              See From Red Tape to Results: Creating a Government That Works Better & Costs Less, report of the
                           National Performance Review, Vice President Al Gore, Sept. 7, 1993; and Reinventing Federal
                           Procurement: Creating a Government That Works Better and Costs Less, accompanying report of the
                           National Performance Review, Sept. 7, 1993. See also Management Reform: Implementation of the
                           National Performance Review’s Recommendations (GAO/OCG-95-1, Dec. 5, 1994).



                           Page 18                                                 GAO/GGD-97-33 Cooperative Purchasing
Chapter 1
Introduction




share state and local government supply sources. The basis for the
recommendation was the belief that consolidated government
procurement actions tend to maximize the economic advantage of volume
buying with lower costs to the taxpayer. The concept of cooperative
purchasing was not unique to NPR. Cooperative purchasing has existed in
varying forms since at least the 1930s when various governments started
joining forces for the purposes of making intergovernmental cooperative
purchases. In addition to the tangible benefit associated with cost savings,
other benefits cited by members of such cooperative purchasing groups
include the exchange of procurement information.

NPR’s report noted that even though federal agencies, the District of
Columbia, and some other organizations were authorized by law to use
federal supply sources, state and local governments generally were not
authorized to use them. The report concluded that allowing governments
to enter into agreements to use one another’s contracts would reduce
administrative staffs and costs and that all levels of government would be
able to negotiate better prices as a result of the increased volume of sales
under the contracts.

A cooperative purchasing program that would allow state, local, the
Puerto Rican, or Indian tribal governments to use the federal supply
schedules was enacted as section 1555 of FASA, which amended the
Federal Property and Administrative Services Act. The section provided
GSA with considerable discretion on the way the program is to operate and
the specific federal supply schedules it may authorize these governments
to use. The section also allowed GSA to charge state, local, Indian tribal, or
Puerto Rican governments a fee for any administrative costs it incurs by
allowing these governments to use the schedules. FASA stipulated,
however, that these governments are not authorized to use GSA’s stock
program. At the time that the provision was being considered by Congress,
little debate occurred over any possible adverse effects of allowing state
and local governments the use of GSA’s schedules program.

On April 7, 1995, GSA published a Federal Register notice that presented
and requested comments on its proposed implementation plan for section
1555.17 As proposed, GSA planned to make the schedules available to the
authorized governments upon their requests unless a determination was
made by the GSA contracting officers responsible for specific schedules
that it would not be appropriate to do so. For example, schedules would
not be made available to nonfederal users if doing so would raise prices

17
  Federal Register, Vol. 60, No. 67, Apr. 7, 1995, pp. 17764 - 17769.



Page 19                                                       GAO/GGD-97-33 Cooperative Purchasing
Chapter 1
Introduction




that federal agencies pay for items on those schedules. Under GSA’s
proposal, individual schedule vendors would be able to elect whether or
not to make the products or services they sell through the schedules
available to authorized nonfederal users. If vendors elect to make products
available to nonfederal users, GSA officials said that this could be
accomplished by modifications to their existing contracts. GSA planned
that these nonfederal users would place orders directly with supply
schedule vendors. As authorized by FASA, GSA also planned on charging the
governments an administrative fee for the use of the schedules as GSA
converts the supply schedules program from a federally appropriated
program to an operation funded by fees charged for services. The
administrative fee was to be included in the vendors’ prices for each
schedule item. Vendors, in turn, would transfer fees collected to either GSA
or VA.18

GSA does not envision that the supply schedules program, or items
available through that program, would change significantly as a result of
the cooperative purchasing program. In its April 1995 Federal Register
notice, GSA cautioned that schedule contracts would be established only to
meet the needs of federal agencies, and only to the extent that nonfederal
users had a need for the same items or services would they be authorized
to use the schedule contracts. GSA officials subsequently told us that GSA
would determine, on a case-by-case basis, which schedules should be
available to nonfederal users, taking into consideration the potential effect
that opening up the schedule may have on the federal government.
According to these officials, if allowing state or local governments the
option of using a schedule could result in increased prices to federal
agencies, GSA would not make the schedule available to nonfederal users.

In its Federal Register notice, GSA announced that it had determined that
two schedules—one for drugs and pharmaceutical products and one for
medical equipment and supplies (in vitro diagnostic substances, reagents,
test kits and sets)—should not be made available for use by nonfederal
users because it would not be in the interest of the federal government.
GSA based its determination on VA’s recommendation that these schedules
not be made available because of unique statutory requirements imposed
by the Veterans Health Care Act of 1992,19 which, according to GSA’s
Federal Register notice, would result in increased prices for products on


18
 Currently, GSA’s administrative fee is 1 percent of the cost of the schedule item ordered, while VA’s
administrative fee is 1/2 percent.
19
  Public Law 102-585, Nov. 4, 1992.



Page 20                                                   GAO/GGD-97-33 Cooperative Purchasing
                         Chapter 1
                         Introduction




                         these two schedules. The potential effects of opening the pharmaceutical
                         schedule on drug prices will be discussed in a separate GAO report.

                         Following enactment of FASA, concerns emerged from several industries
                         that because of either their market structure or other factors, they would
                         be subject to adverse effects, such as lost sales, from cooperative
                         purchasing. The Clinger-Cohen Act of 1996 suspended GSA’s authority to
                         implement the cooperative purchasing provision of FASA.20 The 1996 act
                         also mandates that we report on the implementation and effects of
                         cooperative purchasing and that we submit a report to both GSA and
                         Congress within 1 year of enactment. The 1996 act further requires GSA to
                         submit comments to Congress on our report within 30 days. GSA’s
                         authority to implement the cooperative purchasing program under section
                         1555 of FASA is suspended by the 1996 act until 18 months after the act’s
                         enactment or until 30 days after GSA’s comments on our report are
                         submitted to Congress, whichever is later.


                         The objectives of this report were to assess:
Objectives, Scope,
and Methodology      •   the potential effects of cooperative purchasing on state and local
                         governments, the government of the Commonwealth of Puerto Rico,
                         Indian tribal governments, and federal agencies;
                     •   the potential effects of cooperative purchasing on industry, including
                         small businesses and local dealers; and
                     •   GSA’s plans to implement the cooperative purchasing program.


                         The Clinger-Cohen Act of 1996 mandated that our report include
                         assessments of the potential effect of the cooperative purchasing program
                         on (1) state and local governments, the government of the Commonwealth
                         of Puerto Rico,21 and Indian tribal governments; and (2) industry, including
                         small businesses and local dealers. The Conference Report accompanying
                         the 1996 act further directed that we include an assessment of the effects
                         on costs to federal agencies of state and local governments’ use of the
                         federal supply schedules.

                         To assess the potential effect of the cooperative purchasing program on
                         state, local, and Indian tribal governments and on federal agencies, we

                         20
                          Public Law 104-106, Feb. 10, 1996. This act was originally the Federal Acquisition Reform Act of 1996
                         and was renamed by section 808 of Public Law 104-208; Sept. 30, 1996.
                         21
                          Henceforth, this report will include the government of the Commonwealth of Puerto Rico within the
                         phrase “state and local governments” to simplify presentation of collective data.



                         Page 21                                                   GAO/GGD-97-33 Cooperative Purchasing
Chapter 1
Introduction




collected and reviewed data that described the procurements and
procurement methods that each level of government used. To assess the
potential effect on state governments, we conducted a September 1996
nationwide survey of states and territories to obtain information on state
laws or practices that would encourage or inhibit states’ use of the federal
cooperative purchasing program and the extent to which they would use
the program and for what purposes. Responses were obtained from 48
states and 2 territories. We did not attempt to verify the responses made
by state officials or the reasons given for their responses about their
potential use of the federal supply schedules program. (App. II provides
the results of this survey.) We also contacted associations that represent
state and/or local governments, including the National Association of State
Purchasing Officials, to obtain their members’ views on the cooperative
purchasing program and to obtain any relevant data these associations had
on the potential effect of the program. We obtained and reviewed available
data from a nationwide survey conducted by the National Association of
State Purchasing Officials in 1992 that asked whether the laws in the
individual states would allow the use of the federal supply schedules;
whether state purchasing officials expected to use the cooperative
purchasing program; and what, if any, advantages and disadvantages these
officials saw in the program. (App. III provides a listing of all associations
whose views we obtained.) In addition, we reviewed comments made by
state and local governments in response to GSA’s April 1995 Federal
Register notice.

To more fully understand factors that may influence state and local
governments’ decisions on whether to make purchases through the federal
cooperative purchasing program, we contacted 29 purchasing officials in
California, Montana, New York, West Virginia, and Puerto Rico to obtain
information on procurement practices.22 We selected these states with a
view to obtaining diversity in geographic location and size, as well as in
size of population. In addition to obtaining information from each state’s
and Puerto Rico’s central purchasing offices, we selected 24 program
agencies in the 4 states. These agencies included each state’s
transportation department, a state university or university system, plus an
agency suggested by the state procurement agency from which to obtain
information. These program agencies also included three local government
agencies so that we could provide similar information on those local
agencies’ purchasing requirements and practices. We selected the program
agencies to ensure a range of potential users of a cooperative purchasing

22
 Although we contacted 29 agencies’ purchasing officials, we were able to obtain information on
procurement practices from only 26 agencies.



Page 22                                                  GAO/GGD-97-33 Cooperative Purchasing
Chapter 1
Introduction




program. We selected the local government program agencies, in
consultation with state purchasing officials, to include both large and
small local government entities. Our selection was not designed to
produce a statistically valid sample of state and local government agencies
that would be eligible to participate in a cooperative purchasing program.
The purpose was to supplement our other information and provide an
indication of the factors that would influence state and local agencies’
decisions on whether to use the federal cooperative purchasing program.

In addition, we asked state and local officials in these four case study
states if their procurement laws or policies would allow them to use the
federal cooperative purchasing program and, if not, the nature of their
procurement laws or policies that would prohibit or limit their use of the
program. Although we did not attempt to determine if the views of the
state and local officials regarding these laws and policies in these four
states were necessarily correct, we did review the laws to understand the
basis for their positions. We also obtained their views on whether they
wanted access to the federal supply schedules and the reasons for their
views. Further, we contacted the Puerto Rican Government’s central
purchasing office to obtain Puerto Rico’s views on the cooperative
purchasing program and information on its laws that may affect its use of
the program.

To determine the extent that state or local governments could or would be
likely to use the program, we conducted case studies in the four states. We
asked the 24 selected program agencies to provide procurement
documentation (i.e., invitations for bids, contracts, purchase orders,
invoices, etc.) used to make recent purchases. We asked that these
purchases reflect items that the agencies were interested in purchasing
through GSA, because the items were (1) routinely purchased (i.e., high
volume); (2) consumed a large portion of the procurement budget (i.e.,
high-dollar volume); (3) difficult to procure; or (4) available through GSA’s
schedule program, and the state or local agency believed the GSA vendor
may be a better source. We received procurement documentation from 16
of the 24 agencies. We did not determine why the agencies selected the
purchases for which they provided us documentation. We provided the
procurement documentation to GSA, which had its contracting officers
determine whether the same or comparable items were available through
GSA’s supply schedules program and, if so, how GSA’s contract terms and
conditions of sale, including price, compared to the terms and conditions
of sale obtained by state and local agencies. We did not verify GSA’s
determinations. (App. IV presents the results of this comparison.)



Page 23                                    GAO/GGD-97-33 Cooperative Purchasing
Chapter 1
Introduction




Although the items represented by the procurement documentation
obtained from state and local agencies do not comprehensively represent
the types of goods or services these agencies could or would purchase
through the federal cooperative purchasing program, they do provide an
indication of the experience state and local agencies may encounter when
considering making such purchases. Neither we nor GSA determined if the
quantity of items purchased by individual state or local agencies was more
than or less than vendors’ maximum order limits, and hence potentially
eligible for additional discounts from the vendors’ list prices, or whether
actual prices paid by federal agencies were less than schedule prices.

To better understand how state and local law enforcement agencies have
used a similar program that has given them access to federal supply
schedules to support state and local drug enforcement activities, we
contacted state officials in seven states. We selected them either because
they participated in GSA’s pilot for this program or because of their
geographic location. We asked these officials to describe their use of the
program, including their experiences with the availability and prices of
products on the federal supply schedules. In addition, to obtain similar
information we contacted a purchasing official in the Virgin Islands, who
already had access to federal supply schedules, and representatives of
several cooperative purchasing arrangements under which state or local
governments have agreed to pool their purchases of certain products.

We also used the Input-Output Accounts for the U. S. economy provided
by the Department of Commerce’s Bureau of Economic Analysis to
provide data on the types of goods and services that state and local
governments purchase and to compare their purchases with nondefense
federal purchases. The Input-Output Accounts show the relationship
among all industries in the economy (including the various levels of
government) and all the commodities that they produce and use. We used
these data to indicate the pattern of industry purchases made by the
federal, state, and local governments and to determine the extent to which
these governments’ patterns of purchases are similar or different. We also
used these data to indicate the extent to which state and local
governments purchase items from industries whose products might be
available on federal supply schedules.

We used these national data at an aggregate level to get a general
indication rather than a precise measure of the pattern of federal, state,
and local purchases among industry groups. We did not use these data to
provide a precise measure of the relationship between the various levels of



Page 24                                   GAO/GGD-97-33 Cooperative Purchasing
Chapter 1
Introduction




government and the industries that might be affected. First, the
Input-Output accounts are organized along industry classifications that
differ from those of GSA’s supply schedules. Second, as the Bureau of
Economic Analysis notes, the most recent data in the Input-Output
accounts are for 1987 and the patterns of purchases could have changed
since that time. Our use of these data entails an assumption that there
have not been major changes in interindustry relationships (including
those between state and local governments and industries that supply
these governments). We believe this to be a reasonable assumption given
our use of the data for describing, in general terms, state and local
purchases and comparing them with federal purchases.

To assess the potential effect of the cooperative purchasing program on
Indian tribal governments, we discussed the use of the federal supply
schedules by Indian tribal governments with Bureau of Indian Affairs (BIA)
officials in the Department of the Interior and with GSA officials. We also
contacted three Indian tribal governments that have entered into
agreements with the federal government to assume responsibility for
programs that would otherwise be the responsibility of the federal
government to determine whether these tribal governments have used
their existing authority to use GSA as a source of supplies and services. We
selected tribal governments on the basis of a BIA official’s recommendation
that, as large tribes, these were likely to be among the heaviest users of
GSA’s supply programs and thus the most knowledgeable about GSA’s
programs. Although the tribal governments sampled do not represent all
Indian tribal governments, they do provide an indication of Indian tribal
procurement procedures and practices by Indian tribal governments that
have entered into such agreements.

To assess the potential effect of the cooperative purchasing program on
costs to the federal government, we obtained information from the
Departments of Defense, Health and Human Services, the Interior, Justice,
and VA to determine whether they had conducted any assessments of the
program and what effects they identified as likely. These departments
were selected on the basis of their being among the largest users of GSA’s
schedules program. In addition, we obtained the views of GSA’s Acquisition
Management Center and VA on the effect of opening up the supply
schedules on schedule vendors and federal agencies purchasing through
the schedules program.

To assess the potential effect of the cooperative purchasing program on
industry, including small businesses and local dealers, we analyzed data



Page 25                                    GAO/GGD-97-33 Cooperative Purchasing
Chapter 1
Introduction




from the Department of Commerce’s Input-Output Accounts (discussed
previously) to estimate the government share of total sales for industry
groups. We used these data to provide an indication of the extent to which
various broadly defined industry groups rely on sales to the federal, state,
or local governments rather than as a precise measure.

We also obtained information from industry associations, including those
that represent small business, to identify factors that may affect those
industries; these associations included the American Small Business
Association, the Environmental Industry Association, the Health Industry
Manufacturers Association, and the National Retail Federation. (See app.
III.) In addition, we selected vendors from selected GSA schedules to obtain
vendors’ views on the potential effect of allowing nonfederal agencies to
purchase through the federal cooperative purchasing program. We
selected schedules on the basis of GSA officials’ views that nonfederal
governments would have high interest in procuring products on them.
These schedules included the computer schedules (including the
telecommunications equipment schedule and the microcomputers
schedule); special industry machinery schedule (copying equipment,
supplies, and services); and furniture systems schedule. We also selected
schedules and vendors in industries where associations representing the
industry have informed GSA or us that they would or could be negatively
affected should specific schedules be made available to nonfederal
agencies.

We also reviewed public comments GSA received from industry in response
to its April 1995 Federal Register notice and contacted several businesses
and trade associations that expressed concern over GSA’s proposed plan
for implementing the program. This group included dealers and
distributors of heavy equipment. We also contacted those companies that
supplied items to state and local governments, which were identified
through procurement documentation provided by state and local agencies
(as described above), to obtain their views on how the program could
affect sales their companies made to state and local agencies. Even though
the industry groups and the companies contacted do not represent all
industry groups or all companies, these groups and companies do provide
an indication of possible effects that businesses expect from the federal
cooperative purchasing program.

To assess GSA’s plans for implementing the cooperative purchasing
program, we held discussions with GSA’s Deputy Associate Administrator,
Office of Acquisition Policy; the Director, GSA’s Acquisition Policy Division;



Page 26                                     GAO/GGD-97-33 Cooperative Purchasing
Chapter 1
Introduction




the Assistant Commissioner, Federal Supply Service, Office of Acquisition;
the Assistant Commissioner, Federal Supply Service; the Director,
Acquisition Management Center, Federal Supply Service; as well as the
director of GSA’s automotive center and contracting officers for the
selected schedules mentioned previously. In addition, we contacted
contracting officers for several schedules, including those schedules for
which companies informed GSA that they would be negatively affected
should specific schedules be made available to nonfederal agencies. We
also talked with representatives of VA’s National Acquisition Center, which
has primary responsibility for the pharmaceutical and medical equipment,
supplies, and devices schedules, including Division Chiefs for 13
schedules.

We recognize that there are limits to our ability to predict the effects of
opening the supply schedules on state and local governments or on
industry. Part of the limitations stem from the unavailability of data. For
example, except for VA’s Pharmacy Prime Vendor programs, the various
agencies generally do not have the detailed expenditure data that readily
indicate what and how goods and services are purchased, and we do not
have access to nonfederal contractors’ records. However, even with these
data, we would not be able to predict how state and local governments
would choose to utilize these schedules, how industry would respond to
any changes in state and local purchasing arrangements, or how contract
terms would change.

We requested comments on a draft of this report from the Acting
Administrator of GSA and the Secretary of the Department of Veterans
Affairs; the Coalition for Government Procurement, which represents
businesses supplying about 75 percent of federal purchases through the
schedules program; and the National Association of State Purchasing
Officials, which serves the purchasing administrators in the 50 states and
U.S. territories. The Acting Administrator of GSA, VA’s Deputy Assistant
Secretary for Acquisition and Materiel Management, and the Chair and
Co-chair of the National Association of State Purchasing Officials’
Federal/State Relations Committee provided written comments, which are
included as appendices V, VI, and VII of this report, respectively. The
Executive Director and other representatives of the Coalition provided
oral comments to us on January 9, 1997. Comments from these agencies
and organizations are discussed at the end of chapters 2, 3, 4, and 5, as
appropriate.




Page 27                                    GAO/GGD-97-33 Cooperative Purchasing
Chapter 1
Introduction




We conducted our work from July to December 1996 in accordance with
generally accepted government auditing standards.




Page 28                                GAO/GGD-97-33 Cooperative Purchasing
Chapter 2

Several Factors Are Likely to Limit Potential
Benefits to Nonfederal and Federal Users

                              Many state and local governments we contacted want access to the federal
                              supply schedules because they perceive potential benefits from the use of
                              cooperative purchasing. However, these potential benefits may be limited
                              because of (1) state or local laws, ordinances, or policies that direct how
                              or where state or local purchases can be made; (2) the unavailability of
                              needed goods or services through the schedules program; (3) higher costs
                              or unattractive sales conditions for goods or services through the program;
                              and (4) the need for nonfederal governments to maintain capacity to
                              purchase items they do not buy from the schedules program. The federal
                              cooperative purchasing program is not likely to have a substantial effect
                              on Indian tribal governments because many tribes already have access to
                              GSA’s federal supply schedules for many of their programs.


                              Although GSA believes the cooperative purchasing program has the
                              potential to result in lower schedule prices because of the increased sales
                              that GSA vendors may be able to make through the program, the extent to
                              which this will happen is unclear because of many factors, including those
                              that may limit nonfederal government agencies’ use of the program and
                              uncertainty over how many businesses will react. Given GSA’s plan to not
                              open schedules when adverse effects on federal agencies are anticipated,
                              there appears to be little risk that federal agencies will be adversely
                              affected if GSA effectively implements the program.


                              Most state and local governments we contacted indicated that they want
State and Local               the option of using the GSA supply schedules. State and local government
Governments                   officials we contacted said that such an option would provide several
Perceive Potential            potential benefits, including the ability to obtain more competitive prices,
                              a wider selection of goods and services, reduced purchasing turnaround
Benefits                      times and administrative time and costs, and additional negotiating
                              leverage with their traditional suppliers.


Nonfederal Governments        The results of our nationwide survey of state purchasing officials, as well
Want Access Because They      as discussions with 26 state, local, and Puerto Rican government
Perceive Potential Benefits   purchasing officials, indicate that these state and local governments are
                              generally in favor of having GSA supply schedules available for their use
                              because of perceived benefits. Similarly, in its January 1997 report, GSA
                              found that state and local governments want access to the federal supply
                              schedules because of perceived benefits.1

                              1
                              Cooperative Purchasing: Better Pricing and Administrative Ease Are Key Reasons for State and Local
                              Governments in Using GSA Federal Supply Schedules, GSA, Jan. 1997.



                              Page 29                                                 GAO/GGD-97-33 Cooperative Purchasing
Chapter 2
Several Factors Are Likely to Limit Potential
Benefits to Nonfederal and Federal Users




In response to our survey, 34 of the 48 states and two territories that
responded to our survey, including Puerto Rico, indicated that they would
use the federal schedules program for making purchases. Even if the
program were not used for making purchases, of the 50 respondents, 38
said they would use the schedules for price comparisons; 24 said they
would use the schedules for benchmarking;2 and 15 said they would use
the schedules to negotiate with vendors. It is important to note that many
states may already have access to schedules information, including
through the Internet, and may already be using the schedules for these
three purposes.

In addition to our nationwide survey, we contacted purchasing officials in
29 agencies in California, Montana, New York, Puerto Rico, and West
Virginia to obtain their views on the federal cooperative purchasing
program. We also reviewed comments GSA received from state or local
agencies in response to its Federal Register notice. Of the 26 agencies’
purchasing officials who responded to our information requests, all 26 said
they favored having access to the federal supply schedules. Purchasing
officials from seven of the agencies said that the supply schedules offer
the potential for obtaining lower prices on popular items they purchase,
such as computers, furniture, and office equipment. For example, the
Assistant Director of Facilities for the West Virginia Office of Higher
Education stated that the supply schedules would complement what state
colleges and universities are already doing by providing them an additional
source of potentially lower prices that could result in better use of state
funds. The Business Service Officer for the California Highway Patrol said
the agency would benefit because some of GSA’s prices would be lower
than those the agency can obtain, and knowing that it has access to GSA
vendors will force the agency’s current contractors to be more competitive
and possibly lower their prices. In comments on GSA’s Federal Register
notice, the Purchasing and Material Manager for the City of Chandler,
Arizona, stated that the federal cooperative purchasing program would
benefit cities such as Chandler because it cannot obtain prices as
favorable as GSA’s prices because of the smaller quantities it orders.

In addition, several state and local government officials said that having
the schedules available to them could provide them a greater selection of
items. For example, in comments to GSA, the Executive Director of the
Lexington-Fayette Urban County Housing Authority in Kentucky said that
it had a high interest in using the supply schedules to purchase commonly

2
 Benchmarking refers to the practice of using the terms and conditions of sale for an item available
through the schedules program as a standard to judge whether bids received in state solicitations are
reasonable.



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Chapter 2
Several Factors Are Likely to Limit Potential
Benefits to Nonfederal and Federal Users




used goods and services because small purchases could be simplified and
the choice of items increased because of the large number of GSA vendors.
He said his agency could benefit from the wide range of items available on
the schedules because virtually every GSA schedule other than medical,
dental, or laboratory contained items the housing authority used on a
regular basis. A purchasing official from the New York State Office of
General Services said state agencies can benefit from using the schedules
because they provide greater choice of products, brand names, and sizes.

Several state and local government procurement officials also said that
they could realize administrative savings of both time and money by
ordering through the federal supply schedules. For example, procurement
officials from Albany, New York, and Missoula, Montana, said that the
administrative functions and their associated costs could be reduced.
These functions and costs include the time and cost necessary to develop
formal solicitation packages; time and personnel costs to evaluate,
negotiate, administer, and award contracts; and, in some instances,
inventory costs to stock items. The Director of Purchasing for Puerto
Rico’s territorial purchasing agency said that the agency would not have to
spend as much time and money developing solicitations annually. Puerto
Rico currently awards over 120 competitively bid contracts with local
vendors, according to the director. In its comments on GSA’s Federal
Register notice, the city of Chandler, Arizona, estimated that in fiscal year
1995 it spent from $1,500 to $2,000 per contract to obtain bids for items
that were also available through the schedules program. The city
Purchasing and Material Manager told us these items included computers,
office supplies, janitorial supplies, plumbing, and electrical hardware.
Procurement officials from the New York State Office of General Services
and the city of Albany, New York, said that procurement lead times could
also be shortened for state and local governments because they would be
able to simply place a delivery order from an existing supply schedules
contract. An official from Louisiana State University commented that the
university could eliminate about 8 weeks from the time it usually takes to
receive and review bids on systems furniture for its Computing Services
Building if it could use the GSA contract on systems furniture.

GSA asked the National Institute of Governmental Purchasing, which is an
association of federal, state, and local government procurement officials,
to survey its members to determine members’ interest in participating in
the cooperative purchasing program. In its January 1997 summary of
survey results, GSA also found that the majority of respondents indicated
that they would participate in the program if it became available. Of the



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                        131 respondents, 111 indicated that they would participate, even though 31
                        respondents indicated local ordinances and laws may be a barrier. The
                        most cited reasons respondents gave for wishing to participate in the
                        program were better pricing and administrative ease. Some concerns,
                        however, were also cited about legal restrictions, quality, and price, as
                        well as the administrative complexity of using the federal supply
                        schedules. Schedules cited as being of most interest to respondents
                        include the computer, furniture, office equipment, office supplies, and
                        signs schedules. These schedules were each cited by more than 30
                        respondents. However, 15 respondents stated they were interested in all
                        schedules. Overwhelmingly, respondents indicated a strong desire for
                        some form of training on using the schedules—including video tape
                        training and Internet training. GSA noted that it has videos available for
                        training and would provide training programs.

                        U.S. Department of Commerce data suggest that state and local
                        governments could potentially benefit substantially from having access to
                        federal supply schedules depending on the extent to which they use them.
                        Commerce data for 1987 suggest that state and local governments
                        collectively spend substantially more for several of the types of items that
                        are available through the schedules than the federal government does. For
                        example, Commerce data show that state and local governments spent
                        $2.3 billion for paper and allied products in 1987 compared to about
                        $243 million in federal, nondefense expenditures.


                        Although purchasing officials from most states and the local agencies we
A Variety of Factors    contacted want to have the option of using the federal supply schedules,
Could Limit the         several factors could significantly limit the benefits they cited. These
Potential Benefits of   factors include (1) state or local laws, ordinances, or policies that direct
                        how or where state or local purchases can be made; (2) the unavailability
the Program for         of certain items or products through the federal supply schedules
Nonfederal Users        program; (3) the availability of lower prices or better terms and conditions
                        on items obtained from other sources, and (4) the likelihood that these
                        nonfederal governments would need to maintain the procurement capacity
                        to continue using their other supply sources for items they do not
                        purchase through the schedules.




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State Procurement Laws,   State or local competitive bidding laws, ordinances, and policies; the
Ordinances, or Policies   requirement to use state contracts; or preferences to use special groups of
May Limit Potential       vendors, such as local businesses, the disabled, or prisons, may direct how
                          or where state or local purchases can be made. These laws, ordinances,
Benefits                  and policies thus may limit the extent to which state or local agencies
                          would be able or would want to use the federal supply schedules program.
                          Because of this, the perceived benefits cited by local procurement
                          officials, such as the ability to obtain more competitive prices, a wider
                          selection of goods, and reduced time and costs, may be less than
                          otherwise expected. In response to our survey of state purchasing
                          officials, 28 of the 34 respondents who indicated that they would make
                          purchases from the supply schedules said that some law, ordinance, or
                          regulation would limit their use of the cooperative purchasing program. All
                          four of the states we contacted had competitive bidding requirements for
                          state agency procurements, and they generally mandated that state
                          agencies use existing state contracts. All four of the states also had
                          preference programs for unique vendor groups, such as local businesses,
                          the disabled, and the prison industry.

                          Although these types of requirements and preference programs would
                          limit state and local use of federal supply schedules, the possibility exists
                          that they could be changed in the future to allow greater use of federal
                          supply schedules by state and local governments.

Competitive Bidding       According to the National Association of State Purchasing Officials, in an
                          effort to obtain the lowest prices available, most state and local
                          government procurement statutes, ordinances, and rules provide that
                          procurements exceeding a specified dollar amount must be made through
                          formal competition, with public notices, sealed bidding, and public bid
                          opening. In its 1992 survey of states, the Association found that 46 states
                          had statutes requiring the procurement of goods or services by
                          competitive sealed bids. According to the survey, the dollar amount above
                          which competitive solicitation was required varied widely among states,
                          from $100 in one state to $50,000 in another. However, 17 states were
                          required to use competitive sealed bids for purchases exceeding $10,000,
                          and 9 states were required to use sealed bids for purchases exceeding
                          $5,000. The federal supply schedule programs are considered to be
                          competitive under the Competition in Contracting Act in that participation
                          in the program has been open to all responsible sources. Although some
                          states have amended their statutes to exempt purchases obtained through
                          the federal supply schedule program from competitive bidding
                          requirements of state laws, this is not the case in all states.



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                               As of September 1996, more than half of the states reported still having
                               restrictions that would limit their using the federal supply schedules. In
                               our survey, 27 of the 50 respondents indicated that state competitive
                               bidding requirements would limit their states’ use of supply schedules
                               programs. All four of the states included in our case studies said that they
                               had state bidding requirements that would limit their use of the supply
                               schedules program. Because state competitive bidding statutes apply only
                               to purchases that exceed specified thresholds, however, state and local
                               governments might be able to use GSA’s schedule program for purchases
                               that were below these thresholds and for other limited purchases. For
                               example, in its comments to GSA in response to the April 1995 Federal
                               Register notice regarding GSA’s plan to implement the cooperative
                               purchasing program, Kentucky said that its state law requires state
                               agencies to make aggregate purchases in excess of $5,000 through
                               competitive sealed bids. Because of this requirement, Kentucky said that
                               its agencies would be able to use the federal supply schedules only in
                               instances where competitive bidding could not be used, such as when only
                               one source of supply was available or an agency requested a specific
                               brand and no substitute was justifiable. Similarly, Salt Lake City, Utah,
                               commented that it could use the supply schedules only for small,
                               sole-source, and emergency purchases.

                               Comprehensive data are not readily available for us to estimate the
                               amount of state and local governments’ purchases that must be made
                               using state competitive purchasing requirements. However, in its 1992
                               survey, the National Association of State Purchasing Officials estimated
                               that 85 percent or more of state and local government expenditures
                               resulted from competitive solicitation.

Requirement to Use Statewide   Another factor that could limit state or local governments’ use of the
Contracts                      federal cooperative purchasing program is a requirement to use statewide
                               or local contracts. According to the National Association of State
                               Purchasing Officials, all states and most local governments consolidate
                               requirements and award contracts for the purchase of goods or services
                               for multiple users in order to reduce administrative costs associated with
                               the preparation and issuance of solicitations on the same or similar items
                               and the receipt, handling, and evaluation of the responses. Although the
                               use of these contracts may be optional for some state or local agencies,
                               the contracts may be mandatory for others. The 1992 National Association
                               of State Purchasing Officials survey found that the extent to which states
                               and local governments rely on statewide contracts varied. For example,




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state purchases through statewide contracts ranged from 5 percent of total
dollar volume to up to 90 percent.

Of the 50 respondents to our survey, 16 states indicated that they could
use GSA’s schedules program to procure items only if the items were not
available through other state procurement arrangements, such as
schedules. The four states included as our case studies also generally were
required to use statewide contracts. For example, the New York State
Office of General Services is the central procuring office for hundreds of
New York state agencies. It annually awards about 2,100 contracts with an
estimated purchasing value of $800 million. According to the Purchasing
Director, Office of General Services, New York state finance law requires
state agencies to first consider the use of the state contracts to acquire
commodities. State contracts for services and technology are available for
optional use. However, they are developed to specifically address the
needs of New York state agencies. In addition, the Purchasing Director
explained that the Commissioner of the Office of General Services is
authorized to approve the use by state agencies of a contract let by the
federal government. The Director said such approval would be the
procedure used to enable a New York state agency to use a federal supply
schedule that would be available under the cooperative purchasing
program. More than half of the contracts are available for use by about
3,100 eligible nonstate agencies, including local governments, school
districts, and fire districts. These agencies account for about 40 percent of
the purchases made under the statewide contracts.

However, even though a state may require state agencies to use statewide
contracts, exceptions may exist when agencies can demonstrate they can
obtain items elsewhere at a lower cost. In addition, the mandatory use of
statewide contracts may not always apply. The Purchasing Director for the
West Virginia Procurement Division said that even though state agencies
are generally required to use state contracts, if a state agency can
document that it can procure goods or services at a lower price elsewhere,
the Procurement Division will, upon request from a state agency, grant a
written waiver for the agency to do so. The Assistant City Manager for
Charleston, West Virginia, said that the city makes its purchases using
whatever methods or procedures will result in the lowest price. This could
include using a state contract. The Chief of Purchasing for the Raleigh
County Board of Education in West Virginia said that the board uses a
combination of purchasing methods, including the use of statewide
contracts, its own contracts, and spot purchases. According to this official,




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                     the driving factor determining which procurement method is used is
                     obtaining the lowest price.

Vendor Preferences   State and local laws, ordinances, or policies that provide for contracts to
                     be awarded on the basis of factors other than best price or best conditions
                     of sale could also limit the potential benefits of the cooperative purchasing
                     program. These include laws that direct contracts to local businesses or to
                     certain groups, such as prisons; preferences to support local businesses
                     over other businesses; and commitments to use cooperative contracts.

                     The National Association of State Purchasing Officials found in its 1992
                     survey that 15 states had laws mandating preference for in-state vendors,
                     and an additional 16 states had laws favoring products produced in-state.
                     In addition, it found that 45 states that award contracts to manufacturers
                     required that sales and services be rendered through local dealers. Of the
                     four states we contacted in our review, two had local vendor preference
                     statutes. According to the Business Manager for the West Virginia
                     Department of Transportation’s Division of Highways, West Virginia’s
                     vendor preference law provides in-state vendors with up to a 5 percent
                     price advantage over out-of-state vendors. In addition, if at least 75 percent
                     of an out-of-state vendor’s workforce is located within the state, the
                     vendor is given a 2.5 percent price advantage. Similarly, according to the
                     Chief of Procurement, Department of Administration, Montana’s vendor
                     preference law provides in-state vendors with a 3 percent price advantage
                     over out-of-state vendors. She explained that the Montana statute also
                     provides vendors a 5 percent price advantage for products produced in
                     Montana.

                     Some states have laws to direct purchases to certain groups, such as the
                     disabled or the prison system. Three of the four states included in our case
                     studies had such preferences. For example, New York’s priority system for
                     making purchases requires state agencies to first determine whether an
                     item or service is available from one of the state’s established preferred
                     sources, including Corcraft, New York State Department of Correctional
                     Services, Division of Industries; the Industries for the Blind of New York
                     State, Inc.; the New York State Industries for the Disabled; and the New
                     York State Office of Mental Health. State law requires that purchases be
                     made from one of the preferred sources when needed goods or services
                     meeting the form, function, and utility requirements of the agency are
                     available from those sources. Similarly, state officials told us that state
                     agencies in California and West Virginia that are purchasing goods made




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by the state prison industry must attempt to purchase these goods from
this industry before going to another source.

Even though there may not be state laws that direct that purchases be
made from certain groups, regardless of whether the price is competitive,
state and local governments may prefer purchasing products and services
from in-state or local vendors. Their reasons could include a need for
customer support services and/or the desire to support the local economy.
Of the 26 state and local agencies that provided information on their
procurement practices, three state and four local agencies said that a need
for customer support services or the desire to support the local economy
affected their procurement decisions. At the state level, the West Virginia
Department of Transportation’s Business Manager said that when
developing requests for bids, the Department assigns point values to such
things as vendor warranty, local vendor servicing, and local availability of
spare and repair parts, as well as to the bid price when awarding
contracts. An official of the University of California said that its campus
system prefers to patronize local businesses in the communities where
campuses are located because to do so helps support the local economy.
At the local level, the Finance Director for the city of Missoula, Montana,
said that all equipment the city purchases is from local sources because
the city cannot afford to send equipment out of Missoula for repairs. In
addition, the Purchasing Coordinator for the city of Elmira, New York,
said that although contracts are awarded strictly on the basis of price,
contract minimum requirements may stipulate that the vendor must
arrange for repair parts and servicing to be provided by dealers within 150
miles of the city.

The Director of Purchasing for the Puerto Rican government said that this
government also has a practice of purchasing locally. Puerto Rico may find
its potential use of the supply schedules similar to that of the Virgin
Islands. That territory has been able to use the schedules since 1992.
According to the Deputy Commissioner for the Virgin Islands Department
of Property and Procurement, the Virgin Islands uses the supply schedules
only for those items that its local vendors cannot supply. This is because
territorial vendors complain to their local legislators if the government
procures from businesses that are not on the island. As a result, most of
the Virgin Islands’ purchases are not made through the federal supply
schedules program, according to the Deputy Commissioner.




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Commitments to Use          Interstate and intrastate arrangements that state and local governments
Cooperative Contracts May   use to combine procurement needs and collectively procure items also
Reduce Perceived Benefits   have the potential to reduce the extent to which these governments
                            procure certain items through the supply schedules program. These types
                            of arrangements may require participating nonfederal governments to
                            combine the needs for specific items for the purposes of soliciting bids
                            and awarding contracts and to purchase those items through those
                            contracts. According to the Manager of Contracts and Administration for
                            the Metropolitan Washington Council of Governments, these arrangements
                            may result in lower prices than those arrangements where the needs of
                            participants are not combined for the purpose of soliciting offers. In its
                            1992 survey, the National Association of State Purchasing Officials found
                            that 42 states had statutory authorization for entering into cooperative
                            procurement agreements with different units of government, and 22 states
                            had statutory authority to enter into cooperative procurement agreements
                            with other states.

                            In our discussions with 26 state and local agencies’ procurement officials,
                            3 of the 4 states—Montana, New York, and West Virginia—indicated that
                            they were members of cooperatives. In our nationwide survey, 30 of 50
                            respondents indicated that they used cooperative purchasing agreements
                            with states, and 36 indicated that they used such agreements with local
                            governments. One example of a large-scale cooperative procurement
                            arrangement is the National Financial Services Center’s National
                            Cooperative Purchasing Alliance, which is affiliated with the National
                            Association of Counties and relies on county purchasing agents across the
                            nation to both select and bid on products and services on behalf of local
                            governments in the United States. One of the Center’s programs currently
                            uses the services of a number of purchasing entities across the country,
                            including Fairfax, Virginia; Los Angeles, California; Orange, Florida; and
                            Erie, New York. This program, which is in the early stages of development,
                            has resulted in the award of one contract for office supplies, many of
                            which may be available on federal supply schedules. Center officials said
                            that they had not compared their cooperative purchasing contracts with
                            those of GSA’s supply schedules. However, they believed that their
                            contracts were competitive with GSA’s.

                            Cooperatives also exist at the regional level. For example, the Washington
                            Council of Governments comprises 18 of the largest jurisdictions in and
                            around the Metropolitan D.C., area, including Fairfax, Loudon, and Prince
                            William counties in Virginia; Prince George’s and Montgomery counties in
                            Maryland; and the District of Columbia. According to the Manager of



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                              Contracts and Administration for the Council, as of September 1996, the
                              Council had about 20 or more cooperative solicitation contracts for the
                              purchase of such items as fuel oil (heating and diesel), road salt, and
                              antifreeze. Members who have pooled their demands for those products
                              must then use those contracts to purchase those products. The Council’s
                              Manager of Contracts and Administration said that items suitable for such
                              cooperative solicitations include those whose specifications are
                              established by industry, such as fuel oil, and have great pooled demand
                              among the governments. This official said that the Council had not
                              compared its cooperative contracts to GSA’s supply schedule contracts.
                              However, in general, he did not believe that having the option of using
                              GSA’s contracts would change local governments’ purchasing practices.
                              Similarly, a representative from a cooperative initiated by the city of Fort
                              Lauderdale and Broward County, Florida, said that the cooperative is able
                              to obtain highly competitive bids through the pooling of members’ needs.
                              Currently, the cooperative has about 23 members. Members have pooled
                              their demands to obtain such items and services as oils, greases, and
                              lubricants; photographic film; diesel fuel; gasoline; office supplies; sod;
                              brass valves and fittings; red clay for baseball fields; aggregate (for
                              construction); field marking paint; mail presort services; athletic
                              bleachers; paging services; uniforms; water testing; and trucks and vans.
                              Once a member agrees to participate in a contract, the member agrees to
                              purchase through the contract. Although this representative said that the
                              cooperative had not compared its contracts to GSA’s supply schedules
                              contracts, another cooperative representative said that the city of Coral
                              Springs and the cooperative use some GSA schedules for benchmarking
                              and price comparisons to determine if local vendors are quoting
                              reasonable prices. These representatives said that they would like the
                              option of using GSA’s schedules. One representative said that having the
                              option of using GSA’s schedules program would be convenient for making
                              those individual purchases that are sporadic in nature, where it would be
                              too costly to solicit for bids, or when local vendors may not be able to
                              supply city and county needs during times of a natural disaster.


The Unavailability of Items   Although more than 4 million items are available through the federal
Through the Federal           supply schedules program, not all items needed by state and local
Supply Schedule Program       governments would be available through the schedules. This could affect
                              (1) whether state and local governments make purchases through the
May Limit Benefits            schedules program and (2) the extent to which these governments would
                              incur benefits. We asked 24 state and local agencies in California, New
                              York, Montana, and West Virginia to provide invoices of recent purchases



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to compare prices with similar items on GSA supply schedules. Of the 24
agencies, 16 provided documentation for 255 items that they indicated that
they would be interested in buying through the supply schedules program.
Of the 255 items, GSA determined that 84 were not available. GSA was
unable to make a determination on whether 101 of the 255 items were
available because the agencies provided insufficient information for GSA to
make this determination.3 The fact that all goods and services needed by
state and local governments are not available through the schedules
program is not surprising, because GSA operates the schedules program to
meet federal, not state, needs.

State and local government agencies in California, Montana, New York,
and West Virginia said that they were interested in buying a wide variety of
items through the schedules program, including computers and computer
hardware, office equipment and supplies, laboratory equipment, airline
tickets, furniture, ammunition, asphalt, prestressed concrete beams and
culverts, road salt, paint, diesel fuel, tires, automobiles, and heavy road
maintenance equipment. Of the 154 items that state and local government
agencies said they were interested in buying and that GSA could make a
determination on whether the items were available through the federal
supply schedules, GSA identified 70 that were available through the
schedules program. Whether this would be true for all state and local
government needs is not known because our sample was not designed to
represent all potential users of the federal cooperative purchasing
program. Items that were available include selected computer printers,
certain types of computers, certain types of copiers, lawn mowers,
de-icing road salt, and certain kinds of office supplies. Items that were not
available include certain specific types of computers and computer
hardware, some airline tickets, ammunition, automobiles, certain specific
office equipment and supplies, asphalt, and diesel fuel. (App. IV contains a
summary of GSA’s determinations on availability and pricing of these items
on federal supply schedules.)

According to the Director of GSA’s Acquisition Management Center, these
items, as well as other items that state and local government agencies may
be interested in purchasing, may not be available through the schedules
program because the program is not intended to supply all federal
agencies’ needs and is not designed to meet state or local government
agencies’ needs. Rather, the program is intended to facilitate federal
agencies’ purchases of commercially available items that are purchased
frequently enough to warrant having them available through the schedules

3
 We did not attempt to collect additional information on the invoices or contracts for these 101 items.



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program. According to GSA officials, GSA will not be changing its basis for
determining what items are available through the schedules program in
order to accommodate state or local government agencies’ needs.

U. S. Department of Commerce data suggest that those items for which
state and local governments spend the most money are not available
through the federal supply schedules. For example, Commerce data for
1987 show state and local governments spending their largest amounts of
money on new construction, maintenance repair and construction, and
electric utilities services—none of which are available through the
schedules program. Of the items that accounted for the next two largest
amounts of funds—other business and professional services and
petroleum refining and related products—only a small portion of the
former and none of the latter are available through the schedules.

Experience among some law enforcement agencies that have been able to
purchase items through the federal supply programs since 1994 also shows
that some items are not available through the schedules program. Law
enforcement agencies may make purchases through the program if items
purchased are suitable for counter-drug activities. A North Carolina
official said that some items that state or local law enforcement agencies
want to purchase are on the schedules, while some are not. For example,
while purchasing a portable thermal imaging unit suitable for use on
helicopters, the state found that some of the components for the system
were available through GSA’s supply schedules, and some were not. The
state was able to purchase part of the system through the schedules
program and obtained competitive bids for the remainder of the system.
The North Carolina official said that the law enforcement agency that
purchased the system was able to obtain the entire system for $90,000.
Had GSA’s schedules not been available for the agency to obtain
components of the system, he estimated that the system would have cost
an additional $15,000.

Since GSA’s policy is that it will not make items available if doing so would
be contrary to the interests of its principal customers, which are federal
agencies, state and local agencies may continue to find some products
unavailable to them. In some cases, GSA may not make all schedule items
available; and in other cases, the schedules may not include items that
these nonfederal governments need. For example, GSA’s Federal Register
notice proposed excluding the pharmaceutical schedule and one medical
equipment and supply schedule from the cooperative purchasing program.
GSA also does not intend to make its airline or fire fighting vehicles




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                          schedules available through the cooperative purchasing program because
                          of its concern that doing so would lead to higher federal prices or adverse
                          effects on businesses. (See. ch. 3.)


Items Available Through   The extent to which items are available through the supply schedules
the Schedules Program     program but at higher prices than are available through other means or
May Be More Costly        with less desirable servicing or sales conditions will limit the potential
                          effect of the cooperative purchasing program on state and local
                          governments. Our case studies conducted as part of this review and
                          procurement work we have done previously demonstrate that GSA does not
                          always have the lowest price or the most favorable sales conditions.4

                          As part of our review, we asked GSA to compare its schedules’ offerings
                          with 255 items recently purchased by 16 state and local governments
                          included in our case studies. GSA found that although some items were
                          more favorably priced through the schedules program, others were not.5
                          Of 70 items that state and local governments said they would be interested
                          in purchasing that are available through the schedules program, 20 were
                          purchased by the state and local governments at lower sales prices or with
                          more attractive sales conditions than those of the schedules program, 47
                          items could have been purchased at lower prices through the schedules
                          program, and 3 items could have been purchased at the same price. For
                          example, the Raleigh County, West Virginia, Board of Education
                          purchased a Hewlett Packard Laserjet computer printer for $485; GSA’s
                          schedule price was $446, or 8.04 percent lower. The City of Mountain
                          View, California, purchased another type of computer printer (Laserwriter
                          16/600) for $2,046; the GSA schedule price was $2,104, or 2.83 percent
                          higher. Fairmont, West Virginia, State College purchased a computer
                          system upgrade for $510.75; GSA’s schedule price was $394, or
                          22.86 percent lower. The State of West Virginia purchased road de-icing
                          salt for $36.90 per delivered ton; the GSA schedule price was $42.75 per
                          delivered ton, or about 15.9 percent higher.

                          According to state purchasing officials, GSA may not always have the
                          lowest price. Of the 50 respondents to our survey, 33 indicated that they
                          had analyzed some GSA schedule prices. Of those 33 respondents, 13, or

                          4
                          See Multiple Award Schedule Contracting: Changes Needed in Negotiation Objectives and Data
                          Requirements (GAO/GGD-93-123, Aug. 25, 1993).
                          5
                           As noted previously, of the 255 items, 84 were not available through the federal supply schedules
                          program, and GSA was unable to make a determination on whether 101 other items were available
                          because insufficient information was included in the invoices and/or contracts for those items. We did
                          not attempt to collect additional information on these 101 invoices and/or contracts.



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about 39 percent, indicated that state prices were generally lower than
those available through GSA for the items they compared, while 2 states, or
about 6 percent, indicated that GSA generally had lower prices for the items
they compared. In addition, of the 33 respondents, 18, or about 55 percent,
said some state prices were higher and some were lower than GSA’s prices
for the items they compared. We did not ask state purchasing officials to
identify any specific items or prices they compared, nor did we verify their
responses.

Some officials we interviewed in the four states included in our case
studies also indicated that GSA’s schedule prices were not always lower
than their prices. For example, a purchasing director in the New York
State Office of General Services said that state contract prices are
frequently lower than GSA’s schedules prices. Also, the Chief of Purchasing
for the Raleigh County, West Virginia, Board of Education said that at
times he has compared GSA’s schedules prices to prices the board can
obtain locally and found that GSA’s schedule prices have generally been
higher. For this reason, he said that opening the federal supply schedules
for state and local governments will probably have little effect, even on
small local businesses. He said that state and local buyers are already
seeking the best match between the product or service they need or want
and the lowest price, and competitively bid prices are generally lower than
the prices GSA obtains.

States we contacted that are participating in GSA’s law enforcement
schedules program have had similar experiences. According to a North
Carolina official, prices are not always lower through GSA’s schedules
program, particularly with the administrative fee that is included on
schedules prices to pay for administrative costs.6 He said that law
enforcement agencies can, at times, find items through state contracts that
are less expensive, and having the supply schedules available would not
likely result in any state or local firms being put out of business because
the schedule prices are not always better. He also said that law
enforcement agencies frequently have many reasons to purchase locally
aside from price, such as the desire to support local businesses. According
to a West Virginia official, West Virginia has found that GSA’s prices are not
always the best prices. She said that statewide contracts or department


6
 Under the law enforcement schedule program, agencies pay a 4 percent administrative fee to
purchase items. (Under Public Law 103-160, this fee is to be set by the Secretary of Defense, and GSA,
in coordination with the Department of Defense, is to maintain catalogs for the schedule.) In contrast,
the Director of GSA’s Acquisition Management Center said that GSA would only charge a 1-percent fee
under the cooperative purchasing program. According to the Director, GSA can change the amount of
this fee depending on whether sufficient revenue is generated to pay for GSA’s administrative costs.



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                           contracts frequently are competitive with GSA’s prices. She explained, for
                           example, that the state of West Virginia and GSA both have contracts with
                           the same manufacturer for light bar assemblies, which are the racks used
                           to mount lights on top of police cruisers, and the state’s contract had a per
                           item cost of about $100 to $125 less than GSA’s list price. However, some
                           law enforcement agencies have realized savings through the federal supply
                           schedules. For example, according to the North Carolina Alcohol Law
                           Enforcement’s Deputy Director for Purchasing, the agency has purchased
                           radios as well as a camera through the program. He said that the agency
                           could not have afforded the camera except at the price available through
                           the schedules program. An official in California’s Counter Drug Activities
                           Procurement Program said that of the $360,000 in purchases made through
                           the program, it was estimated that about $60,000 had been saved. This
                           official said that departments can save about 33 percent off the prices of
                           such items as cameras and night vision goggles.

                           Our previous work has also shown that GSA’s prices may not always be the
                           best available to state or local governments. In 1993, we reported that
                           about half of the top-selling GSA multiple-award schedule items we
                           examined were less expensive when offered to the general public or
                           certain state governments than they were through the program.7

                           GSA has pointed out that a number of factors must be considered when one
                           makes price comparisons between the schedules program and other
                           supply sources. One is that federal purchases must comply with all federal
                           procurement laws. The Raleigh County, West Virginia, Board of Education
                           purchased a computer system for $1,455, but the GSA price for a
                           comparable system was $1,687. However, GSA said that the lower priced
                           system included a particular computer monitor that GSA could not offer
                           because federal acquisition of this item would not be in compliance with
                           federal international trade law. Another factor GSA cites is the terms of
                           sale. To illustrate this, GSA points out that all GSA prices on the office
                           supplies schedule provide for delivery to the customer’s desk within 24
                           hours of purchase, while state or local prices often require customer
                           pick-up. GSA pointed out that GSA schedule prices represent ceiling prices
                           and that customers are encouraged and permitted to contact schedule
                           contractors to negotiate lower prices when making a purchase.


Extent of Administrative   The extent to which state and local governments could reduce
Savings Unclear            administrative costs through a cooperative purchasing program is unclear.

                           7
                            GAO/GGD-93-123, August 25, 1993.



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                          Data compiled by the Center for Advanced Purchasing Studies at Tempe,
                          Arizona, indicate that the costs of procurement and, therefore, any costs
                          that state or local governments may save by purchasing through the
                          schedules program vary considerably. For example, the Center’s 1994
                          studies on purchasing performance benchmarks for state, county, and
                          municipal governments8 show that the cost to procure a dollar’s worth of
                          goods or services varied widely, ranging from fractions of a cent to 4 cents
                          of administrative costs per dollar of procurement. (We have not verified
                          these data or assessed reasons for this variability.) As chapter 1 notes, GSA
                          charges a 1-percent fee for purchases from schedule vendors, and VA
                          charges a 1/2-percent fee. Whether this fee will be more or less than the
                          expenses that nonfederal governments would still incur should they use
                          the federal supply schedules is unknown. Further, since nonfederal
                          governments would not likely be able to use the cooperative purchasing
                          program to meet all their procurement needs, these governments would
                          continue to have some administrative and personnel expenses for
                          procurement purposes. Moreover, the extent to which they could reduce
                          their administrative costs is also unknown.


                          Allowing Indian tribal governments to use the federal supply schedules
Effect on Indian Tribal   program would appear unlikely to have a substantial effect on many Indian
Governments Would         tribal governments because many of these governments already have the
Likely Be Minimal         authority to use not only GSA’s supply schedules program but its other
                          supply programs as well. The Indian Self-Determination and Education
                          Assistance Act of 1975, as amended,9 gives Indian tribes the authority to
                          contract with the federal government to operate programs serving their
                          tribal members, as opposed to having these programs administered by BIA
                          in the Department of the Interior and the Indian Health Service in the
                          Department of Health and Human Services. After entering into an
                          agreement to assume federal responsibilities, tribal governments receive
                          the authority to purchase items from federal supply schedules or from
                          GSA’s stock program, which has a range of items available in a nationwide
                          network of distribution centers. Since section 1555 of FASA does not
                          provide these tribal governments with any additional authority, the section
                          should have little or no effect on the tribal governments that have
                          contracted with the federal government to operate programs serving their
                          members. In fact, by allowing Indian tribal governments to purchase from


                          8
                            Purchasing Performance Benchmarks for State and County Governments, Center for Advanced
                          Purchasing Studies, 1994; Purchasing Performance Benchmarks for Municipal Governments, Center
                          for Advanced Purchasing Studies, 1994.
                          9
                           Public Law 93-638, Jan. 4, 1975.



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GSA customer service centers, the 1975 act provides these governments
with broader access to GSA procurement programs than would section
1555, which would allow nonfederal users to make purchases only from
federal supply schedules.

According to BIA officials, approximately 70 percent of BIA’s programs are
operated by tribes or tribal organizations. However, BIA and GSA do not
maintain data on the extent to which tribal governments use GSA’s
programs. According to BIA officials, although BIA may help a tribal
government that has assumed responsibility for federal programs set up an
account with GSA, BIA is not involved in any transactions between the tribal
government and the GSA schedule vendors. According to an official in GSA’s
customer support center, although GSA is aware that Indian tribal
governments have purchased items through GSA’s programs, including its
stock programs, GSA does not have data to measure the total sales to
Indian tribal governments or to indicate what products were purchased.

Officials from three tribal governments we contacted confirmed that their
governments use GSA’s supply programs, but they said that their reliance
on the programs varies because of the availability of items and the
competitiveness of supply schedule prices. These officials said that they
could not readily identify the share of their total purchases that were made
through the different GSA supply programs. Even so, they stated that in
certain cases, items and prices that are available through the supply
programs can be financially attractive.

One tribal official considered access to the schedule program to be
important and noted use of GSA’s airline schedule as an example of a
benefit of having access to GSA’s schedules program. (As noted earlier, GSA
does not plan to make this schedule available to state and local
governments through the federal cooperative purchasing program.)
Officials from the other two tribal governments said that they may use GSA
supply programs if needed products are available and if the prices are
better than prices offered by other suppliers. However, they said that their
use of the programs varied widely. The purchasing officer for one tribal
government said that GSA’s supply programs, including the schedules
program, represent about three-quarters of the tribal government’s total
purchases. In contrast, an official for another tribal government said that
this tribe’s use of GSA’s supply programs, particularly the stock program,
was limited to about 5 percent of the tribe’s purchases because GSA
frequently did not have needed items in stock. Both officials noted that




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                            these were only rough estimates because they did not have records that
                            would provide a breakdown of sales by source.

                            Tribal governments that have not entered into an agreement under the
                            1975 act could gain access to GSA’s supply schedules under the federal
                            cooperative purchasing program in FASA. In practice, however, the fact that
                            BIA or the Indian Health Service remains responsible for providing services
                            to the tribal governments effectively means that any effect on such a tribal
                            government from this new access may be limited. Since federal agencies
                            continue to be responsible for providing services, these agencies would
                            have to purchase the goods and services needed to support those services.
                            Thus, the tribal government may not need to purchase many items.


                            GSA officials we contacted believe that if sales made through the federal
Effect of Program on        supply schedules program increase, a net reduction in prices paid by
Federal Government          federal agencies could result from the agencies having a stronger
Depends on How              negotiating position and a reduction in the administrative fee.
                            Procurement officials from the Departments of Health and Human
Much Other                  Services, the Interior, and Justice said that they had not assessed the
Governments Use It          potential effects of cooperative purchasing. The Department of Defense
                            did assess the potential effects of cooperative purchasing on
and the Response of         pharmaceutical prices, but Defense procurement officials told us that the
Vendors                     Department had not conducted a comprehensive assessment of the
                            potential effects of cooperative purchasing on other types of products.
                            Officials in these departments said that procurement actions are
                            decentralized in their departments and detailed data on transactions are
                            not maintained centrally. Because procurement actions are handled at
                            lower levels throughout their agencies, they believed that the effects of
                            price changes at the lower levels would be small. VA and the Department of
                            Defense have expressed concern about a possible price increase by
                            pharmaceutical companies if drugs were made available to state and local
                            governments through the schedules program.


The Program May Result in   GSA believes that an increase in the use of and an increase in the number of
Lower Administrative Fees   sales made through the federal supply schedules as a result of the federal
or Lower Schedule Prices    cooperative purchasing program would have the potential to reduce the
                            costs of federal purchases. However, the extent to which prices could be
                            reduced may be limited to the extent that GSA already tries to obtain the
                            “best customer price” on contracts, even though it may encourage some
                            potential GSA vendors to negotiate lower schedule prices.



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                            According to the Acquisition Management Center’s Director, the Federal
                            Supply Service is mandated to become a nonprofit, self-sustaining agency.
                            A 1-percent charge on sales made by or through the Federal Supply
                            Service is assessed to purchasers of goods or services. The provision to
                            assess a 1-percent fee is included in GSA’s contracts with supply schedule
                            vendors. The vendors collect this fee as part of their sales price and
                            transfer the fee to GSA, which offsets its operating costs. The Director of
                            GSA’s Acquisition Management Center said that fiscal year 1997 is to be the
                            first year that fees assessed and collected will be sufficient to sustain the
                            Federal Supply Service’s operations.

                            According to the Director, if state and local agencies were to make
                            purchases through the supply schedules program, the additional sales
                            made through the supply schedules program could ultimately result in
                            GSA’s lowering the 1- percent charge on sales, because revenues would be
                            more than sufficient to pay for GSA’s administrative costs. The Director
                            said that GSA will be monitoring the extent to which revenues exceed its
                            costs to determine whether it may need to renegotiate contracts with its
                            vendors to reduce the fee. GSA officials also said that the cooperative
                            purchasing program could also benefit the federal government because if
                            the program results in increased sales, GSA may be able to negotiate lower
                            prices with its vendors for items available through the supply schedules.
                            They believe vendors may be willing to reduce prices because of the
                            increased volume of sales.


Views of Selected Federal   Procurement officials from the Departments of Health and Human
Agencies                    Services, the Interior, and Justice said that their departments had not
                            conducted a formal assessment of the possible effects that cooperative
                            purchasing might have on their budgets or purchases. The Department of
                            Defense assessed the potential effects of cooperative purchasing on
                            pharmaceutical purchases; Defense procurement officials told us that they
                            had not conducted a comprehensive assessment of the possible effects on
                            other purchases. Officials in these departments commented that such an
                            analysis would be at best difficult, if not impossible, to conduct. In
                            addition, these officials said that they did not have sufficient data on the
                            use of the schedules program by their departments because ordering
                            authority in their departments was dispersed. The departments authorized
                            program managers to manage their budgets and purchase needed items
                            using their budgets, but they do not maintain detailed, centralized data on
                            all items purchased by the different components of their departments.




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An official in the Department of the Interior’s procurement office noted,
for example, that Interior had over 900 authorized purchasing officials
working throughout its bureaus and offices and that these purchasing
officials were not required to report all the specific items purchased. This
official noted that the new purchasing card program would compound the
data limitations.10 The official said that Interior had issued over 14,000
purchasing cards and concluded that it would not be possible to assess the
effects of cooperative purchasing on Interior with the limited available
data. Similarly, officials at the Departments of Defense and Health and
Human Services noted that their departments did not have data centrally
on the individual items purchased by their components. One official at the
Department of Defense told us that the department had maintained such
records until about 10 years ago but that currently, maintaining systematic
data is not feasible because of how purchases are made through the
schedules program.

Although noting that data limitations prevented them from developing
definitive predictions of the effects of cooperative purchasing, some
procurement officials identified several reasons why they felt it would be
unlikely that the cooperative purchasing program would have a readily
noticeable effect on their departments’ purchases. One reason was that
purchasing authority was spread throughout the departments. Because of
this dispersed purchasing authority, procurements are generally smaller in
scale than major, departmentwide procurements. Thus, if the cooperative
purchasing program did affect prices paid by their departments’
components, the effect may not be large enough to be observed in any
particular purchase.

Some officials also noted that many of the industries that are included in
the schedules program are competitive industries where other vendors
would have an incentive to underbid any vendor seeking to increase prices
as a consequence of cooperative purchasing. One official in the
Department of the Interior, for example, said that buyers seek to pay the
lowest price available for an item. If the schedule price is the lowest price
for a particular item, other buyers, including business buyers, would seek
to pay that price. An official in the Department of Defense also said that it
was unlikely that the Department would see any sizeable effect from
cooperative purchasing because the items on the federal supply schedules
are commercial items with many buyers and sellers, so a shift in how any

10
 The purchase card program works like other credit card programs and allows federal employees who
have such cards to purchase commercially available goods and services for government use.
According to GSA, most vendors that accept commercial credit cards will accept this government
purchase card; the card may also be used for agency purchases from GSA’s stock program.



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                             particular group of buyers operates (such as state governments using the
                             federal supply schedules rather than their own procurement process)
                             would not necessarily be noticeable to other buyers (such as the
                             Department of Defense). Defense officials further noted that since use of
                             the multiple-award schedules is not mandatory for the Department, and
                             since any departmental component may purchase items through contracts
                             negotiated by any other component, the Department would be less likely
                             to experience substantial effects of wider use of the multiple-award
                             schedules under a cooperative purchasing program.


GSA’s Actions to Limit the   As discussed in chapter 1, GSA officials have stated that GSA would not
Potential Negative Impact    open up a schedule if it believes that doing so would negatively affect the
on the Federal Government    federal government. Prior to publishing the April 1995 Federal Register
                             notice, GSA was told by VA that opening up the pharmaceutical schedule
                             and one medical supply and equipment schedule may result in an
                             increased cost to VA. On the basis of VA’s recommendation, GSA announced
                             in the Federal Register that it proposed to exclude the two schedules from
                             the program.

                             After the notice was published, the Department of Defense notified GSA
                             that it concurred in GSA’s proposal to exclude these two schedules because
                             of the potential for increased federal prices. Also after the notice was
                             published, a GSA official said that discussions were held with airline
                             companies, during which these companies indicated that if nonfederal
                             governments were able to use the airline schedule, they may raise their
                             schedule prices. This GSA official said that because the estimated cost to
                             the federal government of increased airline fares could be substantial, GSA
                             is not planning on opening this schedule for state and local use. GSA’s
                             Acquisition Management Center Director also said that GSA is not planning
                             on opening up the schedule containing fire fighting vehicles because of the
                             perceived potential negative effect this may have.


                             In their written comments on a draft of this report, GSA and VA agreed that
Agency Comments              many factors make it difficult to definitively assess the effects of the
                             cooperative purchasing program on federal and nonfederal governments.
                             In its comments, the National Association of State Purchasing Officials
                             agreed that opening the use of federal schedules has the potential to create
                             a positive effect on state and local governments. The Association further
                             noted that there were also potential areas of concern. For example, the
                             Association noted that there could be a perception among local



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contractors, particularly small businesses, of diminished opportunities to
bid for state and local government contracts. It also noted that in some
circumstances, the Federal Supply Schedule contract will not have the
lowest price and said that in such cases, the current system of multiple
contracts helps to ensure that the most competitive prices are obtained.
Finally, the Association pointed to several conditions in addition to those
we cited that could limit use of or benefits from the cooperative
purchasing program or that could cause difficulties for nonfederal
governments. These conditions included mandatory contract terms or
restrictions required in many state and local procurement contracts that
schedule contractors might have to agree to abide by and the possibility
that reliance on federal contracts could adversely affect some nonprofit,
nongovernmental entities, such as charities, schools, and hospitals, that, in
some states, now have access to state contracts. These types of
organizations would not be eligible to use federal schedules under
cooperative purchasing.




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Potential Effect on Industry, Including Small
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                     The potential effect of cooperative purchasing on industry, including small
                     business and local dealers, is likely to vary. Department of Commerce data
                     on industry sales suggest that a number of industries that supply large
                     portions of their output to state and local governments will not be affected
                     at all because the services or goods they provide are not available through
                     the schedules program. The data also show that the extent of the effects of
                     cooperative purchasing on other industries is likely to vary due to the
                     differing portions of their output that are sold to state and local
                     governments.

                     Businesses we contacted also differed in their expectations of the
                     potential effects. Some state and local contractors we contacted believe
                     that cooperative purchasing will have a positive effect by increasing their
                     sales and customer bases. On the other hand, some state and local
                     contractors fear negative effects in the form of business lost to GSA
                     vendors if the program were implemented. Also, certain
                     industries—including medical supplies and equipment, heavy equipment,
                     and airlines—have expressed concern that they may be negatively affected
                     by the cooperative purchasing program. These effects include a potential
                     for reduced profits and decreased customer support. Because of these
                     potential adverse effects, GSA plans to exclude some schedules that
                     contain those industries’ goods or services. Other state and local
                     contractors do not foresee any effect on their business, citing the unique
                     specifications of the products they sell or their ability to offer competitive
                     prices as the reasons they would not be affected. Finally, some contractors
                     did not know how cooperative purchasing would affect them, citing
                     uncertainties about how the program would be carried out and the
                     potential for both gains and losses.

                     Reflecting the diversity of views among individual businesses about how
                     they would be affected by the cooperative purchasing program,
                     associations representing industry have taken a range of positions on the
                     program. However, these associations generally did not provide
                     conclusive data that would provide the basis for a prediction of the effects
                     of cooperative purchasing.


                     Department of Commerce data on interindustry relationships for
The Magnitude of     1987—the most recent data available—provide a broad perspective on the
State and Local      extent to which different industry groups might be affected by the
Government Sales     cooperative purchasing program. These data suggest that the effects are
                     likely to vary among different industries. Some industries that supply large
Varies by Industry

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portions of their output to state and local governments—such as
construction and service industries—generally are not available through
the schedules program. Other industries that provide relatively large
portions of their output to state and local governments provide products
that generally are available on the schedules. According to Commerce’s
data, few industries that supply goods to state and local governments rely
on these governments for a large share of their sales. According to the
most recent data, only 28 industries out of the 89 industries identified in
the Commerce data supplied more than 3 percent of their total industry
output to state and local governments.1 Of these 28 industries, only 14
supplied goods or services that are available through the schedules
program. However, these data are national averages for broad industry
groups, and particular firms, specific products, or geographical areas
could have a much higher reliance on state and local purchases than
suggested by these figures.

Several of the industries that provided a relatively large share (6 percent
or more) of their total output to state and local governments are not likely
to be affected much, if at all, by cooperative purchasing according to
Commerce’s data. The output that these industries supply to state and
local governments was generally not available through the schedules
program. For example, maintenance and repair construction, new
construction, electric utility services, petroleum refining products,
computer and data processing services, other printing and publishing
services, and railroads and related services are the industries that supplied
6 percent or more of their output to state and local governments, as
demonstrated by table 3.1. However, the types of output provided by seven
of these industries were not available through the federal schedules
program as of fiscal year 1996. In contrast, four industries that supplied
6 percent or more of their output to state and local governments produce
output that was available through the schedules program, including
ophthalmic and photographic equipment; drugs; miscellaneous
manufactured products, such as signs, pens, mechanical pencils, and hard
surface floor coverings; and farm, construction, and mining machinery. GSA
has a photographic equipment and supplies schedule; a construction and
highway maintenance schedule; and several material handling equipment
schedules containing such items as forklifts and material handling
equipment. It also has office supply schedules and a resilient flooring
schedule. This could suggest that cooperative purchasing may have more
of an effect on those industries.

1
 These data reflect the pattern of industry purchases in 1987, and changes in these proportions may
have occurred since that time. However, the Commerce Department suggests that the proportion of
sales from one industry to another remains relatively constant over time.



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Table 3.1: Twenty-Eight Industries
Providing More Than 3 Percent of                                                           Percentage of
Their Output to State and Local                                                           state and local
Governments During 1987 (Dollars in                                                          government
Millions)                                                                                 purchases as a     Are some outputs
                                                                       State and local      share of total   available through
                                                                          government          commodity      schedules
                                      Industrya                            purchases             outputb     program?
                                      Maintenance and repair                   $41,821               24.1 No
                                      construction
                                      New construction                          71,111               16.0 No
                                      Ophthalmic and                             2,619               14.0 Yes
                                      photographic equipment
                                      Electric services (utilities)             16,204               10.4 No
                                      Petroleum refining and                    12,180                8.9 No
                                      related products
                                      Computer and data                          5,607                8.5 No
                                      processing services
                                      Drugs                                      2,867                8.0 Yesc
                                      Other printing and                         5,031                7.5 No
                                      publishing
                                      Miscellaneous                              1,974                6.4 Yes
                                      manufactured products
                                      Railroads and related                      3,093                6.4 No
                                      passenger transportation
                                      services
                                      Farm, construction, and                    1,569                6.0 Yes
                                      mining machinery
                                      Other nonmedical                          12,290                5.8 Yesd
                                      business and professional
                                      services
                                      Gas production and                         4,754                5.8 No
                                      distribution (utilities)
                                      Agricultural, forestry, and                1,165                4.9 No
                                      fishery services
                                      Furniture and fixtures                     1,776                4.8 Yes
                                      Water and sanitary                         1,286                4.5 No
                                      services
                                      Motor vehicles (passenger                  5,714                4.3 No
                                      cars and trucks)
                                      Coal mining                                1,094                4.3 No
                                      Scientific and controlling                 3,266                3.8 Yes
                                      instruments
                                      Industrial and other                       3,339                3.7 Yes
                                      chemicals
                                      Communications, except                     5,774                3.6 No
                                      radio and TV
                                                                                                                    (continued)


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                                                             Percentage of
                                                            state and local
                                                               government
                                                            purchases as a       Are some outputs
                                    State and local           share of total     available through
                                       government               commodity        schedules
Industrya                               purchases                  outputb       program?
Computer and office                             1,984                      3.6 Yes
equipment
Finance                                         9,769                      3.5 No
Miscellaneous machinery,                          680                      3.4 Yes
except electrical
Electrical industrial                             776                      3.3 Yes
equipment and apparatus
Electric lighting and wiring                      578                      3.3 Yes
equipment
Agricultural fertilizers and                      443                      3.3 Yes
chemicals
Service industry machinery                        674                      3.1 Yes

a
  The Commerce Department identified 61 other industries that provided less than 3.1 percent of
their output to state and local governments in 1987.
b
 Percentages are calculated by dividing the value of industry sales to state and local
governments by the total value of industry output. Significant differences in the size of industries
cause industries with a relatively small absolute value of state and local government purchases to
rank high in terms of dependence on state and local purchases.
c
    GSA has proposed excluding this schedule from the cooperative purchasing program.
d
 A limited number of these services are available through the supply schedules, including total
quality management consulting services, consumer and commercial credit reports, and
investigation of discrimination complaints.

Source: Survey of Current Business, April 1994.



An additional 17 industries supplied over 3 percent, but less than
6 percent, of their output to state and local governments. These industries
include furniture and fixtures, scientific equipment, industrial chemicals,
computer and office equipment, and electrical equipment. Some types of
computers, office equipment, and office furniture are sold in high volumes
through the schedules program and, as noted in chapter 2, are products
that state and local government purchasing officials would be interested in
having access to through the schedules program. The remainder of the
industry groups included in the national statistics sold less than
3.1 percent of their goods to state and local governments. These include
various machinery industries (e.g., metalworking and electrical
equipment); transportation-related equipment (e.g., engines and turbines,



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                     Businesses and Dealers, Is Likely to Vary




                     aircraft, and other transportation equipment, such as ships and railroad
                     equipment); and a wide range of other services or products.

                     Although these data provide an indication of the extent of the potential
                     effect of cooperative purchasing on industries, the magnitude of the effect
                     on industries within specific geographical areas could be larger or smaller
                     than the effect suggested by the national data. In addition, the size of the
                     effects on specific suppliers of subindustries could be larger or smaller
                     than the averages for the industry groups included in table 3.1. For
                     example, while the national data indicate that 3.6 percent of computer and
                     office equipment sales could potentially be affected by the federal
                     cooperative purchasing program, effects could vary significantly among
                     office equipment suppliers depending on the locations of these firms, the
                     types of office equipment they sell, and the importance of state and local
                     governments as their customers. A discussion of the potential effect of the
                     federal cooperative purchasing program on individual businesses follows.


                     Representatives of 22 of the 59 state or local government contractors we
Some Businesses      contacted said that the cooperative purchasing program would have a
Perceive Potential   positive effect on their businesses, although they provided no data to
Benefits From the    support their views. Of these 22 businesses, 11 said they were small
                     businesses. The 22 businesses primarily sell computer equipment,
Cooperative          furniture, photographic equipment and supplies, and office equipment,
Purchasing Program   including copying machines, all of which are available through the
                     schedules program. A majority of these businesses—15 of the 22—are
                     either GSA vendors or dealers for GSA vendors. Representatives from these
                     businesses said that allowing nonfederal governments access to the
                     federal supply schedules would increase their sales, profits, customer
                     base, or exposure to potential additional customers or could reduce the
                     administrative time and effort associated with state or local governments’
                     competitive bidding processes. For example, nine state or local
                     government contractors that supply photographic equipment and supplies,
                     office equipment, or furniture said that opening the federal supply
                     schedules to state and local governments would increase the number of
                     buyers using the schedules. Because these contractors are also GSA
                     vendors or dealers for GSA vendors, most noted that their businesses could
                     expand their current customer bases, which would ultimately benefit their
                     businesses.

                     Further examples of businesses that perceived potential benefits include
                     two contractors that sell office equipment. One contractor, located in



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Virginia, that is also a GSA vendor of office equipment has a nationwide
network of dealers that provides sales and service support for products it
sells. An official for this contractor said that all dealers in its network
would be able to participate in sales to nonfederal agencies if the
cooperative purchasing program is implemented. Another contractor,
located in New York, told us that cooperative purchasing will result in
increased revenues from product sales and servicing with the additional
customers purchasing products off the schedule. A third state and local
government contractor, located in New York, that sells office equipment
said that it does not fear the competition from GSA’s vendors because there
would be enough buyers in the marketplace allowing them to compete in a
larger market.

Finally, two businesses that sell heavy equipment both through GSA
schedules and to state and local governments believed they would benefit
from cooperative purchasing. One of the firms, located in Georgia, that
sells forklifts said that under cooperative purchasing it would not have to
bid separately on state and local contracts and that the company uses the
same procedures and dealership network regardless of whether the
purchasing agency is federal or nonfederal. According to the company, its
sales to governmental agencies are about 2 percent of its total sales.

The other company, located in New Jersey, that represents 13 different
manufacturers of lawn and garden equipment said that the company’s
contracts with GSA, state, and local governments are essentially identical
and provide the same sales conditions. The products sold, however, rely
little on a dealership network. As a result, this company believed that it
would be beneficial to the company, the manufacturers it represents, and
nonfederal governments to make sales only through the schedules.

The contracting officers for some of GSA’s federal supply schedules,
including the telecommunications equipment, office furniture, copying
equipment, microcomputer, and office supply schedules, said that they
expected companies that provide supplies through these schedules would
benefit from the cooperative purchasing program. For example, the
contracting officer for the telecommunications schedule said that this
schedule should be opened to nonfederal users because, in his opinion,
GSA, the contractors, and state and local governments would all benefit. He
said GSA would benefit because its vendors would be selling to a broader
market, thereby increasing sales, which should lower prices further in the
future. He said state and local governments would also benefit by saving
time and money in their purchases.



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                          Similarly, the contracting officer for the office supply schedule said that
                          GSA would benefit since its contractors would be able to sell to a broader
                          market, thereby increasing sales, which should lower prices further in the
                          future. In addition, he said GSA would benefit from the 1-percent fee it
                          receives to cover its costs. In his opinion, the office supply schedule would
                          likely be one of the better schedules to open to state and local
                          governments because the manufacturers currently on the schedule must
                          be able to supply nationwide, and because the GSA vendors include five
                          large office supply companies. He explained that upon receipt of an order,
                          the companies contact their warehouses and the order is immediately
                          shipped to the customer for “next-day delivery.” This contracting officer
                          said that he has heard of no concerns on the part of the contractors about
                          this schedule being opened to state and local governments. The other
                          three contracting officers similarly said that they have heard of no
                          concerns from their respective contractors, including microcomputer
                          contractors, systems furniture contractors, and copying equipment
                          contractors.


                          Some of the state and local contractors we contacted said that the
Some Businesses and       cooperative purchasing program could have a negative effect on them. In
Industries Perceive       addition, the medical equipment and supplies, airline, and heavy
Potential Negative        equipment industries have expressed concern about the adverse effect
                          cooperative purchasing may have on them. Because of the possible
Effects of Cooperative    adverse effects cited by these industries, which include a potential for
Purchasing Program        reduced profits, and the resulting possibility of increased prices, GSA plans
                          to exclude, or is considering excluding, those schedules that contain these
                          industries’ equipment or services.


State and Local           Of the 59 state and local contractors we contacted, 10 contractors said
Contractors Fear Losing   that the cooperative purchasing program may have a negative effect on
Business to GSA Vendors   their businesses. Of these 10 contractors, 7 said they were small
                          businesses. These contractors supply state and local governments with
                          furniture, photographic equipment, computer equipment, paper products,
                          paint, and heavy equipment. Almost all of the contractors said they could
                          lose business to GSA vendors because state and local governments would
                          have access to the federal supply schedules under the cooperative
                          purchasing program.

                          For example, a small paper products distributor and a small computer
                          equipment distributor in West Virginia said that their companies would



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                              lose business because agencies could purchase directly from the
                              manufacturers if the federal supply schedules were opened to nonfederal
                              agencies rather than purchase from their companies. Also, a
                              representative from a furniture store in West Virginia said that his
                              company buys products from manufacturers and then sells them to state
                              and local governments at a retail price. If nonfederal governments were
                              able to use the federal supply schedules for furniture, his company would
                              not be able to compete with the manufacturers’ prices.

                              A paint manufacturer in Montana was also concerned about negative
                              effects on his business and on the customer. He explained that he believes
                              that decentralized purchasing is better, as the needs of the local
                              government entity are not the same as those of the federal government. He
                              has seen that local governments often do not want to use products that
                              they can obtain through state contracts because the terms of the state
                              contract will not meet their needs. However, purchasing agents are likely
                              to use the GSA schedules because it is easier than going through another
                              procurement process. Thus, he could lose sales to GSA vendors, and the
                              customer could get an unsuitable product.

                              A different concern was expressed by a representative from a small
                              woman-owned company in California that supplies products such as
                              reflective sheeting to the California Department of Transportation. The
                              representative said that the company would lose sales if state and local
                              agencies had access to the federal supply schedules because the business
                              had minority status in the state of California, and many of the state
                              contracts the company had been awarded through competitive bidding
                              were based on its small, minority status in the state.


Certain Industries Perceive   Several industries are opposed to GSA’s planned cooperative purchasing
Negative Effects From         program because they believe the program will have an adverse effect on
Cooperative Purchasing        them. These industries are represented on some of the 13 schedules
                              managed by VA and on 3 of the 133 schedules managed by GSA. For
                              example, the medical equipment and supply industries fear that
                              cooperative purchasing will disrupt their distribution networks or cause
                              them to increase prices to the federal government. The airline industry is
                              concerned about loss of revenues from a greater use of discounted fares.
                              The heavy equipment industry is concerned about negative effects on
                              dealers who currently service the state and local government market. VA
                              has already recommended to GSA that 2 of the 13 schedules it
                              manages—the pharmaceuticals and one medical equipment and



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                             supply—be excluded from cooperative purchasing. In its April 1995
                             Federal Register notice, GSA proposed excluding those two schedules,
                             based on VA’s recommendation. Since that notice, GSA officials told us that
                             they plan to exclude the airline schedule and the schedule containing fire
                             fighting vehicles. GSA has not, however, made any final decisions on
                             excluding other schedules. However, the Director of GSA’s Acquisition
                             Management Center said that GSA intends to exclude those schedules or
                             portions of those schedules from the cooperative purchasing program
                             where significant controversy exists about the potential adverse effects.


Medical Equipment and        Several associations, manufacturers, and dealers raised concerns to GSA
Supply Industries Perceive   and us about the potential adverse effects cooperative purchasing of
Negative Effects             medical equipment and supplies may have on their companies. They cited
                             a disruption of the distribution network, reduction in profits, and an
                             increase in federal supply schedule prices as possible effects. An
                             association representing public hospital pharmacies, on the other hand,
                             pointed to potential savings and diminished needs for government
                             subsidies as possible benefits of cooperative purchasing.

                             The Health Industry Manufacturers Association and the Health Industry
                             Group Purchasing Association, representing medical equipment and
                             supply manufacturers and purchasing organizations, oppose cooperative
                             purchasing. These associations sponsored individual studies to determine
                             the impact of opening the federal supply schedules. Both studies
                             concluded that opening the federal supply schedules would decrease the
                             federal government discount and increase the cost of medical and surgical
                             equipment and supplies. According to the contractor who conducted these
                             studies, his research found that large, infrequently purchased expensive
                             equipment with long life cycles may offer little opportunity for
                             discounting. However, the medical and surgical supply industry is more
                             complex. Since the medical supply industry includes a broad range of
                             products and categories with varying discounts, the contractor that
                             conducted the studies found that some individual product lines can be
                             discounted significantly but others cannot. The conclusions in these
                             studies are based on the assumption that the medical equipment and
                             supply industry would react to the cooperative purchasing program in the
                             same manner as the pharmaceutical industry. We did not verify the data or
                             analyses contained in these studies.

                             The Health Industry Distributors Association, which represents over 700
                             companies, many of which are small businesses, opposes the cooperative



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purchasing program because public hospitals could not select their own
distributor to meet their needs, and health care providers and distributors
would incur an increased administrative and recordkeeping burden.
Manufacturers expressed the same concerns. The manufacturers we spoke
with said that the distribution network for federal and state or local
government customers is different. They said that federal government
orders are usually shipped directly from the manufacturer to the buyer,
while sales to state and local governments are generally handled through a
local dealer. According to manufacturers, cooperative purchasing could
put local dealers who rely heavily on sales to state and local governments
out of business to the extent that the manufacturers would ship directly to
state and local governments. With sales no longer being handled by local
dealers, manufacturers also were concerned about the increase in the
administrative burden that would be placed on VA vendors if they had to
fill orders for state and local governments. According to one
manufacturer, making the schedules available to state and local
governments could increase this burden to the point where he would have
to consider reducing the products he sold on the schedule or raising
prices.

In contrast, the Public Hospital Pharmacy Coalition, representing hospitals
owned or funded by state or local governments, supports cooperative
purchasing because it anticipates lower prices and reduced administrative
expenses for eligible hospitals. Noting that public hospitals rely heavily on
government payers and subsidies, the coalition said that cost reductions
would lessen their dependence on state and local governments.

Officials at VA’s National Acquisition Center, which manages the medical
equipment and supply schedules, said that distribution networks at the
state and local level would likely vary considerably, depending on the size
of the customer. In some cases, the manufacturer might be directly
supplying the state or local customer. The officials said that one would
have to check with each state or local customer to determine if they
received products from a distributor or manufacturer. A VA official also
stated that in her opinion, one of the real issues was not the disruption of
the distribution network; rather, it was that manufacturers would have to
break their established agreements with dealers and distributors for state
and local customers in order to serve that market themselves. The VA
officials did not agree that a manufacturer’s administrative burden would
increase significantly. Most companies would be tracking their sales
regardless of whether the sale was made through a federal supply
schedule or through a state or local agency procurement.



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Manufacturers we spoke with said that there is a higher cost of doing
business with state and local government customers, a cost that the
manufacturer cannot recoup at the federal supply schedule price. They
said that implementing cooperative purchasing could result in
manufacturers raising prices on the federal supply schedule.
Manufacturers and distributors are also concerned that nonfederal
governments would expect VA vendors to perform additional services,
such as warehousing, training, or filling small orders. The manufacturers
and distributors do not have to perform these services for federal
agencies, and the schedule prices do not include costs that would be
associated with providing such services. GSA officials agreed that some
medical equipment suppliers provide more services to nonfederal
governments, such as training, and that this service is not available
through federal contracts. According to GSA officials, should state or local
governments want additional services, they would have to separately
contract and pay for them. VA officials also said that vendors should not be
expected to provide services beyond what the federal supply contracts
specify at the schedule prices. The Public Hospital Pharmacy Coalition
also agreed that state and local customers may require additional services.
It said that if distributors and dealers can justify higher prices by providing
such services, the state and local customers would be less likely to use
cooperative purchasing.

In addition, manufacturers and distributors are also concerned that
nonfederal government agencies would not promptly pay bills for medical
equipment and supplies ordered through VA vendors and instead take 2 to
3 months to pay their bills as opposed to 15 days. Although the VA officials
at the National Acquisition Center acknowledged that some state and local
governments do not always have good payment histories, they reiterated
that any entity using the federal supply schedules would have to abide by
the terms and conditions specified, which include prompt payment
provisions. According to GSA, it is considering having federal prompt
payment provisions apply under cooperative purchasing unless a state has
a prompt payment law, in which case the state provisions, including
recourse for noncompliance, would apply. GSA officials further pointed out
that vendors would be informed of these provisions and could refuse to
sell to a nonfederal government if vendors chose not to do so.

Two other issues raised by the Health Industry Distributors Association
were how vendors would determine whether a nonfederal organization
was eligible to purchase products under the schedules program, and what
monitoring would be done to determine whether vendors were selling only



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to eligible organizations. GSA’s current plan is to establish an eligibility
determination process under which nonfederal organizations wishing to
participate in cooperative purchasing would submit an application to GSA.
GSA would then determine eligibility and list those eligible nonfederal
governments in an electronic data base. According to GSA officials, GSA has
not yet determined how it will monitor adherence to program
requirements, including eligibility requirements, under the cooperative
purchasing program, and it could change its approach for implementing
several aspects of the program, including prompt payment provisions and
the eligibility determination process, when it finalizes its implementation
plan.

As discussed in chapter 2, GSA proposed to exclude two schedules
maintained by VA because VA believed that if these two schedules were
included in the cooperative purchasing program, the industries selling
items on these schedules would increase prices charged to the federal
government. These schedules include the pharmaceutical schedule and
one of the medical equipment and supply schedules—in vitro diagnostic
substances, reagents, test kits, and sets. As indicated previously, the issues
surrounding pharmaceuticals will be discussed in a separate GAO report.

VA recommended that one schedule that includes certain medical
equipment and supplies be excluded from the cooperative purchasing
program because prices for some items on that schedule were also
governed by the Veterans Health Care Act of 1992. Since making its initial
recommendation to GSA, VA has concluded that items available through this
schedule are not governed by the 1992 act. However, VA officials fear that
businesses that manufacture and sell some products that are available
through this schedule would increase their schedule prices. GSA accepted
VA’s recommendation on the basis that the schedule contained some items
that were covered by the 1992 act. This schedule also contains other
medical equipment and supplies—such as needles and pipettes—and these
types of products may or may not be affected by the cooperative
purchasing program as much as other products on this schedule.
Industries represented on the other schedules managed by VA may or may
not be similarly affected. Among other items, medical equipment and
supply schedules include wheelchairs, antiseptic soap, and dental
equipment.

According to VA officials responsible for managing these schedules, they
did not review other schedules when GSA’s implementation of cooperative




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                            purchasing was suspended because they did not know if the program
                            would be implemented.


Airline Industry Foresees   According to GSA, the airline industry also raised objections to federal
Negative Effects            airline fares being made available for the cooperative purchasing program.
                            A GSA official told us that airline company representatives expressed
                            concern about the loss of revenue from greater use of the discounted
                            federal fares and about controlling the use of GSA fares for state and local
                            government employees. Further, she said that airline company
                            representatives told her that the companies are concerned that some
                            nonfederal employees may abuse the GSA fares and use these fares for
                            nonbusiness-related travel. This GSA official said that GSA was concerned
                            that if the schedule were opened to state and local governments, airlines
                            would no longer be willing to participate, increasing travel costs for
                            federal agencies substantially. Even though GSA has not made a final
                            determination on whether the airline schedule will remain closed to state
                            and local governments, as noted in chapter 2, GSA officials told us that they
                            do not intend to make the schedule available for cooperative purchasing.


Some Heavy Equipment        In comments provided to GSA in response to its April 1995 Federal Register
Providers Believe They      notice, representatives of the heavy equipment industry expressed their
Could Be Negatively         concerns that the cooperative purchasing program would negatively affect
                            the industry. GSA has subsequently received additional comments
Affected by the Program     expressing this concern from the heavy equipment industry since
                            publishing its notice. Heavy equipment includes products such as road
                            sweepers; emergency vehicles, such as fire trucks; tractors; and turf
                            equipment, which are sold through about six GSA schedules. In their
                            comments, several manufacturers and dealers that sell various products
                            on some of these schedules said that local dealers’ profits could be
                            adversely affected if the schedules containing these products are opened
                            to state or local governments. According to these companies, profits
                            would be reduced because dealers would receive lower fees for sales
                            through schedules in their geographic areas, and profits from warranty
                            work would not be sufficient to sustain operations. Several dealers said
                            they would be forced out of business or would have to lay off employees,
                            and local governments would lose the benefit of the training assistance
                            they provide as part of their sales efforts.

                            We confirmed that these concerns remain, at least for a number of such
                            businesses. For example, three heavy equipment manufacturers whose



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equipment is available through the federal schedules program told us that
sales to state and local governments through the federal schedules
program would take business away from their dealers and present serious
financial difficulties for many dealers. These manufacturers sell directly to
federal agencies and pay their local dealers for any necessary set-up,
delivery, and related servicing. Several dealers told us that what
manufacturers pay them is not enough to keep them operating.

Similarly, a fire truck manufacturer that is a GSA vendor said that nearly all
of its fire truck sales are to state and local governments through a
dealership network. The manufacturer pays dealers a fee or commission
for each sale in the dealers’ geographic sales areas, and this fee is reduced
for sales through the schedules program. Although acknowledging that it
would have the option of not participating in the cooperative purchasing
program, this manufacturer expressed concern that its competitors would
do so, thus forcing it to do the same. During the course of our review,
several other dealers that sell fire fighting vehicles contacted us
expressing concern about significant adverse effects they would
experience due to the high proportions of their sales that are to state and
local governments and the limited or nonexistent fees or commissions
they would receive for schedule purchases.

At our request, GSA’s contracting officers for five heavy equipment
schedules reviewed comments GSA received in response to its April 1995
Federal Register notice. According to the contracting officers, the majority
of the comments focused on one GSA schedule—the construction and
highway maintenance equipment schedule. Subsequent to GSA’s Federal
Register notice, GSA received numerous comments from another heavy
equipment industry represented on GSA’s fire fighting vehicles and waste
disposal vehicles schedule. The contracting officer for these two schedules
said that he did not believe that those two schedules should be available to
nonfederal governments. First, he was concerned that the cooperative
purchasing program may have a detrimental effect on the dealers because
a high proportion of sales are made to state and local governments, and
this may affect the manufacturers’ relationships with their dealers. His
second concern was that the GSA vendors on these schedules may elect to
cancel their GSA contracts, or increase the prices under the federal
schedules program. In contrast, contracting officers for other schedules
that were mentioned in the industry comments to GSA, including the aerial
lift equipment, turf equipment, generators, and air compressor schedules,
said that few companies commented that they were concerned about
equipment sold through these schedules. The Director of GSA’s Acquisition



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                        Management Center stated that as of January 1997, GSA was planning on
                        excluding the schedule that contains fire fighting vehicles from the
                        cooperative purchasing program based on information we provided GSA as
                        well as the responsible contracting officer’s assessment of the potential
                        impact opening this schedule may have on the industry as well as the
                        federal government. According to the Director, both the industry and the
                        federal government could be negatively affected. Even though GSA has not
                        yet made final decisions on other schedules, such as the construction and
                        highway maintenance schedule, the Director said that GSA intends to
                        exclude those schedules or portions of those schedules from the
                        cooperative purchasing program where significant controversy exists
                        about the potential adverse effects.


                        Representatives from 13 of the 59 state or local government contractors
Some Businesses         we contacted said that the cooperative purchasing program would have no
Predicted Cooperative   effect on their companies. Of these 13 contractors, 6 said they were small
Purchasing Would        businesses. The 13 contractors sell, among other things, office supply
                        equipment; computer equipment; furniture; and road construction
Have No Effect on       supplies, such as stone and asphalt. Among the reasons they cited were
Them                    the unique specifications of products they sell to state or local
                        governments, competitive prices, or the desire of local governments to
                        have local servicing.

                        For example, a hot mix asphalt contractor and a concrete products
                        contractor told us that opening the GSA schedules to state and local
                        governments would not have any effect on their companies. The
                        contractors said that the products they supply had different specifications
                        for different applications or projects, so state and local government
                        agencies would have to continue to request bids for their projects, as the
                        specifications and requirements would be unique to a project. For
                        example, the mixture needed to repair a dam surface would be different
                        from that needed to pave a parking lot.

                        In another example, a contractor for the state of West Virginia who
                        supplies office equipment said that even though state government
                        agencies’ requests for procurements are much narrower and more
                        localized than those of federal agencies, there would likely be little effect
                        if the GSA schedules were opened because state and local government
                        agencies are successful at obtaining competitive prices, and these agencies
                        always seek out the best price. As a result, the contractor said that it was
                        doubtful that state or local agencies would change the way they procured



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                       goods and services and instead buy through the federal schedules
                       program. As a result, he said that his small business would likely see little
                       impact from the cooperative purchasing program.

                       A contractor in Montana that supplies computer equipment said that
                       customers want “today’s technology at today’s prices.” He also said that
                       because GSA’s contracts with vendors are long-term contracts, his
                       contracts with the City of Missoula, Montana, and the University of
                       Montana are such that his small business can react more quickly to the
                       dynamics of the fast-changing computer industry. Because of this ability,
                       he did not believe that the cooperative purchasing program would affect
                       his business.

                       A spokesman for another office supply company, which is both a GSA
                       vendor and a state contractor in California and Nevada, also said that the
                       cooperative purchasing program would have little effect on his company
                       because the state of California already has a schedules program very
                       similar to the federal schedules program. However, he said the program
                       could assist some states, such as Nevada, by reducing the amount of time
                       required to procure office equipment from several months to only a few
                       weeks.

                       Finally, a spokesman for a road sweeper company said that the
                       cooperative purchasing program would not affect his company because
                       even though the company holds the GSA contract to supply sweepers to the
                       federal government, he believes local governments would not buy this type
                       of equipment through a federal supply schedule. According to this
                       spokesman, local governments will not buy sweepers through the
                       road-clearing and equipment schedule because such governments can get
                       comparable prices through competitive bidding at the dealership level. He
                       also said that contracts that local dealers have with local governments
                       provide for extensive training and servicing, which would not be provided
                       under this manufacturer’s contract with GSA.


                       Of the 59 state and local government contractors we contacted, 14 said
Some Businesses Did    that they did not know what effect the cooperative purchasing program
Not Know What Effect   would have on their companies. Of these 14 companies, 7 said they were
Cooperative            small businesses. These companies include those that sell furniture,
                       computer equipment, laboratory equipment and supplies, photographic
Purchasing Could       supplies, and heavy equipment. These companies cited uncertainties about
Have on Them


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                         how others would react to cooperative purchasing and noted that the
                         program offered both potential gains and losses.

                         For example, according to one computer equipment supplier in West
                         Virginia, it was difficult to predict what impact cooperative purchasing
                         would have because it would depend not only on the difference in pricing
                         between GSA’s vendors and state and local contractors but also on other
                         factors, such as the servicing and warranty arrangements that were
                         included as part of manufacturers’ contracts with GSA.

                         In addition, a furniture contractor in California, who is a dealer for a
                         furniture manufacturer that is a GSA vendor, told us that it was difficult to
                         determine what effect the cooperative purchasing program might have on
                         his company. According to a dealership official, the GSA contract is not
                         very profitable for the dealership because the manufacturer sets the price
                         for GSA contract sales, which usually results in a lower profit margin than
                         the dealership would like. This lower price can hurt the servicing of the
                         contract, because there is not sufficient profit for the local dealer to
                         provide proper service. However, the dealership official said that although
                         contracts with local government agencies are more profitable than GSA
                         schedule program sales, his company incurs substantial costs by bidding
                         on local government agency procurements. The process has become very
                         complex and expensive, and costs had ranged from $5,000 to $10,000.
                         Consequently, quite often this particular dealership had not bid on local
                         government procurement solicitations.


                         Reflecting the diversity of views among individual businesses about how
Industry Associations’   they would be affected by the cooperative purchasing program,
Views on Cooperative     associations representing industry have taken a range of positions on the
Purchasing Vary          program. With the exception of the medical equipment and supply
                         industries, these associations did not provide data that would provide the
                         basis for their predictions of the effects of cooperative purchasing.

                         Some industry associations told us that they are in favor of the cooperative
                         purchasing program. The Information Technology Industry Council, for
                         instance, said that it supported the program but noted that its members
                         would want some flexibility in its implementation. The Coalition for
                         Government Procurement, representing over 300 businesses that supply
                         about 75 percent of the federal government’s purchases, told us that about
                         half of the Coalition’s membership supports the program and the other
                         half opposes it.



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                  In some other cases, however, industry associations told us that they have
                  not taken a position on cooperative purchasing or that they had mixed
                  opinions on the program. In some cases, association officials told us that
                  they were not sufficiently familiar with cooperative purchasing to take a
                  position. Several associations that represent small businesses, including
                  the American Small Business Association and National Small Business
                  United, said that they did not have enough information to form positions.

                  As discussed earlier, several associations representing heavy equipment
                  manufacturers and dealers and manufacturers of medical equipment and
                  supplies opposed the program. These associations, most of which
                  expressed their opposition in comments on GSA’s Federal Register notice,
                  included the Associated Equipment Distributors, the Environmental
                  Industry Association, the Material Handling Equipment Distributors
                  Association, the National Retail Federation, the Health Industry
                  Distributors Association, and the Health Industry Manufacturers
                  Association.


                  In their oral comments, representatives from the Coalition for Government
Agency Comments   Procurement agreed with the contents of this chapter. They also raised
                  concerns about some aspects of the cooperative purchasing program as
                  currently proposed. For example, the Coalition said that it did not agree
                  with GSA’s tentative plan to apply state prompt payment provisions in those
                  cases in which states have them. It said that this could significantly
                  increase industry’s burden because businesses would have to work under
                  many different state laws rather than a uniform law—the federal prompt
                  payment statute. In addition, the Coalition raised some concerns about
                  possible problems that could develop as the cooperative purchasing
                  program is implemented. For example, it cited the possibility of some
                  nonfederal governments (1) bypassing the cooperative purchasing
                  program by asking GSA vendors to sell them products at schedule prices or
                  at schedule prices less the administrative fee, without the GSA vendors
                  remitting the administrative fee to GSA; or (2) purchasing products through
                  the cooperative purchasing program but, instead of using the products
                  themselves, reselling the products at higher prices than they paid. Finally,
                  the Coalition noted that although it recognized that some businesses could
                  save administrative costs by not having to compete separately for state or
                  local contracts, some nonfederal government procurement processes
                  required relatively little administrative effort by businesses.




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In their comments, both GSA and VA acknowledged the uncertainties of and
lack of data associated with the effects cooperative purchasing would
have on businesses. Similarly, the National Association of State
Purchasing Officials noted a number of uncertainties, such as the extent to
which businesses would be willing to abide by various state requirements
and that the value of state contracts to some businesses could be
diminished if some state agencies used the federal schedules rather than
state contracts.




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GSA’s Approach to Implementing
Cooperative Purchasing

                      GSA’s plans for implementing the cooperative purchasing program continue
                      to evolve. These plans include, among other things, determining whether
                      the potential negative effects on small business that might be associated
                      with opening up particular supply schedules are outweighed by the
                      potential positive effects on nonfederal government agencies. GSA’s
                      determinations will entail judgments about trade-offs of positive and
                      negative effects, and the data necessary to conclusively predict these
                      effects are not likely to be available. GSA recognizes these trade-offs exist,
                      but Congress, state and local governments, and industry would have better
                      information on how GSA would make its determinations if GSA improved its
                      implementation approach in several ways.


                      As noted in chapter 1, in its April 1995 Federal Register notice, GSA
GSA’s Approach to     indicated that schedules would be made available to nonfederal agencies
Implement the         upon their request unless the contracting officer responsible for the
Program Is Evolving   applicable schedule determined that it would not be appropriate to do so.
                      Individual schedule vendors would be able to elect whether or not to make
                      the products or services they sell through the schedules available to
                      authorized nonfederal users. In addition, the notice stated that schedule
                      contracts would be established only to meet the needs of federal agencies
                      and proposed that two schedules—one for pharmaceuticals and one for
                      certain medical equipment and supplies—would not be opened to state
                      and local governments.

                      GSA  officials said that GSA took no further actions to finalize the Federal
                      Register notice after its authority to implement section 1555 was
                      suspended. GSA officials, however, told us that GSA was considering a
                      number of changes to how it would implement the program. GSA stated
                      that it developed these changes after meeting with representatives of the
                      National Association of State Purchasing Officials, the National Institute of
                      Governmental Purchasing, as well as several industry associations; and
                      after reviewing public comments received after publishing its initial
                      implementation plan. First, as a matter of policy, individual supply
                      schedules would not be made available for use by nonfederal governments
                      if opening that schedule would adversely affect the support provided to
                      federal agencies in terms of price, quality of products or services, or
                      delivery. Second, rather than assigning responsibility to the contracting
                      officer for making case-by-case determinations regarding opening
                      individual schedules, GSA officials were considering assigning
                      responsibility to the Federal Supply Service’s Assistant Commissioner for
                      Acquisition. In making these determinations, the Assistant Commissioner



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would be expected to consider the recommendation of the contracting
officer responsible for particular schedules and to consult, as appropriate,
with other interested parties or associations representing them. The
contracting officers’ recommendations would be based on an evaluation of
the potential effects on federal agencies and whether opening the schedule
would be likely to have an adverse effect on local small business concerns
or dealers that would not be offset by benefits to nonfederal agencies.
With respect to VA’s schedules, GSA officials told us that GSA is considering
assigning responsibility for making decisions to VA.

The option of excluding individual schedules or classes of schedules from
the cooperative purchasing program has come up in both the Federal
Register notice and in our discussions with GSA. The Federal Register
notice proposed excluding two schedules (pharmaceuticals and one
medical equipment and supply schedule) from the cooperative purchasing
program. According to a GSA official, GSA also does not intend to open the
fire fighting vehicle schedule or the airline fare program to state and local
participation. GSA officials said that they proposed to exclude the
pharmaceutical schedule and one medical equipment and supply schedule
in the Federal Register notice and plan to exclude fire fighting vehicles
and airlines because of concern that opening up these schedules to
nonfederal users would not be in the interest of the federal government. In
these cases, GSA anticipated that costs to federal agencies would rise for
products on these schedules if the schedules were opened. For other
schedules, GSA officials said that GSA would decide on opening up
schedules on a case-by-case basis. According to GSA officials, GSA could
also exclude portions of individual schedules from the program while
opening the remaining portions of the individual schedules.

Once GSA decides that it may be appropriate to open a schedule to
nonfederal agencies, GSA officials said that GSA would publish notices in
the Commerce Business Daily and/or the Federal Register to obtain input
from interested parties, such as industry associations; federal, state, and
local government agencies; and schedule vendors. According to GSA, it
would also use associations as a vehicle to provide information to
individual interested industries and state or local governments. These
notices would identify which schedule or schedules GSA would consider
opening up for use by nonfederal agencies and explain how the program
would work. The notices would include a contract clause that would have
to be included in vendors’ contracts in order for these vendors to sell to
nonfederal agencies through the schedules program. Each contractor on
each federal supply schedule (about 6,600 contractors in total) that GSA or



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                       VAwould propose to open would have the option to sell to state and local
                       governments.

                       GSA officials stated that such a process will allow GSA and VA to gauge the
                       interest on the part of state and local governments in using the schedule
                       and willingness of schedule contractors to sell to state and local
                       governments under the schedule contract. They said that the process will
                       also provide the opportunity for nonschedule contractors and federal
                       agencies to express their views. According to GSA, after GSA considers the
                       input of potentially affected parties and if it decides to open a particular
                       schedule, schedule contracts will be modified to permit use by state and
                       local governments. The state and local governments that applied for
                       authorization to use the federal supply schedules would subsequently be
                       notified that the schedule was open for use. According to GSA officials, this
                       approach would allow for interested parties to provide input before a
                       decision is made and allow GSA to make an assessment of the
                       appropriateness of opening a particular schedule while minimizing the
                       costs of implementing the cooperative purchasing program.


                       The approach to implementing the cooperative purchasing program that
GSA’s Planned          GSA officials told us about appears reasonable in several respects. For
Approach Appears       example, it makes the program optional for GSA vendors and recognizes
Reasonable but Could   that nonfederal governments cannot be compelled to use the program,
                       acknowledges that there may be trade-offs associated with opening up a
Benefit From           particular schedule, recognizes that GSA’s primary mission is to meet the
Refinements            needs of federal agencies, provides a process for informing many
                       potentially affected businesses, allows for schedule-by-schedule
                       consideration, establishes decisionmaking authority at a higher level than
                       initially proposed, and identifies the trade-off decisions that have to be
                       made. However, although GSA is considering changes to the
                       implementation plan in the Federal Register notice, GSA has not completed
                       a detailed, written plan that sets forth all its current thinking on how it
                       intends to implement cooperative purchasing.

                       Since the suspension of section 1555’s authority for the cooperative
                       purchasing program is temporary, we believe that it would be prudent for
                       GSA to be prepared to implement the program by having a detailed, written
                       implementation plan. Such a plan would provide information to Congress,
                       state and local governments, and industry that would better enable them
                       to evaluate the likely effects of GSA’s determinations. Further, it would
                       provide guidance to GSA and VA staff to facilitate consistency in these



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                                determinations. Our work indicates that a successful plan would require,
                                at a minimum, several components:

                            •   guidance on the data that should be sought and analysis conducted in
                                determining the (1) expected effects on federal agencies; (2) expected
                                effects on nonfederal governments; and (3) expected effects on
                                businesses, including non-GSA vendors;
                            •   identification of potentially affected parties and the various means to be
                                used to notify them when schedules will be considered for opening to
                                nonfederal governments;
                            •   designation of an official at an appropriate level of responsibility to make
                                final determinations on whether individual schedules should be made
                                available to nonfederal governments, particularly when businesses
                                express concerns about significant adverse effects;
                            •   provisions for evaluating the actual effects of opening schedules; and
                            •   provisions for opening part of a schedule.


A Detailed, Written Plan        As indicated above, GSA initially published a Federal Register notice
Would Assist Congress,          containing several elements of its planned implementation approach for
GSA, and Affected Parties       the cooperative purchasing program. When the program was suspended,
                                GSA discontinued work on completing a formal, written plan. However, GSA
                                officials appropriately continued to consider how it would implement the
                                program and identified changes to its initial planned approach set forth in
                                the Federal Register. Several state and local governments and industry
                                associations we contacted, as well as several of GSA’s contracting officers,
                                did not know how GSA planned to implement the program, or what
                                information GSA would use to make its decisions on whether schedules
                                would be opened up to nonfederal governments. Limited or nonexistent
                                data make assessing the potential effects of the cooperative purchasing
                                program a difficult task. Not having information on how GSA intends to
                                implement the program made it difficult for affected parties to assess the
                                potential effects of cooperative purchasing and is likely to make it difficult
                                for GSA’s and VA’s contracting officers to act consistently when they seek
                                and consider information on possible effects. The lack of this type of
                                information is also likely to hamper Congress in any further deliberations
                                it may want to have on cooperative purchasing.


Guidance for Making             GSA, in deciding whether or not to make products or services available on
Judgmental and Trade-Off        federal supply schedules to nonfederal governments, will be required to
Decisions                       make judgmental decisions regarding (1) the extent to which vendors and



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                        nonfederal governments will exercise their option of participating in the
                        program; (2) the likelihood of vendors responding in such a manner that
                        prices, the quality of products or services, or delivery will be affected from
                        the standpoint of federal agencies; and (3) trade-offs between any
                        expected potential benefits to nonfederal governments and any expected
                        potential adverse effects on businesses. The Director of GSA’s Acquisition
                        Management Center said that GSA has not yet provided guidance to its or
                        VA’s staff, industry, or nonfederal governments on the data and analysis to
                        be considered for making these judgmental decisions. For example, while
                        many of the associations we contacted had views on the possible effects of
                        cooperative purchasing, they generally provided no conclusive, detailed
                        data to support their views. This guidance would help GSA and VA staff,
                        including contracting officers, as well as affected businesses, industry
                        associations, and nonfederal governments, know the data and analyses
                        that are to be considered to make decisions and should help GSA staff
                        make decisions that are as informed and consistent as possible.

                        Although data availability is likely to remain a challenge for GSA, having a
                        process that facilitates gathering appropriate data and developing an
                        analytical framework to analyze these data would enhance the process of
                        making those decisions. Our work indicates that some data, such as the
                        share of an industry’s output that is sold to state and local governments,
                        can provide some insight on potential effects, even if a particular measure,
                        such as the share of output, alone cannot provide a precise quantitative
                        prediction of the effects. Similarly, analysis of some characteristics of an
                        industry, such as the ability of firms in an industry to charge different
                        buyers different prices, may also help provide some insight on potential
                        effects, such as the potential for increased prices to federal agencies.

                        Explicitly identifying its priorities in weighing potential benefits and
                        adverse effects would enhance GSA’s efforts to make its decisions on a
                        consistent basis. Although GSA has indicated that its first priority is that its
                        federal customers not face adverse effects, it has not yet indicated how it
                        would address any recurring benefits or adverse effects compared to any
                        one-time effects.


Process for Notifying   Even with guidance for GSA and VA staff, industry, and nonfederal entities,
Affected Parties        however, our findings suggest that sufficient data may not be available to
                        GSA or VA for them to make quantitative assessments of expected benefits
                        and negative effects. This indicates that GSA would often have to make
                        judgmental and trade-off decisions based largely on views of affected



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                       parties. In some cases, GSA’s decisions to open schedules may have
                       significant adverse effects on some businesses, and GSA would have to
                       make judgments about whether expected benefits to nonfederal
                       governments outweigh expected adverse effects on these businesses.
                       Excluding schedules, however, may prevent state and local governments
                       from realizing some potential benefits. Given this situation, a sensible plan
                       would detail the process to be used to identify potentially affected parties
                       and solicit and consider data and views from them.

                       GSA officials told us they plan to announce their intentions to open
                       schedules in the Commerce Business Daily, whose purpose is to announce
                       federal government contracting opportunities, and/or the Federal Register,
                       as well as work with associations representing state and local
                       governments and industry. It is unclear, however, whether these actions
                       could reach a sufficient number of potentially affected groups or would
                       sufficiently target those groups that may be most affected by GSA’s opening
                       up individual schedules. It is unclear that these groups would routinely be
                       aware of Commerce Business Daily announcements or Federal Register
                       notices, even though this latter publication is intended to reach a broader
                       audience. Further, while GSA states that it plans to use associations
                       representing industry as a means to get information to individual
                       interested parties, it is unclear that consulting with industry associations
                       alone would provide GSA with an understanding of the effects that opening
                       a schedule may have on individual businesses. During the course of our
                       work, we found that some industry groups, state and local contractors,
                       and state and local governments were not aware of the cooperative
                       purchasing program, despite the April 1995 Federal Register notice. In
                       addition, several associations told us that their memberships had
                       conflicting views on the program, which, in some cases, prevented the
                       association from taking a position.


Decisionmaking Level   To recognize the judgment inherent in the decisions GSA may be making
                       when determining whether schedules should be opened and the potential
                       lack of sufficient data with which to make these decisions, GSA
                       acknowledges that it may need to elevate the level at which decisions are
                       made. In its Federal Register notice, GSA indicated that its contracting
                       officers may be making decisions on opening schedules. However, GSA is
                       now considering assigning this responsibility to the Assistant
                       Commissioner for Acquisition, Federal Supply Service. The Assistant
                       Commissioner would receive recommendations from contracting officers
                       regarding requests to make schedules available to nonfederal users. In



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                          those instances where GSA has delegated authority to award schedule
                          contracts to another agency, such as VA, GSA is considering also delegating
                          authority to decide on opening schedules to that agency’s Senior
                          Procurement Executive.

                          Decisions to open schedules are policy decisions that could have
                          significant adverse effects on some businesses or industries. In our
                          opinion, policy decisions that can have such significant effects should be
                          made at a higher level than the contracting officer level.


Evaluating Decisions to   Neither GSA’s Federal Register notice nor changes GSA officials told us they
Open Schedules and        were considering included a provision for evaluating GSA’s implementation
Dealing With Unexpected   of the cooperative purchasing program, including the effects of opening
                          schedules to state and local governments, even though GSA officials said
Effects                   that at one time it had considered implementing the program in a series of
                          “pilots.” Because the effects of cooperative purchasing are likely to vary by
                          industry or even product or service, the uncertainties over the extent to
                          which state and local governments and business will actually exercise
                          their options to participate in the program and purchase items from
                          vendors listed on the schedules, and because it will likely be very difficult
                          to get sufficient data before implementation to predict effects, we believe
                          evaluations would be helpful to GSA. Such evaluations should help GSA
                          (1) determine actual effects, (2) better gauge the types of data needed to
                          make decisions, (3) identify the best means for obtaining relevant input
                          from potentially affected organizations, and (4) provide a basis for GSA to
                          reverse any decisions that may turn out to have more negative than
                          positive effects. These evaluations could also provide objective
                          information on whether the program may be lowering prices or
                          administrative costs.

                          A related improvement to GSA’s implementation approach would be to
                          include in its plan steps to be taken in the event a decision to open a
                          schedule is found to have unexpected adverse effects. This situation was
                          not addressed in GSA’s Federal Register notice. Possible steps could
                          include reversing its decision or taking some other action to mitigate the
                          adverse effects.


Excluding Portions of     Another element that would enhance the potential for the implementation
Schedules                 plan to be successful would be a provision for opening part of a schedule
                          to nonfederal governments when a schedule contains a mix of products



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                  that could be affected differentially by cooperative purchasing. For
                  example, the fire fighting and waste disposal vehicles schedule contains
                  products that are made by two different industries, as does the
                  construction and highway maintenance equipment schedule. According to
                  GSA’s contracting officer for these two schedules, the effects of the
                  cooperative purchasing program would be quite different on the various
                  industries contained in those schedules. The fire fighting vehicle industry
                  relies almost exclusively on sales to nonfederal governments, while the
                  waste disposal vehicle industry produces many types of products that are
                  sold not only to nonfederal governments, but private industry as well.
                  Similarly, the in vitro diagnostic medical equipment and supply schedule
                  contains a diverse mix of products. According to a VA official, when VA
                  requested GSA to exclude this schedule from the cooperative purchasing
                  program, it was concerned with potential price increases for only three of
                  the items on the schedule because they represent most of the costs related
                  to the schedule.


                  In their written comments on a draft of this report, GSA and VA agreed that
Agency Comments   assessing the potential effect of cooperative purchasing will be difficult
                  because of questions about how nonfederal governments and businesses
                  would react to the program and the lack of data on which to predict the
                  potential effects; the agencies agreed that an implementation plan that
                  would consider the effects on all affected parties would enhance the
                  decisionmaking process for the program. Both agencies further said that
                  the uncertainty about the program would make it important that the
                  determination to open or not open a particular schedule to cooperative
                  purchasing be on a case-by-case basis. GSA said that it believed using a
                  process like the one we recommended would provide enough information
                  for GSA to make informed decisions. GSA said that it would base its
                  decisions on the best available information. VA also noted the importance
                  of having a good decisionmaking process and implementation plan and
                  said that it was considering industry conferences for schedules that were
                  candidates for the cooperative purchasing program.

                  In its comments on the draft report, the Coalition for Government
                  Procurement said that it generally agreed with our conclusion that GSA’s
                  approach to implementing cooperative purchasing appears reasonable in
                  several respects, but it expressed some concerns about GSA’s tentative
                  plan. In particular, as indicated in chapter 3, it disagreed with GSA’s
                  tentative plan that state prompt payment provisions would be applied for
                  states having such laws, noting the potentially increased administrative



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burden of requiring sellers to work under multiple laws rather than a
uniform law—the federal prompt payment law.

The Coalition also disagreed with a part of GSA’s tentative plan regarding
how businesses could exercise the option not to accept orders. Under
GSA’s tentative plan, vendors would have the option to modify their
contracts with GSA to enable nonfederal governments to purchase goods
and services. Once a vendor had agreed to the modification, it would have
5 days after receiving orders from nonfederal governments to decline a
particular order. The Coalition said that this would not be adequate time
for some businesses to make this decision for new customers and that this
could also create uncertainty among the nonfederal governments placing
orders. The National Association of State Purchasing Officials also
expressed concern with this aspect of GSA’s tentative plan, noting that such
a provision could leave state agencies without a readily available supply
source.

The Coalition suggested that GSA involve representatives from nonfederal
governments and from businesses in developing its implementation plan
and phase in its implementation of cooperative purchasing. Similarly, VA
pointed out that some effects of cooperative purchasing, such as lower
federal product prices or lower vendor administrative costs, will not be
known until some experience is gained under the program.

During the course of our review, GSA officials told us they were aware of
concerns potentially affected parties had with cooperative purchasing and
have worked with and will continue to work with VA and these parties in
developing its implementation plan. Further, it appears that GSA’s and VA’s
intention to consider opening schedules on a schedule-by-schedule basis
would, in effect, provide for a phase-in approach that would provide them
experience with opening some schedules before a large number are
opened.




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Conclusions and Recommendation


             The potential benefits and negative economic consequences of opening up
             federal supply schedules to nonfederal governments are likely to vary
             considerably among state and local government agencies as well as among
             industries and individual businesses. Since the effects of cooperative
             purchasing will depend in large part on how GSA implements the program,
             it is important for GSA to provide Congress with a detailed implementation
             plan. Such a plan could show how GSA would decide whether or not to
             open a particular schedule to nonfederal users and how it would seek to
             find a balance of the benefits and adverse effects of cooperative
             purchasing. Such information would provide a stronger basis than is
             currently available for Congress in its consideration of whether it should
             take any action while GSA’s authority for the cooperative purchasing plan
             remains suspended.

             The potential effects of the cooperative purchasing program are likely to
             vary among state, local, and the Puerto Rican governments. Since
             participation is voluntary, these governments would use the schedules
             only if they perceived benefits from doing so. Some state and local
             governments are likely to benefit from lower prices for some products,
             less administrative burden, and shortened procurement cycle times as a
             result of cooperative purchasing, although the extent to which these
             benefits would materialize is unclear and depends on several factors. The
             expected benefits are likely because several state and local governments
             and some businesses want the schedules opened and because some
             schedule prices are lower than nonfederal governments’ prices. Also, some
             state and local governments and businesses agree that reduced
             administrative effort and cycle times are a likely result of cooperative
             purchasing. In addition, some nonfederal law enforcement agencies that
             have had access to the schedules said that they experienced benefits from
             having such access.

             Several factors are likely to affect the extent to which these expected
             benefits would materialize. These include state or local laws, policies, or
             preferences that could preclude or constrain use of the schedules in some
             instances; the unavailability of some items through the schedules program;
             the frequent ability of state and local agencies to get better prices or
             contract terms through other sources; and the relatively small proportion
             of state and local expenditures that are made for some items available
             through the schedules program. These factors will vary among and within
             states and localities, making precise predictions of effects quite difficult, if
             not impossible. Predictions are even more difficult given the possibility
             that some state and local governments could change their laws,



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Conclusions and Recommendation




ordinances, or policies in the future to permit greater use of federal supply
schedules, and businesses could change their practices as well. These
possibilities remain speculative at this point.

Indian tribal governments are not likely to experience significant effects
from cooperative purchasing. This is because many have already had
access to federal supply schedules, and federal agencies would remain
responsible for providing services to tribes in program areas for which
tribal governments do not already have access to the schedules.

Cooperative purchasing’s effects on businesses are likely to vary among
industries and individual firms, including firms in the same industry. It
appears reasonable to us that at least some of the benefits perceived by
some businesses, including small businesses and dealers, may occur.
These potential benefits would include increased sales, profits, or
exposure to additional markets and reduced administrative costs as a
result of businesses not having to compete separately for some contracts
with various state and local governments.

Those companies that are already GSA vendors and that sell to both federal
and nonfederal governments would likely see the greatest administrative
savings since these companies would not have to separately compete for
the federal, state, and local contracts. For a particular firm, these
administrative savings would depend on the nature of the business, the
extent to which it supplies state or local governments, and the extent to
which state and local governments exercise the option of buying through
the cooperative purchasing program. Thus, the potential for administrative
savings cannot be predicted. The full extent to which businesses would
elect to exercise the option of selling to nonfederal governments through
the program also cannot be predicted.

On the other hand, some industries, including small businesses and
dealers, could experience reduced sales or profits, a reduction in
operations, or even closure if the schedules containing products they sell
are opened for nonfederal buyers. While the extent to which these effects
would occur cannot be predicted, two factors that can influence the
results are the proportion of an industry’s or firm’s sales to state and local
governments and how that industry takes into consideration its dealership
network in its contracts with GSA. Those manufacturers that sell higher
proportions of their products to state and local governments and whose
dealerships receive no or reduced fees or commissions for sales made
through the federal supply schedules program appear to have the greatest



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potential for experiencing significant adverse effects, along with their
dealers. The effects can be even more severe if dealers are expected to
provide extensive service in connection with these types of sales.

The optional nature of the program, however, should limit the extent to
which manufacturers would want to participate in the program when
doing so would negatively affect their dealership networks. In those cases
when competitive forces could influence decisions, however, these effects
could be further mitigated by GSA through its plan to exclude schedules
from the program when adverse effects on federal agencies are likely or if
the adverse effects on businesses are likely to exceed expected benefits to
nonfederal governments.

Regardless of whether the actual effect on different industries would be
positive or negative, several factors would tend to limit the magnitude of
the effect. Various industries sell varying proportions of their output to
state and local governments, and, as previously discussed, several
conditions would limit the volume of purchases nonfederal governments
would make through the schedules. Also, some businesses are not likely to
be affected at all because prices already offered to state and local
governments may be comparable to or better than schedule prices, their
product or service is not available through the schedules, or state or local
governments may not choose to buy through the schedule to retain such
benefits as service or training from their current contractors. These
variables, together with the lack of available data to independently predict
how nonfederal governments or their suppliers would respond to the
cooperative purchasing program in the future, make it impossible to
accurately predict the overall effect of the program on individual
businesses.

All of the uncertainties at the state, local, and business level make it
difficult, if not impossible, to determine the effect of cooperative
purchasing on the federal government. Although it appears likely that
Puerto Rico and some state and local governments and businesses would
use the program, it is not clear whether this expanded use of the schedules
would lead to lower schedule prices or lower federal administrative fees.
On the other hand, it is doubtful that the federal government would
experience adverse effects since GSA plans to exclude schedules when
such effects are anticipated and would be able to act if unexpected
negative effects arise. GSA’s policy that it will continue to administer the
federal supply schedules program primarily for its federal customers is
consistent with GSA’s mission.



Page 82                                    GAO/GGD-97-33 Cooperative Purchasing
Chapter 5
Conclusions and Recommendation




GSA’s plan for implementing the cooperative purchasing program is
evolving and has not yet been put into a final written document. Although
this is understandable given the legislative suspension of authority for the
program, Congress, GSA, and any affected parties will need a written plan
before implementation of cooperative purchasing. In our view, such a plan
is essential for Congress to be able to judge whether GSA is taking
appropriate steps to fairly balance the potentially beneficial and adverse
effects of cooperative purchasing, without compromising the interests of
its federal customers.

The implementation approach GSA has been developing seems reasonable
in several respects, including recognition that effects will vary and
judgment will be involved in making trade-off decisions. However, these
trade-off decisions are likely to be quite difficult in a number of situations
in which some or many businesses perceive significant adverse effects,
while state or local governments desire access to the schedules. A written
plan would provide a basis for GSA to ensure that its staff is making
decisions in a manner consistent with all available information. The plan
could indicate, for instance, that GSA would consider the share of industry
output that is sold to state and local governments as one data element that
would contribute to GSA’s decision. It could also discuss how GSA would
weigh the views of affected parties in situations without adequate
quantitative data. Further, should GSA delegate decisionmaking authority
to VA’s Senior Procurement Executive, a written plan could provide a
mechanism for consistent decisionmaking at GSA and VA.

GSA’s decisions will be further complicated in some cases because
businesses in the same industries have differing views about the program,
and there may not be sufficient quantitative data to enable GSA to weigh
the benefits and adverse effects. This makes it critical for the parties that
are potentially affected to have a clear understanding of how GSA intends
to implement the program and how it will consider the views of affected
parties as well as any available quantitative data. Such understanding will
be crucial for the credibility of GSA’s decisions should the program be
implemented as the law now provides.

We believe that certain elements in the approach GSA has been considering
should particularly be incorporated into its final written plan. These
include such items as the optional nature of the program, designation of a
high-level official to make final decisions on opening schedules, provision
for opening parts of schedules when effects for different industries may
vary significantly, and use of the Commerce Business Daily and/or the



Page 83                                     GAO/GGD-97-33 Cooperative Purchasing
                           Chapter 5
                           Conclusions and Recommendation




                           Federal Register to announce its intention to open schedules. However,
                           we believe that GSA’s plan should also include (1) guidance to its and VA’s
                           staff on considering benefits and negative effects, (2) steps that will be
                           taken in addition to using the Commerce Business Daily and/or the
                           Federal Register to notify potentially affected parties, (3) provisions for
                           evaluating the actual effects of decisions made to open schedules, and
                           (4) steps that will be taken if the actual effects of opening schedules are
                           different from those GSA projected.


                           We recommend that as part of GSA’s report on the cooperative purchasing
Recommendation to          program to Congress mandated by the Clinger-Cohen Act of 1996, the
the Administrator of       Administrator provide a detailed plan setting forth the steps that GSA will
General Services           take to implement the program. In particular, the Administrator’s report
                           should provide Congress with a written implementation plan that
                           emphasizes the optional nature of the program and

                       •   includes guidance that will be provided to GSA and VA staff on the available
                           quantitative data, affected parties’ views, and other factors that need to be
                           considered in assessing benefits and negative effects of opening up
                           schedules;
                       •   identifies appropriate processes for obtaining and considering information
                           and views from a full range of affected parties;
                       •   designates a high-level official or officials who are to make final decisions
                           on opening schedules, especially when businesses express significant
                           concern about potential adverse effects;
                       •   provides for evaluating the actual effects of decisions to open schedules,
                           and a means for addressing the effects if the data so warrant; and
                       •   allows for partially opening schedules when appropriate.


                           GSA  and VA agreed with our conclusions and recommendation. Both
Agency Comments            agencies said that the uncertain effects of cooperative purchasing
                           illustrated the importance of having a process that would enable them to
                           make informed decisions on a case-by-case basis. GSA agreed that such a
                           plan would assist Congress and others in understanding the program and
                           evaluating its potential impact and benefits.

                           The National Association of State Purchasing Officials agreed with our
                           conclusion that allowing nonfederal governments to use federal supply
                           schedules can lead to positive effects for state and local governments. It
                           noted, however, that any potential positive effects would be limited by the



                           Page 84                                    GAO/GGD-97-33 Cooperative Purchasing
Chapter 5
Conclusions and Recommendation




exclusion of certain contracts from the program. The Association also
agreed that GSA should use communication tools in addition to the
Commerce Business Daily for states and small businesses.

The Coalition for Government Procurement generally agreed with our
conclusions and recommendation and emphasized the importance of an
implementation plan and good evaluations of the program’s effects. The
Coalition suggested that GSA involve business and nonfederal government
representatives in formulating this plan and that GSA phase in the
implementation.




Page 85                                  GAO/GGD-97-33 Cooperative Purchasing
Appendix I

Federal Supply Schedule Sales, Fiscal Year
1996


               Schedule title                                Schedule number                     Large
               International schedule                        IFSS                                    18
               Boats and marine barriers                     19 I                                     4
               Wheel and track vehicles                      23 I                                     9
               Pneumatic highway tires                       26 I                                     3
               Woodworking and metalworking machinery        32 & 34                                  7
               and equipment
               Printing and bookbinding equipment            36 II                                   21
               Copying equipment, supplies and services      36 IV                                   23
               Lawn and garden equipment                     37 II A                                 11
               Construction and highway maintenance          38 I A                                  16
               equipment
               Material handling equipment—conveyors,        39 II A                                 13
               hand-lift trucks, carts, pallets
               Fire fighting and rescue equipment            42 I B                                   6
               Fire fighting vehicles and waste disposal     42 IV                                    9
               vehicles
               Water filtration equipment                    46 I A
               Repair shop equipment                         49 I B                                   9
               Maintenance and repair shop cleaning          49 II                                    3
               equipment
               Power-driven hand tools                       51 VI                                   14
               Scaffolding, work, and service platformsb     54 II A                                  3
               Prefabricated structures, warehouses          54 II B                                  2
               Construction and building materials           56 IV A                                  7
               Communications equipment                      58 III B                                18
               Telecommunication supplies (recording         58 V A                                  10
               tapes and magnetic cards)
               Communications equipment                      58 VI and VII
               Telecommunications equipment                  58 IX                                    6
               Batteries                                     61 III                                   2
               Portable generators                           61 V A                                  12
               Power distribution equipment                  61 V B                                  16
               Lighting fixtures and lamps                   62 I
               Energy-efficient products                     62 II                                    1
               Alarm and signal equipment                    63 I                                    19
               Drugs and pharmaceutical productsc            65 I B                                 149
               Antiseptic liquid skin cleansing detergents   65 I C                                   8
               and soapsc
               Medical and veterinary suppliesc              65 II B                                 83



               Page 86                                              GAO/GGD-97-33 Cooperative Purchasing
                             Appendix I
                             Federal Supply Schedule Sales, Fiscal Year
                             1996




Number of vendors                                           Fiscal year 1996 sales
            Small   Othera                 Large                 Small                Other              Total
               78      39              $5,728,981         $10,434,251          $38,448,323         $54,611,555
               35       1              $2,108,127           $3,420,453                              $5,528,580
               17                       $653,733            $1,991,166                              $2,644,899
                                                                                                            $0
               18                      $3,220,260           $3,810,439                              $7,030,699

               38       3              $3,784,048           $8,835,515                $2,971       $12,622,534
               24       5          $400,388,532             $9,465,681         $10,259,601        $420,113,814
               65                      $1,665,063         $11,271,768                              $12,936,831
               29       1           $16,429,463             $4,386,486               $93,141       $20,909,090

               61                       $304,730            $2,534,955                              $2,839,685

               35       1               $847,009            $4,723,616               $74,482        $5,645,107
               35                   $11,910,870             $5,532,947                             $17,443,817

                                                                                                            $0
               39                      $3,492,431           $3,685,352                              $7,177,783
               56       1               $485,954            $4,425,042                $4,726        $4,915,722

                9                                               $1,978                                  $1,978
               12                      $5,044,520             $979,984                              $6,024,504
                3                       $428,636              $492,491                                $921,127
               22       1               $578,475              $988,090                              $1,566,565
               57      20           $16,017,908           $13,413,958          $54,172,882         $83,604,748
               59                   $17,817,660             $6,684,871                             $24,502,531

                                                                                                   $50,743,000
               23       5              $7,503,742           $9,104,791          $1,908,020         $18,516,553
               10                      $1,132,958           $1,102,773                              $2,235,731
               22                      $4,046,397           $2,442,933                              $6,489,330
               45       1           $11,491,931             $2,243,836                 $598        $13,736,365
               23                                           $2,613,802                              $2,613,802
               31                       $349,588            $1,643,633                              $1,993,221
               48                      $3,783,220           $7,572,005                             $11,355,225
              113                $1,188,675,299          $100,626,096                          $1,289,301,395 d
               14                      $2,477,352              $65,902                              $2,543,254d

              235                  $112,895,055           $73,486,681                             $186,381,736d
                                                                                                       (continued)


                             Page 87                                          GAO/GGD-97-33 Cooperative Purchasing
Appendix I
Federal Supply Schedule Sales, Fiscal Year
1996




Schedule title                               Schedule number                   Large
                                 c
Dental equipment and supplies                65 II C                               21
Medical equipment and suppliesc              65 II D                              108
Pacemakers and ancillary systemsc            65 II E                                7
Wheel chairs, three-wheeled scootersc        65 II F                                4
Medical X-ray equipment and supplies,        65 V A                                 9
including medical and dental X-ray filmc
In vitro diagnostic substances, reagents,    65 VII                                40
test kits, and setsc
Blood chemistry, electrophoresis, imaging    66 II A                               36
Lab accessories and supplies                 66 II B                               11
Clinical sample preparation and analysis     66 II C                               12
instruments
Laboratory balances and special purpose      66 II E                                6
scales
Graphic recording instruments                66 II G                                2
Instrumentation components (data             66 II H                               13
acquisition, calibration)
Electronics analyzers and meters             66 II J                               35
Materials, temperature utilities, and test   66 II L                               10
equipment
Spectrometers and spectrophometers           66 II M                               15
Chromatograph and miscellaneous              66 II N                               30
analyzers
Lab ovens, chambers, and thermometers        66 II O                                5
Individual and modular furniture             66 II P                                6
Geophysical, surveying, and GPS equipment 66 II Q                                  11
Environmental analysis and hazard            66 II R                               11
detection equipment
Vertical laminar flow biological safety      66 II T
cabinets
Cost per test—clinical, lab, chemistry,      66 III                                22
hematology, coagulation, urinalysis,
microbiologyc
Photographic equipment and supplies          67 II                                 37
Microphotographic equipment and supplies     67 IV B                                7
Calcium chloride, deicing compounds, and     68 I A                                 4
bulk sodium chloride
Dry iceb                                     68 III C                               3
Propane                                      68 III D                               2
Sulphur hexaflourideb                        68 III E
Heliumb                                      68 III G                              11




Page 88                                           GAO/GGD-97-33 Cooperative Purchasing
                             Appendix I
                             Federal Supply Schedule Sales, Fiscal Year
                             1996




Number of vendors                                           Fiscal year 1996 sales
            Small   Othera                 Large                 Small                 Other             Total
               56                   $17,658,788             $9,886,270                             $27,545,058d
              249                  $145,769,750           $47,471,228                             $193,240,978d
                3                      $3,276,369             $649,989                              $3,926,358d
               21                   $19,219,014             $5,065,840                             $24,284,854d
               12                   $40,450,869             $2,418,488                             $42,869,357d

               91                   $90,104,124           $13,777,082                             $103,881,206d

               52                   $10,899,421           $10,621,060                              $21,520,481
               49                      $5,061,873           $4,768,427                              $9,830,300
               27                   $15,992,075             $4,541,286                             $20,533,361

                3       1               $876,446              $268,348                $93,079       $1,237,873

                6                       $628,357               $15,002                                $643,359
               59                   $20,134,087             $9,591,871                             $29,725,958

               38       1           $93,733,824             $5,311,510                             $99,045,334
               51                      $2,062,712           $3,153,998                              $5,216,710

               29                      $4,723,349           $1,106,452                              $5,829,801
               62                   $30,151,906           $10,421,765                              $40,573,671

               52       4              $3,260,373           $8,584,834               $172,524      $12,017,731
               15       1              $5,255,547           $1,291,907                              $6,547,454
               50       3              $1,550,244         $14,754,024                $670,970      $16,975,238
               57                      $1,110,630           $7,958,168                              $9,068,798

                3                                           $1,100,204                              $1,100,204

                0                   $42,623,896                                                    $42,623,896d


               89       6           $34,498,595           $13,278,217           $2,191,090         $49,967,902
               24       2           $12,022,098             $4,244,677          $3,590,841         $19,857,616
                6                       $999,324              $161,975                              $1,161,299

               14                        $37,547              $324,609                                $362,156
                4                         $2,710               $68,935                                 $71,645
                1                                              $60,203                                 $60,203
               13                        $87,766              $114,971                                $202,737
                                                                                                       (continued)


                             Page 89                                          GAO/GGD-97-33 Cooperative Purchasing
Appendix I
Federal Supply Schedule Sales, Fiscal Year
1996




Schedule title                                   Schedule number                    Large
                              b
Oxygen: aviator’s breathing                      68 III K                                7
Industrial gases in high-pressure cylindersb     68 III L                                8
Industrial gases—liquid, bulk and in             68 III M                               12
low-pressure chambersb
Industrial gases—chlorine and ammoniab           68 III N                                3
Other chemicals including water treatment        68 V B & C                              9
chemicals
Disinfectants                                    68 VI A                                 4
Deodorants                                       68 VI B                                 5
Training aids and devices - programmed           69                                     11
learning materials
ADP equipment, including used and                70 A and D
refurbished equipment
Computers                                        70 B/C
Electronic commerce                              70E
Upholstered household and quarters               71 I E                                 15
furniture
Wall units, loft groups, and unaccompanied       71 I H                                  4
personnel furniture
Executive office and conference room             71 II D                                11
furniture
Systems furniture                                71 II E                                16
Packaged room furnishings                        71 II H                                 3
Classroom, auditorium, and theater seating       71 III A                                6
Library furniture                                71 III B                                2
Storage cabinets for forms and flammable         71 III C                                1
liquids; card-size filing cabinets
Mail sorting and distribution equipment,         71 III D
modular storage cabinets, and molded
storage bins
Security filing cabinets, safes, vault doors,    71 III E                                2
map and plan files, and special access
control containers
Hospital patient room furniture                  71 III F                               10
Multipurpose seating                             71 III H                               30
Steel vertical blueprint filing cabinets, roll   71 III J                                4
drawing files, high-density movable shelf
filing cabinets
Ergonomic chairsb                                71 III K
Cafeteria and food service furniture             71 III L
Partitions                                       71 III M
ADP furniture                                    71 III N                               16



Page 90                                                GAO/GGD-97-33 Cooperative Purchasing
                             Appendix I
                             Federal Supply Schedule Sales, Fiscal Year
                             1996




Number of vendors                                           Fiscal year 1996 sales
            Small   Othera                 Large                 Small                 Other             Total
                7                       $444,649              $172,082                                $616,731
               22                       $150,129              $438,523                                $588,652
               25                      $1,640,387             $911,176                              $2,551,563

               12                        $12,350               $23,575                                 $35,925
               55                      $5,542,419           $6,476,730                             $12,019,149

                3                        $30,708              $555,733                                $586,441
               10                       $470,686              $208,606                                $679,292
               80                      $2,882,119         $14,996,175                              $17,878,294

                                                                                                  $387,310,000

                                                                                                  $479,284,000
                                                                                                      $376,700
               39       5           $10,275,680             $7,513,087          $1,036,496         $18,825,263

               25       1              $8,054,800         $70,925,926                              $78,980,726

               21       2              $1,266,252             $760,906               $783,334       $2,810,492

               27       1          $244,026,858           $30,200,868           $6,521,396        $280,749,122
               10                                                  $60                                     $60
               26       2              $1,311,105           $1,189,817                 $8,257       $2,509,179
               28       2                $79,537            $4,263,904                              $4,343,441
               18                                         $11,582,564                              $11,582,564

               10                                           $2,589,022                              $2,589,022


                7                      $6,667,740           $2,552,979                              $9,220,719


               22       3           $12,243,642             $3,180,688                             $15,424,330
               86       9           $32,470,903           $35,336,389          $96,166,651        $163,973,943
               16       1              $5,648,592         $10,446,820                  $6,495      $16,101,907


                1                                             $199,980                                $199,980
               14                                           $2,520,043                              $2,520,043
               28                                           $1,772,421                              $1,772,421
               67       7           $56,562,815           $25,064,191           $8,954,743         $90,581,749
                                                                                                       (continued)


                             Page 91                                          GAO/GGD-97-33 Cooperative Purchasing
Appendix I
Federal Supply Schedule Sales, Fiscal Year
1996




Schedule title                                Schedule number                     Large
Display and communication boards              71 III T
Clothing lockers and drafting stools          71 III Y                                 2
           b
Partitions                                    71 III Z
Conference room and multipurpose tables       71 X                                    12
Work benches, work tables, storage cabinets 71 XIV B                                   7
Carpet, carpet tile, and carpet cushion       72 I A                                  14
Resilient flooring                            72 I B                                   3
Mats and matting                              72 I E                                   1
Drapes and blinds                             72 V                                     2
Recycling collection containers and           72 VII B                                 9
specialty waste receptacles
Wall art                                      72 VIII                                  1
Food service equipment                        73 III                                  56
Office machines (typewriters, dictation       74 I A                                   2
systems, lettering machines, etc.)
Office machines (calculators, mailing         74 II & III                              7
equipment, etc.)
Visible record equipment (frames for cards,   74 IV                                    6
posting/ledger trays, etc.)
Recording paper and supplies (plotting,       75 I D                                  16
facsimile, chart)
Office supplies (pencils, markers, binders,   75 II A                                 17
desk sorters, etc.)
Desk top                                      75 III A                                 5
Envelopes (mailing, printed and plain)        75 V                                     4
Cards: tabulating, aperture, copy             75 VIII A                                1
Paper: xerographic and thermal copy           75 XI                                    1
Publications (dictionaries, encyclopedias,    76 I                                    23
atlases, charts, globes)
Publications (law books, tax and reporting    76 II                                   11
periodicals, microfilmed library systems)
Musical instruments                           77 II
Audio and video equipment (televisions,       77 III                                   2
radios, phonographs, VCRs)
Indoor/outdoor athletic and recreational      78 I A                                  25
equipment
Park and outdoor recreation equipment         78 I C                                   7
Cleaning equipment and supplies               79 I B                                  12
Ware washing compounds and laundry            79 II A                                  3
detergent
Sorbents                                      79 V                                     2



Page 92                                              GAO/GGD-97-33 Cooperative Purchasing
                             Appendix I
                             Federal Supply Schedule Sales, Fiscal Year
                             1996




Number of vendors                                           Fiscal year 1996 sales
            Small   Othera                 Large                 Small                 Other             Total
               35                                           $6,191,780                              $6,191,780
               22                        $15,537            $1,998,307                              $2,013,844
                1                                              $43,847                                 $43,847
               45       4              $3,632,712           $4,690,947          $1,105,456          $9,429,115
               20                   $21,126,934             $2,519,140                             $23,646,074
               24       1           $44,239,791             $8,523,674          $2,689,188         $55,452,653
                6                       $137,642            $1,330,054                              $1,467,696
                9                       $214,725              $227,011                                $441,736
               55                        $16,548          $10,545,064                              $10,561,612
               52                      $2,020,537           $3,701,207                              $5,721,744

               60                         $7,177            $5,595,512                              $5,602,689
              174       3              $8,850,717         $30,426,366                              $39,277,083
               15       7              $2,883,479             $692,912          $3,918,031          $7,494,422

               22       7           $23,519,457             $1,793,330          $1,846,558         $27,159,345

               16       2              $5,797,724           $3,183,449          $2,252,111         $11,233,284

               46       1              $2,983,233           $2,546,998                              $5,530,231

               70                      $4,272,125         $16,093,212                              $20,365,337

                1                        $12,383                                                       $12,383
                4                      $4,823,424           $1,722,041                              $6,545,465
                3                      $1,451,162               $8,321                              $1,459,483
               10                                             $189,129                                $189,129
               46       1              $7,400,825           $7,029,509                             $14,430,334

                1                      $6,938,445                 $433                              $6,938,878

               16                                             $837,133                                $837,133
                9                      $3,893,129           $4,509,191                              $8,402,320

              190       2              $6,895,850         $27,872,479                 $48,176      $34,816,505

               89       3              $1,889,309           $9,614,915               $199,412      $11,703,636
               25       1              $6,597,578           $4,218,732               $450,119      $11,266,429
               12                      $7,838,402           $1,403,470                              $9,241,872

               13                       $204,956            $2,476,649                              $2,681,605
                                                                                                       (continued)


                             Page 93                                          GAO/GGD-97-33 Cooperative Purchasing
Appendix I
Federal Supply Schedule Sales, Fiscal Year
1996




Schedule title                               Schedule number                    Large
Latex paints                                 80 VI A                                11
Packing and packaging supplies               81 I B                                  6
Special purpose clothing                     84 II B                                 7
Athletic and recreational clothing and       84 V A                                  6
footwear
Law enforcement and security equipment       84 VI A                                19
                                         c
Subsistence (condiments and cereals)         89 I A                                  3
Subsistence (cookies, crackers, etc.)c       89 I B                                  3
Signs                                        99 IV A                                 6
Recruiting aid and promotional material      99 V A                                  1
Trophies and awards                          99 VI A
Airlines                                     451 II
Express transportation services (FEDEX)      451 III                                 1
Solvent recycling servicesb                  495 I A                                 1
Governmentwide commercial credit card        615                                     1
services
Relocation service                           653                                     2
Factual data reports: consumer and           732 I A                                 7
commercial credit
Professional debt collection services        732 I B                                 6
Investigation of discrimination complaints   738 X
and preparation of reports
Closed-end lease, without maintenance:       751 II                                  2
automobiles and light trucksb
Leasing: surveillance and law enforcement    751 III
vehiclesb
Professional film processing and videotape   781 I & II                              1
processing services
Lending library                              823                                     2
Prepayment audit of government               872
transportation billing documents
Consulting services: total quality           874                                    40
management implementation
New item introductory schedule               NIIS 999                                9
                                 c
New item introductory schedule               NIIS 65                                 0
Miscellaneousg
Totals                                                                           1,544




Page 94                                            GAO/GGD-97-33 Cooperative Purchasing
                              Appendix I
                              Federal Supply Schedule Sales, Fiscal Year
                              1996




Number of vendors                                            Fiscal year 1996 sales
            Small    Othera                 Large                 Small                 Other             Total
               14                       $1,697,752             $534,689                              $2,232,441
               33                       $1,928,541           $5,406,441                              $7,334,982
               44        2              $6,538,077           $8,912,491          $1,771,062         $17,221,630
               23                        $153,825            $1,826,948                              $1,980,773

              139        3           $20,440,732           $31,761,484                $730,203      $52,932,419
                1                       $2,921,294             $640,153                              $3,561,447d
                0                        $420,112                                                      $420,112d
               69                        $376,840            $4,783,316                              $5,160,156
               23                          $1,473              $965,618                                $967,091
               61                                            $2,231,929                              $2,231,929
                                  $1,400,000,000                                                 $1,400,000,000e
                                     $69,884,000                                                    $69,884,000e
                                         $587,264                                                      $587,264
                                                                                                             $0f

                                     $14,773,390                                                    $14,773,390
               10                       $8,564,706             $210,508                              $8,775,214

                1                            $119                                                          $119
                2                                            $2,373,028                              $2,373,028

                                         $203,380                                                      $203,380

                1                                                $7,146                                  $7,146

               42                                            $1,041,435                              $1,041,435

                                         $255,308                                                      $255,308
                2                                               $67,228                                 $67,228

               48                    $59,743,535           $36,557,990                              $96,301,525

              219        2           $14,428,459             $5,800,082                $58,264      $20,286,805
                5                                              $147,187                                $147,187
                                                                                                       $139,063
             4,879     168        $4,585,817,615          $976,127,585         $240,229,200      $6,720,027,163h




                              Page 95                                          GAO/GGD-97-33 Cooperative Purchasing
Appendix I
Federal Supply Schedule Sales, Fiscal Year
1996




Note 1: The number and identity of schedules will vary from year to year as schedules are
created, cancelled, or merged with other schedules.

Note 2: The total number of vendors is overstated since many vendors have contracts on more
than one schedule.

Note 3: All schedules but those indicated are managed by GSA.
a
  Other includes vendors such as foreign contractors and nonprofit or educational sources of
supplies or services.
b
    Schedule has been cancelled or merged with another schedule in fiscal year 1997.
c
    Schedule is managed by VA.
d
    VA fiscal year 1996 total sales are preliminary and could change.
e
    GSA does not collect the 1 percent industrial funding fee on these sales.
f
This schedule does not generate sales.
g
    Miscellaneous includes receipts from cancelled or converted schedules.
h
 Total sales is greater than the sum of sales to large, small, and other vendors because GSA
could not break out sales of communications, computer, and electronic commerce equipment by
vendor size.

Source: GSA and VA.




Page 96                                                     GAO/GGD-97-33 Cooperative Purchasing
Appendix II

State Responses to Our Survey on the
Potential Use of GSA’s Schedules

               To assist us in our review, we asked state purchasing agencies about
               (1) their use of state schedules, (2) their use of cooperative purchasing
               agreements, (3) regulations that would prohibit them from using GSA
               schedules, (4) factors that would limit their use of GSA schedules, and
               (5) any comparisons they had made of GSA schedule and state prices. A
               copy of the survey instrument is included in this appendix.

               We used a membership directory of the National Association of State
               Purchasing Officials to contact all the state agencies with responsibility for
               purchasing. Following interviews with selected state agencies, we
               developed a questionnaire. On September 5 and 6, 1996, we pretested the
               questionnaire with two state agencies. We faxed the survey to all 50 states
               and 3 territories between September 9 and 11. After follow-ups, we
               received fax responses from 48 states and 2 territories.

               To ensure data reliability and consistency, we performed edit checks of
               the instruments and made follow-up phone calls when issues arose. The
               edit checking and follow-ups raised some issues that need to be
               considered when interpreting the results. For example, most of the
               respondents who reported in question 6 that their states had procurement
               statutes or regulations prohibiting the use of GSA schedules also reported
               limiting factors in question 7. Two of the respondents who reported
               prohibitions in question 6 revealed to us in subsequent discussions that the
               prohibitions only applied to purchases above $10,000. Therefore, the
               answers to question 7 are a combination of factors that limit and factors
               that prohibit use of the GSA schedules. In question 8, two of the states
               reporting prohibitions indicated that they expected to make purchases
               from the GSA schedules because they anticipated the prohibitions would be
               removed.




               Page 97                                     GAO/GGD-97-33 Cooperative Purchasing
Appendix II
State Responses to Our Survey on the
Potential Use of GSA’s Schedules




Page 98                                GAO/GGD-97-33 Cooperative Purchasing
Appendix III

Government and Industry Associations’
Views Obtained During the Course of Our
Work
               Alabama Retail Association*
               American Small Business Association
               Associated Equipment Distributors
               Business Council of New York State
               California Association of Public Purchasing Officials
               California League of Cities
               Coalition for Government Procurement
               Contract Services Association of America
               Environmental Industry Association*
               Fire Apparatus Manufacturers Association
               Health Industry Distributors Association
               Health Industry Group Purchasing Association
               Health Industry Manufacturers Association
               Information Technology Association of America
               Information Technology Industry Council
               Material Handling Equipment Distributors Association
               Montana Association of Counties
               Montana Small Business Development Center
               National Association of Counties
               National Association of Housing and Redevelopment Officials*
               National Association of Purchasing Management
               National Association of State Purchasing Officials
               National Association of Towns and Townships
               National Association of Wholesalers & Distributors*
               National Retail Federation
               National Small Business United
               National Institute of Governmental Purchasing, Inc.
               New York State Association of Towns
               New York State Small Business Development Center
               North American Equipment Dealers Association
               Public Hospital Pharmacy Coalition
               Public Housing Authorities Directors Association*
               Public Technology Incorporated
               RGF Environmental Group*
               Small Business Legislative Council*
               Texas Association of Counties
               West Virginia Association of Counties
               West Virginia Manufacturers Association
               West Virginia National Federation of Independent Businesses
               West Virginia Small Business Development Center




               Page 99                                 GAO/GGD-97-33 Cooperative Purchasing
Appendix III
Government and Industry Associations’
Views Obtained During the Course of Our
Work




* These associations provided written comments to GSA or GAO on
cooperative purchasing.




Page 100                                  GAO/GGD-97-33 Cooperative Purchasing
Appendix IV

Comparability of State and Local Agencies’
Procurements to GSA Schedule Items

                                            To compare items procured by state and local governments to items
                                            available through GSA supply schedules, we obtained documentation of
                                            recent state and local procurements. We asked state and local
                                            procurement officials for documentation of procurements that, in their
                                            opinions, were frequent, were large in volume, took a substantial portion
                                            of their procurement budget, were difficult to procure, or might be
                                            available through GSA’s supply schedules at better prices or terms. Upon
                                            receipt, we forwarded this documentation to GSA and requested that it
                                            make a determination of the availability of the same or comparable items
                                            on GSA’s supply schedule and a comparison of the state/local prices to the
                                            GSA schedules’ prices.


                                            GSA’s responses are presented in table IV.1. In cases where more than one
                                            item had been included in a procurement action, GSA broke out each
                                            procurement action into separate line items and reported separate
                                            comparisons for each line item. Thus, the number of GSA responses does
                                            not equal the number of procurement actions. Further, GSA responded that,
                                            in some cases, the documentation provided by the state and local officials
                                            was not sufficient to determine if an item was available. We did not
                                            contact the state and local officials for additional documentation in these
                                            cases.

                                            In its responses, GSA noted that price is only one factor that has to be
                                            considered in these comparisons. Other factors that it noted included
                                            costs associated with awarding and administering contracts, costs of
                                            maintaining inventories, and costs to deliver items.


Table IV.1: Comparison of State and Local Procurement Prices With Federal Supply Schedule Prices
                                                       Item(s) available on FSS           GSA           GSA          GSA
                                                                             Cannot be         price       price        price
Procured items                                          No         Yes      determined        lower       higher        equal
ADP equipment
  Toshiba 100 computer with memory upgrade &                          2              1             2
  network card
  Document scanner, computer upgrade & lab                                           3
  equipment
  Computers with upgrades                                 1           1              2             1
  Apple computer monitor & CD drives                                                 3
  HP printer memory upgrade                                           1                            1
  DEC computer equipment with keyboard                                               2
  Compaq computer with upgrades & printer                 1           1              2             1
                                                                                                                   (continued)



                                            Page 101                                     GAO/GGD-97-33 Cooperative Purchasing
                                              Appendix IV
                                              Comparability of State and Local Agencies’
                                              Procurements to GSA Schedule Items




                                                            Item(s) available on FSS               GSA         GSA          GSA
                                                                                    Cannot be         price       price        price
Procured items                                               No          Yes       determined        lower       higher        equal
  Motorola portable radios (4 watt, 16                                                     5
  frequencies) with batteries & charger
  Gateway 2000 computer system                                1             1                                         1
  Samsung notebook computer & graded Okidata                                4              4              4
  & HP printers
  DEC Venturis microcomputer                                                1                             1
  Miscellaneous computer hardware                                                          16
  Dell 5100 microcomputer with upgrades                       3
  IBM microcomputers                                                                       15
  HP computers                                                              3              2              1           2
  Custom Pentium computer systems with                                                     1
  Diamond video cards, Colorado & Seagate
  hard drives, Toshiba CDs
  Computers & servers                                                                      4
  HP Vectra and Macintosh computer systems                    1             5              5              3           2
  with upgrades & printer
  Office & scientific equipment
  Film, 35 mm, 12 frame rolls                                               1                             1
  Xerox 5100 duplicator (lease)                                             1                             1
  Low energy/low spread ion source                            1
  Kodak copiers (lease)                                       1             2                             2
  Lanier 6745 copier                                          3
  Thermocycler                                                              1                                         1
  Canon 6050 II copier                                                      2                             2
  Film, Polaroid self-developing (Spectra 990)                              1                                         1
  Miscellaneous lab supplies & equipment                     22
Services
  Southwest Airline tickets                                                                1
  Airline ticketsa (various cities)                           2             4                             4
  Amtrak tickets                                              1
  Waste removal service                                       1
Furniture
  McDowell Craig furniture systems/clusters                                 3                                                      3
  ABCO computer table & Globel chairs                                                      2
  Teachers’ desks, chairs, filing/storage cabinets                                         14
  Miniblinds                                                                               2
  Larson desks and Nunnally desks, tables,                                                 6
  credenzas, chair, chair arms, keyboard trays
General products
                                                                                                                          (continued)


                                              Page 102                                          GAO/GGD-97-33 Cooperative Purchasing
                                             Appendix IV
                                             Comparability of State and Local Agencies’
                                             Procurements to GSA Schedule Items




                                                           Item(s) available on FSS               GSA         GSA          GSA
                                                                                   Cannot be         price       price        price
Procured items                                              No          Yes       determined        lower       higher        equal
  Ammunition, 40 caliber                                     1
  Stone & aggregate                                          1
  Prestressed concrete box beams                             1
  Prestressed concrete culverts                              1
  Construction of site utilities & paving                    1
  Electric wire                                              1
  Guardrail post & block                                     1
  Wood sign posts                                            1
  Reflective sheeting                                        1
  Lawn mowers                                                              2                             1           1
  Pine shavings (animal bedding)                             1
  Innerspring mattresses                                     2
  Traffic lamps                                              5
  Traffic cones                                              1
  Fuses, highway                                             1
  Hot mix asphalt                                            1
Paints & chemicals
  Sodium chloride (road salt)                                              1                                         1
  Paint                                                                                   1
  Diesel fuel                                                1
  Gasoline                                                   1
  De-icing salt (city of Elmira, New York)                                 1                                         1
  De-icing salt (DOT New York)                                                            1
  De-icing salt (Albany, New York)                                                        1
  Paint/paint supplies                                       7
Automotive
  Tires, high speed                                          1
  Police pursuit automobiles                                 1
  Pickup trucks                                              1
  Police vehicles                                            1
  Abrasive & chemical spreader                                                            1
  Power reversible snowplow                                                               1
  Barricades                                                 1
  Refuse vehicle                                                                          1
  Industrial rider sweeper                                                                1
  4-Wheel articulated loader                                                              1
  Articulated frame grader                                                                1
                                                                                                                         (continued)


                                             Page 103                                          GAO/GGD-97-33 Cooperative Purchasing
                                            Appendix IV
                                            Comparability of State and Local Agencies’
                                            Procurements to GSA Schedule Items




                                                          Item(s) available on FSS               GSA         GSA          GSA
                                                                                  Cannot be         price       price        price
Procured items                                             No          Yes       determined        lower       higher        equal
  Dump truck                                                                             1
  Passenger cars                                            1
Office supplies
  Xerographic paper (letter)                                              1                             1
  Xerographic paper (legal)                                               1                             1
  Toilet paper                                                            1                                         1
  Paper towels                                                            1                             1
  Roll towels                                                             1                             1
  Paper towels (Bounty)                                     1
  Desk jet ink cartridge black                                            1                                         1
  Cartridge F/660C printer, black                                         1                                         1
  Toner, cartridge. LaserJet 4L, 4Ml                                      1                                         1
  Paper, letter #24 GY 25% cot (Eaton)                                    1                             1
  Glue/Krazy Pen .07 oz.                                                  1                                         1
  Moistener, squeeze bottle                                 1
  Memo, trip 8.5X7, NCR, 50 set                             1
  Binder, ring, 11X8.5, 1” Dbe                                                           1
  Scissors, 8” 12/BX, 12/CS                                               1                                         1
  Paper 8.5X11, #20 wht (Springhill Relay DP)               1
  Punch, 3 hole 25SH cap black                                            1                                         1
  Rest, foot, adjustable, DGY                                             1                             1
  Headset, Lanier                                           1
  Dispenser, Pop-N-Jot, Bgy                                               1                             1
  Organizer, drawer, smoke                                                1                             1
  Refill, pad, Post-It 3X3, BL                                            1                             1
  Marker, highlighter, “Boss,” Y                                          1                             1
  Marker, highlighter, “Boss,” G                            1
  Marker, highlighter, “Boss,” R                            1
  Pen, Rolg, XF, precise, gn, pv                                          1                             1
  Pen, Rolg, XF, precise, pe, pv                                          1                             1
  Folder, hang, BX2,” exp, lgl, gn                                        1                             1
  Dispenser, Gem, clip, smoke                                             1                             1
  Clips, Gem vinyl, #1, assorted                                          1                             1
  Pad, legal, ruled, 5X8, ivory                                           1                             1
  Pad, legal, ruled, 5X8, gray                                            1                             1
  Routing req, 34” yel                                      1
  Folder, letter, 1/3, sgl, 11 pt, A                                      1                                         1
                                                                                                                        (continued)


                                            Page 104                                          GAO/GGD-97-33 Cooperative Purchasing
                                    Appendix IV
                                    Comparability of State and Local Agencies’
                                    Procurements to GSA Schedule Items




                                                    Item(s) available on FSS                      GSA             GSA            GSA
                                                                               Cannot be              price          price             price
Procured items                                       No            Yes        determined             lower          higher             equal
  Folder, legal, 1/3, asst 166                         1
  Staples, std CP 5M/ppr BX                                           1                                                   1
  Dispenser, tape black, 1” core                                      1                                   1
  Pad, doodle black                                    1
  Tape, Magic .75X1296” 1” C                                          1                                   1
  Magnifier, round, 2X4”                                              1                                                   1
  File, box letter/legal 12X10X15                                     1                                   1
  Tape, carton seal 2” clear                                          1                                   1
  Marker ultrafine, Flair, bl                                         1                                   1
  Ribbon, Nex P5/P9 XL                                 1
Totals                                               84              70                 101              47              20               3
Total number of items on invoices                   255

                                    a
                                      As noted in chapter 3, GSA officials told us that they do not intend to make the schedule with
                                    airline fares available for use in the cooperative purchasing program.

                                    Source: GSA and state and local agencies.




                                    Page 105                                                  GAO/GGD-97-33 Cooperative Purchasing
Appendix V

Comments From the General Services
Administration




              Page 106       GAO/GGD-97-33 Cooperative Purchasing
Appendix V
Comments From the General Services
Administration




Page 107                             GAO/GGD-97-33 Cooperative Purchasing
Appendix VI

Comments From the Department of
Veterans Affairs




              Page 108      GAO/GGD-97-33 Cooperative Purchasing
Appendix VI
Comments From the Department of
Veterans Affairs




Page 109                          GAO/GGD-97-33 Cooperative Purchasing
Appendix VII

Comments From the National Association of
State Purchasing Officials




               Page 110       GAO/GGD-97-33 Cooperative Purchasing
Appendix VII
Comments From the National Association of
State Purchasing Officials




Page 111                                    GAO/GGD-97-33 Cooperative Purchasing
Appendix VII
Comments From the National Association of
State Purchasing Officials




Page 112                                    GAO/GGD-97-33 Cooperative Purchasing
Appendix VII
Comments From the National Association of
State Purchasing Officials




Page 113                                    GAO/GGD-97-33 Cooperative Purchasing
Appendix VIII

Major Contributors to This Report


                        Mr. James M. McDermott, Assistant Director
General Government      Mr. Martin H. DeAlteriis, Senior Social Science Analyst
Division, Washington,   Ms. Vasiliki Theodoropoulus, Senior Evaluator /Communications Analyst
D.C.
                        Mr. Loren Yager, Assistant Director
Office of the Chief
Economist
                        Mr. Alan N. Belkin, Assistant General Counsel
Office of General       Mr. John G. Brosnan, Assistant General Counsel
Counsel                 Mr. Victor B. Goddard, Senior Attorney


                        Ms. Marcia B. McWreath, Evaluator-in-Charge
Dallas Field Office     Mr. Vijaykumar J. Barnabas, Senior Evaluator
                        Ms. Mary K. Muse, Senior Evaluator
                        Ms. Rita F. Oliver, Senior Evaluator
                        Mr. James L. Rose, Evaluator
                        Mr. James W. Turkett, Senior Evaluator
                        Mr. Cleofas Zapata, Jr., Senior Evaluator




(410063)                Page 114                                GAO/GGD-97-33 Cooperative Purchasing
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