Social Security Administration Procurement Procedures with Regard to a Multiple Award Contract and its Maximum Order Limitation

Published by the Government Accountability Office on 1977-08-31.

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

                         DOCUMENT RESUME
03581 - [A2513635]

Social Security Administration Procurement Procedures with
Regard to a Multiple Award Contract and its Maximum Order
Limitation. HRD-77-144; B-164031(4). August 31, 1977. 6 pp.
Report to Rep. J. Kenneth Robinson; by Gregory J. Ahart,
 i.rector, Human Resources Div.

Issue Area:   .deral Procurement of Goods and Services:
    Reasonableness of Prices Under Negotiated Contracts and
    Subcontracts (1904).
Contoct' Human Resources Div.
Budget Function: General Government: General Property and
    Records Management (804).
Organization Concerned: General Services Administration; Social
    Security Administration.
Congressional Relevance: Rep. J. Kenneth Robinson.
Authority: 41 C.F.R. 101-26, 401(a).
         Concerns were expressed about Social Security
Administration (SSA) practices in the procurement of standard
forms. An examination was conducted to determine whether
regulations were being circumvented and whether the concept of
Maximum Order Limitation (MOL) was being properly used. MOL
allows Federal agencies to purchase supply items under contract
up to a specific dollar amount after which competitive Lids
would have to te submitted through the General Setvices
Administration (GSA). Findings/Conclusions: The complainant
alleged that he was called by an SSA employee who requested
pricing information on two items, including ,50,000 sheets of
form 1292. He provided this information and believed taat his
company had the lowest price for form 1292. He was told that
this item would not be procured through competitive bids because
of time limitations, although the price was over the MOL.
Subsequently, 284,375 sheets of this item were purchased from a
competing vendcr after it had reduced its prices. When the
complainant inquired about orders on form 1292, he was told that
there would be no orders and that the pricirg request was for
information only. The Associate Commissioner of SSA stated that
his procurement people did not solicit bids to compare prices, a
practice fortidden by regulations. Since this point could not he
proven and steps were being taken to improve procurement
procedures, further pursuance of the matter was not warranted.
There is nothing in the regulations to prevent the agency from
reducing quantities to fall within the MOL. (HTW)
                                          WASHINCTON, D.C.   20548

                                                                            August 31, 1977


               The Honorable J. Kenaeth Robinsun
4=0            House of Representatives

               Dear Mr. robinson:
                     In your letter of January 24, 1977, which transmitted
                                                                   a  Social  Security
               documents from one of your constituents regarding
                                      products, you expressed concerm  that procure-
               procurement of pape:
                                                                 cha: the concept of
               ment regula.ions may have been circumvented and
                                                                      used. In your
               the Maximum Order Limitation was not being properly
                                                                     that 4e examine
               letters of March 14 and May 6, 1977, you requested
                                                            the General  Services
               the possibilities of having vendors not.fy             in their Federal
               Adir.nistratio.. more quickly when they nak. a change
                                                                showng   what   icems
               Supply Scheduie prices, having a central opace
                                                                         for  a  time
               have beer. purchased by Federal agencies, and providing
               delav before making a price change effective.
                         As agreed with your office on June 3, 1977, vur
                                                                   respond to your
                   and Systems Acquisition Division will study and
                   requests of March 14 and May 6, 1977.  This letter is .n response
                   to your letter of January 24, 1977.
                         We examined the subject procurement of Social Security            25,
                                                   standard  item)   made  on  September
                   1292 (a Federal Supplv Schedule                                     suDplied.
                                               inf.rmatior  -;ha: vour  cnr1stivuernt
                   1976. We a'sc reviewed the
                                                                     conr   ude tiat Social
                   As discussed below, based on our work we ca=not             or that the
                   Security purposeiv circumvented procuremen: regulations
                                                                 not properly    used in this
                   concept of the Maximum Order Limitation was
                                                                          documents and
                         According to information derived fro_ the above
                                                                     Security and General
                   discussions with procurement personnel irn Social
                   Services Administration, the following events

     You r constituent stated that he was called on the telephone
by an employer of Social Security's procurement section on
September 16, 1976, and that that empioyee requested pricing
information or; t-o Federal Supply Schedule items:  50,000 sheets
of Social SecJrity form 1291 and 450,000 sheets of Social Security
form 1292. He said that on that date, he believed that his com-
pany had the lowest price on the Federal Supply Schedule for form
1292--$180.00 per 1,000 sheets fox orders of 10,000 sheets or more,
before discount. He said that he provided the information
requested by Social Security.

     Your constituent said that he talked to this Social Security
employee again cn September .7, and was told to submit a written
quotation for the 50,000 sheets of form. 129. but not for the 450,000
sheets of form 1292. 'ie stated that when he told the employee that
the price for +50i000 sheets was over the Maximum Order Limitation
and asked if Social Security was going to have the General Services
Ad.i   eira tion ask for :omnptitive bids, he was told no, because
there would not be enough time to get bids before September 30,
1?76, (the end of the fiscal year).    He said that he was told
that the pricin. infor_,.ation on the form 12292 was for inform.ation
only for the various departments to uise in reviewing their needs.

      The Maximum Order Limitation allows Federal agencies to
purchase suppily item.s under contract up to a specific dollar
amount: an amount above that specified limit would have to go
through the General Senrices Administrat_.n for'competitive bids
to try to get a lower price for the G,.;er-ment.   Ideally, the
Maxim-u Order Limitation provides a cut-off point where it is
cost effective to have the agency use Federai Supply Schedules
for oroe :nr,  rauner than process its eorce  througn the General
Services Adm-irnistraticn.

     Your constituent said that he subm.itted a written price
cuotation for for-.. 1291: Social Securitv issued a purchase
order to his company on SeptemDer 27, 1974,   for 50,000 sheets.

                                        1976, to the General Services
      By letter dated September 27,                             form
                               vendor reduced its price for
Administration, a competing
                                                1C,000 sheets or more
1292 from $212.75 per 1,OCO for orders or tc 99,999, and $171.25
                        for orders  of  10,000
to $212.75 per 1,000
                                    sheets or more, before discount,
per 1,000 for orders of 100,000
                                   On September 25, 1976, Social
effective September 25, 1976.
                                       of its form 1292 from this
Security purchased 284,375 sheets
                               plus printing and less a discount
vendor at $171.25 per 1,000
                                    of $39,995.17.
of 22 percent for a total price
                                        October 6, 1976, he again
      Your constituent said that on
                                             emplovee he had been
 called the Social Security procurement
                                  of the departmerts had decided
 dealing with and asked if any
                                     going to order, and if there
 hcw much of for-:, 1292 they were                      He said that
                                  for large orders.
 were going to be any requests                    and that the pricing
                                 be no orders,
 he was told that there would
 request was for informaticn
                                       c.lled Social Security again
       Your constituent said that he                              be
                                 if any fovra: quotations would
 Co. November 15, !- S- to see                           inouired
                    .orzer    that Social Security had
 coming or that large                                  there would
 about in Setermber.   He said that he was told no,
                                    of the recuests for pricin;
 be no orders placed as a result of for.      12'1 that went ro his
 except the one for =n.000 sheets
                                  marufacturers were called to
 company; he was toLc .. a;z all
 prices for informsation only.
                                      Social Security emplovee did
       It is apparently true that a                              as a
                                    requestin- prices, and that
 call vour constituent's company
                       an order fcr 50,000 sheets   of form. 121 was
 result of this cal',       Your  consti=uent  han stated that the
 placed with his com-anv.                           were called to
                                 al manufacturers
 Social Secu.ity em-loyee said                            got tne
 Set prices. We assume   :nat the competing vendor who
                5  3 5 sheets--was one of the manufacturers called.
 large order--2L ,
                               competing vendor offered a price
 We must also assume that the
                              on September 2-, l976, (effective
 reduction to the Government
                                   the lowest price on the Federal
 back to September 25) to offer
                                     receive- the order for 2.4,375
  Supply Schedule and as a result,
  sheets of form 1292.

     By letter dated December 8, 1976, you requested that the
Co~.issioner of Social Security provide you vitn backSround
information on the procedures they used to procure approximately
450,000 sheets of form 1292 in September 1976. By letter dated
January 10, 1977, the Associate Commissioner for Management and
Administration answered your inquirv and stated that "the quantity
awarded was reduced from 430,C', sheets to 254,275 /sic/ sheets
prior to award, at the request of the ordering office, due to a
change in their requirements."

     Our revie, of the inventory records at Social Security
showed that as of July I, 1l76, the Stock Reolenishment Card
for form- 1292 had been adjusted to show "quancity to be ordered"
of 1,,30 ^ases or 450,000 sheets. The actual order was reduced
to 25-,375 sheets. However, there was no indication in t.
records showing why the armount to be ordered was reduced.

       Your constituert, in his letter of December 23, 1976,
raisCe   -he ifsue concernin- the correct Maximum Orde; Limita-
tior. for this par:icuia: ;ie-e;aon the         Supp      ,n.edule.
Under the multiple award contracts the Maximum     Order  Limitation
            ies" was
           "suS        'a: the time of this order,  S>C,000,   while
the Maximum Order Limitatio- for ~'cards'--a special     ca:egory   of
sucopplies--was $&0,0CC. The $3S,996.1    purchase on September 25,
197,, was for "cards."

      We attempted :o determine whether form... 1292 should have
been classified as "supplies" or "cards" and found that there
was much confusion on both General Services and Social Security
Ad.ministrat.ons' part as to whether the Maximum Order Limitation
shculd have been $2bC,000 or $S0,Cu00. We could not etr a satis-
fact    def ii--tioznfor "sp:    'e-' vs. "cards" fro- eith:er the
General Services or Social Securitv Acd:inr.strations, to determine
 in wnich ca..-or. this item shnuid be. However, according to
General Ser-ices Ad-.nistration, there was so much confusion       on
 this point that for the Federal Supply Schedule contract period
 from October 1, 1976. to September    30, !977, the Maxi;:um Order
Limitalior  was  cnanged to  S40,00C  for "'supplies," without
 discri-inating  for the special  category  of supplies--" irds."

     We presented the events surrounding this procurement to
Social Security's Associate Conmmissioner for Management and
Administration and, in view of the fact that telephone calls
were made to Federal Supply Schedule vendors, we also pointed
out that 'the Code of Federal Regulations (41 CFR 101-26, 4 01(a))
states in part,

     "* * * Agencies shall not solici:    bids, proposals,
     quotations, or otherwise test the market solely
     for the purpose of seeking alternative sources    to
     Federal Supply Schedules. Furtherz, agencies shall
     not request formal or informal qLotations from
     Federal Supply Schedule contractors for purposes
     of contract price comparisons."

     Because of this regulation and the telephone calls made to
Federal Supply Schedule vendors, we asked the Associate Commis-
sioner what explanation the Social Security Admin:.stration had
to offer.

     The Associate Comrmissioner stated that he was deeply concerned
about the issues we raised and admitted there was some looseness
in the prozur-enr: procedures fcll'wed. Base4 on .is review he
concluded that there had been some misunderstandinzg but there was
no violation of law or regusa:ion.   He c'atec rtiat the procurement
people did no; solicit bids or onrber informatio. for the purpose
of seeking to compare prices. They were seeking to clarify pro-
duct identification termrino'ogv and to get up-to-date price
verification of established prices.

     He pointed out that recent steps have bee; taken to improve
procurement procedures, such as

     --the Division of Contracting and Procurement, under a
       reorganization, was pilaced a- a hig-her ivel in the
       Social Security Administration, has a la ger staff:
       and is azgressiveiy strengthening supervision and
       training at all levels, and that

    --explicit orders were given to improve both the
      procedures and documentation for future purchases.

                               - 5 -
     Considering that the Associate Commnissioner stated that his
procurement people did not solicit bids to compare prices, the
questior. of whether they did or did not would be most difficult,
if no: imoossible, to prove. In view of this and the statement
that Social Security intends to improve procedures for future
purchases, we do not believe that further pursuance of this
matter is warranted.

     In regard to the Maxinum Order Limitation, we could not,
under exlsting regulations, find anything to prevent an agency
from reducing the quantity to be ordered to a quantity which
would fall within the Maximum Order Limitation.

     As arranged with your office, we are sending copies of this
letter to the Co-.issiov.er, Social Securit. Administration, and the
Administ-azCr. General Se.-'ices Administration. Copies will also be
available to other interested parries who request them.

     We trus- this letter is responsive to your needs.

                                      Sincerely yours,

                                      Cregor   .   W-Lart
                                      Direct        '

                               - 6-