i d I United States General Accounting Office m Report to the Chairman, Committee on q- 3 A0 Government Operations, House of Representatives January 1990 IRS AUTOMATION Procurement Practices Need Strengthening ?,GAO/IMTEC-90-24 ’ GAO United States General Accounting Office Washington, D.C. 20548 Information Management and Technology Division B-236918 .January 12,199O The IIonorable John Conyers, Jr. Chairman, Committee on Government Operations House of Representatives Dear Mr. Chairman: This report responds to your July 24, 1989, request that we review sev- eral procurements under the automated data processing (ADP) acquisi- tion program of the Internal Revenue Service (IRS). In subsequent meetings with your office, we agreed that we would review four specific issues. Those issues and our findings are summarized below. Issue #l: Are the procedures being used by the IRSto award a contract Results in Brief noncompetitively to Vanguard Technologies Corporation for ADP support services for the Electronic Filing System’ appropriate? Response: No. In this estimated $1.7 million project, planned for award in late January 1990, IRShas circumvented provisions of the Competi- tion in Contracting Act (41 USC. 253 et seq.) designed to maximize competition in government contracting. In an attempt to ensure that changes to the Electronic Filing System would be completed in time for the 1990 filing season, 1~shas improperly permitted Vanguard to pro- ceed with work since May 1989 (1) without a written contract; (2) before contacting other potential offerors; and (3) before obtaining all necessary approvals within IRS and the Department of the Treasury. Issue #2: Is IRS’ July 19S9 agreement to pay $15,000 to Vanguard Corpo- ration in return for Vanguard withdrawing a bid protest before the Gen- eral Services Board of Contract Appeals on a $500 million award for ADP support services appropriat,e? Response: No. In our view, the agreement is inappropriate because IIZS has no reasonable basis on which to conclude that it had violated a stat- ute, regulation, or delegation of procurement authority in eliminating ‘TheElectronicFilingSystemnutonmtes thereceiptof individualtax returnsfiled electronicallyby tax returnpreparers.TheElectronicFilingSystemis oneof severalprojectsincludedin themultibil- lion dollarIRS?‘axSystemModernlzatmn programSeeADPModernization: IRS Progress onthe ElectronicFilmgSystem(G,4O,‘IhlTEC-88-40, July 13,1988),andADPModernization: IRSNeedsto AshesDesignAltelnatnw for Its ElectronicFilingSystem(G.40/IMTEC-89-33, May5, 1989). Page1 GAO/lMTEtXO-24IRSADPProcurement B-236918 and is essential for proper operation of the Electronic Filing System for the 1990 filing season. Any work that is not currently under way should be limited to that which can be performed only by Vanguard. We also recommend that the Commissioner (1) determine fully the nature and extent of the weaknesses in IRS’ ADP procurement process and assess whether the corrective actions planned by IRSwill correct these weaknesses, and (2) report the deficiencies identified in this report to the President and Congress as material internal control weaknesses under the Federal Managers’ Financial Integrity Act. IRSplans to noncompetitively award a contract for a project estimated at Irregularities in $1.7 million to Vanguard: this contract is for ADP services to enhance Procuring ADP and maintain the nationwide expansion of the Electronic Filing System. Services for Electronic The Electronic Filing System is one of several projects included in the multi-billion dollar Tax System Modernization program. The contract Filing System will serve two distinct. requirements. First, the contract is to enhance existing software to process individual and business returns for the 1990 filing season. Second. the contract is to include a program to allow electronic submission of employee plans returns.2 IRSplans to award the contract with less than full and open competition on the basis of unusual and compelling urgency by the end of January 1990. The Competition in Contracting Act and Part 6 of the Federal Acquisition Regulation which implements the act, permits agencies to contract with less than full and open competition when the agency’s need is of such unusual or compelling urgency that the government would be seriously injured unless the agency is permitted to limit the number of sources from which it solicits bids or proposals. According to IRS’justifications supporting this procurement as well as IRSofficials’ statements, the software changes to the Electronic Filing System must be incorporated for th(L 1990 tax filing season and Vanguard’s prior experience working on this software made them the only contractor able to meet the deadlines for implementing changes to the system for the 1990 filing season. Although IRSbelieves that it was faced with circum- stances that called for using less than full and open competition, when this procurement approach is used, all pertinent laws and regulations still need to be followed. Page3 GAO/tMTEC90-24 IRSADPProcurement B236918 this authorization from Treasury until late June 1989, 2 months after Vanguard had begun work. This authorization, originally granted for $745,000, was increased to $1,745,000 in September 1989. Electronic Filing System Office officials and the Chief, Office of Tax Systems Acquisition said the estimated cost of the procurement more than doubled because the original cost underestimated the number of hours Vanguard would require to perform the tasks in the statement of work. As of December 31, 1989, Vanguard’s proposal was still being evaluated by IRS. IRSofficials admitted that they had no specific authority to allow Van- guard to proceed without a written contract. They said that they plan to take a number of actions to correct the weaknesses in their procurement activities, including hiring additional personnel and reorganizing the procurement organization. They also said that oral contracts will not be used in the future. The Federal Managers’ Financial Integrity Act (31 USC. 3512 (b) and (c)), requires agencies to establish systems of internal controls for ensuring that obligations and costs comply with applicable law, and to annually report material weaknesses in these controls and the status of corrective actions until they are corrected. Material weaknesses are weaknesses of sufficient importance to warrant the attention of the President and the Congress. For example, material weaknesses could sig- nificantly impair thrl fulfillment of an agency mission or significantly weaken safeguards against the loss or waste of funds, property, or other assets. Failure to follow established procurement law, regulation, or other procurement procedures is a material internal control weakness because it skirts the internal controls intended to ensure prudent use of the government’s resources as laid out in these requirements. IRS’ cir- cumvcntion of the Federal Acquisition Regulation regarding the Van- guard contract is a material weakness which should be reported under the provisions of thtl Financial Integrity Act.. Page5 GAO/IMTEG90-24 IRSADPProcurement B236918 In our view, IRSdid not have a reasonable basis to conclude that such a violation had occurred. Part 15 of the Federal Acquisition Regulation provides that an offer should be included in the competitive range if it has a substantial chance for award. IRS’ solicitation for this contract pro- vided that award would be made based on the proposal offering the best overall value to the government and that technical factors would be weighted as substantially more important than price. There was a wide disparity between the technical scores of Vanguard and OAO, with OAO’s proposal receiving a near-perfect score; also, OAO’s proposed price was significantly lower than Vanguard’s. The board found that even if IRShad included Vanguard’s proposal in the competitive range and conducted discussions with the firm in those areas where it would have been permissible to do so, it would have been “extraordinarily unlikely” that Vanguard would have surpassed OAO’s technical score. To receive the award, Vanguard also would have had to make “enor- mous price reductions.” We agree with the board that “the likelihood of discussions leading to an award to Vanguard appear[ed] negligible,” and we therefore see no rea- sonable basis for a conclusion by IRSthat there was a significant risk of Vanguard successfully challenging its exclusion from the competitive range. It is therefore our view that the $15,000 settlement is inappropriate. In July 1985, IRS awarded a contract (TIR-85-0289) to Vanguard for ADP Services Ordered From support services. This was a requirements contract with a maximum Vanguard Under value of $50 million under which IRSissued delivery orders to perform Contract TIR-85-0289 specific ADP services. The services to be performed included require- ments definition, systems analysis and design, software development, Were Within Scope testing, maintenance, program and project management, and a variety of miscellaneous ADP functions such as training, data entry, and technical writing. As of September 1989, a total of 202 delivery orders had been issued under this contract: 33 orders were in progress, 135 had been completed, and 34 orders had been cancelled. The total cost of active and completed delivery orders was $49.5 million. We compared the scope section of the contract to the statements of work for 26 delivery orders. These included all 22 delivery orders issued that were valued over $500,000 and the four most recently issued orders. We found all were within the scope of the contract. The delivery orders we reviewed were for ADP services supporting a broad range of IRSprograms PageI GAO/IMTEGW-24lRSADPProcumment B-236918 - The ICSrequest for proposals was issued on October 25, 1988, and the closing date was August 28, 1989. The TMACrequest for proposals was issued January 4, 1989, and the closing date was September 18, 1989. As of December 1989, IHSwas reviewing the proposals submitted by offerors for both procurements. The Chief of IRS’ Office of Tax Systems Acquisition said that, as of November 1989, no protests concerning either request for proposal had been lodged. He estimated that the KS contract will be awarded in August 1990, and that the TMACcontract will be awarded in September 1990. ICS and TMAC Requests The Federal Acquisition Regulation and the Federal Information Man- agement Regulation generally require federal agencies to use specifica- for Proposals Permitted tions in requests for proposals that will promote full and open Full and Open Competition comnetition. In our review of the technical snecifications for KS, we found three requirements for compatibility with vendor-specific hard- ware and communications protocols. Our comparable review of KMACdis- closed five specifications that called for vendor-specific software, compatibility with specific equipment, or that otherwise appeared to limit competition. Our review of these technical specifications showed, however, that they appear to be justified by the agency’s needs and therefore did not unduly limit competition. In addition, the technical specifications could be satisfied by many vendors. More detailed infor- mation on these teclumal specifications and our analysis is included in Appendix I. To obtain the information presented in this report, we interviewed IRS Scopeand headquarters officials, attorneys representing Vanguard Technologies Methodology Corporation in Washington. D.C., and officials of OAO Corporation in Greenbelt, Maryland. Wt, reviewed documents used by IRSattorneys to support the General ScrvicGesAdministration Board of Contract Appeals hearing process, as well as other documentation, including requests for proposals, for the acquisitions discussed. We also reviewed about $33 million of the $50 million in task orders performed under the 1985 AIF support services contract between IHSand Vanguard to determine whether the work pt,rformed was within the scope of the contract. We selected for review all task orders valued at more than $500,000 as well as the four most recchntly issued lower value task orders. We conducted our review from August I989 through December 1989, in accordance with generally acceptctl government auditing standards. Page9 GAO;IMTEC-90-24 IRSADPProcurement Page11 GAO/IMTEG99-24 IRSADPProcurement Page13 GAO/IMTEG99-24 IRSADPProcurement Appendix I Analvsis of Technical Soeciflcations in the Integrated Collection S&tern and Treasury Multiuser Acquisition Contract Requests for Proposals 3. The primary operating system for each different binary-compatible computer family offered shall meet the Portable Operating System Inter- face for Computer Environments (POSIX)requirements at contract award. The results of running the National Institute of Standards and Technology POSIXFederal Information Processing Standards Conform- ance Test must be provided, including a statement by the offeror show- ing the date that the operating system was tested. It must have been tested on at least one of the hardware configurations being offered. 4. The proprietary Oracle and Informix data base management system software shall be proposed. 5. xetwork adaptor cards to provide connectivity with existing personal computers to the proposed Local Area Networks. The three cards required for IRS' existing personal computers are IBM PC or PC/XT com- patible, IBM XT/286 or AT compatible, and IBM PS/2 or Tandy compatible. As with the ICSrequirements discussed above, we found none that did not appear justified by the agency’s needs and that could not be met by many vendors. The 32.bit architecture requirement is necessary to meet IRS' performance needs and can be met by most vendors in the market- place. Similarly, the specified swivel capability is standard and most vendors can meet this requirement or could add a commercially availa- ble swivel base to the display at a nominal cost. The operating system testing requirement means only that proposals must adhere to govern- ment POSIXstandards. The proprietary data base management software is currently in use by IRSfor a variety of applications and IRSplans to operate these applications on the new equipment. In this respect, this proprietary data base management software will operate on most ven- dors’ equipment. Finally, the network adapter cards are necessary to permit connectivity wit.1~existing equipment, and most local area net- works have this capability. Page 15 GAO/IMTEG90-24 IRS ADP Procurement Appendix II Major Contributors to This Report Timothy P. Bowling, Senior Assistant Director Information Hazel Edwards, Assistant Director Management and Frank Philippi, Evaluator-in-Charge Technology Division, William D. Hadesty, Technical Adviser Washington, D.C. Robert Hunter, Associate General Counsel Office of General William T. Woods, Assistant General Counsel Counsel, Washington, Frank Maguirc. Senior Attorney D.C. (510471) Page 16 GAO/IMTEC-90-24 IRS ADP Procurement Appendix I Analysis of Technical Specifications in the Integrated Collection System and Treasury Multiuser Acquisition Contract Requests for Proposals To determine whether the technical specifications in the requests for proposals for the Integrated Collection System (ICS) and the Treasury Multiuser Acquisition Contract (TMAC) would promote full and open com- petition, we reviewed the technical specifications in the statements of work (Section C) of both requests for proposals. We identified those specifications that called for vendor-specific or compatible hardware or software or that otherwise appeared to restrict competition and ana- lyzed them to determine if they were justified and allowed for competition. The potentially restrictive technical specifications we identified in the Its request for proposals are: 1. Tape units that shall be fully media compatible with existing IBM model 3420-8 tape drives. 2. Cartridge tape units that shall be functionally equivalent to the IBM model 3480 cartridge tape unit. 3. The capability for interfacing with retained equipment, including the Rockwell Automatic Call Distributor and IBM model 3179 and 3101 terminals. We found nothing in these specifications that did not appear justified by the agency’s needs. The first two specifications called for potential ven- dors to propose equipment that could read existing magnetic tape files. The third specification was justified because it required a capability to interface with existing equipment that is to be retained. Further, the majority of hardware manufacturers in business today support software capable of reading and writing magnetic tape that is fully compatible with IBM tape units and support the protocols necessary for interfacing with the devices specified in these specifications. Potentially restrictive technical specifications we identified in the TMAC request for proposals are: 1. A minimum 32-bit processor and a minimum 32-bit data path for the multiuser computer system architecture. 2. Terminal screens capable of swiveling a minimum of 180 degrees. Page 14 GAO/IMTEG90-24 IES ADP Procurement Contents Letter Appendix I Analysis of Technical Specifications in the Integrated Collection System and Treasury Multiuser Acquisition Contract Requests for Proposals Appendix II 16 Major Contributors to This Report Abbreviations ADP Automated Data Processing GAO General Accounting Office IMTEC Information Management and Technology Division ICS Integrated Collection System IRS Internal Revenue Service I’OSIX Portable Operating System Interface for Computer Environments TMAC Treasury Multiuser Acquisition Contract Page 12 GAO/IMTEG90-24 IRS ADP Procuremeat B.236918 We discussed the facts presented in this report with IRSofficials during the course of our work and have incorporated their views where appro- priate. We did not obtain official agency comments on a draft of this report. As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days from the date of this letter. At that time, we will send copies to the Secretary of the Treasury, the Commissioner of Internal Revenue, and other inter- ested parties, and will make copies available to others upon request. This report was prepared under the direction of Mr. Howard G. Rhile, Director, General Government Information Systems, who can be reached at (202) 275-3455. Other major contributors are listed in appendix II. Sincerely yours, Ralph V. Carlone Assistant Comptroller General Page 10 GAO/lMTECXO-24 IRS ADP Procurement B-236918 and activities such as the Electronic Filing System, a facilities manage- ment system, and the Integrated Collection System.” Services provided included systems design, software development, data entry services, testing, and training. The ICSand T-MACrequests for proposals comply with Federal Acquisi- ICS and TMAC tion Regulation and Federal Information Resources Management Xegula- Requests for Proposals t’ion requirements concerning full and open competition. Comply With Federal Acquisition Regulation Description of ICS and IJnder KS, IRSplans to buy 21 mainframe computer systems and associ- TMAC ated peripheral equipment, more than 10,000 portable and over 6,000 non-portable workstations, software, and systems engineering and train- ing support. The hardware, software, and support services are intended to (1) increase collect,ion of delinquent tax returns and revenues, (2) improve voluntary compliance with the federal tax filing and payment requirements, (3) provide more timely access to and updating of tax- payer information, and (4) increase the efficiency of collection employ- ees. For this procurement,, the General Services Administration has delegated procuremc,nt authority of $458 million. TMAC will supply AW equipment and services, as required, to all Trea- sury organizations nationwide. Treasury has given IRSresponsibility for managing this procurement. Treasury estimates it will obtain 3,220 mul- tiuser computers, 7,000 t,erminals, and 49,538 workstations, together with associated soft,ware over 5 years. The contract will also provide configuration management, training, and maintenance support of this equipment for up to 7 years. The contract will provide an option for acquiring microcomputers and multiuser systems and associated soft- ware for numerous prqjects including the Automated Examination Sys- tem, Automated Taxpayer Services System, and the Automation of Criminal Investigat,ion. The General Services Administration has dele- gated procurement authority of $1.866 billion to Treasury for this contract. Page8 GAO, IMTEGW24 IRS ADP Procurement B23691A On April 26, 1989, Vanguard protested to the IRSthat the agency had IRS’ Agreement to Pay improperly excluded it from the competitive range3 for award of a $500 Vanguard $15,000 Is million contract for ADP support services. IRSdenied the protest on June Inappropriate 14, 1989, and the contract was awarded on the same day to another offeror, OAO Corporation. Vanguard then filed a similar protest on June 23, 1989, with the General Services Board of Contract Appeals. Accord- ing to IRSofficials, after an additional review of the work of the panel that had evaluated Vanguard’s technical proposal, IRSconcluded that it could have cleared up certain discrepancies in Vanguard’s proposal and included Vanguard in the competitive range. IRSattorneys and other officials familiar with the case told us that the agency also had doubts that it would prevail in the protest before the board. As a result, on July 19, 1989, IRSentered into a settlement agreement with Vanguard. The IRS-Vanguard settlement agreement provided that IRS would termi- nate the ADP support services contract it had signed with the OAO Cor- poration in June 1989, and admit Vanguard to the competitive range. In addition, IRSagreed to pay $15,000 to Vanguard. As of January 10, 1990, IRShad not made the payment. Upon learning of the agreement, OAO filed a protest with the board seeking to have the agreement over- turned. In September 1989, the board ruled that IRS’ original actions eliminating Vanguard from the competitive range and awarding the con- tract to OAO were reasonable. The board directed that the agency con- tinue its contract with OAO. According to IRSofficials, the $15,000 payment constitutes reimburse- ment for attorneys’ fees incurred by Vanguard. Attorneys’ fees gener- ally are not payable by the government in the absence of specific statutory authority. However, the Brooks Act permits the General Ser- vices Board of Contract Appeals to award protest costs, including attor- neys’ fees, when it determines that a challenged agency action violated a statute or regulation or the conditions of a delegation of procurement authority (40 I J.S.C.759(h)(5)(C)(i)). Whether this authority extends to agencies settling protests filed under the act is an open question. In any case, even if the Brooks Act authority applied here, the standard for award of costs under the act, a finding that a challenged agency action violated a statute or regulation or the conditions of any delegation of procurement authority. has not been satisfied. ‘TheFederalArqumtionItcgr~lar~onprovidesthat a competitwerangeis determined by thecon- tractingofficerbasedonthewalurtion facton in thesolicitation.Thecompetitiverangeincludesall pmposalswith Brrzmmble(~lww for award. Page 6 GAO/IMTEC-90-24 IRS ADP Procurement B236918 Contractor Given Oral In October 1989, officials of the Electronic Filing System Office told us that although no written contract had been signed with Vanguard, Van- Authorization to Proceed guard employees began performing services on May 1, 1989. According to the Chief of the Office of Tax Systems Acquisition, he orally autho- rized Vanguard to begin work because (1) the Electronic Filing Systems Office was late in providing an adequate statement of work, and (2) it was necessary to meet the schedules to implement the Electronic Filing System on a nationwide basis for the 1990 tax filing season. In our view, IRSimproperly permitted Vanguard to proceed with work. The Federal Acquisition Regulation does not provide for the use of oral contracts except in limited circumstances-such as small purchases from imprest funds-that do not apply here. In this case, the con- tracting officer was not authorized to allow Vanguard to proceed with- out a written contract. Other Procurement -I-.1- Vanguard began work before IRS(1) contacted other potential offerors, RequLllC\mn?ts t;lllfll (2) had all necessary IKSapprovals to contract with less than full and Were Not open competition, and (3) received procurement authorization from the Met Until ALLW cc-- Lqontractor Department of the Treasury. Started Work The Competition in Contracting Act requires that before contracting without full and open competition because of urgency, the agency shall solicit offers from as many sources as is practicable under the circum- stances. We found that IRScontacted two other potential vendors, but this was not done until July 1989, and Vanguard began work on May 1, 1989. In an attempt to keep the Electronic Filing System changes on schedule, IRSpermitted Vanguard to begin work on May 1, 1989, before getting the necessary approvals. The two justifications supporting the decision to contract with less than full and open competition were not certified by the contracting officer until May 31 and July 13, 1989, respectively, and did not receive the required approval from IRS’ Deputy Assistant Com- missioner, Human Resources Management and Support, until June 8 and July 19, 1989, respecatlvely. Finally, our review disclosed that IRSdid not meet the Department of the Treasury requirements for a timely request for a procurement authori- zation. According to the Chief. Office of Tax Systems Acquisition, all noncompetitive procurements over $100,000 must be approved by the Department of the’ Tt-casury. However, IRSdid not request and receive Page 4 GAO/tMTEG90-24 IRS ADP Procurement B236918 Vanguard from the competition. Although IRS agreed to make this pay- ment, no payment had been made as of January 10,199O. Issue #3: Are services provided by Vanguard under a prior ADP support services contract (TIR-85-0289) within the contract’s scope? Response: Yes. We reviewed 26 of the 202 delivery orders that IRSissued under this 1985 contract. These 26 orders accounted for about 66 per- cent of the contract costs. Our review included (1) all 22 orders where each order was worth over $500,000, as well as (2) the four most recent delivery orders. We found all were within the scope of the contract. Issue #4: Did the requests for proposals for the Treasury Multiuser Acquisition Contract (TMAC) and Integrated Collection System (KS) procurements permit full and open competition? Response: Yes. Our review showed that both requests for proposals were in compliance with the Federal Acquisition Regulation and appeared to permit full and open competition. IRS’disregard for established procurement policies and procedures in Conclusions and procuring ADP services for the Electronic Filing System and settling the Recommendations protest before the General Services Board of Contract Appeals indicates a lack of effective internal controls over ADP procurements. These defi- ciencies take on added significance in light of IRS' plans to procure bil- lions of dollars worth of ADP equipment and services over the next few years in support of programs such as its Tax System Modernization. In carrying out these procurements, it is essential that IRShave internal controls to assure that procurement law, regulations, and practices designed to protect the government’s interest and maximize competition will be followed. IRS recognizes the need to improve its procurement activities and is taking steps to address some of the problems we identified. We recommend that the Commissioner require IRS' contracting officials to take immediate steps to bring its procurement of ADP services for the Electronic Filing System in line with proper procurement practices. Spe- cifically, the IRSshould determine, in accordance with the Competition in Contracting Act, whether it has adequate justification for a sole source award to Vanguard and whether the circumstances warrant the execu- tion of a written contract with Vanguard. Any contract with Vanguard should be limited to work that is completed, or is soon to be completed, Page2 GAO/lMTEC96-24IRSADPProcurement
IRS Automation: Procurement Practices Need Strengthening
Published by the Government Accountability Office on 1990-01-12.
Below is a raw (and likely hideous) rendition of the original report. (PDF)