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)

     i                                                                    d    I

                        United   States   General   Accounting   Office       m

                        Report to the Chairman, Committee on                  q-
 3   A0                 Government Operations, House of

January   1990
                        IRS AUTOMATION
                        Procurement Practices
                        Need Strengthening

?,GAO/IMTEC-90-24   ’
                   United States
                   General Accounting  Office
                   Washington, D.C. 20548

                   Information     Management       and
                   Technology     Division


                   .January 12,199O

                   The IIonorable John Conyers, Jr.
                   Chairman, Committee on Government
                   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

                          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

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

                        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

                        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

                                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
Page11   GAO/IMTEG99-24
Page13   GAO/IMTEG99-24
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

 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

(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

                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

                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

Appendix I
Analysis of Technical
Specifications in the
Integrated Collection
System and Treasury
Multiuser Acquisition
Contract Requests for
Appendix II                                                                                         16
Major Contributors to
This Report


                        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
                        TMAC       Treasury Multiuser Acquisition Contract

                        Page 12                                  GAO/IMTEG90-24   IRS ADP Procuremeat

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

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

                         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

                         Page8                                     GAO, IMTEGW24   IRS ADP   Procurement

                        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

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
                                   Vanguard began work before IRS(1) contacted other potential offerors,
       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,

                                   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

                  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

                  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