i United States General Accounting Office ; Report to the Chairman, Subcommittee ’ ‘. “A0 a on Readiness, Committee on Armed Services, Ho&e 1 of Representatives September 1990 DOD PROCUREMENT Cost-Per-CopyService I Can ReduceCopying i costs RESTRICTED --Not to be released outside the General Accounting Offlce nnless specifically approved by the OiPlce of Congressional Relations. GAO/NSIAD-SO-276 National Security and International Affairs Division B-237648 September 28,lQQO The Honorable Earl Hutto Chairman, Subcommittee on Readiness Committee on Armed Services House of Representatives Dear Mr. Chairman: This report is in response to your request that we evaluate the viability of the cost-per-copy (cpc) service concept before the concept is broadly expanded. We found that CPCservice has resulted in significant cost savings compared to the prior copier costs. Our recommendations include the need for improved guidance to ensure that cost analysis is done on a copier-by-copier basis and all procurement options are considered in selecting the most economical method to acquire copier service. Unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days from its issue date. At that time, we will send copies to the Chairmen, Senate and House Committees on Appropriations, Senate Committee on Governmental Affairs, House Committee on Government Operations, and the Joint Committee on Printing; Secretaries of Defense and the Army, Navy, and Air Force; Administrator, General Services Administration; and other interested parties. We will make copies available to others upon request. If you need further information, please call me on 275-8412. Major contributors to this report are listed in appendix XII. Sincerely yours, Donna M. Heivilin Director, Logistics Issues Executive Summary Purpose photocopying services. DOD was leasing and purchasing copiers when cost-per-copy service was introduced as a procurement option. This type of service involves a vendor furnishing a copier, maintenance, and sup- plies, with the government’s cost based on the quantity of copies produced. The Chairman, Subcommittee on Readiness, House Committee on Armed Services, requested GAO to evaluate the viability of the cost-per-copy service concept before the concept is broadly expanded. GAO’S objectives were to (1) identify the characteristics of cost-per-copy service con- tracts, (2) determine the advantages and disadvantages of cost-per-copy service and whether the concept has potential for expansion, and (3) obtain industry views on the concept. The emergence of cost-per-copy service in DOD began in 1973 with the Background Air Force Tactical Air Command and has since spread throughout the Air Force. The Navy first used it in fiscal year 1986 and the -Army in fiscal year 1988. According to military departments’ data, DOD'S copier costs in the United States were over $116 million in fiscal year 1988. These costs include $10.8 million for cost-per-copy contracts in 47 geo- graphic areas. The terms and conditions of cost-per-copy service vary by contract and Results in Brief neither DOD nor the General Services Administration (GSA) has provided guidance on establishing contract terms. Conversion to cost-per-copy service has resulted in significant cost savings, improved maintenance, and other advantages to the government. The military departments’ cost feasibility studies could be improved, however, since these evaluations did not consider all possible procurement options and relevant cost fac- tors. Even so, the deficiencies noted would not have altered the outcome: cost-per-copy service is a cost-effective option. In addition, there is potential for expanding the use of cost-per-copy service within DOD and across other government agencies. To expand its use, a central source of information on the availability of cost-per-copy service by geographic area needs to be developed and distributed to copier managers. Page 2 GAO/NSIAWO-2’76 Cost-PerCopy !3ervice Eixecutive SulNnary Principal Findings Guidance Lacking on Several organizations, including procurement offices in major commands and at local military bases, and GSA, purchased cost-per-copy services Establishing Contract for the military. GAO noted that terms and conditions varied by contract Terms regarding the number of contract option years, specification of copy production volume bands, requirements for vendor-furnished supplies, and maintenance requirements. Although GAO did not find any relation- ship between the contract terms and pricing, differences in these terms could affect government costs. Neither DOD nor GSA has provided gui- dance to agencies on what factors to consider in establishing contract terms. Conversion to Cost-Per- Cost feasibility studies conducted by the Army and Navy for 15 organi- zations before converting to cost-per-copy service estimated that these Copy Service Has Reduced organizations could save $1.5 million (45 percent) in annual operating Copying Costs costs by converting to cost-per-copy service. Based on GAO’S review of Army and Navy post-conversion cost reduction computations in 11 orga- nizations, converting to cost-per-copy services resulted in an overall sav- ings of $1.4 million (42 percent) in annual operating costs. Separate studies conducted by the Navy and GSA also showed that cost-per-copy service is generally less costly to the government. Guidance for Conducting GAO identified a number of concerns about the way cost feasibility Cost Feasibility Studies studies were being conducted. Some studies were done on an aggregate basis rather than on a copier-by-copier basis, which resulted in some Needs to Be Improved individual copiers being converted to cost-per-copy service when it was not the most cost-effective option. The studies generally compared the cost-per-copy option only to the cost of existing copiers and did not con- sider other procurement options. They also did not include some rele- vant cost factors, such as termination charges on leased copiers. In addition, the required cost analyses were not always performed, and some studies that were reportedly conducted were not retained. These deficiencies, however, did not alter the conclusion that cost-per-copy service can be a cost-effective option. Page 3 GAO/NSL4D9O-276 Cmt-PercOpy service Executive Summary Perceived Advantages and Military department officials cited several advantages other than cost associated with cost-per-copy service. These advantages included a Disadvantages Associated reduction in administrative work load because of significantly fewer With Cost-Per-Copy procurement actions and invoices; improved copier management because Service it was consolidated into one office; better information provided by con- tractors on use rates; and improved maintenance and less downtime. Some of those advantages are available with existing procurement methods, such as the lease option, which involves no capital investment. Others could be included as requirements in competitively awarded contracts. Officials also cited several perceived disadvantages, such as increased copier use, associated with cost-per-copy service. However, GAO found no evidence that these disadvantages were actually encountered, had any significant impact, or could not also occur under other procurement options. Potential for Expansion of In recent years, DOD has increased the number of cost-per-copy contracts and, in fiscal year 1989, GSA awarded its first such contracts for civil Cost-Per-Copy Service agencies. However, cost-per-copy service could still be expanded, both within the military departments and across agency lines. Some organiza- tions without cost-per-copy service are located in or near areas served by existing contracts. However, there is no central source of information on existing cost-per-copy service contracts to identify cost-per-copy ser- vice availability. Copier Industry Views of Industry views on the government’s use of cost-per-copy varied, ranging Cost-Per-CopyAre Mixed from ready acceptance of the present government requirements to a reported lack of interest in participating in future contracts. Representa- tives of copier firms and industry associations identified a number of suggestions that they believe can improve cost-per-copy service for the government. GAO also requested written comments from industry offi- cials on a draft of this report. GAO received responses from three compa- nies. These comments reflected a wide range of views on the cost- effectiveness of the service, as shown in appendixes IX, X, and XI. recommends that the Secretary of Defense and the Administrator, Recommendations GAO General Services Administration, determine the implications of various contract terms and use the resulting information to provide guidance for Page 4 GAO/NsIADw)-278 Co&Per-Copy Service Executive Summary agencies using cost-per-copy service. GAO also recommends that they improve the guidance for conducting cost analyses to ensure that . cost analyses are done on a copier-by-copier basis; l the cost-per-copy option is compared to the other procurement options-purchase, lease/rental, and lease/purchase, whether procured through the GSA catalog or a competitive award; and . the required cost feasibility studies include all relevant cost factors. GAO also recommends that the Administrator, GSA, publish and distribute catalogs and price lists to copier managers to help them identify the availability of cost-per-copy service in their geographic region. received official written comments from DOD and GSA. DOD and GSA Agency Comments and GAO generally agreed with GAO'S findings and recommendations and their Our Evaluation comments have been incorporated where appropriate. Regarding the recommendation that DOD and GSA jointly study the implication of various contract terms, DOD stated it would contact GSA to initiate such a study. GSA partially agreed with GAO'S recommendation and stated it would develop a regulation to assist agencies in deciding if cost-per-copy service is an appropriate option. DOD agreed with GAO'S recommendation that the services need to per- form a copier-by-copier cost feasibility study of all available options, consider all costs in the study, and only convert to cost-per-copy when it is the most economical to the government. In response to GAO'S recom- mendation on single vendor contract opportunities, DOD stated that it is planning to issue guidance requiring the services and defense agencies to incorporate applicable cost-per-copy provisions in single vendor contracts. GSA partially agreed with GAO'S recommendation that it publish and dis- tribute catalogs and price lists to copier managers in their geographic region. GSA stated that price lists and pamphlets containing information on awarded contracts are already provided to the project manager. The purpose of GAO'S recommendation, however, is to provide nonpartici- pating copier managers with limited cost-per-copy contract information so that they can assess its potential for use. Page 5 GAO/NSWW276 Co&PercOpy Service Contents Executive Summary Chapter 1 Introduction CPC Service Concept Objectives, Scope, and Methodology Chapter 2 Guidance Lacking for Procurement Responsibility 14 Performance Requirements Differ Among Contracts 14 Establishing Contract conclusion 18 Terms Recommendation 18 Agency Comments and Our Evaluation 19 Chapter 3 Conversion to CPC Preconversion Studies Show Potential Savings Guidance for Conducting Cost Feasibility Studies Needs to Service Has Generally Be Improved ReducedCost Post-Conversion Computations Show Savings Were 23 Achieved Cost Savings Computations Need to Be Improved 23 Navy and GSA Studies Identify Potential Cost Reduction 25 Under CPC Recent Actions Taken by DOD 26 Conclusions 26 Recommendations 26 Agency Comments 27 Chapter 4 28 Perceived Advantages Advantages Associated With CPC Service Advantages Are Not Necessarily Inherent to CPC Service 28 30 and Disadvantages of Few Perceived Disadvantages Associated With CPC 31 CPC Service Service Conclusions 31 Recommendation 32 Agency Comments 32 Page 6 GAO/NSIAD-f!@276 Cost-PerCopy Service Content.9 Chapter 5 33 Potential for Expanding CPC Service More Information Needed 33 34 Expansion - of the CPC CPC Contract Information Could Increase Use 34 Concept Expanding the Application of the Cost-Per-Unit Concept 35 Conclusions 35 Recommendation 35 Agency Comments and Our Evaluation 35 Chapter 6 36 Industry Views Companies’ Policies and Structure Can Affect Costs Government Contract Terms 36 37 Other Industry Concerns 40 Private Industry and State Use of Cost-Per-Copy Service 40 Industry Suggested Improvements for CPC Service 41 Industry Comments 41 Appendixes Appendix I: Organizations Where Review Was Performed 44 Appendix II: Copier Cost-Per-Copy Service Comparison of 46 Contract Terms Appendix III: Copier Cost Comparison Pre- And Post- 48 Conversion Cost Studies Appendix IV: Annual Administrative Work Load 50 Reductions Experienced Under Copier Cost-Per-Copy Service Appendix V: Information on Copiers Located at the 52 Pentagon as of September 30,1988 Appendix VI: Industry Suggestions on Service 53 Appendix VII: Comments From the Department of 55 Defense Appendix VIII: Comments From the General Services 63 Administration Appendix IX: Comments From Canon U.S.A., Inc. 71 Appendix X: Comments From Pitney Bowes 74 Appendix XI: Comments From Xerox Corporation 76 Appendix XII: Major Contributors to This Report 79 Page 7 GAO/NSIAD9O-276 Cost-PerCopy Service Contents Tables Table 1.1: Comparison of Government Copier 11 Procurement Options Table 1.2: Copier and CPC Costs by Military Department 12 for Fiscal Years 1987 and 1988 Table 2.1: Procurement Offices for CPC Service 14 Table 3.1: GSA’s Comparison of CPC Service Costs to 2t: Other Procurement Options Abbreviations WC Cost-Per-Copy DOD Department of Defense GSA General Services Administration Page 8 GAO/NSIAIMO-270 Cat-PerCopy Service Page 9 GAO/NSIAD9@276 Cost-PerCopy Service Introduction Copying machines began emerging as standard office equipment in the 195Os, and now copiers are an integral part of almost all offices. Office copiers produce facsimiles of written or printed material, and are gener- ally operated in a self-service mode and used for small volumes. They have a broad range of capabilities and accessories. Capabilities include fast or slow speeds, single or full color, and reduction or enlargement. Accessories include document feeders and sorters. Currently, the government has four options available for acquiring copier services: 1. Lease/rental-The vendor provides a copier with specific features and accessories and provides maintenance on a rental basis. Rental costs include a flat monthly fee, a charge per copy based on volume levels, installation and removal charges, and, for removal at other than the end of an option or contract period, termination charges. The user provides all supplies, such as toner, developer, and paper. 2. Lease/purchase-The vendor leases a copier that has specific fea- tures and accessories to the user. The vendor provides maintenance and retains ownership during the lease period. At the end of the lease, the user becomes the owner and then provides the maintenance. Lease costs include an installation charge, monthly payments sufficient to cover the purchase cost, and termination and removal charges during the lease period. The user provides the supplies and, after acquiring ownership, assumes responsibility for removal. 3. Purchase-The user buys the copier outright and pays for the instal- lation. The user provides the maintenance and supplies and is respon- sible for removal. 4. Cost-per-copy (cpc) service’ -The vendor provides a copier with spe- cific features and accessories and retains ownership. The cost is based on the actual number of copies made and contract price per copy within various copier production quantity bands. There are no installation, removal, or termination charges and no guaranteed minimum number of copies. The vendor usually provides all supplies except where the users provide their own paper. Table 1.1 compares the four options. ‘CPC service is referred to by various terms, such as single source copier service and cost service plan, within the Department & Defense (DOD). We have only used the term CF’Cservice. Page 10 GAO/Nf?IAD96-276 Cost-PerCopy Service Chapter 1 Lntroduction Table 1.1: Comparison of Government Copier Procurement Options cost- p;d/ Leased/ per purchase Purchase copy Capital investment required No Built Into Yes, up NO the lease front -___ payments Costs Include. monthly fee Yes Yes No No per copy charge based on actual volume Yes No No Yes rnstallation and removal charges Yes Yes Yes No termination charges Yes Yes No No Coprer ownershrp Vendor Vendor until User Vendor end of lease, then user Maintenance costs paid by Vendor Vendor untrl User end of lease, then user Non-paper supplies provided by User User User Vendor The emergence of CPC service began in 1973 when the Air Force Tactical CPC Service Concept Air Command acquired copier services on a per copy basis for its subordinate military bases, and has since spread throughout the Air Force. The other military departments have started to use CPC much more recently. The Navy began using CPC service in fiscal year 1986 at the Mare Island Naval Shipyard, Vallejo, California. The Army first used CPC service in fiscal year 1988 at Fort Polk, Louisiana, and Fort Sher- idan, Illinois. According to information provided by the military departments, copier costs within the United States were at least $84 million in fiscal year 1987 and at least $116 million in fiscal year 1988. However, these costs are significantly understated since all DOD organizations are not included. DOD costs for CPC service within the United States, included in the $116 million, were $10.7 million for fiscal year 1988. However, total copier costs cannot be readily determined. CPCservice can be for specific geographic areas, such as a single military facility, or an area that serves several military facilities. Table 1.2 shows available information on total copier cost, the number of geo- graphic areas served by CPC contracts, and total CPC costs for fiscal years 1987 and 1988. Page 11 GAO/NSIAD-96-276 Cost-Per-Copy Service Chapter 1 Introduction Table 1.2: Copier and CPC Costs by Military Department for Fiscal Years 1987 Dollars in millions and 1988 CPC service Available total US. copier Geographic Military cost areas served cost department 1987 1988 1987 1988 1987 1988 Army $74.1 $71.6 0 2 $0 $0.4 Navya 9.8 13.6 4 17 c 5.3 Air Force b 30.6 28 28 5.0 5.0 Total 883.9 9115.8 32 47 $5.0 $10.7 aExcludes costs for copiers managed by Navy commands and the Marine Corps in place of the Navy Publishing and Pnnting Servrce. bThe information was not readily available as the Air Force did not summarize its 1987 copier costs because of a reduction in headquarters personnel. cCPC service costs were not segregated from total copier costs until fiscal year 1988. Although CPChas been used outside the United States, our review was limited to CPCservice within the United States. The Chairman, Subcommittee on Readiness, House Committee on Armed Objectives, Scope,and Services, asked us to evaluate the CPCconcept before the concept is Methodology broadly expanded. Also, the Subcommittee requested us to solicit industry views. Our objectives were to (1) identify the characteristics of CPC service contracts, (2) determine the advantages and disadvantages of CPCservice and whether the concept has potential for expansion, and (3) solicit industry views on CPCservice. We focused on the conversions of leased and government-owned copiers to CFC service in fiscal years 1987 and 1988 within DOD because of the availability of documentation and personnel familiar with the conversion and its effects. We performed our work at various military headquarters organizations, major commands, and military installations, and the Federal Supply Ser- vice of the General Services Administration (GSA), Washington, DC., involved with the procurement, management, and use of CFCservices (see app. I). We (1) collected general information on department and commandwide copiers and copier services, (2) discussed procurement and management- including any management fees, advantages and dis- advantages, and potential for expansion of CPC service-with headquar- ters and field personnel, and (3) reviewed documentation to validate cited advantages and disadvantages and obtain other pertinent informa- tion. For review purposes, we separated the advantages and disadvan- tages into (1) cost benefits derived from recurring direct operating costs Page 12 GAO/NSLAD4W276 &et-Per-Copy Service Chapter 1 Introduction and nonrecurring costs and (2) other areas, including government administration. We also obtained limited information on DOD agency and GSA civil agency CPCservices and the Air Force’s Tactical Air Command conversion from cpc service to government-owned copiers at Langley Air Force Base, Virginia. We solicited industry views from seven companies and two associations (see ch. 6 and app. I) identified by the Subcommittee, but we did not verify the information we received. The Committee was also interested in the impact of CPCcopying on duplicating/printing2 production and the generation of industrial fund revenues. We could not determine the impact, if any, of CFCcopying on duplicating/printing production volume because summarized informa- tion on copier production volumes does not exist for some locations, and detailed copier information was available for only 2 or 3 earlier years at various locations. We did not examine the industrial fund issue because only the Navy charged a management fee for CPC service; however, there was only a nominal industrial fund gain ($30,000) in fiscal year 1988. DODand the Army, Navy, and Air Force have not reported any internal control weaknesses associated with the procurement and management of copiers or cpc service in their Federal Managers’ Financial Integrity Act reports for fiscal years 1986,1987, and 1988. We conducted our review from November 1988 to October 1989 in accordance with generally accepted government auditing standards. “DOD has no clear definition to distinguish between duplicating and copying. Duplicating serves the same basic purpose as copying and sometimes uses the same equipment, but is generally wed for higher volumes. The Joint Committee on Printing requires an annual report on duplicating/printing. Page 13 GAO/IWAD9@276 Cost-Per-Copy Service GuidanceLacking for Establishing Contract Terms CPCcontracts usually contain the same general terms, but the specific requirements of these terms vary by contract and military department or contracting office. However, we found DOD and GSA lack guidance on what factors to consider in determining what specific terms to include. Normally, each cpc contract provides service within one military depart- Procurement ment. A military base or other local field activity, such as the Navy Pub- Responsibility lishing and Printing Service Detachment Office, administers and manages the CPC contract. Several organizations have been involved in procuring cpc contracts for various DOD components. cpc services have been purchased for the mili- tary departments by major commands, military bases, and GSA, as shown in table 2.1. Table 2.1: Procurement Offices for CPC Service Service Organization Army GSA, U.S. Army Forces Command, and individual Army installations Navy GSA and naval contracting centers Air Force Maior commands and individual Air Force bases We found some basic characteristics were included in CPCcontracts, Performance regardless of which procurement office was involved. For example, the Requirements Differ contracts Among Contracts . specify geographic areas served; . state estimates of the number of copiers and total production volume, but do not include guaranteed quantities; l do not include installation, removal, or termination fees for adding or removing CPCcopiers during the contract period; l require the contractor to install new or remanufactured1 copiers; and l specify CPCband requirements in terms of monthly production volume, accessories, and features. However, a number of provisions vary from contract to contract. Con- tracts differ by number of contract option years, copy volume bands, requirements for vendor-furnished supplies, and maintenance requirements. lRemanufactured is defined as a copier that has been disassembled, inspected and parts replaced as newssary, reassembled on a production line, and inspected to meet new copier requirements. Page 14 GAO/NSIABWZ76 Cast-PerCopy Service Chapter 2 Guidance Lacking for EMablishing Contract Terms Contracts awarded by the Navy and GSA contained similar performance requirements, which are different from the other services. Air Force contracts also differed among themselves (see app. II). Number of Option Years Of the 15 contracts we reviewed, most were for a l-year term plus 2 option years (see app. II). However, several Air Force contracts, Vary by Contract including Air Force Logistics Command bases, Strategic Air Command headquarters, and the Military Airlift Command at Norton Air Force Base, provided for 4 option years. Shorter and longer option periods both have different advantages. Shorter option periods allow users to maintain pace with current tech- nology. Also, the average age of the equipment would be lower under shorter option periods, which should lower maintenance downtime. Longer option periods could reduce the frequency of contracting and copier replacement, and allow vendors to recover their fixed costs, such as copier and installation costs, over a longer period, which could result in lower priced bids. Neither DOD nor GSA has provided guidance on what option length is in the government’s best interest or what factors are relevant to the selec- tion of the number of option years. The A. L.” *. Range of Nllmher UILb”bI and UAbU cpc contracts specify user requirements in terms of production volume bands. Each band has a specified minimum and maximum production Copier Bands Vary by volume range that specifies what accessories and features are required Contract on a copier. The number of bands and their ranges varied by contract (see app. II). In general, contracts awarded by GSA for the &my or Navy used a common set of band categories, although the number of bands could vary, depending upon needs for higher volume capabilities. Con- tracts awarded by the Army and Air Force varied most in terms of the number of bands and the ranges of those bands. For example, the Air Force Logistics Command’s contract for its six bases has one band cov- ering 12,000 to 60,000 copies per month. The Strategic Air Command headquarters and Offutt Air Force Base contracts have four bands with copies-per-month categories ranging from 0 to 6,000; 6,001 to 12,000; 12,001 to 40,000; and a minimum of 40,001 with no maximum. The various bands require different accessories and features on the copiers. These accessories and features increase in number and sophisti- cation as the production volumes increase. For example, under one GSA Page 15 GAO/NSIAB96-276 Cost-Per-Copy Service Chapter 2 Guidance Lackhg for EetablisW Ckmtract Terma contract, band l(0 to 5,000 copies per month) requires a table-top copier with a minimum speed of 12 copies per minute; one tray for 8.5 by 11 inch paper and a second tray for 8.5 by 14 inch paper; and two modes to reduce the photocopied size of the original. Under the same contract, band 4 (30,001 to 50,000 copies per month) requires a table- top copier with a minimum speed of 45 copies per minute; a minimum of two paper trays to feed 8.5 by 11 inch paper and either 8.5 by 14 inch or 8.5 by 17 inch paper; an automatic document feeder with at least two stack feeds; two reduction modes; a 15-bin sorter with a 50-sheet capacity; and a job interrupt feature for stopping long runs. As with production volume bands, accessories and features also differ among contracts. A vendor can use different machines to cover the various bands or use the same machine for two or more bands. Copier production volume capabilities are not standard within the industry. Each supplier offers a variety of copiers with different capa- bilities, including various monthly production capabilities. For example, while soliciting industry views, we found that four of the seven sup- pliers currently offer copiers that exceeded 80,000 copies per month. Without guidance, agencies might establish bands that inadvertently limit competition if the production volume ranges exceed the copier capabilities of too many suppliers. The question of band categories has been raised in a number of bid pro- tests that have been filed with the Comptroller General concerning CFC service contracting.* The protests involved situations where the contract solicitation contained multiple copier band requirements for CPC service. The protesters argued, among other things, that the solicitations unduly restricted competition by requiring that one contract, including all volume bands, be awarded. The Comptroller General held that procure- ment on a total package basis was legally unobjectionable where the agency reasonably believed benefits, such as greater flexibility in redis- tributing copiers to meet changing user needs and increased competition for certain categories of copiers, would be achieved. The Comptroller General also held in one case that requirements in con- tracts to obtain all of various Army installations’ copier needs were valid even though the contract solicitation had not contained a limit on the number of copiers that installations could require. At the time, the %-231962, B232018, F&232142,B232169, E232160, E232167, E232168, and E232169, dated November 8,1988; E232262, dated November 30,19&3; and B-232660, dated December 5,1988. Page 16 GAO/NSIAMW276 Cost-PercOpy Service Chapter 2 Guidance Lacking for Establishing Contract Term solicitation had contained the Army’s best estimates of the number of copiers needed and current monthly usage figures. The Comptroller General’s decisions do not prohibit future contracting for CPC service by production volume band or smaller groups of bands when it is in the government’s best interest. We believe that, to achieve the most economical service, bands should be established that would not limit potential competition. However, we found no guidance to assist agencies in setting the number or ranges of bands. Neither GSA nor DOD has tried to determine whether there are optimal numbers and ranges of bands to meet users’ needs and maximize competition. Differences in Required Under CPCcontracts the contractors normally furnish all supplies, although the types of supplies differ between Air Force and other DOD Contractor-Furnished contracts (see app. II). All government contracts require the contractor Supplies to furnish the chemicals, such as developer and toner. However, the Air Force requires the contractor to supply the paper, while in other con- tracts the user provides the paper and the contractor is only required to deliver it. Air Force officials believe that contractor-furnished paper is less costly because it reduces the Air Force’s administrative work load. Army and Navy officials believe that government-furnished paper obtained from GSA costs less. Also, some industry officials stated that the government can buy paper at the same or lower cost than their companies. In addi- tion, according to some industry officials, contingencies against possible increases in their cost of paper increase their bids for CFJCservices, Neither DOD nor GSA has determined whether it is more economical for the government to purchase its own paper or to require the CPCccn- tractor to provide it. Maintenance Requirements The contracts specify a required response time (i.e., the maximum Vary Among Contracts number of working hours to respond to the first call). In addition, they also specify that a machine must be replaced if it is inoperative for a certain number of working or continuous hours beyond the initial response time. The contracts we examined required an initial response time of either 4 or 6 working hours. The time for machine replacement varied more, although the most common time was 36 continuous hours beyond the Page 17 GAO/NSIAD-9@276 Cost-PerCopy Service Chapter 2 Gnidance Lacking for Establishing Contract Term initial 4 or 6 hours. Some Navy contracts called for repair within 24 or 36 hours of downtime, plus an additional 12 working hours to replace the copier. The Strategic Air Command’s contract called for replacement if a given machine accumulated 20 hours of downtime in a month. The shorter the response time required for repair or replacement, the higher the vendor’s cost is likely to be, which is likely to affect the price bid. Neither DOD nor GSA has identified any optimal maintenance terms or established any guidance on what factors agencies should consider when establishing maintenance response requirements. Unit Prices Vary by For the 15 contracts we examined, unit prices varied considerably from contract to contract and for different bands within contracts. The unit Contract prices, regardless of copier band, ranged from $.0072 to $.0331 per copy. They varied among contracts for the same copier band and same length contract period. For example, for a band ranging from 0 to 5,000 copies per month, prices ranged from $.0145 to $.0331 per copy. We did not find any relationship between the unit prices and contract size (number of copiers) or geographic location (within or near a major metropolitan area versus a rural area). However, we reviewed only the accepted contract prices and not the bids of unsuccessful bidders to determine if any pricing patterns were apparent. We did notice that the CFCunit prices generally decreased as contracts for existing copiers were replaced and as new CPCcontracts were awarded in the Navy and Air Force. Differences in the number of contract option years, production volume Conclusions bands, contractor versus government-furnished paper, and maintenance requirements may affect total operating costs. However, neither DOD nor GSA has examined whether some terms may be more advantageous to the government, nor have they provided guidance to agencies on what factors to consider in establishing contract terms. Since DOD and GSA both have experience with CPCcontracts, we recom- Recommendation mend that the Secretary of Defense and Administrator, General Services Administration, jointly study the implications of various WC contract terms, particularly with regard to the number of option years, the number and ranges of production volume bands, and vendor-furnished supply and maintenance requirements. We believe that guidance should Page 18 GAO/NSIAD90-276 C&t-Per-Copy Service Chapter 2 Guidance Lacking for J3Etabli8tling Contract Terma be based on procurement and administration of WC service experiences of the military departments, GSA, and other civil agencies. They then should use the resulting information to provide guidance for agencies to use in establishing terms for their specific contracts. DOD believes that due to varying military department/command require- Agency Comments and ments, specific guidelines on the optimum number of option years and Our Evaluation volume band configuration may be detrimental. However, DOD agreed to determine what commonality can be achieved between the agencies and commands. It plans to contact GSA to initiate a joint study on the implica- tion of various contract terms and, as appropriate, use the study results to provide guidance to the military departments. GSA partially agreed with the recommendation and stated it could develop a Federal Property Management Regulation to assist agencies in deciding if cpc is an appro- priate option. Page 19 GAO/NSIAMO-276 Cost-Per-Copy Service Chapter 3 Conversionto CPCServiceHas Generally Reducedcost Our analyses of Army and Navy studies conducted before and after con- verting to CPCservice showed that converting to WC service generally reduced costs, although some individual copiers were more cost- effective under other options. Studies by the Navy and GSA indicated similar results. However, we also found that potential users lack gui- dance regarding the factors to include in evaluating costs. Military departments’ policies require a cost feasibility study prior to Preconversion Studies the acquisition of any equipment to determine the most cost-effective Show Potential procurement option. Although these policies need some clarification and Savings compliance can be improved, our analysis of studies for 15 organizations showed that CPCservice resulted in significant savings (see app. III). The Army and Navy cost feasibility studies for 15 organizations under 4 contracts-Fourth U.S. Army at Fort Sheridan, Bremerton, Portsmouth, and Norfolk-included estimated annual operating costs for existing copier costs of $3.3 million and proposed CPC service of $1.8 million. The annual savings are anticipated to be $1.5 million, or about 45 percent. These studies were based on (1) actual production volumes of replaced copiers and estimated production volumes for new copiers, (2) cost of existing copiers, and (3) estimated unit prices prior to contract and con- tract unit prices for additions to existing CPC contracts. The military departments’ guidance varies for conducting cost feasi- Guidance for bility studies to determine the most cost-effective procurement option. Conducting Cost We analyzed the cost feasibility studies for converting to WC service and Feasibility Studies generally agreed with their results. However, five studies were not per- formed, and according to DOD officials, two additional studies were per- Needs to Be tiproved formed but not retained. In addition, we are also concerned about how some of those studies were conducted. For example: l Some studies were done for all of an organization’s copiers combined while others were done on a copier-by-copier basis. l Some relevant cost factors, such as removal costs, were not included. l The studies generally compared the CPCoption to the user’s existing copier costs without considering other procurement options (e.g., lease or purchase). . Page 20 GAO/NSIAD9&276 &et-PerGopy Service Chapter 3 Conversion to CPC Service Has Generally lteduced caet Cost Studies Not Always Required cost feasibility studies to support procurement of CPCservices were not performed at Fort Polk and the base headquarters’ at Fort Done or Retained Sheridan. In addition, the required cost feasibility studies were not per- formed at three of the four Air Force locations where we requested the information: the Military Airlift Command headquarters and Scott Air Force Base, Norton Air Force Base, and Strategic Air Command head- quarters and Offutt Air Force Base. Further, according to copier man- agers, cost feasibility studies were performed but not retained at Mare Island Naval Shipyard for a follow-on CPCcontract and Langley Air Force Base when converting from CFJC service to government-owned copiers. The absence of cost feasibility studies prior to contracting indicates a weakness in internal controls. Such weaknesses are potentially report- able under the Federal Managers’ Financial Integrity Act. DOD and the military departments have not reported any internal control weaknesses associated with the procurement and management of copiers or CPCser- vice in their Financial Integrity Act reports for fiscal years 1986, 1987, and 1988. Basis for Evaluating Military departments’ guidelines do not specify whether copiers should be evaluated on a copier-by-copier or an aggregate basis. As a result, Copiers Varies Fourth U.S. Army evaluated copiers individually while the Navy evalu- ated them by organization. The base headquarters at Fort Sheridan converted all 44 of its existing copiers, consisting of 19 leased and 25 government-owned copiers, to CPC service without performing a cost feasibility study. However, Fort Sher- idan prepared a post-conversion cost reduction computation in sufficient detail that we could analyze cost-effectiveness on a copier-by-copier basis. We found that of the 44 copiers, 29 conversions produced sav- ings-16 leased and 13 government-owned copiers. Under the terms of WC bid solicitations, the government may increase or decrease the number of machines it originally specified. Therefore, Fort Sheridan was not obligated to convert all 44 copiers and could have chosen to convert only the 29 that would have produced savings. By including the 15 lower cost leased and government-owned copiers, the Army’s estimated annual savings was $36,000 rather than $51,100. In addition, the 12 government-owned copiers had residual cost balances (original cost less ‘Army correspondence designated this as a test location but did not waive the requirement for a cost analysis. Page 21 GAO/NSIAD9&276 Cost-PercOpy Service Chapter 3 Conversion to CPC Service Hai9 Generally Reduced cast depreciation based on a 5-year service life) totaling $20,900 at the time of conversion. SomeRelevant Cost Military departments’ guidance varies on what cost factors to include when determining the most cost-effective solution. Air Force guidance, Factors Not Included for example, specifies that costs for equipment, personnel, maintenance, and supplies should be included. The Navy’s guidance provides more detail and defines equipment cost as the purchase and rental costs and additional factors as installation, removal, and associated overhead. Army guidance did not identify any specific cost factors. Two cost factors not identified in any of the departments’ policies are contract termination charges for leased copiers, if applicable, and the residual cost balances of government-owned copiers that are not being relocated, but disposed of. The departments’ records did not indicate whether the equipment was being retained or disposed of. In the cost feasibility studies we examined, none of the organizations considered applicable termination and removal costs or residual cost balances. For example, although removal costs applied, Fourth U.S. Army did not include them in its cost study. At our request, Fourth U.S. Army computed its removal costs to be $2,100. Also, the Puget Sound Naval Shipyard did not include termination costs of $30,500, removal costs of $14,400, and residual cost balances of $14,300 in its cost study. These costs would have reduced the savings in the first year or over the 3-year contract period. Under government accounting, costs of goods and services are normally considered in the year incurred. We believe that the cost evaluations for copier replacement should consider such costs as annual depreciation for copiers being retained; one-time costs for installation, termination, and removal; and the residual undepreciated value of equipment to ensure that equipment is not prematurely replaced when it is not cost- effective to do so. Other Copiers Options Not The Navy Publishing and Printing Service Detachment Office studies Evaluated compared existing copier costs and estimated WC costs before con- tracting for the Bremerton area, Norfolk Naval Base, and Portsmouth area contracts. The Puget Sound Naval Shipyard (Bremerton area) and Fourth U.S. Army also conducted studies before adding to existing con- tracts. These studies only compared the costs of existing copiers Page 22 GAO/NSIAD9&276 Cost-PercOpy Service Chapter 3 Conversion to CPC Service Has Generally Ileduced cQ!st acquired through the GSA catalog to CFCservice. They did not consider acquiring new copiers under non$pc options. GSA has developed formulas to calculate costs of non-cPc options avail- able under GSA contract schedules. Also, the Navy Publishing and Printing Service Detachment Office, Oakland, has developed a computer program to identify the least costly option. However, these tools only evaluate options for selecting new copiers or WC service. They do not consider the costs of retaining the present copiers. Post-Conversion tations after cpc service was installed. These computations show that, Computations Show on an overall basis, the government reduced its annual operating costs Savings Were for copiers in 11 organizations by $1.4 million (see app. III). However, on an individual basis, the conversion of some copiers was not cost-effec- Achieved tive. We reviewed the cost reduction computations for the Fort Sheridan headquarters’ organization and Oak Harbor Naval Air Station, Naval Undersea Warfare Engineering Station, and Puget Sound Naval Ship- yard under the Navy’s Bremerton area contract. At Fort Sheridan the cost reduction computations compared the prior year’s operating costs (including rental, maintenance, depreciation, and supply costs) for replaced and discontinued copiers to the first year’s cost for WC service. The estimated cost difference was $36,000, a sav- ings of almost 22 percent. This was a conservative savings estimate because the precpc year included the cost of existing copiers, while the CPCyear included these copiers plus seven additional CPCcopiers and an increased use rate without any adjustments. The Navy used the same methodology to compute its cost feasibility study and cost reduction analyses for the three Bremerton area organi- zations by substituting actual volume and contract prices for the prior estimates. These studies showed an estimated savings of $412,000, or nearly 43 percent. and one-time cost factors. Although the Army computations included Computations Need to the annual depreciation cost, the Navy computations did not. In addi- Be Improved tion, neither military department considered the residual cost balances of government-owned copiers and termination and removal costs of leased copiers. Page 23 GAO/NSIAD90-276 Cost-Per-Copy Service Chapter 3 Conversion to CPC Service Haa Generally Reduced ca9t For example, the Puget Sound Naval Shipyard cost reduction computa- tion included an annual savings estimated for $218,800. We believe that the savings estimate should be increased by $7,200 for annual deprecia- tion on the copiers converted, and be decreased (either in the first year or amortized over the term of the CPCcontract) by $59,200 in one-time costs for termination. The residual equipment value at the time of con- version should be considered as a CPCexpense if the owned copier is being disposed of. The analysis should also consider why new copiers are being added because this can affect the savings computations. Additions could either be new requirements or a redistribution of existing work load. However, it was not always possible to determine why a copier was added because of insufficient information. We identified four methods to account for additional copier require- ments. Two of these methods had no effect on the conversion computa- tions because they either excluded the additional copiers or used offsetting costs. One of the other methods understated the savings while another overstated the savings. For example, the cost reduction compu- tation for the headquarters’ organization at Fort Sheridan included CFC costs for seven additional copiers without adjusting their previous copier costs for the increase. This method raised their CPC costs by $17,400 for copiers that did not exist before CPCservice, and, in effect, understated the savings attributable to CFCconversion, In another case the savings computations for the Naval Undersea Warfare Engineering Station and the Puget Sound Naval Shipyard included the higher esti- mated pre-cx leased costs for the additional copier requirements and used the lower actual CPCcosts for post-conversion costs. Since the esti- mated leased costs were higher than the CPC costs, the CFC savings were overstated by $11,000. We believe that cost studies should be thoroughly evaluated to ensure that cost-effective equipment is not prematurely replaced and that it is not being put to productive use. After converting to CPCservice, the gov- ernment returns leased copiers to the contractor, but must relocate or dispose of the copiers it owns. For example, the Army relocated 14 copiers from Fort Polk and Fort Sheridan to other commands or off-base locations. The remaining government-owned copiers at these bases and the Bremerton area were transferred to the Defense Logistics Agency’s Reutilization and Marketing Offices and subsequent productive use of the equipment could not be readily determined. Page 24 GAO/NSIAD9&276 Co&Per-Copy Service Chapter 3 Conversion to CPC Service Ha8 Generally Reduced Cost Separate studies conducted by the Navy and GSA found that WC service Navy and GSA Studies is generally less costly to the government. In mid-1988, the Navy com- Identify Potential Cost pared costs on then-existing 17 CPC contracts with estimated costs for Reduction Under CPC the same leased copiers and actual production volumes. It compared similar operating costs for equipment (including maintenance) and sup- plies (except paper). It obtained leased copier prices from GSA'S catalogs and price lists. The total CPCcosts were lower than total leased copier costs for each CPCservice band under all contracts. The total projected annual CPCcosts were $6.3 million lower than the $13.1 million in leased copier costs. In another study, GSA compared the pricing under five CPCcontracts- Bremerton, Norfolk, Portsmouth, Fort Polk, and Fort Sheridan-with estimated costs for non<pc procurement options for the same copiers. It used its own catalog and price lists to estimate costs. The GSA study included . supplies (except fuser and paper) in quantities that represent typical ordering practices; maintenance at the lowest available cost; cabinets for table-top copiers, installation, and removal costs; and the lowest cost to the government under each procurement option and a 5-year estimated useful life for the lease/purchase and purchase options. GSA made two comparisons for each band, one using one-half of the max- imum production (e.g., 25,000 copies in the 30,001 to 50,000 band) and the other using the maximum production (e.g., 50,000 copies for the 30,001 to 50,000 band) in each CPC level. Out of 84 comparisons, CPCwas less costly in 73 cases and equal to or more costly than the other options in 11 cases. Table 3.1 shows the results of these comparisons. Page 26 GAO/NSlAD96276 Coot-PercOpy Service Chapter 3 Conversion to CPC Service Hats Generally Reduced cat Table 3.1: GSA’s Comparison of CPC Service Costs to Other Procurement Options Lease/rental Lease/purchase Purchase. Total Result Number Percent Number Percent Number Percent Number Percent CPC costs were lower 41 93.2 17 77 3 15 83.3 73 86.9 CPC costs were equal 1 2.3 2 9.1 0 0 3 3.6 CPC costs were higher 2 4.5 3 13.6 3 16.6 8 9.5 Total 44 100.0 22 100.0 18 100.0 84 100.0 aExcludes those where catalog InformatIon was not available or special pricing was available only to certain organizations. Subsequent to our review, DOD distributed CPCprocurement guidelines in Recent Actions Taken an October 25, 1989, memorandum to the military services and the by DOD Defense Logistics Agency. The guidance outlines the factors to be con- sidered in performing a cost feasibility study on a copier-by-copier basis. The memorandum also emphasized the need to provide a full and com- plete cost analysis prior to the solicitation of bids for any copier services. GAO believes it is too early to evaluate whether the memorandum is an effective mechanism to implement the guidelines. Converting leased and government-owned copiers to CFC service can Conclusions result in significant annual savings to the government. However, CPCser- vice is not always the most cost-effective option on a copier-by-copier basis. Therefore, we believe the military departments need to perform the required cost feasibility studies on a copier-by-copier basis rather than in the aggregate, and only convert an individual machine when it is cost-effective to do so. They should also consider all four options- lease/purchase, rental, purchase, and CPCservice. Cost feasibility studies and cost reduction computations should include all pertinent cost factors, such as annual depreciation on owned machines and removal costs. Also, we believe that cost feasibility studies should be retained. We recommend that the Secretary of Defense direct the Secretaries of Recommendations the Army, Air Force, and Navy to Page 26 GAO/NSLAD9@276 Cost-Per-Copy Service Chapter 3 Conversion to CPC Service Has Generally Reduced ch!st l use CPCservice as a procurement option along with other traditional options and select its use when it is the most economical to the government; . perform the required cost feasibility studies, including all procurement options, ensure that cost feasibility studies and cost reduction computa- tions are performed on a copier-by-copier basis considering all relevant cost factors, and retain the studies to support the procurement action; and l incorporate DOD'S recently distributed guidelines in the military depart- ments’ regulations or operating directives. agreed with our recommendation. As a result of DOD'S October 1989 Agency Comments DOD memorandum, we have clarified the recommendation regarding the con- sideration of relevant cost factors in the cost feasibility study.. Page 27 GAO/NSIADW276 Cost-Per-Copy Service PerceivedAdvantages and Disadvantagesof CPCService DOD officials cited several other advantages and disadvantages of cpc service. The advantages included improved copier administration, man- agement, and maintenance, and disadvantages included contract default and possible reduced future competition. We found evidence to support several cited advantages. However, many of the advantages could occur under or be incorporated into contracts for leasing or purchasing copiers. We found that the potential disadvantages were either not sig- nificant or could occur under the leasing or purchasing options. Military department headquarters, command, and field organization Advantages officials cited various potential advantages of CPCservice. The advan- Associated With CPC tages include a reduced administrative work load, improved manage- Service ment and maintenance, availability of the newest technology, and reduced operator training. ReducedWork Load According to officials, cpc service reduced the administrative work load. Officials estimated savings of $48,400, $35,000, and $21,800 in per- sonnel costs due to the reduced work loads resulting from the CPCcon- tracts for Fort Polk, the base headquarters organization at Fort Sheridan, and the Mare Island area, respectively. We could not verify these figures because they were based on estimates. Work load reductions were evident in the contract procurement and accounting and supply areas. For example, the number of invoices decreased from 4,908 to 36 per year, or about 99 percent, for 6 organiza- tions under the Fort Polk, Fort Sheridan, and Bremerton area contracts. However, the reductions in procurement actions and vendors were nom- inal at Oak Harbor Naval Air Station, which had converted to cpc ser- vice from leased copiers furnished by a single contractor (see app. IV). When copiers are leased or purchased, users must requisition, order, receive, store, and issue supplies. These activities are eliminated under CPCcontracts because the contractor furnishes the supplies. A Navy industrial engineer estimated that 45 days in elapsed time and 4.95 per- sonnel hours are required to perform the supply functions per order. Improved Management Before CFC service, each using organization managed its own copiers. However, after converting to CPCservice, the management was central- ized at the base level or, for an area serving several installations, an Page 28 GAO/NSIAD9@276 Cost-Per-Copy Service Chapter 4 Perceived Advantages and Disadvantages of CFC service organization such as the Navy Publishing and Printing Service Detach- ment Office. Prior to CPC service, some using organizations had no internal copier focal points, copier inventory records, or records on copier use. Officials also cited improved management because of the information included in contractors’ invoices. One contractor voluntarily furnished copy control devices for Fort Sher- idan that require the users to enter their authorization code to operate the copiers and records the use by code. The contractor uses the codes to prepare invoices, and the headquarters organization uses it to prepare monthly and cumulative summaries. Prior to CPCservice, such detailed information was not available and could not be readily provided to management. Another aspect of improved management cited by officials was increased flexibility because copiers can be removed and installed when- ever necessary during a year without incurring liquidation, installation, and removal costs. For example, CPC copiers were installed at Fourth U.S. Army and the Pudget Sound Naval Shipyard, Bremerton, without incurring any installation charges. Improved Maintenance Some officials stated that maintenance was improved in terms of reduced downtime and longer periods between copier failures because of on-site maintenance personnel and more rapid availability of parts. The improvement could not be verified because no maintenance records were maintained before converting to cpc service. The contractors’ WC main- tenance records showed that the response times generally complied with contractual terms. Some officials attributed the maintenance improve- ment to the fact that downtime represented a potential loss of income to the contractor because the contract terms provide payments only for copies produced. Improvements in maintenance were only marginal when a concentration of copiers from a single source was replaced. For example, according to Oak Harbor Naval Air Station officials, their replacement of 52 leased copiers from a single contractor showed little improvement in mainte- nance from converting to CPCservice. All other using organizations selected for review replaced leased and purchased copiers from multiple manufacturers. . Page 29 GAO/NSIAD9@276 Cost-Per-Copy Service Chapter 4 Perceived Advantages and Dimadvantages of CPC service Other Advantages A number of other advantages were also cited. For example: l elimination of government capital investments because the government pays only as copies are produced, l availability of the newest technology because copiers may be replaced more frequently under CPCcontracts, and l reduced operator training if personnel are reassigned or transferred among locations with the same copiers. Some advantages are inherent to the CPCconcept, such as reduced Advantages Are Not administration costs of maintaining supplies and payment based on Necessarily Inherent actual usage. Other cited advantages already exist for copiers that are to CPC Service acquired through the GSA catalog or could be made requirements in com- petitively awarded contracts. The GSA catalog provides information, such as prices, features, and accessories, by copier model. Currently, lease, lease/purchase, and purchase options are generally procured from a vendor in accordance with the prices and terms listed in the GSA catalog. Some of the CPC advantages available with GSA catalog-acquired copiers include l use of the lease/rental option to avoid up-front capital outlays, although this may not be the least costly alternative; l selection of multiple copiers from the same vendor; and . use of more centralized copier management. We believe that other advantages could be incorporated into competi- tively awarded copier contracts. These advantages include invoices that list copiers and production volume use, consolidated purchase orders, and improved maintenance with specified time requirements. Industry representatives were receptive to including similar terms in contracts competitively awarded for leased or purchased copiers. According to some company representatives, they already dedicate maintenance per- sonnel to large concentrations of copiers used by the government, and they meet or exceed the CPCmaintenance requirements at those locations. Page 30 GAO/NSLAD9@276 Cost-Per-Copy Service Chapter 4 Perceived Advantages and Disadvantages of CPC service officials cited several disadvantages of CPCservice. For example, Few Perceived DOD contracts could be awarded to the lowest bidder without considering the Disadvantages vendor’s ability to perform, which could disrupt service. They also said Associated With CPC that CPCservice could increase the volume of copying and users could resist changes in the brand of copiers. We found no evidence that these Service disadvantages were actually encountered or had any significant impact on cpc contracts or that they could not also occur under other procure- ment options. Poor Contractor Maintenance generally improved after conversion to CPCservice. One exception was at George Air Force Base, which had difficulties with a Performance CPC contract that had been awarded to a small business. Despite these difficulties, the Air Force did not place the contractor in default for lack of performance and did not terminate the contract. No other location we reviewed indicated any potential performance problems after converting to cpc service. Potential Increased Some officials said that CFCservice could result in increased copying for both valid requirements and unnecessary use. We believe that regardless Copying of the procurement option used, effective controls properly implemented and monitored are necessary to prevent unauthorized copier use. For example, a device that monitors copier use, such as the one provided by the contractor at Fort Sheridan, could help managers detect copier volume increases within organizational units. Potential User Resistance Some officials believe that CPCservice could cause user resistance by replacing copiers from one contractor with copiers from another con- tractor. However, we believe this is a personal preference that could occur regardless of the procurement option. Advantages, such as some reduction in administrative costs, avoidance Conclusions of installation and removal costs, and payment only for actual use, are applicable to only CPCservice. Other advantages attributed to CPC either already apply or could apply to non-cm options. We believe that the potential disadvantages cited are either not significant or could occur regardless of the procurement option, Several of the key WC advantages appear to be more a function of con- centration of copiers from a single vendor than an aspect inherent to the Page 31 GAO/NSIAD!&276 Cost-Per-Copy Service Chapter 4 Perceived Advantages and Disadvantagea of CFC service CPCconcept. Generally, industry representatives said they would be receptive to including similar terms in competitively awarded contracts for leased or purchased copiers. Consequently, we believe that DOD and GSA may be able to achieve benefits and savings from competitively awarded contracts that incorporated terms similar to those in CPCcon- tracts. However, in some cases it may not be cost-effective. Therefore, competitive awards should be equally considered with copiers acquired through the GSA catalog or cpc service. We recommend that the Secretary of Defense and Administrator, Gen- Recommendation eral Services Administration, identify opportunities to competitively award single vendor contracts for leased and purchased copiers that include terms similar to those in CFCservice contracts. partially agreed with the recommendation. It stated that it is plan- Agency Comments DOD ning to issue guidance requiring the military departments and defense agencies to incorporate applicable CPC provisions in single vendor con- tracts. DOD added that only some of the less significant cpc provisions could be applied to single vendor contracts for leased and purchased copiers. GSA agreed with the recommendation but added that the Con- gress has challenged the cost/benefit of single awards, and industry is opposed to expanding single-award contracts. Page 32 GAO/NSIAD9@276 Cost-PercOpy Service Chapter 5 Potential for Expansion of the CPCConcept Over the past couple of years, DOD has increased the number of CPCser- vice contracts, and GSA awarded its first CPCcontracts for civil agencies in fiscal year 1989. However, further potential for expanding CPCser- vice still exists. Also, the underlying concept may be applicable as an alternative to leasing or purchasing other kinds of equipment. DOD organizations have primarily expanded the use of CPCcontracts Expanding CPC either within a command or a military department. However, potential Service exists for expanding current contracts’ or awarding new contracts within or among military departments and agencies. For fiscal year 1989, DOD added organizations to existing contracts and awarded new contracts. For example, Fourth U.S. Army was added to the Fort Sheridan contract; several organizations were added to the Nor- folk Naval Base and Portsmouth contracts; 2 new contracts were awarded for 14 Army locations; and 14 new contracts were awarded for Navy organizations. Other organizations could be added to existing contracts because they are located within existing contract service areas. These include the U.S. Army Recruiting Command at Fort Sheridan and the Naval Station, Fleet Training Center, and Naval Medical Clinic at the Norfolk Naval Base. However, a number of locations without CPCservice do not fall within present CPCservice contract areas. These locations could poten- tially be included under new contracts. Some CPCservice on a multiservice basis exists. Army organizations at the Presidio of San Francisco, California, and Crane, Indiana, participate under Navy CPCcontracts. We found several cases where the organiza- tions are some distance apart. For example, the Presidio of San Fran- cisco and Oakland Naval Supply Center are about 10 miles apart and yet are covered by the same WC contract. Also, Oak Harbor Naval Air Sta- tion and Pudget Sound Naval Shipyard are under the same WC contract, even though they are over 50 miles apart. CFC contracts could be centrally awarded on a multiagency basis and locally administered and managed. We did not find any contracts jointly serving military and civilian activities; however, one was under consid- eration. In the Fresno, California, area a group of representatives from civil agencies performed a feasibility study for converting leased and ‘CPC service can be expanded or reduced for organizations within the contractual geographic area. Page 33 GAO/NSIAD9@276 Cost-PerGopy Service Chapter 6 Potential for Jkpansion of the CPC Concept purchased copiers of 19 civil and defense activities to CPC service. The study estimated an annual cost reduction of $137,183. Estimated sav- ings ranged from $255 a year for the Small Business Administration to $61,000 a year for the Internal Revenue Service. Navy officials stated that the Internal Revenue Service and a few other civil agencies were coordinating future CPCservice under the Lemoore, California, contract with the Navy. In addition, DOD could participate under GSA'S 11 con- tracts for civil agencies in various geographic areas awarded for fiscal year 1989. To help ensure that future expansion or consolidation of CPCservice con- More Information tracts are in the best interest of the government, information is needed Needed on the following: . the optimal size of the geographic area and the number of CPCcopiers that could be economically procured and managed by the government and installed and maintained by vendors; the existing state of competition among copier vendors and the probable effect of cpc service on competition; the minimum number of copiers that should be included to establish a production volume band; and . what government policies and procedures, if any, would be necessary to effectively and efficiently coordinate, procure, and manage consolidated CPCservice on a multiagency basis. Publication and distribution of CFCservice information would help CPC Contract copier managers to identify the availability of CPCservice in specific Information Could geographic areas. GSA publishes and distributes catalogs and price lists Increase Use to copier managers for leasing or purchasing and maintaining copiers under its contracts. However, neither GSA nor DOD publishes similar cata- logs on the availability of CPCservice. For example, the copier manager at the Naval Undersea Warfare Engineering Station, Keyport, Wash- ington, managed leased copiers in Crystal City, Virginia, and San Diego, California, but was unaware of the existing CPC contracts for those geo- graphic areas. Distribution of published CFJC information to copier man- agers increases the potential for expanding CPC service to government organizations that are scattered throughout the United States, such as Fourth U.S. Army’s off-base locations and many small Navy activities requiring copier services. Page 34 GAO/NS~376 Cod-Pedopy Service Chapter 5 Potential for Expansion of the CPC Concept The CFCconcept involves paying for equipment use, maintenance, and Expanding the supplies based on a unit price, and could be used as an option to leasing Application of the or purchasing other kinds of equipment. The price could be based on Cost-Per-Unit Concept measurable units, such as pieces produced or processed, time measure- ments, or mileage. The use of CPC service for duplicating is also being studied. The Army uses two CPC service copiers (50,001 to 80,000 copies per month) at Fort Sheridan for duplicating. Currently, the Navy is studying the potential use of the concept for duplicating in two areas-Bremerton, Wash- ington, and Pearl Harbor, Hawaii. The CPCconcept might also be used as an option to leasing and purchasing other types of nontactical equipment, where use can be determined in measurable units. Possibilities include vehicle use (mea- sured in miles) and medical equipment (measured in the numbers of x-rays or tests). GSA officials stated that expansion of the concept will be tested in their current bid solicitation for medical tests. has continued to expand its use of CFJCservice. In view of the bene- Conclusions DOD fits experienced in prior conversions to CPC service, we believe that expanding and/or consolidating WC service should continue when it is in the best interest of the government. Disseminating cpc catalog informa- tion could also help other agencies when considering this procurement option. We recommend that the Administrator, General Services Administra- Recommendation tion, publish and distribute catalogs and price lists to government copier managers to help them identify the availability of cost-per-copy service. agreed that some expansion of CFCservice is feasible and added that Agency Comments and DOD vendors might achieve the greatest economies of scale at the installation Our Evaluation level, where copiers are concentrated. GSA partially agreed with our rec- ommendation since it believes that the project manager and agencies within the scope of the contract already receive price lists and pam- phlets containing contract administration information. The recommen- dation, however, is geared towards providing nonparticipating copier managers, located within or at a distance from the contractual serving area, with limited information so they can consider the potential for using cpc service. Page 35 GAO/NSIAD@O-276 Get-PercOpy Service Chapter 6 Industxy Views At the request of the Subcommittee, we interviewed company officials about the advantages and disadvantages of CPCservice. As agreed with the Subcommittee, we did not verify the information furnished by the industry. However, we have included information where we had data relevant to points made by industry officials. We interviewed officials from seven copier companies and two associa- tions that represented copier companies. One association represented five of the seven companies. The other association also represented two of those companies in addition to another copier company that we did not interview. Two of the seven companies were not represented by either association. Company representatives expressed views that ranged from ready acceptance of the present government contractual CPC requirements to a lack of future interest because of bad experiences with government CPC service contracts. Some companies were concerned about disadvantages related to varia- Companies’ Policies tions in company policies on the sales of new or used copiers, deprecia- and Structure Can tion, special wiring requirements, and sales organizations. Affect Costs Some companies sell only new copiers while other companies sell new, remanufactured, reconditioned, and rebuilt copiers. cpc contracts require either new or remanufactured copiers. Officials from three com- panies suggested that remanufactured copiers do not always have the latest technology and the companies furnishing them have a slight edge over companies that only furnish new copiers. Officials from another company stated that remanufactured copiers are like new, carry the same warranties as new copiers, and do not represent outdated tech- nology because new models are normally introduced with minimum changes in existing technology. According to officials from three companies, CPCcopiers are depreciated over 3 years. They also said that installing and removing CPC copiers after the start of the contract or declining to renew for the option years prevent the contractor from recovering its costs. Similar actions-instal- lation, removal, and termination of leased copiers-could occur during or at the end of a fiscal year under GSA multiple-award schedules, but usually entail additional costs to the government. Officials of one com- pany stated that removing their leased copiers when the government converted to cpc service resulted in significant costs for the company, Page 36 GAO/NSlAD9@276 Cost-PerCopy Service Chapter 6 Industry Views even after considering the predetermined additional costs to the government. Some copiers use standard building electrical wiring while other copiers require special electrical wiring. According to one company official, because the government does not provide the special wiring, companies that have these costs for installing and relocating WC copiers have a slight cost disadvantage compared to companies that use standard wiring. Companies that have local branches sell, furnish, and maintain copiers using their own employees. Dealer-structured companies involve the manufacturer or dealer in sales, but the dealer furnishes supplies and maintains the copiers. According to officials from dealer-structured companies, their companies are at a cost disadvantage when compared with branch-structured companies because the company and dealer must share the income while the branch-structured company receives all the income. Government Contract cpc contract terms. Their concerns included (1) the lack of any contract Terms guarantee, (2) the size of geographic areas, (3) the numbers of copiers included, (4) the standard accessories and features required by each contract, (5) production band volumes, and (6) paper being included under some contracts. Lack of Guarantees Government contracts for CPCservice do not guarantee the number of copiers or production volume over the life of the contracts. According to officials from three companies, the contractors had no assurance that their costs would be recovered. The Size of Geographic Officials of two companies expressed concern over the large geographic areas included in a current solicitation for a single contract to cover Areas some Navy activities in the Washington, D.C.; Annapolis, Maryland; and Baltimore, Maryland, areas. The largest geographic area under a single contract selected for our review was the Bremerton, Washington, con- tract, which included 527 copiers in May 1988. That contract generally included the Puget Sound area- Bremerton to Oak Harbor, about 56 miles to the northeast; Bremerton to Tacoma, about 20 miles to the Page 37 GAO/NSIAD90-276 Chat-Per-Copy !kvice Chapter 6 Industry Views southeast; and Bremerton to Seattle, about 16 miles to the east. We found that this contract has resulted in savings to the government. Indefinite Numbers of Another concern was that some solicitations contained a large indefinite quantity of copiers. For example, the GSA solicitation for the Navy’s Copiers Washington, Annapolis, and Baltimore area contract stated that the esti- mated number of copiers may increase from 467 to 750, a potential 61- percent increase. The reason for the companies’ concern is that deletions or additions after the initial contract award may not allow them to recover their costs. In the contracts we examined, the number of copiers included in the fea- sibility studies or bid solicitations sometimes changed before the con- tract award or copier installation. For example, the number of copiers increased for the Fort Sheridan headquarters organization from 48, including 4 where service was discontinued, to 53, including 2 copiers that were used and reported as duplicators. For 2 organizations in the Bremerton area, the number of copiers increased from 122 to 130. Con- versely, the number of copiers under the Norfolk contract decreased from 229 to 199. Features and Accessories cpc contracts specify the standard accessories and features, if any, that are required for each production volume band. Company officials said that standard requirements may be more or less than the user needs and if only equipment that matched users’ needs were provided, it would be less costly to the government. According to officials from two companies, users under GSA contracts sometimes requested additional features and accessories after contracts were awarded. Officials of one company said it refused to provide the Navy anything outside the contract terms, and the other company said it provided civil agencies the additional accessories and features under two contracts at its own expense. According to Navy Publishing and Printing Service Detachment Office officials, the Norfolk organizations had difficulty identifying require- ments, and ultimately some existing copiers were not converted to CPC service because of the users’ unique requirements. Page 38 GAO/NSIADf%276 Coet-PercOpy Service Chapter 6 Industry Views Production Band Volumes Contracts specify the estimated minimum and maximum production volume for each copier band. According to officials of two companies, they used the total estimated production volumes implied in the solicita- tion as the basis for preparing estimated unit prices. The estimated total volumes were computed by multiplying the estimated number of copiers times the maximum production volume for each band. However, the officials stated that lower production volumes are generally being expe- rienced. According to other industry officials, they recognize that pro- duction volume can fall below each band maximum, so they consider this fact when estimating unit prices. We found that copiers were generally replaced on a copier-by-copier basis according to use rates and production volume bands. Also, we found that under two contracts-Fort Sheridan and Bremerton-most copiers were operating within the specified band range, and that the average monthly use rates for all copiers in a given band were within the parameters for seven bands and below the minimum in two bands. cpc contracts generally included production bands up to 50,000 copies per month. Officials from one company stated that cpc service should be limited to 25 copies per minute, which would be a monthly volume of under 30,000 copies per month. Officials from another company stated that CPCservice should be limited to less than 50,000 copies per month because this was the range producing cost savings to the government. Officials from two other companies supported the multiple-band concept because lower volume copiers provide little, if any, profit, and higher volume copiers provided an equitable balance. If cpc service was only purchased for lower volume copiers or the bands were split into sepa- rate contracts, the government’s costs would probably increase, according to these officials. Using actual use rates, we found that the government had overall cost reductions for CFCcontracts that included multiple production volume bands. Paper Supply Some CPCcontracts require the contractor to furnish the paper. Requirements According to industry officials, the volatility of paper prices makes this requirement undesirable because prospective contractors will include a price factor in their bids that would make CPCservice more expensive than other options. For example, officials of one company said that high prices quoted for an Air Force Air Training Command CFCsolicitation led to its cancellation because cpc service would have cost more than the existing copiers. Also, other officials stated that GSA buys paper at . Page 39 GAO/NSiAD8@276 Co&PercOpy Service Chapter 6 Industry Views prices that are equal to or, in most instances, less than the prices paid by a copier vendor. Industry representatives also expressed some other concerns, including Other Industry (1) companies using cpc contracts to unload inventory buildups, (2) CFC Concerns service reportedly being more expensive than government-owned copiers, and (3) CPC service reportedly being provided to government contractors. Unloading Inventory One official stated that the CFCservice bidding process allows companies to unload inventory buildups that could represent older technology. Also, the contract terms require continued production, which may cause a contractor to keep a production line open when a model is being phased out. Cost of CPC Service Officials of some companies stated that CPC service was more expensive for the government than purchase or lease/purchase options. However, we found that while government-owned copiers could cost more or less, cpc service generally costs less. Possible Improper Use by One company’s officials believed the government is furnishing CPC copiers to its contractors at one location, and did not consider this Contractors appropriate since the contractor could use the copiers for both govern- ment and commercial business. We did not review this location and were not aware of any such arrangements. According to industry officials, some private sector companies, Private Industry and including some government contractors, and state governments use cpc State Use of Cost-Per- service. However, they said these contracts generally provide more con- Copy Service tract guarantees than the federal government. A few large corporations use CFCservice. According to industry repre- sentatives, contract terms for private sector cpc service generally guar- antee (1) a minimum volume and (2) a 3-year period. For example, one large bank reportedly awarded a contract for 800 copiers, with terms including . Page 40 GAO/NSIAD!W276 Coat-Per-Copy Service Chapter 6 Industry Views . guaranteed volume of 150 million copies in year one, 250 million copies in year two, and a volume to be negotiated for year three; l a guaranteed contract period of 3 years; l a phase-in schedule for copiers; and l a guaranteed 3-year life for any copier added during the contract period. Officials of one company added that their private sector contracts also allow for bidding on a fourth and fifth year, which allows the buyer to take advantage of lower costs incurred in these years by the vendor. According to industry representatives, state governments that use CPC service have similar contract terms to those of private industry (e.g., guaranteed minimums and contract length). Also, some states have alternative techniques that use or consider WC service. For example, one state solicits cpc bids and selects up to three bidders for inclusion in their multiple-award schedule. Another state solicits bids for all pro- curement options (CPC,lease/rental, lease/purchase, and purchased), evaluates the costs over the designated contract period, and awards the contract to the lowest bidder. Industry officials made numerous suggestions to improve the govern- Industry Suggested ment’s CPCcontracts. In some instances, they disagreed on the desira- Improvements for CPC bility of the suggested changes in WC service. The suggested changes Service generally involved an increased definition of user’s needs, reduction of the contractor’s risks, and consideration of other procurement approaches. Appendix VI contains details on the industry representa- tives’ suggestions. Industry associations and companies we visited were all afforded the Industry Comments opportunity to submit their written comments on this report. Three com- panies responded and we are including their comments in appendixes IX, X, and XI. Industry comments varied widely. In addition, some comments con- cerned matters not included within the scope of our work, such as reviewing bid solicitation, bid evaluations, and contract awards. In some cases, the companies questioned the GSA study results based on the pricing GSA used. Our conclusions and recommendations were based on detailed analysis of conversions at selected locations. We did not verify the data used in the GSA study. One company indicated that rising prices for CPC service would not make it a cost-effective option, whereas Page 41 GAO/NSIAD9@276 Cost-Per-Copy Service Chapter 6 lndmtry Views another stated that CPCservice has proven to result in substantial sav- ings. In commenting on our draft report, DOD stated that some of the industry’s suggestions are contractually prohibited, and others are simply preferences on the part of industry to minimize risk. Page 42 GAOflSIALRKh276 Cost-PercOpy Service Page 43 GAO/NSWZ76 Cast-PerCopy Service OrganizationsWhere Review Was Performed Office of the Director, Administration and Management, Office of the Department of l Secretary of Defense, Washington, D.C.; Defense . Office of the Joint Chiefs of Staff, Washington, D.C.; l Washington Headquarters Services, Washington, D-C.; and l Defense Logistics Agency, Alexandria, Virginia. U.S. Army Publications and Printing Command, Washington, D.C.; Department of the l l U.S. Army Forces Command, Fort McPherson, Georgia; AmY l Base headquarters organization, Fort Polk, Louisiana; l Base headquarters organization, Fort Sheridan, Illinois; and l Fourth U.S. Army, Fort Sheridan, Illinois. Navy Publishing and Printing Service Management Office, Department of the l Washington, D.C.; Navy l Navy Publishing and Printing Service Detachment Offices at Bremerton, Washington; Oakland, California; and Norfolk, Virginia; l Navy Publishing and Printing Service Branch Offices at Lemoore and Vallejo, California; l Base headquarters organization, Naval Air Station Oak Harbor, Oak Harbor, Washington; l Puget Sound Naval Shipyard, Bremerton, Washington; . Naval Undersea Warfare Engineering Station, Keyport, Washington; l Base headquarters organization, Naval Air Station, Lemoore California; and l Mare Island Naval Shipyard, Vallejo, California. Air Force Publishing Division, Washington, D.C.; Department of the Air : Air Force Logistics Command, Wright-Patterson Air Force Base, Dayton, Force Ohio; Military Airlift Command, Scott Air Force Base, Bellville, Illinois; Strategic Air Command, Offutt Air Force Base, Omaha, Nebraska; Tactical Air Command, Langley Air Force Base, Norfolk, Virginia; Norton Air Force Base, San Bernardino, California; and George Air Force Base, Victorville, California. Federal Supply Service, Washington, DC. General Services l Administration Page 44 GAO/NSIAD9&276 Cost-Per-Copy Service Appendix I Organhtlona Where Review Was Performed Cannon U.S.A., Inc., Alexandria, Virginia; Industry-Companies l l Eastman Kodak Company, Arlington, Virginia; l Mita Copystar America, Inc., Gaithersburg, Maryland; . Pitney Bowes, Washington, DC.; l Ricoh Corporation, Arlington, Virginia; l Savin Corporation, Rockville, Maryland; and l Xerox Corporation, Arlington, Virginia. . Coalition for Government Procurement, Washington, D.C., and Industry- Computer and Business Equipment Manufacturers Association, l Associations Washington, D.C. Page 45 GAO/NSIADB&276 Cost-Per-Copy Service Copier Cost-Per-CopyServiceComparisonof Contract Terms Consumable supplies f urnn~~~, by Maintenance Contract le”+‘;irt x; Bands by range jY=yee&N=no) requirements. Organization/ awarded (Copies in thousand8 per month) All Replace location by option ‘yrs 1 2 3 4 5 Paper Other %z% machine by Army/ Fort 1+2 50-100 25-50 10-25 5-10 N Y 6WH 6WH + 36WH FORCSOMC McPherson installations throughout C0NU.Y Army/ GSAd 1+2 o-5 5-15 15-30 30-50 N Y 6WH 6WH + 36WH FORCSCOM/ Fort Polk, LA Armv/ GSA 1+2 O-5 5-15 15-30 30-50 50-80 N Y 4WH 4WH + 36WH FOR’CSCOM/ Fort Sheridan, IL Navy/Bases in GSA 1+2 o-5 5-15 15-30 30-50 N Y 4WH 4WH + 36WH Geographic area of Bremerton, WA Navy/Naval GSA 1+2 o-5 5-15 15-30 30-50 N Y 4WH 4WH + 36WH Elle, Norfolk, Navy Shi yard & GSA 1+2 o-5 5-15 15-30 30-50 N Y 4WH 4WH + 36WH Medical E enter, Portsmouth, VA Navy/Naval Air GSA 1+2 o-5 5-15 15-30 30-50 N Y 4WH 4WH + 24CH St;tion, Fallon, + 12WH Navy/Navy Air Navy 1+2 o-5 5-15 15-30 N Y 6WH 48CH Station, Lemoore, CA Navy/Mare GSA 1+2 o-5 5-15 15-30 30-50 N Y 4WH 4WH + 24CH Island Naval + 12WH Shipyard, Vallejo, CA Navy/Naval Post GSA 1+2 o-5 5-15 15-30 30-50 N Y 4WH 4WH + 24CH Graduate + 12WH School, Monterev, CA Navy/Bay Area, GSA 1+2 o-5 5-l 5 15-30 30-50 N Y 4WH 4WH + 36WH San Francisco, CA AF Logistics AF 1+4 12-60 Y Y Less than 90% Command Logistics effectiveness bases within Command for 3 CONUSe consecutive months AF Military Airlift Scott AFB 1+2 O-5 5-15 15-30 (or more) Y Y 4WH 4WH + 12WH Q;rr;nd, Scott (continued) . Page 46 GAO/NS~i?76 Co&-Per-Copy Service Appendix II Copter C4mt-PeKopy Servia? Comparison of Contract Terma Consumable supplies f urnUa’~~a~by Maintenance Contract Term+f;rt z; Bands by range j’Y=yes&N=no) requirements’ F3atnatlon/ ;rrded . (Copies in thousands per month) All Replace option yrs 1 2 3 4 5 Paper Other %%I? machine by AF Strategic Air Offutt AFB 1+4 O-6 6-12 12-40 40 &over Y Y 20 hours of Command, downtime Offutt AFB, NE per month AF Military Airlift Norton AFB 1+4 O-15 15-50 (or more) Y Y 4WH 4WH + 12WH Command, Norton AFB, CA aWHand CH stand for working (normal duty) hours and continuous (clock) hours, respectively. bGenerally half the time is allowed in emergency situations. CFORCSCOM: U.S. Army Forces Command dGSA: General Services Administration TONUS: Continental United States Page 47 GAO/NSIADDO-276 Cost-Per-Copy Service Appendix III Copier Cost ComparisonPre- And Post- ConversionCost Studies Dollars in thousands: other figures are In percent Cost feasibility studies performed prior Cost reduction computed while using to cost-per-copy contract cost-per-copy contract Annual cost Annual cost Annual cost Annual prior to Annual cost reduction other than Annual cost reduction Geographic cost-per- under cost- from cost- cost-per- under cost- from cost- location Organization copy per-copy per-copy copy per-copy per-copy Navv Bremerton, Naval Air Statron, Oak WA Harbor $166 $81 $85 51.2% $172 $102 $70 40 7’ Naval Undersea Warfare Enqrneennq Station 219 89 130 59.4 246 123 123 500 Puget Sound Naval Shipvard 538 301 237 44.1 534 315 219 41 0 Naval Submarine Base, Bangor 90 40 50 55.6 a Trident Training Facility 42 25 17 40.5 a Trident Refit Facilitv 67 32 35 52.2 a Strategrc Weapons Factlity 45 17 28 62.2 a Naval Supply Center 58 33 25 43.1 a Total $1,225 $616 $607 49.6% $952 $540 $412 43.3' Norfolk, VA Naval Aviation Depot 188 96 92 48.9 173 88 85 49.1 Naval Air Statron 97 59 38 39.2 145 93 52 35.9 Commander. Naval Air Force, U.S. Atlantic Fleet 49 30 19 38.8 45 29 16 35.6 Naval SUDDIV Center II, 240 144 96 40.0 211 121 90 42.7 Total $574 8329 $245 42.7% $574 $331 $243 42.3' Portsmouth, Naval Shipyard VA 270 144 126 46.7 429 243 186 434 Naval Hospital 552 330 222 40.2 209 105 104 49.8 Total $822 $474 $346 42.3% $636 $346 $290 45.5" Army Fort Polk. LA Fort Polk b 399 250 149 73.3 Fort Fort Sheridan Sheridan, IL (headquarters) b 164 128 36 22.0 Fourth U.S. Army, Fort Sheridan 78 48 30 38.5 a Total 76 46 30 38.5% 164 128 36 22.0' Total $2.699 $1,469 $1.230 45.6% $2.727 $1,597 $1,130 41.4( Note: This appendix only contains Information on converslons to CPC service. No Air Force organlza tlons are shown because their actions involved continuation of the use of CPC service aWe did not request the organizations to provtde these studies bPre-cost-per-copy analysis not performed Page 48 GAO/NSIAD96-276 Cast-Per-Copy Service Page 49 GAO/NSUD2&276 Co&PercOpy Service Annual A dministrative Work Load Reductions ExperiencedUnder Copier Cost-Per-Copy Service Invoice processina Number prior Number added Number after Geographic location to conversion or reduced(-) conversion Armv fort Polk, LA 816 -804 12 Fort Sheridan, IL (headquarters) 564 -552 12 Fourth U.S. Army, Fort Sheridan 204 -204 0 Navy Bremerton, WA 0 12 12 Naval Air Station 456 -456 0 Naval Undersea Warfare Engineer Station 468 -468 0 Puqet Sound Naval Shitwardb 2,400 -2.400 0 Total 4,908 -4,872 36 Page 50 GAO/NSIAD!W276 Co&Per-Copy Service Appendix IV Annual Administrative Work Load &ductiona Experienced Under Copier &et- Per-Copy Service Procurement actions Numbers of vendors to interface with Number prior to Number added Number after Number prior to Number added Number after conversion or reduced(-) conversion conversion or reduced I-I conversion 68 -67 1 15 -14 1 34 -33 1 8 -7 1 17 -17 0 4 -4 0 0 1 1 0 0 0 1C -1 0 1C 0 Ia 10 -10 0 9 -8 Ia 18 -18 0 8 -7 la 148 -145 3 45 -40 5 aEach command interfaces with the same vender location (all have the same vendor telephone number). bExcludes copiers not converted to CPC service. ‘Prior to conversion a single vendor furnished and maintained copiers under an annual contract. All copiers were leased. Now they are part of the base contract. Page 51 GAO/NSlAD!W276 Cost-Per-Copy Service Appendix V Information on CopiersLocated at the Pentagon as of September30,1988 Number of copiers Annual volume Annual total Lease/purchase & Total (copies in cost Organization Ll”b”n”t government owned number millions) (thousands) Joint Chiefs of Staff 51 7 58 12 $158 Washinaton Headquarters Service 168 84 252 unknown 262 Department of the Army 3 347 350 55 1,237 Department of the Navy 38 39 77 108 738 Department of the Air Force 81 213 294 51 1,952 Total 341 690 1,031 226 54.347 Page 52 GAO/NSIAD9@276 Cost-PercOpy Service Appendix VI Industry Suggestionson Service We did not verify or review the industry’s suggestions outlined below. Determine the users’ average experienced monthly production volume Users’ Needs l and use these averages, in lieu of production volume band maximums, for establishing the contract cited estimated production volumes. . Identify, for each band, users who require different features than those authorized for their band. Either identify the users and additional fea- tures in the CFCsolicitation or contract for them separately. Guarantee a 3-year contract period. (Contracts were awarded for l-year Contractors’ Risks l with various numbers of annual renewal option years.) l Guarantee copier use for 3 years after date of copier installation. (Con- tracts awarded contained no guarantees, even if copiers were installed during option years.) l Guarantee a minimum monthly payment either by a flat amount or min- imum number of copies. (Contracts awarded contained no guarantees.) l Provide for economic adjustments in unit prices. (Contracts were awarded with fixed unit prices.) l Exclude the requirement for the vendor to supply paper. (Some con- tracts awarded required the vendor to supply paper.) . Revise the contractor’s administration and maintenance requirements to be the same in other purchase options-lease/rental, lease/purchase, and maintenance of government-owned copiers. Require the government to assume the cost of any necessary wiring l upgrades. Allow the contractor with a 3-year contract to have an opportunity to Other Contract l bid on the continued use of the copiers for a fourth and fifth year. Approaches . Limit CPCcontracts to copiers per monthly production volumes under 30,000 copies. . Solicit bids by and award contracts to the lowest bidder for each produc- tion volume band. . Solicit bids on the basis of variable pricing for specified production volumes below, within, and above the production volume band and a fixed unit price with the government selecting the most economical alternative offered by the bidders. (This approach was originally con- ceived for production volume bands exceeding 100,000 copies per month.) . Page 53 GAO/NSIADW276 Cost-Per-Copy Service Appendir VI Industry Suggestions on Service . Require the contractors to furnish only new copiers. (Contracts awarded Others permit new and remanufactured copiers.) Page 64 GAO/Nf3IAD6&276 Co&PercOpy Service Appendix VII CommentsFrom the Department of Defense DEPARTMENT OF DEFENSE WASHINGTON HEADQUARTERS SERVICES WASHINGTON, D.C. 20301-1155 17 APR 1990 Mr. Frank C. Conahan Assistant Comptroller General National Security and International Affairs Division U.S. General Accounting Office Washington, DC 20548 Dear Mr. Conahan: This is the Department of Defense (DOD) response to the General Accounting Office (GAO) Draft Report, "DOD PROCUREMENT: Cost-Per-Copy Service Can Reduce Copying Costs," dated March 1, 1990 (GAO Code 391618) OSD Case 8255. The Department generally concurs with the GAO findings and recommendations, and detailed DOD comments are provided in Enclosure 1. Additional technical changes have been separately provided. The DOD goal is to provide copier services in the most cost effective manner, consistent with mission requirements. That position has been previously transmitted to the Chairman, Subcommittee on Readiness, Committee on Armed Services, in response to cost-per-copy guidelines from the Subcommittee (Enclosure 2). In the DOD response to the Chairman (Enclosure 3) I the Department indicated that the guidelines had been disseminated to the DOD Components, and that they would be utilized to the extent they were consistent with and permitted by the controlling DOD procurement regulations. In addition, the DOD and the General Services Administration plan to jointly study the implication of various contract terms and, as appropriate, use the study results to provide guidance to the Services. The DOD appreciates the opportunity to comment on the GAO draft report. Sincerely, D. 0. Cooke Director Enclosures Page 55 GAO/NSIAD90-276 Coat-PerCopy Service Appendix W Comment.9 Prom the Department of Defense GAO DRAFT REPORT - DATED MARCH1, 1990 (GAO CODE 391618) OSD CASE 8255 "DOD PROCUREMENT: COST-PER-COPYSERVICE CAN REDUCECOPYING COSTS" DEPARTMENTOF DEFENSECOMMENTS o UDING A: Hackaround: m DOD Cost - Per - CODV Proaram. The GAO reported that the DOD was leasing and purchasing copiers when cost-per-copy service was first introduced as a procurement option. According to the GAO, cost-per-copy service began in 1973, when the Air Force (Tactical Air Command) acquired copier services on a per copy basis for its subordinate military bases. The GAO reported that cost-per- copy service has since spread throughout the Air Force and more recently to the other Services. The GAO pointed out that the Navy began to use cost-per-copy service in FY 1986-- and the Army in FY 1988. The GAO pointed out that cost-per- copy services have been purchased for the Military Departments by major commands, military bases, and the General Services Administration. The GAO stated that, according to the DOD, copier costs in the U.S. were over $116 million in FY 1900. The GAO noted that these costs include $10.8 million for cost-per-copy contracts in 47 geographic areas. The GAO cautioned, however, that copier costs were significantly understated since all DOD organizations were Now on pp.2,11-12,and not included. (p. 2, pp. 12-13, p. la/GAO Draft Report) 14. DOD POSU: CONCUR. o mDING H: t&@ance Lackina f r Estma Cost - Per - CODV Contract. The GAO found'that, while some basic characteristics were included in cost-per-copy contracts, a number of provisions vary from contract to contract. The GAO reported, for example, that performance requirements and the number of option years varied among the cost-per-copy contracts. The GAO also reported that the number and range of copier bands also varied by contract. (The GAO explained that a copier band is a production volume band that has a specified minimum and maximum production volume range, which specifies what accessories and features are required on a copier.) The GAO pointed out that, although all cost-per- copy contracts required the contractor to furnish chemicals, other types of supplies to be furnished by the supplier differed between the Air Force and other DOD contracts. The GAO also cited variances in cost-per-copy contracts regarding maintenance requirements. The GAO found that unit prices Page 58 GAO/NSIADBfJ-276 Cost-PercOpy Service AppendixVII Commenta From the Department of Defense varied considerably from contract to contract and for different bands within contracts. The GAO also noted that prices varied among contracts for the same copier band and same length contract period. The GAO also found that neither the DOD nor the General Services Administration has examined whether some terms may be more advantageous to the Government--nor have they provided guidance to agencies on what factors to consider in establishing contract terms. The GAO concluded that differences in the number of contract option years, production volume bands, contractor versus government- furnished paper, and maintenance requirements may affect Now on pp. 2-3, 14-19. total operating costs. (pp.2-3, pp. 18-27/GAO Draft Report) POD POSITION: CONCUR. In regard to the statement that the DOD and General Services Administration lack guidance on what contract terms to include in cost-per-copy contracts, it must be realized that the cost-per-copy program in its present form evolved and developed quickly, because of the impetus of the Gramm-Rudman-Hollings legislation and the Paperwork Reduction Act. Moreover, program savings exceeded expectations and individual Service needs were met in compliance with procurement regulations. Also, whereas guidelines as to the optimum number of option years and volume band configuration are important, because of varying Service/command requirements, mandated guidelines may be detrimental in some cases. The underlying principle, and the Department's greatest concern, is the cost effectiveness of each cost-per-copy contract and the cost-per-copy program. Nevertheless, the DOD is amenable to pursuing what commonality can be achieved between the Services and commands without affecting the program's effectiveness. (See also the DOD response to Recommendation 1.) o FINDING C: me Convwn to Cost - Per - CODY Service &g Generallv Red ed Co t . The GAO reported that studies performed by FEe Nav; and the General Services Administration indicated that conversion to the cost-per-copy service generally reduced costs. The GAO also reported that preconversion studies performed by the Services prior to the acquisition of equipment showed that cost-per-copy service resulted in significant savings. The GAO found that the guidance varied among the Services for conducting cost feasibility studies. In this regard, the GAO reported that cost feasibility studies to support procurement of cost-per- copy services were not always done or retained--and the basis for evaluating copiers, whether on a copier-by-copier or an aggregate basis, varied by Service. The GAO pointed out that Service guidance also varied on what cost factors to include when determining the most cost-effective solution, and other copiers options were not evaluated. The GAO further reported that post-conversion analyses showed savings were achieved through cost-per-copy contracts. The GAO observed, however, that the cost savings computations did not consider all 2 Page57 GAO/NSIAD9&276Ce&PerCopyServica Appendix M Comments Prom the Department of Defense annual and one-time factors. Based on these results, the GAO concluded that Service guidance needs to be improved. The GAO concluded that converting leased and Government-owned copiers to cost-per-copy service can result in significant annual savings to the Government. The GAO pointed out, however, that cost-per-copy service is not always the most cost-effective option on a copier-by-copier basis. The GAO concluded, therefore, that the Military Services need to perform the required cost feasibility studies on a copier-by- copier basis, rather than in the aggregate--and only convert an individual machine where it is cost-effective to do so. The GAO observed that the DOD should consider all four options--lease/purchase, rental, purchase, and cost-per-copy service, The GAO asserted that cost feasibility studies and cost reduction computations should include all pertinent factors, such as annual depreciation on owned machines and removal costs, and that cost feasibility studies should be Now on pp, 2-3, 20-27. retained. (pp. 3-4, pp. 29-41,/GAO Draft Report) DOD POSITION: CONCUR. Conversion to cost-per-cop contracts has generally reduced DOD copying costs. Also, whx le cost- per-copy may be the best and most cost effective alternative approach, on a copier-by-copier basis, it may not always be the best option. The Department agrees that the Services need to perform a copier-by-copier cost feasibility study of all available options and only convert equipment to cost-per- co y when it is more cost effective and to apply the same cr Pteria, (i.e., depreciation, removal/removal costs) when conducting cost studies on owned equipment. Though purchase can be a cost effective option, it is often restrained by the upfront capital investments required and the need to dedicate additional resources to its management. With cost-per-copy, the DOD minimizes its asset management requirements and it becomes instead a contractor responsibility, i.e., contractor owned, contractor investment. o FINDING p: perceived Advantaaes and Disadvantaaes of Cos t - per-Coov Service. The GAO reported that advantages associated with cost-per-cony service, such as reduced administrative work load and-improved'management and maintenance, were cited by DOD officials. The GAO cautioned, however, that the advantages were not necessarily inherent to cost-per-copy service and some advantages already exist or could be required for copiers acquired through other means. According to the GAO, advantages such as some reduction in administrative costs, avoidance of installation and removal costs, and payment only for actual use are applicable to only cost-per-copy service. The GAO explained that other advantages attributed to cost-per-copy either already applied or could apply to non-cost-per-copy options. The GAO observed that potential disadvantages were either not significant, or could occur regardless of the procurement option. The GAO did observe that there were few perceived disadvantages with the service. The GAO also observed that Page 58 GAO/NSIAD9O-276 Cost-Per-Copy Servio Appendix VII Comments Prom the Department of Defense the DOD and the General Services Administration may be able to achieve benefits and savings from competitively awarded procurements incorporating terms similar to those in cost- per-copy contracts. The GAO again cautioned that, on the other hand, it might not be cost-effective. The GAO concluded, however, that competitive awards should be equally considered with copiers acquired through the General Services Now on pp.4,28-32 Administration catalog and cost-per-copy service. (PP. 4-5, PP. 43-51/GAO Draft Report) DOD POSm: CONCUR. There are unique advantages associated with cost-per-copy contracts, especially in the area of administrative savings in the contract procurement area, improved maintenance, and the avoidance of removal and installation costs. Even though some of these advantages are not necessarily inherent to cost-per-copy contracts, the administrative savings that the cost-per-copy program has brought about should not be minimized, since cost-per-copy has provided a simple and available mechanism for achieving such savings. Moreover, the cost-per-copy program eliminates capital investments, since the Government only pays for actual copies produced. The service response criteria on cost-per-copy contracts far exceeds the standard for the General Services Administration multiple award schedules. Service for major users with large volumes on General Services Administration multiple award contracts can be excellent. However, low volume users on General Services Administration multiple award contracts sometimes receive substandard service. The cost-per-copy contract provides for a consistent maintenance and service response for all machines not found in other types of contracts. o FINDING: PotentialExists for -ion of the Cost - Per - -Conceaf. The GAO reported that DOD organizations have nrimarilv exnanded the use of cost-oer-conv contracts either iithin a-military command or within-a Se&ice. However, the GAO found and discussed several examples indicating that the potential exists for expanding current contracts or a;;z;di;x new contracts within or among Services or agencies. pointed out that the publication and distribution of cost- per-copy service information would help copier managers identify the availability of the service in specific geographic areas. The GAO found, however, that neither the General Services Administration nor the DOD publishes catalogs on the availability of cost-per-copy service. The GAO also reported that the application of the cost-per-unit concept could be expanded. The GAO explained that the concept could be used as an option to leasing or purchasing other kinds of equipment. The GAO concluded that expanding and/or consolidating cost-per-copy service should continue when it is in the best interest of the government. The GAO further concluded that dissemination of the cost-per-copy catalog information could also help other agencies when Now on pp.4, 33-35 considering this procurement option. (p. 5. pp. 52-57/GAO Draft Report) 4 Page 59 GAO/NSIAD9O-276 Cost-PercOpy Service Appe*M CemmentsFromtheDepertmentofDefense DOD POSITION: CONCUR. The DOD agrees that some expansion of cost-per-copy contracts among Services or agencies is feasible. However, care must be taken to ensure that contract expansion is limited and that costs are not increased because of that option. The best use of the cost- per-copy contract is at the installation level, where copiers are concentrated and the vendor can achieve actual efficiencies through economy of scale. A listing of cost- per-copy contracts and their scope would be helpful. However, the General Services Administration is the most logical and appropriate agency to perform this service in that they are the Government commodity manager for copiers. 0 FINDING F: Industrv Views on Cost-Per-Coov Service. The GAO reoorted that it interviewed officials from copier comoanies and associations representing copier companies-to obtain views on the advantages and disadvantages of cost-per-copy service. The GAO reported that industry views on the Government's use of cost-per-copy varied--ranging from ready acceptance of the present contractual requirements to lack of interest in participating in future cost-per-copy contracts. According to the GAO, industry officials believed that the structure and policies of a company could affect costs. In addition, the GAO reported that industry officials also stated that some private sector companies, including some Government contractors, and state governments use cost-per- copy service. However, the officials stated that the contracts generally provided more contract guarantees than the Federal Government. The GAO also reported that industry officials made numerous suggestions to improve Government cost-per-copy contracts, including (1) increased definition of user needs, (2) reduction of contractor risks, and (3) Now on pp. 4, 36-42. consideration of other procurement approaches. (P- 5, pp. 58-68/ GAO Draft Report) -POSITION: PARTIALLY CONCUR. The Department has no method to verify industry's opinions, however, some industry views have been adjudicated through GAO protests. Some industry suggestions are contractually prohibited and others are simply preferences on the part of industry to minimize risk. One of the needs cited by industry is to determine the user's average experienced monthly production volume and use those averages, in lieu of production volume band maximums, for determining the contract cited estimated production volumes. In a decision by the Comptroller General of the United States, November 29, 1989 (Xerox Corporation) it was determined that the Government was sustained when estimates were obtained from and verified by specific user agencies as realistic estimates of their copier needs based on historical agency use and best estimates of future demand for copying services. In addition, the need expressed by industry to solicit bids and award contracts to the lowest bidder for each production volume band was rejected in the Comptroller General decision of November 0, 1988 (Eastman Kodak Company). 5 Page60 AppendixM CommentaFhmtheDepartmentofDefense The Department has adopted several recommendations made by industry which are beneficial to both the Government and industry, such as extending the cost-per-copy contracts from two to three and four option years, depending upon the normal useful life of the equipment involved. This allows industry to spread its costs over a longer period, which should result in lower cost-per-copy to the Government. However, minimum guarantees, price adjustments, etc., are contrary to a "fixed price, no guarantee, requirements contract," which is the basic contracting method for cost-per-copy contracts. In addition, it is against DOD contracting policy to adopt recommendations concerning contract terms and conditions that are beneficial only to a potential contractor. Other issues, such as three year contracts, minimum guarantees, economic adjustments in unit prices, etc., are contracting issues and are simply preferences on the part of industry to return to contract terms and conditions similar to those offered on General Services Administration multiple award copier schedules. The Department's position is to allow the marketplace to determine the viability of cost-per-copy contract terms and conditions. It is the Department's view that there are very real economic advantages available to contractors through economy of scale. RECOMMENDATIONS om: The GAO recommended that the Secretary of Defense and the Administrator, General Services Administration, jointly study the implication of various cost-per-copy contract terms, particularly with regard to (1) the number of option years, (2) the number of ranges of production volume bands, (3) vendor-furnished supply requirements, and (4) maintenance requirements-- and use the resulting information to provide guidance for agencies to use Now on pp.4-5, 18-19 in establishing terms for their specific contracts. (P. 6, 27-28/GAO Draft Report) DCD POSITION: CONCUR. The Secretary of Defense with the Administrator, General Services Administration, willjointly study the implication of various contract terms and,as appropriate, use the study results to provide guidance to the Services. The DOD will contact the General Services Administration by June 15, 1990, to begin the study effort. (See the DOD response to Finding B.) 0m : The GAO recommended that the Secretary of Defense direct the Secretaries of the Army, Navy, and Air Force to use cost-per-copy service as a procurement option, along with other traditional options, and select its use when 6 Page61 GAO/NSIAD9@276Cost-PerCopyService Appendix VU Comments From the Department of Defense Now on pp. 4-5, 26-27. it is the most economical to the Government. (P. 6, P. 421 GAO Draft Report) DOD POSITION CONCUR. The DOD has always considered cost- per-copy as in option to other procurement methods only when it is the most cost effective alternative. This position was re-emphasized by the Department in a memorandum to the DOD Components on October 25, 1989. (See the DOD response to Finding C.) RECOMMENDATION: The GAO recommended that the Secretary of Defense direct the Secretaries of the Army, Nav and Air Force (1) to perform the required cost feasibil XIty studies, includin all procurement options, (2) to ensure that cost feasibil 4 ty studies and cost reduction computations are performed on a copier-by-copier basis considering all relevant cost factors, and (3) to retain the studies to Now on pp. 4-5, 26-27 support the procurement action. (p. 6, p. 42/GAO Draft Report) DOD POSm: CONCUR. On October 25, 1989, the Office of the Secretary of Defense issued guidelines to the Services to perform the required cost feasibility studies and to consider all options, etc. consistent with DOD procurement regulations. o -DATION 4: The GAO recommended that the Secretary of Defense and the Administrator, General Services Administration, identify opportunities to award single vendor contracts competitively for leased and purchased copiers that include terms similar to those in cost-per-copy service Now on pp. 4-5, 32 contracts. (p. 6, p. 51/GAO Draft Report) DOD: PARTIALLY CONCUR. It is the Department's view that only some of the less significant cost-per-copy provisions could be applied to single vendor contracts for leased and purchased copiers. For example, specific service response requirements, contractor provided consumables, key operator training, contractor provided meter readings, consolidated month1 invoices, etc. However, the DOD will issue guidance with 1 n the next six months requiring the Services and Defense Agencies to incorporate applicable cost- per-copy provisions in single vendor contracts. (See the DOD response to Finding D.) o BTION 5: The GAO recommended that the Administrator, General Services Administration, publish and distribute catalogs and price lists to copier managers to help them identif the availability of cost-per-copy service Now on pp. 4-5, 35. in their geograph x c region. (P. 6, p- 57/GAO Draft Report) pOD POSITION: CONCUR. 7 Page 62 GAO/NSlADB@276 Gmt-PercOpy Service Appendix VIII CommentsFrom the General ServicesAdministration Note: GAO comments supplementing those in the report text appear at the end of this appendix. Administrator General Services Administration Washington, DC 20405 April 10, 1990 Mr. Frank C. Conahan Assistant Comptroller General National Security and International Affairs Division General Accounting Office Washington, DC 20548 Dear Mr. Conahan: The General Services Administration has reviewed the draft report entitled "PROCUREMENT: DOD USe of Copier Cost-Per-Copy Services Can Reduce Costs" (assignment code 391618), dated March 1, 1990. While we generally agree with the report’s findings and recommendations, specific comments are provided in the enclosed statement. I request that these comments be considered when preparing this report for formal issuance. Thank you for the opportunity to comment on this report. Singly, L Enclosure . Page 63 GAO/NSIAD30-276 Coat-Per-Copy Service Appendlr L’IU Comments From the General Services Administration GSA COMMENTSON THE GENERALACCOUNTINGOFFICE (GAO) DRAFT REPORT "PROCUREMENT: DOD USE OF COPIER COST-PER-COPY SERVICES CAN REDUCECOSTS" DATED MARCH1, 1990 General Comments The Federal Supply Service (FSS) agrees with GAO's findings that the Cost-Per-Copy (CPC) program is a cost-effective option in acquiring copier services, even with the deficiencies noted in the report. However, we would point out that the CPC audit report was conducted early-on in the CPC program. Since the beginning of this audit, several changes have been made to the FSS solicitations which we believe will make the program even more cost-effective, i.e., FSS terms, conditions, and descrip- tions have been standardized to the extent possible for consis- tency and uniformity. The CPC program is a growing program which has been subject to many changes as we have crossed the learning curve and developed expertise. Flexibility has been maintained to adjust to changes aa required to ensure cost-effectiveness. The program is managed by FSS for civilian Federal agencies and FSS conducts the pro- curements. The guidance required by the agencies is in terms of how to evaluate copier needs to develop realistic requirements. This should be done at the time agencies initially contact FSS to discuss the possibility of obtaining a CPC contract for their activity. The CPC prices are compared to the least expensive rental contracts prior to award. This is one basis used to determine price reasonableness. The FSS study done in December 1989 compared CPC costs with the lowest available rental costs for similar equipment available from the Multiple Award Schedule (MAS) l Specific Comments Finding Now on p. 12. Page 14, first paragraph after chart, "Outside the United States, the Navy has used CPC service on board ships and at one military installation in Italy, and the Air Force has used it for copy centers and self-service locations in Central Europe." Comment Since 1985, shipboard copier service has been provided under the Standardization of Shipboard Reprographics Equipment (SSRE) Program. These are not considered CPC programs, and we are not aware of CPC being used for shipboard copier service. Page 64 GAO/IWAD!W276 Cost-Per-Copy Servk Appendix Vlll Comments From the General Services Administration - 2 - Finding Now on p. 14 Page 18, first paragraph, second sentence, “However, we found DOD and GSA lack guidance on what factors to consider in determining what specific terms to include.” Comment See comment 1 FSS has improved and is consistent in its terms and conditions since the study was conducted. Any variances between solicita- tions are designed to meet the specific needs of an agency. Finding Now on p. 15. Page 21, second paragraph, “Neither DOD nor GSA has provided guidance on what option length is in the government’s best interest or what factors are relevant to the selection of the number of option years.” Comment See comment 1. FSS has based its three-year contract (one year with two options) on the reasonable time an office volume copier can be expected to provide dependable service. FSS has relied on industry publications and studies in making this determination. Efforts to improve our ability to establish optimum contract length, including options, will continue. Findin Now on p. 15 Page 22, second paragraph, first sentence, “The various bands require different accessories and features on the copiers.” Comment See comment 1 FSS has made changes to standardize solicitations and offer standard features to ensure that purchase descriptions will be consistent and uniform throughout all solicitations. Finding Now on p. 16. Page 23, second paragraph, third sentence, “The protestors argued, among other things, that the solicitations unduly restricted competition by requir ing that one contract, inc luding all volume bands, be awarded.” Comment FSS believes the concerns about the potential limiting of competition are unfounded in FSS contracts. FSS monitors the copier market on an ongoing basis, One of our first considera- Page 65 GAO/NSIAD6&276 &et-PercOpy Service Appendix VIII Comments Prom the General Services Administration - 3 - tions in any copier requirement for either CPC or other copier options is determining that we have sufficient competition. We are constantly attempting to improve our service to customers and to maximize competition. Finding Now on p. 17 Page 24, second paragraph, third sentence, "Neither GSA nor DOD has tried to determine whether there are optimal numbers and ranges of bands to meet users' needs and maximize competition." Comment See comment 1. Based on conferences, discussions and surveys with industry, FSS has determined the technical requirements, which established the minimum range of bands for the contracts to be cost-effective to the agency and at the same time beneficial to the contractor. It has also been determined that there must be minimum utiliza- tion of machines. All of these changes are reflected in our revised solicitations. Finding Now on p. 18. Page 26, fourth paragraph, first sentence, *We did not find any relationship between the unit prices and contract size (number of copiers) or geographic location (within or near a major metropolitan area versus a rural area)." Comment Our findings indicated that if the number of machines falls below a minimum level (somewhere around 40, depending on the contractor) that the cost per copy would rise due to the loss of economies of scale. FSS has consciously avoided contracts for smaller numbers. Similarly, larger contracts do not seem to have vast potential for additional savings, possibly due to the fact that more machines require more service personnel. Findinq Now on p. 22. Page 36, second paragraph, second sentence, "However, we believe that the cost evaluations for copier replacement should include such costs as annual depreciation for copiers being retained, and consider one-time costs for installation, termination, and removal, and the residual undepreciated value of equipment to ensure that equipment is not prematurely replaced when it is not cost-effective to do so." Page 66 GAO/NSIALXM%276 Cost-Per-Copy !Service Appendix VIII comments From the General Servicea Administration -4- Comment See comment 2 FSS feels only the actual ongoing expenses of operation under the different choices should be considered. Finding Now on p. 26. Page 41, second paragraph, third sentence, “Therefore, we believe the services need to perform the required cost feasibility studies for individual copiers on a copier-by-copier basis rather than in the aggregate, and only convert an individual machine where it is cost-effective to do so.” Comment See comment 3 FSS disagrees with the conclusion that cost analysis be conducted on a copier-by-copier basis. The CPC methodology is best applied on a programmatic basis, and the objective is to achieve overall cost savings. Exempting specific copier sites would have an adverse impact on pricing and service for the remaining CPC sites awarded. Also, the benefits, i.e., reduced administration associated with ordering of supplies and reduced cost of maintenance, of having a large concentration of the same brand of copier in a location would be decreased. Finding Now on pp. 31-32. Page 50, fourth paragraph, first sentence, “Several of the key CPC advantages appear to be more a function of concentration of copiers from a single vendor than an aspect inherent to the CPC concept. ” Comment See comment 4 FSS agrees that several of the key CPC advantages result from having a large number of machines from a single vendor. This was one of the guiding precepts in the development of the program. However, there are other benefits that probably cannot be realized through any other method. These would include the absence of capital investment: no installation charges, no removal charges, or termination charges: no basic monthly charge: etc. Certainly there are savings potentials in other procurement forms. For instance, an aggregate, single award purchase covering an entire military base or grouping of civilian activities could probably yield lower per copy rates than even CPC. However, this would require a significant capital investment and careful management. Page67 GAO/NSUDB@276 Cost-PerCopy Service Appendix VIII Cmnmenta Prom the General Services Administration -5- Recommendation "Since DOD and GSA both have experience with CPC contracts, we recommend that the Secretary of Defense and Administrator, General Services Administration, jointly study the implications of various CPC contract terms, particularly with regard to the number of option years, the number and ranges of production volume bands, vendor-furnished supply requirements, and maintenance requirements, and use the resulting information to provide guidance for agencies to use in establishing terms for their specific contracts." Comment FSS partially agrees with the recommendation to issue guidance to agencies for their use in establishing their CPC contracts. FSS has the responsibility and the expertise for the CPC program: therefore, the procurement authority is not being delegated. Agencies wishing to participate in the program must submit their requirements to FSS. However, a Federal Property Management Regulations (FPMR) Bulletin can be developed to assist agencies in deciding if CPC is an appropriate option at their location. Recommendation "We recommend that the Secretary of Defense and Administrator, General Services Administration, identify opportunities to competitively award single vendor contracts for leased and purchased copiers that include terms similar to those in CPC service contracts." Comment FSS agrees with this recommendation. The requirement for competitive contracting currently exists as a requirement under the FPMR for consolidated procurements for all requirements which will exceed the maximum order limitations of the Federal Supply Schedule. We have also made single awards for a number of low volume copiers. However, there is significant customer and industry opposition to expanded single award contracts and serious questions from the Congress challenging the cost/benefit of single awards. Recommendation "We recommend that the Administrator, General Services Administration, publish and distribute catalogs and price lists to Copier managers to help them identify the availability of cost-per-copy service in their geographic region." Page 68 GAO/NSIAD9@276 Co&PerCopy Service Appendix VIII Commenta Ftom the General Senricea Administration - 6 - Comment FSS partially agrees with this recommendation. Price lists and catalogs showing typical cost-per-copy service in a geographic region could be helpful in informing agencies of the potential benefits of CPC. In most cases, however, awarded contracts are for specific agencies within a complex or predefined area. Price lists and pamphlets containing contract administration information are provided to the project managers and agencies covered within the scope of a contract. Page 69 GAO/NSIADBS276 Cotat-PercOpy Service Appendix VllI Comments From the General Services Administration The following are GAO'S comments on GSA'S letter dated April 10, 1990. 1, We did not intend to imply that (1) solicitations should not be GAO Comments designed to meet the specific needs of an agency, (2) GSA does not have a basis for calculating a reasonable contract length, or (3) GSA'S purchase descriptions are inconsistent. Our point concerns the lack of guidance on what factors to consider in determining specific contract terms on a governmentwide basis. 2. GSA excludes depreciation in its definition of ongoing expenses. We agree that government accounting practices do not normally include depreciation of capital investments. However, to ensure that property is not prematurely replaced at the government’s expense, we believe that annual depreciation costs, and when applicable, the residual undepreciated costs, should be considered in the cost analyses when acquiring or replacing government-owned copiers. The only exception to considering these costs would be when replacement involves an obsolete copier. 3. During the course of our work, we found no indication that excluding some copiers from CPCcontracts would necessarily increase the govern- ment’s costs. However, Navy officials in Norfolk stated that to lower government costs certain copiers were excluded from CPCservice because of the users’ requirements. In addition, we found that the gov- ernment’s savings with CPC service could have been increased if certain lower cost copiers had not been converted. Therefore, we believe that cost analyses should be performed on a copier-by-copier basis. In addi- tion, administrative costs that can be identified should be included in the cost analyses and cost reduction computations. Other administrative costs should be considered in management decisions and documented to support each procurement. 4. We recognize that some WC contract provisions, such as maintenance response requirements and consolidated invoices, could be incorporated into other procurement options. Other CPCcontract provisions, such as no cost for installation, removal, and termination, and payment only for each copy produced, are unique to the CPCservice option. Also, we agree that good and careful management is important regardless of the pro- curement option. We recognize that lack of funds could limit procure- ment to other than the purchase option, Page 70 GAO/NSIALBO-276 Cost-Per-Copy Servict Appendix IX CommentsFrom CanonU.S.A.,Inc. CANON U.S.A., INC. CdllOlli 5701 GENERAL WASHINGTON DRIVE ALEXANDRIA. VIRGINIA 22312.24SS Tekphone: (703) 642-8050 April 2, 1990 Mr. Frank C. Conahan Assistant Comptroller General U.S. General Accounting Office Washington, D.C. 20548 Subject: Procurement: DOD Use of Copier Cost-Per-Copy Service Reference: GAO Assignment Code 391618 Dear Mr. Conahan: Thank you for the opportunity to submit comments concerning the referenced document. It is Canon's position that the most cost effective method for the government to meet their photocopying requirements is the outright purchase of the specific photocopier which best suits their needs. This is most efficiently accomplished by issuing a purchase order against a General Services Administration (GSA) Multiple Award Schedule. Any plan other than this represents a higher cost to the agency and, of course, to the U.S. taxpayers. When an agency has not selected outright equipment purchase, some have proceeded to the less cost-effective method of Cost-Per-Copy Contracts (CPC) -- the subject of your report and on which I offer the following comments: 1. The basis used in the report for establishing a comparison of CPC to rental took the highest cost rental plan provided by GSA. It would seem more appropriate to use the best available rental pricing under the GSA Copier Copier Multiple Award Schedule as a comparison. Many vendors have very attractive and cost-effective rental rates under their Multiple Award Schedule which are as much as 20% less from the rates used for purposes of your comparison. 2. There was no mention of interviews with the actual end users. These are the people who could best describe the success or failure of the program at their location. Page71 GAO/NSLAD9@276 Cost-Per-Copy !3ewice Appendix IX Comments From Canon U.S.A., Inc. Mr. Frank Conahan Page Two April 2, 1990 3. Prices bid by responsible bidders have, substantially increased from 1986 to 1990 indicating that once vendors develop a background of information and experience as a result of previous such awards they must more realistically view their actual costs as compared to the data presented in solicitations. 4. As a result of the number of CPC awards, the Multiple Award System, one of the most effective government-wide procurement programs, could be adversely affected due to the reduction in real potential in the Federal Government market. 5. Reduced competition. A few companies have found this type of contract to put them in a money-loss position and have stated publicly that they will not bid on them in their present format. 6. Severe adverse impact on small business. The report did not mention that this type of "Sole-Source" Award severely and adversely affects thousands of small businesses (other manufacturer's dealers or distributors) -- which the Federal Government is mandated to help. Under the Multiple Award System they may compete for Federal dollars. Under CPC the majority of these dealers or distributors are precluded from sharing in the government business since the award by location is often made to only one company to the exclusion of these other small business establishments representing the various manufacturers who do not receive or share in the specific CPC award. l ****** Canon, U.S.A., Inc. has been a successful bidder in several CPC procurement actions. We currently hold 12 major CPC contract awards, 9 of them awarded by General Services Administration with 5 on behalf of the Navy. As a result of our experience in administering our CPC contracts I would note the following: 1. The anticipated copy volumes stated and upon which we based our pricing has been found to be so inaccurate as to be negligent. Such inaccuracies result in a company bidding unacceptable price levels. Inaccurate and misleading solicitation information as to volume levels thus far has been standard. GSA relies on the input from the user agency. GSA is currently making an effort to provide more accurate data. Page 72 GAO/NSIAD9&276 Cost-Per-Copy Servic Appendix M Comment.43Prom Canon US..L, Inc. Mr. Phil Conahan Page Three April 2, 1990 2. I would question the government admin,istrative savings cited in the report. It has been our experience that the administrative nightmares generated by copier under utilization, copiers moved without vendor permission, contractually unauthorized purchase orders (initially ordered wrong unit, ordered with wrong accessories, proliferation of copiers and splitting of volumes,) has taken hours upon hours of personnel time to resolve. There is continual back and forth paperwork and at times necessary intervention by GSA to eliminate customer (government) abuse of the contract. Under these circumstances the administrative cost to all three parties (government customer, GSA, Canon) is incalculably high. The above scenario is not peculiar to Canon. It is the same for several other vendors who are already on record with identical statements regarding CPC contract administration. There are several improvements which could be made to these solicitations which would result in more palatable contracts. Some of these were noted in your report, but remain unimplemented in recent follow-on solicitations. It is our desire to provide excellent products to the Federal Government at fair prices. As is the case with all markets we must continually examine the costs and potential returns. At this point in time it would appear that the costs associated with administering CPC Contracts far outweigh the financial returns that one generally expects from a Sole Source Contract. Based on our observations of the increase in the actual number of copiers on site, the administrative problems and the increase in bid prices, it would appear that the savings you projected are overstated. We appreciate your willingness to receive our comments. It is our sincere desire that this process will result in better contracts for the Government and industry. Very truly yours, CANON,U.S.A., INC. A Tabi ha A. Yothers Mana 1er, Governmen 0 Contract Administration Business Machines Group fp:TAY . Page73 GAO/NSIAD9@276 Caet-Per-Copy Service Appendix X CommentsFrom Pitney Bowes Pitney Bowes Washington DC. Region Office March 29, 1990 Mr. Frank C. Conahan Assistant Comptroller General United States General Accounting Office 441 G Street, N.W. Washington, D.C. 20548 Dear Mr. Conahanr Pitney Bowes is a leader in the innovative procurement method known a0 Cost-per-Copy (CPC), We are pleased to have an opportunity to comment on the GAO Draft Report “DOD Procurement: Cost per Copy Service Can Reduce Copying Cost." The findings of the Report largely mirror our own analySiS of Cost-per-copy, that * Cost-per-Copy has proven to result in substantial savings t * Cost-per-Copy reducca the administrative workload for the procuring command: and l Cost-per-Copy allows the services to keep pace with ever-changing technology without reguiring sizeable outlays for the acquisition of new hardware. In short, Cost-per-Copy serves as a cost-effective option for the procurement of copier services. We would also like to take this opportunity to comment on the section of the Repcrt entitled "Industry Suggestions on Service" in Appendix VI of the i\.;zort: II-- Limit CPC contracts to copies per monthly volume of 25,000 copies or less." Pitney Bowes recommends against such a limitation. To do so would effectively limit CPC services to the bottom three volume bands. It would thereby require the agencies to make significant outlays for the procurement of copiers for the top two bands or contract with multiple vendors resulting in increased paperwork and cost. 5580 hi Royal Ftc& Sphgfiekt. VA 22151-2392 703 321-0508 Page74 GAO/NSIAD98-276 Co&-Per-Copy !Sem AppendixX Commenta FkomPitney Bowes r I Pitney Bowes #II "--Solicit bids by and award aontractm to the lowa8t bidder for each production band." Pitney Bowes feela that to make oontract awardo by bands would undermine the cost savings resulting from the.award of CPC contracts. Awards by bande would likeWi8e increaee the administrative workload. The GAO Report makes similar findingo. "--Require the contractors to furnish only new COpiers." Pitney Bowes notee that l ome companie8 have suggested that remanufactured copiere do not provide the current technology available from new copiers. It i8 the position of Pitney Bowes that remanufactured copiers do indeed offer current technology. As per current contract regulstione, remanufactured copiers may be offered only if that model is in current production. Any remanufactured copier offend by any vendor mwt be a model in current production. Models in current production offer current technology. Pitney Bowes has reviewed the findings of the GAO Report with interest. We find them to be in concert with our own internal review of CPC. Cost-per-Copy is cost-efficient, reduces the administrative burden of procurement activities, and provides a viable option for agencies seeking to optimize the productive use of resource8. Pitney Bowes encourages the consideration of these additional COBm!entB in order to better reflect thr benefit to all parties engaged in CPC contracts. We are available to respond to any additional8 aonaerna that might arise. Sincerely, +Lh!!!. - William Horiarity Region, 49 titmal Act out Director Washington, D.C. Page75 GAO/NSIAD9O-276Cost-PercOpyService Appendix XI CommentsFrom Xerox Corporation March 30. 1990 Mr. Frank C. Conahan Assistant Comptroller General United States General Accounting OffIce Washington, D.C. 20548 XEROX Rel: Draft Report- “DOD Procurement: Cost-Per- Copy Service Can Reduce Copying Costs Dear Mr. Conahan In response to the invitation extended in your March 1, 1990 letter, Xerox Corporation welcomer the opportunity to comment on the referenced draft report. Our comments are dtvided into two sections: Section I: Response to GAO’s audit/analysis of In-place Cost-Per- Copy (CPC) contracts and, Section II: Expansion on the concerns of industry Xerox recommends that as part of the final report, GAO ensure that the contracting agency, as well as the user agency, conduct a thorough analysis of all alternatlve pricing. Since the General Services Administration (GSA) Is the primary contracting agency (the five locations referenced on page 30 of the report were GSA solicitations on behalf of the agencies), the analysis should be performed by GSA and made available to the public. GSA management has a vested interest in theae types of contracts since they are the sponsor of the Multiple Award Schedule (MAS) program which is a primary competitive contracting alternative to these types of contract otferlngs. Prior to award, it Is our recommendation that GSA provide supporting data to demonstrate that the CPC prices were compared to the best MAS contract rental, Lease to Ownership Plan or outright purchase prices avallable to the agency requesting CPC service. Now on p. 25 All agencies mentioned on page 30 of the draft report are eligible for Xerox’ very best MA9 contract prices; however, In the analysis that GSA performed (Attachment 11, apparently used by GAO for comparison to establish the 42% savings statement, we believe an invalid premise existed for the comparison. Utilizing the Single Unit List price for a purchase comparison, rather than the purchase price actually available to the Agency, resulted in a distorted conclusion. For example, in Xerox’ case, the Navy was eligible for purchase prices 20.2% to 51.6% less than those which were utilized for the comparison and presumably the development of the 42% savings statement. “Ym?Ew- Ycx- bnowum.t XNOX Page70 GAO/NSIAD2&276 Cost-PerCopy Servic Appendix Xl Comments From Xerox Corporation Mr. Frank C. Conohan U.S. General Accounting Office March 30, 1990 It is possible that if valid comparisons had been made, the agency requesting the CPC might well have been advised to explore an MAS contract solution. section II XEROX A kev message delivered in the reoort = is that. based on the = orices offered by Industry in the past on CPC contracts, the Government stands to realize significant cost savings in the future. In our view, this conclusion Is unsound since it is based on Inaccurate comparisons. As GAO personnel learned during the industry interviews leading to the release of the draft report, the majority of firms with CPC contract experience have serious concerns regarding future participation. A large number of the CPC contracts in place wlthin DOD were solicited and negotiated by the GSA. In general, all GSA Initiated CPC solicitatlons for fiscal Year 1986 through 1989 were essentially the same. Many firms offered prices based on the assumption that the copy volumes identified as benchmark evaluation levels in these solicitations were accurate estimates of anticipated Government usage. As industry advised GSA in open forums and written communication, actual copy production has fallen far short of the volumes implied. In utilizing only five of the earlier installations, GAO used early information, which now contributes to invalid assumptions, in support of a 42% savings statement. Average winning prices In subsequent CPC awards have risen substantially, as much as 200% in the lower volume bands and as much as 40% in the higher volume bands, over those prices utilized by GAO to develop their findings. Attachment 2 is a detalled history of the awarded bid prices issued by GSA. In recognition of the valid concerns of Its industry suppliers, GSA recently changed the CPC price evaluation criteria. Now, rather than base the analyses on the maximum copy volume of each volume band (for example, 5,000 copies for Band l), GSA evaluates the offered price against hlstorical agency usage data. This means that potential offerors now know In advance that although the copy volume for Band 1 could reach 5,000 copies in a given month, GSA is stating that the actual volume is known to be different and will base the price analysis on the actual hlstorical data, often 50% of the volume band stated requirements. This more accurate volume assumption when coupled with the history of rising prices, puts into real question any price savings over the Purchase or Lease to Ownership MAS prices. It is acknowledged that there are certain non-price savings that accrue under CPC plans. However, to conclude that these non-price savings are only available under CPC would be Incorrect. Such items as summary billing, scheduled supply delivery, fixed rate billing, standardized equipment configurations and focused service support are now, and have been, available to customers who meet certain minimum installation parameters much like those in CPC clustered requirements. There Is no magic in CPC programs that generates these savings that can not be delivered by normal focused management attention and vendor I user agency agreement. Page 77 GAO/NSIAD9@276 Cost-Per-hpy Service . Appedi~ XI Commenta From Xerox Corporation Mr. Frank C. Conohan U.S. General Accounting Office March 30, 1990 GSA has recently acknowledged that the risks imposed on the vendor community are too one sided and through a cooperative effort with industry has made several improvements to recent solicitations to XEROX address this Imbalance. In so doing, the uncertainty that existed has been reduced. Without that uncertainty, which caused many vendors to back away from this procurement concept, these types of solicitations are now more closely aligned to the essence of good business principles. As this healthy dialogue continues, industry has commented to GSA that addItIonal work should be done to put the CPC concept on a more equitable footing. With this as background, we urge GAO to revisit the specifics of the more recent awarda and to utilize comparisons that are consistent with customer environment, before finallzlng Its conclusions. Very truly yours, I Thomas A. Ry& Manager, Government Sactor Marketing Page 78 GAO/NSIAD!W-276 Cost-Per-Copy Servic Appendix XII Major Contributors to This Report William E. Beusse, Assistant Director National Security and Jerome P. Pederson, Evaluator-in-Charge International Affairs Gerald L. Payne, Evaluator Carolyn S. Blocker, Writer-Editor Division, Priscilla Miller, Secretary Washington, D.C. (391618) Page 79 GAO/‘NS~276 Co&Per-Copy Service
DOD Procurement: Cost-Per-Copy Service Can Reduce Copying Costs
Published by the Government Accountability Office on 1990-09-28.
Below is a raw (and likely hideous) rendition of the original report. (PDF)