oversight

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)

            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