Acquisition Reform: Classes of Contracts Not Suitable for the Federal Acquisition Computer Network

Published by the Government Accountability Office on 1997-09-17.

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

                   United States General Accounting Office

GAO                Report to Congressional Committees
                   and Acting Administrator, Office of
                   Federal Procurement Policy

September 1997
                   Classes of Contracts
                   Not Suitable for the
                   Federal Acquisition
                   Computer Network

             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             National Security and
             International Affairs Division


             September 17, 1997

             Congressional Committees and
             Acting Administrator, Office of Federal Procurement Policy

             The Federal Acquisition Streamlining Act of 1994 (FASA), Public
             Law 103-355, mandated a governmentwide Federal Acquisition Computer
             Network (FACNET) architecture to enable federal agencies and vendors to
             do business electronically in a standard way and move the government’s
             procurement process away from paper. It was expected that FACNET would
             be used for most competitive contract awards valued above the
             micro-purchase threshold of $2,500, up to the simplified acquisition
             threshold of $100,000. Procurements in this range are simplified
             acquisitions that may be conducted using procedures that are less
             complex than those required for full and open competitive acquisitions. In
             January 1997, we reported numerous concerns about FACNET
             implementation, including FASA’s requirements.1 Legislation has been
             introduced to amend the FASA requirements to allow electronic commerce
             (EC) to be implemented in a more flexible manner.

             This letter responds to the FASA requirement that we report on “the classes
             of contracts2 in amounts greater than the micro-purchase threshold and
             not greater than the simplified acquisition threshold that are not suitable
             for acquisition through a system with full FACNET capability.” Specifically,
             we ascertained characteristics of contract actions that agencies found not
             suitable for FACNET processing and evaluated the reasonableness and
             consistency of agencies’ explanations why they were unsuitable for
             FACNET. In addition, we analyzed governmentwide EC statistics to
             determine agencies’ use of FACNET and other EC purchasing methods. We
             obtained information from senior procurement officials at 24 federal
             agencies. (A list of the responding agencies is in app. I.)

             FACNET  is a governmentwide systems architecture for acquisition based on
Background   electronic data interchange (EDI), which is the computer-to-computer
             exchange of routine business documents using standardized data formats.
             A key goal of FACNET and the governmentwide EC program is to present a
             “single face to industry”—making the government look like a single entity

              Acquisition Reform: Obstacles to Implementing the Federal Acquisition Computer Network
             (GAO/NSIAD-97-26, Jan. 3, 1997).
              For this report, “class of contracts” means a group of contracts that bears some common
             characteristic(s), for example, a category or subcategory of products or services. Another example is
             contract awards above or below some dollar amount or within a specified dollar range.

             Page 1                                                     GAO/NSIAD-97-232 Acquisition Reform

    rather than a collection of independent departments and agencies. The EC
    program aims to simplify and standardize doing business by eliminating
    the need to deal with numerous different agencies’ procurement
    processes, forms, and rules.

    FASA requires that agencies award at least 75 percent of eligible contracts
    through a system that has implemented all the FACNET functions.3
    Contracting offices in agencies that are not in compliance by December 31,
    1999, will lose their authority to use simplified acquisition procedures for
    contracts exceeding $50,000.

    Agencies can exclude certain contract actions when calculating the
    percentage of FACNET use:4

•   The Federal Acquisition Regulatory (FAR) Council has determined that
    certain contract actions, such as delivery orders, task orders, and in-scope
    modifications against established contracts, should not be considered
    when determining agency compliance with FASA’s 75-percent criterion.5
    Essentially, this means that only contract awards should be counted.6
•   FASA authorizes the head of each executive agency to exempt its procuring
    activities (or portions thereof) from the requirement to implement full
    FACNET capability based on a determination that such implementation is
    not cost-effective or practicable. Contracts awarded by exempted
    activities are not to be considered in determining agency compliance with
    the criterion.
•   FASA provides that the FAR Council may determine—after considering our
    report on this subject—that classes of contracts are not suitable for
    acquisition through a system with full FACNET capability.

    In our January 1997 report, we questioned the FASA-mandated approach to
    EC. Also, we observed that since passage of FASA, alternative electronic

     The functions include allowing an agency to electronically (1) provide widespread public notice of
    solicitations for contracting opportunities issued by the agency; (2) receive responses to solicitations
    and associated requests for information; (3) provide public notice of contract awards (including price);
    (4) receive questions regarding solicitations, where practicable; (5) issue orders, where practicable;
    (6) make payments to contractors, where practicable; and (7) archive data relating to each
    procurement action made using such system.
     FASA defines a contract as eligible if it is not in any class of contracts determined by the FAR Council
    to be unsuitable for acquisition through a system with full FACNET capability.
     See FAR Part 4.505-4.
     Contract awards include new definitive contracts, new purchase orders, initial letter contracts, and
    orders under basic ordering agreements but exclude delivery orders, task orders, and in-scope
    modifications that have been issued against established contracts.

    Page 2                                                       GAO/NSIAD-97-232 Acquisition Reform

                   purchasing methods had become readily available to the government and
                   its vendors. Given these alternative methods, the prescriptive
                   requirements of FASA, and problems with implementation, we questioned
                   the extent to which FACNET made good business sense for simplified
                   acquisitions. We recommended that the executive branch (1) develop a
                   coherent EC strategy and implementation approach incorporating the
                   single-face-to-industry goal and (2) seek legislative changes, if FASA’s
                   requirements for FACNET were an impediment to implementing the
                   governmentwide EC strategy.

                   Since then, the President’s Management Council has tasked a high-level
                   management committee to review EC implementation and develop a more
                   integrated federal EC strategy. The executive branch also recently
                   proposed legislative changes to repeal mandated use of FACNET. On July 8,
                   1997, the Senate approved an amendment to the Fiscal Year 1998 National
                   Defense Authorization Bill that would, among other things (1) repeal
                   mandated use of FACNET; (2) define EC to include electronic mail or
                   messaging, World Wide Web technology, electronic bulletin boards,
                   purchase cards, electronic funds transfer, and EDI; and (3) ensure that any
                   notices of agency requirements or solicitation for contract opportunities
                   are provided in a form that allows convenient and universal user access
                   through a single governmentwide point of entry. The amendment calls for
                   uniformity in federal EC implementation to the maximum extent that is
                   practicable. The House National Defense Authorization Bill did not
                   contain any language regarding FACNET. Therefore, the Senate amendment
                   will be addressed in conference. This report provides information that
                   could be useful in congressional deliberations.

                   Senior procurement officials generally found contracts unsuitable for
Results in Brief   FACNET when (1) widespread public solicitation of offers was
                   inappropriate, (2) transmitting essential contracting information through
                   the network was not practical or feasible, or (3) alternative purchasing
                   methods were faster and more efficient. The agencies provided clear,
                   reasonable, and consistent business and technical reasons why numerous
                   types of contracts should be excluded from mandatory FACNET processing.

                   Available data showed continuing limited use of FACNET for contract
                   awards. However, there is no governmentwide data available on agencies’
                   use of other EC purchasing methods. Consequently, it is difficult to assess
                   the government’s overall progress in doing business electronically in a

                   Page 3                                      GAO/NSIAD-97-232 Acquisition Reform

                         standard way. Governmentwide EC statistical information may not be
                         available until the year 2000.

                         Responses from 24 agencies indicated a general consensus among senior
Agencies Found           federal procurement officials that, for several types of contracts, the use of
Several Contract         FACNET is inappropriate, impractical, or inefficient. As discussed below, the

Types Not Suitable for   agencies provided clear, reasonable, and consistent reasons for excluding
                         contracts from mandatory FACNET processing.
Contracts for Which      A primary function of FACNET, mandated by FASA, is to enable agencies to
Widespread Public        provide widespread electronic public notice of solicitations for
Solicitation Is          contracting opportunities.7 Several agencies’ senior procurement officials
                         identified procurements for which nationwide public solicitation of offers
Inappropriate            was inappropriate or ineffective in filling requirements. These officials
                         considered such procurements unsuitable for acquisition through FACNET.

                         A major group of contracts in this category is procurements with “on-site”
                         or local vendor requirements that generally require soliciting competition
                         from vendors in a local area. Construction and building maintenance
                         services contracts, for example, typically require a site visit to understand
                         the work to be performed, examine conditions affecting the work, and
                         accurately estimate the cost of performance. One agency cited its
                         requirement for weed control services as a typical example of a contract
                         that requires a local presence by vendors to bid intelligently and keep
                         costs down for acceptable performance. Another agency noted that
                         purchases of subsistence items are limited to the local commuting area
                         because they require the buyer to view and select the commodities.

                         According to procurement officials, nationwide solicitation through
                         FACNET for procurements with “on-site” or local commuting area
                         requirements was often inappropriate because vendors from outside the
                         area could not reasonably be expected to be able to fulfill the requirement,
                         resulting in additional costs to prepare and evaluate offers with no
                         commensurate benefit to vendors or the agency.

                         Widespread public notice may not be required or appropriate for other
                         types of contracts. For example, agencies’ officials noted that awards to
                         Small Disadvantaged Business Concerns, referred to as 8(a) contractors,
                         do not use public solicitation of offers.

                         Generally, non-FACNET procurements in excess of $25,000 must be advertised in the Commerce
                         Business Daily. See FAR Part 5.101.

                         Page 4                                                 GAO/NSIAD-97-232 Acquisition Reform

Transmission of Essential   Senior procurement officials found FACNET unsuitable for numerous
Contract Information Is     contracts because essential procurement information could not be sent,
Impractical or Infeasible   received, or communicated effectively through FACNET. In particular,
                            senior procurement officials considered FACNET inappropriate for
                            procurements requiring extensive government specifications, lengthy
                            written or oral proposals, sensitive or classified information, technical
                            evaluations, and urgent delivery or performance. For example, contracts
                            for various services, such as research and development efforts, were cited
                            frequently because of the lengthy statements of work and other
                            attachments that were often required. According to procurement officials,
                            transmitting such information through FACNET is difficult, costly, and often
                            infeasible.8 The Department of Defense (DOD) is working with the National
                            Technical Information Service to address this issue by developing methods
                            for making drawings, specifications, and standards cited in government
                            solicitations available electronically. According to DOD officials, early
                            results of this program appear promising.

                            Several procurement officials indicated that procurements involving
                            sensitive information are not suitable for FACNET processing because, in
                            their view, FACNET does not currently provide adequate security.9
                            Additionally, acquisitions that require urgent delivery of a service or
                            material are not considered good candidates for FACNET because
                            procurements that are conducted through FACNET would take too long to

                            Procurement officials also cited several types of acquisitions that could
                            not be conducted through FACNET because vendors were not on FACNET.
                            For example, for some procurements with on-site or local commuting area
                            requirements, agencies’ officials indicated that there were few or no local
                            vendors participating in FACNET. Several agencies’ officials considered
                            FACNET impractical for overseas procurements, especially in developing
                            countries because vendors did not have the technical sophistication or
                            infrastructure to sell via FACNET. Likewise, some procurement officials said
                            it is unreasonable to expect individuals and noncommercial organizations
                            to be on FACNET since they are not set up to sell products or services on a

                             The policy for FACNET use outlined in FAR Part 4.502 states that contracting officers may
                            supplement FACNET transactions by using other media to meet the requirements of any contract
                            action (e.g., transmit hard copy of drawings).
                             FAR Part 4.502(b) states that before using FACNET or any other method of EDI, the agency head shall
                            ensure that the EDI system is capable of ensuring authentication and confidentiality commensurate
                            with the risk and magnitude of the harm from loss, misuse, or unauthorized access to or modification
                            of the information.

                            Page 5                                                   GAO/NSIAD-97-232 Acquisition Reform

                         frequent basis and investing in FACNET for a few orders was not considered

Alternative Purchasing   Procurement officials from several agencies considered FACNET unsuitable
Methods Are More         if they found other purchasing methods or EC technologies to be more
Efficient                efficient, less costly, and easier to use. For example, procurement officials
                         noted a number of alternative purchasing methods they considered more
                         economical and easier to use than FACNET. These methods included
                         purchase card procurements and orders placed against electronic catalogs
                         and existing contracts, such as General Services Administration (GSA)
                         supply schedules, GSA Advantage,10 and governmentwide indefinite
                         delivery/indefinite quantity contracts. Several procurement officials stated
                         that the Internet and Web-based technologies are better EC options than
                         FACNET because they are easier to access, have fewer technical limitations,
                         and are relatively inexpensive for agencies and contractors to implement
                         and use.

                         Procurement officials also said that it was generally less expensive and
                         quicker to purchase commercial products and services valued under
                         $25,000 locally using traditional oral and paper-based solicitation methods
                         rather than FACNET when sufficient competition was available. One official
                         noted that for actions between $2,500 and $10,000, which do not require
                         “posting” notices of solicitations, contracting offices without FACNET
                         capability processed these procurements in a few days using locally
                         available suppliers with good past performance records; FACNET capable
                         sites were not able to meet their customers’ needs in the same time

                         Available data shows limited and declining use of FACNET for contract
Little Information       awards. However, the lack of governmentwide data on agencies’ use of
Reported on Agencies’    other EC purchasing methods, such as purchase cards and orders placed
EC Transactions          electronically against catalogs and indefinite delivery/indefinite quantity
                         contracts, impedes efforts to assess the government’s progress in moving
                         toward doing business electronically and achieving the “single face to
                         industry” goal.

                         In our earlier report, we estimated that in 1995, less than 2 percent of
                         about 2 million federal procurement actions above the micro-purchase

                          GSA Advantage is an on-line ordering system that allows agencies to search through all GSA sources
                         of supply and select the item that is the best value for their requirements.

                         Page 6                                                   GAO/NSIAD-97-232 Acquisition Reform

              threshold and below the simplified acquisition threshold ($2,501 and
              $100,000) were made through FACNET. The most recent and readily
              available data from the EC Program Office (January through
              June 1997) indicated that the volume of procurement actions processed
              through FACNET had declined, when compared to the same period a year

              On December 23, 1996, the Administrator for Federal Procurement Policy
              notified agency senior procurement executives that the EC concept for
              procurement had been broadened to include orders placed electronically
              against electronic catalogs and indefinite delivery/indefinite quantity
              contracts, purchase cards use, FACNET transactions, and Web-based
              contacting actions and requested agencies to report monthly the number
              and dollar value of EC transactions in each of these categories.12

              The Administrator’s memorandum stated that it is difficult to measure the
              impact of EC without adequate data. Also, vendors have pointed out that
              they need information on the volume and value of federal EC purchases to
              determine whether there are sufficient business opportunities to justify
              the investments needed to participate. The limited governmentwide EC
              statistics are posted for public access on the Internet. As of July 25, 1997,
              only 6 of 21 agencies had submitted monthly statistics on the number and
              value of their agencies’ FACNET solicitations and orders for January through
              June 1997. Five of these six agencies also reported data on other EC
              procurements. Four of the 21 agencies had not reported EC statistics. Thus,
              no governmentwide data is currently available on the volume and value of
              all EC procurements. Both GSA and the Office of Federal Procurement
              Policy commented that they are modifying the Federal Procurement Data
              System to collect EC statistical information and it may not be available
              until the year 2000.

              Senior procurement executives identified several classes of contracts not
Conclusions   suitable for FACNET. These were contracts where (1) widespread
              solicitation is inappropriate, (2) transmission of essential information
              through FACNET is impracticable or infeasible, or (3) alternative
              procurement methods, including other EC methods, are more efficient.

                Complete governmentwide data is not available; however, DOD, which accounted for over 73 percent
              of all reported FACNET procurement actions in 1996, does report complete data that was used for this
              comparison. DOD officials told us the volume of FACNET procurements reported for 1996 dropped as
              a result of a systems software enhancement, which eliminated the counting of redundant transactions
              and other anomalies.
                The monthly statistics can be reported to the EC Program Office quarterly.

              Page 7                                                     GAO/NSIAD-97-232 Acquisition Reform

                  They provided clear, reasonable, and consistent business and technical
                  reasons to support their positions. The most recent available data shows
                  that FACNET use has declined since last year. However, comprehensive
                  information is not available on the volume and value of other federal EC

                  We believe the information in this report further supports our earlier work
                  that showed the government needs the flexibility to implement EC
                  technologies and purchasing methods that make good business sense and
                  are aligned with commercial applications. It also supports our earlier
                  recommendation to develop a coherent and integrated federal strategy and
                  implementation approach for using various EC technologies and
                  purchasing methods to meet agencies’ acquisition needs. That strategy and
                  implementation approach remain to be completed.

                  To address our objectives, we asked the Senior Procurement Executives at
Scope and         25 federal agencies to give us information and explanations about
Methodology       (1) contracts they identified as not suitable for acquisition through FACNET
                  and (2) the extent to which their agencies’ competitive contract awards
                  between $2,500 and $100,000 were generally suitable for acquisition
                  through a system with full FACNET capability. We received responses from
                  24 agencies. We also interviewed senior officials at the Office of Federal
                  Procurement Policy, DOD, and GSA responsible for the governmentwide EC

                  In addition, to assess federal agencies’ use of FACNET and other EC
                  purchasing methods, we reviewed data on FACNET transactions from DOD’s
                  Life-Cycle Information Integration Office and EC statistics submitted by
                  federal agencies to the EC Program Office in GSA from January 1996
                  through June 1997. We did not independently verify the data.

                  We performed our work between January and August 1997 in accordance
                  with generally accepted government auditing standards.

                  In commenting on a draft of this report, DOD, the National Aeronautics and
Agency Comments   Space Administration (NASA), GSA, and the Office of Federal Procurement
                  Policy generally agreed with our findings.

                  DODstated that FACNET use will continue, even if a current congressional
                  amendment repeals its mandated use. DOD noted that it is incorporating EC

                  Page 8                                      GAO/NSIAD-97-232 Acquisition Reform

into its business practices within the simplified acquisition threshold. DOD
believes agencies’ procurement officials should be allowed to determine
for their agencies those classes of contracts not suitable for FACNET.

NASA stated that it advocates a strategy that recognizes the variety of users,
situations, and transaction types and moves to match them with the
appropriate EC technology. NASA noted that the challenge remains to offer
alternatives to agencies and their end users that provide attractive and
cost-effective reasons for moving forward from a non-EC environment.
NASA stated that it is working with other agencies committed to developing
a coherent strategy and implementation approach that takes advantage of
the Internet, including moving toward a “single face” environment for
advertising business opportunities.

Both GSA and the Office of Federal Procurement Policy expressed concern
about the lack of comprehensive EC data. GSA stated that for the past
2 years the Electronic Commerce Program Office had been requesting
monthly data from agencies on their FACNET and non-FACNET EC activities
and, as the draft report noted, the response had not been good. GSA
indicated that it had recommended to the Office of Federal Procurement
Policy that EC statistical information be collected as part of the overall
procurement data collection done through the Federal Procurement Data
System. The Office of Federal Procurement Policy stated that to ensure
more accurate and timely data on EC activities, it planned to modify the
Federal Procurement Data System to collect EC statistical information. The
Office of Federal Procurement Policy and GSA are working to get the
change incorporated into the Federal Procurement Data System by fiscal
year 1999.

NASA’s comments are reprinted in their entirety in appendix II. DOD, GSA,
and the Office of Federal Procurement Policy provided oral comments.
Agency suggestions to improve the technical accuracy of the report have
been incorporated in the text where appropriate.

We are sending copies of this report to the Director, Office of Management
and Budget; the Secretary of Defense; the Administrators for GSA and NASA;
and other officials at the agencies included in our review. Copies will also
be made available to others upon request.

Page 9                                       GAO/NSIAD-97-232 Acquisition Reform

Please contact me at (202) 512-4587 if you or your staff have any questions
concerning this report. Major contributors to this report are listed in
appendix III.

Louis J. Rodrigues
Director, Defense Acquisition Issues

Page 10                                    GAO/NSIAD-97-232 Acquisition Reform

List of Congressional Committees and the Acting Administrator, Office of
Federal Procurement Policy

The Honorable Fred Thompson
The Honorable John Glenn
Ranking Minority Member
Committee on Governmental Affairs
United States Senate

The Honorable Strom Thurmond
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Christopher Bond
The Honorable John Kerry
Ranking Minority Member
Committee on Small Business
United States Senate

The Honorable Dan Burton
The Honorable Henry A. Waxman
Ranking Minority Member
Committee on Government Reform and Oversight
House of Representatives

The Honorable Floyd Spence
The Honorable Ronald V. Dellums
Ranking Minority Member
Committee on National Security
House of Representatives

Page 11                                   GAO/NSIAD-97-232 Acquisition Reform

The Honorable James Talent
The Honorable John J. LaFalce
Ranking Minority Member
Committee on Small Business
House of Representatives

The Honorable Allan E. Brown
Acting Administrator
Office of Federal Procurement Policy

Page 12                                GAO/NSIAD-97-232 Acquisition Reform
Page 13   GAO/NSIAD-97-232 Acquisition Reform

Letter                                                                                            1

Appendix I                                                                                       16

List of Responding
Appendix II                                                                                      17

Comments From the
National Aeronautics
and Space
Appendix III                                                                                     18

Major Contributors to
This Report


                        DOD       The Department of Defense
                        EC        electronic commerce
                        EDI       electronic data interchange
                        FACNET    Federal Acquisition Computer Network
                        FAR       Federal Acquisition Regulation
                        FASA      The Federal Acquisition Streamlining Act of 1994
                        GSA       General Services Administration
                        NASA      National Aeronautics and Space Administration

                        Page 14                                  GAO/NSIAD-97-232 Acquisition Reform
Page 15   GAO/NSIAD-97-232 Acquisition Reform
Appendix I

List of Responding Agencies

               Department of Agriculture
               Department of the Air Force
               Department of the Army
               Department of Commerce
               Department of Defense
               Department of Education
               Department of Energy
               Department of Health and Human Services
               Department of Housing and Urban Development
               Department of the Interior
               Department of Justice
               Department of Labor
               Department of the Navy
               Department of State
               Department of Transportation
               Department of the Treasury
               Department of Veterans Affairs
               Agency for International Development
               Defense Logistics Agency
               Environmental Protection Agency
               General Services Administration
               National Aeronautics and Space Administration
               Office of Personnel Management
               Small Business Administration

               Page 16                                 GAO/NSIAD-97-232 Acquisition Reform
Appendix II

Comments From the National Aeronautics
and Space Administration

              Page 17        GAO/NSIAD-97-232 Acquisition Reform
Appendix III

Major Contributors to This Report

                        Kevin M. Tansey
National Security and   Patricia D. Slocum
International Affairs   Russell R. Reiter
Division, Washington,
                        John A. Carter
Office of General
Counsel, Washington,

(707231)                Page 18              GAO/NSIAD-97-232 Acquisition Reform
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