DOCUSENT fESUAE 04398 - LB3334559] (Efforts Needed to Increase Competition for Elevator Maintenance Services in the Veterans Administration). PSAD-78-41; B-135350. November 22, 1977. 9 pp. Report to Max Cleland, Administratcr, Veterans Administration; by Gregory J. Ahart, Director, Human Resources Div. IsSue Area: Federal Procurement of Goods and Services (1900); Federal Procurement of Goods and Services: Reasonableness of Prices Under Negotiated Contracts and Subcontracts (1904). Contact: Human Resources Div. Budget Vunction: Veterans Benefits and Services: Other Veterans Benefits and Services (705). Congressional Relevar.ce: House Committee on Veterans' Affairs; Senate Committee on Veterans' Affairs. A review of the methods the Veterans' Administration (VA) hospitals used tc contract for elevator maintenance services indicated that some hospitals are not seeking competition for elevator maintenance services. Findings,'Conclusions: Two-thirds of the hospitals sampled solicited competition and awarded contracts for elevator maintenance services to the lowest bidder. The other hospitals awardeu sole-source contracts to service representatives of the elevator manufacturers on the assumption that cther sources could rot provide adequate and timely service. The hospitals awarding noncompetitive contracts had not developed a factual basis to support the determination that it was impractical to secure competition. These hospitals also had no basis and had made little or no effort to evaluate the reasonableness of prices paid for maintenance services under noncompetitive cr.Cracts. There are opportunities for the VA to increase the number of competitive procurements, and significant savings should accrue through increased competition. (SW) UNITED STATES GENERAL ACCOUNTING OFFICE WASHINGTON, D.C. HUMAM mOCpURC= DVIUON B-135350 November 22, 1977 The Honorable Max Cleland Administrator of Veterans Affairs Dear Mr. Cleland: We reviewed the methods Veterans Administration (VA) hospitals used to contract for elevator maintenance services and found that some hospitals are not seeking competition for their elevator maintenance services. Two-thirds of the hospitals sampled solicited competition and awarded contracts for elevator maintenance services to the lowest bidder. The other hospitals awarded sole-source contracts to service representatives of the elevator manufacturers on the assumption that other sources could not provide adequate and timely service. We believe that competition is available for these serv- ices, and on the basis of recent experience of another Federal procurement agency, 1/ that these hospi.tals could have reduced elevator maintenance costs by soliciting competition. We are recommending that you follow up to assure that the VA Supply Service reassesses present procurement proce- dures for elevator maintenance services, directs hospitals to secure competition, and monitors these contracts to assure that maximum competition is obtained. 1/General Services Administration Region 5 recently changed its practice of awarding noncompetitive contracts for eleva- tor maintenance to the equipment manufacturer's service representatives. In 1977 it awarded contracts to the lowest bidder for these services in seven buildings and saved $296,000, or 38 percent of cost. PSAD-78-41 (950400) B-135350 STATUTORY PREFERENCE FOR COMPETITIVE PROCUREMENTS Federal statutes and procurement regulations 1/ require agencies to advertise and award contracts for property and services to the lowest bidder. Agencies may negotiate and award noncompetitive contracts only when justified under the exceptions specified in the statutes and regulations. VA procurement regulations provide that proposed elevator maintenance contracts more than $2,000 and less than $500,000 shall be considered individually for advertised small business set-asides. However, the regulations permit I .pitals to nego- tiate and award contracts for elevator maintenance services when advertising and seeking competition is impractical. The contracting officer must support the decision with the engineer- ing officer's statement of reasons why, in his professional opinion, a negotiated contract is in VA's best interest. HOSPITAL PRACTICES VARY IN AWARDING ELEVATOR MAINTENANCE CONTRACTS The VA's Supply Service, located at Washington, D.C., headquarters, is responsible for developing procurement policy for VA hospitals. It does not, however, maintain a central source of information on elevator maintenance contracts. At our request, the Supply Service selected a sample of 90 of the 171 hospitals and obtained detailed data on elevator mainte- nance contracts awarded for fiscal years 1974-76. Analysis of fiscal year 1976 data showed that the 90 hospitals awarded a total of 96 contracts for elevator mai; 6 ce- nance Lervices. As indicated by the following table, the hospi- tals reported about two-thirds of the contract awards as competi- tive (58 percent to small businesses) and one-third as noncompet- itive. i/Comptroller General Decision B-187624, Mar. 24, 1977, reaf- firms the statutory preference for competitive procurements with specific regard to elevator maintenance services. 2 B-135350 Number of contracts Amount (millions) CompeLitive awards: Small business -36 $1.7 Large business 27 .7 Total 63 2.4 Noncrompetitive awards 33 1.1 96 $3.5 Total Each hospital contracts independently for elevator main- tenance services. Hospitals that sought'competition for their requirements solicited a number of firms and awarded contracts to the lowest bidder. The successful bidders were both large and small businesses and were not, in most instances, service representatives of the respective elevator manufacturer. A few ty-picril examples are shown in the following table. 3 B-135350 Number of Maintenance Elevator Con- Bids Hospital contract manufac- tractors :e- location Contractor Amount turer solicited ceived Augusta, Southeastern $25,056 Otis, Dover, Ga. Elevator Turnbull, Monarch 4 2 Big Spring, Dover 20,925 Otis 6 2 Tex. Brooklyn, a/Herk N.Y. Elevator 39,960 Westinghouse 5 3 Butler, a/General Pa. Elevator 14,790 Marshall, Otis, Pittsburgh 7 3 Miami, Fla. Montgomery 122,850 Otis 8 3 White n/F. S. Payne 14,400 Dover, River Westinghouse 4 2 Junction, Vt. a/Classified as a small business by the hospital. 4 B-135350 As shown in enclosure I, hospitals awarded noncompetitive contracts mostly to service representatives of the respective elevator manufacturers. However, the preceding table illustrates that it is possible to secure competition and that it is not necessary to restrict awards solely to the service representa- tives of the respective equipment manufacturer. Specifically, in Big Spring, Texas, Dover is servicing Otis elevators, and in Butler, Pennsylvania, General Elevator--a small business-- is servicing Marshall, Otis, anM Pittsburgh elevators. NO FACTUAL BASIS FOR NONCOMPETITIVE AWARD DETERMIFAT-IONS We visited or contacted seven hospitals to evaluate the basis and justification for award, the contractor's performance, and the potential for increased competition in future contracts for elevator maintenance services. As shown in the following table, the seven hospitals awarded eight contracts--five nego- tiated and three advertised. 5 B-135350 Elevator maintenance contract Basis Fiscal Hospital Elevator for year location manufacturer Contractor award 1976 cost San Antonio, Otis Otis Tex. Elevator Elevator Sole-source Co. Co. negotiation $65,450 New Orleans, Otis Otis La. Elevator Elevator Co. Co. # 48,464 New Orleans, Dover Contract La. Elevator Elevator Co. Service, Inc. " 2,565 Madison, Westinghouse Westinghouse Wis. Co. Co, " 36,840 Chicago, Armor Ill. Elevator ;Lakeside) (a) Co. " 43,556 Chicago, Reliance Ill. Elevator (West Side) (b) Co. Advertised 26,340 Houston, Tex. (c) d/Houston Elevator Service, Inc. " 35,220 Wood, Wis. Haughton Haughton Elevator Elevator Co. Co. " 74,925 a/The hospital has 17 elevators manufactured by four different companies: Montgomery, Atlas, Gilbert, Elevator Supply. b/The hospital has 25 elevators manufactured by four different companies: Westinghouse, Montgomery, Colley, Elevator Sup- ply. c/The hospital has 21 elevators manufactured by four different companies: Otis, Westinghouse, Montgomery, Rotary Lift. d/Classified as a small business by the hospital. 6 B-135350 The hospitals we visited that awarded noncompetitive contracts had not developed a factual basis to support the determination that it was impractical to secure competition. The hospitals had not sought competition for their require- ments for the previous 4 to 7 consecutive years. All noncompe- titive awards, except Lakeside, 1/ were based on the Chief Engineer's opinion that only the respective contractors shown in the preceding table could provide the technical personnel, equipment, tooling, and repair parts necessary to assure prompt and effective maintenance services. The hospital in San Antonic, for example, awarded the initial noncompetitive contract to Otis Elevator Company for maintenance services from January 1974 through September 1976. The hospital awarded a second contract noncompetitively to Otis in fiscal year 1977 which includes renewal options for fiscal years 1978 and 1979. Similarly, the hospitals in New Orleans and Madison awarded nonccmpetitive contracts to the same contractors for the last 6 or 7 years. Hospital contract records and the yellow pages of local telephone directories showed that potential exists for seek- ing competition for elevator maintenance services. Branch offices of several major elevator manufacturing companies as well as some local elevator maintenance companies are located within each of the metropolitan areas we visited. These hospitals also had no basis and made little or no effort to evaluate the reasonableness of prices paid for maintenance services under the noncompetitive contracts. The initial contract prices were those proposed by the contractor-- stated as a flat, monthly rate. These prices were increased annually under contract renewal options on the basis of in- creases in the published price indexes for labor and materials. Moreover, none of the contractors gave the hospitals reports of the nature and extent of maintenance and repairs under the contract or the time spent on these activities. This kind of information might be useful in a postaward evalu- ation of contract prices. L/Lakeside awarded the maintenance contract sole source to the same contractor that is replacing the elevators. -4 hospital official told us that maintenance service will be advertised for award after the replacement work is completed. 7 B-135350 DISCUSSIONS WITH SUPPLY SERVICE OFFICIALS We discussed our findings in September 1977 with Supply Service officials, who agreed that hospitals had not properly justified the use of sole-source, elevator maintenance services. negotiated contracts for They actions to (j1 direct the hospitals said they were taking source determinations and (2) to reassess revise procedures their sole- that presently allow negotiation of contracts based solely on the engineer's opinion that a negotiated contract They also said that the procurement is in VA's best interest. services had not ret ived enough of elevator maintenance attention. CONCLUSIONS AND RECOMMENDATIONS Hospital practices of awarding maintenance services vary. Most contracts for elevator tion and awarded contracts to hospitals solicited competi- competitive awards were made the lowest bidder, and most hospitals awarded sole-source to small businesses. Other factual basis to support the contracts but did not have a determination that (1) it was impractical to secure competition turer's representative could or (2) only the manufac- service. provide adequate and timely We believe that there are crease the number of competitiveopportunities for VA to in- for elevator maintenance services.procurements by hospitals that significant savings will In addition, we believe petition. Recent procurements accrue through increased com- ices by another Federal agency of elevator maintenance serv- showed 3 8 -percent when competition was secured. cost savings Similar competitive hospital procurements savings by the 33 non- sampled would amount to about totaling $1.1 million of 90 hospitals represented 53 $41i,000. Since the sample it is probable that the above percent of the total hospitals, all hospitals been reviewed. figure would be higher had We recommend that you follow up to assure that the Sup- ply Service: -- Reassesses and revises, if appropriate, the procedures for soliciting competition for services. elevator maintenance 8 B-135350 -- Directs hospitals to solicit maximum competition. -- Monitors future hospital procurements of these services so that maximum competition is obtained in accordance with procurement regulations. In accordance with section 236 of the Legislative Re- organization Act of 1970, the head of a Federal agency is required to submit a written statement on actions taken on our recommendations to the Pouse Committee on Government Operations and the Senate Committee on Governmental Affairs not later than 60 days after the date of the report and to the House and Senate Committees on Appropriations with the agency's first request for appropriations made more than 60 days after the date of the report. We are sending copies of this report to the Chairmen, Bouse Committees on Appropriations, the Budget, Government Operations, and Veterans' Affairs; the Senate Committees on the Budget, Governmental Affairs, Veterans' Affairs, and Appropriations, Subccmmittee on BUD-Independent Agencies; and to the Acting Director, Office of Management and Budget. We would appreciate being informed of any actions taken or planned on the matters discussed in this report. Sincerely yours, Directo Enclosure 9
Efforts Needed to Increase Competition for Elevator Maintenance Services in the Veterans Administration
Published by the Government Accountability Office on 1977-11-22.
Below is a raw (and likely hideous) rendition of the original report. (PDF)