oversight

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)

                         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.




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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.




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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




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