Competitiveness of Federal Computer Procurements

Published by the Government Accountability Office on 1990-09-13.

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


                     United States General Accounting Ofllce   / qC’20          -2

“s‘GAO               Testimony


 For Release         Competiti,veness of Federal
 on Delivery         Computer Procurements
 Expected at
 10:00 a.m. EDT
 Sept. 13, 1990

                     Statement   of
                     Milton   J. Socolar,    Special   Assistant       to
                     the Comptroller      General
                     Before the
                     Subcommittee    on Legislation and
                     National   Security
                     Committee on Government Operations
                     House of Representatives


                                                                       GAO Form 160 (12/87)
Mr. Chairman and Members of the Subcommittee:

I am pleased         to participate          in the SubcommitteeVs                    hearings          on the
effectiveness          of competition            for         automated     data processing              (ADP)
procurements         in the federal          marketplace.                Our work,         which    involved
reviewing        procurements        at several               agencies     and compiling           and
analyzing        governmentwide          statistics             on mainframe        computer        buys,
provides        a good starting          point         for     assessing        the issues
surrounding         the competitiveness                 of federal         computer        acquisitions.

Our work on individual               acquisitions               has shown that         agencies          have
many difficulties             in properly         acquiring          computer       hardware        and
software--       including      three     reports            which show how government
agencies        inappropriately          restricted             competition.         Our
governmentwide          statistics        show that             82 percent        of all     mainframe
procurements         limit     competition         in some way.                 I should     add, though,
while    that     statistic       does raise            concern      as to the extent              of
competition         limited     procurements,                such limitations          are not
necessarily         inappropriate         or inconsistent                with     requirements           of the
Competition        in Contracting          Act.          We have not examined the
individual        procurements          covered        by our governmentwide                 statistics
to determine         the extent         to which restrictions                   on competition            were
            T OPaING              ENVIRONMENT

Competition               is a critical           factor            in government                 procurement       law and
policy.            Generally,           the government                    is best          served when all
potential           contractors           have an equal                    opportunity             to compete with
others       for      its     business.           Offering                all      contractors            the opportunity
to compete helps                 to assure         that         the government                    pays fair      and
reasonable           prices.           When competition                         is unnecessarily             restricted,
the government                may pay too much for                         what it          buys and may not obtain
the best        solution          for     meeting         its        needs.

The Brooks Act and the Competition                                        in Contracting             Act of 1984
(CICA) are the primary                     laws governing                        the federal         acquisition           of
ADP equipment.                 These two laws and their                              implementing            regulations
mandate that                agencies     use full          and open competition                            in conducting
ADP procurements                unless         restrictions                     are appropriately             justified.
Brooks Act purchases                    must be based on full                              and open competition,
using       specifications              that      identify                no more than an agency's
minimum needs.                 The Act directs                  the Administrator                    of the General
Services       Administration                  (GSA) to provide                      for     the economic and
efficient          purchase,           lease,      and maintenance                        of ADP equipment.                To
help meet this                responsibility           GSA delegates                        its    procurement
authority          to individual               agencies             for         certain      procurements         but
maintains           its     overall      oversight              responsibilities.                     Under CICA,
agencies       are allowed              to restrict                 specifications                 only     as necessary
to meet their               minimum needs.             CICA states                    that        agencies     may limit
the number of potential                    vendors      only when there              is but one
responsible           source     that      can satisfy          the need, when the government
would be seriously               injured       unless       the number of potential                   vendors
is limited,           or in special          circumstances              such as those         that     involve
a national          emergency or a compromise of national                             security.

Many agencies            are looking         to technology              to meet rapidly           escalating
demands for           increased         productivity.            Yet,      as most observers            agree,
agencies       have had great             difficulty           in harnessing          this    technology.
Procurements            often    take many months or even years                        to complete:         to
shortcut       this      process,        agencies       skip     important          steps    in defining
their      needs.        This    increases        the risk        of buying          the wrong hardware
and software           and of unnecessarily                 limiting        competition.


Our reports           have documented severe problems                        that     agencies        have in
conducting       ADP acquisitions.                  In several           reports      we found a number
of factors       which contributed               toward        procurements           that   are not fully
competitive:             improper        or inadequate          review       of available
alternatives           to meet agency needs:                 'poor definition           of
requirements:            lack    of experience,             training,        or knowledge            in proper
procurement           procedures         by agency staff:               taking      unreasonable        steps
to minimize           risk:     and, in some cases,               showing        improper      bias     towards
a particular           vendor.      Common to all              these procurements              was a lack
of agency oversight                in assuring          that      adequate     and appropriate
competition           was being         fostered       in the acquisition              process.           We also
found a lack           of adequate          oversight          by GSA.       Some examples should
help      to illustrate           the point.

c                                                 ’

In August        1987, the Navy awarded a $26.7 million                             contract        for
mainframe       computers          to support          its     Standard     Civilian       Pay System
(NAVSCIPS).            We found that             the Navy, in its           haste      to meet a self-
imposed deadline,                selected        a data base management system,
hardware,       and the 10 sites                 where the system would run,                 without
conducting           appropriate         studies       and developing          adequate        support.1
Taken together,            these        decisions       dictated       specific        hardware       which
limited      competition           to one vendor.                Further,    the Navy's           disregard
of good acquisition                practices          resulted       in a system design             that
would not work.             We recommended that                   the Navy halt         further
hardware       and software             orders      and conduct        a proper        cost-benefit
analysis       for     a full      range of system alternatives.                        The Navy
concurred       and has stopped              delivery          of the computers.            Further,          it
has determined            that     it    can use existing             equipment        and needs only
one of the 10 sites                it    originally          designated.

1ADP Procuremen t* .             Navv Imnronerlv  Restricted Comnetition                            for     Its
Cm                                 (GAO/IMTEC-89-61, June 21, 1989).
This year we reported                on the Federal             Aviation            Administration's
(FAA) $1.5 billion              Computer Resources                  Nucleus project                (CORN).
This project            is intended      to meet the agency's                       general        purpose        data
processing         needs for       10 years      and provide                support         to other
Department         of Transportation            organizations.                  In May we recommended
that       the CORN procurement              not be awarded because it                        had not been
properly        justified       and planned.2           In June we also                     reported         on the
restricted         specification         issue.3        Originally,                 FAA planned             to have
full       and open competition              and encourage                vendors      to propose
innovative         approaches. to meeting              its      needs.          FAA later           decided        to
require        a single       architecture       on the basis                that      it    would reduce
operational         costs      and provide       a technical                platform         for    an
integrated         data base.         We found that             a single            architecture            would
not necessarily              reduce costs       or assure            an integrated             data base and
that       therefore,        FM was unjustifiably                   limiting         competition            and
restricting         the range of solutions                   that         vendors     could        offer.         FAA
is considering              our recommendation          that         it     not award the

2FAA Procurement.     .
                   Manor  Data-Processina                                  Contract         Should Not Be
Awarded (GAO/IMTEC-90-38, May 25, 1990).
3FAA Procurement:               Comnetition  for Maior Data-Processina Proiect
Was Unjustifiably.             Limite d (GAO/IMTEC-90-71, June 11, 1990).
9PM Retirement            S-tea

At this       Committeels          request,     we reviewed           the Office         of Personnel
Management's           (OPM) planned          $54 million          procurement          for    an
automated       retirement          system.4        We found that            the request            for
proposals        (RFP) required          vendors         to meet highly          restrictive
experience        requirements          as a condition             of bidding         on the contract.
While we agreed with                OPM that       experience         should     be a factor              in
contract       award, we felt          the experience              factors      could     be considered
as an element           of the technical            evaluation         rather     than being              set out
as an absolute           condition.           Using these requirements                   as a condition
of bidding       unnecessarily           limited         the range of vendors                 who might        bid
on the project.             OPM agreed with              our recommendation              and is
reissuing       the RFP without           limiting         factors.          Further,         OPM
determined       a compatibility-limited                   solution      was not required.

Denartment       of Defense (DOD)
Inspector       General      ReDOrtS

The DOD Inspector            General's         office      has issued         audit      reports
examining       whether      various      Navy contracts              had been unnecessarily
restrictive           of competition.           In December 1989, the Inspector
General       reported      that     the Navy's          attempt      to buy a communications
processor       for     the Navy Military            Personnel         Command was

4Retirement Svstem:  Concerns Abo t PM       ERS Auto ted
Processina System Procurement (GA~/I~TEr",~-45,   Aprma4, 1990).
unjustifiably             biased    toward      IBM.5          In a more recent             report,      the
Inspector          General     found that        the Washington              office       of the Navy
Regional        Data Automation          Center        did not use required                     competitive
procedures          for    procuring     communications                equipment      for        the center.6
The Center          required       a specific         make and model of equipment                      and did
not advertise             the delivery        order       in the Commerce                                         as
required        to promote         competition.

                                       ION FOR MAINFRAMECOMPUTERS
IS INFREQUENT                       FEDERAL M.&R&ETPLACE

At.your      request,         Mr. Chairman,           we developed           statistics           on agency
mainframe          computer     purchases        totaling         $1.9 billion            for     the 3-l/2
years     ending      in March 1989, including                    information         on vendors            and
types     of procurement            action      for    the 35 largest            federal          agencies.7
During      this     past year we have issued                   individual         reports         on eight
of these        agencies       (see attachment            II     for   the titles          of these
reports).          We plan to issue             reports        on two additional                 agencies      and
an overall          capping     report       (see attachment             I for     charts         depicting

5yJaval Milltarv            Personnel        Command  Planned Procurement of
Automated Data                      .
                           Processina            .  nt (Inspector
                                             ECtulDme               General Report                            90-
019, Dec. 15,             1989).
6Navv Reaional            Data Auto mation Center, Washinaton.  D.C..
                                                         .   nt (Inspector
Procurement of            Automatic D-i;a Processina Eculwme
General Report            90-103, AugC( 24, 1990).
7The $1.9 billion    represents  obligated    dollars   for the 3-l/2 year
period.   The total value of the mainframe computer contracts
exceeds $1.9 billion     since some contracts     extend beyond the 3-l/2
year period.
governmentwide            statistics).              These statistics          show that         the
government           is limiting          competition         to acquire      its     mainframe        and
mainframe       peripherals.               Over 80 percent            of the procurements              in our
review      (total      dollar      value)       required       compatibility          with     existing
systems.        IBM-compatible               procurements        comprised          64 percent        of the
compatibility-limited                 procurements            and 52 percent          of all
procurements.             IBM was the single                largest      vendor     with      a 47 percent
share of the total                federal      market.         Unisys     was the next          largest
with      a 20 percent           share.

Almost      60 percent        of the total            value     of all     procurements          involved
only     one vendor.          Specifically,             Modifications        to Existing
Contracts       was the most popular                  procurement         method used,
representing           44 percent.            New Contract-Sole            Source and New
Contract-One           Offeror      procurements            represented      10 percent          and 5
percent,      respectively.

Although      these      statistics          describe        what has occurred             in the
federal      mainframe        computer         marketplace,           they do not explain
whether      or not agencies               have made smart acquisition                  decisions          or
have followed           required          regulations        and laws in conducting               their
procurements.            When coupled,              however,     with    our work on individual
procurements,           the picture          that     emerges reflects            a marketplace

 dominated      by competitively            limited--and             sometimes poorly
 justified--procurements.                  Two important             issues      arise      from this

--       Agencies      may be limiting          competition             for    legitimate           reasons.
         For example,        some agencies           have a large             hardware/software
         base that       effectively        mandates compatibility.                       On the other
         hand, we know that            a general        lack        of skills,       knowledge,                  and
         understanding        of ADP systems and the procurement                                process,
         coupled      with   ineffective        agency oversight,                 can also          result             in
         inappropriate        limitations           on competition.               Similarly,             we
         found examples where competition                      was limited           by a desire                 to
         expedite      the procurement          process        or deliberately                  favor        a
         particular       vendor.

--       GSA did not adequately              exercise         its     oversight          responsibility
         in our examples cited              above.          This raises          the question                as to
         how well      GSA is discharging             its     responsibility              for     oversight
         of federal       ADP acquisitions            on an overall              basis.

Agencies      are trying       to cope with           a rapidly          changing         world         of
technology.           The issues       raised    above call            for:

--       Agencies      to strengthen        their      control         and oversight              over ADP
         procurements;        and for

--   GSA to take more of a leadership                  role     (1) in assessing
     whether       the current     situation      (i.e.,      numerous competition-
     limited       acquisitions)     is justified;            (2) in working       more
     effectively        with   agencies     to assure that         procurements       comply
     with   existing       regulations:        and (3) in ensuring          that    the
     government's        methods of acquiring              ADP resources     keep pace
     with   changes in technology.

This concludes       my statement,        Mr. Chairman.         I will     be happy to
respond to any questions           you or other       members of the Subcommittee
may have.

               I                                                    A!TTACHMl%fT

Total Procurements   ($1943.1M)
                                  I-                          Other ($355.3M)

                                            82%-          -   Compatible ($1,587.8M)

                                              _,- 1.’

       A?TAoIMENTI                                         A!JTAC7!MENT

Total Procurements According to vpe
of Compatlblllty ($1943.1 M)
                                      9            Unisys-Compatible ($387.3M)

                                      1       [-   zfer   Compatible ($10.1 M)

                                                   Non-Compatible ($3553M)

                                                   Control Data Corporation- Compatible

                                                   Honeywell Bull- Compatible ($123M)
                                                   IBM-Compatible ($1013.5M)
                 I                                                                            A’JT’A(lXMENT

Total Procurements According to
Manufacturer ($1943.1 M)
                                                                                     National Advanced Systems ($102.&l)
                                                                                     Storage Technology Corporation

                                                                                     Unisys ($382.6M)

                                                                                     Other ($76M)

                                                                    -                8%
                                                                                     Control Data Corporation ($96.9M)
                                                                                     Honeywell Bull ($147.6M)
                                                                                     IBM ($922.9M) .
                                  Memorex (representing 1 percent or $Q.6M) and NCR Comten (representing 1 percent or $17.6M)
                                  are included in the ‘other’ category.

                                  Adjustment Made Due to Rounding

         ATFA-          1                                                        A’I’I’AcIHMfDF

Total Procurements According to
Procurement Method ($1943.1 M)
                                                    7                 %I    Schedule Purchases ($77.1 M)

                                                                      Other ($32.5M)
                                                                      New Contract-Sole Source ($186.1 M)

                                                                      New Contract-One Offeror ($109.1 M)

                                                                      New Contract-More Than One Offeror
                                                                      ($243.1 M)
                                                                      New Contract-Developer or Integrator
                                                                      New Contract-E(a) Firm ($1&4M)
                                                                      Modifications to Existing Contracts
                                  Adjustments made due to rounding.

                                                                      AlTAm         1

Compatlblo Proawmonts      According to
Type of Compatlblllty (81587.8M)
                                                           Unisys-Compatible ($387.3M)

                                                           Other Compatible ($10.1 M)

                                                           sroo)ata     Corporation- Compatible

                                                           Honeywell Bull-Compatible ($123M)

                                          64% -        -   IBM-Compatible ($1 ,013.5M)

                                                                   ATTACHMENT I

Compatlble Procurements Accordlng to                           I   I   ,.)   .   ..*I-          ‘I   %A

Procurement Method ($1587.8M)

                                                        GSA Schedule Purchases ($72.4M)
                                                        Other ($31 ,l M)
                                                        New Contract-Sole Source ($165.4M)

                                                        New Contract-One Offeror ($103.9M)
                                                        New Contract-More Than One Offeror

                                                        New Contract- Developer or Integrator

                                       [        *   L   i%   Contract-t)(a) Firm ($17.4M)
                                                        Modifications to Existing Contracts



             A’l’T-        I

    IBM-Compatible Procurements
    According to Manufacturer ($1013SM)
                                                                                    Memorex ($9.5M)
                                                                                    National Advanced Systems ($102.5M)
                                                                                    NCR Comten ($12.7M)

                                                                                    Storage Technology Corporation ($54M)


                                                              65% l A           -   IBM ($662SM)

                                          Adjustment Made Due to Rounding


    IB M - C o m p a tlble Procurements
    According to P r o c u r e m e n t M e thod
    ($1013.5M)                                                                                 6%
                                                                                               G S A S c h e d u l e P u r c h a s e s ($62.7M)
                                                                                               O ther ($10.3M)

                                                                  7                            2     Contract-SoleS o u r c e ( $ 3 7 M )

                                                                           -j’                 7%

                                                  ‘o r
                                                                                               N e w Contract-OneO fferor ($69.7M)

                                                                           1 6%
                                                                              '                N e w Contract-MoreT h a n O n e O fferor
                                                              w                                ($163.8M)
                                                                          19%    -..       -   N e w Contract- D e v e l o p e ror Integrator

                                                    1   \‘.           L                        $z    Contract-B(a) Firm ( $ 1 7 M )

                                                                                               Modifications to Existing Contracts

                                                                               ATTACHMENT I
            ATTACHMENT I

                                                               ---_   ..
    Total Procurements  According lo
    Agsnoy and Marahcturer     (S1943.1M)
                                            mo   @J--h-


              ATTACHMENT I                                                                                                    ATTACHMENT I

Agrlcutture   Procuremenls   Adbrdhg        to                                       HIS Procurements    Aaxwdhg    to
)Ibnufecturer (S64.6M)                                                               Melufecturer (S193.5M)
                                                          Unisys ($1 su)                                                       I

                                                          Honeywell Bull #4.4M)

                                                                                                                                              tBM (SlSl .7M)

                                                          IBM (S53.2t.4)

  NASA Procuremenls
  Manufacturer ($1044M)
                       According       lo        --

                                                      I       -.-
                                                           Unisys (S7.3M)
                                                                                     Treasury Procurements
                                                                                     Manulaclurer  (S270.9M)
                                                                                                             According   to

                                                                                                                                             Unisys (S26.2M)
                                                           Other (S15.M)
                                                                                                                                             Other w2.gM)
                                                           Amdahl (S13.3M)
                                                                                                                                             Honeywell Bull ($1 M)

                                                           Honeywell But! (S12.7M)

                                                                                                                                             IBM ($195.2M)
ATTACHMENTII                                                     ATTACHMENT1.1

                            RELATEDGAO PRODUCTS

      ADP Preent.            Contractgm0 and M-et        Share uormatlon .
 (GAO,IMTEC-90087FS;Aug.         30, 1990).
         ce ADP Proclyllletgent.   Contractma.     and Market Share Informat ion
 (GAO/IMTEC-90077FS, July.31,         1990).
      cultyre  ADP Procurement         Contractma.    and Market Share
Infofinat;ion  (GAO/IMTEC-90-CiFS, June 27, 1990).
                                                               e Information

NASA ADP Procurement.      C ntractins    and Market Share Information
(GAO/IMTEC-90-39FS, &      .O20, 1990).
     Force ADP Procurement                 .
                                  Con ractmca  and Market Shar e
Infonmation     (GA0,1MTEC-90i35FS,tA&m. 9, 1990).
            Procurew nt.              .
 (GAO/IMTEC-90-28FS, ,ar."l,rlz9ip.
Nave ADP Procurgg@mt.    C tractina  and Market        Share Information
(GAO/IMTEC-89066-FS,'Sep~~   15, 1989).