Contract Management
Interagency Contract Program Fees Need More Oversight Gao ID: GAO-02-734 July 25, 2002Federal interagency contract service programs are being used in a wide variety of situations, from those in which a single agency provides limited contracting assistance to an approach in which the provider agency's contracting officer handles all aspects of the procurement. This increased use of interagency contracts is a result of reforms and legislation passed in the 1990s, allowing agencies to streamline the acquisition process, operate more like businesses, and offer increasing numbers of services to other agencies. Most of the contract service programs GAO reviewed reported an excess of revenues over costs in at least one year between fiscal years 1999 and 2001. Office of Management and Budget (OMB) guidance directs agencies with governmentwide acquisition contracts (GWAC) or franchise fund programs to account for and recover fully allocated actual costs and to report on their financial results. Agencies are to identify all direct and indirect costs and charge fees to ordering agencies based on these costs. However, some GWAC programs have not identified or accurately reported the full cost of providing interagency contract services. OMB's guidance further directs that agencies return GWAC earnings to the miscellaneous receipts account of the U.S. Treasury's General Fund. However, this guidance conflicts with the operations of agencies' revolving funds, which were established by statutes that allow retention of excess revenues. The Federal Supply Schedules program has generated hefty earnings, largely because of the rapid growth of information technology sales. Rather than adjust the fee, however, the General Services Administration has used the earnings primarily to support its stock and fleet programs. However, the significant amount of earnings means that Federal Supply Schedules program customers are being consistently overcharged for the contract services they are buying.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-02-734, Contract Management: Interagency Contract Programs Need More Oversight
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Report to the Chairman and Ranking Minority Member, Committee on
Governmental Affairs, U.S. Senate:
United States General Accounting Office:
GAO:
July 2002:
CONTRACT MANAGEMENT:
Interagency Contract Program Fees Need More Oversight:
Contract Management:
GAO-02-734:
Contents:
Letter:
Results in Brief:
Background:
Programs Have Reported Revenue in Excess of Costs but Actual Costs Have
Not Always Been Captured:
Conflict Exists between GWAC Agencies‘ Operation of Their Revolving
Funds and OMB‘s Guidance on Earnings:
GSA Schedules Program Fee Has Not Been Adjusted Despite Hefty Earnings:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Office of Management and
Budget:
Appendix III: Comments from the General Services
Administration:
Appendix IV: Comments from the Department of the Interior:
Appendix V: Comments from NASA:
Appendix VI: Comments from the Department of Health & Human Services:
Appendix VII: Governmentwide Acquisition Contract Data Sheet -
Department
of Commerce:
Appendix VIII: Governmentwide Acquisition Contract Data Sheet - Federal
Technology Service:
Appendix IX: Governmentwide Acquisition Contract Data Sheet - NASA:
Appendix X: Governmentwide Acquisition Contract Data Sheet -
NIH:
Appendix XI: Governmentwide Acquisition Contract Data Sheet -
Department
of Transportation:
Appendix XII: Franchise Fund Pilot Data Sheet - Department of
the Interior:
Appendix XIII: Program Data Sheet - Federal Supply Products:
Appendix XIV: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: First Year of OMB Executive Agent Designation:
Table 2: Reported Annual Earnings (Losses) by Fiscal Year:
Table 3: Reported COMMITS Program Results for Fiscal Years 1999 to
2001:
Table 4: COMMITS Full Service Program Fees by Fiscal Year:
Table 5: COMMITS Limited Service Fee Structure by Fiscal Year:
Table 6: FTS GWAC Information:
Table 7: Reported FTS Results by Fiscal Year:
Table 8: SEWP Operating Results by Fiscal Year:
Table 9: SEWP Fees by Fiscal Year:
Table 10: NIH GWAC Information:
Table 11: Reported NIH GWAC Results by Fiscal Year:
Table 12: NIH GWAC Fees by Fiscal Year:
Table 13: Reported ITOP Results by Fiscal Year:
Table 14: ITOP Fee Structure by Year:
Table 15: ITOP Fee Structure Effective 10/1/01:
Table 16: Reported Results for GovWorks by Fiscal Year:
Table 17: Reported Schedules Program Results by Fiscal Year:
Table 18: Schedules Program Fees by Fiscal Year:
Figures:
Figure 1: Key Elements of the Fee-Setting Cycle:
Figure 2: GSA Schedules Program Reported Earnings and Costs:
Abbreviations:
COMMITS: Commerce Information Technology Solutions:
FEDCAC: Federal Computer Acquisition Center:
FEDSIM: Federal Systems and Integration Management Center:
FTE: Full-time equivalent:
FSS: Federal Supply Service:
FTS: Federal Technology Service:
GAO: General Accounting Office:
GSA: General Services Administration:
GWAC: Governmentwide acquisition contract:
ITOP: Information Technology Omnibus Procurement:
NASA: National Aeronautics and Space Administration:
NIH: National Institutes of Health:
NITAAC: National Information Technology Acquisition and
Assessment Center:
OMB: Office of Management and Budget:
SDC: Solutions Development Center:
SEWP: Scientific and Engineering Workstation Procurement:
TASC: Transportation Administrative Service Center:
Letter:
July 25, 2002:
The Honorable Joseph I. Lieberman
Chairman
The Honorable Fred Thompson
Ranking Minority Member
Committee on Governmental Affairs
United States Senate:
Federal agencies are increasingly using contracts and acquisition
services offered by other agencies and paying a fee for these services.
These interagency contract service programs are being used in a wide
variety of situations, from those in which a single agency provides
limited contracting assistance to a ’soup to nuts“ approach in which
the provider agency‘s contracting officer handles all aspects of the
procurement. This increased use of interagency contracts has come about
as a result of reforms and legislation passed in the 1990s, which
allowed agencies to streamline the acquisition process, operate more
like businesses, and offer increasing types of services to other
agencies.
Reliable information on the fees charged and revenues generated by
interagency contract services can be helpful to the Congress and to
federal executives when they make decisions about allocating federal
resources, authorizing and modifying programs, and evaluating program
performance. However, information on costs and program results has been
incomplete.
To provide you with information on the fees charged by interagency
contract programs, we determined whether (1) the programs reported
total annual revenues in excess of costs (earnings or (losses)) in
accordance with the Office of Management and Budget‘s (OMB)
guidance[Footnote 1] on accounting for actual costs and (2) agencies
with governmentwide acquisition contracts (GWAC) operate their programs
consistent with OMB guidance to transfer earnings to the Treasury. In
addition, we determined whether and to what extent fees charged by the
General Services Administration‘s (GSA) Federal Supply Schedules
program have generated revenues in excess of costs. Our review
included:
* the five agencies designated by OMB to operate information technology
GWACs[Footnote 2]
* the Department of the Interior‘s franchise fund pilot
program[Footnote 3] and:
* the GSA Schedules program.[Footnote 4]
In fiscal year 2001, purchases under these seven interagency contract
programs totaled $18.8 billion.
Specific information on our scope and methodology is in appendix I.
Results in Brief:
Most of the contract service programs we reviewed reported an excess of
revenues over costs in at least one year between fiscal years 1999 and
2001. The exceptions were the GWACs at Commerce and Transportation,
which reported losses each year during this period. The Schedules
program has produced exceptionally high earnings, with revenues
exceeding costs by more than 53 percent--for a total of $151 million--
during the 3-year period.
OMB guidance directs agencies with GWACs or franchise fund programs to
account for and recover fully allocated actual costs and to report on
their financial results. Agencies are supposed to identify all direct
and indirect costs and to charge fees to ordering agencies based on
these costs. However, some GWAC programs have not identified or
accurately reported the full cost of providing interagency contract
services. Thus, there is no assurance that their fees accurately
reflect their costs. Because OMB has not required agencies to submit
annual financial reports summarizing program results that include a
description of the agencies‘ indirect cost allocation methodologies, it
was unaware that not all agencies are following its guidance.
OMB‘s guidance further directs that agencies transfer GWAC earnings to
the miscellaneous receipts account of the U.S. Treasury‘s General Fund.
However, the way agencies operate their revolving funds conflicts with
OMB‘s guidance. Agencies that operate their GWACs under revolving funds
have used GWAC earnings to support other programs within the revolving
fund or to maintain fund operations. They have not transferred any GWAC
earnings to the Treasury. These revolving funds were established by
statutes that allow retention of earnings.[Footnote 5] Agency officials
believe their revolving funds‘ statutory provisions prevail over OMB‘s
guidance to GWAC agencies. OMB officials view this as an important
issue that needs review.
The Schedules program has generated hefty earnings, largely because of
the rapid growth of information technology sales. Rather than adjust
the fee, however, GSA has used the earnings primarily to support GSA‘s
stock program and fleet program.[Footnote 6] Both of these uses are
permitted by the revolving fund in which the Schedules program resides.
However, the significant amount of earnings means that Schedules
program customers are, in effect, being consistently overcharged for
the contract services they are buying. GSA officials stated that
adjusting the fee would be burdensome for the Schedules contractors, in
part because the fee is embedded in the unit costs, rather than charged
as an add-on where it could be adjusted more easily. However, GSA is
now considering options for adjusting the fee and plans to discuss the
issue with OMB in the development of the President‘s fiscal year 2004
budget request.
We are making recommendations to OMB concerning (1) the need for more
oversight of GWAC executive agents‘ indirect cost accounting and their
reporting of annual operating results, fees, and the use of earnings
and (2) the need to work with GWAC executive agents to address the
handling of GWAC earnings. We are also making a recommendation to GSA
to adjust the Schedules program fee to reflect costs more closely.
Background:
The government acquisition landscape was reformed by several
legislative changes in the 1990s, such as the Clinger-Cohen Act of
1996[Footnote 7] and the Government Management Reform Act of
1994.[Footnote 8] The Clinger-Cohen Act authorized creation of GWACs,
which are typically multiple-award contracts for information technology
that allow an indefinite quantity of goods or services (within
specified limits) to be furnished during a fixed period, with
deliveries scheduled through orders with the contractor. The providing
agency awards the contract, and other agencies order from it.
OMB was authorized by the Clinger-Cohen Act to designate agency heads
as executive agents for GWACs. Some agencies had already established
information technology contracts prior to the OMB designation. However,
according to agency officials, the OMB designation is beneficial to
them because it enables them to provide a streamlined contracting
process, it creates opportunities to leverage the buying power of
customer agencies, and it helps them market their contracting services.
Table 1 shows the year in which agencies received OMB‘s designation.
Table 1: First Year of OMB Executive Agent Designation:
Agencies: GSA‘s Federal Technology Service[A]; 1996: X; 1997: [Empty];
1998: [Empty]; 1999: [Empty]; 2000: [B].
Agencies: Commerce; 1996: [Empty]; 1997: [Empty]; 1998: [Empty]; 1999:
X[B]; 2000: [Empty].
Agencies: Transportation[A]; 1996: [Empty]; 1997: [Empty]; 1998:
[Empty]; 1999: X[B]; 2000: [Empty].
Agencies: NASA[A]; 1996: [Empty]; 1997: [Empty]; 1998: [Empty]; 1999:
[Empty]; 2000: X[B].
Agencies: NIH; 1996: [Empty]; 1997: [Empty]; 1998: [Empty]; 1999:
[Empty]; 2000: X[B].
[A] These agencies had received procurement authority from GSA for
information technology contracts prior to OMB‘s executive agent
designation.
[B] Indicates when agencies were required to follow OMB guidance on
fully allocated actual costs.
[End of table]
The Government Management Reform Act of 1994 authorized the Director of
OMB, in consultation with congressional committees, to designate six
franchise fund pilots that would operate as fully self-supporting
business-like entities within the federal government to compete for the
delivery of common administrative support services to federal
customers. Franchise fund programs provide administrative services such
as contracting, systems operation, and payroll processing, in addition
to information technology. Interior‘s program, GovWorks, provides
contracting services for a wide range of goods and services.
The Schedules program,[Footnote 9] part of GSA‘s Federal Supply
Service, provides federal agencies with a streamlined process to obtain
commonly used products and services at prices associated with volume
buying. Information technology is the biggest business line in the
Schedules program. Interagency purchases of information technology from
the Schedules program exceed those made from all GWAC programs
combined.
GWACs, franchise fund pilot programs, and the Schedules program charge
fees for services with the intent to recover costs. Fees are based on
known costs, estimates of future costs and revenues, and consideration
of the prices charged by the competition for similar services. Figure 1
is an illustrative depiction of the factors that agencies consider when
setting fees. A detailed description of each agency‘s program,
financial results, fee structure, and services appears in appendixes
VII through XIII.
Figure 1: Key Elements of the Fee-Setting Cycle:
[See PDF for image]
[End of figure]
Programs Have Reported Revenue in Excess of Costs but Actual Costs Have
Not Always Been Captured:
All of the programs we reviewed except the Commerce and Transportation
GWACs reported revenue in excess of costs for one or more fiscal years
between 1999 and 2001. Table 2 shows reported earnings based on
financial statements for the contract programs.
Table 2: Reported Annual Earnings[Footnote 10] (Losses) by Fiscal Year:
Interagency contract program: Commerce; 1999: ($137,264); 2000:
($371,499); 2001: ($178,691).
Interagency contract program: GSA‘s Federal Technology Service; 1999:
$182,000; 2000: $2,412,000; 2001: $3,613,000.
Interagency contract program: NASA[A]; 1999: ($957,373); 2000:
$420,696; 2001: $646,645.
Interagency contract program: NIH; 1999: $2,365,780; 2000: $1,390,388;
2001: $268,219.
Interagency contract program: Transportation; 1999: ($852,064); 2000:
($298,662); 2001: ($960,156).
Interagency contract program: Interior franchise fund - GovWorks; 1999:
$238,262; 2000: ($190,373)[B]; 2001: ($48,710).
Interagency contract program: Schedules program; 1999: $39,455,650;
2000: $55,496,936; 2001: $56,370,055.
[A] NASA‘s earnings were prepared at our request because data available
from the GWAC program were not sufficiently complete for financial
statement purposes. :
[BT] his earnings amount is subject to change because a GovWorks fiscal
year 2000 expense of $488,000 was processed erroneously. Interior is
taking action to correct this error.
Source: Contract programs‘ reported annual financial results. :
[End of table]
Starting in 1999, OMB required that agencies with GWACs should
identify, account for, and recover fully allocated actual costs in
accordance with federal financial accounting standards.[Footnote 11]
Actual costs include direct costs, such as labor and materials, and
indirect costs, such as rent and support services. However, agencies do
not consistently report revenues and costs in accordance with OMB‘s
guidance. They have developed their own approaches to accounting and to
reporting program costs, and these approaches are evolving as the
agencies make periodic changes.
OMB requires each GWAC agency to submit a semi-annual report of its
activities. However, OMB has not required annual financial summaries of
program results that would include a description of the agencies‘
indirect cost allocation methodologies and provide an entire year‘s
worth of information on program results. Accordingly, OMB was unaware
that not all agencies are reporting revenues and costs in accordance
with its guidance. Further, while GSA identifies, allocates, and
reports actual costs for both its GWAC program and the Schedules
program, other agencies‘ records are not as complete. We found
instances of incomplete identification and allocation of indirect
costs, partial reporting of program results, and overstated indirect
costs, as shown in the examples below. Without more complete
information on the costs of interagency contract services, there is no
assurance that fees accurately reflect costs.
* NASA does not include any costs for rent, utilities, contract
support, or program management in the account that summarizes GWAC
costs. Further, NASA components do not pay a fee for using the GWAC
because of an agencywide practice of not charging fees to internal
users of NASA‘s own contracts. Consequently, both the costs recorded in
the GWAC account and GWAC revenues are understated. NASA officials
noted that NASA is making an in-kind contribution to the program by not
charging administrative costs, and that this contribution is sufficient
to ensure that external customer fees are not subsidizing NASA‘s own
use of the GWAC program. However, NASA provided us only a rough
analysis, prepared in 1999, of the costs and potential revenues
involved. NASA stated that it intends to periodically reassess its
financial contribution to the GWAC program.
* NIH‘s GWAC financial results do not include some indirect costs for
support services provided by the NIH Office of the Director, such as
acquisition policy, budget services, and equal opportunity programs. In
addition, the fiscal year 2001 financial results, prepared by NIH‘s
financial office, reported GWAC earnings of $57,837, an understatement
due to two factors. First, reported revenues from NIH‘s internal
customers were not combined with revenues from external customers. If
internal and external revenues had been combined as one line item,
reported earnings would have increased to $268,219. Second, the program
was overcharged by $729,870 for indirect costs, including rent and
utilities, because of an accounting error. NIH officials informed us
that corrective actions have been taken on both problems for fiscal
year 2002. However, NIH officials do not plan to identify or allocate
additional Office of the Director‘s costs, because they do not believe
it would be cost-effective to do so.
* Transportation‘s GWAC operates within the Transportation
Administrative Service Center and is allocated a portion of the
center‘s indirect costs. Indirect costs allocated to the program have
fluctuated substantially from year to year. Such fluctuations
significantly impact reported program operating results. For example,
the GWAC‘s indirect costs jumped by more than 90 percent in fiscal year
2001, because the indirect cost allocation was based on an estimated
GWAC sales volume that was not realized. This allocation was not
adjusted at the end of the year to reflect actual sales. If actual
sales had been used, the indirect costs allocated to the GWAC would
have been about $600,000 lower and would have substantially reduced the
program‘s reported loss of about $1 million that year.[Footnote 12]
Program officials restructured their fees for fiscal year 2002, in part
due to prior year losses.
Full costing is also a key principle of the franchise fund pilot
programs. OMB‘s guidance states that the operation should be self-
sustaining and that fees should fully recover costs. Interior‘s
progress in identifying and recovering full costs has evolved over
time. However, program officials have not fully allocated indirect
costs at the department level.
Conflict Exists between GWAC Agencies‘ Operation of Their Revolving
Funds and OMB‘s Guidance on Earnings:
The legislation authorizing GWACs was silent with respect to how
agencies should account for financial transactions under the contracts;
for example, how to obligate funds for the contract and how to account
for revenue. Thus, agencies administering GWACs were left to their own
devices when determining whether these financial transactions would be
accounted for through existing revolving funds or in stand-alone
accounts. The GWACs at NIH, Transportation, and the Federal Technology
Service operate under revolving funds, while NASA and Commerce operate
their GWACs in stand-alone reimbursable accounts.
OMB guidance on earnings stipulates that (1) GWAC fees should be
adjusted so that total revenues do not exceed actual costs and (2)
revenues generated in excess of the agency‘s actual costs are to be
transferred to the miscellaneous receipts account of the U.S.
Treasury‘s General Fund. However, the way agencies operate their GWACs
under revolving funds conflicts with OMB‘s guidance. Agency officials
told us that they have accounted for GWAC revenue in the same manner
that the law authorizes them to account for revenue from other programs
in their revolving funds. Thus, they have used earnings generated by
some products and services--including GWACs--to offset losses incurred
by other products and services. Further, they are permitted to retain
earnings in their revolving funds and use those earnings for authorized
purposes of the fund, unless the law governing operation of the fund
requires them to transfer amounts to the Treasury. Agency officials
maintain that their fund legislation prevails over the OMB guidance
where there is a conflict between the two. OMB officials told us that
they plan to review this issue.
The different approaches GWAC programs have taken when revenues
exceeded costs are discussed below:
* From fiscal years 1999 to 2001, NIH reported revenues in excess of
costs from its GWAC operations. For the 3 years combined, the GWACs‘ $4
million of earnings offset $3.6 million in losses in other revolving
fund acquisition programs. For fiscal year 2001, the most recent year
for which actual costs are available, reported GWAC earnings of
$268,219 offset other programs‘ losses of $116,590. NIH lowered its fee
for orders placed with its small business contractors for the two GWACs
awarded in fiscal year 2001. The fee for orders with larger businesses
did not change.
* Within its revolving fund, the Federal Technology Service‘s IT
Solutions program manages GWACs and provides other information
technology services to federal agencies. The program‘s earnings are
used to provide resources for future investment based on revolving fund
plans approved by OMB. Losses within segments of the program are offset
against earnings in other programs or covered by using retained
earnings from this fund. For example, $3.6 million in earnings
generated by GWACs in fiscal year 2001 offset losses in some other
business lines, in particular the information security program.
* NASA does not have a revolving fund and, therefore, its GWAC operates
in a stand-alone account. NASA records show that for revenues received
in fiscal years 1999, 2000, and 2001, NASA‘s GWAC accounts had year-end
balances of $688,247, $1,106,155, and $573,114, respectively.[Footnote
13] NASA‘s practice has been to carry over balances remaining from one
fiscal year to the next. However, NASA now intends to revise its
current practice and to obligate funds in support of its GWAC in the
fiscal year received, to the extent possible. NASA lowered its fees in
fiscal years 1999 and 2000, and raised them for fiscal year 2001, when
it awarded a new version of its GWAC.
Other interagency contracting services we reviewed allow the providing
agency to retain funds. For example, franchise fund
legislation[Footnote 14] allows Interior‘s franchise fund to retain an
amount not to exceed 4 percent of the total annual income for the
acquisition of capital equipment and other specified uses. The fund
under which the GSA Schedules program operates is allowed to retain
earnings for specific purposes, as discussed below.
GSA Schedules Program Fee Has Not Been Adjusted Despite Hefty Earnings:
The fee charged by the Schedules program has consistently generated
revenue well in excess of costs. From fiscal year 1999 to 2001, the
revenue generated by fees exceeded program costs by 53.8 percent, or
$151.3 million. Program customers are, in effect, being overcharged for
the contract services they are buying. Nevertheless, program officials
have not adjusted the fee.
Because the program has been highly profitable since 1997, we analyzed
the use of revenues in excess of costs over the past 5 years. From 1997
to 2001, the program reported $210.8 million in earnings. Figure 2
shows earnings and costs during this period.
Figure 2: GSA Schedules Program Reported Earnings and Costs:
[See PDF for image]
[End of figure]
GSA records show that it used the $210.8 million in earnings as
follows:
* $192 million was used to support other programs, primarily GSA‘s
fleet and stock programs. Support of the fleet program primarily
involved financing the procurement of vehicles. Support of the stock
program primarily involved offsetting substantial losses in fiscal
years 2000 and 2001. The revolving fund legislation allows earnings to
be used for these purposes.
* $4.4 million of fiscal year 1998 earnings was transferred to the
miscellaneous receipts account of the General Fund of the Treasury.
* GSA has not yet made a decision on how to use $14.4 million of
Schedules program earnings from fiscal year 2001.
The Schedules program fee was established at 1 percent in 1995.
According to GSA officials, the program was intended to break even,
with the fee recovering program costs including contract administration
and program support. GSA officials explained that the profitability of
the Schedules program is much greater than expected due to the
inclusion of the information technology schedule and its dramatic
growth. For fiscal years 1997 through 2001, information technology
revenues grew 287 percent, and this program now comprises about two-
thirds of all Schedules program sales.
In 1999, the GSA Inspector General recommended that the fee be adjusted
to bring it in line with costs, noting that for two years the program
had been generating nearly twice the revenue needed to cover program
costs.[Footnote 15] While GSA generally concurred with the
recommendation, it did not implement a change in the fee at that time
due to concerns about the administrative cost and the time such an
action would entail. GSA told the Inspector General that it was not
practical to take action until it was confident that the fee would be
stable for an extended period of time. Despite an additional 3 years of
similar earnings, GSA has taken no action to bring its fee in line with
costs.
GSA maintains that it still has not experienced marketplace stability
sufficient to accurately forecast the Schedules business volume.
Further, GSA officials stated that adjusting the fee would be
burdensome for the thousands of Schedules contractors. They said that
one key obstacle is that the 1 percent fee is embedded in the unit cost
of the goods and services on the Schedules. Our review showed that some
other interagency contract programs, such as NIH‘s and NASA‘s GWACs,
have established their fees as add-ons to the price of goods and
services. This approach gives them the flexibility to change their fees
without affecting the unit price of their goods and services and
provides transparency to customers on the fee being paid.
OMB has expressed concern about the large earnings the Schedules
program has generated. With a 3-year restructuring of its business
lines nearing completion, and recognizing the need for flexibility in
setting Schedules program fees, GSA is now considering options to
design a flexible fee adjustment. GSA plans to work with OMB to
identify alternatives to the current pricing structure in the
development of the President‘s fiscal year 2004 budget request.
Conclusions:
The increasing use of interagency contract programs makes it imperative
that Congress and federal agencies receive reliable information on the
fees charged and earnings generated by these programs. However, some
agencies are not identifying, determining accurately, or recovering the
full costs of their programs as directed by OMB. Thus, there is no
assurance that the fees they are charging accurately reflect their
costs. Further, because some agencies have not submitted to OMB
complete annual financial results, OMB is not receiving clear
information on how earnings have been used and whether fees were
adjusted accordingly. OMB needs better information so that it can more
easily identify management weaknesses when they arise and work with
GWAC agencies to overcome them.
The conflict between the way agencies are operating their revolving
funds--using GWAC earnings to support other programs--and OMB‘s
guidance on the handling of earnings is a matter of concern. The
agencies have not brought the problem to OMB‘s attention. In its
monitoring and oversight role over the GWAC program, OMB needs to
determine how this conflict can be addressed.
Despite consistently high earnings in the Schedules program, GSA has
not adjusted the 1 percent contract service fee it charges customers.
Program customers are, in effect, being consistently overcharged for
the contract services they are buying, while GSA is using excess
earnings to support other programs. We believe that the fee should be
adjusted to reflect costs more closely.
Recommendations for Executive Action:
We recommend that the director of OMB:
* ensure that GWAC executive agents comply with OMB guidance on full
cost accounting in establishing their fees.
* direct GWAC executive agents to provide OMB with (1) annual financial
reports containing costs and revenues that summarize annual program
results and the need for any fee adjustments and (2) a discussion of
how earnings have been used.
* work with GWAC executive agents to address the handling of GWAC
earnings, including appropriate disposition of funds and adjustment of
fees.
* Also, we recommend that the administrator of GSA:
* adjust the Federal Supply Schedules program fee to reflect costs more
closely.
Agency Comments:
We received written comments on a draft of this report from OMB, GSA,
NASA, NIH, and the Department of the Interior. The Department of
Transportation offered technical comments, which we incorporated as
appropriate.
OMB noted that its general framework on fee policies and accounting
practices is well-founded, but that additional attention is needed to
ensure that its guidance is being followed effectively. OMB stated that
it intends to work with OMB‘s Office of Federal Financial Management
and the agencies to evaluate appropriate revisions to its reporting
requirements on fees so that disparities between fees charged and costs
incurred can more easily be identified and addressed. OMB also intends
to work with GWAC executive agents and the GSA‘s Federal Supply Service
to address the handling of excess revenues generated by their programs,
including appropriate disposition of funds and adjustment of fees. OMB
also provided oral comments, and we made revisions to the text as
appropriate. OMB‘s letter appears in appendix II.
GSA took exception to our statement that the Schedules program produced
’exceptionally high earnings“ from fiscal years 1999 through 2001. We
believe that this characterization is warranted, based on the fact that
revenues exceeded costs by more than 53 percent or $151 million during
this period. GSA also commented that ’the statement that profits from
the Schedules program are being held at too high a level in order to
offset losses in another program is incorrect.“ We revised the text to
indicate that earnings from the Schedules program were used to offset
losses in the stock program and to finance vehicle purchases for the
fleet program. GSA also stated that it does not seem very practical to
compare the much smaller numbers of contracts at NASA and NIH with the
number of Schedules contracts that would have to be renegotiated if the
fee were adjusted. Our intent was to point out that because the fee
add-on mechanism is used by other agencies, it may be one option GSA
could consider in adjusting its fee.
Finally, while agreeing that the current fee mechanism lacks the
flexibility to match costs and revenues over time, GSA pointed out the
complexity of such an undertaking and the desire to minimize the impact
on customers, contracting partners, GSA, and the Schedules program
itself. We acknowledge the complexity of implementing a flexible fee
structure. However, given that the program has consistently reported
earnings well in excess of costs for several years, we believe steps
need to be taken now to begin the process of adjusting the fee. GSA
also offered technical comments, which we have incorporated as
appropriate. GSA‘s letter appears in appendix III.
The Department of the Interior stated that the information and
recommendations in our report provide OMB helpful guidance for
oversight of a growing interagency program. The Department noted that
the reported operating results provided for fiscal year 2000 reflect a
$488,000 processing error, which the franchise fund program is
correcting. We have reflected this information in Table 2 and in
appendix XII. An additional technical comment has also been
incorporated. The Department of the Interior‘s letter appears in
appendix IV.
NASA characterized as misleading the statement in our draft report
that NASA had not prepared earnings statements for its GWAC program. In
fact, while NASA provided semi-annual reports to OMB for fiscal year
2001, it had not prepared financial statements for the GWAC program,
and the data available from the program were incomplete for financial
statement purposes. In responding to our draft report, NASA prepared
the financial results that accompany its comments. These annual results
are substantially different than the semi-annual earnings results that
NASA had reported to OMB for fiscal year 2001. On a combined basis, the
semi-annual reports showed a loss of $235,817, whereas the annual
financial results showed that the program had earnings of $646,645. We
have incorporated the latest results into table 2 and appendix IX.
NASA also provided additional details on its rationale for not
assessing costs to NASA customers for use of the GWAC and asserted that
NASA has not used assessments against other agencies to cover its share
of the administrative costs. We have reflected these points in the
report. NASA also stated that program personnel conducted a
’deliberative analysis“ of the costs involved. However, program
personnel provided us with only a rough analysis, prepared in 1999, to
support the cost assessment. NASA plans to periodically reassess the
apportionment of NASA and non-NASA costs and NASA‘s in-kind
contribution versus the fees paid by external customers.
NASA also elaborated on its rationale for carrying over balances
remaining from one fiscal year to the next. It now plans to revise this
practice and to obligate, to the extent possible, funds in the fiscal
year they are received. Recognizing that NASA‘s lack of authority for a
working capital fund has caused concerns about the authority under
which it manages its GWAC, NASA has proposed legislation to establish a
fund for the agency in fiscal year 2003. Finally, NASA asserts that the
Economy Act[Footnote 16] provides authority for NASA to receive funds
and apply those funds over periods of time, including across fiscal
years, in order to support its GWAC program.[Footnote 17].
NASA‘s letter, with attachments, appears in appendix V.
NIH commented that our report will enable the agency to continue to
improve its information technology services and strengthen oversight of
these services to both NIH and other federal agencies. NIH noted that
the GWAC program office will continue to strive to comply with and
promote OMB‘s reporting requirements for GWACs. NIH also offered
technical comments that we incorporated as appropriate. NIH stated that
revenues (and thus earnings) were not understated to OMB because
revenues from internal customers were included in semi-annual reports
to OMB. However, those revenues were not attributed to the GWAC program
in NIH financial statements, which were prepared by NIH‘s financial
office. Further, on a combined basis, NIH‘s semi-annual reports to OMB
showed a loss of $814,629, whereas the annual financial results showed
that the program had earnings of $268,219. NIH‘s letter appears in
appendix VI.
As requested by your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution of it until 30
days from the date of this letter. We will then send copies of this
report to other interested congressional committees and to the
Secretaries of Commerce, Health and Human Services, Interior, and
Transportation; the Administrator, GSA; the Administrator, NASA; and
the Administrator of OMB‘s Office of Federal Procurement Policy. We
will make copies available to others upon request. In addition, the
report will be available at no charge on the GAO Web site at http://
www.gao.gov.
If you have any questions regarding this report, please contact me at
(202) 512-4841. An additional contact and other key contributors are
listed in appendix XIV.
Sincerely yours,
David E. Cooper
Director
Acquisition and Sourcing Management:
[End of section]
Appendix I: Scope and Methodology:
We focused our review on all five agencies granted executive agent
status by the Office of Management and Budget (OMB) to provide
governmentwide acquisition contracts (GWACs) for information
technology. The five agencies with such authority are the General
Services Administration (GSA), the National Institutes of Health (NIH),
the Department of Transportation, the National Aeronautics and Space
Administration (NASA), and the Department of Commerce. In addition, we
collected similar information about the GSA Schedules program and the
primary contract service program within the Department of the
Interior‘s franchise fund pilot program. Interagency purchases of
information technology made from the GSA Schedules program exceed those
made from all GWAC programs combined. Interior‘s GovWorks acquisition
program is the largest component of the Department of the Interior‘s
franchise fund.
To examine the fees being charged, we identified reported revenues and
costs. We also reviewed the fee structure and how it changed during
fiscal years 1999 through 2001. We reviewed agency financial statements
and annual reports for fiscal years 1999 through 2001, as well as the
supporting revenue and cost data for each program, the OMB executive
agent designation and financial management guidance, the contract
activity reports submitted to OMB, the Statement of Federal Financial
Accounting Standards Number 4: Managerial Cost Accounting Concepts and
Standards for the Federal Government developed by the Federal
Accounting Standards Advisory Board, and relevant legislation. We did
not independently verify the accuracy of the operating results reported
for each program. We interviewed and obtained information from
officials in the contract program and financial offices at the
Departments of Commerce, Transportation, and Interior; NIH; NASA; and
GSA. We also held discussions with officials in OMB‘s Office of Federal
Procurement Policy and Office of Federal Financial Management.
To determine provider agencies‘ ability to retain earnings, we reviewed
relevant legislation for each program. We interviewed contract program
managers and financial officials at the Departments of Commerce,
Transportation, and Interior; NIH; NASA; and GSA. We also held
discussions with officials in OMB‘s Office of Federal Procurement
Policy and the offices of the inspector general at the Departments of
Transportation and Interior and at GSA. To assess the agencies‘
compliance with OMB‘s guidance regarding the use of earnings, we
reviewed financial reports and held discussions with program officials
regarding funds transferred to the miscellaneous receipts account of
the General Fund of the U.S. Treasury.
We conducted our review from May 2001 to June 2002 in accordance with
generally accepted government auditing standards.
[End of section]
Appendix II: Comments from the Office of Management and Budget:
EXECUTIVE OFFICE OF THE PRESIDENT OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503:
OFFICE OF FEDERAL PROCUREMENT POLICY:
July 17, 2002:
Mr. David E. Cooper Director:
Acquisition and Sourcing Management General Accounting Office
Washington, DC 20548:
Dear Mr. Cooper:
I have been asked to respond on the Director‘s behalf to your May 24,
2002 request for comment from the Office of Management and Budget (OMB)
on your draft report, GAO-02-734. This report discusses fee practices
and policies associated with inter-agency contract programs.
OMB has taken several key steps to provide an appropriate framework for
the establishment and handling of fees by the agencies that operate the
inter-agency contracts examined by the General Accounting Office (GAO).
For example, each agency that serves as an executive agent for a
government-wide acquisition contract for information technology (GWAC)
under a designation granted by OMB pursuant to section 5112(e) of the
Clinger-Cohen Act (40 U.S.C. 1412(e)), is required, by the terms of the
designation issued by OMB, to account for and recover fully allocated
actual
costs in accordance with the Statement of Federal Financial Accounting
Standards 4; Managerial Cost Accounting Concepts for the Federal
Government,
issued by the Federal Accounting Standards Advisory Board (FASAB).
While the
FASAB standard appropriately permits some degree of flexibility in the
execution of the accounting, its ultimate aim is to ensure that
agencies obtain reliable and timely information on the full cost of
agency programs.
In addition to accounting for costs, OMB has made provisions to address
the handling of excess revenues. GWAC executive agents are required to
adjust their lees so that total revenues do not exceed actual costs.
and revenues generated in excess of the agency‘s actual costs are
transferred to the miscellaneous receipts of the General Fund of the
Treasury. In the implementation of this principle, we recognize that
certain funds, such as the Information Technology Fund, 40 U. S.C. 757
(which is used to support activities for GWACs operated by GSA‘s
Federal Technology Service), provide for GSA to retain revenues in an
amount determined by OMB to cover operating needs of the fund.
OMB believes the general framework described above for addressing fees
remains well-founded. At the same time, we recognize the need for
additional attention to ensure these fee policies and accounting
practices are being followed effectively. In our most recent GWAC
redesignations (issued at the end of March), we specifically instructed
executive agents to augment their reporting to OMB on revenues and
costs to discuss their strategy for re-calculating fees to correct any
differences between revenues and costs. In response to GAO‘s draft
recommendations, we intend to work with OMB‘s Office of Federal
Financial Management and the agencies to evaluate appropriate further
revisions to this reporting so that OMB can more easily recognize
possible disparities between fees charged and costs incurred and work
with the agencies to address these disparities when they arise. We also
intend to work with GWAC executive agents and the General Services
Administration‘s Federal Supply Service (FSS), which operates the
Multiple Award Schedules Program, to address the handling of excess
revenues generated by these respective programs, including appropriate
disposition of funds and adjustment of fees. We have already initiated
discussions with FSS to explore alternative approaches to its current
pricing structure and retention policy.
I appreciate the opportunity to comment on the draft report.
Sincerely,
Angela B. Styles Administrator:
Signed by Angela B. Styles:
[End of section]
Appendix III: Comments from the General Services Administration:
GSA:
GSA Administrator:
July 12, 2002:
The Honorable David M. Walker Comptroller General:
of the United States General Accounting Office Washington, DC 20548:
Dear Mr. Walker:
We appreciate the opportunity to comment on the United States General
Accounting Office (GAO) draft report, ’Contract Management: Interagency
Contract Programs Need More Oversight“ (GAO-02-734).
Please find the enclosed General Services Administration (GSA) comments
to the report findings and recommendation concerning adjusting the
Federal Supply Schedules program fee to reflect costs more closely.
If you have any additional questions or need further assistance, please
have a member of your staff contact Mr. Ralph Boldt, Branch Chief,
Audit Followup and Evaluation Branch, on 202/501-3094.
Sincerely, Stephen A. Perry, Administrator:
Signed by Stephen A. Perry:
Enclosure:
General Services Administration Comments On the GAO Draft Report,
’Contract Management: Interagency Contract Programs Need More
Oversight“ (GAO-02-734):
GENERAL:
Findings (page 2, paragraphs 1 and 2):
The Schedules program is much larger in the number of contracts and the
volume of transactions than those in the Department of the Interior.
Since the scope and depth of the programs are vastly different, we
suggest that the relative size be identified to give some context to
the size of each.
Findings (page 3 paragraph 3):
The following comments are offered:
First Sentence: We suggest that it might be more appropriate to use the
words ’large“ or ’significant“ versus the word ’hefty“ in describing
the earnings generated. Also, please consider the same revision for the
heading on page 11.
Second Sentence: The decision on how to use earnings is not made by
’Schedules program officials“ but rather by various GSA management
officials. We suggest the sentence be amended to reflect ’GSA
officials“. Also, the reference to GSA‘s stock program should be
revised to GSA‘s Supply Business Line. It should also be noted that the
Stock program historically has been part of the Supply and Procurement
Business Line and the Schedules program has been just one of the
methods of supply. This will change effective October 1, 2002, when
Supply and Procurement are separated into distinct business lines.
The statement that profits from the Schedules program are being held at
too high a level in order to offset losses in another program is
incorrect. Profits and losses on individual programs are fully
disclosed in our General Supply Fund (GSF) internal and external
financial statements. The earnings retained in the GSF are used as a
source of capital to provide equity financing for the replacement of
assets, primarily vehicles, as authorized by law. Additionally, these
funds can only be retained when there is a documented need in the Fleet
program to enter into agency vehicle consolidation actions where it can
be proven that the Government saves substantial additional funds
through consolidation of other agencies‘ fleets. With regard to losses
in the Supply program, the Supply and Schedules programs were simply
two components of the same business line, each using a different
methodology to provide customer support. Historically, there were times
when the Supply segment of the business line produced more excess
revenue
than Schedules. In fact, during the first year of the Schedules cost
recovery operation, revenues did not fully offset costs, producing a
loss of
$2.4 million. As time has progressed, business methods and customer
needs and
preferences have changed resulting in significant growth for the
Schedules program. In response, GSA has spent the last three years
consolidating operations and redefining our business model so that the
Supply program can position itself to meet changing customer
requirements. Therefore, it is incorrect to view the Schedules program
as subsidizing the stock program. The GSF provides the flexibility for
GSA to respond to changing requirements through the authorities granted
to the GSA Administrator under the Federal Property and Administrative
Services Act of 1949, as amended. Supply and Schedules are
complementary programs.
Footnote 6: Revise ’GSA‘s stock program“ to ’GSA‘s Supply Business
Line.“ Also, the reference to the ’motor vehicle“ program should be
revised here and throughout the report to the ’Fleet program.“:
Finding (page 7, Chart): As referenced earlier, since the scope and
depth of the programs are vastly different, we suggest that the
relative size be identified to give some context to the size of each.
Finding (page 7, paragraph 1): Concerning full cost recovery, GSA
supports best practices for full cost recovery operations in accordance
with Federal accounting standards, which should be applied to cost
recovery programs across the Government.
Finding (page 7, paragraph 3): We suggest the word ’relatively“ be
deleted.
Finding (page 11): The General Accounting Office (GAO) states that the
Schedules program produced exceptionally high earnings with revenues
exceeding costs by more than 53 percent or $151 million during a three-
year period. This statement is somewhat misleading due to the unique
business model developed for the Schedules program. To break even, GSA
would have to be able to calibrate the fee in tenths of a percentage
point. Additionally, the phrase ’exceptionally high earnings“ depends
on one‘s perspective. It might be more appropriate if the report just
stated that the Schedules program produced earnings of $151 million
during the three-year period.
Finding (page 13, paragraph 1):
Concerning the statement that the GSA Inspector General (IG)
recommended the fee be lowered and that GSA concurred but has taken no
action to implement it, it should be noted that the IG‘s actual
recommendation was that we ’[a]djust the fee to bring revenue in line
with costs.“ While we generally concurred with the recommendation, the
IG was advised that we did not plan to adjust the fee at that time
because the administrative cost of changing the fee and the time it
would entail would be significant. The IG was advised that we would
adjust the fee when we were confident that the fee would be stable for
an extended period of time.
Since the issuance of the IG report, we have not experienced stability
in the marketplace that would allow us to accurately forecast our
business volume. Additionally, the acquisition regulatory climate,
which has potentially significant impacts on the usage of the Schedules
program, has not been stable. Consistency in the Industrial Funding Fee
(IFF) has great value to both our customers and our contractors. Given
the uncertainty of the market and the fact that neither group raised
concerns regarding the rate, we have maintained the fee at its present
level.It is also important to note that for the last three years we
were in the midst of restructuring the Supply program. The
restructuring effort caused additional uncertainty regarding our
business line projections. Now that the Supply program restructuring is
almost complete, we are reviewing options, processes and impacts to
design a flexible IFF adjustment.
Finding (page 13, paragraph 2): The GAO report states that ’some other
interagency contract programs, such as NIH and NASA GWACS, have
established their fees as add-ons to the price of goods and services.“
We suggest that there be some explanation of the number of contracts
involved as well as how many are small and disadvantaged businesses.
Comparing approximately 40 contracts from NASA and NIH with over 10,000
contracts from GSA that would have to be renegotiated does not seem
very practical. Using add-ons might not be the most efficient way to
adjust the fee.
Appendix VIII (page 38. Chart): The chart reflects rates charged for
Special Orders, Simplified Acquisition, and Definite Quantity
contracts. These are not interagency or GWAC contracts in the same
sense as used in this report. These contracts are used to meet specific
or unique requirements and are not shared contracts as with GWACS or
Schedules, although orders from different agencies can be consolidated
into one contract as with automotive procurements. In these three
areas, when something needs to be bought, a unique contract generally
has to be prepared to meet the requirement, and this is generally done
for a single customer or small groups of customers.This is what
accounts for the higher rate. These contracting mechanisms are not
otherwise mentioned in the study, and all the other numbers quoted for
GSA in this study reflect Schedules only. We suggest that GAO remove
these line items and the footnotes, discussed below, from the chart.
Appendix VIII, page 38, Footnote a to Table VIII): This footnote
misstates GSA‘s pricing policy for these acquisition programs. A range
of fees is established based on annual analyses of program costs and
trend-based projections of business volumes. The fee/pricing objective
is
to generally break even. However, for some small orders, fees are
established
to encourage better leveraging of the Government‘s buying power through
aggregate purchases.
Appendix VIII, page 38, Footnote b to Table VIII): This footnote
misstates the definition of the Special Orders program. Special order
contracting employs competition in accordance with Federal Acquisition
Regulations. It is used when customers request GSA to provide full-
service acquisition support.
Recommendation (page 14, fourth bullet):
The Administrator of GSA adjusts the Federal Supply Schedules program
fee to reflect costs more closely.
Comment;
GSA agrees that the current schedule cost recovery mechanism IFF lacks
the flexibility to match costs and revenues as they change over time.
Enhancing the IFF process will be a complex undertaking as considerable
efforts will be required to minimize the impacts on customers,
contracting partners, GSA, and the long-term effectiveness of the
program, but GSA agrees that it needs to be done. We welcome the
opportunity to discuss this matter further.
[End of section]
Appendix IV: Comments from the Department of the Interior:
United States Department of the Interior:
OFFICE OF THE ASSISTANT SECRETARY POLICY, MANAGEMENT AND BUDGET
Washington, D.C. 20240:
JUL 0 1 2002:
Ms. Michele Mackin, Assistant Director Acquisition and Sourcing
Management United States General Accounting Office Washington, DC
20548:
Dear Ms. Mackin:
We have reviewed the U.S. General Accounting Office‘s proposed report
entitled Contract Management Interagency Contract Programs Need More
Oversight (GAO-02-734; job code 120075), and find it to be both
informative and useful. The information and recommendations provide the
Office of Management and Budget helpful guidance for oversight of a
growing interagency program. We believe that all agencies will welcome
better accounting and reporting guidelines to ensure consistency across
the Government.
The Minerals Management Service has provided the following suggested
changes to the report for your consideration:
Appendix VII, Franchise Fund Pilot Data Sheet-Department of the
Interior, Page 36 of the report:
Table VII. I shows reported annual operating results for GovWorks‘
portion of Interior‘s franchise fund (IFF). Due to a processing error
in Fiscal Year 2000, $488,000 was erroneously reported as bad debt
expense by GovWorks. The IFF is correcting the error.
The last sentence of the history section should be changed to show that
GovWorks began operations in 1997 as part of Interior‘s franchise fund.
We appreciate the opportunity to review and comment on the proposed
report. If you have any questions regarding our comments, please
contact Debra Sonderman, Director, Office of Acquisition and Property
Management, on 202-208-6352.
Sincerely,
P. Lynn Scarlett:
Assistant Secretary - Policy, Management and Budget:
Signed by P. Lynn Scarlett:
[End of section]
Appendix V: Comments from NASA:
United States Department of the Interior:
OFFICE OF THE ASSISTANT SECRETARY POLICY, MANAGEMENT AND BUDGET
Washington, D.C. 20240:
JUL 0 1 2002:
Ms. Michele Mackin, Assistant Director Acquisition and Sourcing
Management United States General Accounting Office Washington, DC
20548:
Dear Ms. Mackin:
We have reviewed the U.S. General Accounting Office‘s proposed report
entitled Contract Management Interagency Contract Programs Need More
Oversight (GAO-02-734; job code 120075), and find it to be both
informative and useful. The information and recommendations provide the
Office of Management and Budget helpful guidance for oversight of a
growing interagency program. We believe that all agencies will welcome
better accounting and reporting guidelines to ensure consistency across
the Government.
The Minerals Management Service has provided the following suggested
changes to the report for your consideration:
Appendix VII, Franchise Fund Pilot Data Sheet-Department of the
Interior, Page 36 of the report:
Table VII. I shows reported annual operating results for GovWorks‘
portion of Interior‘s franchise fund (IFF). Due to a processing error
in Fiscal Year 2000, $488,000 was erroneously reported as bad debt
expense by GovWorks. The IFF is correcting the error.
The last sentence of the history section should be changed to show that
GovWorks began operations in 1997 as part of Interior‘s franchise fund.
We appreciate the opportunity to review and comment on the proposed
report. If you have any questions regarding our comments, please
contact Debra Sonderman, Director, Office of Acquisition and Property
Management, on 202-208-6352.
Sincerely,
P. Lynn Scarlett:
Assistant Secretary - Policy, Management and Budget:
Signed by P. Lynn Scarlett:
[End of section]
Appendix VI: Comments from the Department of Health & Human Services:
DEPARTMENT OF HEALTH & HUMAN SERVICESPublic Health Service:
JUN 21 2002:
National Institutes of Health Bethesda, Maryland 20892:
www.nih.gov:
David E. Cooper:
Director, Acquisition and Sourcing Management U.S. General Accounting
Office:
441 G Street, N.W. Washington, D.C. 20548:
Dear Mr. Cooper:
Enclosed are the comments of the National Institutes of Health on the
GAO draft report entitled, ’ Contract Management: Interagency Contract
Programs Need More Oversight,“ GAO-02-734. The report provides a
thorough evaluation of NIH and other agency Government-wide Acquisition
Contracts that have improved the acquisition and delivery of
information technology services. We appreciate the opportunity to
review and comment on this report.
Our response contains both general and technical comments. We believe
that inclusion of these suggested changes and additions will improve
the report‘s clarity and precision.
Should you have any questions, please contact Patricia Quast at 301-
402-8264.
Elias A. Zerhouni, M.D. Director:
Signed by Elias A. Zerhouni, M.D.:
Enclosure:
Comments of the National Institutes of Health (NIH) On the U. S.
General Accounting Office (GAO) Draft Report ’Contract Management:
Interagency Contract Programs Need More Oversight,“ GAO-02-734:
We appreciate the opportunity to review and provide comments on this
draft report. The GAO should be commended for the thorough review of
the Government-wide Acquisition Contracts (GWACs). The review will
enable us to continue to improve our IT services and strengthen our
oversight of these services to both NIH and other Federal agencies. The
NIH information Technology Acquisition and Assessment Center (NITAAC)
continues to make a difference in delivering IT services and be a
Federal government model of what Innovative contracting can become
through streamlined processes and effective management.
In response to this draft report, NIH managers performed additional
reviews of our accounting systems that showed that the NIH and NITAAC
accounting practices are In accordance with the generally accepted
accounting principles for accommodating appropriations and Service and
Supply Funds (SSFs). In compliance with 42 U.S.C. 231 regulations
pertaining to SSFs and all other appropriated fund regulations,
appropriations and SSF dollars are not commingled. Retained earnings
are held in the SSF for continued funding of the revolving fund
account. NITAAC will continue to strive to comply with and promote the
Office of Management and Budget ’Principles for Government-wide
Acquisitions of Information Technology“ as presented in the Executive
Agent Designation Activity Reporting requirements. This includes a
financial management structure as required by the Statement of Federal
Financial Accounting Standards (SFFAS) IV: Managerial Cost Accounting
Standards and Concepts for the Federal Govemment with additional
support from the Managerial Cost Accounting Standards Guide. . Using
these standards and guides, the NIH will continue to assure the
identification, accounting and recovery of the fully allocated actual
costs as further directed by NIH financial managers.
[End of section]
Appendix VII: Governmentwide Acquisition Contract Data Sheet -
Department of Commerce:
Commerce Information Technology Solutions
Office of Acquisition Management, Office of the Secretary:
Program Description:
The Commerce Information Technology Solutions (COMMITS) program
provides the Commerce Department and other federal agencies with a
means of awarding performance-based information technology services
from 56 small business contractors. The principal goal of COMMITS is to
provide an alternative governmentwide acquisition contract (GWAC) that
allows agencies to contract with small and minority-owned businesses
for information technology requirements.
The COMMITS program is designed to accomplish three objectives: (1)
deliver information technology services and solutions to meet
government organizations‘ missions, (2) deliver information technology
services and solutions using a streamlined, performance-based
acquisition methodology, and (3) provide a pool of small business
contractors capable of delivering the government‘s information
technology requirements.
To date, the Department of Commerce‘s National Oceanic and Atmospheric
Administration, the Environmental Protection Agency, and the Department
of Defense‘s Army Research Laboratory have spent the most money under
COMMITS.
Contract Information:
COMMITS is a 5-year multiple-award indefinite delivery, indefinite
quantity contract, which permits issuance of task orders with options
that may extend performance for an additional 5 years beyond the
original performance period. The ceiling amount is $1.5 billion for
services in Information Systems Engineering, Information Systems
Security, and Systems Operations and Maintenance. The COMMITS contract
allows for the following types of contracts: firm-fixed price, fixed-
price with incentive, cost plus fixed fee, cost plus award fee, cost
plus incentive fee, labor hours, and time and materials.
Results Table:
Table 3 shows reported annual operating results for COMMITS.
Table 3: Reported COMMITS Program Results for Fiscal Years 1999 to
2001:
GWAC orders; 1999: $138,119; 2000: $14,430,538; 2001: $52,774,581.
Fee revenues; 1999: $1,742; 2000: $172,675; 2001: $829,151.
Earnings (losses); 1999: ($137,264); 2000: ($371,499); 2001:
($178,691).
Percent of orders from external customers; 1999: 28.86%; 2000: 21.97%;
2001: 38.62%.
Number of employees (FTE)[A]; 1999: None; 2000: 6; 2001: 8.
Contracted support (FTE); 1999: None; 2000: .3; 2001: 1.7.
[A] FTE is full-time equivalent.
Source: COMMITS program data.
[End of table]
Fees:
COMMITS program officials told us that fees are reviewed annually to
ensure that total revenues do not exceed actual costs. The COMMITS
program office collects fees directly from the customers through an
interagency agreement. The fees shown in tables 4 and 5 are applied to
the value of task orders placed by program customers.
Table 4: COMMITS Full Service Program Fees by Fiscal Year:
Full service COMMITS fees[A]: Task order awards if contract is less
than $5 million.; 1999: 1.25%; 2000: 1.25%; 2001: 2.50%.
Full service COMMITS fees[A]: Task order awards if contract is greater
than $5 million.; 1999: .65%; 2000: .65%; 2001: 2.50%.
Full service COMMITS fees[A]: Modifications if contract is less than $5
million.; 1999: .75%; 2000: .75%; 2001: 2.00% (if less than $2
million); 1.75%.
Full service COMMITS fees[A]: Modification if contract is greater than
$5 million.; 1999: .35%; 2000: .35%; 2001: 1.00%.
[A] Full service fees are charged when customers use the Department of
Commerce‘s acquisition and financial management service organizations.
Source: COMMITS program.
[End of table]
Table 5: COMMITS Limited Service Fee Structure by Fiscal Year:
Limited service COMMITS fees[A]: Task order awards if contract is less
than $5 million.; 1999: 1.00%; 2000: 1.00%; 2001: 1.75% (if less than
$500,000).
Limited service COMMITS fees[A]: Task order awards if contract is
greater than $5 million.; 1999: .50%; 2000: .50%; 2001: 1.50% (if
greater
than $500,000).
Limited service COMMITS fees[A]: Modifications if contract is less than
$5 million.; 1999: .50%; 2000: .50%; 2001: 1.75% (if less than
$500,000).
Limited service COMMITS fees[A]: Modification if contract is greater
than $5 million.; 1999: .30%; 2000: .30%; 2001: 1.50% (if greater than
$500,000).
Limited service COMMITS fees[A]: National Oceanic and Atmospheric
Agency agreement, any amount.; 1999: [Empty]; 2000: [Empty]; 2001:
1.00%.
Limited service COMMITS fees[A]: Environmental Protection Agency
agreement, any amount.; 1999: [Empty]; 2000: [Empty]; 2001: 1.50%.
[A] Limited service fees are charged when customers use their own
acquisition and financial management service organizations.
Source: COMMITS program.
[End of table]
History:
The Commerce Department‘s Annual Performance Plan (1999) addresses
mission objectives including increasing opportunities for small, small
minority, and women-owned small businesses. A major initiative in
Commerce‘s contracting program was to establish a multiple award
governmentwide indefinite delivery, indefinite quantity contract among
highly qualified small disadvantaged, small disadvantaged 8(a), and
women-owned small businesses. On June 21, 1999, OMB designated the
Department of Commerce an executive agent for the acquisition of
information technology for the COMMITS program.
[End of section]
Appendix VIII: Governmentwide Acquisition Contract Data Sheet - Federal
Technology Service:
IT Solutions
General Services Administration:
Program Description:
The Federal Technology Service‘s (FTS) IT Solutions business line
offers a full range of information technology products and services in
support of customers‘ missions worldwide.
Pre-award services include technical assistance such as requirements
analysis and proposal development and acquisition services that include
developing an acquisition strategy, conducting the acquisition, signing
contracts, and providing legal support, if needed. Post-award services
include project management such as managing milestones, schedules, and
costs; performing problem resolution and overseeing progress reviews;
and financial management services that include managing project funding
and accepting and paying vendor invoices.
FTS has nine GWACs, and it uses four solution development centers (SDC)
to operate them. In addition, FTS‘s Federal Systems and Integration
Management Center (FEDSIM) provides technical and acquisition expertise
to agencies including access to GWACs and other types of contracts.
* The Federal Computer Acquisition Center (FEDCAC) operates the first
six GWACs listed in table 6 below. Its core business line is the
repackaging of proven industry solutions that are delivered via
contracts to meet the emerging technology needs of a specific client
agency or for governmentwide use. FEDCAC generated over $200 million in
orders in fiscal 2001.
* The ANSWER SDC, which operates the ANSWER GWAC, contracted for $195.7
million in business in the last fiscal year.
* The Small Business SDC specializes in contracts with small
businesses. The center, which has contracts with over 150 small
business contractors, generated $200.4 million in fiscal year 2001.
* The Information Technology Acquisition Center (ITAC) manages the
Millennia Lite GWAC, which covers four functional areas:
1) information technology planning, studies, and assessment,
2) high-end information technology services,
3) mission support services, and
4) legacy systems migration and new enterprise systems development.
Millennia Lite generated $126.3 million in fiscal year 2001.
* FEDSIM‘s program officials provide technical and acquisition
expertise. Center personnel can use a variety of contracts, including
those offered by other agencies, GSA‘s Schedules contracts, and the
GWACs operated by FTS.
Contract Information:
Table 6 contains a brief description of each GWAC.
Table 6: FTS GWAC Information:
GWAC description: Disaster Recovery Services; Provides worldwide
alternate secure facilities with computer and communications systems
for most technology platforms to implement an agency‘s disaster
recovery plan.; Contract maximum value: $150 million; Period of
performance: 5 years, expires Sept. 2003; FY 2001 orders: $3.9 million;
Number of vendors: 3; Top customers FY 2001: Social Security, Drug
Enforcement, Internal Revenue Service; FTEs FY 2001: 1.5.
GWAC description: Millennia; Intended to meet the federal government‘s
demand for large system integration and software development projects.;
Contract maximum value: $25 billion; Period of performance: 5-year
base, one 5-year option; awarded April 1999; FY 2001 orders: $102.8
million;
Number of vendors: 11; Top customers FY 2001: FBI, Navy, DOD other;
FTEs
FY 2001: 1.
GWAC description: Seat Management; Provides management, operation, and
maintenance of items such as desktop, server, and communications assets
and services.; Contract maximum value: $9 billion; Period of
performance: 5 years with one 5-year option; awarded July 1998; FY 2001
orders: $1.4 million; Number of vendors: 8; Top customers FY 2001:
Federal
Highway, Nuclear Regulatory Commission; FTEs FY 2001: 1.75.
GWAC description: Smart Card; Provides a common multi-technology,
multi-application smart card solution that supports initiatives such as
electronic commerce and providing access to secured areas.; Contract
maximum value: $1.5 billion; Period of performance: 2-year base, has
two 4-year options; awarded May 2000; FY 2001 orders: $12.9 million;
Number of vendors: 5; Top customers FY 2001: DOD other, Army, Veterans;
FTEs FY 2001: 1.
GWAC description: TELIS; The Telecommunications Integrator Services
contract is a turnkey solution tailored to fit an agency‘s
telecommunication needs. It is a flexible contract that provides
telecommunications service solutions and network equipment.; Contract
maximum value: $600 million; Period of performance: 5 years; awarded in
1997; FY 2001 orders: $66.1 million; Number
of vendors: 1; Top customers FY 2001: Air Force, Energy, Social
Security; FTEs FY 2001: 3.5.
GWAC description: Virtual Data Center Support Services; Provides an
alternative for obtaining mainframe and mid-range systems and related
IT and network products and services. It provides for the outsourcing
of government data services from existing federal data centers located
throughout the world.; Contract maximum value: $6 billion; Period of
performance: 5-year base, one 5-year option; awarded February 1997; FY
2001 orders: $15.4 million; Number
of vendors: 3; Top customers FY 2001: Education; FTEs FY 2001: 1.
GWAC description: ANSWER; Provides for long-term, worldwide, all-
encompassing information technology support such as requirements and
design research, system development, and software maintenance.;
Contract maximum value: $25 billion; Period of performance: 2-year
base, has eight 1-year options; awarded December 1998; FY 2001 orders:
$195.7 million; Number of vendors: 10; Top customers FY 2001: Navy,
Army,
Air Force; FTEs FY 2001: 8.5.
GWAC description: IT Solutions Small Business - Section 8(a); Provides
a broad range of small business integration services that can include
personal computers, agency-wide computer networks, training, and other
information technology services.; Contract maximum value: $90 million
per contract; Period of performance: 7 years; expires October 2004; FY
2001 orders: $200.4 million; Number
of vendors: Over 150; Top customers FY 2001: Army, Navy,
Air force; FTEs FY 2001: 5.
GWAC description: Millennia Lite; Provides a full spectrum of
information technology systems integration and development services
worldwide.; Contract maximum value: $20 billion; Period of performance:
3-year base, with seven award term options; awards made April to June
2000; FY 2001 orders: $126.3 million; Number
of vendors: 43; Top customers FY 2001: Army, Navy, Air Force; FTEs
FY 2001: 4.
Source: FTS IT Solutions program:
[End of table]
Results Table:
Table 7 shows reported annual operating results for the FTS GWACs.
Table 7: Reported FTS Results by Fiscal Year:
GWAC orders; 1999: $247,460,000; 2000: $774,180,000; 2001:
$724,917,788.
Revenues; SDCs; FEDSIM; IT Solutions[A]; 1999: ; $21,298,000;
$855,409,000; $3.1 billion; 2000: ; $39,470,000; $975,398,000; $4.0
billion; 2001: ; $75,067,000; $1.1 billion; $5.1 billion.
Earnings (losses); SDCs; FEDSIM; IT Solutions; 1999: ; ($1,890,000)
$2,072,000; $4,664,000; 2000: ; $715,000; $1,697,000; ($2,727,000);
2001: ; $1,115,000; $2,498,000; ($750,000).
SDC employees (FTE)[B]; 1999: 47.2; 2000: 55.2; 2001: 27.3.
FEDSIM (FTE); 1999: 140.7; 2000: 156.8; 2001: 177.
[A] IT Solutions is one of two major business lines within FTS. IT
Solutions includes SDCs and FEDSIM. FEDSIM was also included in OMB‘s
executive agent designation.
[B] FTE is full-time equivalent.
Source: FTS IT Solutions program.
[End of table]
Fees:
FTS‘s SDCs charge customers two forms of fees: contract access fees and
consulting fees. With some exceptions, an access fee of 1 percent
covers the cost of administering the contracts. The disaster recovery
contract is one of the exceptions, with a fee of ½ percent. The access
fee is included in the contractors‘ prices, and they remit the fee
revenue to FTS. The access fee has remained steady at 1 percent.
Consulting fees are paid directly to FTS. The centers and FEDSIM charge
an hourly rate for technical expertise. For example, FEDCAC and FEDSIM
rates ranged from $74 to $125 per hour in fiscal year 1999, from $75 to
$125 per hour in fiscal year 2000, and from $85 to $141 per hour for
fiscal year 2001. Customers and FTS enter into a memorandum of
understanding or an interagency agreement with FTS that outlines the
level of support required, the estimated cost to provide the support,
and other reporting and contractual elements.
Fees are developed to recover full costs and are effective for the
entire fiscal year. Rate changes during the year are rare. According to
program officials, the fees are reviewed annually.
History:
On August 2, 1996, GSA became the first agency to receive an executive
agent designation by OMB under the Clinger-Cohen Act. Both FEDSIM and
FEDCAC were specifically identified in this designation. FEDCAC evolved
from the Air Force Computer Acquisition Center, which had been in
existence for over 20 years. FEDCAC was incorporated into the GSA in
August of 1991. FEDCAC was chartered to provide acquisition assistance
on a fee-for-service basis to agencies whose technical requirements
exceeded $100 million. ITAC is the newest SDC. It became fully
operational in fiscal year 2001, along with the Millennia Lite GWAC.
[End of section]
Appendix IX: Governmentwide Acquisition Contract Data Sheet - NASA:
Scientific and Engineering Workstation Procurement
Goddard Space Flight Center:
Program Description:
NASA‘s governmentwide acquisition contract (GWAC) is the Scientific and
Engineering Workstation Procurement (SEWP) contract. The current GWAC,
SEWP III, supports NASA‘s objective of meeting its own requirements for
high-performance information technology, as well as similar needs in
other agencies. NASA provides technical expertise in developing SEWP
contracts in areas such as electronic data interchange, web and imaging
technology, order processing, and technology refreshment.
NASA‘s role as the agent between the federal agencies and the prime
contractors is accomplished by three major ordering processes: 1) pre-
order decision-making, which allows users to check prices on-line for
all of SEWP‘s contracts and to track quotes requested from vendors; 2)
delivery order processing, which includes receiving delivery orders,
checking for accurate information, and entering order information into
SEWP‘s database; and 3) post-order quality assurance, which includes a
quality assurance check with agency customers on product delivery,
product functionality, and overall customer satisfaction.
The program currently includes 12 prime contracts serviced by 8 prime
contractors. The largest SEWP customers are the Air Force, the Army,
and the Navy.
Contract Information:
SEWP III is a fixed-price, indefinite delivery, indefinite quantity
contract with a maximum value of $4 billion. The initial set of SEWP
III contracts were awarded on July 30, 2001. The term of the contracts
is 5 years. The contract specializes in providing advanced technology
UNIX, Linux, and Windows-based workstations and servers, along with
peripherals, network equipment, storage devices, and other information
technology products.
Results Table:
Table 8 shows reported annual operating results for SEWP.
Table 8: SEWP Operating Results by Fiscal Year:
GWAC orders; 1999: $573,383,181; 2000: $673,414,864; 2001:
$506,627,011[A].
Revenues; 1999: $1,547,853; 2000: $2,571,705; 2001: $3,200,858.
Earnings (losses); 1999: ($957,373); 2000: $420,696; 2001: $646,645.
Percent of orders to external customers; 1999:
78.5; 2000: 80.9; 2001: 87.8.
NASA FTE[B]; 1999: 4; 2000: 4; 2001: 4.5.
Contracted support; 1999: 14; 2000: 14; 2001: 14.
[A] The decrease in fiscal year 2001 was mainly due to the transition
between SEWP II and SEWP III contracts.
[B] FTE is full-time equivalent.
Source: SEWP program and NASA Office of the Chief Financial Officer,
Goddard Space Flight Center.
[End of table]
Fees:
The SEWP III fees shown table 9 below are applied to the value of
purchases made by program customers. The fee is included as a separate
contract line item on contract orders. This fee is collected by the
contractors and forwarded to the government quarterly. Fees are
reviewed each year and adjusted based on a comparison of revenues and
costs. Fees are not charged to NASA customers because of an agency
policy against charging fees for internal use of NASA-based contracts.
However, NASA noted that it is making an in-kind contribution by not
charging some costs to the program, such as providing the contracting
personnel to set up and administer the SEWP contracts, the SEWP program
manager, and office space. NASA does not charge the Environmental
Protection Agency a fee because a representative from that agency
serves on the SEWP executive committee.
Table 9: SEWP Fees by Fiscal Year:
1999[A]: .75% for orders $0-100,000; 2000: 0.0% for orders of
$2,500 or less; 2001: 0.0% for orders of $2,500 or less.
1999[A]: .65% for orders $100,000-250,000; 2000: .5% for orders from
$2,501 to $400,000; 2001: .75% for orders from $2,501 to $666,666.
1999[A]: .5% for orders $250,000-500,000; 2000: $2,000 for orders
over $400,000; 2001: $5,000 for orders over $666,666.
1999[A]: .4% for orders $500,000-750,000; 2000: [Empty]; 2001: [Empty].
1999[A]: .3% for orders $750,000-1 million; 2000: [Empty]; 2001:
[Empty].
1999[A]: .2% for orders over $1 million; 2000: [Empty]; 2001: [Empty].
Note: The fees shown here represent the most current fee adjustment
during the year.
[A] The fee at the beginning of the year was a flat .75% on all orders.
Source: SEWP program.
[End of table]
History:
NASA‘s efforts to consolidate its procurement of high-end information
technology products date back to the early 1990s. NASA‘s first SEWP
contract was awarded in 1991 as a NASA-only procurement. Within a year,
it became a governmentwide contract at the request of the General
Services Administration (GSA). The most recent GSA delegation of
authority for the SEWP contract, effective through November 14, 2000,
was issued in 1995, prior to the passage of the Clinger-Cohen Act of
1996. On September 29, 2000, OMB designated NASA as an executive agent
for governmentwide acquisition of information technology.
[End of section]
Appendix X: Governmentwide Acquisition Contract Data Sheet - NIH:
National Information Technology Acquisition and Assessment Center
Department of Health & Human Services:
Program Description:
The National Institutes of Health National Information Technology
Acquisition and Assessment Center (NITAAC) is the organizational focal
point for the three governmentwide information technology contracts NIH
offers. NITAAC is part of the Office of Administration, which is
located in the Office of the Director, NIH. NITAAC‘s goals include
providing NIH and other agencies with quality information technology
products and services that focus on emerging technologies and
solutions. In addition, NITAAC seeks to simplify the information
technology procurement process for internal and external clients, as
well as for contractors, by encouraging the use of its on-line ordering
system to improve communication between clients and contractors and to
reduce the paperwork burden.
NITAAC provides a variety of client services. For example, NITAAC
reviews each task order request to determine if it is within the scope
of the contract and to ensure that the statement of work and potential
contractors are well suited to one another. Quality assurance at the
contract level is performed by reviewing contractors‘ monthly status
reports and by analyzing customer orders and feedback on program and
policy changes. NITAAC offers mediation services to customer and
contractors for GWAC orders when problems occur during contract
administration.
NITAAC‘s GWACs are serviced by over 100 prime contractors. The largest
customers for fiscal year 2001 were the Army, Treasury, and NIH.
Contract Information:
NITAAC‘s three GWACs are described in table 10.
Table 10: NIH GWAC Information:
Chief Information Officer Solutions and Partners 2 Innovations (CIO-
SP2i) Allows agencies to customize IT services and solutions. The
contract covers hardware, software development, systems integration,
and technical support services in nine task areas, such as IT
operations and maintenance and critical infrastructure protection and
information assurance.; Contract maximum: $19.5B; Period of
performance: 10 years; 12/21/00 to 12/20/10; FY 2001 orders: $198.1M;
Number of prime contractors: 48; Top customers FY 2001: NIH; Health and
Human Services/Admini-stration for Children and Families; Army.
Image World 2 New Dimensions (IW2 nd); Provides a mechanism to meet IT
acquisition needs in areas of imaging and document management systems.
Offerings include tasks such as data base management, solutions-based
imaging systems, and document conversion and electronic storage.;
Contract maximum: $15B; Period of performance: 10 years; 12/21/00 to
12/20/10; FY 2001 orders: $16.3M; Number of prime contractors: 24; Top
customers FY 2001: NIH; Transportation; National Archives.
Electronic Computer Store-II (ECS-II); Provides a full range of
products to meet hardware and software development needs in the areas
of desktop computing, networks, and UNIX-based workstations. Items
include commercial off-the-shelf hardware and software, software
documentation, hardware maintenance, peripherals, and warranty
services.; Contract maximum: $2B; Period of performance: 5 years; 9/17/
97 to 9/16/02; FY 2001 orders: $291.3M; Number of prime contractors:
45; Top customers FY 2001: Army; NIH; Treasury.
Note: Data for orders and top customers also include CIO-SP and IW
contracts that expired during the year.
Source: NITAAC program.
[End of table]
Results Table:
Table 11 shows NIH‘s reported annual operating results for its GWACs.
Table 11: Reported NIH GWAC Results by Fiscal Year:
GWAC orders; 1999: $614,101,007; 2000: $508,635,215; 2001:
$505,746,565.
Revenues; 1999: $5,883,643; 2000: $5,026,185; 2001: $4,376,083.
Earnings; 1999: $2,365,780; 2000: $1,390,388; 2001: $268,219[A].
Percent of orders to external customers; 1999: 87.7; 2000:
86.4; 2001: 83.8.
NIH staff (FTE)[B]; 1999: 18.4; 2000: 20.3; 2001: 22.6.
Contracted support personnel; 1999: 3; 2000: 9; 2001: 9.
[A] NIH officials noted that these reported earnings are understated
due to an overcharge of $729,870 for indirect costs including rent and
utilities.
[B] FTE is full-time equivalent.
Source: NITAAC program.
[End of table]
Fees:
Table 12 below lists the fees paid by NITAAC‘s customers external to
NIH. The fees are applied to the value of orders placed by program
customers and are included as a line item on those orders. The
contractors receive the fees and forward them to NIH. While the 1
percent fee was retained for the two 10-year GWACs awarded in fiscal
year 2001, NITAAC introduced a sliding scale of lower fees for small
business orders. NITAAC reduced its fee in this manner to further
promote the use of its small business contractors. Internal customers
are charged a flat fee per order submitted. NITAAC reviews its fees
annually.
NITAAC recently received authority to accept funds from other agencies
through inter-departmental agreements. For these customers, NITAAC not
only awards customer orders but administers them as well. NITAAC
charges an additional fee of 1.5 percent to handle these agreements.
Table 12: NIH GWAC Fees by Fiscal Year:
Fees if:: Order is less than $1M; 1999: All GWACs: 1%; 1999: All GWACs:
1%; 2000: ECS-II: 1%; 2000: CIO-SP2i: 1%; 2001: CIO-SP2i: 1%; 2001:
IW2nd: 1%.
Fees if:: Order is from $1M to $5M; 1999: All GWACs: 1%; 1999: All
GWACs: 1%; 2000: ECS-II: 1%; 2000: CIO-SP2i: 1%; 2001: CIO-SP2i: 1%;
2001: IW2nd: .75%.
Fees if:: Order is from $5M to $10M; 1999: All GWACs: 1%; 1999: All
GWACs: 1%; 2000: ECS-II: 1%; 2000: CIO-SP2i: 1%; 2001: CIO-SP2i: .75%;
2001: IW2nd: .5%.
Fees if:: Order is greater than $10M; 1999: All GWACs: 1%; 1999: All
GWACs: 1%; 2000: ECS-II: 1%; 2000: CIO-SP2i: 1%; 2001: CIO-SP2i: .5%;
2001: IW2nd: .25%.
[A] If an order is $25,000 or less, a minimum fee of $250 is charged.
Source: NITAAC program.
[End of table]
History:
NIH has been managing all three information technology contracts since
1996, when the original IW and CIO-SP contracts were awarded under the
authority of its Service and Supply Fund (42 U.S.C 231). The original
ECS contract was awarded on September 29, 1995.
[End of section]
Appendix XI: Governmentwide Acquisition Contract Data Sheet -
Department
of Transportation:
Information Technology Omnibus Procurement (ITOP)
Transportation Administrative Service Center:
Program Description:
The Department of Transportation‘s governmentwide acquisition contract
(GWAC), ITOP, operates under the Transportation Administrative Service
Center (TASC). ITOP has awarded contracts to 35 prime vendors--
comprising a mixture of small disadvantaged, small, and large
businesses--who offer a broad range of support resources related to
information technology. Initiated to streamline government
procurements of information technology, ITOP is supported by a group of
multiple pre-awarded contracts.
The three top customers are the Department of Defense‘s Department of
the Army and Joint Strike Fighter Program Office, and the Federal
Bureau of Investigation.
On May 20, 2002, the Deputy Secretary of Transportation informed the
Director of the Office of Management and Budget that Transportation
would not be seeking redesignation as a GWAC executive agent beyond
June 3, 2002. The Secretary stated that two issues must be resolved
before the Department can determine if a long-term extension of GWAC
authority is warranted. First, while early numbers for the first half
of fiscal year 2002 show that ITOP has been recovering its costs, more
data are needed to ensure continued self-sufficiency. Second, the
Department is in the process of determining the extent to which ITOP
can address the information technology needs of the new Transportation
Security Administration. The Secretary stated that meeting the
Transportation Department‘s in-house information technology
requirements must now be its priority.
Contract Information:
ITOP offers a 7-year indefinite delivery, indefinite quantity task
order contract providing information systems engineering, systems
operations and management, and information systems security to satisfy
customer requirements. The contract provides for the following types of
orders: firm fixed price, cost plus fixed fee, cost plus award fee, and
time and materials.
The current contract, referred to as ITOP II, provides for a maximum of
$10 billion for information technology solutions. ITOP II has an
individual task order delivery ceiling of $300 million. The first
contract, ITOP, provided for a total of $1.13 billion, with an
individual task order ceiling of $50 million.
Results Table:
Table 13 shows reported annual operating results for ITOP.
Table 13: Reported ITOP Results by Fiscal Year:
GWAC orders; 1999: $247,364,339; 2000: $258,589,555; 2001:
$246,803,547.
Revenues; 1999: $2,095,253; 2000: $3,398,901; 2001: $3,927,010.
Earnings (losses); 1999: ($852,064); 2000: ($298,662); 2001:
($960,156).
Percent of orders from external customers; GWAC orders: Revenues:
Earnings (losses): transactions; 1999: 68%; 2000: 76%; 2001: 87%.
GWAC orders: Revenues: Earnings (losses): dollars; 1999: 76%; 2000:
96%; 2001: 93%.
Transportation employees (FTE)[A]; 1999: 12; 2000: 14; 2001: 17.
Contracted support; 1999: 7; 2000: 7; 2001: 7.
[A] FTE is full-time equivalent.
Source: TASC and ITOP program data.
[End of table]
Fees:
ITOP‘s program office reassesses its fees periodically to ensure
continued competition with other agencies and to ensure that the
program recovers costs. The customer pays the fee directly to the ITOP
program office using an interagency agreement or other funding
instrument. The fees shown in tables 14 and 15 below are applied to the
value of task orders placed by program customers.
ITOP adjusted its fee structure in 2001 to better reflect the level of
effort and costs of providing services and to address prior-year
losses. In fiscal year 2002, TASC reduced the indirect cost rate it
charges ITOP by 40 percent. The TASC indirect cost rate reduction
(fixed-fee overhead) has already saved ITOP about $600,000 through June
2002. A Transportation official noted that the ITOP‘s total revenues
have exceeded costs for the first 9 months of fiscal year 2002.
Table 14: ITOP Fee Structure by Year:
Service category: Basic contractual services; Service category: Program
office award[A]; Effective 9/1/1998: Fee: 2.75%; min = $2,063; max =
$275,000; Effective 4/1/2000: Fee: 2.75%; min = $825; max = $275,000.
Service category: Joint effort[B]; Effective 9/1/1998: Fee: 2.0%; min =
$1,500; max = $200,000; Effective 4/1/2000: Fee: 2.0%; min = $600; max
= $200,000.
Service category: Contract modifications; Effective 9/1/1998: Fee:
1.5%; min = N/A; max = $150,000; Effective 4/1/2000: Fee: 1.5%; min =
N/A; max = $150,000.
Service category: Financial services -; payment processing; service;
Effective 9/1/1998: Fee: .75% - 1.00%; min = $375; max = $75,000;
Effective 4/1/2000: Fee: .75% - 1.00%; min = $150; max = $75,000.
Service category: Delegation of contract authority; Service category:
Customer award; Effective 9/1/1998: Fee: 1.0%; min = N/A,; max =
$100,000; Effective 4/1/2000: Fee: 1.0%; min = N/A; max = $100,000.
Service category: Customer award-ITOP associate program; Effective 9/1/
1998: Fee: .75%; min = N/A; max = $75,000; Effective 4/1/2000: Fee:
.75%; min = N/A; max = $75,000.
[A] Program office provides limited pre-award technical support and a
full range of contracting support. The program office has lead
responsibility for writing the requirement (statement of work).
[B] Program office provides a full range of contracting support. The
customer is responsible for writing the requirement (statement of
work).
Source: ITOP program.
[End of table]
Table 15: ITOP Fee Structure Effective 10/1/01:
Service category: Basic contractual services; Service category: Initial
award (including 3 no-cost modifications) and a modification with
funding;
Fee: 2.5%; min = $3,000; max = $350,000 per task order or modification
per
year.
Service category: Each additional no-cost modification; Fee: $15,000.
Service category: No-cost modification package (3 per year); Fee:
$30,000.
Service category: Delegation of contracting authority, annual; Fee: 1%;
min = $3,000; max = $350,000 per task order per year.
Service category: Financial services -; payment processing; service;
Fee: 1%; min = $10,000; max = $127,000/year.
Service category: Additional value-added services; Service category:
Deluxe contractual expert service; Fee: $50,000 annually.
Service category: Deluxe technical expert service; Fee: $50,000
annually.
Service category: Dedicated support; Fee: Custom-priced.
Source: ITOP program.
[End of table]
History:
The ITOP program office received both the Department of
Transportation‘s approval and the General Services Administration‘s
delegation of procurement authority for its multiple pre-awarded
indefinite delivery, indefinite quantity contract in August 1995. ITOP
received its first OMB executive agent delegation in January 1999. As
discussed previously, ITOP‘s executive agent delegation expired on June
3, 2002, and the Department of Transportation decided not to seek
redesignation at that time.
[End of section]
Appendix XII: Franchise Fund Pilot Data Sheet - Department of the
Interior:
Interior Franchise Fund:
GovWorks Federal Acquisition Center:
Program Description:
Interior‘s Minerals Management Service manages the GovWorks program,
which is the largest component of the Interior franchise fund. This
fund is located in Interior‘s Office of the Secretary. The GovWorks
program offers a wide range of acquisition services, such as buying
high-dollar products and services and awarding grants and cooperative
agreements. Program services include project planning, soliciting and
evaluating offers, administering contracts and agreements through
closeout, and paying all bills. Clients also receive assistance with
project management activities, such as preparing statements of work and
tracking expenditures.
GovWorks procurements are not limited to any specialized area. The
program offers acquisition services in a wide range of areas, such as
information technology, environmental studies, training systems
development, secure communications, engineering and technical studies,
joint military program support, and healthcare support services. In
fiscal year 2001, GovWorks had contracts with about 300 contractors.
GovWorks‘ largest customers are the Department of Defense, the
Department of Health and Human Services, and the Department of State.
The acquisition services that GovWorks provides to external customers
are processed through Interior‘s franchise fund. Similar service
projects for internal customers are accounted for by the Minerals
Management Service separately from the franchise fund.
Contract Information:
Because GovWorks is a general-purpose acquisition service, it can
access other agencies‘ governmentwide acquisition contracts and GSA‘s
schedules contracts, in addition to preparing its own contracts.
GovWorks has awarded indefinite delivery, indefinite quantity
contracts, and multiple-award contracts covering areas such as training
and education systems, construction management, and telecommunications
infrastructure support.
Results Table:
Table 16 shows reported annual operating results for Interior‘s
franchise fund program.
Table 16: Reported Results for GovWorks by Fiscal Year:
Contract awards; 1999: $112,280,368; 2000: $174,308,032; 2001:
$289,821,890.
Revenues; 1999: $24,183,040; 2000: $88,255,873; 2001: $195,065,239.
Earnings (losses); 1999: $238,262; 2000: ($190,373)[A]; 2001:
($48,710).
Percent of awards to external customers; 1999: 76.4; 2000:
72.7; 2001: 87.
[A] This earnings amount is subject to change because a GovWorks fiscal
year 2000 expense of $488,000 was processed erroneously. Interior is
taking action to correct this error. :
Note: Revenue and earnings amounts are for GovWorks operations within
the franchise fund.
Source: Interior franchise fund and GovWorks program.
[End of table]
Fees:
GovWorks establishes its fee for the franchise fund at the beginning of
the project based on an assessment of the amount of assistance needed
for the planned procurement. The fee is set as a percentage of the
dollar value of the project. The base fee is 3 percent, but it can
range from 2 to 4 percent. The fee is paid by the customer agency
directly to the Interior franchise fund.
The GovWorks program employs 34 full-time-equivalent personnel, all of
whom are Interior employees.
History:
In May 1996, OMB designated the Department of the Interior as one of
six executive branch agencies authorized to establish a franchise fund
pilot program. Franchise funds were authorized by the Government
Management Reform Act of 1994. The GovWorks program began operation in
1997 as part of Interior‘s franchise fund.
[End of section]
Appendix XIII: Program Data Sheet - Federal Supply Schedules:
General Services Administration:
Federal Supply Service:
Program Description:
The General Services Administration‘s (GSA) Federal Supply Service
(FSS) organization offers a supply and procurement business under the
Federal Supply Schedules Program (Schedules program), which provides
federal customers with services from more than 7,400 program vendors,
as well as a wide range of commercial products.
The services provided by the Schedules program include accounting,
graphic design, financial, information technology, environmental, and
landscaping, along with a vast array of brand-name products from office
supplies to systems furniture and computers. The services and products
are provided at volume discount pricing on a direct-delivery basis.
Negotiated prices for varying requirements and all vendor-awarded
contracts are included in a catalogue of 48 schedules. The value of
information technology orders are larger than the orders in all other
schedules combined.
The intent of the Schedules program is to offer customers shorter lead-
times, lower administrative costs, and reduced inventories; provide
significant opportunities for agencies to meet their small business
goals; and promote compliance with socioeconomic laws and regulations.
GSA reports that the external agencies with the largest Schedules
program orders are the Department of Defense, the Department of
Veterans Affairs, and the Department of Justice.
Contract Information:
Under the Schedules program, GSA awards contracts to multiple companies
that supply comparable products and services. These contracts can be
used by any federal agency to purchase commercial products and
services. The current standard Schedules contract is for a 5-year
period with three 5-year options.
Results Table:
Table 17 shows reported annual operating results for the Schedules
program.
Table 17: Reported Schedules Program Results by Fiscal Year:
Orders; IT Schedules; 1999: $6.95 billion; 2000: $9.29 billion; 2001:
$10.85 billion.
Total; 1999: $10.47 billion; 2000: $13.64 billion; 2001: $16.48
billion.
Revenues; 1999: $113,808,123; 2000: $151,123,890; 2001: $167,500,482.
Earnings; 1999: $39,455,650; 2000: $55,496,936; 2001: $56,370,055.
Percent of orders from external Customers; 1999: 82; 2000: 79; 2001:
71.
Schedules program employees (FTE)[A]; 1999: 623; 2000: 662; 2001:
778.
[A] FTE is full-time equivalent.
Source: FSS data and GSA‘s General Supply Fund Supply Operations
financial statements.
[End of table]
Fees:
GSA‘s fee, known as the Industrial Funding Fee, is intended to fully
recover the cost of operations. In fiscal year 1995, the Schedules
program started to become self-supporting. The Schedules program
established a
1 percent fee, which is remitted by the vendor to GSA. The fees shown
in table 18 are applied to Schedules purchases by program customers.
Table 18: Schedules Program Fees by Fiscal Year:
Service category: Industrial Funding Fee for use of the Schedules
program; 1999: 1%; 2000: 1%; 2001: 1%.
Service category: Indirect schedules; 1999: 5%; 2000: 5%; 2001: 5%.
Service category: Special orders contracting[A]; 1999: 3.5 - 40%[B];
2000: 3.5 - 40%[B]; 2001: 3.5 - 40%[B].
Service category: Simplified acquisition; 1999: 15 - 50%[B]; 2000: 15 -
50%[B]; 2001: 15 - 50%[B].
Service category: Definite quantity; 1999: .5 - 10%[B]; 2000: .5 -
10%[A]; 2001: .5 - 10%[B].
[A] Special orders contracting employs competition in accordance with
the Federal Acquisition Regulation. It is used when customers request
GSA to provide full-service acquisition support.
[B] The higher fees for these services result from providing tailored
procurement assistance for various goods or services such as furniture,
office supplies, hardware, and general products. GSA explained that
purchases in these areas generally require that a unique contract be
prepared, and generally for a single customer or for small groups of
customers. The range of fees is based on annual analyses of program
costs and trend-based projections of business volume. However, for some
small orders, fees are established to encourage better leveraging of
the government‘s buying power through aggregated purchases.
Source: Schedules program.
[End of table]
History:
In 1993, the House Committee on Appropriations recommended that GSA
review the benefits of providing supplies and equipment on a full cost-
reimbursable basis. Also in 1993, a Conference Committee for the 1994
Treasury, Postal Service and General Government Appropriations Act
stated that federal agencies should be allowed a choice of purchasing
from the Schedules program or from the commercial sector. Further, in a
1994 report, the Senate Appropriations Committee stated that the
Schedules program was suitable for reimbursable funding under the
general supply fund. In 1995, GSA‘s Federal Supply Service began the
process to convert the Schedules program to operation on a cost-
reimbursable basis.
[End of section]
Appendix XIV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Michele Mackin (202) 512-4309:
Acknowledgments:
In addition to the individual named above, Penny A. Berrier, Paul M.
Greeley, and John Van Schaik made key contributions to this report.
Richard T. Cambosos, Mark P. Connelly, and Denise M. Fantone served as
advisors.
[End of section]
FOOTNOTES:
[1] OMB‘s executive agent designation letters for governmentwide
acquisition contracts direct that agencies use an accountability
structure and financial systems that ensure the identification,
accounting, and recovery of the fully allocated actual costs in
accordance with the Statement of Federal Financial Accounting Standards
Number 4: Managerial Cost Accounting Concepts and Standards for the
Federal Government.
[2] GWACs are governmentwide contracts established to improve the
acquisition of information technology. GWACs are operated at the
Departments of Commerce and Transportation, the National Aeronautics
and Space Administration (NASA), GSA‘s Federal Technology Service
(FTS), and the National Institutes of Health (NIH). On May 20, 2002,
the Secretary of Transportation informed OMB that Transportation would
not be seeking redesignation of its GWAC at that time. Additional
information is in appendix XI.
[3] Six franchise fund pilot programs were authorized in the Government
Management Reform Act (P.L. 103-356) to provide common administrative
support services. In addition to the Department of the Interior, pilot
programs were authorized at the Departments of Commerce, Health & Human
Services, Treasury, and Veterans Affairs and the Environmental
Protection Agency.
[4] The Schedules program offers a large group of commercial products
and services ranging from office supplies to information technology
services.
[5] Three of the five GWAC programs (at Transportation, NIH, and FTS)
operate under revolving funds, while the NASA and Commerce GWACs do
not. The GAO General Counsel‘s office sent letters to NASA and Commerce
in April 2002 requesting information on how they operate their GWACs
consistent with applicable fiscal laws, including the miscellaneous
receipts statute (31 U.S.C. 3302(b)). NASA responded by letter dated
May 8 and Commerce by letter dated May 17. We continue to explore these
issues and we recently requested OMB‘s views.
[6] GSA‘s stock program serves as a storehouse and distribution center
for items such as office supplies, tools, and safety products. GSA‘s
fleet program provides vehicles for lease by federal agencies.
[7] P.L. 104-106, Feb. 10, 1996.
[8] P.L. 103-356, Sec. 403, Oct. 13, 1994.
[9] Created under the authority of the Federal Property and
Administrative Services Act of 1949 (40 U.S.C. 481 (a)(3)).
[10] Appendixes VII through XIII include detailed data, including
revenues, on each program.
[11] OMB‘s executive agent designation letters state that the
designation is granted with the understanding that the GWAC agency will
adhere to and promote a series of policies and practices provided by
OMB, such as recovery of fully allocated actual costs.
[12] For fiscal year 2001, the Transportation Administrative Service
Center charged its business lines $8.8 million for the center‘s
indirect costs, more than double its actual costs of $4.1 million.
Transportation‘s Office of Inspector General reported in April 2002
that it plans to review how the center calculates and allocates its
operating costs.
[13] Earnings results are reflected in table 2 and appendix IX.
[14] P.L. 104-208, Sept. 30, 1996.
[15] GSA‘s Office of the Inspector General, Audit of the Federal Supply
Service‘s Industrial Funding Fee For the Schedules Program, Report
Number A83309/F/H/V99513 (Washington, D.C.: May 28, 1999).
[16] 31 U.S.C. 1535 and 1536.
[17] As noted in footnote 5, we sent a letter to NASA requesting
information on how NASA operates its GWAC consistent with applicable
fiscal laws.
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