Telecommunications
GSA Needs to Improve Process for Awarding Task Orders for Local Service Gao ID: GAO-03-369 April 4, 2003The Metropolitan Area Acquisition (MAA) program, managed by the General Services Administration (GSA), provides local telecommunications services to government agencies in selected metropolitan areas. Of the 25 cities in which MAA contracts were awarded as of January 2003, 15 were awarded to two or more providers. Such multiple-award contracts are a means of promoting competition. To ensure equity in the award of task orders under these contracts, the Federal Acquisition Regulation (FAR) requires that the government provide contractors a fair opportunity to be considered. GAO was asked to review, among other things, whether GSA's implementation of the fair consideration process is consistent and the effect of any inconsistency, as well as the adequacy of GSA's documentation to support the decisions reached.
GSA field offices take different approaches to awarding task orders under multiple-award MAA contracts, leading to variations both among cities and within cities. Although the FAR gives contracting officers broad latitude in ensuring that this process offers contractors a fair opportunity to be considered, GSA recognizes that consistency is important within the nationwide MAA program. However, GSA headquarters has not developed or implemented a uniform fair consideration process. As a result, GAO found variations in the processes used: principally, in the time frames used in contractor price comparisons. Such inconsistencies frequently influenced the choice of contractor. Further, because oversight was not provided, in six cases agency preference was used as a criterion for selecting a contractor, which is a violation of the FAR. Because GSA did not consistently follow a common process that ensured compliance with the FAR, it cannot ensure the fairness of its decisions. Further, the documentation for about one-fifth of GSA's fair consideration decisions was not adequate for determining how these decisions were reached. According to the FAR, sufficient documentation of all contractual actions must be maintained to provide (1) a basis for decisions reached and (2) information for subsequent reviews. Out of 483 fair consideration decisions from regional GSA offices in the 11 cities that GAO assessed, the documentation furnished for 91 (19 percent) was not adequate. Weaknesses observed include lack of stated rationale for decisions reached, price comparisons that did not support the choice of contractor selected by GSA, and lack of support for technical factors used in making the decisions. These weaknesses occurred because GSA did not establish and implement uniform guidelines for documenting its MAA fair consideration decisions. As a result, MAA stakeholders (GSA, agencies, and MAA contractors) do not have assurance that the fair consideration process was properly administered.
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-03-369, Telecommunications: GSA Needs to Improve Process for Awarding Task Orders for Local Service
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United States General Accounting Office:
GAO:
Report to the Chairman, Committee on Government Reform, House of
Representatives:
April 2003:
Telecommunications:
GSA Needs to Improve Process for Awarding Task Orders for Local
Service:
GAO-03-369:
GAO Highlights:
Highlights of GAO-03-369, a report to the Chairman, Committee on
Government Reform, House of Representatives.
Why GAO Did This Study:
The Metropolitan Area Acquisition (MAA) program, managed by the General
Services Administration (GSA), provides local telecommunications
services to government agencies in selected metropolitan areas. Of the
25 cities in which MAA contracts were awarded as of January 2003, 15
were awarded to two or more providers. Such multiple-award contracts
are a means of promoting competition. To ensure equity in the award of
task orders under these contracts, the Federal Acquisition Regulation
(FAR) requires that the government provide contractors a fair
opportunity to be considered. GAO was asked to review, among other
things, whether GSA‘s implementation of the fair consideration process
is consistent and the effect of any inconsistency, as well as the
adequacy of GSA‘s documentation to support the decisions reached.
What GAO Found:
GSA field offices take different approaches to awarding task orders
under multiple-award MAA contracts, leading to variations both among
cities and within cities. Although the FAR gives contracting officers
broad latitude in ensuring that this process offers contractors a fair
opportunity to be considered, GSA recognizes that consistency is
important within the nationwide MAA program. However, GSA headquarters
has not developed or implemented a uniform fair consideration process.
As a result, GAO found variations in the processes used: principally,
in the time frames used in contractor price comparisons (see table).
Such inconsistencies frequently influenced the choice of contractor.
Further, because oversight was not provided, in six cases agency
preference was used as a criterion for selecting a contractor, which is
a violation of the FAR. Because GSA did not consistently follow a
common process that ensured compliance with the FAR, it cannot ensure
the fairness of its decisions.
Further, the documentation for about one-fifth of GSA‘s fair
consideration decisions was not adequate for determining how these
decisions were reached. According to the FAR, sufficient documentation
of all contractual actions must be maintained to provide (1) a basis
for decisions reached and (2) information for subsequent reviews. Out
of 483 fair consideration decisions from regional GSA offices in the 11
cities that GAO assessed, the documentation furnished for 91 (19
percent) was not adequate. Weaknesses observed include lack of stated
rationale for decisions reached, price comparisons that did not support
the choice of contractor selected by GSA, and lack of support for
technical factors used in making the decisions. These weaknesses
occurred because GSA did not establish and implement uniform guidelines
for documenting its MAA fair consideration decisions. As a result, MAA
stakeholders (GSA, agencies, and MAA contractors) do not have assurance
that the fair consideration process was properly administered.
Table: Variations in Time Frames Used in MAA Contractor Price
Comparisons:
Time frame used in price analysis:
City: Atlanta[A]:
1 month: [Empty];
1 year: [Empty];
3 years: [Empty];
4 years: [Empty];
Life cycle: [Empty];
Insufficient data to determine: [Empty].
City: Boston:
1 month: [Check];
1 year: [Check];
3 years: [Empty];
4 years: [Check];
Life cycle: [Empty];
Insufficient data to determine: [Empty].
City: Cleveland:
1 month: [Empty];
1 year: [Empty];
3 years: [Empty];
4 years: [Empty];
Life cycle: [Check];
Insufficient data to determine: [Empty].
City: Dallas:
1 month: [Empty];
1 year: [Check];
3 years: [Empty];
4 years: [Empty];
Life cycle: [Check];
Insufficient data to determine: [Empty].
City: Denver:
1 month: [Check];
1 year: [Empty];
3 years: [Empty];
4 years: [Empty];
Life cycle: [Check];
Insufficient data to determine: [Empty].
City: Indianapolis:
1 month: [Empty];
1 year: [Empty];
3 years: [Empty];
4 years: [Empty];
Life cycle: [Check];
Insufficient data to determine: [Empty].
City: Los Angeles:
1 month: [Empty];
1 year: [Empty];
3 years: [Empty];
4 years: [Empty];
Life cycle: [Empty];
Insufficient data to determine: [Check].
City: Minneapolis:
1 month: [Empty];
1 year: [Empty];
3 years: [Empty];
4 years: [Empty];
Life cycle: [Check];
Insufficient data to determine: [Empty].
City: New York:
1 month: [Empty];
1 year: [Check];
3 years: [Check];
4 years: [Empty];
Life cycle: [Empty];
Insufficient data to determine: [Empty].
City: Philadelphia:
1 month: [Check];
1 year: [Empty];
3 years: [Check];
4 years: [Empty];
Life cycle: [Empty];
Insufficient data to determine:[Empty].
City: St. Louis:
1 month: [Empty];
1 year: [Empty];
3 years: [Empty];
4 years: [Empty];
Life cycle: [Empty];
Insufficient data to determine: [Check].
Source: GAO, GSA.
[A] No price comparison was completed in calendar year 2001.
[End of table]
What GAO Recommends:
GAO is recommending that GSA follow a consistent fair consideration
process, including uniform requirements for documentation. Deviations
from this common process should be documented and communicated to
contractors so that all MAA stakeholders can understand the process.
In written comments on a draft of this report, the Administrator of
General Services agreed with our recommendations and said that
GSA was acting to implement them.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-369]:
To view the full report, including the scope and methodology, click on
the link above. For more information, contact Linda Koontz at (202) 512-
6240 or koontzl@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
GSA Has Not Established a Consistent Process or Provided Adequate
Oversight:
Numerous Fair Consideration Decisions Were Not Adequately Documented:
Use of Requests for Quotations Produced Mixed Results, but Limited Data
Preclude a Thorough Evaluation:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Termination Charges and Service Initiation Charges:
Appendix II: Objectives, Scope, and Methodology:
Appendix III: Comments from the General Services Administration:
Tables:
Table 1: MAA Multiple-Award Cities in Which GSA Made Fair Consideration
Decisions in 2001:
Table 2: Comparison of Time Frames Used in MAA Contractor Price
Comparisons:
Table 3: Comparison of 1-Year and Life-Cycle Price Analyses for Dallas:
Table 4: Effect of Including Reconfiguration Charges in MAA Contractor
Price Comparisons (Dallas):
Abbreviations:
ASP: Aggregated Switch Procurement:
FAR: Federal Acquisition Regulation:
FTS: Federal Technology Service:
GSA: General Services Administration:
MAA: Metropolitan Area Acquisition:
RFQ: Request for Quotations:
SIC: service initiation charge:
[End of section]
United States General Accounting Office:
Washington, DC 20548:
April 4, 2003:
The Honorable Tom Davis:
Chairman:
Committee on Government Reform:
House of Representatives:
Dear Mr. Chairman:
The Metropolitan Area Acquisition (MAA) program provides local
telecommunications services to federal agencies in selected metropolitan
areas. The MAA program manager, the General Services Administration
(GSA), initiated this nationwide program in 1997 to achieve immediate,
substantial, and sustained price reductions for agencies‘ local
telecommunications services; to expand agencies‘ choices of high-quality
services; and to encourage cross-agency sharing of resources. In 15 of
25 metropolitan areas in which MAA contracts had been awarded as of
January 2003, GSA had awarded contracts to two or more
telecommunications providers. The intent of such multiple-award
contracts is to sustain competition and obtain the best value on task
orders awarded throughout the contract period. For these contracts, the
Federal Acquisition Regulation requires agencies to provide the
multiple-award contractors a fair opportunity to be considered for task
orders; GSA refers to this process as its fair consideration process.
Fair consideration decisions may be based on price alone, or they may
be based on consideration of price plus other factors, such as
technical requirements or the contractors‘ past performance. This
report responds to your request that we determine (1) whether GSA‘s
fair consideration process is consistent within and among metropolitan
areas, and if not, whether or not inconsistencies affect the process
results; (2) whether GSA‘s documentation properly and appropriately
supports its fair consideration decisions; and (3) whether the use of
Requests for Quotations [Footnote 1] in the fair consideration
processes followed by GSA is cost-effective. In response to concerns
raised at an oversight hearing on the MAA program, you also requested
that we determine whether contract termination charges and service
initiation charges had affected GSA‘s fair consideration decisions;
these results are reported in appendix I.
This report is based on work we performed at GSA‘s Federal Technology
Service (FTS) headquarters and at our Washington, D.C., office, using
documentation furnished by GSA‘s regional FTS offices. We reviewed all
fair consideration decisions made by GSA during calendar year 2001 as
part of the MAA contracts‘ service ordering process, including
supporting documentation maintained by GSA, the MAA contracts,
applicable federal acquisition guidelines, and any further GSA guidance
on this process. We conducted our work from May 2002 through February
2003, in accordance with generally accepted government auditing
standards. Appendix II contains a detailed discussion of our
objectives, scope, and methodology.
Results in Brief:
Although GSA officials have stated that the nationwide MAA program
should be consistently administered, GSA did not establish and follow a
consistent process when making its fair consideration decisions.
[Footnote 2] During calendar year 2001, fair consideration processes
varied both within and across MAA cities. Variations occurred in the
lengths of time over which contractor prices are compared and in the
use of additional estimated costs for changing telecommunications lines
or service features over time. Both variations influenced which
contractors received task order awards to provide services to agencies
under these contracts. Further, because GSA has not provided adequate
oversight, regional offices in six instances incorrectly used agency
preference as a basis for selecting a contractor”violating the Federal
Acquisition Regulation”and selected a higher priced incumbent service
provider.
Of the fair consideration decisions made by GSA during calendar year
2001, 19 percent were not fully supported by documentation. According to
the Federal Acquisition Regulation, all contractual actions must be
documented in a manner sufficient to provide a basis for decisions
reached in the acquisition process, and to provide information for
subsequent reviews of those decisions. Weaknesses observed included
lack of stated rationale for decisions reached, price comparisons that
did not support the choice of contractor selected by GSA, and lack of
support for technical factors used in making the decisions. These
weaknesses were allowed to occur because GSA did not establish and
implement uniform guidelines for documenting its MAA fair consideration
decisions. As a result, for 91 out of 483 decisions made in 2001, MAA
stakeholders (GSA, agencies, and MAA contractors) do not have assurance
that the fair consideration process was properly administered.
GSA‘s use of Requests for Quotations in the fair consideration process
may be cost-effective for some local telecommunications services, but
limited data preclude a comprehensive evaluation. By pursuing this
additional competition, GSA may receive cost proposals from contractors
that could include more favorable terms than those in the published
contract, such as lower monthly prices, or waived or reduced service
initiation charges. Examination of this process in Denver revealed that
although it produced substantial savings when one type of service was
acquired, it did not result in savings when a second type of service was
obtained. GSA did not measure the costs and benefits of this process to
determine where the use of Requests for Quotations was most suitable for
acquiring local telecommunications services or to identify improvements
that could make the process more cost-effective.
In addition, we determined that the inclusion of contract termination
charges may have changed the choice of contractors in 5 of 16 GSA fair
consideration decisions in the one MAA city in which these charges
applied, [Footnote 3] and service initiation charges were a deciding
factor in the choice of contractors in 61 out of 272 decisions in seven
cities (details are given in app. I).
In light of the inconsistencies in the MAA fair consideration process,
we are recommending to the Administrator of General Services that GSA
establish and follow a uniform process for fair consideration. We are
also recommending that GSA develop and implement uniform guidelines for
documenting its fair consideration decisions, and that it establish the
measures needed to ensure the cost-effectiveness of its process and to
provide a basis for improvement.
In written comments on a draft of this report, the Administrator of
General Services agreed with our recommendations and said that GSA was
acting to implement them.
Background:
The MAA program comprises contracts offering local voice and certain
data telecommunications services to federal agencies in selected
metropolitan areas across the country. GSA began planning this program
just a few months after the passage of the Telecommunications Act of
1996, which was intended to increase competition and reduce regulations
in the telecommunications industry, particularly for local services.
Recognizing that this competition would create an opportunity for the
government to gain an immediate price reduction in local
telecommunications services, GSA developed and launched the MAA
program to take advantage of this emerging competition. Further, it
envisioned the MAA contracts as a complement to existing local service
contracts in metropolitan areas, as well as a solution for contracts
that were expiring. As of January 2003, GSA had awarded MAA contracts
in 25 cities, with a total maximum value of $5.1 billion.
Each MAA contract is a fixed-price, indefinite-delivery, indefinite-
quantity contract with a base term of 4 years (48 months) from date of
award, with four successive 1-year options. In 15 of the 25 MAA cities,
GSA awarded these contracts to two or more telecommunications
providers; such contracts are referred to as multiple-award contracts.
The Federal Acquisition Streamlining Act (FASA) of 1994 established a
preference for awarding contracts for indefinite quantities to multiple
firms rather than to a single company. This approach was intended to
provide agencies a means to procure goods and services quickly, using
streamlined acquisition procedures, while obtaining the advantage of
competition.
Under multiple-award contracts, the Federal Acquisition Regulation (FAR)
requires that contractors be afforded ’a fair opportunity to be
considered“ in the subsequent award of task orders issued to meet
specific agency needs under these contracts. The process used to ensure
this opportunity is referred to as the fair consideration process. In
administering this process, contracting officers are given broad
latitude by the FAR.
The MAA contracts give a broad outline of the procedure to be followed
by the government in conducting its fair consideration process.
[Footnote 4] The government- or agency-designated representative is to
consult the latest information about the contractors, including
published contract prices, related analyses that aid decision making,
information from contractors such as price quotes or technical
analyses, and other relevant information. Using available information,
the representative selects a contractor by one of two methods: basing
the decision solely on relative prices without further consideration of
other factors, or basing the decision on a combination of price,
technical, and past performance considerations appropriate to the
particular decision. After completing this decision process, the
representative then places a task order with the selected contractor
for the required telecommunications services.
GSA contracting officers making task order decisions can obtain price
information from published contracts, or they can choose to issue a
Request for Quotations (RFQ) as an additional mechanism for lowering
prices. Using an RFQ process to support fair consideration decision
making can offer additional competitive benefits by allowing
contractors to lower prices beyond their contract offers and to reduce
or waive service initiation and other charges. However, while the RFQ
process is being pursued, agencies must continue to pay pre-MAA prices
for telecommunications services, rather than the lower MAA contract
prices.
When making fair consideration decisions under the MAA contracts, in
addition to comparing monthly recurring charges for providing
telecommunications services, GSA may consider additional costs
associated with these services, such as the one-time termination charges
that may be associated with a pre-MAA telecommunications service
contract. GSA may also consider contractors‘ service initiation charges
[Footnote 5] for implementing service. When a contractor is also the
incumbent, pre-MAA telecommunications provider in a city, it does not
generally include a service initiation charge in its price quotes for
existing lines and services to be transitioned to an MAA contract,
because it does not incur new expenses to provide these lines and
services. Where volume or types of services differ from existing
services, incumbents may include service initiation charges in their
pricing. All contractors can choose to waive these charges.
Including these charges in fair consideration price comparisons may give
an advantage to an incumbent contractor (since the incumbent‘s price
would generally not include such charges), but this advantage is
permissible. That is, acquisition case law has established that a
contractor may have unique advantages and capabilities (because of its
prior experience, for example), and the government is not required to
equalize competition or compensate for these advantages, unless there
is evidence of preferential treatment or other improper action.
GSA‘s FTS headquarters in Fairfax, Virginia, and its regional offices
in the various metropolitan areas share responsibility for
administering the MAA contracts. According to testimony by the FTS
Commissioner in June 2001, [Footnote 6] FTS headquarters is responsible
for developing solicitations, evaluating offers, awarding contracts,
and supporting implementation activities, and the FTS regional offices
are responsible for developing city-specific requirements and for
contract implementation activities, including managing the process used
to select among MAA contract awardees for placing task orders (that is,
the fair consideration process).
In calendar year 2001, fair consideration processes were conducted in 11
of the 15 MAA cities with multiple-award contracts. Table 1 lists these
11 cities, their MAA contractors, and the number of fair consideration
decisions reached in 2001.
Table 1: MAA Multiple-Award Cities in Which GSA Made Fair Consideration
Decisions in 2001:
MAA multiple-award cities: Atlanta;
Number of fair consideration decisions: 1;
Contractors: WinStar; BellSouth.
MAA multiple-award cities: Boston;
Number of fair consideration decisions: 21;
Contractors: AT&T; Southwestern Bell; Verizon; Winstar.
MAA multiple-award cities: Cleveland;
Number of fair consideration decisions: 71;
Contractors: Ameritech; AT&T.
MAA multiple-award cities: Dallas;
Number of fair consideration decisions: 20;
Contractors: AT&T; Southwestern Bell; Winstar.
MAA multiple-award cities: Denver;
Number of fair consideration decisions: 128;
Contractors: AT&T; Qwest; WinStar.
MAA multiple-award cities: Indianapolis;
Number of fair consideration decisions: 50;
Contractors: WinStar; AT&T; Ameritech.
MAA multiple-award cities: Los Angeles;
Number of fair consideration decisions: 44;
Contractors: WinStar; Pacific Bell.
MAA multiple-award cities: Minneapolis;
Number of fair consideration decisions: 118;
Contractors: WinStar; Qwest.
MAA multiple-award cities: New York;
Number of fair consideration decisions: 11;
Contractors: AT&T; Verizon.
MAA multiple-award cities: Philadelphia;
Number of fair consideration decisions: 10;
Contractors: AT&T; WinStar.
MAA multiple-award cities: St. Louis;
Number of fair consideration decisions: 9;
Contractors: WinStar; Southwestern Bell.
Source: GSA.
[End of table]
GSA Has Not Established a Consistent Process or Provided Adequate
Oversight:
GSA management has stated its desire to ensure consistency throughout
the nationwide MAA program, but it has not established a common
process for fair consideration decisions. Because GSA headquarters has
not developed or implemented a uniform method to be followed by its
regional offices in conducting the fair consideration process,
approaches vary among cities and, in some cases, within cities.
Variations occurred in the periods of time over which contractor prices
were compared and in the inclusion of reconfiguration costs [Footnote
7] in price comparisons, which affected the choice of contractors.
Further, because GSA did not oversee the application of this process,
in some instances regional offices violated the FAR by incorrectly
using agency preference as a basis, in part or as a whole, for
selecting a higher priced contractor for an MAA task order.
Although the FAR gives contracting officers broad latitude in
administering the fair consideration process, GSA recognizes that the
MAA program and its contracts should be consistently managed and
administered. In her June 2001 testimony, the FTS Commissioner stated
that because MAA is a national program, communications and coordination
among GSA staff with MAA program responsibilities (FTS headquarters,
its regional offices, and MAA program management staff) were essential
to ensure program continuity and consistency. [Footnote 8] Thus, GSA
views consistency as an important attribute within the nationwide MAA
program.
The principal variation we identified in the fair consideration process
concerned the period of time selected by regional staff over which to
compare contractor prices. The different time periods that GSA regional
offices used for comparing contractor prices ranged from as short as
1 month to as long as the entire period remaining in the life of the
contract (GSA documentation referred to the latter as a life-cycle
analysis). In three cities”Cleveland, Indianapolis, and Minneapolis”GSA
considered contract life as the evaluation period. GSA‘s Denver staff
usually used a 1-month evaluation period, [Footnote 9] but it used a
life-cycle analysis to justify 17 percent of its decisions. In four
other cities, this price comparison varied from decision to decision:
specifically, the Dallas regional office alternated between use of
contract life and a 1-year period in its analyses; the New York
regional office used 1-year and 3-year periods; the Philadelphia staff
used a 1-month period and a 4-year period; and the Boston regional
office used a 1-month period in some cases, and in others considered
savings for both 1-year and 4-year periods. The reason for the specific
comparison period used was not recorded in decision documentation.
Table 2 summarizes the different price comparison periods used.
Table 2: Comparison of Time Frames Used in MAA Contractor Price
Comparisons:
Time frame used in price analysis:
City: Atlanta[B]:
1 month: [Empty];
1 year: [Empty];
3 years: [Empty];
4 years: [Empty];
Life cycle: [Empty];
Insufficient data to determine[A]: [Empty].
City: Boston:
1 month: [Check];
1 year: [Check];
3 years: [Empty];
4 years: [Check];
Life cycle: [Empty];
Insufficient data to determine[A]: [Empty].
City: Cleveland:
1 month: [Empty];
1 year: [Empty];
3 years: [Empty];
4 years: [Empty];
Life cycle: [Check];
Insufficient data to determine[A]: [Empty].
City: Dallas:
1 month: [Empty];
1 year: [Check];
3 years: [Empty];
4 years: [Empty];
Life cycle: [Check];
Insufficient data to determine[A]: [Empty].
City: Denver:
1 month: [Check];
1 year: [Empty];
3 years: [Empty];
4 years: [Empty];
Life cycle: [Check];
Insufficient data to determine[A]: [Empty].
City: Indianapolis:
1 month: [Empty];
1 year: [Empty];
3 years: [Empty];
4 years: [Empty];
Life cycle: [Check];
Insufficient data to determine[A]: [Empty].
City: Los Angeles:
1 month: [Empty];
1 year: [Empty];
3 years: [Empty];
4 years: [Empty];
Life cycle: [Empty];
Insufficient data to determine[A]: [Check].
City: Minneapolis:
1 month: [Empty];
1 year: [Empty];
3 years: [Empty];
4 years: [Empty];
Life cycle: [Check];
Insufficient data to determine[A]: [Empty].
City: New York:
1 month: [Empty];
1 year: [Check];
3 years: [Check];
4 years: [Empty];
Life cycle: [Empty];
Insufficient data to determine[A]: [Empty].
City: Philadelphia:
1 month: [Check];
1 year: [Empty];
3 years: [Check];
4 years: [Empty];
Life cycle: [Empty];
Insufficient data to determine[A]:[Empty].
City: St. Louis:
1 month: [Empty];
1 year: [Empty];
3 years: [Empty];
4 years: [Empty];
Life cycle: [Empty];
Insufficient data to determine[A]: [Check].
Source: GAO, GSA.
Note: GAO analysis of GSA data.
[A] Decision documentation did not identify the time frame used.
[B] One fair consideration decision was reached in Atlanta during
calendar year 2001. An RFQ was issued to the contractors to obtain a
price quote for service. However, because a valid cost proposal was
received from only one contractor, a complete price comparison was not
necessary.
[End of table]
Although the MAA contracts state that contract price will always be a
factor in GSA‘s fair consideration procedure, they do not specify the
time period over which price comparisons should be made. However, a
consistent time period is important, because analyses over different
time periods may lead to different results. For example, one-time costs
such as service initiation charges have a less direct influence on
decisions that compare prices over a longer period of time, because
those additional onetime costs may be offset by lower prices over the
life of the contract. Conversely, when prices are compared over a
shorter period of time, such additional charges form a relatively
greater portion of total costs compared; thus, their inclusion can
favor the incumbent service provider (whose price does not generally
include these charges).
The effect of using different time frames in price comparisons is
illustrated in table 3. This table summarizes the decisions reached in
Dallas, where Southwestern Bell was the incumbent telecommunications
provider. If GSA had used a contract life-cycle time frame in its price
comparisons, then the decisions reached might have been different in
half of those cases. [Footnote 10] Further, if it had consistently made
these MAA task order awards to the contractors offering lower life-
cycle prices, GSA could have realized an additional estimated $459,000
in savings for customer agencies in Dallas over the life of the
contracts.
Table 3: Comparison of 1-Year and Life-Cycle Price Analyses for Dallas:
Lowest cost contractor according to analysis (checks indicate analysis
used):
Customer: 1;
1st year price analysis: Southwestern Bell [Check];
Life-cycle price analysis: AT&T;
Recipient of award: Southwestern Bell;
Decision would have differed if life-cycle price analysis had been
used: Yes.
Customer: 2;
1st year price analysis: Southwestern Bell [Check];
Life-cycle price analysis: AT&T;
Recipient of award: Southwestern Bell;
Decision would have differed if life-cycle price analysis had been
used: Yes.
Customer: 3;
1st year price analysis: Southwestern Bell [Check];
Life-cycle price analysis: AT&T;
Recipient of award: Southwestern Bell;
Decision would have differed if life-cycle price analysis had been
used: Yes.
Customer: 4;
1st year price analysis: Southwestern Bell;
Life-cycle price analysis: Southwestern Bell [Check];
Recipient of award: Southwestern Bell;
Decision would have differed if life-cycle price analysis had been
used: No.
Customer: 5;
1st year price analysis: Southwestern Bell [Check];
Life-cycle price analysis: AT&T;
Recipient of award: Southwestern Bell;
Decision would have differed if life-cycle price analysis had been
used: Yes.
Customer: 6;
1st year price analysis: Southwestern Bell [Check];
Life-cycle price analysis: AT&T;
Recipient of award: Southwestern Bell;
Decision would have differed if life-cycle price analysis had been
used: Yes.
Customer: 7;
1st year price analysis: WinStar [Check];
Life-cycle price analysis: WinStar;
Recipient of award: WinStar;
Decision would have differed if life-cycle price analysis had been
used: No.
Customer: 8;
1st year price analysis: Southwestern Bell;
Life-cycle price analysis: Southwestern Bell [Check];
Recipient of award: Southwestern Bell;
Decision would have differed if life-cycle price analysis had been
used: No.
Customer: 9;
1st year price analysis: Southwestern Bell;
Life-cycle price analysis: Southwestern Bell [Check];
Recipient of award: Southwestern Bell;
Decision would have differed if life-cycle price analysis had been
used: No.
Customer: 10;
1st year price analysis: Southwestern Bell;
Life-cycle price analysis: Southwestern Bell [Check];
Recipient of award: Southwestern Bell;
Decision would have differed if life-cycle price analysis had been
used: No.
Customer: 11;
1st year price analysis: AT&T;
Life-cycle price analysis: Southwestern Bell[A] [Check];
Recipient of award: Southwestern Bell;
Decision would have differed if life-cycle price analysis had been
used: Cannot predict[A].
Customer: 12;
1st year price analysis: Southwestern Bell;
Life-cycle price analysis: AT&T [Check];
Recipient of award: AT&T;
Decision would have differed if life-cycle price analysis had been
used: No.
Customer: 13;
1st year price analysis: WinStar;
Life-cycle price analysis: WinStar [Check];
Recipient of award: WinStar;
Decision would have differed if life-cycle price analysis had been
used: No.
Customer: 14;
1st year price analysis: Southwestern Bell [Check];
Life-cycle price analysis: AT&T;
Recipient of award: Southwestern Bell;
Decision would have differed if life-cycle price analysis had been
used: Yes.
Customer: 15;
1st year price analysis: Southwestern Bell [Check];
Life-cycle price analysis: WinStar;
Recipient of award: Southwestern Bell;
Decision would have differed if life-cycle price analysis had been
used: Yes.
Customer: 16;
1st year price analysis: Southwestern Bell [Check];
Life-cycle price analysis: WinStar;
Recipient of award: Southwestern Bell;
Decision would have differed if life-cycle price analysis had been
used: Yes.
Customer: 17;
1st year price analysis: Southwestern Bell [Check];
Life-cycle price analysis: AT&T;
Recipient of award: Southwestern Bell;
Decision would have differed if life-cycle price analysis had been
used: Yes.
Customer: 18;
1st year price analysis: WinStar [Check];
Life-cycle price analysis: WinStar;
Recipient of award: WinStar;
Decision would have differed if life-cycle price analysis had been
used: No.
Customer: 19;
1st year price analysis: WinStar [Check];
Life-cycle price analysis: WinStar;
Recipient of award: WinStar;
Decision would have differed if life-cycle price analysis had been
used: No.
Customer: 20;
1st year price analysis: Southwestern Bell [Check];
Life-cycle price analysis: AT&T Southwestern;
Recipient of award: Bell;
Decision would have differed if life-cycle price analysis had been
used: Yes.
Source: GAO, GSA.
Note: GAO analysis of GSA data.
Southwestern Bell was the incumbent telecommunications service provider.
Check marks indicate the actual time frame used by GSA to compare
contractor pricing.
Analyses are ordered chronologically by date of first task order award
issued following each associated fair consideration decision.
[A] Fair consideration decision made by GSA based on price and
technical consideration (agency preference).
[End of table]
A secondary inconsistency within fair consideration processes concerned
the use of reconfiguration costs (costs to move, add, or change
telephone lines, services, or features) in contractor price
comparisons. Although these charges are a part of all MAA contracts,
only the Dallas regional office included estimates of these costs in
the MAA price comparisons supporting its fair consideration decisions.
Further, Dallas did not use these charges consistently: they appeared
in only half the price comparisons completed, and they were calculated
in two different ways. (In most cases, GSA staff based estimates on the
assumption that 10 percent of the telecommunications lines ordered
would move locations, add services, or change features during the
course of a year; in two cases, GSA staff assumed that services or
features associated with 25 percent of lines ordered would change
annually.) The reason for the variations in the use of these charges
and in their estimates was not recorded in decision documentation.
Table 4 shows that in 5 of 10 decisions made in Dallas, a different
contractor might have been awarded the task orders if reconfiguration
charges had not been included in price comparisons. (Three of these five
decisions were based on price alone. Two of these decisions were based
on both price and technical considerations, and so we cannot predict the
effect of excluding reconfiguration charges.)
Table 4: Effect of Including Reconfiguration Charges in MAA Contractor
Price Comparisons (Dallas):
Customer: 1;
Actual result, including reconfiguration charge: Southwestern Bell;
Result if reconfiguration charge were not included, Result: AT&T;
Result if reconfiguration charge were not included, Change in outcome:
Yes.
Customer: 2;
Actual result, including reconfiguration charge: Southwestern Bell;
Result if reconfiguration charge were not included, Result: AT&T;
Result if reconfiguration charge were not included, Change in outcome:
Yes.
Customer: 3;
Actual result, including reconfiguration charge: Southwestern Bell;
Result if reconfiguration charge were not included, Result: AT&T;
Result if reconfiguration charge were not included, Change in outcome:
Yes.
Customer: 4;
Actual result, including reconfiguration charge: Southwestern Bell;
Result if reconfiguration charge were not included, Result: AT&T;
Result if reconfiguration charge were not included, Change in outcome:
Unknown[A].
Customer: 5;
Actual result, including reconfiguration charge: AT&T;
Result if reconfiguration charge were not included, Result: AT&T;
Result if reconfiguration charge were not included, Change in outcome:
No.
Customer: 6;
Actual result, including reconfiguration charge: Winstar;
Result if reconfiguration charge were not included, Result: Winstar;
Result if reconfiguration charge were not included, Change in outcome:
No.
Customer: 7;
Actual result, including reconfiguration charge: Southwestern Bell;
Result if reconfiguration charge were not included, Result: AT&T;
Result if reconfiguration charge were not included, Change in outcome:
Unknown[A].
Customer: 8;
Actual result, including reconfiguration charge: Southwestern Bell[B];
Result if reconfiguration charge were not included, Result:
Southwestern Bell;
Result if reconfiguration charge were not included, Change in outcome:
No.
Customer: 9;
Actual result, including reconfiguration charge: Southwestern Bell[B];
Result if reconfiguration charge were not included, Result:
Southwestern Bell;
Result if reconfiguration charge were not included, Change in outcome:
No.
Customer: 10;
Actual result, including reconfiguration charge: Southwestern Bell
Result if reconfiguration charge were not included, Result:
Southwestern Bell;
Result if reconfiguration charge were not included, Change in outcome:
No.
Source: GAO, GSA.
Note: GAO analysis of GSA data.
Southwestern Bell was the incumbent telecommunications service
provider. Comparisons are ordered chronologically by date of first task
order award issued following each associated fair consideration
decision.
[A] Task order awarded based on price and technical considerations.
[B] Analysis used reconfiguration estimate based on 25 percent of
lines. In all other cases, the basis was 10 percent of lines.
[End of table]
These variations exist because GSA has not established a common process
for making fair consideration decisions. GSA did provide guidance on the
fair consideration process to be followed in MAA cities following each
contract award. This guidance provided general background, including the
basis of the requirement in the Federal Acquisition Streamlining Act of
1994; the exceptions to this requirement; and the procedure to be
followed for issuing an MAA task order. However, it did not outline a
common process or identify common costs to be considered other than
contract prices. Rather, according to a GSA official, GSA permitted its
regional offices to define and follow their own fair consideration
processes in order to encourage innovation and to learn which process
yields the best results. However, GSA headquarters has taken no action
that would permit it to learn from any such experiences in order to
address inconsistencies and determine the most suitable process. As a
result, variations occur in the application of the fair consideration
process, contrary to GSA‘s stated interest in ensuring the consistency
of the MAA program.
Further, these variations led to a lack of transparency that could
hinder GSA‘s ability to obtain full value from the fair consideration
process. Specifically, although the MAA contracts outline the fair
consideration procedure in broad terms, they do not outline specific
aspects of the process that vary across MAA cities, such as costs that
may be considered by the government in addition to the price of
services, or the length of time that may be used to compare contractor
prices. Because these aspects of the process are not disclosed, the
contractors may find it difficult to determine their most competitive
offers.
GSA‘s lack of oversight also hampered its ability to ensure that its
fair consideration processes always complied with appropriate federal
acquisition guidelines. Specifically, in six instances GSA violated the
FAR by incorrectly using agency preference as a basis, in part or as a
whole, for selecting a contractor for an MAA task order. According to
this regulation, designating preferred awardees is not permissible in
the award of task orders valued at more than $2,500. For orders that
exceed that threshold, all contractors in a multiple-award contract
must be given a fair opportunity to be considered. However, we
identified six cases in Boston, Dallas, Denver, and Indianapolis where
decisions explicitly cited agency preference as a factor for choosing a
contractor for task orders above the $2,500 threshold. [Footnote 11]
These violations of the FAR were allowed to occur because GSA did not
provide adequate oversight to ensure that staff were correctly applying
regulations when conducting fair consideration processes. As a result,
the integrity of the fair consideration process could not be ensured,
and potential savings were lost. In all six cases the incumbent
provider was selected, which was also the higher priced service
provider; selecting the lowest priced contractor in these cases would
have yielded $76,000 in additional estimated cost savings to those
agencies over the life of the contracts.
Numerous Fair Consideration Decisions Were Not Adequately Documented:
About one-fifth of GSA‘s fair consideration decisions were not
adequately documented. According to the FAR, documentation of all
contractual actions must be maintained in a manner sufficient to
provide a basis for decisions reached in the acquisition process, and
to provide information for subsequent reviews of those decisions.
[Footnote 12] Out of 483 fair consideration decisions from regional GSA
offices in the 11 cities that we assessed, the documentation furnished
for 91 (19 percent) did not adequately support the task order award
that was made.
One or more of the following four weaknesses were present in
documentation for these 91 decisions:
* An explanation of how the fair consideration decision was made was
absent. Although contracting offices are required by the FAR to maintain
documentation sufficient to constitute a complete history of contracting
actions, this documentation was not available in 66 of the 483 decisions
assessed. Specifically, the documentation of decisions reached during
calendar year 2001 in Boston, Denver, Indianapolis, Los Angeles, New
York, and St. Louis did not include a stated rationale for the decisions
reached. As a result, in these cases it is not possible to determine
whether or not the fair consideration decisions reached by GSA were
justified. A GSA program officer stated that a decision rationale was
not prepared for 53 decisions in Los Angeles and St. Louis that were
based on price alone because of a lack of clarity pertaining to
documentation requirements for those cases. She also stated that 5
decisions in New York were not documented because of urgency, as those
decisions were made shortly after the September 11th terrorist attacks
in that city. Further, the GSA program officer stated that a decision
rationale was not prepared for the balance of decisions because of
administrative oversight.
* The price analysis did not support the decision reached. As part of
fair consideration decision making, GSA usually included in each task
order file an analysis that compared the service prices offered by each
contractor over some defined period of time. In Dallas, Denver, and
Indianapolis, eight task order awards were justified by price
comparisons that did not support the decisions reached. Although price
was the sole factor considered in these cases, the lowest priced
contractors, as revealed by the price comparisons, were not awarded
task orders. GSA‘s decision documentation does not explain why these
awards were made to higher priced contractors.
* Technical factors were cited but not supported. According to the
procedure defined in the MAA contracts, fair consideration decisions may
be based on price or on a combination of price, technical factors, and
past performance. How these technical factors are weighted depends on
the particular circumstances of each decision. Technical factors were
cited as the reason for fair consideration decisions, either as a whole
or in part, in four MAA cities: Boston, Dallas, Indianapolis, and New
York. For three of these cities, Boston, Dallas, and Indianapolis, we
were not able to determine how these technical factors were applied to
support a total of 20 decisions. Contract documentation for these 20
decisions included a statement that both price and technical factors
were considered. However, in one case, the specific factor considered
was not identified. In the other 19 cases, the specific technical
factor was identified, but the documentation did not specify how it
supported the decision reached.
* Other documentation weaknesses were identified in Boston.
Documentation prepared to support fair consideration decisions in Boston
contained two additional weaknesses. In three cases, the decision
documentation suggests that not all MAA contractors were included in
those fair consideration evaluations, but it does not indicate why not
all contractors were considered. Further, the documentation in three
other decisions indicates that price was not considered in these cases,
although price must be considered in all fair consideration decisions.
In three regional offices, GSA has taken some action to improve its fair
consideration documentation. Specifically, in response to concerns that
we initially raised during our prior review of early MAA contract
implementation efforts, [Footnote 13] GSA improved its decision
documentation in Cleveland and Indianapolis by including additional
analyses and clarifying memorandums in those contract files. In
addition, Denver staff have also taken action to correct their files.
Nevertheless, GSA has yet to take nationwide action to improve its fair
consideration documentation. Currently, weak documentation of fair
consideration decisions makes it difficult to determine the basis upon
which a contractor was selected for a task order. These problems were
permitted to occur because GSA did not establish uniform guidelines to
ensure that all regional offices were documenting fair consideration
decisions in a manner consistent with the FAR. As a result, in 19
percent of the cases we reviewed, GSA, customer agencies, MAA
contractors, and the Congress do not have assurance that the procedure
followed by GSA to award MAA task orders was properly applied.
Use of Requests for Quotations Produced Mixed Results, but Limited Data
Preclude a Thorough Evaluation:
In MAA multiple-award cities, GSA attempted to reduce the cost of
telecommunications services by asking contractors to submit price
quotations to compete for task orders. However, the process had mixed
results in the only MAA city in which we could do a partial evaluation.
(We could not do a comprehensive evaluation because of limitations in
documentation.) For acquiring some types of services, substantial
savings were realized by the use of Requests for Quotations (RFQ), but
for others, the savings were not sufficient to offset the cost of
paying pre-MAA prices during the time taken to complete the process.
GSA‘s most common approach to selecting contractors for task orders was
to issue an RFQ, rather than basing decisions on published contract
prices alone: specifically, GSA followed this process in 347 out of the
394 decisions reached in the 11 MAA cities in which fair consideration
processes were conducted. [Footnote 14] Of the 11 cities, GSA issued
RFQs to support fair consideration in 8. (In the 3 other cities”Boston,
Los Angeles, and St. Louis”the documentation was not sufficient to
determine whether GSA issued RFQs.) Denver was the only city, of the 11
reviewed, where GSA staff documented their actions while reaching most
fair consideration decisions. As a result, Denver was the only city
where we could make an assessment (although still partial[Footnote 15])
of the cost-effectiveness of the RFQ process. We were not able to
comprehensively evaluate the cost-effectiveness of the RFQ process
across all 11 MAA cities, or to partly assess processes in any other
city, because the documentation maintained was not sufficient for that
purpose.
Despite their limitations, data available on the RFQ process in Denver
indicate substantial differences in savings realized, depending on the
types of local telecommunications services acquired; therefore, this
process may not be cost-effective for acquiring all types of local
telecommunications services. GSA used its MAA contracts in Denver to
acquire two types of services: one type is a large telephone line,
known as a trunk, which is used to interconnect a customer-owned
switch, called a private branch exchange (PBX), [Footnote 16] to the
contractor‘s network; the second type is a voice telephone line served
by a switch that is owned and operated by the contractor. According to
our evaluation of Denver‘s records for 119 fair consideration decisions
[Footnote 17] that preceded award of task orders for these two types of
services, the benefit of the RFQ process (over the life of the
contracts) varied between the two. Specifically, in five of the eight
cases where GSA sought to buy PBX trunks, the MAA contractor waived or
reduced service initiation charges, reduced its monthly recurring cost,
or both (no additional benefits were derived by this process in the
three other cases). For PBX services, the net savings were
substantial”an estimated $790,000. [Footnote 18]
In contrast, for switched voice services, the benefits of using the RFQ
process were less substantial, and the available data suggest that they
were not sufficient to offset the savings deferred while the process was
completed. In 23 of 111 cases, additional cost or price reductions were
obtained in the form of waived or reduced service initiation charges
that did offset the value of savings deferred. However, in 88 cases,
the benefit realized did not offset the deferred savings. Thus, using
the RFQ process to acquire all switched voice services instead of
taking immediate advantage of low MAA contract prices was not cost-
effective.
GSA was not able to maximize the value of the RFQ process for the
benefit of its customers, however, because it did not institute
performance measures that would allow it to gauge cost-effectiveness
and determine where the RFQ process would be most suitable for
acquiring local telecommunications services, or that would aid in
identifying where its processes could be improved. Furthermore, because
adequate documentation of fair consideration decisions was not
maintained throughout this program, GSA does not have the data it would
need to evaluate its processes throughout its MAA cities and to make
improvements. As a result, GSA is unable to direct the most suitable and
cost-effective use of the RFQ process in the administration of its MAA
contracts.
Conclusions:
Inconsistencies in GSA‘s process and practices for determining how it
awards MAA task orders to its contractors are hampering its ability to
appropriately administer these contracts; because these inconsistent
processes are not transparent, contractors may not be able to compete
most effectively. In addition, weaknesses in documenting fair
consideration decisions and inadequate oversight of the process
undermine GSA‘s ability to assure customer agencies, MAA contractors,
and the Congress that the procedures it followed to award MAA task
orders were always appropriately and fairly applied. Further, because it
did not establish measures that would enable it to learn from the fair
consideration experiences in its regional offices, GSA was unable to
gauge the cost-effectiveness of RFQ processes so that it could make the
most suitable and effective use of RFQs to acquire local
telecommunications services. As a result, GSA cannot provide assurance
that its MAA fair consideration processes are sound, and that they
provide the government the maximum benefit from the MAA contracts.
Recommendations for Executive Action:
We recommend that the Administrator of General Services establish a
common process for GSA to consistently follow in reaching its fair
consideration decisions under the MAA contracts, and that he direct the
FTS Commissioner to oversee the proper application of this process. This
common process should include a uniform time frame for comparing MAA
contractor prices, and it should specify the cost elements (such as
reconfiguration costs) to be considered in those comparisons. Should
local conditions warrant deviation from this common process, we
recommend that GSA document these deviations and communicate them
to GSA‘s MAA contractors, so that all MAA stakeholders have a clear and
consistent understanding of the process being followed. This process
should include the management oversight necessary to ensure adherence
to the FAR prohibition against the use of agency preference in decisions
on task orders valued at more than $2,500.
We also recommend that the Administrator of General Services direct the
FTS Commissioner to establish and apply uniform guidelines for
documenting fair consideration decisions that are sufficient to ensure
that GSA appropriately reaches its decisions to award task orders. For
each fair consideration decision, this documentation should include:
* the rationale for the decision;
* the supporting contractor price comparison; and;
* support for other factors considered in reaching the decision, such as
technical and past performance considerations, as appropriate.
We further recommend that the Administrator of General Services direct
the FTS Commissioner to develop performance measures to determine when
the RFQ process best achieves program goals. Once GSA has outcomes for
these measures, it should evaluate the results of its RFQ process to
identify potential improvements and to determine its most suitable and
cost-effective use.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, the Administrator of
General Services agreed with our recommendations and indicated that GSA
was acting to implement them. Specifically, GSA has created draft
guidance on its fair consideration process under MAA procurements, and
it plans to disseminate this guidance to all its FTS regional offices
by April 11, 2003. According to the Administrator, this guidance
addresses all our recommendations and will ensure consistency in the
fair consideration process and supporting documentation. GSA also
provided technical comments that we have incorporated into this report
as appropriate. GSA‘s written comments are presented in appendix III.
As agreed with your office, unless you publicly announce the contents of
this report earlier, we will not distribute it until 30 days from its
issue date. At that time, we will send copies of this report to the
Ranking Minority Member, Committee on Government Reform, and interested
congressional committees. We will also send copies to the Director of
the Office of Management and Budget and the Administrator of the
General Services Administration. Copies will be made available to
others on request. In addition, this report will be available at no
charge on our Web site, at [hyperlink, http://www.gao.gov].
Should you or your staff have any questions on matters discussed in this
report, please contact me at (202) 512-6240. I can also be reached by
Email at koontzl@gao.gov. Other key contributors to this report are
Scott Binder, Harold Brumm, Barbara Collier, Kevin E. Conway, Frank
Maguire, Mary Marshall, Charles Roney, and Michael Stiltner.
Sincerely yours,
Signed by:
Linda D. Koontz:
Director, Information Management Issues:
[End of section]
Appendix I: Termination Charges and Service Initiation Charges:
At your request, we evaluated the effect of contract termination charges
and contract service initiation charges (SIC) [Footnote 19] on the
results of fair consideration decisions for awarding task orders in
cities with multiple-award Metropolitan Area Acquisition (MAA)
contracts. Under acquisition contract law, agencies are permitted to
consider termination charges and SICs in contract award decisions.
Our analysis of termination charges showed that they had minimal impact
on fair consideration decisions. The General Services Administration
(GSA) included these charges in 16 contract price comparisons in Dallas,
the only city in which they were relevant. [Footnote 20] Termination
charges had a direct effect on 5 of 16 fair consideration decisions; in
other words, those 5 decisions might have resulted in an award to
another contractor if Dallas had not included the termination charges
as part of its contract price comparisons. [Footnote 21]
Our analysis of SICs showed that they were included as a cost factor in
GSA‘s fair consideration price comparisons in 7 of 11 MAA cities:
Boston, Cleveland, Dallas, Indianapolis, Minneapolis, New York, and
Philadelphia. In these 7 cities there were 272 fair consideration
decisions that included SICs in price comparisons, and SICs were a
deciding factor in 61 of these decisions. That is, if SICs had not been
part of GSA‘s analyses, the award decision would have been issued to
another contractor in 22 percent of those decisions. SICs did not
affect more decisions primarily because of the period of time used in
comparing contractor prices. In 90 percent of fair consideration
decisions where SICs were identified as a cost factor, GSA used the
contract life-cycle period as the evaluation time frame. When SICs were
amortized over the life of the contract, these charges were usually not
large enough to influence fair consideration decisions.
For the balance of the decisions, SICs were not included in price
comparisons, the treatment of SICs could not be determined, or cost
comparisons were not completed:
* In all 44 decisions in Los Angeles and in 9 decisions in Boston, no
SICs were included in fair consideration price comparisons.
* Contract price comparisons were not completed to support four fair
consideration decisions in Boston, one in Philadelphia, and one in
Atlanta, because only one MAA contractor was responsive to their RFQs. A
contractor price comparison was also not completed to support one fair
consideration decision in New York City, where the award was based on
the urgency of the requirement.
* In all nine decisions in St. Louis, seven decisions in Boston, five
decisions in New York City, and two decisions in Indianapolis, we could
not determine whether SICs were used in making fair consideration
decisions because the documentation was not sufficient to permit us to
make that determination.
In the remaining MAA city, Denver, SICs were not included in comparisons
of contractor prices; only monthly recurring charges were included for
comparison purposes. However, in 22 of its 128 price comparisons in
Denver, GSA did cite the value of SICs in recommending that task order
awards be made to contractors with a higher monthly recurring cost for
services, because the agency could save more money over the contract
life; we verified the accuracy of those analyses. To show the total
cost of the MAA service in those cases where the recommended contractor
charged SICs, GSA staff in Denver disclosed these charges as a separate
item in the decision results presented to customer agencies. This
disclosure was an amortization analysis indicating the time that it
would take for monthly MAA contract savings to amortize that one-time
cost.
[End of section]
Appendix II: Objectives, Scope, and Methodology:
In our review of the Metropolitan Area Acquisition (MAA) contracts
managed by the General Services Administration (GSA), our objectives
were to determine (1) whether GSA‘s fair consideration process varies
within or among cities, and if so, whether or not variations affect the
process results; (2) whether GSA‘s documentation properly and
appropriately supports its fair consideration decisions; and (3) whether
the use of Requests for Quotations in the fair consideration processes
followed by GSA is cost-effective. We also determined whether contract
termination charges and service initiation charges affected GSA‘s fair
consideration decisions.
We reviewed all fair consideration decisions made by GSA during calendar
year 2001 as part of the MAA contracts‘ service ordering process. To
determine whether there were variations in the fair consideration
process, we reviewed the fair consideration procedure outlined in the
MAA contracts, applicable acquisition guidelines, and GSA Federal
Technology Service guidance and direction on the fair consideration
procedure. Using the decision documentation maintained by the GSA
regional offices, we then reviewed the steps taken by those offices in
conducting their fair consideration processes. We gathered and assessed
documentary and testimonial explanations for variations within or among
MAA regional offices in their fair consideration processes.
To determine whether GSA‘s documentation properly and appropriately
supports its fair consideration decisions, we reviewed appropriate
federal contract administration guidelines including the Federal
Acquisition Regulation (sections 4.801 and 16.505) and Office of
Federal Procurement Policy guidance (May 4, 1999, Memorandum for Agency
Senior Procurement Executives regarding ’Competition and Multiple Award
Task and Delivery Order Contracts“), as well as MAA contract language
outlining the fair consideration procedure. We then reviewed the
documentation maintained by GSA‘s regional offices to support fair
consideration decisions. This documentation included, where available,
contractor price information, GSA‘s analyses that compared contractor
prices, and other memorandums supporting and documenting the decision
process. We also reviewed the task order documentation prepared by GSA
following its fair consideration decision, in order to match the service
ordered with the decision reached.
To determine whether the use of Requests for Quotations (RFQ) in the
fair consideration processes followed by GSA is cost-effective, we
reviewed regional offices‘ documentation to determine whether data were
available that would permit the evaluation of time taken to complete
the fair consideration process. Following our review of the
documentation, we selected Denver as a multiple-award MAA city where
the documentation available was sufficient to permit evaluation of key
aspects of that process, such as determining the approximate time taken
to complete the RFQ process and the benefits derived from that
additional competition. Specifically, we used data regarding the RFQ
issue date and the date when Denver completed its analysis to determine
the time taken to complete that process in the 79 decisions where those
data were available. In the 40 other decisions where data were not
available regarding the complete process (3 cases pertaining to PBX
service and 37 cases pertaining to switched voice services), we assumed
that the process was completed at the same time that GSA received the
final contractor RFQ response. [Footnote 22] We also examined
documentation to determine, for each decision, any additional benefit
realized as a result of the RFQ process, such as lowered monthly prices
or waived or reduced service initiation charges. Where data were
available to determine whether the value of benefits derived from the
RFQ process justified the time required to complete that process, we
compared pre-MAA prices for services with MAA prices, in order to
calculate a baseline savings provided by the MAA contracts. We then
evaluated the cost of the RFQ process exclusively in terms of the
monthly savings that were deferred until the fair consideration process
was completed. We did not include the labor cost expended by GSA or its
MAA contractors in completing this process.
To determine the effect of contract termination charges and service
initiation charges on fair consideration decision results, we reviewed
the price comparisons that were prepared by GSA regional offices. Where
applicable, we calculated prices for services with and without these
additional charges to determine whether the decision supported was
influenced by these charges.
We conducted our review from May 2002 through February 2003, in
accordance with generally accepted government auditing standards.
[End of section]
Appendix III: Comments from the General Services Administration:
GSA Administrator:
U.S. General Services Administration:
1800 F Street, NW:
Washington, DC 20405-0002:
Telephone: (202) 501-0800:
Fax: (202) 219-1243:
[hyperlink, http://www.gsa.gov]:
March 31, 2003:
The Honorable David M. Walker:
Comptroller General of the United States:
General Accounting Office:
Washington, DC 20548:
Dear Mr. Walker:
Thank you for the opportunity to respond to the General Accounting
Office (GAO) draft report entitled: "GSA Needs to Improve Process for
Awarding Task Orders for Local Services." The report addressed three
primary areas: whether GSA's implementation of the fair consideration
process is consistent, the effect of any inconsistency, and the
adequacy of GSA's documentation to support the decisions reached.
Prior to responding to the recommendations, I would like to outline
some significant factors that impacted our efforts as we undertook the
implementation of the Metropolitan Area Acquisition (MAA) program. The
MAA program broke new ground in that it was the first full-scale
implementation in the deregulated competitive telecommunications
marketplace; therefore, it was the first true multi-vendor environment
in the local telecommunications arena. This environment was new for the
Federal Technology Service (FTS), our customers, and our industry
partners. It created the need for significant process changes over the
pre-MAA environment. The application of fair consideration in the
service order process was a significant operational change. GSA has
learned a great deal as we have worked through the myriad of issues we
faced in this new environment, and we have ongoing efforts underway to
continue to improve our management of this program.
Overall, I agree with the GAO recommendations and will implement
additional actions to improve our program. In response to the
recommendation regarding the establishment of a common process for GSA
to consistently follow in reaching its fair consideration decisions
under the MAA contracts, GSA has implemented corrective measures. The
GSA MAA Program Management Office has created a document entitled
"Guidance for Fair Consideration under the Metropolitan Area
Acquisition Procurements," which will be disseminated to all FTS
regional offices no later than April 11, 2003. The guidance addresses
all elements of each recommendation. This guidance will ensure
consistency in the fair consideration process and in supporting
documentation.
Regarding the six instances cited in your report where "GSA violated
the Federal Acquisition Regulation (FAR) by incorrectly using agency
preference as a basis...for selecting a contractor for an MAA task
order," there often is an acceptable underlying reason for a customer
to request a particular service provider, however, it may not be
properly articulated and reflected in documentation. We are confident
that the aforementioned guidance, which specifically reminds our
organizational components that agency preference cannot be a criterion
for an award, will ensure future FAR compliance.
I agree with the GAO recommendation regarding the establishment and
application of uniform guidelines for documenting fair consideration
decisions. The aforementioned fair consideration guidance outlines the
documentation requirements for all decisions. The guidance addresses
all elements of this recommendation and will ensure uniformity and
thoroughness of documentation as we move forward in the MAA program.
The MAA Request for Proposal and early implementation documents did not
clearly state the documentation requirements for decisions that were
solely based on lowest contract price. For this reason, approximately
40 percent of the decisions cited in your report were inadequately
documented but were clearly awarded to the lowest cost service
provider. The guidance specifically addresses the documentation
requirements for decisions based solely on lowest contract price.
I also agree with the GAO recommendation regarding the value of
determining when the Request-for-Quote (RFQ) process best achieves
program goals. We have begun an initial assessment to identify and
summarize the conditions for which an RFQ would produce the most
favorable results. Upon completion of this assessment, we will
determine appropriate guidance to be disseminated to the FTS regional
offices that addresses the RFQ process. In the interim, the fair
consideration guidance document advises regional officials to assess
the cost/benefit of the RFQ process prior to issuance.
In conclusion, Ms. Sandra N. Bates, Commissioner, Federal Technology
Service, and I want to thank the GAO Review Team for their
professionalism and their recommendations. The depth of the review and
the willingness of the GAO Review Team to delve below the surface of
issues have contributed to the continued success of the MAA program. As
we approach 100 percent MM transition completion, we are very proud of
the MAA program and the many benefits it has brought to our Federal
customers.
Sincerely,
Stephen A. Perry:
Administrator:
[End of section]
Footnotes:
[1] Requests for Quotations are used in acquisitions to communicate
government requirements to prospective contractors and to solicit
quotations from them regarding price and other factors. In this report,
the term ’Request for Quotations“ refers to a request from GSA to MAA
contract vendors for price and other information. These Requests for
Quotations are authorized by section G.2.1, ’Service Price Quotes,“ of
the MAA contract, as follows: ’The contractor shall provide price
quotes for specific services and features when requested by the GDR or
ADR prior to submitting a service order request. The price quote shall
identify all recurring and nonrecurring charges, the service
availability date, the date when the price quote will become
nonbinding, and appropriate technical information that describes the
service.“
[2] Consistent with the request letter, we use the term ’fair
consideration“ for the task order award process established by the
Federal Acquisition Regulation, Part 16, requiring that each vendor be
accorded ’a fair opportunity to be considered for each order.“
[3] Three of these decisions were made based on price alone, and
therefore would have been directly affected. The two other decisions
were made based on price and technical considerations; it is unclear
from the documentation, however, how the technical considerations
supported those decisions. Therefore, in those two cases, we are unable
to predict whether inclusion of termination charges resulted in a
different choice of contractor.
[4] The MAA service ordering process is outlined in Section G.2 of the
MAA contracts, including the prescribed procedure to give fair
consideration to contractors for task order awards under the contract.
[5] A service initiation charge is a charge to a customer by a
telecommunications provider for the initiation of a new
telecommunications service, such as the installation of a new
telephone line.
[6] Testimony of Sandra Bates, FTS Commissioner, General Services
Administration, before the Subcommittee on Technology and Procurement
Policy (June 13, 2001).
[7] Reconfiguration costs are associated with the need to move, add, or
change telephone lines, services, or features after they have been
installed.
[8] Testimony of Sandra Bates, FTS Commissioner, General Services
Administration, before the Subcommittee on Technology and Procurement
Policy (June 13, 2001).
[9] Although Denver used a 1-month price comparison period for 83
percent of its fair consideration decisions, it also identified life-
cycle cost savings to customer agencies.
[10] In 16 of 20 cases, GSA cites price and technical considerations as
the basis for its decisions.
[11] We identified two additional cases in Boston citing agency
preference as a factor; however, because adequate documentation was not
maintained, we are unable to determine what services were ordered and
therefore whether those decisions breached the $2,500 threshold.
[12] Contract documentation requirements are outlined in section 4.801
of the FAR. The FAR and Office of Federal Procurement Policy guidance
require that task order awards be documented adequately in the contract
file to provide a history of the transaction and a complete background
for informed decisions at each step in the acquisition process.
[13] The results of that review were reported earlier: U.S. General
Accounting Office, Telecommunications: GSA Action Needed to Realize
Benefits of Metropolitan Area Acquisition Program, GAO-02-325
(Washington, D.C.: Apr. 4, 2002).
[14] Documentation in 89 cases was not sufficient to determine whether
or not an RFQ process was used.
[15] In general, the complete RFQ process has four segments. In the
first segment, GSA prepares and issues the RFQ to the MAA contractors.
In the second, the contractors prepare and submit their RFQ responses.
In the third, GSA reviews and accepts the RFQ responses. Finally, GSA
compares contractor prices and awards task orders. The documentation in
40 of 121 cases in Denver was not sufficient to allow a complete
assessment, because it did not permit us to determine the time it took
to complete all discrete segments of the process, such as the time to
compare contractor prices, which would be essential to a complete
assessment. Because of this limitation, we could not comprehensively
evaluate this process, nor can we present results in precise terms. In
2 of the 121 decisions, sufficient data were not available to permit
any analysis. The available data for the other 119 decisions do
suffice, however, to permit general observations. Additional
information on our methodology is disclosed in appendix II.
[16] A private branch exchange (PBX) is a communications switching
system serving an organization and normally located on the
organization‘s premises.
[17] Denver made 128 fair consideration decisions, but they issued RFQs
to contractors in only 121 of those decisions. In 2 of those 121
decisions, sufficient data were not available to permit any analysis.
[18] To estimate net savings, we identified those fair consideration
decisions where the government benefited either through waived or
reduced service initiation charges or through further reductions in
contract pricing, and we estimated the total value of these benefits.
In all cases, we then estimated the value of monthly savings deferred
until the RFQ process was completed. We evaluated the difference
between these two figures to determine the net cost or net savings
associated with the RFQ process. In 40 of the 119 decisions evaluated,
complete data were not available regarding the final segment of this
process (3 cases pertaining to PBX service and 37 cases pertaining to
switched voice services). In those cases, we assumed that the process
was completed at the same time that GSA received the final contractor
RFQ response. Because this assumption may reflect a shorter time period
than use of an actual process completion date for these cases, the
effect of this assumption is to minimize the value of savings deferred,
and as a result, our estimates may overstate the potential net savings
and may understate any potential net loss. The value of net savings is
expressed in constant year 2001 dollars.
[19] Service initiation charges are charges to a customer by a
contractor for the initiation of a new telecommunications service, such
as the acquisition of a new line or a new feature.
[20] Contract termination charges were a factor in Dallas because
termination charges were part of a Southwestern Bell Aggregated Switch
Procurement (ASP) contract that was awarded before the MAA contracts.
That contract imposes a $25.90 charge to disconnect each line from the
ASP service when the customer transitions to a contractor other than
Southwestern Bell. (Specifically, the contract identifies a charge of
$19.92 per line. After applying its surcharge to that amount, GSA
charges the agency a disconnect charge of $25.90.)
[21] Three of these decisions were based on price alone, and two were
based on price and technical considerations. It is unclear from the
decision documentation, however, how technical considerations supported
these decisions.
[22] Because this assumption may reflect a shorter time period for
these cases, the effect of this assumption is to minimize the time
taken to complete the RFQ process, and therefore the value of savings
deferred during that period. As a result, our estimates may overstate
the potential net savings and may understate any potential net loss.
[End of section]
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