IRS Contracting: New Procedure Adds Price or Cost as a Selection 
Factor for Task Order Awards (10-DEC-02, GAO-03-218).		 
                                                                 
The Internal Revenue Service (IRS) is in the midst of a massive  
effort to reorganize its structure and modernize its technology. 
To help with this effort, IRS obtains services through task	 
orders under its Treasury Information Processing Support Services
(TIPSS-2) contracting program. In this study, GAO reviewed the 6 
largest competitive task orders that IRS awarded between July 1, 
2001 and December 31, 2001 to determine if IRS used price or cost
as a selection factor in the award of these task orders.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-218 					        
    ACCNO:   A05700						        
  TITLE:     IRS Contracting: New Procedure Adds Price or Cost as a   
Selection Factor for Task Order Awards				 
     DATE:   12/10/2002 
  SUBJECT:   Contracts						 
	     Federal agency reorganization			 
	     Information technology				 
	     Federal procurement				 
	     Treasury Information Processing Support		 
	     Services Program					 
                                                                 

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GAO-03-218

Report to the Chairman and Ranking Minority Member, Committee on Finance,
U. S. Senate

United States General Accounting Office

GAO

December 2002 IRS CONTRACTING New Procedure Adds Price or Cost as a
Selection Factor for Task Order Awards

GAO- 03- 218

TIPSS- 2 is IRS*s largest service contracting program, obligating $543
million to 18 contracts from its beginning in June 2000 to June 20, 2002.
Through the award of TIPSS- 2 task orders, IRS obtains needed services in
the areas of information systems, telecommunications, organizational/
management, and operational support. IRS can continue ordering services
under TIPSS- 2 contracts into 2005.

GAO found that IRS*s procedures used in the award of competitive task
orders under the TIPSS- 2 program did not require contracting officers to
consider price or cost as a selection factor in the award of task orders.
Although contracting officers could have considered price or cost at their
discretion, they did not for 5 of 6 competitive task orders GAO reviewed.

IRS*s procedures conformed to the version of the Federal Acquisition
Regulation (FAR) that was in effect at the time the TIPSS- 2 solicitation
was issued. However, since then the FAR was changed. As the timeline below
explains, TIPSS- 2 procedures conformed to the regulation in effect in
1999, but were not required to conform to the revised regulation.

During our review, IRS developed and implemented a new procedure that
provides for the consideration of price or cost as a selection factor for
competitive task order awards. Additionally, the TIPSS- 2 contract was
changed to state that price or cost is a selection factor in the award of
competitive task orders.

Timeline of TIPSS- 2 program and policy events Date Item Significance

August 1999 Federal Acquisition Regulation (FAR)

Contracting officers should consider price or cost as a selection factor,
but are not required to. September 1999 TIPSS- 2 program

solicitation Timing of solicitation issuance places TIPSS- 2

under August 1999 regulation. April 2000 Revised FAR Contracting officers
must consider price or cost as

a selection factor. Source: GAO*s analysis. IRS CONTRACTING

New Procedure Adds Price Or Cost as a Selection Factor for Task Order
Awards

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 218. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Michael Brostek, Director, Tax Issues, at (202) 512-
9039 or brostekm@ gao. gov . Highlights of GAO- 03- 218, a report to the

Senate Committee on Finance

December 2002

The Internal Revenue Service (IRS) is in the midst of a massive effort to
reorganize its structure and modernize its technology. To help with this
effort, IRS obtains services through task orders under its Treasury
Information Processing Support Services (TIPSS- 2) contracting program. In
this study, GAO reviewed the 6 largest competitive task orders that IRS
awarded between July 1, 2001 and December 31, 2001 to determine if IRS
used price or cost as a selection factor in the award of these task
orders.

Page i GAO- 03- 218 IRS Contracting Letter 1

Results in Brief 2 Background 3 Scope and Methodology 3 TIPSS- 2 Task
Orders Were Awarded Using Procedures That Did

Not Require Considering Price or Cost as a Selection Factor 4 Conclusions
8 Agency Comments and Our Evaluation 8

Appendix I Information on IRS*s and the Federal Government*s Contract
Obligations for Fiscal Years 1995 Through 2001 10

Appendix II Comments from the Internal Revenue Service 17

Tables

Table 1: Competitive Selection Process Used, June 2000 through June 20,
2002 5 Table 2: Selection Factors and Obligations for Competitive Task

Orders 6 Table 3: IRS Contract Obligations by Service Category for Fiscal

Year 2001 14 Table 4: IRS Contract Obligations by Supplies and Equipment

Category for Fiscal Year 2001 15 Table 5: Total IRS TIPSS- 2 Obligations
by Contractor from June

2000 through June 2002 16

Figures

Figure 1: IRS Contract Obligations for Fiscal Years 1995 through 2001 10
Figure 2: Total Federal Government Contract Obligations for Fiscal

Years 1995 Through 2001 12 Figure 3: Comparison of IRS to Total Federal
Government Contract

Obligations on a Percentage Basis, Fiscal Years 1995 through 2001 13
Contents

Page ii GAO- 03- 218 IRS Contracting Abbreviations

FAR Federal Acquisition Regulation FASA Federal Acquisition Streamlining
Act of 1994 FPDS Federal Procurement Data System IRS Internal Revenue
Service RFI request for information TIPSS Treasury Information Processing
Support Services

Page 1 GAO- 03- 218 IRS Contracting

December 10, 2002 The Honorable Max Baucus Chairman The Honorable Charles
E. Grassley Ranking Minority Member Committee on Finance United States
Senate

The Internal Revenue Service (IRS) is in the midst of a massive and
multifaceted effort to reorganize its structure and modernize its
technology. Reorganization and modernization is intended to lay the
foundation for IRS to respond to taxpayers faster and more accurately. To
help with this effort, IRS obtains needed services through contracts that
were awarded under its Treasury Information Processing Support Services
(TIPSS- 2) program. TIPSS- 2 is a multiple award, task order contracting
program through which 18 contractors provide IRS with information systems,
telecommunications, organizational/ management, and operational support
services under 18 contracts. Successor to a similar program called TIPSS,
TIPSS- 2 covers contracts awarded in 2000 under which task orders can be
issued until 2005. Once IRS identifies a need for services, it can ask the
contractors to compete for the specific task or, if a statutory exception
applies, 1 it can award the task on a sole- source basis. From the
beginning of the program in June 2000 through June 20, 2002, IRS obligated
$543 million to TIPSS- 2 contracts.

Given the importance of these services to the management and
administration of the tax system and a change in the Federal Acquisition
Regulation (FAR) regarding the consideration of price or cost that
occurred after the TIPSS- 2 solicitation was issued, you asked us to
provide information on whether IRS used price or cost as a selection
factor in TIPSS- 2 task order awards and how its use of these factors
compares to federal contracting regulation. You also asked us to provide
information on IRS*s overall contracting and how IRS*s data compare with
governmentwide contracting. These data appear in appendix I. To report

1 Exceptions for sole- source awards involve unusually urgent needs;
unique or highly specialized requirements; the promotion of economy and
efficiency because the order is a logical follow- on to a previous order;
and satisfaction of a required minimum guarantee amount. 41 U. S. C. 253j(
b).

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 03- 218 IRS Contracting

on IRS*s use of price or cost as a selection factor, we reviewed IRS*s
procedures for issuing task orders under TIPSS- 2 and federal policy on
task order competitions and interviewed IRS officials. To provide data on
contracting trends, we obtained data from the Federal Procurement Data
System (FPDS) and from IRS*s TIPSS- 2 program office.

At the time of our review, IRS*s procedures for issuing competitive task
orders under the TIPSS- 2 contracts did not require contracting officers
to consider price or cost in selecting a contractor. Under these
procedures, contracting officers could have considered cost or price if
they chose to do so. We reviewed the six largest competitive task orders
awarded in the final 6 months of calendar year 2001 and found that
contracting officers did not consider price or cost as a selection factor
for five of the six task orders.

IRS*s procedures and the task orders we reviewed conformed with the FAR
that was applicable at the time the TIPSS- 2 solicitation was issued. That
version of the FAR stated that price or cost should be considered as a
selection factor but did not specifically require consideration of price
or cost. After the solicitation was issued, the FAR was revised to state
that price or cost must be considered as a selection factor for awarding
task orders under contracts awarded through solicitations issued on or
after April 25, 2000. Therefore, TIPSS- 2 is covered by the earlier
version of the FAR which states that contracting officers should consider
rather than must consider price or cost as a selection factor.

During our review, IRS developed and implemented a new TIPSS- 2
competitive procedure that provides for the consideration of price or cost
as a selection factor. Additionally, IRS modified the TIPSS- 2 contract so
that cost will be a selection factor in the award of competitive task
orders. In a November 27, 2002, letter, the Acting Commissioner of
Internal Revenue generally agreed with the observations in our draft
report but said that our recommendation to make IRS*s procedure final was
unnecessary because new procedures have been adopted. Since IRS finalized
its procedure for including price or cost as a selection while developing
its comments on our draft report, we agree the recommendation is no longer
necessary and have revised the report accordingly. Results in Brief

Page 3 GAO- 03- 218 IRS Contracting

TIPSS- 2 is IRS*s largest service contracting program. Through 18 task
order contracts, IRS obtains needed services in four broad areas: (1)
information systems, (2) telecommunications, (3) organizational/
management, and (4) operational support. Information systems covers
software, security, training, and quality assurance. Telecommunications
includes network traffic and trend analysis, systems design, and related
disciplines. Organizational/ management involves business process
reengineering, process analysis, and project management support. Last,
operational support relates to main frames, personal computers, local area
networks, file servers, installation, and training and help desk support.

To determine whether IRS used price or cost as a selection factor in the
issuance of TIPSS- 2 task orders, we first obtained and reviewed IRS*s
TIPSS- 2 contract and award procedures. For each of the three procedures
for competitive task orders under TIPSS- 2, we also obtained data on the
frequency with which each procedure was used in issuing TIPSS- 2 task
orders from the beginning of TIPSS- 2 in June 2000 through June 20, 2002.

Second, from the 51 task orders that IRS issued between July 1 and
December 31, 2001, we selected the six competitive task orders that had
the largest dollar value obligations. These six task orders had $21.4
million obligated and represented 29 percent of dollar obligations for the
period. 2 We selected the last 6 months of calendar year 2001 as our
universe because that was the most recent data available at the time of
our work. We reviewed documentation for these six awards to determine the
extent that IRS considered price or cost as a selection factor.

Third, we discussed the task order award process with TIPSS- 2 program
office staff and IRS contracting officials responsible for the TIPSS- 2
program. We did not assess whether there would be an impact resulting from
contracting officers considering price or cost as a selection factor for
awarding task orders.

To compare IRS*s procedures for awarding task orders under TIPSS- 2 with
federal contracting policy, we reviewed applicable laws and regulations

2 Although these task orders account for a large value, we cannot project
our findings to the overall TIPSS- 2 contracts because it is a judgmental
sample. Background

Scope and Methodology

Page 4 GAO- 03- 218 IRS Contracting

and analyzed how IRS*s procedures compared to the requirements in them.

At your request, we limited our work to the price or cost issue because of
its importance to the task order selection process and because of a change
in the FAR since the issuance of the TIPSS- 2 solicitation that now
requires consideration of price or cost as a selection factor.

To compile the contracting information found in appendix I, we obtained
data from FPDS and from IRS*s TIPSS- 2 program office. We discussed these
data with officials in IRS*s TIPSS- 2 program office. Our analysis uses
current dollar obligations for the year in which funds were obligated. We
did not apply any index to normalize the obligated amounts.

Our work was performed between May and November 2002 in accordance with
generally accepted government auditing standards.

At the time of our review, IRS*s competitive procedures for awarding task
orders under the TIPSS- 2 contracts did not require contracting officers
to consider price or cost in selecting a contractor. Contracting officers
could have considered price or cost at their discretion but did not for
five of six large task orders that we reviewed. IRS*s TIPSS- 2 procedures
conformed with the applicable federal regulation at the time the TIPSS- 2
solicitation was issued. However, that regulation was revised after the
issuance of the TIPSS- 2 solicitation to state that price or cost must be
considered for the award of task orders issued under contracts that were
awarded through solicitations issued on or after April 25, 2000.

For the competitive task order awards we reviewed, the TIPSS- 2 contract
stated that selection factors may include, but are not limited to, such
factors as past performance, quality of deliverables, cost control, price,
cost, or other factors that the contracting officer believes are relevant
to the task order. In addition, the contract stated that the contracting
officer shall select one of the following three procedures, or any
combination of these procedures, for any requirement under the contract.
As described in the contract and program documents, the three procedures
are:

 Standard: generally used for relatively simple, low dollar value items.
Contracting officers make a selection from an assessment of some or all of
the selection factors listed above. TIPSS- 2 Task Orders

Were Awarded Using Procedures That Did Not Require Considering Price or
Cost as a Selection Factor

Page 5 GAO- 03- 218 IRS Contracting

 Request for information (RFI): generally used for items of moderate
complexity and estimated dollar value. The RFI is sent to all contractors
qualified to provide services under a task area, and the selection is
based on go/ no- go or pass/ fail factors stated in the RFI. If more than
one competitor meets all factors, the contracting officer makes the
selection using the Standard procedure mentioned previously.

 Best value: generally used for complex items with higher dollar
estimates. Formal proposals will usually be requested and more formal
source selection factors may be used. The TIPSS- 2 contract states that
price competition might be warranted for best value acquisitions and that
this methodology may be used in conjunction with an RFI.

TIPSS- 2 competitive procedures did not require that the contracting
officer consider price or cost in selecting a contractor for a task order.
The procedures left the use of price or cost to the discretion of the
contracting officer. Table 1 shows that most competitive task orders from
the beginning of TIPSS- 2 in June 2000 to June 20, 2002, were issued under
the RFI procedure.

Table 1: Competitive Selection Process Used, June 2000 through June 20,
2002 Competitive awards Procedure a Tasks Percent b Obligations

Standard 6 6 $4,351,544 RFI 86 86 $207,893,874 Best value 9 8 $15,039,417
a One task order with obligations of $29,990 was classified as unknown.

b The calculation of the percentages included the one task order that was
classified as unknown and the percentages do not equal 100 because of
rounding. Source: GAO*s analysis of data from IRS.

IRS had developed internal standard selection factors for the RFI
procedure, including: (1) demonstrating work similar in type and scope as
the task order, (2) demonstrating successful management of similar tasks,
and (3) ability to obtain employees or subcontractors with the special
skills and experience to perform the work.

All six of the competitive task orders we reviewed used the RFI procedure.
On the basis of our review of the task order files, the contracting
officer did not choose to use price or cost as a selection factor in five
of the six task orders. The contracting officer considered price and cost
as a selection factor for the task order in which IRS acquired services
and

Page 6 GAO- 03- 218 IRS Contracting

equipment for its website* The Digital Daily. This task order appears in
the first row of table 2. Table 2 shows the selection factors and the
dollar obligations for the task orders.

Table 2: Selection Factors and Obligations for Competitive Task Orders
Obligations on each task order a Selection Factors

$8,500,000  Completeness in answering all statement of work (SOW) tasks.

 Thoroughness in addressing requirements analysis task in SOW.

 Thoroughness of implementation plan and correlation between plan and
requirements analysis.

 Design and documentation of architecture, operating system, scalability,
and systems support.

 Physical and system security plan.

 Service performance testing procedures.

 Cost and price analysis. $4,495,000  Demonstrates work similar in type
and scope.

 Demonstrates successful management of similar tasks.

 Demonstrates contractor*s ability to obtain employees or subcontractors
based in the Washington D. C., area with special skills and required
experience on date of award. $2,398,363  Demonstrates work similar in
type and scope.

 Demonstrates successful management of similar tasks.

 Demonstrates contractor*s ability to obtain employees with skills and
experience. $2,307,532  Demonstrates work similar in type and scope.

 Demonstrates successful management of similar tasks.

 Demonstrates contractor*s ability to obtain employees or subcontractors.

 Demonstrates ability to adapt new and emerging technologies in
telecommunication and enterprise information processing.

 Demonstrates capability to design, implement, and maintain a security
envelope for telecommunication and enterprise information processing
infrastructure. $1,883,000  Demonstrates understanding and use of
commercial e- learning software and

ability to integrate such into a system.

 Demonstrates successful management of similar tasks.

 Demonstrates the ability to establish a test environment in the
Washington D. C., area. $1,780,590  Demonstrates work similar in type and
scope.

 Demonstrates successful management of similar tasks.

 Demonstrates contractor*s ability to obtain employees or subcontractors
with special skills and required experience. a These obligations include
obligations that were made during our sample period from July 1 through

December 31, 2001. The actual obligations to these task orders may be
higher when they are completed.

Source: GAO*s analysis of data from IRS.

To preserve simplicity and flexibility, the Congress provided contracting
officers with broad discretion to define evaluation and selection
procedures for placing orders. The Federal Acquisition Streamlining Act

Page 7 GAO- 03- 218 IRS Contracting

(FASA) of 1994 3 authorizes the use of multiple award task order contracts
like TIPSS- 2. The FAR further describes the fair opportunity process for
competitive task order awards. The August 1999 version of the FAR,
applicable to the TIPSS- 2 contracts, states that

 contracting officers should consider factors such as past performance on
earlier tasks, quality of deliverables, cost control, price, cost, or
other factors that the contracting officer believes are relevant to the
award of a task order; and

 procedures and selection factors that an agency uses to provide a fair
opportunity to be considered for award must be set forth in the
solicitation and contract. 4

Although the August 1999 FAR language states that agencies should consider
the selection factors listed, including price or cost, agencies were not
required to do so. The solicitation for the award of the 18 contracts
under TIPSS- 2 was issued on September 13, 1999, and fell under these
provisions. Thus, the TIPSS- 2 procedures and the specific task orders we
reviewed are acceptable under the applicable FAR provision. However, the
FAR was changed to state that contracting officers must consider price or
cost as a selection factor for competitive task orders. All multiple award
task order contract programs, like TIPSS- 2, that had solicitations for
contracts issued on or after April 25, 2000, are required to consider
price or cost as selection factors for competitive task orders. 5 Since
the TIPSS- 2 solicitation was issued before April 25, 2000, TIPSS- 2 is
covered by the earlier version of the FAR.

We discussed the lack of price or cost as a standard selection factor in
the task order awards with IRS*s TIPSS- 2 program officials, IRS*s
contracting officials responsible for the TIPSS- 2 program, and IRS
contracting officials responsible for IRS contracting policy. These
officials recognized the benefit of considering price or cost as a
selection factor. During our review, IRS developed and implemented a new
procedure that uses price or cost as a selection factor in competitive
task orders under TIPSS- 2.

3 P. L. 103- 355 (Oct. 13, 1994). 4 FAR 16.505( b)( 1), (3) (FAC 97- 12).
5 FAR 16.505( b)( 1)( ii)( E). See Competition Under Multiple Award
Contracts, 65 Fed. Reg. 24317 (2000).

Page 8 GAO- 03- 218 IRS Contracting

Additionally, the TIPSS- 2 contract was modified so that cost will be a
selection factor in competitive task orders awards.

The competitive task order awards under TIPSS- 2 from its beginning in
June 2000 through June 20, 2002, were awarded using procedures that did
not require price or cost as a selection factor but left this to
contracting officers* discretion. In five of six cases we reviewed,
contracting officers did not use that discretion to consider price or cost
in making selections. Because consideration of price or cost helps
agencies to ensure that they obtain the best value in awarding contracts,
the FAR now requires that price or cost must be used as a selection factor
in awarding task orders. Although this provision does not apply to the
TIPSS- 2 program because the TIPSS- 2 solicitation was issued before the
regulation was effective, the FAR provision applicable to the TIPSS- 2
program states that the contracting officer should consider factors such
as price or cost in awarding a task order. IRS recognized that including
price or cost as a selection factor would improve the task order selection
process and developed and implemented new procedures that consider price
or cost as a selection factor in the award of task orders.

On November 27, 2002, we received written comments on a draft of this
report from the Acting Commissioner of Internal Revenue (see appendix II).
The Acting Commissioner said that IRS generally agreed with the draft
report but believed our recommendation that IRS finalize procedures for
including price or cost as a selection factor was unnecessary.

Specifically, the Acting Commissioner said that IRS*s contracting
officials agreed with our observations in the draft report about the value
of considering price or cost as a selection factor for competitive task
order awards. He explained that, during our review, IRS had taken steps to
include price or cost as a selection factor in TIPSS- 2 task order awards
and that IRS issued its final procedure on November 19, 2002. Since IRS
finalized the procedure while commenting on our draft, we agree that this
action made our recommendation unnecessary, and we deleted it from this
report.

As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from
its issue date. At that time, we will send copies of this report to the
Chairman and Ranking Minority Member of the House Committee on Ways and
Conclusions

Agency Comments and Our Evaluation

Page 9 GAO- 03- 218 IRS Contracting

Means and the Chairman and Ranking Minority Member of the Subcommittee on
Oversight, House Committee on Ways and Means. We are also sending copies
to the Secretary of the Treasury; the Acting Commissioner of Internal
Revenue; the Administrator of Federal Procurement Policy; and other
interested parties. We will make copies available to others on request. In
addition, the report will be available at no charge on GAO*s Web site at
http:// www. gao. gov.

If you have any questions or would like additional information, please
call me at (202) 512- 9039 or Joseph Jozefczyk at (202) 512- 9053. Key
contributors to this report are Michael Kassack, Christine Davis, and
Katherine Davis.

Michael Brostek Director, Tax Issues

Appendix I: Information on IRS*s and the Federal Government*s Contract
Obligations for Fiscal Years 1995 Through 2001

Page 10 GAO- 03- 218 IRS Contracting

The Internal Revenue Service (IRS) contract obligations increased, with
some fluctuation, from about $735 million in fiscal year 1995 to about
$1.4 billion in fiscal year 2001* an increase of almost 86 percent. This
increase, particularly that occurring after 1997, may be at least
partially attributable to the systems and organizational changes resulting
from IRS*s Restructuring and Reform Act of 1998. 1

Figure 1: IRS Contract Obligations for Fiscal Years 1995 through 2001

Note: Only includes funds newly obligated in the given fiscal year. a
Service obligations include funding for TIPSS- 2 contracts task orders
since their inception in June

2000. Source: GAO*s analysis of data from the Federal Procurement Data
System.

1 P. L. 105- 206 (July 22, 1998) Appendix I: Information on IRS*s and the

Federal Government*s Contract Obligations for Fiscal Years 1995 Through
2001

200 300

400 500

600 700

800 900

1000 1100

1200 1300

1400 0 25

2001 2000 1999 1998 1997 1996 1995 Dollars in millions

Services Supplies and equipment

Research and development

$17.0 $23.0 $9.9 $0.0 $0.0 $23.5 $12.0 $392.2 $455.9 $484.6

$767.6 $879.2 $692.7

$787.8 $326.2 $268.9 $175.1

$252.0 $339.7

$289.3 $578.6

Appendix I: Information on IRS*s and the Federal Government*s Contract
Obligations for Fiscal Years 1995 Through 2001

Page 11 GAO- 03- 218 IRS Contracting

Figure 1 also shows that from fiscal years 1995 through 2001, IRS
contracts for services consistently represented the largest proportion of
dollar obligations* increasing from $392.2 million in fiscal year 1995 to
$879.2 million in fiscal year 1999 and declining somewhat to $787.8
million in fiscal year 2001. The overall increase between fiscal years
1995 and 2001 was almost 101 percent. Key services purchased by IRS
include automatic data processing (ADP) and telecommunications;
professional, administrative, and management support; and utilities and
housekeeping.

Total federal government contract obligations grew from $176.2 billion in
fiscal year 1995 to $217.7 billion in fiscal year 2001* an increase of
about 23.6 percent. Figure 2 shows that on a year- to- year basis, total
federal government contract obligations increased every year, with the
exception of fiscal years 1996 and 1997, when obligations decreased by
about 1.3 percent. As with IRS, the purchase of services represented the
largest proportion of federal government contract obligations from fiscal
years 1995 to 2001.

Appendix I: Information on IRS*s and the Federal Government*s Contract
Obligations for Fiscal Years 1995 Through 2001

Page 12 GAO- 03- 218 IRS Contracting

Figure 2: Total Federal Government Contract Obligations for Fiscal Years
1995 Through 2001

Notes: Executive branch only, including IRS. Only includes funds newly
obligated in the given fiscal year.

Source: GAO*s analysis of data from the Federal Procurement Data System.

Figure 3 shows that when compared with total federal government contract
obligations on a proportional basis for fiscal years 1995 to 2001, IRS*s
percentages fluctuate more than they do for the federal government as a
whole. For the total federal government, supplies and equipment contract
obligations only range from a low of 35 percent of the total in fiscal
year 1999 to a high of 37.7 percent in fiscal year 2000. IRS supply and
equipment contract obligations range from a low of 24.5 percent of the
total in fiscal year 1998 to a high of 44.4 percent in fiscal year 1995.
Likewise, total federal government contract obligations for services
ranged from a low of 48.3 percent of the total in 1995, to a high of 52

0 50

100 150

200 250

2001 2000 1999 1998 1997 1996 1995 Dollars in billions

Services Supplies and equipment

Research and development

$27.3 $28.2 $25.8 $26.1 $27.0 $24.6 $23.8 $85.1 $89.0 $89.3 $93.1 $98.0
$105.2 $110.1 $63.8 $64.4 $63.9 $65.4 $65.9

$78.0 $80.6

Appendix I: Information on IRS*s and the Federal Government*s Contract
Obligations for Fiscal Years 1995 Through 2001

Page 13 GAO- 03- 218 IRS Contracting

percent in fiscal year 1999. On the other hand, IRS contract obligations
for service contracts range from a low of 53. 3 percent of the total in
fiscal year 1995 to a high of 74. 6 percent in fiscal year 1998.

Figure 3: Comparison of IRS to Total Federal Government Contract
Obligations on a Percentage Basis, Fiscal Years 1995 through 2001

Source: GAO*s analysis of data from the Federal Procurement Data System.
Notes: Only includes funds newly obligated in the given fiscal year.
Percentages may not add to 100 due to rounding. a The supply and equipment
category includes funds obligated for the purchase of items ranging from

ADP equipment and software; to books, maps, and other publications; and to
office supplies and furniture. b The services category includes funds
obligated for the purchase of services ranging from ADP and

telecommunications; to professional, administrative, and management
support; to transportation, travel, and relocation; and to education and
training.

5 10

15 20

25 30

35 40

45 50

55 60

65 70

75 80

85 90

95 100

0 5

2001 2000 1999 1998 1997 1996 1995 2001 2000 1999 1998 1997 1996 1995 2.3
3.1 0 1.0 1.9 1.2 0

Services b Supplies and equipment a

Research and development c

IRS Total federal government (Executive branch only, including IRS) 15.5
15.5 14.6 14.0 13.1 11.5 12.4

53.3 61.0

73.5 74.6 70.8 69.7 57.7

48.3 49.0 49.8 50.5 52.0 50.8 50.6 44.4

36.0 26.5 24.5 27.3 29.1

42.3 36.2 35.5 35.6 35.5 35.0 37.7 37.0 Percentage

Appendix I: Information on IRS*s and the Federal Government*s Contract
Obligations for Fiscal Years 1995 Through 2001

Page 14 GAO- 03- 218 IRS Contracting

c The research and development category includes funds obligated for any
of the six R& D phases and is classified in areas ranging from agriculture
and defense through transportation, social services, and space. Only a
small proportion of IRS contract obligations were for R& D.

Table 3 identifies the major types of contractual services for which IRS
obligated funds in fiscal year 2001, the most current year for which
complete data are available. IRS*s five largest service contract
categories combined represent about 95 percent of the total service dollar
obligations. Automatic data processing and telecommunications services
alone represented 70.7 percent of the total obligations of about $788
million.

Table 3: IRS Contract Obligations by Service Category for Fiscal Year 2001

Dollars in thousands

Service category Dollars obligated

Automatic data processing and telecommunications services $557,233
Professional, administrative and management support services 98,279
Utilities and housekeeping services 59,410 Maintain, repair, and
rebuilding of equipment 20,543 Education and training services 13,734
Other 38,641

Total $787,840

Source: GAO*s analysis of data from the Federal Procurement Data System.

Table 4 identifies the major types of contractual supplies and equipment
purchases for which IRS obligated funds in fiscal year 2001, the most
current year for which complete data are available. IRS*s contract dollar
obligations for its five largest supply and equipment purchase categories
combined represent about 98.6 percent of the total supplies and equipment
obligations of about $579 million. Contractual obligations for ADP
equipment, software, supplies and support equipment alone accounted for
about 81.2 percent of the total.

Appendix I: Information on IRS*s and the Federal Government*s Contract
Obligations for Fiscal Years 1995 Through 2001

Page 15 GAO- 03- 218 IRS Contracting

Table 4: IRS Contract Obligations by Supplies and Equipment Category for
Fiscal Year 2001

Dollars in thousands

Supplies and equipment category Dollars obligated

Automatic data processing equipment (including firmware), software,
supplies and support equipment $469,836 Communication, detection, and
coherent radiation equipment 90,743 Special industry machinery 5,418
Training aids and devices 2,280 Books, maps, and other publications 1,931
Other 8,365

Total $578,573

Source: GAO*s analysis of data from the Federal Procurement Data System.

Table 5 lists the prime contractors for all 18 of the IRS TIPSS- 2
contracts and the funds that IRS has obligated to each of these
contractors under the TIPSS- 2 program. 2 Earlier in this report, we
discuss our review of six competitive task order awards under IRS*s TIPSS-
2 program. In terms of dollar obligations, Booz, Allen & Hamilton is the
largest of the 18 TIPSS- 2 contractors, with about 34 percent of the total
contract dollars. Systems Research and Applications Corp.; Northrup
Grumman Information Technology, Inc.; and Accenture LLP also have
significant proportions* 10.9 percent, 10 percent, and 9. 2 percent,
respectively.

2 Eighteen TIPSS- 2 contracts were awarded in the mid- 2000 timeframe.
TIPSS- 2 task orders can be awarded through June 2005 and are categorized
in four principal task service areas* information systems,
telecommunications support, organizational management, and operational
support. TIPSS- 2 obligations are classified as ADP and telecommunications
services when reported in the Federal Procurement Data System. As such,
TIPSS- 2 obligations are also included in figures 1, 2, and 3 as a portion
of IRS*s and the federal government*s obligations for services for fiscal
years 2000 and 2001. Likewise, TIPSS- 2 obligations are included as a
portion of the ADP and Telecommunications Services category in table 3 and
as a portion of IRS*s obligations associated with the corresponding
contractors in table 5.

Appendix I: Information on IRS*s and the Federal Government*s Contract
Obligations for Fiscal Years 1995 Through 2001

Page 16 GAO- 03- 218 IRS Contracting

Table 5: Total IRS TIPSS- 2 Obligations by Contractor from June 2000
through June 2002

Dollars in thousands Contractor TIPSS- 2 obligations

Booz, Allen & Hamilton $184,329 Systems Research and Applications Corp.
59,256 Northrop Grumman Information Technology, Inc. 54,318 Accenture LLP
49,984 Science Applications International Corp. 40,412 DynCorp Systems &
Solutions, LLC 34,255 Dynamics Research Corp. 27,664 Unisys Corp. 21,598
Management Systems Designers 18,328 IBM Global Services 13,256 TRW Federal
Enterprises Solutions Division 12,483 Vector Research, Inc. 10,640
Computer & Hi- Tech Management, Inc. 4,794 Dichroma, Inc. 3,385 ITS
Services, Inc. 2,714 Data Source, Inc. 2,673 Electronic Data Systems 1,
944 Pragmatics Corp. 1, 107

Total IRS TIPSS- 2 contract obligations $543,140

Source: IRS*s TIPSS Program Office*s Contract Management System.

Appendix II: Comments from the Internal Revenue Service

Page 17 GAO- 03- 218 IRS Contracting

Appendix II: Comments from the Internal Revenue Service

(440097)

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