Public-Private Mix: Extent of Contracting Out for Real Property
Management Services in GSA (Briefing Report, 05/16/94, GAO/GGD-94-126BR).

Past GAO reports have focused on specific procedural issues relating to
contracting out, such as flaws in individual cost comparisons, job
losses, and related management practices.  GAO has not done a broad
review of whether contracting out of building services has been
beneficial and cost-effective. In fact, the appropriate mix of
government and private sector commercial services remains unclear.  This
briefing report provides historical information on the extent of
contracting out by the General Services Administration and its Public
Buildings Service for real property management services, such as
cleaning and general maintenance of federal facilities, during fiscal
years 1982 to 1992.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-94-126BR
     TITLE:  Public-Private Mix: Extent of Contracting Out for Real 
             Property Management Services in GSA
      DATE:  05/16/94
   SUBJECT:  Federal procurement
             Contract administration
             Contract costs
             Maintenance services contracts
             Procurement procedures
             Procurement evaluation
             Competitive procurement
             Procurement policies
             Cost effectiveness analysis
             Real property
IDENTIFIER:  GSA Federal Procurement Data System
             
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Cover
================================================================ COVER


Briefing Report to the Ranking Minority Member, Subcommittee on
Investigations and Oversight, Committee on Public Works and
Transportation, House of Representatives

May 1994

GSA CONTRACTS - REAL PROPERTY
CONTRACTING IN GSA

GAO/GGD-94-126BR

Real Property Contracting in GSA


Abbreviations
=============================================================== ABBREV

  FPDS - Federal Procurement Data System
  FTE - Full time equivalent position
  GSA - General Services Administration
  MEO - Most Efficient Organization
  NITS - National Inventory Tracking System
  OMB - Office of Management and Budget
  PBS - Public Buildings Service

Letter
=============================================================== LETTER


B-000000

April 29, 1994

The Honorable James M.  Inhofe
Ranking Minority Member
Subcommittee on Investigations
 and Oversight
Committee on Public Works and
 Transportation
House of Representatives

Dear Mr.  Inhofe: 

This report responds to your request that we provide the Subcommittee
with information on the extent of contracting out by the General
Services Administration (GSA) for real property management services,
such as cleaning and general maintenance of federal facilities, over
fiscal years 1982 to 1992.  On April __, we briefed you on the
results of our work.  This report documents the information presented
in that briefing (see app.  I). 

In the past, GAO reports have addressed specific procedural issues
relating to contracting out, such as flaws in individual cost
comparisons, job losses, and related management practices.  We had
not done a broad review of whether the considerable contracting out
of building services has been beneficial and cost-effective.  In
fact, the appropriate mix between government and private sector
provision of commercial services remains unclear.  This report
represents a first step toward meeting the broader objective by
compiling historical information on the extent of contracting out by
GSA and its Public Buildings Service (PBS).  A subsequent report will
provide information on the results of GSA contracting actions using
specific examples from our case file review. 

Background

Federal agencies contract for a substantial amount of services to
help accomplish their missions.  According to the Federal Procurement
Data System (FPDS), the overall dollar level of contracting out by
federal civilian agencies in fiscal year 1992 was $57.3 billion, of
which approximately $44.4 billion was for services.  The Office of
Management and Budget (OMB) has noted that agencies use service
contracts to acquire special knowledge and skills not available in
the federal government, obtain cost effective services, or obtain
temporary or intermittent services, among other reasons. 

Federal contracting covers a great variety of services that may be
provided through either a governmental or commercial source.  As a
general policy, presidential administrations since 1955 have
encouraged federal executive agencies to rely on the private sector
for commercial services.  OMB Circular A-76 establishes the federal
policy on commercial services (referred to in the circular as
commercial activities).\1 The circular specifies cost comparison
procedures for determining when it is more economical to contract out
for services currently done by federal employees.  The A-76 guidance
does not always require a formal cost study for an agency to convert
a commercial service to contract.  OMB and federal agencies maintain
records on the reviews done using A-76 guidance that allow a
comparison of government and contractor cost estimates for providing
the same services. 

Results

Historically, PBS has been a major user of commercial services.  The
FPDS reports that PBS contracted for approximately $2.0 billion worth
of services in fiscal year 1992, including a broad range of real
property management services from architectural and engineering
activities to repairs and maintenance.  The FPDS shows that
maintenance, repair, and alteration of real property and equipment
account for almost 20 percent of the service contract dollars in PBS. 
Only property leases account for a greater percent of aggregate
contracting for services. 

The services most often contracted out were custodial and
maintenance.  The bulk of contracting out occurred before 1985 and
mostly involved the direct conversion of custodial activities.  By
1987, most reviews involved maintenance activities, which were
retained in-house after review almost as often as they were
contracted out. 

Reports generated from GSA's A-76 data base show a total reduction of
4,734 full-time equivalent positions (FTEs) as a result of A-76
reviews from fiscal years 1982 through 1992; PBS accounted for 3,227
FTEs (68 percent) of the reduction.  Although most of the reduction
is attributable to contracting out, about 10 percent can be traced to
staffing changes made in activities that were retained in-house after
cost studies.  During this same period the estimated total annual
dollar savings for PBS were approximately $45.7 million, or about 60
percent of the reported agency wide dollar savings of $75.8 million. 

On average, the low contractor bids for activities contracted out
were 39 percent less than the government's cost estimate.  There was
virtually no difference in the average percent difference for those
activities contracted out after a formal cost study and those
activities directly converted to contract.  For activities retained
in-house, the low contractor bids were about 33 percent higher on
average than the government cost estimates for providing the same
service. 

A review of cost comparison data by type of service showed that
contractors had an advantage when competing for custodial services. 
On average, the low contractor's bid was over 50 percent less than
the government's estimate.  In contrast, the government was much more
competitive in the maintenance services reviewed, with contractor
bids averaging only 2 percent less than the government cost
estimates.  We also found that size was an important factor in
actions based on a full-cost study and comparison.  In general,
contractors were most competitive when the activity studied had more
than 10 FTE positions. 

Objectives, Scope, and Methodology

For purposes of this report, real property management services were
defined as those services that GSA provides to federal agencies
relating to housing for staff and facilities for the storage of
equipment and supplies.  Because most GSA real property services are
the responsibility of PBS, our analyses focused on PBS activities. 

Our objectives were (1) to describe the overall extent of contracting
out for real property management services in PBS during fiscal years
1982 through 1992 and (2) to identify the results of individual
contracting decisions in PBS during the same period.  To meet the
first objective we used the FPDS to determine the types of services,
numbers of actions, and dollar amounts attributable to PBS
contracting.  To meet the second objective, we used data from GSA's
National A-76 Inventory and Tracking System (NITS).  To supplement
these databases, we reviewed GSA reports and documents, interviewed
agency officials, and examined files for a random sample of
activities in the PBS A-76 commercial services inventory.  We did not
verify the accuracy of all data obtained from the FPDS and NITS
files.  However, we adjusted individual NITS data records when our
review of supporting documents or discussions with GSA officials
indicated that a correction was necessary. 

A more detailed description of the methodology that we used is
provided in appendix I.  We did our review from March 1993 through
December 1993 in accordance with generally accepted government
auditing standards. 

Agency Comments

On April __, 1994, GSA officials, (specify titles) reviewed a draft
of this report and provided some clarifications and suggestions for
changes that we incorporated where appropriate in appendix I. 


--------------------
\1 Throughout this report, we use "services" to refer to commercial
services in general, for example maintenance.  We use "activities" to
refer to commercial services at specific locations that are subject
to review under Circular A-76 procedure, for example, custodial
services for the Federal Building, Courthouse, and Post Office in
Elizabeth City, North Carolina. 


---------------------------------------------------------- Letter :0.1

We are sending copies of this report to the Administrator of GSA, the
Director of OMB, and appropriate congressional committees.  Copies
will also be made available to other interested parties upon request. 

Please contact me at (202) 512-8676 if you have any questions
concerning this report or would like further information.  The major
contributors to this report are listed in appendix II. 

Sincerely yours,




William M.  Hunt
Director, Federal Management
 Issues


CONTRACTING FOR REAL PROPERTY
MANAGEMENT SERVICES IN GSA
=========================================================== Appendix I



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)

Objectives, Scope, and Methodology

We established two objectives to respond to the request for
information on the extent of contracting out by GSA for real property
management services during fiscal years 1982 through 1992.  The
objectives were (1) to describe the overall extent of contracting and
(2) to identify the results of individual contracting decisions.  For
purposes of this report, we defined real property management services
as those services that GSA provides to federal agencies relating to
housing for staff and facilities for the storage of equipment and
supplies.  We focused on PBS activities because PBS is responsible
for real property services in GSA. 

To meet the first objective, we used PBS data from the Federal
Procurement Data System (FPDS).  FPDS was designed to provide
information regarding all contract actions by any federal agency that
had monetary impact, including new contracts, orders against existing
contracts, and contract modifications.  The data elements include the
contractor, an agency identifier, dates of actions, and dollars
involved. 

Data limitations in the FPDS restricted our ability to report the
total extent of contracting.  During our review, we found that the
FPDS did not contain data on all contract activities within PBS. 
When we asked agency officials about the apparent incomplete
information, they stated that agencies are responsible for entering
the contract information into the FPDS computer system; however,
there is no mechanism for ensuring that this occurs.\2 For this
reason, the information in this section is presented for only fiscal
years 1990 through 1992.  Even for these years, the information
presented may represent an understatement of contracting out rather
than the total picture because of the incompleteness of the database. 

To respond to the second objective we used data from the GSA National
A-76 Inventory and Tracking System (NITS) to identify the reported
results of PBS contracting decisions in terms of activities
contracted, retained, or closed and the associated savings.  OMB
Circular A-76 and its Supplement set forth procedures for determining
whether activities should be performed under contract with commercial
sources or in-house using government personnel.  Although the A-76
program accounts for only a portion of all government contracting
activity, more complete data were available on PBS A-76 actions than
for contracting actions in general. 

NITS contains data records on the individual activities included in
GSA's commercial services inventory.  The data base includes a
description of the activity under study, its location and
organizational unit, the type of service involved, as well as
information on A-76 study milestones and employees affected.  It also
provides cost and contract data that allow a comparison of government
and contractor cost estimates for providing individual activities. 
GAO and others have expressed concerns about the implementation of
A-76 and the lack of complete and reliable data on the extent to
which estimated savings have been realized.\3

However, the detailed cost comparison guidance set by the circular
has been used as a standard methodology for assessing whether
contracting out or in-house performance is the most economical means
of satisfying the government's need for commercially available
services.\4

To document the GSA and PBS commercial inventories and to determine
the results of PBS contract decisions and the associated savings, we
relied primarily upon reports generated by GSA from the NITS
database.  To identify underlying trends and patterns in the outcomes
of A-76 reviews and to identify the extent to which contractor cost
estimates differed from the government's estimate for providing
individual services, we performed independent analyses on the NITS
database.  To supplement the NITS data, we interviewed GSA officials
and examined files for a random sample of activities in the A-76
inventory. 

There may be minor discrepancies between information presented in our
report and data included in prior reports from GSA and OMB.  These
discrepancies may occur because we adjusted individual NITS data
records when our review of supporting documents or discussions with
GSA officials indicated that a correction was necessary.  We
eliminated from our analyses NITS records for which the relevant data
were missing.  For example, the analyses of differences in cost
estimates were limited to records for which both government and
contractor estimates were available.  Also, because of a change in
the data elements collected by GSA, the cost difference analyses were
limited to fiscal years 1982 through 1990.\5

Finally, because of the small number of reviews involving services
such as pest control, landscaping, and fire protection, it was not
possible to project any trends or conclusions for these activities. 
For this reason, we combined these services into an "other" category
in our detailed analyses. 



(See figure in printed edition.)

The following narrative provides answers to these questions.  Tables
I.1 and I.2 present the supporting data. 

Overall Extent of Contracting in PBS as Reported in FPDS

Based on FPDS data OMB reported that for fiscal year 1992 about 34
percent of GSA's $5.8 billion contract dollars were spent to acquire
services.  In general, contracts for services in fiscal year 1992
accounted for almost 53 percent of all executive agency procurement
expenditures, according to OMB.  Since 1985 GSA has often been one of
the top five civilian agencies in terms of total dollars expended for
contracting. 

The FPDS was designed to provide information regarding any contract
actions that involved funding.  These actions include new contracts,
orders against indefinite contracts, contract modifications, and
contract terminations.  New contracts involve one-time activities and
cover a specified time period for the completion of all effort. 
Orders against indefinite contracts include activities that will
extend over a long-term period, such as lease payments, or at
indeterminant intervals to be determined by the agency.  Indefinite
contracts are not recorded in the FPDS until the first order occurs. 
Our focus was on the frequency of contracting, therefore, we limited
our analyses to new contracts and orders against indefinite
contracts.  Because modifications and contract terminations are
unique to individual contracts and are often dependent upon
circumstances beyond the control of either the agency or the
contractor, the data obtained from analyzing these actions did not
provide further insight into overall extent of contracting. 

The FPDS allows for 23 major categories of services, excluding
services for research and development.  Within each of the 23
categories, a further code identifies the specific type of service or
type of facility.  We focused on the 9 categories that FPDS showed
PBS contracted most often. 

When both new contracts and orders against indefinite contracts are
combined, the FPDS shows that maintenance, repair, and alteration of
real property and equipment account for almost 20 percent of the
service contract dollars in PBS.  Only property leases account for a
greater percent of aggregate contracting for services. 

The FPDS showed that the number of new contracts increased by about
44 percent from 1991 until 1992.  During the same period the dollars
awarded under new contracts declined by 31 percent (from $1.5 billion
to $1 billion).  Most of these increases in new contracts were
attributable to utility contracts.  Maintenance, repair, and
alteration accounted for 50 percent of new contract dollars for 1992,
a decline from the 70 percent recorded for 1991.  Custodial services
accounted for 7 percent of the dollars for 1992, an increase over the
3 percent recorded for 1991. 

The FPDS showed that the number of orders against indefinite
contracts increased by 106 percent from 1991 to 1992.  During this
period, the dollars expended for these orders increased by 83 percent
(from $1.0 billion to $1.9 billion).  Most of the increases in orders
against indefinite contracts were attributable to space rental and to
maintenance, repair, and alteration.  Maintenance, repairs, and
alteration accounted for 9 percent of the dollars spent against
indefinite contracts in both 1991 and 1992.  Rental payments
accounted for 93 percent of the dollars spent for orders against
indefinite contracts in 1991 and 94 percent for 1992. 



                                    Table I.1
                     
                      New Contracts: Numbers and Dollars for
                        FY 1990-1992 Dollars in thousands

                              (Dollars in thousands)


                        Number              Number              Number
                            of                  of                  of
Types of Services      Actions   Dollars   Actions   Dollars   Actions   Dollars
--------------------  --------  --------  --------  --------  --------  --------
Architect &                 36   $14,910        32   $25,584        42   $29,997
 engineering
Quality control,             1       127         2       338         9     1,694
 testing, &
 inspection
Maintenance, repair,        31     7,544        43    15,758        89    29,003
 & rebuilding
 equipment
Operation of                 3     1,861         3     1,174         4     9,343
 government owned
 facilities
Professional,               18     1,748        21     4,561        46     6,567
 administrative, &
 management support
Utilities                  734    68,675     1,257   146,061     2,027   255,244
Custodial                  152    29,749       209    47,608       292    77,551
Lease or rental of           1        27
 facilities
Maintenance, repair,       428   248,678       524  1,038,98       656   517,207
 or alteration of                                          3
 real property
================================================================================
Subtotal                 1,404  $373,319     2,091  $1,280,0     3,165  $926,606
                                                          67
All other services          20    20,341        16   193,319        25   113,299
================================================================================
Total                    1,424  $393,660     2,107  $1,473,3     3,190  $1,039,9
                                                          86                  05
--------------------------------------------------------------------------------
Source:  GAO analyses of FPDS data files. 



                                    Table I.2
                     
                       Orders Against Indefinite Contracts:
                       Numbers and Dollars for FY 1990-1992


                        Number              Number              Number
                            of                  of                  of
Types of Services       Orders   Dollars    Orders   Dollars    Orders   Dollars
--------------------  --------  --------  --------  --------  --------  --------
Architect &                278   $13,985       399   $16,778       856   $40,240
 engineering
Quality control,            21     2,818        42     3,911        38     2,059
 testing, &
 inspection
Maintenance, repair,        11        37         3     5,075       155     1,704
 & rebuilding
 equipment
Operation of                63       187        48       380       122       895
 government owned
 facilities
Professional,               46     4,382        72     5,295       195    15,774
 administrative, &
 management support
Utilities                   11     2,366         5       310         8     1,679
Custodial                   20     1,192        35     8,987       143    17,432
Lease or rental of       5,184   365,257    13,455   947,972    27,745  1,761,90
 facilities                                                                    0
Maintenance, repair,     1,332    11,362     1,404    17,636     2,739    29,493
 or alteration of
 real property
================================================================================
Subtotal                 6,970  $384,862    15,056  $987,185    31,136  $1,830,2
                                                                              73
All other services         301    16,900       472    34,924       911    42,508
================================================================================
Total                    6,970  $401,762    15,530  $1,022,1    32,047  $1,872,7
                                                          09                  81
--------------------------------------------------------------------------------
Source:  GAO analyses of FPDS data files. 



(See figure in printed edition.)



(See figure in printed edition.)

Description of the A-76 Process

Circular A-76 defines a commercial activity as one that is operated
by a federal executive agency and provides a product or service that
could be obtained from a commercial source.  Certain government
activities are not subject to contracting out under A-76 because they
are so closely related to the public interest that they must be done
by federal employees.  These activities are referred to as
"inherently governmental." In addition, Congress has exempted some
activities from the A-76 review process. 

To implement the A-76 Circular, an agency first evaluates its
activities to determine which are governmental and which are
commercial and completes an inventory of all the commercial
activities.  Along with a description of the nature and location of
each activity, the inventory includes the number of full-time
equivalent (FTE) positions assigned to the activity at the start of
A-76 review.  For example, one activity in the PBS inventory is
mechanical maintenance services for the U.S.  Courthouse in St. 
Paul, Minnesota, which involved four FTE positions when the activity
was studied in fiscal year 1988.  At GSA "one FTE" is not necessarily
equivalent to "one employee"--the GSA inventory used for this report
includes authorized positions, temporary employees, and borrowed
labor in its FTE figures. 

Some inventory activities may be converted to contract without
undergoing a full-cost comparison.  The two primary circumstances
under which a direct conversion to contract may occur are (1) if the
activity should be contracted to a noncompetitive preferential
procurement program source in accordance with applicable regulations
and (2) if the activity employs 10 or fewer FTEs.  While a full-cost
study is not required, the agency may use available cost data to help
determine the reasonableness of proposed contract prices.\6

Agencies should review the remaining activities in their commercial
inventories to define their work requirements, study the most
efficient way to provide the requirements using a federal workforce,
and determine the cost.  This cost is then compared to private sector
bids.  A contract for the activity is awarded if three conditions are
met:  (1) the contractor is judged by the government to be able to
meet all of the government's quality, timeliness, and quantity
standards; (2) the total cost of contract performance is less than
the government's total estimate; and (3) the margin of difference by
the contractor exceeds 10 percent of the government's personnel
costs.  This 10-percent margin is included in the cost comparison to
take into account unpredictable costs that may occur as a result of
the conversion to contract. 

If these three conditions are met, the activity is to be contracted
out.  If not, the activity is to remain in-house, but the government
must implement the efficiency standards developed during the cost
study process to streamline operations and reduce costs.  The
resulting government estimate of the lowest number and types of
employees required for in-house performance is generally referred to
as the "most efficient organization" (MEO). 



(See figure in printed edition.)

The following narrative provides answers to these questions.  Figures
I.8 and I.9 present the supporting data. 

Trends in GSA/PBS Commercial Services Inventories

GSA reported that its agency wide commercial services inventory
included 11,688 FTE positions for 867 activities during fiscal years
1982 to 1992.  Nearly 70 percent of the FTEs were in PBS, with the
remainder in GSA's Federal Supply Service (FSS), Information Resource
Management Service (IRMS), Federal Property Resources Service (FPRS),
and General Management and Administration (GM&A). 

During the study period, most inventory activities related to real
property services were in PBS.  The largest segments of the PBS
inventory were accounted for by custodial, mechanical maintenance,
and law enforcement activities.  The remainder of PBS's inventory was
divided among full service, security, pest control, grounds and
roads, elevator maintenance, landscape maintenance, fire protection,
alterations work group, and building operations activities. 

During the period covered by our study, the PBS inventory was
affected by GSA's Building Delegation Program.  Under this program,
agencies accept the responsibility for managing the day-to-day
operations of the real property they occupy, but PBS retains
budgetary, financial, and management oversight.  The PBS inventory of
8,086 FTEs excluded 2,464 FTEs delegated to tenant agencies by the
end of fiscal year 1992.  Delegations, therefore, accounted for over
23 percent of the FTEs that would have been included in PBS's
inventory at the beginning of the study period.  The delegated
activities and FTEs included:  alterations work group, 94; custodial,
1,183; elevator maintenance, 19; full service, 2; mechanical
maintenance, 766; and security, 400. 



   (See figure in printed
   edition.)

Legend:

FPRS=Federal Property Resources Service
FSS =Federal Supply Service
GM&A=General Management and Administration
IRMS=Information Resources Management Service
PBS =Public Buildings Service

Note:  The PBS provides real property services required by federal
agencies to conduct government business.  FSS provides personal
property and services for federal agencies.  IRMS manages and
procures automated data processing and telecommunication services. 
FPRS directs the utilization and disposal of government real
property.  GM&A includes the administration of all programs. 

Source:  FTE numbers provided by Budget Control Division, GSA. 
Percentages calculated by computer within graphics software. 



   (See figure in printed
   edition.)

Source:  FTE numbers provided by Budget Control Division, GSA. 
Percentages calculated by computer within graphics software. 



(See figure in printed edition.)

The following narrative and the narrative on page 35 provides answers
to these questions.  Tables I.3 and I.4 plus figure I.11, I.12, I.13,
and I.14 present the supporting data. 

Reported Results from A-76 Reviews

From 1982 through 1992 PBS undertook a systematic review of its real
property management services using the guidelines provided in OMB
Circular A-76 to determine the appropriate mix between government and
private sector provision of these services.  Of the 731 commercial
activities reviewed by PBS during the time period, 73 percent were
contracted out, 24 percent were retained in-house, and 3 percent were
closed.  The services most often contracted out were custodial and
maintenance. 

Reports generated from GSA's A-76 database show a total reduction of
4,734 FTEs as a result of A-76 reviews from fiscal years 1982 through
1992; PBS accounted for 3,227 FTEs (68 percent) of this reduction. 
Although most of the total reduction is attributable to contracting
out, about 10 percent can be traced to staffing changes made in
activities that were retained in-house after cost studies.  The
estimated total annual dollar savings for PBS during this time were
approximately $45.7 million, or about 60 percent of the reported
agency wide dollar savings of $75.8 million.\7 Of the total dollar
savings reported for the 11-year period, 51 percent was achieved
during the initial four years of operation.  In general, PBS achieved
a greater FTE savings by reviewing custodial activities than by
reviewing mechanical maintenance activities.  However, the average
dollar savings that resulted from each custodial FTE saving was
$11,571, compared to $17,493 for mechanical maintenance FTEs. 

About 44 percent of the PBS inventory (3,525 of the 8,086 FTEs)
remained unstudied as of the end of fiscal year 1992.  All but 75 of
these unstudied positions were exempted from study.  Law enforcement
activities accounted for the largest number (1,676 FTEs) of the
inventory positions exempted from study.  Another 1,181 FTEs, mostly
in custodial activities, were protected from study by the "Edgar
Amendment." Enacted as part of appropriations acts covering GSA since
December 21, 1982, the amendment restricts GSA from contracting out
guard, elevator operator, messenger, and custodial activities
currently done by GSA employees, unless it is to a sheltered workshop
for the severely handicapped.  The exception for sheltered workshops
was added beginning in fiscal year 1984. 



                          Table I.3
           
              PBS Commercial Activities Program:
           Number of Activities Reviewed by Type of
                   Action for FY 1982-1992

                                                       Total
                                Activiti              number
                      Activiti        es                  of
                            es  retained  Activiti  activiti
                      contract       in-        es        es
Service                 ed out     house    closed  reviewed
--------------------  --------  --------  --------  ========
Custodial                  279         3         4       286
Elevator maintenance         3         0         0         3
Fire protection              1         1         3         5
Full service                33         6         1        40
Grounds and roads            7         1         0         8
Landscape                    2         0         0         2
 maintenance
Maintenance                192       164        11       367
Pest control                 4         0         0         4
Repairs and                 11         0         0        11
 alterations
Security                     5         0         0         5
============================================================
Total                      537       175        19       731
------------------------------------------------------------
Source:  Budget Control Division, GSA



                          Table I.4
           
           PBS Commercial Activities Program: FTEs
           Reviewed and Reduced Plus Dollar Savings
                       for FY 1982-1992

                    (Dollars in thousands)


                                  FTEs       FTEs     Dollar
Service                       Reviewed    Reduced    Savings
---------------------------  ---------  ---------  ---------
Custodial                        1,855      1,840    $21,291
Elevator maintenance                 3          3         34
Fire protection                     74         53      1,500
Full service                       259        141      3,589
Grounds and roads                   41         33        235
Landscape maintenance               38         38        380
Mechanical maintenance           2,199      1,006     17,598
Pest control                        19         19        159
Repairs and alterations             79         79        790
Security                            15         15        171
============================================================
Total                            4,582      3,227    $45,747
------------------------------------------------------------
Source:  Budget Control Division, GSA. 



   (See figure in printed
   edition.)

Note:  Because the fiscal year entry is missing from some records in
the NITS database, the total savings shown in this figure are $1.1
million less than the total saving reported by PBS (see table I.3). 

Source:  Budget Control Division, GSA. 

Trends in Data from Individual PBS A-76 Reviews

In order to identify some of the underlying trends and patterns in
the outcomes of A-76 reviews, we studied the individual records in
NITS using categories such as the fiscal year of PBS's review, the
type of service involved, the type of action taken, and the size of
the activity reviewed.  The totals presented in the following figures
are not consistent because we eliminated records from specific
analyses where data were missing for the appropriate elements. 

Most A-76 activity was concentrated in the early years of our study
period.  Over 57 percent of the activities were reviewed by the end
of fiscal year 1984, and 78 percent of all reviews had occurred
before fiscal year 1987. 

The bulk of contracting out during the first 3 years of our study
period involved direct conversions of custodial activities.  There
were 255 custodial activities that were directly contracted from
fiscal year 1982 to 1984, all of which were under 11 FTEs.  Overall,
50 percent of the activities contracted out by PBS were in the
custodial area.  PBS retained only 1 percent of the custodial
activities that were reviewed. 

Starting in fiscal year 1987, most reviews involved mechanical
maintenance activities.  By the end of the 11-year period,
maintenance accounted for 32 percent of all the activities that had
been contracted out by PBS.  However, maintenance activities were
retained in-house after review at a much higher rate than the other
types of services--79 percent of the activities reviewed versus 29
percent for all other services. 

In total, over the 11-year period, direct conversions to contract
without the need for a formal cost study accounted for most of the
contracting activity reported.  Over 71 percent of contracted
activities and about 74 percent of contracted FTEs were attributable
to direct conversions.  The large number of direct conversions is not
surprising given that 586 of the 675 activities reviewed by PBS
involved 10 or fewer FTEs. 



   (See figure in printed
   edition.)

Note:  The NITS database did not identify individual actions for
fiscal year 1992, however, total actions and dollar savings were
reported. 

Source:  GAO analyses of NITS database. 



   (See figure in printed
   edition.)

Source:  GAO analysis of NITS database. 



   (See figure in printed
   edition.)

Note:  We did not show the actions that resulted in direct conversion
to contract in this figure because, as permitted under A-76 guidance,
the direct conversions are almost all activities with 10 or fewer
FTEs. 

Source:  GAO analysis of NITS database. 



(See figure in printed edition.)

The following narrative provides answers to these questions.  Table
I.5 and figures I.16, I.17, I.18, and I.19 present the supporting
data. 

Trends and Patterns in Government and Contractor Cost Estimates in
PBS

Using NITS data we analyzed the extent to which contractor and
government cost estimates differed for providing individual services. 
We used the government estimate for in-house performance as our base
of comparison, subtracting the low contractor's estimate from the
government's estimate.  A positive dollar or percentage difference
indicates that the contractor's bid was lower, while a negative
difference shows that the government's estimate was lower. 

On average, the low contractor bids for activities contracted out
were 39 percent less than the government's cost estimate.  There was
little difference in the average percent difference for those
activities contracted after a formal cost study and those directly
converted to contract.  However, the median percent difference was
noticeably higher for the direct conversions.  On average, the low
contractor bids for activities retained in-house were about 33
percent higher than the government cost estimates for providing the
same service.  The average difference between contractor and
government cost estimates tended to become less over the 11-year
period.  The decline was greatest for contracted activities.  The one
notable exception was direct conversion to contract during fiscal
year 1990.  In fiscal year 1990, all of the activities for which we
had cost data were custodial, which consistently showed a contractor
cost advantage. 

The summary statistics for cost differences by size of the activity
(numbers of FTEs) showed little variation for direct conversions to
contract.  However, size was an important factor in actions based on
a full cost study.  When full cost studies were conducted, on average
the largest advantage for contractors occurred when activities had
more than 10 FTE positions.  Conversely, the largest advantage for
the government, in decisions based on full-cost studies, occurred for
activities with 10 or fewer FTEs. 

There were sufficient numbers of reviews involving custodial and
maintenance activities to illustrate the relative cost advantages of
contractors in providing custodial services and, to a lesser extent,
the government in providing mechanical maintenance services.  On
average, the low contractor's bid for custodial activities was over
50 percent less than the government's estimate.  Over one-third of
all the custodial activities reviewed showed a difference greater
than 70 percent between contractor and government cost estimates.  In
contrast, the government was more competitive in the maintenance
activities reviewed, with contractor bids averaging only 2 percent
less than the government cost estimates. 



                                    Table I.5
                     
                      PBS Commercial Activities: Differences
                      between Contractor and Government Cost
                            Estimates for FY 1982-1990

                              (Dollars in thousands)

                                              Median                      Median
               Number of  Mean Percent       Percent   Mean Dollar        Dollar
Category      Activities    Difference    Difference    Difference    Difference
----------  ------------  ------------  ------------  ------------  ------------
Type of
 action
All                  459         39.15         44.60         $64.0         $21.0
 contracts
Studied/              65         40.22         36.53         175.1          70.0
 Contracted
Direct               394         38.98         48.78          45.6          18.0
 conversion
 to
 contract
Studied/             117        -32.90        -17.20         -93.1         -43.0
 retained
Size of
 activity
Studied/              21         46.15         43.69         409.7         232.0
 Contracted
 > 10 FTEs
Studied/              44         37.38         29.26          63.1          37.5
 Contracted
 <= 10
 FTEs
Studied/              22        -15.64        -10.65        -213.0         -48.5
 Retained
 > 10 FTEs
Studied/              95        -36.90        -18.18         -65.3         -36.0
 Retained
 <= 10
 FTEs
Direct                28         38.94         50.82         282.5         178.0
 conversion
 > 10 FTEs
Direct               364         39.13         48.78          27.6          16.5
 conversion
 <= 10
 FTEs
Function
All                  240         51.35         58.10          75.5          28.0
 custodial
All                  282          1.97          4.15          -6.1           3.0
 maintenan
 ce
All other             54         23.00         27.83          38.5          11.5
 activitie
 s
--------------------------------------------------------------------------------
Note:  To illustrate the effects of extreme values for percent and
dollar differences in cost estimates, we calculated both the mean and
the median for each category.  A positive percent or dollar
difference indicates that the contractor has the cost advantage. 



   (See figure in printed
   edition.)

Note:  For the number of direct conversions during each fiscal year
see figure I.12.  A positive percent difference indicates that the
contractor has the cost advantage.GAO analysis of NITS database. 

Source:  GAO Analysis of NITS database. 



   (See figure in printed
   edition.)

Note:  For the number of activities studied and contracted during
each fiscal year see figure I.12.  A positive percent difference
indicates that the contractor has the cost advantage. 

Source:  GAO analysis of NITS database. 



   (See figure in printed
   edition.)

Note:  For the number of activities studied and retained during each
fiscal year see figure I.12.  A positive percent difference indicates
that the contractor has the cost advantage. 

Source:  GAO analysis of NITS database. 



   (See figure in printed
   edition.)

Note:  A positive percent difference indicates that the contractor
has the cost advantage. 

Source:  GAO analysis of NITS data. 


--------------------
\2 We are preparing letters to GSA and OMB's Office of Federal
Procurement Policy describing the extent of this problem and
suggesting that, if the data in FPDS are to provide useful
information regarding government contracting practices, there should
be some form of control over the completeness of the information. 

\3 Achieving Cost Efficiencies in Commercial Activities
(GAO/T-GGD-90-35, April 25, 1990) and OMB Circular A-76:  DOD's
Reported Savings Figures Are Incomplete and Inaccurate
(GAO/GGD-90-58, March 15, 1990). 

\4 Energy Management:  Using DOE Employees Can Reduce Costs for Some
Support Services (GAO/RCED-91-186, August 16, 1991) and Goddard Space
Flight Center:  Decision to Contract for Plant Operations and
Maintenance (GAO/NSIAD-93-92, January 12, 1993). 

\5 The current NITS database only records the cost estimate for the
party that "wins" the competition--the low contractor bid if the
activity is contracted out or the government's MEO estimate if the
activity is retained in-house. 

\6 Our review of sample case files showed that GSA used estimates for
the government providing the service and information on contract
costs to do similar work at other GSA locations. 

\7 In the GSA database the reported dollar savings are estimates
based on a comparison of the original budget estimate and the new
cost estimate for providing the activity or service.  At the point of
an A-76 decision, the computed savings represent the government's
best estimate and may not reflect an actual savings realized by the
agency. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II


   GENERAL GOVERNMENT DIVISION,
   WASHINGTON, D.C. 
-------------------------------------------------------- Appendix II:1

Charles I.  Patton, Jr., Associate Director, Federal Management
Issues
Frances P.  Clark, Assistant Director, Federal Management Issues
Timothy A.  Bober, Evaluator-in-Charge
Bonnie J.  Steller, Senior Statistician
K.  Scott Derrick, Evaluator
