Cooperative Purchasing: Effects Are Likely to Vary Among Governments and
Businesses (Chapter Report, 02/10/97, GAO/GGD-97-33).

Pursuant to a legislative requirement, GAO assessed the potential
effects of a cooperative purchasing program administered by the General
Services Administration (GSA) on nonfederal governments and federal
agencies, and on industry, including small businesses and dealers.

GAO found that: (1) the potential effects of the cooperative purchasing
program are likely to vary among state, local, and the Puerto Rican
governments; (2) since participation is voluntary, these governments
would use the schedules only if they perceived benefits from doing so;
(3) most of the nonfederal entities GAO surveyed anticipated that they
would participate; (4) although some of these governments may experience
benefits, several factors may limit the extent of these benefits; (5)
the program is likely to have little if any effect on Indian tribal
governments because the schedules program is already available to them
under separate authority; (6) if the GSA effectively implements its plan
to exclude schedules from the program when adverse effects on federal
agencies are indicated, there is little risk that the program will
negatively affect the federal government, but whether it will have
positive effects depends largely on whether increased use of the
schedules by state and local governments would lead to lower prices and
reduced administrative charges by GSA; (7) it is unclear at this time
whether either of these would occur; (8) the potential effects of the
cooperative purchasing program on industry, including small businesses
and dealers, are also likely to vary, although sufficient data are not
available to conclusively predict these effects; (9) some businesses,
particularly GSA vendors, expect to benefit from increased sales or
reduced administrative costs, while other businesses expect to lose
sales or have lower profits; (10) still other businesses do not believe
they will be affected by the program; (11) most of the concerns that
businesses have expressed about significant adverse effects involve only
a few GSA schedules; (12) GSA's plan to implement the cooperative
purchasing program is still evolving; (13) in 1995, GSA published its
initial approach and has been considering changes while implementation
has been suspended; (14) GSA has not yet completed a more current,
detailed plan, but such a plan would better enable Congress to weigh the
merits of cooperative purchasing since so much depends on implementation
decisions; (15) although the approach GSA has been considering appears
reasonable in key respects, GAO believes a number of improvements would
better position GSA to make decisions on making particular schedules
available to nonfederal users; and (16) these improvements include the *

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

 REPORTNUM:  GGD-97-33
     TITLE:  Cooperative Purchasing: Effects Are Likely to Vary Among 
             Governments and Businesses
      DATE:  02/10/97
   SUBJECT:  Cooperative agreements
             Cost control
             State and local procurement
             Procurement policies
             Commercial products
             State governments
             Local governments
             Administrative costs
IDENTIFIER:  Federal Supply Schedule
             Puerto Rico
             California
             Montana
             New York
             West Virginia
             National Performance Review
             GSA Cooperative Purchasing Program
             
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Cover
================================================================ COVER


Report to Congressional Committees and the Administrator of General
Services

February 1997

COOPERATIVE PURCHASING - EFFECTS
ARE LIKELY TO VARY AMONG
GOVERNMENTS AND BUSINESSES

GAO/GGD-97-33

Cooperative Purchasing

(410063)


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

  BIA - Bureau of Indian Affairs
  FASA - Federal Acquisition Streamlining Act of 1994
  GSA - General Services Administration
  NPR - National Performance Review
  VA - Department of Veterans Affairs

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


B-274544

February 10, 1997

The Honorable Fred Thompson, Chairman
The Honorable John Glenn, Ranking Minority Member
Committee on Governmental Affairs
United States Senate

The Honorable Strom Thurmond, Chairman
The Honorable Carl Levin, Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Dan Burton, Chairman
The Honorable Henry Waxman, Ranking Minority Member
Committee on Government Reform and Oversight
House of Representatives

The Honorable Floyd Spence, Chairman
The Honorable Ronald Dellums, Ranking Minority Member
Committee on National Security
House of Representatives

The Honorable David J.  Barram
Acting Administrator
General Services Administration

Under the cooperative purchasing program authorized by section 1555
of the Federal Acquisition Streamlining Act of 1994, the
Administrator of General Services was permitted to allow state and
local governments, the government of the Commonwealth of Puerto Rico,
and Indian tribal governments to purchase items available through the
federal supply schedules.  As directed by section 4309 of the
Clinger-Cohen Act of 1996 and the conference report for that act,
this report assesses the potential effects of a cooperative
purchasing program on these nonfederal governments and federal
agencies; and on industry, including small businesses and dealers. 
Because these effects depend on how the program is implemented, we
have also assessed the preliminary implementation plan prepared by
the General Services Administration. 

We are sending copies of this report to the Director of the Office of
Management and Budget; the Attorney General; the Secretaries of
Defense, Health and Human Services, the Interior, and Veterans
Affairs; and interested congressional committees.  We will make
copies available to others upon request. 

We are issuing a separate report on the potential effects of
cooperative purchasing of pharmaceuticals. 

Please contact me at (202) 512-4232 if you or your staff have any
questions.  Major contributors to this report are listed in appendix
VIII. 

Bernard L.  Ungar
Associate Director, Federal Management
 and Workforce Issues



EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

In 1993, the National Performance Review (NPR) reported that
consolidating government purchasing actions would benefit the
taxpayer through greater volume discounts and simplified
administration.  In 1994, Congress established a cooperative
purchasing program that authorized the General Services
Administration (GSA) to allow state, local, Indian tribal, and the
Puerto Rican governments access to its supply schedules program. 
Little debate occurred over possible adverse effects of allowing
nonfederal governments access to federal supply schedules, but such
concerns did emerge after the cooperative purchasing program was
enacted. 

As a result, in 1996 Congress suspended GSA's authority for this
program and mandated that GAO assess the effects cooperative
purchasing may have on state, local, Indian tribal, the Puerto Rican,
and federal governments; and on industry, including small businesses
and local dealers.  Since these effects would depend in large part on
the program's implementation and discretionary choices yet to be made
by GSA, vendors, and potentially affected state and local
governments, GAO developed an audit approach that depended heavily on
these groups' assessments of the potential effects of cooperative
purchasing and included an assessment of GSA's tentative
implementation plans.  GAO surveyed state and Puerto Rican purchasing
officials; conducted case studies in California, Montana, New York,
and West Virginia and in selected local governments in those states
to examine their purchasing practices and to compare prices that
these governments paid for selected items with federal supply
schedule prices; interviewed major federal users of the schedules
program and several Indian tribal governments; interviewed businesses
that now supply state and local governments (some of which are also
vendors selling to federal agencies under the schedules program) and
several industry associations; and interviewed GSA officials and
reviewed public comments on GSA's proposed implementation plan.  GAO
is reporting separately on the potential effects of cooperative
purchasing of pharmaceuticals. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

In fiscal year 1996, 146 federal supply schedules listed vendors that
had contracted with GSA or with the Department of Veterans Affairs
(VA), which administers part of the program, to sell commercial
supplies and services to federal agencies.  Total sales through the
schedules program were about $6.7 billion in fiscal year 1996 for
items ranging from computers and furniture to medical supplies and
auditing services.  The goal of the schedules program is to take
advantage of the total volume of federal purchases to negotiate the
lowest possible prices for needed supplies and make these prices
available to all federal agencies through a procedure that conforms
or is consistent with the Competition in Contracting Act of 1984. 

Participation in the cooperative purchasing program would be optional
for any nonfederal government and any GSA or VA vendor that sells
through the federal schedules program.  In its plan to implement the
cooperative purchasing program, GSA said that it would make
particular schedules available to eligible nonfederal users unless it
decided that doing so would not be in the interests of the federal
government. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

The potential effects of the cooperative purchasing program are
likely to vary among state, local, and the Puerto Rican governments. 
Since participation is voluntary, these governments would use the
schedules only if they perceived benefits, such as lower prices, from
doing so.  Most of the nonfederal entities GAO surveyed anticipated
that they would participate.  Although some of these governments may
experience such benefits as cost savings and a reduction in the time
to procure items, several factors, such as state contracting laws and
preferences to purchase from in-state sellers, may limit the extent
of these benefits.  The program is likely to have little if any
effect on Indian tribal governments because the schedules program is
already available to them under separate authority.  If GSA
effectively implements its plan to exclude schedules from the program
when adverse effects on federal agencies are indicated, there is
little risk that the program will negatively affect the federal
government, but whether it will have positive effects depends largely
on whether increased use of the schedules by state and local
governments would lead to lower prices and reduced administrative
charges by GSA.  It is unclear at this time whether either of these
would occur. 

The potential effects of the cooperative purchasing program on
industry, including small businesses and dealers, are also likely to
vary, although sufficient data are not available to conclusively
predict these effects.  Some businesses, particularly GSA vendors,
expect to benefit from increased sales or reduced administrative
costs, while other businesses expect to lose sales or have lower
profits.  Still other businesses do not believe they will be affected
by the program.  Most of the concerns that businesses have expressed
about significant adverse effects involve only a few GSA schedules,
such as airlines and fire fighting vehicles, and some medical
schedules administered by VA. 

GSA's plan to implement the cooperative purchasing program is still
evolving.  In 1995, it published its initial approach and has been
considering changes while implementation has been suspended.  GSA has
not yet completed a more current, detailed plan, but such a plan
would better enable Congress to weigh the merits of cooperative
purchasing since so much depends on implementation decisions. 
Although the approach GSA has been considering appears reasonable in
key respects, GAO believes a number of improvements would better
position GSA to make decisions on making particular schedules
available to nonfederal users.  These improvements include the
preparation of a written implementation plan and guidance to staff on
the data, affected parties' views, and other factors for GSA and VA
to consider when making decisions. 


   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4


      GOVERNMENTS EXPECT BENEFITS,
      BUT THESE COULD BE LIMITED
-------------------------------------------------------- Chapter 0:4.1

Puerto Rico and the majority of state and local governments GAO
contacted indicated that they want access to the federal supply
schedules because they perceive benefits from cooperative purchasing. 
Of the 48 states and 2 territories that responded to GAO's survey, 34
said they would use the program for purchases.  Of the 26 state and
local agencies GAO obtained information from in California, Montana,
New York, West Virginia, and in Puerto Rico, all favored having
access to the schedules.  Reasons that they cited for favoring access
included the potential for (1) obtaining lower prices on popular
items they purchase, such as computers, furniture, and office
equipment; (2) having a greater selection of items available to them;
or (3) realizing administrative savings of both time and money by
ordering through the federal supply schedules as a convenient
alternative to current procurement procedures. 

Even though Puerto Rico and the majority of state and local
governments GAO contacted favored the option of using the federal
supply schedules, several factors could limit the benefits they
achieve in practice.  These factors include (1) state or local laws,
ordinances, mandated preferences, or procedures that would limit
their ability to use the program; (2) the unavailability of certain
heavily used items or products through the program; and (3) the
availability of lower prices for some items from current or other
sources.  Potential savings on administrative costs would also be
limited by the need to retain procurement operations for those items
that will not be purchased through the schedules program.  GAO's
examination of state and local governments' purchasing patterns
suggests that those items for which nonfederal governments spend the
most money are generally not available through the schedules program. 

Allowing Indian tribal governments to use the federal supply
schedules program would appear likely to have little effect on them
because Congress has already provided many of these governments with
the authority to use GSA supply schedules.  Programs for tribes whose
governments do not have this authority continue to be the
responsibility of federal agencies with access to the schedules. 

GSA believes that the increased sales from participation of
nonfederal governments will enable it to negotiate better prices with
GSA vendors and possibly reduce administrative fees charged to
schedule users.  However, the extent to which nonfederal purchases
would actually increase the volume of GSA sales is unclear because of
the noted limiting factors.  Adverse effects on the federal
government appear unlikely if GSA effectively implements its plan to
exclude schedules from the program when adverse effects on federal
agencies are indicated. 


      EFFECTS ON INDUSTRY ARE
      LIKELY TO VARY
-------------------------------------------------------- Chapter 0:4.2

The potential effect of cooperative purchasing on industry, including
small businesses and dealers, is likely to vary among industries and
businesses.  Some industries, such as construction and electric
utility services, that have provided substantial portions of their
output to state and local governments will not be affected by
cooperative purchasing because their products are not available
through the schedules program.  Other industries whose products are
covered by the schedules program provide varying proportions of their
output to state and local governments, but most have provided less
than 6 percent of their output to nonfederal government customers. 

There was no consensus about the potential effect of cooperative
purchasing among the 59 state or local government contractors GAO
contacted.  Of these 59 contractors, 22 predicted a positive effect,
10 believed that they would be negatively affected, 13 predicted no
effect, and 14 said that they did not know how they would be
affected.  Although none of the contractors provided any data to
support their predictions, they did provide some reasons for their
beliefs.  For example, the contractors predicting a positive effect
cited the prospect of increased sales and customer bases, as well as
the advantages of not having to go through a bidding process.  The
contractors who said they would be negatively affected were concerned
that they would lose sales to GSA vendors.  The contractors who
believed that they would not be affected cited the unique nature of
the products they sold or their ability to offer competitive prices
as the reasons they would not be affected.  Finally, the contractors
who did not know how cooperative purchasing would affect them pointed
to the potential for both gains and losses. 

Several other businesses have also expressed concern about
significant potential adverse effects of cooperative purchasing. 
These include companies largely represented on some of VA's schedules
and three of GSA's schedules that provide certain types of heavy
equipment, such as fire fighting vehicles and construction and
highway maintenance equipment; and airline services.  These companies
were concerned that if schedules for these goods and services were
made available to nonfederal users and GSA or VA vendors exercised
their option to participate in the program, sales would be diverted
to other vendors or would be at lower prices, potentially leading to
lower revenues or profits. 

GSA recognizes that the cooperative purchasing program has the
potential to negatively affect some industries and businesses.  It
announced its plan, based on VA's recommendations, to exclude two
schedules that are managed by VA and that include pharmaceuticals and
certain other medical equipment and supplies.  VA had contended that
prices for items covered in those schedules would increase if the
schedules were opened to nonfederal governments because of unique
statutory requirements imposed by the Veterans Health Care Act of
1992.  Because of concern that airlines might no longer participate
in the schedules program, substantially increasing travel costs for
federal agencies, GSA intends to exclude the airline schedule from
the program.  In recognition that some businesses that provide
products on one heavy equipment schedule could face adverse effects,
GSA also intends to exclude the fire fighting vehicles schedule.  GSA
plans to evaluate other schedules before any additional decisions are
made. 


      GSA'S PROPOSED APPROACH
      APPEARS REASONABLE BUT COULD
      BENEFIT FROM REFINEMENTS
-------------------------------------------------------- Chapter 0:4.3

In April 1995, GSA published a Federal Register notice outlining its
initial plan for implementing the program.  In that notice, GSA
stated that its contracting officers would make case-by-case
determinations on whether it would be appropriate to include
schedules in the program.  The notice also said that individual
schedule vendors would be able to elect whether or not to make their
products or services they sell available to authorized nonfederal
users, and that schedule contracts would continue to focus on the
needs of federal agencies.  Working with interested parties, GSA has
continued to develop its approach for implementing the cooperative
purchasing program while the program is in suspension.  As a matter
of policy, GSA said it would not make schedules available if doing so
would adversely affect the federal government.  GSA officials are
also considering (1) the option of excluding portions of individual
schedules, (2) having contracting officers conduct analyses to
determine whether the negative effects on industry are outweighed by
the benefits to nonfederal governments, (3) elevating the
decisionmaking authority to a higher level official in GSA or VA than
initially proposed, and (4) using the Commerce Business Daily and/or
the Federal Register to announce its intent to open schedules. 

The approach GSA is considering generally appears reasonable. 
However, given the uncertainties over the extent to which state and
local governments and businesses actually would exercise their
options to participate in the program and purchase items from vendors
listed on the schedules, the lack of sufficient data on the potential
beneficial and adverse effects, and conflicting views that GSA and VA
would be likely to encounter for some schedules, GSA and VA are
likely to have great difficulty in making quantitative assessments of
the potential beneficial and negative effects of opening schedules. 
Thus, they will be required to make recommendations or decisions on
including particular schedules in the cooperative purchasing program
or excluding them based on limited information.  In this situation,
should the program be implemented as the law now provides, a detailed
written implementation plan would assist both outside affected
parties and GSA and VA staff. 

GSA has not completed an implementation plan to guide it in making
these decisions because of the program's suspension.  GAO believes,
however, that an assessment of the effects of the program would
depend heavily on the kinds of implementation choices and decisions
that would be reflected in such a plan and that such a plan would
help inform Congress on the program's implementation.  GSA is
required to report to Congress with its views on GAO's findings. 


   RECOMMENDATION TO THE
   ADMINISTRATOR OF GENERAL
   SERVICES
---------------------------------------------------------- Chapter 0:5

GAO recommends that the Administrator provide a detailed plan
emphasizing the optional nature of the program and setting forth the
steps that GSA would take to implement it, as part of the
Administrator's report on the cooperative purchasing program to
Congress.  GAO identifies several minimum elements the plan should
include, such as the guidance that GSA will provide to its staff on
what needs to be analyzed, including the available quantitative data,
affected parties' views, and other factors, in an assessment of the
benefits and negative effects of opening up schedules.  (See ch.  5.)


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

In written comments on a draft of this report, GSA and VA agreed that
the effects of cooperative purchasing on nonfederal users and
businesses are uncertain.  These agencies concurred with GAO's
recommendation for a written implementation plan that would define a
decisionmaking process that would consider the effects of opening
particular schedules on federal and nonfederal governments and on
businesses.  In its comments, the National Association of State
Purchasing Officials agreed that cooperative purchasing has the
potential to create a positive effect on state and local governments;
the Association also noted areas of concern that could limit the use
of the program.  Similarly, in oral comments, the Coalition for
Government Procurement generally agreed with the report's findings,
conclusions, and recommendation and emphasized the importance of a
written implementation plan.  It also noted several problems that
might arise in GSA's implementation of the program. 


INTRODUCTION
============================================================ Chapter 1

Pursuant to the Federal Property and Administrative Services Act of
1949, the General Services Administration (GSA) was created to manage
and acquire federal government space and administrative and operating
supplies in order to eliminate duplicative functions within
government and to establish a professional resource that would
maximize the government's effectiveness in obtaining supplies and
services.  Today, GSA's Federal Supply Service is responsible for
supplying and procuring goods and services through three major
programs--the special order, stock, and schedules programs.  In the
special order program, agencies order items from GSA; GSA places the
agencies' orders with vendors; and the vendors deliver the items to
the agencies.\1 In the stock program, GSA orders items from vendors
who deliver the items to GSA's warehouses.  Agencies order the items
from GSA and receive the items from the warehouses.  In the schedules
program, agencies place orders directly with vendors holding GSA
contracts, who deliver the items directly to the agencies. 

The Federal Acquisition Streamlining Act of 1994 (FASA) revised and
streamlined the procurement laws of the federal government.\2 Section
1555 of FASA (40 U.S.C.  481 (b) (2)) gives GSA the authority to
establish a cooperative purchasing program through which state,
local, Indian tribal, and the Puerto Rican governments could use
GSA's federal supply schedules program to purchase needed goods and
services.  Under section 1555, eligible governments, upon their
request, could purchase items directly from supply schedule vendors
under the same terms and conditions that GSA has established for
federal agency purchases.  The conference report on FASA indicated
that individual supply schedule vendors would not have to make the
products or services on the supply schedules available to nonfederal
users, such as state and local governments, unless the terms of the
schedule contract would so provide.\3 FASA explicitly precludes GSA
from authorizing any state, local, Indian tribal, or the Puerto Rican
government to order existing stock or inventory from federally owned
and operated, or federally owned and contractor operated, supply
depots, warehouses, or similar facilities.  Thus, FASA excludes these
governments from purchasing goods and services from GSA's federal
stock program.\4


--------------------
\1 In this report, the term "vendor" is used to refer to a business,
including a manufacturer or distributor of goods or services, that is
a federal contractor. 

\2 Public Law 103-355, Oct.  13, 1994. 

\3 H.  Rep.  Conf.  Rep.  No.  103-712 (103rd Cong., 2d Sess., Aug. 
21, 1994). 

\4 Many Indian tribal governments have access to GSA's stock program
under separate authority; this access is discussed below. 


   OVERVIEW OF GSA'S SUPPLY
   SCHEDULES PROGRAM
---------------------------------------------------------- Chapter 1:1

The federal supply schedules program is one of GSA's largest programs
for providing goods and services to federal agencies.  In fiscal year
1996, GSA's sales through the schedules program accounted for about
72 percent, or about $4.8 billion, of the approximately $6.6 billion
in agency purchases through GSA's schedules, stock, and special order
programs.  As shown in figure 1.1, fiscal year 1996 stock program
sales of about $579 million accounted for only about 9 percent of
GSA's sales, while fiscal year 1996 special order program sales of
about $1.3 billion accounted for only about 19 percent of GSA's
sales. 

   Figure 1.1:  Fiscal Year 1996
   Sales for GSA's Schedules,
   Stock, and Special Order
   Programs

   (See figure in printed
   edition.)

Source:  GSA. 

Products from the supply schedules program are available on
single-award schedules, multiple-award schedules, and new
introductory product schedules, depending on the commodity. 
Single-award schedules consist of contracts with one vendor for the
delivery of a particular product or service to a specified geographic
area.  Prospective vendors compete for the GSA contract to provide
the product or service to government agencies, normally at the lowest
price.  Multiple-award schedules consist of contracts awarded to more
than one vendor for comparable (but not necessarily identical)
commercial supplies or services for delivery within the same
geographic area.  New introductory product schedules provide the
means for new or improved products to enter the federal supply
system.  Once a vendor's product is accepted for inclusion on a new
introductory product schedule, if sufficient demand for that item is
generated after a 3-year period, the item is to be transferred to one
of GSA's other supply programs. 

GSA's Federal Supply Service negotiates and awards contracts for
products and services available through the majority of federal
supply schedules.  The Service issues solicitations, receives offers
from prospective vendors, negotiates with them on product and service
prices as well as terms and conditions of sale, and awards the
contracts.\5

The contracts are indefinite-delivery contracts that give vendors the
right to sell goods and services to the government during the period
of time that the contract is in effect.\6

Contracts commonly are in effect for more than a 1-year period. 
Federal agencies order products and services directly from a vendor
and pay the vendor directly.  In fiscal year 1996, there were 146
schedules.\7 GSA has responsibility for managing 133 schedules, and
it has given the Department of Veterans Affairs (VA) responsibility
for managing 13 schedules, including the schedule for pharmaceuticals
and 12 schedules for medical equipment, devices, and supplies and
certain food items, such as cookies and cereals.  Fiscal year 1996
sales through VA's schedules totaled about $1.9 billion. 

A large number of vendors negotiate contracts with the Federal Supply
Service or VA in order to provide products to federal agencies. 
Vendors include businesses that manufacture products as well as
dealers or distributors that sell and service products.  In fiscal
year 1996, GSA had about 5,300 contracts with vendors that supply
goods or services either through its single-award or multiple-award
schedules, while VA had about 1,257 contracts.  About 74 percent of
these contracts were with small businesses.  (See app.  I for a
listing of the 146 schedules as well as sales made through the
schedules to large and small vendors.)

The supply schedules program provides several advantages to both
federal agencies and vendors.  For example, agencies have the option
of ordering small quantities of commonly used goods and services
without using the traditional procurement process.  Also, agencies
know that GSA is responsible for ensuring that all procurement
regulations have been followed in awarding the schedules contracts
and making items available.  For example, multiple-award schedules
conform to the requirements of the Competition in Contracting Act and
are competitive in that participation has been open to all
responsible sources.\8 In addition, prices negotiated by the Federal
Supply Service and the vendors are to be based on each vendor's best
discounts within certain categories of customers and sales
information on top-selling items within product or service groups. 
Vendors also benefit because their commercial products are exposed to
a large number of potential customers.  Also, the vendors expend less
effort to sell products to federal agencies if their items are
available through the schedules program because of the reduced
paperwork.  For example, a business would not have to prepare a
separate offer in response to agency solicitations for every federal
agency it wants to supply. 


--------------------
\5 Terms and conditions of sale can include such factors as delivery
and payment requirements, warranty requirements, timing of price
increases, and functions performed for the government by the vendor. 
According to the Acquisition Management Center Director, these terms
and conditions can vary by vendor and by product. 

\6 The Acquisition Management Center Director said that GSA is in the
process of converting contracts to multiyear contracts.  However,
these contracts, like most other federal contracts, can be amended at
any time. 

\7 The number and identity of schedules can vary from year to year
due to the creation of new schedules, the elimination of old
schedules, and the merging of schedules. 

\8 41 U.S.C.  253. 


      RECENT CHANGES TO THE
      FEDERAL SCHEDULE PROGRAM
-------------------------------------------------------- Chapter 1:1.1

Since 1994, GSA has taken several actions that were intended to make
it easier for federal agencies to obtain commercial goods and
services through its supply schedules program.  For example, GSA has
simplified ordering procedures to reduce the amount of paperwork
involved.  In addition, agencies have the option of placing orders of
$2,500 or less with any schedule vendor of their choice.  Also, when
placing orders of more than $2,500, agencies are no longer required
to fully justify when an item is not purchased at the lowest price. 
Instead, agencies are to review at least three price lists or
consider other alternatives on the schedules.  To further simplify
ordering through the schedules program, GSA is in the process of
deploying an electronic ordering system for customer access to the
full range of GSA supplies and services.  GSA plans to have this
system, which is to be available through the Internet, fully
operational by the end of fiscal year 1997.\9 GSA is also making the
use of the supply schedules program optional on the part of all
executive branch agencies and is eliminating mandatory use provisions
in its contracts.  In addition, GSA is requesting that vendors be as
expeditious as possible and identify items that can be delivered
faster than both normal and expedited delivery times.  Vendors are
also requested to identify items that can be delivered overnight or
within 2 days.  Maximum order limitations are also being removed, and
GSA has developed new procedures allowing vendors to accept "any
size" order.  In addition, customers are encouraged to request price
decreases from vendors before placing orders exceeding a certain
size.  Also, vendors are allowed to offer individual agencies price
reductions without passing these reductions on to all other federal
agencies. 


--------------------
\9 Under GSA's plan the system will not include schedules for which
VA is responsible. 


      OTHER ORGANIZATIONS HAVE
      BEEN AUTHORIZED TO USE GSA'S
      SERVICES
-------------------------------------------------------- Chapter 1:1.2

The federal supply programs were initially for use primarily by
federal agencies and the District of Columbia.  However, since 1949,
Congress has authorized a variety of other entities to use GSA's
procurement services, including the federal supply schedules.  For
example, the Foreign Assistance Act of 1961 provides that the
president may authorize certain countries, international
organizations, the American Red Cross, and voluntary nonprofit relief
agencies to use GSA's sources of supply.\10 Many Indian tribal
governments also have been authorized to make purchases from GSA
under the Indian Self-Determination and Education Assistance Act of
1975.\11 In 1978, Gallaudet College, Howard University, and certain
other charitable institutions or nonprofit organizations;\12

as well as fire fighting organizations cooperating with the Forest
Service,\13 were authorized to make purchases through GSA.  In 1992,
Congress provided the governments of American Samoa, Guam, the
Northern Mariana Islands, the Trust Territory of the Pacific Islands,
and the Virgin Islands the authority to make purchases through
GSA.\14 In 1993, Congress authorized law enforcement agencies
involved in counter-drug activities to make purchases through GSA.\15


--------------------
\10 Public Law 87-195, Sept.  4, 1961. 

\11 Public Law 93-638, Jan.  4, 1975. 

\12 Public Law 95-355, Sept.  8, 1978. 

\13 Public Law 95-313, July 1, 1978. 

\14 Public Law 102-247, Feb.  24, 1992. 

\15 Public Law 103-160, Nov.  30, 1993. 


   THE FEDERAL COOPERATIVE
   PURCHASING PROGRAM
---------------------------------------------------------- Chapter 1:2

The 1993 report of the National Performance Review (NPR) recommended
that state and local governments, grantees, and certain nonprofit
agencies be allowed to use federal supply sources.\16 In addition,
NPR recommended that federal agencies be allowed to enter into
cooperative agreements to share state and local government supply
sources.  The basis for the recommendation was the belief that
consolidated government procurement actions tend to maximize the
economic advantage of volume buying with lower costs to the taxpayer. 
The concept of cooperative purchasing was not unique to NPR. 
Cooperative purchasing has existed in varying forms since at least
the 1930s when various governments started joining forces for the
purposes of making intergovernmental cooperative purchases.  In
addition to the tangible benefit associated with cost savings, other
benefits cited by members of such cooperative purchasing groups
include the exchange of procurement information. 

NPR's report noted that even though federal agencies, the District of
Columbia, and some other organizations were authorized by law to use
federal supply sources, state and local governments generally were
not authorized to use them.  The report concluded that allowing
governments to enter into agreements to use one another's contracts
would reduce administrative staffs and costs and that all levels of
government would be able to negotiate better prices as a result of
the increased volume of sales under the contracts. 

A cooperative purchasing program that would allow state, local, the
Puerto Rican, or Indian tribal governments to use the federal supply
schedules was enacted as section 1555 of FASA, which amended the
Federal Property and Administrative Services Act.  The section
provided GSA with considerable discretion on the way the program is
to operate and the specific federal supply schedules it may authorize
these governments to use.  The section also allowed GSA to charge
state, local, Indian tribal, or Puerto Rican governments a fee for
any administrative costs it incurs by allowing these governments to
use the schedules.  FASA stipulated, however, that these governments
are not authorized to use GSA's stock program.  At the time that the
provision was being considered by Congress, little debate occurred
over any possible adverse effects of allowing state and local
governments the use of GSA's schedules program. 

On April 7, 1995, GSA published a Federal Register notice that
presented and requested comments on its proposed implementation plan
for section 1555.\17 As proposed, GSA planned to make the schedules
available to the authorized governments upon their requests unless a
determination was made by the GSA contracting officers responsible
for specific schedules that it would not be appropriate to do so. 
For example, schedules would not be made available to nonfederal
users if doing so would raise prices that federal agencies pay for
items on those schedules.  Under GSA's proposal, individual schedule
vendors would be able to elect whether or not to make the products or
services they sell through the schedules available to authorized
nonfederal users.  If vendors elect to make products available to
nonfederal users, GSA officials said that this could be accomplished
by modifications to their existing contracts.  GSA planned that these
nonfederal users would place orders directly with supply schedule
vendors.  As authorized by FASA, GSA also planned on charging the
governments an administrative fee for the use of the schedules as GSA
converts the supply schedules program from a federally appropriated
program to an operation funded by fees charged for services.  The
administrative fee was to be included in the vendors' prices for each
schedule item.  Vendors, in turn, would transfer fees collected to
either GSA or VA.\18

GSA does not envision that the supply schedules program, or items
available through that program, would change significantly as a
result of the cooperative purchasing program.  In its April 1995
Federal Register notice, GSA cautioned that schedule contracts would
be established only to meet the needs of federal agencies, and only
to the extent that nonfederal users had a need for the same items or
services would they be authorized to use the schedule contracts.  GSA
officials subsequently told us that GSA would determine, on a
case-by-case basis, which schedules should be available to nonfederal
users, taking into consideration the potential effect that opening up
the schedule may have on the federal government.  According to these
officials, if allowing state or local governments the option of using
a schedule could result in increased prices to federal agencies, GSA
would not make the schedule available to nonfederal users. 

In its Federal Register notice, GSA announced that it had determined
that two schedules--one for drugs and pharmaceutical products and one
for medical equipment and supplies (in vitro diagnostic substances,
reagents, test kits and sets)--should not be made available for use
by nonfederal users because it would not be in the interest of the
federal government.  GSA based its determination on VA's
recommendation that these schedules not be made available because of
unique statutory requirements imposed by the Veterans Health Care Act
of 1992,\19 which, according to GSA's Federal Register notice, would
result in increased prices for products on these two schedules.  The
potential effects of opening the pharmaceutical schedule on drug
prices will be discussed in a separate GAO report. 

Following enactment of FASA, concerns emerged from several industries
that because of either their market structure or other factors, they
would be subject to adverse effects, such as lost sales, from
cooperative purchasing.  The Clinger-Cohen Act of 1996 suspended
GSA's authority to implement the cooperative purchasing provision of
FASA.\20

The 1996 act also mandates that we report on the implementation and
effects of cooperative purchasing and that we submit a report to both
GSA and Congress within 1 year of enactment.  The 1996 act further
requires GSA to submit comments to Congress on our report within 30
days.  GSA's authority to implement the cooperative purchasing
program under section 1555 of FASA is suspended by the 1996 act until
18 months after the act's enactment or until 30 days after GSA's
comments on our report are submitted to Congress, whichever is later. 


--------------------
\16 See From Red Tape to Results:  Creating a Government That Works
Better & Costs Less, report of the National Performance Review, Vice
President Al Gore, Sept.  7, 1993; and Reinventing Federal
Procurement:  Creating a Government That Works Better and Costs Less,
accompanying report of the National Performance Review, Sept.  7,
1993.  See also Management Reform:  Implementation of the National
Performance Review's Recommendations (GAO/OCG-95-1, Dec.  5, 1994). 

\17 Federal Register, Vol.  60, No.  67, Apr.  7, 1995, pp.  17764 -
17769. 

\18 Currently, GSA's administrative fee is 1 percent of the cost of
the schedule item ordered, while VA's administrative fee is 1/2
percent. 

\19 Public Law 102-585, Nov.  4, 1992. 

\20 Public Law 104-106, Feb.  10, 1996.  This act was originally the
Federal Acquisition Reform Act of 1996 and was renamed by section 808
of Public Law 104-208; Sept.  30, 1996. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:3

The objectives of this report were to assess: 

  -- the potential effects of cooperative purchasing on state and
     local governments, the government of the Commonwealth of Puerto
     Rico, Indian tribal governments, and federal agencies;

  -- the potential effects of cooperative purchasing on industry,
     including small businesses and local dealers; and

  -- GSA's plans to implement the cooperative purchasing program. 

The Clinger-Cohen Act of 1996 mandated that our report include
assessments of the potential effect of the cooperative purchasing
program on (1) state and local governments, the government of the
Commonwealth of Puerto Rico,\21 and Indian tribal governments; and
(2) industry, including small businesses and local dealers.  The
Conference Report accompanying the 1996 act further directed that we
include an assessment of the effects on costs to federal agencies of
state and local governments' use of the federal supply schedules. 

To assess the potential effect of the cooperative purchasing program
on state, local, and Indian tribal governments and on federal
agencies, we collected and reviewed data that described the
procurements and procurement methods that each level of government
used.  To assess the potential effect on state governments, we
conducted a September 1996 nationwide survey of states and
territories to obtain information on state laws or practices that
would encourage or inhibit states' use of the federal cooperative
purchasing program and the extent to which they would use the program
and for what purposes.  Responses were obtained from 48 states and 2
territories.  We did not attempt to verify the responses made by
state officials or the reasons given for their responses about their
potential use of the federal supply schedules program.  (App.  II
provides the results of this survey.) We also contacted associations
that represent state and/or local governments, including the National
Association of State Purchasing Officials, to obtain their members'
views on the cooperative purchasing program and to obtain any
relevant data these associations had on the potential effect of the
program.  We obtained and reviewed available data from a nationwide
survey conducted by the National Association of State Purchasing
Officials in 1992 that asked whether the laws in the individual
states would allow the use of the federal supply schedules; whether
state purchasing officials expected to use the cooperative purchasing
program; and what, if any, advantages and disadvantages these
officials saw in the program.  (App.  III provides a listing of all
associations whose views we obtained.) In addition, we reviewed
comments made by state and local governments in response to GSA's
April 1995 Federal Register notice. 

To more fully understand factors that may influence state and local
governments' decisions on whether to make purchases through the
federal cooperative purchasing program, we contacted 29 purchasing
officials in California, Montana, New York, West Virginia, and Puerto
Rico to obtain information on procurement practices.\22 We selected
these states with a view to obtaining diversity in geographic
location and size, as well as in size of population.  In addition to
obtaining information from each state's and Puerto Rico's central
purchasing offices, we selected 24 program agencies in the 4 states. 
These agencies included each state's transportation department, a
state university or university system, plus an agency suggested by
the state procurement agency from which to obtain information.  These
program agencies also included three local government agencies so
that we could provide similar information on those local agencies'
purchasing requirements and practices.  We selected the program
agencies to ensure a range of potential users of a cooperative
purchasing program.  We selected the local government program
agencies, in consultation with state purchasing officials, to include
both large and small local government entities.  Our selection was
not designed to produce a statistically valid sample of state and
local government agencies that would be eligible to participate in a
cooperative purchasing program.  The purpose was to supplement our
other information and provide an indication of the factors that would
influence state and local agencies' decisions on whether to use the
federal cooperative purchasing program. 

In addition, we asked state and local officials in these four case
study states if their procurement laws or policies would allow them
to use the federal cooperative purchasing program and, if not, the
nature of their procurement laws or policies that would prohibit or
limit their use of the program.  Although we did not attempt to
determine if the views of the state and local officials regarding
these laws and policies in these four states were necessarily
correct, we did review the laws to understand the basis for their
positions.  We also obtained their views on whether they wanted
access to the federal supply schedules and the reasons for their
views.  Further, we contacted the Puerto Rican Government's central
purchasing office to obtain Puerto Rico's views on the cooperative
purchasing program and information on its laws that may affect its
use of the program. 

To determine the extent that state or local governments could or
would be likely to use the program, we conducted case studies in the
four states.  We asked the 24 selected program agencies to provide
procurement documentation (i.e., invitations for bids, contracts,
purchase orders, invoices, etc.) used to make recent purchases.  We
asked that these purchases reflect items that the agencies were
interested in purchasing through GSA, because the items were (1)
routinely purchased (i.e., high volume); (2) consumed a large portion
of the procurement budget (i.e., high-dollar volume); (3) difficult
to procure; or (4) available through GSA's schedule program, and the
state or local agency believed the GSA vendor may be a better source. 
We received procurement documentation from 16 of the 24 agencies.  We
did not determine why the agencies selected the purchases for which
they provided us documentation.  We provided the procurement
documentation to GSA, which had its contracting officers determine
whether the same or comparable items were available through GSA's
supply schedules program and, if so, how GSA's contract terms and
conditions of sale, including price, compared to the terms and
conditions of sale obtained by state and local agencies.  We did not
verify GSA's determinations.  (App.  IV presents the results of this
comparison.)

Although the items represented by the procurement documentation
obtained from state and local agencies do not comprehensively
represent the types of goods or services these agencies could or
would purchase through the federal cooperative purchasing program,
they do provide an indication of the experience state and local
agencies may encounter when considering making such purchases. 
Neither we nor GSA determined if the quantity of items purchased by
individual state or local agencies was more than or less than
vendors' maximum order limits, and hence potentially eligible for
additional discounts from the vendors' list prices, or whether actual
prices paid by federal agencies were less than schedule prices. 

To better understand how state and local law enforcement agencies
have used a similar program that has given them access to federal
supply schedules to support state and local drug enforcement
activities, we contacted state officials in seven states.  We
selected them either because they participated in GSA's pilot for
this program or because of their geographic location.  We asked these
officials to describe their use of the program, including their
experiences with the availability and prices of products on the
federal supply schedules.  In addition, to obtain similar information
we contacted a purchasing official in the Virgin Islands, who already
had access to federal supply schedules, and representatives of
several cooperative purchasing arrangements under which state or
local governments have agreed to pool their purchases of certain
products. 

We also used the Input-Output Accounts for the U.  S.  economy
provided by the Department of Commerce's Bureau of Economic Analysis
to provide data on the types of goods and services that state and
local governments purchase and to compare their purchases with
nondefense federal purchases.  The Input-Output Accounts show the
relationship among all industries in the economy (including the
various levels of government) and all the commodities that they
produce and use.  We used these data to indicate the pattern of
industry purchases made by the federal, state, and local governments
and to determine the extent to which these governments' patterns of
purchases are similar or different.  We also used these data to
indicate the extent to which state and local governments purchase
items from industries whose products might be available on federal
supply schedules. 

We used these national data at an aggregate level to get a general
indication rather than a precise measure of the pattern of federal,
state, and local purchases among industry groups.  We did not use
these data to provide a precise measure of the relationship between
the various levels of government and the industries that might be
affected.  First, the Input-Output accounts are organized along
industry classifications that differ from those of GSA's supply
schedules.  Second, as the Bureau of Economic Analysis notes, the
most recent data in the Input-Output accounts are for 1987 and the
patterns of purchases could have changed since that time.  Our use of
these data entails an assumption that there have not been major
changes in interindustry relationships (including those between state
and local governments and industries that supply these governments). 
We believe this to be a reasonable assumption given our use of the
data for describing, in general terms, state and local purchases and
comparing them with federal purchases. 

To assess the potential effect of the cooperative purchasing program
on Indian tribal governments, we discussed the use of the federal
supply schedules by Indian tribal governments with Bureau of Indian
Affairs (BIA) officials in the Department of the Interior and with
GSA officials.  We also contacted three Indian tribal governments
that have entered into agreements with the federal government to
assume responsibility for programs that would otherwise be the
responsibility of the federal government to determine whether these
tribal governments have used their existing authority to use GSA as a
source of supplies and services.  We selected tribal governments on
the basis of a BIA official's recommendation that, as large tribes,
these were likely to be among the heaviest users of GSA's supply
programs and thus the most knowledgeable about GSA's programs. 
Although the tribal governments sampled do not represent all Indian
tribal governments, they do provide an indication of Indian tribal
procurement procedures and practices by Indian tribal governments
that have entered into such agreements. 

To assess the potential effect of the cooperative purchasing program
on costs to the federal government, we obtained information from the
Departments of Defense, Health and Human Services, the Interior,
Justice, and VA to determine whether they had conducted any
assessments of the program and what effects they identified as
likely.  These departments were selected on the basis of their being
among the largest users of GSA's schedules program.  In addition, we
obtained the views of GSA's Acquisition Management Center and VA on
the effect of opening up the supply schedules on schedule vendors and
federal agencies purchasing through the schedules program. 

To assess the potential effect of the cooperative purchasing program
on industry, including small businesses and local dealers, we
analyzed data from the Department of Commerce's Input-Output Accounts
(discussed previously) to estimate the government share of total
sales for industry groups.  We used these data to provide an
indication of the extent to which various broadly defined industry
groups rely on sales to the federal, state, or local governments
rather than as a precise measure. 

We also obtained information from industry associations, including
those that represent small business, to identify factors that may
affect those industries; these associations included the American
Small Business Association, the Environmental Industry Association,
the Health Industry Manufacturers Association, and the National
Retail Federation.  (See app.  III.) In addition, we selected vendors
from selected GSA schedules to obtain vendors' views on the potential
effect of allowing nonfederal agencies to purchase through the
federal cooperative purchasing program.  We selected schedules on the
basis of GSA officials' views that nonfederal governments would have
high interest in procuring products on them.  These schedules
included the computer schedules (including the telecommunications
equipment schedule and the microcomputers schedule); special industry
machinery schedule (copying equipment, supplies, and services); and
furniture systems schedule.  We also selected schedules and vendors
in industries where associations representing the industry have
informed GSA or us that they would or could be negatively affected
should specific schedules be made available to nonfederal agencies. 

We also reviewed public comments GSA received from industry in
response to its April 1995 Federal Register notice and contacted
several businesses and trade associations that expressed concern over
GSA's proposed plan for implementing the program.  This group
included dealers and distributors of heavy equipment.  We also
contacted those companies that supplied items to state and local
governments, which were identified through procurement documentation
provided by state and local agencies (as described above), to obtain
their views on how the program could affect sales their companies
made to state and local agencies.  Even though the industry groups
and the companies contacted do not represent all industry groups or
all companies, these groups and companies do provide an indication of
possible effects that businesses expect from the federal cooperative
purchasing program. 

To assess GSA's plans for implementing the cooperative purchasing
program, we held discussions with GSA's Deputy Associate
Administrator, Office of Acquisition Policy; the Director, GSA's
Acquisition Policy Division; the Assistant Commissioner, Federal
Supply Service, Office of Acquisition; the Assistant Commissioner,
Federal Supply Service; the Director, Acquisition Management Center,
Federal Supply Service; as well as the director of GSA's automotive
center and contracting officers for the selected schedules mentioned
previously.  In addition, we contacted contracting officers for
several schedules, including those schedules for which companies
informed GSA that they would be negatively affected should specific
schedules be made available to nonfederal agencies.  We also talked
with representatives of VA's National Acquisition Center, which has
primary responsibility for the pharmaceutical and medical equipment,
supplies, and devices schedules, including Division Chiefs for 13
schedules. 

We recognize that there are limits to our ability to predict the
effects of opening the supply schedules on state and local
governments or on industry.  Part of the limitations stem from the
unavailability of data.  For example, except for VA's Pharmacy Prime
Vendor programs, the various agencies generally do not have the
detailed expenditure data that readily indicate what and how goods
and services are purchased, and we do not have access to nonfederal
contractors' records.  However, even with these data, we would not be
able to predict how state and local governments would choose to
utilize these schedules, how industry would respond to any changes in
state and local purchasing arrangements, or how contract terms would
change. 

We requested comments on a draft of this report from the Acting
Administrator of GSA and the Secretary of the Department of Veterans
Affairs; the Coalition for Government Procurement, which represents
businesses supplying about 75 percent of federal purchases through
the schedules program; and the National Association of State
Purchasing Officials, which serves the purchasing administrators in
the 50 states and U.S.  territories.  The Acting Administrator of
GSA, VA's Deputy Assistant Secretary for Acquisition and Materiel
Management, and the Chair and Co-chair of the National Association of
State Purchasing Officials' Federal/State Relations Committee
provided written comments, which are included as appendices V, VI,
and VII of this report, respectively.  The Executive Director and
other representatives of the Coalition provided oral comments to us
on January 9, 1997.  Comments from these agencies and organizations
are discussed at the end of chapters 2, 3, 4, and 5, as appropriate. 

We conducted our work from July to December 1996 in accordance with
generally accepted government auditing standards. 


--------------------
\21 Henceforth, this report will include the government of the
Commonwealth of Puerto Rico within the phrase "state and local
governments" to simplify presentation of collective data. 

\22 Although we contacted 29 agencies' purchasing officials, we were
able to obtain information on procurement practices from only 26
agencies. 


SEVERAL FACTORS ARE LIKELY TO
LIMIT POTENTIAL BENEFITS TO
NONFEDERAL AND FEDERAL USERS
============================================================ Chapter 2

Many state and local governments we contacted want access to the
federal supply schedules because they perceive potential benefits
from the use of cooperative purchasing.  However, these potential
benefits may be limited because of (1) state or local laws,
ordinances, or policies that direct how or where state or local
purchases can be made; (2) the unavailability of needed goods or
services through the schedules program; (3) higher costs or
unattractive sales conditions for goods or services through the
program; and (4) the need for nonfederal governments to maintain
capacity to purchase items they do not buy from the schedules
program.  The federal cooperative purchasing program is not likely to
have a substantial effect on Indian tribal governments because many
tribes already have access to GSA's federal supply schedules for many
of their programs. 

Although GSA believes the cooperative purchasing program has the
potential to result in lower schedule prices because of the increased
sales that GSA vendors may be able to make through the program, the
extent to which this will happen is unclear because of many factors,
including those that may limit nonfederal government agencies' use of
the program and uncertainty over how many businesses will react. 
Given GSA's plan to not open schedules when adverse effects on
federal agencies are anticipated, there appears to be little risk
that federal agencies will be adversely affected if GSA effectively
implements the program. 


   STATE AND LOCAL GOVERNMENTS
   PERCEIVE POTENTIAL BENEFITS
---------------------------------------------------------- Chapter 2:1

Most state and local governments we contacted indicated that they
want the option of using the GSA supply schedules.  State and local
government officials we contacted said that such an option would
provide several potential benefits, including the ability to obtain
more competitive prices, a wider selection of goods and services,
reduced purchasing turnaround times and administrative time and
costs, and additional negotiating leverage with their traditional
suppliers. 


      NONFEDERAL GOVERNMENTS WANT
      ACCESS BECAUSE THEY PERCEIVE
      POTENTIAL BENEFITS
-------------------------------------------------------- Chapter 2:1.1

The results of our nationwide survey of state purchasing officials,
as well as discussions with 26 state, local, and Puerto Rican
government purchasing officials, indicate that these state and local
governments are generally in favor of having GSA supply schedules
available for their use because of perceived benefits.  Similarly, in
its January 1997 report, GSA found that state and local governments
want access to the federal supply schedules because of perceived
benefits.\1

In response to our survey, 34 of the 48 states and two territories
that responded to our survey, including Puerto Rico, indicated that
they would use the federal schedules program for making purchases. 
Even if the program were not used for making purchases, of the 50
respondents, 38 said they would use the schedules for price
comparisons; 24 said they would use the schedules for benchmarking;\2
and 15 said they would use the schedules to negotiate with vendors. 
It is important to note that many states may already have access to
schedules information, including through the Internet, and may
already be using the schedules for these three purposes. 

In addition to our nationwide survey, we contacted purchasing
officials in 29 agencies in California, Montana, New York, Puerto
Rico, and West Virginia to obtain their views on the federal
cooperative purchasing program.  We also reviewed comments GSA
received from state or local agencies in response to its Federal
Register notice.  Of the 26 agencies' purchasing officials who
responded to our information requests, all 26 said they favored
having access to the federal supply schedules.  Purchasing officials
from seven of the agencies said that the supply schedules offer the
potential for obtaining lower prices on popular items they purchase,
such as computers, furniture, and office equipment.  For example, the
Assistant Director of Facilities for the West Virginia Office of
Higher Education stated that the supply schedules would complement
what state colleges and universities are already doing by providing
them an additional source of potentially lower prices that could
result in better use of state funds.  The Business Service Officer
for the California Highway Patrol said the agency would benefit
because some of GSA's prices would be lower than those the agency can
obtain, and knowing that it has access to GSA vendors will force the
agency's current contractors to be more competitive and possibly
lower their prices.  In comments on GSA's Federal Register notice,
the Purchasing and Material Manager for the City of Chandler,
Arizona, stated that the federal cooperative purchasing program would
benefit cities such as Chandler because it cannot obtain prices as
favorable as GSA's prices because of the smaller quantities it
orders. 

In addition, several state and local government officials said that
having the schedules available to them could provide them a greater
selection of items.  For example, in comments to GSA, the Executive
Director of the Lexington-Fayette Urban County Housing Authority in
Kentucky said that it had a high interest in using the supply
schedules to purchase commonly used goods and services because small
purchases could be simplified and the choice of items increased
because of the large number of GSA vendors.  He said his agency could
benefit from the wide range of items available on the schedules
because virtually every GSA schedule other than medical, dental, or
laboratory contained items the housing authority used on a regular
basis.  A purchasing official from the New York State Office of
General Services said state agencies can benefit from using the
schedules because they provide greater choice of products, brand
names, and sizes. 

Several state and local government procurement officials also said
that they could realize administrative savings of both time and money
by ordering through the federal supply schedules.  For example,
procurement officials from Albany, New York, and Missoula, Montana,
said that the administrative functions and their associated costs
could be reduced.  These functions and costs include the time and
cost necessary to develop formal solicitation packages; time and
personnel costs to evaluate, negotiate, administer, and award
contracts; and, in some instances, inventory costs to stock items. 
The Director of Purchasing for Puerto Rico's territorial purchasing
agency said that the agency would not have to spend as much time and
money developing solicitations annually.  Puerto Rico currently
awards over 120 competitively bid contracts with local vendors,
according to the director.  In its comments on GSA's Federal Register
notice, the city of Chandler, Arizona, estimated that in fiscal year
1995 it spent from $1,500 to $2,000 per contract to obtain bids for
items that were also available through the schedules program.  The
city Purchasing and Material Manager told us these items included
computers, office supplies, janitorial supplies, plumbing, and
electrical hardware.  Procurement officials from the New York State
Office of General Services and the city of Albany, New York, said
that procurement lead times could also be shortened for state and
local governments because they would be able to simply place a
delivery order from an existing supply schedules contract.  An
official from Louisiana State University commented that the
university could eliminate about 8 weeks from the time it usually
takes to receive and review bids on systems furniture for its
Computing Services Building if it could use the GSA contract on
systems furniture. 

GSA asked the National Institute of Governmental Purchasing, which is
an association of federal, state, and local government procurement
officials, to survey its members to determine members' interest in
participating in the cooperative purchasing program.  In its January
1997 summary of survey results, GSA also found that the majority of
respondents indicated that they would participate in the program if
it became available.  Of the 131 respondents, 111 indicated that they
would participate, even though 31 respondents indicated local
ordinances and laws may be a barrier.  The most cited reasons
respondents gave for wishing to participate in the program were
better pricing and administrative ease.  Some concerns, however, were
also cited about legal restrictions, quality, and price, as well as
the administrative complexity of using the federal supply schedules. 
Schedules cited as being of most interest to respondents include the
computer, furniture, office equipment, office supplies, and signs
schedules.  These schedules were each cited by more than 30
respondents.  However, 15 respondents stated they were interested in
all schedules.  Overwhelmingly, respondents indicated a strong desire
for some form of training on using the schedules--including video
tape training and Internet training.  GSA noted that it has videos
available for training and would provide training programs. 

U.S.  Department of Commerce data suggest that state and local
governments could potentially benefit substantially from having
access to federal supply schedules depending on the extent to which
they use them.  Commerce data for 1987 suggest that state and local
governments collectively spend substantially more for several of the
types of items that are available through the schedules than the
federal government does.  For example, Commerce data show that state
and local governments spent $2.3 billion for paper and allied
products in 1987 compared to about $243 million in federal,
nondefense expenditures. 


--------------------
\1 Cooperative Purchasing:  Better Pricing and Administrative Ease
Are Key Reasons for State and Local Governments in Using GSA Federal
Supply Schedules, GSA, Jan.  1997. 

\2 Benchmarking refers to the practice of using the terms and
conditions of sale for an item available through the schedules
program as a standard to judge whether bids received in state
solicitations are reasonable. 


   A VARIETY OF FACTORS COULD
   LIMIT THE POTENTIAL BENEFITS OF
   THE PROGRAM FOR NONFEDERAL
   USERS
---------------------------------------------------------- Chapter 2:2

Although purchasing officials from most states and the local agencies
we contacted want to have the option of using the federal supply
schedules, several factors could significantly limit the benefits
they cited.  These factors include (1) state or local laws,
ordinances, or policies that direct how or where state or local
purchases can be made; (2) the unavailability of certain items or
products through the federal supply schedules program; (3) the
availability of lower prices or better terms and conditions on items
obtained from other sources, and (4) the likelihood that these
nonfederal governments would need to maintain the procurement
capacity to continue using their other supply sources for items they
do not purchase through the schedules. 


      STATE PROCUREMENT LAWS,
      ORDINANCES, OR POLICIES MAY
      LIMIT POTENTIAL BENEFITS
-------------------------------------------------------- Chapter 2:2.1

State or local competitive bidding laws, ordinances, and policies;
the requirement to use state contracts; or preferences to use special
groups of vendors, such as local businesses, the disabled, or
prisons, may direct how or where state or local purchases can be
made.  These laws, ordinances, and policies thus may limit the extent
to which state or local agencies would be able or would want to use
the federal supply schedules program.  Because of this, the perceived
benefits cited by local procurement officials, such as the ability to
obtain more competitive prices, a wider selection of goods, and
reduced time and costs, may be less than otherwise expected.  In
response to our survey of state purchasing officials, 28 of the 34
respondents who indicated that they would make purchases from the
supply schedules said that some law, ordinance, or regulation would
limit their use of the cooperative purchasing program.  All four of
the states we contacted had competitive bidding requirements for
state agency procurements, and they generally mandated that state
agencies use existing state contracts.  All four of the states also
had preference programs for unique vendor groups, such as local
businesses, the disabled, and the prison industry. 

Although these types of requirements and preference programs would
limit state and local use of federal supply schedules, the
possibility exists that they could be changed in the future to allow
greater use of federal supply schedules by state and local
governments. 


         COMPETITIVE BIDDING
------------------------------------------------------ Chapter 2:2.1.1

According to the National Association of State Purchasing Officials,
in an effort to obtain the lowest prices available, most state and
local government procurement statutes, ordinances, and rules provide
that procurements exceeding a specified dollar amount must be made
through formal competition, with public notices, sealed bidding, and
public bid opening.  In its 1992 survey of states, the Association
found that 46 states had statutes requiring the procurement of goods
or services by competitive sealed bids.  According to the survey, the
dollar amount above which competitive solicitation was required
varied widely among states, from $100 in one state to $50,000 in
another.  However, 17 states were required to use competitive sealed
bids for purchases exceeding $10,000, and 9 states were required to
use sealed bids for purchases exceeding $5,000.  The federal supply
schedule programs are considered to be competitive under the
Competition in Contracting Act in that participation in the program
has been open to all responsible sources.  Although some states have
amended their statutes to exempt purchases obtained through the
federal supply schedule program from competitive bidding requirements
of state laws, this is not the case in all states. 

As of September 1996, more than half of the states reported still
having restrictions that would limit their using the federal supply
schedules.  In our survey, 27 of the 50 respondents indicated that
state competitive bidding requirements would limit their states' use
of supply schedules programs.  All four of the states included in our
case studies said that they had state bidding requirements that would
limit their use of the supply schedules program.  Because state
competitive bidding statutes apply only to purchases that exceed
specified thresholds, however, state and local governments might be
able to use GSA's schedule program for purchases that were below
these thresholds and for other limited purchases.  For example, in
its comments to GSA in response to the April 1995 Federal Register
notice regarding GSA's plan to implement the cooperative purchasing
program, Kentucky said that its state law requires state agencies to
make aggregate purchases in excess of $5,000 through competitive
sealed bids.  Because of this requirement, Kentucky said that its
agencies would be able to use the federal supply schedules only in
instances where competitive bidding could not be used, such as when
only one source of supply was available or an agency requested a
specific brand and no substitute was justifiable.  Similarly, Salt
Lake City, Utah, commented that it could use the supply schedules
only for small, sole-source, and emergency purchases. 

Comprehensive data are not readily available for us to estimate the
amount of state and local governments' purchases that must be made
using state competitive purchasing requirements.  However, in its
1992 survey, the National Association of State Purchasing Officials
estimated that 85 percent or more of state and local government
expenditures resulted from competitive solicitation. 


         REQUIREMENT TO USE
         STATEWIDE CONTRACTS
------------------------------------------------------ Chapter 2:2.1.2

Another factor that could limit state or local governments' use of
the federal cooperative purchasing program is a requirement to use
statewide or local contracts.  According to the National Association
of State Purchasing Officials, all states and most local governments
consolidate requirements and award contracts for the purchase of
goods or services for multiple users in order to reduce
administrative costs associated with the preparation and issuance of
solicitations on the same or similar items and the receipt, handling,
and evaluation of the responses.  Although the use of these contracts
may be optional for some state or local agencies, the contracts may
be mandatory for others.  The 1992 National Association of State
Purchasing Officials survey found that the extent to which states and
local governments rely on statewide contracts varied.  For example,
state purchases through statewide contracts ranged from 5 percent of
total dollar volume to up to 90 percent. 

Of the 50 respondents to our survey, 16 states indicated that they
could use GSA's schedules program to procure items only if the items
were not available through other state procurement arrangements, such
as schedules.  The four states included as our case studies also
generally were required to use statewide contracts.  For example, the
New York State Office of General Services is the central procuring
office for hundreds of New York state agencies.  It annually awards
about 2,100 contracts with an estimated purchasing value of $800
million.  According to the Purchasing Director, Office of General
Services, New York state finance law requires state agencies to first
consider the use of the state contracts to acquire commodities. 
State contracts for services and technology are available for
optional use.  However, they are developed to specifically address
the needs of New York state agencies.  In addition, the Purchasing
Director explained that the Commissioner of the Office of General
Services is authorized to approve the use by state agencies of a
contract let by the federal government.  The Director said such
approval would be the procedure used to enable a New York state
agency to use a federal supply schedule that would be available under
the cooperative purchasing program.  More than half of the contracts
are available for use by about 3,100 eligible nonstate agencies,
including local governments, school districts, and fire districts. 
These agencies account for about 40 percent of the purchases made
under the statewide contracts. 

However, even though a state may require state agencies to use
statewide contracts, exceptions may exist when agencies can
demonstrate they can obtain items elsewhere at a lower cost.  In
addition, the mandatory use of statewide contracts may not always
apply.  The Purchasing Director for the West Virginia Procurement
Division said that even though state agencies are generally required
to use state contracts, if a state agency can document that it can
procure goods or services at a lower price elsewhere, the Procurement
Division will, upon request from a state agency, grant a written
waiver for the agency to do so.  The Assistant City Manager for
Charleston, West Virginia, said that the city makes its purchases
using whatever methods or procedures will result in the lowest price. 
This could include using a state contract.  The Chief of Purchasing
for the Raleigh County Board of Education in West Virginia said that
the board uses a combination of purchasing methods, including the use
of statewide contracts, its own contracts, and spot purchases. 
According to this official, the driving factor determining which
procurement method is used is obtaining the lowest price. 


         VENDOR PREFERENCES
------------------------------------------------------ Chapter 2:2.1.3

State and local laws, ordinances, or policies that provide for
contracts to be awarded on the basis of factors other than best price
or best conditions of sale could also limit the potential benefits of
the cooperative purchasing program.  These include laws that direct
contracts to local businesses or to certain groups, such as prisons;
preferences to support local businesses over other businesses; and
commitments to use cooperative contracts. 

The National Association of State Purchasing Officials found in its
1992 survey that 15 states had laws mandating preference for in-state
vendors, and an additional 16 states had laws favoring products
produced in-state.  In addition, it found that 45 states that award
contracts to manufacturers required that sales and services be
rendered through local dealers.  Of the four states we contacted in
our review, two had local vendor preference statutes.  According to
the Business Manager for the West Virginia Department of
Transportation's Division of Highways, West Virginia's vendor
preference law provides in-state vendors with up to a 5 percent price
advantage over out-of-state vendors.  In addition, if at least 75
percent of an out-of-state vendor's workforce is located within the
state, the vendor is given a 2.5 percent price advantage.  Similarly,
according to the Chief of Procurement, Department of Administration,
Montana's vendor preference law provides in-state vendors with a 3
percent price advantage over out-of-state vendors.  She explained
that the Montana statute also provides vendors a 5 percent price
advantage for products produced in Montana. 

Some states have laws to direct purchases to certain groups, such as
the disabled or the prison system.  Three of the four states included
in our case studies had such preferences.  For example, New York's
priority system for making purchases requires state agencies to first
determine whether an item or service is available from one of the
state's established preferred sources, including Corcraft, New York
State Department of Correctional Services, Division of Industries;
the Industries for the Blind of New York State, Inc.; the New York
State Industries for the Disabled; and the New York State Office of
Mental Health.  State law requires that purchases be made from one of
the preferred sources when needed goods or services meeting the form,
function, and utility requirements of the agency are available from
those sources.  Similarly, state officials told us that state
agencies in California and West Virginia that are purchasing goods
made by the state prison industry must attempt to purchase these
goods from this industry before going to another source. 

Even though there may not be state laws that direct that purchases be
made from certain groups, regardless of whether the price is
competitive, state and local governments may prefer purchasing
products and services from in-state or local vendors.  Their reasons
could include a need for customer support services and/or the desire
to support the local economy.  Of the 26 state and local agencies
that provided information on their procurement practices, three state
and four local agencies said that a need for customer support
services or the desire to support the local economy affected their
procurement decisions.  At the state level, the West Virginia
Department of Transportation's Business Manager said that when
developing requests for bids, the Department assigns point values to
such things as vendor warranty, local vendor servicing, and local
availability of spare and repair parts, as well as to the bid price
when awarding contracts.  An official of the University of California
said that its campus system prefers to patronize local businesses in
the communities where campuses are located because to do so helps
support the local economy.  At the local level, the Finance Director
for the city of Missoula, Montana, said that all equipment the city
purchases is from local sources because the city cannot afford to
send equipment out of Missoula for repairs.  In addition, the
Purchasing Coordinator for the city of Elmira, New York, said that
although contracts are awarded strictly on the basis of price,
contract minimum requirements may stipulate that the vendor must
arrange for repair parts and servicing to be provided by dealers
within 150 miles of the city. 

The Director of Purchasing for the Puerto Rican government said that
this government also has a practice of purchasing locally.  Puerto
Rico may find its potential use of the supply schedules similar to
that of the Virgin Islands.  That territory has been able to use the
schedules since 1992.  According to the Deputy Commissioner for the
Virgin Islands Department of Property and Procurement, the Virgin
Islands uses the supply schedules only for those items that its local
vendors cannot supply.  This is because territorial vendors complain
to their local legislators if the government procures from businesses
that are not on the island.  As a result, most of the Virgin Islands'
purchases are not made through the federal supply schedules program,
according to the Deputy Commissioner. 


      COMMITMENTS TO USE
      COOPERATIVE CONTRACTS MAY
      REDUCE PERCEIVED BENEFITS
-------------------------------------------------------- Chapter 2:2.2

Interstate and intrastate arrangements that state and local
governments use to combine procurement needs and collectively procure
items also have the potential to reduce the extent to which these
governments procure certain items through the supply schedules
program.  These types of arrangements may require participating
nonfederal governments to combine the needs for specific items for
the purposes of soliciting bids and awarding contracts and to
purchase those items through those contracts.  According to the
Manager of Contracts and Administration for the Metropolitan
Washington Council of Governments, these arrangements may result in
lower prices than those arrangements where the needs of participants
are not combined for the purpose of soliciting offers.  In its 1992
survey, the National Association of State Purchasing Officials found
that 42 states had statutory authorization for entering into
cooperative procurement agreements with different units of
government, and 22 states had statutory authority to enter into
cooperative procurement agreements with other states. 

In our discussions with 26 state and local agencies' procurement
officials, 3 of the 4 states--Montana, New York, and West
Virginia--indicated that they were members of cooperatives.  In our
nationwide survey, 30 of 50 respondents indicated that they used
cooperative purchasing agreements with states, and 36 indicated that
they used such agreements with local governments.  One example of a
large-scale cooperative procurement arrangement is the National
Financial Services Center's National Cooperative Purchasing Alliance,
which is affiliated with the National Association of Counties and
relies on county purchasing agents across the nation to both select
and bid on products and services on behalf of local governments in
the United States.  One of the Center's programs currently uses the
services of a number of purchasing entities across the country,
including Fairfax, Virginia; Los Angeles, California; Orange,
Florida; and Erie, New York.  This program, which is in the early
stages of development, has resulted in the award of one contract for
office supplies, many of which may be available on federal supply
schedules.  Center officials said that they had not compared their
cooperative purchasing contracts with those of GSA's supply
schedules.  However, they believed that their contracts were
competitive with GSA's. 

Cooperatives also exist at the regional level.  For example, the
Washington Council of Governments comprises 18 of the largest
jurisdictions in and around the Metropolitan D.C., area, including
Fairfax, Loudon, and Prince William counties in Virginia; Prince
George's and Montgomery counties in Maryland; and the District of
Columbia.  According to the Manager of Contracts and Administration
for the Council, as of September 1996, the Council had about 20 or
more cooperative solicitation contracts for the purchase of such
items as fuel oil (heating and diesel), road salt, and antifreeze. 
Members who have pooled their demands for those products must then
use those contracts to purchase those products.  The Council's
Manager of Contracts and Administration said that items suitable for
such cooperative solicitations include those whose specifications are
established by industry, such as fuel oil, and have great pooled
demand among the governments.  This official said that the Council
had not compared its cooperative contracts to GSA's supply schedule
contracts.  However, in general, he did not believe that having the
option of using GSA's contracts would change local governments'
purchasing practices.  Similarly, a representative from a cooperative
initiated by the city of Fort Lauderdale and Broward County, Florida,
said that the cooperative is able to obtain highly competitive bids
through the pooling of members' needs.  Currently, the cooperative
has about 23 members.  Members have pooled their demands to obtain
such items and services as oils, greases, and lubricants;
photographic film; diesel fuel; gasoline; office supplies; sod; brass
valves and fittings; red clay for baseball fields; aggregate (for
construction); field marking paint; mail presort services; athletic
bleachers; paging services; uniforms; water testing; and trucks and
vans.  Once a member agrees to participate in a contract, the member
agrees to purchase through the contract.  Although this
representative said that the cooperative had not compared its
contracts to GSA's supply schedules contracts, another cooperative
representative said that the city of Coral Springs and the
cooperative use some GSA schedules for benchmarking and price
comparisons to determine if local vendors are quoting reasonable
prices.  These representatives said that they would like the option
of using GSA's schedules.  One representative said that having the
option of using GSA's schedules program would be convenient for
making those individual purchases that are sporadic in nature, where
it would be too costly to solicit for bids, or when local vendors may
not be able to supply city and county needs during times of a natural
disaster. 


      THE UNAVAILABILITY OF ITEMS
      THROUGH THE FEDERAL SUPPLY
      SCHEDULE PROGRAM MAY LIMIT
      BENEFITS
-------------------------------------------------------- Chapter 2:2.3

Although more than 4 million items are available through the federal
supply schedules program, not all items needed by state and local
governments would be available through the schedules.  This could
affect (1) whether state and local governments make purchases through
the schedules program and (2) the extent to which these governments
would incur benefits.  We asked 24 state and local agencies in
California, New York, Montana, and West Virginia to provide invoices
of recent purchases to compare prices with similar items on GSA
supply schedules.  Of the 24 agencies, 16 provided documentation for
255 items that they indicated that they would be interested in buying
through the supply schedules program.  Of the 255 items, GSA
determined that 84 were not available.  GSA was unable to make a
determination on whether 101 of the 255 items were available because
the agencies provided insufficient information for GSA to make this
determination.\3 The fact that all goods and services needed by state
and local governments are not available through the schedules program
is not surprising, because GSA operates the schedules program to meet
federal, not state, needs. 

State and local government agencies in California, Montana, New York,
and West Virginia said that they were interested in buying a wide
variety of items through the schedules program, including computers
and computer hardware, office equipment and supplies, laboratory
equipment, airline tickets, furniture, ammunition, asphalt,
prestressed concrete beams and culverts, road salt, paint, diesel
fuel, tires, automobiles, and heavy road maintenance equipment.  Of
the 154 items that state and local government agencies said they were
interested in buying and that GSA could make a determination on
whether the items were available through the federal supply
schedules, GSA identified 70 that were available through the
schedules program.  Whether this would be true for all state and
local government needs is not known because our sample was not
designed to represent all potential users of the federal cooperative
purchasing program.  Items that were available include selected
computer printers, certain types of computers, certain types of
copiers, lawn mowers, de-icing road salt, and certain kinds of office
supplies.  Items that were not available include certain specific
types of computers and computer hardware, some airline tickets,
ammunition, automobiles, certain specific office equipment and
supplies, asphalt, and diesel fuel.  (App.  IV contains a summary of
GSA's determinations on availability and pricing of these items on
federal supply schedules.)

According to the Director of GSA's Acquisition Management Center,
these items, as well as other items that state and local government
agencies may be interested in purchasing, may not be available
through the schedules program because the program is not intended to
supply all federal agencies' needs and is not designed to meet state
or local government agencies' needs.  Rather, the program is intended
to facilitate federal agencies' purchases of commercially available
items that are purchased frequently enough to warrant having them
available through the schedules program.  According to GSA officials,
GSA will not be changing its basis for determining what items are
available through the schedules program in order to accommodate state
or local government agencies' needs. 

U.  S.  Department of Commerce data suggest that those items for
which state and local governments spend the most money are not
available through the federal supply schedules.  For example,
Commerce data for 1987 show state and local governments spending
their largest amounts of money on new construction, maintenance
repair and construction, and electric utilities services--none of
which are available through the schedules program.  Of the items that
accounted for the next two largest amounts of funds--other business
and professional services and petroleum refining and related
products--only a small portion of the former and none of the latter
are available through the schedules. 

Experience among some law enforcement agencies that have been able to
purchase items through the federal supply programs since 1994 also
shows that some items are not available through the schedules
program.  Law enforcement agencies may make purchases through the
program if items purchased are suitable for counter-drug activities. 
A North Carolina official said that some items that state or local
law enforcement agencies want to purchase are on the schedules, while
some are not.  For example, while purchasing a portable thermal
imaging unit suitable for use on helicopters, the state found that
some of the components for the system were available through GSA's
supply schedules, and some were not.  The state was able to purchase
part of the system through the schedules program and obtained
competitive bids for the remainder of the system.  The North Carolina
official said that the law enforcement agency that purchased the
system was able to obtain the entire system for $90,000.  Had GSA's
schedules not been available for the agency to obtain components of
the system, he estimated that the system would have cost an
additional $15,000. 

Since GSA's policy is that it will not make items available if doing
so would be contrary to the interests of its principal customers,
which are federal agencies, state and local agencies may continue to
find some products unavailable to them.  In some cases, GSA may not
make all schedule items available; and in other cases, the schedules
may not include items that these nonfederal governments need.  For
example, GSA's Federal Register notice proposed excluding the
pharmaceutical schedule and one medical equipment and supply schedule
from the cooperative purchasing program.  GSA also does not intend to
make its airline or fire fighting vehicles schedules available
through the cooperative purchasing program because of its concern
that doing so would lead to higher federal prices or adverse effects
on businesses.  (See.  ch.  3.)


--------------------
\3 We did not attempt to collect additional information on the
invoices or contracts for these 101 items. 


      ITEMS AVAILABLE THROUGH THE
      SCHEDULES PROGRAM MAY BE
      MORE COSTLY
-------------------------------------------------------- Chapter 2:2.4

The extent to which items are available through the supply schedules
program but at higher prices than are available through other means
or with less desirable servicing or sales conditions will limit the
potential effect of the cooperative purchasing program on state and
local governments.  Our case studies conducted as part of this review
and procurement work we have done previously demonstrate that GSA
does not always have the lowest price or the most favorable sales
conditions.\4

As part of our review, we asked GSA to compare its schedules'
offerings with 255 items recently purchased by 16 state and local
governments included in our case studies.  GSA found that although
some items were more favorably priced through the schedules program,
others were not.\5 Of 70 items that state and local governments said
they would be interested in purchasing that are available through the
schedules program, 20 were purchased by the state and local
governments at lower sales prices or with more attractive sales
conditions than those of the schedules program, 47 items could have
been purchased at lower prices through the schedules program, and 3
items could have been purchased at the same price.  For example, the
Raleigh County, West Virginia, Board of Education purchased a Hewlett
Packard Laserjet computer printer for $485; GSA's schedule price was
$446, or 8.04 percent lower.  The City of Mountain View, California,
purchased another type of computer printer (Laserwriter 16/600) for
$2,046; the GSA schedule price was $2,104, or 2.83 percent higher. 
Fairmont, West Virginia, State College purchased a computer system
upgrade for $510.75; GSA's schedule price was $394, or 22.86 percent
lower.  The State of West Virginia purchased road de-icing salt for
$36.90 per delivered ton; the GSA schedule price was $42.75 per
delivered ton, or about 15.9 percent higher. 

According to state purchasing officials, GSA may not always have the
lowest price.  Of the 50 respondents to our survey, 33 indicated that
they had analyzed some GSA schedule prices.  Of those 33 respondents,
13, or about 39 percent, indicated that state prices were generally
lower than those available through GSA for the items they compared,
while 2 states, or about 6 percent, indicated that GSA generally had
lower prices for the items they compared.  In addition, of the 33
respondents, 18, or about 55 percent, said some state prices were
higher and some were lower than GSA's prices for the items they
compared.  We did not ask state purchasing officials to identify any
specific items or prices they compared, nor did we verify their
responses. 

Some officials we interviewed in the four states included in our case
studies also indicated that GSA's schedule prices were not always
lower than their prices.  For example, a purchasing director in the
New York State Office of General Services said that state contract
prices are frequently lower than GSA's schedules prices.  Also, the
Chief of Purchasing for the Raleigh County, West Virginia, Board of
Education said that at times he has compared GSA's schedules prices
to prices the board can obtain locally and found that GSA's schedule
prices have generally been higher.  For this reason, he said that
opening the federal supply schedules for state and local governments
will probably have little effect, even on small local businesses.  He
said that state and local buyers are already seeking the best match
between the product or service they need or want and the lowest
price, and competitively bid prices are generally lower than the
prices GSA obtains. 

States we contacted that are participating in GSA's law enforcement
schedules program have had similar experiences.  According to a North
Carolina official, prices are not always lower through GSA's
schedules program, particularly with the administrative fee that is
included on schedules prices to pay for administrative costs.\6 He
said that law enforcement agencies can, at times, find items through
state contracts that are less expensive, and having the supply
schedules available would not likely result in any state or local
firms being put out of business because the schedule prices are not
always better.  He also said that law enforcement agencies frequently
have many reasons to purchase locally aside from price, such as the
desire to support local businesses.  According to a West Virginia
official, West Virginia has found that GSA's prices are not always
the best prices.  She said that statewide contracts or department
contracts frequently are competitive with GSA's prices.  She
explained, for example, that the state of West Virginia and GSA both
have contracts with the same manufacturer for light bar assemblies,
which are the racks used to mount lights on top of police cruisers,
and the state's contract had a per item cost of about $100 to $125
less than GSA's list price.  However, some law enforcement agencies
have realized savings through the federal supply schedules.  For
example, according to the North Carolina Alcohol Law Enforcement's
Deputy Director for Purchasing, the agency has purchased radios as
well as a camera through the program.  He said that the agency could
not have afforded the camera except at the price available through
the schedules program.  An official in California's Counter Drug
Activities Procurement Program said that of the $360,000 in purchases
made through the program, it was estimated that about $60,000 had
been saved.  This official said that departments can save about 33
percent off the prices of such items as cameras and night vision
goggles. 

Our previous work has also shown that GSA's prices may not always be
the best available to state or local governments.  In 1993, we
reported that about half of the top-selling GSA multiple-award
schedule items we examined were less expensive when offered to the
general public or certain state governments than they were through
the program.\7

GSA has pointed out that a number of factors must be considered when
one makes price comparisons between the schedules program and other
supply sources.  One is that federal purchases must comply with all
federal procurement laws.  The Raleigh County, West Virginia, Board
of Education purchased a computer system for $1,455, but the GSA
price for a comparable system was $1,687.  However, GSA said that the
lower priced system included a particular computer monitor that GSA
could not offer because federal acquisition of this item would not be
in compliance with federal international trade law.  Another factor
GSA cites is the terms of sale.  To illustrate this, GSA points out
that all GSA prices on the office supplies schedule provide for
delivery to the customer's desk within 24 hours of purchase, while
state or local prices often require customer pick-up.  GSA pointed
out that GSA schedule prices represent ceiling prices and that
customers are encouraged and permitted to contact schedule
contractors to negotiate lower prices when making a purchase. 


--------------------
\4 See Multiple Award Schedule Contracting:  Changes Needed in
Negotiation Objectives and Data Requirements (GAO/GGD-93-123, Aug. 
25, 1993). 

\5 As noted previously, of the 255 items, 84 were not available
through the federal supply schedules program, and GSA was unable to
make a determination on whether 101 other items were available
because insufficient information was included in the invoices and/or
contracts for those items.  We did not attempt to collect additional
information on these 101 invoices and/or contracts. 

\6 Under the law enforcement schedule program, agencies pay a 4
percent administrative fee to purchase items.  (Under Public Law
103-160, this fee is to be set by the Secretary of Defense, and GSA,
in coordination with the Department of Defense, is to maintain
catalogs for the schedule.) In contrast, the Director of GSA's
Acquisition Management Center said that GSA would only charge a
1-percent fee under the cooperative purchasing program.  According to
the Director, GSA can change the amount of this fee depending on
whether sufficient revenue is generated to pay for GSA's
administrative costs. 

\7 GAO/GGD-93-123, August 25, 1993. 


      EXTENT OF ADMINISTRATIVE
      SAVINGS UNCLEAR
-------------------------------------------------------- Chapter 2:2.5

The extent to which state and local governments could reduce
administrative costs through a cooperative purchasing program is
unclear.  Data compiled by the Center for Advanced Purchasing Studies
at Tempe, Arizona, indicate that the costs of procurement and,
therefore, any costs that state or local governments may save by
purchasing through the schedules program vary considerably.  For
example, the Center's 1994 studies on purchasing performance
benchmarks for state, county, and municipal governments\8 show that
the cost to procure a dollar's worth of goods or services varied
widely, ranging from fractions of a cent to 4 cents of administrative
costs per dollar of procurement.  (We have not verified these data or
assessed reasons for this variability.) As chapter 1 notes, GSA
charges a 1-percent fee for purchases from schedule vendors, and VA
charges a 1/2-percent fee.  Whether this fee will be more or less
than the expenses that nonfederal governments would still incur
should they use the federal supply schedules is unknown.  Further,
since nonfederal governments would not likely be able to use the
cooperative purchasing program to meet all their procurement needs,
these governments would continue to have some administrative and
personnel expenses for procurement purposes.  Moreover, the extent to
which they could reduce their administrative costs is also unknown. 


--------------------
\8 Purchasing Performance Benchmarks for State and County
Governments, Center for Advanced Purchasing Studies, 1994; Purchasing
Performance Benchmarks for Municipal Governments, Center for Advanced
Purchasing Studies, 1994. 


   EFFECT ON INDIAN TRIBAL
   GOVERNMENTS WOULD LIKELY BE
   MINIMAL
---------------------------------------------------------- Chapter 2:3

Allowing Indian tribal governments to use the federal supply
schedules program would appear unlikely to have a substantial effect
on many Indian tribal governments because many of these governments
already have the authority to use not only GSA's supply schedules
program but its other supply programs as well.  The Indian
Self-Determination and Education Assistance Act of 1975, as
amended,\9 gives Indian tribes the authority to contract with the
federal government to operate programs serving their tribal members,
as opposed to having these programs administered by BIA in the
Department of the Interior and the Indian Health Service in the
Department of Health and Human Services.  After entering into an
agreement to assume federal responsibilities, tribal governments
receive the authority to purchase items from federal supply schedules
or from GSA's stock program, which has a range of items available in
a nationwide network of distribution centers.  Since section 1555 of
FASA does not provide these tribal governments with any additional
authority, the section should have little or no effect on the tribal
governments that have contracted with the federal government to
operate programs serving their members.  In fact, by allowing Indian
tribal governments to purchase from GSA customer service centers, the
1975 act provides these governments with broader access to GSA
procurement programs than would section 1555, which would allow
nonfederal users to make purchases only from federal supply
schedules. 

According to BIA officials, approximately 70 percent of BIA's
programs are operated by tribes or tribal organizations.  However,
BIA and GSA do not maintain data on the extent to which tribal
governments use GSA's programs.  According to BIA officials, although
BIA may help a tribal government that has assumed responsibility for
federal programs set up an account with GSA, BIA is not involved in
any transactions between the tribal government and the GSA schedule
vendors.  According to an official in GSA's customer support center,
although GSA is aware that Indian tribal governments have purchased
items through GSA's programs, including its stock programs, GSA does
not have data to measure the total sales to Indian tribal governments
or to indicate what products were purchased. 

Officials from three tribal governments we contacted confirmed that
their governments use GSA's supply programs, but they said that their
reliance on the programs varies because of the availability of items
and the competitiveness of supply schedule prices.  These officials
said that they could not readily identify the share of their total
purchases that were made through the different GSA supply programs. 
Even so, they stated that in certain cases, items and prices that are
available through the supply programs can be financially attractive. 

One tribal official considered access to the schedule program to be
important and noted use of GSA's airline schedule as an example of a
benefit of having access to GSA's schedules program.  (As noted
earlier, GSA does not plan to make this schedule available to state
and local governments through the federal cooperative purchasing
program.) Officials from the other two tribal governments said that
they may use GSA supply programs if needed products are available and
if the prices are better than prices offered by other suppliers. 
However, they said that their use of the programs varied widely.  The
purchasing officer for one tribal government said that GSA's supply
programs, including the schedules program, represent about
three-quarters of the tribal government's total purchases.  In
contrast, an official for another tribal government said that this
tribe's use of GSA's supply programs, particularly the stock program,
was limited to about 5 percent of the tribe's purchases because GSA
frequently did not have needed items in stock.  Both officials noted
that these were only rough estimates because they did not have
records that would provide a breakdown of sales by source. 

Tribal governments that have not entered into an agreement under the
1975 act could gain access to GSA's supply schedules under the
federal cooperative purchasing program in FASA.  In practice,
however, the fact that BIA or the Indian Health Service remains
responsible for providing services to the tribal governments
effectively means that any effect on such a tribal government from
this new access may be limited.  Since federal agencies continue to
be responsible for providing services, these agencies would have to
purchase the goods and services needed to support those services. 
Thus, the tribal government may not need to purchase many items. 


--------------------
\9 Public Law 93-638, Jan.  4, 1975. 


   EFFECT OF PROGRAM ON FEDERAL
   GOVERNMENT DEPENDS ON HOW MUCH
   OTHER GOVERNMENTS USE IT AND
   THE RESPONSE OF VENDORS
---------------------------------------------------------- Chapter 2:4

GSA officials we contacted believe that if sales made through the
federal supply schedules program increase, a net reduction in prices
paid by federal agencies could result from the agencies having a
stronger negotiating position and a reduction in the administrative
fee.  Procurement officials from the Departments of Health and Human
Services, the Interior, and Justice said that they had not assessed
the potential effects of cooperative purchasing.  The Department of
Defense did assess the potential effects of cooperative purchasing on
pharmaceutical prices, but Defense procurement officials told us that
the Department had not conducted a comprehensive assessment of the
potential effects of cooperative purchasing on other types of
products.  Officials in these departments said that procurement
actions are decentralized in their departments and detailed data on
transactions are not maintained centrally.  Because procurement
actions are handled at lower levels throughout their agencies, they
believed that the effects of price changes at the lower levels would
be small.  VA and the Department of Defense have expressed concern
about a possible price increase by pharmaceutical companies if drugs
were made available to state and local governments through the
schedules program. 


      THE PROGRAM MAY RESULT IN
      LOWER ADMINISTRATIVE FEES OR
      LOWER SCHEDULE PRICES
-------------------------------------------------------- Chapter 2:4.1

GSA believes that an increase in the use of and an increase in the
number of sales made through the federal supply schedules as a result
of the federal cooperative purchasing program would have the
potential to reduce the costs of federal purchases.  However, the
extent to which prices could be reduced may be limited to the extent
that GSA already tries to obtain the "best customer price" on
contracts, even though it may encourage some potential GSA vendors to
negotiate lower schedule prices. 

According to the Acquisition Management Center's Director, the
Federal Supply Service is mandated to become a nonprofit,
self-sustaining agency.  A 1-percent charge on sales made by or
through the Federal Supply Service is assessed to purchasers of goods
or services.  The provision to assess a 1-percent fee is included in
GSA's contracts with supply schedule vendors.  The vendors collect
this fee as part of their sales price and transfer the fee to GSA,
which offsets its operating costs.  The Director of GSA's Acquisition
Management Center said that fiscal year 1997 is to be the first year
that fees assessed and collected will be sufficient to sustain the
Federal Supply Service's operations. 

According to the Director, if state and local agencies were to make
purchases through the supply schedules program, the additional sales
made through the supply schedules program could ultimately result in
GSA's lowering the 1- percent charge on sales, because revenues would
be more than sufficient to pay for GSA's administrative costs.  The
Director said that GSA will be monitoring the extent to which
revenues exceed its costs to determine whether it may need to
renegotiate contracts with its vendors to reduce the fee.  GSA
officials also said that the cooperative purchasing program could
also benefit the federal government because if the program results in
increased sales, GSA may be able to negotiate lower prices with its
vendors for items available through the supply schedules.  They
believe vendors may be willing to reduce prices because of the
increased volume of sales. 


      VIEWS OF SELECTED FEDERAL
      AGENCIES
-------------------------------------------------------- Chapter 2:4.2

Procurement officials from the Departments of Health and Human
Services, the Interior, and Justice said that their departments had
not conducted a formal assessment of the possible effects that
cooperative purchasing might have on their budgets or purchases.  The
Department of Defense assessed the potential effects of cooperative
purchasing on pharmaceutical purchases; Defense procurement officials
told us that they had not conducted a comprehensive assessment of the
possible effects on other purchases.  Officials in these departments
commented that such an analysis would be at best difficult, if not
impossible, to conduct.  In addition, these officials said that they
did not have sufficient data on the use of the schedules program by
their departments because ordering authority in their departments was
dispersed.  The departments authorized program managers to manage
their budgets and purchase needed items using their budgets, but they
do not maintain detailed, centralized data on all items purchased by
the different components of their departments. 

An official in the Department of the Interior's procurement office
noted, for example, that Interior had over 900 authorized purchasing
officials working throughout its bureaus and offices and that these
purchasing officials were not required to report all the specific
items purchased.  This official noted that the new purchasing card
program would compound the data limitations.\10 The official said
that Interior had issued over 14,000 purchasing cards and concluded
that it would not be possible to assess the effects of cooperative
purchasing on Interior with the limited available data.  Similarly,
officials at the Departments of Defense and Health and Human Services
noted that their departments did not have data centrally on the
individual items purchased by their components.  One official at the
Department of Defense told us that the department had maintained such
records until about 10 years ago but that currently, maintaining
systematic data is not feasible because of how purchases are made
through the schedules program. 

Although noting that data limitations prevented them from developing
definitive predictions of the effects of cooperative purchasing, some
procurement officials identified several reasons why they felt it
would be unlikely that the cooperative purchasing program would have
a readily noticeable effect on their departments' purchases.  One
reason was that purchasing authority was spread throughout the
departments.  Because of this dispersed purchasing authority,
procurements are generally smaller in scale than major,
departmentwide procurements.  Thus, if the cooperative purchasing
program did affect prices paid by their departments' components, the
effect may not be large enough to be observed in any particular
purchase. 

Some officials also noted that many of the industries that are
included in the schedules program are competitive industries where
other vendors would have an incentive to underbid any vendor seeking
to increase prices as a consequence of cooperative purchasing.  One
official in the Department of the Interior, for example, said that
buyers seek to pay the lowest price available for an item.  If the
schedule price is the lowest price for a particular item, other
buyers, including business buyers, would seek to pay that price.  An
official in the Department of Defense also said that it was unlikely
that the Department would see any sizeable effect from cooperative
purchasing because the items on the federal supply schedules are
commercial items with many buyers and sellers, so a shift in how any
particular group of buyers operates (such as state governments using
the federal supply schedules rather than their own procurement
process) would not necessarily be noticeable to other buyers (such as
the Department of Defense).  Defense officials further noted that
since use of the multiple-award schedules is not mandatory for the
Department, and since any departmental component may purchase items
through contracts negotiated by any other component, the Department
would be less likely to experience substantial effects of wider use
of the multiple-award schedules under a cooperative purchasing
program. 


--------------------
\10 The purchase card program works like other credit card programs
and allows federal employees who have such cards to purchase
commercially available goods and services for government use. 
According to GSA, most vendors that accept commercial credit cards
will accept this government purchase card; the card may also be used
for agency purchases from GSA's stock program. 


      GSA'S ACTIONS TO LIMIT THE
      POTENTIAL NEGATIVE IMPACT ON
      THE FEDERAL GOVERNMENT
-------------------------------------------------------- Chapter 2:4.3

As discussed in chapter 1, GSA officials have stated that GSA would
not open up a schedule if it believes that doing so would negatively
affect the federal government.  Prior to publishing the April 1995
Federal Register notice, GSA was told by VA that opening up the
pharmaceutical schedule and one medical supply and equipment schedule
may result in an increased cost to VA.  On the basis of VA's
recommendation, GSA announced in the Federal Register that it
proposed to exclude the two schedules from the program. 

After the notice was published, the Department of Defense notified
GSA that it concurred in GSA's proposal to exclude these two
schedules because of the potential for increased federal prices. 
Also after the notice was published, a GSA official said that
discussions were held with airline companies, during which these
companies indicated that if nonfederal governments were able to use
the airline schedule, they may raise their schedule prices.  This GSA
official said that because the estimated cost to the federal
government of increased airline fares could be substantial, GSA is
not planning on opening this schedule for state and local use.  GSA's
Acquisition Management Center Director also said that GSA is not
planning on opening up the schedule containing fire fighting vehicles
because of the perceived potential negative effect this may have. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 2:5

In their written comments on a draft of this report, GSA and VA
agreed that many factors make it difficult to definitively assess the
effects of the cooperative purchasing program on federal and
nonfederal governments.  In its comments, the National Association of
State Purchasing Officials agreed that opening the use of federal
schedules has the potential to create a positive effect on state and
local governments.  The Association further noted that there were
also potential areas of concern.  For example, the Association noted
that there could be a perception among local contractors,
particularly small businesses, of diminished opportunities to bid for
state and local government contracts.  It also noted that in some
circumstances, the Federal Supply Schedule contract will not have the
lowest price and said that in such cases, the current system of
multiple contracts helps to ensure that the most competitive prices
are obtained.  Finally, the Association pointed to several conditions
in addition to those we cited that could limit use of or benefits
from the cooperative purchasing program or that could cause
difficulties for nonfederal governments.  These conditions included
mandatory contract terms or restrictions required in many state and
local procurement contracts that schedule contractors might have to
agree to abide by and the possibility that reliance on federal
contracts could adversely affect some nonprofit, nongovernmental
entities, such as charities, schools, and hospitals, that, in some
states, now have access to state contracts.  These types of
organizations would not be eligible to use federal schedules under
cooperative purchasing. 


POTENTIAL EFFECT ON INDUSTRY,
INCLUDING SMALL BUSINESSES AND
DEALERS, IS LIKELY TO VARY
============================================================ Chapter 3

The potential effect of cooperative purchasing on industry, including
small business and local dealers, is likely to vary.  Department of
Commerce data on industry sales suggest that a number of industries
that supply large portions of their output to state and local
governments will not be affected at all because the services or goods
they provide are not available through the schedules program.  The
data also show that the extent of the effects of cooperative
purchasing on other industries is likely to vary due to the differing
portions of their output that are sold to state and local
governments. 

Businesses we contacted also differed in their expectations of the
potential effects.  Some state and local contractors we contacted
believe that cooperative purchasing will have a positive effect by
increasing their sales and customer bases.  On the other hand, some
state and local contractors fear negative effects in the form of
business lost to GSA vendors if the program were implemented.  Also,
certain industries--including medical supplies and equipment, heavy
equipment, and airlines--have expressed concern that they may be
negatively affected by the cooperative purchasing program.  These
effects include a potential for reduced profits and decreased
customer support.  Because of these potential adverse effects, GSA
plans to exclude some schedules that contain those industries' goods
or services.  Other state and local contractors do not foresee any
effect on their business, citing the unique specifications of the
products they sell or their ability to offer competitive prices as
the reasons they would not be affected.  Finally, some contractors
did not know how cooperative purchasing would affect them, citing
uncertainties about how the program would be carried out and the
potential for both gains and losses. 

Reflecting the diversity of views among individual businesses about
how they would be affected by the cooperative purchasing program,
associations representing industry have taken a range of positions on
the program.  However, these associations generally did not provide
conclusive data that would provide the basis for a prediction of the
effects of cooperative purchasing. 


   THE MAGNITUDE OF STATE AND
   LOCAL GOVERNMENT SALES VARIES
   BY INDUSTRY
---------------------------------------------------------- Chapter 3:1

Department of Commerce data on interindustry relationships for
1987--the most recent data available--provide a broad perspective on
the extent to which different industry groups might be affected by
the cooperative purchasing program.  These data suggest that the
effects are likely to vary among different industries.  Some
industries that supply large portions of their output to state and
local governments--such as construction and service
industries--generally are not available through the schedules
program.  Other industries that provide relatively large portions of
their output to state and local governments provide products that
generally are available on the schedules.  According to Commerce's
data, few industries that supply goods to state and local governments
rely on these governments for a large share of their sales. 
According to the most recent data, only 28 industries out of the 89
industries identified in the Commerce data supplied more than 3
percent of their total industry output to state and local
governments.\1 Of these 28 industries, only 14 supplied goods or
services that are available through the schedules program.  However,
these data are national averages for broad industry groups, and
particular firms, specific products, or geographical areas could have
a much higher reliance on state and local purchases than suggested by
these figures. 

Several of the industries that provided a relatively large share (6
percent or more) of their total output to state and local governments
are not likely to be affected much, if at all, by cooperative
purchasing according to Commerce's data.  The output that these
industries supply to state and local governments was generally not
available through the schedules program.  For example, maintenance
and repair construction, new construction, electric utility services,
petroleum refining products, computer and data processing services,
other printing and publishing services, and railroads and related
services are the industries that supplied 6 percent or more of their
output to state and local governments, as demonstrated by table 3.1. 
However, the types of output provided by seven of these industries
were not available through the federal schedules program as of fiscal
year 1996.  In contrast, four industries that supplied 6 percent or
more of their output to state and local governments produce output
that was available through the schedules program, including
ophthalmic and photographic equipment; drugs; miscellaneous
manufactured products, such as signs, pens, mechanical pencils, and
hard surface floor coverings; and farm, construction, and mining
machinery.  GSA has a photographic equipment and supplies schedule; a
construction and highway maintenance schedule; and several material
handling equipment schedules containing such items as forklifts and
material handling equipment.  It also has office supply schedules and
a resilient flooring schedule.  This could suggest that cooperative
purchasing may have more of an effect on those industries. 



                               Table 3.1
                
                 Twenty-Eight Industries Providing More
                Than 3 Percent of Their Output to State
                   and Local Governments During 1987
                         (Dollars in Millions)

                                              Percentage
                                            of state and
                                                   local
                                              government  Are some
                                            purchases as  outputs
                                 State and    a share of  available
                                     local         total  through
                                government     commodity  schedules
Industry\a                       purchases      output\b  program?
----------------------------  ------------  ------------  ------------
Maintenance and repair             $41,821          24.1  No
 construction
New construction                    71,111          16.0  No
Ophthalmic and photographic          2,619          14.0  Yes
 equipment
Electric services                   16,204          10.4  No
 (utilities)
Petroleum refining and              12,180           8.9  No
 related products
Computer and data processing         5,607           8.5  No
 services
Drugs                                2,867           8.0  Yes\c
Other printing and                   5,031           7.5  No
 publishing
Miscellaneous manufactured           1,974           6.4  Yes
 products
Railroads and related                3,093           6.4  No
 passenger transportation
 services
Farm, construction, and              1,569           6.0  Yes
 mining machinery
Other nonmedical business           12,290           5.8  Yes\d
 and professional services
Gas production and                   4,754           5.8  No
 distribution (utilities)
Agricultural, forestry, and          1,165           4.9  No
 fishery services
Furniture and fixtures               1,776           4.8  Yes
Water and sanitary services          1,286           4.5  No
Motor vehicles (passenger            5,714           4.3  No
 cars and trucks)
Coal mining                          1,094           4.3  No
Scientific and controlling           3,266           3.8  Yes
 instruments
Industrial and other                 3,339           3.7  Yes
 chemicals
Communications, except radio         5,774           3.6  No
 and TV
Computer and office                  1,984           3.6  Yes
 equipment
Finance                              9,769           3.5  No
Miscellaneous machinery,               680           3.4  Yes
 except electrical
Electrical industrial                  776           3.3  Yes
 equipment and apparatus
Electric lighting and wiring           578           3.3  Yes
 equipment
Agricultural fertilizers and           443           3.3  Yes
 chemicals
Service industry machinery             674           3.1  Yes
----------------------------------------------------------------------
\a The Commerce Department identified 61 other industries that
provided less than 3.1 percent of their output to state and local
governments in 1987. 

\b Percentages are calculated by dividing the value of industry sales
to state and local governments by the total value of industry output. 
Significant differences in the size of industries cause industries
with a relatively small absolute value of state and local government
purchases to rank high in terms of dependence on state and local
purchases. 

\c GSA has proposed excluding this schedule from the cooperative
purchasing program. 

\d A limited number of these services are available through the
supply schedules, including total quality management consulting
services, consumer and commercial credit reports, and investigation
of discrimination complaints. 

Source:  Survey of Current Business, April 1994. 

An additional 17 industries supplied over 3 percent, but less than 6
percent, of their output to state and local governments.  These
industries include furniture and fixtures, scientific equipment,
industrial chemicals, computer and office equipment, and electrical
equipment.  Some types of computers, office equipment, and office
furniture are sold in high volumes through the schedules program and,
as noted in chapter 2, are products that state and local government
purchasing officials would be interested in having access to through
the schedules program.  The remainder of the industry groups included
in the national statistics sold less than 3.1 percent of their goods
to state and local governments.  These include various machinery
industries (e.g., metalworking and electrical equipment);
transportation-related equipment (e.g., engines and turbines,
aircraft, and other transportation equipment, such as ships and
railroad equipment); and a wide range of other services or products. 

Although these data provide an indication of the extent of the
potential effect of cooperative purchasing on industries, the
magnitude of the effect on industries within specific geographical
areas could be larger or smaller than the effect suggested by the
national data.  In addition, the size of the effects on specific
suppliers of subindustries could be larger or smaller than the
averages for the industry groups included in table 3.1.  For example,
while the national data indicate that 3.6 percent of computer and
office equipment sales could potentially be affected by the federal
cooperative purchasing program, effects could vary significantly
among office equipment suppliers depending on the locations of these
firms, the types of office equipment they sell, and the importance of
state and local governments as their customers.  A discussion of the
potential effect of the federal cooperative purchasing program on
individual businesses follows. 


--------------------
\1 These data reflect the pattern of industry purchases in 1987, and
changes in these proportions may have occurred since that time. 
However, the Commerce Department suggests that the proportion of
sales from one industry to another remains relatively constant over
time. 


   SOME BUSINESSES PERCEIVE
   POTENTIAL BENEFITS FROM THE
   COOPERATIVE PURCHASING PROGRAM
---------------------------------------------------------- Chapter 3:2

Representatives of 22 of the 59 state or local government contractors
we contacted said that the cooperative purchasing program would have
a positive effect on their businesses, although they provided no data
to support their views.  Of these 22 businesses, 11 said they were
small businesses.  The 22 businesses primarily sell computer
equipment, furniture, photographic equipment and supplies, and office
equipment, including copying machines, all of which are available
through the schedules program.  A majority of these businesses--15 of
the 22--are either GSA vendors or dealers for GSA vendors. 
Representatives from these businesses said that allowing nonfederal
governments access to the federal supply schedules would increase
their sales, profits, customer base, or exposure to potential
additional customers or could reduce the administrative time and
effort associated with state or local governments' competitive
bidding processes.  For example, nine state or local government
contractors that supply photographic equipment and supplies, office
equipment, or furniture said that opening the federal supply
schedules to state and local governments would increase the number of
buyers using the schedules.  Because these contractors are also GSA
vendors or dealers for GSA vendors, most noted that their businesses
could expand their current customer bases, which would ultimately
benefit their businesses. 

Further examples of businesses that perceived potential benefits
include two contractors that sell office equipment.  One contractor,
located in Virginia, that is also a GSA vendor of office equipment
has a nationwide network of dealers that provides sales and service
support for products it sells.  An official for this contractor said
that all dealers in its network would be able to participate in sales
to nonfederal agencies if the cooperative purchasing program is
implemented.  Another contractor, located in New York, told us that
cooperative purchasing will result in increased revenues from product
sales and servicing with the additional customers purchasing products
off the schedule.  A third state and local government contractor,
located in New York, that sells office equipment said that it does
not fear the competition from GSA's vendors because there would be
enough buyers in the marketplace allowing them to compete in a larger
market. 

Finally, two businesses that sell heavy equipment both through GSA
schedules and to state and local governments believed they would
benefit from cooperative purchasing.  One of the firms, located in
Georgia, that sells forklifts said that under cooperative purchasing
it would not have to bid separately on state and local contracts and
that the company uses the same procedures and dealership network
regardless of whether the purchasing agency is federal or nonfederal. 
According to the company, its sales to governmental agencies are
about 2 percent of its total sales. 

The other company, located in New Jersey, that represents 13
different manufacturers of lawn and garden equipment said that the
company's contracts with GSA, state, and local governments are
essentially identical and provide the same sales conditions.  The
products sold, however, rely little on a dealership network.  As a
result, this company believed that it would be beneficial to the
company, the manufacturers it represents, and nonfederal governments
to make sales only through the schedules. 

The contracting officers for some of GSA's federal supply schedules,
including the telecommunications equipment, office furniture, copying
equipment, microcomputer, and office supply schedules, said that they
expected companies that provide supplies through these schedules
would benefit from the cooperative purchasing program.  For example,
the contracting officer for the telecommunications schedule said that
this schedule should be opened to nonfederal users because, in his
opinion, GSA, the contractors, and state and local governments would
all benefit.  He said GSA would benefit because its vendors would be
selling to a broader market, thereby increasing sales, which should
lower prices further in the future.  He said state and local
governments would also benefit by saving time and money in their
purchases. 

Similarly, the contracting officer for the office supply schedule
said that GSA would benefit since its contractors would be able to
sell to a broader market, thereby increasing sales, which should
lower prices further in the future.  In addition, he said GSA would
benefit from the 1-percent fee it receives to cover its costs.  In
his opinion, the office supply schedule would likely be one of the
better schedules to open to state and local governments because the
manufacturers currently on the schedule must be able to supply
nationwide, and because the GSA vendors include five large office
supply companies.  He explained that upon receipt of an order, the
companies contact their warehouses and the order is immediately
shipped to the customer for "next-day delivery." This contracting
officer said that he has heard of no concerns on the part of the
contractors about this schedule being opened to state and local
governments.  The other three contracting officers similarly said
that they have heard of no concerns from their respective
contractors, including microcomputer contractors, systems furniture
contractors, and copying equipment contractors. 


   SOME BUSINESSES AND INDUSTRIES
   PERCEIVE POTENTIAL NEGATIVE
   EFFECTS OF COOPERATIVE
   PURCHASING PROGRAM
---------------------------------------------------------- Chapter 3:3

Some of the state and local contractors we contacted said that the
cooperative purchasing program could have a negative effect on them. 
In addition, the medical equipment and supplies, airline, and heavy
equipment industries have expressed concern about the adverse effect
cooperative purchasing may have on them.  Because of the possible
adverse effects cited by these industries, which include a potential
for reduced profits, and the resulting possibility of increased
prices, GSA plans to exclude, or is considering excluding, those
schedules that contain these industries' equipment or services. 


      STATE AND LOCAL CONTRACTORS
      FEAR LOSING BUSINESS TO GSA
      VENDORS
-------------------------------------------------------- Chapter 3:3.1

Of the 59 state and local contractors we contacted, 10 contractors
said that the cooperative purchasing program may have a negative
effect on their businesses.  Of these 10 contractors, 7 said they
were small businesses.  These contractors supply state and local
governments with furniture, photographic equipment, computer
equipment, paper products, paint, and heavy equipment.  Almost all of
the contractors said they could lose business to GSA vendors because
state and local governments would have access to the federal supply
schedules under the cooperative purchasing program. 

For example, a small paper products distributor and a small computer
equipment distributor in West Virginia said that their companies
would lose business because agencies could purchase directly from the
manufacturers if the federal supply schedules were opened to
nonfederal agencies rather than purchase from their companies.  Also,
a representative from a furniture store in West Virginia said that
his company buys products from manufacturers and then sells them to
state and local governments at a retail price.  If nonfederal
governments were able to use the federal supply schedules for
furniture, his company would not be able to compete with the
manufacturers' prices. 

A paint manufacturer in Montana was also concerned about negative
effects on his business and on the customer.  He explained that he
believes that decentralized purchasing is better, as the needs of the
local government entity are not the same as those of the federal
government.  He has seen that local governments often do not want to
use products that they can obtain through state contracts because the
terms of the state contract will not meet their needs.  However,
purchasing agents are likely to use the GSA schedules because it is
easier than going through another procurement process.  Thus, he
could lose sales to GSA vendors, and the customer could get an
unsuitable product. 

A different concern was expressed by a representative from a small
woman-owned company in California that supplies products such as
reflective sheeting to the California Department of Transportation. 
The representative said that the company would lose sales if state
and local agencies had access to the federal supply schedules because
the business had minority status in the state of California, and many
of the state contracts the company had been awarded through
competitive bidding were based on its small, minority status in the
state. 


      CERTAIN INDUSTRIES PERCEIVE
      NEGATIVE EFFECTS FROM
      COOPERATIVE PURCHASING
-------------------------------------------------------- Chapter 3:3.2

Several industries are opposed to GSA's planned cooperative
purchasing program because they believe the program will have an
adverse effect on them.  These industries are represented on some of
the 13 schedules managed by VA and on 3 of the 133 schedules managed
by GSA.  For example, the medical equipment and supply industries
fear that cooperative purchasing will disrupt their distribution
networks or cause them to increase prices to the federal government. 
The airline industry is concerned about loss of revenues from a
greater use of discounted fares.  The heavy equipment industry is
concerned about negative effects on dealers who currently service the
state and local government market.  VA has already recommended to GSA
that 2 of the 13 schedules it manages--the pharmaceuticals and one
medical equipment and supply--be excluded from cooperative
purchasing.  In its April 1995 Federal Register notice, GSA proposed
excluding those two schedules, based on VA's recommendation.  Since
that notice, GSA officials told us that they plan to exclude the
airline schedule and the schedule containing fire fighting vehicles. 
GSA has not, however, made any final decisions on excluding other
schedules.  However, the Director of GSA's Acquisition Management
Center said that GSA intends to exclude those schedules or portions
of those schedules from the cooperative purchasing program where
significant controversy exists about the potential adverse effects. 


      MEDICAL EQUIPMENT AND SUPPLY
      INDUSTRIES PERCEIVE NEGATIVE
      EFFECTS
-------------------------------------------------------- Chapter 3:3.3

Several associations, manufacturers, and dealers raised concerns to
GSA and us about the potential adverse effects cooperative purchasing
of medical equipment and supplies may have on their companies.  They
cited a disruption of the distribution network, reduction in profits,
and an increase in federal supply schedule prices as possible
effects.  An association representing public hospital pharmacies, on
the other hand, pointed to potential savings and diminished needs for
government subsidies as possible benefits of cooperative purchasing. 

The Health Industry Manufacturers Association and the Health Industry
Group Purchasing Association, representing medical equipment and
supply manufacturers and purchasing organizations, oppose cooperative
purchasing.  These associations sponsored individual studies to
determine the impact of opening the federal supply schedules.  Both
studies concluded that opening the federal supply schedules would
decrease the federal government discount and increase the cost of
medical and surgical equipment and supplies.  According to the
contractor who conducted these studies, his research found that
large, infrequently purchased expensive equipment with long life
cycles may offer little opportunity for discounting.  However, the
medical and surgical supply industry is more complex.  Since the
medical supply industry includes a broad range of products and
categories with varying discounts, the contractor that conducted the
studies found that some individual product lines can be discounted
significantly but others cannot.  The conclusions in these studies
are based on the assumption that the medical equipment and supply
industry would react to the cooperative purchasing program in the
same manner as the pharmaceutical industry.  We did not verify the
data or analyses contained in these studies. 

The Health Industry Distributors Association, which represents over
700 companies, many of which are small businesses, opposes the
cooperative purchasing program because public hospitals could not
select their own distributor to meet their needs, and health care
providers and distributors would incur an increased administrative
and recordkeeping burden.  Manufacturers expressed the same concerns. 
The manufacturers we spoke with said that the distribution network
for federal and state or local government customers is different. 
They said that federal government orders are usually shipped directly
from the manufacturer to the buyer, while sales to state and local
governments are generally handled through a local dealer.  According
to manufacturers, cooperative purchasing could put local dealers who
rely heavily on sales to state and local governments out of business
to the extent that the manufacturers would ship directly to state and
local governments.  With sales no longer being handled by local
dealers, manufacturers also were concerned about the increase in the
administrative burden that would be placed on VA vendors if they had
to fill orders for state and local governments.  According to one
manufacturer, making the schedules available to state and local
governments could increase this burden to the point where he would
have to consider reducing the products he sold on the schedule or
raising prices. 

In contrast, the Public Hospital Pharmacy Coalition, representing
hospitals owned or funded by state or local governments, supports
cooperative purchasing because it anticipates lower prices and
reduced administrative expenses for eligible hospitals.  Noting that
public hospitals rely heavily on government payers and subsidies, the
coalition said that cost reductions would lessen their dependence on
state and local governments. 

Officials at VA's National Acquisition Center, which manages the
medical equipment and supply schedules, said that distribution
networks at the state and local level would likely vary considerably,
depending on the size of the customer.  In some cases, the
manufacturer might be directly supplying the state or local customer. 
The officials said that one would have to check with each state or
local customer to determine if they received products from a
distributor or manufacturer.  A VA official also stated that in her
opinion, one of the real issues was not the disruption of the
distribution network; rather, it was that manufacturers would have to
break their established agreements with dealers and distributors for
state and local customers in order to serve that market themselves. 
The VA officials did not agree that a manufacturer's administrative
burden would increase significantly.  Most companies would be
tracking their sales regardless of whether the sale was made through
a federal supply schedule or through a state or local agency
procurement. 

Manufacturers we spoke with said that there is a higher cost of doing
business with state and local government customers, a cost that the
manufacturer cannot recoup at the federal supply schedule price. 
They said that implementing cooperative purchasing could result in
manufacturers raising prices on the federal supply schedule. 
Manufacturers and distributors are also concerned that nonfederal
governments would expect VA vendors to perform additional services,
such as warehousing, training, or filling small orders.  The
manufacturers and distributors do not have to perform these services
for federal agencies, and the schedule prices do not include costs
that would be associated with providing such services.  GSA officials
agreed that some medical equipment suppliers provide more services to
nonfederal governments, such as training, and that this service is
not available through federal contracts.  According to GSA officials,
should state or local governments want additional services, they
would have to separately contract and pay for them.  VA officials
also said that vendors should not be expected to provide services
beyond what the federal supply contracts specify at the schedule
prices.  The Public Hospital Pharmacy Coalition also agreed that
state and local customers may require additional services.  It said
that if distributors and dealers can justify higher prices by
providing such services, the state and local customers would be less
likely to use cooperative purchasing. 

In addition, manufacturers and distributors are also concerned that
nonfederal government agencies would not promptly pay bills for
medical equipment and supplies ordered through VA vendors and instead
take 2 to 3 months to pay their bills as opposed to 15 days. 
Although the VA officials at the National Acquisition Center
acknowledged that some state and local governments do not always have
good payment histories, they reiterated that any entity using the
federal supply schedules would have to abide by the terms and
conditions specified, which include prompt payment provisions. 
According to GSA, it is considering having federal prompt payment
provisions apply under cooperative purchasing unless a state has a
prompt payment law, in which case the state provisions, including
recourse for noncompliance, would apply.  GSA officials further
pointed out that vendors would be informed of these provisions and
could refuse to sell to a nonfederal government if vendors chose not
to do so. 

Two other issues raised by the Health Industry Distributors
Association were how vendors would determine whether a nonfederal
organization was eligible to purchase products under the schedules
program, and what monitoring would be done to determine whether
vendors were selling only to eligible organizations.  GSA's current
plan is to establish an eligibility determination process under which
nonfederal organizations wishing to participate in cooperative
purchasing would submit an application to GSA.  GSA would then
determine eligibility and list those eligible nonfederal governments
in an electronic data base.  According to GSA officials, GSA has not
yet determined how it will monitor adherence to program requirements,
including eligibility requirements, under the cooperative purchasing
program, and it could change its approach for implementing several
aspects of the program, including prompt payment provisions and the
eligibility determination process, when it finalizes its
implementation plan. 

As discussed in chapter 2, GSA proposed to exclude two schedules
maintained by VA because VA believed that if these two schedules were
included in the cooperative purchasing program, the industries
selling items on these schedules would increase prices charged to the
federal government.  These schedules include the pharmaceutical
schedule and one of the medical equipment and supply schedules--in
vitro diagnostic substances, reagents, test kits, and sets.  As
indicated previously, the issues surrounding pharmaceuticals will be
discussed in a separate GAO report. 

VA recommended that one schedule that includes certain medical
equipment and supplies be excluded from the cooperative purchasing
program because prices for some items on that schedule were also
governed by the Veterans Health Care Act of 1992.  Since making its
initial recommendation to GSA, VA has concluded that items available
through this schedule are not governed by the 1992 act.  However, VA
officials fear that businesses that manufacture and sell some
products that are available through this schedule would increase
their schedule prices.  GSA accepted VA's recommendation on the basis
that the schedule contained some items that were covered by the 1992
act.  This schedule also contains other medical equipment and
supplies--such as needles and pipettes--and these types of products
may or may not be affected by the cooperative purchasing program as
much as other products on this schedule.  Industries represented on
the other schedules managed by VA may or may not be similarly
affected.  Among other items, medical equipment and supply schedules
include wheelchairs, antiseptic soap, and dental equipment. 

According to VA officials responsible for managing these schedules,
they did not review other schedules when GSA's implementation of
cooperative purchasing was suspended because they did not know if the
program would be implemented. 


      AIRLINE INDUSTRY FORESEES
      NEGATIVE EFFECTS
-------------------------------------------------------- Chapter 3:3.4

According to GSA, the airline industry also raised objections to
federal airline fares being made available for the cooperative
purchasing program.  A GSA official told us that airline company
representatives expressed concern about the loss of revenue from
greater use of the discounted federal fares and about controlling the
use of GSA fares for state and local government employees.  Further,
she said that airline company representatives told her that the
companies are concerned that some nonfederal employees may abuse the
GSA fares and use these fares for nonbusiness-related travel.  This
GSA official said that GSA was concerned that if the schedule were
opened to state and local governments, airlines would no longer be
willing to participate, increasing travel costs for federal agencies
substantially.  Even though GSA has not made a final determination on
whether the airline schedule will remain closed to state and local
governments, as noted in chapter 2, GSA officials told us that they
do not intend to make the schedule available for cooperative
purchasing. 


      SOME HEAVY EQUIPMENT
      PROVIDERS BELIEVE THEY COULD
      BE NEGATIVELY AFFECTED BY
      THE PROGRAM
-------------------------------------------------------- Chapter 3:3.5

In comments provided to GSA in response to its April 1995 Federal
Register notice, representatives of the heavy equipment industry
expressed their concerns that the cooperative purchasing program
would negatively affect the industry.  GSA has subsequently received
additional comments expressing this concern from the heavy equipment
industry since publishing its notice.  Heavy equipment includes
products such as road sweepers; emergency vehicles, such as fire
trucks; tractors; and turf equipment, which are sold through about
six GSA schedules.  In their comments, several manufacturers and
dealers that sell various products on some of these schedules said
that local dealers' profits could be adversely affected if the
schedules containing these products are opened to state or local
governments.  According to these companies, profits would be reduced
because dealers would receive lower fees for sales through schedules
in their geographic areas, and profits from warranty work would not
be sufficient to sustain operations.  Several dealers said they would
be forced out of business or would have to lay off employees, and
local governments would lose the benefit of the training assistance
they provide as part of their sales efforts. 

We confirmed that these concerns remain, at least for a number of
such businesses.  For example, three heavy equipment manufacturers
whose equipment is available through the federal schedules program
told us that sales to state and local governments through the federal
schedules program would take business away from their dealers and
present serious financial difficulties for many dealers.  These
manufacturers sell directly to federal agencies and pay their local
dealers for any necessary set-up, delivery, and related servicing. 
Several dealers told us that what manufacturers pay them is not
enough to keep them operating. 

Similarly, a fire truck manufacturer that is a GSA vendor said that
nearly all of its fire truck sales are to state and local governments
through a dealership network.  The manufacturer pays dealers a fee or
commission for each sale in the dealers' geographic sales areas, and
this fee is reduced for sales through the schedules program. 
Although acknowledging that it would have the option of not
participating in the cooperative purchasing program, this
manufacturer expressed concern that its competitors would do so, thus
forcing it to do the same.  During the course of our review, several
other dealers that sell fire fighting vehicles contacted us
expressing concern about significant adverse effects they would
experience due to the high proportions of their sales that are to
state and local governments and the limited or nonexistent fees or
commissions they would receive for schedule purchases. 

At our request, GSA's contracting officers for five heavy equipment
schedules reviewed comments GSA received in response to its April
1995 Federal Register notice.  According to the contracting officers,
the majority of the comments focused on one GSA schedule--the
construction and highway maintenance equipment schedule.  Subsequent
to GSA's Federal Register notice, GSA received numerous comments from
another heavy equipment industry represented on GSA's fire fighting
vehicles and waste disposal vehicles schedule.  The contracting
officer for these two schedules said that he did not believe that
those two schedules should be available to nonfederal governments. 
First, he was concerned that the cooperative purchasing program may
have a detrimental effect on the dealers because a high proportion of
sales are made to state and local governments, and this may affect
the manufacturers' relationships with their dealers.  His second
concern was that the GSA vendors on these schedules may elect to
cancel their GSA contracts, or increase the prices under the federal
schedules program.  In contrast, contracting officers for other
schedules that were mentioned in the industry comments to GSA,
including the aerial lift equipment, turf equipment, generators, and
air compressor schedules, said that few companies commented that they
were concerned about equipment sold through these schedules.  The
Director of GSA's Acquisition Management Center stated that as of
January 1997, GSA was planning on excluding the schedule that
contains fire fighting vehicles from the cooperative purchasing
program based on information we provided GSA as well as the
responsible contracting officer's assessment of the potential impact
opening this schedule may have on the industry as well as the federal
government.  According to the Director, both the industry and the
federal government could be negatively affected.  Even though GSA has
not yet made final decisions on other schedules, such as the
construction and highway maintenance schedule, the Director said that
GSA intends to exclude those schedules or portions of those schedules
from the cooperative purchasing program where significant controversy
exists about the potential adverse effects. 


   SOME BUSINESSES PREDICTED
   COOPERATIVE PURCHASING WOULD
   HAVE NO EFFECT ON THEM
---------------------------------------------------------- Chapter 3:4

Representatives from 13 of the 59 state or local government
contractors we contacted said that the cooperative purchasing program
would have no effect on their companies.  Of these 13 contractors, 6
said they were small businesses.  The 13 contractors sell, among
other things, office supply equipment; computer equipment; furniture;
and road construction supplies, such as stone and asphalt.  Among the
reasons they cited were the unique specifications of products they
sell to state or local governments, competitive prices, or the desire
of local governments to have local servicing. 

For example, a hot mix asphalt contractor and a concrete products
contractor told us that opening the GSA schedules to state and local
governments would not have any effect on their companies.  The
contractors said that the products they supply had different
specifications for different applications or projects, so state and
local government agencies would have to continue to request bids for
their projects, as the specifications and requirements would be
unique to a project.  For example, the mixture needed to repair a dam
surface would be different from that needed to pave a parking lot. 

In another example, a contractor for the state of West Virginia who
supplies office equipment said that even though state government
agencies' requests for procurements are much narrower and more
localized than those of federal agencies, there would likely be
little effect if the GSA schedules were opened because state and
local government agencies are successful at obtaining competitive
prices, and these agencies always seek out the best price.  As a
result, the contractor said that it was doubtful that state or local
agencies would change the way they procured goods and services and
instead buy through the federal schedules program.  As a result, he
said that his small business would likely see little impact from the
cooperative purchasing program. 

A contractor in Montana that supplies computer equipment said that
customers want "today's technology at today's prices." He also said
that because GSA's contracts with vendors are long-term contracts,
his contracts with the City of Missoula, Montana, and the University
of Montana are such that his small business can react more quickly to
the dynamics of the fast-changing computer industry.  Because of this
ability, he did not believe that the cooperative purchasing program
would affect his business. 

A spokesman for another office supply company, which is both a GSA
vendor and a state contractor in California and Nevada, also said
that the cooperative purchasing program would have little effect on
his company because the state of California already has a schedules
program very similar to the federal schedules program.  However, he
said the program could assist some states, such as Nevada, by
reducing the amount of time required to procure office equipment from
several months to only a few weeks. 

Finally, a spokesman for a road sweeper company said that the
cooperative purchasing program would not affect his company because
even though the company holds the GSA contract to supply sweepers to
the federal government, he believes local governments would not buy
this type of equipment through a federal supply schedule.  According
to this spokesman, local governments will not buy sweepers through
the road-clearing and equipment schedule because such governments can
get comparable prices through competitive bidding at the dealership
level.  He also said that contracts that local dealers have with
local governments provide for extensive training and servicing, which
would not be provided under this manufacturer's contract with GSA. 


   SOME BUSINESSES DID NOT KNOW
   WHAT EFFECT COOPERATIVE
   PURCHASING COULD HAVE ON THEM
---------------------------------------------------------- Chapter 3:5

Of the 59 state and local government contractors we contacted, 14
said that they did not know what effect the cooperative purchasing
program would have on their companies.  Of these 14 companies, 7 said
they were small businesses.  These companies include those that sell
furniture, computer equipment, laboratory equipment and supplies,
photographic supplies, and heavy equipment.  These companies cited
uncertainties about how others would react to cooperative purchasing
and noted that the program offered both potential gains and losses. 

For example, according to one computer equipment supplier in West
Virginia, it was difficult to predict what impact cooperative
purchasing would have because it would depend not only on the
difference in pricing between GSA's vendors and state and local
contractors but also on other factors, such as the servicing and
warranty arrangements that were included as part of manufacturers'
contracts with GSA. 

In addition, a furniture contractor in California, who is a dealer
for a furniture manufacturer that is a GSA vendor, told us that it
was difficult to determine what effect the cooperative purchasing
program might have on his company.  According to a dealership
official, the GSA contract is not very profitable for the dealership
because the manufacturer sets the price for GSA contract sales, which
usually results in a lower profit margin than the dealership would
like.  This lower price can hurt the servicing of the contract,
because there is not sufficient profit for the local dealer to
provide proper service.  However, the dealership official said that
although contracts with local government agencies are more profitable
than GSA schedule program sales, his company incurs substantial costs
by bidding on local government agency procurements.  The process has
become very complex and expensive, and costs had ranged from $5,000
to $10,000.  Consequently, quite often this particular dealership had
not bid on local government procurement solicitations. 


   INDUSTRY ASSOCIATIONS' VIEWS ON
   COOPERATIVE PURCHASING VARY
---------------------------------------------------------- Chapter 3:6

Reflecting the diversity of views among individual businesses about
how they would be affected by the cooperative purchasing program,
associations representing industry have taken a range of positions on
the program.  With the exception of the medical equipment and supply
industries, these associations did not provide data that would
provide the basis for their predictions of the effects of cooperative
purchasing. 

Some industry associations told us that they are in favor of the
cooperative purchasing program.  The Information Technology Industry
Council, for instance, said that it supported the program but noted
that its members would want some flexibility in its implementation. 
The Coalition for Government Procurement, representing over 300
businesses that supply about 75 percent of the federal government's
purchases, told us that about half of the Coalition's membership
supports the program and the other half opposes it. 

In some other cases, however, industry associations told us that they
have not taken a position on cooperative purchasing or that they had
mixed opinions on the program.  In some cases, association officials
told us that they were not sufficiently familiar with cooperative
purchasing to take a position.  Several associations that represent
small businesses, including the American Small Business Association
and National Small Business United, said that they did not have
enough information to form positions. 

As discussed earlier, several associations representing heavy
equipment manufacturers and dealers and manufacturers of medical
equipment and supplies opposed the program.  These associations, most
of which expressed their opposition in comments on GSA's Federal
Register notice, included the Associated Equipment Distributors, the
Environmental Industry Association, the Material Handling Equipment
Distributors Association, the National Retail Federation, the Health
Industry Distributors Association, and the Health Industry
Manufacturers Association. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 3:7

In their oral comments, representatives from the Coalition for
Government Procurement agreed with the contents of this chapter. 
They also raised concerns about some aspects of the cooperative
purchasing program as currently proposed.  For example, the Coalition
said that it did not agree with GSA's tentative plan to apply state
prompt payment provisions in those cases in which states have them. 
It said that this could significantly increase industry's burden
because businesses would have to work under many different state laws
rather than a uniform law--the federal prompt payment statute.  In
addition, the Coalition raised some concerns about possible problems
that could develop as the cooperative purchasing program is
implemented.  For example, it cited the possibility of some
nonfederal governments (1) bypassing the cooperative purchasing
program by asking GSA vendors to sell them products at schedule
prices or at schedule prices less the administrative fee, without the
GSA vendors remitting the administrative fee to GSA; or (2)
purchasing products through the cooperative purchasing program but,
instead of using the products themselves, reselling the products at
higher prices than they paid.  Finally, the Coalition noted that
although it recognized that some businesses could save administrative
costs by not having to compete separately for state or local
contracts, some nonfederal government procurement processes required
relatively little administrative effort by businesses. 

In their comments, both GSA and VA acknowledged the uncertainties of
and lack of data associated with the effects cooperative purchasing
would have on businesses.  Similarly, the National Association of
State Purchasing Officials noted a number of uncertainties, such as
the extent to which businesses would be willing to abide by various
state requirements and that the value of state contracts to some
businesses could be diminished if some state agencies used the
federal schedules rather than state contracts. 


GSA'S APPROACH TO IMPLEMENTING
COOPERATIVE PURCHASING
============================================================ Chapter 4

GSA's plans for implementing the cooperative purchasing program
continue to evolve.  These plans include, among other things,
determining whether the potential negative effects on small business
that might be associated with opening up particular supply schedules
are outweighed by the potential positive effects on nonfederal
government agencies.  GSA's determinations will entail judgments
about trade-offs of positive and negative effects, and the data
necessary to conclusively predict these effects are not likely to be
available.  GSA recognizes these trade-offs exist, but Congress,
state and local governments, and industry would have better
information on how GSA would make its determinations if GSA improved
its implementation approach in several ways. 


   GSA'S APPROACH TO IMPLEMENT THE
   PROGRAM IS EVOLVING
---------------------------------------------------------- Chapter 4:1

As noted in chapter 1, in its April 1995 Federal Register notice, GSA
indicated that schedules would be made available to nonfederal
agencies upon their request unless the contracting officer
responsible for the applicable schedule determined that it would not
be appropriate to do so.  Individual schedule vendors would be able
to elect whether or not to make the products or services they sell
through the schedules available to authorized nonfederal users.  In
addition, the notice stated that schedule contracts would be
established only to meet the needs of federal agencies and proposed
that two schedules--one for pharmaceuticals and one for certain
medical equipment and supplies--would not be opened to state and
local governments. 

GSA officials said that GSA took no further actions to finalize the
Federal Register notice after its authority to implement section 1555
was suspended.  GSA officials, however, told us that GSA was
considering a number of changes to how it would implement the
program.  GSA stated that it developed these changes after meeting
with representatives of the National Association of State Purchasing
Officials, the National Institute of Governmental Purchasing, as well
as several industry associations; and after reviewing public comments
received after publishing its initial implementation plan.  First, as
a matter of policy, individual supply schedules would not be made
available for use by nonfederal governments if opening that schedule
would adversely affect the support provided to federal agencies in
terms of price, quality of products or services, or delivery. 
Second, rather than assigning responsibility to the contracting
officer for making case-by-case determinations regarding opening
individual schedules, GSA officials were considering assigning
responsibility to the Federal Supply Service's Assistant Commissioner
for Acquisition.  In making these determinations, the Assistant
Commissioner would be expected to consider the recommendation of the
contracting officer responsible for particular schedules and to
consult, as appropriate, with other interested parties or
associations representing them.  The contracting officers'
recommendations would be based on an evaluation of the potential
effects on federal agencies and whether opening the schedule would be
likely to have an adverse effect on local small business concerns or
dealers that would not be offset by benefits to nonfederal agencies. 
With respect to VA's schedules, GSA officials told us that GSA is
considering assigning responsibility for making decisions to VA. 

The option of excluding individual schedules or classes of schedules
from the cooperative purchasing program has come up in both the
Federal Register notice and in our discussions with GSA.  The Federal
Register notice proposed excluding two schedules (pharmaceuticals and
one medical equipment and supply schedule) from the cooperative
purchasing program.  According to a GSA official, GSA also does not
intend to open the fire fighting vehicle schedule or the airline fare
program to state and local participation.  GSA officials said that
they proposed to exclude the pharmaceutical schedule and one medical
equipment and supply schedule in the Federal Register notice and plan
to exclude fire fighting vehicles and airlines because of concern
that opening up these schedules to nonfederal users would not be in
the interest of the federal government.  In these cases, GSA
anticipated that costs to federal agencies would rise for products on
these schedules if the schedules were opened.  For other schedules,
GSA officials said that GSA would decide on opening up schedules on a
case-by-case basis.  According to GSA officials, GSA could also
exclude portions of individual schedules from the program while
opening the remaining portions of the individual schedules. 

Once GSA decides that it may be appropriate to open a schedule to
nonfederal agencies, GSA officials said that GSA would publish
notices in the Commerce Business Daily and/or the Federal Register to
obtain input from interested parties, such as industry associations;
federal, state, and local government agencies; and schedule vendors. 
According to GSA, it would also use associations as a vehicle to
provide information to individual interested industries and state or
local governments.  These notices would identify which schedule or
schedules GSA would consider opening up for use by nonfederal
agencies and explain how the program would work.  The notices would
include a contract clause that would have to be included in vendors'
contracts in order for these vendors to sell to nonfederal agencies
through the schedules program.  Each contractor on each federal
supply schedule (about 6,600 contractors in total) that GSA or VA
would propose to open would have the option to sell to state and
local governments. 

GSA officials stated that such a process will allow GSA and VA to
gauge the interest on the part of state and local governments in
using the schedule and willingness of schedule contractors to sell to
state and local governments under the schedule contract.  They said
that the process will also provide the opportunity for nonschedule
contractors and federal agencies to express their views.  According
to GSA, after GSA considers the input of potentially affected parties
and if it decides to open a particular schedule, schedule contracts
will be modified to permit use by state and local governments.  The
state and local governments that applied for authorization to use the
federal supply schedules would subsequently be notified that the
schedule was open for use.  According to GSA officials, this approach
would allow for interested parties to provide input before a decision
is made and allow GSA to make an assessment of the appropriateness of
opening a particular schedule while minimizing the costs of
implementing the cooperative purchasing program. 


   GSA'S PLANNED APPROACH APPEARS
   REASONABLE BUT COULD BENEFIT
   FROM REFINEMENTS
---------------------------------------------------------- Chapter 4:2

The approach to implementing the cooperative purchasing program that
GSA officials told us about appears reasonable in several respects. 
For example, it makes the program optional for GSA vendors and
recognizes that nonfederal governments cannot be compelled to use the
program, acknowledges that there may be trade-offs associated with
opening up a particular schedule, recognizes that GSA's primary
mission is to meet the needs of federal agencies, provides a process
for informing many potentially affected businesses, allows for
schedule-by-schedule consideration, establishes decisionmaking
authority at a higher level than initially proposed, and identifies
the trade-off decisions that have to be made.  However, although GSA
is considering changes to the implementation plan in the Federal
Register notice, GSA has not completed a detailed, written plan that
sets forth all its current thinking on how it intends to implement
cooperative purchasing. 

Since the suspension of section 1555's authority for the cooperative
purchasing program is temporary, we believe that it would be prudent
for GSA to be prepared to implement the program by having a detailed,
written implementation plan.  Such a plan would provide information
to Congress, state and local governments, and industry that would
better enable them to evaluate the likely effects of GSA's
determinations.  Further, it would provide guidance to GSA and VA
staff to facilitate consistency in these determinations.  Our work
indicates that a successful plan would require, at a minimum, several
components: 

  -- guidance on the data that should be sought and analysis
     conducted in determining the (1) expected effects on federal
     agencies; (2) expected effects on nonfederal governments; and
     (3) expected effects on businesses, including non-GSA vendors;

  -- identification of potentially affected parties and the various
     means to be used to notify them when schedules will be
     considered for opening to nonfederal governments;

  -- designation of an official at an appropriate level of
     responsibility to make final determinations on whether
     individual schedules should be made available to nonfederal
     governments, particularly when businesses express concerns about
     significant adverse effects;

  -- provisions for evaluating the actual effects of opening
     schedules; and

  -- provisions for opening part of a schedule. 


      A DETAILED, WRITTEN PLAN
      WOULD ASSIST CONGRESS, GSA,
      AND AFFECTED PARTIES
-------------------------------------------------------- Chapter 4:2.1

As indicated above, GSA initially published a Federal Register notice
containing several elements of its planned implementation approach
for the cooperative purchasing program.  When the program was
suspended, GSA discontinued work on completing a formal, written
plan.  However, GSA officials appropriately continued to consider how
it would implement the program and identified changes to its initial
planned approach set forth in the Federal Register.  Several state
and local governments and industry associations we contacted, as well
as several of GSA's contracting officers, did not know how GSA
planned to implement the program, or what information GSA would use
to make its decisions on whether schedules would be opened up to
nonfederal governments.  Limited or nonexistent data make assessing
the potential effects of the cooperative purchasing program a
difficult task.  Not having information on how GSA intends to
implement the program made it difficult for affected parties to
assess the potential effects of cooperative purchasing and is likely
to make it difficult for GSA's and VA's contracting officers to act
consistently when they seek and consider information on possible
effects.  The lack of this type of information is also likely to
hamper Congress in any further deliberations it may want to have on
cooperative purchasing. 


      GUIDANCE FOR MAKING
      JUDGMENTAL AND TRADE-OFF
      DECISIONS
-------------------------------------------------------- Chapter 4:2.2

GSA, in deciding whether or not to make products or services
available on federal supply schedules to nonfederal governments, will
be required to make judgmental decisions regarding (1) the extent to
which vendors and nonfederal governments will exercise their option
of participating in the program; (2) the likelihood of vendors
responding in such a manner that prices, the quality of products or
services, or delivery will be affected from the standpoint of federal
agencies; and (3) trade-offs between any expected potential benefits
to nonfederal governments and any expected potential adverse effects
on businesses.  The Director of GSA's Acquisition Management Center
said that GSA has not yet provided guidance to its or VA's staff,
industry, or nonfederal governments on the data and analysis to be
considered for making these judgmental decisions.  For example, while
many of the associations we contacted had views on the possible
effects of cooperative purchasing, they generally provided no
conclusive, detailed data to support their views.  This guidance
would help GSA and VA staff, including contracting officers, as well
as affected businesses, industry associations, and nonfederal
governments, know the data and analyses that are to be considered to
make decisions and should help GSA staff make decisions that are as
informed and consistent as possible. 

Although data availability is likely to remain a challenge for GSA,
having a process that facilitates gathering appropriate data and
developing an analytical framework to analyze these data would
enhance the process of making those decisions.  Our work indicates
that some data, such as the share of an industry's output that is
sold to state and local governments, can provide some insight on
potential effects, even if a particular measure, such as the share of
output, alone cannot provide a precise quantitative prediction of the
effects.  Similarly, analysis of some characteristics of an industry,
such as the ability of firms in an industry to charge different
buyers different prices, may also help provide some insight on
potential effects, such as the potential for increased prices to
federal agencies. 

Explicitly identifying its priorities in weighing potential benefits
and adverse effects would enhance GSA's efforts to make its decisions
on a consistent basis.  Although GSA has indicated that its first
priority is that its federal customers not face adverse effects, it
has not yet indicated how it would address any recurring benefits or
adverse effects compared to any one-time effects. 


      PROCESS FOR NOTIFYING
      AFFECTED PARTIES
-------------------------------------------------------- Chapter 4:2.3

Even with guidance for GSA and VA staff, industry, and nonfederal
entities, however, our findings suggest that sufficient data may not
be available to GSA or VA for them to make quantitative assessments
of expected benefits and negative effects.  This indicates that GSA
would often have to make judgmental and trade-off decisions based
largely on views of affected parties.  In some cases, GSA's decisions
to open schedules may have significant adverse effects on some
businesses, and GSA would have to make judgments about whether
expected benefits to nonfederal governments outweigh expected adverse
effects on these businesses.  Excluding schedules, however, may
prevent state and local governments from realizing some potential
benefits.  Given this situation, a sensible plan would detail the
process to be used to identify potentially affected parties and
solicit and consider data and views from them. 

GSA officials told us they plan to announce their intentions to open
schedules in the Commerce Business Daily, whose purpose is to
announce federal government contracting opportunities, and/or the
Federal Register, as well as work with associations representing
state and local governments and industry.  It is unclear, however,
whether these actions could reach a sufficient number of potentially
affected groups or would sufficiently target those groups that may be
most affected by GSA's opening up individual schedules.  It is
unclear that these groups would routinely be aware of Commerce
Business Daily announcements or Federal Register notices, even though
this latter publication is intended to reach a broader audience. 
Further, while GSA states that it plans to use associations
representing industry as a means to get information to individual
interested parties, it is unclear that consulting with industry
associations alone would provide GSA with an understanding of the
effects that opening a schedule may have on individual businesses. 
During the course of our work, we found that some industry groups,
state and local contractors, and state and local governments were not
aware of the cooperative purchasing program, despite the April 1995
Federal Register notice.  In addition, several associations told us
that their memberships had conflicting views on the program, which,
in some cases, prevented the association from taking a position. 


      DECISIONMAKING LEVEL
-------------------------------------------------------- Chapter 4:2.4

To recognize the judgment inherent in the decisions GSA may be making
when determining whether schedules should be opened and the potential
lack of sufficient data with which to make these decisions, GSA
acknowledges that it may need to elevate the level at which decisions
are made.  In its Federal Register notice, GSA indicated that its
contracting officers may be making decisions on opening schedules. 
However, GSA is now considering assigning this responsibility to the
Assistant Commissioner for Acquisition, Federal Supply Service.  The
Assistant Commissioner would receive recommendations from contracting
officers regarding requests to make schedules available to nonfederal
users.  In those instances where GSA has delegated authority to award
schedule contracts to another agency, such as VA, GSA is considering
also delegating authority to decide on opening schedules to that
agency's Senior Procurement Executive. 

Decisions to open schedules are policy decisions that could have
significant adverse effects on some businesses or industries.  In our
opinion, policy decisions that can have such significant effects
should be made at a higher level than the contracting officer level. 


      EVALUATING DECISIONS TO OPEN
      SCHEDULES AND DEALING WITH
      UNEXPECTED EFFECTS
-------------------------------------------------------- Chapter 4:2.5

Neither GSA's Federal Register notice nor changes GSA officials told
us they were considering included a provision for evaluating GSA's
implementation of the cooperative purchasing program, including the
effects of opening schedules to state and local governments, even
though GSA officials said that at one time it had considered
implementing the program in a series of "pilots." Because the effects
of cooperative purchasing are likely to vary by industry or even
product or service, the uncertainties over the extent to which state
and local governments and business will actually exercise their
options to participate in the program and purchase items from vendors
listed on the schedules, and because it will likely be very difficult
to get sufficient data before implementation to predict effects, we
believe evaluations would be helpful to GSA.  Such evaluations should
help GSA (1) determine actual effects, (2) better gauge the types of
data needed to make decisions, (3) identify the best means for
obtaining relevant input from potentially affected organizations, and
(4) provide a basis for GSA to reverse any decisions that may turn
out to have more negative than positive effects.  These evaluations
could also provide objective information on whether the program may
be lowering prices or administrative costs. 

A related improvement to GSA's implementation approach would be to
include in its plan steps to be taken in the event a decision to open
a schedule is found to have unexpected adverse effects.  This
situation was not addressed in GSA's Federal Register notice. 
Possible steps could include reversing its decision or taking some
other action to mitigate the adverse effects. 


      EXCLUDING PORTIONS OF
      SCHEDULES
-------------------------------------------------------- Chapter 4:2.6

Another element that would enhance the potential for the
implementation plan to be successful would be a provision for opening
part of a schedule to nonfederal governments when a schedule contains
a mix of products that could be affected differentially by
cooperative purchasing.  For example, the fire fighting and waste
disposal vehicles schedule contains products that are made by two
different industries, as does the construction and highway
maintenance equipment schedule.  According to GSA's contracting
officer for these two schedules, the effects of the cooperative
purchasing program would be quite different on the various industries
contained in those schedules.  The fire fighting vehicle industry
relies almost exclusively on sales to nonfederal governments, while
the waste disposal vehicle industry produces many types of products
that are sold not only to nonfederal governments, but private
industry as well.  Similarly, the in vitro diagnostic medical
equipment and supply schedule contains a diverse mix of products. 
According to a VA official, when VA requested GSA to exclude this
schedule from the cooperative purchasing program, it was concerned
with potential price increases for only three of the items on the
schedule because they represent most of the costs related to the
schedule. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 4:3

In their written comments on a draft of this report, GSA and VA
agreed that assessing the potential effect of cooperative purchasing
will be difficult because of questions about how nonfederal
governments and businesses would react to the program and the lack of
data on which to predict the potential effects; the agencies agreed
that an implementation plan that would consider the effects on all
affected parties would enhance the decisionmaking process for the
program.  Both agencies further said that the uncertainty about the
program would make it important that the determination to open or not
open a particular schedule to cooperative purchasing be on a
case-by-case basis.  GSA said that it believed using a process like
the one we recommended would provide enough information for GSA to
make informed decisions.  GSA said that it would base its decisions
on the best available information.  VA also noted the importance of
having a good decisionmaking process and implementation plan and said
that it was considering industry conferences for schedules that were
candidates for the cooperative purchasing program. 

In its comments on the draft report, the Coalition for Government
Procurement said that it generally agreed with our conclusion that
GSA's approach to implementing cooperative purchasing appears
reasonable in several respects, but it expressed some concerns about
GSA's tentative plan.  In particular, as indicated in chapter 3, it
disagreed with GSA's tentative plan that state prompt payment
provisions would be applied for states having such laws, noting the
potentially increased administrative burden of requiring sellers to
work under multiple laws rather than a uniform law--the federal
prompt payment law. 

The Coalition also disagreed with a part of GSA's tentative plan
regarding how businesses could exercise the option not to accept
orders.  Under GSA's tentative plan, vendors would have the option to
modify their contracts with GSA to enable nonfederal governments to
purchase goods and services.  Once a vendor had agreed to the
modification, it would have 5 days after receiving orders from
nonfederal governments to decline a particular order.  The Coalition
said that this would not be adequate time for some businesses to make
this decision for new customers and that this could also create
uncertainty among the nonfederal governments placing orders.  The
National Association of State Purchasing Officials also expressed
concern with this aspect of GSA's tentative plan, noting that such a
provision could leave state agencies without a readily available
supply source. 

The Coalition suggested that GSA involve representatives from
nonfederal governments and from businesses in developing its
implementation plan and phase in its implementation of cooperative
purchasing.  Similarly, VA pointed out that some effects of
cooperative purchasing, such as lower federal product prices or lower
vendor administrative costs, will not be known until some experience
is gained under the program. 

During the course of our review, GSA officials told us they were
aware of concerns potentially affected parties had with cooperative
purchasing and have worked with and will continue to work with VA and
these parties in developing its implementation plan.  Further, it
appears that GSA's and VA's intention to consider opening schedules
on a schedule-by-schedule basis would, in effect, provide for a
phase-in approach that would provide them experience with opening
some schedules before a large number are opened. 


CONCLUSIONS AND RECOMMENDATION
============================================================ Chapter 5

The potential benefits and negative economic consequences of opening
up federal supply schedules to nonfederal governments are likely to
vary considerably among state and local government agencies as well
as among industries and individual businesses.  Since the effects of
cooperative purchasing will depend in large part on how GSA
implements the program, it is important for GSA to provide Congress
with a detailed implementation plan.  Such a plan could show how GSA
would decide whether or not to open a particular schedule to
nonfederal users and how it would seek to find a balance of the
benefits and adverse effects of cooperative purchasing.  Such
information would provide a stronger basis than is currently
available for Congress in its consideration of whether it should take
any action while GSA's authority for the cooperative purchasing plan
remains suspended. 

The potential effects of the cooperative purchasing program are
likely to vary among state, local, and the Puerto Rican governments. 
Since participation is voluntary, these governments would use the
schedules only if they perceived benefits from doing so.  Some state
and local governments are likely to benefit from lower prices for
some products, less administrative burden, and shortened procurement
cycle times as a result of cooperative purchasing, although the
extent to which these benefits would materialize is unclear and
depends on several factors.  The expected benefits are likely because
several state and local governments and some businesses want the
schedules opened and because some schedule prices are lower than
nonfederal governments' prices.  Also, some state and local
governments and businesses agree that reduced administrative effort
and cycle times are a likely result of cooperative purchasing.  In
addition, some nonfederal law enforcement agencies that have had
access to the schedules said that they experienced benefits from
having such access. 

Several factors are likely to affect the extent to which these
expected benefits would materialize.  These include state or local
laws, policies, or preferences that could preclude or constrain use
of the schedules in some instances; the unavailability of some items
through the schedules program; the frequent ability of state and
local agencies to get better prices or contract terms through other
sources; and the relatively small proportion of state and local
expenditures that are made for some items available through the
schedules program.  These factors will vary among and within states
and localities, making precise predictions of effects quite
difficult, if not impossible.  Predictions are even more difficult
given the possibility that some state and local governments could
change their laws, ordinances, or policies in the future to permit
greater use of federal supply schedules, and businesses could change
their practices as well.  These possibilities remain speculative at
this point. 

Indian tribal governments are not likely to experience significant
effects from cooperative purchasing.  This is because many have
already had access to federal supply schedules, and federal agencies
would remain responsible for providing services to tribes in program
areas for which tribal governments do not already have access to the
schedules. 

Cooperative purchasing's effects on businesses are likely to vary
among industries and individual firms, including firms in the same
industry.  It appears reasonable to us that at least some of the
benefits perceived by some businesses, including small businesses and
dealers, may occur.  These potential benefits would include increased
sales, profits, or exposure to additional markets and reduced
administrative costs as a result of businesses not having to compete
separately for some contracts with various state and local
governments. 

Those companies that are already GSA vendors and that sell to both
federal and nonfederal governments would likely see the greatest
administrative savings since these companies would not have to
separately compete for the federal, state, and local contracts.  For
a particular firm, these administrative savings would depend on the
nature of the business, the extent to which it supplies state or
local governments, and the extent to which state and local
governments exercise the option of buying through the cooperative
purchasing program.  Thus, the potential for administrative savings
cannot be predicted.  The full extent to which businesses would elect
to exercise the option of selling to nonfederal governments through
the program also cannot be predicted. 

On the other hand, some industries, including small businesses and
dealers, could experience reduced sales or profits, a reduction in
operations, or even closure if the schedules containing products they
sell are opened for nonfederal buyers.  While the extent to which
these effects would occur cannot be predicted, two factors that can
influence the results are the proportion of an industry's or firm's
sales to state and local governments and how that industry takes into
consideration its dealership network in its contracts with GSA. 
Those manufacturers that sell higher proportions of their products to
state and local governments and whose dealerships receive no or
reduced fees or commissions for sales made through the federal supply
schedules program appear to have the greatest potential for
experiencing significant adverse effects, along with their dealers. 
The effects can be even more severe if dealers are expected to
provide extensive service in connection with these types of sales. 

The optional nature of the program, however, should limit the extent
to which manufacturers would want to participate in the program when
doing so would negatively affect their dealership networks.  In those
cases when competitive forces could influence decisions, however,
these effects could be further mitigated by GSA through its plan to
exclude schedules from the program when adverse effects on federal
agencies are likely or if the adverse effects on businesses are
likely to exceed expected benefits to nonfederal governments. 

Regardless of whether the actual effect on different industries would
be positive or negative, several factors would tend to limit the
magnitude of the effect.  Various industries sell varying proportions
of their output to state and local governments, and, as previously
discussed, several conditions would limit the volume of purchases
nonfederal governments would make through the schedules.  Also, some
businesses are not likely to be affected at all because prices
already offered to state and local governments may be comparable to
or better than schedule prices, their product or service is not
available through the schedules, or state or local governments may
not choose to buy through the schedule to retain such benefits as
service or training from their current contractors.  These variables,
together with the lack of available data to independently predict how
nonfederal governments or their suppliers would respond to the
cooperative purchasing program in the future, make it impossible to
accurately predict the overall effect of the program on individual
businesses. 

All of the uncertainties at the state, local, and business level make
it difficult, if not impossible, to determine the effect of
cooperative purchasing on the federal government.  Although it
appears likely that Puerto Rico and some state and local governments
and businesses would use the program, it is not clear whether this
expanded use of the schedules would lead to lower schedule prices or
lower federal administrative fees.  On the other hand, it is doubtful
that the federal government would experience adverse effects since
GSA plans to exclude schedules when such effects are anticipated and
would be able to act if unexpected negative effects arise.  GSA's
policy that it will continue to administer the federal supply
schedules program primarily for its federal customers is consistent
with GSA's mission. 

GSA's plan for implementing the cooperative purchasing program is
evolving and has not yet been put into a final written document. 
Although this is understandable given the legislative suspension of
authority for the program, Congress, GSA, and any affected parties
will need a written plan before implementation of cooperative
purchasing.  In our view, such a plan is essential for Congress to be
able to judge whether GSA is taking appropriate steps to fairly
balance the potentially beneficial and adverse effects of cooperative
purchasing, without compromising the interests of its federal
customers. 

The implementation approach GSA has been developing seems reasonable
in several respects, including recognition that effects will vary and
judgment will be involved in making trade-off decisions.  However,
these trade-off decisions are likely to be quite difficult in a
number of situations in which some or many businesses perceive
significant adverse effects, while state or local governments desire
access to the schedules.  A written plan would provide a basis for
GSA to ensure that its staff is making decisions in a manner
consistent with all available information.  The plan could indicate,
for instance, that GSA would consider the share of industry output
that is sold to state and local governments as one data element that
would contribute to GSA's decision.  It could also discuss how GSA
would weigh the views of affected parties in situations without
adequate quantitative data.  Further, should GSA delegate
decisionmaking authority to VA's Senior Procurement Executive, a
written plan could provide a mechanism for consistent decisionmaking
at GSA and VA. 

GSA's decisions will be further complicated in some cases because
businesses in the same industries have differing views about the
program, and there may not be sufficient quantitative data to enable
GSA to weigh the benefits and adverse effects.  This makes it
critical for the parties that are potentially affected to have a
clear understanding of how GSA intends to implement the program and
how it will consider the views of affected parties as well as any
available quantitative data.  Such understanding will be crucial for
the credibility of GSA's decisions should the program be implemented
as the law now provides. 

We believe that certain elements in the approach GSA has been
considering should particularly be incorporated into its final
written plan.  These include such items as the optional nature of the
program, designation of a high-level official to make final decisions
on opening schedules, provision for opening parts of schedules when
effects for different industries may vary significantly, and use of
the Commerce Business Daily and/or the Federal Register to announce
its intention to open schedules.  However, we believe that GSA's plan
should also include (1) guidance to its and VA's staff on considering
benefits and negative effects, (2) steps that will be taken in
addition to using the Commerce Business Daily and/or the Federal
Register to notify potentially affected parties, (3) provisions for
evaluating the actual effects of decisions made to open schedules,
and (4) steps that will be taken if the actual effects of opening
schedules are different from those GSA projected. 


   RECOMMENDATION TO THE
   ADMINISTRATOR OF GENERAL
   SERVICES
---------------------------------------------------------- Chapter 5:1

We recommend that as part of GSA's report on the cooperative
purchasing program to Congress mandated by the Clinger-Cohen Act of
1996, the Administrator provide a detailed plan setting forth the
steps that GSA will take to implement the program.  In particular,
the Administrator's report should provide Congress with a written
implementation plan that emphasizes the optional nature of the
program and

  -- includes guidance that will be provided to GSA and VA staff on
     the available quantitative data, affected parties' views, and
     other factors that need to be considered in assessing benefits
     and negative effects of opening up schedules;

  -- identifies appropriate processes for obtaining and considering
     information and views from a full range of affected parties;

  -- designates a high-level official or officials who are to make
     final decisions on opening schedules, especially when businesses
     express significant concern about potential adverse effects;

  -- provides for evaluating the actual effects of decisions to open
     schedules, and a means for addressing the effects if the data so
     warrant; and

  -- allows for partially opening schedules when appropriate. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 5:2

GSA and VA agreed with our conclusions and recommendation.  Both
agencies said that the uncertain effects of cooperative purchasing
illustrated the importance of having a process that would enable them
to make informed decisions on a case-by-case basis.  GSA agreed that
such a plan would assist Congress and others in understanding the
program and evaluating its potential impact and benefits. 

The National Association of State Purchasing Officials agreed with
our conclusion that allowing nonfederal governments to use federal
supply schedules can lead to positive effects for state and local
governments.  It noted, however, that any potential positive effects
would be limited by the exclusion of certain contracts from the
program.  The Association also agreed that GSA should use
communication tools in addition to the Commerce Business Daily for
states and small businesses. 

The Coalition for Government Procurement generally agreed with our
conclusions and recommendation and emphasized the importance of an
implementation plan and good evaluations of the program's effects. 
The Coalition suggested that GSA involve business and nonfederal
government representatives in formulating this plan and that GSA
phase in the implementation. 


FEDERAL SUPPLY SCHEDULE SALES,
FISCAL YEAR 1996
=========================================================== Appendix I

                                                          Number of vendors                                 Fiscal year 1996 sales
                                             -------------------------------------------  ----------------------------------------------------------
                              Schedule
Schedule title                number                 Large          Small        Other\a          Large          Small          Other          Total
----------------------------  -------------  -------------  -------------  -------------  -------------  -------------  -------------  =============
International schedule        IFSS                      18             78             39     $5,728,981    $10,434,251    $38,448,323    $54,611,555
Boats and marine barriers     19 I                       4             35              1     $2,108,127     $3,420,453                    $5,528,580
Wheel and track vehicles      23 I                       9             17                      $653,733     $1,991,166                    $2,644,899
Pneumatic highway tires       26 I                       3                                                                                        $0
Woodworking and metalworking  32 & 34                    7             18                    $3,220,260     $3,810,439                    $7,030,699
 machinery and equipment
Printing and bookbinding      36 II                     21             38              3     $3,784,048     $8,835,515         $2,971    $12,622,534
 equipment
Copying equipment, supplies   36 IV                     23             24              5   $400,388,532     $9,465,681    $10,259,601   $420,113,814
 and services
Lawn and garden equipment     37 II A                   11             65                    $1,665,063    $11,271,768                   $12,936,831
Construction and highway      38 I A                    16             29              1    $16,429,463     $4,386,486        $93,141    $20,909,090
 maintenance equipment
Material handling equipment-  39 II A                   13             61                      $304,730     $2,534,955                    $2,839,685
 -conveyors, hand-lift
 trucks, carts, pallets
Fire fighting and rescue      42 I B                     6             35              1       $847,009     $4,723,616        $74,482     $5,645,107
 equipment
Fire fighting vehicles and    42 IV                      9             35                   $11,910,870     $5,532,947                   $17,443,817
 waste disposal vehicles
Water filtration equipment    46 I A                                                                                                              $0
Repair shop equipment         49 I B                     9             39                    $3,492,431     $3,685,352                    $7,177,783
Maintenance and repair shop   49 II                      3             56              1       $485,954     $4,425,042         $4,726     $4,915,722
 cleaning equipment
Power-driven hand tools       51 VI                     14              9                                       $1,978                        $1,978
Scaffolding, work, and        54 II A                    3             12                    $5,044,520       $979,984                    $6,024,504
 service platforms\b
Prefabricated structures,     54 II B                    2              3                      $428,636       $492,491                      $921,127
 warehouses
Construction and building     56 IV A                    7             22              1       $578,475       $988,090                    $1,566,565
 materials
Communications equipment      58 III B                  18             57             20    $16,017,908    $13,413,958    $54,172,882    $83,604,748
Telecommunication supplies    58 V A                    10             59                   $17,817,660     $6,684,871                   $24,502,531
 (recording tapes and
 magnetic cards)
Communications equipment      58 VI and VII                                                                                              $50,743,000
Telecommunications equipment  58 IX                      6             23              5     $7,503,742     $9,104,791     $1,908,020    $18,516,553
Batteries                     61 III                     2             10                    $1,132,958     $1,102,773                    $2,235,731
Portable generators           61 V A                    12             22                    $4,046,397     $2,442,933                    $6,489,330
Power distribution equipment  61 V B                    16             45              1    $11,491,931     $2,243,836           $598    $13,736,365
Lighting fixtures and lamps   62 I                                     23                                   $2,613,802                    $2,613,802
Energy-efficient products     62 II                      1             31                      $349,588     $1,643,633                    $1,993,221
Alarm and signal equipment    63 I                      19             48                    $3,783,220     $7,572,005                   $11,355,225
Drugs and pharmaceutical      65 I B                   149            113                 $1,188,675,29   $100,626,096                 $1,289,301,39
 products\c                                                                                           9                                         5 \d
Antiseptic liquid skin        65 I C                     8             14                    $2,477,352        $65,902                  $2,543,254\d
 cleansing detergents and
 soaps\c
Medical and veterinary        65 II B                   83            235                  $112,895,055    $73,486,681                 $186,381,736\
 supplies\c                                                                                                                                        d
Dental equipment and          65 II C                   21             56                   $17,658,788     $9,886,270                 $27,545,058\d
 supplies\c
Medical equipment and         65 II D                  108            249                  $145,769,750    $47,471,228                 $193,240,978\
 supplies\c                                                                                                                                        d
Pacemakers and ancillary      65 II E                    7              3                    $3,276,369       $649,989                  $3,926,358\d
 systems\c
Wheel chairs, three-wheeled   65 II F                    4             21                   $19,219,014     $5,065,840                 $24,284,854\d
 scooters\c
Medical X-ray equipment and   65 V A                     9             12                   $40,450,869     $2,418,488                 $42,869,357\d
 supplies, including medical
 and dental X-ray film\c
In vitro diagnostic           65 VII                    40             91                   $90,104,124    $13,777,082                 $103,881,206\
 substances, reagents, test                                                                                                                        d
 kits, and sets\c
Blood chemistry,              66 II A                   36             52                   $10,899,421    $10,621,060                   $21,520,481
 electrophoresis, imaging
Lab accessories and supplies  66 II B                   11             49                    $5,061,873     $4,768,427                    $9,830,300
Clinical sample preparation   66 II C                   12             27                   $15,992,075     $4,541,286                   $20,533,361
 and analysis instruments
Laboratory balances and       66 II E                    6              3              1       $876,446       $268,348        $93,079     $1,237,873
 special purpose scales
Graphic recording             66 II G                    2              6                      $628,357        $15,002                      $643,359
 instruments
Instrumentation components    66 II H                   13             59                   $20,134,087     $9,591,871                   $29,725,958
 (data acquisition,
 calibration)
Electronics analyzers and     66 II J                   35             38              1    $93,733,824     $5,311,510                   $99,045,334
 meters
Materials, temperature        66 II L                   10             51                    $2,062,712     $3,153,998                    $5,216,710
 utilities, and test
 equipment
Spectrometers and             66 II M                   15             29                    $4,723,349     $1,106,452                    $5,829,801
 spectrophometers
Chromatograph and             66 II N                   30             62                   $30,151,906    $10,421,765                   $40,573,671
 miscellaneous analyzers
Lab ovens, chambers, and      66 II O                    5             52              4     $3,260,373     $8,584,834       $172,524    $12,017,731
 thermometers
Individual and modular        66 II P                    6             15              1     $5,255,547     $1,291,907                    $6,547,454
 furniture
Geophysical, surveying, and   66 II Q                   11             50              3     $1,550,244    $14,754,024       $670,970    $16,975,238
 GPS equipment
Environmental analysis and    66 II R                   11             57                    $1,110,630     $7,958,168                    $9,068,798
 hazard detection equipment
Vertical laminar flow         66 II T                                   3                                   $1,100,204                    $1,100,204
 biological safety cabinets
Cost per test--clinical,      66 III                    22              0                   $42,623,896                                $42,623,896\d
 lab, chemistry, hematology,
 coagulation, urinalysis,
 microbiology\c
Photographic equipment and    67 II                     37             89              6    $34,498,595    $13,278,217     $2,191,090    $49,967,902
 supplies
Microphotographic equipment   67 IV B                    7             24              2    $12,022,098     $4,244,677     $3,590,841    $19,857,616
 and supplies
Calcium chloride, deicing     68 I A                     4              6                      $999,324       $161,975                    $1,161,299
 compounds, and bulk sodium
 chloride
Dry ice\b                     68 III C                   3             14                       $37,547       $324,609                      $362,156
Propane                       68 III D                   2              4                        $2,710        $68,935                       $71,645
Sulphur hexaflouride\b        68 III E                                  1                                      $60,203                       $60,203
Helium\b                      68 III G                  11             13                       $87,766       $114,971                      $202,737
Oxygen: aviator's             68 III K                   7              7                      $444,649       $172,082                      $616,731
 breathing\b
Industrial gases in high-     68 III L                   8             22                      $150,129       $438,523                      $588,652
 pressure cylinders\b
Industrial gases--liquid,     68 III M                  12             25                    $1,640,387       $911,176                    $2,551,563
 bulk and in low-pressure
 chambers\b
Industrial gases--chlorine    68 III N                   3             12                       $12,350        $23,575                       $35,925
 and ammonia\b
Other chemicals including     68 V B & C                 9             55                    $5,542,419     $6,476,730                   $12,019,149
 water treatment chemicals
Disinfectants                 68 VI A                    4              3                       $30,708       $555,733                      $586,441
Deodorants                    68 VI B                    5             10                      $470,686       $208,606                      $679,292
Training aids and devices -   69                        11             80                    $2,882,119    $14,996,175                   $17,878,294
 programmed learning
 materials
ADP equipment, including      70 A and D                                                                                                $387,310,000
 used and refurbished
 equipment
Computers                     70 B/C                                                                                                    $479,284,000
Electronic commerce           70E                                                                                                           $376,700
Upholstered household and     71 I E                    15             39              5    $10,275,680     $7,513,087     $1,036,496    $18,825,263
 quarters furniture
Wall units, loft groups, and  71 I H                     4             25              1     $8,054,800    $70,925,926                   $78,980,726
 unaccompanied personnel
 furniture
Executive office and          71 II D                   11             21              2     $1,266,252       $760,906       $783,334     $2,810,492
 conference room furniture
Systems furniture             71 II E                   16             27              1   $244,026,858    $30,200,868     $6,521,396   $280,749,122
Packaged room furnishings     71 II H                    3             10                                          $60                           $60
Classroom, auditorium, and    71 III A                   6             26              2     $1,311,105     $1,189,817         $8,257     $2,509,179
 theater seating
Library furniture             71 III B                   2             28              2        $79,537     $4,263,904                    $4,343,441
Storage cabinets for forms    71 III C                   1             18                                  $11,582,564                   $11,582,564
 and flammable liquids;
 card-size filing cabinets
Mail sorting and              71 III D                                 10                                   $2,589,022                    $2,589,022
 distribution equipment,
 modular storage cabinets,
 and molded storage bins
Security filing cabinets,     71 III E                   2              7                    $6,667,740     $2,552,979                    $9,220,719
 safes, vault doors, map and
 plan files, and special
 access control containers
Hospital patient room         71 III F                  10             22              3    $12,243,642     $3,180,688                   $15,424,330
 furniture
Multipurpose seating          71 III H                  30             86              9    $32,470,903    $35,336,389    $96,166,651   $163,973,943
Steel vertical blueprint      71 III J                   4             16              1     $5,648,592    $10,446,820         $6,495    $16,101,907
 filing cabinets, roll
 drawing files, high-
 density movable shelf
 filing cabinets
Ergonomic chairs\b            71 III K                                  1                                     $199,980                      $199,980
Cafeteria and food service    71 III L                                 14                                   $2,520,043                    $2,520,043
 furniture
Partitions                    71 III M                                 28                                   $1,772,421                    $1,772,421
ADP furniture                 71 III N                  16             67              7    $56,562,815    $25,064,191     $8,954,743    $90,581,749
Display and communication     71 III T                                 35                                   $6,191,780                    $6,191,780
 boards
Clothing lockers and          71 III Y                   2             22                       $15,537     $1,998,307                    $2,013,844
 drafting stools
Partitions\b                  71 III Z                                  1                                      $43,847                       $43,847
Conference room and           71 X                      12             45              4     $3,632,712     $4,690,947     $1,105,456     $9,429,115
 multipurpose tables
Work benches, work tables,    71 XIV B                   7             20                   $21,126,934     $2,519,140                   $23,646,074
 storage cabinets
Carpet, carpet tile, and      72 I A                    14             24              1    $44,239,791     $8,523,674     $2,689,188    $55,452,653
 carpet cushion
Resilient flooring            72 I B                     3              6                      $137,642     $1,330,054                    $1,467,696
Mats and matting              72 I E                     1              9                      $214,725       $227,011                      $441,736
Drapes and blinds             72 V                       2             55                       $16,548    $10,545,064                   $10,561,612
Recycling collection          72 VII B                   9             52                    $2,020,537     $3,701,207                    $5,721,744
 containers and specialty
 waste receptacles
Wall art                      72 VIII                    1             60                        $7,177     $5,595,512                    $5,602,689
Food service equipment        73 III                    56            174              3     $8,850,717    $30,426,366                   $39,277,083
Office machines               74 I A                     2             15              7     $2,883,479       $692,912     $3,918,031     $7,494,422
 (typewriters, dictation
 systems, lettering
 machines, etc.)
Office machines               74 II & III                7             22              7    $23,519,457     $1,793,330     $1,846,558    $27,159,345
 (calculators, mailing
 equipment, etc.)
Visible record equipment      74 IV                      6             16              2     $5,797,724     $3,183,449     $2,252,111    $11,233,284
 (frames for cards, posting/
 ledger trays, etc.)
Recording paper and supplies  75 I D                    16             46              1     $2,983,233     $2,546,998                    $5,530,231
 (plotting, facsimile,
 chart)
Office supplies (pencils,     75 II A                   17             70                    $4,272,125    $16,093,212                   $20,365,337
 markers, binders, desk
 sorters, etc.)
Desk top                      75 III A                   5              1                       $12,383                                      $12,383
Envelopes (mailing, printed   75 V                       4              4                    $4,823,424     $1,722,041                    $6,545,465
 and plain)
Cards: tabulating, aperture,  75 VIII A                  1              3                    $1,451,162         $8,321                    $1,459,483
 copy
Paper: xerographic and        75 XI                      1             10                                     $189,129                      $189,129
 thermal copy
Publications (dictionaries,   76 I                      23             46              1     $7,400,825     $7,029,509                   $14,430,334
 encyclopedias, atlases,
 charts, globes)
Publications (law books, tax  76 II                     11              1                    $6,938,445           $433                    $6,938,878
 and reporting periodicals,
 microfilmed library
 systems)
Musical instruments           77 II                                    16                                     $837,133                      $837,133
Audio and video equipment     77 III                     2              9                    $3,893,129     $4,509,191                    $8,402,320
 (televisions, radios,
 phonographs, VCRs)
Indoor/outdoor athletic and   78 I A                    25            190              2     $6,895,850    $27,872,479        $48,176    $34,816,505
 recreational equipment
Park and outdoor recreation   78 I C                     7             89              3     $1,889,309     $9,614,915       $199,412    $11,703,636
 equipment
Cleaning equipment and        79 I B                    12             25              1     $6,597,578     $4,218,732       $450,119    $11,266,429
 supplies
Ware washing compounds and    79 II A                    3             12                    $7,838,402     $1,403,470                    $9,241,872
 laundry detergent
Sorbents                      79 V                       2             13                      $204,956     $2,476,649                    $2,681,605
Latex paints                  80 VI A                   11             14                    $1,697,752       $534,689                    $2,232,441
Packing and packaging         81 I B                     6             33                    $1,928,541     $5,406,441                    $7,334,982
 supplies
Special purpose clothing      84 II B                    7             44              2     $6,538,077     $8,912,491     $1,771,062    $17,221,630
Athletic and recreational     84 V A                     6             23                      $153,825     $1,826,948                    $1,980,773
 clothing and footwear
Law enforcement and security  84 VI A                   19            139              3    $20,440,732    $31,761,484       $730,203    $52,932,419
 equipment
Subsistence (condiments and   89 I A                     3              1                    $2,921,294       $640,153                  $3,561,447\d
 cereals)\c
Subsistence (cookies,         89 I B                     3              0                      $420,112                                   $420,112\d
 crackers, etc.)\c
Signs                         99 IV A                    6             69                      $376,840     $4,783,316                    $5,160,156
Recruiting aid and            99 V A                     1             23                        $1,473       $965,618                      $967,091
 promotional material
Trophies and awards           99 VI A                                  61                                   $2,231,929                    $2,231,929
Airlines                      451 II                                                      $1,400,000,00                                $1,400,000,00
                                                                                                      0                                          0\e
Express transportation        451 III                    1                                  $69,884,000                                $69,884,000\e
 services (FEDEX)
Solvent recycling services\b  495 I A                    1                                     $587,264                                     $587,264
Governmentwide commercial     615                        1                                                                                      $0\f
 credit card services
Relocation service            653                        2                                  $14,773,390                                  $14,773,390
Factual data reports:         732 I A                    7             10                    $8,564,706       $210,508                    $8,775,214
 consumer and commercial
 credit
Professional debt collection  732 I B                    6              1                          $119                                         $119
 services
Investigation of              738 X                                     2                                   $2,373,028                    $2,373,028
 discrimination complaints
 and preparation of reports
Closed-end lease, without     751 II                     2                                     $203,380                                     $203,380
 maintenance: automobiles
 and light trucks\b
Leasing: surveillance and     751 III                                   1                                       $7,146                        $7,146
 law enforcement vehicles\b
Professional film processing  781 I & II                 1             42                                   $1,041,435                    $1,041,435
 and videotape processing
 services
Lending library               823                        2                                     $255,308                                     $255,308
Prepayment audit of           872                                       2                                      $67,228                       $67,228
 government transportation
 billing documents
Consulting services: total    874                       40             48                   $59,743,535    $36,557,990                   $96,301,525
 quality management
 implementation
New item introductory         NIIS 999                   9            219              2    $14,428,459     $5,800,082        $58,264    $20,286,805
 schedule
New item introductory         NIIS 65                    0              5                                     $147,187                      $147,187
 schedule\c
Miscellaneous\g                                                                                                                             $139,063
====================================================================================================================================================
Totals                                               1,544          4,879            168  $4,585,817,61   $976,127,585   $240,229,200  $6,720,027,16
                                                                                                      5                                          3\h
----------------------------------------------------------------------------------------------------------------------------------------------------
Note 1:  The number and identity of schedules will vary from year to
year as schedules are created, cancelled, or merged with other
schedules. 

Note 2:  The total number of vendors is overstated since many vendors
have contracts on more than one schedule. 

Note 3:  All schedules but those indicated are managed by GSA. 

\a Other includes vendors such as foreign contractors and nonprofit
or educational sources of supplies or services. 

\b Schedule has been cancelled or merged with another schedule in
fiscal year 1997. 

\c Schedule is managed by VA. 

\d VA fiscal year 1996 total sales are preliminary and could change. 

\e GSA does not collect the 1 percent industrial funding fee on these
sales. 

\f This schedule does not generate sales. 

\g Miscellaneous includes receipts from cancelled or converted
schedules. 

\h Total sales is greater than the sum of sales to large, small, and
other vendors because GSA could not break out sales of
communications, computer, and electronic commerce equipment by vendor
size. 

Source:  GSA and VA. 


STATE RESPONSES TO OUR SURVEY ON
THE POTENTIAL USE OF GSA'S
SCHEDULES
========================================================== Appendix II

To assist us in our review, we asked state purchasing agencies about
(1) their use of state schedules, (2) their use of cooperative
purchasing agreements, (3) regulations that would prohibit them from
using GSA schedules, (4) factors that would limit their use of GSA
schedules, and (5) any comparisons they had made of GSA schedule and
state prices.  A copy of the survey instrument is included in this
appendix. 

We used a membership directory of the National Association of State
Purchasing Officials to contact all the state agencies with
responsibility for purchasing.  Following interviews with selected
state agencies, we developed a questionnaire.  On September 5 and 6,
1996, we pretested the questionnaire with two state agencies.  We
faxed the survey to all 50 states and 3 territories between September
9 and 11.  After follow-ups, we received fax responses from 48 states
and 2 territories. 

To ensure data reliability and consistency, we performed edit checks
of the instruments and made follow-up phone calls when issues arose. 
The edit checking and follow-ups raised some issues that need to be
considered when interpreting the results.  For example, most of the
respondents who reported in question 6 that their states had
procurement statutes or regulations prohibiting the use of GSA
schedules also reported limiting factors in question 7.  Two of the
respondents who reported prohibitions in question 6 revealed to us in
subsequent discussions that the prohibitions only applied to
purchases above $10,000.  Therefore, the answers to question 7 are a
combination of factors that limit and factors that prohibit use of
the GSA schedules.  In question 8, two of the states reporting
prohibitions indicated that they expected to make purchases from the
GSA schedules because they anticipated the prohibitions would be
removed. 



(See figure in printed edition.)


GOVERNMENT AND INDUSTRY
ASSOCIATIONS' VIEWS OBTAINED
DURING THE COURSE OF OUR WORK
========================================================= Appendix III

Alabama Retail Association*
American Small Business Association
Associated Equipment Distributors
Business Council of New York State
California Association of Public Purchasing Officials
California League of Cities
Coalition for Government Procurement
Contract Services Association of America
Environmental Industry Association*
Fire Apparatus Manufacturers Association
Health Industry Distributors Association
Health Industry Group Purchasing Association
Health Industry Manufacturers Association
Information Technology Association of America
Information Technology Industry Council
Material Handling Equipment Distributors Association
Montana Association of Counties
Montana Small Business Development Center
National Association of Counties
National Association of Housing and Redevelopment Officials*
National Association of Purchasing Management
National Association of State Purchasing Officials
National Association of Towns and Townships
National Association of Wholesalers & Distributors*
National Retail Federation
National Small Business United
National Institute of Governmental Purchasing, Inc.
New York State Association of Towns
New York State Small Business Development Center
North American Equipment Dealers Association
Public Hospital Pharmacy Coalition
Public Housing Authorities Directors Association*
Public Technology Incorporated
RGF Environmental Group*
Small Business Legislative Council*
Texas Association of Counties
West Virginia Association of Counties
West Virginia Manufacturers Association
West Virginia National Federation of Independent Businesses
West Virginia Small Business Development Center

* These associations provided written comments to GSA or GAO on
cooperative purchasing. 


COMPARABILITY OF STATE AND LOCAL
AGENCIES' PROCUREMENTS TO GSA
SCHEDULE ITEMS
========================================================== Appendix IV

To compare items procured by state and local governments to items
available through GSA supply schedules, we obtained documentation of
recent state and local procurements.  We asked state and local
procurement officials for documentation of procurements that, in
their opinions, were frequent, were large in volume, took a
substantial portion of their procurement budget, were difficult to
procure, or might be available through GSA's supply schedules at
better prices or terms.  Upon receipt, we forwarded this
documentation to GSA and requested that it make a determination of
the availability of the same or comparable items on GSA's supply
schedule and a comparison of the state/local prices to the GSA
schedules' prices. 

GSA's responses are presented in table IV.1.  In cases where more
than one item had been included in a procurement action, GSA broke
out each procurement action into separate line items and reported
separate comparisons for each line item.  Thus, the number of GSA
responses does not equal the number of procurement actions.  Further,
GSA responded that, in some cases, the documentation provided by the
state and local officials was not sufficient to determine if an item
was available.  We did not contact the state and local officials for
additional documentation in these cases. 

In its responses, GSA noted that price is only one factor that has to
be considered in these comparisons.  Other factors that it noted
included costs associated with awarding and administering contracts,
costs of maintaining inventories, and costs to deliver items. 



                                    Table IV.1
                     
                          Comparison of State and Local
                      Procurement Prices with Federal Supply
                                 Schedule Prices

               Item(s) available on FSS         GSA        GSA          GSA
           --------------------------------  ---------  ---------  -------------
Procured                          Cannot be    price      price        price
items         No         Yes     determined    lower     higher        equal
---------  ---------  ---------  ----------  ---------  ---------  -------------
ADP
 equipment
Toshiba                   2               1      2
 100
 computer
 with
 memory
 upgrade
 &
 network
 card
Document                                  3
 scanner,
 computer
 upgrade
 & lab
 equipmen
 t
Computers      1          1               2      1
 with
 upgrades
Apple                                     3
 computer
 monitor
 & CD
 drives
HP                        1                      1
 printer
 memory
 upgrade
DEC                                       2
 computer
 equipmen
 t with
 keyboard
Compaq         1          1               2      1
 computer
 with
 upgrades
 &
 printer
Motorola                                  5
 portable
 radios
 (4 watt,
 16
 frequenc
 ies)
 with
 batterie
 s &
 charger
Gateway        1          1                                 1
 2000
 computer
 system
Samsung                   4               4      4
 notebook
 computer
 & graded
 Okidata
 & HP
 printers
DEC                       1                      1
 Venturis
 microcom
 puter
Miscellan                                16
 eous
 computer
 hardware
Dell 5100      3
 microcom
 puter
 with
 upgrades
IBM                                      15
 microcom
 puters
HP                        3               2      1          2
 computers
Custom                                    1
 Pentium
 computer
 systems
 with
 Diamond
 video
 cards,
 Colorado
 &
 Seagate
 hard
 drives,
 Toshiba
 CDs
Computers                                 4
 &
 servers
HP Vectra      1          5               5      3          2
 and
 Macintos
 h
 computer
 systems
 with
 upgrades
 &
 printer
Office &
 scientif
 ic
 equipmen
 t
Film, 35                  1                      1
 mm, 12
 frame
 rolls
Xerox                     1                      1
 5100
 duplicat
 or
 (lease)
Low            1
 energy/
 low
 spread
 ion
 source
Kodak          1          2                      2
 copiers
 (lease)
Lanier         3
 6745
 copier
Thermocyc                 1                                 1
 ler
Canon                     2                      2
 6050 II
 copier
Film,                     1                                 1
 Polaroid
 self-
 developi
 ng
 (Spectra
 990)
Miscellan     22
 eous lab
 supplies
 &
 equipmen
 t
Services
Southwest                                 1
 Airline
 tickets
Airline        2          4                      4
 tickets\a
 (various
 cities)
Amtrak         1
 tickets
Waste          1
 removal
 service
Furniture
McDowell                  3                                              3
 Craig
 furnitur
 e
 systems/
 clusters
ABCO                                      2
 computer
 table &
 Globel
 chairs
Teachers'                                14
 desks,
 chairs,
 filing/
 storage
 cabinets
Miniblind                                 2
 s
Larson                                    6
 desks
 and
 Nunnally
 desks,
 tables,
 credenza
 s,
 chair,
 chair
 arms,
 keyboard
 trays
General
 products
Ammunitio      1
 n, 40
 caliber
Stone &        1
 aggregate
Prestress      1
 ed
 concrete
 box
 beams
Prestress      1
 ed
 concrete
 culverts
Construct      1
 ion of
 site
 utilitie
 s &
 paving
Electric       1
 wire
Guardrail      1
 post &
 block
Wood sign      1
 posts
Reflectiv      1
 e
 sheeting
Lawn                      2                      1          1
 mowers
Pine           1
 shavings
 (animal
 bedding)
Innerspri      2
 ng
 mattress
 es
Traffic        5
 lamps
Traffic        1
 cones
Fuses,         1
 highway
Hot mix        1
 asphalt
Paints &
 chemicals
Sodium                    1                                 1
 chloride
 (road
 salt)
Paint                                     1
Diesel         1
 fuel
Gasoline       1
De-icing                  1                                 1
 salt
 (city of
 Elmira,
 New
 York)
De-icing                                  1
 salt
 (DOT New
 York)
De-icing                                  1
 salt
 (Albany,
 New
 York)
Paint/         7
 paint
 supplies
Automotiv
 e
Tires,         1
 high
 speed
Police         1
 pursuit
 automobi
 les
Pickup         1
 trucks
Police         1
 vehicles
Abrasive                  1
 &
 chemical
 spreader
Power                                     1
 reversib
 le
 snowplow
Barricade      1
 s
Refuse                                    1
 vehicle
Industria                                 1
 l rider
 sweeper
4-Wheel                                   1
 articula
 ted
 loader
Articulat                                 1
 ed frame
 grader
Dump                                      1
 truck
Passenger      1
 cars
Office
 supplies
Xerograph                 1                      1
 ic paper
 (letter)
Xerograph                 1                      1
 ic paper
 (legal)
Toilet                    1                                 1
 paper
Paper                     1                      1
 towels
Roll                      1                      1
 towels
Paper          1
 towels
 (Bounty)
Desk jet                  1                                 1
 ink
 cartridg
 e black
Cartridge                 1                                 1
 F/660C
 printer,
 black
Toner,                    1                                 1
 cartridg
 e.
 LaserJet
 4L, 4Ml
Paper,                    1                      1
 letter
 #24 GY
 25% cot
 (Eaton)
Glue/                     1                                 1
 Krazy
 Pen .07
 oz.
Moistener      1
 ,
 squeeze
 bottle
Memo,          1
 trip
 8.5X7,
 NCR, 50
 set
Binder,                                   1
 ring,
 11X8.5,
 1" Dbe
Scissors,                 1                                 1
 8" 12/
 BX, 12/
 CS
Paper          1
 8.5X11,
 #20 wht
 (Springh
 ill
 Relay
 DP)
Punch, 3                  1                                 1
 hole
 25SH cap
 black
Rest,                     1                      1
 foot,
 adjustab
 le, DGY
Headset,       1
 Lanier
Dispenser                 1                      1
 , Pop-
 N-Jot,
 Bgy
Organizer                 1                      1
 ,
 drawer,
 smoke
Refill,                   1                      1
 pad,
 Post-It
 3X3, BL
Marker,                   1                      1
 highligh
 ter,
 "Boss,"
 Y
Marker,        1
 highligh
 ter,
 "Boss,"
 G
Marker,        1
 highligh
 ter,
 "Boss,"
 R
Pen,                      1                      1
 Rolg,
 XF,
 precise,
 gn, pv
Pen,                      1                      1
 Rolg,
 XF,
 precise,
 pe, pv
Folder,                   1                      1
 hang,
 BX2,"
 exp,
 lgl, gn
Dispenser                 1                      1
 , Gem,
 clip,
 smoke
Clips,                    1                      1
 Gem
 vinyl,
 #1,
 assorted
Pad,                      1                      1
 legal,
 ruled,
 5X8,
 ivory
Pad,                      1                      1
 legal,
 ruled,
 5X8,
 gray
Routing        1
 req, 34"
 yel
Folder,                   1                                 1
 letter,
 1/3,
 sgl, 11
 pt, A
Folder,        1
 legal,
 1/3,
 asst 166
Staples,                  1                                 1
 std CP
 5M/ppr
 BX
Dispenser                 1                      1
 , tape
 black,
 1" core
Pad,           1
 doodle
 black
Tape,                     1                      1
 Magic
 .75X1296
 " 1" C
Magnifier                 1                                 1
 , round,
 2X4"
File, box                 1                      1
 letter/
 legal
 12X10X15
Tape,                     1                      1
 carton
 seal 2"
 clear
Marker                    1                      1
 ultrafin
 e,
 Flair,
 bl
Ribbon,        1
 Nex P5/
 P9 XL
================================================================================
Totals        84         70             101     47         20            3
================================================================================
Total         255
 number
 of items
 on
 invoices
--------------------------------------------------------------------------------
\a As noted in chapter 3, GSA officials told us that they do not
intend to make the schedule with airline fares available for use in
the cooperative purchasing program. 

Source:  GSA and state and local agencies. 




(See figure in printed edition.)Appendix V
COMMENTS FROM THE GENERAL SERVICES
ADMINISTRATION
========================================================== Appendix IV



(See figure in printed edition.)




(See figure in printed edition.)Appendix VI
COMMENTS FROM THE DEPARTMENT OF
VETERANS AFFAIRS
========================================================== Appendix IV



(See figure in printed edition.)




(See figure in printed edition.)Appendix VII
COMMENTS FROM THE NATIONAL
ASSOCIATION OF STATE PURCHASING
OFFICIALS
========================================================== Appendix IV



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
======================================================== Appendix VIII


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

Mr.  James M.  McDermott, Assistant Director
Mr.  Martin H.  DeAlteriis, Senior Social Science Analyst
Ms.  Vasiliki Theodoropoulus, Senior Evaluator /Communications
Analyst


   OFFICE OF THE CHIEF ECONOMIST
------------------------------------------------------ Appendix VIII:2

Mr.  Loren Yager, Assistant Director


   OFFICE OF GENERAL COUNSEL
------------------------------------------------------ Appendix VIII:3

Mr.  Alan N.  Belkin, Assistant General Counsel
Mr.  John G.  Brosnan, Assistant General Counsel
Mr.  Victor B.  Goddard, Senior Attorney


   DALLAS FIELD OFFICE
------------------------------------------------------ Appendix VIII:4

Ms.  Marcia B.  McWreath, Evaluator-in-Charge
Mr.  Vijaykumar J.  Barnabas, Senior Evaluator
Ms.  Mary K.  Muse, Senior Evaluator
Ms.  Rita F.  Oliver, Senior Evaluator
Mr.  James L.  Rose, Evaluator
Mr.  James W.  Turkett, Senior Evaluator
Mr.  Cleofas Zapata, Jr., Senior Evaluator


*** End of document. ***