Acquisition Reform: Classes of Contracts Not Suitable for the Federal
Acquisition Computer Network (Letter Report, 09/17/97, GAO/NSIAD-97-232).

The Federal Acquisition Streamlining Act of 1994 mandated the creation
of a governmentwide Federal Acquisition Computer Network (FACNET) to
enable federal agencies and vendors to do business electronically in a
standard way and to move the government's procurement process away from
paper. It was expected that FACNET would be used for competitive
contracts valued at between $2,500 and $100,000. This report discusses
contracts that fall within that dollar range that are not suitable for
acquisition through a system with full FACNET capability. GAO identifies
the characteristics of contract actions that agencies have concluded are
not suitable for FACNET processing and evaluates the reasonableness and
consistency of agencies' explanations as to why those contracts were
unsuitable for FACNET. GAO also analyzes governmentwide electronic
commerce statistics to determine agencies' use of FACNET and other
electronic commerce purchasing methods.

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

 REPORTNUM:  NSIAD-97-232
     TITLE:  Acquisition Reform: Classes of Contracts Not Suitable for 
             the Federal Acquisition Computer Network
      DATE:  09/17/97
   SUBJECT:  Federal procurement policies
             Computer networks
             Information resources management
             Competitive procurement
             Procurement regulation
             Electronic data interchange
IDENTIFIER:  Internet
             FACNET
             Federal Acquisition Computer Network
             World Wide Web
             
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Cover
================================================================ COVER


Report to Congressional Committees and Acting Administrator, Office
of Federal Procurement Policy

September 1997

ACQUISITION REFORM - CLASSES OF
CONTRACTS NOT SUITABLE FOR THE
FEDERAL ACQUISITION COMPUTER
NETWORK

GAO/NSIAD-97-232

Acquisition Reform

(707231)


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

  DOD - The Department of Defense
  EC - electronic commerce
  EDI - electronic data interchange
  FACNET - Federal Acquisition Computer Network
  FAR - Federal Acquisition Regulation
  FASA - The Federal Acquisition Streamlining Act of 1994
  GSA - General Services Administration
  NASA - National Aeronautics and Space Administration

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


B-276449

September 17, 1997

Congressional Committees and
Acting Administrator, Office of Federal Procurement Policy

The Federal Acquisition Streamlining Act of 1994 (FASA), Public
Law 103-355, mandated a governmentwide Federal Acquisition Computer
Network (FACNET) architecture to enable federal agencies and vendors
to do business electronically in a standard way and move the
government's procurement process away from paper.  It was expected
that FACNET would be used for most competitive contract awards valued
above the micro-purchase threshold of $2,500, up to the simplified
acquisition threshold of $100,000.  Procurements in this range are
simplified acquisitions that may be conducted using procedures that
are less complex than those required for full and open competitive
acquisitions.  In January 1997, we reported numerous concerns about
FACNET implementation, including FASA's requirements.\1 Legislation
has been introduced to amend the FASA requirements to allow
electronic commerce (EC) to be implemented in a more flexible manner. 

This letter responds to the FASA requirement that we report on "the
classes of contracts\2 in amounts greater than the micro-purchase
threshold and not greater than the simplified acquisition threshold
that are not suitable for acquisition through a system with full
FACNET capability." Specifically, we ascertained characteristics of
contract actions that agencies found not suitable for FACNET
processing and evaluated the reasonableness and consistency of
agencies' explanations why they were unsuitable for FACNET.  In
addition, we analyzed governmentwide EC statistics to determine
agencies' use of FACNET and other EC purchasing methods.  We obtained
information from senior procurement officials at 24 federal agencies. 
(A list of the responding agencies is in app.  I.)


--------------------
\1 Acquisition Reform:  Obstacles to Implementing the Federal
Acquisition Computer Network (GAO/NSIAD-97-26, Jan.  3, 1997). 

\2 For this report, "class of contracts" means a group of contracts
that bears some common characteristic(s), for example, a category or
subcategory of products or services.  Another example is contract
awards above or below some dollar amount or within a specified dollar
range. 


   BACKGROUND
------------------------------------------------------------ Letter :1

FACNET is a governmentwide systems architecture for acquisition based
on electronic data interchange (EDI), which is the
computer-to-computer exchange of routine business documents using
standardized data formats.  A key goal of FACNET and the
governmentwide EC program is to present a "single face to
industry"--making the government look like a single entity rather
than a collection of independent departments and agencies.  The EC
program aims to simplify and standardize doing business by
eliminating the need to deal with numerous different agencies'
procurement processes, forms, and rules. 

FASA requires that agencies award at least 75 percent of eligible
contracts through a system that has implemented all the FACNET
functions.\3 Contracting offices in agencies that are not in
compliance by December 31, 1999, will lose their authority to use
simplified acquisition procedures for contracts exceeding $50,000. 

Agencies can exclude certain contract actions when calculating the
percentage of FACNET use:\4

  -- The Federal Acquisition Regulatory (FAR) Council has determined
     that certain contract actions, such as delivery orders, task
     orders, and in-scope modifications against established
     contracts, should not be considered when determining agency
     compliance with FASA's 75-percent criterion.\5 Essentially, this
     means that only contract awards should be counted.\6

  -- FASA authorizes the head of each executive agency to exempt its
     procuring activities (or portions thereof) from the requirement
     to implement full FACNET capability based on a determination
     that such implementation is not cost-effective or practicable. 
     Contracts awarded by exempted activities are not to be
     considered in determining agency compliance with the criterion. 

  -- FASA provides that the FAR Council may determine--after
     considering our report on this subject--that classes of
     contracts are not suitable for acquisition through a system with
     full FACNET capability. 

In our January 1997 report, we questioned the FASA-mandated approach
to EC.  Also, we observed that since passage of FASA, alternative
electronic purchasing methods had become readily available to the
government and its vendors.  Given these alternative methods, the
prescriptive requirements of FASA, and problems with implementation,
we questioned the extent to which FACNET made good business sense for
simplified acquisitions.  We recommended that the executive branch
(1) develop a coherent EC strategy and implementation approach
incorporating the single-face-to-industry goal and (2) seek
legislative changes, if FASA's requirements for FACNET were an
impediment to implementing the governmentwide EC strategy. 

Since then, the President's Management Council has tasked a
high-level management committee to review EC implementation and
develop a more integrated federal EC strategy.  The executive branch
also recently proposed legislative changes to repeal mandated use of
FACNET.  On July 8, 1997, the Senate approved an amendment to the
Fiscal Year 1998 National Defense Authorization Bill that would,
among other things (1) repeal mandated use of FACNET; (2) define EC
to include electronic mail or messaging, World Wide Web technology,
electronic bulletin boards, purchase cards, electronic funds
transfer, and EDI; and (3) ensure that any notices of agency
requirements or solicitation for contract opportunities are provided
in a form that allows convenient and universal user access through a
single governmentwide point of entry.  The amendment calls for
uniformity in federal EC implementation to the maximum extent that is
practicable.  The House National Defense Authorization Bill did not
contain any language regarding FACNET.  Therefore, the Senate
amendment will be addressed in conference.  This report provides
information that could be useful in congressional deliberations. 


--------------------
\3 The functions include allowing an agency to electronically (1)
provide widespread public notice of solicitations for contracting
opportunities issued by the agency; (2) receive responses to
solicitations and associated requests for information; (3) provide
public notice of contract awards (including price); (4) receive
questions regarding solicitations, where practicable; (5) issue
orders, where practicable; (6) make payments to contractors, where
practicable; and (7) archive data relating to each procurement action
made using such system. 

\4 FASA defines a contract as eligible if it is not in any class of
contracts determined by the FAR Council to be unsuitable for
acquisition through a system with full FACNET capability. 

\5 See FAR Part 4.505-4. 

\6 Contract awards include new definitive contracts, new purchase
orders, initial letter contracts, and orders under basic ordering
agreements but exclude delivery orders, task orders, and in-scope
modifications that have been issued against established contracts. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

Senior procurement officials generally found contracts unsuitable for
FACNET when (1) widespread public solicitation of offers was
inappropriate, (2) transmitting essential contracting information
through the network was not practical or feasible, or (3) alternative
purchasing methods were faster and more efficient.  The agencies
provided clear, reasonable, and consistent business and technical
reasons why numerous types of contracts should be excluded from
mandatory FACNET processing. 

Available data showed continuing limited use of FACNET for contract
awards.  However, there is no governmentwide data available on
agencies' use of other EC purchasing methods.  Consequently, it is
difficult to assess the government's overall progress in doing
business electronically in a standard way.  Governmentwide EC
statistical information may not be available until the year 2000. 


   AGENCIES FOUND SEVERAL CONTRACT
   TYPES NOT SUITABLE FOR FACNET
------------------------------------------------------------ Letter :3

Responses from 24 agencies indicated a general consensus among senior
federal procurement officials that, for several types of contracts,
the use of FACNET is inappropriate, impractical, or inefficient.  As
discussed below, the agencies provided clear, reasonable, and
consistent reasons for excluding contracts from mandatory FACNET
processing. 


      CONTRACTS FOR WHICH
      WIDESPREAD PUBLIC
      SOLICITATION IS
      INAPPROPRIATE
---------------------------------------------------------- Letter :3.1

A primary function of FACNET, mandated by FASA, is to enable agencies
to provide widespread electronic public notice of solicitations for
contracting opportunities.\7 Several agencies' senior procurement
officials identified procurements for which nationwide public
solicitation of offers was inappropriate or ineffective in filling
requirements.  These officials considered such procurements
unsuitable for acquisition through FACNET. 

A major group of contracts in this category is procurements with
"on-site" or local vendor requirements that generally require
soliciting competition from vendors in a local area.  Construction
and building maintenance services contracts, for example, typically
require a site visit to understand the work to be performed, examine
conditions affecting the work, and accurately estimate the cost of
performance.  One agency cited its requirement for weed control
services as a typical example of a contract that requires a local
presence by vendors to bid intelligently and keep costs down for
acceptable performance.  Another agency noted that purchases of
subsistence items are limited to the local commuting area because
they require the buyer to view and select the commodities. 

According to procurement officials, nationwide solicitation through
FACNET for procurements with "on-site" or local commuting area
requirements was often inappropriate because vendors from outside the
area could not reasonably be expected to be able to fulfill the
requirement, resulting in additional costs to prepare and evaluate
offers with no commensurate benefit to vendors or the agency. 

Widespread public notice may not be required or appropriate for other
types of contracts.  For example, agencies' officials noted that
awards to Small Disadvantaged Business Concerns, referred to as 8(a)
contractors, do not use public solicitation of offers. 


--------------------
\7 Generally, non-FACNET procurements in excess of $25,000 must be
advertised in the Commerce Business Daily.  See FAR Part 5.101. 


      TRANSMISSION OF ESSENTIAL
      CONTRACT INFORMATION IS
      IMPRACTICAL OR INFEASIBLE
---------------------------------------------------------- Letter :3.2

Senior procurement officials found FACNET unsuitable for numerous
contracts because essential procurement information could not be
sent, received, or communicated effectively through FACNET.  In
particular, senior procurement officials considered FACNET
inappropriate for procurements requiring extensive government
specifications, lengthy written or oral proposals, sensitive or
classified information, technical evaluations, and urgent delivery or
performance.  For example, contracts for various services, such as
research and development efforts, were cited frequently because of
the lengthy statements of work and other attachments that were often
required.  According to procurement officials, transmitting such
information through FACNET is difficult, costly, and often
infeasible.\8 The Department of Defense (DOD) is working with the
National Technical Information Service to address this issue by
developing methods for making drawings, specifications, and standards
cited in government solicitations available electronically. 
According to DOD officials, early results of this program appear
promising. 

Several procurement officials indicated that procurements involving
sensitive information are not suitable for FACNET processing because,
in their view, FACNET does not currently provide adequate security.\9
Additionally, acquisitions that require urgent delivery of a service
or material are not considered good candidates for FACNET because
procurements that are conducted through FACNET would take too long to
complete. 

Procurement officials also cited several types of acquisitions that
could not be conducted through FACNET because vendors were not on
FACNET.  For example, for some procurements with on-site or local
commuting area requirements, agencies' officials indicated that there
were few or no local vendors participating in FACNET.  Several
agencies' officials considered FACNET impractical for overseas
procurements, especially in developing countries because vendors did
not have the technical sophistication or infrastructure to sell via
FACNET.  Likewise, some procurement officials said it is unreasonable
to expect individuals and noncommercial organizations to be on FACNET
since they are not set up to sell products or services on a frequent
basis and investing in FACNET for a few orders was not considered
cost-effective. 


--------------------
\8 The policy for FACNET use outlined in FAR Part 4.502 states that
contracting officers may supplement FACNET transactions by using
other media to meet the requirements of any contract action (e.g.,
transmit hard copy of drawings). 

\9 FAR Part 4.502(b) states that before using FACNET or any other
method of EDI, the agency head shall ensure that the EDI system is
capable of ensuring authentication and confidentiality commensurate
with the risk and magnitude of the harm from loss, misuse, or
unauthorized access to or modification of the information. 


      ALTERNATIVE PURCHASING
      METHODS ARE MORE EFFICIENT
---------------------------------------------------------- Letter :3.3

Procurement officials from several agencies considered FACNET
unsuitable if they found other purchasing methods or EC technologies
to be more efficient, less costly, and easier to use.  For example,
procurement officials noted a number of alternative purchasing
methods they considered more economical and easier to use than
FACNET.  These methods included purchase card procurements and orders
placed against electronic catalogs and existing contracts, such as
General Services Administration (GSA) supply schedules, GSA
Advantage,\10 and governmentwide indefinite delivery/indefinite
quantity contracts.  Several procurement officials stated that the
Internet and Web-based technologies are better EC options than FACNET
because they are easier to access, have fewer technical limitations,
and are relatively inexpensive for agencies and contractors to
implement and use. 

Procurement officials also said that it was generally less expensive
and quicker to purchase commercial products and services valued under
$25,000 locally using traditional oral and paper-based solicitation
methods rather than FACNET when sufficient competition was available. 
One official noted that for actions between $2,500 and $10,000, which
do not require "posting" notices of solicitations, contracting
offices without FACNET capability processed these procurements in a
few days using locally available suppliers with good past performance
records; FACNET capable sites were not able to meet their customers'
needs in the same time frames. 


--------------------
\10 GSA Advantage is an on-line ordering system that allows agencies
to search through all GSA sources of supply and select the item that
is the best value for their requirements. 


   LITTLE INFORMATION REPORTED ON
   AGENCIES' EC TRANSACTIONS
------------------------------------------------------------ Letter :4

Available data shows limited and declining use of FACNET for contract
awards.  However, the lack of governmentwide data on agencies' use of
other EC purchasing methods, such as purchase cards and orders placed
electronically against catalogs and indefinite delivery/indefinite
quantity contracts, impedes efforts to assess the government's
progress in moving toward doing business electronically and achieving
the "single face to industry" goal. 

In our earlier report, we estimated that in 1995, less than 2 percent
of about 2 million federal procurement actions above the
micro-purchase threshold and below the simplified acquisition
threshold ($2,501 and $100,000) were made through FACNET.  The most
recent and readily available data from the EC Program Office (January
through June 1997) indicated that the volume of procurement actions
processed through FACNET had declined, when compared to the same
period a year earlier.\11

On December 23, 1996, the Administrator for Federal Procurement
Policy notified agency senior procurement executives that the EC
concept for procurement had been broadened to include orders placed
electronically against electronic catalogs and indefinite
delivery/indefinite quantity contracts, purchase cards use, FACNET
transactions, and Web-based contacting actions and requested agencies
to report monthly the number and dollar value of EC transactions in
each of these categories.\12

The Administrator's memorandum stated that it is difficult to measure
the impact of EC without adequate data.  Also, vendors have pointed
out that they need information on the volume and value of federal EC
purchases to determine whether there are sufficient business
opportunities to justify the investments needed to participate.  The
limited governmentwide EC statistics are posted for public access on
the Internet.  As of July 25, 1997, only 6 of 21 agencies had
submitted monthly statistics on the number and value of their
agencies' FACNET solicitations and orders for January through June
1997.  Five of these six agencies also reported data on other EC
procurements.  Four of the 21 agencies had not reported EC
statistics.  Thus, no governmentwide data is currently available on
the volume and value of all EC procurements.  Both GSA and the Office
of Federal Procurement Policy commented that they are modifying the
Federal Procurement Data System to collect EC statistical information
and it may not be available until the year 2000. 


--------------------
\11 Complete governmentwide data is not available; however, DOD,
which accounted for over 73 percent of all reported FACNET
procurement actions in 1996, does report complete data that was used
for this comparison.  DOD officials told us the volume of FACNET
procurements reported for 1996 dropped as a result of a systems
software enhancement, which eliminated the counting of redundant
transactions and other anomalies. 

\12 The monthly statistics can be reported to the EC Program Office
quarterly. 


   CONCLUSIONS
------------------------------------------------------------ Letter :5

Senior procurement executives identified several classes of contracts
not suitable for FACNET.  These were contracts where (1) widespread
solicitation is inappropriate, (2) transmission of essential
information through FACNET is impracticable or infeasible, or (3)
alternative procurement methods, including other EC methods, are more
efficient.  They provided clear, reasonable, and consistent business
and technical reasons to support their positions.  The most recent
available data shows that FACNET use has declined since last year. 
However, comprehensive information is not available on the volume and
value of other federal EC procurements. 

We believe the information in this report further supports our
earlier work that showed the government needs the flexibility to
implement EC technologies and purchasing methods that make good
business sense and are aligned with commercial applications.  It also
supports our earlier recommendation to develop a coherent and
integrated federal strategy and implementation approach for using
various EC technologies and purchasing methods to meet agencies'
acquisition needs.  That strategy and implementation approach remain
to be completed. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :6

To address our objectives, we asked the Senior Procurement Executives
at 25 federal agencies to give us information and explanations about
(1) contracts they identified as not suitable for acquisition through
FACNET and (2) the extent to which their agencies' competitive
contract awards between $2,500 and $100,000 were generally suitable
for acquisition through a system with full FACNET capability.  We
received responses from 24 agencies.  We also interviewed senior
officials at the Office of Federal Procurement Policy, DOD, and GSA
responsible for the governmentwide EC program. 

In addition, to assess federal agencies' use of FACNET and other EC
purchasing methods, we reviewed data on FACNET transactions from
DOD's Life-Cycle Information Integration Office and EC statistics
submitted by federal agencies to the EC Program Office in GSA from
January 1996 through June 1997.  We did not independently verify the
data. 

We performed our work between January and August 1997 in accordance
with generally accepted government auditing standards. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :7

In commenting on a draft of this report, DOD, the National
Aeronautics and Space Administration (NASA), GSA, and the Office of
Federal Procurement Policy generally agreed with our findings. 

DOD stated that FACNET use will continue, even if a current
congressional amendment repeals its mandated use.  DOD noted that it
is incorporating EC into its business practices within the simplified
acquisition threshold.  DOD believes agencies' procurement officials
should be allowed to determine for their agencies those classes of
contracts not suitable for FACNET. 

NASA stated that it advocates a strategy that recognizes the variety
of users, situations, and transaction types and moves to match them
with the appropriate EC technology.  NASA noted that the challenge
remains to offer alternatives to agencies and their end users that
provide attractive and cost-effective reasons for moving forward from
a non-EC environment.  NASA stated that it is working with other
agencies committed to developing a coherent strategy and
implementation approach that takes advantage of the Internet,
including moving toward a "single face" environment for advertising
business opportunities. 

Both GSA and the Office of Federal Procurement Policy expressed
concern about the lack of comprehensive EC data.  GSA stated that for
the past
2 years the Electronic Commerce Program Office had been requesting
monthly data from agencies on their FACNET and non-FACNET EC
activities and, as the draft report noted, the response had not been
good.  GSA indicated that it had recommended to the Office of Federal
Procurement Policy that EC statistical information be collected as
part of the overall procurement data collection done through the
Federal Procurement Data System.  The Office of Federal Procurement
Policy stated that to ensure more accurate and timely data on EC
activities, it planned to modify the Federal Procurement Data System
to collect EC statistical information.  The Office of Federal
Procurement Policy and GSA are working to get the change incorporated
into the Federal Procurement Data System by fiscal year 1999. 

NASA's comments are reprinted in their entirety in appendix II.  DOD,
GSA, and the Office of Federal Procurement Policy provided oral
comments.  Agency suggestions to improve the technical accuracy of
the report have been incorporated in the text where appropriate. 


---------------------------------------------------------- Letter :7.1

We are sending copies of this report to the Director, Office of
Management and Budget; the Secretary of Defense; the Administrators
for GSA and NASA; and other officials at the agencies included in our
review.  Copies will also be made available to others upon request. 

Please contact me at (202) 512-4587 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix III. 

Louis J.  Rodrigues
Director, Defense Acquisition Issues

List of Congressional Committees and the Acting Administrator, Office
of Federal Procurement Policy

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 Christopher Bond
Chairman
The Honorable John Kerry
Ranking Minority Member
Committee on Small Business
United States Senate

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

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


The Honorable James Talent
Chairman
The Honorable John J.  LaFalce
Ranking Minority Member
Committee on Small Business
House of Representatives

The Honorable Allan E.  Brown
Acting Administrator
Office of Federal Procurement Policy


LIST OF RESPONDING AGENCIES
=========================================================== Appendix I

Department of Agriculture
Department of the Air Force
Department of the Army
Department of Commerce
Department of Defense
Department of Education
Department of Energy
Department of Health and Human Services
Department of Housing and Urban Development
Department of the Interior
Department of Justice
Department of Labor
Department of the Navy
Department of State
Department of Transportation
Department of the Treasury
Department of Veterans Affairs
Agency for International Development
Defense Logistics Agency
Environmental Protection Agency
General Services Administration
National Aeronautics and Space Administration
Office of Personnel Management
Small Business Administration




(See figure in printed edition.)Appendix II
COMMENTS FROM THE NATIONAL
AERONAUTICS AND SPACE
ADMINISTRATION
=========================================================== Appendix I


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Kevin M.  Tansey
Patricia D.  Slocum
Russell R.  Reiter

OFFICE OF GENERAL COUNSEL,
WASHINGTON, D.C. 

John A.  Carter


*** End of document. ***