Acquisition Reform: Multiple-award Contracting at Six Federal
Organizations (Letter Report, 09/30/98, GAO/NSIAD-98-215).

Concerned that federal agencies were avoiding competitive requirements
when ordering under task- or delivery-order contracts, Congress passed
the Federal Acquisition Streamlining Act. The act directs agencies to
consider awarding multiple contracts, rather than a single contract,
when a task- or delivery-order contract format was planned. This report
discusses (1) whether federal agencies provided a fair opportunity for
contractors to receive orders under multiple-award contracts, (2) how
service fees assessed on interagency orders compared with agencies'
costs to process such orders, and (3) if multiple-award contracts
affected federal contracting opportunities for small businesses. GAO
examines multiple-award contracts administered by six organizations--the
Defense Information Systems Agency, the Department of Transportation,
the General Services Administration, the National Institutes of Health,
and the U.S. Air Force Electronic Systems Center's Hanscom Air Force
Base operations and its Standard Systems Group.

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

 REPORTNUM:  NSIAD-98-215
     TITLE:  Acquisition Reform: Multiple-award Contracting at Six 
             Federal Organizations
      DATE:  09/30/98
   SUBJECT:  Sole source procurement
             Procurement practices
             Small business contractors
             Interagency relations
             Federal procurement
             Cost control

             
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Cover
================================================================ COVER


Report to Congressional Requesters

September 1998

ACQUISITION REFORM -
MULTIPLE-AWARD CONTRACTING AT SIX
FEDERAL ORGANIZATIONS

GAO/NSIAD-98-215

Acquisition Reform

(707272)


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

  ADP - automatic data processing
  FASA - Federal Acquisition Streamlining Act
  DISA - Defense Information Systems Agency
  DOD - Department of Defense
  DOT - Department of Transportation
  ESC/HAFB - Electronic Systems Center, Hanscom Air Force Base
  GSA - General Services Administration
  NIH - National Institutes of Health
  OFPP - Office of Federal Procurement Policy
  OMB - Office of Management and Budget
  SBA - Small Business Administration
  SSG - Standards Systems Group
  USAF - U.S.  Air Force
  USAF/SSG - U.S.  Air Force, Standard Systems Group

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


B-277893

September 30, 1998

The Honorable John Glenn
Ranking Minority Member
Committee on Governmental Affairs
United States Senate

The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate

Concerned that federal agencies were avoiding competitive
requirements when ordering under task- or delivery-order contracts,\1
Congress, through the Federal Acquisition Streamlining Act (FASA),\2
directed agencies to consider awarding multiple contracts--rather
than a single contract--when a task- or delivery-order contract
format was planned.  You asked us to determine (1) whether federal
agencies were providing a fair opportunity for contractors to receive
orders under multiple-award contracts, (2) how service fees assessed
on interagency orders compared with agencies' costs to process such
orders, and (3) if multiple-award contracts affected federal
contracting opportunities for small businesses. 

As agreed, we reviewed a selected group of multiple-award contracts
awarded by six federal organizations to acquire, among other things,
information technology services, desktop and portable personal
computer systems and related equipment and software, and general
repairs and alterations for federal offices.  We examined
multiple-award contracts administered by six organizations--the
Defense Information Systems Agency (DISA), the Department of
Transportation (DOT), the General Services Administration (GSA), the
National Institutes of Health (NIH), and the U.S.  Air Force (USAF)
Electronic Systems Center's Hanscom Air Force Base operations
(ESC/HAFB) and Standard Systems Group (SSG).  More information on the
contracts we reviewed, as well as the scope and methodology of our
work, is found in appendix I. 


--------------------
\1 A task- or delivery-order contract provides for an indefinite
quantity, within stated limits, of supplies or services to be
furnished during a fixed period, with deliveries or performance to be
scheduled by placing orders with the contractor. 

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


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

Agencies have long awarded contracts to a single company for services
or supplies before knowing specific delivery times or required
quantities and then issued orders under the contracts as their needs
became clear.  These contracts have been simpler to administer than
separate individual contracts.  This simplicity, however, has brought
with it a potential for abuse.  There have been complaints that
sometimes orders have been issued that greatly exceed the planned
contract value or call for work beyond what the contractor competed
to provide.\3 Congress has expressed concern that indiscriminate use
of such contracts with a single company for broad categories of
ill-defined services can diminish competition and waste taxpayer
dollars. 

With FASA, Congress established a preference for awarding contracts
for indefinite requirements to multiple firms rather than to a single
company.  FASA requires orders under multiple-award contracts to
contain a clear description of the services or supplies ordered
and--except under specified circumstances--requires that each of the
multiple vendors be provided a fair opportunity to be considered for
specific orders.\4 In 1996, the Office of Federal Procurement Policy
(OFPP) established performance guidelines to obtain competition on 90
percent of orders over $2,500 at three of the six organizations we
reviewed (DOT, NIH, and DISA).  The regulations implementing FASA do
not establish specific procedures for awarding orders but encourage
agencies to consider using oral proposals and other streamlined
procedures.  Furthermore, under the regulations, agencies need not
contact all contractors if sufficient information to ensure fair
opportunity for consideration is on hand. 

Agencies often place orders on other agencies' contracts. 
Interagency orders can be advantageous and cost-effective when
agencies have requirements that can be met by ordering under other
agencies' existing contracts.  In other cases, an agency may have
unique expertise to award and administer contracts to fill other
agencies' requirements.  However, interagency orders have been
associated with abuses.  For example, concerns were expressed at a
1993 congressional hearing that some agencies incurred increased
costs when using interagency orders to avoid competition requirements
and paid other agencies inflated fees for use of their contracts.\5

Small businesses have raised concerns about whether multiple-award
contracts would reduce their opportunity to receive federal
contracts.  Consolidating requirements (awarding large umbrella
contracts and eliminating numerous smaller contracts) creates a
situation commonly known as contract bundling.  Multiple-award
contracts have been one way of consolidating requirements, which
federal officials say reduces administrative costs.  Small business
advocates, however, fear that when consolidation results in very
large contracts or contracts that call for performance over a wide
geographic area, smaller firms will be unable to compete effectively. 


--------------------
\3 Streamlining Defense Acquisition Laws, Report of the DOD
Acquisition Law Advisory Panel, Jan.  1993. 

\4 FASA gives agencies authority to issue sole-source orders in cases
where (1) the agency's need for supplies or services is unusually
urgent, (2) the agency's needs are so unique or specialized that only
one contractor can provide the required quality, (3) the order is a
logical follow-on to a previous order issued competitively, or (4)
the order must be placed with a particular contractor to satisfy a
required minimum guarantee amount. 

\5 Off-loading:  The Multimillion Dollar Loophole in Government
Contracting, hearing before the Subcommittee on Oversight of
Government Management, Committee on Governmental Affairs, U.S. 
Senate, July 1993. 


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

Efforts to provide a fair opportunity and therefore promote
competition for orders placed under multiple-award contracts varied
among the six organizations we reviewed.  One organization issued 64
percent of orders (accounting for 20 percent of dollars awarded) on a
sole-source basis through the end of fiscal year 1997.  Another
organization named preferred contractors in announcements of
opportunities.  This practice resulted in only one proposal being
received on most orders.  After we disclosed these practices in a
March 1998 hearing before the Senate Armed Services Subcommittee on
Acquisition and Technology, the Office of Management and Budget (OMB)
requested federal agencies to eliminate the practice of naming
preferred contractors in announcements of opportunities for orders. 
OMB also recommended that federal procurement regulations be revised
to prohibit the practice. 

All but one of the organizations we reviewed allowed other agencies
to place orders on their multiple-award contracts.  The organizations
charged varying service fees intended to recover the costs of
awarding and administering the orders.  According to analyses
performed by two organizations, fees exceeded costs in one case and
did not recover costs in another.  However, management information
was insufficient for the other three organizations to compare fees
and costs.  One organization, for example, charged fees that ranged
from $125 for administering an order placed by a component of its
agency to as much as $99,000 for an order placed by another agency. 
While the organization's management system for its multiple-award
contract did not develop analyses to justify this disparity,
officials are working to improve management systems. 

Both OFPP and the Small Business Administration (SBA) have taken
steps to ensure that small businesses continue to participate in the
federal marketplace.  Our analysis of aggregate governmentwide
contracting data did not measure the specific impact of
multiple-award contracting on small business opportunities but shows
that the small business share of federal contracts has increased
since FASA.  However, awards to small businesses at three contracting
activities we visited have declined.  The organizations we reviewed
are taking steps to ensure that small businesses are not excluded
from receiving orders placed under their multiple-award contracts. 


   FAIR OPPORTUNITY FOR ORDERS
   VARIED AT SIX ORGANIZATIONS
------------------------------------------------------------ Letter :3

Efforts to provide a fair opportunity, and thereby promote
competition, for orders placed under multiple-award contracts varied
among the six organizations we reviewed.  Two organizations achieved
consistent competition for orders, while the other four experienced
more difficulty obtaining competition to fill sophisticated
information technology requirements. 

Our review of Air Force ESC/HAFB and GSA contracts showed that
contractors generally were provided a fair opportunity for orders
placed on the organizations' multiple-award contracts.  For example,
ESC/HAFB issued relatively few sole-source orders (5 out of 37) under
its contracts.  In the few cases in which sole-source orders were
placed, they were generally logical follow-ons to orders previously
competed.  Orders placed through the end of fiscal year 1997 on GSA's
multiple-award contracts for remodeling and alteration of federal
offices were all competed.  In each case, GSA requested proposals
from all contractors for each order.  Because successful offers on
projects were generally in line with--and occasionally substantially
less than--government estimates, GSA officials administering the
contracts believe they are competing orders effectively. 

Under DOT's contracts for information technology services,
sole-source orders represented 64 percent of orders placed and 20
percent of dollars awarded through the end of fiscal year 1997.  DOT
requires program officials to submit a form identifying the exception
to fair opportunity requirements being claimed and a justification
for the exception.  Program officials, however, took varying
approaches to preparing these justifications.  In some cases,
officials succinctly laid out a convincing rationale, but the
rationales were less convincing in other cases.  In discussing this
situation with DOT officials, they advised us that they plan to
require legal review of justifications for larger sole-source orders
under future multiple-award contracts.  During the first half of
fiscal year 1998, DOT reduced the proportion of sole-source orders to
38 percent, with 25 percent of dollars being awarded under
sole-source orders.  While reducing its sole-source orders, DOT has
not yet met OFPP's guideline of obtaining competition on 90 percent
of orders. 

In reviewing orders for desktop and portable personal computer
equipment and software placed on the Air Force SSG's multiple-award
contracts, we found the organization did not have procedures
requiring that all contractors be provided a fair opportunity.  In
addition, SSG's procedures did not require ordering officials to
report to the contracting officer whether all contractors had been
considered for an order.  Consequently, the contracting officer could
not identify what proportion of orders had been awarded on a
sole-source basis.  After discussing this with SSG officials, they
told us that officials placing an order on SSG's multiple-award
contracts will be advised to perform a comparative analysis of all
the multiple-award contractors' products before placing orders. 

Until October 1997, NIH normally identified a preferred contractor
when announcing plans to place orders for information technology
services on its multiple-award contracts.  The preferred contractor
was requested to submit a proposal and others had the option of doing
so.  We found that only one proposal was received on most orders for
which data was available.  After we began our review, NIH changed its
procedures and required that at least two contractors be identified
when a "Suggested/Recommended" contractor was designated.  We
reviewed the 10 orders competed under the revised procedures in
December 1997 and January 1998 and found that only one contractor
submitted a proposal on each of the orders. 

In April 1998, OMB, responding to information we presented at a
hearing before the Senate Armed Services Subcommittee on Acquisition
and Technology, concluded that naming a preferred contractor
discourages competition and requested federal agencies to eliminate
the practice of naming preferred contractors.  OMB also recommended
that federal procurement regulations be revised to prohibit the
practice.  A proposed federal rule prohibiting this practice was
published in the Federal Register on September 9, 1998.  NIH has
modified its ordering procedures to eliminate references to preferred
contractors and is considering a range of other initiatives to
promote broader competition for orders. 

Through fiscal year 1997, DISA received only one proposal for about
44 percent of the orders placed on its multiple-award contracts for
information technology services.  Despite this situation, DISA does
not plan to require notice to all multiple-award contractors on
future acquisitions.  Instead, the organization has decided that
program officials may rely exclusively on an analytical tool to
select a contractor.\6 We recognize that agencies need not contact
all contractors if sufficient information is readily available to
ensure fair consideration for the order.  The best value can
sometimes be achieved by reviewing price lists for well-defined
products or services.  However, the DISA contracts provide for a
broad range of services that must be tailored to the requirements of
each order and priced accordingly, and comparing contractor technical
approaches to a task can help identify the best-value contractor.  In
such circumstances, contacts with contractors may be more appropriate
to take advantage of competition. 


--------------------
\6 The web-based system maintains databases of past performance,
cost, and technical capability information. 


   COMPARISON OF FEES AND COSTS
   INCURRED
------------------------------------------------------------ Letter :4

Five of the six organizations we reviewed allowed other agencies to
place orders under their contracts.  Organizations charged varying
fees intended to recover the costs of awarding and administering the
orders.  Based on analyses performed by two organizations, fees
exceeded costs in one case and were below costs in another.  In three
organizations, management information was not sufficient to determine
how fees compared to costs.  Table 1 provides information on
interagency orders and fees assessed on multiple-award contracts. 



                                Table 1
                
                Interagency Orders and Fees Assessed on
                 Multiple-award Contracts (as of Sept.
                               30, 1997)

                                                          Service fees
                                Interagency orders         assessed on
                                 (percent of total  interagency orders
Contracting office\a               contract value)           (percent)
------------------------------  ------------------  ------------------
DISA                                             3                   2
DOT                                             74            1-3.25\b
GSA                                            67\            0.5-10\c
NIH                                           75\d                   1
USAF-SSG                                         7                   2
----------------------------------------------------------------------
\a USAF ESC/HAFB is excluded because ordering under its contracts is
limited to Air Force Materiel Command sites.  Accordingly, ESC/HAFB
does not assess service fees on orders. 

\b Fee varies with level of services provided in processing an order
and is assessed only against the first $10 million of order value. 

\c Fees based on a graduated fee schedule with low-dollar-value
orders being assessed proportionately higher fees than
high-dollar-value orders. 

\d Data reflects only cases where the NIH task order tracking system
indicates the agency for which an order was placed.  Data also
reflects cases where the order was approved for award as of September
30, 1997, as the NIH system does not show the order award date. 

GSA's analysis of fees and costs indicated that the organization was
recovering less than half its projected expenses.  GSA plans to
reassess its fee structure in light of audited expense data and
updated volume projections.  In contrast, the Air Force SSG's
analysis indicated that its fees exceeded costs.  To offset these
gains, SSG reduced its fees. 

Management systems at DOT, DISA, and NIH did not provide sufficient
information to determine how fees compared to costs for the
multiple-award contracts we reviewed.  For example, DOT's management
system did not provide sufficient detail to isolate the costs
incurred and revenue received to administer the contracts.  However,
DOT officials stated that the organization began tracking costs for
these contracts separately in fiscal year 1998.  NIH, on the other
hand, charged other agencies a uniform fee rate of 1 percent of order
value but charged NIH offices a flat fee of $125 per order.  Fees
assessed on other agencies' orders ranged as high as $99,000 for an
individual order.  NIH had not performed an analysis to support the
validity of the variation between fees charged NIH offices and other
agencies.  This system would appear to benefit NIH offices using the
contracts, as they were charged $9,875 to process the 79 orders
placed in fiscal year 1997 rather than the $157,942 that other
agencies would have been charged based on order value. 

In addition, NIH relies on a special-purpose data system (not
integrated with its accounting system) to monitor fee collections. 
Because NIH relies on its contractors to collect and remit fees on
interagency orders, it often lacked information on the status of fees
it was owed.  Consequently, NIH's information on fees was incomplete. 
We identified a number of orders that were not in NIH's
special-purpose monitoring system.  After bringing this matter to
their attention, NIH contracting officials found that about $149,000
in fees were owed for 43 orders valued at $14 million that had not
been posted on the monitoring system.  Officials noted that agencies
placing orders on NIH multiple-award contracts sometimes did not
provide the documentation needed to update the fee monitoring system
in a timely manner.  NIH said that to address this problem, it is
developing an integrated system that, once fully implemented, will
provide complete and consistent data on orders. 


   SMALL BUSINESS HAS BEEN ABLE TO
   COMPETE FOR CONTRACTS
------------------------------------------------------------ Letter :5

While concerns have been raised about small businesses not being able
to compete for multiple-award contracts, our analysis of aggregate
federal-wide contract data--although not a specific measure of
multiple-award contracting's impact--shows that small businesses'
share of federal contracts has increased since FASA.  In addition,
the organizations we reviewed had taken steps to ensure small
businesses were receiving orders on multiple-award contracts. 

Our analysis of Federal Procurement Data System information shows
that the value of contract awards to small businesses and the small
business market share increased in all categories examined (see table
2).  Of particular interest is the increase in small business awards
and market share in the automatic data processing (ADP) services and
equipment category, where federal purchasing is increasing
significantly and numerous large multiple-award contracts have been
awarded. 



                                Table 2
                
                    Federal Contract Awards to Small
                Businesses in Fiscal Years 1994 and 1997

                                                      Small business
                                Dollars awarded to    share of total
                                 small businesses    dollars awarded
                                    (billions)          (percent)
                                ------------------  ------------------
                                  Fiscal    Fiscal    Fiscal    Fiscal
                                    year      year      year      year
Category of items purchased         1994      1997      1994      1997
------------------------------  --------  --------  --------  --------
Research and development            $2.8      $3.4      10.0      13.3
Services and construction          $17.5     $19.0      20.8      22.4
Supplies                            $8.3      $9.7      13.2      15.5
ADP services and equipment          $3.0      $4.2      29.3      32.2
----------------------------------------------------------------------
Awards to small businesses at three organizations we visited
declined.  However, officials at two of these organizations
attributed the declines to factors other than multiple-award
contracts.  Table 3 provides information on contracts awarded to
small businesses at the organizations we visited. 



                                Table 3
                
                 Contract Awards to Small Businesses by
                 Selected Contracting Offices in Fiscal
                          Years 1994 and 1997

                                                      Small business
                                Dollars awarded to    share of total
                                 small businesses    dollars awarded
                                    (millions)          (percent)
                                ------------------  ------------------
                                  Fiscal    Fiscal    Fiscal    Fiscal
                                    year      year      year      year
Contracting office\a                1994      1997      1994      1997
------------------------------  --------  --------  --------  --------
DISA                              $308.4    $231.5      19.4      12.9
DOT                                $20.0     $27.7      50.8      54.7
GSA                                $18.9     $29.2      33.2      57.2
NIH                               $502.6    $454.0      30.2      27.6
USAF-ESC/HAFB                     $263.9    $327.6       9.0      12.7
USAF-SSG                           $20.5     $17.0      11.6       4.2
----------------------------------------------------------------------
\a Data reflect activity for the following contracting offices: 
DISA-Defense Information Technology Contracting Organization;
DOT-Transportation Administrative Services Center; GSA-Public
Buildings Service, Region 1; NIH-Office of Procurement Management;
ESC/HAFB-U.S.  Air Force Electronics Systems Center, Hanscom AFB; and
SSG-U.S.  Air Force Electronics Systems Center, Standard Systems
Group, Maxwell AFB-Gunter Annex. 

DISA officials said the decline at their organization was due to
several factors.  One was SBA's disqualification of several important
suppliers from receiving small business awards because the suppliers
had been subcontracting virtually all work to a large business.  Air
Force SSG officials explained that the multiple-award contracts we
examined were follow-ons to prior contracts, one of which was awarded
to a small business.  However, according to the officials, a series
of protests were filed against the award of a contract to the small
business firm selected in the follow-on competition and small
business awards declined during the year when these protests were
pending. 

Both OFPP and SBA have taken steps to ensure that small businesses
participate in the federal marketplace.  OFPP, for example, issued
guidance to encourage communication between contracting personnel and
agency staff responsible for monitoring use of small businesses to
identify work that small businesses can perform.  Contracting
personnel are also expected to consider structuring multiple-award
acquisitions in a way that helps small businesses participate as
prime contractors. 

SBA has been monitoring agencies' use of multiple-award contracts and
in several cases has intervened with contracting officials to help
restructure an acquisition to provide greater opportunities for small
businesses.  SBA has also begun to monitor contract bundling.  SBA
representatives stationed at selected contracting activities--usually
larger ones--are allowed to recommend that contracting activity
management restructure acquisitions where contract bundling has taken
place.  Since April 1996, SBA representatives have been reporting
cases of possible contract bundling and the resolution of each case
to SBA headquarters.  According to an SBA official, the typical
reported case of contract bundling involves smaller contracts, in the
$10 to $20 million range, rather than large multiple-award contracts. 
Of the 43 cases of contract bundling reported to SBA headquarters
during 1997 and resolved by the end of the year, 38 had been resolved
either by contracting officials agreeing to reserve some work for
small businesses or by an SBA determination that no contract bundling
had taken place. 

The contracting activities we visited had generally taken some action
to provide opportunities for small businesses under the contracts we
reviewed.  To ensure that small businesses would have an opportunity
to compete for orders, the Air Force SSG set aside one of its
multiple-award contracts for award to a small disadvantaged business
participating in the 8(a) program.  Similarly, the NIH contracting
officer proposed awarding at least one contract to a small business. 
While the Air Force ESC/HAFB did not set aside a multiple-award
contract for award to small businesses, it limited its multiple-award
contracts to $125 million less than the estimated total requirement
of about $800 million.  This $125 million of work was to be awarded
through separate contracts reserved for small businesses.  DISA
concluded that the requirements under its multiple-award contracts
were too large and diverse for small businesses to fill effectively
but directed its multiple-award contractors to establish small
business subcontracting goals that were higher than the levels of
small business subcontracting achieved under an earlier similar
program.  While GSA took no special steps to promote small business
participation under its multiple-award contracts, officials said that
small businesses dominate the relevant industry and that no special
measures were needed.  In fact, GSA awarded 12 of the 13 contracts
and about 90 percent of the value of orders placed by the end of
fiscal year 1997 to small businesses. 

DOT's initiative to promote small business participation in its
contracts was perhaps the most comprehensive.  Officials were
concerned that small businesses would not be able to fill the large,
complex requirements under DOT's multiple-award contracts, which
encompassed a wide range of information technology services and whose
potential value totaled $1.1 billion.  Consequently, they divided the
overall requirement into three functional areas and, within each
functional area, stated that it was the government's intention to
make at least one competitive award to a small business and at least
one competitive award to a small disadvantaged business participating
in the 8(a) program.  These steps were intended to reduce the
complexity and potential scope of each contract to a level that small
businesses could fill.  This approach appears to have been
successful.  Ten of the 20 contracts awarded under DOT's program went
to small businesses, and about 39 percent of the value of orders
awarded through the end of fiscal year 1997 had gone to
small-business prime contractors. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

Congress authorized multiple-award contracts to promote competition
while providing agencies the flexibility to determine how
competitions would be conducted.  Two of the six organizations we
reviewed consistently obtained competition for orders under
multiple-award contracts, but the remaining four did not.  While the
organizations where we noted weaknesses are considering steps to
increase competitiveness, OMB has seen the need for regulations to
prohibit the practice of designating preferred contractors when
announcing orders for competition. 

Interagency use of multiple-award contracts was common.  Where
interagency orders were permitted, organizations assessed varying
service fees intended to recover the cost of processing orders. 
According to analyses performed by two organizations, fees exceeded
costs at one organization and did not recover costs at the other. 
Management information was insufficient for the other three
organizations to compare fees and costs. 

Despite concerns that use of the multiple-award contracting mechanism
would tend to exclude small businesses from the federal marketplace,
the experience with the contracts we reviewed indicates that small
businesses can compete successfully, given the right circumstances. 
OFPP, SBA, and the organizations we visited were aware of concerns
about the impact of multiple-award contracting on small businesses,
and had taken steps to preserve small business opportunities. 


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

In commenting on our draft report, OMB, the Department of Defense
(DOD), and NIH generally concurred with our results.  DOT did not
provide written comments but in oral comments generally concurred. 
GSA and SBA had no comments. 

OMB is encouraged that agencies are taking steps to improve their
processes for administering multiple-award contracts, including
increasing attention to the amount of competition for orders.  It
views agency efforts--including those noted in our report--as first
steps toward improving the use of multiple-award contracts.  OMB's
written comments are included in appendix II. 

DOD also agreed that continual review was important to ensure that
multiple-award contracts promote competition and avoid adverse
impacts on small business opportunities.  The DOD activities we
visited are reviewing their current practices to ensure that each
multiple-award contractor has a fair opportunity to compete for
orders.  DOD also expressed concern that more data and analysis would
be needed to assess multiple-award contracting's overall impact on
opportunities for small businesses.  We agree and have modified the
report to make it clear that we were not able to draw a conclusion
about whether multiple-award contracting had been generally
beneficial to small businesses.  DOD's written comments are included
in appendix III. 

NIH stated that the report presents a fair evaluation of its
multiple-award contracts.  NIH's comments also provide details on
recently implemented program improvements noted in our report, and
include several technical comments that have been incorporated where
appropriate.  NIH's written comments are included in appendix IV. 


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

We are sending copies of this report to the Chairmen of the Senate
Committees on Governmental Affairs and Armed Services; the House
Committees on Government Reform and Oversight and National Security;
the Secretaries of Defense, Health and Human Services, and
Transportation; the Administrators of the General Services
Administration and the Small Business Administration; and the
Director, Office of Management and Budget.  We will also provide
copies 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 V. 

David E.  Cooper
Associate Director, Defense Acquisitions Issues


SCOPE AND METHODOLOGY
=========================================================== Appendix I

To examine implementation of the Federal Acquisition Streamlining
Act's (FASA) multiple-award contract authority, we reviewed the
legislative history of FASA provisions relating to multiple-award
contracts and the governmentwide procurement regulations implementing
these provisions and held discussions with the Office of Federal
Procurement Policy (OFPP) official responsible for monitoring
implementation of the provisions.  Since no governmentwide listing of
multiple-award contracts was maintained, we consulted with OFPP
officials and examined published information to judgmentally select
multiple-award contract programs and contracts for review.  The
selected contract programs reviewed were:  Defense Enterprise
Integration Services, Defense Information Systems Agency (DISA);
Information Technology Omnibus Procurement, Department of
Transportation (DOT); "Can't Beat GSA Leasing and Renovations",
General Services Administration (GSA); Chief Information
Officer-Solutions and Partners, National Institutes of Health (NIH);
Management Information Systems Technical Support, U.S.  Air Force
Electronics Systems Center, Hanscom Air Force Base (ESC/HAFB); and
Desktop V, U.S.  Air Force, Standard Systems Group (USAF/SSG). 

The contracts awarded by DISA, DOT, NIH, and ESC/HAFB provide for
acquisition of information technology services, while the SSG
contracts provide for desktop and portable personal computer systems
and related equipment and software.  The contracts awarded by GSA
provide for general repairs and alterations of federal offices. 
Table I.1 identifies the number of contracts awarded under each
program, the maximum value of orders that can be placed under the
program, and the value of orders placed as of the end of fiscal year
1997. 



                               Table I.1
                
                  Selected Data on Contracts Reviewed

                                           Maximum
                                           program  Value of orders as
                                Number       value    of September 30,
Awarding organization               of         (in                1997
and program name             contracts   millions)       (in millions)
--------------------------  ----------  ----------  ------------------
DISA: DEIS-II                        6      $3,000              $334.3
DOT: ITOP                           20      $1,134              $433.2
GSA: CBGLR                          13        $204                $1.6
NIH: CIO-SP                         20   $11,000\a               N/A\b
ESC/HAFB: MISTS-II                   2        $675               $46.9
SSG: DT-V                          4\c      $1,675              $310.2
----------------------------------------------------------------------
Note:  Defense Enterprise Integration Services [DEIS-II], Information
Technology Omnibus Procurement [ITOP], "Can't Beat GSA Leasing and
Renovations [CBGLR]", Chief Information Officer-Solutions and
Partners [CIO-SP], Management Information Systems Technical Support
[MISTS-II], and Desktop V [DT-V]. 

\a When initially awarded, the NIH contracts provided for a maximum
of 5,000 tasks under the program but did not establish a dollar limit
on the value of these tasks.  By contract modifications dated July 8,
1998, NIH established a dollar limit of $11 billion. 

\b Incomplete data precludes determining the total value of orders
placed. 

\c A total of four contracts have been awarded.  For one of these,
SSG decided not to exercise its option to extend the contract beyond
the first year of performance, so three contracts are currently in
effect. 

To assess whether implementation of the FASA provisions was promoting
competition under multiple-award contracts, we gathered statistical
information on sole-source orders.  We also interviewed officials
responsible for the contracts and representatives of selected firms
who had been awarded contracts, reviewed policies and procedures
established to govern administration of the contracts, and reviewed
documentation relating to the award of the contracts.  In addition,
we reviewed documentation relating to a judgmental sampling of orders
placed under the contracts.  These orders were selected to provide
insight into the processing of both sole-source and competitive
orders. 

To assess how organizations establish service fees on interagency
transactions, we interviewed officials responsible for establishing
and administering service fees for use of the contracts, reviewed
policies and procedures governing service fees, and examined
financial and other records relating to service fees. 

To assess the impact of multiple-award contracting on opportunities
for small businesses to participate in federal procurements, we
interviewed the Small Business Administration (SBA) and OFPP
officials, officials responsible for the contracts we reviewed, and
officials responsible for monitoring utilization of small business at
the locations where we did our work.  In addition, we analyzed
governmentwide data on awards to small businesses in the Federal
Procurement Data System, data maintained at the locations where we
did our work, and data gathered by SBA officials. 

We conducted our review from July 1997 to May 1998 in accordance with
generally accepted government auditing standards. 




(See figure in printed edition.)Appendix II
COMMENTS FROM THE OFFICE OF
MANAGEMENT AND BUDGET
=========================================================== Appendix I



(See figure in printed edition.)




(See figure in printed edition.)Appendix III
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
=========================================================== Appendix I

those in the report text appear at the end of this appendix. 



(See figure in printed edition.)


The following are GAO's comments on the Department of Defense's
letter dated September 17, 1998. 

GAO COMMENT

1.  Our report does not criticize the management system that the Air
Force SSG uses to determine fees for its contracting business area. 
DISA's contracting business area, on the other hand, includes certain
contracts where DISA provides users services in addition to
contracting support as well as the multiple-award contracts where
DISA provides only contracting support.  Although DISA's costs for
administering contracts where it provides additional services would
be higher than costs for administering multiple-award contracts, DISA
assesses the same fee rate on all orders its contracting business
area administers. 




(See figure in printed edition.)Appendix IV
COMMENTS FROM THE NATIONAL
INSTITUTES OF HEALTH
=========================================================== Appendix I



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the National Institutes of
Health's letter dated September 14, 1998. 

GAO COMMENTS

1.  Planned improvements in NIH's management systems are addressed in
the discussion following table 1 of this report. 

2.  At a May 1998 meeting, after we had completed our field work, NIH
officials gave us a demonstration of a new integrated order
management system they were developing.  The implementation plan NIH
describes is generally consistent with the plan discussed in our May
1998 meeting.  We have not, however, determined the system's current
implementation status. 


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix V

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

Ralph Dawn
Roy Karadbil
Charles Malphurs

OFFICE OF THE GENERAL COUNSEL,
WASHINGTON, D.C. 

John A.  Carter
William Woods

BOSTON FIELD OFFICE

Monty Peters
Ralph Roffo


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