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A M E N D ,N G T H E F E D E R A L PROPERTY AND*

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ADMINISTRATIVE SERVICES ACT OF 1949

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SUBCOMMITTEE OF THE

. COMMITTEE ON.

GOVERNMENT OPERATIONS

HOUSE OF REPRESENTATIVES

NINETY-SIXTH CONGRESS

SECOND SESSION

ON

H.R. 5381

TO AMEND THE FEDERAL PROPERTY AND ADMINISTRATIVE

SERVICES ACT OF 1949 TO REFORM CONTRACTING PROCEDURES AND CONTRACT SUPERVISION PRACTICES OF THE

FEDERAL GOVERNMENT, AND FOR OTHER PURPOSES

JUNE 9, 1980

Printed for the use of the Committee on Government Operations

68-330 O

U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 1980
i*

.« * *

COMMITTEE ON GOVERNMENT OPERATIONS

JACK BROOKS, Texas, Chairman

L. H. FOUNTAIN, North Carolina

DANTE B. FASCELL, Florida

WILLIAM S. MOORHEAD, Pennsylvania

BENJAMIN S. ROSENTHAL, New York

FERNAND J. ST GERMAIN, Rhode Island

DON FUQUA, Florida

JOHN CONYERS, J r., Michigan

CARDISS COLLINS, Illinois

JOHN L. BURTON, California

RICHARDSON PREYER, North Carolina

ROBERT F. DRINAN, Massachusetts

GLENN ENGLISH, Oklahoma

ELLIOTT H. LEVITAS, Georgia

DAVID W. EVANS, Indiana

TOBY MOFFETT, Connecticut

ANDREW MAGUIRE, New Jersey

LES ASPIN, Wisconsin

HENRY A. WAXMAN, California

FLOYD J. FITHIAN, Indiana

PETER H. KOSTMAYER, Pennsylvania

TED WEISS, New York 

MIKE SYNAR, Oklahoma

FRANK HORTON, New York

JOHN N. ERLENBORN, Illinois

JOHN W. WYDLER, New York

CLARENCE J. BROWN, Ohio

PAUL N. McCLOSKEY, J r., California

THOMAS N. KINDNESS, Ohio 

ROBERT S. WALKER, Pennsylvania

ARLAN STANGELAND, Minnesota

M. CALDWELL BUTLE&, Virginia

LYLE WILLIAMS, Ohio

JIM JEFFRIES, Kansas

OLYMPIA J. SNOWE, Maine

WAYNE GRISHAM, California

JOEL DECKARD, Indiana

ROBERT T. MATSUI, California

EUGENE V. ATKINSON, Pennsylvania

William M. J ones, General Counsel

J ohn E. Moore, Staff Administrator

Elmer W. Henderson, Senior Counsel

J ohn M. Duncan, Minority Staff Director

Government Activities and Transportation Subcommittee

JOHN L. BURTON, California, Chairman

DAVID W. EVANS, Indiana ROBERT S. WALKER, Pennsylvania

LES ASPIN, Wisconsin JIM JEFFRIES, Kansas

HENRY A. WAXMAN, California CLARENCE J. BROWN, Ohio

MIKE SYNAR, Oklahoma

ROBERT T. MATSUI, California

EX OFFICIO

JACK BROOKS, Texas FRANK HORTON, New York

Gary Sellers, Staff Director

Miles Q. Romney, Counsel

David A. Caney, Professional Staff Member

Rachel Halterman, Minority Professional Staff

(II)
C O N T E N T S

Page

Hearing held on June 9, 1980.................................................................................... 1

Text of H.R. 5381......................................................................................................... 2

Statement of:

Caulfield, Arthur, national sales manager, Federal Government Olympia,

USA, Inc............................................................................................................ 144

Erlenborn, Hon. John N., a Representative in Congress from the State of

Illinois................................................................................................................ 19

Grote, William, Federal Marketing and Consulting Services........................ 46

Henriques, Vico, president, Computer and Business Equipment Manufacturers Association............................................................................................. 36

Timbers, Michael J., president, Coalition for Common Sense in Government Procurement; accompanied by Ken Munro, National Micrographics Association; Bruce McLellan, National Office Products Association; and Kenton Pattie, National Audio-Visual Association.................. 24

Letters, statements, etc., submitted for the record by—

Caulfield, Arthur, national sales manager, Federal Government Olympia,

USA, Inc.: Prepared statement.................................................................. 150-157

Erlenborn, Hon. John N., a Representative in Congress from the State of

Illinois: Text of proposed amendment........................................................... 22-23

Grote, William, Federal Marketing and Consulting Services: Prepared

statement........................................................................................................ 50-143

Henriques, Vico, president, Computer and Business Equipment Manufacturers Association: Members of CBEMA..................................................... 39

Timbers, Michael J., president, Coalition for Common Sense in GovernW

ment Procurement: Cause of problem in the multiple awards schedule... 29

alker, Hon. Robert S., a Representative in Congress from the State of

Pennsylvania: Prepared statement................................................................ 19

APPENDIXES

Appendix 1.—Educational package on the multiple award contracting system

prepared by Coalition for Common Sense in Government Procurement......... 159

Appendix 2.—Statement of Kenton Pattie, senior staff vice president, National Audio-Visual Association, concerning H.R. 5381............................................ 219

(in)

<

AMENDING THE FEDERAL PROPERTY AND

ADMINISTRATIVE SERVICES ACT OF 1949

MONDAY, JUNE 9, 1980

House of Representatives,

Government Activities and

Transportation Subcommittee

of the Committee on Government Operations,

Washington, D.C.

The subcommittee met, pursuant to notice, at 1:05 p.m., in room

2247, Rayburn House Office Building, Hon. John L. Burton (chairman of the subcommittee) presiding.

Present: Representatives John L. Burton, Mike Synar, Robert S.

Walker, and Jim Jeffries.

Also present: David A. Caney, professional staff member, and

Rachel Halterman, minority professional staff, Committee on Government Operations.

Mr. Burton. The hearing will come to order.

The Subcommittee on Government Activities and Transportation

of the full Government Operations Committee has hearings scheduled today to take testimony from public witnesses on H.R. 5381, a

bill to revise certain procurement practices of the GSA. Partly in

response to highly publicized scandals over the past 2 years, the

subcommittee has been investigating the question of what changes

to GSA’s basic statute may be needed.

[The bill, H.R. 5381, follows:]

(1)

«
96th CONGRESS T T D C?O O 1

1ST Session K . O O O 1

To amend the Federal Property and Administrative Services Act of 1949 to

reform contracting procedures and contract supervision practices of the Federal Government, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

September 25, 1979

Mr. J ohn L. Burton (for himself, Mr. Walker, Mr. E vans of Indiana, and Mr.

Matsui) introduced the following bill; which was referred to the Committee

on Government Operations

A BILL

To amend the Federal Property and Administrative Services

Act of 1949 to reform contracting procedures and contract

supervision practices of the Federal Government, and for

other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 PENALTIES FOR CONTRACTOR FRAUD

4 Section 1. (a) Section 209 of the Federal Property and

5 Administrative Services Act of 1949 is amended by redesig6 nating subsection (d) as subsection (i) and by striking out sub7 sections (b) and (c), and inserting in lieu thereof the following:
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“(b)(1) Every person who enters into a contract or

agreement with respect to the procurement, transfer, or disposition of property or services pursuant to this Act shall

certify that, in connection with the obtaining, execution, and

performance of such contract or agreement (including any

amendment or change order thereto), he—

“(A)(i) has furnished all information required by

the Administrator or his designee and (ii) will furnish

all such information; and

“(B)(i) has not furnished false or misleading information and has not failed to furnish information available to him and necessary to prevent any information

previously furnished from being false or misleading and

(ii) will not furnish false or misleading and will not fail

to furnish information available to him and necessary

to prevent any information previously furnished from

being false or misleading.

“(2) Any person who makes a certification under paragraph (1) and who knows or should know that such certification is false or misleading or who willfully violates the certification required under paragraph (l)(A)(ii) or (l)(B)(ii) shall be

liable to the United States for a penalty in an amount determined in accordance with a penalty assessment schedule prescribed by the Administrator by regulation. Such schedule
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shall include, as appropriate to the facts of the particular

case, provision for the assessment of the following penalties:

“(A) a penalty of not less than $1,000 nor more

than $15,000;

“(B) a penalty of not more than 10 per centum of

the amount of the transactions affected by the failure

or violation; or

“(C) a penalty in an amount which shall be not

less than three nor more than five times the damages

resulting from such failure or violation,

plus a sum not to exceed $1,000 for the costs of collection.

“(3) Any person (A) who makes a certification under

paragraph (1) which is false or misleading or (B) who violates

the certification required under paragraph (l)(A)(ii) or

(1)(B)(ii) shall be liable to the United States for a penalty in

an amount not to exceed 5 per centum of the amount of the

transactions affected by the violation.

“(4) No person who has paid a penalty under paragraph

(2) or (3) with respect to any violation shall be assessed a

penalty under the other such paragraph with respect to that

violation.

“(c)(1) A penalty for a violation of subsection (b) of this

section shall be assessed by the Administrator through an

order made on the record after opportunity (provided in accordance with this subparagraph) for a hearing in accordance
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with section 554 of title 5. Before issuing such an order, the

Administrator shall give written notice to the person to

whom such order is addressed of the Administrator’s proposal

to issue such order and provide such person an opportunity to

request, within fifteen days of the date such person receives

the notice, a hearing on the order.

“(2) In determining the amount of a penalty, the Administrator shall take into account the nature, circumstances, 

extent, and gravity of the violation or violations and, with 

respect to the violator, ability to pay, effect on ability to continue to do business, history of any other such violations, the

degree of culpability, and the deterrent effect of such

penalties.

“(3) The Administrator may, by written order identifying the reasons and need therefor, compromise, modify, or

remit, with or without conditions, any penalty which may be

imposed under this subsection. The amount of such penalty, 

when finally determined, or the amount agreed upon in compromise, may be deducted from any sums owed by the United

States to the person charged.

“(d) Any person who requested in accordance with subsection (c)(1) a hearing with respect to the assessment of a

penalty and who is aggrieved by a final order assessing a

penalty may file a petition for judicial review’ of such order

with the United States Court of Appeals for the District of

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Columbia Circuit or for any other circuit in which such

person resides or transacts business. Such a petition may

only be filed within the thirty-day period beginning on the

date the final order making such assessment was issued.

“(e) If any person fails to pay an assessment of a penalty (and such amount has not been deducted from any sums

owed by the United States to the person charged)—

“(1) after the order making the assessment has

become a final order and if such person does not file a

petition for judicial review of the order in accordance

with subsection (d), or

“(2) after a court in an action brought under subsection (d) has entered a final judgment in favor of the

Administrator,

the Attorney General shall take action to recover the amount

assessed (plus interest at currently prevailing rates from the

date of the expiration of the thirty-day period referred to in

subsection (d) or the date of such final judgment, as the case

may be) in an action brought in any appropriate district court

of the United States. In such an action, the validity, amount, 

and appropriateness of such penalty shall not be subject to

review.

“(f) The Administrator shall, after notice to the person

or persons involved and opportunity for a hearing, impose on

persons found, by a final order under subsection (c), to be in
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violation of subsection (b), (1) debarment from participating in

Government contracts for a period of not less than two nor

more than five years in the case of a violation under subsection (b)(2), and (2) debarment from such participation for a

period not in excess of five years in the case of a violation

under subsection (b)(3). If the Administrator determines that

debarment should not be imposed under clause (2) of this

subsection, a full written statement of the reasons for such

determination shall be included in the record of the proceeding.

“(g) Notice of the penalties which can be imposed under

this section shall be contained in any contract or agreement

for property or services entered into on or after ninety days

after the date of enactment of this subsection.

“(h) Any penalties assessed and collected under this section (other than penalties imposed to cover the cost of collection, which shall be credited to the appropriation from which

expenses under this section are drawn) shall be deposited in

the general fund of the Treasury and credited to miscellaneous receipts.”.

(b) The amendments made by subsection (a) of this section shall become effective ninety days after the date of enactment of this Act.

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IMPROVED PROCUREMENT PRACTICES

Sec. 2. Section 307 of the Federal Property and Administrative Services Act of 1949 is amended by adding at

the end thereof the following new subsections:

“(e)(1)(A) It is the purpose of this subsection to provide

for the establishment and maintenance of rigorous and more

nearly uniform procurement practices designed to improve

the decisionmaking in such practices by requiring detailed

records of the significant stages of contract operations, by

requiring a systematic organization of all such records, by

requiring personal accountability for all decisions as to each

contract, and by requiring periodic review of contracting

practices to foreclose existing or new methods of abuse.

“(B) Not later than nine months after the date of enactment of this subsection the Administrator shall prescribe such

regulations as may be necessary to carry out the purposes of

this subsection.

“(2) The Administrator shall, not later than nine months

after the date of enactment of this subsection, establish and

maintain a system for control and coordination of all contracts and agreements for procurement of property or services under this Act. Such system shall include a requirement

that the Administrator (with respect to the General Services

Administration) and any agency head to whom the Adminis-
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trator has delegated contracting authority (with respect to

that agency) will—

“(A) require the approval by the Administrator or

agency head of any contract or agreement negotiated

the value of which may exceed $10,000 and any other

contracts or agreements as may be required to be so

approved in accordance with regulations prescribed by

the Administrator;

“(B) make and keep books, records, and accounts

that, in reasonable detail, accurately and fairly reflect

the transactions and dispositions of Federal funds;

“(C) impose a system of accounting and internal

controls sufficient to provide reasonable assurances

that—

“(i) transactions are executed in accordance

with the Administrator’s or the agency head’s

general or specific authorization;

“(ii) transactions are recorded as necessary

(I) to permit preparation of financial statements in

conformity with generally accepted accounting 

principles and any other criteria applicable to such

statements, and (II) to maintain accountability for

such funds;
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“(iii) access to funds is permitted only in accordance with the Administrator’s or the agency 

head’s general or specific authorization; and

“(iv) the recorded accountability for funds is

compared with existing funds at reasonably frequent intervals and corrective action is taken

promptly with respect to any differences;

“(D) provide to each such agency specific criteria,

procedures, and practices, for obtaining complete cost

and pricing data, an adequate and effective cost estimating capability, with the capability to make reliable

forecasts of such factors as the lifetime costs of major

systems, programs, and projects, total cost projections,

and incidental costs.

“(3)(A) The Administrator shall by regulation establish

a system, as part of contract operations, to ensure that with

respect to each decision affecting such operations for a particular contract a memorandum is made which shall include (i) a

statement of the nature of and parties to any discussions or

communications pertaining to any such decision, (ii) a description of action taken or proposed as a consequence of

such discussions or communications, (iii) any schedule of

future discussions or communications proposed or agreed to,

and (iv) the identity, position, and personal signature or en-
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dorsement of the Federal officer or employee responsible for

making the decision.

“(B) The Inspector General of the General Services Administration shall investigate (or refer to the Inspector General or other appropriate officer of other agencies) any allegation concerning any officer’s or employee’s failure to comply

with the regulations prescribed under subparagraph (A)

which may arise in the course of any audit conducted pursuant to subsection (f) or otherwise, or which may be found in

any inspections or investigations initiated by the Inspector

General. If the Inspector General of the General Services

Administration (or the Inspector General or officer of another

agency to whom the matter is referred) determines that such

failure is intentional or grossly negligent, he shall refer the

matter to the head of the appropriate agency, who shall take

or initiate such authorized corrective action as he deems appropriate.

“ (C) Each Inspector General shall include in each semiannual report required to be submitted under section 5 of the

Inspector General Act of 1978 the matters referred under

subparagraph (B) of this paragraph and actions taken.

“(D) The Administrator, after consultation with the Inspector General, may provide by regulation for the exemption

from the requirements of subparagraph (A) of this paragraph

with respect to contracts or agreements which, together with
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any related contracts with the same or related parties, do not

involve an actual or projected expenditure by the Federal

Government in excess of $10,000.

“(4) The Administrator shall periodically and regularly

review the contracting activities of the General Services Administration, and of any other agency to the head of which

the Administrator has delegated contracting authority, for

the purpose of eliminating fraud, waste, and abuse. The Administrator shall keep the Congress fully and currently informed with respect to any deficiencies in such contracting

activities by including such information in the annual or other

reports provided for in section 212 of this Act. Such review

shall promptly be made in the case of any matter raised in a

semiannual report of any Inspector General under section 5

of the Inspector General Act of 1978 which has not been

substantially corrected.

“(5) The Administrator, within ninety days after the

date of enactment of this subsection, shall prescribe regulations to eliminate practices which result in fraud, waste, or

abuse, including regulations—

“(A) to require that each agency head establish

and operate a system through which the agency will

report quarterly to the Administrator purchases made

from sources within any buying program established by
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the Administrator or from such other sources as the

Administrator may designate by regulation;

“(B) to prohibit the evasion (by such means as

multiple contracts by the same party, change orders

extending the contract, or other similar devices) of procedural requirements based on the relatively small size

of any contract;

“(C) to require submissions with respect to any

amendment, change order, or extension to any contract

comparable to those required in the proposals or bids

for the initial contract;

“(D) to prohibit abusive practices with respect to

late bidding, including regulations requiring the invalidation of any late bid which is not received by registered mail containing verification of its timely transmission;

“(E) to prohibit any changes to be made in the

terms of a proposed contract prior to actual signing of

the contract, but after agency approval thereof; and

“(F) to establish appropriate sanctions for noncompliance with the regulations prescribed under this

paragraph.

“(6) Purchases under this title are not authorized unless

made from sources within a buying program established by

68-330 0 - 8 0 - 2
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the Administrator or from other sources as provided by the

Administrator by regulation.

“(7) As used in this subsection, the term ‘contract operations’ means all phases of making and administering advertised or negotiated contracts for property or services from the

initial notice of contract, request for proposal, invitation for

bids, or the initial contact with a contractor for advertised or

negotiated contracts through the final settlement of accounts

concerning any such contract, and includes any phase which

involves amendments to or change orders concerning any 

such contract or any renewal or other extension or revision of

any such contract.

“(f) The Administrator, after consultation with and 

advice from the Inspector General of the General Services

Administration, shall establish a procedure for the review of

contracts and agreements subject to the approval requirement under subsection (e)(2)(A) for purpose of determining 

whether, by aggregation or otherwise, such contracts and

agreements can be more economically and efficiently secured

by advertised bids or otherwise. The Administrator shall

report annually to the President and the Congress on activities under this subsection and shall make any recommendations concerning appropriate changes in procu ement procedures.”.
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EEQUIEED AUDIT PEOCEDUEES

Sec. 3. Section 307 of the Federal Property and Administrative Services Act of 1949 is further amended by

adding at the end thereof the following new subsections:

“(f)(1) With respect to contracts or classes of contracts

made pursuant to this Act for property and services, the Administrator shall provide by regulation for the establishment

of a uniform system of contract audits to he conducted by the

Administration or by any agency to the head of which the

Administrator has delegated contracting authority or which is

otherwise purchasing pursuant to a contract secured by the

Administration.

“(2) Such regulations shall include—

“(A) a plan and schedule of both regular and

random unannounced audits of major contracts;

“(B) establishment of audit criteria and procedures

(such as number, character, incidence, and sampling

techniques) necessary to ensure a significant probability

that any contract with an actual or projected cost in

excess of $1,000 will be audited, including—

“(i) regulations governing the classification of

contracts by size and character;

“(ii) regulations to ensure that not less than

20 per centum of the contracts within each such

classification (or such other percentage as may be
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approved by the Inspector General pursuant to

paragraph (3)) are audited each fiscal year and to

ensure that not less than 10 per centum of each

fiscal year’s audits are random and unannounced. 

“(3)(A) Regulations established under this subsection

shall be subject to review and approval by the Inspector

General of such Administration. During the first three full

fiscal years beginning after the date of enactment of this subsection, such Inspector General may make such variations in

the percentage of contracts to be audited under paragraph

(2)(B)(ii) as may be necessary or appropriate in the light of

such factors as the nature of such contracts and the availability of resources for conducting such audits.

“(B) Each Inspector General shall include in each semiannual report required to be submitted under section 5 of the

Inspector General Act of 1978 an evaluation of the availability of such resources for the purposes of this subsection and

any recommendations concerning more appropriate allocation

thereof.

“(4) The Administrator and any agency head to whom

the Administrator has delegated contracting authority shall

maintain convenient abstracts of such audits, shall regularly

monitor recommendations or proposed recoveries contained

in such audits, and shall periodically review reports of the

status of such recommendations or proposed recoveries.
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1 “(g) In accordance with regulations prescribed by the

2 Administrator, the Administrator and the Inspector General

3 of the General Services Administration may obtain access to

4 and examine (1) the records of any executive agency relating

5 to any contract or agreement under this title for procurement

6 of property or services, and (2) material records of any con7 tractor or subcontractor engaged in the performance of, and

8 involving transactions related to, any contract, subcontract,

9 or agreement under this title for procurement of property or

10 services.

11 “(h) To the fullest extent consistent with the purposes

12 subsections (e) and (f), such subsections shall be subject to the

13 provisions of the Accounting and Auditing Act of 1950 and

14 the Inspector General Act of 1978.”.

15 ALTERATION OF LEASED FACILITIES

16 Sec. 4. Section 210 of the Federal Property and Ad17 ministrative Services Act of 1949 is amended—

18 (1) in paragraph (8) of subsection (a) thereof, by

19 striking out “: Provided, That” and everything that

20 follows through the semicolon at the end of such para21 graph and inserting in lieu thereof “, subject to the

22 limitations contained in subsection(1) of this section;”;

23 and

24 (2) by adding at the end of such section the fol25 lowing new subsection:
18

17

1 “(1)(1) Any determination made by the Administrator

2 pursuant to subsection (a)(8) shall show that the total cost

3 (rentals, repairs, alterations, or improvements) to the Gov4 ernment for the expected life of the lease shall be less than

5 the cost of alternative space (whether owned or leased) which

6 needs no or less costly repairs, alterations, or improvements.

7 A copy of every such determination shall be furnished to the

8 General Accounting Office.

9 “(2) No expenditure or obligation shall be made under

10 the authority of subsection (a)(8) for any work, or for any

11 part thereof, unless—

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“(A) the Congress, or a committee or committees

of the Congress pursuant to procedure established by

statute, gives specific advance approval for the work;

“(B) an explanatory statement of the overall work

including purpose, estimated cost, estimated completion

time, source and method of procurement, and any determination made pursuant to subsection (a)(8), has

been provided in advance to the committees of both the

Senate and House of Representatives having legislative, oversight, and appropriation responsibility for

such activity; or

“(C) the estimated aggregate cost of the work is

less than $25 000 ”
19

Mr. Burton. At hearings last fall, all executive branch agency

witnesses and GAO generally endorsed the legislation before us

and offered specific suggestions. Since then, we have been working

with the agencies on a staff level to refine the bill. The resulting

revised discussion draft each of the witnesses has received should

be the basis for today’s testimony. We welcome comment from the

representatives of private contractors doing business with the Government.

As some witnesses have noted in their submission, the bill does

not specifically address the multiple awards schedule, and that was

specifically done because that is presently an administrative operation, and we are going to give the GSA time to deal with that. We

would specifically put all of that testimony into the record, but we

are not, with all due respect, interested in hearing comments on

something that is not before the committee today.

In addition to the private witnesses we welcome Congressman

Erlenborn, Member of Congress from the 14th District of Illinois,

and a member of our full Committee on Government Operations. 

Mr. Erlenborn is here today by invitation to give testimony on

some concepts he has regarding Government contracting.

[Mr. Walker’s prepared statement follows:]

Prepared Statement of Hon. Robert S. Walker, a Representative in

Congress From the State of Pennsylvania

Thank you, Mr. Chairman. I want to commend you and your staff for your work

on this bill and your efforts to move ahead with legislative reform of government

procurement activities. As you and I have discussed, it is important that the abuses

revealed by the GSA investigations are put to an end, and I believe that H.R. 5381

is a good initial step toward that goal.

As you mentioned, Mr. Chairman, we held hearings in October to receive testimony from government witnesses regarding the impact of H.R. 5381 on their activities.

Today we will hear from the private sector as to how this bill will affect business

dealings with the Federal Government. It is important to note that out intention in

enacting reform legislation is to minimize the potential for abuse while maintaining

the maximum flexibility possible in which the competitive forces can operate. Thus

it is all the more important to us that we receive constructive suggestions from the

private sector that can be incorporated in the bill, just as many comments and 

suggestions received from government witnesses were included in the redrafted

version. We hope the testimony we receive today will aid us in our efforts to tighten

up procedures without unduly burdening legitimate businesses contracting with the

Federal Government.

Mr. Chairman, I look forward to hearing from today’s witnesses, and I want to

encourage you in your efforts to plug up legislative loopholes in government procurement. You have my support for H.R. 5381, and I look forward to working with 

you on future legislation which will address other areas of fraud and abuse in

government procurement procedures.

Thank you, Mr. Chairman.

Mr. Burton. At this time, I would be happy to yield to Mr.

Jeffries for any comments he might want to make.

Mr. J effries. I have none. Thank you.

Mr. Burton. Congressman, please proceed.

STATEMENT OF HON. JOHN N. ERLENBORN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. Erlenborn. Thank you. I know I don’t need to tell you that

Federal contracting procedures are extraordinarily complicated

and in many ways seem to be incomprehensible. I congratulate you
20

for making an effort to improve them and for trying to restructure

them in a way that they are less susceptible to fraud and abuse.

Last month, when the full Committee on Government Operations

considered H.R. 4717, a bill intended to curb wasteful yearend

spending by Federal agencies, I advanced a proposal which has

precisely the same goals as the legislation before you today. I

thank you for giving me the opportunity to appear before you this

afternoon and to explain how it complements your thoughts for

improving the procurement process.

For some time now, there has been a great deal of concern

generated about excessive spending in the last few days of the

fiscal year. The charge has been made, sometimes correctly, that

money is being “pushed out the door” at the end of September, in

part to give agencies a reason to justify higher spending in the

next fiscal year.

Regrettably, none of the solutions to this problem which have

been suggested really address the heart of the issue—procurement

without proper consideration and documentation.

The majority of obligations incurred near the end of each fiscal

year result from sound procurement practices, including thoughtful

drafting of solicitations, careful evaluations of often complex contract proposals, and negotiations designed to obtain the most advantageous contract for the Government. Often there are legitimate reasons why spending must be delayed until the last quarter.

Some of the yearend volume is caused by the failure of agencies

to adopt adequate procurement plans or to adhere to such plans.

The failure to distribute contract awards more evenly during the

year contributes to a number of inefficiencies, placing unwarranted

burdens on agency procurement personnel and contractors alike,

and reducing the Government’s ability to obtain clear and specific

contracts at fair, competitive prices. Remedies for these management problems must be carefully crafted to avoid impeding the

operation of Federal programs or discouraging careful procurement

of goods and services.

An arbitrary percentage limitation on contracting in the last

quarter will not discourage unnecessary spending, but will simply

move some of it to the preceding quarter. And, of course, there is

nothing in the proposals which have been made to limit spending

which would assure that proper procurement procedures are followed or prevent ill-conceived spending from taking place. Those

proposals would, on the contract, make such ill-conceived spending

less visible, thus allowing more of it to occur and almost assuring

that no further reforms will be made.

There are simply too many legitimate reasons why obligations

necessarily occur in the fourth quarter of the fiscal year for a rigid

limitation to operate fairly and reasonably, or to contribute to

sound management. Limitations on Federal contracting must be

directed to real, identifiable problems. They must be designed to

eliminate unnecessary obligations, not obligations which happen to

occur at a particular time of year.

My suggestion for cutting wasteful spending is very simple. It

has two parts: With regard to a competitively-bid contract, an

agency would have to wait at least 30 days between accepting bids

and awarding the contract. With regard to a sole-source contract,
21

the agency would have to publish a notice of intent to award the

contract in Commerce Business Daily—the Government publication

read by contractors—and then let at least 30 days pass before

making the actual award. In either case, an agency head could

waive the 30-day period whenever he determines that it would

seriously disrupt the execution of an agency program.

» What, you may ask, would happen during this waiting period?

In the case of competitively bid contracts, agencies would be

forced to take sufficient time to evaluate bids and negotiate details

of contracts. The waiting period would neither delay the awarding

•» of justifiable contracts, nor increase costs in such ways as extending the time for which bid bonds may be purchased, for virtually

all properly managed contracts are not now awarded prior to 30

days after bids are accepted. The new requirement would insure,

however, that all contracts are considered under good procedures.

In the case of sole-source contracts, published notice of proposed

awards would alert the public, including potential competitors of

awardees, to what the Government plans to do. If people think that

concluding the contract without advertising for competitive bids is

unreasonable, or that the job which is proposed need not be done,

they can object to the award. The Government will have hired a

potentially vast contract police force at no cost to the public.

In either case, enactment of my proposal would mean that agencies could no longer write contracts to dump unobligated funds in

the last few days of a fiscal year. More important, it would lead to

improved Federal contracting practices and decreased likelihood of

wasteful spending throughout the year.

Mr. Chairman, that concludes my testimony. I would be pleased

to answer any questions you may have.

[The attachment to Mr. Erlenborn’s statement follows:]
APPENDIX

TEXT OF AMENDMENT PROPOSED BY MR. ERLENBORN

SEC. 5. ( a ) No ag en cy may aw ard any c o n tr a c t to any p e rso n

u n t i l —

(1) in th e c a s e o f a c o n tr a c t to be aw arded p u rs u a n t to

c o m p e titiv e b id d in g , 30 c a l e n d a r days have p a ss e d b e tw een th e

l a s t d a te on w h ich b id s f o r su ch c o n tr a c t may be s u b m itte d

and th e d a te on w hich th e c o n tr a c t is aw arded; o r

(2) i n th e c a s e o f any o t h e r c o n tr a c t, 30 c a l e n d a r days

have p a sse d b e tw een th e d a te on w h ich a n o ti c e o f i n t e n t to

award th e c o n tr a c t was p u b lis h e d p u rs u a n t to s e c ti o n 8 ( e ) o f

th e Small B u sin e ss A ct (15 U .S.C. 6 3 7 ( e )) and th e d a te on

w hich th e c o n tr a c t is aw arded.

(b) N o tw ith sta n d in g s u b s e c tio n ( a ), i f th e h e a d o f any ag en cy

d e te rm in e s t h a t th e 3 0 -d ay p e rio d r e q u ir e m e n t o f s u b s e c tio n (a ) w ould

s e ri o u sl y d isr u p t th e e x e c u tio n o f an ag en cy p ro g ram , th e h e ad o f

su c h agency may w aive th e 3 0 -day p e rio d p r e s c rib e d by such s u b s e c tio n

Upon iss u r a n c e o f any su ch w a iv e r, th e h e a d o f th e agency c o n c e rn e d

s h a l l n o tif y th e D ir e c to r o f th e O ffic e o f Management and Bu d g e t, th e

S p e a k e r o f th e House o f R e p r e s e n t a tiv e s, and th e P r e sid e n t o f th e

S e n a te o f such w a iv e r.

(c ) For p u rp o s e s o f t h is s e c tio n —

(1) th e te rm " ag en cy " means any e x e c u tiv e d e p a rtm e n t,

m ilit a r y d e p a rtm e n t. Government c o r p o r a tio n , Government

c o n tr o ll e d c o r p o r a tio n , o r o th e r e st a b lis h m e n t in th e e x e c u ­

tiv e b ra n ch o f th e Government (in c lu d in g th e E x e c u tiv e O ffic e

o f th e P r e si d e n t), o r any in d e p e n d e n t r e g u l a to r y ag en cy ; b u t
23

does n o t in c lu d e th e G e n e ra l A c co u n tin g O ffic e o r th e g o v e rn ­

ments o f th e D is tr i c t o f Columbia and o f th e t e r r i t o r i e s and

p o ss e ssio n s o f th e U n ite d S t a t e s, and t h e i r v a rio u s s u b d iv isio n s;

and

(2 ) th e te rm " c o n tr a c t " means any c o n tr a c t f o r d e fe n se

p ro c u rem en t a c tio n s o f $ 1 0 ,0 0 0 o r more, o r f o r c i v i l i a n p r o ­

cu rem ent a c tio n s o f $5,0 0 0 o r m ore, o th e r th a n p ro c u rem en ts

(A) w hich f o r s e c u rit y r e a s o n s a r e o f a c l a s s if i e d n a tu r e , (B)

w hich in v o lv e p e ris h a b l e s u p p l i e s, o r (C) w hich a r e o f r e a l

p r o p e rty .

Mr. Burton. Thank you very much for your testimony, Mr.

Erlenborn. Many of the complaints about the Federal contracting

procedures relate in some ways to the amount of time and delay

from the instituting of the contract to the actual signing off of it.

Would your amendment add on to those time periods?

Mr. Erlenborn. No. As I mentioned in my prepared testimony,

at the present time most competitively bid contracts are not awarded within the 30-day period, so I think at the present time most of

these contracts would qualify with the 30-day limitation.

What it would do is to stop the hasty awarding of contracts at

the end of the fiscal year or such other time as an agency might be

trying to get funds obligated for the purpose of making their next

year’s appropriation as large or larger.

So I don’t think it would add appreciably to the time.

Mr. Burton. In your amendment you have some exemptions in

the definitions, and if the subcommittee decided to adopt some

form of your amendment, I would assume you wouldn’t object to

certain other exemptions like disaster relief, personnel contracts—

things of that sort?

Mr. Erlenborn. No. I think any justifiable exemption, if it has

not yet been included, certainly ought to be added.

Mr. Burton. Your amendment would allow a waiver by-----

Mr. Erlenborn. The agency head.

Mr. Burton. The agency head. And then if, in effect, they did

that, they would have to then stand and justify what they have

done?

Mr. Erlenborn. That is right. They would have to show that

serious disruption of the agency program would be involved without the waiver.

Mr. Burton. Mr. Jeffries?

Mr. J effries. Do you feel there is any chance for price manipulation during this 30-day period?

Mr. Erlenborn. No, I really don’t believe there would be. The

same procurement rules would apply, the necessity of taking the

lowest responsible bid in competitively bid cases, and actually you

could probably save money in the sole-source contracts, because, as

I mentioned in my prepared testimony, instead of the fait accompli
24

of an assigned contract being announced, the intention to award

the contract would be announced, and potential competitors would

then have an opportunity to come in to the agency and show that

they could do the same work more reasonably, and chances are the

Government would be the one to save as a result.

Mr. J effries. Would there be any possibility of a detrimental

effect to a contractor in this 30-day wait, in terms of delays or *

anything like that?

Mr. Erlenborn. I don’t see that there could be. As I mentioned,

most of these contracts have such a 30-day or longer period in

practice, anyhow. The one thing you might worry about would be

something like bid bonds, but again they customarily are written

for periods that extend beyond this 30 days.

Mr. J effries. No further questions, Mr. Chairman.

Mr. Burton. Mr. Synar?

Mr. Synar. No questions, Mr. Chairman.

Mr. Burton. We know that you have other matters, Mr. Erlenborn. What we will do is have the staff get together with you and

your staff prior to markup. I see some merit to your approach, but

I see some potential problems. I am not sure how we are going to

balance them.

Thank you very much for bringing this to our attention. We will

be back in touch with you.

Mr. Erlenborn. Thank you, Mr. Chairman.

Mr. Burton. Mr. Michael Timbers, president of the Coalition for

Common Sense in Government Procurement.

We have your statement, Mr. Timbers, that we will make part of

the record, and if you could just highlight certain procedures and

also, if you could, maybe include some comments on Mr. Erlenborn’s proposal, if you picked up enough of it, and also, as I stated

earlier, we will include in the record written testimony on the

multiple awards schedule, but that is not before us; so if you could

address yourself to the bill and then to what feelings you might

have as to how Mr. Erlenborn’s amendment would or would not

work.

STATEMENT OF MICHAEL J. TIMBERS, PRESIDENT, COALITION

FOR COMMON SENSE IN GOVERNMENT PROCUREMENT; ACCOMPANIED BY KEN MUNRO, NATIONAL MICROGRAPHICS

ASSOCIATION; BRUCE McLELLAN, NATIONAL OFFICE PRODUCTS ASSOCIATION; AND KENTON PATTIE, NATIONAL AUDIOVISUAL ASSOCIATION

Mr. Timbers. Mr. Chairman.

Our coalition is a nonprofit organization which was formed by a

number of trade associations who are vitally interested in the

Government’s policy relating to the procurement of commercial

products. The associations who support our group include the Busi- »

ness Products Council Association, and their 57 independent members; the National Audio-Visual Association, and their 800 dealers

and manufacturers; the National Micrographics Association, and

their 270 industry members and 9,000 professional members; the

National Minority Business Council and their 350 members; the

National Office Products Association and their 6,500 dealers and
25

manufacturers; and the National Association of Photographic Manufacturers and their 78 members.

In addition, I might mention, Mr. Chairman, we have a number

of individual companies as members of the coalition, the majority

of which are small business concerns.

Accompanying me today to the hearing is Mr. Ken Munro, of the

« National Micrographics Association; Mr. Bruce McLellan, of the

National Office Products Association; and Mr. Kenton Pattie, from

the National Audio-Visual Association.

Mr. Chairman we particularly commend the subcommittee for

4 what I think has been a business-like approach to the situations

arising out of the GSA investigations, and we commend the subcommittee for not resorting to the sensationalism which has characterized the hearings held by your counterpart in the Senate

subcommittee.

We find that the Senate hearings have been characterized by

devices solely contrived to elicit the maximum press coverage while

your subcommittee has kept a clear perspective on the issues and

the facts surrounding those issues.

In general, we do support the bill. We believe it is important for

the Administrator of GSA to have the power to initiate actions

against contractors suspected of fraudulent misrepresentation to

the Government. We definitely concur with greater surveillance

over contract approval procedures, and we support improved recordkeeping systems and additional contract audits. We have some

concerns over the bill, and I will try to summarize them. We are

concerned in the section of the bill dealing with penalties for

misrepresentation that this may not be the appropriate bill for

such penalties and maybe the False Claims Act might be a more

appropriate place in which to handle these types of penalties.

Historically, certain problems have involved a greater percentage

of small businesses who are not as adept at dealing with the

Government as large businesses.

We are concerned that the definition of what is false may be

clear to attorneys but may not be clear to small business firms.

There seems to be no distinction between omission and commission,

and because intent is not required, small business contractors could

be unjustly accused and penalized due to a lack of knowledge

regarding contracting procedures or misinterpretation of policies.

But I do want to make it clear that we support the concept of

penalties for false and misleading information, but we believe the

subcommittee should do two things: one, possibly be more specific

in the types of data by contract type, be it advertised or negotiated,

. that will be required of contractors; and, two, let GSA and other

agencies rely more on their current weapons of suspension and

debarment as penalties for false certifications instead of introducing a new system of monetary penalties. In this regard, we believe

, that the language contained in amendment section (j)(2) dealing

with partial debarments outlines an excellent concept that will

make the debarment mechanism more effective. We are concerned 

many commercial product contractors are frustrated with excessive

redtape and regulation, and we would hate to see your bill, which

would penalize, and appropriately so, the small percentage of contractors who may defraud the Government, serve as any further
26

deterrent to the majority of honest contractors who are providing 

goods and services to the Government.

In the section concerning “Improved Procurement Practices,” we

believe that the $10,000 level of contracts needing approval by the

Administrator of GSA or agency head is too low. We realize that it

is not the intent of the subcommittee that the Administrator, himself, review all of these awards, but we believe that the language of

the bill will mandate a top management review. In theory, we

agree with the subcommittee, but in actual practice, we believe

that such a review will only result in additional cost to the Government and contractors alike through unreasonable delays in the

process. We suggest a higher level—for example, $50,000—would be

more appropriate to preclude unnecessary contracting delays.

In the “Required Audit Procedures” section, we believe that the

target level of $10,000 is an improvement over an earlier draft of

the bill which set a target value of $1,000, but we still believe that

this level may be unrealistically low. We are concerned that the

agencies will not have the appropriate manpower to do an adequate job in audits of this sort. We believe it would be far better to

have a higher audit threshold level and insure that the audits

performed are more thorough than to create a system where the

audit requirements are so great that the limited audit resources

available will result in cursory reviews. We have no particular

recommendation as to the appropriate threshold level, but we believe that the inspectors general of the respective agencies could

provide guidance in this area.

One item not included in the bill but on which we would like to

comment is the poor bill-paying habits of Federal agencies. We

would like to see the bill incorporate a provision which directs

agencies to pay small business contractor bills within 30 days or

pay interest on balances. The financial burdens put upon small

businesses by agencies taking anywhere from 90 to 120 days to pay

bills is unjustified and highly detrimental to small firms in these

inflationary times.

The National Audio-Visual Association, a member of the coalition who has been a leading spokesman for this cause, has developed proposed language for consideration as an amendment to the

bill. With your permission, we would be happy to provide the

subcommittee a copy of the amendment for the record.

Mr. Burton. We would be happy to.

[See app. 1.]

Mr. Timbers. The last item, and I will only spend a couple

moments for it is so important that I would like to mention the

multiple award contracting system and particularly point out for

the record that the highly publicized reports of contracting fraud

concerning GSA procurements have been in the area of formally

advertised procurements against Government specs. There has not

been one single case, either reported or alleged, of which we have

been made aware, where a multiple award contractor was defrauding the Government. There are approximately 4,000 mutiple award

contractors, nearly two-thirds being small business firms. Further,

the majority of the one-third who are large business firms use

small business dealers to sell their products. In fact, our research

has shown that over 90 percent of the firms eligible to use multiple
27

award contracts in their sales effort to the Federal Government are

small business firms.

We deplore the lack of research which has been done in this area

by the normally responsible General Accounting Office and the

Senate, and we are appalled by the actions of GSA Administrator

Rowland Freeman. The Administrator, the GAO, and the Senate, 

we believe, are attacking the system without full knowledge of

what they are doing. An example of this is the oft-repeated statement of the Senate and GAO whereby they refer to the fact that

there are 8,000 multiple award contracts. We would ask them to do

their homework. As we have previously cited, there are nowhere

near 8,000 multiple award contracts—they are overstating the case

by approximately 100 percent.

We would agree with critics of the multiple award system that

improvements can be made and certain types of items should not be purchased under this type of system, but we would suggest that

a better understanding of the system is needed by these critics

before their so-called solutions create far more problems than now

exist. A good example is the recent cancellation of all multiple

award contracts for furniture. Senate hearings revolving around

alleged fraud and mismanagement in furniture contracts centered

around GSA’s procedure of buying merchandise for stock, not

around the multiple award system. Yet, GSA canceled all furniture

contracts on the multiple award schedules, and the real cause of

the problem remains. The reasoning behind such illogical steps

escapes us. We wonder how GSA is able to create havoc on a

segment of the industry—the majority being small businesses—

without proper guidance from Congress. We strongly recommend

that your subcommittee consider taking the necessary oversight

actions.

We have provided an attachment for the record of a package

outlining the multiple award system and providing an overview of

the coalition’s position as well as that of other industry representatives. With your permission, we will submit that for the record.

Mr. Burton. Thank you.

[See app. 1.]

Mr. Timbers. Again, we wish to commend this subcommittee for

having the good sense to approach this issue without the emotional

rhetoric and self-serving dialog we have found in the Senate, at

GAO and at GSA. We think the approach you are taking should lead to effective legislation and help restore public confidence in

the Federal contracting system.

Mr. Chairman, commenting on Congressman Erlenborn’s recommendation on no contract award for 30 days, I think there could be

lots of administrative problems with that. I would agree with one

of the objectives of trying to stop so much yearend spending, but I

think there are more effective ways to do that than to put an

arbitrary time frame on contracting.

I think there are a lot of emergency-type procurements, and so

forth, that need to be performed in a less than 30-day period, and

even if you put a 30-day time frame on, I am not so sure that

would hit at the root cause of stopping yearend spending. It may

pull it up another 30 days before the end of the fiscal year period

to make sure they got it all in.
28

We haven’t studied or considered the issue, but I would think

that the subcommittee should take its time before putting such a

provision in the bill.

Mr. Burton. Thank you.

On page 7 of your statement, when you are talking about the

procurement of furniture, saying how that the real cause of the

problem in the multiple awards schedule remains, I wonder if for •

the record you could submit a statement telling us what the real

cause of the problem is?

Mr. Timbers. We will be happy to do that.

What we are referring to here is the furniture procurements

v

made against GSA specifications.

[The material follows:]
29

The p roblem i s n o t in th e m u ltip l e award s y s tem . I t i s in

th e TOTALLY d if f e r e n t p rocurem ent t e c h n iq u e GSA u s e s f o r s u p p ly ­

in g i t s w a reh o u se s w ith s t o c k . GSA w r it e s s p e c if i c a t i o n s f o r

th e f u r n it u r e i t s t o r e s in i t s w a r e h o u s e s . The w in n in g c o n ­

t r a c t o r s a r e th o s e who can do th e jo b f o r th e lo w e s t p r i c e .

P ro v e n h i s t o r y o f p r o d u c t q u a lit y i s seldom a c o n s id e r a tio n .

* The GSA sp e c w r it e r s , n o t h a v in g th e e x p e r ti s e in o r f u l l

k now led g e o f f u r n it u r e m a n u fa c tu r in g p r o c e s s e s and q u a l i f i c a ­

t i o n s , w r it e l e s s th an ad e q u a te s p e c s . F u r n itu r e m a n u fa c tu r e r s

and GSA q u a lit y in s p e c t o r s a tte m p t to f o llo w th e s p e c s and th e

r e s u lt in g p r o d u c t s a r e o f p o o r q u a l it y ; p r o d u c t s made o n ly f o r

« gov ern m ent c o n t r a c t s and g e n e r a ll y u n a c c e p t a b le e ls e w h e r e .

(A f r a id o f n o t b e in g in c o m p lia n c e w ith th e s p e c , e v en i f a

p a r t i c u l a r a s p e c t o f th e s p e c if i c a t i o n i s known to b e q u e s tio n ­

a b l e o r f a u lt y , m an u fa c tu r e r s f o llo w i t to th e l e t t e r .)

In some c a s e s , t h i s s p e c -b u y in g f o r s to c k p r o c e d u r e a t t r a c t s

b o r d e r lin e m a n u fa c tu r e r s who can q u o te th e lo w e s t p r i c e b e c a u s e

th e y s p e c i a li z e in governm ent b u s in e s s . They p ro d u c e l i t t l e ,

i f a n y , p r o d u c t s f o r com m ercia l u s e and h a v e lim it e d , i f a n y ,

p r o d u c t s t h a t h av e been s u c c e s s f u ll y t e s t e d in th e com m e rc ia l

m a r k e tp la c e . GSA c u r r e n tly h a s c o n t r a c t s w ith fi r m s l i k e t h i s

and u s e r - a g e n c y c o m p la in t s a b o u t w orkm anship, p r o d u c t l o n g e v it y ,

and o v e r a ll p r o d u c t q u a lit y h av e b e en th e s u b j e c t o f C o n g r e s s io n a l

h e a r in g s in th e p a s t.

U ser a g e n c ie s o rd e r in g o f f th e m u ltip l e award s c h e d u le s a r e

c o n fid e n t th e y w i l l g e t e x c e l l e n t m e r c h a n d is e . Com panies s e l l i n g

to th e governm ent o f f th e s c h e d u le s o f f e r c o m m e r c ia lly t e s t e d and

a c c e p t e d p r o d u c t s a t c o m p e titiv e p r i c e s .

68-330 0 - 8 0 - 3
30

Mr. Burton. The reason that we have gone into a series of

monetary penalties is that when you get to debarment, that is a

very severe penalty that the business probably would not want to

see levied against it, nor an administrator want to make in certain

cases, and what we are looking for is some way to stop the Government from paying more for services than it should, but not really

cut off the head of the business if it is guilty of sloppy practices, as

opposed to willful fraud, because whether it is willful or sloppy, it

is costing the taxpayers more money than they should have to pay

for the service. So that is the reason that we feel it is important to

have some minimum steps in there that are monetary steps.

Now, I would also respectfully say that we feel that this legislation should give the GSA the power to impose some civil penalties

which also exist, I believe, in section 209 of the existing procurement act.

I am intrigued; you say that small businesses would not understand what is false or not. I mean if somebody knows his service is

worth $100 and for some reason they charge $105, they ought to

know that, if they are good businessmen.

Mr. Timbers. I guess what we are concerned about is the average

small business firm that deals with the Government, I feel, that

doesn’t totally understand the Government rules and regulations.

Even though they may be selling to the Government, they don’t

understand the entire boilerplate of terms to which they are agreeing. I have done a lot of work with small business firms over the

last few years, and generally most of them have a very vague idea

of really what it is they are agreeing to, and that was the purpose

of our comments.

Mr. Burton. I understand. We have found that the number of

dollars, shall we say, overrun or overprice, that are paid by the

Government to small businesses may be small in the individual, 

but in the conglomerate it becomes quite large, and that is where

we really find a great number of overcharges, whether it is intentional or sloppy, but a few thousand here and a few thousand

there, as Gerry Ford used to say, the next thing you know, you

have got a few thousand.

I think the businesses are, as you said, even into the multiple

award or whatever, they are small contractors subbing up. There is

no shortage of people vying for Government business. I think it

would be their responsibility and the GSA’s to make it clear in

contract awards that they better really have a fair idea of what

they are charging the Government for, so it is a dollar-for-dollar

service, because we find the biggest beef people have is not only

with the high cost of taxation, but with the fact they are never

getting anything back.

They find out that the Government is paying $10 for something

on a wholesale lot that they could go down the street and buy for

$7 in an individual lot. Sometimes they would have a going-out-ofbusiness sale down the street, and it is apples and oranges, but

basically we find that is a very serious problem, especially among 

the taxpayers.

Mr. Timbers. One thing I think is a poor assumption is that

there are hundreds of firms eager to do business with the Government. We found that to be quite the contrary; there are a lot of
31

firms, reputable firms, who don’t want to have anything to do with

the Federal Government because of the redtape and a misunderstanding of what the rules and regulations are. I think what the

Government should be working toward is trying to simplify and

make it easier for the hundreds of firms around the country so

they can do business with the Government and not be concerned

about that small print in the 37th page of the attachment that

somehow is going to trip them up or get a Government auditor in

their plant for 3 or 4 weeks, or whatever the situation is.

Mr. Burton. This basically says if you sell us $100 worth of

goods, charge $100, not $106. That is just basic business sense.

Mr. Timbers. We have no difficulty with that, nor do we have

difficulty with the concept of some sort of system of penalties for

false misrepresentations to the Government. As we indicated in our

statement, we kind of like the idea that was implicit in one of your

sections there about some sort of partial debarment. So you might

take a division of a company or lines of business or individuals who

are involved in, let’s say, misrepresentation and debar them for

some period of time, or whatever.

I guess we feel a little more secure in a sense in looking at the

debarment procedure because it has been established for some time

as an administrative process.

Mr. Burton. It has never been implemented, or very rarely.

Mr. Timbers. Rarely. I would say that is probably true. But we

are concerned, giving an administrator, and we have seen some

rather irrational acts by some of the more recent administrators,

and it concerns us that some of them may impose these penalties

rather quickly without proper administrative process, and I guess

that has us a little concerned.

Mr. Burton. I would say this, and I will yield to Mr. Walker,

that whatever we do we will insure a proper process, but we have

found, and it is not unlike in criminal law, if you have a very

severe penalty, people don’t convict. If the crime is one they consider not that heinous, and if the only option for the Government is

debarment, we find that debarment is rarely imposed, and what we

are trying to do is provide a mechanism to see that the taxpayers

are protected from either sloppy computation by the provider, or

by an intentioned idea to pick up a couple extra dollars, because

right now the way it works, you can overcharge the Government

$100 million, and if you get caught, you pay back the $100 million. 

Nothing ventured, nothing gained.

So that is a great concern that I have, that we find people that

would be willing to take a chance, because all they can lose is their

unjust enrichments, and nothing else, and they can probably pick

up some interest on the investment on the unjust enrichment until

the time there is an audit and the payback comes.

Mr. Walker?

Mr. Walker. Thank you, Mr. Chairman.

Before I proceed with questions, I had a statement for the opening of the hearings. May I request unanimous consent that be

included in the record.

Mr. Burton. Yes, immediately following mine.

[See p. 19.]

Mr. Walker. Thank you, Mr. Chairman.
32

One of the things that statement pointed out was the fact that,

as far as I am concerned, the bill we are considering today is an

initial step to begin doing something about some of the problems

that have taken place in GSA over a period of years. I think it is

an important initial step, because it sets the tone for some of the

direction we have to go. I appreciated your testimony, Mr. Timbers, 

indicating that you felt the committee had responded with moderation to a series of problems.

Some of my questions flow from that because I want to make

certain that what we are doing is addressing real problems and

taking strong enough steps in order to assure that we deal in a

meaningful way with them. Because if we are taking initial steps

rather than going the route of a massive bill, it is important that

the public recognize that Congress is addressing in a meaningful

way the problems they have been hearing about in the press.

With regard to the amendment Mr. Erlenborn has asked us to

consider, you indicated you felt that would cause unnecessary

delays in emergency situations. It is my understanding that the

Erlenborn amendment does have a provision in it which would

allow the Administrator to waive the 30-day requirement in emergencies, so that, in fact, it would not have an adverse impact in

that kind of a situation.

Are there other objections you see with it, that go beyond the

nature of the emergency?

Mr. Timbers. I guess my question is what is the objective of the

amendment? I have not read it. All I heard was the statement here

of Congressman Erlenborn. If it is to stop end-of-year spending, it

would just seem to me that there might be other ways to do that;

by setting restrictions on agencies that a certain percentage of

their annual budget can be spent in certain periods of the time, by

quarter or month, or whatever the case, to stop that end-of-the-year

buildup. I am concerned that the contracting process is slow

enough as it is.

As a practical matter, probably a 30-day requirement wouldn’t

make any difference in the process. There is hardly anything that

is awarded in less than 30 days, anyway. So I guess my question

would be, why do it; which problem are we trying to solve? From

the standpoint of stopping fraud and mismanagement, I don’t see

where that changes anything. You still have to award the low

responsible responsive bidder, and there are tests for responsibility, 

tests for responsiveness, and I don’t see where the timeframe has

much to do with it.

Mr. Walker. I assume that the kind of approach you are talking

about is the kind of approach suggested in the Harris bill that says

in the last month only 20 percent of the total amount could be

contracted for—or some such percentage. The problem with that is

you set the deadline back a little. If the agency knows it has only

that much time in which to spend that amount of money, you take

the date and move it back and still have this wave of spending to

get rid of the money so they make certain that when it comes

appropriation time next year all the money has been spent.

What I think Mr. Erlenborn is trying to do is find some equitable

way on a year-long basis which assures that the agency simply is

not dumping money out with the idea of spending it all so they
33

have a better argument at appropriation time the next year

around.

Well, you said you hadn’t had a chance to really look at it real

closely. I would appreciate it, if you do have additional comments,

that you submit those for the record.

Mr. Timbers. We will do that.

Mr. Walker. Y ou mentioned in your testimony there seems to be

no distinction between omission and commission in providing false

information on Government contracts.

Does that mean you don’t feel subsection (f)(2) on page 4 of the

redrafted bill offers the Administrator sufficient leeway to discriminate between serious and lesser certifications.

Mr. Timbers. I don’t have the bill in front of me, but that sets up

the standard and criteria on which he judges which one of the six

remedies he has, as I recall.

I guess it might, but we would like to see it a little bit clearer

than it appears to us and to those in our group who reviewed the

bill. We still feel there is not a clear enough distinction between 

the honest error and the outright misrepresentation, and we would

like to see a clearer distinction before the Administrator has this

power—I guess we are not as optimistic in the judgment of the

Administrator of GSA. We would like to see it a little clearer in

the language of the bill.

Mr. Walker. If you don’t leave it as a judgment call for the

Administrator, who is kind of the contract officer or the ultimate

contract officer on all of this, it seems to me what you begin to do

is write so narrowly that you then have a whole series of regulations which are precisely what you say the small businessmen

don’t understand. The more narrowly we draft the bill, the less

discretion we put in, the more regulations that are going to flow

from it.

It seems to me that is what you are saying is the ultimate

problem.

Mr. Timbers. Possibly. I think that the bureaucrats will develop

sufficient regulations whether they are narrow or broad, so in

terms of scope, I doubt we will see much difference, but we would

just feel a little better about it if it was just a little clearer in

terms that you are really aiming at those who are giving the

Government misleading information and knowingly so, as opposed

to those who might provide misinformation because they didn’t

truly understand what the Government was asking for, and oftentimes what they ask for is not very clear.

Mr. Walker. But, as I understand the language which is in the

bill right now, it does give the Administrator the chance to take

into account the nature of the violation, the circumstances, the

extent, I mean; in other words, he would have a number of different areas in which to exercise exactly that kind of discretion to

make certain, if this was a first instance, a small firm that never

dealt with the Government before or dealt with the Government

some time and had an exemplary record, he could take those

things into account.

To try to draft into this bill something that would say you take

into account the nature of the offense—and these are all the things

that would be included in the nature of the offense—would just
34

leave us with either a whole series of loopholes or regulations so

tight no one would want to try to comply with them.

I am just asking whether or not that isn’t even a greater problem than discretionary kind of language that we have attempted to

include in the bill.

Mr. Timbers. It could be. Of course, again, you get into the

draftsmanship of the bill. And there are a couple ways to look at it

in the bill, and obviously the legislative history and summary, and

so forth, that would accompany the bill when it is introduced, can

have a lot to do with the types of regulations and how the bill is

finally actually administered.

Mr. Walker. I think the report language should be clear on that

point.

Let me try to cover what I have here briefly. You mentioned the

bill should incorporate a provision relating to agency tardiness in

paying bills. What are the agency excuses for late payment?

Mr. Timbers. You talk about excuses; I don’t think the agencies

generally make much excuse; I think they just pay late, and I

think the experience of the firms that we deal with is it becomes a

bureaucratic nightmare to go back and try to collect from an

agency that, let’s say, took a prompt-payment discount, as an example, 60 days after the fact, because there is no penalty on it.

There is no way to go after an agency that does this, or that takes

a net 30 and pays in 90 days. It is to their advantage almost to do

it.

Mr. Walker. You mention you thought that the $10,000 figure in

the bill should be raised to $50,000.

I have a bit of a problem with your testimony in that regard,

because, in examining some of the abuses that have taken place,

too often we have seen somebody who is responsible for a whole

series of small contracts, none of which may be over $10,000, but it

has been those people who have caused us some of the greatest

problems in the system.

I am questioning if you raise the level to $50,000 whether or not

we will deal with the problems that have already been revealed

within GSA?

Mr. Timbers. I think it is a question of where the contracts are

coming out of GSA. If you are talking about contracts national in

scope coming out of the central office operation, from what I have

seen, and I have attended all the hearings, I haven’t seen the

alleged fraud coming out of that testimony at the small dollar

limit. There were fairly big dollars they were talking about.

If you are talking about the fraud that came out of the operations at the self-service stores, the GSA stationery stores, that was

a whole different level, and I think that kind of a fraud and abuse

can be treated administratively within their system as far as controls on who can actually order material and who can account for

it, and the matching process to make sure inventory is actually

accounted for. But I think when you get into a situation like in the

Federal Supply Service, where you probably have 100,000 contracts

a year being put out, if you have that level that low, I think you

are going to just slow up the process.

I am not saying $50,000 is a magic number, either. We are

concerned $10,000 does seem a little low, particularly when a lot of
35

the publicized fraud has not been in the contracting process so

much, as much as the releasing against orders at the very local low

level within GSA.

Mr. Walker. Mr. Chairman, I might suggest at this point that

maybe one of the things we would want to find out is just what

percentage of contracts there are, at, say, the $10,000 level, $20,000,

$30,000 level, so we know how many contracts we would be leaving

in or out, based upon the figure in the bill.

Do you see anything in the legislation we proposed which hits at

the real problems you mentioned that go beyond the multiple

award schedule? In other words, you were talking about the furniture on the Senate side. Do you think we have addressed with this

bill those problems you say exist?

Mr. Timbers. I think you have. I think whatever system that

involves a further emphasis on penalties for misrepresentation is

certainly needed. I think the fact you require a system of increased

recordkeeping which has obviously been a problem from what I can 

determine in all of these investigations, and the fact that there is

an audit threshold, where contracts do stand a greater probability

of being audited, I think all of those are needed and appropriate in

the GSA situation.

Mr. Walker. If the recommendations included in your testimony

were all incorporated in the bill, in the final product of the bill,

would you support passage of 5381?

Mr. Timbers. Yes, we would support passage.

Mr. Walker. Do you feel the legislation would act as a deterrent

to shady business contracts?

Mr. Timbers. I think it would be.

Mr. Walker. Do you feel it would be detrimental in any way to

normal conduct of business with the Government?

Mr. Timbers. Not with the type of suggestions we made; no, I

don’t. Not at all.

Mr. Walker. Thank you.

Mr. Burton. How would you feel if we didn’t adopt them all?

Mr. Timbers. We support the bill. We are making these recommendations not so much that we would go out and lobby against

the bill per se if we didn’t have our recommendations included in

the bill. We think what you are attempting to do makes sense, and

we basically support the bill.

Mr. Burton. Thank you very much for your constructive testimony and your comments.

Let me see if I just understand this: If by Government contract

they agree to pay within 90 days from delivery, say, of some

typewriters, they have a history of maybe not paying for 120 days

or 160 days; is that what you are saying?

Mr. Timbers. Two things happen. You might sell something to

the Government, and it might be they are supposed to pay within

30 days, and you don’t get paid for 90-120 days, or you sell something that might have 2-percent discount, prompt-payment discount if the Government paid within 20 days. They may pay within

60 days and take the 2 percent. Both cases are happening.

Mr. Burton. The only recourse is to try to sue in a court of

claims, or something?
36

Mr. Timbers. It is like the comment you made earlier: even

though the dollars add up, in many cases each individual instance

may only amount to a small $50, $100, $200, so it probably 

wouldn’t be worth it to a contractor to take them through that

kind of process to try to collect. They would try to collect through

the normal administrative process and, frankly, after a while

throw up their hands and say the heck with it.

Mr. Burton. Thank you very much.

Mr. Timbers. Thank you very much.

Mr. Burton. The next witness is Mr. Vico Henriques, president,

Computer and Business Equipment Manufacturers Association. We

have your statement, which we will be happy to make part of the

record. You could highlight whatever point you want, and also feel

free to comment on Mr. Erlenborn’s proposal.

STATEMENT OF VICO HENRIQUES, PRESIDENT, COMPUTER

AND BUSINESS EQUIPMENT MANUFACTURERS ASSOCIATION

Mr. Henriques. Thank you, Mr. Chairman. It is a privilege to

appear before you to discuss the views of the association on the

proposed legislation. CBEMA is a trade association representing

the major manufacturers of computer and business equipment in

the United States. Our membership includes both large and small

manufacturers of such equipment and represents an industry

which in 1979 had gross revenues of over $40 billion and a positive

balance of trade of $4 billion.

We support the objective to reduce fraud and mismanagement in

the conduct of procurements and the administration of contracts by

GSA. We are well aware of the publicity, congressional hearings,

and other events of the past few years associated with both rumored and reported scandals within GSA. We are not aware, however, of any allegations of abuse by members of our industry.

We feel concerned that the current version of H.R. 5381 represents an “overkill” which would place an unnecessary and burdensome system of certification, penalties, and audits upon our industry. The bill, as we read it, takes a system of controls and remedies

designed to protect the Government against fraud and gross mismanagement and extends it to legitimate procurement and contracting practices and procedures under which minor or inadvertent administrative errors may occur.

In section 1, “Remedies for Contractor Abuse,” there is a requirement for a blanket, unqualified certification as to the completeness

and accuracy of all material information required by GSA procurements and contracts. We question the practicality and the fairness

of such a certification requirement in the conduct of complex procurements of high technology equipment, as provided by our industry. The experience of our member companies is that the information required by GSA’s solicitation documents, or that which may be required during the life of the contract, is often not completely

specified nor explicit. We feel that the certification requirement

could be significantly improved through the addition of such qualifiers as:

To the best of the contractor’s knowledge;

Material information explicitly and completely defined in the

solicitation and/or contract; or
37

The contractor will not willfully withhold information or provide

misleading information.

We have some basic concerns with the philosophy of section 1,

which follows up the certification requirement by providing punitive powers to the Administrator of GSA, these in addition to the

existing civil remedies available to the Justice Department. We

understand that the rationale for such an approach is that the

Justice Department currently cannot process enough of its current

caseload on abuses of concern to GSA.

We are troubled that, if this is the problem, the solution should 

be the implementation by statute of a second system of punitive

action, rather than an attempt to make existing laws enforceable.

If the subcommittee still feels that it has no choice but to pursue

the duplicate system of penalty by giving the proposed powers to

the GSA Administrator, then we would urge that the bill be

amended so that the penalties which the Administrator can impose

are clearly related to the seriousness and willfulness of the violation. H.R. 5381 should clearly reserve the penalty power under

section 1 for cases of fraud and not allow such penalties for inadvertent contractor errors in the process of procurement or contract

performance.

Under section 2, entitled “Improved Procurement Practices,” we

believe that the requirement for approval by the Administrator or

agency head of any contract or agreement negotiated, the value of

which may exceed $10,000, is not a practical limitation. While we

are not at this time prepared to offer a specific replacement figure, 

I feel that such a figure can be developed based upon the contractual experience of GSA and other executive branch agencies and

that the figure should be in the area of hundreds of thousands—not

tens of thousands—of dollars. I will concur with the suggestion 

made by Mr. Walker that a reasonable study should be made of the

contracting experience of the Federal Government to adopt a level

which is realistic and which will not overburden the procurement

system.

Regarding required audit procedures, we question whether it is

necessary to extend to GSA by statute GAO’s right of access to

contractor records. The experience of our industry has been that

GSA currently has available sufficient audit authority to administer its contracts effectively. I have two specific concerns as to the

practical impact of the proposed audit procedures on the procurement of commercial products.

First, since the major portion of the pertinent information of

interest to GSA relates to establishing the commerciality of the

products, it would seem that the requirement for auditing 20 percent of all of GSA negotiated contracts above $10,000 each fiscal

year will place unnecessary burdens upon both GSA and the industry. The burden upon GSA will be the audit staff required to

conduct this number of audits. The burden upon industry will be

the requirement to review and justify—possibly with multiple audit

teams—the information required to establish the commerciality of

the same product or product lines.

Second, since much of the information involved in the establishment of commerciality is of a proprietary nature, I am concerned 

about the public document room provisions of paragraph (f)(4). I
38

feel this paragraph should be modified to limit the audit abstracts,

in the case of commercial products, to summary findings and clearly prohibit the inclusion of detailed, backup contractor proprietary

data.

Mr. Burton. You wouldn’t mind the auditor seeing it, but they

shouldn’t include it in their report.

Mr. Henriques. They could include it in the report, but not the

audit abstract.

Mr. Burton. They would have that information available to

them, but when they make the report, it could be a public document.

Mr. Henriques. Certainly.

Finally, Mr. Chairman, let me turn to the subject of the multiple

award schedules, simply to say that we feel that there are many

appropriate procurement techniques which provide the Government with economy and efficiency in acquisition of high technology

equipment, and which will allow the flexibility of procurement to

executive agencies which is necessary in order for the Government

to avail itself of the variety and benefits of the products of our

industry.

We readily admit that some product areas should not be included 

within the multiple awards schedules, and have discussed these

areas on several occasions with both the Commissioners of ADTS

and FSS within GSA. We feel, in particular, that the multiple

award schedules can be of significant value to small business firms

whose major amount of activity is in Federal procurement areas.

We note, in closing, that there are differences between the Federal Supply System and the Automated Data and Telecommunications Service multiple awards, but we feel that both are appropriate, and both can be improved through joint government and industry efforts. We also feel clearly that there is no significant

problem with the multiple award schedules concerned with our

industry. They do not need statutory remedial action to improve

them.

Thank you for the opportunity, Mr. Chairman, to present this

statement. I will be glad to answer any questions you may have

and may offer a couple of comments on Mr. Erlenborn’s proposal.

[The attachment to Mr. Henriques’ prepared statement follows:]
39

CBE41K

MEMBERS

of the

COMPUTER AND BUSINESS EQUIPMENT MANUFACTURERS ASSOCIATION

3M

ACME Visible Records, Incorporated

AM International, Incorporated

AMP Incorporated

Apple Computer Inc.

Burroughs Corporation

Control Data Corporation

Dictaphone Corporation

Digital Equipment Corporation

Eastman Kodak Company

EXXON Enterprises Incorporated

General Binding Corporation

GF Business Equipment, Inc.

Harris Corporation

Hewlett-Packard Company

Honeywell Information Systems, Incorporated

IBM Corporation

ICL, Inc.

Lanier Business Products, Incorporated

Liquid Paper Corporation

Micro Switch, Division of Honeywell Incorporated

NCR Corporation

Philips Business Systems, Incorporated

Olivetti Corporation of America

Pitney Bowes

Remington Rand Corporation

Sanders Associates, Incorporated

Sony Corporation of America

Sperry UNIVAC

Sweda International

TRW Communications Systems & Services

Tektronix, Incorporated

Texas Instruments,. Inc.

The Standard Register Company

UARCO Incorporated

Xerox Corporation
40

Mr. Henriques. First of all, on the 30-day period, which had two

aspects, one relative to negotiating contracts on sole source basis,

the other on competitively bid contracts, bring up two sets of

problems. Sole sourcing is generally done in the interest of time

and imposing a 30-day limit at the close of any particular period, 

including a fiscal year, might defeat the purpose of sole sourcing a

particular procurement.

I can see problems at that point in time for an agency to manage

to stay in operation or manage to keep its facilities in operation

with the 30-day limit. Given that the head of the agency can

forgive the 30-day period, according to Mr. Erlenborn’s amendment, this would require that the head of the Cabinet agency or

the head of an independent agency or bureau would have to focus

on the fact that at the particular point in time, the sole source

procurement would have to be made. And we doubt very much that

you would be able to get the Secretary’s attention to concentrate

on things like that on some of these contracts

In the area of competed procurements, the 30-day period after

the best and final offer is a window in which proprietary data

could be leaked that had been submitted in response to the invitation to bid or the request for proposal. We feel seriously that there

is a need on the part of the Government to protect the proprietary

data in response to procurement actions or audit actions or whatever. While this information is given cooperatively and willingly by

the industry, we feel there is an obligation on the part of the

Federal Government to protect this data. The 30-day period after

the last, best, and final offer in a procurement might allow too

much time and allow for significant data to leak out and cause

unnecessary counteroffers, protests and the like. In fact, it would

prolong the process.

Mr. Burton. You urge that the bill be limited to knowing, willful, and seriously fraudulent and so forth completely defined limitation, which pretty well defines a criminal act.

Mr. Henriques. Yes, sir.

Mr. Burton. Isn’t that a fairly low standard?

Would your company, the companies you represent, tolerate that

as the only action they could take against a supplier who, in effect, 

was beating them out of money but did not knowingly, willfully, or

seriously do it, but just did it because they were rather slipshod?

Mr. Henriques. We feel that the remedies for erroneous data

innocently supplied already exist and that no new statutory requirement need be placed upon either the contractor or GSA.

Mr. Burton. Is that the debarment?

Mr. Henriques. No; the GSA can recover what moneys were

involved certainly. Debarment is certainly one way. The bill as

currently read says it is an exception on the part of the Administrator to reduce penalties from the ones which are called for in the

bill rather than—I do not think, was it section F(2) or F(4) which

said the Administrator may adjudge an exception in reducing the

penalty applied? It suggests in every case there would be a penalty

applied even for inadvertent errors, clerical errors either during

the contracting process or the performance of the contract.

Mr. Burton. What we are trying to do is—it costs the taxpayers

the same amount of money whether somebody does it because they
41

are sloppy or somebody does it because they are a thief. We are

giving the Administrator the ability to not put a fine on them.

That is a basic way of doing it.

Mr. Henriques. I guess our intent and our reading of the bill-----

Mr. Burton. You would get started and go upwards?

Mr. Henriques. No; our reading of the bill is to direct the

Administrator to assess the penalties.

Mr. Burton. Unless he deems it not worthy of assessment? In

other words, he has the option not to do it. We have given what we

think is pretty good flexibility to the Administrator in areas of just

absolute honest mistake not to impose any kind of penalty.

Mr. Henriques. It requires a decision on the part of the Administrator, rather than having the procurement process in itself make

determinations, having judgments made by contracting officers,

saying here we have a case of suspected fraud as opposed to having

an inadvertent error or a result of an ambiguity in the contract. It

should be clear at the contracting officer’s level rather than at the

Administrator’s level, that they adjudge this a clerical error, and

therefore don’t have to bring all of this other mechanism into play.

Mr. Burton. Mr. Caney.

Mr. Caney. The decision to begin an assessment action would

remain with the contracting officer under the bill. In other words, 

there is nothing in the bill that says upon the finding of miscertification of a material information an assessment must be brought. It

says the Administrator may assess from one of those six schedules,

the lowest of which is $1,000. The threshold for material information is $10,000. So unless you have gotten to $10,000 or 5 percent of

the contract, whichever is less, you are not even eligible for an

assessment and the lowest assessment could be $1,000.

I am hard put to understand an inadvertent mistake or clerical

error that would cause a $10,000 cost to the Government, unless

you hit the zero key a lot and sent the bill off.

Mr. Henriques. I guess, and I will repeat it, our concern is that

as we read the bill there is an automatic requirement on the part

of the Administrator-----

Mr. Burton. If he determines an assessment, we set the level of

assessments, but it is up to the contracting officer to refer it to him

for that. So it is not an automatic thing. If he determines to make

an assessment, we are setting the level of fine.

Mr. Henriques. But the contracting officer, without going to the

Administrator, may determine whether or not he will declare it

was a miscertification.

Mr. Burton. Yes; an honest mistake.

Mr. Walker. That may be something we will want to clarify in

the report language to make certain that is understood by the

agency.

Mr. Henriques. We would feel more comfortable with that.

Mr. Burton. Your industry I assume is under current GSA

regulations requiring certification of cost and pricing for contracts

over $100,000?

Mr. Henriques. That is true.

Mr. Burton. I would assume in your industry that is probably

every contract, more or less; a great deal of them.

Mr. Henriques. Yes.
42

Mr. Burton. So this really is not going to affect your industry

that much, that certification process, except for those that are not

covered? I would assume most computer-----

Mr. Henriques. Most of the large procurements are covered by

that, yes. It is not necessarily true, however, on the multiple award

schedules.

Mr. Burton. Now, do you think that the GSA would be asking

for any greater information than the GAO would ask for in an

audit? In other words, if you have to prepare the material, whether

it is GSA or GAO, what difference would it make?

Mr. Henriques. Probably none, except we may suggest there

may be multiple audit teams.

Mr. Burton. Like GAO one day and GSA the next?

Mr. Henriques. Or perhaps GSA coming in two or three times

on the same or different product lines within the same organization. If the products meet the test of commerciality, then it would

be unnecessary or perhaps unwarranted to have successive audits

on those product lines within a company’s office.

Mr. Burton. You maybe audit typewriters one place and computers the next, different items, just happen to be made by IBM.

Because you audit the computers, that means the typewriter sales

is all right?

Mr. Henriques. No; what I am suggesting, this is particularly

true in the multiple award area, where these are commercial products offered from established catalog prices, that the looking at or

auditing of a number of products within generically the same area

would seem to create excessive administrative burden for the

manufacturer.

Mr. Burton. What would be a definition of generically in the

same area, like several audits on typewriters?

Mr. Henriques. Several audits on typewriters, word processing

equipment, and data terminals.

Mr. Burton. Well, those are three different items.

Mr. Henriques. They may be according to the catalogs and

schedules that the Government keeps, but they may not be according to the schedules of the manufacturer.

Mr. Burton. In other words, the manufacturer has them all

lumped together?

Mr. Henriques. The same basic product may be called by the

Government different things for the purposes of Government procurement and they may be coming out of the same factory and

same technological design. Essentially, I think that is one of the

concerns.

Mr. Burton. In other words, the same factory would be putting

out the word processors, typewriters, and terminals?

Mr. Henriques. That is right.

Mr. Burton. What they would be looking for, the commerciality

of products, they would be looking at that to see that the list price

and discount for the Government are valid, not just some phony

figure.

Mr. Henriques. That is right.

Mr. Burton. That is a valid concern, is it not?
43

Mr. Henriques. I think that is a valid concern, something which

the industry has for some time cooperated with GSA in providing

that data.

Mr. Burton. Mr. Walker?

Mr. Walker. Thank you, Mr. Chairman.

You mentioned in your testimony the $10,000 figure is unrealistic. I assume you feel that the $50,000 figure mentioned by the

previous witness is also unrealistic?

Mr. Henriques. As I said, I am not sure we are prepared to say 

what the number is. We think there is sufficient data in the

executive agencies and GSA to establish a level based on the general range and the pattern of procurements to say what that number

ought to be.

Mr. Walker. I was somewhat concerned about your testimony on

page 2 in which you got into the qualifiers you wanted to put in

with regard to the willful intent of the contractor involved. You

said that with this language the Justice Department cannot currently process enough of its caseload to deal with the abuses. That

certainly is a consideration.

However, the other consideration is whether or not a lot of these

things should not be addressed without addressing it in the name

of criminal penalties. What we are attempting to do here is to

make certain that the Government recover losses as a result of

problems that have developed, but that they do not necessarily

pass over into the criminal element.

Now if we put in qualifiers to the extent that you are talking

about, we have once again addressed essentially criminal action.

The language you are suggesting is essentially language of criminal

law. Don’t you think there is a place for attempting to address a

problem between Government and contractor by establishing specific criminal intent and trying to within the scope of the legislation?

Mr. Henriques. We may be working toward the very same thing

here. I think the intent on our part is to suggest that there is a

ground between what is willful or fraudulent representation or

withholding of data or whatever, and to say that it is to the best of

the contractor’s knowledge, at the time that the contract is signed,

the data are complete and full. But if it turns out later there are

things which could have been or should have been included, but

not at the time of the signing within the contractor’s knowledge, he

should not be held in that sense liable or responsible since they

were not within his knowledge at that point in time.

I guess it was the absolutism of the language of the bill which 

gave us some concern.

Mr. Walker. Well, I understand your concern. I was trying to

reflect upon our concerns as well, because I think if we took

language of the type that you are suggesting here, we basically 

cross that threshold into making it address specifically what is in

the Justice Department purview at the present time. If there is

willful intent to defraud, that comes under which the Justice Department is currently empowered to do something about. And we

get right back to having to deal with all of these problems in the

criminal sector.
44

What we are suggesting I think is that we ought to take some of

them out of the criminal law sector and try to deal with them as

administrative problems. I think you are right, we are probably

both arriving at the same thing. I guess my concern is with the

language you are suggesting.

Mr. Henriques. I would be more than happy to give you a little

bit more than just the three phrases and some of the philosophy

that goes behind that.

Mr. Walker. I appreciate that. It is something we are going to

have to make very clear in report language what the attempt of

the legislation is, once again.

We want to make certain that in fact GSA can address the

problem without saying that there was willful intent involved to

defraud the Government and do more than imply, actually state,

that the contractor was therefore guilty of a criminal act.

If the recommendations which you include in your testimony

were substantially incorporated in the bill, would you support the

passage of 5381?

Mr. Henriques. Yes. I think we are in agreement with the intent

of the bill and it is a matter of specific language and some of the

content as opposed to the intent.

Mr. Walker. Do you see it as something that would act as a

deterrent to shady business dealings with the Government?

Mr. Henriques. I think that would be rather difficult for me to

say because within our own industry I do not know of any that

have occurred. I do not think it would change much the way

business is done in our sector, other than perhaps create some

administrative concerns, as I pointed out.

Mr. Walker. That basically gets to my third question in the

series. Do you feel it would be detrimental in any way to the

normal conduct of business with the Government?

Mr. Henriques. It has the potential of adding administrative

costs to the contract.

Mr. Walker. Thank you.

Mr. Burton. But how does it affect your organization? One, I

would think that a majority of the people you represent are doing

more than $100,000 business, that they make a certification. I

think your point is very well taken and we will do our best also to

see that any audits are made so that they are not coming back

every day looking through the same files. I am not quite sure how

we do that but I think that can be done, if not in the bill, certainly

in the report, and that the proprietary information is protected. If

that is so, I do not see how it affects your business.

Mr. Henriques. If we can be assured of those things, I think we

would feel much more comfortable with it.

Mr. Burton. I get very nervous when I hear “proprietary information” only when it comes from the airlines. How does GAO do it

now? They don’t release proprietary information now, do they? Or

do they? There are times when they are going to have to look at it.

I would think the report should be only reactions. Do they in fact

release proprietary information?

Mr. Henriques. They are unable to give us the assurances that

they would not, under pressure from the Congress, release propri-
45

etary data when they make the audits. Normally they protect 

proprietary data.

Mr. Burton. Do you have any indications when they haven’t?

We could get your proprietary data, we don’t have to have GAO do

it.

Mr. Henriques. I recognize that. There is no statute under GAO

rules for proprietary protection, although there is a basic understanding—

Mr. Burton. Have they ever to your knowledge violated that?

Mr. Henriques. Not to my knowledge. It has only been during

our discussions with their general counsel within the last two or

three months, that he has—we clearly asked the question about

proprietary data and he said they would be unable under statute to

protect the data submitted to them.

Mr. Burton. If we called them in?

Mr. Henriques. Yes.

Mr. Burton. So that really lies with the Congress?

Mr. Henriques. Yes.

Mr. Burton. We would not rule out our right to have that data,

but as far as a document, when somebody asks for a report or audit

and that is made public, I would think protection of proprietary

data is not an out-of-line request.

Mr. Henriques. It might be useful if the legislative history could

show that for use by GSA under the Freedom of Information Act

such proprietary information that was furnished could be protected

by the agency head. GSA has allowed proprietary information to be

released under the Freedom of Information Act on several occasions in the past few years. We think if that could be strengthened

and the administrator could protect the proprietary data submitted

to him, this would be of great comfort to those who provide the

data.

Mr. Burton. We will look into those few subjects. But basically,

given the proprietary data protection that you have now under the

GAO—all right. GAO audits you; do they audit typewriters, word

processors and the terminals? I would not see the GSA audits being

any more onerous than GAO.

Mr. Henriques. I think our comment was that in the public

reading room provision of the draft bill we suggested that only the

abstracts-----

Mr. Burton. Right. I was thinking now we have eliminated that

and coming to the point where you say there would be multiple

audits of what in effect is the same product. You have it all in one

file but one guy comes in Monday and looks at this, somebody

comes in Tuesday and looks at this, instead of somebody looking at 

the whole file at once.

How does the GAO do that with you? Do they look at the whole

file or at the component parts?

Mr. Henriques. They tend when they look at things to look at

and audit a specific procurement, or a specific range of things. I

think they have looked at the entire range of things. They have

done some reports where they look broadly across product lines.

Mr. Burton. As far as your industry is concerned, your two basic

concerns are the proprietary information and an unending stream 

of what in effect could be duplicate or repetitive audits?

68-330 0 - 80 - 4
46

Mr. Henriques. Yes, sir.

Mr. Burton. Thank you very much.

Our next witness is Mr. William Grote. We have your statement

that, without objection, will be made part of the record.

[See p. 50.]

Mr. Burton. If you would like to make any brief comments or

just respond to questions, whichever way.

STATEMENT OF WILLIAM GROTE, FEDERAL MARKETING AND

CONSULTING SERVICES

Mr. Grote. I would like to call attention to some of the items

pertaining to H.R. 5381: One, that consideration be given to eliminating the $10,000 threshold for all of the multiple award contracts. Since you don’t know at the beginning of a contract what

the value is going to be, and since the price to the Government is

based only on the data submitted, I think that eliminating the

$10,000 threshold might be a consideration for multiple award

contracts.

Also, I think multiple award contracts require different procedures from negotiated single award contracts. I recommend that

consideration be given to developing separate procedures for the

two types of contracts.

Certifications: I recommend that consideration be given to requiring certifications to be made at the top level of the organization—possibly the president, executive vice president, or comptroller—to increase the probability that the data will be valid.

Service contracts are based on the time of individuals; I recommend that each invoice for that kind of a contract be accompanied

by a certification from the individual that he in fact worked the

hours for which the Government is being billed.

And with regard to the recordkeeping aspect of the bill, I have a

recommendation on how the Government could find out exactly

what they are paying for multiple award contracts. GAO says that

they don’t know at all—which is true.

With regard to Mr. Walker’s thought about getting a breakdown

on the number of contracts at 10,000, 50,000, I do not think you

could find out. But one way that the Government could find out is

to require the payment office issuing a payment for an invoice to

capture at that time all the information needed for GSA to know

how much is being paid to each contractor for the items under

multiple award contracts.

Finally, I can’t resist on multiple awards, I have presented 44

pages of prepared testimony documenting some things that keep

the Government from getting the value that it should; I think the

present policy of GSA to discontinue multiple awards completely 

and to buy many items only on the basis of competitive bids shoulu 

be discontinued until the issues cited are taken into consideration.

Mr. Burton. In section 2 of your testimony, you strongly question the validity of commercial prices accepted by the GSA. When

you use the word “validity,” do you mean the true and accurate

price on the face of it?

Mr. Grote. Yes, sir.
47

Mr. Burton. Then you state that the GSA commonly advises

firms to raise their commercial list prices and then discount them

by a greater percentage in order to get a supply contract?

Mr. Grote. Yes, sir.

Mr. Burton. How does that work? Why would they do that?

Mr. Grote. If an offeror feels that it is giving the best value, the

lowest possible price to the Government, but which may not meet

the benchmark discounts, many times I have been told, “Raise

your commercial prices, Mr. Grote.” And in cases where contractors may not have a commercial price, where they are trying to get

a contract based on wholesale prices, I have been told several times

that you have to manufacture a commercial price; otherwise, we

can’t give you a contract based on a discount from a commercial

price.

So GSA in its contracting procedures really forces potential contractors into doing things which they might not have done otherwise.

Mr. Burton. Mr. Walker?

Mr. Walker. Let me see if I understand what you are saying.

Is that the reason why in some cases we find commercial discount houses selling products at a rate less than the Government?

Was the realistic commercial price of the product artificially hiked

in order to get a Government contract, but the real selling price at

which the guy could make a profit is somewhat lower, therefore, he

could sell it to a discount house for less?

Mr. Grote. That could be one of the reasons.

I think in that case it is because the discount house is willing to

buy a definite quantity of standard commercial items shipped to a

single location—one payment, one invoice—whereas the Government is buying one at a time all over the country with many

different purchase orders. So it could be any combination of reasons. My prepared testimony include recommendations on how

GSA can obtain lower prices for large, definite quantity procurements of standard, commercial products.

Mr. Walker. You are saying in some cases artificially inflated

commercial prices are established in order to establish a discount

price for the Government so that the Government probably is

really buying at a price which is realistically under the commercial

price?

Mr. Grote. That is right—in order to meet the required benchmark to get a contract.

I have been told by people within GSA confidentially that they

know that most of the commercial prices are not worth the paper

they are written on and the ink isn’t even dry when they serve

them with the offer.

Mr. Walker. How nice. I think you have made some good points

with regard to this business of trying to establish a figure. You

have probably heard us talking about why there was a figure of

$10,000 put in there in the first place.

I am fascinated by your comment that you are not sure we could

find out that information anyhow. Why don’t you think we could 

find that out?
48

Mr. Grote. Many contractors don’t even report their sales under

multiple award contracts. Many of them possibly don’t actually

report all of them.

Mr. Walker. So you are saying that the Government would not

have then any access to that data at all?

Mr. Grote. They would have access to it, but they would have to

go back to the contractor to perform an audit possibly to find out

how much was sold under a particular multiple award contract.

Mr. Walker. In other words, you are talking just the multiple

award contracts?

Mr. Grote. Yes.

Mr. Walker. That would not be true of the other types of contracts?

Mr. Grote. No, just the multiple award.

Mr. Walker. I take it from your testimony, and just want to

establish for the record, that you feel that the $10,000 figure is

unrealistically low in the bill.

Mr. Grote. Only for multiple award contracts. I think for all

others where there is a single award, it possibly could be higher. I

have no thought on that.

Mr. Walker. Do you agree there should be something in the bill

to address a penalty for late payment?

Mr. Grote. Yes. I wholeheartedly support Mr. Timbers’ recommendation on that.

Mr. Walker. Do you find that the agencies are delinquent in this

area?

Mr. Grote. For almost every invoice. I think it is widespread,

yes.

Mr. Walker. What is the reason that they are giving for late

payment?

Mr. Grote. They don’t give reasons. I do not think there is any

one particular person—well, you wouldn’t know which person to

ask. The reason is there are so many people involved in the

process.

Mr. Walker. What effect do you think that putting some sort of

penalty for late payment would have?

Mr. Burton. Kill the bill.

Mr. Grote. It could possibly accelerate, but it probably would 

result in the Government paying more for a particular order.

There would be nothing wrong with that. I think the contractor

should be entitled to interest if payment is not made within 30

days.

Mr. Walker. You think what would happen is the Government

would continue to pay late, they would just pay the penalty then?

Mr. Grote. Probably.

Mr. Walker. A lot of faith in Government out there, Mr. Chairman.

Do you think that the bill we have before us is a good initial step

in curbing the abuse potential in Government procurement activities?

Mr. Grote. I think it is.

Mr. Walker. Would you go further than what this bill has with

regard to trying to stop the abuses?

Mr. Grote. Only in the areas recommended in my presentation.
49

Mr. Walker. Thank you, Mr. Chairman.

Mr. Burton. Thank you very much, Mr. Grote.

[Mr. Grote’s prepared statement follows:]
50

i

Ef.'CS

FEDERAL MARKETING AND

CONSULTING SERVICES

William Grote. President

Comments on H. R. 5381, A Bill to Reform Government Contracting

Practices by the General Services Administration, and 

Recommendations for Correcting Weaknesses in Current Federal

Procurement Practices and for Developing More Efficient,

Cost-Effective, and Responsive Acquisition Policies, Methods

and Criteria

Respectfully submitted June 9, 1980 by William Grote, President

of Federal Marketing and Consulting Services, before the

Government Activities and Transportation Subcommittee of the

House of Representatives Committee, on Government Operations.

I am pleased with this opportunity to comment eon several sections

of this bill to reform Government contracting practices by the

General Services Administration and to present recommendations

for correcting weaknesses in current Federal procurement

practices and for developing acquisition policies, methods, and 

criteria that will be more efficient, cost-effective, and

responsive to the needs of the Government and using offices and 

fairer to the current and potential sources of supply. These

comments and recommendations are based on 17 years of experience

in negotiating contracts with the General Services Administration,

developing and implementing Federal marketing programs for a wide

variety of products, and personal contact with hundreds of Federal

procurement offices throughout the United States and overseas.

William Grote
51

,1

'1

FEDERAL MARKETING AND

CONSULTING SERVICES

Comments on H. R. 5381

The following comments pertain to Section 1, Remedies for Contractor Abuse;

Section 2, Improved Procurement Practices; Section 3, Required Audit Procedures; and Areas Not Addressed.

I believe that negotiated, multiple-award negotiated contracts require legisla

tive and administrative action different from that required for advertised and

negotiated contracts resulting in a single award.

Specifically, Section (k) (page 8) establishes $10,000 as the threshold for

property services contracts or agreements requiring the certification

established in Section (e) on page 2. Consideration should be given to

eliminating any threshold for multiple-award contracts, inasmuch as contract 

prices are directly related to commercial retail and/or wholesale pricing and

policies.

Either through legislation or administrative action, I believe there should 

be a requirement that the certifications specified in Section (e) be made at

the highest level within the contractor's organization (president, executive

vice president, comptroller) in order to stress the seriousness of certifications and to help achieve the highest degree of compliance. If certification

is permitted by lower level officers, additional verification should be

required from top-level officers. GSA might consider an advertising campaign

explaining new stringent verification requirements for obtaining Government

contracts and should widely publicize penalties for abuses.

There has been much publicity about fraud in consulting services contracts.

Abuses would be curtailed by requiring contractors to include with invoices

for the time of specific individuals certifications from each of those

individuals that work was performed only on the contract and on no other 

assignment during the hours invoiced.
52

CONSULTING SERVICES

S p e c ific a d m in istr a tiv e rem ed ia l a c tio n is needed to c o rr e c t h is t o r i c a l W

abuses in a re a equipment s e r v ic e c o n tr a c ts awarded by GSA fo r item s such as

e l e c tr i c ty p e w rite rs. Problems e x p e rie n c e d w ith th e s e c o n tr a c ts a r e d is ­

cussed in a s e p a r a te s e c tio n .

C o n sid e ra tio n should be g iv en to adding a re q u irem e n t in S e c tio n 2 th a t GSA

ta k e a d m in istr a tiv e a c tio n to o b ta in c o n siste n c y in procurem ent p r a c ti c e s

employed by th e F e d e ra l Supply S e rv ic e (FSS) and th e Automated Data and

Telecom m unication S e rv ic e (ADTS), as w e ll as by th e v a rio u s GSA R egional

O ffic e s a ssig n e d commodity r e s p o n si b il iti e s. S p e c ific in c o n siste n c ie s and

recommendations fo r c o rr e c tin g a re d is c u ss e d in a l a t e r s e c tio n .

Amendment S e c tio n ( e )( 5 ) r e q u irin g b e tt e r Government-wide r e p o rtin g on p u rchase s from su p p ly sch e d u le s a d d re ss e s th e c riti c is m in th e C om p tro lle r

G e n e r a l's Hay 2, 1979 r e p o rt on GSA's M ultiple-A w ard Schedule Program th a t th e

F e d e ra l Supply S e rv ic e knows l i t t l e more ab o u t i ts s c h e d u le custom ers th a n

b e fo re i ts autom ated d e liv e ry o rd e r system was im plem ented. The computer

p rin to u ts a v a ila b le a t th e Schedule In fo rm a tio n C en ter r e v e a l th a t many

c o n tr a c to rs n e v e r, o r s p o r a d ic a lly , r e p o rt s a l e s. The GAO r e p o rt comments

th a t in a d d itio n to u n r e li a b l e vendor d a ta , FSS does n o t have an ad eq u a te

in fo rm a tio n system to p ro v id e c o n tr a c tin g o ff i c e rs b e tt e r d a ta fo r n e g o ti a tio n s.

V irtu a lly 100X a cc u ra c y could be a chieved and th e la rg e s t a f f and expense now

in c u rre d to re c o rd incom ple te and perhaps in a c c u r a te d a ta r e p o rte d by c o n tr a c to rs

could be e lim in a te d by l e g isl a ti o n th a t when a check is issu e d to pay an

in v o ic e fo r a r.u iltip le -a v a rd c o n tr a c t o r d e r, th e payment o ffi c e be r e q u ir e d to

c a p tu re and tr a n sm it to GSA in m a c h in e -re ad a b le form th e c o n tr a c t number and

a • >u:it fo ’’ each item number in v o ic e d . GSA would th en have a re c o rd o f each

e r e c t o r ' e r a l e o f a l l i t numbers under m u ltip l e - a w a rd .s c h e d u le s. Th.

a d d itio n a l c o st to th e payment o ffi c e would be m inim al, inasmuch as most o f th e

d a ta ie a lre a d y re q u ire d to iss u e checks under the p re s e n t system . The o n ly

a d d itio n a l d a ta to be re c o rd ed would be amounts fo r in d iv id u a l item s numbers

which nay be in c lu d e d on a sin g le d e liv e ry o rd e r.
53

FEDERAL MARKETING ANO

CONSULTING S( HVICtS

The v a lid ity o f m u ltip le -aw a rd c o n tr a c t p ric e s would be stre n g h th e n e d by

in c lu d in g in S e c tio n 3 's re q u ir e d a u d it p ro c ed u re s s p e c ifi c r e f e r e n c e to

a c c e ss to commercial s a le s r e p o rts in both GAO and GSA a u d its. While the

words ."any d ir e c tly p e rtin e n t books, documents, p a p ers and re c o rd s " c e rt a in ly

cover s a le s re p o rts and in v o ic e s, I b e lie v e th a t i f s o l i c i t a t i o n s e x p li c itl y

st a t e d th a t c o n tr a c t award w ill make c o n tr a c to rs s u b je c t to su b se q u e n t GAO and

GSA a u d its, the v a li d it y o f commercial d a ta p ro v id ed as th e b a sis fo r

Government p ric in g would be g r e a t e r.

A m ajor a re a n o t a d d re ssed by H. R. 5381 is GAO's recommendation th a t l e g isl a tio n is re q u ire d " to p ro v id e GSA w ith s u ffi c i e n t a u th o rity to e ff e c tiv e ly

d e a l w ith and b rin g Agencies in to com pliance w ith F e d e ra l procurem ent

r e g u la tio n s and to prom ite e f f i c i e n t , e conom ical, and e ff e c ti v e procurem ent

p r a c ti c e s " . S p e c ific l e g isl a ti o n may be re q u ire d to d e fin e GSA's r e s p o n sib i l i t y and a u th o rity fo r a u d itin g Agency com pliance w ith j u stif y i n g procurem ents

from m u ltip le -aw a rd sch e d u le s fo r o th e r th an low est p ric e d ite m s.

F in a lly , i f an Act of Congress is re q u ir e d to r e tu r n GSA to a 5-day work week,

l e t i t be done! Most GSA employees acknowledge th a t they a r e a b le to do

t h e ir work only th re e days a week. On Mondays, th e h a lf -s t a f f p r e s e n t a re

re q u ire d to spend much o f t h e ir tim e d o u b lin g up and answ e rin g phones fo r

th e o th e r h a lf w ith th e day o ff. Likew ise on F rid a y s. S u p e rv is o rs have only

th r e e days to in t e r a c t w ith h a lf o f th o se th e y s u p e r v is e . How o fte n is the

e x p re ssio n h e ard to fo rg e t Mondays and F rid ay s in terms o f g e ttin g a n y th in g

done. I d o n 't b e lie v e th a t a s e r v ic e Agency which i n t e r a c ts w ith o th e r

A g en cie s, c o n tr a c to rs, and the p u b lic is th e pla c e to exp erim en t w ith a to u rday w ork -w e ek .
54

A.

t Di KAI MARKETING ANO

CONSULTING SERVICES

Comments on the following additional subjects include recommendations for

correcting weaknesses in current Federal procurement practices and for

developing more effective acquisition policies, methods, and criteria and

for improving the multiple-award procurement process:

I

Section Subject

I Analysis of Comptroller General's May 2, 1979 Report to the

Congress on "Ineffective Management of GSA's Multiple-Award

Schedule Program — A Costly, Serious, and Longstanding

Problem."

II Weaknesses in GSA's Present Benchmark System for Determining

Reasonable and Fair Multiple-Award Contract Prices

III Recommendations on How to Obtain Fair Government Prices Within

Improved Multiple-Award System

IV Self-Service Stores Policies Which Suppress Competition and

Encourage Using Agencies to Bypass Procurement Regulations

V Questionable GSA Policies Permitting Multiple-Award Contract

Awards to Third Parties Without Manufacturer's Approvals and

Awards to One Contractor for Competitive Products

VI Inefficiencies in and Costliness of Area Equipment Service

Contracts

VII Reduction in Paperwork Burden for Obtaining Government

Contracts

VIII Creating Environment That Will Enable the Government and Using

Offices to Benefit from the Technological and Pricing Advantages

Provided by a Free, Competitive Market Through Existing

Commercial Channels
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9

Section I: Analysis of Comptroller General's May 2, 1979 Report to the

Congress on "Ineffective Management of GSA's Multiple-Award

Schedule Program— A Costly, Serious, and Longstanding Problem

«

This report contains many valid criticisms of and recommendations for improving Federal procurement policies. It provides a number of examples of

problems resulting from what Admiral Freeman described as stupidity, mismanagement, and poor management in his May 1 testimony before the Senate Committee 

on Appropriation's Subcommittee on Treasury, Postal Service, and General

Government. However, several of the criticisms are not valid and some recommendations for correcting weaknesses will create even greater problems. A 

number of real problems were overlooked and therefore not addressed at all.

Comments on key aspects of the report follow:

1. Lack of Adequate Input from Present, Former, and Potential Suppliers

A major reason the GAO report and recommendations miss the mark on how to

obtain more efficient, cost-effective, and responsive acquisition policies,

methods, and criteria is the lack of adequate input from former, present, and

potential sources of supply for the kinds of products and services required

by Federal Agencies to achieve assigned missions. While contact was made with

a large number of Federal procurement offices within GSA and other Agencies

in Washington and several Regional cities and with 12 State procurement agencies

there was very little contact with suppliers. Discussions with suppliers appear

to have been perfunctory.

I believe it is impossible for GSA to improve Federal procurement practices

or for GAO to make valid recommendations without meaningful input from people 

who have been through the negotiating and selling experiences, who know where

the bodies are buried, and who can identify the weaknesses of present practices, 

as well as recommend ways to eliminate abuses and provide fair and lower

prices for using Agencies. Consideration should also be given to how commercial

organizations obtain what they consider to be fair prices for large quantity

purchases of the kinds of items purchased by Federal Agencies.
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>/

It was encourating to learn from Federal Supply Service Commissioner Morris

in his May 1 testimony before the Senate Subcommittee that GSA recognizes

the need to work in much closer communication with associations, a recommendation I had made earlier this year in a meeting with a member of the Office of *

Acquisition Policy staff. Associations provide a vital source of information

and insight on how the Government can take advantage of the benefits of

technological improvements, a competitive marketplace, use of commercial channela

of distribution and service, and procurement practices employed by large

commercial users. However, the importance of benefiting from the experience

of those who have lived through the agonies of dealing with GSA cannot be

overemphasized.

2. Unwarranted Criticism of the Number of Contractors for Similar Items and

the Need for Caution in Purchases Based on Commercial Item Descriptions (CIDs)

The report expresses undue concern for the large number of contractors for

similar items. Why shouldn't Government offices with their diversity of

requirements and locations have available to them the same variety of products

available to commercial users, provided that purchases can be made at fair

prices and in accordance with intelligent regulations uniformly enforced?

(Recommendations for developing a system for obtaining fair.prices are discussed

in Section III of this presentation.)

There are many Federal programs aimed at helping businesses, particularly small

businesses, become sources of supply for Federal requirements:

. The Commerce Department has active programs to help new businesses in

general and in particular, on how to sell to the U.S. Government.

. The Small Business Administration provides special assistance to small

businesses.

A number of Federal procurements are required to be set aside for small

businesses.

. The recent White House Conference on Small Business received a pledge from

the President that he will help solve the problems of small businesses.
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. GSA has Business S e rv ic e C en te rs th ro u g h o u t th e c o u n try w ith s t a f fs

r e s p o n sib le fo r h e lp in g companies and in d iv id u a ls le a r n how to do b u sin e ss

w ith th e F ed e ra l Government.

. P u b lic Law 95-507 e st a b lis h e s re q u irem e n ts fo r procurem ents under $10,000

to be made from sm all b u sin e ss e s.

. GSA is b e la te d ly amending s o l i c it a t i o n s to implement th e PL 95-507 r e q u ir e ­

ment fo r sm all b u sin e ss s u b c o n tr a c tin g in la rg e c o n tr a c ts.

. In c o n ju n c tio n w ith Commerce, GSA, and SBA, Congressmen sp o n so r many

sem inars throughout th e c o u n try each y e a r to h e lp c o n stitu e n ts le a r n how to'

p e n e tr a te th e F ed e ra l fa c a d e .

A ll o f th e s e a g g re ssiv e programs aimed a t h e lp in g b u sin e ss e s, p a r ti c u l a rl y

sm all b u sin e ss e s, sh a re in th e F e d e ra l m arket a r e s u b v e rte d by FSS and ADTS

procurem ent p o li c i e s and p r a c ti c e s. S p e c ific examples w ill be c it e d th ro u g h o u t

t h is p r e s e n ta tio n of GSA procurem ent p r a c ti c e s which d is c o u r a g e and make i t

d if f i c u l t fo r firm s to do b u sin e ss w ith th e Government.

The o b je c tiv e o f Senate b i l l S-5 fo r F e d e ra l A c q u isitio n Reform to lim it th e

number o f firm s allow ed to compete fo r F e d e ra l b u sin e ss w ill in f a c t r e s tr i c t

c o m p e titio n and fav o r la rg e b u sin e ss e s. The o p p o rtu n ity to s e l l to F e d e ra l

A gencies w ill be c o n c e n tr a te d in th e hands o f a few la rg e firm s in each p roduct

c a te g o ry . Except fo r s e t- a sid e s, sm a ll b u sin e ss e s w ill be d e p riv e d o f the

o p p o rtu n ity to compete fo r F e d e ra l b u sin e ss. S in g le -s o u rc e c o n tr a c ts awarded

on th e b a sis o f low p ric e t o r p ro d u c ts complying w ith minimal fu n c tio n a l t e n 's

th a t do n o t d e s c rib e perform ance c h a r a c t e risti c s which m ig h t'e lim in a te le ss

s o p h isti c a t e d p ro d u c ts w ill d e p riv e th e Government o f th e b e n e fits a v a ila b le

from in n o v a tiv e p ro d u c ts r e fl e c ti n g improvements in th e s t a t e o f th e a rt and

te c h n o lo g ic a l advancement.

P a rti c u l a rl y d istu rb in g a re th e ste p s d is c u ss e d by Commissioner M orris in h is

May 1 sta tem e n t b e fo re the Sena te Subcommittee to r e s t r i c t th e number o f p ro d u c t

from which Agencies may s e l e c t to meet s p e c ifi c r e q u irem e n ts. Commissioner
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Morris expressed concern over the fact that 20 firms have Federal Supply

Schedule contracts which provide Agencies a choice of 208 calculators from

less than $50 to $1200. Aurora Calculator Company in fact offers a $24.47

10-digit, AC/DC desk-top, display, memory model with more features than

available on calculators which cost Agencies many hundreds of dollars a few 

years ago.

There are no two or three companies which can meet the needs of all Federal

offices in widespread, concentrated, sparse, and remote locations for most

similar products now available on multiple-award schedules, especially where

local service is required. Federal Agencies should not be deprived of the 

benefits now competitively available in current commercial channels of distribution and service through companies' Branch Office or Dealer operations. Why

should GSA be required to select only two or three firms for the privilege of

supplying Federal Agencies and deprive all other firms willing to provide fair

prices for similar items of the opportunity to sell to their Government?

Commissioner Morris stated that the FSS Acquisition Planning Team has

developed Commercial Item Descriptions for electronic calculators that would

restrict Agencies to a choice of only six models falling into three

categories. FSS plans to obtain competitive bids for 35,000 calculators with

features included in one or more of the six Commercial Item Descriptions.

Following is a discussion of the imprudence and some of the dangers of this 

method of acquisition :

. No one in GSA has the wisdom of Solomon

GSA's track record experience with buying on the basis of prescribed specifications, whether called Federal Specifications or Commercial Item Descriptions,

has been a dismal failure. Millions of dollars spent for shoddy, unusable

furniture provide just one example. GSA does not, should not, and could

never have a staff wise enough to dictate specifications for most of the products

now available under multiple-award schedules. In addition to not having the
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f

wisdom of Solomon needed to write and keep current meaningful CIDs, GSA lacks

the strength of Sampson in terms of staff required to reduce multiple-award

schedules to the level proposed by Commissioner Morris and the Senate bill.

a

Except for products less likely to be improved through technological advances,

where service or maintainability is not a factor, and where use of low-cost 

workmanship and raw materials will have a minimal impact on the functional 

usefulness of the end product, GSA could not expect essential expertise in

developing CIDs from industries whose livelihoods will be threatened by use

of CID’s to eliminate them from selling to the Government. GSA can expect an

avalanche of costly protests based on faulty CIDs.

Exhibit Ais aprotest filed with GAO during GSA's initial attempt at sole

source procurement of manual typewriters based on any early CID. The protest 

was based on a faulty description which included one proprietary feature that

made the protesting manufacturer the only responsive bidder. GAO upheld the

protest and required GSA to readvertise on the basis of revised specifications.

During the several years required to resplve the initial protest and resulting protests by other bidders, Agencies were required to buy manual tyepvriters 

on the open market at higher prices.

. Agensies will be required by GSA to buy more expensive models with excessive

features

To insure that six calculator models will encompass features now available on

178 models will -require many Federal offices to use costlier calculators with

more features than actually required. Offices which can use $24.47 calculators

with one memory may have to buy $49 calculators with two memories and a

whistle.

. Federal Agencies will be denied products with exclusive, superior features

To comply with the S5 restriction against including in the CID features 

which may be available from limited sources, GSA will be required to write
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CIDs which make available products several years behind what may be available

from firms offering exclusive new features. If calculators were purchased

from competitive bids based on Commercial Item Descriptions ten years ago,

GSA might today still be restricting Agencies to $1,000 electro-mechanical

calculators without features on electronic calculators now costing under $100.

. The Government will be buying "Federal" rather than commercial products

In order to produce one or more of the six GSA—dictated calculators, most

manufacturers will be unable to offer standard commercial models which may

have excessive features. To be competitive and responsive, many may have to

manufacture special "Federal" models with only the features specified.

Furniture procurements again serve as dramatic examples of the wastefulness of

buying "Federal" products.

. Manufacturers will be tempted to cut corners to minimize production costs 

or may offer commercial products complying with CIDs but with poor

commercial acceptance and marketability.

The current typewriter evaluation described by Commissioner Morris in his

May 1 Senate testimony is not feasible when maximum expected life, service

costs, and maintainability are essential price considerations. The costeffectiveness of the current typewriter test is questionable in terms of

expense to the Government and to manufacturers, which were required to make

typewriters available for the test at no cost to the Government. These test 

machines will have little value after the simulated 7-year usage test.

There is no evidence that those responsible for writing CIDs or life cycle

test specifications have the real-world experience essential to write meaningful specifications and to keep them updated in a timely manner based on

changing technologies. The initial typewriter bid solicitation included a

requirement that offerors include a guaranteed trade-in value after seven

years of usage. GSA may have that kind of crystal ball, but no one in the

business world with profit and loss responsibility and experience can predict
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exactly what the state of the art in typewriters will be seven years hence,

what the inflation rate will be, and certainly not the value then of typewriters bought today. Can we afford the dangers of such naivete in writing

specifications for tests of other products to predict their life cycle value?

. Life Cycle Tests have less value when local service and maintainability

are factors

While the current typewriter test may have some value for the 350 known 

requirements for Social Security and Air Force, it may be of little or no

value for requirements of other Agencies in other locations. The plan to

conduct competitive typewriter procurements on a zonal basis— in which

Commissioner Morris stated that availability of full maintenance service for

the brand selected will be a key consideration— does not provide a satisfactory solution, because there is no typewriter manufacturer that provides

satisfactory service in all locations within a given zone. For each manufacturer, the quality of service varies from location to location, depending

on the caliber of its local Branch Office or Dealer service department.

Making availability of full maintenance service a key consideration for

brands selected for other competitive typewriter procurements appears to be

in conflict with GSA's current costly practice described in Section VI of

awarding service contracts after expiration of warranty on the basis of low

bid regardless of the capability or track record of the bidder.

Federal offices should be given the prerogative (within intelligent, monitored

guidelines) to select a typewriter with satisfactory local service.

. In order to be price competitive, manufacturers will scrimp on compensating

local Dealers and Branch Offices for service.

The National Office Machine Dealers Association (NOMDA), an organization 

comprised largely of small businesses and a participant in the recent White

House Conference on Small Business, has long been opposed to low bid contracts

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awarded to manufacturers which expect Dealers to provide service for unprofitable

fees. Exhibit B is the NOMDA "Hotline" discussing the unfairness of the 1972

sole source contract for manual typewriters. Expanding this policy, with its

adverse impact on office machine dealers, which comprise a large segment of

the small business community, is inconsistent with the President's pledge for

special aid to small businesses.

3. Validity of Question Raised in GAO Report on Variation in Prices Paid by

Agencies for Identical Items Based on Blanket Purchase Agreements (BPAs)

The report raises a valid question as to why contract prices for identical

items vary from Agency to Agency, depending on the existence or quantity level 

of a BPA. I agree that it is illogical for a smaller Agency to pay $166.34

more for an Olympia typewriter than a larger Agency merely because the smaller

Agency does not buy enough typewriters to issue a BPA. Small and large

Agencies are part of the same mandatory user group for which GSA is responsible.

As the GAO report states " ...it makes little sense for Agencies to pay

different prices for the same products..." Section III of this presentation

includes recommendations on how lower multiple-award contract prices can be

obtained by GSA by eliminating BPAs and thereby providing lower prices on a

definite quantity basis for Federal offices with definite large volume requirements, as recommended in the GAO report. Under the present BPA system, an

office which orders 100 typewriters for delivery to a single location pays

the same price as an office that orders one at a time.

4. States Receive Lower Prices Than GSA

Exhibit C is the comparison in the GAO report of GSA contract prices with

State prices for identical items (except for dictation equipment, as explained

in the footnote).

The explanation of the difference is simple. Most states issue Blanket

Purchase Agreements to GSA contractors so that state agencies can purchase

one item at a time at GSA's maximum quantity discount.

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i'.v im plem enting th e recom m enda tions in S e c tio n i l l o f t h is p r e s e n t a tio n ,

e.'.A co u ld o b t a in th e same p ri c e s to r a l l F e d e r a l A genc ie s as s t a t e s now

r e c e iv e when o r d e rin g one a t a tim e and even low er S ch ed u le p ri c e s f o r l a r g e ,

d c i i n i t e q u a n tity r e q u ir e m e n ts.

3. E videnc e o f P r o c u r em ents o f H ighe st P r i ced Item s W ith o u t R eq u ired

J-u sti f i c a t i o n

The r e p o rt c it e s a number of in sta n c e s of procurements of h ig h e st p riced

items w ith o u t the re q u ire d j u stifi c a tio n s why lower p ric e d items would not

meet req u irem e n ts. GAO observed th a t ju stifi c a ti o n s were e ith e r specious

or la c k in g com p le tely . Examples not c ite d in the GAO r e p o rt but based on

p e rso n a l e x p erien ce follow :

. One s e c tio n of the J u sti c e Department ro u tin e ly buys the most expensive

e l e c tr i c ty p e w rite r fo r sto ck w ith year-end money and then issu e s them

as re q u ire d to fi e ld o ffic e s the follow ing y e a r. There could be no 

p o ssib le way o f showing a v a lid j u s tifi c a ti o n in the procurement f i l e ,

sin c e the lo c a tio n of the u sing o ffic e is not even known a t the time of

procurem ent.

. S ev e ra l y e ars ago when I q uestioned a J u stic e Department a dm in istra tiv e

a id e on what j u stifi c a tio n s were re q u ire d fo r the most expensive typew rite rs being bought ro u tin e ly fo r o ffic e s o f S t a t e 's A tto rn e y s, he r

re sponse was th a t she was not about to q u e stio n a S ta te A ttorney who asked

fo r an "XYZ" ty p e w rite r. She re fu se d to respond to the q u e stio n of

compliance w ith Fed e ra l Pro p erty Management R eg u latio n s.

. Even though not bound by the j u s tifi c a ti o n requirem ent, u n til two years

ago, GAO used to (and may s t i l l ) buy la rg e q u a n titie s of the most

expensive ty p e w rite r.

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. GSA is responsible for buying equipment for Congressional field offices.

The equipment is charged to GSA and not to the Congress, which means that

GSA is required to have a justification for other than lowest priced items. 

Most GSA Regional Offices which buy for Congressional field offices

acknowledge that they never call attention to the requirement for justifying

higher priced items.

. As discussed later in Section IV on Self-Service Stores, GSA'8 National

Capital Region routinely orders the most expensive supplies from multipleaward contracts for stocking in self-service stores without taking the

steps requiring justification why lower priced items are not satisfactory.

Commissioner Morris testified that one contractor enjoys 75% of the U.S.

Government typewriter market. Failure to enforce this Federal regulation

requiring justifications is the reason.

More money could be saved by publicizing and enforcing this regulation

than will be saved as a result of the present life cycle cost test.

6. Incorrect GAO Conclusion that Late Offers Hamper Competition

The GAO report criticizes GSA for accepting late offers for multiple-award

contracts. GSA has now implemented the recommendation for discontinuance

and no longer accepts late offers.

The illogic of GAO's position on late offers is reflected in GSA's response

to a letter presenting reasons that accepting late offers is in the best

interest of the Government and requesting the new policy be cancelled. The

request and the response of GSA’s Office of Acquisition Policy are included

as Exhibits D and E.

There is no question that late offers should not be accepted for negotiated

single-award contracts. However, the Government and using offices would

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benefit from reverting to the policy of accepting late offers for negotiated

multiple-award contracts for a reasonable time during a contract period,

because competition will be increased, lower prices will be obtained for

similar items, Agencies will have a greater choice from which to select, and 

one more obstacle making it difficult to do business with the Government will

be. eliminated.

A major reason cited by GAO for refusing late offers is that accepting late

bids does not assure the benchmark discount selected is the most reasonable.

This conclusion is fallacious. If there are significant changes from year

to year on benchmark discounts, either the benchmark accepted the previous

year was faulty, or there is something invalid about any new commercial price

list presented to justify a significant change in discounts offered.

Commercial prices may change from year based on advances in technology,

competition, or market conditions, but Government discount percentages, if

sound in the first place, will not vary as GAO concludes.

A few examples demonstrate the faultiness of the reasoning leading to the 

rejection of later offers for multiple-award contracts:

. If five companies which sell similar items through Branch Offices have

had multiple-award contracts based on a 15% benchmark discount from

retail prices, it is unlikely that any would suddenly offer a 20% discount.

If a company wanted to lower Government prices, it would probably lower

commercial prices as well. Lower Government prices would result from the

same 15% discount from a lower commercial price.

. If the company which had established the 15% benchmark discount in previous

years were to be late in submitting its offer for a new contract period,

how would the other four companies know the "benchmark" company was not

going to be on time? There is no reason to expect them to offer lower

discounts.

It should not be necessary to re-invent the wheel each year in determining

the benchmark. Fair should be fair.

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Another reason c ite d by GAO is th a t l a t e o ff e r o rs have a c om p e titiv e advantage

because they can le a rn the d isco u n ts in c o n tr a c ts awarded to c om p e tito rs.

A firm su bm ittin g an o ff e r fo r a m u ltip le-aw a rd c o n tr a c t, whether on-tim e or

l a t e , a lre a d y has the a b ilit y to le a rn com p e titiv e d isco u n ts fo r c u rre n t

c o n tra c ts from th e GSA c a ta lo g s a v a ila b le fo r review in GSA's Schedule

Inform a tion C en te rs. Knowing what d isco u n ts were re q u ire d fo r c u rre n t

c o n tr a c ts is a good in d ic a tio n of what w ill be re q u ire d fo r the next c o n tra c t

p e rio d . As p re v io u sly st a t e d , th e re would be something su sp ic io u s about

Government p ric e s deriv ed from w ild ly flu c tu a tin g d isco u n ts from commercial

p ric e s each y e a r.

The O ffic e of A c q u isitio n P o lic y 's defense o f l a t e o ff e r r e je c tio n (E x h ib it

E) str e tc h e s lo g ic even fu rth e r w ith th e comment th a t " th e u n re stra in e d

acceptance o f l a t e o f f e rs . . . would r e s u lt in a u c tio n in g which is not an

a cc e p ta b le procurement te c h n iq u e ." In f a c t, th e term "au c tio n in g " a p p lie s

only to n e g o tia te d c o n tra c ts which w ill r e s u lt in a sin g le award and has

nothing to do w ith m u ltip le-aw a rd c o n tr a c ts. As sta t e d e a r li e r , o ff e r o rs

now have th e o p p o rtu n ity to le a rn p re v io u sly -a c c e p te d c om p e titiv e d is c o u n ts.

W ithout even e lim in a tin g l a t e o ff e rs, we as taxpayers are fo rtu n a te th a t

m u ltip le-aw a rd c o n tra c to rs can reduce t h e ir p ric e s a t any time during the

c o n tr a c t p e rio d , e ith e r tem p o ra rily or u n til e x p ir a tio n of th e c o n tr a c t.

P ric e re d u c tio n s a re common, e ith e r by reducing commercial p ric e s o r in c re a sin g

Government d is c o u n ts. There is nothing wrong w ith th is m arketing p r a c tic e .

I t is known as c om pe tition - n o t a u c tio n in g .

The O ffic e o f A c q u isitio n P o li c y 's c o n clu sio n in Appendix E th a t "ex p erien ce

shows th a t when we enfo rc e the l a t e o ff e r procedure c o n siste n tly , o ff e ro rs

g e n e r a lly meet th e d e a d lin e s " is p u z z lin g . GSA has. never accepted l a t e o ff e rs

fo r n e g o tia te d sin g le -aw a rd c o n tra c ts except as provided fo r in FPR Subpart

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l-J.b 'JJ. The new p o lic y fo r r e je c tin g l a te o ff e rs has only been in e ff e c t a

fvv. . r.lh s, so th e re has not been enough time to know what experience w ill

show. However, I b e lie v e i t w ill lead to the lo ss of sources of supply among

.; •) l bus i .s s > s which d o n 't have s o p h istic a te d st a f fs re q u ire d to keep

. o f eh a i.;,i:.g f u l c r a ! r e g u l a ti o n s.

An e a rly v ic tim o f th e new p o lic y on re fu sin g l a t e o ff e rs is Pram, I n c ., a

sm all bu sin ess which m anufactures su p p lie s fo r Xerox and IBM co p ie rs in

Wilmerding, Pa. Pram has a c o n tra c t fo r the low est p ric e tra n s p a r e n c ie s on

schedule fo r the p e rio d ending June 30, 1980. The s o li c it a t i o n fo r the new

c o n tr a c t p e rio d went a str a y somewhere between W ashington and Wilmerding, so

th e o ff e r fo r the c o n tr a c t p e rio d Ju ly 1, 1980 to June 30, 1981 was not subm itte d on tim e. Pram w ill be deprived of the o p p o rtu n ity to s e ll to Federal

Agencies fo r a y e a r. Agencies w ill pay h ig h e r p ric e s fo r tra n s p a r e n c ie s.

R e je c tin g l a t e o ff e rs w ill c e rta in ly favor la rg e b u sin e ss e s more lik e ly to

have s t a f fs re s p o n sib le only fo r Government c o n tr a c ts. The nexj p o lic y d isc rim in a te s a g a in st sm all b u sin e sse s fo r which Government c o n tra c ts a re not

a way o f l i f e . The "haves" a re favored over "have n o ts," because firm s w ith

e x istin g c o n tr a c ts can amend them a t any time to add new p ro d u c ts, whereas new

firm s must w a it fo r the next c y c le .

When th e new l a t e o ff e r r e je c tio n c la u se was added to s o li c it a tio n s se v e ra l

months ago, o ff e r o rs were advised in e ff e c t th a t a l l o ff e rs w ith any m issing

d a ta would be r e j e c t e d . This u n r e a listi c stip u l a tio n was q u ic k ly recognized

as being o u t of ste p w ith th e r e a l world and was e lim in a te d .

Although not e x p li c itly covered in FPR Subpart 1 -3 .8 on "P ric e N eg o tia tio n

P o lic ie s and Techniques," i t is my b e li e f th a t th e s e c tio n on l a te awards

was intended fo r p ro p o sa ls from o ff e ro rs fo r n e g o tia tio n s r e s u ltin g in a

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single award. If there was any indication that this section applied to

multiple-award contracts, GSA probably would never have accepted the first

late offer nor have continued to accept late offers over the past 25 or so

years.

The General Accounting Office has never declared invalid any multiple-award

contracts based on late offers. Because common practice has accepted the 

legality and validity of contracts based on late offers, and because of the 

inequities and detrimental impact on the business community, I believe that 

this major change in GSA's method of procurement should be suspended until

announced in the Federal Register and not implemented without input from

affected parties.

GAO’s observation that accepting late offers adds to the enormous volume of

schedule modifications each time a subsequent contract is awarded really has

no bearing on whether or not late offers should be accepted. Schedules

must be amended anyhow whenever "on time" contractors add or delete items from

their contracts. Furthermore, initial schedules are often so late and

amendments published so infrequently that contractors' GSA catalogs serve as

the primary vehicles for notifying Federal offices of new contracts for either

"on time" or "late" contractors.

7. Incorrect Conclusion that Better Prices Not Obtained Because of Inadequate

Time Available for Negotiations

While improved time management and allocation of personnel would expedite

evaluation of offers, all the additional negotiating time in the world would

not lower prices within the present benchmark system.

Lower prices will be achieved only when a system is implemented which eliminates the concept of "negotiations" for multiple-award contracts and is based

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on a system for determining fair Government prices on the basis of reasonable

compensation for selling costs, service, and profit. As discussed later in

Section III, potential contractors should be told what is required for a

contract in terms of the relationship between Government prices and verifiable

commercial retail and wholesale prices. A sound system is needed to eliminate reliance on varying degrees of competence of individual buyers.

With some exceptions, present so-called "negotiations" are conducted by staff

who don't know the products but who know only the numbers games passed on to

them by predecessors and supervisors, most of whom have never had any experience

with how fair prices are obtained by commercial buyers in the real world.

Most of what is called negotiations amounts to unreasonable demands or mickeymouse nitpicking to justify that the buyer has played a "vital" role in getting

a better deal than initially offered. Conscientious buyers are soon discouraged by the system.

8. Valid Criticism that Benchmark Technique Does Not Assure Reasonab1e

Prices... But Not for Reasons Cited

As previously agreed, the benchmark system does not produce the lowest possible

Government prices, but not for the reasons cited in the GAO Report, which

criticised GSA for not accepting as the benchmark the highest discount offered.

The following example shows how accepting highest discounts offered will not 

always result in lower net Government prices.

Brand A Brand

Suggested Retail $ 150 $ 100

Dealer Discount 66 -• 4o;

Wholesale Price for Dealer $ 50 $ 60

Government Discount 40 Z 15"

Government Net Price $ 90 $ 85

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F a ir p ric e s w ill not be o b ta in ed by focussing on the numbers games fo ste re d

by th e benchmark system. A d d itio n a l documentation on the weaknesses of the

system is d e ta ile d in S e c tio n XI.

9. Amen to GAP's C ritic ism on Lack o f U niform ity in C o n tra c tin g , In c lu d in g

Establishm ent of Maximum Order L im ita tio n s

There is a d ir e need fo r GSA to develop a c q u isitio n p o lic ie s and techniques

th a t a re c o n siste n t and uniform ly a p p lie d w ith in FSS and ACTS and a t each of

the r e g io n s.

The fo llow ing g la rin g examples o f in c o n siste n c ie s th a t prev en t o b ta in in g

f a ir e s t p ric e s supplement those id e n tifie d in th e GAO r e p o rt:

. Lower d is co u n ts are re q u ire d from c o n tra c to rs which s e ll sim ila r items

through Branch O ffice s only than which s e ll through a com bination of

D ealers and Branch O ffic e s. For example, Sw ingline o ff e rs d e c o llo to rs

and c o lla to rs whose suggested r e t a i l p ric e s a re lower than comparable

com p e titiv e models. However, because Swingline s e lls only through

o ffic e d e a le rs, a 15% d isco u n t was re q u ire d fo r a c o n tr a c t, whereas

firm s s e llin g through branches were awarded c o n tra c ts w ith a 9% d is c o u n t.

I t d o e s n 't make sense th a t c o n tr a c to rs' branch o ffic e o p e ra tio n s should

be p e rm itte d h ig h e r p r o fits than o ffic e machine d e a le rs, most of which a re

sm all b u sin e ss e s.

. Maximum Order L im ita tio n s (i-IOLs) a re based on complying w ith benchmark

d is co u n ts r a th e r than n e t v alue to the Government. Several y e ars ago,

one ty p ew rite r company intro d u ced a b a sic e l e c tri c ty p ew rite r w ithout

luxury fe a tu r e s and w ith a low c om p e titiv e commercial p ric e . Because of

th e lower p r o fit m argin, th e company o ff e r e d lower d isco u n ts

than fo r i ts luxury model. A c o n tra c t was awarded on the b a sic ty p ew rite r

w ith a $10,000 MOL, w hile th e luxury ty p e w rite r's h ig h e r d isco u n ts

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qualified for a $25,000 MOL. One Agency with a requirement exceeding the

$10,000 MOL and which found the basic typewriter acceptable for its

requirements was required to purchase a more expensive competitive typewriter with a higher MOL.

. FSS and APTS Requirements are Inconsistent

When FSS administered contracts for decollators and bursters, Swingline

models with a 15% discount qualified for a $75,000 MOL. When the same

products were transferred to ADTS, they qualified for a one-machine MOL.

Exhibit F documents questions raised on this inconsistency. GSA's

response (or non-response) is Exhibit G.

. Some commodity programs permit Government Prices to be FOB Source if

it is accepted commercial practice whereas others insist on FOB delivered.

The Furniture Center awards contracts FOB source to manufacturers willing

to give their best wholesale price to the Government, since wholesale

customers pay freight. However, Region 9 insists on FOB delivered prices

from sound equipment manufacturers which offer wholesale prices even

though dealers pay freight at the same prices. It is necessary to add a

freight markup for the Government price. Agencies would actually get the

most favorable price by paying freight for each shipment.

• APTS requires national coverage for contract awards, whereas FSS will

award contracts to firms'with limited service capabilitycs.

Exhibit F challenges ADTS's policy preventing Federal Agencies in one

part of the country from being able to buy on schedule an innovative

product of a new firm which has not yet developed nationwide service

capabilities. GSA's response in Exhibit G does notprovide a satisfactory

explanation.

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. FSS and APTS have conflicting policies on providing mailing lists to

contractors■

FSS requires contractors to mail Government price lists to Government

offices listed in mailing lists provided at no charge by FSS. On the 

other hand, ADTS requires contractors to request and pay for mailing

lists under the Freedom of Information (FOI) Act with the irrelevant

explanation that the schedules are non-mandatory. (Why have them?)

, FSS makes contractors' Government prices available in Schedule

Information Centers, whereas ADTS requires contractors to obtain

competitive information under FOI.

Why can't ADTS contractors' Government catalogs be made available in

Schedule Information Centers along with FSS catalogs?

These are just a few examples which demonstrate the need for GSA to develop

consistent and uniformly implemented procurement policies and techniques.

10. Failure to Look at Lowest Net Price

This GAO criticism focuses on the major weakness of the benchmark system and

GSA's present acquisition methods and procedures. GSA's lack of concern for

the lowest net price to the Government is one of the key items discussed in

Section II, which follows.

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Section II: Weaknesses in GSA's Present Benchmark System for Determining

Reasonable and Fair Multiple-Award Contract Prices

This Section provides additional information documenting the weaknesses of the 

present benchmark system in obtaining reasonable and fair multiple-award

contract prices.

1. Wide Variation in Validity of Commercial Prices Accepted by GSA as Basis

for Government Discounts

The validity of the commercial prices accepted by GSA as the basis for compliance with benchmark discounts may vary with method of distribution, type of

industry, and individual companies.

Companies which sell only through Branch Offices can exercise absolute control

over commercial prices charged by Branch Offices, since the invoicing is

generally done centrally. It might be assumed that the unit commercial prices

submitted by such firms provide a valid basis for determining Government

discounts.

While many firms selling only through Branch Offices never permit deviations

from commercial prices specified for the quantity ordered, others rarely sell

any items at full, single-unit list price. An audit of internal sales

analysis reports showing the number of units sold at various prices will reveal

in many cases that the majority of single-unit sales are made at multipleunit prices. Many single-unit sales are made under National Account

Agreements based on discounted prices. Sales representatives who know they 

cannot be competitive at single-unit prices are willing to take lower

commissions by "satteliting" a one-location office onto another company s

National Account Agreement.

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On the other hand, firms which sell through Dealers only have no control over

whether Dealers sell at discounts from "Suggested Retail." However, if the

product is a good one and the "Suggested Retail" is lower than prices paid for

similar competitive products and the mark-up from wholesale prices provides fair

compensation for selling costs, warehousing, service, and profit, it would be

unlikely for a Dealer to want to sell at a lower price.

Other firms selling only through Dealers do not publish a "Suggested Retail"

price list but leave it up to Dealers to determine their own commercial prices.

Still others publish inflated "Suggested Retail" prices so that Dealers can

always sell at a discount.

For some firms which sell through both Branch Offices and Dealers, many

Dealers are amused to see the contractor's GSA catalog showing discounts from

unit commercial prices, for they know that it would be impossible to make a

sale at that price.

The commercial prices of some firms may be significantly lower than those of

competitors because of improved technology, willingness to accept a lower

profit on commercial sales than competitors, or other factors. Meeting the

benchmark established by firms with higher commercial prices for similar items

may not be feasible. It is very common for GSA to tell such offerors that the

only way to get a contract is to raise commercial prices.

When a member of the Office of Acquisition Policy staff commented several

months ago that greater computer capability was needed to conduct more

effective price analysis, my response was that the results would have little

meaning because of the inconsistent validity of commercial prices submitted

with offers. The staff member reacted that White Collar Crimes would be

prosecuted.

While it is possible that some offerors may submit false data with an intent to

defraud, most of the situations involving inaccurate commercial prices are
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created by GSA itself and result, in some cases, from unrealistic demands for

discounts. In recent negotiations for a manufacturer selling only through

Dealers and with no Suggested Retail prices, the contracting officer was compelled by the present system to urge that a commercial price list be developed.

After many months, a contract was finally awarded on the basis of lower net

price to the Government.

GSA's FSS Procurement Letter No. 166 on "Benchmark Guidelines for MultipleAward Contracting " (Exhibit H) permits Government discounts from commercial

prices to be compared with wholesale discounts from commercial prices.

But what about firms which don't establish wholesale prices in terms of

consistent discounts from Suggested Retail or which may not even publish

wholesale prices in terms of discounts from any price? If such firms want to

avoid the hassle of trying to get a contract based on discounts, they will be

required to go along with the numbers game and -publish a "commercial price

list" and "wholesale discounts" so that FSS can mark-up its spread sheets.

However, the system must provide more readily for firms not willing to manufactur

commercial prices.

The certifications defined in H. R. 5381 will not correct the problems created

by a Government pricing system which relies on a published commercial pricelist.

2. U n fa ir to Req u ir e H ig h e r D is c o u n ts fr o m Firm s Which S e ll Throueh

Only

The GAO r e p o rt g iv e s s e v e r a l exam ples o f th e v a r i a ti o n in benchmark d is c o u n ts

d ep en d in g on m a rk e tin g c a te g o r y . A s p e c if i c example was p ro v id e d e a tii- t «>>

h ig h e r d is c o u n ts r e q u ir e d from firm s s e l l i n g th ro u g h D e a le rs th a n from firm s

s e l l i n g th ro u g h Branch O ffi c e s.

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Assuming the accuracy of commercial prices submitted by firms in each category,

there is no logic to requiring different discounts for each marketing category.

Requiring higher discounts from Dealer-orineted firms merely reduces Dealers'

compensation for sales expenses, service, and profit for Government sales

while permitting Branch-oriented companies to reap higher profits. It places

the manufacturer at a competitive disadvantage by reducing the incentive of

Dealers to compete against contractors whose Branch operations receive greater

compensation.

It is understood that GSA's real reason for reducing Dealer profits in Government

sales was the fear of embarassment if it became known that a Dealer sold at

Government prices in the commercial market. This fear should not penalize all

Dealers.

As discussed later in Section III, a Government pricing system based on fair

compensation regardless of the marketing category is essential.

3. GSA's Consideration of Lowest Net Price - A Welcome Change

GSA's criticism concerning GSA's failure to look at lowest net prices appears

to have been corrected. Commissioner Morris announced in his May 1 Senate

testimony that in cases where multiple awards are continued, suppliers which

do not meet the benchmark will be included in the schedule if they offer

lowest net price.

This is a welcome change. However, what about firms which offer lowest net 

price unrelated to discounts?

4. Uneven Enforcement of Benchmark Requirements

The Exhibit H Benchmark Guidelines permit awards of contracts not meeting the

benchmark by giving value to "other factors."

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Over the years, one typewriter manufacturer unwilling to meet the benchmark

has received awards by providing ribbons, extra typing elements, platens, and 

other "goodies" which may not be needed by users.

5. Promoting Use of Blanket Purchase Agreements (RPSs) Increases Government

Prices

As discussed earlier, the GAO report questioned why Agencies should be paying

different prices for identical items based on BPAs.

GSA's program encouraging Agencies to expand use of BPAs, as announced by

Commissioner Morris in the May 1 Senate testimony, is a disappointing step

which will perpetuate a deceptive BPA system responsible for higher Government

prices.

Inequities and uneconomical procurements caused by GSA's BPA policy are

presented in the Exhibit I letter to the Office of Acquisition's Policy.

Use of BPA's is provided for in Federal Procurement Regulations to reduce

amount of paperwork for small (under $5,000), repetitive orders on an open

account basis. Rather than issue purchase orders for each requirement,

ordering offices issue "calls" for deliveries and are billed monthly for all

"calls."

GSA has distorted the use of BPAs by requiring multiple-award contractors to

accept them. It negotiates contracts with higher discounts for larger

quantities, then requires contractors to accept BPAs requiring single unit

discounts at higher discounts.

As discussed in Exhibit I, contractors' more favorable quantity prices are in

fact the single-unit prices, except for smaller Agencies without BPAs.

Federal offices which actually have large definite quantity requirements pay

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the same price as those which buy one unit under a BPA. Contractors do not

give true quantity discounts to avoid the pressure of accepting a SPA at real

quantity prices. The BPA system prevents Federal Agencies from obtaining the 

most favorable prices for large, definite quantity procurements.

Use of BPAs also requires Agencies to violate the justification requirement by

making a BPA commitment in advance for what may not be the lowest priced item.

The BPA system penalizes firms which won't go along with the BPA farce and 

now offer to all Agencies, large and small, what used to be the BPA price.

However, the BPA system places them at a competitive disadvantage against a

contractor with a BPA commitment requiring an Agency to buy 100 widgets to

obtain the most favorable price.

GSA's defense of its BPA monster in Appendix K doesn't answer the key question

as to why an office which orders a large definite quantity of an item should

pay the same price is an office which orders only one. The defense based on

giving lower prices to Agencies which commit to buy large quantities over a

period is ludicrous, inasmuch as in most cases, the total quantity ordered

far exceeds the quantity price level.

In addition to preventing the most favorable contract prices to be obtained,

the BPA system creates the added disavantage that an Agency must create a

contracting system which duplicates what should already exist in the multipleaward system. Agencies must issue the paperwork, and contractors must file

monthly report of sales to each Agency under the BPA.

6. Secrecy in Requirements for Obtaining a Multiple-Award Contract Restrains

Competition

When a new potential contractor asks a commodity buyer what discounts are

required for a multiple-award contract, the response is that the information

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is c o n f i d e n ti a l— t h a t th e o ff e r sh o u ld be b ased on th e h ig h e st d is c o u n t th e

firm can g iv e f o r th e p ri v il e g e o f h a v in g A gencies buy i t s p r o d u c ts.

T h is p o li c y is u n f a ir and m isle a d in g .

I t is u n f a ir b e c a u s e , e x c e p t p e rh ap s f o r a firm w hich s e l ls b i b l e s, firm s

w hich a r e in b u sin e ss to make a p r o f i t e st a b lis h com m ercial p ri c e s on th e

b a sis o f p r o d u c tio n and s e l l i n g c o sts, c o m p e titiv e r e q u ir e m e n ts, and p r o f i t

c o n sid e r a tio n s. I t is u n f a ir n o t to p ro v id e any in f o rm a tio n on th e n a tu r e o f

th e F e d e r a l m a rk e tp la c e .

I t is m isle a d in g b e c a u s e firm s w hich know t h e ir way around can le a r n w hat

d is c o u n ts h av e b e e n r e q u ir e d a t th e Sch ed u le I n f o rm a tio n C e n te r.

Ground r u l e s f o r o b t a in in g a c o n tr a c t a r e a v a il a b l e to some. Why n o t to a l l ?

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Section III: Recommendations on How to Obtain Fair Government Prices Within

Improved Multiple-Award System

Information has been presented on why most of the products now availabe on

multiple-award schedules can be provided to Federal Agencies in the future

with the features and quality to meet their requirements only by improving

the multiple-award system, not by replacing it with variations on acquisition

techniques already proven to be failures.

The major issue to be resolved is how to obtain reasonable Government prices

that will be fair to buyer and seller.

The weaknesses of the present system based on discounts from commercial prices

were documented in Section II.

There is no magic answer presented in this Section. However, recommendations

are made on approaches to developing a system .for determining prices lower

than those under the present system and still provide a fair and acceptable

margin for the seller to cover profit and, depending on the product and method

of distribution, applicable costs which may include any of the following:

production or acquisition, shipping, installation, training, warranty, commission,

warehousing, profit for contractor, and profit for local sales/service

organization, whether Branch Office or Dealer.

There is a precedent for use of this approach for determining Government prices

for Dealers whose only market is the Government. Since many of these firms 

have no, or virtually no, commercial sales, Government prices obviously are

not based on discounts from published commercial prices at which products are

sold in large quantities. GSA awards contracts at Government prices based on

a mark-up from Dealer acquisition cost.

I believe that reliable recommendations can be obtained from such organizations

as the National Office Machine Dealers Association (NOMDA), National Office

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Products Association (NOPA), Business and Industrial Furnitures Association

(BIFMA), and others if they are convinced that GSA wants to develop a method

for obtaining fair prices rather than unreasonable prices that will make the

Government an undesirable customer which deserves poor quality merchandise and 

unsatisfactory service. Organizations provide vital sources of and vehicles

for obtaining information on fair pricing for large-volume customers.

For contractors which sell through Dealers, wholesale prices which are now

used as the basis for compensating Dealers for GSA contract sales already

provide the foundation from which a fair mark-up can be developed.

For contractors which sell through Branch Offices, there is a "transfer cost

factor which is used as the basis for determining the profit or loss of the

local office's operation. The "transfer cost" factor, which is now available

under GAO audit, would become available to GSA under the proposed legislation

and could be used to develop the Government price from a fair mark-up. Firms

unwilling to provide this information as the mandatory price for access to the

Government market should not be given a contract.

Large commercial users of the kinds of products bought by the Government,

particularly those with numerous field offices, provide another vital

source on how to develop fair prices. Many enter into National Account Agreements

with several firms which offer similar products and let their field offices

select.

As emphasized at the beginning, input should be obtained from present, former, 

and prospective contractors to determine their recommendations for how GSA can

obtain fair prices.

Except for untypically large requirements, the improved multiple-award system

should include reduced prices at graduated quantity levels for definite

quantity purchases. As recommended in the Exhibit I letter to Acquisition Policy,
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contractors which now accept BPAs which give quantity prices for single-unit

orders should be informed that the BPA price will be the basic price in new

contracts and that lower prices will be required for graduated definite

quantity requirements. To insure that the Government will obtain the lowest

possible prices for large orders, GSA must assure contractors that the BPA

game is over.

Most reputable suppliers would be gladly willing to be awarded a multipleaward contract with prices based on a fair mark-up and ground rules which

would be applied to competitors as well. Most would like to avoid the present

aggravation and hassle which must be experienced to get a GSA contract. Most

would like to compete for Government business by demonstrating that their

products are most responsive to Agency requirements.

A fair system for developing reasonable Government prices would remove the 

secrecy and mystery which now enshrouds multiple-award contract "negotiations."

All sources of supply would know what is required to obtain a contract to sell

to their Government.

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Section IV:

In the Mav

S e lf-S e rv ic e S to res P o lic ie s Which Suppress Com petition and

Encourage Using Agencies to Bypass Procurement Regulations

1 Senate Subcommittee sta tem e n t, Commissioner M orris d e sc rib e d the

Federal Supply S e rv ic e s' th re e methods of purchase:

. 19,000 items purchased fo r 17 depots and 71 s e lf-s e r v i c e sto r e s and issu ed

a g a in st r e q u isitio n s from Fed e ra l A gencies.

. D ire c t d e liv e ry to Agencies of d e fin it e q u a n titie s bought c om p e titiv e ly .

. S in g le and m u ltip le-aw a rd Federal Supply Schedules.

Commissioner M orris in d ic a te d th a t purchases fo r depots and s e lf-s e r v i c e sto re s

a re bought com p e titiv e ly based on p a st s a le s and a n tic ip a te d demand.

In f a c t, however, s e lf-s e r v i c e sto re s buy many item s from m u ltip le-aw a rd

schedules - and not a t the low est p ric e . How much is bought from m u ltip le -

award sch e d u le s, no one knows. In p re p a rin g fo r th is p r e s e n ta tio n , I tri e d to

d e term ine. E x h ib it K is GSA's response th a t no c e n tr a l re c o rd s a re kept on the

volume bought under BPAs issu ed under Fed e ra l Supply Schedules. Appendix L is

a l is t o f m u ltiple-aw a rd c o n tra c to rs w ith which GSA has BPAs fo r use by s e lf -

s e rv ic e sto r e s.

Vendors w ith m u ltiple-aw a rd c o n tra c to rs c a n 't s e ll to s e lf-s e r v i c e sto r e s

w ithout a BPA. One has th e mandatory schedule c o n tra c t fo r s p e c ifi c rib b o n s.

Some vendors w ith BPAs d o n 't even o ff e r q u a n tity d is c o u n ts, so what advantage

does th e BPA provide?

E x h ib it M is GSA's August 3, 1979 p o lic y governing stockage in s e lf-s e r v ic e

sto r e s. I t d ire c te d Regions " to canvas customer agenc ie s and id e n tif y items

fo r which th e re is an expressed o ff i c i a l customer demand." It a u th o riz e s the

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procurement of " th e low est p ric e d of sim ila r or id e n tic a l items on a m u ltip le -

award sc h e d u le ."

A lte r su bm ittin g an o ff e r from llilo rd Chemical C o rp o ra tio n , a small b u sin ess

m anufacturer lo c a ted in Hauppauge, New York, fo r a m ultiple-aw ard c o n tra c t

for to n e r and d is p e rs a n t used in liq u id c o p ie rs, I met w ith the N ational

C a p ita l Region (NCR) s e lf-s e r v i c e sto r e s t a f f to determ ine the c r i t e r i a fo r

sto ck in g c o p ie r s u p p lie s, inasmuch as the brands stocked were the most

expensive on schedule.

E x h ib it N is my December 3, 1979 l e t t e r to the NCR Regional A dm in istra to r. I t

re c ap s the d is c u ssio n s w ith NCR s e lf-s e r v i c e s t a f f who expressed the p o sitio n

t h a t:

. They d is a g r e e w ith th e n a tio n a l p o lic y expressed in E x h ib it M.

. Requiring ju stifi c a ti o n s fo r h ig h e r p ric e d items bought from m ultiple-aw ard

schedules would be unworkable.

. They a re n o t q u a lifie d to determ ine what is the low est p ric e d item on a

m u ltip le-aw a rd sch ed u le .

As sta t e d in E x h ib it N, if GSA personnel a re n ot q u a lifie d to implement GSA

r e g u la tio n s r e q u irin g j u s tifi c a ti o n s , how can GSA (o r GAO) expect o th e r Agencies

to comply?

A fte r r e c e ip t o f NCR's response (E x h ib it 0 ), a meeting was h e ld in January

w ith the NCR A dm in istra to r and A ssista n t A dm in istra to r fo r F ed e ra l Supply.

I e x p la in ed th a t t e sts of the su p p lie s by a number of Agencies had produced

r e s u lts as good as o b ta in ed w ith th e c o p ie r m a n u fa c tu re r's su p p lie s and th a t

H ilo rd 's p ric e s w ill be lower than a l l o th e rs on schedule when a c o n tra c t is

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awarded. In response to the question as to what might prevent NCR from buying

Hilord toner and dispersant for self-service stores after contract award, I

was informed that Hilord would be bought for any Agency which justifies it.

Whereas Federal Procurement Regulations require justification for other than

lowest priced multiple-award item, NCR buys the most expensive and requires

justification for lowest priced!

Federal Supply Services' January 10, 1980 revised self-service stores stockage

policy eliminates the requirement for Regions to justify higher priced items

because "the Self-Service Store Committee has concluded that determination of

the lowest priced brand/vendor for storage of an item is extremely difficult

and generally impractical." The revised policy is in Exhibit T.

Exhibit P includes FPMR 101-26.408-4(c) which exempts GSA from the need to

justify the most expensive items bought for self-service stores. If Agencies

were to buy more than $500 of high-priced items from a multiple-award schedule,

they would have to justify. By asking GSA to buy, they can requisition $499

at a time from the store and bypass the FPR.

Hilord was finally awarded a GSA contract two weeks ago! Prices are lowest

on schedule. Tests at State, Commerce, Agriculture, Health and Human Services,

Office of Personnel Management, Defense Supply Service, and Labor have proved

Hilord supplies to be as acceptable in terms of quality of printwork and number

of copies as those obtained with copier manufacturer supplies. Documentation

has been obtained to support test results.

Some Agencies are told by their self-service store that they can't ask for a

product which has no BPA. NCR says they won't ask Headquarters for a BPA

without a.specific request. Some store managers won't ask for another brand

because they already stock two and don't have room for another.

- 35 -
86

FEDERAL MJAKHIL!, AND

CONSULFING SERVICES

The Catch 22 saga goes on and on.

Current self-service store policy not only permits Agencies to bypass regulations but favors large businesses from which GSA has been buying higher

priced supplies. It discriminates against small businesses by erecting almost

insurmountable obstacles to getting their lower priced items into the stores.

I recommend that legislation be considered to eliminate multiple-award schedules

as a source of supply for self-service store items. %

- 3 6 -
87

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■«.

^ V u c s ” *

FEDERAL MARKETING ANO

CONSULTING SERVICES

Section V Questionable GSA Policies Permitting Multiple-Award Contract

Awards to Third Parties Without Manufacturer's Approval and

Awards to One Contractor for Competitive Products

This Section discusses some of the dangers of the current GSA practice which

permits:

. Award of Multiple-Award Contracts to Third Parties Without Manufacturer's

Approval.

. Award of Multiple-Award Contracts for Competitive Products to a Sole

Source Contractor.

Examples of the dangers of each practice follow:

1. Award of Multiple-Award Contracts to Third Parties Without Manufacturer's

Approval

GSA used to require that offers from Dealers be accompanied by a letter from

the manufacturer certifying that sufficient quantities of products would be made

available to the Dealer to meet the anticipated needs of the Government.

Elimination of this requirement permits any third party, not necessarily even

a contractor's Dealer, to submit an offer without approval of the manufacturer.

GSA's policy, when more than one offer is received for the same item (Exhibit

Q), is to ask each offeror for best and final and to award the contract to the

offeror with lowest net price.

This policy is not in the best interests of the Government. It permits GSA

to deny a manufacturer whose offer has complied with the benchmark discount

and is based on participation of all Dealers in favor of a single Dealer or

other third party, thereby depriving the manufacturer of its right to determine

how to market its products to Federal Agencies and depriving all other Dealers

of the opportunity to participate in the manufacturer's GSA contract. There

is always someone willing to make a quick buck with little effort.

37
88

FEDERAL MARKETINGAND

CONSULTING SERVICES

The disadvantages and dangers of awarding contracts to third parties include:

. A greedy Dealer with sales coverage in only one area may be willing to

sell at a lower margin in order to be able to monopolize that area and

freeze out all other Dealers and manufacturer's own sales organization.

. That same Dealer may be willing to settle for mail order business from

other parts of the country, from which he would have received no business

under the manufacturer's contract permitting local Dealer participation

or direct sales by company sales offices.

The manufacturer cannot compete effectively with other manufacturers

which have their own GSA contracts and nationwide sales and service

coverage.

. Third parties which hold contracts for competitive products without

approval of one or more of the manufacturers can emphasize the sales of

one product and deemphasize others.

. The practice discriminates against hundreds of small businesses which may

be included in a manufacturer's Dealer network.

The disadvantages and dangers of awarding contracts for competitive products

to a single contractor include:

, The contractor can "orchestrate" the Federal marketplace by encouraging

Agencies to buy more profitable brands instead of superior, more

economical brands.

. For contracts awarded without manufacturer approval, the contractor can

freeze out that manufacturer.

- 38 -
89

FEDERAL MARKETING ANO

CONSULTING SERVICES

When more than one brand is listed under a single contract number, there

is no way to monitor the increase or decline of specific brands.

. It is questionable as to whether the lowest Government prices can be

obtained from a single source authorized by competitors to negotiate a

GSA contract.

. How can the benchmark system be effectively implemented when offers are

received from the same party for competitive products?

39 -
90

■\

• V

A

FMCS

FEDERAL MARKETINGANO

CONSULTING SERVICES

Section VI: Inefficiencies and Costliness of Area Equipment Repair and

Service Contracts

Some of the greatest Government ripoffs are many of the area equipment repair

and service contracts awarded by GSA on the basis of competitive bids, 

especially those for office equipment. Examples of improprieties are cited

in GAO's November 14, 1979 report entitled "GSA's Personal Property, Repair

and Rehabilitation Program: A Potential for Fraud?"

In most cases, there is no way the successful bidder can afford to provide

acceptable service at rates low enough to win the bid. Agencies have valid

complaints about higher costs of longer and extra service calls and for

additional equipment repairs caused by poor workmanship. It is understood

that Agencies are often invoiced for new equipment parts which could only

have been bought from the manufacturer, but manufacturers have no record of

such sales.

Even if GSA tightens up on administration of service contracts as recommended

by GAO, insuring that contractors invoice Agencies for hours worked will not

insure quality of workmanship. In the case of office equipment, the Government

would be better served by letting Agencies have equipment repaired and maintained by manufacturers' local service organizations under Federal Supply

Schedule contracts awarded at rates charged large commercial users.

- 40 -
91

1

k

< £ « .7 .

FMCS

FEDERAL MARKETING ANO

CONSULTING SERVICES

Section VII: Reduction in Paperwork Burden for Obtaining Government Contracts

Here are a few suggestions for reducing the paperwork burden involved in obtaining Government contracts:

1. Consolidate locations in bid packages for answering questions and providing

required data. Current solicitations have spaces where boxes must be

checked, questions answered, and information provided scattered throughout the bid package. Whoever prepares the bid or offer must put numerous

pages into the typewriter, sometimes only to enter one item, such as a

D and B number or a name. Preparing bids could be made easier by

consolidating questions into two or three sequential pages.

2. Eliminate requirement for duplicate copies for single-award bids. An

original and one copy are now required for all bids. The successful

bidder's duplicate copy is signed by the contracting officer and becomes

the contract. For bids where there will be only one winner, why not reduce

the paperwork burden and postage cost for all bidders by letting them send

in only the original? GSA could then duplicate and sign the award for the

successful bidder.

3. Eliminate requests for unnecessary information. One example is that the

solicitation requires that the name of offeror must be entered on seven

different pages. A single entry would suffice.

Another is requesting year-end discounts. About a year and a half ago

someone got the bright idea that contracts would not be awarded to firms

not providing year-end discounts. Exhibit R presents reasons why the

demand is unreasonable, unworkable, and unfair. The attempt at obtaining

year-end discounts is another example of failure to comprehend how best

prices can be obtained. The demand was dropped. But GSA still asks the 

question.

- 41
92

*

r " t

FMCS

FEDERAL MARKETINGANO

CONSULTING SERVICES

*

Exhibit S is a self-serving questionnaire on what the offeror would charge

Agencies on the open market? Who knows? Who cares? Why ask?

>

There are many other ways the forms could be revised to make it easier for

offerors to provide essential and pertinent information.

- 42 -
93

A

C ST7.7,,..»

FMCS

FEOERAL MARKETINGANO

CONSULTING SERVICES

Section VIII: Creating Environment That Will Enable the Government and Using

Offices to Benefit from the Technological and Pricing Advantages

Provided by a Free, Competitive Market Through Existing

Commercial Channels

It is hoped that the information presented in this testimony will be considered

by the Subcommittee in questioning the wisdom of GSA's implementation of the

GAO recommendation for scuttling rather than strenghtening and improving the

multiple-award system. I believe it would be in the best interests of the

Government for the Subcommittee to request GSA to suspend its program for dismantling the multiple-award programs until the issues addressed in this

presentation have been examined.

Our competitive, commercial market, operating within a framework of Government

regulations which protect the interests of the general public, has produced

the highest degree of technological advancement in the world. Private firms

which use the kinds of products used by Federal Agencies can choose from a

wide variety of products available on the commercial market to meet requirements

The.technology and expertise of American industry is not the result of

Commercial Item Descriptions devised by any Commissar.

It is hoped that this Subcommittee will consider the issue as to when the 

Government may not be entitled to lower prices than large commercial users of

the same products. As a taxpayer, I personally am in favor of reforms in

GSA's procurement practices to assure that the Government is paying fair

prices for products that meet the standards required by comparable commercial

users.

However, it is hoped that the Subcommittee shares the view that there is a

point of diminishing return in obtaining the lower than low prices on products

for which service and maintainability are vital factors and whose usefulness

and longevity are related to the quality of ingredient raw materials and

- 43 -

68-330 0 - 8 0 - 7
94

A

CONSULTING SERVICES

workmanship. GSA is living in a dream world if it expects lower prices for 

35,000 calculators than for 15,000 calculators.

It is hoped that this Subcommittee will recognize that our Government should

neither expect nor demand lower prices than those paid by large commercial

users of the kinds of products used by Federal Agencies.

During the past two years since Federal Marketing and Consulting Services was

established to find new sources of supply for the kinds of products bought by

the U. S. Government, it has been shocking to learn how many reputable firms

want no part of doing business with Uncle Sam because of previous bitter

experiences with unreasonable demands for unprofitable terms and conditions,

red tape, paperwork nightmare, late payments and, in general, conditions

encouraging production of inferior products.

GSA has a long way to go to achieve the goal for GSA announced by former

Federal Supply Service Commissioner William P. Kelly at a Furniture Industry

Meeting on December 5, 1978:

"To make it a mutually advantageous place to do

business, where you will want to sell to us because

it's in your self-interest to sell to us, and where

we will want to buy from you because it is in our

self-interest to buy from you. . . I want to create

the kind of competitive atmosphere and develop the 

kind of confidence on your part so that you think your

government, the Federal Supply Service, is a legitimate

organization, with legitimate purpose, with new

creditability, so that we stop telling GSA jokes."

- 44 -
95

X

k

C t t - i . . . i

FMCS

FEDERALMARKETINGANO

CONSULTING SERVICES

EXHIBITS

Exhibit Subject

A June 8, 1972 Letter to GSA on Manual Typewriter Protest

B National Office Machine Dealers Association "Hotline" on Inadequate

Dealer Compensation for Manual Typewriter Service

C GAO Comparison of State and GSA Prices

D December 11, 1979 Letter Documents Why Accepting Late O,ffers

Promotes Competition and Lower Prices

E GSA's February 28, 1980 Defense of Rejecting Late Offers

F June 21, 1979 Letter Questioning ADTS Policies Inconsistent With

Those of FSS

G ADTA Defense of Inconsistent Policies

H FSS Procurement Letter No. 144 on Benchmark Guidelines for Multiple

Award Contracting

I December 3, 1979 Letter Discussing Inequities and Uneconomical

Procurements Under Blanket Purchase Arrangements (BPAs)

J GSA's February 12, 1980 Defense of BPAs

K GSA May 28, 1980 Letter Explaining No Central Records Kept of Amount

of Self-Service Stores Purchases Under Multiple-Award Contract BPAs.

L List of Self-Service Stores BPAs

M GSA August 3, 1979 Directive Requiring Justifications When SelfService Stores Buy Other Than Lowest Priced Items from MultipleAward Contracts

December 3, 1979 Letter Questioning National Capital Region (NCR)

Policy of Buying Most Expensive Items From Federal Supply Schedule

Contracts Without Justifications

Q NCR January 11, 1980 Defense of Not Buying Lowest Priced Items

Unless Justified

P Federal Property Management Regulation 101-26-408 on Justifications
96

FEDERAL MARKETING ANO

CONSULTING SERVICES

Exhibit Subject

Q GSA's Procedures for Handling Duplicate Offers

R Evaluation of Economic Advantages - Federal Supply Schedule Program

S Letter Objecting to Requirement for Year-End Discount

T GSA's January 10, 1980 Revised Self-Service Stores Policy Acceding

to NCR Desire to Eliminate Need to Justify Costlier Items
97

r /i

/J

LU ROYAL TYPEWRITER COMPANY

U 'd C n Cll.co Products

1700 Wisconsin Avonuo. N W.. Washington, D. C* 20007 202 337-69iG

June f i i 1172

The H ono rab le A rth u r Sampson-.

A c tin g A d m in is tr a to r

G en era l S e rv ic e s A d m in is tr a tio n

lf it h and F S tre e ts -. N.IdWashing ton-. D.C. 20405

R e fe re n c e : (a)

(b)

' (c )

S o l i c i t a t i o n No. FPNH0-K-2fl5

c

i2 -A -5 -2 4 -7 2

R oyal May 24-. 1572-, Telegram s to th e Compt r o l l e r G en era l o f th e U n ite d S ta te s and to

th e G en era l S e rv ic e s A d m in is tr a tio n

R oyal flay 31-. 1172-. L e t t e r to th e C o m p tro lle r

G en era l o f th e U n ite d S ta te s .

Dear H r. Sampson:

N o tw ith s ta n d in g th e f a c t th a t R o y a l's p r o te s t b e fo re aw ard

on re fe re n c e (a) is on f i l e w ith re fe re n c e s (b ) and (c ) ■>

we s tr o n g ly urge i f no award is made f o r t h i s S o l i c i t a t i o n

th a t you c o n s id e r th e b e n e fit s to th e Governm ent o f m u lt ip le

a u ard c o n tr a c ts f o r manual t y p e w rite r s f o r FY 1E72 as

opposed to s in g le so u rce p ro cu re m e n t on th e b a s is o f low b id .

W h ile we do n o t in te n d to w ith d ra w o u r p r o te s t-, we w is h to

b rin g to y o u r a tt e n tio n th e fo l lo w in g :

1. A lth o u g h th e re a re s a v in g s in th e i n i t i a l c o s t o f

t y p e w rite r s purchase d o n ly on th e b a s is o f lo w e s t p ric e -.

GSA has n e ve r made a s tu d y o f the l i f e span and m a in ­

tenance c o s t o f t y p e w rite r s i t has b o u g h t on low b id

f o r o th e r a g e n c ie s in th e p a s t. I t i s p o s s ib le th a t

t y p e w rite r s bo u g h t from a s in g le so u rce based on low

b id may a c t u a l l y 'c o s t th e Governm ent more because o f

h ig h m ain tena nce c o s ts and s h o rte r l i f e .

2 . The a tta c h e d copy o f a J u ly b-. 1571-, r e p o rt by th e

Ger.eraL A c c o u n tin g O ffic e re v e a ls th a t th e c h e a p e s t

brand o f t y p e w rite r pu rch a se d fi and 5 y e a rs ago

a c t u a l ly c o s t more because o f h ig h e r r e p a ir b i l l s and

s h o rte r l i f e .

H r. L a rr y A- Herrmann-. R ecords Hanagement and S e r v ic e s O f f ic e r

f o r th e G eneral A c c o u n tin g O ffic e -, fe e ls th a t even th o u g h the

d a ta base is lim ite d -, t h e ir e x p e rie n c e re v e a ls th a t th e ty p e ­

w r it e r w ith th e lo w e s t i n i t i a l c o s t is n o t th e m ost e co n o m ic a l
98

f o r th e Governm ent o v e r a l l. H r. Herrmann in d ic a te d t h a t th e

c o n c lu s io n drawn from th e s tu d y w i l l n o t le a d to p ro c u re m e n t

o f o n ly the most e xp e n s iv e t y p e w rite r on th e F e d e ra l S u p p ly

Sch e d u le . The G eneral A c c o u n tin g O ffic e is now b u y in g R oyal

e l e c t r i c t y p e w rite r s , w h ich a re n e it h e r th e le a s t n o r th e

most e xp e n s ive t y p e w rite r on S ch e d u le .

A lth o u g h the G e re ra l A c c o u n tin g O ffic e has n o t had w id e - **

spread re c e n t e x p e rie n c e w ith th e use o f m anual t y p e w r it e r s , ~

i t is H r. H errm ann’ s p e rs o n a l o p in io n , as one who is in v o lv e d

w ith th e s e le c tio n o f t y p e w rite r s used by th e G e n e ra l A c c o u n tin g

O ffic e , th a t th e pu rchase o f . manual t y p e w rite r s by o th e r

Governm ent Agen cie s from a s in g le so u rce on th e b a s is o f *

low p r ic e is e c o n o m ic a lly q u e s tio n a b le .

3 . Agen cie s w h ich have r e l ie d h e a v ily on GSA in th e

p a s t f o r th e p ro cu re m e n t o f t y p e w rite r s on low b id

have abandoned th a t p r a c t ic e .

M. V e te ra n s A d m in is tr a tio n , f o r w h ich GSA used to buy

th o u sa n d s o f t y p e w rite r s on th e b a s is o f low b id ,

now p e rm its c o n tr a c tin g o f f ic e r s to p u rch a se t y p e w r ite r s

th ro u g h B la n k e t Purchase Arra ngem ents from m u lt ip le

award F e d e ra l S upp ly S ched ule C o n tra c ts .

S. The a tta c h e d b u l l e t i n fro m th e II. S. P o s ta l S e r v ic e ,

a n o th e r fo rm e r u s e r o f low b id t y p e w rite r s b o u g h t

by GSA s ta t e s :

"The p ro cu re m e n t, o f o f f ic e m achines v ia

fix e d q u a n tit y c o n tr a c ts has in h e re n t

draw backs n o t a s s o c ia te d w ith th e use o f

B la n k e t Purchase A rra n g e m e n ts . The use

o f BPAs p ro v id e s a la r g e r a rr a y from

w h ich to s e le c t a m achine s u ita b le to th e

need and a ls o r e s u lt s in p ro c u re m e n t

econom y."

b. The number o f h ig h e r p r ic e t y p e w rite r s used by GSA

is fu r t h e r in d ic a tio n o f th e f a c t t h a t th e c h e a p e s t

p ro d u c t does n o t a lu a y s m eet th e re q u ire m e n ts o f e l l

u s e rs .

7 . Only tim e can t e l l w h e th e r t y p e w rite r s m a n u fa c tu re d

f o r s a le a t a low p r ic e have d e fe c ts t h a t w i l l e f f e c t

t h e ir r e l i a b i l i t y , m a in t a in a b i l it y , and lo n g e v it y .

Lowest p ric e t y p e w rite r s t h a t have been p u rch a se d f o r

some Agen cie s have re v e a le d lo w e r d u r a b i l i t y , dec re ased r e l i a b i l i t y , more c o s tly m a in te n a n c e , and

s h o rte r, lo n g e v ity fa c t o r s a s s o c ia te d w ith and in h e r e n t

in p ro d u c ts b u i l t to s e l l a t the lo w e s t p r ic e . I f

th e se same t y p e w rite r s had been th e s in g le s o u rc e o f
99

. supply for o il Agencios* tho icpoct on opera tional

efficiency uculd havo bean devastating end tho overa ll cost to tho Governaent* staggering.

If tho cuard io not cade to Royal as tho only responsive

biddor for th is S o lic ita tio n s Royal re sp e c tfu lly urges th a t,

befcro thousands coro aer.ual typew riters which cay co st the

' Govcrr.ccnt core in the long run are introduced in to tho

supply system* you once again p e ro it Agoncios to purchase

ccnual typew riters freo a u ltip le auard co n tra c ts in accordenco with tho Federal Property Rencgeccnt Regulations end

thereby rc stc ro to tho Government tho edventegos of providing

* ' - e ffe c tiv e u tiliz a tio n of industry prcducti.cn end d istrib u °

tio n f a c iliti e s end of providing s e le c tiv ity frem among

ccaparablo items. •

Respectfully*

U illic a Groto*

D irector c f Federal Rmrhotlng

UGsneg

ecs Genera?. Aeecenfe.ipn_0.fff.eo

Comptroller General of tho United S ta te s

P. 6. Domblir.g

L. A® Uorrmann

Ro Strong

G orerelJServicnn^delnistrafilrn

Uo Go"Capeicneo

R« So Rocker

Uo Uo Tkyfcor.y

U. Uo Ulilcughby
100

©SA G©ri£r@etf

f© CofiiW0ft©lnl

According to Peter Mollica, deputy aaeistont commirrioncr for pro

. eurcmant ct Gancrcl Sorvicca Administration, the GSA cna-ycar contract

.with Remington Rand for manual

•typewriter with carriage eizee from

11 to 21 inches, will amount to. an estimated C3.723.C23. Tha catimatod

-------r o f 27,023 unite c a reported in

G e y e r D :a l~ Tcyiaa traa conflemed

by c n c th e r G2A caaaea, e n d v.crha

« = * .£ . “

c — "> u n it p-riae c f

C-o.-CO. aa cam— ad vrith Cayaw*

eppaam m ata Cyme- fa r t r t i y ear *

CIL2.C3 caah fcy <?

Tina comm to a n

c f 0231,023 ev er la a t y e a r’c cavernm oat cyctoaa c f prteed.ring departmonte to c h a re : thole a rm mar.ufaeturea. If th e G2.*. io caliof.ad vridi tha

rcaulta c f tide year'c cixgla ceneca

proaurameat p lan far m an u al typaw riter:, it ie cx rlaip atrd th a t C-.o

to other ofSea

__ When celled fcr comm ent c n the

.0.0, ce-cho*—■

. i . comrsed a th a feilcvrir.g etataa “The tsra-cten ra re h a a in g prageaea instituted t y Grid* i.ae rcau'ted

in lower priaaa far th a government,

Cart c a portable ty p ew rite r end

new cn m anual typew riter;. The pro-

; -am, if cHovred ta centinua u n inhibited, v.ni! ca e- encem -aee c!l typaa

c f cfaca machine.-. llama m an u factu r e r e ra blinded by tha peaepeet of

volume erdera end c f'a r extremely

lot? priaaa to GG.b. Tiia m anufactu r e r _in turn e ra reducing the

dealer’o participation in calca to the

paint v.-Jiera tha dealer loeea money

cn each machine th a t ccmee into his

torr.tory far delivery, installation

tn.a guarantee to c governmental

egeary.

It is extremely important that

the dealer realize tha t GSA’e

two-stop contract in made between

the manufacturer and the government and the dealer ia not a party to

th e feet th a t tire pa?.— e v.cuid

w an t ca to t a t e danle th a t e ra un-enCta'a'.a c r vre trill c san cion fcaixg tarnp a y o r. Ein.ee the daaler ia n o t c

p a rty to tiro negoiiationo vrith th e

rav am m e r.t c r tire contract t.tw e a n

th e gcvcrt-.ment c a d th e n n n v f a a t—.

cr, Jh e n th e^d ealer can.n-at La mtc r’o low price. T h a d e rk r c h e u ld tu rn

dawn t.h:a typa ca v e il ae d i typaa c f

unprofitable o rd e r. Tha m an u fa -*—-

cr who ic c pnrtj- to thin f---e o f - .?-

meat macio me cv.-n. car:-w ith fa;

government and chould ba crann-rd

te live vrith it.

Tha cv.arc independent ofliae

machine dealer will ro t invert hi;

own money to get the tnenufaeturer

ofi the liooh. Trio manufacturer did

net concult vrith the dealer before negotiations and therefore cannot

count on dealer cuppcrt et the expanse of dealer profile.”

A reminder of the coat of providing warranty service is on page 5.
101

y c

Commodity P ro d u c t mode1

M u ltip le

award s c h e d u le

u n i t p ri c e

S t a t e

u n i t

p ric e Di f f e r e n c e

C a l c u l a to r S h a rp CS-4263 $ 3 1 9 .2 0 $ 2 3 1 .5 0 $ 8 7 .7 0

D i c t a tio n

S h a rp CS-4163 2 7 9 .2 0 2 2 6 .2 6 5 2 .9 4

e q u ipm e n t L a n ie r ED-D 346 .2 6 a / 1 4 8 . 50 1 9 7 .7 6

L a n ie r ED-T 34 6 .2 6 a / 1 4 8 . 50 1 9 7 .7 6

T y p e w rite rs

L a n ie r ED-C

Olympia

385.41 a / 1 7 2 . 50 2 1 2 .9 1

GSNFR-13

Olympia

49 5 .0 4 3 4 2 .7 3 1 5 2 .3 1

GSNFR-15

Olympia

518 .0 6 3 5 2 .2 4 1 6 5 .8 2

GSNDR-13

Olympia

5 1 8 .0 6 3 5 9 .6 0 1 5 8 .2 6

Lamps

GSNDR-15

S y lv a n ia

541 .0 9 3 7 4 .7 5 1 6 6 .3 4

1500-99-XL

S y lv a n ia

7 .0 9 4 .1 4 2 .9 5

F100-T15-CW 3 .9 6 2 .3 5 1 .6 1

a /T h e v en d o r f o r th e S t a t e s a id t h a t a " o id m a ch in e " was

f u r n is h e d to th e S t a t e . T h is m ach in e is n o t th e same one

a s on th e m u ltip l e award s c h e d u l e . S h o rtly i n t o th e co n ­

t r a c t p e rio d w ith th e S t a t e , th e v e n d o r b eg an s u p p ly in g

th e same eq u ipm en t a s on th e m u lti p l e aw ard s c h e d u l e ,

b e c a u s e p r o d u c tio n o f th e b id m ach in e was h a l t e d . The

S t a t e r e c e iv e d th e same p r i c e s f o r t h is c o m p a ra b le e q u ip ­

m e n t. We b e li e v e t h a t th e a p p ro x im a te 5 0 - p e r c e n t p r i c e

d i f f e r e n t i a l is r e p r e s e n t a t i v e , b a sed on o u r re v ie w o f

b id s o f o th e r v e n d o rs f o r i d e n t i c a l e q u ipm e n t a s on th e

m u lti p l e award s c h e d u le .

C o n tr a c t te rm s f o r d e l i v e r y , prom pt p aym en t, w a rr a n ty ,

and minimum o r d e r u n d e r th e fi v e S t a t e c o n tr a c ts a r e m o stly

c om p a ra b le o r s l i g h t l y b e t t e r th a n te rm s u n d e r FSS m u lti p l e

award c o n tr a c ts f o r th e same p r o d u c ts. The f o llo w in g t a b l e

sum m a riz e s th e r e s u l ts o f o u r c o m p a riso n .

Terms b e t t e r __

S t a t e FSS Terms i d e n t i c a l

5

3 2

5 - -

3 - 2

1 1 3

Term

D e liv e ry

Prom pt paym ent

D e liv e r y tim e

W a rra n ty

Minimum o r d e r

33
FMCS

FEDERAL MARKETING ANO

CONSULTING SERVICES

William Grole. President

Decern!*»r 11, 1979

Mr. Gerald McF-ride

Assistant Administrator for Acquisition Policy

General Services Administration

Room 6002, GS Building

Washington, D. C. 20905

Dear Mr. McBride:

As stated in .ny December 3 le tte r commenting on the current Blanket Purchase

Arrangement system under Federal Supply Schedule contracts, as time permits,

I plan to submit recommendations for improving the Federal procurement process.

I also plan to submit comments on the criticisms and recommendations included

in the Comptroller General's Report Mo. .'-11980? issued May 2, 1979 on ■'Ini effective l'annmement of GSA's Multiple Award Schedule Propram— A Costly, S-.-rjeus

and Longstanding Problem."

The enclosed rejection by GSA's region 10 of an offer fi.im J. P. Hnrhos Tnbrnational, Ir.c., "or a cordrict for ir.flabab.1e boats under r'SC 19 bus prompts’

the Preliminary comments in this le tte r on irz disapreowent villi the GAO rev e rt'

criticism on page 29 en titled , "LATE Cr’fERS RAMrnR <TMi DflTIOG". (My dir a reeroent with th is criticism, tie s in with my conviction that, the entire bene’ -ark

concepts wastes time and money in so-call. ; " mqotiat ions", irwdos cor . " t. Lion

and fa ils to provide the lowest possible prices for the Government.) This l e tte r expands on trie ju stifications for accepting late offers discussed in

November 26, 197-1 1<;

tor to Mr. Le-.oy Roberts, Region 111':; Assists:.l Regional

Administrator, P3S.

The GAG report states on "are 29 that in one case, if two late offers had beer,

received or. time, a h in sr i.-r'nr.ark would have beer. <s

1

-’lishoG. Too report

failed to recognise, hewever, that contractors always have the or.t'ort.uni tr. -mi

ri.dit t j increase th e ir disco nts and thereby lower net prices to th.e Governs ‘.it a t any time during the contract period. If the "on-time" contractors f e lt

that the "late-effer" contractors' hipher discounts rave them a competitive

cure, the "on-time" contractors which had established the benchmark would certainly have increased their discounts if Iwer prices were necessary.

In addition to th.e possibility that accepting late offers with hipher d iscounts may result in lower prices from "on-time" contractors throuph amendments

durinp a current contract year, there is additional benefit of establishing a

more favorable benchmark to be used the next contract year.

J714 Manor Pla.p. N.W.. Waahmgion. D.C. 20007 . Cable Cmlc IMCS WAMIDt . Telephone 70? n l) .| KAI (Zn?-J1I.J77S!
103

FMCl

FEDERAL MARKETING AND

CONSULTING SERVICES

Mr. Gerald Mc3ride Page Two

The schedule on page 21 of the GAO report provides the best reason for accepting late offers— increased competition and a greater choice for Federal Agencies.

Of the total of 1,033 offers received for the schedules listed, only 474

were received on time, while 559 were received late. If late offers had

not been accepted, procurements by Federal Agencies would have been restricted to less than half of the firms which ultimately received contracts.

More than half of the firms would have been denied the opportunity to compete for Government business.

It is obvious that rejecting late offers would have impeded competition and

stifled the opportunity for the Government to take advantage of improvements in the state of the art which new companiew may have developed since

the beginning of a contract year for a specific Federal Supply Schedule.

In addition, failure of GSA to accept late offers would create just one more

of the already almost insurmountable obstacles which discourage reputable

firms from wanting to do business with the Government.

The GAO report’s criticism that accepting late bids "adds to the enormous

volume of schedule modifications each time a subsequent contract is awarded"

has virtually no merit. The cost of schedule amendments is a small price to

pay to promote competition in the economy, especially in view of the enormous

amounts spent by the Government to help firms through programs sponsored by

the Small Business Administration, the Commerce Department, GSA Business

Service Centers counseling programs, and various categories of Set-asides.

The final criticism by GAO that GSA's acceptance of late offers "places the

vendors who submit late bids at a competitive advantage because they are given

an opportunity to learn what their competitors are offering prior to submitting

a bid" is also an invalid criticism. The Freedom of Information Act enables

potential offerors which choose to wait for the next contract year to submit

an offer to determine the benchmarks established for the previous year. Any

significant deviation from year to year of a benchmark for a specific schedule would correctly indict the validity of the entire benchmark concept.

Specifically concerning the last point, one of Federal Marketing and Consultint Service's clients which submitted a late offer was recently awarded a

contract on the basis of having complied with the 20£ benchmark discount

established for that Schedules specific Item Number in previous years. However, shortly after contract award, our client increased its discount to 30£,

without any GSA requirement to do so. GSA's rejection of late offers would

deny the economies which a competitive marketplace can provide for the same

products available in the commercial market.

I told Mr. Roberts in our telephone discussion about his rejection of the

Hughes offer that I would request a ruling from your office, because of the

reasons stated in this letter and my letter to him,.and because of the lack 

of a national GSA policy on the acceptance of late offers for multiple-award 

solicitations at the time the solicitation was issued.
104

A Z r x / / / , - / 2 >

FEDERALMARKETING AND

CONSULTING SERVICES /

Mr. Gerald McBride Page Three

Office of Contracts Procurerent Operating Policy Ko. 4 was issued October 26,

1975 on the subject of "Firm cut-off dates - Federal Supply Schedules". The

notice stated that a ll new solicitations for multiple award Federal Supply

Schedules issued after that date must include a clause stating that la te offers would not be accepted. The notice further stated that solicitations a lready issued where offers were not yet due or where no contracts had been

awarded for opened offers could be amended to establish firm cut-off dates.

A contract for the FSC 19 so lic ita tion (to which the enclosed Hughes offer

responds) was awarded to Johnson Outboards on October 24, 1979, two days before the new policy statement was issued. Notwithstanding the fac t that

amendment no. 1 to the so lic ita tion stated that "offers must be received by

this office no la te r than 10/l6/?9". rejection of the Hughes offer would be

discriminatory and unfair to this new small business in view of the lack of

a national GSA policy on la te offers at the time the so lic ita tion was issued

and opened. Central Office continues to accept la te o ffe r s .fo r solicitations

issued and opened prior to the October 26 directive. It is requested, therefore that your office authorise Region 10 to negotiate the Hughes offer .

More important than the ultimate decision for thia spe c ific o ffe r , however,

is the recommendation that the new policy on not accepting la te offers be

reconsidered for the reasons stated in this le tte r . I understand from Kr.

Hailey that intention to change the policy had been announced in the Federal

Register. I would appreciate the opportunity to review the fil e on public

response to this announcement to determine i f there are ary factors other

than those cited in the GAO report to support the new policy. There appears

to be greater evidence that accepting la te offers is more advantageous to the

Government, taxpayers, and the business community in terms of lower prices,

increased competition, and decreased restrictions on firms which want to do

business with the Government.

Very truly yours

William Grote

M3/gf

cc: Mr. E. G. Hailey, Acting Director, Office of Contracts, FSS

Mr. LeRoy Roberts, J r ., Assistant Regional (10) Administrator, FSS

Mr.-J. Peter Hughes, President, J. P. Hughes International, Inc.
105

General Office of

( r - \ Services Acquisition

V J L x i X 7 l \ \ Administration Policy Washington, DC 20405

2 8 FEB 1930

Mr. William Grote

President, Federal Marketing and

Consulting Services

3714 Manor Place, NW.

Washington, DC 20007

Dear Mr. Grote:

This is in response to your letter of December 11, 1979, wherein you expressed

an objection to Region 10's rejection of the J. P. Hughes International, Inc.,

offer on solicitation 10PN-HRS-6564 for Small Craft and Marine Equipment because

it was received after the scheduled opening.

A draft of the GAO audit report referenced in your letter was received by this

office on March 28, 1979. Subsequently, on April 19, 1979, we issued direction

to the Federal Supply Service to strictly adhere to the requirements of the

Federal Procurement Regulations (FPRs) with respect to acceptance of late

proposals. The actions taken by Region 10 were in consonance with this direction.

The need to maintain a procurement system characterized by discipline and integrity

requires that we adhere to the position taken by Region 10. We will, therefore,

not overrule their decision in this matter.

As to the other points made in your letter, we expect Government purchasing 

personnel to make maximum use of available competition to achieve the lowest

practicable price for the goods and services we buy. However, the unrestrained

acceptance of late offers implicit in your letter would result in auctioning

which is not an acceptable procurement technique.

It is our opinion, based on many years of experience, that the Government obtains

the maximum benefits of competitive marketing forces by strictly adhering to the

late offer procedures set forth in the FPRs. These procedures not only assure

that each offeror is treated fairly, but that our administrative burden is reduced

to a minimum. Also, experience shows that when we enforce the late offer procedure 

consistently, offerors generally meet the deadlines.

We thank you for your interest in our contracting program and if I can be of further

help, please let me know.

Sincerely,

GERALD MCBRIDE

Assistant Administrator

for Acquisition Policy
106

FMCS

FEDERAL MARKETING AND

CONSULTING SERVICES

William Ctote. President June 21, 1979

The Honorable Frank J. C a rr, Commissioner

Automated Data and Telecommunications S e rv ic e

G eneral S e rv ic e s A dm in istra tio n

Room 3240 GS Building

W ashington, D. C. 20405

Dear Mr. C arr:

F e d e ra l M arketing and C o n su ltin g S e rv ic e s is r e p r e s e n tin g

The Sw ingline Company in n e g o tia tio n s w ith th e G eneral S e rv ic e s

A dm in istra tio n fo r a c o n tr a c t fo r Sw ingline d e c o ll a to rs and

b u rste r c u rr e n tly c l a ssifi e d by th e GSA a s "O ffic e Machines"

b u t to be r e c l a ssifi e d a s "G eneral Purpose Automatic D ata Proc e ssin g A c c e sso ria l and Support Equipment" e ff e c tiv e J u ly 1, 1979.

This l e t t e r is ad d re ssed to your o ffi c e because o f th e p o s si b il it y

th a t a p r o t e st w ill be fil e d w ith th e C om p tro lle r G eneral and a

re q u e st w ill be made th a t th e o ffi c e o f th e A d m in istra to r review

c o n fli c tin g p o lc ie s o f th e Automated Data and Telecom m unications

S e rv ic e and th e F ed e ra l Supply S e rv ic e .

As shown in th e a tta c h e d F e d e ra l Supply Schedule C atalo g p ric e

l i s t , Sw ingline h olds a c u rr e n t c o n tr a c t which e x p ir e s June 30. ’•°?9

fo r two models o f d e c o lla to rs awarded A p ril 26, 1979. The c o n tr a c t

was amended to in c lu d e th e Sw ingline b u rst e r e ff e c tiv e May 22, l

r,79.

The G eneral S e rv ic e s A dm in istra tio n had a c c ep ted th e term s and cond itio n s o f S w in g lin e ’s o ff e r fo r d e c o ll a t o r-• fo r a new c o n tr a c t

fo r th e p e rio d o f J u ly 1, 1979 through June 30, 1980. However,

th e a tta c h e d copy o f S w in g lin e 's May 17 l e t t e r withdrew th e o ff e r

fo r d e c o lla to rs a t th e r e q u e st o f th e F e d e ra l Supply S e rv ic e because

th e item s had been tr a n sf e rr e d to ADTS.

S w in g lin e 's o ff e r fo r a GSA c o n tr a c t fo r i ts d e c o lla to rs and b u rst e rs

was re su bm itte d to th e GSA (ADTS) on May 29, 1979. The o ff e r in c lu ­

ded Maintenance r a t e s because Mr. Lynham had informed us th a t th e

GSA would deny Sw ingline a c o n tr a c t f o r th e p u rch a se o f l e c o ll a t o rs

and b u rste rs w ith o u t a c o n tr a c t f o r e it h e r R ep a ir S e rv ic e o r Maintenance r a t e s. As in d ic a te d in amendments to th e May 29 o ff e r r e ­

q u e sted d u rin g n e g o tia tio n s, Sw ingline has r e lu c t a n tly su bm itte d

J714 Manor Place. N W .. Washington, D C 21)007 . Cable Code: FMCS WASHDC . Telephone 202-Ff O-ERAl (202-33J-3725)
107

an o ff e r fo r R epair S e rv ic e in s p it e o f o b je c tio n s based on th e

reasons sta t e d in th e amendments to th e o ff e r .

The new OSA req u irem en t fo r e it h e r R ep a ir S e rv ic e o r M aintenance

r a t e s to q u a lify fo r a c o n tr a c t fo r th e p u rc h a se o f d e c o ll a to rs

and b u rste rs p ro v id e s th e f i r s t reason that, a r e q u e st may liemade fo r review by th e o ffi c e o f th e A d m in istra to r. Trie OSA

has t>een awarding c o n tr a c ts to m an u fa c tu re rs o f d e c o ll a to rs and

b u rste rs fo r y e a rs w ith o u t th e req u irem e n t fo r a R ep a ir S e rv ic e

o r M aintenance c o n tr a c t r a t e s. C o n tra c to rs* c a t a lo g s fo r c u rr e n t c o n tr a c ts st a t e t h a t th e s e s e r v ic e s a re a v a il a b l e a t r e g -

l a r commercial r a t e s.

E ith e r th e F e d e ra l Supply S e rv ic e is wrong in having awarded and

c o n tin u in g to award procurement c o n tr a c ts fo r p a p e r-h a n d lin g

equipment w ith o u t R ep a ir S e rv ic e o r M aintenance c o n tr a c ts, o r

th e Automated Data and Telecommunications S e rv ic e is in e rr o r

in in sisti n g on package d e a ls and in b e in g u n w illin g to l e t

Fed e ra l Agencies reim burse firm s fo r p ro v id in g r e p a ir s e r v ic e

a t th e same r a t e s charged commercial cu stom e rs.

We a re c o n sid e rin g a r e q u e st t h a t th e A dm in istra to r d e v e lo p a

uniform p o lic y f o r p a p e r-h a n d lin g equipment a p p lic a b le to both

FSS and ADTS.

Sw in g lin e ’s c u rr e n t c o n tr a c t w ith th e GSA f o r th e purch a se o f d e c o ll a to rs and b u rst e r is based on a d is c o u n t o f 15a- from Suggested Ret a i l P ric e s. The c u rr e n t GSA c o n tr a c t has a Maximum O rder L im ita tio n

o f 575.000. This d is c o u n t and MOL had been acc epted by th e 'ISA fo r

a new c o n tr a c t e ff e c tiv e J u ly 1, 1979 b e fo re th e item s were tr a n sfe rre d to ADTS.

Sw in g lin e ’s Kay 29 re su bm issio n to th e GSA in c lu d e d th e same I f /

d is c o u n t which q u a lifie d fo r th e c u rr e n t GSA c o n tr a c t fo r d e c o ll a to rs

and liu rste r and, more sig n ifi c a n tly , w ill q u a lif y Sw ingline fo r a

new c o n tr a c t e ff e c tiv e J u ly 1, 1979 fo r r e l a t e d p a p e r-h a n d lin g

equipment ( c o ll a to rs and e l e c tr i c l e t t e r o p e n e rs).

When informed th a t a c o n tr a c t would be denied be cause q u a -.tit.y Viscounts were n ot o ff e r e d , Sw ingline r e lu c t a n tly ag re ed to a 1 6 / d is ­

count fo r q u a n titi e s o f te n o r more in o rd e r to e x p e d ite a c o n tr a c t

award e ff e c tiv e J u ly 1, 1979. th e day a f t e r S w in g lin e ’s c u rr e n t contr a c t e x p ir e s.

This re q u irem en t fo r q u a n tity d is c o u n ts p ro v id e s th e second

r e a so r fo r re q u e stin g a review by th e o ffi c e o f ti e Ids 5s i u tr a t o r .

The GSA has h is t o ri c a ll y awarded and c o n tin u e s ‘ o w a r ! c o n tr a c ts

fo r p a p e r-h a n d lin g equipment w ith o u t q u a n tity d is c o u n ts. Swingl i n e ’:; c u rr e n t c o n tr a c t w ith th e GSA does n o t in c lin e c - a a t jt y

.’is c c r n ts. I.7M has never Leer-, r e q u ire d to p ro v id e mu *i ty
108

aountc r e n though an estimated ■'$* o f the e le c tri c t/j.:; w rite rs

nurcha.-ed by

r edersJ Agencies a re from IHb’s '.S.A c o :.tra c ts.

’.,'e : re considering req u e stin '' the Adn.inistr.itor to develop a

uniform policy concerning q uantity discounts applicable to

b:Vi ADTG and FS3.

As discus ed with Mr. Douglas A. Crone, D irector of the ADP Procurement Division o f the O ffice o f Automated Management Services, a ft e r

the most re c en t nego tia tio n s on June 20, c u rr e rt in d ic a tio n s are

e ith e r th a t Swingline w ill not be awarded a co t.tra c t fo r d e c o lla to rs

and b u rste r or a recommendation w ill he made th a t a c o n tra c t be

awarded with a Maximum Order Lim itation o f one maciine because th e

discounts offered were considered to be unacceptable, compared with

Swingline’s Dealer d isc o u n ts. (We do not be liev e that, adequate consid e ra tio n was given to the *18-(30 value of the PCD d e stin a tio n facto r offered to the Government- but riot to D ealers.)

The prcblem appears to be based on q u an tity d iscounts received by

Dealers compared with discounts o ffered to the Government. Swingl ir e Dealers p a rtic ip a tin g in Swingline’s GSA co n tra c ts are required

to provide se rv ic e and th e re fo re purchase in q u a n titie s r-a liT y in g

for too raximum Dealer d isc o u n t. The d iffe re n c e between Dealer and

GSA discounts are those which have been acceptable to th e GSA fo r

co n tra c to rs which market tlirough Officer Machine D ealers. The spread

has been accepted by those in the GSA fam ilia r w ith operating expenses o ’*

Office Machine D ealers, some of which a re o utlined in Sw ingline’s

Jur.e 7 amendment. (The sm a ller Dealer q u an tity discounts a re made

av a ilab le to Swingline O ffice Products Dealers which do net have

a c tiv e marketing programs fo r the sa le of Swingline busine ss machines

and, th e re fo re , do not incur the business expenses o f o ffic e Machines

Dealers a c tiv e ly marketing Swingline business machines. In g en e ra l,

Office Products Dealers buy in sm aller q u a n titie s a t 1ow erdiscounts to f i l l

sp e c ific orders from th e ir customers fo r Swingline business machines.)

ADTS’s demand fo r higher discounts would simply dip in to the pockets

o f Swingline Dealers by decreasing the d iffe ren c e between GSA and

Dealer d isc o u n ts. How l i t t l e p r o fit w ill ADTS perm it these small

businesses to earn in order fo r Swingline to q u a lify fo r an award?

A one-machine MOL c o n tra c t a t discounts offe red would req u ire an Agency 

req u irin g two d e c o lla to rs to prepare two o rd e rs— one c itin g the GSA

co n tra c t and the oth e r open market.

■Ap ro te st w ill be file d with the Comptroller General and a review

w ill be requested by the o ffic e of the A dm inistrator if c ith e r the

Swir.gl ine o ffe r is re je c ted or an award is made with a one-machi ri«-

MCL, inasmuch as Sw ingline's cu rre n t o ffe r includes more favorable

discounts than those which q u a lifie d fo r the c u rre n t co n tra c t with

a $75,000 MOL.

A fin a l comment concerning the requirement by ADTS fo r coverage in the
109

48 contiguous states is not related to the current negotiations for

a Swingline contract.

It is respectfully suggested that ADTS reevaluate it s requirement for

national coverage, because it is possible that this re s tric tion is

denying Federal Agencies in some sections of the country the opportunity to obtain under a GSA contract sophisticated and unique technology for automated data and telecommunications equipment which may

be available from a new and innovative small business not yet ready

or capable of providing national coverage.

This ADTS requirement for national coverage con flic ts with programs

of other Federal Agencies and other GSA components.

The Small Business Administration supports aggressive programs to

subsidize and a s s is t new small businesses to enter and operate e ffic iently in the commercial and Federal marketplaces. Some Federal

procurements are set-aside for small businesses. Likewise, the

Department of Commerce*s Economic Development Administration provides

grants and underwrites loans to help small businesses operate p ro fitably.

Within GSA, the Federal Supply Service awards contracts without

national coverage. The GSA provides a counselling service to a s s is t

small businesses who want to obtain GSA contracts. GSA also p a r tic ipates in regional conferences in conduction with other Agencies to

inform local businesses on how to do business with the Government.

The enormous paperwork burden of submitting and negotiating an offer

withi the GSA is enough to discourage most small businesses from even

trying to obtain a GSA contract.However,the additional national

coverage obstacle presented by ADTS prevents high technology small

businesses which may be se llin g successfully in the commercial market on a regional basis from doing business with the US Government.

Such firms may not yet be capable of providing service on a national

basis. In addition to preventing 6ome potential small business suppliers from se llin g in the Federal marketplace, this ADTS requirement

also denies Federal Agencies in some locations the benefits available

from equipment provided by regional suppliers.

It is hoped that Mr. Crone's review w ill lead to a prompt award e ffe c ­

tive July 1,.1979 baaed on. the terns and conditions of Swingline's

current GSA contract so that Swingline Dealers w ill not be required

to overcome the obstacle of trying to s e ll on an open market basis

during this c r itic a l quarter of the Government Fiscal Year.

Very truly yours

William Orote

WG/etj

cc: Mr. Douglas A. Crone, Director

ADP Procurement Division

68-330 0 - 8 0 - 8
110

General Automated Data and

Services Telecommunications

Administration Service Washington, DC 20405

JUL 1 0 1979

Mr. William Grote

President, Federal Marketing

and Consulting Services

3714 Manor Place, NW

Washington, DC 20007

Dear Mr. Grote:

Thank you for your letter of June 21, 1979, which expresses your

concern over the manner in which the Government awards certain

contracts.

Your letter indicates that Swingline had a contract with the Federal 

Supply Service (FSS), but that as a result of the equipment being transferred to the Automated Data and Telecormunications Service (ADTS),

certain features of your FSS contract were not acceptable to the ADTS

contracting staff. You have expressed concern regarding the "...

conflicting policies of the Automated Data and Telecommunications 

Service and the Federal Supply Service."

IXrring the early years of the Schedule program for automated data processing equipment (ADPE), this program was under the Federal Supply 

Service. Accordingly, the policy for ADPE was identical to the policy

which was applicable to the other commodities which FSS contracted for 

under various multiple award schedule programs. During this period, the

General Accounting Office made a study of the acquisition of ADPE by the

Government and filed a report to the 89th Congress which was extremely 

critical of the then existing procurement practices. The 89th Congress

considered this report to be of sufficient severity to warrant tha

passage of specific legislation concerning the acquisition and use of

ADPE. This legislation, (Public Law 89-306), in effect, directed GSA

to cease its existing procurement practices, and to develop new procedures applicable to the acquisition and use of ADPE. It follows that 

there are differences in the policies of ADTS for ADPE and the policies

of FSS for the commodities under its jurisdiction. These differences 

are consistent with PL 89-306 and the needs of the Government agencies.

Your letter objects to the ADTS policies concerning:

1. Our requirement for either maintenance or repair service

as part of our ADP Schedule contracts;

2. Our requirement for national coverage;

3. The Maximum Order Limitation; and
£ X / / - / £

2

I ll

4. A requiranent for quantity discounts.

The following quotes from PL 89-306 relate to the first three issues:

"The Administrator (GSA) is authorized and directed to provide

by contract or otherwise for the maintenance and repair of 

such equipment."

In aHd-itinn, p l 89-306, "provides for the economic and efficient purchase,

lease, maintenance, operation, and utilization of ADP equipment by Federal

departments and agencies."

Further answers to your questions and issues are enumerated belcw:

1. Our requirement for service is consistent with the requirements 

of PL 89-306 and the needs of Federal agencies. Tens of thousands of

orders are issued for service each year under the ADP Schedule Program.

If we chose not to provide centralized contracting for repair and maintenance, the Federal agencies would be forced to negotiate tens of

thousandg of separate annual contracts to meet their service requirements.

Such a position on our part would create a tremendous administrative 

burden throughout the Government and would be in direct conflict with

our mandate "to provide for the economic and efficient ... maintenance

... of automatic data processing equipment by Federal departments and

agencies." It is interesting to note that our ADPE contractors have

endorsed the concept of centralized contracting for service. This 

concept enables our contractors to also avoid the considerable administrative expense of negotiating a separate contract with each customer.

Furthemore, the Government is willing to reimburse vendors for such

maintenance or repair service at fair and reasonable ccumercial rates.

However, in order to determine the reasonableness and fairness of such

rates, either through cost or price analysis, they must be quoted in

the offer submitted. These rates must be established prior to award 

as such prices are awarded on a firm, fixed price contractual basis.

These maintenance/repair rates are not subject to change during the

life of the contract. In addition, resultant contracts are awarded 

to prime contractors, not to a myriad of authorized service dealers 

acting in behalf of the prime. Tnerefore, we cannot enter into a

contractual arrangement for maintenance/repair services on an

available-outside-the-scope-of-contract basis, as Swingline suggests.

2. Our requirement for national coverage. This requirement is

also consistent with PL 89-306 and the needs of Federal agencies.

PL 89-306 directs the Administrator to "provide for the economic and 

efficient purchase, lease, maintenance," etc. of all ADPE, not just
112

3

that which may be located in certain parts of the United States. Hie *

requirements of Federal agencies exist throughout the 48 contiguous

states and DC. Hie national scope of our contracts, together with the

inclusion of service, also provides the Government the flexibility to

relocate equipment in an economic and efficient manner. The receiving

Government facility simply issues an order against the appropriate •

ADP Schedule contract for the resumption of service at the new location.

Your letter contends that "the additional national coverage obstacle

presented by ADTS prevents high technology small businesses which may

be selling, successfully in the commercial market on a regional basis

from doing business with the U. S. Government."

This conclusion is not correct. The ADP Schedule Program is not mandatory.

One of the primary reasons for this decision was that we recognized, many

years ago, that there are companies that nay want to do business with

the Government on a regional basis. Furthermore, our regulations explicitly 

require Federal agencies to consider all sources of supply, irrespective of

the existence of Schedule contracts. Please refer to Special Provisions,

Paragraph le., of the offer which you have been negotiating with our

Schedule Contracts Branch.

3. The Maximum Order Limitation (MOL). The MOL is developed by

GSA within the context of a particular schedule program. A MOL which

is appropriate for one schedule program may not be appropriate for

another schedule program. Considering the wide divergence of machine

prices within the ADP Schedule Program (machine prices range frcm a 

few hundred dollars up to 1.5 million dollars), a simple dollar MOL,

such as $75,000, is obviously not appropriate. More importantly, a 

$75,000 MDL would create a gross inequity between contractors under our

program. A contractor whose machines cost $10,000 would have a MOL of 

7 machines. Another contractor, (such as Swingline), whose machines

cost $300, would have a i'D L of 250 machines. For the reasons indicated 

above, we do not intend to employ a simple dollar volume MOL.

4. A requirement for quantity discounts. ADTS does not have a

requirement for quantity discounts. However, the Government solicits

and negotiates for economic advantage over normal commercial marketing

and sales practices. Our national ADP Schedule solicitations 

specifically state: "ADP Schedule contracts are entered into only

when the Contracting Officer determines that prices and terms are

sufficiently more advantageous for the Government than tire contractor's 

ooimerciail selling prices and terms."
113

/ / '/ / / &

4

In addition, you state, on the subject of the reasonableness of the

discounts offered to the Government: "the problem appears to be based

on quantity discounts received by Dealers compared with discounts

offered to the Government." In determining the reasonableness and

faj m e g s of price and economic advantage to the Government, regulations

require, as a minimum, that a cost or price analysis be conducted. Lav;

and the Federal Procurement Regulations exempt established catalog

prices from the need to conduct cost analysis if four conditions are

met. flhe act of determining that all four conditions are met is a

form of price analysis). The Contracting Officer must evaluate, case

by case, if the price is based on: (1) an established catalog price,

(2) of commercial items, (3) sold in substantial quantities, and (4) to

the general public.

According to the infomation provided in Swingline's proposal, the

prices offered the Government are not based on sales to the general

public. As shewn on page 25 of Swingline's proposal, (Standard Form

33), all sales are made to dealers. Items sold to affiliates of the

seller are not sales to the general public. Furthermore, your firm

did not and would not submit cost data to support the reasonableness

of the prices offered. Consequently, the contracting officer must

determine both the reasonableness of prices and the amount of the

Maximum Order Limitation on the prices and terms offered to Swingline's

affiliates.

Swingline is offering its products to the Government through dealers.

The Government realizes that manufacturers must offer trade discounts

to middlemen in payment for legitimate marketing functions which they

will perform. A price analysis will be conducted by the contracting

officer in accordance with Federal Procurement Regulation 1.3-807 to

determine reasonableness of prices offered the Government. These prices

will be analyzed with and compared to the prices offered Swingline's

affiliates. Should a manufacturer offer quantity discounts to customers

to help effect real economies and efficiencies in production, selling

and distribution, the Government should also receive fair and reasonable

quantity discounts for similar quantity procurements which engender such

economies. We agree with your contention that noncumulative quantity

discounts are ezroected to encourage large orders from your dealers.

However, many marketing ezzpenses, such as billing, order filling, shipping

and salesmen's salaries, are relatively constant whether a seller receives

a large or small order. .Consequently, selling expenses as a percentage

of sales normally decrease as the order becomes larger. In no instance,

will the Government pay an unfair share of a manufacturer's and dealer's

profit, nor does the Government intend to subsidize a manufacturer's

sales to its affiliates by accepting a disproportionate ratio of discounts

at various quantity levels.
114

Zrx Z / /

5

Swingline's best and final offer to the Government is currently being

evaluated by the Contracting Officer. All contracting officer

decisions and reccnmendations are subject to review by higher level

procurement officials. Such review will ascertain if the recommendations of the contracting officer are based on legal sufficiency,

on applicable laws and regulations, as well as sound business practice.

If we can be of any other assistance, please let us know.

Sincerely,

FRANK J. CARR

Commissioner
115

UNITED STATES OF AMERICA

GENERAL SERVICES ADMINISTRATION

DEC 2 4 1974

Federal Supply Se'.

Washington, DC I

FPS

FSS PROCUREMENT LETTER NO. lU U

•UBJICT Benchmark Guidelines for Multiple-Award Contracting

TO: All FSS Procuring Activities (FPP Distribution List)

1 . Background: It has been a long-standing objective of this

office to issue procedural instructions for benchmark negotiations. The evolutionary nature of the benchmark concept

as well as the complexities that are implicit in multipleaward contracting have caused us to delay issuance of such

procedures; but after considerable operating experience, and

after obtaining the views of managers who direct multipleaward contracting programs, we have developed the attached

guidelines for benchmark negotiations.

2 . Instructions: These guidelines are presented in a general

format because it would be impracticable to develop procedures that cover the many and varied circumstances which

may arise, and, because procedures that are overly detailed

may inhibit the use of innovative and case-relevant negotiation practices.

Questions will, of course, arise concerning these guidelines

because some of their statements may be considered too

general or because they may not readily accommodate particular conditions. However, they should prove suitable for most

situations, and every reasonable effort should be made to

maximize their use when negotiating multiple-award contracts.

3. Special Cases: Departures from these guidelines are authorized

for special cases with the approval of the cognizant Procurement Division Directors. This office is available to advise

and assist Procurement Activities in this area, as appropriate.

F./B. BUNKE

Assistant Ccmmi:

for Procurement

idosure

Keep Freedom in Your Future With US. Saoingt Bonds
116

/ - /

BE’iCruiAhK GUIDELINES FOR NEGOTIATING

-M-ULT--

I-PL-E---A-w-A-R--D--F-E-D--E-R-AL--S--U-P-PL-Y---S-C-H-E-D-U--LE--S--C-O--NT-R-A-CT-Sf

I. GENERAL:

Multiple-award Federal Supply Schedule contracts may be negotiated

in commodity areas where an appropriate Finding and Determination has *

been prepared and approved. Such Schedules provide Government agencies

with sources of supply for items of various manufacturers and d iffe rences in performance, which w ill meet th e ir specific needs, e ffic ie n tly

and economically. The benchmark discount technique is used to negotiate,

from established conmercial p ric e lis ts , discounts that are conmensurate

with the Government's volume of purchases.

A benchmark is a c rite rio n (expressed as a basic discount, a discount

spread, or a discount ra tio ) established by the contracting o ffic e r as

the minimum goal in negotiating a multiple-award contract fo r a spe cific

item and marketing category.

I I . COMMERCIAL PRICELISTS:

In multiple-award negotiations, established conmercial p ric e lis ts are

used as a measure of the q u ality and value. Therefore, contracting

o ffic e rs must ensure that the offers considered fo r benchmark evaluation include valid commercial p ric e lis ts , conforming to the c rite ria

set forth in FPR 1-3.S07-1 (b )(2 ). An o ffe r that is not attended by

such a p ric e lis t should not be included in any of the marketing categories shown below, unless the Contracting O ffice r decides to accept

the p ric e lis t subsequent to receiving the o ffe r. Although a ll o ffe rors may u tiliz e p ric e lis ts published by manufacturers, dealers may

also u tiliz e th e ir own published p ric e lis ts .

I I I . GROUPING OFFERS IN MARKETING CATEGORIES:

By grouping the offers into categories on the basis of the items and

marketing practices involved, the benchmark to be developed and suoseouent negotiations w ill be tailored to offerors that are competing

on a sim ilar basis.

I t is imperative that the items involved in a pa rticu la r group be of

a lik e nature. An o ffe ro r's a b ility to extend discounts to the

Government is often determined by the applicable marketing practices

A ddition ally, i t would be u n realis tic to expect a manufacturer and a

dealer to extend sim ilar discounts because the la tte r is often encumbered witn additional se lling or servicing costs.
117

Z r y / X / / /

On the basis of the information in the o ffe rs , or other reasonably

available information, each o ffe r should be id e n tifie d under one of

the following marketing categories:

1. Manufacturer having no established dealers, offering to

se ll d ire c tly to the Government.

2. Manufacturer having dealers, offering to sell to the

Government with dealer pa rtic ip a tio n . (The extent of dealer

p a rtic ip a tio n may vary; e.g. the dealers may or may not receive

orders and payments d ire c tly ).

3. Manufacturer having dealers, offering to sell d ire c tly to

the Government without dealer p a rtic ip a tio n on Government

sales.

4. Dealer offering to se ll d ire c tly to the Government, (from the

standpoint of marketing categories, a dealer is an offe ro r who

is not the manufacturer, but who sells an item manufactured by

another firm which is id e n tifie d by the name of the manufacturer).

Generally, offers fo r foreign-source items are not used fo r the

purpose of establishing the benchmark, except when a ll the offerors

in a marketing category are offering foreign-source items.

IV. METHODS Of DISCOUNT COMPARISON:

S olic ita tio n s fo r multiple-award contracts require that offerors

submit certain sales information, and in .th is regard the Discount Schedule

and Marketing Data format illu s tra te d in GSPR 5A-76.313 must be used.

After considering this information and the overall nature of the offers

received, the contracting o ffic e r must select the method of discount

comparison that he deems most equitable to the offerors and advantageous to the Government. Several methods of discount comparison

are available, but once a p a rticular method is selected, i t must

be used consistently in evaluating a ll offers fo r the items and

marketing category involved.

The primary methods of discount comparison follow :

1. Sasic discount: This method is used to evaluate offers by

simply comparing the discount percentages. The highest percentage is normally considered most advantageous.
118

I t may be used for marketing category 2 (manufacturers with

p a rticipating dealers) and category 3 (manufacturers with

dealers not p a rtic ip a tin g ).

Example:

Offers

Discount to

Government

Discount to

Dealer Ratio

A

z

10 15 1 1 / 2 - 1 Nearest 1 - 1

B 25 50 2 - 1

C 15 30 2 - 1

D 20 60 3 - 1

V. NEGOTIATING THE "BENCHMARK" CONTRACT:

1. A benchmark must be established for each item and marketing

category, by negotiating with the o ffe ro r who appears to be

most acceptable on the basis of a discount comparison.

However, benchmarks should only be estaolished fo r suitable

items, in the sense that some items such as those fo r re n ta l,

repair and maintenance or items which include substantially

d is s im ila r products are not o rd in a rily suitable for benchmarking. The offe ro r selected fo r such negotiations must:

a. Be a manufacturer or a regular dealer;

b. Sell the items offered in substantial volume;

c. Have the m ajority of his sales in the cotrmerciai market;

d. Have a reasonably complete product lin e , as opposed to

lim ited or specialized items; and/or be a dominant source

o f supply fo r the items involved.

2. The o ffe ro r selected fo r benchmark negotiations should

also be one who sells to the Government in s ig n ific a n t

volume. For example, if. several offers indicate

Government sales in excess of SSCO.OCC, but one o ffe r

indicates Government sales of less than 525,COO, the

la tte r o ffe r generally snould not be used to establis h the benchmark.

4
119

A v X / / / / Z

3. Particular attention must be given.to an analysis of the

discounts and terms extended to the o ffe ro r's most

favored customer.

With respect to marketing category 1 (manufacturers with

no established dealers) and category 4 (dealers), negotiations should be directed towards obtaining discounts

equal to or better than those given to any other customer

on procurements of sim ila r quantities. However, an exception may be necessary fo r a manufacturer's sales to

Original Equipment Manufacturers, because manufacturers may

give such customers extraordinary discounts, sometimes

elim inating p ro fits e n tire ly , in antic ip a tion of a continuing sales advantage. For example, a manufacturer of lig h t

bulbs may give an extraordinary discount to a customer

who produces lamps on the basis that those who purchase

the lamps often choose bulbs of the same manufacturer when

making replacements.

With respect to marketing category 2 (manufacturers with

p a rtic ip a tin g dealers) and category 3 (manufacturers with

dealers not p a rtic ip a tin g ), negotiations should be directed

towards obtaining discounts equal to or better than those

given to dealers or to other customers. (In th is regard,

an e ffo rt should be made to ascertain the services which

the dealers or other customers provide in lig h t o f the discounts that the manufacturer extends).

4. Particular judgement must be exercised in deciding which

method of discount comparison to use. For marketing category 1 (manufacturers with no established dealers), and

fo r category 4 (dealers), there is no alte rn a tive to using

the basic discount method. But fo r category 2 (manufacturers

with partic ip a tin g dealers) and category 3 (manufacturers

with dealers not p a rtic ip a tin g ) the contracting o ffic e r may

fin d i t more appropriate to use the discount spread method

or the ra tio method.

5. Under the basic discount method, the benchmark is established as a percentage factor.

Under the discount spread method, the benchmark is established as a percentage factor; except that when an o ffe ro r's -

Government and dealer discounts are id e n tic a l, the benchmark

is establishea as "dealer discount or b e tte r".

Under the ra tio discount method, the benchmark is established as "2 to 1" or as "3 to 1" — etc; except that fo r

ratio s of 1 to 1 or better, the benchmark is established as

"dealer discount or b e tter".

5
120

Z ^ y / z Z ' / / /

V I. NEGOTIATING CONTRACTS CONFORMING WITH THE "BENCHMARK":

By ob taining from subsequent o ffe ro rs discounts comparable to those

established in the benchmark c o n tra c t, the actual prices a va ila b le

to the Government from the m ultiple-aw ard con tracto rs should generally be 1n the same re la tio n s h ip as the prices a va ila b le com m ercially.

The benchmark discount represents a minimum goal to reach in neg o tia tin g w ith such o ffe ro rs , but a vigorous attem pt should be made

to achieve even higher discounts and more favorable terms and cond itio n s . Computations fo r "tru e comparative w orth" should be used

whenever the basic discount method o f comparison is used; e.g . i f

the benchmark co n tra c to r provides a d d itio n a l discounts fo r q u a n tity

breaks, w ith supporting documentation, the C ontracting O ffic e r

should endeavor to negotiate comparable discounts w ith subsequent

o ffe ro rs . When the discount spread or the ra tio discount methods

are used, p a rtic u la r a tte n tio n must be given to whether or not a

manufacturer has extended "tru e comparative w orth" fa c to rs to dealers

so th a t the o ffe rs may be compared on an equal basis.

The terms and conditions of the o ffe rs received w i l l , o f course, be

d iffe re n t in many im portant respects. At tim es, p a rtic u la rly in

cases where an o ffe r does not meet the benchmark, but i t is nevertheless considered in the Government in te re s t to make an award, the

C ontracting O ffic e r should tr y to set a value on these d iffe re n c e s .

Since the evaluation o f true comparative worth fa c to rs u su a lly brings

to bear c e rta in su b je ctive co n sid era tions, the C ontracting O ffic e r must

exercise p a rtic u la r good judgement. Special care must be taken so th a t

the o ffe ro r is not given a discount advantage fo r considerations (in c lu ­

ding items or services) th a t are o f l i t t l e or no value to the Government

A ll o ffe rs conforming to or exceeding the benchmark fo r an item w ith in

a marketing category may be recommended fo r award.

O ffe rors who feel th a t le g itim a te reasons preclude them from meeting

the benchmark may be afforded the o p portunity to submit a d d itio n a l

info rm atio n ju s tify in g special con s id era tion. I f an analysis o f th a t

data indica tes th a t the o ffe r is f a ir and reasonable, ano approval

is obtained from the appropriate Procurement D iv is io n D ire c to r, an

award may be made notwithstanding the fa c t th a t the o ffe r did not

meet the benchmark.

6
121

A Zrx h»/),'/ JFMCS

federal marketing and

CONSULTING SERVICES

UiJIa’rr. G role. President

Decer.ber 3» 1979

Mr. Gerald McBride

Assistant Administrator for Acquisition Policy

General Services Administration

Room. 6002, IS Building

Washington, D. C. 20405

Dear Hr. McBride:

This le tt e r discusses some of the inequities and uneconomical procurements

caused by the General Services Administration's current policy concerning

Blanket Purchase Arrangements (IPAs) under Multiple Award Federal Supply

Schedule contracts. Recommendations for obtair.irn lover prices for defin ite quantity procurements arc also irn l’miea. The- contents of this le tte r have beer, discussed in meetings with Mr. Theodore Roger., Director of

the General Products Tenter.

The following documents are referenced in this le tte r :

(a) Comptroller General Report (B-llbRno) to the Congress on "Ineffective

Managements of C-JA's Multiple Award Schedule rrerram.— A Costly,

Serious, and longstanding Problem" issued May 2, 1979,

(b) 05??. 5-'-73.213 on Hanker Purchase Arrangements

(c) Office of Contracts Procurement Operating P o lio ’ Mo. 1 Issued September 20, i°?9 or Multiple Award Schedules - ilanket Purchase Arran rerouts (.P.x)

(d) Federal Fre-.uren'.m Fcn-.ilnt.icn 1-1.: Co cr. Flank.d purchase arrangements

References (b), (c ), and (q) are attached.

The folio-wing topics are addressed in this le tte r :

. Comptroller General's Criticism of FFA System

. Current FFA System established by M.i

. GCA's Deviation from Original Purr of rPA System
122

£ v h/7.' P

V t. Gerald JJeHrido Pare Two f

. Inequities and Inefficient Procurement Practises Fostered by GoA’s Current

1PA Policy

. ?.’co-~".-.:ations for Chtaining Lexer Federal Cupply Schedule Prices a t All

Quantity i»-v«ls.

Following is a discussion of each topic.

1• "—rtrcV ^r 'e cT aV f Grtrinism of 'PA Systy-.

The current PPA system was one of the GSA practices criticized in reference (a).

Pane 27 of the report dicc.sses the various prices paid 'ey agencies for identical

ite-s based cn the absence of or level of quantity commitment covered by each

are.ucy’s ??A.

The r-cnort expresses the coir.ior. that " it rakes littl e sense for agencies to pay

different prices for the sane product" and that GSA is in a better position to

‘centrally negotiate definite quantity contracts at more favorable prices than any

individual agency might obtain".

2 . Currg"t ^PA 5 -- O - Fs.ta h lish.M hy_G5A

Reference (b) requires the following clause to be included in each schedule so lic itation and resulting schedule (included in GSA Form 20.91):

■slaxks? purchase AHRATGS-Gi.rs

The Contractor agrees to enter into blanket purchase arranger.ents with ordering activities: Provided, that:

(a) Only items covered by the contract are ordered under such arrangements;

(b) The period of tine covered by such arranger.ents shall not exceed the period of the contract; and

(c) Orders placed under such arranger.ents shall be issued in accordance with

all applicable -ulatjcns and the terr.s f-.nd conditions of the contract.

(LOTS: The maximum. orr.sr limitation of th.A contract applies solely to individual o r' -rs plac'd against the blanket purchase arrangement and b.as no

bearing on the cstulative or total valtre of these orders."

Reference (c) introduces the d e c e n t of qu an tity discounts and sta te s:

‘" 'u lt i ”’

n

is-ie-s in I":?.

r

- .I 1 are m i brims' uni •'or:i

1y

a rp li. ’. no.-.' t i a v ir • ' iAs fa r the CSA ?.e*.c.;L Short-.-..."

To reoiif" the ineo-si'rtencies, reference (c) roes on to reouire that the foTj<- u:

directive be add’ ! »o

-..*■< (b) for inclusion in solicitations:

"(d) LA's may r e r o ti a t e d to a ch iev e th e h ir h o st d is c o u n t p ric e (Ic '.’- s t

rr : o »/ s a v ’d cn th e e stim a te d t o t a l rn r e h a s e s wr.ics. would : ■? a ch iev e !

the c :.u? f.iv e to ta l of orders rla c : ur.ier ti e c o n tra c t. In the v e n t t:.--

cumulative to ta l of orders placed :: not reach th e q u an tity le v e l a t whir::

the FFA w.’.s establishei, the cor.tr.*” *:• r.av invoice at the price at the applicable quantity level."

As discussed net* , r e la tin g “PAr. *o qi'.ard itv discounts is a .d isto rtio n of the ~PA

ffSnceut .dei'inV: in the -rrc l 1see us; re n t h e rn ia tio n s.
123

/ z /

”r . Gerald hoi rid e Pa^e Three

3- " '-'s " -c -? :-, fr~ f-' -----.-> r:- TA S-t-m

Reference (d) establishes policy for Blanket purchase arrangements:

" ...re la tin g to the purchase of day-to-day requirements through arrangements with vendors cr dealers to furnish, on a 'charge account’ basis, such

supplies or r.on-perscmal services as the Government ray order from, such

sources d-rin- a state! varied c? tim e. Generally these arrangements

should be made with local sources so that individual purchases thereur.dc-r

can be effected with a minimum cf time and paper work...(and) may be established with Federal Supply Schedule contractors, if not inconsistent

or at variance with the terms of the applicable Federal Supply Schedule

Contract.

1

'

Subpart 1-3.6C6.5(“) of reference (d) goes on to state:

The blanket purchase arrangement method is primarily designed to reduce

the amount of documentation in connection with small purchases.

Nothing in thio Subpart of the Federal Procurement Regulations defining Blanket

purchase arrangements requires contractors with which an ordering office has a

EFA to give maximum quantity discounts regardless of the quantity ordered. The

intent of FFAs is to reduce the cost of paperwork through use of a "call" system. . Current TA practise also violates prohibition against hrA orders over 55,000

The current practise for FSS HPAs to he issued at agencies' headquarters levels

is inconsistent with Subpart i- ? .606.5 of reference (d), which, defines Agency

implementation as follows:

(a) The v r-b -r-n.-ghc:- r-'-laticrshi? is that cf am or^n. account limited

only by the maximum. amount and time period limitations fixed by that agency.

...(d ) Authority and responsibility for effecting blanket purchase arrangements should be delegated by agencies t o the l owest --enc-z level to which

the responsibility is placed or assigned for providing supplies..."

GSA's current policy outlin’d in references (b) and (c) requiring contractors

to rive •.aric.s avar.tity discounts for single unit orders to agencies with.

FFAc is c le a rly at variance with, the rro \ isior.s c f reference (d ).

. 2--.?.:. mJjhXA u m J li ir-i-"dT.s..Turnpu’t

Curar. Award cor.tr.-ct n. d a ti c n ;, .'SA ec m e e tly tr i e s to o b ta in low er

pet c-.t i ci:g Ircr-kf. r.ar.r.fpc tu rirs (except 2:?.) give

lower p ric e s :o c :m ? :e ir.l c u .tsr.rs w'.-.ich order q u a n titie s c f it c -s than to

o u st—' t s which purchase siu -le ite-w .

A fter '1 ‘ a in in - Icw’r rri.-u r for y r ? :- r q uantity l e v -ls and awarding- co n tra c ts

with rir.-ue w ; a lii: le ’..".it p ric e r, TA then r-r.u ire s c o n tra c to rs to r o ll, deliv e r, and invoice on item at a tim-' a t the nest favorable q u an tity n ric c to

agencies which issu e 'lankeu purchase arrangements. Contractors which can a ffo rd

to s e ll a sir.-’ e u n it -,t the same m ic e as fo r 5'

>

, ICO, or 200 vn’tc have c le a rly

r e t river. '.nA t h- low--.- t possible price fo r agencies which in f a c t order in the

la rg e r d e fin ite q u a n titie s.
124

Mr. Gerald McBride Page Pour

S p ec ifically, for the contract period ending September 30, 1979, one typewriter

contractor rave a discount from li s t price of 25; for a quantity of 1-19 a.n.i 27;-

for quantities c f 22. or rore. A major a.-oncy lik e HEWcould issue a HFA ccmmiting

to buy 20 typewriters during the entire year throughout the country (a rather meaningless commitment since their actual purchases were probably somewhere between

2C0 and 2,000 from that contractor). The hundreds cf HEWprocurement office s

around the country could then hup- or.e typewriter a t a time and s t i l l receive the *

additional 2'-' discount. Cn the other hand, smaller arencies which could net

rake a commitment to buy 20 typewriters were required to pay the higher price.

For the current contract period, that sane typewriter contractor offers no quantit y discounts, probably because it would be forced by GSA to accept BPAs requiring single unit sales at the multiple unit price. GSa ’ s misinterpretation,

of the ?FA concept, therefore, is depriving arencies which have larger quantity

requirements fron receiving none favorable prices. A number of o ffice machine

contracts have in fact eliminated r.ultiple unit prices.

The current BFA system produces the following inequities which prevent arencies

from receiving the most favorable prices possible under Multiple Award contracts:

(1) An audit of contractors’ invoices would probably reveal that 80-90? of their

GSA contract sales are at the maximum discount price under 2PAs. This lowest

price, then, is in e ffec t the GSA single unit price. Smaller agencies which

cannot make a 2FA commitment are in e ffe c t being gvp.ped, even though they are

part of the same Executive Branch for which GSA is responsible for obtaining

the best possible prices.

(2) Agencies which, in fact order definite large quantities are also being gypped

by the system, inasmuch as they are paying the same price as office s which

order one at a time.

(3) Because of ISA's incorrect interpretation of the SPA concept, contractors

do not give their most favorable quantity prices to GSA because they re a lise

they w ill be required to s e ll or.e at a time at the lowest contract price.

(How many vendors which used to give quantity prices have eliminated then?)

(4) When orders under Multiple Award contracts are placed at other than the lowest

price available under a special item number whan tie cost exceeds $500 per

lin e item, orderin'- a c tiv itie s must ju s tify the purchase c f higher priced items.

Thy current -FA mvbm creep®? a cl irate wheruy •-.ncies make commitments to

purchase hi.-h'-r nrbeed it" -? before ever having ju s tified their purch-tc.

(Specious jus tifications arc also c r itic ised by reference" (a ).)

5. •- i a ‘

; ~ fu r Ch* a t mi.,.-- Ir.'» y Te-p-rrh Gnhcdule. :r.i.ccg_gt.. A H

J,;:-.) £... ; j

It is r-co- -®r.c'ed that GSA eliminate the current BFA farce which requires contractors to accept ??As that provide for single unit orders at multiple quantity

prices.

Through announcements in the Federal Register and/or in a ll new so lic itations for

Multiple Award contracts, GSA should establish the following revised policies:

, Reestablish the SPA concept as defined in reference (d),

. Modify contractors which have accepted h! As providing higher discounts for
125

Hr. Gerald Ucbride Page Five

single unit orders that the DPAdisc-'-, nt level •..•ill become the benchmark d iscount for sinmle unit orders in r.ew contracts.

. Require -renter discounts for various levels of d e fin ite quantity procurements.

Higher discounts should he obtained for deliveries to a single location than

to multiple locations.

. Take i t clear that contractors w ill not be required to s e ll single units a t

quantity discounts and that any such sales would invoke the Frice Reduction

Clause; i . e ., eliminate requirement for quantity discounts under b?As.

. Offer higher Haxinusi Order Limitations for contracts with greater quantity

discounts, as is currently done in some cases.

I would be pleased to meet with you or others in ISA to answer any questions r e s u lting from my comments and recommendations or to provide additional information.

I have a number of other criticism s of the Federal procurement process and recommendations for improvement. As time permits, I shall submit them to you in w riting.

Very tru ly your.

’illia n Grote

VO/gf

cc: House Subcommittee on Government A ctivities and Transportation

Senate Subcommittee on Federal Spending Practices and Cpen Government

Comptroller General of the United States

Director, Office of Vann -ement and "••d.-ot

Actin;: Administrator, Office c f Federal Procurement Policy

A dm inistrator, General Services Administration

D ire c to r, ISA m l Pre ducts Center

68-330 0 - 8 0 - 9
126

General Office of

Services Acquisition

Administration Policy

7 "

Washington, DC 20405

l

0 FFC

Mr. W illia m G ro te , President

Federal M arketing and C onsulting Services

3714 Manor Place, N.W.

Washington, D.C. 20007

Dear Mr. G rote:

This is in response to your le t te r o f December 3. 1979, concerning Blanket

Purchase Arrangements under M u ltip le Award Federal Supply Schedule

c o n tra c ts .

Blanket Purchase Arrangements (BPAs) are g e n e ra lly u ti liz e d by agencies on

an in d iv id u a l basis as a means o f s im p lify in g paperwork and securing

a d d itio n a l p ric in g b e n e fits based on to ta l a n tic ip a te d needs fo r the ye ar.

However, we are c u rre n tly studying the f e a s ib i l it y o f n e g o tia tin g area-w iJe

BPAs fo r use by a l l Government agencies w ith in a given area. A d d itio n a lly ,

where agencies are now executing BPAs based on th e ir y e a rly estim ated

requirem ents, we are s tro n g ly encouraging them to provide us w ith the

necessary in fo rm a tio n to perm it the issuance o f a sepa-ate c o m p e titiv e ly

awarded c o n tra c t which should be more fa vo ra ble to the Government than the

M u ltip le Award Schedule c o n tra c t.

O bviously, when d ea ling w ith an a d m in is tra tiv e v e h ic le designed to serve

a l l custom ers, whose o rd e rin g addresses to ta l n e a rly 10,000 separate

o ffic e s , procurement p ra c tic e s may w e ll e x is t th a t accrue economic b e n e fits

to c e rta in classes o f customers th a t are not re a liz e d by o th e rs . Nothing

in the re g u la tio n s prevents the n e g o tia tio n o f q u a n tity d is co u n ts in

connection w ith these agreements. However, as the vast m a jo rity o f our

customers have the a b i l it y to o b ta in lower p ric e s and reduce a d m in is tra tiv e

c o s ts , we fe e l the BPA program serves a u se fu l purpose.

Follow in g are our comments s p e c ific a l ly d e a lin g w ith those to p ic s discussed

in you

1

" le t te r .

1. C om ptroller Gene- a l ' s C ritic is m c f BPA Sys te m: As alre a d y

mentioned, we a” e stu d yin g the f e a s ib i l it y o f c e n tra liz e d BPA’ s covering

a l l custom ers. A d d itio n a lly , we are a tte m p tin g to determ ine the agencies'

needs in order to s o l i c i t th e ir requirem ents on c o m p e titiv e ly procured

c o n tra c ts over the schedules' maximum order lim ita tio n s . This should

accrue more economic b e n e fits than BPAs. In fa c t, we are c u rre n tly

s o l ic itin g fo r a d e fin ite q u a n tity requirem ent covering ty p e w rite rs ,

u t i l i z in g L ife Cycle C osting techniques, fo r the S o c ia l S e c u rity Adm inis tr a tio n and A ir Force. We are also c u rre n tly s o l ic itin g agencies fo r

th e ir e n tire y e a rly requirem ents fo r ty p e w rite r s . I f s u c c e s s fu l, we plan

to c o m p e titiv e ly procure our fu tu re requirem ents fo r e le c tric ty p e w rite rs

in lie u o f m u ltip le awards.
127

z?x4//z'/

2

* 2. Current BPA System Established by GSA: This c la u se , as you have

re fe ren ce d , m odified as o f September 20, 1979, more c le a rly e x p la in s the

a p p lic a tio n s o f BPAs as they re la te to the m u ltip le award schedule program.

3. GSA's D eviation from O rig in a l Purpose o f BPA System: Although the

♦ BPA p ro v is io n s a-e covered in FPR 1-3.606 concerning Small Purchase

Procedures, the prim a-y purpose o f BPAs is to reduce the amount o f

docum entation and cu t pape-work. BPA p ro v is io n s can also a pp ly to orders

being placed under the m u ltip le award schedule program. Nothing in the

re g u la tio n s prevents the n e g o tia tio n o f q u a n tity d isco u n ts in connection

w ith these agreements. The use o f BPAs in schedule c o n tra c ts provides a

s im p lifie d method o f f i l l i n g r e p e titiv e orders fo r sm all q u a n titie s under

the most fa vo ra ble p rice s and a d m in is tra tiv e c o s ts . A d d itio n a lly , the

$5,000 l im ita tio n a pp lies to purchases under the Small Purchase re g u la tio n s

and does not apply to BPAs used in the m u ltip le award schedule program.

We do not agree th a t there is a need fo r new p o lic y g u id e lin e s concerning

the use o f BPA's in Federal Supply Schedule c o n tra c ts . We are c u rre n tly

re view in g these re g u la tio n s , as w e ll as our p ra c tic e s , w ith the in te n t o f

e ffe c tin g more e ffic ie n t a p p lic a tio n o f BPAs as they r e la te to the m u ltip le

award schedule program.

4. In e q u itie s and E ffic ie n t P-ocurement P ra c tic e s Fostered by GSA's

C urrent BPA P o lic y : Our n e g o tia tio n s attem pt to n e g o tia te m eaningful basic

documents, q u a n tity and d o lla r volume d is c o u n ts , as w e ll as BPA d is c o u n t

s tru c tu re s . Your assumption th a t we then -e q u ire c o n tra c to -s to s e l l,

d e liv e r and in vo ice one item a t a tim e a t the most fa v o ra b le q u a n tity p ric e

is both c o rre c t and in c o rre c t. The o ffe ro r may take e xception to the BPA

c la u se . O ffe ro rs sometimes c ite minimum q u a n titie s fo r each orde r to

q u a lify fo r the maximum d is c o u n t. A d d itio n a lly , separate q u a n tity d is co u n t

s tru c tu re s fo r BPA's can be o ffe re d in a d d itio n to the q u a n tity and

d o lla r-v c lu m e d is c o u n ts . L e t's keep in mind th a t a su ccessfu l n e g o tia tio n

is a meeting o f the minds on a c o n tra c t th a t is s a tis fa c to r y to both

p a rtie s . The c o n tra c to r is not a r b itr a r i ly forced to accept term s and

c o n d itio n s under our BPA p re v is io n s .

You reference the loss o f q u a n tity dis co u n ts because the o ffe r o r would be

forced to accept BPA's re q u irin g s in g le u n it sales a t the m u ltip le u n it

p ric e . P re se n tly , as a lre a d y m entioned, the o ffe ro r has the o p p o rtu n ity to

take exceptions which l im it h is l i a b i l i t y under BPA s a le s ; th a t is , minimum

shipm ent, s in g le d e liv e ry lo c a tio n , separate d iscount s tru c tu re s , e tc .

R eevaluation o f BPA p ro v is io n s could re s u lt in a d iffe r e n t approach to our

n e g o tia tio n s in th is " e g a rj.
128

3

5 • Recommendations fo r O btaining Federal Supply Schedule P -ic e s a t a11

Q u an tity L ev e ls: As a lre a d y mentioned, serv e^ a l o f your ’•ecommendations

a re a lre a d y being implemented in the BPA program. A d d itio n a lly , we a -e

c u rr e n tly studying th is a-ea and w ill use your ide a s as food fo r thought in

our fu tu re p o lic ie s involving BPAs.

Your in t e r e st in our program is a p p re c ia te d . Thank you very much fo r youid e a s on such an im portant s u b je c t.

GERALD McBRIDE

A ssista n t A dm inistrator

fo r A c q u isitio n P o licy
Adc i n i s t r a t e r f c r A c q u is itio n : o 2 i c y IA ?;

S e lf - S e r v i c e S t o r e f Program

A ll R e g io n a l A d m in is tr a to r s

C o t a is s io n e r, F S S (F )

R ecent o p e r a t io n a l re v ie w s o f r e g io n a l a c t i v i t i e s , c o n ta c t

w ith u s e r a g e n c ie s , u t i l i z i n g th e s e lf - s e r v i c e s t o r e s , and

in p u t from th e C o m m is s io n e r, F e d e ra l S up ply S e r v ic e ,

r e v e a le d a p r e p o n d e ra n c e o f e x p e rt o p in io n and o th e r

comment to th e e f f e c t ‘ t h a t s to c k a g e o f ite m s in FSS

s e lf - s e r v i c e s to r e s i s u n d u ly r e s t r i c t e d . W h ile t h i s was

n e c e s s a ry a t an e a r l i e r tim e , th e c o n tr o ls now e s t a b lis h e d

by FSS p e r m it exp anded s u p p ly a c t i v i t y in th e s t o r e s .

C o n tro l m easures c o v e rin g acc e s s to th e s t o r e s , s p e c ia l

o r d e r s , use and d i s t r i b u t i o n o f GSA F o ra 31 **.6 (GSA

S e lf - S e r v i c e S to r e S h o p p ing L i s t / S a le s S l i p ) ,

i d e n t if i c a t i o n o f s h o p p e r s ,s t o c k r e p le n is h m e n t o r d e rin g

th ro u g h R e g io n a l o f f i c e s , r e s tr i c t e d v en d o r c o n t a c t s , and

r e l a t e d p ro c e d u re s a r e o p e r a tin g e f f e c t i v e l y and w i l l n o t

be r e la x e d a t t h i s tim e .

Pending in c o r p o r a tio n in t o th e r e g u la r GSA d ir e c t i v e s

s ys te m , th e f o llo w in g p o lic y w i l l g o ve rn s to c k a g e in th e

s e l f - s e r v i c e s t o r e s : •

a . The C e n tr a l O f f i c e a u th o riz e d s to c k a g e l i s t (M a s te r

S to c k L i s t - MSL) i s c a n c e lle d . R eg ion s a re to can v as s

cus tom er a g e n c ie s and i d e n t if y ite m s f o r w h ich th e r e is

e xp re s s ed o f f i c i a l c u s to m e r demand. Ite m s th u s i d e n t if i e d

w i l l be s to c k e d in s e l f - s e r v i c e s to r e s when a p p ro v ed by th e

d e s ig n a te d GSA o f f i c i a l (s e e s u b -p a ra g ra p h f and g , b e lo w ).

In t e r n a l r e g io n a l p ro c e d u re s and c o n tr o ls s h o u ld be

e s t a b lis h e d f o r s e l e c t in g and a p p ro v in g th e ite m s f o r

s to c k a g e . D e c is io n s r e g a r d in g c o s t s , q u a l it y ,

a p p ro p ria te n e s s and s e n s i t i v i t y o f ite m s s e le c t e d f o r

s to c k a g e r e s t s w ith th e R e g io n s . Such d e c is io n s m ust a ls o

be in a c c o rd a n c e w ith c u rr e n t F e d e r a l P ro p e rty M anagem ent

R e g u la tio n s .

b . R e g io n a l l i s t i n g s o f ite m s approv ed f o r s to c k a g e in

s e lf - s e r v i c e s t o r e s , as w e ll as a l l a d d itio n s and

d e le t io n s , w i l l be s u b m itte d to C e n tr a l O f f i c e , FSS, fo r

c o n s o lid a tio n ana r e v ie w a t th e n a tio n a l l e v e l . FSS w i l l

m a in ta in a c u r r e n t , c o n s o lid a te d l i s t o f a u th o riz e d ite m s

based on R e g io n a l s u b m is s io n s .
130

c . F e d e r a l S u p p ly S e r v ic e , C e n tr a l O f f i c e , w i l l

c o n tin u e to e x e c u te a l l B la n k e t Purcha s e A rra n g e m e n ts ;

h o w e v e r, p e n d in g r e c e ip t o f n a tio n a l a ? k i

t R eg io n s a re

a u th o ris e d on an i t e s - b y - it e a b a s is 't'o p la c e o rd e r s f o r th e

im m e d ia te . s to c k re q u ire m e n ts

v e n d o r.

k

d ir e c t l y w ith the, FS S c h ed u le

d . S e n s it iv e ite m s w i l l be d e s ig n a te d by FSS, C e n tr a l

O f f i c e , on a n a tio n a l b a s is , e it h e r a t th e t in e o f

r e v ie w in g i n i t i a l r e g io n a l l i s t s o r s u b s eq u en t changes -

1

-

t h e r e t o ; o r upon r e c e ip t o f recom m enda tio ns fro m

a p p r o p ria t e s o u r c e s . w c\ ,

e . FSS P 2 9 0 0 .1 3 o r any s u c c e s s o r docum ent w i l l

in c lu d e p ro c e d u r e s f o r c o n tr o l o f s e n s it iv e it e m s , and

p r e s c rib e c r i t e r i a f o r i d e n t if y in g such it e m s . In t e r im o r

added c o n tr o l p ro c e d u re s may be im posed by th e R e g io n s .

f . Ite m s s to c k e d in s e lf - s e r v i c e s to r e s w i l l n o rm a lly

be th o s e o b t a in a b le from s o u rc e s w h ich e f f e c t p ro c u re m e n t

by award t» th e lo w e s t p ric e d , re s p o n s iv e o f f e r o r .

A c q u is itio n th ro u g h th e b e s t c o m p e titiv e p ro c u re m e n t

p ro c e s s a v a i l a b l e may be assumed i f o r d e rin g from a

» g o ve rnm ent w h o le s a le s to c k system (G S A /D L-A /V A ), a

c o m p e titiv e F e d e r a l S u p p ly S c h e d u le , o r when th e ite m

s e le c te d is th e lo w e s t p ric e d o f s im ila r o r id e n t i c a l ite m s

on a m u lt i p le award s c h e d u le . A u th o rit y to s e l e c t ite m s

m e e tin g th e fo r e g o in g c r i t e r i a f o r s to c k a g e in s e lf - s e r v i c e

s to r e s i s v e s te d in R e g io n a l A d m in is tr a to r s , and may be

r e d e le g a te d to R e g io n a l c o m m is s io n e rs , F e d e r a l S u p p ly

S e r v ic e ; w ith o u t f u r t h e r r e d e le g a tio n .

g . When u s e r A'gency docum ented re q u ir e m e n ts

d e m o n s tra te th e need f o r ite m s w h ich do n o t m eat th e

c r i t e r i a o f f . , a b o v e , th e R e g io n a l A d m in is tr a to r may

a u t h o ri z e th e lo w e s t p ric e d ite m o r ite m s a v a i l a b l e from a

F e d e r a l S u p p ly S c h e d u le w h ich w i l l m eet u s e r Agency n e e d s .

P en d in g f i n a l a d o p tio n o f a p e rm an en t p o lic y d o cu m en t,

R eg ion s w i l l m a in t a in f i l e s c o n t a in in g u s e r agency

r e q u e s t s / j u s t if i c a t i o n f o r ite m s and th e CSA r e g io n a l

a p p ro v a l f o r th e ite m s s to c k e d in s e lf - s e r v i c e s to r e s u n d e r

a u t h o rit y o f t h i s s u b -p a r a g r a p h .

O th e r r e s t r a i n t s in th e program w h ich say be c a u s in g

cu s to m e r c o m p la in ts o r la c k o f p a r t i c ip a t io n in th e s to r e

p ro g re m , such a s , a c c e s s .a n d u s e , s p e c ia l o r d e rin g , e t c . ,

a re b e in g s tu d ie d by a C om m ittee on S e lf - S e r v i c e S to re s

‘ 1.
131

*

•r.icr. was e st a b lis h e d a t tfcs r e c e n t r e g io n a l C o m m issio n e r 's'

C o n fe r en c e . Seme o f th e co r .strE ir .e s may be c o n sid e r e d fo r

r e la x a tio n when and i f th e r e is r e a s o n a b le a ssu r a n c e th a t

needed su p p ly d is c i p l i n e s , c o n t r o ls, and r e s p o n s i b i l it i e s

are c o n tin u ed in t'he program . Improved o p e r a tio n a l n e th o d s *

th a t w i l l p ro v id e fo r a c c o u n t a b ilit y a t th e lin e

it e a /t r a n s a e ti o n l e v e l and t r a in in g m a t e r ia ls fo r

s e lf -s e r v i c e sto r e p e r s o n n e l a r e under d e v e lo p c e n t in FSS.

Vhen p o sit i v e a c c o u n t a b ilit y is t e st e d and proven in th e

proposed sy stem , c a n c e ll a ti o n o f many' p r e s e n t c o n t r o ls w i l l

be c o n sid e r e d . ■ •

F ed e r a l Supply S e r v ic e w i l l iss u e im plem enting in st r u c ti o n s

or p r o c ed u r e s to c a r ry o u t th e p o lic y s e t f o r th in t h is

l e t t e r . ’ *

; o < . p t c

DALE R. BAB1ONE

A ssist a n t A d m in istr a to r

fo r A c q u isitio n A Supply P o li c y
132

FMCS t

FEDERAL MARKETING ANO

CONSULTING SERVICES

/

William Grole, President

December 3» 1979

Mr. Valter V. Kalita”

Regional Administrator

Rational Capital Region

General. Services Administration

Room 7022 ROB 

Washington, D. C. 20407

Dear Mr. Kall&ur:

This le tte r requests information on the Rational Capital Region’ s implementation of the national self-service stores stockage policy promulgated in the

August 3, 1979 memo of the Assistant Administrator for Acquisition Policy.

My interest in the Regional implementation is motivated by my role as a representative of the Hllord Chemical Corporation, a small business which manfactures supplies for liquid copiers. When a federal Supply Schedule contract is awarded to Hilord, their prices w ill be 10$-20> lower than those of

supplies now stocked in the self-service stores.

One area of interest is the Region’ s implementation of the following instructions in the August 3 memo':

"Regions are to canvass customer agencies and identify items for which

their is expressed o ffic ia l customer

- demand. Items thus identified w ill

be stocked in s e lf service stores when approved by the designalled GSA

o ffic ia l.

"Internal regional procedures and controls should be established for

selecting and approving the items for stockage."

The August 3 memo establishes the following acquisition sources:

"Acquisition through the best competitive procurement process available

may be assumed i f ordering from:

. a government wholesale stock system...

• competitive Federal Supply Schedule

, or when the item selected is the lowest priced of similar or identical

items on a multiple award schedule."
133

Mr. Walter'Kallaur Page Two ’

It is my understanding from discussions with members of your s t a ff that they

disagree with and have no intention of implementing the following instruction

in the August 3 memo:

r

"When user Agency documented requirements demonstrate the need for items

which do not meet the c r ite r ia of f . , above, the Regional Agministrator

may authorize the lowest priced item or items available from a Federal

Supply Schedule which w ill meet user Agency needs. Pending fina l adoption of a permanent policy document, Regions w ill maintain file s containing user age-icv requests/justification for items stocked in se lf-service

stores under authority of this sub-paragranh. "

The attached copy of ny October 5 le tte r to Mr. Weeks, Chief of the Region’ s

Retail Operations Branch, informs him that in ny contacts with Agencies which

use the self-services in Washington, a ll indicated that GSA determines the

brands to be stocked in the stores. None with whom I talked had been asked

by GSA what brands should be stocked.

Mr. Weeks’ s October 18 response states that orders w ill be placed for my

c lien t's products after the receipt of a specific, reauest from a customer

agency. Mr. Weeks's response avoids the key issue, inasmuch during the period without contracts, Hilord offered the lowest prices. After Hilord receives

a FSS contract, their GSA prices w ill be lower than those of competitors which

have now been awarded contracts, and it should not then be necessary for Mr.

Weeks to have to wait for a specific request.

I have also met with Ms. Jean Offhoiter. Retail Services Division Director,

to ask about the Region's implementation of the national policy. Following

is a synopsis of my understanding of the reasons presented by Ms. Offholter

for Regional deviation from the national policy:

. Ms. Offholter does not agree with the national policy expressed in the

August 3 memo.

. GSA Order ADM 1000.3 gives Regional Administrators the authority to override the directives in the August 3 memo. (Comment by Grote: ADM 1000.3

states, "Total operating responsibility for agency programs w ill be assigned to the Regional Administrators within policies prescribed by the

Administrator.)

. The Regional s ta ff is not qualified to determine what is the lowest priced

items on a multifple award Federal Supply Schedule. (Grote comment: If

GSA cannot implement it s own regulations, how can it expect other Agencies

to corn-ply when using multiple award contracts?)

. Requiring justifications for other than the lowest priced item would be unworkable when more than one Agency uses the same store, because.Agencies

which had not jus tified higher priced items would have to be prevented

fron buying higher priced items jus tified by another Agency. (Grote comment: This objection is invalid i f GSA is diligent in evaluating the

v alid ity of justifications submitted by Agencies. The Comptroller General's

May 2, 1979 Report No. B-11480? on "Ineffective Management of GSA's Multiple

Award Schedule Program— A Costly, Serious, and Longstanding Problem" is especially c r itic a l of lack of justifications or use of specious ones.)

. ’.'/hen Agencies want an item stocked, a ll they have to do is send a memo.

No need to bother with ju s tifica tions . (Ko comment.)
134

Mr. Walter Kallaur

„ . Page Three

It was my intention to meet with Mr. Boulay before bringing the matter to your

attention. However when I tried to make an appointment, Mr. Boulay told be on

the telephone that he does not meet with vendors at this time, that Ms. Offholter had reported our discussion to him, and that he supports her positions.

When I informed Mr. Boulay that no Agencies I had contacted had submitted

justifications for more expensive copier supplies, Mr. Boulay stated that the

National Capital Region is using the doctrine of "historical preference and

previous usage” (or words to that effect) to justify the procurement of higher

priced items from multiple award Federal Supply Schedule contracts.

Rather than continue with a written response to and commentary on the positions

taken by your staff and make this letter a longer treatise than it already is,

I request a personal meeting with you to discuss the Rational Capital Region’s

self-service stores procurement policies.

Very truly yours,

William Grote

WG/gf
General National

Services Capital

Administration Region Wadiington, DC 20407

£y / >/>,jA

JAN 1 1 1380

Mr. William Grote

President, Federal Marketing

and Consulting Services

3714 Manor Place, NW

Washington, DC 20007

Dear Mr. Grote:

Thank you for your le tte r o f December 3, 1979, concerning the stocking

policies for the Self-Service Stores of the National Capital Region.

The National Capital Region w ill stock items in the GSA Self-Service Stores

when the following conditions are met:

(a) A customer has a legitim ate demand;

(b) The item is controllable in terms of abuse; and,

(c) The item fit s the general description of a stationery or o ffice

supply item.

Once a request to stock an item is received from a customer agency, and

provided i t meets the conditions described above, the item w ill be considered

for stockage. The purchase of items is lim ited to items available from

m ultiple award and established source Federal Supply Schedule contracts

and government wholesale stock systems.

In response to your specific complaints regarding the lack of orders for

your product and the requirement for customer agencies to request that an

item be stocked, I o ffer the following comments:

-Orders were not sent to your c lie n t, or any other company, during the

period when the Federal Supply Schedule contracts had lapsed. The

Administrative Self-Service Stores are authorized to stock only those

items pruchased from established sources.

-A request from a customer agency must be received before an item can be

authorized for stockage in a particular store. For example, there are

over 40 contractors lis te d on the m ultiple award schedule contract for

toner. The stores in the National Capital Region do not have the space
136

to stock each of the 40 brands. Further, to determine the lowest cost

toner for a particular requirement necessitates an'in-depth analysis not

only by price, but by quantity price break and volume per container as w ell.

Please le t me know i f you require any additional information or assistance.

Sincerely,

WALTER V. KALLAUR

Regional Administrator
137

SU BPART 101-26.4 PURCHASE OF ITE M S FROM FED - -

ERAL SU PPLY SCHEDULE CONTRACTS

toi—2C.40C-4 (b)

g 101—26.408—2 Procurement at lowest

price.

Each purchase of more than $500 per

' line item made from a multiple-award

schedule by agencies required to use these

schedules shall be made at the lowest

delivered price available under the schedule unless the agency fully Justifies the

purchase of a higher priced item. Purchases costing $500 or less per line item

should also be made at the loaest delivered price under the schedule; however.

Justification for the purchase of higher

priced items is not required. Agencies not

required to use schedules, but which

choose to do so. are apprised of the advisability of fully Justifying purchases

costing more than $500 per line item

when the items are not the lowest priced

available on the schedule.

{ 101-26.408-3 Justifications.

(а) Justifications for purchases made

I at prices other than the lowest delivered price available should be based on

specific or definitive needs which are

clearly associated with the achievement of program objectives. Mere personal preference cannot be regarded as

an appropriate basis for a justification. Justifications should be clear and 

fully expressed. Recital of or reference

to one of the factors set forth in paragraph (b) of this {101-26.408-3 is not

sufficient.

<b> The following, are examples of

factors that may be used in support of

justifications when used with assertions that are fully set forth and documented.

(1) Special features of one item not

provided by comparable items are re-

. qulred in effective program performLw ance.

(2) An actual need exists for special

characteristics to accomplish identified

tasks.

(3) It is essential that the item selected be compatible with items or systems already existing within using

offices.

(4) Trade-in considerations favor a

higher priced item and produce the lowest net cost.

I * (5) Time of delivery in terms of

. actual need cannot be met by a conL» tractor offering a lower price.

(б) Justifications which Incorporate

features of the following examples must

be based on objective factors which adequately establish the advantages inherent in purchase of the higher priced item

when;

(1) Probable life of the Item selected ■•-l

as compared with that of a comparable item at a lower cost is sufficiently

greater so that the additional purchase price is economically warranted. . J

fill Warranty conditions of a higher

priced Item are sufficiently advantageous

to Justify the added cost.

(llil Greater maintenance availability,

lower overall maintenance costs, or the

elimination of problems anticipated with

respect to machines or systems, especially at Isolated use points, will produce longrun savings greater than the

difference in purchase prices.

§ 101—26.408—4 Placement o f orders

against multiple-award schedules.

(al The possibilities of selectivity

among items listed in multiple-award

Federal Supplv Schedules do not relieve

agencies of the responsibility to place

orders at the lowest delivered price

available (after application of the Buy

American differential, when appropriate) unless there are factors for consideration which definitely justify the purchase at other than the lowest price. The

responsibility exists whether the value

of an order is more or less than the applicable open market limitation. When 

purchases are made at other than the

lowest delivered price available under

the applicable Federal Supplv Schedule, 

the delivery order file or other appropriate file should contain a complete

justification for the purchase. When an

agency, pursuant to an agreement with

GSA, submits a request for GSA to purchase an item under a Federal Supply

Schedule which is other than the lowest

priced item on the schedule, the request

shall be accompanied bv a complete justification to support the procurement.

Justification for such purchases need not

accompany requests from overseas activities for overseas deliveries. However,

GSA will construe such requests to mean 

that the justification is in fact in the ordering installation's file.

<b> Where two or more items at the

same delivered price will meet the ordering agency's needs equally well, selection 

should be based on preference for the

item of a labor surplus area concern or

FE D E R A L FROFERTV M AN AGE M E NT R tG U L A T IO M I

(AM E N D M E N T E -E ll. M A T 1«7S| 2 * 2 2 .I
138

z £ / ' <?. General

Services

Administration

Federal

Supply

Service Washington. DC 20406

JH 4124

x /

Date A u g u st 5 , 1977

SSntf

0 FPP FSS PICCUREMU1T LETTER NO. 24 0

Subject M ultiple award Federal Supply Schedules - Guidance concerning c o n tra c t

coverage fo r id e n tic a l items in more than one c o n tra c t

To

A ll FSS Procuring A c tiv itie s (FPP D istrib u tio n L ist)

*■

1. Background. I t has been determined th a t c l a rifi c a tio n is pended in

our w ritte n p o licy w ith re sp e c t to procurement o f id e n tic a l item s fro .,

more than one supply source.

2. In terim Procedures. Pending fo rr a l rev isio n of GSPR 5A-73, tdie

follow ing in stru c tio n s a re e ffe c tiv e immediately:

SUBPART 5A-73.3 EVALUATION OF OFFERS AND AWARD OF CONTRACTS

S 5A-73.303-3 Id e n tic a l products

(a) Normally, a m u ltip le award Federal Supply Schedule c o n tra c t fo r a

s p e c ific product s h a ll be entered in to w ith only one c o n tra c t source.

For example, i f th e item is contracted fo r with a m anufacturer, the same

item s h a ll not be contracted fo r w ith a d e a le r. Where only o ff e rs from

d e a le rs a re involved, and i t is found th a t more than one d e a le r has made

o ffe rs on th e same product, only one c o n tra c t w ill be ente red in to fo r

th a t s p e c ific product. When o ffe rs fo r id e n tic a l products a re id e n tifie d

(see p a r. (b), below), n eg o tia tio n s w ill be conducted w ith each o f the

o ffe ro rs. The most favorable o ffe r to the Government w ill be th e o ff e r

which is accepted.

(b) Following a re guidelines fo r use by the co n tra c tin g o ffi c e r in

determining if one product is a c tu a lly id e n tic a l to another p roduct:

(1) Where the m anufacture r's id e n tity is c le a rjy lab e led and the

brand name o r number o f an item is known, a l l sim ila rly id e n tifie d items

s h a ll be considered as id e n tic a l items and only one c o n tra c t made for

such item.

(2) Vhere the m anufacture r's id e n tity is known b a t the itv .n in

d iffe r e n tly packaged and d iffe r e n tly lab e led as to b.-.-ud n-arne o r . r t ir -

e ith e r by th e d istrib u to r o r d e a le r and the co n tra c tin g u ific e r U-s

reason to b e liev e th a t the i:-m is id e n tic a l to ancti-.-r ites.i lairai ctur.

by the same manufacturer although d iffe r e n tly packaged and la b e le d , the

m a tte r should be in v e stig a te d . In such case, a p la n t f a c i l i ti e s j- p o rt

may be requested, w ith a covering mmorandum, o u tlin in g the oonhractiH?

o ffi c e r's susp ic io n s. If i t is fouixl t i n t the item is. in f a c t i .'.entice'

to another item, a ltlo -g n d iffe r e n tly packaged o r lab e led , only on.

c o n tra c t should be ente red in to fo r such items.
139

zfk A ^ 4 ?

(3) Where the contracting o ffic e r suspects but cannot actually

determine that two or more ituns being offered are actually tlie same,

such items shall not be considered as being identical items.

(4) Where it is determined that a specific product is offered

from more than one source but one of the sources in it s marketing practic e s emphasizes that service benefits w ill result i f it s product is made

available, this additional service benefit shall not be given any special

consideration unless tlie contract c a lls for such service and i s not a

straight supply contract. Where such service benefit is considered

necessary to meet the Government's needs, and the service i s provided

throughout the entire contract scope on a nationwide basis, the service

factor should be given appropriate consideration.

Ssistant Commissioner

for Procurement
NA« OP OFFEROR.

SPECIAL ITEM NBIBER(S)______________________________ ____

EVALUATim CP ECONOMIC ADVANTAGE - FEEERAL SUPPLY SCHEDULE PROGRAM

Information on each of the following six questions la required fo r each SPECIAL ITEM NUMBER regarding

the typos of terns you would o ffe r to individual Government agencies procuring in "small q u a n titie s " .

If there were no GSA Federal Supply Schedule Program -

what would be the terms you would o ffer Individual

agencies in the OPEN MARKET?

What discount would you have given to an individual Government agency If they procured in small

q uantities?

Would they have received prompt payment discounts fo r payment in 20 or 30 days? YES______NO

What percent?

3. Would they have received FOB destination terms? YES_____NO____ If not, what is the worth of the

tran sp o rtatio n you provide under your FSS contract - percentagewise?

Would they have received the same warranty? YES____ NO_____ If not, what is the worth o f the

warranty you provide under your FSS contract - percentagewise?

Under your FSS co n tra c t, do you provide fre e of charge any in sta lla tio n , c a lib ra tio n or tra in in g

th a t an agency would have to pay for if they procured on th e ir own? What is the worth-percent?

YES________NO_______

Po you provide any extended inspection, rep a ir or maintenance service under your co n tract th a t an

agency would have to pay for? YES______NO______ If\y e s, what is i t worth-percent?

After July 1, 19?? (or date of your coanserclal p ric e list used In e stab lish in g prices applicable to

your current contract have you Increased commercial prices on any of the products offered ..r.icr

th is Special Item Member? YES______ NO_______ If yes, what was the average increase percentug-

_______%? What was the date of increased prices? ___________
141

MANUFACTURERS OF

STAPLERS. STAPlES 4

CONSUMER SPECIALTIES

0 1 V. OF S W IN G LIN E IN C

3 2 -0 0 S K IL L M A N AVENUE

LONG ISLAND CiTY. N Y I HO!

PHONE: 212 E»'PIBF 1 - S55J

_____________________CABLE: SWINGSPEED NEW YORK

May 2, 1979

General Services Administration

IFB/RFP FPHO-R-7$064-':-l-23-79

Washington, D. C. 20407

Attention: Mr. D. Holmes

Dear Mr. Holmes:

With regard to the "End-of-Contract Additional Discounts Applicable to

Aggregate Sales" requested on page 21 of the so lic ita tion , Swingline

declines to voluntarily offer such discounts. However, i f a contract

w ill not be awarded without these rebates, please l e t us know the minimum percentage that is mandatory for a contract award.

Inasmuch as a ll other requirements for a contract award have been agreed

to during contract negotiations, i f the additional year-end rebates based

on aggregate sales are mandatory for a contract award, a protest w ill be

filed with the General Accounting Cffice for the following reasons:

• This requirement cannot be equitably and uniformly enforced. Contractors who are conscientious in reporting contract sales would be penaliz e d . The computer printouts of contract sales in the Schedules Information Center indicate that many contractors do not even report

sa le s. The cost to the Government of auditing firms which do not

fil e sales reports would be prohibitive i f conducted to enforce this

requirement.

. Many contractors with contracts permitting dealer participation ta c itly

permit dealers to invoice under the contract, even through the terms of

the contract may require invoicing by the contractor. Sales under

these contracts are, therefore, grossly under-reported. It would bo

impossible for the GSA to.investigate the records of thousands of

dealers which se ll under hundreds of GSA contracts in order to determine how many sales invoiced by the dealers have not been reported

by the contractors.

. All contractors are required to meet benchmarks for a contract award.

If these benchmarks produce contract prices which provide a fa ir price

for the Government while permitting a satisfactory p ro fit for the Contractor and participating dealers, it would be unfair for a Contractor

68-330 0 -8 0 - 1 0
142

General Services Administration Page 2

Z 7

with superior products which provide benefits to procuring Agencies

tj be penalized because of product acceptance if they were to be

forced to provide relates which would deplete profits.

For these reasons, it is requested that a contract for the period beginning

July 1, 1979 be awarded on the basis of the same terms and conditions agreed 

to for the current contract period.

Very truly yours,

William Grote

Federal Marketing Coordinator 

WG/etj
143

Gvneial Federal

Services Supply <

Administration Service Washington. DC 20406

JAN 1 0 1980

Office of Supply (FSB)

- ■ i V

S e lf-S e rv ic e Storos StocCage Policy

All Regional A dm inistrators, GSA

The current requirem ent for se le c tion of item s and stockage of

1

s e lf-s e r v ic e sto r e s, is that a "low est price item " determ i nation

1

m ust be made for any item that the region plans to stock if the

item is to be obtained from a non-com petitive supply sou r c e . If the

low est priced item w ill not m e e t a custom e r 's o fficial requirem ent,

1

a determ ination m ust be m ade, by the region, of each item 1

(brand/vendor) above the low est priced progr e ssiv e ly tot the item '

(brand/vendor) that does m eet the custom er's requirem ent.

After careful study, the S e lf-S e r v ic e Store Com m ittee has conchide'd

that determ ination of the low est p rice brand/vendor for storage of in

item is extrem ely difficult and generally im practical. Therefore, the

guidelines for se le c tion of item s for stockage in s e lf-s e r v ic e stored

are revised as follow s: *

a. Regions canvass custom ers for requirem ents (needs) by item

and estim ated m onthly/annual demand.

1

b. Advise custom ers of item s already stocked in the sto r c (s).

1

c . Non-Government distribution sy stem s item s available from '

such sourc es as m ultiple award schedules, should be

1

added to stock only after (1) the requesting custom er agency h as

been advised of sim ila r item s/brands already in stock; (2) the

c o st of the requested item relative to other item s/brands in '

stock has been determ ined by the region based upon demand

presented by the agency requesting the item ; and (3) after su'ch

item s have buen subjected to exam ination for sensitiv ity ,

bulkiness, order quantities, e tc . Consideration should be ‘

given to assigning responsibility for se le c tion and approval of

item s in this category to A ssistan t RvgicAia! Administrators,*.

FSS. ( ' *

I

d. Ordering techniques, i . e . , ordering for se v e ra l sto r e s at oiice,

larger quantities, e t c ., should be carefully adm inistered as'the . r

controlling factor for assuring that stock is replenished at tlie

low est cost p o ssib le . *

• , * ..

The above guidelines are in consonance with the m ission and purpose *'- • :■>

of the s e lf-s e r v ic e sto r e s program , place responsibility at appropriate

le v e ls, involve agencies in the decision p ro c e ss, provide for econom ie s through the replenishm ent of sto r e s and are to be im plem ented

within the authorities delegated for management of regional operations. '

r - r -

THOMAS D. MORRIS

C om m issioner
144

Mr. Burton. Our next witness is Mr. Caulfield, National Sales

Manager for Federal Government Olympia, USA, Inc.

STATEMENT OF ARTHUR CAULFIELD, NATIONAL SALES

MANAGER, FEDERAL GOVERNMENT OLYMPIA, USA, INC.

Mr. Caulfield. Thank you very much, Mr. Chairman.

The major thrust of my remarks was directed toward the multiple award system as well. You seem to have gotten quite a bit of

interest in that subject in this hearing. As far as H.R. 5381 is

concerned, we don’t have any great deal of difficulty with it.

The concerns that I express, and I will summarize, are not major

concerns. We support the intent of the legislation and the intent of

assuring that corruption does not creep into Government contracting and is controlled. I expect it will have very little impact on the

company that I represent, Olympia, USA, and on other major

suppliers under the multiple award schedule—with multiple award

schedule contracts.

I am a little bit concerned that some smaller contractors might

view this as one more obstacle to contracting with the Government. 

Things are pretty complex as they stand.

Any time someone views rather severe penalties, it is hard to

take them lightly. The increased audits also might prove a burden

to my own company because we do have separate lines of copiers,

typewriters, word processing equipment, dictating-transcription

equipment, and calculators, which could all be audited separately.

So a burden of separate audits could impact on us.

Rather than repeat recommendations, I have reviewed the testimony that Mr. Timbers has given and I am in concurrence with

the points that have been made by the coalition. So if I might, I

will go on to summarize the rest of my testimony.

I am very much concerned with the issue of multiple awards and

do ask the committee to concern itself with that particular issue,

even though it is being addressed by GSA at the moment, because

the actions that are taking place at the present time threaten great

damage to the small businessmen who represent Olympia and to

the office equipment industry.

I do request the committee support to help improve the program

and address these concerns rather than waiting for the actions

being taken in GSA to take their course. I think it is important to

understand that the multiple award schedule program provides an

umbrella of known consistent and fair prices and terms under

which agencies and vendors, small and large business might do

business with the Government. If the Government realizes this

ideal, I think a lot of the chaos we have seen in the procurement of

commercial products would be eliminated.

I would like to quote a little bit rather than follow the full

testimony. I would like to note that GSA in their own words in an

earlier GAO—in response to an earlier GAO report did support the

multiple award program and did state that it meets the goals of

providing an effective vehicle for the procurement and supply of

commercial products, and that the program supplies a high level of

competition.
145

I would like to note that the word “competition” has been used

rather ambiguously in a number of releases and statements made

lately by a lot of people discussing Government contracting.

The competition under multiple awards is based on multiple

aspects of doing business with the Government. I have listed 11.

Others could make other lists. But the service and the responsiveness to user needs in the user’s location are very important aspects. The cost of supplies and software, delivery time, cost and

availablity of service, the quality of repair service to back technologically-based products are all important considerations that may

be judged by the user more appropriately than by a contracting

officer located many miles away.

Under single awards, competition is focused on the price alone,

or it is focused on the estimated life cycle cost, since that one

variable will determine the award winner. This does compromise

the Government’s ability to demand those other factors that I have

enumerated in the written testimony.

I would like to also include mention that the Treasury Department has issued an instruction to their field offices that has resulted in the purchase of economical typewriters for basic clerical

tasks. This instruction has been implemented by the Internal Revenue Service at many of their field offices and has saved the taxpayers a good bit of money.

Aggregation of requirements, by contrast, often results in purchasing the most complex typewriters and the base from which we

start would be the highest price. Regardless of contracting method,

we may not have as low a price as an agency might have paid

locally for a basic configuration of a typewriter or another piece of

office equipment.

I would like to point out that with rapidly changing technology

in the office equipment field, the multiple award schedule system

makes new products available to the Federal Government immediately when they come into the commercial marketplace. Single

award contracting impedes the introduction of new products and

can cause confusion as vendors change from year to year.

Multiple award contracts provide far better geographic coverage

than single award contracts. If we consider that 27 percent of

Federal employees are located in 2,700 counties, in Social Security

district offices, in offices of the Agriculture Department, in Postal

Service locations, in Interior Department offices, and many others,

where the total Federal employment for a whole county may be

only 2,000 employees, we realize that having a local vendor for an

office product is a very important thing.

I would like to point out that, properly conceived and administered, the multiple award contracts do guarantee qualified vendors

the right to sell to Government at fair prices, but that only fair

prices, quality products and good products will earn those vendors

a share of the business.

Multiple award contracts may be the only opportunity that some

of these small vendors have to do business on a mutually advantageous basis with the Government.

Multiple award contracts may also be their only opportunity to

compete effectively with large corporations, in any industry which

may be dominated by large corporations.
146

I would like to summarize the suggestions that I have made for

improving the multiple award schedule system.

I think one of the things that we need to do in addressing this

method of procurement is to develop criteria for products that are

appropriately included both under the Federal Supply Service and

the ADTS multiple award schedule programs. Those products that

have rapidly changing technology, where characteristically numerous configurations may be used for different applications or where

local service support or training is required, are surely appropriate

products to go under multiple award schedules.

I would like to particularly point out that there should be some

provision of incentives for dealer participation where a manufacturer is the contractor. Dealer participation should be provided for

in such a manner as to allow the small businessman dealer a

reasonable profit on his sales to the Federal Government. At present, negotiating lower prices under Federal supply multiple schedule contracts compromises the opportunity that these small businessmen have to make a fair profit. They have no opportunity to

represent their own interests because the parties to the negotiations are the manufacturer and the Government.

Multiple award schedules should include product and support

services, because repair service is very, very important. Qualified 

technicians are vital to provide an agency proper support after the

product is placed in a Government office. And as the General

Accounting Office has documented, the present system has resulted

in inadequate repair and rehabilitation of office products.

Procedures should be established to allow local agencies to participate in the selection of a product on some orderly basis because

they are the best ones to define their own requirements.

In talking about the legislation that is before the committee and

in talking about 30-day restrictions on letting contracts, I perceive

a direction that takes decisions out of the hands of the people in

the local agencies. I think it would be preferable to set high standards for good management of Federal agencies and to depend more

on these for proper decisions made with economy in Government in

mind. In other words, to place as much responsibility as possible on

the activity which must use the product for proper acquisition of

that product.

I would like to thank the subcommittee very much for considering the comments that I have made and I would also like to thank

the subcommittee for expressing an interest in the issues surrounding this controversy. I would be happy to answer any questions you

may have at this time.

Mr. Burton. Thank you very much, Mr. Caulfield.

If there was a high level of standard for efficiency and economy

of Government in the agencies, we wouldn’t be messing around

with this bill. So I think we may have to set the standards for

them; even people coming in without that high standard, they

would know what they have to do.

Mr. Caulfield. Certainly.

Mr. Burton. Do you believe the GSA should have some remedies

for contract abuse that do not rise to levels of a crime; in other

words, civil penalties that we are talking about?
147

Right now you have referral to Justice, and if Justice has a

choice between an assassin, a drug smuggler and some contractor

who may have ripped off $60,000, they may never get to that

contractor.

If the administrator only has the remedy of debarment, which

again is kind of the capital punishment of a civil industry, they

may not want to take that step. What we are trying to do is again

set standards where none seem to have been either in existence or

adhered to; in such a way that gives the administrator, if the

contracting officer refers a contract to him, the right to impose

certain monetary fines. Otherwise, these other things have been on

the books and nothing has been done.

I do not see any way to have them do it every time a company

enters into an overcharge, despite the administrator, just start

going through debarment proceedings, which I think would not be

necessarily beneficial to the company or to the Gowernment. If it

happened to be one bad apple in the company or whatever, who

thought he might be doing a good thing for the company by ripping

off the taxpayers.

Mr. Caulfield. Certainly the punishment should fit the crime. I

have no difficulty with this bill from the standpoint of my own

company because I do not expect it to impact upon us. I have

worked most of my career in marketing to the Federal Government

with large manufacturers, minority suppliers in most instances,

but with large companies who depend primarily on commercial

business. I believe the latitude does not exist, nor the intention, nor

the inclination to defraud the Government in order to put money

in their pockets.

Mr. Burton. What have we been reading about?

Mr. Caulfield. I believe problems-----

Mr. Burton. It is only a handful, I would stipulate that. But it is

there, there is a lot of what you might call legal fraud. In other

words, people can engage in practices where their only penalty is if

they get caught they lose their unjust enrichment?

Mr. Caulfield. In the multiple award program there is a direct

relationship to the commercial price and the commercial practices

of a supplier. The major suppliers of office equipment that I know

of have a well-established base in the commercial marketplace that

is easily comparable to their Government prices and there exists

little room for these kinds of fraud.

Mr. Burton. This bill does not address multiple awards at all as

far as penalties and all. Every witness has said that this will

impose more redtape on the provider. All the provider has to do is

certify to the best of his knowledge that these are accurate figures,

contain accurate information. That is not a lot of redtape. That is

what is implied if you sign a contract. That is what would be

implied if Olympia signs a contract with whoever sells you your

ribbons, your suppliers. I don’t view that as a redtape imposition.

That is just a certification that they make. It might make them

sharpen their pencil a bit. That is the only reatape we are interested in.

Mr. Caulfield. As I say, I do not believe there would be any

impact of the penalties of this bill upon the company that I work

for.
148

Mr. Burton. I mean any company. In other words, it does not

impose anything on them. They have to sign a contract anyway. 

There is a certification clause in the contract that says to the best

of their knowledge and belief the above figures and information are

true.

Mr. Caulfield. Certainly, that is a reasonable requirement.

Mr. Burton. Mr. Walker.

Mr. Walker. Thank you, Mr. Chairman.

You mention in your testimony that H.R. 5381 will have very

little impact on most of the contractors dealing with GSA. Does

this mean the bill as it stands basically has your approval?

Mr. Caulfield. Yes, it does; I would concur with the comments

Mr. Timbers made. I would feel more comfortable if some of those

changes would be made. I have no objection to the bill in its

present form, however.

Mr. Walker. How do you think manufacturers would react to a

system if we could include it in the bill regarding consequential

damages, where it involves something that was included in your

product that goes bad that causes the Government expenses later

on, do you think there should be some provision for the Government to obtain damages on a consequential basis of that type?

Mr. Caulfield. I do not know if I can answer that question on

the spur of the moment. I have not given it any thought.

Mr. Walker. That was a recommendation that the Justice Department made to this committee when we originally had hearings

on this bill. They suggested that kind of thing is done under

medicare—medicare fraud where consequences do result from an

error made to the Government, that some sort of damage recovery

is there.

Do you see a problem with having that in this bill?

Mr. Caulfield. Would this be strictly relating to damage resulting from fraud?

Mr. Walker. Yes, it is fraud, primarily, that we are trying to

address.

Mr. Caulfield. I would have no difficulty with it if it were

strictly damages resulting from fraud.

Mr. Walker. What is your reaction to the proposed amendment

to have a 30-day waiting period for contract awards?

Mr. Caulfield. The 30-day waiting period would tend to slow

down an already slow process.

Quite often the processing of all types of documents that must

move through the bureaucracies is unreasonably slow. The 30-day

restriction would just give legislative approval to that slow processing. It probably is shorter than the period of time normally taken

at the moment to produce a procurement document, on the average. However, it does give that much more of an excuse for delay.

Mr. Walker. I was going to say, in your experience is that an

unreasonable time with regard to what the Government is now

doing? Can you expect the contracts to be processed in less than 30

days, as it is now?

Mr. Caulfield. For some emergency requirements contracts or

purchase orders, delivery orders under contracts are processed

much more quickly.
149

Mr. Walker. As I pointed out, there are provisions within the

amendment to deal with the emergency kind of circumstance as it

is. I think we are basically talking regular kind of business here.

Mr. Caulfield. I find that quite a few times the emergency

provisions are not taken advantage of in circumstances where perhaps they should be. It seems that many pieces of legislation, many

regulations that should not provide an inconvenience wind up

doing so, either through a misunderstanding or unresponsiveness of

those involved in the process of producing a document.

Mr. Walker. What percentage of contracts in your experience

would you say take less than 30 days to get processed?

Mr. Caulfield. I would have to specify that-----

Mr. Walker. Has it been 10 percent?

Mr. Caulfield. I wouldn’t know. My experience is limited primarily to delivery orders under multiple award schedule contracts.

I would say 30 days is a pretty good guess at an average time for

processing.

I would say that no more than 15 or 20 percent, to place a guess

on the record, would be processed in a shorter period of time than

that.

Mr. Walker. In less time than the 30 days?

Mr. Caulfield. That is correct.

Mr. Walker. Of course the attempt here is to assure that there

simply is not money dumped at any given period of time, so that if

in fact 80, 85 percent of all contracts are already in that time

schedule, it might be something that the committee would be wanting to look at, if that is within the time schedule which is already

being met by the Government.

Mr. Caulfield. I am not sure that this 30-day restriction as it is

written addresses delivery orders under multiple award schedule

contracts where many, many dollars are spent. I am not sure that

it would prevent obligation of funds on Sepember 30 and later issue

of delivery order.

Mr. Walker. I think that is a good point. Maybe that is something that Mr. Erlenborn will want to look at too, because I think

his intent is to assure that the money is not obligated either, that

you simply do not have all of the money spent in the last few days

of the fiscal year, as is obviously the intent.

Thank you, Mr. Chairman.

Mr. Burton. Thank you very much. Thank you very much for

your testimony, Mr. Caulfield.

Mr. Caulfield. Thank you.

[Mr. Caulfield’s prepared statement follows:]
150

TESTIMONY BEFORE THE HOUSE SUBCOMMITTEE ON

GOVERNMENT ACTIVITIES AND TRANSPORTATION

by

Arthur D. C a u lfie ld

N a tio n a l S a le s Manager—F ed e ra l Government ,

OLYMPIA USA INC

June 9 , 1980
151

Mr. Chairman, my name is A rthur D. C a u lfie ld . I am N a tio n a l S a le s

Manager fo r F e d e ra l Government fo r Olympia USA In c , an o ffi c e machine

m an u fa c tu re r d istrib u ti n g th ro u g h ind ep en d en t d e a l e rs. My o th e r

a f f i l i a t i o n s in c lu d e a c tin g as Advisor to th e Government R e la tio n s

Committee o f th e N a tio n a l O ffic e Machine D e a le rs A ss o c ia tio n , and

as th e D istr i c t o f Columbia S ta te Chairman fo r th e C o a litio n fo r

Common Sense in Government Pro curem ent.

The te stim o n y I am p r e s e n tin g today r e p r e s e n ts my own v iew s, r a th e r

th an th e o f f i c i a l p o sitio n o f any o f th e o rg a n iz a tio n s I have m entioned.

However, I b e lie v e t h a t th e s e view s a re c o n sist e n t w ith th e i n t e r e s ts

and o p in io n s o f th e s e o rg a n iz a tio n s, th o s e o ffi c e machine d e a le rs who

r e p re s e n t Olympia, and th e in d u stry a s a w hole.

In my o p in io n , th e b i l l , H.R.5381 w ill have l i t t l e im pact upon th e

c o n tr a c tin g o f most m an u fa c tu re rs w ith GSA. As has been in d ic a te d ,

i t is aimed a t th o s e who p e r p e tr a t e fra u d upon th e Government.

However, I am concerned t h a t some may in a d v e rte n tly v i o l a t e p ro v isio n s

and s u ff e r se v e re p e n a lti e s. Rather th a n r e p e a t recom m endations, I would

lik e to e x p re ss co n cu rren ce w ith th e comments o f Mr. Timbers re g a rd in g

th e p e n a lty p ro v isio n s o f th e b i l l .

I am a ls o concerned th a t th e b i l l f a i ls to a d d re ss much more p r e ssin g

iss u e s r e l a ti n g to GSA c o n tr a c ts. The environm ent c r e a te d in th e wake

o f th e GAO r e p o rt on GSA's M u ltip le Award Schedule Program and r e v e l a tio n s

o f o th e r c o n tr a c tin g ir r e g u l a r i t i e s has r e s u lte d in co n fu sio n and g r e a t
152

harm to num erous s u p p l i e rs . F u rth e r a c ti o n s now b e in g ta k e n to

e lim in a t e m u ltip l e award c o n tr a c ts to th e g r e a t e s t e x t e n t p o ssi b l e

t h r e a t e n f u rt h e r damage to th e i n t e r e s ts o f s u p p li e rs and a g e n c i e s.

I t is in t h is c o n te x t t h a t I r e q u e st t h a t th e c om m itte e s u p p o rt and

h e lp im p ro v e th e M u ltip le Award S c h e d u le P ro g ram . T h is one p ro c u rem e n t

program o f f e rs sm a ll b u sin e ss e s th e b e s t— and in m ost c a s e s th e o n ly —

o p p o rtu n ity to do b u sin e ss w ith F e d e r a l a g e n c ie s on a m u tu a lly a d v a n ta g e o u s

b a s is .

I d e a l l y , th e MASP p ro v id e s an u m b r e lla o f known, c o n s is t e n t , and f a i r

p r i c e s and te rm s u n d e r w hich a g e n c ie s and v e n d o rs— sm a ll o r l a r g e — 

may do b u si n e ss. I f t h is i d e a l i s r e a l i z e d , th e G overnm ent w ill be s p a re d

much c h ao s in th e p ro c u rem e n t o f com m ercial p r o d u c ts.

The G e n e ra l A c c o u n tin g O ffi c e and th e S e n a te Sub com m itte e on F e d e r a l

S p en d in g P r a c ti c e s v ig o r o u sly o p p o se m u ltip le award c o n tr a c ti n g . GSA

is now p ro c e e d in g to r e p l a c e s e l e c t e d m u lti p l e award c o n tr a c ts w ith

c o n tr a c ts w hich r e s u l t in aw a rd s to o n ly one v e n d o r f o r a g iv e n ite m .

These d e v e lo p m e n ts r e q u ir e t h a t v e n d o rs and ag en cy p e rs o n n e l who 

c o n sid e r m u ltip l e award c o n tr a c ts e s s e n t i a l t o th e i n t e r e s ts o f G overnm ent,

s u p p l i e rs , and p o t e n t i a l s u p p li e rs m ust e x p r e ss c o n c e rn o v e r th e

ir r e v e r s i b l e damage b e in g d o n e .

GSA's ow n .w o rd s, c o n ta in e d in th e r e s p o n s e t o an e a r l i e r GAO r e p o rt

(PSA D -7 7 -6 9 ), p ro v id e one e x c e ll e n t d e f e n s e o f t h is p ro g ram :

'The m u ltip le award p ro g ram , a s a method o f s u p p ly , u t i l i z e s com m ercial
153

d istrib u ti o n c h an n e ls and e n a b le s F e d e ra l a g en c ie s to p u rch a se commercial

o ff-t h e -s h e lf, p ro d u c ts th a t have an e sta b lis h e d m arket a c c e p t a b ility and

as su ch , p ro v id e s an e ff e c ti v e v e h ic le fo r im p lem en tatio n o f th e OFPP

p o lic y c o n c e rn in g procurem ent and supply o f commercial p r o d u c ts ....

F u rth e rm o re , th e program p ro v id e s fo r a high le v e l o f c om p e titio n in

t h a t i t t a k e s advan tag e o f o r f o st e rs c o m p e titio n ..." '

While GSA may no lo n g e r ag re e w ith th e above sta te m e n t, th e com p e titio n

f o ste r e d by m u ltip le awards is more b ro a d ly -b a se d th an t h a t stim u la te d

by sin g le award c o n tr a c tin g . Under m u ltip le aw ards, a g e n c ie s b e n e fit

from c om p e titio n based on:

1. Respo n siv en ess o f p ro d u c t to u s e r’s a p p li c a tio n

2 . Q u a lity o f p ro d u c t

3- Q u a lity o f i n str u c ti o n , programming, o r o th e r su p p o rt s e r v ic e s

4. W arranty p ro v isio n s

5. A v a ila b ility and q u a lity o f r e p a ir s e r v ic e p ro v id ed d u rin g

th e w a rran ty and t h e r e a ft e r

6. A v a ila b ility o f s p e c ia l f e a tu r e s o r c a p a b iliti e s

7 . Cost o f s u p p li e s, so ftw a re , o r s e r v ic e s

8. D e liv e ry tim e

9- C o n sisten cy o f c o n tr a c t o r's p a st perform ance

10. Net a c q u isitio n c o st

11. O ther f a c to rs th e u sin g agency c o n sid e rs im p o rtan t

Under sin g le aw ards, c om p e titio n is focused on p ric e (o r e stim a te d

l if e c y c le c o s t) , sin c e th a t one v a ria b le w ill d e te rm in e th e award

w in n e r. T h is compromises th e G overnm ent's a b i l i t y to r e q u ir e p ro p e r

perform ance o f th e o th e r fu n c tio n s l is t e d ab ove.

Under m u ltip le aw ards, a g en c ie s a r e allow ed to l e t u s e rs p a rti c i p a t e in
154

th e c h o ic e o f brand and c o n fig u r a tio n . As an example o f how t h is works

in fav o r o f th e Government, many D istri c t O ffic e s o f th e I n t e r n a l

Revenue S e rv ic e , under an in str u c tio n issu e d by th e T re a su ry D epartm ent,

have been p u rc h a sin g ty p eb a r e l e c tri c ty p e w rite rs a t a low er c o st th an

th e more fr e q u e n tly re q u e ste d sin g le elem ent m achines. Typebar e l e c tr i c s

a re e q u a lly p ro d u c tiv e (o r more p ro d u c tiv e ) in th e numerous a p p li c a tio n s

which do n o t r e q u ir e in te rc h a n g e a b le ty p e s t y l e s . Based on stu d i e s which

in d ic a te lower i n i t i a l c o st, lower s u p p lie s c o st, and l e s s fre q u e n t

f a il u r e s fo r ty p e b a r m achines, good management a t T re a su ry and IRS

has r e s u lte d in sa v in g s to th e ta x p a y e r.

By c o n tr a st, a g g re g a tio n o f re q u irem e n ts fo r c e n tr a li z e d p u rch a se o fte n

r e s u l ts in s p e c ify in g th e most v e rs a t i l e , h ig h e st p ric e d p ro d u c t in o rd e r

to a ssu r e t h a t a maximum number o f v a rie d a p p li c a tio n s w ill be met by each

u n it p u rc h a se d .

Allowing a g e n c ie s to s e l e c t from among numerous p ro d u c ts on m u ltip le

award c o n tr a c ts a ss u r e s th a t new te ch n o lo g y a v a il a b l e to th e commercial

s e c to r w ill be a v a il a b l e to th e Government. T h is c o n sid e r a tio n is

p a rti c u l a rly im p o rta n t in view o f i n i t i a t i v e s in OFPP and o th e r a g e n c ie s

d e sig n ed to ta k e ad v an tag e o f ra p id ly - c h a n g in g in fo rm a tio n management

te c h n o lo g y . S in g le award c o n tr a c tin g would impede in tr o d u c tio n o f new

p ro d u c ts and cau se c o n fu sio n a s vendors change from y e a r to y e a r.

M u ltip le award c o n tr a c ts p ro v id e f a r b e tt e r g eo g rap h ic coverage th an

th e sin g le award c o n tr a c ts which GSA in te n d s to u se more e x te n siv e ly .

R e a liz in g th a t over 87% o f F ed e ra l employees a re lo c a te d o u tsid e o f

t h e .W ashington a re a a n d , f u rt h e r, th a t over 27% a re lo c a te d in 2,700
155

c o u n tie s w ith fewer th an 2,000 employees p e r co u n ty em p h a sise s th e need

fo r coverage o f remote lo c a tio n s w ith c o n tr a c t p ro d u c ts and s e r v i c e s.

P ro p e rly con ce iv ed and a d m in iste r e d , m u ltip le award c o n tr a c ts would

g u a ra n te e a l l q u a lifi e d v endors th e ri g h t to s e l l th e Government, b u t only

f a ir p ri c e s, q u a lity p ro d u c ts, good s e r v ic e would e a rn e a rn ven d o rs a

• sh a re o f th e b u sin e ss.

The ri g h t to s e l l t h e ir f u l l lin e a t f a ir p ri c e s is p a r ti c u l a rl y

im p o rtan t to th o s e v endors who do n o t dom inate t h e ir i n d u stri e s and

to th e d e a le rs who may r e p r e s e n t them. Only by having t h is o p p o rtu n ity

can th ey compete e ff e c ti v e ly w ith th e c o rp o ra te g i a n ts who s e l l sim ila r

p r o d u c ts.

F o rtu n a te ly , t h is Subcommittee has e x p re ss ed a w illin g n e ss to c o n sid e r

th e v iew p o in ts o f th o s e a ff e c te d by c o n tr a c tin g c h an g e s. The i n t e r e s ts

o f Government a s w e ll a s la r g e and sm a ll s u p p li e rs w ill be se rv ed by

r e ta in in g m u ltip le aw ards, even in t h e ir p r e s e n t form. The i n t e r e s ts

o f a l l th r e e w ill be se rv ed even b e tt e r i f needed re fo rm s a r e i n s t i t u t e d .

The Sub com m itte e 's su p p o rt and a ssist a n c e a r e needed to b rin g about

t h is a c tio n .

Among th e improvements and re fo rm s needed a r e :

1. Development o f c r i t e r i a f o r p ro d u c ts which should be in c lu d e d

in m u ltip le award program s under FSS and ADTS. P ro d u c ts which

have r a p id ly changing te c h n o lo g y , numerous c o n fig u r a tio n s fo r

d iff e r e n t a p p li c a tio n s, o r which r e q u ir e lo c a l su p p o rt a c t i v it y

to f a c i l i t a t e u se should q u a lif y .
156

2 . D e te rm in a tio n o f a p p r o p ri a t e v e n d o rs. GSA sh o u ld c o n tr a c t w ith

th e m a n u f a c tu re r o r h is d e sig n e e , to a ss u r e t h a t a l l r e q u ir e m e n ts

f o r n a tio n w id e d is tr i b u t i o n and s u p p o rt may be met by th e p a rt y

u ltim a t e l y r e s p o n si b l e f o r th e p r o d u c t. ;

3. P r o v isio n o f i n c e n ti v e s f o r d e a l e r p a r t i c i p a t i o n . D e a le r

p a r t i c i p a t i o n a s a m a n u f a c tu r e r's r e p r e s e n t a t i v e sh o u ld be «

r e c o g n iz e d and e n c o u r a g e d .

4 . M ethods o f n e g o ti a ti o n sh o u ld a llo w s u f f i c i e n t r e v e n u e s f o r

d e a l e rs to make a r e a s o n a b le p r o f i t . N a tio n a l O ffi c e M achine

D e a le rs A ss o c i a tio n st u d i e s show t h a t d e a l e r r e v e n u e s from

F e d e r a l s a l e s u n d e r p r e s e n t m u ltip l e aw ard c o n tr a c ts o ft e n

f a i l t o c o v e r c o s ts o f d o in g b u sin e ss w ith th e G o v e rnm en t.

5 . M u ltip l e aw ard c o n tr a c ts sh o u ld in c lu d e b o th p ro d u c t and

s u p p o rt s e r v i c e s , t o a ss u r e e f f i c i e n t r e p a ir s e r v i c e by

q u a l if i e d t e c h n i c i a n s a t f a i r p r i c e s . P ro b lem s w ith th e

a l t e r n a t i v e , si n g l e award c o n tr a c ti n g by GSA R e g io n s, a r e

docum ented in GAO r e p o rt #PSAD-80-5.

6. P ro c e d u r e s a llo w in g u s e rs in l o c a l a g e n c i e s t o s e l e c t th e

b e st b ra n d o r v en d o r f o r t h e ir a p p l i c a t i o n . New g u i d e l i n e s,

i n f o rm a tio n , and t o o ls o f a n a l y s is w ill be n e ed ed to a llo w

t h is t o be done p r o p e rl y .

On b e h a lf o f num erous s u p p li e rs and p o t e n t i a l s u p p l i e rs , I th a n k th e
157

S u bcom m itte e f o r g iv in g t h o u g h tf u l c o n si d e r a ti o n t o n e ed ed r e fo rm s o f

F e d e r a l c o n tr a c ti n g and p ro c u rem e n t p r a c t i c e s . In k e e p in g w ith th e

S u b c om m itte e ’s c o n c e rn f o r economy in g o v e rnm en t and f a ir n e s s o f d e a lin g s

w ith s u p p l i e rs , I r e s p e c tf u l l y r e q u e st t h a t you stu d y th e iss u e s s u rro u n d in g

I th e m u ltip l e aw a rd s c o n tr o v e rs y , and i n i t i a t e such a c ti o n a s may be

n e c e ss a ry to r e t a i n and im p ro v e t h is p ro g ram . I w il l be happy to c o n s u lt

f u rt h e r w ith th e S ubcom m itte e s t a f f r e g a r d in g th e s u g g e stio n s made in

r

t h is te stim o n y .

I th a n k y o u , Mr. Cha irm an , and th e Members o f th e S u b c om m itte e , f o r t h is

o p p o rtu n ity to t e s t i f y . I w il l be happy to answ er any q u e stio n s you may

have a t t h is tim e .

Mr. Burton. I would like to thank all of the witnesses for their

suggestions, most of which I feel are constructive and that we

should be able to address in our markup deliberations and in the

committee report. We may be contacting you for some further

clarification.

If there are no further comments, the subcommittee is adjourned.

[Whereupon, at 2:55 p.m., the subcommittee adjourned, to reconvene subject to the call of the Chair.]

68-330 0 - 8 0 - 1 1

A P P E N D I X E S

APPENDIX 1.—EDUCATIONAL PACKAGE ON THE MULTIPLE

AWARD CONTRACTING SYSTEM PREPARED BY COALITION FOR COMMON SENSE IN GOVERNMENT PROCUREMENT

Educational Package on the

MULTIPLE AWARD

CONTRACTING SYSTEM

Prepared by

COALITION FOR COMMON SENSE

IN GOVERNMENT PROCUREMENT

Contact

Michael J. Timbers, President

Coalition for Common Sense in

Government Procurement

1990 M Street, N.W., Suite 570

Washington, D.C. 20036

(202)331-0975

(159)
160

SUMMARY: Background data on the MULTIPLE AWARD

CONTRACTING SYSTEM

I. DESCRIPTION

The multiple award schedule system is the principal f

contracting method for the Government to buy commercial

products. The General Services Administration (GSA) negotiates

annual multiple, indefinite quantity contracts with contractors

who offer similar, but not identical, products. The contractors

give the government discounts off their commercial prices and ’

certify that the government receives prices as low as or lower 

than their most preferred customers. Multiple award contracts

are used to purchase items for which it is impracticable or

unnecessary to develop specifications.

After GSA negotiates these contracts and establishes

standard terms and conditions, as well as preferred prices, user

agencies within the Federal government can then order directly

from the multiple award schedule contractors. Agencies are

required under existing procurement regulations to order the

lowest priced items to meet their needs.

The system offers government users commercially accepted

quality products which are competitively priced and

technologically up to date. Industry storage and distribution

facilities are utilized and agency requirements are filled 

quickly.

II. MAKE UP OF CONTRACTORS

There are approximately 4,000 multiple award contracts. Of

that figure, approximately 2,360 — or 62% — are let to small

business firms. The number of small firms able to utilize 

multiple award contracts increases to over 90% when you add small

business dealers who are able to use contracts of large company

manufacturers. These firms sell between $2 and $3 billion to the

government off of the multiple award contracts.

III. THE PROBLEM

The General Services Administration is attempting to remove 

the multiple award contracting system from being a contracting

alternative without examining the system to measure its real

value. In eliminating the system, as evidenced by the statistics

in II above, small business firms will feel the most impact and

will no longer have an equal opportunity to sell their products

to the government.
161

- 2 -

GSA Administrator Rowland Freeman is being supported, if not

urged and directed, by Senator Lawton Chiles. Senator Chiles has

demonstrated a limited, distorted understanding of the multiple

award contracting system. He has confused it with spec buying

for stock and is unreceptive to industry attempts to discuss the

issue. Administrator Freeman is also reluctant to personally

discuss the issue with industry.

A number of Senate hearings on the multiple award system

have been held, but industry is repeatedly exempt from presenting

its testimony. What has been heard most often are the findings 

of a May 1979 General Accounting Office report of the problems

which GAO found with the sytem. Industry has refuted these

findings with documented evidence but the Senate and GSA

repeatedly ignore this evidence.

Administrator Freeman demonstrates no willingness, nor has

he offered any plans, to correct the problems in the existing

multiple award system. Instead, he is blindly planning a

lengthy, unnecessary and costly contract system reorganization,

virtually leading to the elimination of the multiple award

system. His objective, he says, is to convert over 80% of the

dollar volume currently covered under the multiple award program

over the next two to three years to a buying program utilizing 

unique government specs.

IV. IMPACT OF ELIMINATION

If Senator Chiles' and Adminstrator Freeman's efforts to

dismantle the system are successful, the primary means by which

small businesses can participate in selling to the Federal

government will be cut off. Small firms will be thrown into

competition with firms many times their size. They will also be

forced to compete with foreign firms which are able to undercut

domestic small business prices.

V. REASONS FOR GOVERNMENT OPPOSITION

GSA says it is opposed to multiple award schedules because

they:

• Offer too wide a variety of items;

• Have too many suppliers of similar items;

• Offer limited competition;

• Are not monitored sufficiently by ordering agencies;

• Do not allow the government to utilize its purchasing

volume efficiently to get the best prices;

• Contain questionable items.
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As can be seen from this list, the criticisms center on

management responsibilities, not on the system.

In addition, because he confuses the multiple award system

with spec buying for stock, Senator Chiles says the schedules

are:

• Invitations for fraud by contractors;

• Abused by ordering agencies;

• Fraught with poor quality products.

VI. REASONS FOR INDUSTRY SUPPORT

Industry acknowledges that improvements are needed to the

multiple award system, but it adamantly disagrees with Senate and

GSA plans to discard the system prior to examination,

modification where necessary, and appropriate testing. Rather

than create a new system for commercial products, industry favors

renovating the existing system so the government can fully 

benefit from all that which is inherently advantageous in it.

Industry believes that most of the criticism leveled at the

system has been motivated by Senator Chiles' efforts to

capitalize on favorable publicity by attacking so-called

government waste.

This is the most popular method for commercial product

producers to sell their off-the-shelf products to the Federal

government. Industry supports the system because it offers

government the ability to get commercial products that ate:

• Commercially tested and accepted;

• Competitively priced;

• Technologically current;

• Quickly available in small quantities;

• Delivered to agency doors, alleviating government

storage and distribution requirements.

In addition to eliminating small businesses from having an

equal opportunity to contract with the government, GSA will be

encouraging the growth of single award contracting, thereby

reducing competition; encouraging negotiation on price only,

discarding the value of product quality; encouraging the

proliferation of the marketplace by companies manufacturing forgovernment-only products which, in the long run, will increase

the cost for commercial products the government will spend

annually.
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V II. APPENDIX

The a tt a c h e d a p p e n d ix o f f e rs a d e t a i l e d lo o k a t th e m u lti p l e

aw ard c o n tr a c t i n g s y s t e m . . . i ts a d v a n ta g e s and d is a d v a n t a g e s,

comments made by th e C o a litio n in s u p p o rt o f th e sy stem to

v a rio u s F e d e r a l g o v e rnm e n t o r g a n i z a t i o n s, a s w e ll a s a d d it i o n a l

r e a s o n s f o r s u p p o rtin g th e m u lti p l e aw a rd s p ro g ram a s a

w o rth w h ile and c o st e f f i c i e n t c o n tr a c ti n g m e th o d .

A l is t i n g o f th e m a t e ri a l f o llo w s.
APPENDIX CONTENTS

Paper prepared by the National Office Products Association,

National Micrographics Association and the National AudioVisual Association entitled "The Government's Commercial

Product Policy — What's It All About?"

White Paper by the National Micrographics Association

entitled "How Should the Government Buy Commercial Products?"

National Office Product Association, National Micrographic

Association and National Audio-Visual Association joint

rebuttal to General Accounting Office's 1979 report

"Ineffective Management of GSA's Multiple Award Schedule

Program — A Costly, Serious, and Longstanding Problem."

Comments by the Computer and Business Equipment Manufacturers

Association of a report of the Congress, by_the Comptroller

General of the U.S. entitled "Federal Supply Service Not

Buying Goods at Lowest Price Possible."

Testimony of Michael J. Timbers before the Subcommittee on

Federal Spending Practices and Open Government regarding

S. 1264.

Suggestions of factors to be considered by GSA before any

large scale change is made in the multiple award contracting

system.

Excerpt from Government Executive magazine entitled "GSA's

Commercial Spec Founded on a Myth."

Coalition's recommendations (partial) to the White House 

Conference on Small Business.

Partial statement by Mike Timbers at the public hearing

held by the Office of Federal Procurement Policy regarding

its Uniform Procurement System.

Excerpt from Government Purchasing Outlook newsletter

entitled "S.5 Examined at Hearing."

Fact sheet on the Coalition for Common Sense in Government

Procurement.

Sample GSA multiple award contract.
165

APPENDIX A

THE GOVERNMENT'S COMMERCIAL PRODUCT POLICY - WHAT'S IT ALL ABOUT?

Prepared by the National Micrographics Association,

the National Audio-Visual Association, and the

National Office Products Association.

Q. How does the government buy commercial products?

A. The government normally buys commercial products in one of two

ways. It employs a multiple award schedule system whereby all.

suppliers in one particular product category receive a contract

and each individual agency is free to select the item from that

supplier which best suits its needs. Or it makes a single award

to one manufacturer based upon a product specification. The

multiple award system, which is the largest centralized procurement system for commercial items, is administered by the Federal 

Supply Service (FSS) within the General Services Administration

(GSA). The principal requirements for obtaining a multiple

award schedule contract is that the items offered are sold commercially and not just to the government and that the company 

desiring a contract will give GSA an attractive discount off its

regular commercial prices.

The Federal Supply Service and the Defense Logistics Agency administer the largest centralized procurement programs for commercial items that are bought against a specification. In both

these government activities, single awards to one supplier are

made on the basis of lowest bid price; and most of these items

are then warehoused and distributed through government facilities

There is one other method of selling commercial products to the

government, and that is by dealing directly with a user agency

without one of the centralized procurement agencies acting as a

middleman. This type of government purchase is often referred to

as an "open market" purchase, and agencies will normally buy this

way when the supply systems of neither GSA nor the Defense Logistics Agency are able to meet their needs.

Q. What are the government's policies concerning commercial product

procurement?

A. The Office of Federal Procurement Policy (OFPP), part of the

Office of Management and Budget, is the principal procurement

policy making body within the Federal Government and, as such,

it has the responsibility to develop the government's commercial

product procurement policies. Its policy in this area was first 

announced in May 1976 and has been restated in numerous policy

documents since that date:

"The government will purchase commercial, off-the-shelf

products when such products will adequately serve the govern

ment's requirements provided such products have an
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established commercial market acceptability. The 

government will utilize commercial distribution

channels in supplying commercial products to its users."

Q. Why are commercial product manufacturers so concerned about

government specifications?

A. The real concern of many commercial product manufacturers is

not the fact that the government has specifications for commercial products,but the fact that the government uses these

specifications as a basis for single awards. In many product

categories where technology is rapidly changing and there are

numerous competitors in the commercial marketplace, the government's policy of making a single award deprives many manufacturers and dealers from being able to participate in the

government market. Furthermore, when the government buys a

commercial product against a specification, it is freezing the

technology at that point. Specifications also generally call

for the lowest level of product quality and often exclude higher

quality and more cost effective products on a life cycle cost 

basis.

Recent trends within the government toward functional or performance specs and away from detailed design specs have been

positive steps, but it will be impossible for many higher value

products to compete when price is the only basis for award. In

product categories where the technology is stable and everyone

in the industry is basically producing the same type product, the

rationale for a single award based on the lowest price is very

logical. However, as the majority of government specifications

are over five years old, the use of a specification as the basis

for a single award in those areas where technology is constantly

changing guarantees that the government will be getting old,

outdated and inferior products.

Q. Won't single awards produce better prices for the government?

A. That's a very common misconception. In many cases where we are

talking about a rather standardized product (e.g. paper clips),

this is probably true. However, in any product category where

technology is constantly changing (e.g. office machines, audiovisual products or micrographic equipment and supplies), this is

not the case.- Almost all government specifications in these areas

make it impossible for a manufacturer or a dealer to offer an

off-the-shelf commercial item as most government specifications

require some modification — whether it be in design, tests,

marking or packaging. These modifications drive up the price

of the off-the-shelf product.
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Even if the government does receive a lower price for an item

under a single award, that does not necessarily mean that it is

minimizing the total cost to the government for that particular

item. Often, items which may appear to have a higher initial

cost are actually less costly to the government on a life cycle

costing basis because of lower operating or maintenance costs.

Further, often when the government makes a single award, it

forces manufacturers to exclude their dealer networks from

participating in the government contract so that the manufacturer can bid low enough to have the lowest price and win the

award. Therefore, the item then does not receive the benefit

of the full service and training which a dealer network normally

provides to commercial customers.

There is still another factor which also influences the total

cost to the government. Many times, by making a single award,

the government will encourage little-known manufacturers with

no commercial product experience to develop unique government

items to meet particular specifications. User agencies within

the government will not be satisfied with these unknown brands

and will buy on an "open market" basis, often without the benefit

of any government discounts, the items which they really need

from the established, brand name manufacturers. So while the

GSA believes it is saving 20 percent on a particular item, it

may be saving that 20 percent on only 10 percent of the actual

government requirements while the other 90 percent of the government requirements are being bought at normal commercial prices.

Q. Doesn't the government have to make single awards based on low

bid price?

A. This is another popular misconception. Actually, regulations

which GSA itself has developed require GSA to make single awards

based on lowest price if an adequate specification is available. 

The real dilemma comes in attempting to define what is an adequate specification. Take the case of overhead projectors. For

over five years now, without success, GSA has been working on

developing a specification as a basis for a single award on 

overhead projectors. It has been unable to come up with an adequate specification because technology in the industry is changing

so fast.

This argument of being required to make single awards is one that

the spec writers continue to perpetuate as it provides continuing

justification for their existence. In fact, procurement regulations give contracting officers a fairly wide latitude in determining their method of procurement if they are willing to question

the adequacy of their outdated specifications.
What is the effect of single awards for highly competitive commercial products on government users?

Single award contracts for highly competitive commercial products have very detrimental effects on government users.

Government agencies often do not get what they really need to

fulfill their missions. They are often forced to pay higher

prices for items they are forced to buy on an "open market" 

basis. Generally, technology of single award products is one

to ten years behind what can be obtained just from buying offthe-shelf on an "open market" basis.

But the most disturbing effect is that the buyers within the

centralized supply system are, in essence, telling the technical personnel within the various agencies what they need to

run their various operations. Many agencies will just sit back 

and grumble privately, but many are forced to buy what they

need directly. A 1974 General Accounting Office report revealed

that some $3 billion worth of commercial products are being bought 

directly by the agencies themselves in those areas where GSA 

is supposed to provide all the products to meet their needs.

What is the effect of single awards for commercial products on

industry?

Here again, the effects are negative. There is less competition

within the government marketplace as many companies feel that

their higher quality, more technology-oriented products do not 

have a chance of selling within the government market. These

companies ignore the government marketplace as a potential sales

area for their new technology. Further, it’s another source of

irritation between the business community and government as many 

industry people are frustrated with the apparent illogical acts

of the government in continuing to buy lower technology, outdated 

and less cost-effective products.

Why doesn't GSA, as the major commercial product buyer, change 

its procurement policies?

Many within GSA would like to see their procurement policies 

changed and have been advocating reform for years. However, as

within any bureaucracy, there are strong forces which cling to

the old traditions. When policies have been followed for years,

it becomes very difficult to convince people that change is

needed. At the present time, the spec writers within GSA have

been able to convince upper management that specifications for

many types of highly competitive commercial products are in the

best interests of the government.
169

APPENDIX B

HOW SHOULD THE GOVERNMENT

BUY COMMERCIAL PRODUCTS?

P r e p a r e d b y :

The N a t i o n a l M i c r o g r a p h i c s A s s o c i a t i o n
170

The subject of the federal acquisition of commercial products has received a great

deal of attention recently. Both the national and trade press have had numerous articles

extolling the virtues or condemning the abuses of various acquisition practices. With all

the emotionalism surrounding most publicized accounts of government procurement, it is

difficult to separate fact from fiction and to objectively evaluate the different acquisition

techniques used by the federal government.

The objective of this paper will be to discuss the pros and cons of the current

acquisition techniques used by the federal government, to provide background on recent

developments in acquisition policy and to suggest approaches for the future acquisition of

commercial products.

ACQUISITION METHODS

Federal acquisition is based on two underlying statutes, the Federal Property and

Administrative Services Act of 19^9 and the Armed Services Procurement Act of 19^7.

These acts allow for three methods of acquisition.

1. The Sealed-Bid System

Both of these laws indicate that the preferred method of procurement is the

competitive sealed-bid approach. This approach requires the development of a product

specification and an award to the lowest responsive and responsible bidder.

The sealed-bid technique is used extensively within the federal government to

procure commercial products. It is most often used to procure products that are

warehoused and distributed through the government's own depots, although often the

commercial contractor will perform the warehousing and ship directly to government

users. It is the traditional government procurement practice that has served the nation

well since Revolutionary times.

The sealed-bid technique requires a clearly understood specification or product

description to be effective. It requires a definition of the government's requirements that

allows anyone an equal opportunity to compete without favoring any particular proprietary

product. It is especially effective to procure items that generally are not subject to

technological improvements. Manufactured items such as paper, paint, packaging

materials and hand tools; raw materials like steel; and agricultural products are all

procured very effectively by the sealed-bid technique,

The sealed-bid technique has the following advantages:

1. It allows all bidders to. compete on exactly the same basis since the products

they offer are all the same, and price is the only criteria for award.

2. It is quick and easy to evaluate bids when price is the sole determinate.’

3. It is easily understood by government purchasing officials.

<1. It encourages standardization.
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However, there are some disadvantages to the sealed-bid method.

1. It requires the government to maintain specifications that are current with

the state-of-the-art.

2. It does not allow the government to correct any errors (e.g. poorly w ritten

spec) that may be noticed after the bids are opened—it must either make an

award or cancel the entire procurement.

3. It often provides the government with items that are similar to commercial

products but are actually a little different. By attem pting to w rite a

specification that does not favor any one manufacturer, the government may

require an item that no one can provide without modifying his standard item .

In essence, a unique government item is created.

4. It is a costly and tim e consuming technique that may involve months between

identification of a requirement and subsequent award.

5. In most cases, it virtually eliminates the value of commercial product

warranties because products may sit in government warehouses for most of

their warranty period before they are put into use.

6. It encourages the development of contractors who exist solely to produce

items fo r the government.

7. It stifles the effective development of new technology since it provides no

incentive fo r a contractor to improve his product.

8. It tends to perpetuate the usage of obsolete products by government agencies.

9. It discourages competition as it tends to favor long standing contractors who

have am ortized their equipment on prior awards.

10. It usually eliminates the use of established dealer and manufacturer owned

service outlets for training and equipment repair.

11. It encourages government buyers to deliberately "stretch" their requirements

in order to ju s tify what amounts to a sole source procurement of the item(s)

they actually prefer.

2. The Multiple Award System

In addition to the sealed-bid method, the government also employs a technique

called the m ultiple award schedule system to acquire commercial products. The roots of

this system can be traced back to the Treasury Department in the 1920s where indefinite

quantity requirements contracts were negotiated w ith m ultiple contractors. In today's

system, the General Services Administration (GSA) negotiates m ultiple, indefinite

quantity, annual contracts w ith contractors who offer sim ilar (but not the same) products

and who w ill offer the government preferred discounts o ff their commercial prices. The

system is authorized under existing procurement regulations as an exception to sealed-bid

contracting in those cases where it is "im practicable to develop an adequate

specification."

*
172

After GSA negotiates these contracts and establishes standard terms and conditions

as well as preferred prices, user agencies within the federal government then order

directly from the m ultiple award schedule contractors- However, they are required under

existing procurement regulations to order the lowest priced items to meet their needs.

Items in highly competitive markets where there are continuing technology

advancements are well suited for multiple award contracts. Products and systems in such

fields as micrographics, audio-visual, duplicating and technical equipment lend themselves

to multiple award contracting.

The principal advantages of the multiple award schedule contract system are as

follows:

1. It provides a way to competitively procure products where technology is 

changing rapidly and it is impossible to w rite "fa ir" specifications that re flect

current state-of-the-art technology.

2. It assures the government of receiving commercial off-the-shelf products.

3. It utilizes the commercial distribution system and local service facilities.

It assures that the government receives prices, terms and conditions equal to

or better than any commercial customer ordering in similar quantities.

5. It provides a simple, quick way to order relatively small quantities of

commercial products and receive rapid delivery.

6. It allows user agencies to select the item which best suits their particular

needs.

7. It allows contractors to compete in the government marketplace in the same

fashion in which they compete in the commercial marketplace.

8. It allows small business manufacturers and dealers to compete effectively

against large businesses for a share of government business in their

geographic area.

On the other hand, the multiple award contract system has the following

disadvantages:

1. It may not provide prices as low as definite quantity, sealed-bid awards.

2. It gives agencies wide latitude in product selection, and agencies may choose

higher priced items than they really need.

3. It makes it d iffic u lt for the government to standardize, as every contractor

offers a somewhat different product.

* <t. It requires the submission of extensive pricing data by prospective

contractors for the government to ensure itself that it is getting the best

possible prices.

5. It is often misunderstood by government ordering personnel who are more

fam iliar w ith the traditional sealed-bid approach.
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3. The "Open Market" System

There is one other technique of acquiring commercial products for the government.

In this system, the requiring agency deals directly with contractors without availing itself

of either a centralized government-wide requirements contract or a governmental depot

system. (The General Services Administration (GSA), Veterans Administration (VA) and 

Department of Defense (DOD) all operate centralized depot systems for different

commodities.)' This type of government procurement is most often referred to as "open

market" purchasing. In making open market purchases, using agencies may use either a

sealed-bid method, competitive negotiation or small purchase procedures (these allow

simplified procurement techniques—telephone quotations—for purchases under $10,000.)

The extent of "open market" purchasing is unknown since the government has no

centralized record keeping for this sort of activity. However, the General Accounting

Office (GAO) has estimated that the volume of "open market" purchasing may equal the

volume of purchasing under both the sealed-bid or multiple award system conducted by the

centralized supply activities. This fact seems to support the premise that user agencies

clearly do have different requirements and that they will ignore the centralized supply

systems if these systems do not meet their needs.

DEVELOPMENT OF CURRENT ACQUISITION POLICY

In December 1972, the Commission on Government Procurement (COPG) published

its findings after a comprehensive review of the entire federal procurement system. One

significant recommendation was that the government should make greater use of

commercial distribution systems and should purchase commercial off-the-shelf products.

The Commission made a strong appeal for the government not to create its own "almost

commercial" products but to utilize what is already available from industry.

Further, in May 1976, the Office of Federal Procurement Policy implemented this

key COGP recommendation with the following directive which still provides the major

policy guidance for the purchase of commercial products:

"The government will purchase commercial, off-the-shelf products when such

products will adequately serve the government's requirements provided such

products have an established commercial market acceptability. The government

will utilize commercial distribution channels in supplying commercial products to

its users."

In April 1977, Sen. Lawton W. Chiles, Jr., introduced the Federal Acquisition Act of

1977 (S. 126*0 which was intended to provide additional implementation to many of the

COGP recommendations. Specifically, in the area of commercial product acquisition, this

bill provided for the increased usage of functional or performance specifications in lieu of

detailed design specifications to promote the use of off-the-shelf commercial products.

The bill also recognized the fact that competitive negotiation was just as valid an

acquisition technique as competitive sealed bidding and indicated that the multiple award

schedule system was an acceptable competitive negotiation technique.

While this bill was not passed into law during the 95th Congress, the philo’sophy

expressed within the bill is reflective of present day procurement practice, and the bill is

expected to be reintroduced during the 96th Congress. Further, the directions indicated in

S. 126<( are already shaping the acquisition policies of the Office of Federal Procurement

Policy which has been supportive of using both functional or performance specifications

and multiple award contracting.

68-330 0 - 8 0 - 1 2
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OPPOSING POINTS OF VIEW

This subject, the best way for the federal government to acquire commercial

products, produces equally vocal advocates on both ends of a sprectrum that runs from

single, sealed-bid awards based on design specs on one end to multiple awards on the

other. Basically, the sealed-bid advocates will argue that specifications can be developed

for every government requirement, and single awards can thus be made. Part of this

group is also moving away from the use of design specifications and is advocating the use

of functional or performance specifications. They believe that simplified, shortened

purchase descriptions can be developed to assure maximum competition and sealed-bids

without the need to maintain detailed federal or military specifications. There is also a

great deal of support for the concept of "two-step" procurement, whereby prospective

contractors offer a proposed product design in response to a functional specification in the

first step, and then those product designs which the government deems acceptable are

eligible for price competition during the second step.

Advocates of the opposite point of view will argue that the multiple award system

is the only way to acquire commercial products. They believe that the government

inhibits the introduction and use of new technology by developing specifications—whether

design or functional—and making single awards. They believe the multiple award system

is a competitive negotiation system that provides the government technologically superior

products at lower prices than commercial users of the same products. They argue that it

also allows the government to take advantage of off-the-shelf delivery, local service and

better warranties.

Those in favor of multiple awards also point out that the system is a boon to small

business manufacturers and independent dealers who would be unable to compete in a

sealed-bid situation. It allows small businesses all around the country the opportunity to

compete for government business in their geographical area in the same way they compete

for commercial business. On the other hand, the sealed-bid method excludes unsuccessful

bidders from participating in government business. It deprives the government of taking

advantage of the highly developed commercial distribution system which exists in this

country.

WHO’S RIGHT?

We would suggest that neither group is completely right—nor completely wrong.

Rather, we believe that both techniques are valid and appropriate in different situations.

The problem is picking the procurement technique that best fits the needs of the

government and peculiarities of the product and/or industry which is involved.

We recommend that the following be considered before a decision is made as to the

appropriate acquisition technique for a particular product:

1. What is the total value of the procurement?

2. How many .items are normally ordered at one time?

ordered during a given time?

How often are they

3. What is the nature of the market situation for the product? Is it a highly

competitive market? Is it an area where technology is moving quickly or is it

marked by rather gradual changes in product function and design?

*. Is there a recognized commercial distribution system?

purchased economically in numerous locations?

Can the product be
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5. What are the needs of the user agencies? Do they have different

requirements based upon their mission requirements, or can they all use the

same item?

6. Is the product one that requires a large capital investment to manufacture, or

is it a product that is primarily labor intensive?

7. How have the government's requirements previously been supplied? Are small

or minority businesses dependent upon the government business?

8. And, probably most important, what is the most cost-effective system to

supply government users considering all costs to acquire and deliver an item

to the ultimate user?

In some cases, it will be more efficient for the government to utilize specifications

and make a single award. In others, multiple award schedules will make more sense. In

still others, agencies should purchase their needs on an "open market" basis.

We caution those in government and industry who believe that only one technique

will solve all the government procurement problems. For example, it would be a mistake

to believe that short, simple performance specifications are the answer to buying

commercial products. Adequate performance or functional specifications may actually be

more difficult to develop than the more traditional design specifications. In some

situations, they may work extremely well; in others, they may be a disaster. Well written

functional specifications may actually be longer than the design specifications they seek

to replace.

Likewise, multiple award contracts should only be utilized where there are obvious

cost advantages to the government. If a commodity is readily available at numerous

commercial outlets and is subject to frequent price-cutting market pressures (e. g., handheld calculators), it is probably not cost-effective for the government to have a

centralized multiple award type contract.

We recommend that the procurement policy makers in Congress and the Executive

branch give government buyers the greatest flexibility in determining the method of

acquisition that best suits their needs. It is easy to be swayed by stories of increased cost

utilizing one technique or another, but we believe that all recognized approaches are

needed. We also believe that all the existing techniques can be improved. Both the

sealed-bid and multiple award contracting techniques need to be continually re-evaluated

and strengthened.

The problem facing government procurement officials is not to pick one technique

for commercial product acquisition over another, but to establish the most appropriate

criteria that makes a particular technique more preferable in a given situation. We hope

that policy makers in both the Legislative and Executive branches keep this in mind as

they develop further acquisition policy. The decisions which are made over the next few

months are critical to the thousands of small and large businesses who supply the

government's requirements of commercial products.
176

APPENDIX C

April 27, 1979

NEW GAO REPORT DRAWS OPPOSITION FROM TRADE ASSOCIATIONS

The National Audio-Visual Association (NAVA), the National

Micrographics Association (NMA), and the National Office Products 

Association (NOPA) are objecting to a new General Accounting Office

(GAO) report entitled, "Ineffective Management of GSA’s Multiple 

Award Schedule Program— A Costly, Serious, and Longstanding Problem." 

The GAO prepared the report at the request of Rep. John L. Burton

(D-California), Chairman of the Subcommittee on Government Activities

and Transportation.

In a joint statement, the trade associations said, "We had

hoped that the GAO would take an objective and balanced look at the

multiple award contracting system. Instead, what the GAO has

presented is a poorly researched, sensationalized report that is not

up to its usual standards of unbiased reporting." NAVA President

Robert Gordon said, "We all want to see improvements at GSA. GSA

does have management problems. But when GAO wants to give year long

monopolies to single companies instead of relying on the multiple

awards system— that's throwing the baby out with the bath water."

The associations maintain that "the conclusions in the report

were reached before the study was performed, and the study team researched only those contract situations that support their preconceived notions. They attempt to portray the most ludicrous examples
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of inefficiency they could find and lead the reader to believe

that the examples are typical of the entire program."

NAVA, NMA, and NOPA agree with the GAO that improvements

are needed in management of the multiple award schedule system.

"We have stated publicly on previous occasions that more attention should be given to the types of items put on schedules,

that government buyers need more market research to familiarize

themselves with the industries they are dealing with, and that

improved management controls should be established over the

program. However, we are appalled at the so-called facts which

GAO uses to support its conclusions," the associations said.

The NAVA, NMA, and NOPA joint statement gave the following'as

examp 1es :

• On page 11, GAO refers to a study that indicated

$180,000 a year could be saved if overhead projectors 

were purchased on a single award basis utilizing a

government specification instead of under the multiple

award system. GAO is incorrect because GSA actually

estimated savings from $39,500 to $61,500 a year.

Further, GAO fails to mention that this savings contains numerous errors. It was prepared by the GSA

spec writers, who at that time were advocating giving

all the overhead business to a single firm. In fact,

using the numbers generated by the spec writers, NAVA

proved that the government is already saving $80,000

under the multiple award system. Ignoring the savings

under multiple awards, the Army attempted to buy overhead projectors which had to be specifically built to

a government specification, but the project was a total

disaster. Some five years after the Army attempted this

type of single award procurement, only 2,000 of 6,000

projectors have been delivered. Had the Army stuck to

off the shelf projectors commonly used throughout the

United States, this would have never happened. We think

that GAO ignored the Army case because it doesn’t support

the GAO thesis.
178

- 3 -

On page 24, GAO im p lie s th a t a vendor can j u s t r a is e

h is l i s t p ric e if a GSA b u re a u c r a t demands a g r e a te r

d is c o u n t. What GAO does n o t say is th a t to l e g a lly r a is e

a p ric e , a company would have to r a is e i ts p ric e s t o a l l

custom ers and not j u s t to GSA. F u rth e r, a company I 'p

cannot g e t a m u ltip le award c o n tr a c t u n le ss th e m a jo rity I

o f i ts s a le s a re to commercial c ustom ers. So, r a isin g

p ric e s j u s t to comply w ith a government d is co u n t would

be unwise b u sin e ss p r a c tic e in most c a s e s.

• On p a g e 3 0 , GAO r e p o r ts t h e c a s e o f a m a n u f a c t u r e r and

d e a l e r s e l l i n g t h e same it e m on a GSA s c h e d u l e a t d i f f e r ­

e n t p r i c e s . B e sid e s th e f a c t t h a t th e p r i c e s q u o te d by

GAO a r e l a s t y e a r ’s p r i c e s a n d th u s o u t - o f - d a t e , GAO

f a i l s t o m e n tio n t h a t GSA h a s a fir m p o l i c y a g a i n s t

a w a r d in g c o n tr a c ts f o r t h e sam e it e m to tw o d i f f e r e n t

v e n d o rs . We a g r e e w ith GAO t h a t t h is s h o u ld n o t o c c u r ,

b u t we fi n d i t i n t e r e s t i n g t h a t o n ly o n e e x am p le o f t h is

was show n when GAO i n d i c a t e s t h a t i t r e v ie w e d a p p r o x im a t e ly 1 ,0 0 0 c o n tr a c ts c o v e r i n g t e n s o f th o u s a n d s o f i t e m s .

• On p a g e 4 2 , GAO im p li e s t h a t t h e g o v e rn m e n t is o n e c u s t o ­

m e r, a n d i n d u s tr y s h o u ld d e a l w ith t h e g o v e rn m e n t a s i f

a l l o f g o v e rn m e n t w e re l o c a t e d i n o n e p l a c e . I n f a c t ,

t h e r e a r e w e ll o v e r 1 0 0 ,0 0 0 s e p a r a t e a g e n c y o r d e r i n g

a c t i v i t i e s , an d t h e s c h e d u l e p ro g r am w as d e v e lo p e d to

s e r v i c e t h e v a r i e d and r e l a t i v e l y s m a ll o r d e rs from a l l

o f t h e s e t h o u s a n d s o f l o c a t i o n s .

• On p a g e 4 6 , GAO i n d i c a t e s t h a t GSA s a v e d $2 m i l l i o n by

s w i t c h i n g from m u l t i p l e to s i n g l e aw a rd on 16mm m i c r o f ilm .

The t r u t h o f t h e m a t t e r is t h a t t h e p r i c e o f 16mm m i c r o ­

f ilm h a d d ro p p e d 75 p e r c e n t i n t h e c o m m e r c ia l m a r k e t o v e r

a y e a r b e f o r e GSA c h a n g e d i t s p r o c u r e m e n t p r a c t i c e s . The

s w it c h i n p r o c u r e m e n t m e th o d h a d a b s o l u t e l y n o t h i n g to do

w ith t h e s o - c a l l e d s a v in g w h ic h GAO r e f e r e n c e s . The

p r i c e s d ro p p e d b e c a u s e o f m a r k e t c o n d i t i o n s an d n o t b e ­

c a u s e o f GSA. Then on p a g e 4 6 , u si n g f a u l t y a ss u m p tio n s

s u c h a s , "GSA made t h e p r i c e s d r o p , " GAO e s t i m a t e s t o t a l

s a v i n g s t h a t m ig h t be o b t a i n e d by c h a n g in g th e e n t i r e

m u l t i p l e aw a rd p ro g r a m .

• On p a g e s 4 8 - 5 6 , GAO, b a s e d on a s am p le o f 24 it e m s ,

c o n c l u d e s t h a t t h e s t a t e s a r e g e t t i n g b e t t e r p r i c e s th a n

GSA. H o w e v e r, GAO c o n v e n i e n t l y o v e rl o o k s t h o s e s i t u a t i o n s

w h e re GSA is g e t t i n g b e t t e r p r i c e s th a n t h e s t a t e s .
Further, GAO virtually ignores the fact that the states'

contracts are definite quantity while GSA operates an

indef inite quantity contracting program. This whole

section compares apples and oranges and is statistically

invalid.

On page 51 and 52, references are made to price differentials between state and federal prices on Sharp calculators

However, GAO again ignores that the state prices are based

on definite quantity commitments while the federal prices

are based on indefinite quantities.
180

APPENDIX D

PRODUCT PRICING UNDER MULTIPLE-AWARD

FEDERAL SUPPLY SERVICE CONTRACTS

CBEMA comments on a Report of the Congress by the

Com ptroller General of the United States

"Federal Supply Service Not Buying Goods a t Lowest Possible Price"

The General Accounting O ffice has stated in a report Issued

March 4, 1977 th a t:

o Some contractors charged the Government more fo r th e ir products

than they charged commercial customers who brought smaller or comparable

quantities of those products.

o If the Federal Supply Service had sought and obtained prices

comparable to those given other customers, the Government could have

saved $1.2 m illio n on products bought from fiv e contractors.

The above statements, which appear on the cover of the report along

with the t i t l e , are misleading, and do a disservice to the Federal Supply

Service (FSS), the contractors Involved, and the multiple-award contracting

program it s e lf .

The discussion In th is paper Is presented as follow s:

o Multiple-award contracting: The need. The System. The

a lte rn a tive s .

o Multiple-award contracts versus commercial sales under annual

aggregate purchase agreements,

o M ultiple-award contracts versus commercial sales to o rig in a l

equipment manufacturers (OEMs).

o Multiple-award contracts versus single-award contracts,

o Contractors p ric in g data provided fo r multiple-award negotiations.

o Conclusions and recommendations.

Multiple-award Contracting

The Federal Supply Service (FSS) has established a program consisting

of m ultiple-award term contracts fo r In d e fin ite quantities of commercial

products. The products can be ordered d ire c tly from suppliers by any

Federal a c tiv ity In the United States.
181

The contracts are for o ff-th e -s h e lf products sold to the general

public through dealers o r manufacturer o u tle ts . The con trac ts ofte n

Include customer serv ice , operator in s tru c tio n , w arranties fo r one

or more years, maintenance service, and supply requirements. At an

FSS-negotiated discount, the contracts provide Federal users throughout

the United States w ith Item selectio n and customer service comparable to

th a t a va ila ble on the commercial market.

This program s im p lifie s the purchase process fo r a ll Federal user

a c tiv itie s by c e n tra liz in g the negotiation of terms and co n d itio n s and

by assuring reasonableness o f p rice fo r any item bought under the

contract. The user agency simply places a one-page d e liv e ry order w ith

a local dealer or manufacturer o u tle t and pays fo r items received o r

service rendered in accordance w ith the terms and con ditions o f the

FSS contract.

With a few exceptions every item In each m ultiple-award co n tra c t

Is subject to a maximum order lim it. The contracts are designed to

s im p lify the process and paperwork fo r the purchase o f small q u a n titie s

of commercial products required by user agencies a t o r near the place

of need. Very large procurements are not perm itted, re q u irin g oth er

methods o f procurement.

The contracts are c a lle d m ultiple-award because they are executed

w ith several sup p lie rs fo r each product lin e . This method o f support

Is generally the most cos t e ffe c tiv e fo r o ff-th e -s h e lf products th a t

are widely a v a ila b le through commercial o u tle ts th a t serve the general

pu blic. Since the s u p p lie r's product d e scription Is the basis of the

contract, development o f Government s p e c ifica tio n s Is unnecessary. The

use of established commercial d is trib u tio n systems also elim in ates the

costs o f Government storage and d is trib u tio n . Both the purchase o f

commercial Items and the use o f commercial d is trib u tio n systems are

consistent w ith the p o lic y set fo rth in OMB memorandum. May 24, 1976,

Subject: Procurement and Supply of Commercial Products.

Some of the seldom recognized b e nefits of m ultiple-award contracts

are th a t they:

o Provide fo r a way to meet v a ria tio n s In agency requirements due

to mission needs and changes In operating co n ditions.

o Enable s e le c tio n o f the su p p lie r w ith the best o r most responsive

service o rg aniza tion a t a p a rtic u la r user locatio n.

o Provides array o f devices and m aterial w ith widely varying features.

o Elim inates the enormous burden o f an untold number o f separate

con tracts. •

o Elim inates expense o f preparing and m aintaining s p e c ific a tio n s or

purchase d e s c rip tio n s .
H H B H B n g f l ■ B

182

o Attracts many contractors to doing business with the government

which is vital in the event of mobilization or other emergencies.

Many State and local government purchasing activities use the

multiple-award contracts as pricing standards for procurement. Thus,

the FSS multiple-award contract system has a beneficial ripple effect

on non-Federal government units.

One alternative to multiple-award contracting Is a single-source

exclusive contract of a given commercial product for direct delivery to

Government agency Installations. This approach requires the development

of product specifications and conditions for delivery, warranty, and service

to enable solicitation and award to a single supplier. The unit price

resulting from a single-source contract for a large quantity of a

of off-the-shelf items, but the total cost of the process to the Government

is significantly higher and the timeliness of support to thousands of

Federal users is reduced.

The first alternative, a single-source term contract, requires the

use of Government specifications and reduces the range, and often the

quality, of items available, causing many users to Ignore the Federal

contracts and make expensive ojpen-market purchases.

A second alternative, i.e., the purchase of quantities of an item

under a Government specification for stock In Government warehouses and

distribution to users as needed, is exceedingly expensive. Studies by

the Commission on Government Procurement have shown that such a system

frequently costs as much or more to administer than the savings In price,

achieved by consolidating requirements.

It is self evident that due to the disparity In delivery requirments

and other contract items and conditions, a fair comparison of multipleaward contracting with the foregoing alternative methods cannot be made

on price alone, even when only the Government interests are considered.

Multiple-award Contracts Versus Commercial Sales Under Annual Aggregate

Purchase Agreements

The GAO report cites three examples of an alleged disparity between

the discounted prices given to FSS and those given to other customers under

annual aggregate purchase agreements.

In each example the quantity discount given to the commercial customer

was for a firm purchase commitment with delivery to one or a very few

locations. The multiple-award contract identified by the GAO guaranteed

no quantities and was available to thousands of customers throughout the

United States. The terms and conditions of the non-Government sales contracts differed significantly from those in the multiple-award schedules.
183

I t does not appear reasonable or fa ir fo r FSS to expect the same

prices offered to other volume customers when the delivery conditions

and other contract terms s ig n ifica n tly d iffe r from the terms of the

Government s o lic ita tio n . The Government should not be authorized to

use noncomparative prices In negotiations without appropriate adjustment.

The rationalization that the great volume of business done by the Government c o lle c tive ly compensates fo r the difference In terms and conditions

is not va lid . For the most part, th is volume accrues from many small

purchases by a staggering number of ordering locations. However, th is

type of price information should be obtained fo r the Government's consideration In evaluating alternative contract approaches.

Multiple-award Contracts Versus Commercial Sales to Original Equipment

Manufacturers (OEMs)

The GAO reports several examples In which suppliers gave original

equipment manufacturers (OEMs) better prices than they gave the Government

on multiple-award contracts. These OEM sales are exclusive contracts fo r

large quantities often delivered to a single assembly point. There Is

l i t t l e customer service (because the purchasing company is not the ulitmate

user) and generally no warranty Is required.

The terms and conditions for these agreements, as well as the quantity

commitments, d iffe r so greatly from those of Federal multiple-award contracts

that a fa ir comparison Is not possible. As in the case of annual aggregate

purchase agreements, the base fo r negotiations is the terms and conditions

set forth in the s o lic ita tio n and not simply the to ta l quantity or volume

Involved.

Multiple-award Contracts Versus Single-award Contracts

The U.S. Forest Service example cited by the GAO was fo r a quantity

that exceeded the maximum order lim itation of the referenced m ultipleaward contract. The example shows the benefits In prices to a single using

a c tiv ity th a t was able to Identify specific requirements, develop sp e c ifications, and s o lic it bids fo r a single award. For proper comparison, the

cost of the buying process should be computed to determine to ta l savings

to the agency. In other words, "Total Economic Cost" as developed by the

Commission on Government Procurement should be considered, not Just the

purchase price.

The multiple-award contract program requires a ll agencies to s o lic it

bids or proposals on specific requirements that exceed the maximum ordering

lim itation (MOL) or to have these purchases made fo r them by the FSS. For

large quantity purchases, th is feature of the contract ensures that the

Government customer seek more favorable prices through separate s o lic ita tio n .

The terms and conditions of multiple-award contracts re s tric t contractors

from accepting orders that exceed the MOL.
184

Contractors Pricing Data Provided fo r Multiple-award Negotiations

The GAO report indicates that proposals did not always show the

extent of discounts contractors give to other customers. This conclusion was made on the basis of "A comparison of contractor sales

records th a t showed numerous Instances of better discounts given to

other customers than to FSS." *

Federal Procurement Regulation I-3.801-I states th a t:

I t is the policy of the Government to procure

property and services from responsible sources a t v

fa ir and reasonable prices calculated to re s u lt in

the lowest ultim ate overalI cost to the Government.

Sound pric in g depends p rim a rily upon the exercise

of sound judgement by a ll personnel concerned with

the procurement.

I t appears to us th a t "fa ir and reasonable prices" relate to the

terms and conditions of the s o lic ita tio n and the re su ltin g contract.

The terms and conditions with respect to FSS m ultiple-award contracts

include prepaid delive ry to any user a c tiv ity in the United States and

the customer services normally associated with re ta il sales. The prices

s o lic ite d and the marketing data supporting the prices c le a rly relate to

the terms and conditions of the proposed contract and not to other sales

th a t a company makes under varying circumstances to other customers.

The GAO inference th a t the Government should be given the same or

better prices than any other customer regardless o f cost, delivery conditions,

and other contract terms is an Issue th a t needs to be resolved. Price

Information on contracts with d iffe re n t terms and conditions w ill generally

be provided by our member companies fo r the purpose of evaluating a lte rnative methods of procurement. However, If a member prefers not to include

date unrelated to the s o lic ita tio n , I t should not be considered as incomplete or inaccurate submission of p ric in g data. For large single procurements (exceeding the MOL) the contractor may not be able to disclose

the prices because they may not be established In advance.

Conclusions

We do not agree with the GAO recommendation th a t FSS develop procedures

to enable i t to obtain discounts and/or refunds equal to those obtained under

non-Government aggregate purchase agreements or o rig in a l equipment manufacturer discount, unless the terms and conditions of the contracts are

comparable.
185

In determining appropriate contracting methods, i t is esse ntial th a t

the using agencies' needs be recognized and th a t s ig n ific a n t costs associated

w ith the buying process and use of the products be considered and the tim eliness of response to the user should also be a major consideraton.

The com petitive nature o f m ultiple-award contracts ( I) in the marketplace, (2) by FSS in negotiating discounts, and (3) throughout the period

of performance, needs to be recognized.

The bottom lin e Is the to ta l economic cost of the Government a t the

point o f use. As o u tlin e d by the Commission on Government Procurement,

th is cost includes s ig n ific a n t fac tors beyond p ric e . Many of these fa c to rs ,

such as the costs of development o f s p e c ific a tio n s , are generally ignored

in form ally advertised purchasing. Thus, the b e nefits o f com petition

obtained through the negotiation of m ultiple-award contracts are Just as

s ig n ific a n t as those obtained In formal a d ve rtis in g .

This analysis stresses the advantages o f m ultiple-award con tra c tin g ,

but CBEMA does not recommend it s use exclusive of oth er purchasing methods.

CBEMA endorses use of the procurement and support method th a t y ie ld s the

least to ta l cost to the Government. Our recommendation Is th a t the optimum

method be determined by consideration o f a 11 s ig n ific a n t cost fa c to rs , not

simply the con tract u n it p rice .
186

APPENDIX E

FACTORS TO BE CONSIDERED BY GSA BEFORE ANY LARGE SCALE CHANGE IS

MADE IN MULTIPLE AWARD - INDEFINITE QUANTITY PROCUREMENT METHOD.

1. What is the affect on small business

. Extent of small business participation currently

. Extent of small business participation in definite quantity

procurement

. Viewpoint of small business toward system

2. How would it affect using Agencies

. Manpower (How much additional procurement manpower would

be required,.)

. Could agencies meet needs on a timely basis

. Would a sudden significant change result in another fiasco

3. Is it known where the current method is most effective? Is it for

large and small or small quantity procurements involving:

Equipment purchase

Equipment rental

Maintenance of Government-owned equipment

Supply purchase

4. Has it been determined that any significant combining of agency

needs is feasible particularly for the wide variety of higher

technology items, widely varying features, and service support.

5. Is it feasible to consider definite quantity-advertised

procurement of

. Rental of relatively low cost high technology items considering

Federal inability to make a long term commitment.

. Purchase of relatively low cost, high technology products which

require training and service support in both metropolitan areas

and, more importantly, in the more remote Federal installations.

6. Has it determined under what circumstances or for what products

the use of definite quantity-advertised procurement is most cost

effective.
187

7. Definite Quantity-Advertised are awarded on lowest price.

Is lowest price the most cost effective for all products,

particularly equipment rental and purchase considering

support requirements (service availability, training).

8. Is it feasible to force the agencies to increase sharply

the open market contracting for many small procurements in

view of the many Federal Socio-economic contract requirements (SCA, Affirmative Action, Small Business subcontracting, 

and the like).
188

APPENDIX F

Testimony of Michael J. Timbers at hearings held before the Subcommittee

on Federal Spending Practices and Open Government (Committee on

Governmental Affairs), July 18, 19, 22, 26, and 28, 1977 regarding

S.1264

TESTIMONY OF MICHAEL J. TIMBERS, PRESIDENT, THE

WASHINGTON MANAGEMENT GROUP

Mr. Timbers. Mr. Chairman, I am very happy to be here. As you

indicated, I am president of the Washington Management Group,

which is a consulting firm specializing in governmental procurement

issues.

I am also on the staff of the graduate school of business at Michigan

State University, where I teach a course on public sector procurement.

I am very pleased to testify on S. 1264, the Federal Acquisition Act

of 1977, in order to share with the committee some of my frustrations

and concerns with the current method of procuring commercial-type

goods within the Federal Government.

The observations I will express today reflect my previous experience

as Commissioner of the Federal Supply Serv ce from 1973 through 

1975, and my work in the private sector since leaving public service.

My remarks this morning also have the endorsement of the National

Audio Visual Association, the National Micrographics Association,

the National Office Products Association, and the Computer and 

Business Equipment Manufacturers Association.

Before I get into my specific comments concerning the bill, I would

like to take this opportunity to praise the efforts of this committee

through the leadership of its chairman for the tremendous strides

that have been made in the procurement area since the Commission 

on Government Procurement issued its report in 1972.

Such achievements as establishment of the Office of Federal Procurement Policy; reform of major system acquisitions; creation of the

Federal Procurement Institute; oversight investigations into the

Department of Defense’s beef procurement program and the Small

Business Administration’s 8(a) program; and implementation of the

recommendations of the Commission on Government Procurement

we just a few examples of what this committee can point to with 

Justifiable pride.

This bill is but a continuing example of the effective and innovative

leadership which you personally, Mr. Chairman, your committee,

end your excellent staffhave brought to the procurement field.

I am particularly interested in the effects of this proposed legislation 

pPon the commercial product manufacturers and distributors of

•his Nation.

Current governmental acquisition policies are forcing many of our

kading commercial product manufacturers and distributors out of

•he Government marketplace.

These policies arc resulting in excess costs and outdated technology 

wTthin the Government’s supply system. It is my hope and the hopes

of hundreds of commercial product manufacturers and distributors

that your billl can return common sense to the Government’s purchase

of off-the-shelf commercial jproducts.

My testimony is divided mto two parts. First, I have a number of

textual recommendations on specific sections of the bill.

And, second, I would like to focus on an area that I feel is not

adequately covered in the bill; the need for a strong statutory base for

the multiple award contracting system.

However, in the interest of time, the textual recommendations are

attached to my testimony and, with the chairman’s permission, I will

provide them for the record and not go through them in detail.

Senator Chiles. It will be included in full in the record.
189

Mr. T imbers. Thank you, Mr. Chairman. Turning now to the

subject of multiple award contracting, I think it is important to

first provide some background on what has been occurring in the

procurement of commercial products over the last few years.

When I was Commissioner of the Federal Supply Service in December

of 1974, the General Accounting Office published a report on improving

the procurement programs of the Federal Supply Service.

Tnis report pointed out that the Federal Supply Service was only

providing about 50 percent of the commercial-type goods and services

that they could potentially be supplying to other agencies.

Or to put it another way, agencies were buying 50 percent of their

commercial goods and services on their own, without coming through

the Federal Supply Service.

As Commissioner at that time I was obviously concerned; as a

taxpayer, I remain concerned, because I see the tremendous loss of

governmental purchasing power as each agency does its o r a thing and

pays regular commercial prices for its commercial goods.

My investigations into the problem at that time and my experience

with commercial product companies and governmental users since

leaving public service have convinced me th at the basic reason for

this problem is the fact that the Federal Supply Service is generally

not providing the commercial items that other agencies really want

and need.

Under their interpretations of current procurement law and regulation, Federal Supply is convinced that they should be writing specifications and making single awards for all types of commercial items.

And, for many types of low technology, high volume, rather generic

types of items such as paperclips, pencils, paper products, packaging

materials, simple hand tools, and the like, this policy maaes sense.

However, they are mistakenly applying th at same approach to

commercial items, where there is intensive competition in the marketplace, fast-moving technology, important maintenance and service

considerations, and numerous slightly different product models to

reflect different requirements and applications.

Attempting to wTite a single Government specification to satisfy

all user needs just to make an award to one manufacturer is ridiculous.

This policy has led to many minimal quality, outdated products

being bought by the Government at excess prices. It has driven higher

quality products provided by established commercial product manufacturers and distributors, both large and small businesses, out of

the Federal Government marketplace.

An obvious question is: How did the Government get into this

position? I think a large part of the answer goes back some 10 years

ago when the Government wrote a specification for the procurement

oi computer tape.

Within 2 years after the introduction of this specification and the

resultant single award, the Government’s price for computer tape

had dropped by 50 percent.

The Government specification and procurement personnel assumed

that their specification was responsible for this apparent savings, in

the millions of dollars, and this apparent success provided the incentive

to WTite more and more specifications for other high technology

products.

However, the Government mnde an assumption in this case that a

minimal amount of investigation would have shown to be completely

fnllncious.

68-330 0 - 8 0 - 1 3
190

What renlly happened during that time period was that a tremendous

range of competition in the commercial marketplace coupled with

savings in raw materials and normal manufacturing efficiencies as the

product matured created the downward price pressure.

Actually, the Government, who represented only 10 percent of the

total jnarketplace, was getting prices that were only slightly better

than any normal commercial user was getting by buying in small

quantities and, in fact, Government prices were actually 30 percent

higher than what large commercial users were paying for the same

tape, but without the unique Government testing, marking, and

packaging requirements.

I might add that 10 years later with thousands of dollars still being

spent every year to maintain a specification and perform special

Government testing, Federal Supply still pays more than large

commercial users for the same product.

A few other more recent examples that might be of interest to the

committee include the following: Government agencies are supposed

to purchase audio cassettes, the kind you would use in any tape

recorder, from Federal Supply.

Federal Supply purchases these cassettes against a specification that,

incidentally, the largest commercial cassette manufacturer in this

country does not meet, and offers a standard 60-minute cassette in

their supply catalog for 79 cents.

A higher quality, 60-minute cassette is available to any Government

agency off the shelf at 73 cents and below. Under a single award

contract in the summer of 1976 Federal Supply awarded all of the

audio cassette business to a relatively unknown manufacturer who

produces all their cassettes in Haiti in a plant that Federal Supply

never inspected before the contract award.

Nine months later, the manufacturer was delinquent on 400,000

cassettes. In this situation, it is no wonder that a far higher percentage

of Government users purchase cassettes on an open-market basis

directly from the eight highly competitive and well respected commercial manufacturers rather than through Federal Supply.

Likewise, on many lengths of one-quarter inch sound tape, Government agencies can purchase a state-of-the-art, off-the-shelf product

through normal commercial distribution channels at lower prices than

the product Federal Supply offers.

A product, incidentally, that reflects technology 10 years behind

the times. For example, the lowest bid price on the most recent

solicitation for a 2,500-foot reel of this tape was $8.30, while a better

off-the-shelf product can be purchased at hundreds of locations around

the country for approximately $7.

Another example of this blind dedication to trying to develop 

unique Government products for well-established commercial items—

and one that Bob Judson mentioned a few minutes ago—is the Government’s continuing efforts over the last 5 years to develop specs for

overhead and super 8 millimeter projectors.

Here are product areas with intensive commercial market competition and rapidly moving technology that are sold and serviced by

hundreds of small, independent dealers throughout the country.

Yet the Army continues to purchase overhead projectors against

an outdated purchasing description for stocking in their depots and 

Federal Supply continues relentlessly to develop a unique Government specification for overhead projectors.

Incidentally, it is my understanding that the Army’s most recent

purchase of overhead projectors for their depot program was at a price

higher than the retail price for a comparable off-the-shelf machine

from a major manufacturer.

With the Chairman’s permission, I would also like to provide for

the record a resolution adopted at the annual meeting of the National

Audio Visual Association which speaks to the issue of Government

specs in this projector area. This association represents some 800

manufacturers and dealers in the audiovisual industry.
Procurement

APPENDIX G

HIGHLIGHTS

• Writers of Government

specifications for products claim,

as a result of their work. Government buys "commerciallike” products of better quality

and/or at less cost than similar

products on the commercial

market.

• Fact is, they probably force

the Government to spend more

money, dilute competition, and

end up with poorer products 

than what any "man-on-thestreet" could buy at the corner

drugstore.

Exploding Th®l O M

Of Government

Specifications

By M ich a e l |. Timbers

President

The Washington Management Group, Inc.

The l a st y e a r a n d a h a lf h a v e been

fru stra tin g for m an y comm ercial

p ro d u ct m akers a n d /o r th eir dealer

outlets. T h e ir hopes of m oving in to or

in cre a sin g a sh a re o f the Federal Gove rnm e n t m ark e t h a d been pum ped up

back th en by a n Office of Federal P ro ­

c u rem en t Policy (O FPP) directive.

It sa id , e ssen tia lly , th a t Governm en t agencies should sta rt to buy

com m ercial off-the-shelf products, if

they existed, to perform needed Gove rnm e n t fu n ctio n s—and stop c re a tin g u n iq u e , G o v e rnm e n t-o n ly ,

" c o m m e r c ia l ty p e ” item s. F o r

h u n d red s of firm s, th a t w as a h e a rte n ­

ing sig n th e G overnm ent m ig h t be

ab o u t to show a little sound, common

sense.

How ever, a s th e m o n th s rolled by,

in d u stry ex p ectatio n s h a v e sagged.

They h a v e seen precious little evidence a n y G o v e rnm en t specification

w riters h a v e ch an g ed direction (from

w ritin g tec h n ic al, engineering specific a tio n s to w ritin g “ function” ones).

T r u e , t h e r e h a v e b e e n

pro n o u n cem en ts ab o u t "th is new

in itia tiv e ” or "th a t new project,” but

m o st o f it ap p e a rs to be lip service

with little su b sta n tiv e action behind

i t Little w onder m an y commercial

p roduct people h a rb o r stro n g skepticism th a t a n y th in g or anybody can

stop th e trem en d o u s m omentum bu ilt

up by th e b u reau c ra cy in th e commerc ia l product a re a .

• S to p s I n n o v a ti o n —T h is lack of

response to th e O F P P efforts is particu l a rly fr u str a tin g to c om p a n ie s

w hich deal in th o se product areas

where th e com petitive pressures foster rap id technological change. These

firm s h a v e found th a t they are, in

effect, penalized for being in n o v ativ e

because they find them selves locked

o u t o f th e fe d e r a l g o v e rn m e n t

m ark e t—locked out because th ey are

try in g to offer th eir products a g a in st

specifications th a t reflect outdated

technology and require n o n -stan d a rd

testin g , m ark in g , p ackaging and h a n ­

dling.

Is th ere some conspiracy to m ak e it

more difficult to deal with th e Federal

G overnm ent? A nd, if so, why? I suppose th a t m an y com panies could offer

up enough h o rro r stories to lend some

credence to th a t theory. However, I

d o n ’t believe it is a n y th in g so sinister.

From m y experience as Com m issio n e r o f th e Federal Supply Service, I

GOVERNMENT EXECUTIVE
192

have found governm ent procurement

and specification people to b e jia rd -

working, often overworked, intelligent professionals who are truly dedicated to reducing federal governm ent

expenditures. I have found th a t the

v ast m ajority of them h av e strong

convictions th a t their actions are

truly in the best interests of th e Government.

They think th a t way, in part,

because industry h a s neglected its

responsibility to them and itself; h a s

done, in short, a poor selling job.

While a t GSA, I seldom heard an

industry case presented with facts

and figures. They tended to talk in

generalities, instead, without providing hard, cold d a ta th a t speaks for

itself.

Since I left governm ent service, I

have become very fam iliar with the

problems th a t commercial product

companies have in dealing with the

Federal G overnm ent M any com panies who were reluctant to speak c andidly with me when I w as with GSA

have convinced me now th a t some of

the policies which seemed rig h t to me

when I w as a GSA official are, in fact,

increasing government expenditures

instead of reducing them.

• M ag T a p e—A good example of

this is the way the Government buys

computer tape. For years, the Federal

Supply Service (FSS) h a s m ade sole

source aw ards on computer tape.

They have pointed to the trem endous

savings th a t they h av e realized

through the development of a specification which allowed them to m ake a

single huge award each year. It was

one of th e favorite examples th a t I

would cite whenever I was extolling

the virtues of specifications.

In fact, computer tape is still considered to be the classic example of

why the long-standing policy of writing more specifications in h igh technology areas is particularly valid.

However, based on some recent

research into the history of th e Governm ent’s procurement of computer

tape, I find th a t the G overnment h as

n o t done as well buying computer

tape as have m any commercial users.

In fact, it appears th a t th e Governm ent’s use of a specification w ith its

special requirements h a s cost the

Government thousands of dollars

over the years.

As you can see from th e attached

chart, the GSA price for the m ost popular type of computer tape in each of

the last 11 years h a s been lower th an

w h at a small commercial user would

pay. However, GSA h a s consistently

paid more for their "specification

product” th an have large commercial

users for an off-the-shelf product. The

on ly period o f tim e w h en GSA

received a lower price was the 1972-74

period. But those fam iliar with the

period know th a t GSA h ad trem endous delivery problems and m any of

their Agency customers were forced to

purchase tape on the open m arket. In

sum, GSA, with its specificationbased single award system, h a s generally paid more for computer tape

th a n la rg e com m ercial u s e rs—

without even adding in the Governm ent’s warehousing cost.

It is worth examining the situation

back in the 1966 through 1968 time

frame to more clearly understand

w hat created the enormous price

reductions. There were three major

factors.

First, eight new m anufacturers of

computer tape entered them arketduring the mid-sixties.

S e c o n d , th e r e w a s a n

approximately 60% drop in the cost of

reels and cases.

And third, the price of polyester (a

key raw m aterial) dropped over 60%.

Based solely on the response to

their solicitation and lacking the

inside information of w hat w as actually happening in the m arketplace,

GSA made a reasonable assum ption,

a t th a t time, th a t their specification

was responsible for the drastic price

reductions. Based on th a t assum ption, GSA continues to pursue a vigorous specification policy in this and

other areas.

• G o C om m e rc ia l—W hat are the

implications of all th is? To me, it

seems to indicate th a t GSA needs to

take a hard look a t their specification,

policy. It certainly seems to point out

th a t the Commission on Government

Procurement and the O FPP were

rig h t on ta rg e t in th e ir recom ­

m endations to buy commercial offthe-shelf products and not to continually create new, government unique

products.

It seems to bolster the argum ent

th a t m any trade associations, m an ufacturers and dealers have been saying: "The Federal Government should

utilize the multiple award system to

purchase highly competitive commercial items in those areas where technology is continually changing.”

If these voices are not loud enough,

I would urge the FSS to heed the cries

of their own customers. It is common

knowledge th a t m any agencies .will

not use Federal Supply single award

contracts for high technology items

because more cost-effective items are

available off-the-shelf from regular

commercial distribution channels. As

a Federal Supply official related to me

recently:

“We spend all our time try in g to

save 20% off the tip of th e iceberg

while forcing the bulk of our agency

customers to go around th e supply

system an d buy w hat they really

need a t commercial prices from the

established commercial m anufacturers and dealers. If we h ad multiple aw ard contracts on all these

items, we would be better servicing

our customers and providing a

lower total cost system for the Governm ent. I would much rath e r see

us receive a 10% discount on 100% of

all th e purchases by th e Federal

Government th an 2 0% o fju stth e tip

of the iceberg.”

In December of 1974, the General

Accounting Office published a report

on improving the procurement program s of the Federal Supply Service.

This report pointed out th a t Federal

Supply was only providing about 50%

of the commercial-type goods and services th a t they could potentially be

supplying to other agencies.

Or, to put it another way, agencies

were buying 50% of their commercial

goods a n d se rv ic es a t r e g u la r

commercial prices on the open m arket

w ithout coming to Federal Supply.

We didn’t realize it a t the time, b u t it

seems to me th a t the current specification policy is the root cause for GSA

falling sh o rt of fulfilling its agency

support mission.

• A n A b s u rd ity —Under their

interpretation of current procurement

law and regulation, Federal Supply is

convinced th a t they should be writing

specifications and m aking single

aw ards for all types of commercial

items. And, for m any types of lower

technology, h igh volume, rather

generic types of items such a s paper

c lip s, p e n c ils, p a p e r p ro d u cts,

packaging m aterials, paint, simple

h an d tools and the like, th is policy

m akes sense.

However, they are mistakenly applying th a t sam e approach to commercial item s where there is intensive

competition in the marketplace, fastmoving technology, im portant main-

" . . mood is ripe for

procurement reform.”

tenance and service considerations,

or numerous, slightly different product models to reflect different requirem ents and applications. Attem pting

to write a single governm ent specification to satisfy all user needs just so

Federal Supply can make an award to

one m anufacturer is ridiculous.

This policy h a s led to m any m inimal quality, outdated products being

bought by the Government a t excess

prices. It h a s driven out ofthe Federal

G overnment marketplace higher

quality products provided by estabGOVERNMENT EXECUTIVE
193

lished commercial product manufacturers and distributors, both large

and small business.

I think the climate is right for a

basic shift in procurement policy; one

that would be applauded by industry

and go ve rn m ent use rs a lik e .

Although in office for less than four

months, the very capable Joel

Solomon, GSA Administrator, has

already focused on this problem. This

was obvious in his recent testimony in

front of the Senate Committee on Federal Procurement where he supported

a strong multiple awards program.

Bob Graham, the new FSS Commissioner, has demonstrated in a few

short w eeks a com m on sense

approach to solving supply problems.

And at OFPP, we are already seeing

the positive effects of aggressive leadership. Les Fettig of OFPP obviously

understands the procurement system

and the need for improvement.

With all these individuals under the

watchful eye of the “Sunshine Senator from Florida,” Lawton Chiles,

who recently introduced the excellent

acquisition bill (S. 1264), the mood is

ripe for procurement reform.

I urge GSA to buy “ higher technology” commercial items on a total cost

basis by returning to the more flexible, economical and customer^

oriented multiple award system.

68-330 0 - 80 - 14
194

APPENDIX H

COALITION FOR COMMON SENSE IN GOVERNMENT PROCUREMENT

1990 M Street, N.W., Suite 570 Washington, D C . 20036 (202) 331-0975

Board of Directors

John P. Luke

National Micrographics Association

Bruce M. McLellan

National Oltica Products Association

Joseph T. Morris

National Association ot Photographic

Manulacturara. Inc.

Kenton H. Pattie

National Audio-Visual Association

Adrian H. Pembroke

Business Products Council Association

John F. Robinson

National Minority Business Council. Inc.

Officers

Michael J. Timbers

President and Board Member

Gloria C. Gamble

Executive Director

Kathleen S. Daugherty

Secretary

Counsel

Robert D. Wallick

Steptoe & Johnson

RECOMMENDATIONS

OF THE

COALITION FOR COMMON SENSE IN GOVERNMENT PROCUREMENT

BEFORE THE

WHITE HOUSE CONFERENCE ON SMALL BUSINESS

JANUARY 1 4 , 1 9 8 0

State Chairmen

California

Glen T. Church

Eldon Office Products

Colorado

James H. McCain

Information Handling Services

Florida

Kurt F. Enfield

Enfield's Miami Photo. Inc.

Minnesota

Jon R. Grunseth

Economics Laboratory

Utah

Adrian H. Pembroke

A. H. Pembroke Company

( Washington. D.C.

Arthur D Caulfield

Olympia USA. Inc.

* Package contains only those references

to multiple awards.
Statement of the Coalition for Common Sense in Government Procurement

Before the White House Conference on Small Business

My name is Bruce McLellan and I represent the Coalition for

Common Sense in Government Procurement. The Coalition is a nonprofit association composed principally of small business firms 

who are interested in pursuing more effective governmental procurement practices.

The Coalition is sponsored by four trade associations who 

are represented on the Coalition Board of Directors. I am the

member from the National Office Products Association and the Board

also has representatives from the National Audio-Visual Association,

the National Micrographics Association, and the Business Products

Council. All of our operating revenues are derived from individual 

company contributions.

We appreciate the opportunity to testify here today, and

applaud the efforts of the Administration to assist small business.

There are a number of issues on which we wish to comment.

These include:

1. the importance' of the multiple award

schedule contract program to small

businessmen:
2. the significance of the recent definitional

change for small businesses for procurements

under Public Law 95-507;

3. the slowdown in contracting at GSA;

4. the unfair competition to small business

resulting from federal grants, particularly

in the training and educational area;

5. the problem of slow payment by Federal agencies;

6. the establishment of a two-tier procurement

regulatory system;

7. the unfair competition to small business resulting

from services provided by governmental units,

workshops for the blind and handicapped and academic 

institutions.

I will briefly discuss each of these issues.

Multiple awards

The multiple award schedule system is the principal contracting

method for commercial product firms to sell products to the Federal
197

Government. GSA negotiates some 5,700 contracts of this type every

year of which 66% go to small business firms. Further, the majority

of those contracts that are awarded to large business firms also

allow for the participation of small business dealers around the

country. When these participating small business dealers are added

to the small business firms which hold contracts directly, over 90%

of the firms eligible to sell under the multiple award system are

small business.

For example, in Federal Supply Class 58 which covers all types 

of communication equipment and supplies including projectors and

recorders, there are 425 prime contracts of which 272 or 64% are with

small business firms. However, when one examines the contracts held

by the large business firms, you find that 2,378 small business dealers

are eligible to use the large company contracts. Overall, some

2,803 companies can sell to the government off of Class 58 multiple

award contracts and 2,650 or 95% are small business.

The multiple award system has been under attack by Senator Chiles

in the Senate, Congressman Burton in the House, and newly appointed

Administrator Freeman of GSA. All of these individuals are advocating

a single source procurement procedure for commercial products which

utilizes detailed or functional specifications. This type of system

which has historically led to the development of unique government

products will deprive thousands of small business manufacturers and

dealers throughout the country from participating in government business.
198

We recommend that this Conference take a strong position in

support of the multiple award contracting system. We ask this

Conference to go on record as supporting the continuation of the

multiple award schedule system as the most effective system for

commercial product manufacturers and dealers to sell their offthe-shelf items to the Federal Government.
APPENDIX I

PARTIAL STATEMENT OF MICHAEL J. TIMBERS ON THE OFFICE OF FEDERAL

PROCUREMENT POLICY'S UNIFORM PROCUREMENT SYSTEM AT OFPP HEARING HELD

ON MAY 6, 1980 on behalf of the Coalition for Common Sense in

Government Procurement.

My name is Michael J. Timbers, and I am President of The

Coalition for Common Sense in Government Procurement. The 

Coalition is a nonprofit organization composed of primarily

small businesses which was formed by a number of trade associations who are vitally interested in the government's policies

relating to the procurement of commercial products. The associations who support our Coalition include the following:

• Business Products Council Association (BPCA) and 

their 57 independent members in 46 states,

• National Audio-Visual Association (NAVA), and their

800 dealers and manufacturers,

• National Micrographics Association (NMA), and their

270 industry members and 9,000 professional members,

• National Office Products Association (NOPA) and their

6,500 dealers and manufacturers,

• National Association of Photographic Manufacturers' (NAPM)

and their 78 members, and

• National Minority Business Council (NMBC) and their

350 members.

We welcome the opportunity to comment on OFPP's Uniform

Procurement System and to offer suggestions which we hope your

office will find helpful.
There are a number of issues on which we wish to comment.

These include:

1. The importance of the multiple award 

schedule contract program to small businessmen.

2. •Proposed small business size standards.

3. Inconsistencies in P.L. 95-507 application.

4. The use of commercial item descriptions in the

procurement of commercial products.

5. Proposed ADCoP policy.

6. The problem of slow pay by government agencies.

I will briefly discuss each of these issues.

Multiple Awards

The multiple award schedule system is the principal contracting

method for commercial product firms to sell products to the Federal

Government. GSA negotiates some 4,000 contracts of this type every 

year of which 62% go to small business firms. Further, the majority

of those contracts awarded to large business firms also allow for the

participation of small, independent business dealers around the country.

When these participating small business dealers are added to the small

business firms which hold contracts directly, over 90% of the firms

eligible to sell under the multiple award system are small business.

The multiple award system has been under attack by Senator 

Lawton Chiles and GSA Administrator Rowland Freeman. These individuals are advocating a single source procurement procedure for

commercial products which utilizes detailed or functional
201

specifications or commercial item descriptions and essentially removes

the multiple award system from being used as a contracting consideration. The type of system they are endorsing for commercial products

has historically led to the development of unique government products

produced by sub-standard contractors and will deprive thousands of

reputable small business manufacturers and dealers throughout the

country from participating in government business.

Administrator Freeman and Senator Chiles appear to be blindly

attacking the system without full knowledge of what they are doing.

An example of this is the oft repeated statements of GSA and Chiles

whereby they refer to the fact that there are 8,000 multiple award 

contracts. We would ask GSA and Chiles to do their homework. As

we have previously cited, there are nowhere near 8,000 multiple

award contracts — they are overstating the case by approximately 100%.

We would agree with critics of the multiple award system that improvements can be made and certain types of items should not be purchased

under this type of system, but we would suggest that a better understanding of the system is needed by its critics before their so-called

solutions create far more problems than now exist.

The Coalition is deeply concerned that Senator Chiles and

Administrator Freeman are preparing to dismantle a contracting system

without advice from the Office of Federal Procurement Policy.

It is our understanding that OFPP is supposed to provide

procurement policy direction and guidance for the Federal agencies'

procurement actions. Why, then, is GSA being allowed to independently

pursde its plans to destroy the primary means of small business 

contracting opportunities? Just last Friday, for example, GSA
202

P ag e 4

v ir t u a l l y c a n c e ll e d a l l th e m u lti p l e aw ard c o n tr a c ts f o r f u r n i t u r e .

I t seems som ew hat u n b e li e v a b l e to u s t h a t m u lti p l e aw ard c o n tr a c ts

a r e c a n c e ll e d when a l l th e h ig h ly p u b li c i z e d s c a n d a l t e stim o n y

i n f r o n t . o f S e n a to r C h il e s h a s c e n t e r e d on f u r n i t u r e b o u g h t t o u n iq u e

g o v e rnm en t s p e c s .

We s u g g e st t h a t OFPP exam ine a May 1979 G e n e r a l A c c o u n tin g

O ffi c e r e p o r t on m u lti p l e aw ard s w hich th e S e n a te h a s a d o p te d a s i t s

p rim a ry j u s t i f i c a t i o n f o r condem ning t h e m u lti p l e aw ard s y stem .

Examine i t w ith t h e k n ow led g e t h a t in d u str y h a s c o n tin u o u sly p o in t e d

o u t th e f a l l a c i e s e x is t i n g i n th e r e p o r t . And, i n l i g h t o f t h is

e v id e n c e , q u e sti o n th e S e n a te and GSA l o g i c o f f o r g in g a h e a d w ith

t h e i r p l a n s.

F o r e x am p le , why d o e s th e GAO, GSA and th e S e n a te s t i l l i n s i s t

on p rom o tin g t h e p u r c h a s e o f o v e rh e a d p r o j e c t o rs by s p e c s r a t h e r th a n

o f f th e m u lti p l e aw ard s c h e d u le s when th e Army h a s a lr e a d y a tte m p te d

and f a i l e d to do t h is s u c c e ssf u ll y ? F iv e y e a rs a f t e r t h e i r a tt e m p t,

o n ly 2 ,0 0 0 o f 6 ,0 0 0 p r o j e c t o rs had b e en d e li v e r e d v i a t h is s i n g l e

aw ard t e c h n iq u e .

T h e re e x is ts a d d i t i o n a l g l a ri n g e x am p les w h e re th e

b e n e f its o f t h e m u l t i p l e aw ard s sy stem h av e b e e n ig n o r e d and t h e

G overnm ent h a s g o n e t o s i n g l e aw a rd s. The f i r s t e x am p le c o n c e rn s

m anual t y p e w r i t e rs . A few y e a rs a g o , GSA moved m a n u a l t y p e w rit e rs

from th e m u lti p l e aw ard s c h e d u le s to th e s i n g l e aw ard s c h e d u l e s,

c h a sin g A m e ric a n m a n u f a c tu r e rs away from b id d in g on an y m anua l

ty p e w rit e r c o n tr a c ts . F o r th e p a st two y e a rs, th e low b id d e r h a s

b e en a d is t r i b u t o r s e l l i n g t y p e w rit e rs m a n u fa c tu re d i n E a st G ermany.
203

rcayc: -t

Although the approximate annual sales are only $1,250,000 —

a healthy sale for a small business — domestic firms are unable

to compete inthe low price range the communist country is able

to offer, andGSA has significantly reduced the competition in

bidding for manual typewriters.

A second example is in regard to instrumentation tape. In spite

of industry'swarning to GSA that using single awards to procure this

product was severely destroying competition and increasing prices,

GSA continued to use single awards instead of multiple award schedules,

and now there is only one manufacturer of this highly sensitive 

product still bidding on the GSA contract.

We strongly recommend that OFPP step in and- require Administrator

Freeman to further analyze and examine the actual operation of the

system before he moves to withdraw it from being a viable contracting

option. Small businesses deserve the protection of OFPP to ensure

that their chances to contract with the Federal Government are not

destroyed.

We have included additional background information on the multiple

award system in our appendix of this report for your review.
204

APPENDIX J

excerpt from:

GOVERNMENT PURCHASING OUTLOOK, April 16, 197 9____________ Page 6

S.S EXAMINED AT HEARING

The objective of a recent Senate subcommittee was to gather

criteria for the. further development of S.5, the Federal Acquisition Reform Act.

The Subcommittee on Federal Spending Practices and Open

Government held its hearings to get feedback from those most

familiar with multiple awards: the Office of Federal Procurement

Policy, represented by Administrator Les Fettig; the General

Services Administration, with Assistant Administrator for Acquisition Policy Dale Babione as spokesman; industry associations’

representative Michael Timbers, president of The Washington

Management Group. Those associations he represented were the:

Business Products Council Association, Computer Business Equipment

Manufacturer’s Association, National Audio-Visual Association,

National Office Products Association, and National Urban League.

All three representatives spoke for the inclusion of Section 303(e) of the Act, which provides for the use of multiple

award type schedules as a competitive negotiation technique.

But Babione and Timbers expressed their dissatisfaction over a

couple of key issues.

Said Babione, "As we understand it, rather than have a

large number of items over a broad quality range available from

a number of contractors, there is a limited number of prescribed

quality ranges, one item within each range, and one contractor

supplying that item." Under this definition, he said he was

concerned that "there would be instances where use of the method

will not be the most overall or total cost effective method of

acquiring needed items.” He suggested GSA have flexibility in

permitting waivers in those cases where using the schedule

contracting would not be cost effective.

He added that a test program is necessary not only to develop procedures to comply with the intent of this section, 

but also to develop guidelines to identify those areas where its 

use would not be cost effective. He noted that he asked William

Kelly, Commissioner of the Federal Supply Service, to identify

high dollar volume grQups of items currently on the schedules.

This information, Babione explained, would then be used to

develop procedures and guidelines for evaluating the feasibility

of such an approach to the acquisition of widely differing types

of items. This would be followed by attempting to develop

simple purchase descriptions for two or more ranges of quality

for each group.

Timbers disagreed with the bill’s language which "appears

to place responsibility on the contracting officers establishing

the schedules to determine which contractors on an individual

schedule should receive a multiple award contract." Timbers
205

suggested that the Act include language which would "promote the

idea that the user agencies make sure that what they are buying 

are the lowest total cost items to meet their needs rather than

leaving the decision up to contracting officers." Timbers notes 

that "the using agencies are in a far better position to determine 

their needs than GSA."

Timbers also took issue with the portion of Section 303 te)

which directs the use of multiple award contracts to obtain the

lowest competitively priced items which meet the minimum essential 

needs of Government. By using the term ’priced' it appears S.5

was moving away from the 'lowest total cost' concept." He also

took exception to the word "minimum," which he said also seemed

to "imply that the Government should seek the lowest quality 

item with the least number of features to meet its needs, and

as we all know, when life cycle costs are considered, this may

not be the best value." He contended that the language would

have a detrimental impact on new technology and will encourage

the purchase of substandard products. It would also have a

harmful effect on local independent dealers "who sell off

multiple award contracts at the local .level and provide the

maintenance service and operator training which is so critical 

on the majority of terms contracted for under multiple awards."

As to the subject of functional specifications, Fettig said

he would want to ensure that detailed specs are used in an

absolute minimum number of occasions but at the same time facilitate their use when there was reasonable need.

Timbers emphasized that while his clients agree that the

two-step and performance specs are useful and "certainly have

their place in the acquisition of commercial products," he

sugggested that "they not be too highly touted as the miracle

solutions to commercial product acquisition for like every other 

acquisition technique, they are appropriate in certain situations 

and not appropriate in others."
206

APPENDIX K

COALITION FOR COMMON SENSE IN GOVERNMENT PROCUREMENT

1990 M Street, N.W., Suite 570 Washington, D.C. 20036 (202) 331-0975

Soard ot Directors

John P. Luke

National Micrographics Association

Bruce M. McLellan

National Otlica Products Association

Joseph T. Morris

National Association ol Photographic

Aanulacturara. Inc.

Kenton H. Pattle

National Audio-Visual Association

Adrian H. Pembroke

Businas* Products Council Association

John F. Robinson

./atonal Minority Busmass Council. Inc

Officers

Michael J. Timbers

President and Board Member

Gloria C. Gambia

Executive Director

Kathleen S. Daugherty

Counsel

Hobert D Wallick

Staptoa & Johnson

State Chairmen

California

Glen T. Church

won Otlica Products

Colorado

James H. McCain

Inlormahon Handling Sanricas

Florida

Kurt F. Enfield

EnHaWs Miami Photo. Inc.

Minnesota

Jon R Grunaeth

Economics Laboratory

Utah

Adrian H. Pembroke

A. H. Pambroha Company

.Vashington. D.C.

Arthur D. Caulfield

Olympia USA, Inc.

FACT SHEET

©

COALITION We are a nonprofit alliance of small

COMPOSITION and large businesses who derive a

portion of our profits from sales of

products and/or services to the Federal Government.

Approximately 80% of our members are small business.

Member firms are located in 30 states, with about 15%

in the Washington, D.C. metropolitan area.

In addition to a small support staff headquartered in

Washington, D.C., we have a number of associations 

offering expertise and direction with members serving

on our Board of Directors. These associations are

listed to the left.

State Representatives are located throughout the

country to lend help in communicating with members on 

a more regionalized level.

e

COALITION The Coalition was initially organized

OBJECTIVE to monitor and respond to Federal

Government attacks on the Multiple

Awards Schedule system. While this continues to be

our primary focal point, we have realized that a

number of other issues require our scrutiny in our

goal TO ENSURE EQUAL OPPORTUNITIES FOR ALL BUSINESSES 

TO SELL TO THE FEDERAL GOVERNMENT.

e

ISSUES Among those issues we have focused our

TO DATE attention on recently are:

a Senate and General Services Administration (GSA)

moves to dismantle the multiple award schedule system.

• Service Contract Act inclusion on computer and noncomputer equipment service contracts.

• GSA and OMB (Office of Management and Budget)

furniture moratoriums.

• H.R. 4717 (anti contracting-out bill).

• GSA's reclassification and transfer of automated 

data processing equipment.

• P.L. 95-507, e.g. small purchase procedures and

sub-contracting plans.

• Small business size standards.

• Federal Acquisition Regulation (FAR) segments

adversely impacting members.

4
207

O

COALITION • Continuously monitor Federal agency and CongresFUNCTIONS sional procurement regulation and policy making

activities.

• Respond to proposed or actual policy changes emanating from 

the Government which have harmful ramifications on members.

• Meet with Federal agency or Congressional key personnel to

« register Coalition positions on issues of concern.

• Circulate status reports to members to keep them up-to-date on

procurement issues and Coalition activities.

• Provide educational packages on issues so members can fully 

understand them.

• Provide suggestions for members to personally contact their 

r elected representatives to inform them of the facts on procurement

issues.

1
208

APPENDIX L

74 I

FEDERAL SUPPLY SCHEDULE

Multiple Award

FSC 74 PART I

CLASSES 7110 & 7430

OFFICE MACHINES

NON-PORTABLE ELECTRIC & ELECTRONIC TYPEWRITERS. VISUAL

DISPLAY PREPARATION DEVICES & SOUND REDUCTION EQUIPMENT

OCTOBER 1. 1979 - SEPTEMBER 30. 1980

ISSUED DECEMBER 5 . 1 9 7 9

GENERAL SERVICES ADMINISTRATION

FEDERAL SUPPLY SERVICE 00SC 7401

081C

r
2 0 9

1 - IQ F W M tT IIM C 0Q T O 1W E 0 Irf T H IS S C H C P U U . T H U S d w fe lt 

J ilts b ra n d n a m e s w h lc k h a v e b e e n a w a rd e d . B ra n d n a m e s 

W h ic h « * r t lis te d In th e p re v io u s S c h e d u le b u t h a v e n o t 

b e e n a w a rd e d a re n o t lis te d h e re in a n d . I f a w a rd e d , w ill 

b e p u b lis h e d In e m u la tiv e e d itio n s to th is S c h e d u le , 

h e w In fo rm a tio n w ill b e Id e n tifie d b y a v e r tic a l lin e In 

th e r ig h t h a n d m a rg in . O rd e rin g o ffic e s s h o u ld re v ie w 

th is S - h e d u le to d e te rm in e : s p e c ia l Ita m ru b b e rs ; ite m 

n a *e a n d d e s c rip tio n ; b ra n d n a m e o ffe re d ; c o n tra c to r’s 9 . 

a d d re s s , te le p h o n e m m tx r, a n d c o n tra c t n u m b e r; e ffe c tiv e 

d a te o f a w a rd ; a n d o rd e rin g In s tr u c tio n s .

4 m a trix o f w o d e ls a w a rd e d fo r s e le c te d s p e c ia l Ite n 

n u m b e rs h a s b e e n In c lu d e d 1 n th is s c h e d u le . T h is m a trix 

id e n tifie s s o m e s a lie n t c h a r a c te r is tic s o f th e m o d e ls 

a w a rd e d . A G o v e rn m e n t p r ic e fo r a q u a n tity o f o n e e a c h 

h a s b e e n In c lu d e d . T h is p r ic e Is th e c o n tra c t p r ic e a t 

tim e o f a w a rd a n d « a y h a v e s u b s e q u e n tly b e e n re d u c e d .

A ls o p ro m p t p a y m e n t a n d q u a n tity d is c o u n ts m a y a p p ly .

F o r fir m p r ic e In fo rm a tio n y o u s h o u ld c o n s u lt th e c o n ­

tr a c to r s ’ .p r ic e lis ts .

2 . C O N T A IN E D IN T H E C O N T R A C T O R ’ S P R IC E L IS T /

C A T A iflC . O rd e rin g o ffic e s s h o u ld re v ie w th e p r ic e lis t to

d e te rm in e : o rd e rin g a d d re s s ; p a y m e n t a d d re s s ; d e liv e ry 

p o in t; d e liv e r y tim e ; d is c o u n ts ; p ric e s ; b u s in e s s s ite ; 

fo re ig n Ite m s ; m a x im a l o rd e r lim ita tio n s ; m o d e ls o ffe re d ; 

a n d . If a p p lic a b le , w a rra n tie s , te rm s a n d c o n d itio n s o f 

r e n ta l, m a in te n a n c e , a n d /o r r e p a ir ; e x p o rt p a c k in g a n d 

p o in t o f p ro d u c tio n .

P A R T S P R IC E l 1 S T . C o n tra c to rs a re [ n o t

F ^ n h l. ,.d — ** 5 .

O ls c o u H t d e U o c to U th e r « fr o « .

T h t F o U o .li> * fo r— s « O 0 ’ j » »

S ta n d a rd fo rm 3 2 . G e n e ra l R e v is io n s ‘ ^ 1

t r a c t) , A p r il 1 9 7 5 

e d <

} ‘ *J ’ " b y d e le tin g

m > d 1 fIc a tlo n : A r tic le 1 5 H a m e n d e o o y "w

th e w o rd s “ a t h a rd la b o r * .

S S A f o r . 1 « « . In ltr u C tlo M to U s e rt o f 

ir o lT s c h e d u lA . S e p tw b o r 1 » N e d H to o . - U h to o 

fo llo w in g m o d ific a tio n :

(1 ) C lo u M « . fo r td tlo o In 2 . < 2

(? )

C lu t e ? . C h « n *« - D e liv e r y O p tio n s tn d 

A d ju s tm e n ts In T ra n s p o rta tio n C o s ts , lin e J * . 

1 s a m e n d e d b y d e le tin g th e w o rd s " E x c e p t w h e re 

th e a d ju s tm e n t Is le s s th a n S 2 5 ." a n d 

s u b s titu tin g th e r e fo r "W h e n fr e ig h t c h a rg e s 

e x c e e d S 1 0 0 *.

3 . G E O G R A P H IC C O V E R A G E . T h e 4 8 c o n tig u o u s S ta te s a n d 

U a s H n g to n , D C ; a ls o A la s k a , H a w a ii, a n d P u e rto R ic e , If 

In d ic a te d In th e c o n tr a c to r ’ s p r ic e lis t.

4 . H A S D A IO P T U S E R S . A ll d e p a rtm e n ts a n d In d e p e n d e n t 

e s ta b lis h m e n ts . In c lu d in g w h o lly -o w n e d G o v e rn m e n t 

c o rp o ra tio n s . In th e e x e c u tiv e b ra n c h o f th e F e d e ra l 

G o v e rn m e n t (e x c e p t th e U .S . P o s ta l S e rv ic e ).

E x e m p tio n s fro m y n d a to r y u s e , u n le s s o th e rw is e re q u ire d 

b y re g u la tio n s o f th e o rd e rin g d e p a rtm e n t:

(1 ) P u rc h a s e s In A la s k a , H a w a ii, a n d P u e rto R ic o .

(2 ) P u rc h a s e o f r e p a ir p a r ts .

5 . H O W H A H D A T O R T U S E R S . T h e fo llo w in g a c tiv itie s a re 

a u th o riz e d to u s e th is S c h e d u le o n a n o n m a n d a to ry b a s is : 

(1 ) F e d e ra l a g e n c ie s o th e r th a n th o s e c o v e re d b y th e 

m a n d a to ry u s e p ro v is io n a n d n o n a p p ro p rla te d fu n d 

a c tiv itie s a s p re s c rib e d In F P W 1 0 1 -2 6 .0 0 0 , (1 1 ) 

G o v e rn m e n t c o n tra c to rs a u th o riz e d In w r itin g b y a F e d e ra l 

a g e n c y p u rs u a n t to 4 1 C F R 1 -5 .9 . ( H I ) m ix e d o w n e rs h ip 

G o v e rn m e n t c o rp o ra tio n s (a s d e fin e d 1n th e G o v e rn m e n t 

C o rp o ra tio n C o n tro l A c t, a n d (1 v ) th e G o v e rn m e n t o f th e

D is tr ic t o f C o lim b la . C o n tra c to rs a re e n c o u ra g e d to 

h o n o r o rd e rs fro m th e s e a c tiv itie s . In th e e v e n t th e 

c o n tra c to r Is u n w illin g to a c c e p t s u c h a n o r d e r , th e 

c o n tra c to r w ill re tu r n It b y m a ilin g o r d e liv e r in g It to 

th e o rd e rin g o ffic e w ith in s e v e n w o rk In c d a y s a fte r

r e c e ip t. F a ilu r e to re tu rn a n o rd e r w ill c o n s titu te 

a c c e p ta n c e th e re u p o n a ll p ro v is io n s o f th e c o n tra c t s h a ll 

a p p ly w ith re s p e c t to s u c h o rd e r.

N O T E : Q u e s tio n s re g a rd in g a g e n c le s /a c tlv ltle s

a u th o riz e d to u s e th is S c h e d u le s h o u ld b e d ire c te d 

to th e S c h e d u le s In fo rm a tio n C e n te r. (S e e P a ra g ra p h 

la . O R D E R IN G IN S T R U C T IO N S ,

6 . M U L T IP L E A M A R O S . M u ltip le a w a rd F e d e ra l S u p p ly S c h e d u le s 

c o v e r c o n tra c ts m a d e w ith m o re th a n o n e s u p p lie r fo r 

c o m p a ra b le Ite m s a t e ith e r th e s a m e o r d iffe r e n t p ric e s 

fo r d e liv e r y to th e s e m e g e o g ra p h ic a re a .

1 . C A T A L O G S A H O P R IC E L IS T S . If c a ta lo g s a n d /o r p r ic e lis ts 

H a v e n o t b e e n re c e iv e d e n d a re re q u ire d o r 1 f a d d itio n a l 

c o p ie s a re re q u ire d , o rd e rin g o ffic e s s h o u ld c o m m u n ic a te 

d ir e c tly w ith th e c o n tra c to r fo r c o p ie s o f s u c h m a te r ia l. 

S e e L IS T O F C O N T R A C T O R S fo r te le p h o n e c u m b e rs .

C . 6 S A F o rm 2 8 9 1 , In s tru c tio n s to U s e rs c f F e d e ra l

S u p p ly S c h e d u le s . H e y 1 9 7 7 e d itio n , e x c e p t 

P a ra g ra p h 8 is m o d ifie d to In c lu d e th e fo llo w in g :

(d ) B la n k e t P u rc h a s e A rra n g e m e n ts m a y b e 

n e g o tia te d to a c h ie v e th e h ig h e s t d is c o u n t 

p ric e (lo w e s t n e t p r ic e ) b a s e d o n th e 

e s tim a te d to ta l p u rc h a s e s w h ic h w o u ld b e 

a c h ie v e d b y th e c u m u la tiv e to ta l o f o rd e rs 

p la c e d u n d e r th e c o n tra c t.

O R O E R IH G IN S T R U C T IO N S

A U T K M 1 Z A T 1 0 H T O P U R C H A S E ID E N T IC A L IT E H S (S ) M U C H

v a i B L Mt L P M tl P ^ K tlS l. W h e n a n o rd e rin g a g e n c y

fin d s th a t a n Id e n tic a l p ro d u c t (m a k e a n d m o d e l m x x b e r, 

o r s e rv ic e Is a v a ila b le fro m a n o th e r s o u rc e a t a 

d e liv e re d p ric e lo w e r th a n th e c o n tra c t p r ic e , s u c h 

a g e n c y 1 s fr e e to p u rc h a s e s u c h Ite m s a t s u c h lo w e r p ric e 

w ith o u t v io la tin g th e c o n tra c t re q u ire m e n ts . T h o s e 

a g e n c ie s th a t p u rc h a s e Ite m s a t lo w e r p ric e s a re 

re q u ire d to fu rn is h a c o p y o f th e o rd e rin g d o c u m e n t to 

G e n e ra l S e rv ic e s A d m in is tra tio n , F e d e ra l S u p p ly S e rv ic e , 

a t th e a d d re s s s h o w n 1 n 1 (c ) b e lo w .

1 . g s a a s s i s t a h c e

a . F o r In fo rm a tio n o f a g e n e ra l n a tu re w r ite o r c a ll:

— C R n it t 'O T v ic n 'w iin r r f r r T iJ jn n jr F ,-----------------

S C H E D U L E IN F O R M A T IO N C E H T E R 

W A S H IN G T O N . D C 2 0 4 0 6

T e le p h o n e : (7 0 3 ) 5 5 7 -B 1 7 7 8 :0 0 - 1 1 :4 5 am 

A U T O V O N : 2 2 5 -9 6 8 4 1 :0 0 - 3 :< 5 pm

b . F o r a d d itio n a l c o p ie s o f S c h e d u le s o r fo r c o p ie s o f 

th e F e d e ra l S u p p ly S c h e d u le P ro g ra m G u id e , w r ite o r 

c a ll:

— cgh m s e r v ic e s a w im st t iw i (» c )-------------

P U B IIC A T IO N S D IS T R IB U T IO N C E N T E R 

D E N V E R . C O 8 0 2 2 5

T e le p h o n e : (3 0 3 ) 2 3 4 -4 1 9 5

C . C o n tra c tin g O ffic e r m a ilin g a d d re s s :

--------C E R E R A l 5 E R V IC E 5 " < W IH m irA n W “ rF C C r,------------------

C O N T R A C T IN G O F F IC E R (F S C 7 4 P A R T I)

W A S H IN G T O N . O C 2 O « O 6

T e le p h o n e : (7 0 3 ) 5 5 7 -0 3 )9

e -?

6 8 -3 3 0 0 - 8 0 - 1 5
210

^y£wT01SC0u»T$. AU discount terms should be shown on

4 l l o rd e rly docwonts.

Jlned -

Covevxge.

f «* uriLiniiioM eixntn IV . .r . .

IhSTkuCTIOBS, Peregraph 1, GeogvxpMc

*•

T *X V H ilu m . See u w lr u t w 'i u ttlo g /p ric e liit.

». SMALL bfBUIBKBTS. Ho ardevlng K tt.1

pi K t Kdevk exeunttng to JSO or le tl.

*• **» to n trK to e 't C ltalog/prlcellxt under

Sntll Requirement!* for lowext value order which r i l l be

Kctpted.

’ • HAItMPI OBbfl LIH.'TATIOmS. Purchase orders cannot exceed

amoumt(l)shorn In the contractor's p ric e lis t/

catalog.

». PACXAGlhO AW PAttlBt. Standard coeaerdal prK tlce

(Level C of Federal Standard 102).

If special or unusual PKklmg Is required. such pecking

requirements should be arranged with the contractor bp

the ordering a c tle ltj.

io- W T ahpicab oiFFtAtuTIAtS. lap American d iffe rentia ls

oust be applied bp the ordering K tlv ltp before plK lne

an order If foreign and domestic products are listed

under the sane special I tan mutter and both products n i l

satlsfp the requirement.

11. btCtIFIBG MO( O K S . State on the purchase order the

tine (local dkpllgnt or standard) that naterlal cw be

received at destination.

12. M CtlM O t POCK UWWT1BBS. I f there are llnlta tlons on

site (height, width, or length) or utlght of vehicle that

JlSTIFlCATIOq, Whom orders are placed at other than the

lowest price available under a special Itoa matter and

(1) the cost Is more than SSSO per line I tan. ordprlap

K tlv ltle s west Justify the purchase of the higher priced

•tan; (2) the cost It JSOO or le ts per line I tan, ordering

K tlv ltle s should refer to th e ir agencp procure

at lorn It regulations to determine I f J u ttlflc a tli i required.

isted In the fir s t celwn It the

brand nane(t) offered and In the second coliaan, the

contractor.

1*. corns V IBPQlCtS. If aore than one copp of the Invoice

It required, state clearlp on>p| urchase orders the matter

» . At[mens stiwinmt houisitious to gsa fob pwcuASt.

for liana contained la tilts Schedule, the requisition. If

c ltlnq Batlonel Stock Butters, oust alto contain Special

Item Butter, as shorn In the Schedule, nanufK turer't

name or nanufK tu re r't code, brand none, node), and/or

part matter.

I I . HUB AfxnouttDCHtiiT. ContrKtors shall Kknowltdgo onlp

those orders Silch state -Order Acknowlfd^ent

Inquired.- These orders shall be Kknou,edged within 10

. daps after receipt. Such actnon! i fpeeat shall be sent to

the K tlv ltp p lK lnp the order and contain Information

pertinent to the order. Including the anticipated

dellverp data.

nts are authorised w Jer this Schedule,

overall dollar value of a 11anaat Purchase Arrangement

nap exceed the contract naxleau order Im ita tio n ;

however. no single order or series of orders plKed

within a short period ef tine under the blanket Purchase

Arrangement nap exceed the contrK t hex I»ue Order

lim ita tion.

-D L-L-

— “ ,7 ,,< an c a l l parts furnished In connection with

Identified with part nutter on fK O of tag.

” ■ a w W ^ a S U 6

'

5

'

8

of the contrK t In conformance with i n I-P.bOU.

22. W M U in . *11 equipment p n c v rtl '}

53i^ntoed for a period ef s i . (» ) n ^ th s fr«P .date of

acceptance. (wring the guarantee period. • ”

adjustments must be made, and a l l broken or defective

parts not caused bp accident or misuse through fa u lt or

negligence of the government must be replaced.

ContrKtor w ill render service w ithin three (J ) working

daps after written or oral n o llfIc a tio n . *1 ) necessarp

equipment adjustment! and replKencnt of broken or

defective parts m il be made at the co n trK to rs '

expense. Including labor, parts and transportation cost.

If anp, except tppewriters for overseas use, priced

separatelp.

tlCtPTIQB: Special Item Butters dl-lSS and B1-27S.

notwithstanding Inspection and acceptance bp the

Government of supplies furnished under the co n trK t or

anp provision of this contract concerning the

conclusiveness thereof, the ContrKtor warrants that for

a period of ntnetp (fO) daps from date of In itia l usage,

provided that In itia l usage occurs within one pear a fte r

dellverp, a ll supplies furnished under this contrK t

w ill be free from defects In naterlal and norknanshlp

and w ill conform with the requirements of this c o n trK t,

ard fu llp conplp with nanufK turer's technical

specifications.

When return, correction, or replKenemt Is required

Government shall return the supplies or part thereof.

Where feasible, and transportation charges and respons lb llltp for such supplies While In tran s it shall be

borne bp the ContrKtor. However, the ContrK tor's

lla o llltp for Such transportation charges shall not

exceed an amount equal J the cost ef transportation bp

the usual eomnerclal method of shipment between the

designated destination point under this contrK t and the

ContrKtor's plant, and return.

Anp supplies or parts thereof corrected or furnished In

replKmaent pursuant to this clause shall also be

tittjK t to a ll the provisions of this clause to the sum

extent as supplies in ltla llp delivered.

Failure to agree upon anp determination to be made under

this clause shall be a dispute concerning a question of

fact within the meaning of the U lsp u te t- clause of this

contrK t.

The rights and remedies of the tovemmemt provided In

this clause are in addition to and do not lim it anp

rights afforded to the Government bp anp other clause of

the contract.

« • « t° y n w V m e m e SHOCK HAZWO. For such ordering

offices as map require elec tric equipment with J-mlre

and grounding conductor plug. In KCordance with Federal

Specification J-C-11S, It Is desired th it the ContrKtor

state in pric elist anp additional cost for furnishing

such cable assmttlles. In addition, the ContrKtor must

describe a ll tppes of 2* and 3-w1re power plugs.

M . W H A St OF TTPtm iTP. executive agencies shall pur. '

cM m typewriters through um of Federal Supply con*

tract® only after compliance with the provision! for

utilis atio n and replacement of Government-owned personal

property contained 1n CSA Federal Froperty Nanaoement

R epletions. Subpart 101-25.40).

2S. KMUWISM1P. Any Item contracted for must be new and

current model, unless otherwise specified. Each a rtic le

shall be constructed of firs t-c la s s material and

workaanihlp and must perform the functions for Its Intended use.

SECURITY. In the event such Is necessary, the ordering

off k t w ill arrange for the requires security clearance.

If satisfactory security arrangements cannot be made

with the contractor, the service may be obtained from

other than the schedule ccntractor.______________________

E-J
lEaisga s v m n i oe sc ro cu NO.

sn c u L

rrm no.

supplies oe stericift

1

7

3

4

5

<7-103

47-17)

47-14)

47-14$

47-150

m m i u j u u m i» w P u a iF iia i m n g ---------

•UNO M W ON THE L£FT A ft THE CONTRACTORS

OB TW RIftfT.

CLASS 74)0

A ll the Information shown below w ill appear

1« the authorised Federal Supply Schedule

Prlcelist/Cetaleg:

Naitaua writing lin e .

H axlw* width of paper capacity.

Carriage Length.

W»mber of keys.

Choice of type sty let.

Choice of pitch.

Keyboard arrangement.

Technical and forelgh language keyboards.

Carriage clearance.

Shipping M ig h t.

Functional M ig h t.

ELECTRIC TYPEWRITERS:

Standard, Heavy Duty, Typebar, Mon-Portable.

SEE W H II

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212

LIST Of CONTRACTORS

CONTRACTS AMAROEO AS A RESULT Of NEGOTIATION PURSUANT TO SECTION 302 (C)(10) Of THE FEDERAL PROPERTY ARD ADMIN’ STRATIVC SERVICES

ACT Of 1949, 63 STAT. 393. AS AMENDED (41 U.S.C. 252 <C)(10>)

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2602 WWAGGOMAN

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VARITYPER OIV

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ARLINGTON, VA 22209

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9 NOV 79 03018

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150 NEW PARK AVE

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1737 CHESTNUT ST

PHILADELPHIA. PA 19103

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29 OCT 79

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FEDERAL GOVERNMENT SALES OFFICE

2139 WISCONSIN AVE NW

WASHINGTON. OC 20007

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22 OCT 79

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205 S MHITINC ST

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MCLEAN, VA 22102

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OLYMPIA USA INC 1 1 0 0 7 7 9

BOX 22

SOMERVILLE, NO 08876

(201) 722-7000

OVERVIEW SYSTEMS 1 OCT 79

2511 WINDBREAK DR

ALEXANDRIA, VA 22306

(703) 765-7900

REMIN6T0N BUSINESS SYSTEMS INC 4 OCT 79

103 COLLEGE RD E

PRINCETON. NO 08540

(609) 799-8950

SCM CORP 1 OCT 79

6601 LITTLE RIVER TURNPIKE SUITE 100

ALEXANDRIA, VA 22312

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(301) 881-7655

3M BUSINESS PRODUCTS SALES INC 2 NOV 79

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ST PAUL. MN 55101

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LAKEVILLE. * 55044

(612) 469-3405

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APPENDIX 2.—STATEMENT OF KENTON PATTIE, SENIOR

STAFF VICE PRESIDENT, NATIONAL AUDIO-VISUAL ASSOCIATION, CONCERNING H.R. 5381

National

Audio-Visual

Association, Inc, 3 1 5 0 S P R IN G S T R E E T • F A IR F A X . V I R G IN IA 2 2 0 3 1 • ( 7 0 3 ) 2 7 3 - 7 2 0 0

June 13, 1980

H onorable R o b e rt S . W alker JUN16 1986

1028 Longworth House O ffi c e B u ild in g

U .S . House o f R e p r e s e n ta tiv e s

W ashington, DC 20515

Dear Congressman W alker:

As m en tio n ed fo llo w in g th e h e a rin g on Monday a ft e r n o o n , June 9 , 1980, I

do n o t a g re e w ith th e answ er you r e c e iv e d when you a sk e d Mr. W illiam

G ro te ab o u t th e e f f e c t o f a slow pay amendment to H .R. 5381.

You v e ry th o u g h tf u lly s u g g e ste d t h a t I p ro v id e a sta t e m e n t f o r th e

h e a rin g r e c o rd on t h a t s u b j e c t. As p rom ise d , e n c lo s e d is o u r sta t e m e n t.

S in c e r e ly ,

K enton P a t t i e

S e n io r S t a ff

V ic e P r e sid e n t

KP/cu

Enc: NAVA S ta tem e n t f o r H .R. 5381 H e a rin g Record

(219)
National

Audio-Visual

Association, Inc, 3 1 5 0 S P R IN G S T R E E T • F A IR F A X . V IR G IN IA 2 2 0 3 1 • ( 7 0 3 ) 2 7 3 - 7 2 0 0

Statement

by Kenton Pattie

Senior Staff Vice President

National Audio-Visual Association

Concerning H.R. 5381

June 13, 1980

Getting Federal Money Managers

to Pay Bills on Time

During the June 9, 1980 hearing, Congressman Walker asked witness William

Grote what effect a "slow pay" amendment to H.R. 5381 would have on government

purchasing practices. Mr. Grote seemed to support the amendment as fair to

vendors, but the answer given implied that the proposed amendment would not

cause government bureaucrats to pay their bills any faster.

When I told Congressman Walker that we disagree with this particular aspect

of Mr. Grote's testimony, he encouraged me to provide our views for the Committee

hearing record.

Government money managers do not pay bills more promptly today because there

are no penalties for late payment. The government employee suffers no embarrassment, no pressure from higher levels, and his or her program is not affected

negatively in any way. Because government managers refuse to pay penalties

on overdue accounts, their program funds are not affected— they really don’t

mind whether the bill is paid in September or February, as long as it is paid

in the proper Federal fiscal year.

In 1978, the General Accounting Office reported that 39 percent of Federal

agency bills were being paid later than 30 days after delivery. Thirty-nine

percent was entirely unacceptable at that time but little has been done to improve the situation. In fact, small businesses in this association and in

seven other associations report that they continue to have substantial problems

in getting Federal agencies to pay bills on time.

The Treasury Department has already tried to correct the situation by publishing

U.S. Treasury Transmittal Letter No. 267 (May 7, 1979). However, small businesses

feel that the Treasury memo has not solved the problem. The reason: there

are no teeth in it. Neither the agency nor the money manager suffers in any

way when bills are paid late.

What we recommend that your Subcommittee do is to add the teeth that the

Treasury Department and Office of Management and Budget are reluctant to add:

When an agency does not pay its bills within 30 days after delivery, the agency

must pay normal and accepted interest penalties assessed by the vendor.
221

Statement by Kenton Pattie

Concerning H.R. 5381

Page Two

This is no new idea. Interest penalties for overdue accounts is a common

commercial practice in the United States. Virtually every company buyer

of commercial products pays interest payments except Federal agencies.

In our opinion, if interest penalties are to be paid, agencies will rapidly

reform their sloppy payment practices. Most money managers do not want to

see program money diverted into interest payments— by paying bills on time,

they can avoid this. Furthermore, no Federal executives want to report to

Congress that they paid substantial sums in overdue account penalties. If

Congress were to ask each agency each year, "of your appropriated funds, how

much did you spend on penalties because you didn’t pay your bills on time?”

I am convinced the slow pay problem we face today would dry up quickly.

I felt during the June 9 hearing that Mr. Grote took an excessively cynical

view that no matter what Congress does the bureaucrats will continue to do

business as usual. In contrast, we think Congress can legislate a change

in bill paying practices.

We are not alone in our views. Here is a list of Members of the House who

have introduced or sponsored legislation which would force agencies to pay

penalties on overdue accounts:

Rep. Michael D. Barnes(D-Md.)

Rep. David R. Bowen(D-Miss.)

Rep. Clair W. Burgener(R-Calif.)

Rep. John J. Cavanaugh(D-Neb.)

Rep. James C. Cleveland(R-N.H.)

Rep. Tony Coelho(D-Calif.)

Rep. Robert W. Daniel, Jr.(R-Va.)

Rep. Edward J. Derwinski(R-Ill.)

Rep. Robert F. Drinan(D-Mass.)

Rep. John N. Erlenborn(R-Ill.)

Rep. Thomas B. Evans, Jr.(R-Del.)

Rep. Joseph L. Fisher(D-Va.)

Rep. Wayne Grisham(R-Calif.)

Rep. Sam B. Hall, Jr.(D-Tex.)

And here is a list of associations which

legislation calling for interest penaltii

accounts:

Rep. Larry J. Hopkins(R-Ky.)

Rep. Henry J. Hyde(R-I11.)

Rep. James M. Jeffords(R-Vt.)

Rep. Robert J. Lagomarsino(R-Calif.)

Rep. Jim Leach(R-Iowa)

Rep. Dan Lungren(R-Calif.)

Rep. Richard L. Ottinger(D-NY)

Rep. Charles Pasayan, Jr.(R-Calif.)

Rep. John J. Rousselot(R-Calif.)

Rep. Keith G. Sebelius(R-Kans.)

Rep. Gladys Spellman(D-Md.)

Rep. G. William Whitehurst(R-Va.)

Rep. Larry Winn, Jr. (R-Kans.)

Rep. Joe Wyatt, Jr.(D-Tex.)

e currently supporting the above

to be paid on delinquent government

National Audio-Visual Association (NAVA)

National Office Products Association (NOPA)

National Micrographics Association (NMA)

National Association of Wholesaler-Distributors (NAW)

Independent Media Producers Association (IMPA)

Association of Reproduction Materials Manufacturers (ARMM)

Coalition for Common Sense in Government Procurement (CCSGP) 

Association of Editorial Businesses (AEB)
222

Statement by Kenton Pattie

Concerning H.R. 5381 

Page Three

Most of the members of these organizations are small firms. Most do less 

than 10 percent of their business with the Federal government. However, all 

complain that this 10 percent or less of their business gives them most of

their biggest headaches: repeated phone calls, unfulfilled promises of payment,

referalls from person to person, and months of paperwork. . .all to get payment

on bills which most other customers pay promptly.

No company wants to tell the Federal government, "I won’t do business with

you." Afterall, it is our government. But, in fact, many companies prefer

to avoid Federal business because of the slow pay problem. Several Members

of Congress have told me recently that they were surprised to find that Federal

slow pay is keeping some of their leading companies from dealing with local

U.S. government agencies.

Therefore, we strongly support the amendment recommended to the Subcommittee

during the testimony of Mike Timbers, President, Coalition for Common Sense

in Government Procurement. This amendment is reasonable and fair. And it

will be welcomed by thousands of small business people throughout the nation

who have been frustrated by the government's inability to pay its bills in

a decent and fair way.

If we can assist you in any way in connection with this proposed amendment

to H.R. 5381, please let us know.

Attachment: Recommended Amendment to H.R. 5381 to be inserted in the 

appropriate place.

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AMENDMENT TO H.R. 5381

Sec. . When a department, agency, or instrumentality of any branch of the

United States Government buys or leases property or services from a business concern

or when a person (including a governmental entity) buys or leases property or

services from a business concern for a program, project, or activity any part of

which is supported with financial assistance from the United States Government,

and the department, agency, instrumentality, or person does not make payment for

each complete item of property or services by the 30th day after receiving an

invoice for the amount of the payment due for the item or services delivered,

the department, agency, instrumentality, or person shall pay interest to the

business concern for the period during which the payment for the item or services

is not made. A mailed invoice is deemed to have been received on the earlier

of (1) the date on which the department, agency, instrumentality, or person

buying or leasing the property or services receives the invoice, or (2) the

5th day after the invoice is mailed.

(b) Interest to be paid under subsection (a) of this section—

(1) is computed beginning on the day after the day on

which the payment is first due;

(2) is computed through the day on which payment is made;

(3) shall be at least 1 percent, but not more than 2 percent,

for each 30-day period that payment is not made with the rate of

interest to be determined by the business concern;

(4) that is not paid at the end of each 30-day period is added

to the amount of the payment due, and interest for each subsequent 

period is computed by multiplying the interest rate by the amount due

and all interest amounts for prior 30-day periods not paid; and
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(5) for a period of less than 30 days is computed by

computing the interest for the 30-day period and dividing the

x result by a fraction whose numerator is a number equal to the

number of days in the period of less than 30 days and whose

denominator is 30.

(c) This section applies to lease and sales agreements made on or after

the date of enactment of this Act.

Sec.___. If a department, agency, instrumentality, or person referred to

in the first section of this Act has an agreement with a business concern providing for a discount on the amount due the business concern for payment made

within a period of time specified in the agreement, the department, agency,

instrumentality, or person is entitled to the discount only if the payment

is delivered or mailed to the business concern by the last day of the specified

period.

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