Telecommunications: GSA Needs to Improve Process for Awarding Task Orders for Local Service
Published: 2003-04-04T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Metropolitan Area Acquisition (MAA) program, managed by the General Services Administration (GSA), provides local telecommunications services to government agencies in selected metropolitan areas. Of the 25 cities in which MAA contracts were awarded as of January 2003, 15 were awarded to two or more providers. Such multiple-award contracts are a means of promoting competition. To ensure equity in the award of task orders under these contracts, the Federal Acquisition Regulation (FAR) requires that the government provide contractors a fair opportunity to be considered. GAO was asked to review, among other things, whether GSA's implementation of the fair consideration process is consistent and the effect of any inconsistency, as well as the adequacy of GSA's documentation to support the decisions reached.
section_title: What GAO Found
paragraphs: GSA field offices take different approaches to awarding task orders under multiple-award MAA contracts, leading to variations both among cities and within cities. Although the FAR gives contracting officers broad latitude in ensuring that this process offers contractors a fair opportunity to be considered, GSA recognizes that consistency is important within the nationwide MAA program. However, GSA headquarters has not developed or implemented a uniform fair consideration process. As a result, GAO found variations in the processes used: principally, in the time frames used in contractor price comparisons. Such inconsistencies frequently influenced the choice of contractor. Further, because oversight was not provided, in six cases agency preference was used as a criterion for selecting a contractor, which is a violation of the FAR. Because GSA did not consistently follow a common process that ensured compliance with the FAR, it cannot ensure the fairness of its decisions. Further, the documentation for about one-fifth of GSA's fair consideration decisions was not adequate for determining how these decisions were reached. According to the FAR, sufficient documentation of all contractual actions must be maintained to provide (1) a basis for decisions reached and (2) information for subsequent reviews. Out of 483 fair consideration decisions from regional GSA offices in the 11 cities that GAO assessed, the documentation furnished for 91 (19 percent) was not adequate. Weaknesses observed include lack of stated rationale for decisions reached, price comparisons that did not support the choice of contractor selected by GSA, and lack of support for technical factors used in making the decisions. These weaknesses occurred because GSA did not establish and implement uniform guidelines for documenting its MAA fair consideration decisions. As a result, MAA stakeholders (GSA, agencies, and MAA contractors) do not have assurance that the fair consideration process was properly administered.

section_title: Letter
paragraphs: The Metropolitan Area Acquisition (MAA) program provides local  telecommunications services to federal agencies in selected metropolitan  areas. The MAA program manager, the General Services Administration  (GSA), initiated this nationwide program in 1997 to achieve immediate,  substantial, and sustained price reductions for agencies’ local  telecommunications services; to expand agencies’ choices of high-quality  services; and to encourage cross-agency sharing of resources. In 15 of 25  metropolitan areas in which MAA contracts had been awarded as of  January 2003, GSA had awarded contracts to two or more  telecommunications providers. The intent of such multiple-award  contracts is to sustain competition and obtain the best value on task  orders awarded throughout the contract period. For these contracts, the  Federal Acquisition Regulation requires agencies to provide the multiple- award contractors a fair opportunity to be considered for task orders; GSA  refers to this process as its fair consideration process. Fair consideration  decisions may be based on price alone, or they may be based on  consideration of price plus other factors, such as technical requirements  or the contractors’ past performance. This report responds to your request  that we determine (1) whether GSA’s fair consideration process is  consistent within and among metropolitan areas, and if not, whether or  not inconsistencies affect the process results; (2) whether GSA’s  documentation properly and appropriately supports its fair consideration  decisions; and (3) whether the use of Requests for Quotations in the fair  consideration processes followed by GSA is cost-effective. In response to  concerns raised at an oversight hearing on the MAA program, you also  requested that we determine whether contract termination charges and  service initiation charges had affected GSA’s fair consideration decisions;  these results are reported in appendix I.
This report is based on work we performed at GSA’s Federal Technology  Service (FTS) headquarters and at our Washington, D.C., office, using  documentation furnished by GSA’s regional FTS offices. We reviewed all  fair consideration decisions made by GSA during calendar year 2001 as  part of the MAA contracts’ service ordering process, including supporting  documentation maintained by GSA, the MAA contracts, applicable federal  acquisition guidelines, and any further GSA guidance on this process. We  conducted our work from May 2002 through February 2003, in accordance  with generally accepted government auditing standards. Appendix II  contains a detailed discussion of our objectives, scope, and methodology.
subsections: section_title: Background
paragraphs: The MAA program comprises contracts offering local voice and certain  data telecommunications services to federal agencies in selected  metropolitan areas across the country. GSA began planning this program  just a few months after the passage of the Telecommunications Act of  1996, which was intended to increase competition and reduce regulations  in the telecommunications industry, particularly for local services.  Recognizing that this competition would create an opportunity for the  government to gain an immediate price reduction in local  telecommunications services, GSA developed and launched the MAA  program to take advantage of this emerging competition. Further, it  envisioned the MAA contracts as a complement to existing local service  contracts in metropolitan areas, as well as a solution for contracts that  were expiring. As of January 2003, GSA had awarded MAA contracts in 25  cities, with a total maximum value of $5.1 billion.
Each MAA contract is a fixed-price, indefinite-delivery, indefinite-quantity  contract with a base term of 4 years (48 months) from date of award, with  four successive 1-year options. In 15 of the 25 MAA cities, GSA awarded  these contracts to two or more telecommunications providers; such  contracts are referred to as multiple-award contracts. The Federal  Acquisition Streamlining Act (FASA) of 1994 established a preference for  awarding contracts for indefinite quantities to multiple firms rather than to  a single company. This approach was intended to provide agencies a  means to procure goods and services quickly, using streamlined  acquisition procedures, while obtaining the advantage of competition.
Under multiple-award contracts, the Federal Acquisition Regulation (FAR)  requires that contractors be afforded “a fair opportunity to be considered”  in the subsequent award of task orders issued to meet specific agency  needs under these contracts. The process used to ensure this opportunity  is referred to as the fair consideration process. In administering this  process, contracting officers are given broad latitude by the FAR.
The MAA contracts give a broad outline of the procedure to be followed by  the government in conducting its fair consideration process. The  government- or agency-designated representative is to consult the latest  information about the contractors, including published contract prices,  related analyses that aid decisionmaking, information from contractors  such as price quotes or technical analyses, and other relevant information.  Using available information, the representative selects a contractor by one  of two methods: basing the decision solely on relative prices without  further consideration of other factors, or basing the decision on a  combination of price, technical, and past performance considerations  appropriate to the particular decision. After completing this decision  process, the representative then places a task order with the selected  contractor for the required telecommunications services.
GSA contracting officers making task order decisions can obtain price  information from published contracts, or they can choose to issue a  Request for Quotations (RFQ) as an additional mechanism for lowering  prices. Using an RFQ process to support fair consideration decision- making can offer additional competitive benefits by allowing contractors  to lower prices beyond their contract offers and to reduce or waive service  initiation and other charges. However, while the RFQ process is being  pursued, agencies must continue to pay pre-MAA prices for  telecommunications services, rather than the lower MAA contract prices.
When making fair consideration decisions under the MAA contracts, in  addition to comparing monthly recurring charges for providing  telecommunications services, GSA may consider additional costs  associated with these services, such as the one-time termination charges  that may be associated with a pre-MAA telecommunications service  contract. GSA may also consider contractors’ service initiation charges  for implementing service. When a contractor is also the incumbent, pre- MAA telecommunications provider in a city, it does not generally include a  service initiation charge in its price quotes for existing lines and services  to be transitioned to an MAA contract, because it does not incur new  expenses to provide these lines and services. Where volume or types of  services differ from existing services, incumbents may include service  initiation charges in their pricing. All contractors can choose to waive  these charges.
Including these charges in fair consideration price comparisons may give  an advantage to an incumbent contractor (since the incumbent’s price  would generally not include such charges), but this advantage is  permissible. That is, acquisition case law has established that a contractor  may have unique advantages and capabilities (because of its prior  experience, for example), and the government is not required to equalize  competition or compensate for these advantages, unless there is evidence  of preferential treatment or other improper action.
GSA’s FTS headquarters in Fairfax, Virginia, and its regional offices in the  various metropolitan areas share responsibility for administering the MAA  contracts. According to testimony by the FTS Commissioner in June 2001,  FTS headquarters is responsible for developing solicitations, evaluating  offers, awarding contracts, and supporting implementation activities, and  the FTS regional offices are responsible for developing city-specific  requirements and for contract implementation activities, including  managing the process used to select among MAA contract awardees for  placing task orders (that is, the fair consideration process).
In calendar year 2001, fair consideration processes were conducted in 11  of the 15 MAA cities with multiple-award contracts. Table 1 lists these 11  cities, their MAA contractors, and the number of fair consideration  decisions reached in 2001.
section_title: GSA Has Not Established a Consistent Process or Provided Adequate Oversight
paragraphs: GSA management has stated its desire to ensure consistency throughout  the nationwide MAA program, but it has not established a common  process for fair consideration decisions. Because GSA headquarters has  not developed or implemented a uniform method to be followed by its  regional offices in conducting the fair consideration process, approaches  vary among cities and, in some cases, within cities. Variations occurred in  the periods of time over which contractor prices were compared and in  the inclusion of reconfiguration costs in price comparisons, which  affected the choice of contractors. Further, because GSA did not oversee  the application of this process, in some instances regional offices violated  the FAR by incorrectly using agency preference as a basis, in part or as a  whole, for selecting a higher priced contractor for an MAA task order.
Although the FAR gives contracting officers broad latitude in  administering the fair consideration process, GSA recognizes that the MAA  program and its contracts should be consistently managed and  administered. In her June 2001 testimony, the FTS Commissioner stated  that because MAA is a national program, communications and  coordination among GSA staff with MAA program responsibilities (FTS  headquarters, its regional offices, and MAA program management staff)  were essential to ensure program continuity and consistency. Thus, GSA  views consistency as an important attribute within the nationwide MAA  program.
The principal variation we identified in the fair consideration process  concerned the period of time selected by regional staff over which to  compare contractor prices. The different time periods that GSA regional  offices used for comparing contractor prices ranged from as short as  1 month to as long as the entire period remaining in the life of the contract  (GSA documentation referred to the latter as a life-cycle analysis). In three  cities—Cleveland, Indianapolis, and Minneapolis—GSA considered  contract life as the evaluation period. GSA’s Denver staff usually used a  1-month evaluation period, but it used a life-cycle analysis to justify 17  percent of its decisions. In four other cities, this price comparison varied  from decision to decision: specifically, the Dallas regional office alternated  between use of contract life and a 1-year period in its analyses; the New  York regional office used 1-year and 3-year periods; the Philadelphia staff  used a 1-month period and a 4-year period; and the Boston regional office  used a 1-month period in some cases, and in others considered savings for  both 1-year and 4-year periods. The reason for the specific comparison  period used was not recorded in decision documentation. Table 2  summarizes the different price comparison periods used.
Although the MAA contracts state that contract price will always be a  factor in GSA’s fair consideration procedure, they do not specify the time  period over which price comparisons should be made. However, a  consistent time period is important, because analyses over different time  periods may lead to different results. For example, one-time costs such as  service initiation charges have a less direct influence on decisions that  compare prices over a longer period of time, because those additional one- time costs may be offset by lower prices over the life of the contract.  Conversely, when prices are compared over a shorter period of time, such  additional charges form a relatively greater portion of total costs  compared; thus, their inclusion can favor the incumbent service provider  (whose price does not generally include these charges).
The effect of using different time frames in price comparisons is illustrated  in table 3. This table summarizes the decisions reached in Dallas, where  Southwestern Bell was the incumbent telecommunications provider. If  GSA had used a contract life-cycle time frame in its price comparisons,  then the decisions reached might have been different in half of those  cases. Further, if it had consistently made these MAA task order awards  to the contractors offering lower life-cycle prices, GSA could have realized  an additional estimated $459,000 in savings for customer agencies in  Dallas over the life of the contracts.
A secondary inconsistency within fair consideration processes concerned  the use of reconfiguration costs (costs to move, add, or change telephone  lines, services, or features) in contractor price comparisons. Although  these charges are a part of all MAA contracts, only the Dallas regional  office included estimates of these costs in the MAA price comparisons  supporting its fair consideration decisions. Further, Dallas did not use  these charges consistently: they appeared in only half the price  comparisons completed, and they were calculated in two different ways.  (In most cases, GSA staff based estimates on the assumption that  10 percent of the telecommunications lines ordered would move locations,  add services, or change features during the course of a year; in two cases,  GSA staff assumed that services or features associated with 25 percent of  lines ordered would change annually.) The reason for the variations in the  use of these charges and in their estimates was not recorded in decision  documentation.
Table 4 shows that in 5 of 10 decisions made in Dallas, a different  contractor might have been awarded the task orders if reconfiguration  charges had not been included in price comparisons. (Three of these five  decisions were based on price alone. Two of these decisions were based  on both price and technical considerations, and so we cannot predict the  effect of excluding reconfiguration charges.)
These variations exist because GSA has not established a common process  for making fair consideration decisions. GSA did provide guidance on the  fair consideration process to be followed in MAA cities following each  contract award. This guidance provided general background, including the  basis of the requirement in the Federal Acquisition Streamlining Act of  1994; the exceptions to this requirement; and the procedure to be followed  for issuing an MAA task order. However, it did not outline a common  process or identify common costs to be considered other than contract  prices. Rather, according to a GSA official, GSA permitted its regional  offices to define and follow their own fair consideration processes in order  to encourage innovation and to learn which process yields the best results.  However, GSA headquarters has taken no action that would permit it to  learn from any such experiences in order to address inconsistencies and  determine the most suitable process. As a result, variations occur in the  application of the fair consideration process, contrary to GSA’s stated  interest in ensuring the consistency of the MAA program.
Further, these variations led to a lack of transparency that could hinder  GSA’s ability to obtain full value from the fair consideration process.  Specifically, although the MAA contracts outline the fair consideration  procedure in broad terms, they do not outline specific aspects of the  process that vary across MAA cities, such as costs that may be considered  by the government in addition to the price of services, or the length of time  that may be used to compare contractor prices. Because these aspects of  the process are not disclosed, the contractors may find it difficult to  determine their most competitive offers.
GSA’s lack of oversight also hampered its ability to ensure that its fair  consideration processes always complied with appropriate federal  acquisition guidelines. Specifically, in six instances GSA violated the FAR  by incorrectly using agency preference as a basis, in part or as a whole, for  selecting a contractor for an MAA task order. According to this regulation,  designating preferred awardees is not permissible in the award of task  orders valued at more than $2,500. For orders that exceed that threshold,  all contractors in a multiple-award contract must be given a fair  opportunity to be considered. However, we identified six cases in Boston,  Dallas, Denver, and Indianapolis where decisions explicitly cited agency  preference as a factor for choosing a contractor for task orders above the  $2,500 threshold. These violations of the FAR were allowed to occur  because GSA did not provide adequate oversight to ensure that staff were  correctly applying regulations when conducting fair consideration  processes. As a result, the integrity of the fair consideration process could  not be ensured, and potential savings were lost. In all six cases the  incumbent provider was selected, which was also the higher priced service  provider; selecting the lowest priced contractor in these cases would have  yielded $76,000 in additional estimated cost savings to those agencies over  the life of the contracts.
section_title: Numerous Fair Consideration Decisions Were Not Adequately Documented
paragraphs: About one-fifth of GSA’s fair consideration decisions were not adequately  documented. According to the FAR, documentation of all contractual  actions must be maintained in a manner sufficient to provide a basis for  decisions reached in the acquisition process, and to provide information  for subsequent reviews of those decisions. Out of 483 fair consideration  decisions from regional GSA offices in the 11 cities that we assessed, the  documentation furnished for 91 (19 percent) did not adequately support  the task order award that was made.
One or more of the following four weaknesses were present in  documentation for these 91 decisions:    An explanation of how the fair consideration decision was made was  absent. Although contracting offices are required by the FAR to maintain  documentation sufficient to constitute a complete history of contracting  actions, this documentation was not available in 66 of the 483 decisions  assessed. Specifically, the documentation of decisions reached during  calendar year 2001 in Boston, Denver, Indianapolis, Los Angeles, New  York, and St. Louis did not include a stated rationale for the decisions  reached. As a result, in these cases it is not possible to determine whether  or not the fair consideration decisions reached by GSA were justified. A  GSA program officer stated that a decision rationale was not prepared for  53 decisions in Los Angeles and St. Louis that were based on price alone  because of a lack of clarity pertaining to documentation requirements for  those cases. She also stated that 5 decisions in New York were not  documented because of urgency, as those decisions were made shortly  after the September 11th terrorist attacks in that city. Further, the GSA  program officer stated that a decision rationale was not prepared for the  balance of decisions because of administrative oversight.
The price analysis did not support the decision reached. As part of fair  consideration decisionmaking, GSA usually included in each task order  file an analysis that compared the service prices offered by each  contractor over some defined period of time. In Dallas, Denver, and  Indianapolis, eight task order awards were justified by price comparisons  that did not support the decisions reached. Although price was the sole  factor considered in these cases, the lowest priced contractors, as  revealed by the price comparisons, were not awarded task orders. GSA’s  decision documentation does not explain why these awards were made to  higher priced contractors.
Technical factors were cited but not supported. According to the  procedure defined in the MAA contracts, fair consideration decisions may  be based on price or on a combination of price, technical factors, and past  performance. How these technical factors are weighted depends on the  particular circumstances of each decision. Technical factors were cited as  the reason for fair consideration decisions, either as a whole or in part, in  four MAA cities: Boston, Dallas, Indianapolis, and New York. For three of  these cities, Boston, Dallas, and Indianapolis, we were not able to  determine how these technical factors were applied to support a total of  20 decisions. Contract documentation for these 20 decisions included a  statement that both price and technical factors were considered. However,  in one case, the specific factor considered was not identified. In the other  19 cases, the specific technical factor was identified, but the  documentation did not specify how it supported the decision reached.
Other documentation weaknesses were identified in Boston.
Documentation prepared to support fair consideration decisions in Boston  contained two additional weaknesses. In three cases, the decision  documentation suggests that not all MAA contractors were included in  those fair consideration evaluations, but it does not indicate why not all  contractors were considered. Further, the documentation in three other  decisions indicates that price was not considered in these cases, although  price must be considered in all fair consideration decisions.
In three regional offices, GSA has taken some action to improve its fair  consideration documentation. Specifically, in response to concerns that  we initially raised during our prior review of early MAA contract  implementation efforts, GSA improved its decision documentation in  Cleveland and Indianapolis by including additional analyses and clarifying  memorandums in those contract files. In addition, Denver staff have also  taken action to correct their files.
Nevertheless, GSA has yet to take nationwide action to improve its fair  consideration documentation. Currently, weak documentation of fair  consideration decisions makes it difficult to determine the basis upon  which a contractor was selected for a task order. These problems were  permitted to occur because GSA did not establish uniform guidelines to  ensure that all regional offices were documenting fair consideration  decisions in a manner consistent with the FAR. As a result, in 19 percent of  the cases we reviewed, GSA, customer agencies, MAA contractors, and the  Congress do not have assurance that the procedure followed by GSA to  award MAA task orders was properly applied.
section_title: Use of Requests for Quotations Produced Mixed Results, but Limited Data Preclude a Thorough Evaluation
paragraphs: In MAA multiple-award cities, GSA attempted to reduce the cost of  telecommunications services by asking contractors to submit price  quotations to compete for task orders. However, the process had mixed  results in the only MAA city in which we could do a partial evaluation. (We  could not do a comprehensive evaluation because of limitations in  documentation.) For acquiring some types of services, substantial savings  were realized by the use of Requests for Quotations (RFQ), but for others,  the savings were not sufficient to offset the cost of paying pre-MAA prices  during the time taken to complete the process.
GSA’s most common approach to selecting contractors for task orders was  to issue an RFQ, rather than basing decisions on published contract prices  alone: specifically, GSA followed this process in 347 out of the 394  decisions reached in the 11 MAA cities in which fair consideration  processes were conducted. Of the 11 cities, GSA issued RFQs to support  fair consideration in 8. (In the 3 other cities—Boston, Los Angeles, and St.  Louis—the documentation was not sufficient to determine whether GSA  issued RFQs.) Denver was the only city, of the 11 reviewed, where GSA  staff documented their actions while reaching most fair consideration  decisions. As a result, Denver was the only city where we could make an  assessment (although still partial) of the cost-effectiveness of the RFQ  process. We were not able to comprehensively evaluate the cost- effectiveness of the RFQ process across all 11 MAA cities, or to partly  assess processes in any other city, because the documentation maintained  was not sufficient for that purpose.
Despite their limitations, data available on the RFQ process in Denver  indicate substantial differences in savings realized, depending on the types  of local telecommunications services acquired; therefore, this process may  not be cost-effective for acquiring all types of local telecommunications  services. GSA used its MAA contracts in Denver to acquire two types of  services: one type is a large telephone line, known as a trunk, which is  used to interconnect a customer-owned switch, called a private branch  exchange (PBX), to the contractor’s network; the second type is a voice  telephone line served by a switch that is owned and operated by the  contractor. According to our evaluation of Denver’s records for 119 fair  consideration decisions that preceded award of task orders for these two  types of services, the benefit of the RFQ process (over the life of the  contracts) varied between the two. Specifically, in five of the eight cases  where GSA sought to buy PBX trunks, the MAA contractor waived or  reduced service initiation charges, reduced its monthly recurring cost, or  both (no additional benefits were derived by this process in the three  other cases). For PBX services, the net savings were substantial—an  estimated $790,000.
In contrast, for switched voice services, the benefits of using the RFQ  process were less substantial, and the available data suggest that they  were not sufficient to offset the savings deferred while the process was  completed. In 23 of 111 cases, additional cost or price reductions were  obtained in the form of waived or reduced service initiation charges that  did offset the value of savings deferred. However, in 88 cases, the benefit  realized did not offset the deferred savings. Thus, using the RFQ process  to acquire all switched voice services instead of taking immediate  advantage of low MAA contract prices was not cost-effective.
GSA was not able to maximize the value of the RFQ process for the benefit  of its customers, however, because it did not institute performance  measures that would allow it to gauge cost-effectiveness and determine  where the RFQ process would be most suitable for acquiring local  telecommunications services, or that would aid in identifying where its  processes could be improved. Furthermore, because adequate  documentation of fair consideration decisions was not maintained  throughout this program, GSA does not have the data it would need to  evaluate its processes throughout its MAA cities and to make  improvements. As a result, GSA is unable to direct the most suitable and  cost-effective use of the RFQ process in the administration of its MAA  contracts.
section_title: Conclusions
paragraphs: Inconsistencies in GSA’s process and practices for determining how it  awards MAA task orders to its contractors are hampering its ability to  appropriately administer these contracts; because these inconsistent  processes are not transparent, contractors may not be able to compete  most effectively. In addition, weaknesses in documenting fair  consideration decisions and inadequate oversight of the process  undermine GSA’s ability to assure customer agencies, MAA contractors,  and the Congress that the procedures it followed to award MAA task  orders were always appropriately and fairly applied. Further, because it  did not establish measures that would enable it to learn from the fair  consideration experiences in its regional offices, GSA was unable to gauge  the cost-effectiveness of RFQ processes so that it could make the most  suitable and effective use of RFQs to acquire local telecommunications  services. As a result, GSA cannot provide assurance that its MAA fair  consideration processes are sound, and that they provide the government  the maximum benefit from the MAA contracts.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Administrator of General Services establish a  common process for GSA to consistently follow in reaching its fair  consideration decisions under the MAA contracts, and that he direct the  FTS Commissioner to oversee the proper application of this process. This  common process should include a uniform time frame for comparing MAA  contractor prices, and it should specify the cost elements (such as  reconfiguration costs) to be considered in those comparisons. Should  local conditions warrant deviation from this common process, we  recommend that GSA document these deviations and communicate them  to GSA’s MAA contractors, so that all MAA stakeholders have a clear and  consistent understanding of the process being followed. This process  should include the management oversight necessary to ensure adherence  to the FAR prohibition against the use of agency preference in decisions  on task orders valued at more than $2,500.
We also recommend that the Administrator of General Services direct the  FTS Commissioner to establish and apply uniform guidelines for  documenting fair consideration decisions that are sufficient to ensure that  GSA appropriately reaches its decisions to award task orders. For each  fair consideration decision, this documentation should include  the rationale for the decision;  the supporting contractor price comparison; and    support for other factors considered in reaching the decision, such as  technical and past performance considerations, as appropriate.
We further recommend that the Administrator of General Services direct  the FTS Commissioner to develop performance measures to determine  when the RFQ process best achieves program goals. Once GSA has  outcomes for these measures, it should evaluate the results of its RFQ  process to identify potential improvements and to determine its most  suitable and cost-effective use.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, the Administrator of General  Services agreed with our recommendations and indicated that GSA was  acting to implement them. Specifically, GSA has created draft guidance on  its fair consideration process under MAA procurements, and it plans to  disseminate this guidance to all its FTS regional offices by April 11, 2003.  According to the Administrator, this guidance addresses all our  recommendations and will ensure consistency in the fair consideration  process and supporting documentation. GSA also provided technical  comments that we have incorporated into this report as appropriate.  GSA’s written comments are presented in appendix III.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we will not distribute it until 30 days from its issue date.  At that time, we will send copies of this report to the Ranking Minority  Member, Committee on Government Reform, and interested congressional  committees. We will also send copies to the Director of the Office of  Management and Budget and the Administrator of the General Services  Administration. Copies will be made available to others on request. In  addition, this report will be available at no charge on our Web site, at  http://www.gao.gov.
Should you or your staff have any questions on matters discussed in this  report, please contact me at (202) 512-6240. I can also be reached by E- mail at koontzl@gao.gov. Other key contributors to this report are Scott  Binder, Harold Brumm, Barbara Collier, Kevin E. Conway, Frank Maguire,  Mary Marshall, Charles Roney, and Michael Stiltner.
section_title: Appendix I: Termination Charges and Service Initiation Charges
paragraphs: At your request, we evaluated the effect of contract termination charges  and contract service initiation charges (SIC) on the results of fair  consideration decisions for awarding task orders in cities with multiple- award Metropolitan Area Acquisition (MAA) contracts. Under acquisition  contract law, agencies are permitted to consider termination charges and  SICs in contract award decisions.
Our analysis of termination charges showed that they had minimal impact  on fair consideration decisions. The General Services Administration  (GSA) included these charges in 16 contract price comparisons in Dallas,  the only city in which they were relevant. Termination charges had a  direct effect on 5 of 16 fair consideration decisions; in other words, those 5  decisions might have resulted in an award to another contractor if Dallas  had not included the termination charges as part of its contract price  comparisons.
Our analysis of SICs showed that they were included as a cost factor in  GSA’s fair consideration price comparisons in 7 of 11 MAA cities: Boston,  Cleveland, Dallas, Indianapolis, Minneapolis, New York, and Philadelphia.  In these 7 cities there were 272 fair consideration decisions that included  SICs in price comparisons, and SICs were a deciding factor in 61 of these  decisions. That is, if SICs had not been part of GSA’s analyses, the award  decision would have been issued to another contractor in 22 percent of  those decisions. SICs did not affect more decisions primarily because of  the period of time used in comparing contractor prices. In 90 percent of  fair consideration decisions where SICs were identified as a cost factor,  GSA used the contract life-cycle period as the evaluation time frame. When  SICs were amortized over the life of the contract, these charges were  usually not large enough to influence fair consideration decisions.
For the balance of the decisions, SICs were not included in price  comparisons, the treatment of SICs could not be determined, or cost  comparisons were not completed:  In all 44 decisions in Los Angeles and in 9 decisions in Boston, no SICs  were included in fair consideration price comparisons.
Contract price comparisons were not completed to support four fair  consideration decisions in Boston, one in Philadelphia, and one in Atlanta,  because only one MAA contractor was responsive to their RFQs. A  contractor price comparison was also not completed to support one fair  consideration decision in New York City, where the award was based on  the urgency of the requirement.
In all nine decisions in St. Louis, seven decisions in Boston, five decisions  in New York City, and two decisions in Indianapolis, we could not  determine whether SICs were used in making fair consideration decisions  because the documentation was not sufficient to permit us to make that  determination.
In the remaining MAA city, Denver, SICs were not included in comparisons  of contractor prices; only monthly recurring charges were included for  comparison purposes. However, in 22 of its 128 price comparisons in  Denver, GSA did cite the value of SICs in recommending that task order  awards be made to contractors with a higher monthly recurring cost for  services, because the agency could save more money over the contract  life; we verified the accuracy of those analyses. To show the total cost of  the MAA service in those cases where the recommended contractor  charged SICs, GSA staff in Denver disclosed these charges as a separate  item in the decision results presented to customer agencies. This  disclosure was an amortization analysis indicating the time that it would  take for monthly MAA contract savings to amortize that one-time cost.
section_title: Appendix II: Objectives, Scope, and Methodology
paragraphs: In our review of the Metropolitan Area Acquisition (MAA) contracts  managed by the General Services Administration (GSA), our objectives  were to determine (1) whether GSA’s fair consideration process varies  within or among cities, and if so, whether or not variations affect the  process results; (2) whether GSA’s documentation properly and  appropriately supports its fair consideration decisions; and (3) whether  the use of Requests for Quotations in the fair consideration processes  followed by GSA is cost-effective. We also determined whether contract  termination charges and service initiation charges affected GSA’s fair  consideration decisions.
We reviewed all fair consideration decisions made by GSA during calendar  year 2001 as part of the MAA contracts’ service ordering process. To  determine whether there were variations in the fair consideration process,  we reviewed the fair consideration procedure outlined in the MAA  contracts, applicable acquisition guidelines, and GSA Federal Technology  Service guidance and direction on the fair consideration procedure. Using  the decision documentation maintained by the GSA regional offices, we  then reviewed the steps taken by those offices in conducting their fair  consideration processes. We gathered and assessed documentary and  testimonial explanations for variations within or among MAA regional  offices in their fair consideration processes.
To determine whether GSA’s documentation properly and appropriately  supports its fair consideration decisions, we reviewed appropriate federal  contract administration guidelines including the Federal Acquisition  Regulation (sections 4.801 and 16.505) and Office of Federal Procurement  Policy guidance (May 4, 1999, Memorandum for Agency Senior  Procurement Executives regarding “Competition and Multiple Award Task  and Delivery Order Contracts”), as well as MAA contract language  outlining the fair consideration procedure. We then reviewed the  documentation maintained by GSA’s regional offices to support fair  consideration decisions. This documentation included, where available,  contractor price information, GSA’s analyses that compared contractor  prices, and other memorandums supporting and documenting the decision  process. We also reviewed the task order documentation prepared by GSA  following its fair consideration decision, in order to match the service  ordered with the decision reached.
To determine whether the use of Requests for Quotations (RFQ) in the fair  consideration processes followed by GSA is cost-effective, we reviewed  regional offices’ documentation to determine whether data were available  that would permit the evaluation of time taken to complete the fair  consideration process. Following our review of the documentation, we  selected Denver as a multiple-award MAA city where the documentation  available was sufficient to permit evaluation of key aspects of that  process, such as determining the approximate time taken to complete the  RFQ process and the benefits derived from that additional competition.  Specifically, we used data regarding the RFQ issue date and the date when  Denver completed its analysis to determine the time taken to complete  that process in the 79 decisions where those data were available. In the 40  other decisions where data were not available regarding the complete  process (3 cases pertaining to PBX service and 37 cases pertaining to  switched voice services), we assumed that the process was completed at  the same time that GSA received the final contractor RFQ response. We  also examined documentation to determine, for each decision, any  additional benefit realized as a result of the RFQ process, such as lowered  monthly prices or waived or reduced service initiation charges. Where  data were available to determine whether the value of benefits derived  from the RFQ process justified the time required to complete that process,  we compared pre-MAA prices for services with MAA prices, in order to  calculate a baseline savings provided by the MAA contracts. We then  evaluated the cost of the RFQ process exclusively in terms of the monthly  savings that were deferred until the fair consideration process was  completed. We did not include the labor cost expended by GSA or its MAA  contractors in completing this process.
To determine the effect of contract termination charges and service  initiation charges on fair consideration decision results, we reviewed the  price comparisons that were prepared by GSA regional offices. Where  applicable, we calculated prices for services with and without these  additional charges to determine whether the decision supported was  influenced by these charges.
We conducted our review from May 2002 through February 2003, in  accordance with generally accepted government auditing standards.
section_title: Appendix III: Comments from the General Services Administration