Acquisition Reform: Obstacles to Implementing the Federal Acquisition Computer Network
Released: 1997-01-03T00:00:00

Letter

Background

On October 26, 1993, a presidential memorandum established a governmentwide goal of streamlining acquisition through the use of electronic commerce (EC). EC, the electronic exchange of the information needed to do business, embraces many technologies, including electronic data interchange (EDI), electronic mail (E-mail), computer bulletin boards, and electronic funds transfer. EDI is the computer-to-computer exchange of routine business documents using standardized data formats. To meet the President’s October 1993 goal, a governmentwide program to develop and implement an EDI-based architecture for federal acquisition was initiated.

Title IX of FASA, enacted on October 13, 1994, provided the statutory framework for the governmentwide EC/EDI initiative. FASA mandated the development and implementation of a governmentwide FACNET architecture to expand small business access to the government marketplace and simplify and speed the solicitation and award of competitive procurements. FASA requires that FACNET provide (1) widespread public notice of both contracting opportunities and awards; (2) a means for vendors to electronically review, request information on, and respond to solicitations and similar information; and (3) recordkeeping on each procurement action. The act also requires that, if practicable, FACNET provide other capabilities, such as issuing orders under existing contracts and making payments.

FASA does not specify a particular governmentwide EC/EDI systems architecture or design but does require FACNET to use commercial hardware and software, provide universal user access, and employ nationally and internationally recognized data formats. Throughout this report, the term “FACNET infrastructure” refers to the communications and computer systems that transmit EDI transactions to and from federal agency procuring activities and vendors.

The Administrator for Federal Procurement Policy, who heads the Office of Federal Procurement Policy (OFPP) in the Office of Management and Budget, has responsibility for overall policy direction and leadership of the FACNET program. The Electronic Commerce Acquisition Program Management Office (ECA-PMO), co-chaired by the General Services Administration (GSA) and DOD and reporting to the Administrator, has been chartered to coordinate and oversee FACNET implementation throughout the federal government. Several agencies have been tasked to lead specific governmentwide FACNET projects. In particular, DOD has lead agency responsibility for developing, operating, and supporting the FACNET infrastructure and a new federal centralized contractor registration database to be used with it.

Limited Use of FACNET

FASA requires, among other things, the head of each executive agency to provide for implementation of full FACNET capability “as soon as practicable” after FASA’s enactment. An agency can be certified as fully FACNET capable when more than 75 percent of its FACNET-eligible contract awards valued at $2,501 to $100,000 were made through FACNET during the preceding fiscal year. However, FASA’s prescribed process for determining what constitutes eligible contracts precludes such a determination until October 12, 1997, at the earliest. Therefore, the information needed to measure progress toward meeting these FASA criteria for FACNET success will not be available before that date.

Although the information needed to measure progress toward FASA’s criteria is not available, federal agencies have reported executing relatively few procurement actions through FACNET. For example, federal agencies reported 113,000 FACNET procurement actions for 1995. Available information indicates that (1) only about 25 percent of these actions were valued at $2,501 to $100,000 and (2) such actions may have represented less than 2 percent of all 1995 federal procurement actions in that dollar range. The remaining 75 percent of the 113,000 actions were almost all for $2,500 or less, and available information indicates that such actions may have represented less than 1 percent of all 1995 federal procurement actions in that dollar range.

According to OFPP, the number of FACNET awards can be expected to remain relatively small unless FACNET proves to be a better, cheaper, faster purchasing technique than traditional small purchase methods.

DOD made the vast majority of the 113,000 FACNET procurement actions, while civilian agencies made few. For example, DOD reported 97 percent of the FACNET procurement actions reported by federal agencies for 1995. (See table II.1 in app. II for data on 1995 and table II.2 for data covering January through March 1996.) According to DOD, (1) it has inserted EC/EDI enabling technology into 300 sites over the past 2 years, and (2) these sites generate 80 percent of DOD’s procurement actions of $100,000 or less.

Several agencies reported that their EC implementation plans call for using a number of different EC technologies. OFPP indicated that (1) each agency was asked to develop its own implementation plan to integrate EC into its internal processes and (2) since EC technologies are evolving, OFPP allowed the agencies a high degree of discretion in how they applied EC. According to DOD, its approach from the outset has been to utilize any and all technologies that were appropriate for a given business transaction. In figure 1, we show that officials of the agencies we contacted cited most frequently the Internet, electronic catalogs, and FACNET, in that order, as EC tools or methods they expected to have great or very great importance to their agencies through 1999. (For details on agencies’ responses regarding this, see table III.1 in app. III.)

Problems Using FACNET

Since the inception of the FACNET program, government agencies and vendors have identified operational problems with the infrastructure and the centralized database for contractor registration. Our review indicated that, as of September 1996, these problems had still not been resolved. Also, agency officials expressed preferences for EC purchasing methods other than FACNET, and many vendors found few incentives to participate in FACNET. Agencies and vendors reported that FACNET has resulted in lower prices and expanded markets in some cases but, more generally stated that FACNET was not providing the benefits expected.

Background on FACNET

DOD began developing the current FACNET infrastructure in response to DOD and governmentwide EC initiatives preceding FASA’s enactment. DOD has operated and continued to develop the infrastructure with the stated purpose of enabling all federal agencies to implement both FACNET requirements and the goals of the governmentwide EC/EDI program. The following simplified description illustrates a business transaction moving through the current FACNET infrastructure. A buyer at a procuring activity electronically prepares and transmits Requests for Quotations or other solicitation data from the activity’s automated procurement system through the infrastructure, which performs several functions. These include translating the data into standardized EDI formats and relaying the information to privately owned, participating Value-Added Networks (VAN). VANs distribute the information—in a mutually agreed-upon format—to vendors that subscribe to their services. Vendors, in turn, transmit their quotations through the network back to the agencies. After the buyer selects the winning vendor, a purchase order is transmitted to the vendor. Then, a broadcast notice announcing the winning vendor is transmitted to the VANs for distribution to vendors.

A key goal of FACNET is to present a “single face to industry.” Among the critical elements of the single face concept are that vendors, by registering once in a governmentwide Central Contractor Registration (CCR) database, have access to and can respond to government solicitations and similar information through any single point of entry, using a single set of standards. Ideally, this would give a vendor easy access to information on numerous proposed contracts and awards including, for example, federal contracting opportunities up to $100,000 that previously would have been either listed in the Commerce Business Daily or manually posted at the procuring activity. And, the vendor could respond to government buyers in any agency using a single electronic system, as opposed to dealing with numerous different agency or procuring activity-unique systems.

Operational Problems Reported Throughout FACNET Infrastructure

There was a broad consensus that FACNET has had operational problems. For example, government and industry FACNET users reported hundreds of malfunctions in sending and receiving FACNET transactions. Lost, late, and duplicate transactions and network interruptions frustrated agencies, VANs, and vendors and delayed procurements. ECA-PMO officials and users stated that these problems were significant.

Most of the 99 contracting offices responding to a recent Army-wide survey of the effectiveness of FACNET reported problems with the FACNET infrastructure. Feedback from Air Force and Navy operational contracting activities reported to the Under Secretary of Defense (Acquisition & Technology) in July and August 1996 also stated that FACNET often had not worked well. Similarly, at least 14 of the 18 agencies we contacted cited the lack of a sound FACNET infrastructure and the lack of effective engineering and operational management as great or very great obstacles to efficient and effective implementation of FACNET. (See table III.2, in app. III, for details.)

Buyers and vendors have been reluctant to do business through FACNET, in part, because of operational problems. For example, in April 1996, a senior contracting official at the Army’s Training and Doctrine Command stated that FACNET did not function well enough to support the Command’s requirements in a meaningful way. He noted that outgoing FACNET solicitations had been lost or received by vendors as late as 2 weeks after transmittal and responses vendors had sent out soon enough to be on time were received at the Command several days after the closing date. He added that (1) vendors were frustrated about spending time and money to become FACNET-capable and then discovering that their quotes did not make it through the system and (2) vendors often faxed their quotes to Training and Doctrine Command buyers, in addition to transmitting them through FACNET, to ensure receipt. Another Army contracting activity reported that its buyers routinely mail out copies of FACNET award notices because vendors complained that they were not receiving them through FACNET.

In July 1996, an official with the San Antonio Electronic Commerce Resource Center who works with small businesses and government offices in introducing EC into their business practices told us that FACNET has had its share of growing pains. In particular, he noted that lost and duplicate transactions and a general instability of FACNET have caused many vendors to question the wisdom of participating on FACNET.

For vendors, problems in transmitting and managing transactions through FACNET can result in lost business opportunities and additional transmission fees paid to VANs. For the government, such problems cause delays in getting needed supplies and services, reduce productivity, and lead to bid protests. In June 1996, for example, our office considered a protest concerning a FACNET acquisition in which three quotes submitted through FACNET were lost.

DOD has recently made major design changes to enhance the FACNET infrastructure. Officials responsible for the redesign stated that the new infrastructure should reduce the operational problems that have been identified, including an inability to track transactions through FACNET, and lost and late transactions. The DOD Inspector General recently reported that the proposed redesign, referred to as the Electronic Commerce Processing Nodes, should reduce the recurring problems related to lost and late transactions, the inability to track transactions, and the lack of acknowledgment for transactions. In a separate report, the DOD Inspector General recommended that DOD verify that implementation of the Electronic Commerce Processing Nodes corrects technical problems associated with FACNET.

CCR Database Is Not Operating as Intended

Effective implementation of the CCR database is fundamental to the current FACNET strategy and to achieving a single face to industry. The goal is to provide (1) contractors with a one-time registration process for doing business with all government procuring activities and (2) government buyers with one central database to query for contractor information. Vendor registration in, and agency use of, the CCR database is mandated in the governmentwide Federal Acquisition Regulation (FAR) implementing FASA’s requirements for FACNET. The database, however, has been experiencing significant problems, is far behind schedule, and is still not performing its intended role of operating as the single federal contractor registration system.

DOD reported in October 1996 that only about 4,000 of an estimated 300,000 government contractors had validated registrations in the database. Currently, agencies must award contracts to unregistered vendors because the CCR database does not have enough registered vendors to supply the full range of products and services needed. Sixteen of the 17 agencies from which we obtained information on this matter cited the lack of a well-populated and fully operational CCR database as a great or very great obstacle to efficient and effective implementation of FACNET. (See table III.2, in app. III, for details.)

Agencies Are Opting for Other EC Methods

According to agency officials, one of the more significant factors limiting the usefulness of FACNET is that other electronic purchasing methods are available that are simpler and faster. For example, purchase cards (government-issued commercial credit cards); the Internet; online catalogs, including the GSA’s automated supply schedule contracts; and other commercial alternatives have been introduced into government contracting and their use is growing rapidly. Use of the purchase cards for contract payment, combined with electronic ordering from online contracts, and/or new, more flexible procedures for the use of federal supply schedule contracts provides agencies with readily available alternatives to meeting their procurement needs that were not available just a few years ago, when FASA was being written. Moreover, technology developments are expected to continue to offer opportunities to improve federal purchasing methods.

These developments have led some agencies and many federal officials involved with FACNET implementation to question whether—especially for small competitive acquisitions, such as those under $25,000—the use of the current FACNET infrastructure makes good business sense. National Aeronautics and Space Administration (NASA) officials said that NASA intended to concentrate its EC efforts on Internet-based acquisition services and not FACNET. Some Air Force and Army contracting activities have also suggested using the Internet instead of FACNET. Officials of 15 federal agencies are working together to pursue Internet-based initiatives.

The DOD Inspector General reported that DOD officials responsible for FACNET had (1) acknowledged that the evolution of new technologies was creating alternatives to DOD’s original concept of FACNET as the single mechanism for EC/EDI procurements and (2) indicated that alternatives were being analyzed that would still maintain the single face to industry goal. In a July 1996 memorandum, the Assistant Secretary of the Air Force stated that while the DOD procurement community has recognized that the current network for FACNET needs changing, there is no current solution. In November 1996, DOD expressed the belief that in conducting competitive procurements, the requirements to be FACNET-compliant, particularly the single face to industry goal, are critical. For other than competitive transactions (which includes noncompetitive awards and orders under existing contracts), DOD added, it may not be necessary to meet FACNET requirements.

ECA-PMO officials observed that with agencies now viewing direct buying (through ordering from online catalogs or other existing contracts) as more efficient, the current FACNET infrastructure is becoming “less relevant.” OFPP and the ECA-PMO officials said they are moving away from a one-size-fits-all approach to FACNET implementation in favor of allowing agencies the flexibility to employ the best technology for a particular acquisition. As part of this strategy, they are encouraging agencies to use all types of EC, including FACNET, the Internet, purchase cards, and online catalogs—whichever tool makes the most business sense.

Vendors Find Few Incentives for Participation

Many small businesses have stated that the lack of clear and consistent FACNET policy, procurement procedures, and specific business information are major disincentives to FACNET participation for them. For example, some FACNET vendors said that inconsistent and, in some cases, directly opposite practices were used at different procuring activities. They pointed out that some buyers accept fax queries for more information and send faxes to clarify FACNET solicitations, while other procuring activities no longer permit use of faxes and will ignore any incoming fax messages;there seems to be no consistent policy covering procurements exempted from use of FACNET; and the number of days a solicitation remains open is highly variable.

Vendor commitment to FACNET is influenced by the lack of consistency in procurement procedures and policies like these.

Some vendors complain that they are unable to get the information they need on agencies’ and procuring activities’ current and future FACNET business opportunities. Vendors point out that they need such information to determine whether FACNET will generate sufficient revenues to justify the investments needed to participate in FACNET. Last year we testified that, depending on the volume of transactions and types of services, businesses could incur costs ranging from about $70 to several thousand dollars monthly for VAN services alone. The use of VANs is a key component of the current FACNET infrastructure.

Agency officials also stated that FACNET can be expensive for vendors to implement. According to one agency official, vendors are unwilling to make the investment in time and money to participate, because of the problems the government is experiencing with FACNET. More than 40 percent of the contracting activities in the Army’s 1996 FACNET survey said that there were insufficient numbers of vendors participating in FACNET. EC program managers at other agencies told us that FACNET solicitations often had to be canceled because of little or no vendor response. According to officials of several agencies, few vendors, particularly small businesses, are EDI-capable and the current FACNET implementation approach offers few incentives for these businesses to participate.

The Administrator for Federal Procurement Policy acknowledged that VAN costs create major problems for small businesses. He added that a small business has to sell a lot to the government to make the investment worthwhile, which could have the effect of concentrating work among a class of EDI-capable vendors that specialize in doing government business over FACNET.

DOD acknowledged that there is a cost to small businesses associated with VANs’ processing FACNET transactions but stated that the cost of doing business manually often meant the small business had to use an agent to review physical bulletin boards—at potentially 1,400 separate DOD sites—the only places where contracting opportunities under $25,000 were posted.

Expected Benefits Not Yet Being Realized

In 1993, the National Performance Review stated that exchanging acquisition information with vendors electronically could result in governmentwide savings of up to $500 million per year, due to increased competition and reduced federal paperwork. On the basis of agencies’ reported experiences to date, FACNET has not resulted in the significant benefits that were expected from using EC—savings in time and money and increased federal productivity.

For some FACNET procurements, agencies are reporting direct benefits, such as reduced contracting leadtimes, improved price competition, and an increased vendor base. More generally, however, government buyers have found that using FACNET to award contracts of $25,000 or less takes longer and requires more resources than traditional methods. They attribute this, in part, to the frequent need to communicate by telephone and fax with vendors to verify the receipt of a quote, answer questions, or investigate a vendor’s capabilities and those of its products. Further, they noted that their efforts have been hampered by a lack of guidance on how to evaluate vendors’ responses, particularly when a substantial number of quotes are received and how to determine the timeliness of vendors’ quotes.

The results of a U.S. Army Missile Command comparison of 179 FACNET actions and the same number and types of non-FACNET (and non-EDI) actions were that the use of FACNET prolonged the procurement process for purchases of $2,501 to $25,000 from an average of 3 days to more than 7 days and required extra resources and effort. The Command official responsible for the comparison concluded that for this price range, the cost in time and effort far overshadows any small savings FACNET produces. The Department of the Interior performed a similar test at five buying locations and got comparable results.

The Administrator for Federal Procurement Policy told us that the problems reported by frontline procurement staff trying to implement FACNET prompted his office to recommend several policy changes last year.

The FAR Council adopted many of these recommended changes, as part of the proposed FAR Part 13 restructuring rule. The proposed rule would give agencies greater flexibility in using FACNET, as OFPP recommended, including the authority to describe requirements using multiple brand names for purchases under $25,000 and conduct more expedited evaluation of vendors’ quotes or offers. Additionally, the proposed rule states that agencies need not respond to inquiries (1) by telephone or fax, unless they are unable to receive inquiries through FACNET or (2) through any medium (including FACNET) if doing so would interfere with their ability to conduct the procurement in an efficient manner. The Administrator said these changes were intended to address procurement offices’ complaints that FACNET had increased both the resources needed to evaluate quotes and procurement leadtimes, compared with traditional solicitation methods. He said the changes were also intended to enhance FACNET’s viability and increase agencies’ use of it.

Key agency officials responsible for FACNET implementation at the 18 agencies we contacted cited indirect benefits—such as lessons learned that will likely benefit the government in the future—as the most significant benefits being realized from FACNET. (See table III.3 in app. III for details.) The benefits of FACNET being realized to a great or very great extent, as reported by federal agencies, are shown in figure 2. These results did not differ substantially for DOD and its components, compared with the civilian agencies—which use FACNET much less than DOD.

Concerns About FASA’s Requirements for FACNET

Federal officials responsible for FACNET stated that the basic concept underlying FACNET may not be sound. As mandated by FASA, FACNET focuses primarily on competitive solicitations and new contract awards,requiring a federal agency to provide widespread public notice and exchange information with multiple vendors—not just one. As previously noted, FASA requires that FACNET provide (1) widespread public notice of contracting opportunities and (2) a means for private sector users to electronically access and review executive agency solicitations and respond to them.

Federal officials said the concept, using EDI technology to focus primarily on relatively low dollar value competitive contract awards to small businesses, may not be the best solution for the procurements targeted. These officials noted that the concept was developed and pilot tested by the executive branch and formed the basis for the FASA approach. The concept emphasizes the use of EDI, a technology that has been used primarily to support a high volume of routine “one-to-one,”computer-to-computer business transactions between organizations that have established a close working relationship. Examples of such transactions include delivery orders under existing contracts and invoices exchanged between a company and its regular suppliers. Commercial companies and some federal agencies have found that EDI technology can be very effective when used in this way.

Three federal agencies that are using EDI successfully for one-to-one transactions—the Defense Logistics Agency, GSA, and the Department of Veterans Affairs—reported transmitting a total of about 840,000 delivery orders and 517,000 invoices in 1995. The Administrator for Federal Procurement Policy stated that a lot of progress has been made in federal agency use of EDI technology for acquisition—but outside of FACNET—as shown by these three agencies’ efforts on one-to-one transactions. According to DOD, (1) the organizations currently processing these one-to-one transactions are primarily utilizing proprietary solutions, or noncompliant standards, and do not present a single face to industry at this time and (2) maintaining and sustaining such actions are outside DOD’s Information Infrastructure—“a FACNET compliant system.”

Because the technical and business requirements for such one-to-many transactions differ significantly from one-to-one transactions, agencies using FACNET have not been able to benefit fully from the lessons learned and from long-term familiarity with electronic delivery orders and invoices on the part of commercial companies and the Defense Logistics Agency, GSA, and the Department of Veteran Affairs. Moreover, the use of FACNET for one-to-many transactions is essentially a government-unique business application of EDI, involving different business and technical considerations than one-to-one delivery orders and invoices. Several OFPP, ECA-PMO, GSA, and other agency officials said that focusing FACNET’s implementation on competitive procurements has contributed significantly to FACNET’s problems and the skepticism that surrounds the existing infrastructure. The Administrator for Federal Procurement Policy and other agency officials also told us that FASA’s requirement to focus FACNET principally on awarding relatively low dollar value contracts competitively may not have been a good idea.

Leadership and Management Problems

Implementation of FACNET on a governmentwide basis is a substantial undertaking that requires effective leadership and management to be successful. Since FACNET’s inception, significant technical, business, and policy issues have confronted the FACNET program, many of which have not been resolved, delaying FACNET implementation. Agencies and vendors have consistently cited the lack of clear leadership, direction, and adequate program management governmentwide as major reasons for delays in problem resolution and implementation of FACNET.

FASA requires the Administrator for Federal Procurement Policy to (1) establish a program to develop and implement FACNET; (2) assign a program manager for FACNET; and (3) provide for overall direction of policy and leadership in, among other things, the development, coordination, and completion of FACNET implementation by executive agencies. DOD is the lead agency responsible for implementing the FACNET architecture and the CCR database, including providing policies, procedures, standards of operation, and day-to-day network management. The ECA-PMO, co-chaired by DOD and GSA, was tasked to develop, coordinate, and integrate the programs and tasks needed to implement FACNET and the presidential memorandum.

A governmentwide strategy for FACNET implementation has not been clearly and convincingly communicated. Officials responsible for FACNET implementation in their agencies stated that the governmentwide program has been fragmented and uncoordinated. Neither OFPP nor the ECA-PMO operates as a focal point of central guidance and governmentwide accountability for FACNET. In effect, each agency is left to pursue its own FACNET strategy.

In addition, OFPP and the ECA-PMO have not systematically integrated and managed the total framework of projects and functions necessary to develop, implement, and use FACNET and other EC technologies in a manner that reflects the single face goal. As a consequence, the development and use of key components of FACNET, including the architecture, the CCR database, operational procedures, business information to attract vendors, and policy guidance on the use of FACNET for agencies and the private sector have not been clearly linked. Another consequence is that governmentwide priorities for FACNET have not been clearly established, communicated, and linked.

Since the early stages of implementation, agencies have consistently cited the lack of clear leadership and governmentwide program management as major sources of problems and delays in the program. The results of a February 1995 EC roundtable (in which over 20 federal agencies were represented) showed that the most significant concern of the participants was leadership and support.

We found that little progress had been made in resolving concerns about leadership and program management of FACNET. Of the 18 agencies we contacted, 12 cited the lack of effective policy leadership outside their agencies; 13 cited the lack of effective governmentwide program management; and 14 cited the lack of effective FACNET engineering and operational management as great or very great obstacles to efficient and effective implementation of FACNET. (See table III.2, in app. III, for details.)

The key organizations responsible for FACNET—OFPP, DOD, and the ECA-PMO—have not developed and put into place an effective governmentwide management approach that includes (1) a clearly defined program structure; (2) multiyear planning that clearly establishes governmentwide implementation plans, anticipated results, and resource requirements and priorities; (3) systematic review and approval of key FACNET projects; and (4) feedback and evaluation that identifies the progress made and corrective actions needed. Information was also unavailable on the total estimated costs of FACNET implementation—or its major components (such as the infrastructure or CCR database)—or the governmentwide EC program.

The Administrator has acknowledged that there have been shortcomings in management of the governmentwide FACNET program. Officials in OFPP and the ECA-PMO told us they were aware of the agencies’ concerns about the leadership and overall management of FACNET implementation. They acknowledge that the kind of program management and reporting described above has not been developed and is needed. However, they observed that ad hoc funding and staffing of the ECA-PMO from executive agencies has hampered effective program management efforts.

The Administrator told us he had concluded by the summer of 1995, on the basis of discussions with frontline contracting officials, that there were extensive and persistent problems with FACNET implementation. He said that over time he became convinced that (1) FACNET’s basic concept (discussed in the previous section) was not sound and needed to be revisited and (2) improved program management would not remedy this fundamental problem. He added that there was not, and still is not, a consensus among agencies’ senior procurement executives that these problems were so fundamental that a major redirection of FACNET was needed.

The shortcomings in governmentwide management of the FACNET program have left important issues unresolved. For example, no convincing business case has been made for governmentwide reliance on the current FACNET infrastructure. Similarly, the lack of resolution of questions concerning the CCR database has impeded its implementation. DOD officials responsible for the database told us that even if better processes were put in place for gathering vendor information, benefits expected from sharing this information across government procuring activities would still be contingent on policies and procedures being established concerning access to and ownership of the data gathered. OFPP, ECA-PMO, and DOD officials responsible for FACNET and the CCR database told us that the following obstacles to governmentwide EC must be resolved: (1) unanswered questions on who should have access to the CCR data and how such data should be used by both the government and industry, (2) the absence of policy and procedures for implementing such a governmentwide database, and (3) database security problems.

DOD officials responsible for the FACNET infrastructure, contracting officials, VANs, and vendors stated that many operational problems stem from the lack of clear requirements for the acquisition function and operational procedures that are needed to direct the development and use of the FACNET infrastructure and manage FACNET data. For instance, requirements for archiving data, accessing data, recording critical acquisition information, and auditing FACNET transactions have not been established, and both buyers and vendors have frequently cited the need for an electronic date/time stamp, as well as clear requirements and procedures to record receipt of vendors’ quotes by the government.

With respect to VANs, FACNET implementation has been hindered by uncertainties regarding the government’s certification process, lack of clear data management policies and procedures, and unresolved questions about VANs’ financial and technical responsibilities. VAN representatives and DOD officials responsible for VAN certification and oversight told us that VANs have been operating without a clear understanding of the objectives and requirements of the system. DOD is taking actions to address some of these issues. Specifically, DOD recently issued a revised VAN Licensing Agreement; and some testing and procedural changes reflected in this revised agreement may improve the VAN certification process.

In addition, GSA and OFPP officials stated that the lessons learned in creating a governmentwide EC program, new technology developments, and broader policies affecting EC, such as the requirement to make all payments to vendors electronically by 1999, have made it necessary to take a fresh look at the government’s approach to EC in contracting and how best to implement and manage it. OFPP officials said the government intends to make more than 95 percent of its purchases under $100,000 through EC by the year 2000 in coordination with making electronic payments to vendors.

Conclusion

In the short time since passage of FASA, alternative electronic purchasing methods have become readily available to the government and its vendors. This factor, concerns about FASA’s requirements, and the problems associated with the existing FACNET implementation raise important questions concerning whether and to what extent use of the current FACNET infrastructure makes good business sense.

A related issue is how to integrate FACNET and other EC technologies and purchasing methods into a coherent EC strategy and implementation approach for effectively carrying out agencies’ acquisition functions and achieving a single face to industry. Clear functional requirements, a coherent strategy, effective governmentwide leadership and program management, and accountability are lacking.

Recommendations

We recommend that the Director, Office of Management and Budget, ensure that the Administrator for Federal Procurement Policy, in consultation with the Secretary of Defense, the Administrator for General Services, the NASA Administrator, and the heads of other major federal procuring agencies, develops a coherent and integrated federal strategy—and implementation approach—for using, where appropriate, various EC technologies and purchasing methods, including FACNET, for effectively and efficiently carrying out the agencies’ requirements for the acquisition function. The strategy and approach should incorporate consideration of the need to achieve the single-face-to-industry goal.

We also recommend, if executive branch officials conclude that statutory requirements for FACNET—such as focusing it on providing widespread public notice of contracting opportunities and exchanging information with multiple vendors—are impediments to the implementation of the governmentwide EC strategy, that the Director of the Office of Management and Budget seek legislative relief.

Agency Comments

In commenting on the draft of this report, NASA, GSA, OFPP and DOD generally agreed with our findings and recommendations, but DOD indicated that—since the completion of our audit work in September 1996—it was no longer experiencing operational problems with FACNET and the CCR system.

NASA stated that it agreed that a mandated FACNET approach, based solely on EDI, does not make the best business sense for federal EC. NASA stated that it was encouraged by our recommendation that NASA join with other agencies in developing a coherent strategy and implementation approach that takes advantage of available EC technologies.

GSA stated that our findings are correct in targeting leadership improvements. GSA stated that there have been leadership challenges in the implementation of FACNET as well as technical and procedural problems with the use of EDI for public requests for quotation. GSA specifically noted that (1) civilian agencies, in many cases, have not provided adequate resources, training, and vendor outreach required to successfully implement FACNET or EC in general and (2) the ECA-PMO has been hindered by a lack of funding and staffing.

OFPP stated that our report was very helpful in focusing its governmentwide EC efforts. To help focus on solutions, OFPP stated that a committee of the President’s Management Council has been established to assist agency heads to manage the transition from paper to electronics, focus resources, increase management efficiency, accelerate implementation, and connect resources to results. OFPP said it is continuing to pursue the development of FACNET for use, where appropriate, to streamline acquisition processes. OFPP said it is also concerned that FACNET and all procurement policies offer real improvements in serving the user and meeting the important missions entrusted to government in a cost-effective way.

Both GSA and OFPP stated that they are working together and with other agencies, which includes participation by the President’s Management Council, to address the leadership and policy direction concerns raised and to develop a new EC management framework. OFPP also stated that it has taken steps to develop and implement that framework to better integrate EC throughout government. In addition, GSA said this new management structure will be put into place over the next several months, will bring a better focus and problem resolution to the program, will be cross-functional, and will be able to better review EC programs and provide more long-range planning.

DOD described recent enhancements it has made to FACNET’s infrastructure and the CCR system and stated that it was no longer experiencing operational problems. These enhancements included implementing (1) the Electronic Commerce Processing Nodes on November 1, 1996, to improve the FACNET infrastructure’s throughput and accuracy and (2) a World Wide Web site and dial-up modem capability on October 1, 1996, which allows vendors to register for free in the CCR database. DOD added that it is in the process of developing a strategic plan to increase the CCR population in 1997.

In addition, DOD described other enhancements. For example, it stated that it has recently completed an EC Strategic Plan that encompasses all functional areas within the Department (procurement, finance, logistics, transportation, personnel, medical, etc.) and includes all forms of EC (EDI, fax, bar coding, etc.). According to DOD, this approach will provide a single face to industry and allow the maximum exchange of data between functional areas. DOD also said it is finalizing an EC directive that establishes roles and responsibilities throughout the Department pertaining to the implementation of EC in all functional areas.

DOD stated that it will continue (1) to execute its FACNET implementation plan and (2) increase the volume of transactions through the infrastructure over the next three fiscal years. Finally, DOD stated that it is ready to work with the OFPP, GSA, and NASA Administrators and the heads of other major federal procuring agencies to assist them in their development of independent strategies and the overall federal EC strategy for federal procurement.

The comments from NASA, GSA, OFPP and DOD are reprinted in their entirety in appendixes IV through VII, respectively. We have made some changes in the report, where appropriate, based on these comments.

Scope and Methodology

To address our objectives, we asked EC program managers and comparable agency officials at DOD, its four major buying components, and 18 federal civilian agencies to give us information and observations on their agencies’ efforts to implement FACNET. We sent a Data Collection Instrument (DCI) to 23 federal organizations; 18 responded to our questions from late March through May 1996. The DCI specifically asked for agency data and information related to (1) current FACNET operations, (2) current and potential FACNET procurement transactions, (3) benefits from using FACNET, (4) obstacles to governmentwide implementation of FACNET, (5) potential use of FACNET for simplified acquisitions, and (6) changes needed in the FACNET development and implementation strategies. When necessary we conducted follow-up interviews with respondents to clarify DCI responses and obtain additional information.

In addition, to assess federal agencies’ use of FACNET, we asked the agencies to verify their FACNET transaction data (e.g., number of solicitations, responses received, purchase and delivery orders, and amount of awards) for the periods January through December 1995 and January through March 1996, which was the latest complete data reported by the ECA-PMO. We also obtained supplemental FACNET transaction data from the Departments of Commerce, Defense, Energy, Housing and Urban Development, Health and Human Services, and Labor; the Defense Logistics Agency; GSA; and NASA. We did not independently verify the agencies’ data submissions.

To address the problems and benefits of FACNET, FASA’s requirements for FACNET, and obstacles to its implementation, we assessed FACNET guidance, implementation plans, and agencies’ reports indicating the status of FACNET implementation. We also compared the government’s overall FACNET strategy and implementation approach with (1) the EC/EDI implementation strategies and practices of other public and private organizations and (2) the goals, objectives, and milestones established for FACNET by FASA and established for the governmentwide EC program by the October 26, 1993, presidential memorandum on streamlining procurement through EC. We reviewed FACNET guidance, implementation plans, schedules, transaction data, and status reports prepared by OFPP, the ECA-PMO, the DOD EC Office, and the Defense Information Systems Agency. To further assess progress and obstacles, we interviewed VAN representatives; FACNET vendors; and senior OFPP, DOD, and GSA officials responsible for the governmentwide FACNET program or key components, such as the architecture, the CCR database, and FACNET policy and procedures.

Our audit work was performed between October 1995 and October 1996 in accordance with generally accepted government auditing standards. We performed our work primarily in the Washington, D.C., area at OFPP in the Office of Management and Budget, the DOD EC Office in the Office of the Deputy Under Secretary of Defense (Acquisition Reform), the Defense Information Systems Agency, and the ECA-PMO.

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

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

Respondents to Our Data Collection Instrument

We sent a data collection instrument to 23 federal organizations. We asked electronic commerce program managers and comparable agency officials at Department of Defense, its 4 major buying components, and 18 federal civilian agencies to give us information and observations on their agencies’ efforts to implement the Federal Acquisition Computer Network (FACNET). Eighteen of the 23 federal agencies responded to our questions from late March through May 1996. The 18 agencies were Defense Logistics Agency, Department of the Air Force, Department of the Army, Department of Commerce, Department of Defense, Department of Education, Department of Energy, Department of Health and Human Services, Department of Housing and Urban Development, Department of the Interior, Department of Justice, Department of Labor, Department of the Navy, Department of Veterans Affairs, Environmental Protection Agency, General Services Administration, National Aeronautics and Space Administration, and Office of Personnel Management.

FACNET Transactions

Table II.1 shows, for calendar year 1995, the number of FACNET transactions in the following categories: public Request for Quotations (RFQ) or similar information, other solicitations or similar information, responses received from vendors, agency purchase orders, and agency delivery orders. Also, the last column shows the total dollar value of FACNET purchase and delivery orders most of the agencies (but not DOD) reported for calendar year 1995. Table II.2 shows similar data for the first quarter of 1996.

Data not verified by agency.

Agency did not respond.

Agency not sent a data collection instrument.

Corrected data provided by agency.

Interior did not have data from the Defense gateway to report for October-December.

Table II.2: FACNET Transactions, January-March 1996

Data not verified by agency.

Corrected data provided by agency.

Agency Responses to Our Questions About FACNET

We asked EC program managers and comparable agency officials at DOD, its 4 major buying activities, and 17 federal civilian agencies to give us information and observations on FACNET implementation. Officials from 18 agencies responded. Their responses to our questions about future use of various EC procurement tools, obstacles to FACNET implementation, and benefits of using FACNET are shown in the following three tables.

Table III.2: Number of Responses Concerning Obstacles to FACNET Implementation Question: To what extent, if at all, is each an obstacle to your agency’s efforts to implement FACNET?

Table III.3: Responses Concerning Benefits of FACNET Question: To what extent is each a direct/indirect benefit that has been or is being realized in your agency from federal efforts to implement FACNET?

Comments From the National Aeronautics and Space Administration

Comments From the General Services Administration

Comments From the Office of Federal Procurement Policy

Comments From the Department of Defense

The following are GAO’s comments on the Department of Defense’s letter dated November 27, 1996.

GAO Comments

1. We made changes to the report to reflect DOD’s comments. 2. Through the completion of our audit work in September 1996, agencies and vendors continued to identify operational problems with the infrastructure and the CCR database. Although DOD stated that it was not experiencing any operational problems as of late November because of recent enhancements, we believe insufficient time has elapsed to verify whether the operational problems have been eliminated. 3. According to the Director for DOD EC, as of December 5, 1996, DOD has not issued policy guidance on the use of faxes pertaining to FACNET solicitations.

Major Contributors to This Report

National Security and International Affairs Division, Washington, D.C.

Accounting and Information Management Division

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