Department of Energy: Opportunities Exist to Improve Los Alamos' Equipment Purchasing Practices
Released: 2001-06-04T00:00:00

Letter

Background

The Los Alamos National Laboratory, located in New Mexico, is charged with enhancing the security of nuclear weapons and nuclear materials worldwide. On Thursday, May 4, 2000, Bandelier National Monument workers in the Cerro Grande Mountain area set fire to a portion of the monument’s land to thin uncontrolled forest growth. The fire rapidly grew out of control, and during the 2-week period that followed, over 47,000 acres of national forest, county, pueblo, and laboratory land burned. The laboratory later reported that 8,000 acres of its land had been damaged, 39 structures had been destroyed, and almost $130 million in fire-related costs had been incurred. The laboratory was officially closed from May 8 until May 22 but, according to Los Alamos officials, remained in a state of emergency because of damage caused by the fire and the threat of flooding until August 2000.

After the fire, the laboratory’s Cerro Grande Rehabilitation Project office contacted divisions that had lost equipment in the fire and required that they submit detailed lists of their losses to obtain the release of fire recovery funds from DOE. Seven divisions indicated that they needed a total of $13.2 million in fiscal year 2000 and $15 million in subsequent years to recover from the fire. Each division provided information on the equipment that had been damaged or destroyed by the fire, the estimated cost of replacement equipment, and the actual cost of replacement equipment that had already been purchased. The equipment needing replacement included desktop and laptop computers, printers, cameras, office furniture, scientific equipment, and related supplies.

The laboratory, in general, purchases equipment using several procurement methods. Each method is intended to obtain goods and services at the lowest cost, taking into account the cost of procurement administration. One such method is the laboratory’s just-in-time subcontracting program. This program, according to laboratory officials, allows personnel to obtain products from prequalified suppliers at discounted prices, usually within 24 hours of order placement. Orders and payments are processed electronically, thereby eliminating the need for involvement from the procurement staff. Other procurement methods used by the laboratory include the purchase card program, wherein a credit card is used, and purchase orders. Through the purchase card program, laboratory personnel may order supplies and equipment through the Internet or other available sources of supply. Laboratory officials told us that the laboratory does not track the total cost of purchases of $25,000 or less made collectively through its just-in-time subcontracting program, purchase card program, and purchase orders. However, during fiscal year 2000, Los Alamos’ procurement staff processed over $46 million in individual purchase orders of $25,000 or less for goods and services, including personal computers, printers, digital cameras, and related equipment and supplies.

The DOE Office of Inspector General has issued at least one report on computer acquisitions. Specifically, in 1997, the DOE Office of Inspector General performed an audit of desktop computer acquisitions at the Idaho National Engineering and Environmental Laboratory. The Inspector General’s report indicated that, in order to reduce costs, DOE’s Idaho contractor had formally studied its desktop computer acquisition practices and estimated that establishing a mandatory performance standard for computers would result in millions of dollars in savings per year. On the basis of this study, DOE’s Idaho contractor established a mandatory computer performance standard at the site. The Inspector General reported that DOE’s Idaho contractor could further improve its computer acquisition practices by using alternative supply sources, such as GSA, Small Business Administration contracts, or other desktop computer vendors. We found no similar DOE reviews regarding the acquisition of laptop computers, computer printers, or digital cameras for other DOE sites.

Expanding Possible Supply Sources for Equipment Purchases

The Los Alamos contractor probably could have saved money by expanding its possible supply sources. Our review showed that Los Alamos paid nearly the full retail price or more for many of the items. If Los Alamos had used more supply sources, it could have saved about 25 percent on certain items. Supply sources that could have been used include GSA and more suppliers that advertise over the Internet. Recent literature suggests that using the Internet to expand supply sources and compare prices can produce savings. Los Alamos officials indicated that the laboratory has been using the Internet but acknowledged that more enhancements in Internet procurement were possible.

Los Alamos Paid Nearly the Full Retail Price or More for Many of the Items

Because of the difficulty in getting detailed price and product information for the time period the purchases were made, we reviewed only 17 items purchased by the laboratory from May through July 2000 (see app. I). We determined the manufacturer’s suggested retail price (retail price) for 12 of the items: 5 desktop computers, 1 laptop computer, 4 printers, and 2 digital cameras. Of the 12 items, Los Alamos received discounts from the suppliers it used on only 5. In five cases, Los Alamos paid nearly the retail price for the items. In two cases, Los Alamos paid more than the retail price.

Using More Supply Sources Could Have Saved Money on Certain Items

In addition to comparing Los Alamos’ purchase prices with retail prices, we also identified individual suppliers that could have provided certain of the items at a cost below that paid by Los Alamos. For example, Los Alamos could have saved about 25 percent in some cases if it had used other sources. Los Alamos purchased the 17 items from three local New Mexico vendors (one of which was a just-in-time contractor), one Internet vendor, and one computer manufacturer. The laboratory did not attempt to purchase the equipment items through GSA’s Internet shopping site or from other vendors that advertise their equipment over the Internet. Laboratory officials told us that, for the items reviewed, they felt most comfortable dealing with companies they had done business with in the past.

Because historical prices for computer and electronic equipment are not readily available, it was difficult to determine what Los Alamos could have paid for all of the 17 items we reviewed if it had used other vendors. We were able, however, to develop price comparisons for 4 of the 17 items: 3 printers and 1 digital camera. The total Los Alamos purchase price for the four items was $2,677, but these items would have cost $2,000 if purchased at that same time from GSA or from suppliers that advertise over the Internet, a savings of 25 percent. Although this sample is small, it shows that expanding supply sources could save money. In commenting on this information, Los Alamos officials said that the most expensive of the four items, a digital camera costing about $1,300 and purchased 8 days after the laboratory reopened, was needed immediately to document the fire damage and was purchased from a local vendor at a discounted price. However, we found that this camera could have been purchased directly from the manufacturer at any time after the fire for about $974 and received within 2 days with no shipping cost.

Internet Usage Can Expand Supply Sources and Produce Savings

Recent literature suggests that using the Internet to expand supply sources and compare prices can produce savings. For example, according to an article in the November 2000 issue of Public Management, Internet procurement offers a significant opportunity to cut costs, increase organizational effectiveness, and improve customer service. Internet procurement, as described in the article, allows agencies to search for products and services from available suppliers and determine best prices, product availability, and shipping costs. Although Los Alamos used the Internet to make many of its purchases, it did not use it to compare prices from available suppliers.

Officials of the laboratory said it has been using the Internet but acknowledged that more enhancements in Internet procurement were possible. Los Alamos contracting officials further said that their contract with DOE encourages but does not require using GSA to purchase equipment and that they did not consider using GSA for their replacement purchases. One Los Alamos procurement assistant who was responsible for procuring many of the equipment items included in our review indicated that she was not aware that GSA had an online shopping site. In response to our review, Los Alamos officials said the laboratory would give greater consideration to using GSA for its future equipment purchases. Specifically, these officials indicated that people who use purchase cards now receive training on how to use GSA Advantage! and will be encouraged to use GSA as an alternative to the laboratory’s just-in- time program when appropriate.

Establishing Mandatory Performance Standards for Equipment Purchases

The Los Alamos contractor could save money by establishing mandatory performance standards for computer and computer-related equipment. DOE’s contractor at the Department’s Idaho laboratory reported that mandatory standards for computers resulted in cost savings at that laboratory. Neither Idaho nor Los Alamos has developed performance standards for computer printers, digital cameras, or other related equipment. However, consideration of such standards could provide additional opportunities for cost savings.

According to the Office of Inspector General’s report on computer acquisitions at DOE’s Idaho laboratory, the contractor there determined that millions of dollars in cost savings were possible if mandatory performance standards for purchasing such equipment were implemented. The computer performance standards in question refer to such things as the speed of the microprocessor, the size of the random access memory, and the size of the hard drive. Before October 1994, DOE’s Idaho laboratory had no sitewide standard to govern the acquisition of desktop computer systems.

To address this issue, the laboratory contractor formed a working group consisting of representatives from all laboratory departments to study the situation. The working group developed a specific computer standard and recommended that it be established laboratorywide. Anticipated benefits included, for example, lower computer support costs and fewer training expenses. The laboratory contractor required all departments to comply with the standard. The contractor also adopted and implemented a policy that stipulates, in part, that only the contractor’s information resources management director can approve deviations from the standard. Because DOE’s Idaho contractor reported cost savings at that laboratory, using mandatory performance standards may represent a best practice that could be used by Los Alamos.

At Los Alamos, the contractor has developed minimum voluntary performance standards for its desktop and laptop computer acquisitions, but no maximum standards. Also, unlike Idaho, Los Alamos has no requirement that purchases above the standard receive formal management review and approval. According to Los Alamos contracting officials, whenever an employee requests a new computer system, that request is reviewed by a supervisory official, but the review is not formally documented.

Of the 17 equipment items we reviewed, 9 were desktop or laptop computers. All nine computers had performance capabilities that exceeded Los Alamos’ minimum voluntary standards. For example, one voluntary standard for laptop computers is having a hard drive of 6.4 gigabytes. All three laptop computers in our sample had hard drives of 12 gigabytes or more. Because there is no requirement to document instances in which capabilities exceed Los Alamos’ voluntary minimum standards, we could not determine if the enhanced performance capabilities and extra cost associated with these laptop computers were justified.

Neither Idaho nor Los Alamos has developed performance standards for computer printers, digital cameras, or other related equipment. However, on the basis of our review, such standards may be beneficial. For example, one equipment item we reviewed was a printer for which Los Alamos paid more than $1,400. Because of its unique capabilities, such a printer is normally used to meet the printing needs of a group of individuals connected to the same network server. In this case, however, the printer was being used primarily by one technical staff member and one part-time contractor who was in the office about one-third of the time. Neither individual needed a printer with unique capabilities. Other technical staff members we interviewed had printers for their personal use with lesser speed capabilities that cost between $280 and $700. In addition, we noted that the clarity and resolution of the $700 printer were similar to those of the $1,400 printer, but that the $700 printer had less memory. Printer memory, however, is an issue only when a large number of employees are queuing up for printing simultaneously.

Standardizing the Brands and Models of Computer and Computer-Related Equipment

The Los Alamos contractor could save money if it increased its use of a standard brand of computer and computer-related equipment. DOE’s contractor at its Idaho laboratory determined that it could achieve considerable cost savings by limiting the various brands and models of desktop computers it purchased. Because of these reported cost savings, such limitations may be a best practice that could be used by Los Alamos. In contrast to Idaho, Los Alamos generally allows various brands and models of the same equipment to be purchased.

Before 1995, according to a report by DOE’s contractor at its Idaho laboratory, that laboratory allowed many different computer systems to be purchased. The contractor’s report indicated that this had created a range of problems: higher costs for maintenance, support, and training; difficulties in communicating through electronic messaging and using shared files; and problems in operating among work platforms and programs. Therefore, when Idaho established its standard for desktop computers, the contractor took the standard one step further and charged its procurement division with selecting a computer model that, on the basis of cost, reliability, serviceability, and other factors, would be in compliance with the standard. A cost-benefit analysis showed that cost savings ranging from $5 million to $10 million could be achieved over 10 years if the proposed standard was implemented. Subsequently, the procurement division awarded a contract to a single vendor to provide one specific brand of network and laptop computers and one specific brand of desktop computers.

At Los Alamos, in general, no similar limitations on desktop and laptop computer acquisitions exist. As a result, the contractor can purchase different brands and models of computers. For instance, the six desktop computers we reviewed were all different brands or models, and the three laptop computers were all different brands. These computers can also vary in price. For example, one replacement desktop computer cost about $2,900, while a different brand computer with enhanced capabilities cost about $2,600. According to Los Alamos contracting officials, the laboratory’s employees had different brands and models of equipment before the fire. The items purchased were intended to be nearly identical replacements for the ones that had been destroyed by the fire. Los Alamos officials also told us that uniformity in computers across the entire laboratory would not meet the needs of the diverse applications and functions involved in experimental work. These officials indicated, however, that a certain number of the laboratory’s more than 40 organizations have begun using a standard brand of computer to meet their specific requirements.

We determined that two Los Alamos divisions—Business Operations and Facility and Waste Operations—-have begun using a standard brand of computers and it has dramatically reduced support costs. However, Los Alamos has not formally evaluated the feasibility of adopting this approach for more of its organizations.

Conclusions

While the scope of our review was limited, it raised the possibility that significant savings could be realized at Los Alamos by adopting revised procurement practices. If Los Alamos expanded its use of the Internet and, thereby, considered a broader spectrum of supply sources, including GSA, significant savings could be possible. Additional savings might also be possible if Los Alamos adopted the best practices being reported at Idaho. For example, if Los Alamos established mandatory performance standards for computer and computer-related equipment purchases, savings could probably be realized by avoiding purchasing higher-priced equipment that exceeds the needed capabilities. Furthermore, if Los Alamos limited the number of brands and models of the same equipment it purchased as at Idaho, savings could be realized from volume discounts associated with making multiple purchases of the same equipment item and from lower support costs. DOE’s Idaho contractor reported that these practices have or likely will result in cost savings.

Recommendations for Executive Action

To improve the economy of equipment purchases at the Los Alamos National Laboratory, we recommend that you direct the contractor at Los Alamos to develop policies and procedures that encourage greater consideration of additional supply sources, including GSA and suppliers that advertise over the Internet; establish, to the extent practicable, mandatory performance standards for computer and computer-related equipment; and evaluate, in light of the reported savings at two Los Alamos divisions, the feasibility of having more of its organizations use a standard brand of computer and computer-related equipment.

Agency Comments

We provided a draft copy of this report to DOE for its review and comment. DOE stated that the overall finding of potential cost saving opportunities and the three associated recommendations contained in the report merit additional management attention. DOE indicated that it was directing Los Alamos to undertake specific actions in response to each of the recommendations. While generally agreeing with our recommendations, DOE pointed out that most of the procurements in question were made during a regional disaster, and that DOE places a high value on supporting regional socioeconomic development. In addition, DOE stressed in its comments that best value includes aspects other than lowest possible advertised cost. Further, DOE indicated that mandatory performance standards for computer and computer-related equipment could potentially affect programmatic or mission requirements.

We believe that adopting our recommendations will not adversely affect DOE’s ability to purchase equipment during an emergency, promote regional development, or achieve the best value. We also believe that mandatory performance standards for computer and computer-related equipment should be flexible enough to allow exceptions, but that those exceptions should be formally reviewed. DOE’s complete comments are presented in appendix III.

We performed our work at DOE’s headquarters and Los Alamos from August 2000 through March 2001 in accordance with generally accepted government auditing standards. Additional information on the scope and methodology of our review is presented in appendix II.

We are sending copies of this report to interested congressional committees and subcommittees and to the Director, Office of Management and Budget. We will also make copies available to others on request.

Appendix I: Los Alamos National Laboratory Equipment Price Comparison

Item Computers/desktops Apple (G3/400Mhz/64MB/10GB) Apple (G4/450Mhz/128MB/20GB) Apple (G4/500Mhz/256MB/ 27GB) Dell (Pentium III/866Mhz/128MB/20.4GB) Dell (Pentium III/733Mhz/256MB/20GB) Hewlett-Packard (Pentium III/733Mhz/128MB/9.1GB) Computers/laptops Apple (G3/500Mhz/128MB/12GB) Dell (Pentium III/600Mhz/256MB/18GB) Micron (Pentium III/500Mhz/128MB/12GB) Printers Epson 900G Personal Color Inkjet (10ppm color, 12ppm black) Hewlett-Packard Personal Color Inkjet (8.5ppm color, 11ppm black) Hewlett-Packard Personal Color Inkjet (10ppm color, 12ppm black) Hewlett-Packard Workgroup Color Inkjet (10ppm color, 12ppm black) Hewlett-Packard Workgroup Black & White Laserjet (10ppm) Hewlett-Packard Workgroup Black & White Laserjet (17ppm) Cameras Olympus Digital (1280 x 1024 maximum resolution, 1.40 megapixels) Olympus Digital (1712 x 1368 maximum resolution, 2.50 megapixels)

Price was not available.

Appendix II: Scope and Methodology

To determine whether supplemental funding was being spent in the most economical fashion, we randomly selected 17 items of replacement equipment that had already been purchased for further review. Of the 17 selected items, 6 were different brands or models of desktop computers, 3 were different brands of laptop computers, 6 were different brands or models of printers, and 2 were different models of digital cameras. For each item, we requested a report from Los Alamos’ property management system regarding the item and the item’s purchase invoice. We used this information to determine the performance specifications, procurement source, and price paid for each item. We also, to the extent possible, examined each item and interviewed the employee to whom each item had been assigned. Through this process, we were able to determine the exact configuration of each item, including its peripherals and options. Further, we independently attempted to determine if each item could have been procured at a lower price using a supply source other than that used by the laboratory, such as GSA’s Federal Supply Schedule and private companies that offer their equipment for sale over the Internet.

We also obtained from Los Alamos contracting officials information on the laboratory’s requirements regarding equipment purchases. This information included a copy of the current DOE contract with the University of California, applicable DOE acquisition regulations, and laboratory policies and procedures pertaining to purchasing computer and computer-related equipment and using GSA for equipment purchases.

In addition, we searched for DOE reports on the procurement of computer equipment by DOE contractors and found a 1997 Office of Inspector General audit on desktop acquisitions at the Idaho National Engineering and Environmental Laboratory. We found no other DOE reports on the acquisition of computers or computer-related equipment.

Finally, we researched available literature for information on the advantages and disadvantages of Internet procurement. We performed our work from August 2000 to March 2001 in accordance with generally accepted government auditing standards.

Appendix III: Comments From the Department of Energy