The government acquisition landscape was reformed by several legislative changes in the 1990s, such as the Clinger-Cohen Act of 1996 and the Government Management Reform Act of 1994. The Clinger-Cohen Act authorized creation of GWACs, which are typically multiple-award contracts for information technology that allow an indefinite quantity of goods or services (within specified limits) to be furnished during a fixed period, with deliveries scheduled through orders with the contractor. The providing agency awards the contract, and other agencies order from it. OMB was authorized by the Clinger-Cohen Act to designate agency heads as executive agents for GWACs. Some agencies had already established information technology contracts prior to the OMB designation. However, according to agency officials, the OMB designation is beneficial to them because it enables them to provide a streamlined contracting process, it creates opportunities to leverage the buying power of customer agencies, and it helps them market their contracting services. Table 1 shows the year in which agencies received OMB’s designation. The Government Management Reform Act of 1994 authorized the Director of OMB, in consultation with congressional committees, to designate six franchise fund pilots that would operate as fully self-supporting business- like entities within the federal government to compete for the delivery of common administrative support services to federal customers. Franchise fund programs provide administrative services such as contracting, systems operation, and payroll processing, in addition to information technology. Interior’s program, GovWorks, provides contracting services for a wide range of goods and services. The Schedules program, part of GSA’s Federal Supply Service, provides federal agencies with a streamlined process to obtain commonly used products and services at prices associated with volume buying. Information technology is the biggest business line in the Schedules program. Interagency purchases of information technology from the Schedules program exceed those made from all GWAC programs combined. GWACs, franchise fund pilot programs, and the Schedules program charge fees for services with the intent to recover costs. Fees are based on known costs, estimates of future costs and revenues, and consideration of the prices charged by the competition for similar services. Figure 1 is an illustrative depiction of the factors that agencies consider when setting fees. A detailed description of each agency’s program, financial results, fee structure, and services appears in appendixes VII through XIII. All of the programs we reviewed except the Commerce and Transportation GWACs reported revenue in excess of costs for one or more fiscal years between 1999 and 2001. Table 2 shows reported earnings based on financial statements for the contract programs. Starting in 1999, OMB required that agencies with GWACs should identify, account for, and recover fully allocated actual costs in accordance with federal financial accounting standards. Actual costs include direct costs, such as labor and materials, and indirect costs, such as rent and support services. However, agencies do not consistently report revenues and costs in accordance with OMB’s guidance. They have developed their own approaches to accounting and to reporting program costs, and these approaches are evolving as the agencies make periodic changes. OMB requires each GWAC agency to submit a semi-annual report of its activities. However, OMB has not required annual financial summaries of program results that would include a description of the agencies’ indirect cost allocation methodologies and provide an entire year’s worth of information on program results. Accordingly, OMB was unaware that not all agencies are reporting revenues and costs in accordance with its guidance. Further, while GSA identifies, allocates, and reports actual costs for both its GWAC program and the Schedules program, other agencies’ records are not as complete. We found instances of incomplete identification and allocation of indirect costs, partial reporting of program results, and overstated indirect costs, as shown in the examples below. Without more complete information on the costs of interagency contract services, there is no assurance that fees accurately reflect costs. NASA does not include any costs for rent, utilities, contract support, or program management in the account that summarizes GWAC costs. Further, NASA components do not pay a fee for using the GWAC because of an agencywide practice of not charging fees to internal users of NASA’s own contracts. Consequently, both the costs recorded in the GWAC account and GWAC revenues are understated. NASA officials noted that NASA is making an in-kind contribution to the program by not charging administrative costs, and that this contribution is sufficient to ensure that external customer fees are not subsidizing NASA’s own use of the GWAC program. However, NASA provided us only a rough analysis, prepared in 1999, of the costs and potential revenues involved. NASA stated that it intends to periodically reassess its financial contribution to the GWAC program. NIH’s GWAC financial results do not include some indirect costs for support services provided by the NIH Office of the Director, such as acquisition policy, budget services, and equal opportunity programs. In addition, the fiscal year 2001 financial results, prepared by NIH’s financial office, reported GWAC earnings of $57,837, an understatement due to two factors. First, reported revenues from NIH’s internal customers were not combined with revenues from external customers. If internal and external revenues had been combined as one line item, reported earnings would have increased to $268,219. Second, the program was overcharged by $729,870 for indirect costs, including rent and utilities, because of an accounting error. NIH officials informed us that corrective actions have been taken on both problems for fiscal year 2002. However, NIH officials do not plan to identify or allocate additional Office of the Director’s costs, because they do not believe it would be cost-effective to do so. Transportation’s GWAC operates within the Transportation Administrative Service Center and is allocated a portion of the center’s indirect costs. Indirect costs allocated to the program have fluctuated substantially from year to year. Such fluctuations significantly impact reported program operating results. For example, the GWAC’s indirect costs jumped by more than 90 percent in fiscal year 2001, because the indirect cost allocation was based on an estimated GWAC sales volume that was not realized. This allocation was not adjusted at the end of the year to reflect actual sales. If actual sales had been used, the indirect costs allocated to the GWAC would have been about $600,000 lower and would have substantially reduced the program’s reported loss of about $1 million that year. Program officials restructured their fees for fiscal year 2002, in part due to prior year losses. Full costing is also a key principle of the franchise fund pilot programs. OMB’s guidance states that the operation should be self-sustaining and that fees should fully recover costs. Interior’s progress in identifying and recovering full costs has evolved over time. However, program officials have not fully allocated indirect costs at the department level. The legislation authorizing GWACs was silent with respect to how agencies should account for financial transactions under the contracts; for example, how to obligate funds for the contract and how to account for revenue. Thus, agencies administering GWACs were left to their own devices when determining whether these financial transactions would be accounted for through existing revolving funds or in stand-alone accounts. The GWACs at NIH, Transportation, and the Federal Technology Service operate under revolving funds, while NASA and Commerce operate their GWACs in stand-alone reimbursable accounts. OMB guidance on earnings stipulates that (1) GWAC fees should be adjusted so that total revenues do not exceed actual costs and (2) revenues generated in excess of the agency’s actual costs are to be transferred to the miscellaneous receipts account of the U.S. Treasury’s General Fund. However, the way agencies operate their GWACs under revolving funds conflicts with OMB’s guidance. Agency officials told us that they have accounted for GWAC revenue in the same manner that the law authorizes them to account for revenue from other programs in their revolving funds. Thus, they have used earnings generated by some products and services—including GWACs—to offset losses incurred by other products and services. Further, they are permitted to retain earnings in their revolving funds and use those earnings for authorized purposes of the fund, unless the law governing operation of the fund requires them to transfer amounts to the Treasury. Agency officials maintain that their fund legislation prevails over the OMB guidance where there is a conflict between the two. OMB officials told us that they plan to review this issue. The different approaches GWAC programs have taken when revenues exceeded costs are discussed below: From fiscal years 1999 to 2001, NIH reported revenues in excess of costs from its GWAC operations. For the 3 years combined, the GWACs’ $4 million of earnings offset $3.6 million in losses in other revolving fund acquisition programs. For fiscal year 2001, the most recent year for which actual costs are available, reported GWAC earnings of $268,219 offset other programs’ losses of $116,590. NIH lowered its fee for orders placed with its small business contractors for the two GWACs awarded in fiscal year 2001. The fee for orders with larger businesses did not change. Within its revolving fund, the Federal Technology Service’s IT Solutions program manages GWACs and provides other information technology services to federal agencies. The program’s earnings are used to provide resources for future investment based on revolving fund plans approved by OMB. Losses within segments of the program are offset against earnings in other programs or covered by using retained earnings from this fund. For example, $3.6 million in earnings generated by GWACs in fiscal year 2001 offset losses in some other business lines, in particular the information security program. NASA does not have a revolving fund and, therefore, its GWAC operates in a stand-alone account. NASA records show that for revenues received in fiscal years 1999, 2000, and 2001, NASA’s GWAC accounts had year-end balances of $688,247, $1,106,155, and $573,114, respectively. NASA’s practice has been to carry over balances remaining from one fiscal year to the next. However, NASA now intends to revise its current practice and to obligate funds in support of its GWAC in the fiscal year received, to the extent possible. NASA lowered its fees in fiscal years 1999 and 2000, and raised them for fiscal year 2001, when it awarded a new version of its GWAC. Other interagency contracting services we reviewed allow the providing agency to retain funds. For example, franchise fund legislation allows Interior’s franchise fund to retain an amount not to exceed 4 percent of the total annual income for the acquisition of capital equipment and other specified uses. The fund under which the GSA Schedules program operates is allowed to retain earnings for specific purposes, as discussed below. The fee charged by the Schedules program has consistently generated revenue well in excess of costs. From fiscal year 1999 to 2001, the revenue generated by fees exceeded program costs by 53.8 percent, or $151.3 million. Program customers are, in effect, being overcharged for the contract services they are buying. Nevertheless, program officials have not adjusted the fee. Because the program has been highly profitable since 1997, we analyzed the use of revenues in excess of costs over the past 5 years. From 1997 to 2001, the program reported $210.8 million in earnings. Figure 2 shows earnings and costs during this period. GSA records show that it used the $210.8 million in earnings as follows: $192 million was used to support other programs, primarily GSA’s fleet and stock programs. Support of the fleet program primarily involved financing the procurement of vehicles. Support of the stock program primarily involved offsetting substantial losses in fiscal years 2000 and 2001. The revolving fund legislation allows earnings to be used for these purposes. $4.4 million of fiscal year 1998 earnings was transferred to the miscellaneous receipts account of the General Fund of the Treasury. GSA has not yet made a decision on how to use $14.4 million of Schedules program earnings from fiscal year 2001. The Schedules program fee was established at 1 percent in 1995. According to GSA officials, the program was intended to break even, with the fee recovering program costs including contract administration and program support. GSA officials explained that the profitability of the Schedules program is much greater than expected due to the inclusion of the information technology schedule and its dramatic growth. For fiscal years 1997 through 2001, information technology revenues grew 287 percent, and this program now comprises about two-thirds of all Schedules program sales. In 1999, the GSA Inspector General recommended that the fee be adjusted to bring it in line with costs, noting that for two years the program had been generating nearly twice the revenue needed to cover program costs.While GSA generally concurred with the recommendation, it did not implement a change in the fee at that time due to concerns about the administrative cost and the time such an action would entail. GSA told the Inspector General that it was not practical to take action until it was confident that the fee would be stable for an extended period of time. Despite an additional 3 years of similar earnings, GSA has taken no action to bring its fee in line with costs. GSA maintains that it still has not experienced marketplace stability sufficient to accurately forecast the Schedules business volume. Further, GSA officials stated that adjusting the fee would be burdensome for the thousands of Schedules contractors. They said that one key obstacle is that the 1 percent fee is embedded in the unit cost of the goods and services on the Schedules. Our review showed that some other interagency contract programs, such as NIH’s and NASA’s GWACs, have established their fees as add-ons to the price of goods and services. This approach gives them the flexibility to change their fees without affecting the unit price of their goods and services and provides transparency to customers on the fee being paid. OMB has expressed concern about the large earnings the Schedules program has generated. With a 3-year restructuring of its business lines nearing completion, and recognizing the need for flexibility in setting Schedules program fees, GSA is now considering options to design a flexible fee adjustment. GSA plans to work with OMB to identify alternatives to the current pricing structure in the development of the President’s fiscal year 2004 budget request. The increasing use of interagency contract programs makes it imperative that Congress and federal agencies receive reliable information on the fees charged and earnings generated by these programs. However, some agencies are not identifying, determining accurately, or recovering the full costs of their programs as directed by OMB. Thus, there is no assurance that the fees they are charging accurately reflect their costs. Further, because some agencies have not submitted to OMB complete annual financial results, OMB is not receiving clear information on how earnings have been used and whether fees were adjusted accordingly. OMB needs better information so that it can more easily identify management weaknesses when they arise and work with GWAC agencies to overcome them. The conflict between the way agencies are operating their revolving funds—using GWAC earnings to support other programs—and OMB’s guidance on the handling of earnings is a matter of concern. The agencies have not brought the problem to OMB’s attention. In its monitoring and oversight role over the GWAC program, OMB needs to determine how this conflict can be addressed. Despite consistently high earnings in the Schedules program, GSA has not adjusted the 1 percent contract service fee it charges customers. Program customers are, in effect, being consistently overcharged for the contract services they are buying, while GSA is using excess earnings to support other programs. We believe that the fee should be adjusted to reflect costs more closely. We recommend that the director of OMB ensure that GWAC executive agents comply with OMB guidance on full cost accounting in establishing their fees. direct GWAC executive agents to provide OMB with (1) annual financial reports containing costs and revenues that summarize annual program results and the need for any fee adjustments and (2) a discussion of how earnings have been used. work with GWAC executive agents to address the handling of GWAC earnings, including appropriate disposition of funds and adjustment of fees. Also, we recommend that the administrator of GSA adjust the Federal Supply Schedules program fee to reflect costs more closely. We received written comments on a draft of this report from OMB, GSA, NASA, NIH, and the Department of the Interior. The Department of Transportation offered technical comments, which we incorporated as appropriate. OMB noted that its general framework on fee policies and accounting practices is well-founded, but that additional attention is needed to ensure that its guidance is being followed effectively. OMB stated that it intends to work with OMB’s Office of Federal Financial Management and the agencies to evaluate appropriate revisions to its reporting requirements on fees so that disparities between fees charged and costs incurred can more easily be identified and addressed. OMB also intends to work with GWAC executive agents and the GSA’s Federal Supply Service to address the handling of excess revenues generated by their programs, including appropriate disposition of funds and adjustment of fees. OMB also provided oral comments, and we made revisions to the text as appropriate. OMB’s letter appears in appendix II. GSA took exception to our statement that the Schedules program produced “exceptionally high earnings” from fiscal years 1999 through 2001. We believe that this characterization is warranted, based on the fact that revenues exceeded costs by more than 53 percent or $151 million during this period. GSA also commented that “the statement that profits from the Schedules program are being held at too high a level in order to offset losses in another program is incorrect.” We revised the text to indicate that earnings from the Schedules program were used to offset losses in the stock program and to finance vehicle purchases for the fleet program. GSA also stated that it does not seem very practical to compare the much smaller numbers of contracts at NASA and NIH with the number of Schedules contracts that would have to be renegotiated if the fee were adjusted. Our intent was to point out that because the fee add-on mechanism is used by other agencies, it may be one option GSA could consider in adjusting its fee. Finally, while agreeing that the current fee mechanism lacks the flexibility to match costs and revenues over time, GSA pointed out the complexity of such an undertaking and the desire to minimize the impact on customers, contracting partners, GSA, and the Schedules program itself. We acknowledge the complexity of implementing a flexible fee structure. However, given that the program has consistently reported earnings well in excess of costs for several years, we believe steps need to be taken now to begin the process of adjusting the fee. GSA also offered technical comments, which we have incorporated as appropriate. GSA’s letter appears in appendix III. The Department of the Interior stated that the information and recommendations in our report provide OMB helpful guidance for oversight of a growing interagency program. The Department noted that the reported operating results provided for fiscal year 2000 reflect a $488,000 processing error, which the franchise fund program is correcting. We have reflected this information in Table 2 and in appendix XII. An additional technical comment has also been incorporated. The Department of the Interior’s letter appears in appendix IV. NASA characterized as misleading the statement in our draft report that NASA had not prepared earnings statements for its GWAC program. In fact, while NASA provided semi-annual reports to OMB for fiscal year 2001, it had not prepared financial statements for the GWAC program, and the data available from the program were incomplete for financial statement purposes. In responding to our draft report, NASA prepared the financial results that accompany its comments. These annual results are substantially different than the semi-annual earnings results that NASA had reported to OMB for fiscal year 2001. On a combined basis, the semi- annual reports showed a loss of $235,817, whereas the annual financial results showed that the program had earnings of $646,645. We have incorporated the latest results into table 2 and appendix IX. NASA also provided additional details on its rationale for not assessing costs to NASA customers for use of the GWAC and asserted that NASA has not used assessments against other agencies to cover its share of the administrative costs. We have reflected these points in the report. NASA also stated that program personnel conducted a “deliberative analysis” of the costs involved. However, program personnel provided us with only a rough analysis, prepared in 1999, to support the cost assessment. NASA plans to periodically reassess the apportionment of NASA and non-NASA costs and NASA’s in-kind contribution versus the fees paid by external customers. NASA also elaborated on its rationale for carrying over balances remaining from one fiscal year to the next. It now plans to revise this practice and to obligate, to the extent possible, funds in the fiscal year they are received. Recognizing that NASA’s lack of authority for a working capital fund has caused concerns about the authority under which it manages its GWAC, NASA has proposed legislation to establish a fund for the agency in fiscal year 2003. Finally, NASA asserts that the Economy Act provides authority for NASA to receive funds and apply those funds over periods of time, including across fiscal years, in order to support its GWAC program.NASA’s letter, with attachments, appears in appendix V. NIH commented that our report will enable the agency to continue to improve its information technology services and strengthen oversight of these services to both NIH and other federal agencies. NIH noted that the GWAC program office will continue to strive to comply with and promote OMB’s reporting requirements for GWACs. NIH also offered technical comments that we incorporated as appropriate. NIH stated that revenues (and thus earnings) were not understated to OMB because revenues from internal customers were included in semi-annual reports to OMB. However, those revenues were not attributed to the GWAC program in NIH financial statements, which were prepared by NIH’s financial office. Further, on a combined basis, NIH’s semi-annual reports to OMB showed a loss of $814,629, whereas the annual financial results showed that the program had earnings of $268,219. NIH’s letter appears in appendix VI. As requested by your office, unless you publicly announce the contents of this report earlier, we plan no further distribution of it until 30 days from the date of this letter. We will then send copies of this report to other interested congressional committees and to the Secretaries of Commerce, Health and Human Services, Interior, and Transportation; the Administrator, GSA; the Administrator, NASA; and the Administrator of OMB’s Office of Federal Procurement Policy. We will make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions regarding this report, please contact me at (202) 512-4841. An additional contact and other key contributors are listed in appendix XIV. We focused our review on all five agencies granted executive agent status by the Office of Management and Budget (OMB) to provide governmentwide acquisition contracts (GWACs) for information technology. The five agencies with such authority are the General Services Administration (GSA), the National Institutes of Health (NIH), the Department of Transportation, the National Aeronautics and Space Administration (NASA), and the Department of Commerce. In addition, we collected similar information about the GSA Schedules program and the primary contract service program within the Department of the Interior’s franchise fund pilot program. Interagency purchases of information technology made from the GSA Schedules program exceed those made from all GWAC programs combined. Interior’s GovWorks acquisition program is the largest component of the Department of the Interior’s franchise fund. To examine the fees being charged, we identified reported revenues and costs. We also reviewed the fee structure and how it changed during fiscal years 1999 through 2001. We reviewed agency financial statements and annual reports for fiscal years 1999 through 2001, as well as the supporting revenue and cost data for each program, the OMB executive agent designation and financial management guidance, the contract activity reports submitted to OMB, the Statement of Federal Financial Accounting Standards Number 4: Managerial Cost Accounting Concepts and Standards for the Federal Government developed by the Federal Accounting Standards Advisory Board, and relevant legislation. We did not independently verify the accuracy of the operating results reported for each program. We interviewed and obtained information from officials in the contract program and financial offices at the Departments of Commerce, Transportation, and Interior; NIH; NASA; and GSA. We also held discussions with officials in OMB’s Office of Federal Procurement Policy and Office of Federal Financial Management. To determine provider agencies’ ability to retain earnings, we reviewed relevant legislation for each program. We interviewed contract program managers and financial officials at the Departments of Commerce, Transportation, and Interior; NIH; NASA; and GSA. We also held discussions with officials in OMB’s Office of Federal Procurement Policy and the offices of the inspector general at the Departments of Transportation and Interior and at GSA. To assess the agencies’ compliance with OMB’s guidance regarding the use of earnings, we reviewed financial reports and held discussions with program officials regarding funds transferred to the miscellaneous receipts account of the General Fund of the U.S. Treasury. We conducted our review from May 2001 to June 2002 in accordance with generally accepted government auditing standards. The Commerce Information Technology Solutions (COMMITS) program provides the Commerce Department and other federal agencies with a means of awarding performance-based information technology services from 56 small business contractors. The principal goal of COMMITS is to provide an alternative governmentwide acquisition contract (GWAC) that allows agencies to contract with small and minority-owned businesses for information technology requirements. The COMMITS program is designed to accomplish three objectives: (1) deliver information technology services and solutions to meet government organizations’ missions, (2) deliver information technology services and solutions using a streamlined, performance-based acquisition methodology, and (3) provide a pool of small business contractors capable of delivering the government’s information technology requirements. To date, the Department of Commerce’s National Oceanic and Atmospheric Administration, the Environmental Protection Agency, and the Department of Defense’s Army Research Laboratory have spent the most money under COMMITS. COMMITS is a 5-year multiple-award indefinite delivery, indefinite quantity contract, which permits issuance of task orders with options that may extend performance for an additional 5 years beyond the original performance period. The ceiling amount is $1.5 billion for services in Information Systems Engineering, Information Systems Security, and Systems Operations and Maintenance. The COMMITS contract allows for the following types of contracts: firm-fixed price, fixed-price with incentive, cost plus fixed fee, cost plus award fee, cost plus incentive fee, labor hours, and time and materials. Table 3 shows reported annual operating results for COMMITS. COMMITS program officials told us that fees are reviewed annually to ensure that total revenues do not exceed actual costs. The COMMITS program office collects fees directly from the customers through an interagency agreement. The fees shown in tables 4 and 5 are applied to the value of task orders placed by program customers. The Commerce Department’s Annual Performance Plan (1999) addresses mission objectives including increasing opportunities for small, small minority, and women-owned small businesses. A major initiative in Commerce’s contracting program was to establish a multiple award governmentwide indefinite delivery, indefinite quantity contract among highly qualified small disadvantaged, small disadvantaged 8(a), and women-owned small businesses. On June 21, 1999, OMB designated the Department of Commerce an executive agent for the acquisition of information technology for the COMMITS program. The Federal Technology Service’s (FTS) IT Solutions business line offers a full range of information technology products and services in support of customers’ missions worldwide. Pre-award services include technical assistance such as requirements analysis and proposal development and acquisition services that include developing an acquisition strategy, conducting the acquisition, signing contracts, and providing legal support, if needed. Post-award services include project management such as managing milestones, schedules, and costs; performing problem resolution and overseeing progress reviews; and financial management services that include managing project funding and accepting and paying vendor invoices. FTS has nine GWACs, and it uses four solution development centers (SDC) to operate them. In addition, FTS’s Federal Systems and Integration Management Center (FEDSIM) provides technical and acquisition expertise to agencies including access to GWACs and other types of contracts. The Federal Computer Acquisition Center (FEDCAC) operates the first six GWACs listed in table 6 below. Its core business line is the repackaging of proven industry solutions that are delivered via contracts to meet the emerging technology needs of a specific client agency or for governmentwide use. FEDCAC generated over $200 million in orders in fiscal 2001. The ANSWER SDC, which operates the ANSWER GWAC, contracted for $195.7 million in business in the last fiscal year. The Small Business SDC specializes in contracts with small businesses. The center, which has contracts with over 150 small business contractors, generated $200.4 million in fiscal year 2001. The Information Technology Acquisition Center (ITAC) manages the Millennia Lite GWAC, which covers four functional areas: 1) information technology planning, studies, and assessment, 2) high- end information technology services, 3) mission support services, and 4) legacy systems migration and new enterprise systems development. Millennia Lite generated $126.3 million in fiscal year 2001. FEDSIM’s program officials provide technical and acquisition expertise. Center personnel can use a variety of contracts, including those offered by other agencies, GSA’s Schedules contracts, and the GWACs operated by FTS. Table 6 contains a brief description of each GWAC. Table 7 shows reported annual operating results for the FTS GWACs. FTS’s SDCs charge customers two forms of fees: contract access fees and consulting fees. With some exceptions, an access fee of 1 percent covers the cost of administering the contracts. The disaster recovery contract is one of the exceptions, with a fee of ½ percent. The access fee is included in the contractors’ prices, and they remit the fee revenue to FTS. The access fee has remained steady at 1 percent. Consulting fees are paid directly to FTS. The centers and FEDSIM charge an hourly rate for technical expertise. For example, FEDCAC and FEDSIM rates ranged from $74 to $125 per hour in fiscal year 1999, from $75 to $125 per hour in fiscal year 2000, and from $85 to $141 per hour for fiscal year 2001. Customers and FTS enter into a memorandum of understanding or an interagency agreement with FTS that outlines the level of support required, the estimated cost to provide the support, and other reporting and contractual elements. Fees are developed to recover full costs and are effective for the entire fiscal year. Rate changes during the year are rare. According to program officials, the fees are reviewed annually. On August 2, 1996, GSA became the first agency to receive an executive agent designation by OMB under the Clinger-Cohen Act. Both FEDSIM and FEDCAC were specifically identified in this designation. FEDCAC evolved from the Air Force Computer Acquisition Center, which had been in existence for over 20 years. FEDCAC was incorporated into the GSA in August of 1991. FEDCAC was chartered to provide acquisition assistance on a fee-for-service basis to agencies whose technical requirements exceeded $100 million. ITAC is the newest SDC. It became fully operational in fiscal year 2001, along with the Millennia Lite GWAC. NASA’s governmentwide acquisition contract (GWAC) is the Scientific and Engineering Workstation Procurement (SEWP) contract. The current GWAC, SEWP III, supports NASA’s objective of meeting its own requirements for high-performance information technology, as well as similar needs in other agencies. NASA provides technical expertise in developing SEWP contracts in areas such as electronic data interchange, web and imaging technology, order processing, and technology refreshment. NASA’s role as the agent between the federal agencies and the prime contractors is accomplished by three major ordering processes: 1) pre- order decision-making, which allows users to check prices on-line for all of SEWP’s contracts and to track quotes requested from vendors; 2) delivery order processing, which includes receiving delivery orders, checking for accurate information, and entering order information into SEWP’s database; and 3) post-order quality assurance, which includes a quality assurance check with agency customers on product delivery, product functionality, and overall customer satisfaction. The program currently includes 12 prime contracts serviced by 8 prime contractors. The largest SEWP customers are the Air Force, the Army, and the Navy. SEWP III is a fixed-price, indefinite delivery, indefinite quantity contract with a maximum value of $4 billion. The initial set of SEWP III contracts were awarded on July 30, 2001. The term of the contracts is 5 years. The contract specializes in providing advanced technology UNIX, Linux, and Windows-based workstations and servers, along with peripherals, network equipment, storage devices, and other information technology products. Table 8 shows reported annual operating results for SEWP. The SEWP III fees shown table 9 below are applied to the value of purchases made by program customers. The fee is included as a separate contract line item on contract orders. This fee is collected by the contractors and forwarded to the government quarterly. Fees are reviewed each year and adjusted based on a comparison of revenues and costs. Fees are not charged to NASA customers because of an agency policy against charging fees for internal use of NASA-based contracts. However, NASA noted that it is making an in-kind contribution by not charging some costs to the program, such as providing the contracting personnel to set up and administer the SEWP contracts, the SEWP program manager, and office space. NASA does not charge the Environmental Protection Agency a fee because a representative from that agency serves on the SEWP executive committee. NASA’s efforts to consolidate its procurement of high-end information technology products date back to the early 1990s. NASA’s first SEWP contract was awarded in 1991 as a NASA-only procurement. Within a year, it became a governmentwide contract at the request of the General Services Administration (GSA). The most recent GSA delegation of authority for the SEWP contract, effective through November 14, 2000, was issued in 1995, prior to the passage of the Clinger-Cohen Act of 1996. On September 29, 2000, OMB designated NASA as an executive agent for governmentwide acquisition of information technology. The National Institutes of Health National Information Technology Acquisition and Assessment Center (NITAAC) is the organizational focal point for the three governmentwide information technology contracts NIH offers. NITAAC is part of the Office of Administration, which is located in the Office of the Director, NIH. NITAAC’s goals include providing NIH and other agencies with quality information technology products and services that focus on emerging technologies and solutions. In addition, NITAAC seeks to simplify the information technology procurement process for internal and external clients, as well as for contractors, by encouraging the use of its on-line ordering system to improve communication between clients and contractors and to reduce the paperwork burden. NITAAC provides a variety of client services. For example, NITAAC reviews each task order request to determine if it is within the scope of the contract and to ensure that the statement of work and potential contractors are well suited to one another. Quality assurance at the contract level is performed by reviewing contractors’ monthly status reports and by analyzing customer orders and feedback on program and policy changes. NITAAC offers mediation services to customer and contractors for GWAC orders when problems occur during contract administration. NITAAC’s GWACs are serviced by over 100 prime contractors. The largest customers for fiscal year 2001 were the Army, Treasury, and NIH. NITAAC’s three GWACs are described in table 10. Table 11 shows NIH’s reported annual operating results for its GWACs. Table 12 below lists the fees paid by NITAAC’s customers external to NIH. The fees are applied to the value of orders placed by program customers and are included as a line item on those orders. The contractors receive the fees and forward them to NIH. While the 1 percent fee was retained for the two 10-year GWACs awarded in fiscal year 2001, NITAAC introduced a sliding scale of lower fees for small business orders. NITAAC reduced its fee in this manner to further promote the use of its small business contractors. Internal customers are charged a flat fee per order submitted. NITAAC reviews its fees annually. NITAAC recently received authority to accept funds from other agencies through inter-departmental agreements. For these customers, NITAAC not only awards customer orders but administers them as well. NITAAC charges an additional fee of 1.5 percent to handle these agreements. NIH has been managing all three information technology contracts since 1996, when the original IW and CIO-SP contracts were awarded under the authority of its Service and Supply Fund (42 U.S.C 231). The original ECS contract was awarded on September 29, 1995. The Department of Transportation’s governmentwide acquisition contract (GWAC), ITOP, operates under the Transportation Administrative Service Center (TASC). ITOP has awarded contracts to 35 prime vendors— comprising a mixture of small disadvantaged, small, and large businesses—who offer a broad range of support resources related to information technology. Initiated to streamline government procurements of information technology, ITOP is supported by a group of multiple pre- awarded contracts. The three top customers are the Department of Defense’s Department of the Army and Joint Strike Fighter Program Office, and the Federal Bureau of Investigation. On May 20, 2002, the Deputy Secretary of Transportation informed the Director of the Office of Management and Budget that Transportation would not be seeking redesignation as a GWAC executive agent beyond June 3, 2002. The Secretary stated that two issues must be resolved before the Department can determine if a long-term extension of GWAC authority is warranted. First, while early numbers for the first half of fiscal year 2002 show that ITOP has been recovering its costs, more data are needed to ensure continued self-sufficiency. Second, the Department is in the process of determining the extent to which ITOP can address the information technology needs of the new Transportation Security Administration. The Secretary stated that meeting the Transportation Department’s in-house information technology requirements must now be its priority. ITOP offers a 7-year indefinite delivery, indefinite quantity task order contract providing information systems engineering, systems operations and management, and information systems security to satisfy customer requirements. The contract provides for the following types of orders: firm fixed price, cost plus fixed fee, cost plus award fee, and time and materials. The current contract, referred to as ITOP II, provides for a maximum of $10 billion for information technology solutions. ITOP II has an individual task order delivery ceiling of $300 million. The first contract, ITOP, provided for a total of $1.13 billion, with an individual task order ceiling of $50 million. Table 13 shows reported annual operating results for ITOP. ITOP’s program office reassesses its fees periodically to ensure continued competition with other agencies and to ensure that the program recovers costs. The customer pays the fee directly to the ITOP program office using an interagency agreement or other funding instrument. The fees shown in tables 14 and 15 below are applied to the value of task orders placed by program customers. ITOP adjusted its fee structure in 2001 to better reflect the level of effort and costs of providing services and to address prior-year losses. In fiscal year 2002, TASC reduced the indirect cost rate it charges ITOP by 40 percent. The TASC indirect cost rate reduction (fixed-fee overhead) has already saved ITOP about $600,000 through June 2002. A Transportation official noted that the ITOP’s total revenues have exceeded costs for the first 9 months of fiscal year 2002. The ITOP program office received both the Department of Transportation’s approval and the General Services Administration’s delegation of procurement authority for its multiple pre-awarded indefinite delivery, indefinite quantity contract in August 1995. ITOP received its first OMB executive agent delegation in January 1999. As discussed previously, ITOP’s executive agent delegation expired on June 3, 2002, and the Department of Transportation decided not to seek redesignation at that time. Interior’s Minerals Management Service manages the GovWorks program, which is the largest component of the Interior franchise fund. This fund is located in Interior’s Office of the Secretary. The GovWorks program offers a wide range of acquisition services, such as buying high-dollar products and services and awarding grants and cooperative agreements. Program services include project planning, soliciting and evaluating offers, administering contracts and agreements through closeout, and paying all bills. Clients also receive assistance with project management activities, such as preparing statements of work and tracking expenditures. GovWorks procurements are not limited to any specialized area. The program offers acquisition services in a wide range of areas, such as information technology, environmental studies, training systems development, secure communications, engineering and technical studies, joint military program support, and healthcare support services. In fiscal year 2001, GovWorks had contracts with about 300 contractors. GovWorks’ largest customers are the Department of Defense, the Department of Health and Human Services, and the Department of State. The acquisition services that GovWorks provides to external customers are processed through Interior’s franchise fund. Similar service projects for internal customers are accounted for by the Minerals Management Service separately from the franchise fund. Because GovWorks is a general-purpose acquisition service, it can access other agencies’ governmentwide acquisition contracts and GSA’s schedules contracts, in addition to preparing its own contracts. GovWorks has awarded indefinite delivery, indefinite quantity contracts, and multiple-award contracts covering areas such as training and education systems, construction management, and telecommunications infrastructure support. Table 16 shows reported annual operating results for Interior’s franchise fund program. GovWorks establishes its fee for the franchise fund at the beginning of the project based on an assessment of the amount of assistance needed for the planned procurement. The fee is set as a percentage of the dollar value of the project. The base fee is 3 percent, but it can range from 2 to 4 percent. The fee is paid by the customer agency directly to the Interior franchise fund. The GovWorks program employs 34 full-time-equivalent personnel, all of whom are Interior employees. In May 1996, OMB designated the Department of the Interior as one of six executive branch agencies authorized to establish a franchise fund pilot program. Franchise funds were authorized by the Government Management Reform Act of 1994. The GovWorks program began operation in 1997 as part of Interior’s franchise fund. The General Services Administration’s (GSA) Federal Supply Service (FSS) organization offers a supply and procurement business under the Federal Supply Schedules Program (Schedules program), which provides federal customers with services from more than 7,400 program vendors, as well as a wide range of commercial products. The services provided by the Schedules program include accounting, graphic design, financial, information technology, environmental, and landscaping, along with a vast array of brand-name products from office supplies to systems furniture and computers. The services and products are provided at volume discount pricing on a direct-delivery basis. Negotiated prices for varying requirements and all vendor-awarded contracts are included in a catalogue of 48 schedules. The value of information technology orders are larger than the orders in all other schedules combined. The intent of the Schedules program is to offer customers shorter lead- times, lower administrative costs, and reduced inventories; provide significant opportunities for agencies to meet their small business goals; and promote compliance with socioeconomic laws and regulations. GSA reports that the external agencies with the largest Schedules program orders are the Department of Defense, the Department of Veterans Affairs, and the Department of Justice. Under the Schedules program, GSA awards contracts to multiple companies that supply comparable products and services. These contracts can be used by any federal agency to purchase commercial products and services. The current standard Schedules contract is for a 5-year period with three 5-year options. Table 17 shows reported annual operating results for the Schedules program. GSA’s fee, known as the Industrial Funding Fee, is intended to fully recover the cost of operations. In fiscal year 1995, the Schedules program started to become self-supporting. The Schedules program established a 1 percent fee, which is remitted by the vendor to GSA. The fees shown in table 18 are applied to Schedules purchases by program customers. In 1993, the House Committee on Appropriations recommended that GSA review the benefits of providing supplies and equipment on a full cost- reimbursable basis. Also in 1993, a Conference Committee for the 1994 Treasury, Postal Service and General Government Appropriations Act stated that federal agencies should be allowed a choice of purchasing from the Schedules program or from the commercial sector. Further, in a 1994 report, the Senate Appropriations Committee stated that the Schedules program was suitable for reimbursable funding under the general supply fund. In 1995, GSA’s Federal Supply Service began the process to convert the Schedules program to operation on a cost-reimbursable basis. In addition to the individual named above, Penny A. Berrier, Paul M. Greeley, and John Van Schaik made key contributions to this report. Richard T. Cambosos, Mark P. Connelly, and Denise M. Fantone served as advisors.

Summary: Federal interagency contract service programs are being used in a wide variety of situations, from those in which a single agency provides limited contracting assistance to an approach in which the provider agency's contracting officer handles all aspects of the procurement. This increased use of interagency contracts is a result of reforms and legislation passed in the 1990s, allowing agencies to streamline the acquisition process, operate more like businesses, and offer increasing numbers of services to other agencies. Most of the contract service programs GAO reviewed reported an excess of revenues over costs in at least one year between fiscal years 1999 and 2001. Office of Management and Budget (OMB) guidance directs agencies with governmentwide acquisition contracts (GWAC) or franchise fund programs to account for and recover fully allocated actual costs and to report on their financial results. Agencies are to identify all direct and indirect costs and charge fees to ordering agencies based on these costs. However, some GWAC programs have not identified or accurately reported the full cost of providing interagency contract services. OMB's guidance further directs that agencies return GWAC earnings to the miscellaneous receipts account of the U.S. Treasury's General Fund. However, this guidance conflicts with the operations of agencies' revolving funds, which were established by statutes that allow retention of excess revenues. The Federal Supply Schedules program has generated hefty earnings, largely because of the rapid growth of information technology sales. Rather than adjust the fee, however, the General Services Administration has used the earnings primarily to support its stock and fleet programs. However, the significant amount of earnings means that Federal Supply Schedules program customers are being consistently overcharged for the contract services they are buying.