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APPENDIXES

APPENDIX I

SUPPLEMENTAL DATA

GENERAL SERVICES ADMINISTRATION,

FEDERAL SUPPLY SERVICE.

Washington, D.C., August 7, 1970. Hon. WILLIAM PROXMIRE, Chairman, Subcommittee on Economy in Government, Joint Economic Com

mittee, U.S. Senate, Washington, D.C. DEAR SENATOR PROXMIRE: As you requested I have examined Mr. Caveney's prepared statement, and I find a number of allegations which are not accurate according to records available to GSA. I am therefore submitting a detailed enclosure regarding his statement.

You also requested that I provide language to strengthen the Truth in Negotiations Act (P.L. 87-653). I pointed out during my testimony that it was a one-sided law. If the equipment is required, and if the contractor refuses to submit the data, the head of the agency has no alternative but to grant the waiver. I find it difficult to recommend language which would "force” a contractor to do business with the Government under circumstances that he finds significantly objectionable. In response to your request, however, I am enclosing four possible changes in the law for your consideration. (See pp. 150–153.) Sincerely,

H. A. ABERSFELLER,

Commissioner, Federal Supply Service. Two Enclosures

There are a number of statements in Mr. Caveney's testimony which are not accurate according to records available to the General Services Administration. The purpose of this enclosure is to place in the record the facts regarding these statements based upon our records.

I. Mr. Caveney states that during the past two years only token contract awards from the General Services Administration were received by independent peripheral manufacturers. Furthermore, he contends that a few awards were given reluctantly and only because of Congressional insistence. In fact, in FY 70 we issued a solicitation to industry for systems, peripherals, and accessorial equipment. This solicitation was mailed to 491 companies of which 460 were independent and accessorial manufacturers, and we received a total of 124 offers in reply. There were 102 contracts awarded of which 71 were to manufacturers of peripheral and accessorial devices who were other than computer systems equipment manufacturers.

These facts clearly indicate that the General Services Administration has given more than token consideration to our commitment to the Subcommittee on Economy in Government in 1967. We are actively seeking and working with independent peripheral manufacturers to provide them with an opportunity to become Federal Supply Schedule contractors. Furthermore, a review of our records did not reveal a single instance in which a contract award was made by the General Services Administration as a result of the insistence of any member of the Congress or his staff.

II. Mr. Caveney indicates in his prepared statement that dual procurement policies prevail and, therefore, that unethical procurement practices still persist. He appears to base his statement on inaccurate information regarding the award approximating $330 million to IBM and a lack of information as to awards given to peripheral manufacturers during the period when IBM had not yet been awarded a contract.

(149)

The facts are that the $330 million award to IBM was the estimated dollar volume of the Federal Supply Schedule Contract for FY 70 for the rental of Automatic Data Processing Equipment (ADPE) and Punch Card Accounting Machines (PCAM) already installed and to be installed, the purchase of ADPE and PCAM, maintenance of both PCAM and ADPE and licensing of certain software. The proportion of the contract attributable to the rental and purchase of computer equipment, including central processing units as well as peripherals, is about $220 million.

This contract was awarded March 23, 1970, but was retroactive to July 1, 1969. The reason such a contract had to be retroactive to July 1, 1969, was to cover installed rented equipment as well as maintenance performed by IBM during the earlier period during which no firm contract existed.

We were unable to finalize a FY 70 contract with IBM until March 23, 1970, because we could not reach agreement on the changed terms, conditions and prices resulting from IBM's changed marketing practices announced June 23, 1969. There was no other reason for this delay. During the period between July 1, 1969, and March 23, 1970, Federal Supply Schedule Contract awards to independent, peripheral and accessorial manufacturers totaled 66. Government agencies had these contracts available and were able to make awards in individual cases whenever a determination was reached by the agencies that it was technically and economically advantageous to do so.

III. Mr. Caveney contends that $160 million would have been saved if contracts had been awarded to independent peripheral manufacturers for all the peripherals in the $330 million IBM contract. His allegation is based entirely on a series of improper and inaccurate deductions. For example, the $330 million Federal Supply Schedule Contract award to IBM for FY 70 included only $220 million attributable to the rental and purchase of computer equipment. This was only his first error, for Mr. Caveney also failed to exclude terminal devices from his calculations. The percentage of all peripheral equipment dollars, leased and purchased, within the $220 million should more accurately be 45%, not 65%. Mr. Caveney then improperly assumed that there are plug-to-plug compatibles for all IBM peripherals, and further that increased peripheral performance ratios lead directly to equal overall system productivity increases. Finally, the average saving for all plug-to-plug compatible peripheral replacements will be approximately 30% not the 48.6% Mr. Caveney used and which was based only on the one Calcomp device.

Calculations based on Mr. Caveney's deduction and estimates are of no value. As I advised the Committee, we have used the tool of the Government-wide Management Information System and Government-wide agency contacts to identify the approximately 2,800 leased peripherals in the Government inventory for which plug-to-plug compatible replacement is available at lower cost.

Of these approximately 2,800 units, 2,138 are the subject of current replacement action and will be replaced at a saving in excess of $6 million. The remaining machines (less than 700) are currently planned for retention by the using agencies because of various considerations including security and difficulties posed by multi-vendor support. General Services Administration plans a detailed review of these retention decisions with the using agencies. Although this is a difficult problem we feel that we are approaching it so as to take maximum advantage of the availability of lower cost peripherals from independent manufacturers.

POSSIBLE AMENDMENTS TO "TRUTH IN NEGOTIATIONS ACT", P.L. 87-653 Subsection 2306 (f) is amended as follows:

1. (f) Anyone doing business within the United States, its territories, or possessions, shall be required to submit cost or pricing data on items sought for procurement when requested by the head of the agency, and shall be required to certify that, to the best of his knowledge and belief, the cost or pricing data he submitted was accurate, complete and current.

(Any prime contract or change or modification thereto under which such certificate is required shall contain a provision that the price to the Government. including profit or fee, shall be adjusted to exclude any significant sums by which it may be determined by the head of the agency that such price was increased because the contractor or any subcontractor required to furnish such a certificate, furnished cost or pricing data which, as of a date agreed upon between the parties (which date shall be as close to the date of agreement on the negotiated price as is practicable), was inaccurate, incomplete, or noncurrent: Provided, That the requirements of this subsection need not be applied to contracts or subcontracts where the price negotiated is based on adequate price competition, established catalog or market prices of commercial items sold in substantial quantities to the general public, or prices set by law or regulation.)

2. (f) Anyone doing business within the United States, its territories, or possessions, shall be required to submit cost or pricing data on items requested for procurement when such information is determined by the head of the agency to be necessary to national defense or national security and states in writing his reasons for such a determination, and shall be required to certify that, to the best of his knowledge and belief, the cost or pricing data he submitted was accurate, complete and current.

(Any prime contract or change or modification thereto under which such certificate is required shall contain a provision that the price to the Government, including profit or fee, shall be adjusted to exclude any significant sums by which it may be determined by the head of the agency that such price was increased because the contractor or any subcontractor required to furnish such a certificate, furnished cost or pricing data which, as of a date agreed upon between the parties (which date shall be as close to the date of agreement on the negotiated price as is practicable), was inaccurate, incomplete, or noncurrent: Provided, That the requirements of this subsection need not be applied to contracts or subcontracts where the price negotiated is based on adequate price competition, established catalog or market prices of commercial items sold in substantial quantities to the general public, or prices set by law or regulation.)

3. (f) Anyone doing business within the United States, its territories, or possessions, shall be required to submit cost or pricing data on items requested for procurement when such information is determined by the head of the agency to be necessary to national defense or national security and states in writing his reasons for such a determination, or under the circumstances listed below :

(1) When the award of any negotiated prime contract under this title is expected to exceed $100,000 :

(2) When the pricing of any contract change or modification for which the price adjustment is expected to exceed $100,000, or such lesser amount as may be prescribed by the head of the agency.

(3) When the award of a subcontract at any tier, where the prime contractor and each higher tier subcontractor have been required to furnish such a certifi. cate, if the price of such subcontract is expected to exceed $100,000; or

(4) When the pricing of any contract change or modification to a subcontract covered by (3) above, for which the price adjustment is expected to exceed $100,000, or such lesser amount as may be prescribed by the head of the agency.

(Any prime contract or change or modification thereto under which such certificate is required shall contain a provision that the price to the Government, including profit or fee, shall be adjusted to exclude any significant sums by which it may be determined by the head of the agency that such price was increased because the contractor or any subcontractor required to furnish such a certificate, furnished cost or pricing data which, as of a date agreed upon between the parties (which date shall be as close to the date of agreement on the negotiated price as is practicable), was inaccurate, incomplete, or noncurrent: Provided, That the requirements of this subsection need not be applied to contracts or subcontracts where the price negotiated is based on adequate price competition, established catalog or market prices of commercial items sold in substantial quantities to the general public, or prices set by law or regulation.)

4. (f) A prime contractor or any subcontractor shall be required to submit cost and pricing data on items requested for procurement, at any time after initial bids are received, when such information is determined by the head of the agency to be necessary to negotiate a fair and reasonable price, and states in writing his reasons for such a determination, or under the circumstances listed below :

(1) When the award of any negotiated prime contract under this title is expected to exceed $100,000;

(2) When the pricing of any contract change or modification for which the price adjustment is expected to exceed $100,000, or such lesser amount as may be prescribed by the head of the agency;

(3) When the award of a subcontract at any tier, where the prime contractor and each higher tier subcontractor have been required to furnish such a certificate, if the price of such subcontract is expected to exceed $100,000; or

(4) When the pricing of any contract change or modification to a subcontract covered by (3) above, for which the price adjustment is expected to exceed $100,000, or such lesser amount as may be prescribed by the head of the agency.

(Any prime contract or change or modification thereto under which such certificate is required shall contain a provision that the price to the Government, including profit or fee, shall be adjusted to exclude any significant sums by which it may be determined by the head of the agency that such price was increased because the contractor or any subcontractor required to furnish such a certificate, furnished cost or pricing data which, as of a date agreed upon between the parties (which date shall be as close to the date of agreement on the negotiated price as is practicable), was inaccurate, incomplete, or noncurrent: Provided, That the requirements of this subsection need not be applied to contracts or subcontracts where the price negotiated is based on ade quate price competition, established catalog or market prices of commercial items sold in substantial quantities to the general public, or prices set by law or regulation.)

CONGRESS OF THE UNITED STATES,

JOINT ECONOMIC COMMITTEE,

Washington, D.C., June 12, 1970. Hon. ELMER B. STAATS, Comptroller General of the United States, Washington, D.C.

DEAR MR. STAATS: As Chairman of the Subcommittee on Economy in Government, I am pleased to learn that you will able to testify before us on Wednes. day, July 1, 1970, at 10:00 AM in Room AF-1 (S. 407) in the Capitol.

The report of April 23, 1968, of the Subcommittee on Economy in Government had specific recommendations as to (a) inventory practices in respect to government-owned automatic data processing equipment, including equipment furnished to contractors, and (b) the need for procurement specifications which would afford free and full competition to all qualified potential bidders, including the small manufacturers of peripheral equipment.

The Subcommittee is pleased to note the constructive reports which the GAO has issued since that date and is also cognizant of work being done by the Executive agencies. It is, therefore, our belief that it would be expedient to evaluate the progress that has been made, the savings accomplished, and to consider what needs to be done to bring about the optimum in economy and efficiency in this important and costly field of procurement.

We are asking the witnesses to confine their formal presentation to 15 or 20 minutes so that substantial time will be available for the question and discussion period. You are invited to file a longer, more comprehensive statement of your testimony or exhibits, if appropriate, for inclusion in the printed record of the hearings.

It would aid the Committee and the working press if we could have 100 copies of your opening statement 48 hours in advance of your testimony. Please send them to Mr. Hamilton Gewehr, Joint Economic Committee, New Senate Office Building, Washington, D.C., 20510.

If you have any questions, please contact Mr. Ray Ward, Staff Consultant,
Joint Economic Committee, Code 180, X-7940.
Sincerely,

WILLIAM PROXMIRE,
Chairman, Subcommittee on

Economy in Government.

CONGRESS OF THE UNITED STATES,

JOINT ECONOMIC COMMITTEE.

Washington, D.C., June 12, 1970. Hon. ROBERT P. MAYO, Counselor to the President, Executive Office Building, Washington, D.O.

DEAR MR. MAYO: As Chairman of the Subcommittee on Economy in Govern. ment. I am pleased to learn that you will be able to testify before us on Wednes. day, July 1, 1970 at 11:00 AM. We are aware, in general, of the work that is being carried on by the General Accounting Office, the Budget Bureau, and other Execu

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