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APPENDIX I

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required on the replacement units since this was the peripheral equipment manufacturer's first experience at interfacing its tape drives with a first generation computer system. However, they further stated, that subsequent to the "shakedown period" the replacement tape drives have performed satisfactorily and that no significant problems have been experienced with the administration or performance of having maintenance done by the computer system manufacturer and the tape drive manufacturer.

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This is in reply to your letter of December 18, 1967, requesting that we investigate certain points raised in a letter dated December 8, 1967, from the Honorable William B. Widnall concerning testimony given to the Subcommittee on Economy in Government on November 30, 1967, by Mr. Lewis R. Caveney of the Bryant Computer Froducts Division of Ex-Cell-O Corporation. Specifically, it was suggested that we (1) substantiate the illustration presented by Mr. Caveney to the Subcommittee which showed that, if the Government had procured a computer system on the basis of buying from peripheral manufacturers rather than from one system manufacturer, the savings to the Government would have amounted to $429,250 and (2) study computer procurements in both the General Services Administration and the Department of Defense to determine what savings could accrue to the Federal Government by direct procurement of peripheral parts of computer systems from peripheral manufacturers.

During our review of the details of the Mr. Caveney's illustration, we found that the peripheral manufacturer (Bryant Computer Products) does not publish a complete price list. Instead, a price is quoted for each installation, depending upon the amount of work involved in connecting the equipment to the computer manufacturer's system. We found that, in connecting a complex piece of equipment like a memory system to a computer manufacturer's system, it was necessary for the peripheral manufacturer to provide for the proper electronic interface between the equipment and the computer system or that it might be necessary to provide other arrangements to achieve this objective. Also, it might be necessary for the peripheral manufacturer and/or the user to complete the required modification to existing computer programs. This might involve reprogramming of the computer's control system to allow the computer to properly address and extract information from the memory system.

We were advised by Bryant Computer Products that the price quoted in its illustration did not include the additional software costs necessary to have a complete memory subsystem. Diagnostic programs used to test the equipment will be required if changes to a standard

APPENDIX II

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operating system are involved or if it is necess y to reprogram the computer's control system. We were advised also that preparation of these programs might be subcontracted to Bryant or to independent software companies; or they may be written by the user of the system, It therefore is apparent that the savings claimed in the illustration were based on a comparison between the system manufacturer's price for a particular item of the equipment and the independent peripheral manufacturer's price for that item. However, the savings computed in this manner do not take into account (1) the additional software costs necessary to fit the peripheral manufacturer's component into the system and (2) other factors which are discussed below and which could result in additional costs.

As to the savings that could accrue to the Federal Government by direct procurement of peripheral parts of computer systems from peripheral manufacturers, we pointed out in our report to the Congress on "Maintenance of Automatic Data Processing Equipment in the Federal Government" (B-115369, April 3, 1968) that there was a possibility for Government agencies to achieve significant savings or other benefits through direct procurement of certain computer components and spare parts from original manufacturers or alternative sources of supply rather than to rely on sole-source procurement from computer manufacturers. To demonstrate the savings available, the report showed that the United States Fleet Numerical Weather Facility had saved $475,200 as a result of two negotiated procurements of drum-storage devices and related controllers from the actual manufacturer of the components and parts. These procurements were made in order to add additional components to an existing computer system and thereby increase operating capacity. We believe that this illustration points out a need for additional study and consideration of independent peripheral manufacturers as a source of supply for selected procurements. However, computer components have not been standardized, in general, to the point where one manufacturer's component can be directly utilized in conjunction with another manufacturer's component or system, Therefore, possible savings and other benefits from procurenient from peripheral manufacturers must be evaluated in light of the following factors:

APPENDIX II

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--The acceptance by the user of complete responsibility for soft

ware and hardware operation. Guarantees previously offered by the system manufacturer may not be available,

--The responsibilities of both the peripheral manufacturer and

the user for necessary electronic and computer program modi. fications. If the user is to be responsible for the software interface, consideration must be given to the cost for undertaking such a task or contracting it out to a software company.

- The additional costs that may be required in the future to provide for improvements to the software operating system. Since the user's system will be operating with a nonstandard software system, improvements will have to be either developed by the user or adapted from improvements offered by the system manufacturer.

- The amount of technical support, education, and training that

will be available if not all components are supplied by the system manufacturer,

--The effect on operations and costs as a result of dual mainte

nance agreements if the system manufacturer will not accept maintenance responsibility for components not provided as part of his system.

-- The effect on operating efficiency and throughput capacity as a

result of use of a peripheral manufacturer's component,

-- The effect on system compatibility and standardization relative

to other systems operated by the user.

- The ultimate effect on the pricing of components by the large system manufacturers.

Public Law 89-306 provides exclusive authority to the General Services Administration (GSA) to procure all general-purpose automatic

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data processing (ADP) equipment and related supplies for use by Federal agencies. Although GSA negotiates the ADP equipment contract terms and conditions, each agency is responsible for selecting the best system or equipment necessary to meet its needs,

Generally Federal agencies select a computer system on the basis of procuring all equipment from a single systems manufacturer. For example, the Air Force EDP Equipment Office, which is responsible for evaluating and selecting computer systems for the Air Force, does not, as a standard practice, directly solicit offers from peripheral manufacturers, but requires the system vendor to act as a prime contractor for the entire system. The peripheral manufacturers, therefore, under the standard practice, bid their equipment through or with a systems manufacturer who will be responsible for the entire computer system. This is the case even in those instances where independent manufacturers market peripheral components which are directly interchangeable with the equivalent computer manufacturers component. We did find during our study of peripheral manufacturer's products number of instances where directly interchangeable components were available at a price substantially less than the price charged by the computer manufacturer for its comparable component.

Because benefits can accrue to the Government by acquiring certain components from independent peripheral manufacturers, we are preparing a more complete report to the Congress on this subject,

Please advise us if we can be of further assistance or if our representatives can provide you with additional details. We plan to make no further distribution of this report unless copies are specifically requested, and then we shall make distribution only after your agreement has been obtained.

Sincgrely yours

Tuner

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Atante

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Comptroller General

of the United States
The Honorable William Proxmire, Chairman
Subcommittee on Economy in Government
Joint Economic Committee
Congress of the United States

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