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drives at Marine Corps Headquarters. Sixteen tape drives and three disc drives are involved. Bids have been received from six vendors, and an award is expected before August 1. Savings resulting from this action are estimated at $112,000 annually.

3. ADPESO is also evaluating replies to RFP 001-70, issued April 30 of this year. This group buy will allow up to 536 devices to be installed at 51 Navy and Marine Corps locations in the United States. Options in the RFP allow Navy installation of up to 683 tape drives and 175 disc drives. This is the largest single Government procurement known to date in the compatible peripheral area. A preliminary RFP was issued in early 1970 for vendor comments. At this writing, 15 vendor responses had been received. Equipment to be replaced is the following: IBM designation :

Quantity 2311 disc drive.

49 2314 disc drive.

60 729 tape drive_

100 7330 hypertype..

36 2401 tape drive

291

Total_

536 Contract awards are to be made August 10, with first installation in September. Navy estimates savings of $7 million over the three year systems life. If options are exercised, these savings could be larger.

ARMY

The Army has collected requirements for replacement of 80 installed tape drives and disc drives and forwarded these to GSA for inclusion in the GSA competition. If a “requirements”-type contract is obtained by GSA, they may order more drives using this contract. Estimated annual savings of this action is $129,000.

GSA indicates that this action will be released for bids around August 1, with awards made November 1, and deliveries soon thereafter.

Also, on November 5, 1969, Army Headquarters sent to the field commanders a letter recommending local analysis of the potential of compatible peripherals, and encouraging local installations to request replacement when advantageous. Analysis is to be performed whenever peripherals are replaced or augmented.

AIR FORCE An RFP was released June 10, 1970, calling for the replacement of approximately 150 IBM 729 (second-generation) tape drives, currently installed at various AF locations in the U.S. Selection is being handled by AF Systems Command, Electronic Systems Division, Bedford, Massachusetts. Thirty-five requests for the RFP have been received and about 10 proposals are expected. Proposal deadline is July 13. This action is estimated to result in recurring annual savings of $372,000, although $52,000 of one time charges will be incurred during the first year.

DCA

DCA has identified requirements for seven devices, to be included in the GSA multidepartmental competition.

SUMMARY

A total of 1227 tape and disc drives will be competitively selected for DoD as a result of DoD and GSA actions now complete, underway, or to be initiated within 60–90 days. We estimate that these actions will result in savings of at least $4.4 million per year. They are summarized in Table 1.

From these examples, it is apparent that DoD is vigorously pursuing a peripheral replacement program, which has and will result in immediate and substantial savings to the Government. Experience with installed compatible equipment is generally favorable, and ADP management officials throughout the Department of Defense recognize the benefits and opportunities of competition in this area.

An important topic that may be of interest to this Subcommittee relates to the initial procurement of a computer system with components which come from different manufacturers. Such an approach would be an extension of the concept of procuring independently produced peripherals to replace installed equipment but it presents a number of technical problems regarding system integration and system maintenance. The GSA has issued a Request for Proposal for a computer system which may be made up of equipment from different manufacturers. We expect that the experience gained in that procurement will be directly useful to DoD, and we are following it with great interest.

Multi-vendor procurement differs from the normal in two important aspects : first, it encourages responses from a broad range of vendors, including systems integration firms and peripheral equipment manufacturers as well as original equipment manufacturers; and second, it indicates explicitly that the Government may,

if it chooses, act as the systems integrator itself. This is a departure from the so-called "prime vendor" concept, where the selected vendor must provide the entire system,

There was general agreement by the participants at the conference at the Federal Executive Center at Charlottesville that acquisition of multi-vendor systems should be approached carefully because this may shift the burden of hardware systems engineering from the vendor to the Government, and necessitate a large number of benchmark tests to validate performance of each proposed peripheral with each proposed CPU. This might complicate and stretch out the computer acquisition process.

The Department of Defense maintains an inventory of automatic data processing equipment as required by Bureau of Budget Circular A-83. The inventory includes ADPE used by Government contractors when one of the following conditions obtain: (1) the equipment is leased and the total cost of the lease is reimbursed under one or more reimbursement-type contracts, or (2) the equipment is purchased by the contractor for the account of the Government or where title will pass to the Govenment, or (3) the Government furnishes the equipment to the contractor, or (4) the equipment is installed in Government-owned, contractor-operated facilities. Responsibility for reporting contractor used or operated equipment rests with the Military Department or Defense Agency responsible for administering the contract.

As of June 30, 1969, 180 computer systems were reported in the DoD Inventory of ADPE as being operated by Department of Defense contractors in Government and contractor facilities. Ninety-two of these systems were furnished by the Government and 88 were provided by the contractors.

The value of this equipment, as measured by the manufacturers' purchase price, is $134 million. The value of the Government furnished equipment is approximately $61 million. Detailed data regarding ADPE operated by contractors are shown as Table 2.

There are two provisions within the Armed Services Procurement Regulations that warrant mentioning. First, before a contractor is permitted to acquire ADPE for the account of the Government, the requirement must be submitted to the Defense Supply Agency where it is screened against reported ADPE excesses to determine whether the requirement can be satisfied from already available ADPE resources. Only when the requirement cannot be so satisfied and the Defense Supply Agency has formally certified to this fact, is the contractor permitted to acquire new ADPE.

Second, at the point when ADPE which the Government owns or has fully vested rights in is no longer needed to perform the contract, the contractor is required to submit a Report of Excess Personal Property to the Defense Supply Agency where it is made available to other DoD and Government Agencies through the ADPE Reutilization Program.

The increasing success of contractor use of the ADPE Reutilization Program is attested by the fact that contractors have acquired $22 millions of ADPE through this source to meet approved requirements during the first eleven months of FY 1970 compared to $9 million in all of FY 1969. In addition, the amount of ADPE reported by contractors as being available for DoD and Government-wide reutilization increased from $32 million in FY 1969 to $67 million in FY 1970.

On March 21, 1969, GSA signed Government-wide "requirements contracts” with five vendors to replace installed IBM Punched Card Machine Equipment (PCME) with nearly identical equipment at greatly reduced rentals. The terms and conditions of these contracts were similar though not identical to those within the IBM contract. However, not all the IBM Punched Card Machine Equipment and features were incorporated into these contracts.

49-580-70-47

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SAVINGS IN DOD In order that the Department of Defense Components should quickly move forward with this replacement, in early May the Assistant Secretary of Defense (Comptroller) notified the Components of this offering and requested that the Components report periodically on the progress of the replacement. To date, DoD has been allocated 698 pieces of equipment which is 71% of the allocations made by GSA and annual savings of nearly $520,000 are anticipated from these contracts. Annual savings of $351,000 have already been realized. An additional $130,000 of annual savings are also expected through a separate but similar Air Force lease-back contract for PCME for 242 pieces of equipment. This separate solicitation was initiated before release of the “requirements contracts.”

This program has and is still receiving detailed attention of my office. We have experienced some problems. First, we must incur the immediate expense of shipping the replaced equipment back to IBM. This significantly reduces the initial savings. Second, often we are unable to replace entire installations with equipment from one contractor, either because of equipment non-availability or feature incompatibility (such as mark-sensing devices). This increases the complexity and cost of administering the replacement. Third, there were concerns within the Department of Defense Agencies that the larger pieces of equipment were not exactly compatible to the installed equipment. In fact, the Army National Guard conducted extensive tests of the replacement for the computing accounting machine and did discover incompatibilities which required some modification to the new equipment.

The National Guard is now replacing the leased IBM equipment on a phased basis, which will allow time for the vendor and the National Guard to iron out these problems. Finally, problems during the conversion period have been experienced due to the age of the equipment and slight operating incompatibilities. These problems typically last for about a month and, once overcome, normal operation is regained. Where the new vendor has provided maintenance, it has appeared adequate thus far.

Most DoD Components and activities use one-year lease arrangements for a large portion of their ADPE. There are many instances where economic analyses reveal that purchase, rather than lease, is more favorable to the Government over the life of the equipment and DSD has for some time encouraged purchase of such equipment. Much equipment which is not economical to purchase, however, remains in Government use for one to four years. The use of one-year lease arrangements for these computers and components, rather than longer-term leases, results in higher lease costs.

The OSD (C) Data Automation office is now studying the potential savings that could be obtained by using long-term leases, and also the legal and administrative environment. As you know, ADPE leases are funded with Operations and Maintenance appropriations, and the Comptroller General has ruled that such long-term contracts are not, in general, legal use of O&M funds. This is because in many cases annual recompetition, rather than "locked in" long-term leases, is the best way to get lower costs. However–because of training and software costs-annual recompetition is not practical or economic in the case of ADPE.

What we seek is an effective way to legally take advantage of the lower rates provided by long-term leases, for those ADPE items which will be used longer than one year but are not economically advantageous purchases.

On January 5, 1970, the Comptroller issued a memorandum to all DoD Components giving them guidance on the acquisition of certain services offered by IBM following IBM's announced changes in their pricing structure. These changes, generally referred to as "unbundling," price such services as system engineering or training separately from the equipment itself. Our guidance was intended to aid activities in presenting their needs to local procurement officials.

The memorandum took cognizance of the need to subject requirements for specialized services to more careful scrutiny when they are priced on an as-used basis. This is in contrast to the relatively low management attention such services received when they were free. It suggested that many risks previously performed by an equipment vendor without additional charge, ideally could be performed with in-house resources. Current practices with regard to computer training needed to be reviewed since the training cost for each person was now to be charged to the Government. We recognized that the quantity and types of services received in the past may not have been accurate indications of current needs.

As a final caution, we pointed out to the Components that personalized services contracts were not to be used. Specifically, the creation of an employer-employee relationship between the Government and contractor was to be avoided.

In addition to the above plans and actions, the following items are of major interest in evaluating the DoD management of automated data systems:

1. The ADP Policy Committee, consisting of the senior ADP officials from the DoD Components and chaired by the Deputy Assistant Secretary of Defense (Systems Policy & Information), has been increasingly active in identifying critical problems and recommending solutions. Examples: Management of ADP Systems Development, ADP Installation Emergency Plans, Economic Analysis of Computer Purchases.

2. There is a continued expansion in the development and implementation of DoD standard data elements and codes in all functional areas to assure compatibility among DoD data systems and to facilitate the interchange of data with a great reduction in costly data conversion or translation. Some 200 standard data elements, comprised of about twelve million data items, have been standardized and are being effectively introduced into our data systems, about 1,000 more data elements are in some phase of standardization.

3. Sharing of ADP resources in lieu of purchase of equipment or services has increased. Reimbursements reported by the Components for ADP services were: FY 1969 $27,015,000 ; FY 1970 $29,086,000 (Forecast).

REUTILIZATION OF EQUIPMENT HAS INCREASED
4. Reutilization of equipment has increased :
Reutilized within Dod:

FY 1968, $39,764,000.
FY 1969 $59,384,000.

FY 1970 (1st half), $38,715,000.
Reutilized from Other Agencies ;

FY 1968, $4,264,000.
FY 1969, $4,692,000.
FY 1970 (1st half), $4,186,000.

EQUITY IN LEASED EQUIPMENT Equity in leased equipment was also retained by reuse of ADPE: FY 1968 $19,838,000; FY 1969 $23,994,000; and 1st Half FY 1970 $14,835,000.

PROJECTED DECLINE IN DOD COMPUTERS 5. The total number of DoD computers is projected to decline. There was an actual decline in the DoD percentage of all Federal Government computers, as reported in the Bureau of the Budget A-83 report:

Fiscal year

1968

1969

1970 (projected)

Computers.
Department of Defense (percent).

2, 694
63.6

2,898
62. 1

2,772
58.2

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TABLE 2.-VALUE OF ADPE OPERATED BY CONTRACTORS (MEASURED BY PURCHASE PRICE) IN GOVERNMENT

AND CONTRACTOR FACILITIES AS OF JUNE 30, 1969

(In thousands of dollars)

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Chairman PROXMIRE. Thank you very much, Colonel Warren.
Mr. Caveney, you are our next witness. You may proceed.

STATEMENT OF L. RICHARD CAVENEY, PRESIDENT, COMPUTER

PERIPHERAL MANUFACTURERS ASSOCIATION

Mr. CAVENEY. Yes, Mr. Chairman.

Mr. Chairman, I am Mr. L. Richard Caveney and I appear here as President of the Computer Peripheral Manufacturers Association. These hearings are extremely significant to the peripheral community, the so-called manufacturers of computer peripherals. In fact, Mr. Chairman, I appear here today as the official voice of those members of the Computer Peripheral Manufacturers Association and for the ma

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