ENCLOSURE I SUMMARY OF KEY PROCUREMENT PROBLEMS ENCLOSURE I Procurement is among the most widely performed functions within the Federal Government. All agencies, in implementing their respective missions and programs, procure goods and services from the private sector. During the past several years, we have reported on a number of procurement problems which either increase the cost of government or contribute to fraud, waste, and inefficiency. The following is a summary of those problems and recommendations which we believe should be implemented. Included as an attachment to this enclosure is a bibliography of reports which this summary highlights. EFFECTIVENESS OF CENTRAL SUPPLY AGENCIES Federal agencies annually procure more than $10 billion in goods and services from the General Services Administration, Defense Logistics Agency, and Veterans Administration. These agencies have the mission of supplying executive departments and agencies with items needed for daily operations. They purchase, stock and distribute, or contract for everything from paper clips to complex medical equipment. We have reviewed many of the major central supply programs in the last few years. A number of changes have been made, however, problems continue despite promises by management to improve their programs. Progress in improving the General Services Administration's $2 billion Multiple Award Schedule program is slow. Under the program a number of commercial firms are awarded indefinite quantity-type contracts for a particular product. Agencies select the product that best meets their needs and order directly from the vendor. Poor management of the program has resulted in agencies paying higher prices than other customers, contracts being issued without adequate competition, and questionable items being made available for purchase. Corrective actions have been identified but few have been completed. Consequently, we continue to monitor the program and have recommended the Congress place mandatory time frames on the agency's promised changes. Implementation of the Federal policy on acquiring and distributing commercial products is faltering badly. Since 1976 Federal policy required agencies to buy and rely on commercial products and distribution channels to meet their needs for products and services. In reviewing the program at several agencies, we found little meaningful progress has been made. Proper implementation of the policy will require major reforms in using and deploying agency personnel, retraining personnel and realining agency functions. Agencies have historically resisted making these changes. Because the potential savings are significant, we have recommended the Congress consider placing executive agencies under a mandatory implementation schedule. Self-service stores are poorly managed and are susceptible to fraud. The General Services Administration is responsible for providing Federal agencies with an efficient and economical retail supply system and consolidating unnecessary agency stockrooms. The self-service store program does neither well. Lack of control over store inventories, operations, and shopping plates provides the potential for further fraud in the program. In addition, the General Services Administration has not been able to support other agency retail needs or to eliminate their stockrooms. Federal agencies frequently use the self-service stores as wholesale suppliers to stock their own stores which are located sometimes in the same building. The General Services Administration is taking some corrective actions based on our past recommendations, and we will continue to monitor them. ASSURING FAIR AND REASONABLE PRICES FOR GOODS AND SERVICES Each year the Federal Government spends a considerable amount of money buying goods and services without the benefit of price competition. In fiscal year 1980 these procurements totaled about $50 billion or 50 percent of its procurement money. Since procurement without price competition does not have the built-in safeguards of formal advertising to assure economical prices, the Federal Government has developed a plethora of laws, regulations, standards, and procedures to assure fair and reasonable prices. A number of problems have surfaced in this area in the past few years. Some of them require congressional attention if they are to be resolved. The regulations and procedures governing the determination of contract prices using contractor furnished cost and pricing data do not provide the assurances that contracting officers will negotiate fair and reasonable prices for the Federal Government. Our reviews continue to disclose weaknesses in regulations and procedures, as well as overpricing of contracts. The audit function, in fact, is so successful that for every dollar we invest anywhere from $10 to $12 has been recovered. Because the potential for savings is so large, we have suggested and been somewhat successful in getting the Defense Contract Audit Agency to give more coverage to contract pricing audits. Expiration of the Renegotiation Act in 1976 has caused an old outdated profit law to take affect. The Vinson-Trammell Act of 1934, which has been suspended since 1941, placed profit limitations on contracts for ships and aircraft. While there is general agreement that the act is outdated, there is sharp disagreement over the development of a new profit limitation policy. We believe the act should be revised or replaced with a more workable statute that would provide some safeguards against unreasonable profits under sole-source contracts and be applied across the board on all weapon systems (not just ships and aircraft) at a minimum during periods of national In addition, future policy should relate profit to a return on investment capital rather than a percentage of cost which is commonly used now. emergency. Suspension of the Cost Accounting Standards Board in 1980 has left the Federal Government without an authoritative body to waive, amend, or interpret standards. In order to achieve greater uniformity by defense contractors, the Congress in 1970 established the Board to develop cost accounting standards. Although the Board has been abolished, standards, rules, regulations, and other promulgations continue having the full force and effect of law which must be observed in negotiating and administering contracts. warranted, grant waivers and exemptions to contractors on regulations and standards. Without the Board legislation is necessary to provide exemptions or waivers and amend existing standards. The General Accounting Office has assumed temporary custody of the Board's records until the Congress assigns the administrative function to an appropriate agency. A number of agencies have been identified as possibilities. The most The former Board, could and did as |