DOCUMEN'I RESUOE

06361 - [B16667131

Increased Competition Can Reduce Elevator aintenance and

Cleaninq Service Ccntract Costs. SAL-78-11';; E-1J5350. June 14,1978. 20 pp. + 3 appendices (4 PF.).

Report to the Conqress; by Robert F. Keller, Acting ComptrollerGeneral .

Issue Area: Federal Procurement of Goods and Services (1S00).Contact: Procurement and Systems Acquisiticn Div.Budqet Function: General overnment: Cther General Goverreut

k806).Organization Concerned: General Services Aiministration.Congressional Relevance: Congress.Authority: Federal Property and Administrative Services Act of

1949. S. 1491 (95th Cong.). -187624 1977). B-184186

(1976). B-187250 (1977). B-187354 (1C7). P-1E7256 (1977).i-187257 (1S77).

The Gneral Services Administration's (GSA's) Eublic

Buildings Service manages federally owned uildings and

commercial space leased for Federal agency use. GSA contracts

with private firms for some maintenance and repair services. As

or May 1977, GSA had 295 contracts worth $5.1 illicn fcr

elevator maintenance services and, as cf June 177, hadcontracts worth $49 million for cleaning services in about 500

buildings. Federal statutes provide that overnment purchases of

goods and services be made by formal advertising wbcnv-sfeasible and practical. Findings/Couclusicns: Nearly 75% of

GSA's elevator maintenance contracts i effect during fiscal

year 1977 were awarded noncompetitively to elevator ei;iunent

manufacturers. GSA justifisd its actions ased n the

determination that it was ipractical to secure competition by

advi 'isinq and necessary to purchase these services troa themanui..cturer in order o ,.t replacement parts on a timely basis

and avoid service itrruption.. Although GSA has made limitedeftcrts to obtain competition, t is vailakle for elevator

maintenance services. Most of GSA's cleaning service contrncts

are advertised, fixed-price contracts. However, a cf June 30,1977, 13% of the Federal buildings were cieaned unde

neqotiated, cost-plus-award-fee ccnttacts. Cleening costs for

the 64 buildings under cost-plus-aw;rd-fee contracts were boit

$5 million higher than the costs would have been under

advertised contracts. Becommendations: he Administratc of

General Services should direct the Commissioner of the Public

Buildings Service to: require regions to obtain competition for

elevator maintenance services; monitor future contract awa::ds

for elevator maintenance services to assre that maximumcompetition is obtaincd; revise and :ipl ment guidelines tc

encourage u e of advertised, fixed-price cnt.-acts in large

Federal office buildings in lieu of :1.c cc't-plus-award-feecontract; and implement guidelines and contract clauses to

insure that contractors awarded advertised, fixed-pricecontracts for larqge buildings provide the required cleaningservices. The Congress should enact pending legislaticnauthorizing multiyear contracting authority. ()

BY i 'lt L .i v i 1<iL__Li KENRA L

Report To The CongressOF THE UNITED STATES

Increased Competition Can ReduceElevator Maintenance AndCleaning Service Contract Costs

In keeping with its responsibility fr main-taining Federal office buildings, the GeneralServices Administration contracts for someelevator maintenance and cleaning services.It has used noncompetitive contracts formost elevator maintenance services foryears. In addition, the General Services Ad-ministration uses a cost-plus-award-fee con-tract for some cleaning services. The use ofthese contracts for elevator maintenanceand cleaning services has resulted in con-tract costs significantly higher than thecosts attained under advertised contracts.

GAO believes that competition for theseservices is available and practical, andgreater use of advertised contracts wouldresult in millions of dollar savings ani ualiyThe General Services Administratio hastaken some steps recently to en ouragegreater use of advertised contracts for ele-vator maintenance and cleaning services.

STV ST

'~'c>~,~S "t,.- ~.¢.~, PSAD-78-115

CCOU~ JUNE 14, 1978

COMPTROLLER GENERAL O- THE UNITED STATES

WASHINGTON, D.C. 20548

-135350

To the President of the Senate and theSpeaker of the House of Representatives

This report discusses the contracting methods used by theGeneral Services Administration to obtain elevator maintenanceand cleaning services for Federal buildings.

We found that the General Services Administration fre-quently uses noncompetitive contracts for elevator maintenanceand negotiated, cost-plus-award-fee contracts for some clean-ing services. These ccntracting methods have resulted inincreased contract costs.

We made our review pursuant to the udget and AccountingAct, 1921 (31 U.S.C. 53), and the Accounting and Auditing Actof 1950 (31 U.S.C. 6?7.

We are sending copies of this report to the Director,Office of Manaqement and Budget, and to the Administrator ofGeneral Services.

AC'TTNG Co 4AGeral

of the United States

COMPTROLLER GENERAL'S INCREASED COMPETITION CAN REDUCEREPORT TO THE CONGRESS ELEVATOR MAINTENANCE AND CLEANIJtJG

SERVICE CONTRACT COSTS

DIGEST

In keeping with its responsibility for main-taining Federal office buildings, the GeneralServices Administration contracts for elevatormaintenance and cleaning se-vices. It is not,however, maximizing competition for theseserbvices. GAO believes that significant dol-lar savings would result if maximum competi-tion were secured.

Formal advertising is the statutory preferencefor Government contracting. General Servicesfor years has awarded elevator maintenanceservices noncompetitively. In addition, somecleaning contracts have been awarded on anegotiated, cost-plus-award-fee basis. Bothare costlier than formally advertised con-tracts.

ELEVATOR MAINTENANCE SERVICES

Nearly 73 percent of General Services' eleva-tor maintenance service contracts (215 of 295)in effect during fiscal year 1977 were nego-tiated noncompetitively, usually with eleva-tor equipment manufacturers. These contractsamounted to $4.2 million o the $5.1 millionin elevator maintenance contracts. GeneralServices justified noncompetitive contractsfor these services on the basis that it wasimpractical to secure competition becauseonly the manufacturers could provide thetechnicians, tooling, and parts necessary forassuring prompt and effective maintenanceservices. (See p. 4.)

GAO found that limited efforts were made toobtain connetition for elevator maintenanceservices. However, some regions had awardedcontracts as far back as 1964 and renewedthem annually without any attempts made tosee if competition was feasible and available.(See p. 5.)

ITur.&St. Upon removal. the reportcover date should be noted hereon. i PSAD-78-115

GAO found evidence showing that competitionwas available for elevator maintenance serv-ices. In a related study, GAO found thatmost Veterans Administration hospitalsawarded advertised contracts for these serv-ices. Also, one GSA region was successfulrecently in obtaining competition for eleva-tor maintenance services previously not com-peted, and, by doing so, reduced contractcosts by $358,000, or 38 percent. GAO be-lieves that this demonstrates significantsavings potential. (See p. 6.)

CLEANING SERVICES

Most General Services' cleaning service con-tracts are advertised, fixed-price contracts.Since 1972, however, General Services hasnegotiated cost-plus-award-fee contracts forcleaning services in some large Federal officebuildings where it felt that an acceptablelevel of services could not be obtained underan advertised contract. As of June 30, 1977,64, or 13 percent, Federal office buildingswere cleaned under negotiated, cost-plus-award-fee contracts. These contracts repre-sented $24.8 million of $48.5 million incleaning services contract costs and about27 million square feet of 59.3 million squarefeet of office space cleaned by contract.(See pp. 8 and 9.)

General Services justified using negotiated,cost-plus-award-fee contracts on the basisthat past problems were experienced in ob-taining good cleaning services using adver-tised contracts for these buildings. Inthree of four regions reviewed, GAO foundno evidence to support this justification.At three regions agency officials alsostated that they had no problems using ad-vertised, fixed-price contracts. (See pp. 9and 10.)

In the fourth region, GAO examined contractfiles at four buildings being cleaned undera cost-plus-award-fee contract to determineif there was a history cf cleaning problems

ii

under prior advertised contracts. GAOfound that one Lad some problems, whileanother had successful performance under aprior advertised contract. For he othetwo, current contract records uid not showevidence of performance problems under prioradvertised contracts. GAO also found thatsatisfactory cleaning services were obtainedin this region on some advertised contractsfor large office buildings. Agency officials,however, felt that the cost-plus-award-feecontract was necessary to assure good cleaningservices in many large regional office build-ing,. This region accounted for 37 of the 64buildings under cost-plus-award-fee contractsas of June 1977. (See pp. 10 and 11.)

GAO's analysis of cleaning contract costsshowed that annual cleaning costs for the 64buildings under cost-plus-award-fee contractswere about $5 million higher than the costswould have been under advertised, fixed-pricecontracts. As with elevator maintenance con-tracts, GAO believes this figure represents asignificant savings potential if advertisedcontracts can be secured. (See pp. 11 to 13.)

In June 1977 General Services developed re-vised guidelines and clauses for advertisedcleaning service contracts in larger build-ings. It will evaluate their effectivenessduring the following year in five regionsand, if satisfactory, will consider adoptingthem nationwide. GAO believes this to be agood first step, however, more positive ac-tion is needed. (See pp. 15 and 16.)

RECOMMENDATIONS

To realize the potential savings of millionsof dollars annually in elevator maintenanceand cleaning contract costs, GAO recommendsthat tihe Administrator of General Servicesdirect the Commissioner, Public BuildingsService to:

-- Require regions to obtain competition forelevator maintenance services.

I2ASb~gg iii

-- Monitor future contract awards for eleva-tor maintenance services to assure thatmaximum competition is obtained. (See p. 7.)

--Revise and implement guidelines to encourageuse of advertised, fixed-price contracts forcleaning services in large Federal officebuildings to the maximum extent, in lieuof the cost-plus-award-fee contract.

--Implement guidelines and contract clausesto insure that contractors awarded adver-tised, fixed-price contracts for largebuildings provide the required cleaningservices. (See p. 17.)

MATTER FOR CONSIDERATIONBY THE CONGRESS

GAO believes that multiyear contracting forelevator maintenance and cleaning serviceswould increase competition, lower bid prices,provide contractors with the security andother benefits of longer team contracts, andreduce agency problems associated with singleyear procurements. GAO recommends that theCongress enact pending legislation authoriz-ing multiyear contracting authority,

AGENCY COMMENTS

General Services felt that stating that itincurred about $5 million in higher annualcleaning costs as result of using cost-plus-award-fee contracts failed to recognize theincreased quality and tenant satisfactionthat was obtained. GAO, however, was unableto determine i a higher quality of cleaningwas provided under a cost-plus-award-fee con-tract. The GAO review showed, and some Gen-eral Services officials stated that satisfac-tory cleaning services were provided under bothcost-plus-award-fee and advertised contracts.General Services officials also stated thatthey have already taken, and will take, fur-ther action to encourage greater use of adver-tised contracts for elevator maintenance andcleaning services.

iv

C o n t e nt s

Page

DIGEST i

CHAPTER

1 INTRODUCTION t 1Elevator maintenance contracts 1Cleaning contracts 2Scope of review 2

2 OPPORTUNITIES TO REDUCE ELEVATORMAINTENANCE SERVICE CONTRACT COSTS 4

Limited efforts to solicitcompetition 4

Availability of competition 6Conclusions and recommendi - 6

3 OPPORTUNITIES TO REDUCE CLEANINGSERVICE CONTRACT COSTS 8Types of cleaning service con-

tracts 8Use of CPAF contracts not justified 9Formal advertising practical andsatisfactory cleaning servicesunder advertised contracts available 11

Cleaning services more costly underCPAF contracts 11

Inconsistent selection of contractors 13Internal audit evaluations of CPAF

contracts and action taken 13Conclusions and recommendations 16Matter for consideration by the

Congress 17

4 AGENCY COMMENTS AND OUR EVALUATION 18

APPENDIX

I GSA region 5 cost savings realized byawarding competitive elevator mainte-nance contracts during calendar year1977 21

II Letter dated May 4, 1978, from the Adminis-trator of General Services 22

III Principal GSA officials responsible for theactivities discussed in this report 24

ABBREVIATIONS

CPAF cost-plus-award-fee

GAO General Accounting Office

GSA General Services Administration

VA Veterans Administration

CHAPTER 1

INTRODUCTION

The General Services Administration's (GSA's) PublicBuildings Service manages federally owned buildings andcommercial space leased for Federal agency use. It oper-ates and maintains about 10,000 buildings, plants, andwarehouses having a total area of about 236 million squarefeet. The GSA fiscal year 1977 budget for operating andmaintaining these buildings was about $600 million.

GSA contracts with private firms for some maintenanceand repair services. As of May 1977 GSA had 295 contractsworth $5.1 million for elevator maintenance services. Inaddition, as of June 1977 GSA had contracts worth $49 mil-lion for cleaning services in about 500 buildings.

Federal statutes provide that Government purchasesof goods and services be made by formal advertising when-ever feasible and practical. Fifteen exceptions to theuse of formal advertising permit contracting officers tonegotiate ontracts. Before negotiating, agencies mustprepare a determination and findings statement describingthe circumstances justifying negotiation.

ELEVATOR MAINTENANCE CONTRACTS

Nearly 73 percent of GSA's elevator maintenance con-tracts in effect during fiscal year 1977 were awarded non-competitively to elevator equipment manufacturers. GSAjustified its actions based on the determination that itwas (1) impractical to secure competition by advertisingand (2) necessary to purchase these services from themanufacturer to get replacement parts on a timely basisand avoid service interruptions. Recently, a contractorprotested another agency's decision not to compete require-ments for elevator maintenance and repair services. Thedecision was that only the manufacturer could supply theservice and parts needed promptly. In response to thisprotest, the Comptroller General reaffirmed the statutorypreference for competitive procurements with specificregard to elevator maintenance services and recommendedthat the agency compete these contracts. 1/

l,'Comptroller G-neral Decision B-187624, March 24, 1977.

1

CLEANING CONTRACTS

Most GSA contracts for cleaning services are awarded

on an advertised, fixed-price basis. Since 1972, however,some GSA contracts for cleaning large Federal office build-ings have been negotiated, cost-plus-award-fee (CPAF) con-tracts. These latter contracts were justified by GSA on the

basis that (1) it was eperiencing difficulties in obtainingadequate cleaning services for the larger Federal cfficebuildings under advertised contracts and (2) the CPAF con-

tract would provide the contractor an incentive to providea high quality of cleaning services. In 1977 approximatelyhalf the $48.5 million GSA cleaning contracts awarded wereCPAF contracts.

In June 1975 the Comptroller General received a bidprotest which, in part, questioned GSA's authority to usethe negotiated, CPAF contact to obtain cleaning services.In response to the protest the Comptroller General concludedthat GSA did not have authority to negotiate on the basis that

it was impractical to obtain c;ompetition. 1/ GSA was able toget around this restriction by setting aside te contractsfor small business and by waiving the regulation to obtcin"small business restricted advertising' when ver possible.Then, it could legally negotiate a contract with a selectedsmall business contractor. 2/

SCOPE OF REVIEW

We reviewed selected GSA contracts for elevator mainte-

nance and cleaning services. We also reviewed policies andprocedures, legislation, and regulations applicable to con-

tracts for these services. Also, we interviewed GSA head-quarters and regional officials. e wanted to know andevaluate the basis for awarding negotiated contracts for

these services and whether elevator maintenance and clean-ing services could be procured effectively and more eco-nomically using formally advrtises. contracts.

1/Comptroller General Decision B-184186, February 3, 1976.

2/Comptroller General Dcision 3-187250, B-187354, B-187256,B-187257, April 25, 1977.

2

We made our review a the GSA Public Buildings Servicein Washington, D.C., and GSA regional offices 3, 5, 8, and10 in Washington, D.C., Chicago, Illinois, Denver, Colorado,and Auburn, Washington, respectively, during May throughNovember 1977.

3

CHAPTER 2

OPORTUNF'TLES TO REDUCE ELEVATOR

MAINTENANCE SERVICE CONTRACT COSTS

The r.jority of GSA elevator maintenance servicecontracts c- awarded on a sole-source basis to eleva or manu-facturing companies. GSA determined tt solicitatio ofcompetition was impractical based on cs belief that othercompanies could not provide eplacement partq, tools, andtechnical personnel to assure prompt and effective services.

We found that adequate competition for elevator main-Lenance services does exist. For example, a similar reviewof procurements for elevator maintenance services by theVeterans Administration (VA) showed that maly VA hospitalshave successfully solicited competition for thse servicesand awarded contracts to the lowest bidders. Additionally,GSA region 5 recently demonstrated that it is feasible tosolicit competition for elevator maintenance services. Bysoliciting competition region 5 saved $358,0Uu, or 38 percentof previous contract costs for the sme work awarded on anoncompetitive basis. Although we ould not project singson a statistical sample baLis, we believe that a significantsavingJ potential exists in other GSA regions. If all GSAregional offices advertise their requirements presently undersole-source contracts and achieve a similar level of costsavings as region 5, contract prices would be reduced iy$1.3 million annually.

LIMITED EFFORTS TO SOLICIT COMPETITION

In August 1965 the GSA Public Buildings Service issueda prototype statement for regional office use to support theimpracticality of securing competition and necessity to i'ego-tiate elevator inspection and maintenance contracts. TLestatement justified use of noncompetitive contracts primarilyon the need to get replacement parts and timely service frontthe elevator manufacturers having special tools, specifica-tions, and personnel. Thus, the regions would avoid serviceinterruptions and maintair equipment integrity. In une 1977GSA instructed the regions to use the pototype statement onlyas a guide for preparing statements to support the ue ofsole-source contracts.

As of May 1977, GSA had 295 elevator maintenance con-tracts, of which 215 (73 percent) were sole source ontracts.The balance was competitively awarded, as shown in the follow-ing table:

4

Number of Value ofcontracts contracts

(millions)

Noncompetitive sole source 215 $4.2

Competitive awards:Negotiated 15 0.2Advertised 65 0.7

Total 295 $5.1

GSA awarded the 215 sole-source contracts to 31 companies.About 80 percenit, however, were awarded to the six companiesshown below.

Number of sole-Company source contracts

Otis 69Montgomery 41Dover 24Haughton 19U.S. Elevator 12Westinghouse 9

Total 174

Prior to 1977 region 5 had not routinely solicited com-petition for elevator maintenance ervices--it had last so-licited competitive bids in 1969. On that occasion region 5solicited 40 sources but received only one bid. It awardedthe contract in 1970 at the price proposed by the contractoron the basis of price analysis and the contractor's explana-tion that the price was consistent with catalog prices. Re-gion 5 renewed the contract for the next 6 years. Duringthis perlod, the price was increased annually on the basis ofincrlases in labor and material costs.

Regions 8 and 10 also awarded sole-source contracts forelevator maintenance services. Regions 8 and 10 had 34 and24 sole-source contracts, respectively. Some of these con-tracts had been awarded in 1964 and renewed annually there-after without soliciting competition. Our review of selectedcontracts in these regions showed that decisions to negotiatewere based on the prototype statement issued by headquarters.The regions had not tested the market with public announce-nments of requirements before awarding sole-source contractsto elevator manufacturers. Moreover, the files contained noevidence to support the determination that it was impractical

5

to secure competition or that replacement arts and servicescould be obtained only from the elevator manufacturers.Contract prices were the same as the contractors' proposedprices. As in region 5, these prices were increased annuallyon the basis of increases in labor and material costs.

AVAILABILITY OG COMPETITION

In 1976 region i reevaluated its policy and practice ofawarding sole-source elevator maintenance contracts and inearly 1977, advertised requirements for elevator maintenanceservices in 11 buildings in seven cities. Except for onecity, Grand Rapids, Michigan (see ap. 1), region 5 was ableto obtain a number of competitive bids. The lowest bidderwas usually the elevator manufacturing company that had pre-viously provided maintenance services under a sole-sourcecontract. The appendix also shows that by awarding contractsto the lowest bidder, region 5 reduced elevator maintenancecosts by $358,000, or 38 percent. The cost savings rangedfrom 54 percent to 8 percent. In two instances, the competi-tive contract price exceeded the amounts previously paid.

In a similar review we found that VA hospitals havebeen soliciting competition for some elevator maintenanceservices. DJe recently reported to the Administrator ofVeterans Affairs, 1/ however, that about one-third of a sam-ple of 90 hospitals hroughout the Nation awarded sole-source contracts without supporting the determination that(1) it was impractical to secure competition or (2) onlythe elevator manufacturers could provide adequate and timelyservice. Two-thirds of the hospitals had sought competitionfor elevator maintenance services and awarded 63 contractsto the lowest bidders. The successful bidders were bothlarge and small businesses. Our analyses showed that 11 con-tracts were awarded to the only bidder and the balance of thecontracts were awarded to the lowest of from two to six bid-ders.

CONCLUSIONS AND RECOMMENDATIONS

GSA practices have resulted in widespread use of sole-source contracts for elevator maintenance services. Thesecontracts were based on the predetermination that it was im-practical to secure competition or that parts and servicescould only be obtained from the elevator manufacturer. Inrecent years, GSA has made limited efforts to obtain compe-tition. The present environment suggests that competitionfor these services is available.

1/PSAD-78-41, Nov. 22. 1977.

6

GSA region 5 and VA have demonstrated that competitionfor elevator maintenance is feasible and practical usingformal advertising procedures. In region 5 awards to thelowest bidders reduced annual contract costs by $358,000, oran average of 38 percent. Other GSA regions had 206 sole-source contracts in effect as of May 1977, which were valuedat $3.4 million. Assuming that these regions could alsorealize a 38-percent contract price reduction by solicitingcompetition for these sole-source contracts, GSA's annualcontract costs would be reduced by $1.3 million. We believethis demonstrates a significant savings potential.

We recommend that the Administrator of General Servicesdirect the Commissione-, Public Buildings Service to:

--Require regions to obtain competition for elevatormaintenance services. Regions should test the marketwith public announcements of requirements for elevatormaintenance services to establish the availability ofcompetition.

-- Monitor future contract awards for elevator mainte-nance services to assure that maximum competition isobtained and that sole-source contracts are used onlywhen attempts to solicit competition have failed.

7

CHATER 3

OPPORTUNITIES TO REDUCE CLEANING

SERVICE CONTRACT COSTS

GSA procures cleaning services using three types of

contracts--advertised, fixed price; negotiated, fixed

price; and negotiated, CPAF. Most cleaning service con-

tracts are awarded on a fixed-price basis.

GSA started using the CPAF contract in 1972 to obtain

cleaning services in some large buildings. GSA justified

its action on the basis that larger buildings were havingertensive cleaning problems because contractors held single-year, advertised, fixed-price contracts.

Our review of cleaning service contracts showed thatsome CPAF contracts were awarded where there was no historyof cleaning problems in these buildings. We also found evi-dence that in many cases formal advertising was practical,and satisfactory cleaning services could be obtained underadvertised, fixed-price contracts. Based on our analysis ofcontract costs, we estimate that annual CPAF contract costshave been about $5 million higher than they would have beenunder advertised, fixed-price contracts. In addition, wefound that GSA regional offices have been inconsistent intheir CPAF contractor selections.

GSA has taken some action to make improvements in itsCPAF contracting method in accordance with findings andrecommendations of its internal auditors. In addition, GSAis conducting a test of revised advertised, fixed-priceguidelines to determine whether they car provide GSA betterassurance of getting good contractor performance in cleaninglarge office buildings. Multiyear contractLng, if authorized,is another alternative that could provide incentives for bet-ter contractor performance under an advertLsed, fixed-pricecontract.

TYPES OF CLEANING SERVICE CONTRACTS

The table below slows that of 500 buildings cleaned by

contractors, 436 (87 percent) were cleaned under fixed-price

contracts and only 64 (13 percent) were cleaned under CPAF

contracts. However, the 64 buildings accounted for about

one-half of the costs and area cleaned by contractors.

8

June 30, 1977Average

Number costoLf Square feet Total per

Contract build- under contract squaretype ins contract value foot

CPAF 64 27,049,237 $24,854,081 $0.92Fixed-price:

Advertised 316 22,211,830 14,785,414 0.67Other negio-

tiated(note a) 120 10,043,675 8,939,962 0.89

Total 500 59,304,742 $48,579,457

a/Contracts negotiated with the Small Business Administrationunder the 8a program and with various workshops for thehandicapped pursuant to the Wagner-O'Day Act.

Fixed-price contracts provide for firm prices not sub-ject to adjustment by reason of the contractor's cost expe-rience. GSA has used this type of contract--usually for 1year--for cleaning serJices with a monitoring and deductionsystem for enforcing contractor performance.

CPAF contracts are cost-reimbursement type contractsused by GSA for cleaning services on the premise that suchcontracts are effective in emphasizing and ensuring qualityperformance. All allowable costs incurred in the performanceof the contract are paid up to a maximum ceiling price. GSAdetermines the award fee based on periodic evaluations ofthe contractor's performance. CPAF contracts are awarded fora 1-year period, with an option to renew for two additional1-year periods.

The level of cleaning that contractors are to provide isbased on the commercial equivalent (comparable to the clean-ing level provided to private industry).

USE OF CPAF CONTRACTS NOT JUSTIFIED

We reviewed selected CPAF contracts awarded by rgions 3,5, 8, and 10 during the period 1974-76. We found that CPAFcontracts were used on buildings that did not have a historyof cleaning service problems, and competitive sources wereavailable and satisfactory cleaning services were obtainableusing advertised, fixed-price contracts.

9

GSA issued guidelines to implement the CPAF contractinto the cleaning program in June 1972. The CPAF contractwas intended primarily for large office buildings (100,000square feet or more) where there was a history of problemsgetting acceptable cleaning services under advertised,fived-price contracts. The guidelines included a prototypestatement of findings and determination that it was neces-sary to negotiate CPAF contracts to obtain the desired levelof quality cleaning services.

Region 5 awarded CPAF cleaning contracts for eightbuildings. Five buildings were newly constructed, and threehad been previously cleaned by GSA employees. Region 5 of-ficials stated that prior to implementing the CPAF contract-ing method, they had no history of performance problems onany advertised cleaning contracts.

Regions 8 and 10 each awarded two CPAF cleaning con-tracts. Officials in these regions said that contractor'sperformance under cleaning service contracts was satisfac-tory before, during, and after the CPAF contracting methodwas implemented. In 1976 these regions discontinued use ofthe CPAF contract after the Comptroller General determinedthat procurement statutes did not authorize the negotiationof cleaning service contracts to obtain a higher quality ofservices. Since that time, all cleaning services have beencontracted using formal advertising or the Small BusinessAdministration 8(a) program.

In region 3 we reviewed CPAF cleaning contracts forfour buildings--New Executive Office Building, GSA, Depart-ment of Agriculture, and Parklawn. As o June 1977, region 3had 37 buildings (of the 64) under CPAF contracts. Recordsshowed that the New Executive Office Building had been pre-viously cleaned under an advertised, fixed-price contractby a contractor which did an excellent job. Records for theParklawn building, however, indicated that cleaning serviceproblems occurred under a prior advertised, fixed-pricecontract. We reviewed current contract records availablefor GSA and Department of Agriculture buildings and foundno indications of cleaning service problems under previousadvertised, fixed-price contracts. Region 3 contracting of-ficials and building managers were highly in favor of theCPAF contracting method, however. They felt this was thebest way to get quality cleaning services in many largebuildings in region 3.

1C

FORMAL ADVERTISING PRACTICAL ANDSATISFACTORY CLEANING SERVICESUNDER ADVERTISED CONTRACTS AVAILABLE

Our analysis showed that 5 of GSA's 10 regions pro-cured cleaning services exclusively under fixed-price con-tracts. Contract records indicate that adequate sourcesare available for GSA to use formal advertising for mostcleaning service requirements. For example, region 5 re-ceived to 17 proposals when it solicited both small andlarge businesses for CPAF contracts. Region 5 also received8 to 27 bids for advertised, fixed-price cleaning servicecontracts in South Bend, Indiana; Toledo, Ohio; Benton,Illinois; and Milwaukee, Wisconsin. Similarly, region 3received 2 to 1( proposals from solicitations for award of27 CPAF contracts.

As stated above, GSA officials in regions 5, 8, and 10told us that satisfactory cleaning services have been ob-tained under advertised, fixed-price cleaning contracts.In addition, our review of selected advertised contractsin region 3 showed that satisfactory cleaning services wereobtained under advertised, fixed-price cleaning contractsfor the Federal Trade Commission and NASSIF buildings anda prior advertised contract for the New Executive OfficeBuilding. The building managers told us that close monitor-ing of contractors' performance is necessary to ensuresatisfactory cleaning under fixed-price contracts. Onebuilding manager had to make some contract deductions fornonperformance at the outset of the contract, however, per-formance improved after the initial problems. These build-ings were similar in size to some of those under CPAF con-tracts.

CLEANING SERVICES MORE COSTLYUNDER CPAF CONTRACTS

We estimated that annual cleaning costs under the 64CPAF contracts were about $5 million higher than costs wouldhave been under advertised, fixed-price contracts.

Using GSA nationwide statistics for June 30, 1977, wecomputed that CPAF contract costs were $0.18 per squarefoot higher than advertised, fixed-price contract costs of$0.728 per square foot, as shown by the table below. Applyingthe difference of $0.18 to the 27,049,237 square feet ofoffice space cleaned under CPAF contracts shows that GSAhas incurred about $5 million in higher annual cleaningcosts under CPAF contracts.

11

Average cost per square footAdvertised

fixed-price CPAF CPAFcon- con- higher

tracts tracts (lower)

National average cost(as of June 30, 1977) $0.t70 $0.920 $0.250

Less adjustment foractual payments(note a) - 0.043 0.043

0.670 0.877 0.207Administration and

inspection costs(note b) 0.058 0.031 -0.027

Total $0.728 $0.908 $0.180

a/The national average CPAF cost of $0.92 per square footrepresents estimated contract ceiling prices. GSA esti-mated that. actual payments total 4.7 percent less thanceiling price. (Our review of selected final CPAF contractprices in region 3 supported the reduction.)

b/GSA estimated administrative and inpection costs by ana-lyzing two similar buildings in the Washington metropolitanarea; one cleaned under an advertised contract and the otherunder CPAF. Inspection costs account for the main dif-ference between the administrative and inspection costsunder the two contract types. The GSA analysis showed thatit costs twice as much for inspections under the advertisedcontract. (Our review of inspection procedures in severalbuildings confirmed that closer surveillance was necessaryunder the formally advertised contracts.)

GSA officials tuld us that the cost difference of $0.18per square foot should be reduced for the following estimatedcosts applicable to the advertised contracts.

Litigation costs $0.022Nonperformance costs 0.089

Total $0.111

12

GSA officials explained that estimated litigation costs weredeveloped from one actual case and that most of the estimaterepresented additional inspection and administrative costs.Nonperformance costs represent judgnental estimates o 10 to15 percent of cleaning services that advertised, fixed-pricecontractors have not provided in cleaning large buildings.

In our opinion, these items are not valid costs andshould not be considered in the cost comparison for the fol-lowing reasons:

--Adding litigation costs to the average cost is based onthe assumption that all advertised contracts will beterminated for default. A GSA study showed that only29 of about 900 fixed-price contracts awarded over a3-year period were terminated for default. Addition-ally, only 2 of the 29 terminations were for buildingsover 100,000 square feet--the building size that GSAconsidered appropriate for CPAF contracting.

--Nonperformance costs should not be included unlessCSA paid the contractor for these services and subse-quently incurred additional costs to obtain them fromother sources. GSA officials told us that this isnot done. Also, under contract deduction proceduresapplicable to fixed-price contracts, GSA provides forreducing payments for services not performed.

INCONSISTENT SELECTION OF CONTRACTORS

Regional offices have been inconsistent in evaluatingproposals for CPAF cleaning contracts. The regions selectedsome contractors on the basis of price, some on the basisof best anticipated performance, and others on a combinationof the two. Some selections have been made at higher priceswith only marginal differences in the quality of anticipatedperformance.

GSA guidelines included a point system for rating con-tractor proposals. The rating system, based on a maximumscore of 100 points, gave more weight to the quality ofanticipated performance over cost, as indicated by thefollowing table.

MaximumCategory of evaluation points

Management and operations plans 40Experience and past performance 25Cost 35

Total 100

13

The guidelines require staff evaluation of each proposal

and a recommendation to a source selection board that either(1) a contract be awarded without further negotiation or (2)

negotiations be conducted with the proposals determined to

be witnin the competitive range.

Regional practices for evaluating proposals and award-

ing contracts varied. Region 5 had not established criteria

for determining which proposals were to be included in the

competitive range. Instead, the proposals were rated, and

the competitive range was set from the scoring results. In

region 3 the competitive range included the highest scored

proposal, proposals within 2 to 3 points, and proposals with

prices within 5 to 10 percent of the lowest proposed price.

As shown in the following table, of 30 CPAF contracts

awarded in regions 3 and 5 during the period 1974-76, 10

awards were made to the contractor with the highest eval-

uated score and the lowest price, 18 were made to the con-

tractors with the highest evaluated score, and 2 awards were

based primarily on the lowest price.

Basis for Award

Best scoreand Best Lowest Total

lowest price score price awards

Region 3 9 13 - 22

Region 5 1 5 2 8

Total 10 18 2 30

Region 5's three awards that were based on the lowest

prices were supported by evaluations that indicated the con-

tractor also had the best or nearly best performance poten-

tial. In these cases, region 5 concluded that the award

should be made to the contractor proposing the lowest price.

By contrast, the five best score awards were not supported by

evidence that the contractor had clearly demonstrated better

performance potential. For example, region 5 selected the

contractor for the Kluczynski building in Chicago on the

basis of the best score which totaled 90 points. The selected

contractor's price of $1,144,597 was $259,410 higher than a

competitor's price which scored 88 points., Hence, GSA paid

an additional $259,410 for a difference of 2 points and in

anticipation of better contractor performance.

14

Regional offices routinely renewed each CPAF contractfor two additional 1-year periods as long as the contractorprovided acceptable cleaning services. For those CPAF re-newal contracts reviewed, we found that GSA approved nevcost ceilings proposed ')y the contractors without seekingcompetitive bids or determining the efficiency and economyof the contractor's cleaning methods and services. Underthis practice the contractors had no icentive to controlor reduce cleaning services costs for a 3-year period.

;NTERNAL AUDIT EVALUATIONS OFCFAF CONTRACTS AND ACTION TAKEN

The GSA Office of Audits evaluated the CPAF contract-ing programs in regions 3, , 5, and 7 in 1975. In addi-tion co procedural weaknesses, the auditors reported thatCPAF contract cleaning costs were higher than costs underadvertised, fixed-price contracts and that savings wereposs.ble with more emphasis on the costs proposed by thecont.:actors within the competitive range. The auditorsrecolmnded that improvements be made in the procedures andpractices for awarding and administering CPAF contracts.

In addition to the CPAF program evaluations, GSAduditors are required to review and verify actual costsincurred under CPAF contracts and determine if contractcosts are reimbursable. In this regard, the Director ofAudits in March 1977 expressed concern that audits ofreimbursable costs could not be scheduled and completedin a timely manner because of the heavy workload. As aresult CPAF contract audits having less sensitivity andsignificance were delayed. The Office of Audits' experienceshowed that the cost of auditing CPAF contracts was oftengreater than savings. These audits consequently had lesspriority. The Director of Audits suggested that the CPAFcontract was not advantageous for cleaning services andthat alternatively GSA needs may be better served by ad-vertised, or negotiated, fixed-price contracts.

In June 1977 GSA issued revised advertised, fixed-price guidelines for cleaning services contracts in largerbuildings. The effectiveness of the guidelines will beevaluated during the following year at selected locationsirn live regions. If the guidelines prove to be satisfac-tory, GSA will consider adopting them nationwide.

GSA's tentative guidelines include techniques andclauses to obtain further assurance of control under adver-tised, fixed-price contracts of contractor's performance.

15

These include:

-- Holding pre-b~d conferences where all bidders gaina better understanding of the terms and conditions ofthe contract and the quality of services required.

-- Reouiring bid bonds to assist in determining the fi-nancial responsibility of the prospective contractors.

--Requiring performance bonds to secure fulfillment ofall the requirements under the contract.

--Prescribing minimum man-hours to be spent in provid-ing and/or supervising cleaning srvices.

--Imposing contract deductions to discourage nonper-formance or unsatisfactory ,erformance which ade-quately reflect the costs to be incurred should thecontractor fail to fulfill contract requirements.

GSA's evaluation of these guidelines had not been com-pleted at the close of our review. GSA officials stated,however, that even after these guidelines have been eval-uated, they still expect to use CPAF contracts probably formany buildings over 400,000 square feet.

In August 1977 GSA issued revised procedures for eval-uating CPAF proposals and selecting contractors for award.The procedures provided better criteria for establishing theproposals within the competitive range. This also indicatesthat GSA expects to use CPAF contracts in the future.

CONCLUSIONS AND RECOMMENDATIONS

GSA has obtained satisfactory cleaning services underboth CPAF and advertised contracts. GSA used the more costlyCPAF contracts in many office buildings without an adequatedetermination that use of this type of contract was necessaryto obtain satisfactory cleaning services. Evidence suggeststhat formal advertising is practical in many cases. We esti-mate that use of CPAF, instead of advertised, fixed-pricecontracts, to clean 64 office buildings increased annualcosts by about $5 million. We believe maximum competitioncould result in significant savings fom these higher costs.

GSA's recent actions to test revised guidelines andtechniques in its advertised cleaning contracts for largeroffice buildings is a good first step. We are concerned,however, that GSA is not committed to use advertising in

16

contracting for cleaning service requirements in many morelarger Federal office buildings where it is practical.

Accordingly, we recommend that the Administrator ofGeneral Services direct the Commissioner, Public BuildingsService to:

-- Revise and implement guidelines to encourage useof advertised, fixed-price contracts to the maximumextent, in lieu of the CPAF contract, for cleaningservices in large Federal office buildings.

-- Implement guidelines and contract clauses to insurethat contractors awarded advertised, fixqd-price con-tracts provide the required cleaning services. Con-sideration should be given to use of those techniquespresently being tested that prove effective, and anyothers that might provide better control of the serv-ices to be provided.

MATTER FOR CONSIDERATION BY THE CONGRESS

The CPAF contract was introduced by GSA to provide in-centives to contractors which provide high quality cleaningservices. One of the incentives is the knowledge by thecontractor that he is almost assured of having a contractfor 3 years if he provides good cleaning services. UnderGSA advertised, fixed-price contracts, this incentive: doesnot exist. In addition, GSA officials claim that the1-year, advertised contract does not allow sufficient timeto develop and pursue a "termination for default" caseagainst a nonperforming contractor.

The Federal Property and Administrative Services Actof 1949, as amended, limits GSA to 1-year contractingauthority. GSA has sought legislative authority to awardservice contracts for periods up to 4 years. In 1977 billS. 1491 was introduced in the Congress which would providefor multiyear contracting authority for cleaning, protec-tion, trash removal, and other similar services. No actionhas been taken on this bill.

In our recent report (PSAD-78-54, Jan. 10, 1978), wereassessed the issue of multiyear procurements and foundthat benefits continue to accrue where the authority forsuch contracting exists. We concluded that the advantagesof the mult'ecar procurement techniques outweighed the dis-advantageo, and recommended that the Congress enact pendinglegislation providing for this authority.

17

We believe that the advertised, multiyear contract forcleaning services would provide contractors with the securityand other benefits of longer term contracts, thus, providingmore incentive to perform at the quality level desired. Wealso beli--re that contract costs would be significantlylower, and GSA would benefit from a cni.nuity of service.Accordingly, we recomriend that t Congress favorably consi-der enacting pending legislation which would provide formultiyear contracting authority.

18

CHAPTER 4

AGENCY COMMENTS AND OUR EVALUATION

The agency comments are contained in appendix II. Thefollowing is a discussion of GSA's major comments on our pro-posed report and our evaluation of these comments.

ELEVATOR MAINTENANCE SERVICES CONTRACTS

GSA commented that it had taken steps to increase com-petition for elevator maintenance contracts since our auditwork had been completed. GSA has instructed its regionaloffices "to seek competition for this service unless circum-stances in an individual building justify sole source pro-curement." In such cases, a findings and determination is tobe prepared and approved by the GSA Regional Counsel beforeproceeding with the procurement.

We commend GSA for this prompt corrective action andbelieve that these instructions, if properly followed, shouldresult in an increase in competitively awarded contracts forthese services.

CLEANING SERVICES CONTRACTS

GSA did not dispute our findings, conclusions, and rec-ommendations with regards to cleaning services contracts.However, GSA officials commented that they were concernedthat our statement that GSA incurred about $5 million inhigher annual cleaning costs under CPAF contracts failed torecognize the increased quality and tenant satisfaction thatresulted. GSA also commented that had it not used the CPAFcontracts, it would have incurred substantial additionaladministrative and contract enforcement costs which wouldoffset much of the cost differential.

As stated previously, some GSA officials .stated thatsatisfactory cleaning services were obtained under both theCPAF and advertised, fixed-price contracts. We were unableto determine if a higher quality of cleaning services re--sulted in buildings where CPAF contracts were used. GSA in-spection and contract administration procedures differ underCPAF and advertised contracts, and, therefore, make it diffi-cult to have a common base for comparison purposes. Forexample, many inspections by GSA personnel are required underthe advertised, fixed-price contract, whereas only a few areaccomplished under the CPAF contract because more relianceis placed on self-policing by the contractor. We believe,however, that adequate cleaning services can be providedunder advertised contracts and would result in a significant

19

reduction in the higher cleaning contract costs incurredunder CPAF contracts.

We believe that the $5 million figure is a reasonableestimate and takes into account increases in administrativeand contract enforcement costs under the advertised contracts.The table on page 12 shows that the administration and inspec-tion costs under advertised, fixed-price contracts were almosttwice that of those under the CPAF contracts. These figureswere used in the computations which led to the $5 million inhigher costs estimate. We believe, therefore, that any costdifferential attributable to contract administration andinspections has been sufficiently dealt with.

GSA officials commented that they intend to use CPAFcleaning contracts in the future only in buildings over400,000 square feet, and only when fully justified on a case-by-case basis. GSA feels that a history of award, contractadministration, and contract performance problems in a givengeographical area are valid considerations to use a CPAF on-tract.

We agree that these actions, if accomplished by GSA,will limit the number of CPAF contracts. We also agree thatCPAF awards should be justified on a case-by-case basis. Wedo not believe problems with advertised contracts in a givenarea which occurred several years ago should be used by GSA asjustification for a CPAF contract. Past problems may not beindicative of the present contracting environment. We believe,therefore, that current problems with contract award, admin-istration, or enforcement should be closely scrutinized todetermine if a CPAF contract is justified.

The GSA comments did not mention efforts being made toestablish better controls over advertised, fixed-price con-tracts through contract clauses and other techniques. GSAalso did not discuss multiyear contracting for cleaning serv-ices, wich it has advocated for several years and which webelieve would put GSA in a better position for using an adver-tised, fixed-price contract in lieu of the negotiated, CPAFcontract. We believe that, although GSA's proposed actionsmay limit the use of CPAF contracts, GSA should continue tolook for ways to increase the use of advertised, fixed-pricecontracts. We believe that the ultimate objective shouldbe for GSA to completely eliminate using CPAF contracts andtake advantage of the contract savings available under theadvertised, fixed-price contracts.

20

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21

APPENDIX II APPENDIX II

UNITED STATES OF AMERICA

GENEPAL SERVICES ADMINISTRATIONWASHINGTON. DC 204i

MAY 4 1978

Honorable Elmer B. StaatsCcptroller General ofthe Unitad StatesGeneral Accounting Office441 G StreetWashington, DC 20548

Dear Mr. Staats:

Thank you for the opportunity to review and comment on the GeneralAccounting Office (GAO) Draft Report entitled, "Increased CmpetitionCan Reduce Elevator'Maintenance and Cleaning Service Contract Costs."

We are pleased to report. that we have already taken steps to increasecorpetition for elevator maintenance contracts. A morandu ofJanuary 23, 1978, instructed our regional offices to seek competiticnfor this service unless circmstanoes in an individual building justi-fied sole source procurement. As a result of this nemrandum, weexpect that most of our future elevator maintenance contracts will becompetitively awarded.

In regard to our Incentive Type Contracts (TC), we feel that the pastproblems related to the '-ported incomnsistencies in selection of contrac-tors have already been eliminated. Procedures impleaented in August1977 provide that awards be made to the contractor in the ompetitiverange that offers the lowest price. Had this change been in effectearlier, the cost differences between ITC and fixed-price contractscited in your report would have been somewhat less.

GAD, in the report, has stated that the General Services Administration(GSA) has incurred about $5 million in higher annual cleaning costs asthe result of using ITC contracts. We are oncerxned that such a state-ment fails to recognize the increased quality which indisputably hasbeen obtained under this procedure. Such statements also fail to rec-ognize tile intangible benefits resulting from increased tenant satis-faction. The increased service and the resultant reduction of tenantoomplaints provides the Buildings Manager with additional time to devoteto satisfying other rmnagement and client needs. All of these intan-gible benefits should be considered when comparing the cost of thesecontracting alternatives. Further, we feel that, had we not used theIT contracts during the period in question, we would have incurredsubstantial additional administrative and contract enforcemsnt costswhich would have clearly offset much of the cited cost differential.For instance, we recently had a fixed-prioe solicitation in which the

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22

APPENDIX II APPENDIX II

2

six lwest bidders were eventually rejected from consideration. Theadministrative costs of handling such situations, as well as the addi-tional burden of sc[.=_hw providing service while the rejection procedureruns its due course, is a real cost in the provision of service thatshould be recognized.

[See GAO note.]

We continue to believe that the use of ITC contracts has been a sig-nificant factor in upgrading the quality of GSA's cleaning service. Wepropose to continue their use when we feel the circumstances warrant.In those areas where ITC contracts are used in the future, they will befully justified on a case-by-case basis. In this regard, we feel thata history of award, contract administration, and contract perforamanceproblems in a given area are valid considerations for an ITC contract.

As indicated in your report, we only intend to use ITC contracts inbuildings over 400,000 square feet when appropriately justified. Thiswill significantly limit the use of ITC ontracts and, we feel, accomplishthe GAO objective of encouraging the use of advertised fixed-priceontracts to the maxintm extent.

jaynoerely,

Jay SlcmeonAdministrat or

GAO note: The deleted comment pertains to a matter dis-cussed in the draft report but omitted from thefinal report.

23

APPENDIX III APPENDIX III

PRINCIPAL GSA OFFICIALS RESPONSIBLE FOR

THE ACTIVITIES DISCUSSED IN THIS REPORT

Tenure of officeFrom To

ADMINISTRATOR, GENERAL SERVICESADMINISTRATION:

Joel W. Solomon May 1977 PresentRobert T. Griffin (acting) Feb. 1977 May 1977Jack M. Eckerd Nov. 1975 Feb. 1977Dwight A. Ink (acting, Oct. 1975 Nov. 1975Arthur F. Sampson June 1972 Oct. 1975Rod Kreger (acting) Jan. 1972 June 1972Robert L. Kunzig Mar. 1969 Jan. 1972

COMMISSIONER, PUBLIC BUILDINGSSERVICE:James Shea June 1977 PresentTom L. Peyton (acting) May 1977 June 1977Nicholas A. Panuzio Sept. 1975 Apr. 1977Walter Meisen (acting) Oct. 1974 Sept. 1975Larry F. Roush Aug. 1973 Oct. 1974Larry F. Roush (acting) Jan. 1973 Aug. 1973John F. Galuardi (acting) July 1972 Jan. 1973Arthur F. Sampson Mar. 1970 June 1972

(950400)

24