The FAA announced on May 14, 1997 that it had awarded a contract for the Integrated Computing Environment - Mainframe and Networking (ICE-MAN) system to the U.S. Department of Agriculture's (USDA) National Information Technology Center in Kansas City, Missouri. This is a firm fixed-price, ID/IQ contract with a maximum value of $250M. It has a three-year base period and five one-year options. The selection was made on a best value basis (the optimum technical and cost benefit to the government). The FAA will pay for services on a fixed price for service method based on system utilization. This paper discusses the issues raised by such an award to the USDA in competition with the private sector.

1. Performance of Commercial Activities by a Government Agency

a. OMB Circular A-76 Policy: The performance of such commercial services by the USDA should be subject to the provisions of A-76. The circular states, The Federal Government shall rely on commercially available sources to provide commercial products and services. In accordance with the provisions of this Circular, the Government shall not start or carry on any activity to provide a commercial product or service if the product or service can be procured more economically from a commercial source. The award of a contract to the USDA clearly represents the provision of a commercial service by a government agency. Such a start should be, but was not, subject to the cost comparison provisions of A-76 by the USDA (if not the FAA).

b. Cost Comparison in Accordance with A-76: The USDA should have been required to conduct a cost comparison study before proposing on the ICE-MAN solicitation. Part IV of the Supplement to A-76 requires that the development of in-house government costs for such a cost comparison include all costs properly allocable to the services performed. This includes depreciation of facilities and equipment, capital improvements and indirect costs (operations overhead and G&A) of the government's support infrastructure. The government is then to solicit cost/price proposals from industry to perform the services involved. Only then may the government determine that the commercial services will be performed in house.

These costs, as noted below (see item 3(b) below), need not have been included in the USDA's bid to the FAA, but must be included in the A-76 cost comparison to determine if it is economically permissible for the USDA to initiate this commercial service activity.

c. FAA Policy: The FAA Acquisition Management System (FAMS) states the same policy at 3.8.2.2, The FAA shall generally rely on the private sector for commercial services (see OMB Circular No. A-76, Policies for Acquiring Commercial or Industrial Products and Services Needed by the Government). The award to the USDA is not consistent with the FAA's own procurement system. Further, the FAA accepts the principles of A-76 in the FAMS.

2. Procurement Process Issues

a. Lack of Recourse: The FAA is not subject to FAR or other Federal Procurement statutes (with limited exceptions). Specifically the award protest system which applies to other Federal executive departments

     • There is no independent review outside the FAA. The FAA has its own Office of Dispute Resolution.
       Section 3.9.3.2.1.3 of the FAMS states The following matters are not protestable: FAA purchases from or through federal,
       state, and local governments and public authorities....î Therefore, any protest to the FAA of an award to the USDA can be
       dismissed without consideration on the merits.

b. Lack of Prompt and Full Debrief: The FAMS does provide for notice to and debriefing of disappointed offerors. Such debriefings are not of the scope or timeliness required of other federal agencies by FASA. The debriefing only covers the SSO's Selection Decision, the debriefed offeror's evaluated standings relative to the successful offeror and a summary of the evaluation findings. They are not required to disclose the actual amount of the awarded contract or the evaluated price of the winning offeror or the technical rating of the winning offeror. Contractors would have to submit a FOIA request to get this data (with no guaranty that it would be made available even then).

c. Cost Issues: The FAA took actions which caused private contractors prices to increase:

     • Refusal to deal with amortization of capital in case of early termination of the contract for convenience or an insufficient
       period to amortize capital costs in accordance with industry standards. Prices would be affected by $300K to $500K.
     • Refusal to provide authorization to use GSA supply sources (available to Government agencies and permissible for
       Government contractors). Initial software license costs could be affected by as much as $800K and software maintenance
       costs by $1.4M.

d. Best Value/Past Performance: The USDA data center is a services organization primarily serving its parent organization. It cannot provide past performance references equivalent to a private contractor either in terms of contracts held or objective client evaluations. Therefore, past performance evaluation becomes much more subjective than objective. This is a critical issue for a ìbest valueî type selection.

3. Government/Industry Competition Issues

a. Policy Matters: Contractors are placed in the position of competing with their customers. Allowing government agencies to compete will affect how private contractors evaluate future competitive opportunities and reduce effective competition to the long term detriment of the government.

b. Cost Disadvantages: The government has inherent evaluated cost advantages, not available to contractors. In the ICE-MAN award this may be quantified as follows:

     • Initial capital equipment and software requirements would be between $10M and $12M (all costs unloaded) for a contractor.
       Contractors cannot maintain a large unused capacity in advance of anticipated business. Companies add capital resources
       as needed and allocate the capital back to the opportunity. The government can maintain excess capacity since there is
       no profit/loss accountability despite the inherent wastefulness of such a practice. Because they expense such items at
       the time of cost incurrence, they have no depreciation expense, if the capacity was procured in a period prior to the
       award. A contractor would have to carry the depreciation.

c. Technology Infusion and Refresh: A contractor is provided incentive by the marketplace to continually introduce new technology to reduce cost and improvement service if they are to remain competitive. They also will regularly refresh equipment and software for the same reasons. They do so on their own initiative with their own capital funds. The government is constrained by appropriations and is not motivated by the same market pressures.

4. USDA Award Issues

a. Current IT Performance and Management Problems: The FAA has chosen to give this critical Information Technology (IT) support to an agency which has been repeatedly and recently criticized for its inability to effectively plan for and manage its own IT investments. In testimony to the House Subcommittee on Department Operations, Nutrition and Foreign Agriculture of the Committee on Agriculture on May 14 (the same day as the official FAA announcement of the award to USDA), GAO cited case after case from 1990 to the present of mismanaged and ineffective IT projects at USDA. GAO stated that many of the problems in the management of IT resources within USDA have existed, essentially unchanged since 1981. Despite any efforts to improve the situation within the USDA which may have been recently initiated, it does not seem prudent for the FAA to rely for critical IT services upon an organization with such a persistent and documented history of management difficulty in the IT arena. Indeed, the Office of the Chief Information Officer for USDA was established in 1996 and still has only an Acting CIO.

GAO noted that USDA still has not developed a time frame or milestones for developing the policies and procedures for the operation of the CIO's office or specified what the CIOís authorities are.

b. Current IT Moratorium: On November 12, 1996, USDA initiated a Department-wide moratorium on the acquisition of IT to allow time for the design of a new IT environment for USDA. This moratorium continues on a month to month basis since this effort was not completed in February 1997 as anticipated. This raises questions as to why the FAA would award this contract to an agency that currently views itself as unprepared to make IT investments on its own behalf.

c. Best value Selection: The FAA specified three major non-cost factors for selection in order of relative importance:

     • Technical Approach and Qualifications
     • Business/Contract Management Approach
     • Past Performance

It is difficult to see in light of the above how the second and third factors could have been favorably evaluated for USDA and established a best value basis for selection.

5. Solution:

a. Cancel Award and Recompete: The FAA should cancel the award to the Department of Agriculture and recompete ICE-MAN as a conventional private-sector, best value, procurement.

b. Discontinue Public-Private Competition: Public-private competition should be discontinued especially in mission-critical areas such an information technology.