REPORT OF THE COMMITTEE ON GOVERNMENT OPERATIONS ON H.R. 4845

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP67B00446R000600050001-0
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 81
• Document Creation Date: December 19, 2016
• Document Release Date: August 30, 2005
• Sequence Number: 1
• Publication Date: August 17, 1965
• Content Type: OPEN

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Union Calendar No. 360
89th Congress, 1st Session - - - - - House Report No. 802
AUTOMATIC DATA PROCESSING EQUIPMENT
OF THE
COMMITTEE ON ' GOVERNMENT OPERATIONS"
H.R. 4845
A BILL TO AMEND TITLE I OF THE FEDERAL PROPERTY AND
ADMINISTRATIVE SERVICES ACT OF 1949 TO PROVIDE
FOR THE ECONOMIC AND EFFICIENT PURCHASE,
LEASE, MAINTENANCE, OPERATION, AND UTILI-
ZATION OF AUTOMATIC DATA PROCESSING
EQUIPMENT BY FI';DIN RAL DEPARTMENTS
AND AGENCIES
AUGUST 17, 1965.-Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
U.S. GOVERNMENT PRINTING OFFICE
50-006 WASHINGTON : 1966
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COMMITTEE ON GOVERNMENT OPERATIONS
WILLIAM L. DAWSON, Illinois, Chairman
CHET HOLIFIELD, California CLARENCE J. BROWN, Ohio
JACK BROOKS, Texas
L. H. FOUNTAIN, North Carolina
PORTER HARDY, JR., Virginia
JOHN A. BLATNIK, Minnesota
ROBERT E. JONES, Alabama
EDWARD A. GARMATZ, Maryland
JOHN B. MOSS, California
DANTE B. FASCELL, Florida
HENRY S. REUSS, Wisconsin
JOHN S. MONAGAN, Connecticut
TORBERT H. MACDONALD, Massachusetts
J. EDWARD ROUSH, Indiana
WILLIAM S. MOORHEAD, Pennsylvania
CORNELIUS E. GALLAGHER, New Jersey
WILLIAM J. RANDALL, Missouri
BENJAMIN S. ROSENTHAL, New York
JIM WRIGHT, Texas
FERNAND J. ST GERMAIN, Rhode Island
DAVID S. KING, Utah
JOHN G. DOW, New York
HENRY HELSTOSKI, New Jersey
FLORENCE P. DWYEIt, New Jersey
ROBERT P. GRIFFIN, Michigan
OGDEN R. REID. New York
FRANK J. HORTON, New York
DELBERT L. LATTA, Ohio
DONALD RUMSFELD, Illinois
WILLIAM L. DICKINSON, Alabama
JOHN N. ERLENBORN, Illinois
HOWARD H. CALLAWAY, Georgia
JOHN W. WYDLER, New York
CnRERTINa RAT DAvis, Staff Director
JAeccs A. LANIOAN, General Counsel
Muss Q. RoMNCZ, Assoclate General Counsel
J. P. CARLSON, Minority Counsel
RAYMOND T. CoLLINs, Minority Professional staff
GOvRRNMENT ACrIVITIEN SUBCOMMITTEE
JACK BROOKS, Texas, Chairman
WILLIAM S. MOORHEAD, Pennsylvania OLDEN R. REID, New York
DAVID S. KING, Utah JOHN W. WYDLER, ;yew York
DANTE B. FASCELL, Florida
ERNCBT C. BATNARD, Staff Administrator
WILLIAM M. Jones, Counsel
IRMA Real, Clerk
LYNtia HIGGINBOTHAM, Clerk
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CONTENTS
1. Purposes of the bill -_-_-_-_ ------------
II. Summary ---------------------------------
III. Discussion --------------------------------------------------
A. What is ADP? ----------------------------------------
Analog computers---------------------------------
Digital computers --______-_ -----
Binary numbers system----------------------------
ADP system made up of components________________
Mass produced components------------------------
General purpose components-----------------------
Software-----------------------------------------
Domination of ADP industry by IBM---------------
Leasing of ADP equipment------------------------
Third generation ADP-----------------------------
B. Current Government ADP management techniques-------
ADP management study by BOB in 1958 ------------
BOB management guidelines-----------------------
Ineffectiveness of guidelines-----------------
C. The need for Government-wide coordination in ADP
management---------------------------------------
Coordination fundamental to good management ------
Government-wide coordination recommended by GAO
in 1958----------------------------------------
Comptroller General recommendations in 1960 and
1963 ---------------------------------------
Report by GAO in 1964--------------
D. Effective Government-wide management of ADP provided
by H.R.4845--------------------------------- - --
Responsibilities of BOB, GSA, and the Department of
Commerce-------------------------------------
BOB control over fiscal and policy matters --____-_-__
General operational responsibility in GSA---_-__-_-__
Technical support of the National Bureau of Standards_
E. How the authority delegated in H.R. 4845 would be used to
improve Government ADP management-_---__-_
Continuous flow of recurring data provided by H.R.
4845-------------------------------------------
Optimum utilization of ADP through sharing and serv-
ice centers under H.R. 4845-----------------------
F. H.R. 4845 would provide for more economic ADP acquisition-
Strengthening of Government's bargaining position----
Volume discounts from volume procurement----------
Single purchaser concept------------------- -------
Acquisition of general purpose components of unique
systems under a volume procurement program------
Use of revolving fund provided in H. R. 4845 to obtain
volume acquisitions--------------------------
Other advantages provided by volume procurement---
Lease versus purchase evaluations on a Government-
wide basis under ILR. 4845----------------
Priority of purchase of systems with greatest purchase
advantage under consolidated procurement----__-__
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IV CONTENTS
III. Discussion-Continued
G. Ii.IZ. 4845 authorizes exemptions and permits GSA to del- Page
egate authority to agencies in the acquisition of equipment_ 33
Exemption of individual systems for reasons of national
security or defense or economy and efficiency-------- - 34
Exemption of equipment by agency heads ------------ 34
Gradual implementation of management program----- 35
H. Conclusion------------------------------------------ 36
IV. Committee amendments-------------------------------------- 36
V. Section-by-section analysis of II.It 4845----------------- ------ 38
VI. Agency reports on ILR. 4845---------------------------------- - 41
Changes in existing law made by the bill, as reported -----------------67
Additional,' views -------------------------------------------------- 76
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Union Calendar No. 360
89Tit CONGRESS HOUSE OF REPRESENTATIVES REPORT
1st Session No. 802
AUTOMATIC DATA PROCESSING EQUIPMENT
AUGUST 1.7, 1965. - Committed to the Committee of the Whole House on the State
of the Union and ordered to be printed
Mr. BRoo$s, from the Committee on Government Operations,
submitted the following
REPORT
The Committee on Government Operations, to whom was referred
the bill (H.R. 4845) to provide for the economic and efficient purchase,
lease, maintenance, operation, and utilization of automatic data proc-
essing equipment by Federal departments and agencies, having con-
sidered the same, report favorably thereon with amendments and rec-
ommend that the bill as amended do pass. The amendments are as
follows :
1. Page 2, line 1, delete ", or at the expense of,".
2. Page 2, line 12, delete "require" and insert in lieu thereof "provide
for".
3. Page 3, line 15, following the word "of", insert "equipment inven-
tory, utilization, and acquisitions, together with an account of".
4. Page 5, line 22, delete the following : "and other users".
5. Page 5, line 23, delete "requirements." and insert in lieu thereof
"requirements, including the development of specifications for and the
selection of the types and configurations of equipment needed.".
6. Page 6, line 1, delete the following: "or user".
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I3A A PROCESSING EQnIPb2EN*.p
I. PURPOSES OF TILE BILL
The findings on the. impact of ADP previously reported
herein indicate that dynamic leadership of the ADP pro-
grain of the Federal Government is a vital necessity.
Passive, partial, or informal types of leadership have had
their place., but have now outworn their usefulness.'-
199 Bureau of the Budget Automatic Data Processing
Ic'e ti ponsibilities Study.
After (i years, the typo of leadership the Bureau of the Budget
(BOB) recommended in this early automatic data processing (ADP)
inanagement, study has yet to be realized. This legislation would
establish the authority and provide the operational machinery needed.
for the elective and efficient management of this costly equipment.
During (lie years following issuance of the BOB's 1959 ADI' study,
tlle Comptroller General has issued approximately 100 audit reports
severely critical of Government ADP management. Over (lie years,
he has continuously eini hasized and demonstrated the need for Ctov-
ernment-wwide coordination in ADP inanagcment. Federal ADP ex-
lh-nditures now exceed $i billion annually and the Comptroller Gen-
eral conservatively estimates with regard to the equipment coming
within (lily management pro rain that approximately $200 million it
year can be saved through the use of long recognized and accepted
management techniques provided in this legislation.
This committee recommended similar legislation to the house on
Janie 19, 1963 (II. Relit. 428, 88th Cong.,1st sess.), and that legislation,
as amended (IL.R. 51-i 1), was approved July 18, 1963.
IT. SUMMARY
Tito Federal Government is the largest user of ADP in the world
with annual expenditures exceeding $3 billion or approximately 3 per-
cent of (lie Federal budget. There are now an estimated 2,000 com-
puter systems in use in t he Federal Government..
What is ADP
Automatic data processing (ADP) is the concept whereby a machine
or computer can accept information or "input data," process the data
according to a predetermined "program," and provide the results in a
usable form.
Data processing computers are either analog, which measure "how
much," or digital, which calculate numbers or compare nonnumerical
data encoded in digital form. Most ADP in use is digital in design,
and it is this type of equipment that, is the principal concern of the
legislation.
The heart of an ADP system is the processor or "main frame" which
contains the complex electronic circuits which accept and process data.
Tito processor in conjunction with input., output, and storage com-
ponents such as a tape unit., a card punch, a memory component, a
printer, and so forth, make up a computer system. The system is
"designed" or "configured" by combining various of these mass pro-
duced components, the combination depending on the particular needs
I "Report of Findings and Itecommendattons Resulting From the Automatic Data Proces-
sine (ADPI Rp'pennlbllities Stud(-. September 1953---Jun( 1959." Bureau of the Budget,
p. 20. Reprinted In hearings on H.R. 4845, 80th Cong., it sesa., p. 590.
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AUTOMATIC DATA PROCESSING EQUIPMENT
of the user. Most components are general purpose in design and the
system can be programed to perform various functions. About 90
percent of the computers in Government are general purpose. In ad-
dition to the "hardware," the user must also obtain the instructions
and procedures needed to operate the system. These are called "sof t-
ware" and often constitute a substantial portion of the cost of an ADP
system.
The technological evolution of ADP has entered the third genera-
tion. The first generation equipment contained electronic vacuum
tubes while the second generation equipment introduced solid state
transistors. The third generation will integrate ADP with communi-
cations systems whereby central computers of high capacity will supply
the needs of many users. Overall equipment costs will be substantially
higher but unit processing costs to the individual user will be markedly
reduced. As third generation time-sharing increases, the traditional
agency-by-agency structure of the Government in terms of ADP man-
agement will become loss apparent and less important and the costs
of any deficiencies in Government ADP management will reach stag-
gering proportions.
Current Government ADP management techniques
In the 1950's, existing management policies applicable to calculators,
punched card, and other office equipment were extended to ADP.
Bureau of the Budget (BOB) concern over ADP management was
usually limited to the annual agencywide budget review processes.
In 1958, however, BOB began a comprehensive Government "ADP
Responsibilities Study" concluding that "dynamic leadership" in Gov-
ernment ADP management was a "vital necessity." The study recog-
nized the need for specialized management of ADP, for Government-
wide coordination, and for accurate up-to-date information for all
levels of management. A subsequent BOB study in 1965 recognized
many of these same deficiencies.
Despite recognition of this need for a change in the concept of ADP
management as reflected in the 1959 BOB study, overall Government
management was limited to the issuance of advisory "guidelines" to
the various agencies by BOB. Guidelines and bulletins have been
issued on ADP feasibility studies, lease versus purchase evaluations,
inventory reports, and sharing programs.
Since 1959, the General Accounting Office (GAO) has issued about
100 audit reports revealing serious shortcomings in the acquisition
and use of ADP in various departments and agencies as well as ADP
acquired under cost reimbursable contracts at the expense of the Gov-
ernment. Most of the deficiencies constituted violations of BOB
guidelines.
The need for Government-wide coordination in ADP management
Coordination is fundamental to good management, as has been
proved in Government and business numerous times. The Secretary
of Defense has applied this concept to a number of functions of DOD
achieving significant improvements.
On four occasions, in 1958, 1960, 1963, and 1964, the GAO has sub-
mitted comprehensive ADP management studies to Congress illustrat-
ing the improvements that can be made through Government-wide
coordination in ADP management. The studies, backed up by the
specific findings of mismanagement as illustrated in almost 100 other
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audit reports, support the proposition as embodied in 11.P. 4845 that
certain aspects of Government ADP management. be coordinated on
a Government-wide basis. Through this approach, the Comptroller
General conservatively estimates with regard to the ADP equipment
that. would conic within this management program that savings of
between $100 million and $200 iaiffion annually will be realized-
wwithout compromise in user agency selection or use of equipment.
I'ffeeticc Government-wide management of 1DP provided by M.P.
1R4.J
II.R. 4815 delineates the responsibilities of BOB, GSA, and the De-
partauent. of Commerce and provides a stronger organization plan for
Government ADP management.. The bill maintains BOB's traditional
control over fiscal and policy matters. Action by any agency under
this legislation would be subject to either approval or review by BOB.
GSA, in line with its traditional authority, is delegated operational
responsibilities for coordinating Government. ADP under II.R. 48-15.
GSA would administer an ADP "revolving fund" which should pro-
vide (1) more adequate management information, (2) optimum utili-
zat.ion, and (3) economic acquisition of Government ADP.
The 'National Bureau of Standards would offer technical support
to the management; program and will work toward ADP compatibility.
'l'ade authority in this legislation would supplement the Government
research effort in coordination with other Federal agencies.
11.1t. 48,15 would provide a cantinuous flow of recurring data needed
for effective and efficient management
Presently BOB issues only an annual inventory report wholly in-
adequate for ADP management purposes. Inventory and fiscal in-
formation is needed to maintain policy and budgetary control, in-
crease utilization, and provide more economical acquisition of equip-
ment.. Under this legislation, GSA would establish such a compre-
hensive inventory. This inventory coupled with the fiscal information
flowing from the operations of the "revolving fund" would afford all
levels of Government with more adequate information necessary for
effective and efficient management. The availability of information
on prospective Government requirements should also provide for
fairer competition among all ADP manufacturers.
Optimum -utilization of Go-vernment ADP
There is widespread waste in available but, unused Government ADP
equipment tune. On June IG, 19G-1, BOB setup an ADP sharing pro-
gram under GSA. This legislation would, however, substantially im-
prove the effectiveness and efficiency of GSA's interagency coorc)inat-
ing e-fforts. GSA would also be authorized to establish multiagency
service centers to furnish ADP capacity to several users.
More economic acquisition of ADP
This legislation would strengthen the Government'sbargaining posi-
tion in acquiring ADP. The Government- now obtains no special ad-
vantages as a volume purchaser. Under the GSA supply schedules,
price. determinations and procurement are divorced. To obtain volume
discounts, the Government must have volume procurement. rather than
a piecemeal agency-by-agency procurement.
The traditionally accepted solution to this type of problem has been
the "single purchaser" concept. The. Government would be in a
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AUTOMATIC DATA PROCESSING EQUIPMENT
stronger bargaining position were all its ADP purchase and lease
money in "one pocket." Whenever, feasible, general purpose com-
ponents, including those used in specially designed ADP systems,
would be acquired under a volume procurement program. Government
software acquisition could also be subjected to more orderly procure-
ment procedures.
The revolving fund would be used to consolidate volume acquisitions.
t
f
d b
h
l
e managemen
o
y t
ecte
GSA would acquire the ADP systems se
the agencies and, in effect, the agencies would then lease equipment
from the GSA revolving fund reimbursing the fund periodically at
rates reflecting the use value of the equipment. GSA could obtain
direct appropriations covering overhead expenses incident to oper-
ating the revolving fund.
Useful life to the Government as a whole
In addition to volume procurement, Government-wide coordination
would provide an effective means for making "lease versus purchase"
evaluations on the basis of the benefit to the Government as a whole.
Lease versus purchase evaluations should be made from the standpoint
of the estimated useful life of the equipment to the Government as a
whole rather than the estimated period of application of the initial user
agency. At this time, lease payments generally equal. the cost of owner-
ship within 21/2 to 41/2 years although the useful life of most ADP
equipment is estimated at between 5 and 10 years. The Government
has countless needs for ADP and the GAO logically suggests that
the estimated period of application by the initial acquiring agency
may not constitute a realistic estimate of the economic useful life to
the Government as a whole. It is not unrealistic that officials cogni-
zant of Government inventories and needs could not, on a sound, busi-
nesslike basis, attribute secondary usage potential to selected systems
which have long-range utilization within the Government. Too often,
at present, the Government in a period of from 2 to 5 years pays rentals
approximating or even exceeding the purchase price-but ends up not
owning the equipment which might have considerable economic life
in it. And, assuming that some further utilization did not develop,
the Government could got the benefit of some return on investment
through the sale of the equipment as surplus property.
The revolving fund would have other advantages. As an example,
those systems with the highest comparative purchase advantage for the
Government as a whole could be purchased while systems offering less
purchase advantage could be leased. There may not always be suffi-
cient capital for the Government to purchase all its ADP which should
be purchased. Budgetary considerations and funding problems in the
agencies should not interfere with the. purchase on a priority basis of
that equipment having the greatest purchase advantage.
Exemptions for national security and defense
H.R. 4845 is aimed at general purpose commercially available ADP
systems and components. Specially designed components forming a
part of tactical weapons or space systems which have no general pur-
pose applicability are not involved in this program. However, gen-
eral purpose commercially available ADP components used in con-
junction with specially designed components and as parts of systems
with unique scientific, cryptoloaic or military applications would
1ppro`v-e`We ome within provisions of this regislation for acquisition, inventory
t. 802, 89-1 --2
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control, and potential se0ondarv usage although such components or
systems might not be available for sharing.
'flee A,lminisirator of GSA is authorized to exempt individual sys-
tems fruin provisions of this prograni to avoid compromise of our n11-ti ioua-l security or defense and to assure economy and efficiency. 'As this
(`lit ire nt:5nagenu'nt proirram would be under the policy control of the
1 t)H and the express direct ion of the President, it is not necessary or
advisahle to authorize discretionary authority in agency heads to ex-
enlltt. equipment from the program."The Administrator is further au-
thorized to delegate authority extended him under this legislation to
the extent, he considers necessary and desirable for the orderly imple-
nlcntat ion of the program.
(.'nnrhtsion
'1'ltis legislation is essential to effective Government ADP manage-
mnent.. Based upon two comprehensive B013 ADP management stud-
ies, about, 100 (general Accounting Office. audit, reports, and 3 years of
active investigation by this committee, the, time has cone for Congress
to take reasonabla but effective action to assure the establishment of
efficient. ADP management in Government.
The Federal Governmennt, is the largest user of automatic data, proc-
essing in the world. Annual Federal ADP expenditures exceed $3
billion, or approximately 3 percent. of the Federal budget. The tax-
pavers' present investment in ADP is unknown. But, at this tine,
ADP usage in the Goverluuent is doubling about every 3 years and
is expected to increase indefinitely.
The first all-electronic computer was constructed during World War
II and delivered to the Army Ordnance Corps in 1945. iTNIVAC I,
the first, computer with general data processing capability, was in-
starlled at the Bureau of the Census in 1951. In 1954, there were 10
computer systems in operation within the Federal Government. By
1962, tlko number had increased to 1,000. There are now at least 2,000.2
And, these figures do not include an estimated 1.000 to 2,000 systems
ecnt.ractors have either leased or purchased at the Government's ex-
pense. Nor do these totals include computer components forming a
part of tactical weapons and defense systems or operational elements
in missile and space vehicles which are not. included under this manage-
ment program.
Automatic data processing is the concept whereby a machine or com-
puter can accept information or "input data," process the data accord-
ing to a predetermined "program," and provide the results in a usable
form. In an automatic data processing system, the electronic corn-
pater is the heart or focal point of the system. An ADP system con-
sists of a number of components including input, processing, storage,
and output. devices. Data processing computers are either analog or
digital in design.
215764 inventory of Antonintte Data Processing Equipment In the Federal Government,
Purenu of the Buc)get, July 1004.
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Analog computers measure "how much." Analog computers use
electric current coupled at times with mechanical devices to simulate
the variable factors of some action, circumstance, or phenomenon
which cannot be effectively measured or evaluated directly, or the fac-
tors of some hypothetical problem or mathematical equation. The
analog computer correlates the relationship between these factors and
furnishes a measure or magnitude (how much) of whatever resultant
the computer operator seeks to obtain. In the past, analog computers
have been principally used in scientific work and make up only a small
percentage of the computers now in use.'
DIGITAL COMPUTERS
Most computers are digital in design. Digital computers calculate,
compare, and process information. They are essentially electronic,
arithmetical., calculating machines with the additional capacity to
compare, arrange, sort, store, and identify data. Digital computers
can be used in any area of human endeavor where computations are
required or information of any kind has to be processed or simulated.
The basic concept of the digital computer has long been recognized
and is relatively easy to understand, but the electronic circuitry and
the manufacturing techniques implementing these concepts are new
and exceedingly complex.
Digital computers generally use the binary (base 2) numbers system
rather than the decimal. (base 10) system we normally consider as the
only natural approach to arithmetic. Theoretically, a digital com-
puter might be designed to any numbers base. However, the binary
system is easiest. Only combinations of two symbols, "0" and "1",
are needed to express any number-no matter how large. Under the
decimal numbers system, 10 different symbols are used to represent
the series of magnitudes from zero to nine. Then for magnitudes of
10 and above, these same unique number symbols are simply reposi-
tioned. The binary system follows the same approach except that the
reuse of symbols begins with "2" rather than "10", as follows:
Decimal : Binary
0--------------------------------------------------------------- 0
1----------------------------------------------------------------- - 1
2-----------------.----------------------------------------------- 10
s ---------------------------------------------------------------- 11
4----------------------------------------------------------------- 100
5----------------------------------------------------------------- 101
6----------------------------------------------------------------- 110
7----------------------------------------------------------------- 111
8----------------------------------------------------------------- 1000
9---------------------------------------------------------------- 1001
10----------------------------------------------------------------- 1010
11----------------------------------------------------------------- 1011
8 "The 'Assault' on Fortress IBM," Fortune, vol. LXIX, No. 6 (June 1964) p. 207:
"There is the analog-computer industry, whose 1963 volume was around $45 million and
whose sales are growing at better than 15 percent a year. The analog unlike the digital
computer does not count sequentially and has no memory, but it compares many quantities
simultaneously, and so provides a swift way of looking at a complex system all at once,
in 'real time.' It is indispensable in such jobs as military fire control, and is much used
in simulation. The IBM of the analog-computer industry is Electronics Associates of
Long Branch, N.J., which last year earned about $2,200,000 on $29 million sales. Some
others in the field are Beckman Instruments, Veeder-Root, and Westinghouse."
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The advantage of the binary system is also that the "0" and the "I"
tie in neatly with the mechanical and electronic concepts around which
the computer and its satellite components are designed.
ADP SYSTfi1E MADE i"I? UI' COMPONENTS
Various components make up an tl3P system. The principal com-
ponent of the digital computer is the processor or "main frame." The
processor contains complex electronic circuits which can accept and
process digital information. In simplest t.eriiis, each of these electric
circuits contains a switch. The switch may be closed or open, and
depending on the position, electric current flows or does not flow
through t1 le circuit. The position of the switch and the flow of cur-
rent. correspond to the "0" and the "1" of the binary numbers system.
The processor or main frame accepts "input" information usually
fed into it from punched cards or magnetic tape components. On the
punched cards at predetermined locations there is either a hole through
which an electric contact can be made, or there is the absence of a hole
so no electric contact can be made. Similarly, on magnetic to ie there
is either a magnetized spot or the absence of such a spot. On both
the card and the tape, the presence or absence of a hole or magnetized
spot corresponds to the binary numbers system symbols, "0" and "1,"
and, therefore, the open or closed circuit described above.
The processing unit, having received the information, processes the
information according to the programed arrangement of the electronic
circuitry, This program of instructions, together with part of the
data to be processed, is stored in the computer system's memory com-
ponent. In the most popular type of memory component, tiny ferro-
imtgnetic cores are used. Tln'se are either positively ar negatively
magnetized, depending upon the direction in which electricity passes
through them. As in the case of the other components described
above, these two conditions likewise correspond to the "0" and the "1"
in the binary numbers system.
One informational channel consisting of one series of these units-
that is, a single circuit, one memory core, or one position on a card or
tape--would have practically no processing potential. But use of a
group of these informational channels, in parallel, provides this poten-
tial. With the addition of every inforimitional channel in the proc-
essor, a larger digital number can be handled. The combinations pos-
sible through the use of several parallel channels are sufficient to en-
code each of the letters of the alphabet. As a result, large numbers
and words can be fed into and processed in the computer. Further-
more, in a memory component, hundreds of thousands of cores can
be arranged to store and retrieve vast amounts of digital data or en-
code first letters, then words, and thereafter long progressions of
information.
After processing, the information obtained is transferred to an-
other computer unit, the "output" component, which may be a tape
unit, a card punch, a printer, or some type of visual display. If
necessary, this unit can translate the information from binary terms
into words, the decimal system, or some other usable form. Or, rather
than "reading out" its results, the digital computer can be a part of
a control system wherein information is fed into the processor on a
"real time" basis and the results almost instantly transferred to some
control mechanism.
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AUTOMATIC DATA P OC
Certain digital computer components are also used in conjunction
with special scientific elements of unique design for scientific studies
and investigations. Also, computers, or components thereof, may be
coupled with cryptologic devices in security or intelligence work.
MASS PRODUCED COMPONENTS
ADP manufacturers mass produce the various- components that
make up a computer system. ADP systems are "configured" 4 (at-
tached by cables and essentially "plugged" together) by combining
the mass produced components previously described necessary to meet
the requirements of a particular user. The task to be performed de-
termines the arrangement, number, and type of components that make
up a computer system. For economic and competitive reasons, only
the smallest systems are designed and manufactured as a single unit.
Since a system is made up of separate components, the customer is not
asked to pay for punched card, to e, memory, printer, or other com-
ponents or capacity not needed in his particular application.
GENERAL PURPOSE COMPONENTS
Most ADP components are general purpose in design and can be
used in a variety of applications. Most digital computer systems can
be programed to perform. a wide variety of functions-administrative
and technical. That equipment designed to be used in these various
systems for the performance of different functions is known as "gen-
eral purpose" equipment. About 90 percent of the computers in Gov-
ernment are general purpose. The table on the following page has
been included as an indication of the varied applications of the general
purpose ADP systems of which the Government has 10 or more. Spe-
cially designed equipment for unique scientific and technical purposes
has been decreasing. Computer manufacturers constantly strive for
flexibility in the design of their components in order to give them as
broad a potential application as possible.
Under the concept of "general purpose" equipment, the combination
of mass produced components can be easily altered to perform any
task within the basic system's maximum capacity without rebuilding
the processor or internally modifying the individual component parts
even though the system may have been originally configured to per-
form one particular narrow function. If additional memory is needed
for a new application, additional memory components can usually be
added. If additional reading capacity is required, additional punched
card or tape units can be obtained. Similarly, unnecessary compo-
nents can be easily discarded.
SOFTWARE
Once a user has acquired an ADP system, complexities arise relat-
ing to its use. ADP systems require complex instructions to operator
and machine. Operations must. be charted in proper sequence and
the system set up or programed to perform the necessary functions
to achieve the desired result. To fulfill the needs of many users there
are also "canned" programs written for general application which
often require only minor revisions for any particular application.
4 The term "design" is sometimes used to denote what is really configuration. A com-
ponent is "designed" by the manufacturer to operate in a certain manner. A system is
"configured" by combining the components into an arrangement for a particular application.
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The ancillary techniques and aids needed for proper utilization of all,
ADP system are commonly referred to as "software." In most in-
stances, manufacturers' sale and lease prices include software. The
costs attributable to software in the case of some ADP equipment
may exceed that of the "hardware" or, in other words, of the compo-
nents of the system.
D03TINATION OF ADP INDUSTRY BY IBDT
There have been some 23 American ADP manufacturers, of which
about 20 are currently manufacturing equipment which has been
ordered. There are approximately 25,000 computers 5 of American
manufacture in use in the world and an estimated 10,000 additional
systems on order. International Business Machines (IBM), although
operating under a 1956 antitrust consent decree e dominates the mar-
ket with about 75 percent of the business.' UNIVAC Division of
Sperry Rand, Burroughs, Control Data Corp., RCA, Honeywell,
National Cash Register, and General Electric are other principal
suppliers. Other manufacturers include : Addressograph-Multigraph
Corp., Advanced Scientific Instruments, Autonetics, Bunker-Ramo
Corp., Clary, Computer Control Co., Digital Equipment Corp., Fri.den,
ITT, Monroe Calculating Machine Co., Philco, Raytheon, and Scien-
tific Data Systems, Inc.8
LEASING OF ADP EQUIPMENT
Following a practice originally favored by ADP manufacturers in
the 1950's, a large percentage of ADP equipment is leased. Monthly
lease rates can be as low as several hundred dollars, but increase
sharply with the size of the system, Monthly rentals of from $25,000
to $75,000 are not uncommon. Some of the more complex, sophisticated
systems have monthly rentals of from $80;000 to $100,000. Purchasing
prices vary in a corresponding degree, beginning with as low as $25,000
and going as high as several million dollars for one system.?
ADP systems are designed to operate on athree shift per day, round-
the-clock basis. For most equipment used in Government one hundred
and seventy-six hours per month (8 hours a day times 22 working
days) is considered one shift. Although leasing agreements vary from
manufacturer to manufacturer, the user pays for this basic-shift time
as well as for use of the equipment in excess thereof. In the last 2
to 3 years, while ADP lease and purchase prices have been otherwise
5 "Monthly Computer Census," Computers and Automation (April 1965), p. 56.
E U.S. v. IBM (Civil Action 72-844, So. Dist. N.Y.), final judgment entered Jan. 25, 1956 ;
subsequent order entered Jan. 14, 1963.
7 Fortune, op. cit., p.113.
8 "Monthly Computer Census," op. cit.
U Apparently all Government leases are with the manufacturers. In leasing to private
industry, the manufacturers are now experiencing some competition from ADP leasing
firms. According to Fortune magazine :
"They [the leasing companies] operate on the premise that a computer at the right price
has a longer economic life than is assumed in the manufacturer's rentals, which recover
the list price of the machine in 45 to 50 months. The leasing companies buy the used
machines at a discount and rent them to customers at reduced rates. Largest in the field
seems to be Boothe Leasing Corp., a subsidiary of Greyhound Corp., whose most popular
plan provides a minimum saving of 10 percent. Boothe does not plan to recover its
investment from its first customer with such a deal, but expects ultimately to find another
home for the machine ; and it offers various schemes that encourage the renter to use the
computer intensively. The rate for the first 3 years. for example, may provide little sav-
ing's if the machine is used only one shift during the day. But it is cheaper than the
manufacturers' rates for two shifts, still cheaper for three shifts. In any event, after
the third year the rent goes down steeply. Such plans, if popular, could upset the indus-
try's current price structure, which compels a company to pay just as much rent for a
6-year-old machine as for the same model brand-new" (Fortune, op. cit., p. 207).
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immune from normal competitive forces, there have been reductions
in extra-shift lease rates, and in some cases extra shift charges have
been eliminated.
TiIIRtt GENERATION Ant'
'l'Ite early 1Dl systems of tie 195U's with thorisands of electronic
vacniim mixes requiring extensive air contlit lolling capacity to keel)
diem at a satisfactory temperature level were large and cumber:-onus.
These vacnine tube systems are referred io as "first generation" equip-
ment. In the lace 195l)'s, ADP entered the "second generation" wheii
small solid state transistors replaced the vacuum tubes which lessened
(Ile need for vast air conditioning capacity to keep the equipment cool.
This led to improved construction techniques which, coupled with ad-
vancing circuitry design and other improvements in the "state of the
art," resulted in equipment of increasing speed and capacit}. Most of
the equipment. now in use is "second genes^ation."
The "third generation" is close at hand. As one leading ADP ex-
pert described this coming generation:
huge new machines with fantastic memories and aritli-
niet.ical capabilities linked to numerous smaller satellite ma-
chines and serving literally dozens of users simultaneously,
ago on the horizon at even lower cost.['
With the arrival of third generation ADP equipment, conuuunica-
tions systems will link large, fast, bight-capacity data processing sys-
fonts to oflices and laboratories of numerous users. These users, instead
of acquiring an AI)P system or visiting an ADP service center, will
feed problems or information to be processed into the central computer
system over a conilnunieat.ions system. The user would have installed
in his office or laboratory an input-output component no more
conspicuous than commonly used teletype units found in business of-
fices throughout tic world. The user could either receive an im-
mediate response over this unit installed in his office or laboratory
or the information could be accumulated for periodic processing, re-
corded on tape or punched cards at the ADP center, or a printed
response could be prepared at the center and mailed or otherwise
delivered, to him.
The technical and economic feasibility of this linkage of ADP with
conununications has been proved. The ever-increasing complexities
of business and Government demand the fuller exploitation of ADP
potential in practically every field of human endeavor. The economics
of 1DP design and ntanufactin-c make this third generation approach
inevitable. However, second generation, or even earlier equipment.
will not, become obsolete overnight. :Yost equipment leas an economic
useful life which extends far beyond the point of its technical obso-
lescence. In a narrow sense, at present almost any ADP system, by
the tinge it is off the drawing boards and in production, is technically
obsolete. A determination to change equipment for some more ad-
vanced system should be based on the need for larger and faster
capabilities. All ADP applications will not rev uire the most ad-
vanced capabilities thereby justifying the additional expense-part icu-
larly if the costs of the older equipment have been fully amortized.
1O Robinson, Dr. Herbert W., "The Outlook for the Automafle Data Processing Tndustrv
and the Role of C.E.T.R.. tar." Remarks before the New York Soeietc of Security Analyst.,
Nov. 1[;, 1964. Sue hearings on n.lt. 4s45. p. 210.
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AUTOMATIC DATA PROCESSING EQUIPMENT 13
Thus, the advent of more advanced systems with greater speed and
capacity will not abruptly diminish the economic value opresent
ADP. A gradual change, however, is inevitable.
Larger computers are more efficient per unit of work. They process
information faster and have larger processing capacities-but they
cost more. So, to obtain the efficiency inherent in these larger new
computers, they must be kept busy. As a result, fewer units of
Government (or business or industry) will have sufficient requirements
for processing capacity to justify sole utilization of individual systems.
The potentials of the larger computers now in the offing which can
be integrated with communications .is so great that full utilization of
one system's maximum capability is sufficient to fit the needs of
scores of potential users. And, the use of the maximum potential of
a third generation system under conditions of optimum efficiency
can result in a phenomenal reduction in ADP costs to individual users.
This greater potential and lower cost cannot be ignored by either
business or Government.
As third generation time-sharing increases, the traditional agency-
by-agency structure of the Government in terms of ADP- management,
will become less apparent and less important. Systems design will
depend more upon the functional requirements of the users than their
identity or jurisdiction. The need for Government-wide evaluations
as to acquisition and utilization of equipment will become so pro-
nounced as to make any narrower approach prohibitive. The waste
inherent in unused potential and errors in application or equipment
selection will be staggering.
B. CURRENT GOVERNMENT ADP MANAGEMENT TECIINIQUES
At this time, ADP has many varied applications in the Federal
Government. As classified by the Bureau of the Budget,lt present
applications fall into the following general categories : material, facili-
ties, financial, personnel, and natural resources management; opera-
tions; operations control and support; scientific; and engineering. For
the most part, the Government ADP listed in the nontechnical cate-
gories is used to perform cumbersome, routine administrative tasks
involving large volumes of data. Without.considering any classified
applications in defense and security agencies, comparatively little Gov-
ernment ADP is part of advanced management systems directly in-
volved in the decisionmaking process.
During the 1950's, existing management policies applicable to cal-
culators, punched card, and other office equipment were extended to
ADP. BOB concern over ADP management was usually limited to
the annual ageneywide budget review processes.
BOB policy responsibility for department and agency management
falls within two distinct though closely related areas. First, under the
Budget and Accounting Act of 1921, as amended,12 and the Budget
and Accounting Procedures Act of 1950, as amended,13 the BOB is
authorized to "* * * assemble, correlate, revise, reduce, or increase the
requests for appropriations of the several departments or establish-
ments." In other words, the Bureau of the Budget maintains the
power of the "purse strings;" and, collaterally, has responsibilities to
111964 Inventory of Automatic Data Processing (ADP) Equipment in the Federal Gov-
ernment, Bureau of the Budget, July 1964.
42 Stat. 20 : 31 U.S.C. I.
64 Stat. 832 ; 31 U.S.C. 1.
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investigate, coordinate, and improve the management of the various
departments and agencies.
In 1958, BOB tool: note of the nrlnv- spccifie problems inherent in
A1)P uuttnagenlent. III September of Mutt year an 'ADP Respon-
-;ihilit ies Study" was begun, to be eomlilctecl in 'June the following Fear.
'l'lle firstlings and recommendations io this 1959 BOB A1)P study,
portioris of wliirii are quoted throughout this report," constituted a
realistic evaluation of what was wrong, with Government AI)I' lnan-
ageinent at that time and what lead 1o be done. The study recognized
the need for specialized lnana cement of ADI', for Government-wide
coordination, and the fmidanlental importauce of accurate, up-to-date
information for all levels of nlanageincnt, `'I)y--unti(c leadership"
in Governlnent ADP management was found to be a "vital Necessity.''
And. as long ago as 1959, this BOB study concluded that "passive,
partial or infortual types of leadership have Lind their place but have
now outworn their usefulm'ss,"'?
Unfortunately, the concept of "dynamic leadership" envisaged in
this early report never came about. To a significant degree, the
recommendations in this 1959 study were to be repeated in a sub-
sequent study BOB undertook almost 6 years later."' The principal
14 For the complete text of the "Report of Findings and Recommendations Resulting
from the Automatic Data Processing (ADP) Responsibilities Study, September 1058 to
June 1959 (conducted under the direction of the Bureau of the Budget)' see hearings on
ILR, 4845, p. 507.
16 1959 BOB ADP study, p. 20.
1? The 1959 BOB study contemplated that BOB would undertake the following:
"The Bureau of the Budget with the advice and assistance of agencies will as-ert broad.
general leadership and coordination of the ADP program in the executive branch. This
will Involve Government-wide responsibility for the following:
"(1) Using established lines of communication, existing organizational relationships and
Its membership on the Policy Committee for the Joint Accounting Improvement Program
and other such groups to insure effective internal and Government-wide coordination of the
ADP program with related programs and activities.
"(2) Formulating and promulgating policy, criteria, and planning guidance for the ADP
program of the Government.
"(8) Planning and coordinating the implementation of Government-wide ADP orienta-
lion and training.
"(4) Establishing Government-wide formulas for costing ADP applientions and review-
Ing and analyzing summary cost data In terms of dollars and of manpower utilization.
"(5) Fostering, promoting, and coordinating the interagency sharing of ADP equipment.
"((:1 Developing sperifle plans for an experimental computer service center and, If
deemed feasible, taking action to assure the creation and operation of the same.
"(7) Coordinating ADP research and development programs of the Government.
"(8) Providing leadership In a Government-wide effort to alleviate tine problems of in-
comppntibilit of ADP equipment.
"(0) FostFering and promoting studies which will lead to minimizing the vulnerability of
ADt' equipment to sabotage, enemy attack, or natural disaster.
"(10) Operating a Government-wide ADP Information Exchange.
"(11) Sponsoring the continuation of the Interagency Committee on ADP and assuring
Its effective utilization.
"(12) Reviewing and assessing progress of ADP programs In selected agencies and for
the Government as a whole.
"(13) Fostering and promoting desirable standardization In ADP systems which are
common to all agencies.
"(14) Using existing information sources and obtaining such additional summary infor-
mation as may be e&mential to the effective performance of the responsibilities assigned"
(1050 BOB ADP study. p. 4 : hearings on H.R. 4845, p. 574).
The 1005 BOB study contained the following recommendations relative to the BOB :
"in the development and application of policies. guidelines, and criteria, the Bureau of
the Budget will use a classl Rea I Ion system which recognizes the essential differences among
enmputer Installations. The pattenm of classifleation suggested by the analysis made dur-
ing this study will serve its the basis for developing this system."
"1. The Bureau of thu Budget will develop a broadly based program of continuous evalu-
ation of computer systems, to provide an assessment of accomplishments and to serve as a
recurring source of Information for the development or revision of policies and guidelines.
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reason why the management concepts in the 1959 BOB study were
not fully implemented was the need for legislation. The study recog-
The responsibility for conducting evaluations and preparing appropriate reports will rest
with the agency heads, in accordance with their normal management responsibilities.
"2. The Bureau of the Budget will develop criteria to assist in evaluating both systems
design and various aspects of system performance."
CHAPTER 3
"1. The Bureau of the Budget will establish an interagency group to study and develop
cost principles to be applied uniformly by agencies in establishing prices for shared com-
puter time and services.
"2. The Bureau of the Budget will continue its evaluation of the service center concept
to determine a proper course of action to be taken.
"3. The Bureau of the Budget will, with the assistance of the major agencies concerned,
undertake a study of the problems associated with the use of contractor organizations for
providing services related to electronic data processing activities, with a view toward
developing policies, guidelines, or actions that the study may indicate are needed."
CHAPTEn 4
"1. The Bureau of the Budget will provide for the publication of criteria, guidelines, or
regulations covering the selection of electronic data processing equipment. It will do this
through new issuances or by expanding upon current issuances, covering the following
subjects :
"a. The preparation of system specifications, including benchmark problems, to be fur-
nished equipment suppliers in requests for proposals.
"b.
Evaluation of suppliers' proposals.
"c.
Compatibility considerations.
"d.
Consideration of excess and surplus equiI~ ment.
"e.
Distinctions to be made between additions, replacements, and modifications when
selection policies and criteria are applied.
'If. Interagency sharing of experiences in the selection and performance of equipment."
CHAPTER 7
"1. The Bureau of the Budget will assume overall leadership of an executive branch pro-
grain for the standardization of automatic data processing equipment and techniques for
its use. In the fulfillment of this responsibility the Bureau will :
"a. Establish standardization policies and objectives.
"b. Insure that the American Standards Association program for the development of
voluntary American standards for automatic data processing equipment and techniques
receives more adequate support by the Federal Government.
"c. Provide for appropriate Government use of American ADP standards approved by
the American Standards Association, when it is in the best interests of the Government
and the Nation to take this action.
"d. Provide for the approval and implementation of Federal ADP standards in those
instances in which the needs of the Government would not be served by adoption of volun-
tary American standards approved by the American Standards Association, or interim
standards are needed pending adoption of an American standard."
"3. The Bureau of the Budget will assume overall leadership of a program for the
standardization of data elements in common use in the Government and the codes used to
represent those elements. In the fulfillment of this responsibility the Bureau will :
"a. Invite agencies to submit information and recommendations concerning data ele-
ments in common use that should be considered for standardization.
"b. Assign responsibility for the studies necessary to establish the feasibility of stand-
ardization of data elements and codes.
"c. Make provision for the approval and implementation of standard data elements and
codes, the use of which involves two or more agencies.
"d. Make provision for the revision of standard data elements and codes when circum-
stances justify this action."
CHAPTER 0
"1. The Bureau of the Budget will revise its current policies to provide that (a) estab-
lished criteria with respect to the purchase or rental of automatic data processing equip-
ment shall be applied in determining costs to be reimbursed under cost-reimbursement
type contracts, and (b) agencies will include equipment operated by their cost-reimburse-
ment type contractors in antra-agency sharing arrangements.
"2. The Bureau of the Budget, in cooperation with the Department of Defense. National
Aeronautics and Space Administration, Atomic Energy Commission, General Services
Administration, and other agencies will undertake the development of reporting procedures
to obtain an inventory, together with related data on costs, of automatic data processing
equipment and services provided under cost-reimbursement type contracts. This informa-
tion should be incorporated in the ADP management information system recommended in
chapter 10."
CHAPTER 10
"The Bureau of the Budget will undertake the development of a broadly based ADP
management information system as a matter of high priority, and will seek the advice and
assistance of those agencies most vitally concerned, including agencies with Government-
wide responsibilities, such as the General Services Administration and the Civil Service
Commission."
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nized, but did not emphasize, the possibility that legislation might
be necessary. Those making the study were perhaps unrealistically
optimistic in believing that a, program of the magnitude they en-
visaged involving all agencies of Government and billions in tax
funds could be brought about without statutory definition of the
"clear delineation or responsibilities and [t.110] organization plan" they
considered essential. The 1959 BOB AM' study was strong and
clear as to what had to be done, but relatively weak and ineffective as
to how to do it.
BOB )has issued .ADP management "`guidelines." In March 1960,
BOB issued Bulletin 60-6 entitled "Guidelines for Studies To Precede
(lie _~ccluisition of Automatic Data. Processing 1?aluipnient."' These
guidelines generally conformed to the contents of a letter tits Comp-
troller General haul addressed to the various executive departments
and agencies in September 1957. This information concerning the
need for and the nature of _ ,I)P feasibility studies was undoubtedly
of value to the various agencies. But, Bulletin 60-6 made it. clear
that. the guidelines were advisory and that. there was no requirement
that agencies contemplating the acquisition of ADP follow this rec-
olnntell tied evaluation procedure.
Some IS months later, in October 1961, tine BOB issued Circular
A-54 outlining "Policies on Selection and Acquisition of Automatic
I)alat I'rucas.siug (_AI)P) I;quiptiient..""" The principal factors dis-
cussed in this circular were:
1. 'l'he desirability of selecting on the basis of exact svsleni
spec'i lic,tl lofts,
2. That. equal opportunity and appropriate consideration
should be afforded all manufacturers who offer equipment capable
of meeting systems specifications.
t. That two primary factors should he considered in (lie selec-
t null of equipnicut : (it) its capability to fulfill system slecifica-
t iotts, and (li) its overall costs.
-l. The need for effective lease versus purchase evaluations.
On Ai farclh 14, 1962, the BOB directed agencies to furnish annual
reports on their -Dl' inventories as well as limited information as to
ADP utilization. In August 1963, BOB published Circular 1-61,
essentially a more comprehensive statement of the Bureau's ADP
management guidelines and consisting substantially of the earlier
guidelines referred to above."
Subsequently, BOB has issued other circulars relating to ADP con-
cerning matters other than management policy-the establishment of
an experimental sharing exchange and computer service center (Bul-
letin 64---9, fan. 2, I964),20 and an ADP sharing program (Circular
A-27, June 15, 1961) under the responsibility of the Administrator
of General Services."'
Also, in February 1965. slue BOB submitted a "Report to the Presi-
dent on the Management of Automatic Data Processing in the Federal
All Pin rirculars. bulletins, and other directives relating to APP are set forth in
app. 13 of the hearings on 11.11. 4S45, p. 270.
Ihld., p. 2SG.
Ihid., p. 202.
Ihtd., p. 317.
Ibid., p.,'0.
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AUTOMATIC DATA PROCESSING EQUIPMENT 17
Government," 22 surveying some of the more serious ADP manage-
ment problems and containing a series of recommendations to, deal
with them. On March (1, 1965, BOB issued Circular A-71 implement-
ing these recommendations and delineating the responsibilities for
ADP management as between the BOB, the GSA, and the National.
Bureau of Standards.23
INEFFECTIVENESS OF GUIDELINES
Since 1958, up to the time of the hearings on II.R. 4845, the GAO
had issued approximately 100 audit reports to agencies, congressional
committees, and to Congress revealing serious shortcomings in the
manner in which specific agencies acquired and/or utilized ADP
equipment 24 The mayor deficiencies cited in these reports have been:
(a) Inadequate feasibility studies.
(b) Uneconomical and ineffective equipment utilization.
(c) Overpayments resulting from inadequate management
practices.
(d) Uneconomical procurement of equipment.
Excluding the 29 reports dealing with inefficiencies in the manner
in which ADP equipment has been acquired by certain Government
contractors, most of the deficiencies outlined in this series of reports
constituted violations of BOB guidelines, or otherwise demonstrated
the need for a more effective management system based upon a broader
Government-wide coordinated approach. These reports, aimed spe-
cifically at the independent operations of individual user agencies,
have demonstrated that guidelines of an advisory nature and without
provisions for effective review or "feedback" of information as to
agencies' compliance or the need for policy changes do not meet the
Government's ADP management needs.
C. THE NEED FOR GOVERNMENT-``TIDE COORDINATION IN ADP
MANAGEMENT
COORDINATION FUNDAMENTAL TO GOOD MANAGEMENT
There are countless examples. of the benefits of coordination in
business and Goverlinien t. In recent years, for example, the Secretary
of Defense has achieved significant improvements in operations and
large savings in tax funds by consolidating the management of defense
logistics and other defense support functions.. On January 29, 1962,
in hearings before the House. Subcommittee on Defense Appropria-
tions, Secretary McNamara said :
One of the most productive fields for the economic appli-
cation of centralized management is in the provision of
common supplies and related services to all the military
departments.
After a rather comprehensive study of this entire problem,
we came to the conclusion that considerable economy and efli-
22 "Report to the President on the Management of Automatic Data Processing in the
Federal, Government,'. p by_the Bureau. of the Budget (March 1965) : this report
has been printed as S. Doc. 15, 89th Cong., 1st sess. ; subsequent page references in this
report will be to the Senate document.
28 Bearings on R.R. 4845, p. 853.
24In app. B of the hearings on B.R. 4845 is a summary of the most significant of these
reports.
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18 AUTOMATIC DATA PROCESSING EQUIPMENT
ciency could be gained, if all common supply management
activities were consolidated in a, single agency.2a
This philosophy has been applied to a number of functions in the
Defense Department, including intelligence, communications, and,
under the Defense 'Supply Agency, the coordination among the serv-
ices of aj proximately $3 billion of industrial-type production erluip-
nient which the. Government owns and furnishes defense contractors
for use in Government work.
On March 28,1963, in hearings before the Joint Economic Commit-
tee, the Secretary pointed out that (lie concept of consolidated man-
agement need not be limited to the Defense Department:
The basic principle that there should be a single agency to
procure and manage common items of supply or services for
all users is, as this committee has repeatedly pointed out, as
valid for the Government as a whole as it is for the Depart-
ment of Defense. Therefore, in our own efforts to obtain
greater efficiency through the consolidation of common logis-
tics support activities, we should not restrict ourselves to
Defense agencies alone. Whenever we find that it is more
economical to use the capabilities or facilities of other Gov-
ernment agencies, with no loss in military effectiveness, and
at the same or less cost, we should not and have not hesitated
to do so.""
General purpose ADP is a "common item" throughout the Federal
Government.. While the coordinated Government-wide management
system provided in II.R. 4845 may not provide the same degree of
centralized management of ADI' as the Secretary has applied in the
various defense support areas referred to above, the same principles
apply. For this reason, there is no legitimate reason why the Govern-
ment should not obtain the benefits inherent in a Government-wide
coordinated approach to ADP management.
Go-'ERN_krE\T--vIDE COODIN.%TIu RECOM3fl DIA) BY GAO IN 1958
Concern over our present disjointed agency-by-agency approach to
'SDP management, is no recent development. On June 27, 1158, the
Comptroller General issued the first of four comprehensive Govern-
ment-wide ADP management repLort.s.27 This early report outlined
tlie tremendous potential of ADP but stressed concern over certain
trends in ADP acquisition and use which lie believed would inevitably
lead to costly inefficiencies. Concern was expressed over the practice
of substitLit iiig APP for less sophisticated equipment rather than inte-
grating 11)1' into agency procedures and functions on a systematic
basis. But, most importiint, this report pointed out that there was
no single agency of the Government responsible for directing and
coordinating continuing developments in this field. Accordingly, the
report, stressed as a prinrlpal recommendation the need to establish an
effective coordinated .1DP program of joint. efort by the various user
agencies in Government.
$Testimony of Secretary of Defense McNamara, Rouse Subcommittee on Defense Appro-
prlations, Jan. 29, 1902, p. 153 ; reprinted in hearings on H.R. 4845, p. 205.
~" Statement of Secretary of Defense McNamara, hearing before the Joint Economic
Committee, Mar. 28, 1903. p. 20 ? reprinted in hearings on H.R. 4845, p. 200.
"Summary of Progress and wend of Development and lase of Automatic Data Processing
in Business and Management Control Systems of the Federal Government as of December
1957," Comptroller General of the United States (June 1958)1 GAO file No. B-115369.
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COMPTROLLER GENERAL RECOMMENDATIONS IN 1960 AND 1963
On December 30, 1960, the GAO issued a second Government-wide
audit report.28 Aside from urging greater ADP utilization in certain
defense functions readily adaptable to ADP, this report again empha-
sized the need for Government-wide coordination in ADP manage-
ment. The report endorsed the 1959 BOB ADP study but again
called attention to the lack of positive central planning of a long-range
nature within the executive branch to promote the maximum degree
of efficiency, economy, and effectiveness in ADP use.
On March 6, 1963, a third Government-wide audit report was is-
sued.2? In this report, the GAO demonstrated that very substantial
sums could be saved if the Federal Government purchased a larger
percentage of its ADP equipment. The report contained detailed lease
versus purchase cost comparisons of 16 different widely used ADP
systems. Applying these comparisons to 523 of the approximately
1,000 systems then installed or on order as of June 30, 1963, the GAO
estimated potential savings of about $148 million over a 5-year period
with savings of approximately $100 million a year thereafter through
the selective purchase of certain of the components of certain systems.
In this report, the GAO, cognizant of the extent BOB had been
able to implement the recommendations contained in the 1959- BOB
ADP study, stressed that, "We are aware of no significant progress
toward an effective coordinating mechanism in the Federal Govern-
ment for achieving the interrelated objectives cited"; 30 that is, efficient,
businesslike, Government-wide coordinated ADP management. The
report warned that to fully realize savings of this magnitude, that
a basic change from an agency-by-agency approach to a Government-
wide coordinated management system must be made. As an example,
decisions as to the advantages of lease versus purchase should be
made from the standpoint of the Government as a whole, and not
primarily from the standpoint of the potential use of the system to
the initial using agency. The report also indicated the low ebb in
Government ADP utilization. ADP systems are designed (tech-
nically and economically) to operate three shifts a day but at that
time average Federal usage was little more than one shift a day.
The report concluded by reasserting the recommendation of some 5
years' standing that there be Government-wide coordination in ADP
management.
REPORT BY GAO IN 1964
On April 30, 1964, the fourth and most recent comprehensive
Government-wide ADP report was submitted to Congress.31 This
report updated Government management developments for the year
following the issuance of the March 1963 report discussed above. The
GAO noted limited improvements but warned that optimism efficiency
and effectiveness would not be achieved without Government-wide
coordination. During this period, this committee had recommended'
28 "Review of Automatic Data Processing Developments in the Federal Government" . by
the Comptroller General of the United States (December 1960), GAO file No. B-11339
2? "Study of Financial Advantages of Purchasing Over Leasing of Electronic Data
Processing Equipment in the Federal Government" by the Comptroller General of the
United States (March 1963), GAO file No. 13-115389.,
30Ibid? D. 38.
$1 "Review of Problems Relating to Management and Administration of Electronic Data
Processing Systems in the Federal Government," by the Comptroller General of the United
States (April 1964), GAO file No. B-115369.
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and the I louse had approved 11.1:. i-)171,12 the forerunner of this leg-
islation, to provide for coordination in Governmelit.AD1' management.
Altlimi It this legislation was not acted upon by the Senate, there was
a sigill iiant reaction to the bill in the executive branch of the Gocern-
ntent. And in the April 1961 report, the Comptroller General was
able to point, to limited improvements in certain aspects of Govern-
ment Al)1' management, But he cautioned that the advances that
were aossible under the present agency-by-agency approach were
limited, and again lie eat ihasized the need for Government:-wido
coordination and warneal that ill the absence of a Government-wide
approach to AI)P tnanagenient, all optimum degrees of efficiency aild
economy could not be achieved.
D. Ei~FF.crivi: (roota2XlIF r t4in tl:e~A(aF:MEN1' (,F Al)1' Puuvii '
my
ursrO\SimLCrmEs OF BOB. GSA, AND TILE JFPARTMMFAT of COMltt;la 1:
To achieve a businesslike Government-wide coordinated utallage-
ment effort, it is necessary that n(lditional authority be given to BOB,
GSA, and the Departtuent of Commerce, In the 1959 13011 study, the
future course of Government Al)P management was discussed an
follows:
At this point in time [15159) we in the Government. have
entered that stage of the ADP era which may he classified as
saber reflection. We have now isolated and identified the
major problems which need attent ion, as succeeding sections
of this report will demonstrate, Ihere are soiree unanswered
questions as to exactly avhcre we stand in a Government-wide
sense, but we. soon will find file needed answers. We are not
exactly sure as to what. the fat me holds, but we soon will have
mapped a, desirable course to follow. For these things we
need a clear delineation of responsibilities and an organiza-
tion plan."
The hopes expressed in the BOB's 1959 ADP study have not been
fulfilled, and it is evident. that Congress must, provide a clearer de-
lineation of responsibilities and a more definite. organizational plan if
the Government. is to have maxinium efficiency in ADP nmanaagenient.
Again, as in 195D, the Government. is about. to enter into a, more sophis-
ticated stage of ADP usage. t "ith third generation equipment and
ensuing developments will come broader AI)P utilization and vastly
increased Federal Al)P expenditures. Titus, aside from the current
problems, more effective techniques must be devised for the manage-
ment of ADP equipment if in the future we are to avoid even more
costly errors which otherwise will accompany Government ADP usage
into this newer generation.
Although IhR. 4345 provides for fttndameniall changes in Govern-
naent. ADP management, the bill in tunny respects is very limited in
scope. In essence, the, bill would improt'c the operational macliiiierv
available to the Government making it possible for those agencies
which currently have, ADP mmnagenaent responsibilities to do a het ter
job. In many respects, this legislation provides the delineation of
m IT, Rept. 428, 88th Cone., 1st seas., approved House of Representatives, July 18, 19G3.
m 1959 Bureau of the Budget ADP study, p. 4; hearings on H.R. 4845, p. 574.
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responsibilities and stronger organizational plan for Government ADP
management that was the goal of the BOB in 1959. The 1959 BOB
study. states:
To a large degree, the recommended program for the
Bureau of the Budget is really nothing but a plan by which
the Bureau may begin to perform more adequately than it has,
the responsibilities already clearly assigned to it. [Emphasis
by BOB.] 34
BOB CONTROL OVER FISCAL AND POLICY MATTERS
While H.R. 484-5 is not primarily concerned with determining
policies, by providing- the means with which adequate information
can be obtained, joint effort efficiently applied, and new man-
agement techniques devised, this legislation makes it possible to deter-
mine effective policies and achieve fiscal control. Under H.R. 4845,
"fiscal and policy" control over ADP management remains in the
BOB. Thus, the bill does not violate or compromise the traditional
policymaking and fiscal. control functions of this staff office of the
President. Any action of any agency, under authority of this legis
lotion, would be subject either to approval or review at BOB.
Also, BOB would not be delegated any operational responsibilities
of the ADP management program. As time passes, countless impor-
tant Government management problems must be dealt with at the
BOB level. The assumption of operational responsibilities incident to
the solution of these problems could hamper BOB's ability to fulfill
its primary mission as a staff office of the President dealing with
policy and fiscal matters.
GENERAL OPERATIONAL RESPONSIBILITY IN GSA
H.R. 4845 extends to the Administrator of General Services the
primary operational responsibility for coordinating Government ADP
ina.nagement subject to BOB policy and fiscal control. This delega-
tion, as in the case of the BOB, is in line with the traditional delega-
t.inn of authority to GSA. LP.,. 4845 is an amendment to the basic
statute which created this Government-wide service organization.
This delegation would augment specific ADP management functions,
such as ADP procurement, presently within the scope of GSA
responsibilities.
To carry out this function, GSA is authorized and directed to co-
ordinate ADP management and to administer an ADP "revolving
fund." This fund, used in conjunction with the coordinating author-
ity, would afford an effective means of (a) providing the Government
with more adequate management information, (b) achieving optimum
utilization, and (c) attaining economic acquisition of Government
ADP equipment.
Through the use of the revolving fund, GSA would acquire by lease
or purchase the ADP needed to fulfill requirements of the agencies.
Agencies would obtain annual appropriations from Congress neces-
sary to reimburse the revolving fund. Although the Comptroller
General normally does not approve of revolving funds, lie specifically
endorses the use of such a funding arrangement in this instance.
ft Ibid., p. 7; hearings on H.R. 4845, p. 577.
II. Re t 802 89-1--4
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In addition to the fiscal and policy control of the BOB, the bill
expressly limits GSA's authority. t''t-ncies Would maintain their
present independence in the determination of ADP requireinents.
Agencies would be free from any interference from GSA as to the
auanner in which ADP equipment is used. 't'hey would be advised of
all signhfivan . decisions affecting their ADP operations and would
have the right to appeal to BOB. The hill limits GSA's authority to
?operate" ADP (other than its own in-House equipment) under this
niamagement, program to those instances where multiple agency usage,
of equipment is involved.
TECHNICAL Si'i'I'ORT OF THE NATIONAL BUREAU OF STAN-DARDS
The technical aspects of this coordinated management- program re-
main with the National Bureau of Standards in the Department of
Commerce. Again, this delegation is in accordance with the traditional
responsibilities of the agency,*. The Bureau of Standards has done
considerable ADP research in the past, and has made many contribu-
tions to the "state of the art." The Bureau of Standards would offer
technical support to the BOB and GSA and would also net in an ad-
visciry capacity to the various agencies and other users when requested.
Aside from these routine responsibilit.ics, the Bureau of Standards
would undertake whatever research and development is necessary to
the interests of the Government, supplementing similar efforts under-
way3 in various user agencies.
Antong the more serious problems confronting the Government in
ADP ut.ilizat.ion is the lack of compatibility in equipment. Standard-
ization has been a problem in Government almost from the time this
equipment was introduced. For the past. several years, various user
agencies, the Bureau of the Budget-, and this and other committees
have been concerned over the lack of compatibility in equipment which
has seriously compromised the Government's overall ADP potential.
This problem was discussed in an earlier report . of this committee in
196331 in conjunction with the activities of the Bureau of Standards.
At that time, it was recognized that, to a large degree, progress in the
standardization of equipment. must come from ADP manufacturers.
The manufacturers have the technical know-how to evaluate the after-
natives and they would design and build the equipment.
It has also been recognized, however, that the Government's domi-
nant role as the world's largest- ADP user requires that there be a con-
tinuous source of Goverimient interest and concern in the achievement
of greater standardization. Under II.1. -1845, the National Bureau of
Standards is expressly extended the responsibility for representing the
Government in this standardization effort and submitting to the Presi-
dent any recommendations for further Government. action as may be
necessary.
It is not the intent, of this legislation to authorize the Bureau to
structure a broad research and development program without. regard
to the work of the various other agencies or in a futile effort to over-
take the research and development capacity of the industry. The
authority in this legislation is aimed at supplementing the Govern-
ment research effort in coordination with other Federal agencies and
monitoring developments in the industry for the specific purposes
provided in the legislation.
H. Rept. 458, 88th Coug.. 1st seas. (1963).
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AUTOMATIC DATA PROCESSING EQUIPMENT 23
E. How TIIE AuriiORITY DELEGATED IN H.R. 4845 WOULD BE USED
To IMPROVE GOVERNMENT ADP MANAGEMENT
H.R. 4845 is aimed primarily at filling three vital management needs
at this time. These are (1) more adequate management information,
(2) optimum utilization through sharing and multiple use, and (3)
economic acquisition. Realization of an economical ADP acquisition
program, in turn, involves three principal factors :
(a) Improving the Government's bargaining position through
volume acquisitions;
(b) Basing lease versus purchase evaluations, whenever pos-
sible, on the long-term value of the equipment to the Government
as a whole; and
(c) Selecting that equipment for purchase which, on a Govern-
ment-wide basis, offers the largest purchase advantage.
CONTINUOUS FLOW Or RECURRING DATA PROVIDED BY II.R. 4845
Timely, pertinent, accurate information is indispensable to the man-
a.gement concept. Ina sense, management consists of the collection
and assimilation of data needed to predict as many imponderables as
possible so as to afford the manager as many options or alternatives as
a particular problem or circumstance permits. Sound decisionmaking
is synonymous with good management and is inseparable from the
quality of the information on which the decisions are based. Informa-
tion thus minimizes the guesswork in decisionmaking and creates the
opportunity for more effective and efficient management.
A basic problem in Government ADP management up to this time
has been the lack of accurate management information. BOB, the
executive agency having overall management policy responsibilities
for ADP, has not had the information needed to properly coordinate
and oversee the Government's ADP affairs. In the 1959 ADP manage-
ment study, BOB recognized the need for adequate management in-
formation. The report contained a finding that :
No provision has been made to assemble Government-wide
factual data on ADP utilization in the executive branch on a
recurring basis.
Recent studies of ADP utilization, or certain of its aspects,
have highlighted the continuous need for selected current fac-
tual data on a Government-wide basis in the ADP program.
The responsibility for leadership, coordination, or review of
ADP utilization at the agency level, or on a Government-wide
basis, can be discharged adequately only if certain essential infor-
mation is continuously ava.ilab1e.'6
Following this fording, the 1959 report recommended that provi-
sions be made for the supply of adequate information needed for ADP
management. Unfortunately, this recommendation was never fully
implemented. On March 14, 1962, BOB directed agencies to furnish
annual ADP inventory reports which also contained limited informa-
tion on ADP utilization and whether the equipment was leased or pur-
chased. Additional information was requested as of November 1963,
but this was for use in the preparation of the 1965 BOB ADP study.
As Circular A-55 pointed out :
so 1959 Bureau of the Budget ADP study, p. 12 ; hearings on H.R. 4845, p. 582.
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Some of the changes, particularly those that require new
and additional informataon, have been instituted to j,rovide
information for use in a special study of ADP policies and
practices recently directed by the President, and therefore will
not necessarily be continued in future years.''
Reporting on an annual basis was continued, which means that the
Government has never had up-to-date inventory information. Nor
has there been any systematic consolidation of fiscal data. Most Gov-
ernment-wide fisclil data, is in the forth of estimates, some of which are
highly speculative. ADP appropriations are scattered throughout
the Federal budget.
Whatever 13013 has done or has been able to do has been woefully
inadequate compared to the need. Annual printed inventories con-
taining meager information, months out of date, unaccompanied by
any comprehensive, accurate fiscal data as to investment, expendi-
tures, or costs, are wholly inadequate for ADP management purposes.
It is ironic that ADP with such potential for data'
ata control has not
been used extensively in ADP Inanagenient. Certainly a basic re-
quirement, for any ef'ective Government ADP management program
is the constant availability of comprehensive, accurate, up-to-date
inventories and fiscal information as to Government equipment as
well as prospective requirements.
This information is needed for a number of purposes. First, the
President and the Congress require overall inventoryy. and fiscal data
to maintain policy and budgetary control over ADP expenditures.
Furthermore, those Federal officials with policymaking, fiscal, or op-
erational responsibilities for ADP require this information to do their
jobs. As the 1959 BOB study suggested:
* * * if there is to be objective leadership and coordina-
tion of the ADP program of the Government, the leaders and
coordinators must be informed.38
As discussed above, BOB has in the past relied upon policy guide-
lines which have been permissive and subject to agency avoidance
without. notice or explanat ion. Even if lack of compliance with exist-
ing policy is wholly justifiable in isolated instances, those with policy
enforcement. responsibilities must. be kept informed. They must have
some form of informational "feedback" - to keep them advised of what
is going on. Otherwise, their policytnaking activity has little impact.
Officials with coordinating authority also require all the, reliable,
pertinent., up-to-date information they can get to take advantage of
the options or alternatives [his information reveals to them to increase
the utilization or provide for the more economical acquisition of
equipment.
ILR, 4815 would provide the means by which readily available,
recurring data essential to effective management could be collected
and made available to those officials in the Government requiring it.
Under this legislation, GSA would establish a comprehensive inven-
tory- to maintain carefully selected data needed for Government ADP
management. Use of ADP would make it possible for such infor-
mation to lie available on a continuing basis. Collateral to the inven-
tory would be the information stemming from the operations of the
n Bureau of the Budget Circular No. L-55, revised, Nov. 15, 1963 ; bearings on H.R.
484W6 316.
n 9 Bureau of the Budget ADP study, op. cit., p. 13.
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revolving fund which would afford the necessary flow of up-to-date,
accurate, detailed information on investment, disbursements, and costs.
It is contemplated that this information, particularly at it relates
to prospective agency ADP requirements, would be made generally
available to ADP manufacturers upon request. Extending to all
manufacturers the most advanced information available on prospec-
tive Government ADP requirements would permit more extended
periods of time in which the manufacturers could evaluate Govern-
ment specifications and refine the proposals they submit. General
availability of information on prospective Government requirements
should provide for fairer competition among all the various ADP
manufacturers, some of whom at this time it is suspected do not "get
the word" on some Government procurements until it is too late to
submit an effective proposal. Under this approach, all manufacturers
would have a better opportunity to compete for Government business
purely on the basis of quality and cost. The result should be increased
competition to the benefit of the Government.
OPTIMUM UTILIZATION OP ADP TIIROUGII SHARING AND SERVICE CENTERS
UNDER II.R. 4845
Under H.R. 4845, GSA could provide optimum Government ADP
utilization by improving the sharing program and establishing multi-
agency ADP service centers. ADP :is designed to operate three shifts
a day. But Government utilization falls far below any optimum level
of utilization. The BOB inventory report of August 1962 showed
extremely low utilization throughout the Government. The average
was only 267 hours out of a possible 720 hours per month. Only 24
percent of the total installed equipment was reported as being oper-
ated the equivalent of two shifts a day. The BOB inventory of July
1964 indicated that approximately 38 percent of Government ADII
was being operated as much as two shifts. While these figures indi-
cate an improvement, there is widespread waste in available but un-
used Government ADP equipment time. The problem of maintaining
optimum utilization will become more difficult as newer ADP sys-
tems with greater speeds and capacity are introduced into Government
use.
The BOB 1965 ADP management study reports a total of some
500,000 hours of unused Government ADP capacity at this time.
About 170,000 hours of this total is characterized as available for
sharing. The remaining 330,000 is considered unused but unavailable
for a number of reasons put forward by the various agencies. The
BOB study did not substantiate the reasons given. There are many
justifiable reasons for disqualifying individual ADP systems for shar-
ing that must be respected. But this estimate of available ADP
capacity may well be subject to upward revision if some of the reasons
given by agencies to avoid sharing were routinely subjected to closer
inspection and review.
Aside from utilizing otherwise available but unused ADP capacity,
sharing has other advantages. It makes the use of larger computers
with lower unit costs feasible. The introduction of the third gen-
eration ADP equipment alone would justify the coordinated approach
in the use of Government ADP as provided in this legislation. There
is also another significant advantage in sharing. It will increase the
tendency of the various agencies to work together more closely in
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solving mutual problems in the "software" area. The waste that
prevais in the problems of effort in solving "software" problems
which have a common applicability to many agencies are as serious
as the wastes in "hardware."
On June 15, 1951, BOB, in Circular A-27, set up an ADP sharing
program under GSA.38 There is general agreement, however, that
this legislation would substantially improve the effectiveness and effi-
ciency of GSA's efforts. Essentially, sharing is an interagency co-
ordinating effort. As the 1959 BOB study pointed out, sharing
"requires centralized coordinative-type leadership if it is to reach a
level consistent with effective and economical utilization of equip-
ment." 40 II.R. 4845 would substantially improve the present Govern-
ment ADP sharing efforts in it number of respects. First, the infor-
mation generated by the ADI' inventory would allow GSA to consider
systematically the possible combinations in matching unused capacity
with prospective requirements. Second, the cost data developed
through use of the revolving fund and the inventory system would
furnish GSA_ with reliable information needed to prorate costs between
agencies and otherwise to determine user charges. Third, the revolv-
ing fund offers a simple and effective means for reimbusing and
charging the various agencies involved in sharing arrangements since
all payments would be to or from the fund. Fourth, when feasible,
GSA could establish (and operate, if necessary) multiaRency service
centers to furnish ADP capacity to various agencies and~l other users.
Such service centers would bring the use of ADP within the economi-
cal reach of smaller agencies and Government offices. There may be
no single user in the area with sufficient requirements to justify acqui-
sition of the most efficient system needed but., acting together, several
users could benefit from the economies inherent in a larger, faster
computer.
F. II.R:. 4845 WOULD PROVIDE FOR MORE Ecoxosnc ADP AcQulsmoN
STRENGTHENING OF GOVERN MnNT'S BARGAINING POSITION
The Government is the largest ADP user in the world. Through
lease and purchase contracts, billions in tax funds are invested an-
nually. I et, as the 1965 BOB study points out, "Tile, Government
obtains no special advantages as a volume purchaser of equipment." 41
The smallest company, with the most limited ADP requirements, can
acquire the various commercial general purpose _'i-DP systems at prices
comparable to those paid by the Government.. Though volume acqui-
sitions should inherently place the Government in a stronger bargain-
ing position and lead to volume discounts, as a matter of practice
under the present disjointed agency-by-agency system of Government
ADP management, the Government has hardly any bargaining posi-
tion at all.
Over the years agencies have acquired commercial, general purpose
ADP at prices listed on GSA supply schedules. As in the case of
many other supplies the Government requires, GSA enters into neao-
tiations with various ADP manufacturers and agrees upon prices
ftrnrin?s on H.R. 4945. P. 350.
4 1059 iturrau of the Budget ADP study, op. cit., p. 29: hearingson H.R. 4945, p. 599.
1935 BOB ADP study, p. 41.
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for the equipment they have to offer to be applied to Government leases
and purchases during the coming fiscal year. Upon completion of
these negotiations, price schedules for the different manufacturers
a.re distributed to the various agencies and, generally, the equipment
they need is acquired at the prices listed on the schedules. Manufac-
turers have occasionally offered an agency lower prices on particular
procurements than are listed on the GSA schedules. In these in-
stances, the manufacturer files an amendment to his GSA schedule
price and the lower price is applicable to all Government acquisitions
of that equipment for the remainder of the fiscal year. GSA has been
able to obtain some concessions from manufacturers on lease prices
and conditions, particularly second and third shift use rates. Other-
wise, the GSA schedules generally reflect the manufacturers' list prices.
Under this procedure, price determination and procurement are di-
vorced. The various manufacturers have no guarantee that the Gov-
ernment will lease or purchase any particular volume of their equip-
ment. As a result, some manufacturers' representatives characterize
the GSA price schedule as simply a "hunting license." Agreement
to a schedule of prices with GSA. permits them to embark upon the
more formidable task of hunting for agencies in the Government
desirous of leasing or purchasing their equipment. Under these
circumstances, it is somewhat understandable why manufacturers have
generally responded with a remarkable degree of disinterest in price
cutting in GSA contract price schedule negotiations.
GSA, with no alternate course of action, has been forced to extend
price negotiations in many instances well beyond the beginning of the
fiscal year to which the schedules apply in an effort to obtain better
terms and conditions. These delays in themselves have caused admin-
istrative problems.
VOLUME DISCOUNTS FROM VOLUME PROCUREMENT
To obtain volume discounts, the Government must have volume pro-
curement. The "open end" supply contract simply is not the most
suitable arrangement for ADP procurement. The basic problem is
that this form of contract procedure does not afford the Government
any advantage corresponding to the volume of equipment leased or
purchased. A specialized approach to Government ADP procurement
is needed. As the 1959 BOB study suggests :
It is most unusual to promulgate Government-wide policies
on specific equipments. However, as the General Accounting
Office has already recognized, the use of ADP equipment has
now demonstrated that its impact is such as to warrent spe-
cialized attention.42
The 1965 BOB study recognizes this problem but offers an inade-
quate solution. Under the BOB approach, negotiation deadlines
would be established and manufacturers failing to agree to terms
would be precluded from Government procurement activities. Al-
though the 1965 BOB study offers this deadline concept as a principal
solution, the study also recognizes its limitations. As an example, in
the report it is stated :
On both sides, maneuverability is curtailed if an impasse
[in negotiations] is reached. The Government is faced with
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AUTOMATIC DATA PfOCESSLC EQUIPMENT
the possibility that the contractor may remove rented equip-
ment from the premises if a contract is not executed by July 1
(although realistically he would probably not resort to such
drastic action in view of the financial impact). The manu-
facturer, on the other hand, is faced with the possibility that
the Got ernment may release the rented equipment on July 1
(although realistically it could not do this in view of the ex-
tensive work and cost involved in changing to another manu-
facturer's equipment). Consequently, bot1I parties must pro-
ceed toward as final agreement, despite. the length of time
involved.'3
This "deadline" approach unrealistically assumes that the agencies
can arbitrarily be deprived of the equipment of a particular anu-
facturer even though it may be needed in critical (soverrunent, pro-
granns. But, fundamentally, the problem is that the deadline ap-
proach applies with equal force to both the Government. and thenianu-
facturers. The Government's relative position is not improved by the
application of a deadline to negotiations. There must be a relative
improvement in the Government's position as contrasted to that of
the manufacturer. And, to demand volume discounts, the Govern-
ment must in fact procure ADP in volume. rather than on a, piecemeal
agency-by-agency basis.
StXGJ,E 11' WILISEA CONCEPT
The traditionally accepted solution to this type of problem has been
the "single purchaser" comet pt. Were all _MP purchase and lease
money in "one pocket," the government would be in a stronger bar-
gaining position in dealing with manufacturers. The purchase or
lease of equipment and the price to be paid would be part of the same
negotiation. Whenever feasible, the Government could "raise the
states" by coordinating the acquisition of as much equipment of one
particular manufacturer at one t irate as possible. Furthermore, when-
ever alternative systeuts of different manufacture, would be equally
acceptable in satisfying agency requirements, teams of Government
negotiators, made up of GSA ofiirials and procun'cment specialists from
the agencies involved, could pit one manufacturer against another
until competitive prices were obtained.
ACgrISITIu (IFd_;ESEI:AL Pt R1'USE COMPONENTS (U' I"XICZLE S1S' FMS
VNIWII .' VOLUME V1WCa'REIIENT I'RaK;RAM
The mass-produced, commercially available, general purpose com-
ponents of "unique." ;;tailor made,'' "sper'iall~ designed," ADP sys-
tems can be effectively acquired under a volume procurement program.
Arguments against sole source procurement and the. possibility of the
Government's obtaining price concessions incident to volume acquisi-
tions center upon the proposition that each ADP system in unique,
"tailor made," and designed for one particular application. As the
1905 BOB study discussed the matter:
When the possibility of discounts has been discussed, manu-
facturers have indicated that. discounts from list prices can-
not be made solely on the basis of the number of units sold.
" 195.5 BOB ADP, study, 1,. 42.
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The reason is that the price covers more than just the equip-
ment itself ; it includes the provision of all supporting serv-
ices, such as computer programs, compilers, special-purpose
routines, and specialized training and systems aids-all of
which vary and tend to be custom-tailored for each installa-
tion. Because of these variances, the costs incurred by the
manufacturer to support each installation are substantially
the same and are not reduced by virtue of many in.stallations.44
These "custom-tailored" items referred to by BOB relate to "soft-
ware" and not the mass-produced, general purpose "hardware" com-
ponents making up these specially designed LDP systems. As pointed
out earlier in this report, these mass-produced components can be ar-
ranged in varying combinations to meet the particular application of
the user. Inherently, all commercially available, general purpose
ADP systems except those of the most unique application have a basic
capability which can be applied to many uses in agencies throughout
the Government. And, even when ,,t system has been designed to meet
a particular narrow application, additional components can be easily
added to broaden its use. Changes of this kind are considered routine.
Under this legislation, GSA is not charged with either the selection
or the use of equipment. The agencies would determine their indi-
vidual requirements and use the equipment as they see fit. GSA would
be furnished a shopping list of commercially available general purpose
ADP system components. Once other aspects of this coordinating
system have been fully implemented so that adequate information is
available GSA could coordinate ADP acquisition and schedule as
large a volume of acquisitions as agency requirements permit. To the
agency, the system may be complex, specially designed and tailor made
to fill some particular application critical to its operations. But, to
GSA, as far as hardware procurement is concerned, these complex,
highly specialized systems would only be a list of mass-produced, com-
mercially available general purpose components.
Although software procurement would present a more complex
problem, there is no reason that these complexities should interfere
with the establishment of a single purchaser concept as provided in
II.1:I. 4845. Software procurement offers great potential for savings.
Under this coordinated Governmentwide ADP management program,
Government expenditures for these goods and services would be closely
defined. Once properly identified, there could be more effective man-
agement of software procurement either directly by the agencies or by
GSA in conjunction with hardware acquisition. There is no reason
why Government software acquisition cannot be subjected to more
systematic and orderly procurement procedures. There is also greater
potential competition in software procurement, since software does
not necessarily have to be furnished by the manufacturer of the equip-
ment.
USE Or REVOLVING FUND PROVIDED IN H.R. 4845 TO OBTAIN VOLUME
ACQUTsITIONS
The revolving fund concept provided in H.P. 4845, as discussed
above, is needed to provide the Government with an accurate, up-to-
date flow of fiscal information and to facilitate optimum ADP util-
41 Ibid., p. 44.
H. Rept. 802, 89-1--5
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A A PROCESSING EQUIPMENT
ization through sharing and joint use of equipment. But, the most
compelling need for the revolving fund is in establishing the single
purchaser concept in Government ADP acquisition.
Under this arrangement., GSA would have. all of the Government's
general purpose ADP acquisition money in its pocket and would be in
it position, once all aspects of the coordinating program have been
fully implemented so that adequate information of prospective Gov-
ernnment agency requirements is available, to offer AD manufacturers
firm contracts for specific amounts of ADI' equipment. In turn, (} A
could reasonably expect to receive some reduction in purchase and lease
prices reflecting the magnitude of the Government's acquisition.
The revolving fund established under ILR. 4845 would be primed
with capital appropriated directly, by Congress and augmented by the
unamortized value of the general purpose equipment now in Govern-
ment agencies which the Government. has purchased. GSA would
use these funds to acquire by lease or purchase the ADP needed to ful-
fill the requirements of the various agencies.
Essentially, all Federal agencies would lease equipment from the
GSA revolving fund. So far as the aencies are concerned, only the
budgetary personnel would know the" difference. GSA would ac-
quire the AP systems selected by the management of the agencies.
The agencies would use the equipment as long as they wisTied, in
any manner they saw lit, subject to the general policy and fiscal con-
trol of the Bureau of the Budget, the President, and the Congress
as normally applied to all agency operations.
In practice, GSA would ,ill the agencies periodically at rates re-
flecting the use value of the equipment. with the aim that the fund
break even at- the end of each fiscal year. The agencies in turn would
obtain annual appropriations to reimburse the revolving fund for the
use of the equipment selected by and assigned to them. GSA could
obtain direct appropriations covering all overhead expenses incident
to operating the revolving fund, except that direct expenses incurred
in operating multiagency centers would be prorated among the user
agencies in their reimbursements. This is a matter, however, which
the committee leaves to the discretion of the Appropriations Com-
mittees.
OTHER ADVANTAGES PROVIDED Br VOLUME PROCU1.EMExT
Aside from the establishinent of it single purchaser concept and
simplifying the interagency transfer of equipment, the rnordination
of equipment; has a number of other advantages, two of which are of
particular importance.. First, this approach would provide an effec-
tive means for making essential lease versus purchase, evaluations on
the basis of the benefit, to the Government as a whole. Second, consoli-
dated acquisition would allow the Government to purchase on a prior-
ity basis those ADP systems with the greatest purchase advantage.
LEASE VERSUS PURCHASE EVALTi [TiO15 ON A COVERN_IIENT-WIDE BASIS
UNDER II.R. 4S45
II.R. 4845 would provide an effective means for making essential
"lease versus purchase" evaluations on the basis of the. benefit to the
Government. as a whole. BOB Circular A-54 45 issued in October
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1961, provided that agencies should make ADP lease versus purchase
evaluations in anticipation of equipment acquisition. The March
1963 GAO report recommended that lease versus purchase evalua-
tions be made from the standpoint of the estimated useful life of the
equipment to the Government as a whole rather than the estimated
period of application of the initial user agency.
This estimate of economic useful life is an essential element in the
lease versus purchase evaluation. Generally, it is the comparison of
the projected lease payments over the period of useful life as com-
pared with the purchase price and maintenance costs less the equip-
ment's residual value) that determines the comparative advantages
of these two modes of acquisition. When the lease payments over
the period of the estimated useful life exceed the purchase price and
maintenance costs, this concept of evaluation indicates purchase is the
most economical approach. The shorter the estimated period of use-
ful life, the more likely the evaluation will favor the lease of
equipment.
Ideally, competitive forces should push lease rates toward the cost
of ownership (purchase price plus maintenance plus interest on capi-
tal investment) over the equipment's useful life. But conditions in
the ADP industry are far from ideal. At present, the lease pay-
ments for most ADP components equal. the cost of ownership in a
relatively short period, seldom exceeding 45 to 50 months,4" although
the useful life of most ADP equipment is estimated at between 5 and
10 years.47 In a recent study, the Department of Defense estimated
that the lease payments on most ADP equipment equal the purchase
price within 21/2 to 41/2 years.45 Whatever the reasons may be and
any justification that can be attached to them, ADP manufacturers
in the case of most components are accelerating the amortization of
the capital invested in leased equipment to the serious economic dis-
advantage of those leasing it for any extended period.
As a result, at this time agencies and others users leasing equip-
ment pay out in a relatively short period in the form of lease pay-
ments an amount equivalent to a substantial portion of the purchase
price. Thus, even in those instances where the initial acquiring agency
does not foresee an estimated period of application of a duration suffi-
cient for the projected lease payments to equal the purchase price, the
Government should nevertheless evaluate the potential savings in-
herent in purchase. The additional investment in many cases would
be a relatively minor portion of the purchase price. Weighed
against the additional investment would be use of the equipment
with only maintenance costs for the remainder of its useful life.
The GAO logically suggests that the estimated period of equip-
ment application by the initial acquiring agency may not constitute a
realistic estimate as to the economic useful life of the equipment to
the Government as a whole. The Government has countless needs
for ADP equipment of varying degrees of sophistication. Some of
the most costly ADP with the greatest capacity and speed is used in
defense, space, and intelligence. In these areas, there is a continuing
need for the most advanced equipment. Yet throughout the Gov-
40 Fortune, op. cit., p. 207.
47 Financial Advantage of Purchasing Over Leasing, Comptroller General (March 1963),
p. 15.
48 Contract Support Service Project, Department of Defense, Project Stan Report
(Mar. Si, 1965), p. 79.
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ernment there are other agencies with less demanding requirements
that can use this equipment on a secondary basis. Under these cir-
cumstances, it is wholly unrealistic for various agencies acquiring
costly, highly sophisticated ADP systems to make the necessary lease
versus purchase evaluations based upon estimated periods of appli-
cation limited to their own requirements. The 1965 BOB study re-
jected the GAO recommendation on Government-wide lease versus
purchase evaluation, and some agencies, notably the Defense Depart-
ment, concurred. In the Department's report on II.R. 4845, the argu-
ment against Government-wide evaluations is stated as follows:
It has been stated that a principal advantage of central-
ized procurement. of ADPE is that lease/purchase decisions
could be made on the basis of the total Government re-
quirement for the equipment over its useful lifespan rather
than on the basis of estimated use by the acquiring organi-
zation. The Department of Defense position, based upon
extensive experience with this type of equipment, is that
it is practically impossible for a single agency to determine
potential secondary users within the agency at the time of
initial acquisition and that it is completely unrealistic to
assume t hat any agency can make such determinations for
the Government as a whole.49
The GAO has never suggested that Government-wide evaluations
depend upon the specific identity of secondary users and their require-
ments at the time of equipment acquisition. And, were the identity
of secondary users essential, the Ififeitse Departinent's arguments
Could preclude lease versus purchase evaluations based upon the pro-
jected Government-wide use of equipment. It is reasonable that
competent officials fully cognizant of Government ADP inventories
and applications and knowledgeable of the capacities of the various
systems the Government acquires could on a sound, businesslike basis
attribute secondary usage potential to certain selected systems which
in their judgment have long-range utilization within the Government.
Several of the agencies, and particularly the Department of De-
fense, have expressed concern over the possibility of acquiring a largo
volume of excess Government-owned equipment with its accompany-
ing administrative and storage expenses. IIowever, there is no reason
to anticipate such a problem. It. is not the policy of the. Government
to store excess equipment. for long periods of time, but to sell it as
surplus in such n manlier that the Government receives the fair market
value of the property. Purchasing under these circumstances -would
be on a highly selective basis. In those instances when the Govern-
ment did purclaase a system, and no secondary utilization developed at
the time it became excess to the initial using agency, the equipment
'would be relatively new and the residual value correspondingly high.
PRIOItr Y OF PLT.CII SE OF SYSTEMS WITH GREATEST PLTCIIASE ADVANTAGE
UNDER CONSOLIDATED PROCUREMENT
Govet iunent ADP use is expected to increase indefinitely. Increas-
ing billions in tax funds will be involved. It may not always be pos-
sible for the President and the Congress to allocate sufficient capital
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AUTOMATIC DATA PROCESSING EQUIPMENT 33
to the revolving fund to cover the purchase of all ADP systems which
careful agency and Government-wide evaluations dictate should be
purchased rather than ]eased. If the Government is to receive the
most value for its dollar, those systems with the greatest purchase
advantage to the Government as a whole should be purchased with the
funds available. Budgetary considerations and funding problems in
the various agencies should not preclude the Government from pur-
chasing APP equipment on a priority basis.
This problem was recognized in the 1965 BOB study and was dis-
cussed in connection with "Budget Considerations" :
Decisions with respect to the purchase or rental of a com-
puter inevitably become involved in budget considerations.
In most cases, budgets can be prepared or adjusted to accom-
modate either decision. In other cases, an administrator with
limited funds available to perform his mission may find it
undesirable to devote a substantial portion of his funds to a
capital investment if doing so will force him to forego an
essential element of his operating program. In these cases,
the choice reflects a decision on whether the purchase of equip-
ment will yield a return in the form of long-range savings
that is greater than the return to be obtained by devoting
the funds to another purpose. In Government-unlike most
industries where similar judgments must be made-this deci-
sion often cannot be validated by agencies because the benefits
resulting from public service functions usually can be meas-
ured only by value judgments. Although it is recognized
that budget considerations may, at times, cause a temporary
deferral of a decision to purchase, the circumstances should
be fully documented to show justification for such action, and
steps should be taken to effect the budget adjustments which
would permit purchase as early as practicable.50
At this time an agency with budgetary problems may well have to
postpone the purchase of ADP equipment. Yet, at the same time,
another agency may acquire another system requiring a comparable
outlay of capital in which the advantage of purchase over lease is sub-
stantially less. Under the present agency-by-agency approach, not
only can individual agency budgetary problems arbitrarily interfere
with the Government's purchase of equipment which lease versus pur-
chase evaluations indicate should be purchased but, more important,
there is no simple and effective means for the systematic purchase of
that equipment which on a priority basis offers the Government as a
whole the greatest purchase advantage. Under H.R. 4845 through the
? use of the revolving fund, GSA could very easily apply available ADP
capital. to the purchase of that equipment offering the highest purchase
advantage.
G. H.R. 4845 AUTHORIZES EXEMPTIONS AND PERMITS GSA To
DELEGATE AUTHORITY TO AGENCIES IN TILE ACQUISITION OF
EQUIPMENT
As previously discussed in this report, general-purpose ADI' systems
are made up of various combinations of mass-produced, commercially
available components. It is these general-purpose, mass-produced,
60 19651130B ADP study, p. 35.
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34 AUTOMATIC DATA PROCESSING EQUIPMENT
commercially available ADP components and the systems created from
them that come within the confines of this legislation. Digital and
analog components forming a, part of tactical weapons or space sys-
tents which have no general-purpose applicability would be wholly
excluded from this program. Procurement of this latter equipment
would remain the complete responsibility of the Defense Department
and other agencies that have requirements in these areas.
General-purpose, mass-produced, commercially available ADP com-
ponents used in conjunction with specially designed components and
as parts of systems with unique scientific, cryptological, or military ap-
plications of a strategic nature would also come within provisions of
this legislai ion for acquisition, inventory control, and potential second-
ary usage although such components or systems might not. be available
for sharing. Generally, there is no justification for exempting such
components simply because the equipment is initially applied to some
highly specialized application or used tinder conditions which preclude
sharing. Once the components selected by the agency are acquired
by GSA, they would be turned over to the agency to be used in what-
ever specialized application the agency had planned with no further
participation by GSA except inventory reports until the component
becomes surplus.
Examples of equipment coming within this category would be the
ADP used "in line" to control space vehicles in fligIIt and the backup
or redundant systems which must be available for this purpose. Also,
equipment used in highly sensitive security work by agencies such as
the Federal Bureau of Investigation and the Central Intelligence
Agency (CI:A), which offer no potential for sharing, could readily be
acquired under a general Government acquisition program and used
for other purposes when surplus to the initial acquiring agency.
Although the ADP to be included under this management. program
could be more closely defined at this time, the committee is concerned
that rapidly shifting developments in the interrelated fields of defense,
space, communications, and APP could make any presently acceptable
distinctions obsolete. And, as this lei sIation involves the internal
operations of the Government, there is no pressing need for strict
statutory definitions. As in keeping with the general concept of IT.R.
4845, the specific definition of general-purpose ADP equipment is left
to the BOB and GSA and the issuance of appropriate regulations.
I?:X"EtiMI rIO\ OF INDIVIDUAL SYSTEMS FOR ISF..\SONS OF NATIONAL SECURITY
OR DEI'ENSE OR ECONOMY AND EFFICIENCY
As backup to avoid compromise of our national security or defense
and to assure economy and efficiency, the Administrator of General
Services is authorized to exempt individual systems from provisions
of this program. It is of lmranlount importance that agencies with
intelligence or secret responsibilities maintain their security in line
with appropriate Federal statutes and as the President night direct
under provisions of this bill,
i-:i1-:.NIP'1'Iox OF t:(tt'II'?IF:\T BY .%GE\CY I1E.tDS
The Department- of Defense strongly recommends that. language
be included in the bill affording the agency heads the discretion of
exempting equipment from provisions of this (management. protn'am.
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The DOD's recommended amendment is in such broad terms as to per-
mit the Department, in the discretion of the Secretary of Defense, to ex-
clude all Defense Department ADP.51" As the Comptroller General
has so strongly recommended, any exclusion of an entire agency from
this management program would be wholly inadvisable. Realis-
tically, such discretion in agency heads might soon exclude all Gov-
ernment ADP which otherwise would come within this program.
In view of the authority extended the Administrator of GSA to
exempt specific systems from the program for reasons of either
national security and defense or economy and efficiency, the commit-
tee does not believe that any general exemption, such as the DOD
recommends, would be appropriate. Furthermore, as expressly pro-
vided in the bill, should GSA make any decision which the user feels is
adverse to his interests, the appropriate agency would have the right
to appeal to the BOB, and, if the problem was of sufficient magnitude,
to the White House. Under H.R. 4845, this entire management
program would be under the express direction of the President. Ex-
clusionary authority such as the DOD suggests is therefore un-
necessary and inappropriate.
Implementation of the coordinated ADP management program pro-
vided in II.R. 4845 would be gradual. Subsection 111(b) (2) expressly
provides that the Administrator may delegate authority extended to
him under provisions of this legislation to the extent he considers
such action "necessary and desirable for the orderly implementation
of a program for the utilization of such equipment." Utilizing this
authority, the Administrator would implement this more effective
management program on an orderly step-by-step basis so as to
avoid the disastrous dislocations that would undoubtedly accompany
any attempt to completely alter management of ADP overnight.
Upon approval of this program, an initial step would be to establish
a comprehensive inventory system carefully designed by experts so
that necessary recurring information needed for all levels of Govern-
ment ADP management would become routinely available. Col-
lateral to the establishment of this inventory, GSA would seek
appropriations from Congress to set up the ADP revolving fund
and work out with representatives of the various agencies the most
acceptable methods by which the agencies would reimburse the fund
for equipment use. After the revolving fund is established, GSA
could provide for the transfer of presently held general purpose ADP
components to the fund.
Once accurate, up-to-date information on available capacity and
prospective requirements became available, a more advanced sharing
program could be developed. Using ADP equipment, GSA could
examine various sharing alternatives and fully exploit available, but
unused, Government capacity in meeting the Government's require-
ments. Essentially, GSA, with adequate information, could place
Government sharing under positive direction.
After the inventory system and the revolving fund have both been
set up and other aspects of the program have been implemented, GSA
would then begin to coordinate Government acquisitions to achieve a
51 Hearings on H .R. 4845, pp. 179, 230--233.
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36 AUTOMATIC DATA PROCESSING EQU ME 'T
larger volume of purchases and leases or combinations thereof. The
savings inherent in this management program do not require compro-
mise in the selection or the use of the equipment. If an agency has an
unexpected need for ADP or if an agency deadline must E,e met, these
delivery requirements must not be ignored to achieve greater volume
acquisitions. Ilowever, if agencies keep GSA's inventory system fully
apprised of future requirements through a system of long-range plan-
ning and forecasting this information can be used to coordinate and
bring about volume acquisitions and more reasonable purchase and
lease prices.
11. CONCLUSION
This legislation is essential to effective Government ADP manage-
ment.. Constituting a broad perimeter of authority to BOB, GSA, and
the Department of Commerce, it provides the management techniques
which have heretofore been hacking in Government ADP maname
ment. The bill emphasizes the need for adequate information in &e-c-
tive management and Government-wide coordination. The bill also
recognizes the desperate need to improve the Government's bargaining
position in equipment. acquisition.
Numerous ADP management problems remain to be resolved. Al-
though IIi.II.. 4845 does not extendto agency equipment selection, every-
one concerned agrees that there is a critical problem in this area.
Equipment compatibility and "input and outpIut" standardization
must also be dealt with in substantive terms. They cannot be solved
directly through legislation. But if the. Government's ADP manage-
ment is put in order through the establishment of this Government-
wide coordinated management system, tliese other costly and difficult
problems can be more easily isolated and resolved anc the Govern-
ment's use of ADP made more effective. At this time, most Govern-
ment. ADP applic=ations fall within the more routine data processing
capabilities of this equipment. The Govermnent's checkbook is kept
balanced through ADP, but. ADP, though it has the potential, is not
widely used in evaluating (he most efficient manner in which Federal
funds should be spent.. During the years to collie, ADP will be used
more and more in the decisionmaking process and the Government
ADP equipment costs will surpass any sum we can now imagine.
During the course of this committee's consideration of ADP lew-is-
lation over the past 3 vears, numerous agencies have been skepticaTof
the need for legislation as well as certain provisions of this particular
bill. The committee does not expert this program to be implemented
without difficulty. 13 tit the difficulties Hutt might be met after passage
of IL.P. 4845 are much preferred over those which at this time and in
years past. unnecessarily cost the taxpayers hundreds of millions an-
nually. Based upon two comprehensive BOB ADP management
studies, about 100 General Accounting Office audit reports, and 3 years
of active investigation by this committee, the time has collie for Con-
gress to take reasonable but effective action to assure the establish-
ment of efficient. ADP management in Government.
IV. C`t: MMITTI:F..1:1i1' 1. DENTS
`Ilia committee reconimends the adoption of six umendineiits to
II.II. 4845:
1{ first, the 1.111r Cage "or` at (lie expense of" is deleted froui subsection
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needed to meet the requirements of Government contractors and others
acquired at the Government's expense. For this purpose, the phrases
"and other users", page 5, line 22, and "or user", page 6, line 1 are also
stricken.
During the past 3 years the committee has received 29 General Ac-
counting Office audit reports outlining serious deficiencies in the man-
ner in which Government cost-type contractors acquire ADP equip-
ment. The 1965 BOB study recommended that effective lease versus
purchase evaluations be made regarding contractor equipment ac-
quired at the Government's expense. On June 9, 1965, the Secretary
of Defense approved a report recognizing that a serious problem
existed in this area and recommended improvements in DOD manage-
ment. of this equipment.
Aerospace Industries Association of America, representing most
Government contractors with 4DP equipment that would be affected
by this legislation, has expressed concern over the possible impact on
their operations of extending this Government-wide inventory and
acquisition coordinating system to ADP used in the fulfillment of
space and defense contracts. For this reason., it, is concluded that a
more appropriate course of action at this time would be to provide for
this management system limited to in-house Government ADP. As
this new management system is implemented within the Government,
the success of the recently announced improvements in the Defense
Department management of contractor ADP equipment. could be
evaluated. It is the committee's intention to follow developments
closely so that appropriate action can be recommended should devel-
opments indicate that inclusion of contractor equipment, acquired at
the expense of the Government., under this coordinated Government
inventory and acquisition system is needed for the protection of the
taxpayers' interest.
Subsection 111(b) (1) provides that-
* * * In carrying out his responsibilities under this sec-
tion the Administrator is authorized to transfer automatic
data processing equipment between Federal agencies, to re-
quire joint utilization of such equipment by two or more
Federal agencies, and to establish and operate equipment
pools and data processing centers for the use of two or. more
such agencies when necessary for its most efficient and effec-
tive utilization.
Authorizing the Administrator to "require" joint utilization of
equipment as provided above might be interpreted to conflict with pro-
visions in subsection 111 (g) which provide that the Administrator of
GSA shall have no authority to interfere with the determination by
the agencies of their individual ADP equipment requirements. To
forestall any possible contradictions in the subsections, the committee
recommends that H.R. 4845 be amended to authorize the Administra-
tor to "provide for" joint utilization of such equipment.
Another amendment would provide for a comprehensive annual
report to Congress on the ADP management program established by
this legislation. In addition to an account of receipts, disbursements,
and transfers to miscellaneous receipts as required in subsection 111(c)
the Administrator would be required to submit an annual report of
"equipment inventory, utilization, and acquisitions."
H. Rv,it. PO2. 58-1 --6
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't'he other amendment would provide a more specific meanin? to tlce
term "requirements" as used in subsection 11g) of the bill. The
amendment would add the phrase "including the development of
specitica[ions for and the selection of the types and configurations of
the equipment needed" to the second sentence in subsection I II(I).
The C>ontmeroller of the tEC strongly recommends this additional
language as a clearer manifestation of tlhe committee's intent that GSA
not come between the manufacturer and the user in the determination
of requirements or selection or use of equipment.
The committee's confidence in the Administrator of GSA is mani-
fested in the broad authority extended him under this legislation. The
committee is not concerned that II.R. 4845, without this amendment,
would cause any disruption in user agency responsibilities in these
areas. However, as the additional language fully reflects the commit-
tee's intent, it is recommended that this clarification as to what is meant
by the term "requirements" he added to the bill. It should constitute
it further as.Snrauce to the agencies that it is neither the purpose nor
the intent of this legislation that their responsibilities in (lie selection
and use of ADI' cquilmient be conipromised in any way.
V. SECTION-III--SI'`,CTIt)N kNALYSIS OF ILTIL 4845
II.R. 4845 would add section I11 to the Federal Property and Ad-
ministrative Services Act of 1919 (63 Stat. 377), extending responsi-
bility to the clniiui~-trator of General Services, subject to overall
direction by the President and fiscal and policy control by the Bureau
of the Budget, for the economic and efficient purcha-'e, lease, and utili-
zation of automatic data processing equipment necessary to meet the
requirements of the Federal Government. The proposed new sec-
tion is divided into seven subsections. Subsections (a) and (b) pro-
vide the basic vithorit v to be exercised by the Administrator of GSA.
Subsection (c) authorizes the establishment of a revolving fund to
finance the activities undertaken by the Achninistrator in pursuance
of this authorit ?. Subsection (d) provides for the administration of
this fund, and subsection (e) prescribes that other provisions of law
which are inconsistent with the provisions of this section shall not be
applieablo in the administration of this section. Subsection (f) au-
thorizes the Secretary of Commerce to undertake necessary research
and to provide scientific and technological advisory services relating
to the use of automatic data processing in the Government. Subsec-
tion (g) provides that. the authority conferred by this section shall be
exercised subject. to direction by the President and by the Bureau of
the Budget..
Subsection (a) authorizes and directs the Administrator to coordi-
nate and provide for the purchas.-v, lease, and maintenance of auto-
inatic data processing equipment to meet the requirements of Federal
agencies.
Subsection (b) authorizes the Administrator to provide automatic
data processing equipment suitable for efficient and effective use by
Federal agencies through purchase, lease, or transfer of equipment be-
t ween Federal agencies. to provide for joint use of equipment. by two
or more agencies, and to establish and operate equipment. pools and
data processing centers when such action in his opinion is necessary
for the economical and efficient utilization of such equipment on a
Government-wide basis. The Administrator is also authorized to
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provide for the maintenance and repair of such equipment by contract
or otherwise.
Subsection (b) further allows the Administrator to delegate author-
ity under this section to Federal agencies to ].ease, purchase, and main.-
tain individual systems or specific units of equipment when, in his dis-
cretion, such action is either necessary for economy and efficiency of
operations, or when such action is essential to national defense or
security. Authority may also be delegated in such circumstances to
an agency to operate ADP equipment pools and processing centers.
Solely on an interim basis, the Administrator is further authorized to
delegate authority on a general basis in his discretion to the extent
necessary or desirable to allow for the orderly implementation of this
coordinated Government-wide management program.
The term, "Federal agency" as used in this section 111, is defined
in the Federal. Property Act to which H.R. 4845 is an amendment.
The term extends to "any executive agency or any establishment , in
the legislative or judicial branch of the Government. (except the Sen-
ate, the House of Representatives, and the Architect of the Capitol
and any activities under his direction) ."
Subsection (c) authorizes the establishment of an automatic data
processing fund. This is to be a fund without fiscal year limitation
to be used to finance expenses incident to the Government-wide data
processing program provided for in this section. Such expenses in,
elude those incurred for personal services, purchases, rentals, maint.e-
nanco and repair, and direct operation costs of ADP service centers,
as well as other related costs. Following receipt of advice of agency
requirements and appropriate evaluations as to the availability of cur-
rently held equipment, the Administrator would, when necessary, pur-
chase equipment through use of capital in the fund, or if more advan-
tageous, lease equipment through use of such funds.
To keep the capital of the revolving -fund intact, the user agency
would reimburse the Administrator for the use of the equipment on
an annual or other periodic basis in sums as determined under sub-
section (d). Periodic payments would be made for regular, recurring
services, and individual payments for specific intermittent services.
User agencies would include in their budgets requests for funds neces
sary to meet these charges. However, to provide for the additional
capital to cover equipment purchases during the period of initial
implementation of the program, and to cover future increases in
capital fund requirements (reflecting greater Government-wide utili-
zation of such equipment); the Administrator would make requests in
the budget of the General Services Administration for capital to be
placed in the revolving fund.
The language of subsection (c) is sufficiently broad to include the
cost of administration of the program if it. appears at a later date
that such costs should be paid. from the revolving fund. However, in
order to .avoid confusion during the initial period of implementation
of the program, the committee feels that such costs should at ].east
temporarily be provided for by direct appropriation as is provided in
subsection (d). Depending upon later developments, these costs
would then be paid from direct appropriations or from the revolving
fund at the discretion of the appropriations committees of Congress.
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Subsection (e) further provides that a report of receipts disburse-
nients, and transfers from the fund shall be made annually in con-
nection with the budget estimates to the Director of the Bureau of the
Budget and to the Congress. Incident to these reports, general esti-
mates of expected expenditures for the next fiscal year would be fur-
nished the appropriations and other congressional committees upon
request as a further assurance of congressional control and supervision
of this program. Subsection (c) also contains a provision for the
inclusion in a propriations acts of provisions regulating the operation
of the ADP fund or limiting expenditures from the fund. The pur-
pose of this provision is to assure that the appropriate control over
the expenditure of funds by a Federal agency remains in the Congress.
Subsection (d) authorizes appropriations to the revolving fund in
such amounts as may he required. It is further provided that sums
so appropriated, together with the value of supplies and equipment
transferred to the Administrator, shall constitute the capital of the
fund. The fund is also to be credited with advances and reimburse-
ments from appropriations and the payments of any agency, organi-
zation, or contractor utilizing or receiving services from equipment.
Rates for use of the equipment or for services received therefrom are
to be fixed by the Adnunistra(or so as to approximate the cost charged
to the fund, including depreciation and accured leave, the annortiza-
t ion of instaillation costs, direct costs of operating service centers, as
well as other items of expense recognized and acceptable from the
standpoint of sound accounting practices. Prior to fiscal year 1967,
it is contemplated that appropriations will be provided for certain
direct operating costs. Provision is made in subsection (d) to avoid
inclusion of such items in the determination of the rates charged user
agencies. The indirect administrative costs of o erating the fund
would in later years be included in rates chargedpthe user agencies
only if the congressional appropriations committees determine that
such costs should be paid out of the revolving fund as provided in
subsection (c).
Finally, refunds or recoveries resulting from operations, such as
net proceeds of disposal of fund property as excess or surplus and
moneys received in settlement of loss or damage claims, are to be
credited to the fund. After the close of each fiscal year net income
not required to offset prior year losses is to be transferred to the Treas-
ury as miscellaneous receipts.
Subsection (e) provides for (he inapplicability of other provisions
of laic- which otherwise would limit the authority of the Administrator
tinier this proposed amendment to the Federal Property and Admin-
istrative Services Act of 1919. and specifically, the proviso following
paragraph (4), section 201(a) of that act extending certain authority
to the Secretary of Defense to exempt the National Military Estab-
lishment from provisions of the Property Act, as well as provisions
of section 602 (d) of this net granting exemptions to the Atomic
EnergyCommission,'l'VA, and others.
'tire Secretary of Commerce is authorized in subsection (f) to pro-
vide scientific and technological advisory services relating to AI)P
to the agencies and particularly to the Administrator of General
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Services in exercising the authority delegated in this legislation. The
Secretary of Commerce is further authorized to make recommenda-
tions to the President relating to the establishment of uniform Federal
ADP standards. This-Subsection also delineates the authority of the
Secretary of Commerce to undertake research in the sciences and tech-
nologies of automatic data processing systems. It is not intended
that activities carried out under this authority duplicate or preclude
research being done by other Government agencies or private industry.
Subsection (g) provides that the authority conferred upon both
the Administrator of General Services and the Secretary of Com-
merce by this amendment shall be exercised subject to direction by
the President and to fiscal and policy control by the Bureau of the
Budget. The Administrator is specifically precluded from impair-
ing or interfering with the determinations by the agencies of their
ADP requirements. Under this program the user would develop the
specifications for and select the type and configuration of equipment
needed. The Administrator would then procure the selected equip-
ment and supply it to the users. The Administrator is further pre-
cluded from interfering with or attempting to control in any way the
use of equipment or components furnished to the agencies out of the
fund. The Administrator is required to give adequate notice to all
agencies and other users of any proposed determination specifically
affecting them or equipment used by them. If the user concerned and
the Administrator fail to agree on the proposed determination, the
issue shall be subject to review and decision by the Bureau of the
Budget, or as the President may otherwise direct.
VI. AGENCY REPORTS ON H.R. 4845
(The agency reports and comments received on II.R. 4845 follow:)
COMPTROLLER GENERAL OF TIIE UNITED STATES,
Hon. WILLIAM L. DAwsoN :
Washington, D. C., March 02, 1965.
Chairman, Committee on Government Operations,
House of Representatives.
DEAR MR. CHAIRMAN: Reference is made to your letter of February
19, 1965, and letter of February 26, 1965, from the chairman of your
Government Activities Subcommittee requesting our comments on
H.R. 4845. This bill would provide for the economic and efficient
purchase, lease, maintenance, operation, and utilization of automatic
data processing equipment by, or at the expense of, Federal depart-
ments and agencies.
In our letter to you of May 15, 1963 (B-151204), we submitted our
views regarding H.R. 5171, 88th Congress, a similar bill to II.R. 4845,
89th Congress. Also, by letter of August 4, 1964, we made a report to
the chairman of the Senate Committee on Government Operations on a
proposed amendment of II.R. 5171 in the nature of a substitute that
was prepared in an effort to meet objections of the Federal agencies
to the provisions of II.R. 5171 as passed by the House of Representa-
tives. In our comments on II.P. 5171 and the amendment to H.R.
5171, we expressed the belief that enactment of the bill would be in
the interest of the Government and would result in. considerably more
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economical procurement and utilization of automatic data processing
equipment..
In comment ing on ILR. 5171 and on the proposed amendment in the
nature of a substitute for II.11. Si71, we included the following state-
ment which we feel reflects our views on this matter:
"Li our report to the Congress dated March 0, 1903 (B-115309), on
the `Financial Advantages of Purchasing over Leasing of Electronic
Data Proecsiiig Equipment in the Federal Government,' we pointed
out that there is need in the Federal Government for an effective
ineclmnisin to coordinate and control the purchase, lease, maintenance,
ti nd ut ilizat ion of ED]' equipment. Accordingly,.w?e recommend to the
President of the United States that he establish such an office in his
organization. We are of the opinion that overall policy guidance
and direction of the Government.'s data processing programs can he
most effectively accomplished through the efforts of a small, highly
placed central management office in the executive branch of the Gov-
ernment. However, we recognize that. there are various Ways in which
central control can be exercised over the procurement and utilization of
this type of equipment. II.R. 5171 provides such an alternate method.
We are not opposed to the, method set forth in H.R. 5171; however, we
feel that the mechanism proposed in fI.R. 5171 for carrying out the
detailed operations of coordination and control needs to be subject
to the policy guidance and overall direction of the Office of the
President."
We note that the, proposed bill, ILR. 4845, provides in paragraph
(g) that. the authority conferred upon the Administrator and the
Secretary of Commerce. by this legislation shall be exercised subject to
direction by the President. and to fiscal and policy control exercised
by the Bureau of the Budget.
In our report to the Congress dated April 30, 190-1 (B-115309), on
the "Review of Problems Relating to Management and Administra-
tion of Electronic Data Processing Systems in the Federal Govern-
ment." we reviewed several problems pertaining to the management
of EDP systems in the Federal Government. We commented that
these problems have arisen largely because of the decentralized system
of management. used whereby each using agency makes its own deci-
sions on the procurement and utilization oFEDP equipment without
regard to the economics available from considering overall Govern-
ment needs. We further commented that our review of these problems
and the manner in which they can be resolved to the maximum finan-
cial advantage of the Federal Government has reinforced our earlier
conclusion that. an effective central management organization with
appropriate authority and responsibility is needed to exercise control
over the procurement. and use of data processing facilities and related
costs being incurred by the Government.
In addition to our March 0, 1003, and April 30, 1901, Government-
wide reports, we have issued 04 reports to the Congress covering
reviews made of selected aspects of individual agency or Government
contractor automatic data processing systems. These reports have
contained numerous examples of deficient management of automatic
data processing equipment, and of potential savings through more
effective and centralized management. of these facilities.
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With reference to the policies and procedures set forth in the bill,
we offer the following comments for consideration:
1. We suggest that the following sentence in subsection 111(g),
pages 5 and 6, be deleted : "The Administrator shall not interfere with,
or attempt to control in any way, the use made of automatic data proc-
essing equipment or components thereof by any agency or user."
This provision would place undue restrictions on the Administrator
of General Services which would preclude the attainment of the most
effective and economical procurement and use of automatic data proc-
essing equipment. We believe that this provision conflicts with other
authorities granted the Administrator.
Furthermore, we believe that this provision could negate the author-
ity granted in section 111(b) (1) to the Administrator to require joint
utilization of automatic data processing equipment by two or more
agencies or to establish end operate equipment pools and data process-
ing centers for the use of two or more agencies if those agencies are
unwilling to operate in such manner.
2. The bill provides that a report of receipts, disbursements, and
transfers to miscellaneous receipts relating to the automatic data proc-
essing funds be made annually-to the Director of the Bureau of the
Budget and to the Congress. The type of report called for is some-
what limited and we would recommend that the bill require a more
complete financial report. Accordingly, we suggest that the words
"a report of receipts, disbursements, and transfers to miscellaneous
receipts, under this authorization" be deleted and the following substi-
tuted : "appropriate reports on the financial operations of the find in
accordance with the regularly established requirements of the Bureau
of the Budget."
3. We suggest that the bill provide that, after a date determined
upon, based, on recommendation of the Administrator, existing appro-
priations and, unless specifically so provided, future appropriations of
the agencies concerned, other than appropriations to the fund, shall
not be available for the purchase or lease of automatic data processing
equipment of the types taken over by the Administrator or for obtain-
ing similar automatic data processing services by contract.
4. We note the term "organization" appearing on page 4, lines 5
and 6 of the bill. If by use of this term it be intended to authorize
the Administrator to make equipment available for, or otherwise
supply services to, private organizations, which would constitute an
exception to section 3678, Revised Statutes, 31 U.S.C. 628, requiring
the application of appropriations solely to the objects for which made
and no other, in the absence of specific authority to the contrary, then
adding the word "private" before the word "organization" would
obviate any doubt in the matter.
5. We suggest that a provision be added to the bill to provide that
no executive agency shall be exempt from the provisions of the bill
except under extraordinary circumstances.
6. With regard to the applicability of this legislation to Govern-
ment contractors, we understand the reference on page 2 of the bill, "or
at the expense of, Federal agencies" is intended to extend authority of
the Administrator over contractor equipment under negotiated
contracts.
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We have taken the position that, to the maximum extent practicable,
data processing equipment or systems required by contractors in the
performance of negotiated contracts with the Federal agencies, where
the whole or a substantial part of the cost of such equipment or systems
would become a part. of Government contract. prices, should be fur-
nished by the, Government with title or leasehold interest remaining in
the Government subject substantially to the same laws and regulations
applicable to in-house Government cc uiprnent.
Government and will result in considerably more economical procure-
ment and utilization of electronic data processing equipment. There-
fore, and subject to the changes suggested above, we favor enactment
of the proposed lemislat ion.
We will be available to testify at the proposed hearings and we will
be pleased to assist the committee in any respect with regard to this
matter.
Sincerely yours,
JosErii CAMPBELL, Comptroller General.
E.XECU'rrE OFFICE OF TIIE PRESIDENT,
I fUREAU OF TILE BUDGET,
hashington, D.C., March 11, 196J.
11011. WILLIAM L. DAwsO\,
Chair man, Committee on Government Operations,
House of Representatives,
llrashin.gton., I .C.
DEAR MR. CHAIRMAN: This will acknowledge your letter of Febru-
ary 19, 1965, inviting the Bureau of the Budget to comment on II.R.
4845, a bill to provide for the economic and eficient purchase, lease,
maintenance, Operation, and utilization of automatic data-processing
equipment by the Federal departments and agencies.
President, Johnson transmitted to the Congress on March ?, 1965, a
report on Federal policy and practices in the acquisition and utiliza-
tion of electronic computers in Government. The report, prepared by
the Bureau of the Budget, is based on the results of a year-long study.
It proposes a broad program to achieve increased effectiveness, coupled
with greater economy, hn the expanding use of automatic data-proc-
essing equipment. Ina letter transmitting the, report to the Congress,
the President indicated that the. policies and suggestions for improve-
ment outlined in the report had his approval.
Under the policies approved by the President, agency heads are held
responsible for taking necessary act ions to assure the most efficient and
economic administration and management of their ADP activities.
Within that framework of responsibility, the President expects the
central agencies--the Bureau of the Budget, the General Services Ad-
ministrat ion, and the Civil Service Commission-to develop policies
and guidelines for the improved management and utilization of ADP
and to exercise leadership in promoting interagency cooperation,
coordination, sharing arrangements, and other measures to assure that
the Government's ADP requirements are met effectively and at mini-
Illuihl cost.
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To carry out the recommendation made in the Bureau's report, no
significant changes would be required in existing organizational ar-
rangements or in the assignment of responsibilities to the Bureau of
the Budget, General Services Administration, Civil Service Commis-
sion, Department of Commerce, or the departments and agencies. We
believe, however, 'that there is a clear need to strengthen the resources
devoted to the management of automatic data processing within both
the central agencies and the line departments. In addition, enactment
of legislation specifically addressed to the management of automatic
data processing in the executive branch of the Federal Government is
considered desirable to reinforce and amplify the broad general au-
thorities now vested in the Bureau of the Budget, General Services
Administration, and the Department of Commerce. The report con-
cludes that the lack of specific legislation now "creates unnecessary
handicaps to the most effective management of ADP."
Accordingly, the report recommends the enactment of general legis-
lation (1) providing an expression of congressional policy on the
acquisition and use of ADP equipment, and (2) giving a specific di-
rective to the Bureau of the Budget and the General Services Admin-
istration, within the areas of their presently assigned responsibilities,
to take necessary actions to assure the most economic and effective use
of ADP. The report 'also recommends that explicit legislative au-
thority be provided (1) for the establishment of a revolving fund to
facilitate the establishment of service centers, equipment pools, and
time-sharing arrangements, (2) to provide authority to develop, meas-
ure, test, and make provision for the approval and implementation of
Federal standards for ADP equipment and techniques and Federal
standard data elements and codes, and (3) to provide specific authority
and direction to the Secretary of Commerce to establish a centralized
research center on computer sciences and technology and to provide
advisory and consultative services to Government agencies on com-
puter systems development and related scientific and technical prob-
lems.
It is the view of the Bureau of the Budget that enactment of H.R.
4845 would assist materially in carrying out the policies and sugges-
tions for improving the acquisition and utilization of electronic com-
puters which have been approved by the President. Accordingly, the
Bureau of the Budget recommends that your committee give favorable
consideration to II.R. 4845.
Sincerely yours,
PIIILLIP S. HuGIIES,
Assistant Director for Legislative Reference.
GENERAL SERVICES ADMINISTRATION,
IIon. WILLIAM L. DAWSON, 'WasM gton, D.C., March 15,1965.
Chairman, Committee on Government Operations,
House of Representatives, Waslhington, D.C.
DEAR MR. CHAIRMAN : Your letter of February 19, 1965, requested
the views of the General Services Administration on H.R. 4845, 89th
Congress, a bill to provide for the economic and efficient purchase,
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lease, maintenance operation, and utilization of automatic data proc-
essing equipment b Federal departments and agencies.
The bill would add a new section 111 to title 1 of the Federal Prop-
erty and Administrative Services Act of 1949, 63 Stat. 377, as amend-
ed, which would centralize GSA control over all electronic data
processing c~quipment required by Federal agencies. Financing would
be provided by a revolving fund established by the section. Original
capitalization of the fund would be by ap )ropriation and transfer of
assets, which would be reimbursed throughi user charges.
The bill would provide legislation needed to supplement existing
statutory authorities, remove any doubt as to the authority for func-
tions presently being performed, and provide a clear statement of
congressional policy respecting ADP matters.
General Services Administration endorses the views set forth in
the letter of March 11, 1065, from the Director, Bureau of the Budget,
to the chairman, House Committee on Government Operations, in
support of II.R. 4845.
Accordingly, the General Services Administration recommends that
your committee give favorable consideration to H.R. 4845.
The Bureau of the Budget advises that., from the standpoint of the
administration's program, there is no objection to the submission of
this report to your committee.
Sincerely your-,
ROBERT T. GRIFFIN,
Acting Administrator.
Tiim. SECRETARY OF DEF'E-,sE,
Wa.Mingtun, D.C., March 18,1965.
Hon. WILLIAM L. DAwsoN,
Chairman, Committee on Government Operations,
house of Pepre.sentat vcs, Washington, P.C.
DEAR MR. CiiArRji:tx : Reference is made to your request for the
views of the Department of Defense on 11.R. 4845, 89th Congress, a bill
to provide for the economic and efficient purchase, lease, maintenance,
operation, and utilization of automatic data processing equipment by
Federal departments and agencies.
The Department of Defense concurs in the desirability of setting
forth in legislation an expression of policy by the Congress on the ac-
quisition and use of automatic data processing equipment by Federal
agencies. Such an expression of policy by the Congress would be of
assistance to the Bureau of the Budget and the General Services Ad-
ministration in coordinating the management of ADPF throughout
the Government.
As you know, the Bureau of the Budget and the General Services
Administration have already initiated actions which should materially
improve the management of ADPF.. A Government-wide reutiliza-
tion program has been initiated within the last year which has been
implemented throughout the Department of Defense. Under guid-
ance provided by the Bureau of the Budget, ADPD sharing exchanges
are being established by the General Services Administration and
these actions are being fully supported by the Department of De-
fense. Recently, the Bureau of the Budget issued Circular A-71
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which is designed to further improve the management of ADPE with-
in the Government and which specifically identifies the responsibil-
ities of all agencies in this regard. This circular is intended to im-
plement recommendations contained in the Bureau of the Budget
Report to the President on the Management of Automatic Data Proc-
essing in the Federal Government which the President approved and
transmitted to the Congress on March 2, 1965.
The Bureau of the Budget Report expressed certain conclusion on
the matter -of procurement and use of automatic data processing equip-
ment. It recommended that Government agencies retain their present
responsibilities for making decisions in this area, rather than have a
separate central office empowered with authority to make these deci-
sions. The latter course, the report concluded, will dilute the respon-
sibility of agency heads for the management of their organizations
and automated systems; and would serve to divorce ADP manage-
ment from the arrangements established by Bureau of the Budget Cir-
cular A-71 with respect to Presidential surveillance over the overall
management of the executive branch. It would also interfere with
direct Government agency-contractor relationships.
With respect to the establishment of a centralized revolving fund
for the acquisition and utilization of ADPE, the Bureau of the Budget
report, as approved by the President, limited its recommendations on
the use of such a fund to those situations involving the establishment
of service centers, equipment pools, and time-sharing arrangements or
where it would be advantageous for appropriate Federal agencies on
a permissive basis to finance the acquisition and utilization of ADPE.
There is contained in H.R. 4845 certain language which might be
construed to require, on a mandatory basis, Federal agencies and their
contractors to obtain their individual ADPE requirements through the
Administrator of General Services. The Administrator would pur-
chase, lease, or transfer from other Federal agencies the equipment to
meet these requirements. Exceptions would be permitted only at the
discretion of the Administrator. Regardless of which agency pro-
cured the equipment, the bill could be interpreted to require the use
of the centralized revolving fund provided for in subsection 111(c)
in all cases.
Use of such a fund on a mandatory basis would result in imposing
another step in the procurement of ADPE. Moreover, there would
be extra costs to Federal agencies resulting from surcharges necessary
to reimburse the General Services Administration for costs of operat-
ing the fund. In addition, it could discourage second and third users
of the equipment since they would be paying rentals to General Serv-
ices Administration for older and perhaps less efficient equipment
that might be as high or higher than what they would pay for the most
modern equipment. Under existing procedures for the utilization of
equipment excess to one agency by another agency, there is a clear
financial incentive to utilize such equipment. If it is Government-
owned, it can generally be acquired at no cost except for transporta-
tion, packing, and dismantling charges. If the equipment will do the
job, the economic advantage over new equipment is obvious. Even
with leased equipment, the agency can usually obtain it at a substantial
discount from the new price. Since the General Services Administra-
tion could charge rentals as long as the equipment is in use (and would
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have to until it. is amortized), the incentive to use older, perhaps out-
moded, equipment is lost. The General Services Administration may
then find itself eventually in the position of having a large inventory
of unused equipment. in warehouses or directing agencies to use this
equipiiient even though newer, more ellicient equi ]menu is available
at equal or lower cost. For the above reasons, t ie Depar(ment of
Defense does not consider the establishment of a revolving fund for
acquisition of all A DPE as desirable.
The views of this Department. with respect to ADPE in the hands
of Government contractors have been made known (a the Bureau of
the Budget, the General Account lug Office, and to various committees
of Congress. The General Accounting Office has issued a series of
reports on this matter, favoring Government ownership for ADPE
in Government. contractor plants. Detailed conuiient to the Comptrol-
ler General oil his recommendations in this area were supplied to him
on May 21,1)6MI, a, copy of which is attached.
Department of Defense procurement policy is to place maximum
responsibility on contractors for contract. performance, including the
responsibility for facilities acquisition to perform those contracts.
This would include ADP1:. The Department's policies of contractor
responsibility go hand in ]land with increased emphasis on the use of
fixed-price contracts and contracts with wide-ranging incentives which
tare designed to insure (lie utmost. in sound contract management by
Government contractors. Acceptance of a principle which would
provide all ADPE to contractors as Government-furnislled equip-
ment carries with it substantial penalty because (1) it represents in-
creased Government control and intervention in private enterprise
and management. initiative: (2) it poses the extreme likelihood of the
creation of a substantial inventory of idle .APP,; (3) the adminis-
tration and caretaking of such an equipment inventory will be ex-
tremely costly; and (4) it. overlooks the alternative that the contractor
can purchase ADPE in many cases with better advantages to the
Government.
It has been stated that a principal advantage of centralized procure-
ment. of 1DPI: is that lease/purchase decisions could he made on the
basis of the total Government requirement for the equipment over its
useful li fespan rather than on the basi9 of estimated use by the acquir-
ing organization. The Department. of Defense position, based upon
extensive experience with this type of equipment., is that it- is practi-
cally impossible for it single. agency to determine potential secondary
users within the agency at the time of initial acquisition and that it
is completely unrealistic to assume that any agency can make such
determinations for the Government as a whole. We me in full support
of the objectives of purchasing computers on the basis of proven eco-
nomic advantage over leasing for the known application of the equip-
ment.. Lease/purchase analysis is made when the equipment is ac-
quired and continually thereafter if the equipment is leased to assure
that changed situations have not altered the original decision. The
Department now purchases in all cases where the economic advantage
is proven, based upon the known use of the equipment and if the
funds are available. The equipment is then assured of full amortiza-
tion by the initial re.uiring agency and, as previously mentioned, re-
utilization of the equipment by a secondary user is helped by an ability
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AUTOMATIC DATA PROCESSING EQUIPMENT 44
to transfer the equipment at no cost. This procedure allows selected
purchase of equipment where economy is assured and facilitates its
reutilization, but at the same time prevents a costly buildup of owned
equipment which may or may not have further use to the Government.
In view of the foregoing, it is recommended that in line 8, page 1 of
the bill, the words "and provide for" be deleted; in line 4, page 2, the
word "shall" be changed to "may"; in line 7, page 2, the words "and
directed" be deleted ; in line 12, page 2, the word "require" be changed
to "provide for"; and in lines 13, 14, and 15, page 3, the words "for
the efficient coordination, operation utilization of such equipment by
and for the Federal agencies" be deleted and substitute in lieu thereof
the words "to establish and operate equipment pools and data process-
ing centers by or for the use of two or more Federal agencies or to
finance at the request of a Federal agency the acquisition and utiliza-
tion of such equipment."
The chairman of the Subcommittee on Government Activities in his
statement on the floor of the House of Representatives on February 11,
1965 (p. 2586, Congressional Record), at the time H.P. 4845 was intro-
duced, stated that the bill contained exceptions necessary for reasons
of security and defense and that it was not intended that the legislation
cover any specialized scientific or specially designed military APD
system components.
Virtually all specially designed ADPE developed for military pur-
poses such as weapons fire control, tactical military field operations,
scientific and engineering, missile and satellite tracking, weapons
development, command and control, and communications operations
are procured as integral parts of weapons and support systems. It
should be further noted that commercial general Vurpose equipment
is selected for these systems when it can perform satisfactorily. Selec-
tion of specific equipment, however, must always be related to the
total system and its interface requirements. The Department of
Defense also makes extensive use of ADPE for intelligence and other
highly classified purposes. Information essential to the selection and
acquisition of this equipment is highly classified and its dissemination
restricted accordingly. Certain agencies of the Department of De-
fense make extensive use of ADPE in accomplishing urgent cryptologic
missions. Design or selection, production, testing, and updating of
ADP equipment and the urgency and sensitive classified nature of the
data to which the ADP applications are made require that the most
rigid security measures and time schedules be applied. It is con-
sidered essential that determinations with respect to ADPE of the
types described above involving the national defense and national
security be made by the Secretary of Defense. Accordingly, the fol-
lowing additional amendment is recommended for incorporation in the
bill commencing on page 2, line 16:
"This section shall not be construed to apply to specially designed
automatic data processing equipment for scientific, military or
cryptologic uses and the head of a Federal agency is authorized to
determine when any automatic data processing equipment should be
excluded from the provisions of this section for reasons of national
defense or national security."
In conclusion, the Department of Defense supports the enactment
of H.I1. 4845 if it is amended to include the suggestions set forth
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50 AUTOMATIC DATA PROCESSING EQtiIPNT
above. It concurs in those provisions of ILR. 48-15 pertaining to re-
sponsibilities to be vested in the Secretary of Commerce. The bepart-
mont of Defense is engaged in extensive scientific research and devel-
opment activities in the ADPF field primarily with respect to our
military requirements. However, it believes that there is a definite
requirement on a Government-wide basis for the type of services
which the Secretary of Commerce would provide wider this bill. It
is understood that the authority vested in the Secretary of Commerce
by subsection 111(f) is not intended to curtail or restrict. Department
of Defense research and development activities in this field.
We will be happy to provide any further information that. your
committee may request.. Further, ttie I}el,artlnent welcomes the op-
portunity to testif y cat lie;arings to be held on II.R. 4845.
The Bureau of*tlie Budget advises that from the standpoint of the
administration's, program, there is no objection to the submission of
this report to the committee.
Sincerely,
CritU:+ R. \"ANCE.
Deputy Secretary of Defense.
OFFICE OF THE POSTMASTER GENERAL.
11'ashington, D.C., March ?9,19G5.
IIon. AVILLI