evaluation of fdic regional copier program › oig › e-rep99 › 99-007r1.pdf · sfro’s true...

Evaluation of FDIC RegionalCopier Program

Office of Congressional Relations and Evaluations

Office of Inspector General

Evaluation Report No. 99-007

September 30, 1999

4

Contents

Table of Contents Page• Objectives 5

• Results in Brief 7

• Results of Analysis: Dallas Regional Office 9

• Results of Analysis: San FranciscoRegional Office 20

• Conclusions 32

• Recommendations 33

• Corporation Comments and OIG Evaluation 34

• Appendix I: Corporation Comments 35

• Appendix II: Management Response toRecommendations 37

5

Objectives

• During our recent evaluation of theFDIC headquarters copier program(EVAL-99-004), the Acquisitionand Corporate Services Branch(ACSB) asked us to review copierprograms at selected regionaloffices.

• We initially selected the DallasRegional Office (DRO) for review.

• Subsequently, a San Franciscofacilities representative asked us toreview the San Francisco RegionalOffice (SFRO) copier program.

• Our objectives were to determinewhether:

3 Copiers were being utilized atappropriate levels,

3 Program costs werereasonable, and

3 Alternative programs couldprovide cost savings.

6

Methodology

• We obtained cost and meterreading information for DRO andSFRO convenience copiers. Wedid not attempt to verify theaccuracy of these readings.

• We interviewed DRO and SFROfacilities representatives viatelephone to understand theircopier programs.

• We determined utilization levelsand per copy charges for allconvenience copiers.

• We estimated program costs usingalternative copier scenarios.

• For the purposes of this report, allreferences to “DRO” and “SFRO”include all convenience copiers inthe regional office buildings and inall associated field office locations,unless otherwise noted.

• We performed our field work fromMay through July 1999 inaccordance with the President’sCouncil on Integrity andEfficiency’s Quality Standards forInspections.

7

Results in Brief

Dallas Regional Office• We found that most DRO copiers

were significantly underutilized. Onaverage, 92 percent were operating atless than 40 percent of their monthlyoptimal volume levels.

• As a result, DRO was paying anaverage of $.05 per copy formachines under Lease to OwnershipPlans (LTOP). A General ServicesAdministration (GSA) representativetold us $.03 is the most agenciesshould pay for copies.

• Accordingly, FDIC could reducecopier costs by pursuing other leaseoptions. Over a 5-year period, weestimated DRO could save:

3 $213,000 by using a GSAschedule distributor as AtlantaCSB has done,

3 $980,000 by transferring to aGSA schedule flat-rate plan, or

3 $430,000 by signing aninteragency agreement with theFranchise Business Activity(FBA).

8

Results in Brief

San Francisco Regional Office

• Most SFRO convenience copierswere significantly underutilized.On average, 82 percent of SFROcopiers were operating at less than20 percent of their monthly optimalvolume levels.

• As a result, SFRO was paying anaverage of $.06 per copy, notincluding supplies, twice what theGSA recommends.

• We also concluded that SFRO’sinventory of copiers did not matchSFRO’s true copier needs.

• SFRO could reduce copier costs bypursuing other lease options. Overa 5-year period, we estimatedSFRO could save:

3 $206,000 by using a GSASchedule distributor as AtlantaCSB has done,

3 $469,000 by transferring to aGSA Schedule flat-rate plan.

3 $343,000 by signing aninteragency agreement with theFBA.

9

Results of Analysis:Dallas Regional Office

10

Background

• As of February 1999, DRO had 107 convenience copiers.

• Of the total, 85 convenience copiers were under LTOP. Most of these copierswere Xerox 5352 machines. DRO also had eight Oce´ copiers, one Sharpcopier, and one Canon copier.

• Over 93 percent of DRO's copiers were located in two regional officebuildings (Pacific Place and One Dallas Center). The remaining eightmachines were in DRO’s eight field office locations.

• As of February 1999, DRO was paying approximately $493,946 annually forits convenience copiers, or $41,162 a month.

11

Copier Utilization

0

10

20

30

40

50

60

70

Cop

iers

0-19%

20-39

%

40-59

%

60-79

%

80-99

%

100%

+

Percent of Copier Utilization

LTOP Owned

• Based on our analysis, weconcluded that most of DROcopiers were significantlyunderutilized.

• On average, 92 percent of DROconvenience copiers operated atless than 40 percent of theirmonthly optimal volume levels.

• 64 percent of the DRO copiersoperated at less than 20 percent oftheir optimal volume levels.

• Only two copiers had a utilizationlevel greater than 60 percent.

12

Copier Cost-Per-Copy

0

10

20

30

40

50

60

Cop

iers

$.01-

.03$.0

4-.06

$.07-

.09$.1

0-.12

$.13-

.15Ove

r $.15

Average Cost-Per-Copy for Copiers

LTOP Owned

• According to a GSA representative,$.03 per copy is realistically themost that government agenciesshould be willing to pay forcopiers. Per copy rates includeLTOP, maintenance, per copycharges, and supplies.

• DRO was paying more than $.03per copy for 52 percent of itsconvenience copiers. On average,DRO was paying $.04 per copyoverall, and $.05 per copy forequipment under LTOPagreements. These figures did notinclude supplies cost.

13

Copier Supply -vs- Demand

• Officials from other agencies andother FDIC offices told us monthlymeter readings are crucial toassessing the placement and type ofmachines that are needed.

• DRO convenience copiers offeredvolume levels as low as 40,000copies a month to as much as350,000 copies a month.

• To its credit, DRO was takingconsistent meter readings.

• However, we concluded the copiermodels that DRO had in itsinventory did not match DRO’strue copier needs.

• As the figure on the following pageshows, the optimal monthly volumelevels of DRO’s copiers (supply)far exceeded DRO’s actualmonthly copying volumes(demand).

• Generally, the DRO field officeshad a greater disparity betweencopier supply and demand thancopiers located in the regionaloffice buildings.

14


0102030405060708090

100

Cop

iers

1-15K 15-30K 30-45K 45-60K Over 60K

Monthly Volume

Comparison of Optimal Volume Levels of DRO Copiers (Supply) to Average Actual Copier Volumes (Demand)

Supply Demand

15

Lease-Ownership Alternatives

• We identified a number of lease-ownership options for procuringcopiers. This report presents ouranalysis of three options:

3 FDIC Atlanta CSB lease ofcopier equipment,

3 GSA Schedule Flat-RateMonthly Fee (FRMF) planwith Canon, and

3 FBA Cost-Per-Copy (CPC)Plan.

• All scenarios assume keeping the22 owned machines and explorealternatives for replacing theremaining 85 leased machines.

• All scenarios include penalties forthe early termination of LTOP.

• Scenarios also include a factor forthe trade-in value associated withLTOP machines.

• Finally, some plans includesupplies cost, while other plans,such as LTOP and the Atlantalease, do not.

16

Atlanta Office Scenario

• Atlanta Corporate Services Branch(CSB) signed a contract, effectiveFebruary 1998, with a distributor,Ikon Office Solutions, Inc., to leasecopiers for the Atlanta andMemphis offices and 25 fieldoffices. The lease had one baseyear and four 1-year options.

• Ikon placed 49 Ricoh Aficio 500copiers throughout the region at anannual expense of about $230,000.The Aficio 500 was a digital copierwith an optimal monthly volumelevel of 85,000 copies. It wascomparable to the Xerox DC265,but cost about $660 a month less.

• We calculated the costs of DROconverting to the terms of the IkonAtlanta contract. Includingtermination costs, we estimatedDRO could save approximately$213,000 over a 5-year term.

• DRO could achieve greater savingsby consolidating underutilizedmachines. For example, DROcould save an additional $156,000over a 5-year term by eliminating10 of its Xerox 5352 machines.However, such actions should onlybe taken after considering clients’needs and analyzing copierplacement.

17


• Atlanta awarded the contract fromthe GSA schedule. Thus, thecontract had the standard GSAterms and conditions, or betterterms. For example, Atlanta paid3 months of the lease amount toterminate copiers during thecontract, or no penalty iftermination occurred at the end ofthe contract or option year. Wefound that most commercial leaseshad no termination options orimposed severe penalties for earlytermination.

• Further, the Aficio 500 was adigital machine. All of DRO’scopiers were analog machineswhich did not employ digitaltechnology.

Scenario 5-Year Cost Total MonthlyVolume

CurrentLTOP

$1.8 million 5.7 million

AtlantaOfficeDistributor


18

GSA Flat-Rate Scenario With Canon

• A number of vendors also offeredFRMF programs under the GSAFederal Supply Schedule (FSS).

• FRMF programs offered copierconfigurations in several volumebands and charged a FRMF foreach machine which included thelease and maintenance fee, CPCcharges, and non-paper supplies.

• Canon offered FRMF terms of 36,48, and 60 months with sevenvolume bands and 16 copiermodels, including two digitalmodels.

• Including termination costs, weestimated FDIC could save$980,000 under the Canon FRMFprogram over a 5-year term.


CurrentLTOP


CanonFRMF


19

FBA Scenario

• The FBA is a government-wideprogram sponsored by theU.S. Department of the Treasury toprovide consolidated administrativesupport to participating agencies.

• At the time of our review,approximately 65 agencies usedFBA’s CPC program to procurecopiers.

• Further, FDIC had signedinteragency agreements with FBAfor its HQ convenience andproduction copier program.

• For the purposes of our analysis weused a rate of $.0295 per copy,based on the pricing that FBAquoted FDIC HQ. This rate couldchange given DRO’s averagemonthly volume levels.

• Including termination costs, weestimated that FDIC could save$430,000 over the 5-year term.


CurrentLTOP


FBA(@ $.0295)


20

Results of Analysis:San Francisco Regional Office

21

Background

• As of March 1999, SFRO had 34 convenience copiers of which 10 wereowned. Two copiers were leased on a cost-per-copy basis through an inter-agency agreement (IAA) with the FBA. The remaining 22 were under LTOPwith Xerox (10 copiers), Kodak (six copiers), Oce´ (five copiers) andGestetner (one copier).

• Eight of the LTOP copiers were located in the regional office. The remaining14 machines were located in the field offices.

• As of March 1999, the SFRO was paying approximately $161,016 annually, or$13,418 per month, for the 22 copiers under LTOP agreements.

22

Copier Utilization

0

5

10

15

20

25

30

Cop

iers

0-19

%

20-3

9%

40-5

9%

60-7

9%

80-9

9%

100%

+

Percent of Copier Utilization

Owned LTOP IAA (FBA) Lease

• Based on our analysis, weconcluded that a number of SFROcopiers were significantlyunderutilized.

• On average, 82 percent of SFROconvenience copiers wereoperating at less than 20 percentof their monthly optimal volumelevels.

23

Copier Cost-Per-Copy

0

1

2

3

4

5

6

7

8

Cop

iers

$.01-

.03$.0

4-.06

$.07-

.09$.1

0-.12

$.13-

.15Ove

r $.15

Average Cost-Per-Copy for Copiers

Owned LTOP IAA Lease

• According to a GSA representative,$.03 per copy is realistically themost that government agenciesshould be willing to pay forcopiers. Per copy rates includeLTOP, maintenance, per copycharges, and supplies.

• SFRO was paying more than $.03per copy for 76 percent of its 34convenience copiers. On average,the SFRO was paying $.06 percopy overall and $.07 per copy forequipment under lease agreements.These figures did not includesupplies cost.

24


• Officials from other agencies andother FDIC offices told us monthlymeter readings are crucial toassessing the placement and type ofmachines that are needed.

• SFRO convenience copiers offeredvolume levels as low as10,000 copies a month to as muchas 350,000 copies a month.

• To its credit, SFRO was takingconsistent meter readings.

• However, we concluded the copiermodels SFRO had in its inventorydid not match SFRO’s true copierneeds.

• As the figure on the following pageshows, the optimal monthly volumelevels of SFRO copiers (supply) farexceeded SFRO’s actual monthlycopying volumes (demand).

25


0

5

10

15

20

25

30

35

Cop

iers

1-15K 15-30K 30-45K 45-60K Over 60K

Monthly Volume

Comparison of Optimal Volume Levels of Existing SFRO Convenience Machines (Supply) to Average Actual Copier Volumes (Demand)

Supply Demand

26

Lease-Ownership Alternatives

• We identified a number of lease-ownership options for procuringcopiers. This report presents ouranalysis of three options:

3 FDIC Atlanta lease of copierequipment,

3 GSA Schedule FRMF planwith Canon, and

3 FBA CPC plan.

• All scenarios assume keeping the10 owned machines and explorealternatives for replacing theremaining 24 leased machines.

• All scenarios include penalties forthe early termination of LTOP.

• Scenarios also include a factor forthe trade-in value associated withLTOP machines.

• Finally, some plans includesupplies cost, while other plans,such as LTOP and the Atlantalease, do not.

27


• Atlanta CSB signed a contract,effective February 1998, with adistributor, Ikon Office Solutions,Inc., to lease copiers for the Atlantaand Memphis offices and 25 fieldoffices. The lease had one base yearand four 1-year options.

• Ikon placed 49 Ricoh Aficio 500copiers throughout the region at anannual expense of about $230,000.The Aficio 500 was a digital copierwith an optimal volume range ofabout 85,000 copies per month. Itwas comparable to the Xerox DC265,but cost about $660 a month less.

• We calculated the costs of SFROconverting to the terms of the IkonAtlanta Contract. Includingtermination and supplies costs, weestimated FDIC could saveapproximately $205,976 over a5-year term.

• This savings amount assumedreplacing all 24 existing LTOP andCPC copiers with Aficio 500copiers. Because the monthlyvolume levels on SFRO copiers arerather low, Ikon could likelyprovide more lower capacitymachines at lower costs andachieve additional savings.

28


• Atlanta awarded the contract fromthe GSA schedule. Thus, thecontract had the standard GSAterms and conditions, or betterterms. For example, Atlanta paid3 months of the lease amount toterminate copiers during thecontract, or no penalty iftermination occurred at the end ofthe contract or option year. Wefound that most commercial leaseshad no termination options orimposed severe penalties for earlytermination.

• Further, the Aficio 500 was adigital machine. Most SFROcopiers were analog machineswhich did not employ digitaltechnology.

Scenario 5-YearCost

Total MonthlyVolume

CurrentLTOP

$688,368 2.5 million

AtlantaOfficeDistributor

$482,392 2 million

29

GSA Flat-Rate Scenario With Canon

• A number of vendors also offeredFRMF programs under the GSA FSS.

• FRMF programs offered copierconfigurations in several volumebands and charged a FRMF for eachmachine which included the leaseand maintenance fee, CPC charges,and non-paper supplies.

• Canon offered FRMF terms of 36,48, and 60 months with sevenvolume bands and 16 copier models,including two digital models.

• Including termination costs, weestimated FDIC could save almost$469,301 under the Canon FRMFprogram over a 5-year term.

Scenario 5-YearCost

Total MonthlyVolume

CurrentLTOP

$688,368 2.5 million

CanonFRMF

$219,067 .8 million

30

FBA Scenario

• The FBA is a government-wideprogram sponsored by theU.S. Department of the Treasury toprovide consolidated administrativesupport to participating agencies.

• At the time of our review,approximately 65 agencies usedFBA’s CPC program to procurecopiers.

• Further, FDIC had signedinteragency agreements with FBA forits HQ convenience and productioncopier program.

• For the purposes of our analysis weused a rate of $.0295 per copy,based on the pricing that FBAquoted FDIC HQ. This rate wouldprobably change given SFRO’saverage monthly volume levels.

• Including termination costs, weestimated that SFRO could save$343,114 over the 5-year term.


CurrentLTOP

$688,368 2.5 million

FBA(@$.0295)

$345,254 1 million

31

Analysis of Leased -vs- Owned Copiers

• We understand that SFRO intendson replacing all leased and ownedcopiers with new copiers over thenext 2 years. We analyzedwhether it would be more costeffective for SFRO to:

3 retain its existing ownedcopiers and replace only leasedcopiers, or

3 replace all owned and leasedcopiers.

• On the surface, it appears moreeconomical to keep the ownedcopiers and avoid incurring LTOPcosts.

• However, we concluded that itwould be more cost effective forSFRO to replace all of its ownedand leased machines becausemaintenance and CPC charges forSFRO’s owned equipment aremore expensive than lease,maintenance, and CPC chargeswould be for rightsized equipment.

• We estimated that SFRO couldsave an additional $58,055 to$156,344 over a 5-year period byreplacing owned copiers withequipment from one of the threealternatives detailed in this report.

32

Conclusions

• DRO and SFRO convenience copiers appeared to be significantlyunderutilized. As a result, on an average cost-per-copy basis, both regionswere paying more than what government and industry sources suggest asreasonable.

• Moreover, other lease and ownership plans existed that could reduce DRO’sand SFRO’s program costs over a 5-year contract period and place machinesthat more appropriately match the offices’ needs.

• Further, DRO could achieve additional savings by consolidating copiers thatwere significantly underutilized.

• Finally, SFRO could achieve additional savings by following through with itsintent to replace its owned machines with rightsized leased machines from oneof the alternatives presented in this report.

33

Recommendations

We recommended that the Director, Division of Administration:

1. Take actions to more closely align the types and placement of equipmentin DRO’s and SFRO’s copier programs with each region’s copyingdemands.

2. Analyze the available convenience copier contract vehicles and scenariosand select the ones that provide the best value for DRO and SFRO.

34

Corporation Comments andOIG Evaluation

• The Director, DOA, provided theCorporation’s written response to adraft of this report. The response ispresented as Appendix I to thisreport. DOA agreed with both ofour recommendations. DOA’swritten response describing actionsalready taken and planned actionsprovided the requisite elements ofmanagement decisions for both ofour report recommendations.

• DOA’s written response indicatedthat DRO and SFRO would reviewhow best to realign equipment andthe regions agreed to reviewalternative programs during 2000.Accordingly, we cannot quantifyfunds put to better use from ourrecommendations at this time.Should future DOA actions resultin program savings, we will reportthose monetary benefits in ourSemiannual Report to the Congressduring the appropriate reportingperiod.

35

Appendix I: CorporationComments

36

Corporation Comments

evaluation of fdic regional copier program › oig › e-rep99 › 99-007r1.pdf · sfro’s true...

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