<DOC> [105 Senate Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:49529.wais] S. Hrg. 105-600 COMPETITION FOR COMMERCIAL ACTIVITIES IN THE FEDERAL GOVERNMENT ======================================================================= HEARING before the SUBCOMMITTEE ON OVERSIGHT OF GOVERNMENT MANAGEMENT, RESTRUCTURING, AND THE DISTRICT OF COLUMBIA of the COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE ONE HUNDRED FIFTH CONGRESS SECOND SESSION __________ JUNE 4, 1998 __________ Printed for the use of the Committee on Governmental Affairs <snowflake> U.S. GOVERNMENT PRINTING OFFICE 49-529 cc WASHINGTON : 1998 _______________________________________________________________________ For sale by the U.S. Government Printing Office, Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 COMMITTEE ON GOVERNMENTAL AFFAIRS FRED THOMPSON, Tennessee, Chairman WILLIAM V. ROTH, Jr., Delaware JOHN GLENN, Ohio TED STEVENS, Alaska CARL LEVIN, Michigan SUSAN M. COLLINS, Maine JOSEPH I. LIEBERMAN, Connecticut SAM BROWNBACK, Kansas DANIEL K. AKAKA, Hawaii PETE V. DOMENICI, New Mexico RICHARD J. DURBIN, Illinois THAD COCHRAN, Mississippi ROBERT G. TORRICELLI, New Jersey DON NICKLES, Oklahoma MAX CLELAND, Georgia ARLEN SPECTER, Pennsylvania Hannah S. Sistare, Staff Director and Counsel Leonard Weiss, Minority Staff Director Lynn L. Baker, Chief Clerk ------ SUBCOMMITTEE ON OVERSIGHT OF GOVERNMENT MANAGEMENT, RESTRUCTURING, AND THE DISTRICT OF COLUMBIA SAM BROWNBACK, Kansas, Chairman WILLIAM V. ROTH, Jr., Delaware JOSEPH I. LIEBERMAN, Connecticut ARLEN SPECTER, Pennsylvania MAX CLELAND, Georgia Michael Rubin, Staff Director Laurie Rubenstein, Minority Staff Director Esmeralda Amos, Chief Clerk C O N T E N T S ------ Opening statements: Page Senator Brownback............................................ 1 WITNESSES Thursday, June 4, 1998 J. Christopher Mihm, Acting Associate Director, Federal Management Workforce Issues, U.S. General Accounting Office, accompanied by Bill Reinsberg and Marilyn Wasleski............. 2 G. Edward DeSeve, Acting Deputy Director, U.S. Office of Management and Budget.......................................... 7 Hon. Craig Thomas, a U.S. Senator from the State of Wyoming...... 12 John Berry, Assistant Secretary for Policy, Management and Budget, U.S. Department of the Interior........................ 16 W. Scott Gould, Chief Financial Officer and Assistant Secretary for Administration, U.S. Department of Commerce................ 19 Alphabetical List of Witnesses Berry, John: Testimony.................................................... 16 Prepared statement........................................... 55 DeSeve, G. Edward: Testimony.................................................... 7 Prepared statement........................................... 48 Gould, W. Scott: Testimony.................................................... 19 Prepared statement........................................... 63 Mihm, J. Christopher Testimony.................................................... 2 Prepared statement........................................... 27 Thomas, Hon. Craig: Testimony.................................................... 12 COMPETITION FOR COMMERCIAL ACTIVITIES IN THE FEDERAL GOVERNMENT ---------- THURSDAY, JUNE 4, 1998 U.S. Senate, Oversight of Government Management, Restructuring, and the District of Columbia Subcommittee, of the Committee on Governmental Affairs, Washington, DC. The Subcommittee met, pursuant to notice, at 10:06 a.m. in room SD-342, Dirksen Senate Office Building, Hon. Sam Brownback, Chairman of the Subcommittee, presiding. Present: Senator Brownback. Also present: Senator Thomas. Senator Brownback. The hearing will come to order. OPENING STATEMENT OF SENATOR BROWNBACK Senator Brownback. Welcome to all of you this morning. I'd like to welcome everyone here today for this important oversight hearing to examine the current OMB process and policy, also known as OMB Circular A-76, for establishing a competition for commercial activities within the Federal Government. We are here to address OMB's leadership role in this area and to see how we can improve it. Under A-76, Federal agencies are required to identify commercial activities performed in-house and provide an inventory of these activities. These activities must then be competed. Implementation of A-76, however, has been inconsistent throughout the Federal Government, as seen in the displayed chart. We can provide that to people who would like to see it. We brought this up at the prior hearing about the inconsistencies of the A-76 process and we will be happy to hear responses to this from the OMB as we go through it. As you can see, some agencies fully engage--actually, not even fully engage but are much more engaged than others. Some down at the bottom, the Commerce Department, no engagement whatsoever, and I am looking forward to our Commerce witness to tell us why they do not believe they should or why they do not or just why the lack of competition or implementation of A-76. The Subcommittee held a hearing earlier this year on draft legislation which would address the weaknesses of A-76, the Fair Competition Act, S. 314. It would establish a level playing field for competing commercial activities performed by the Federal Government. Under the current draft both private industry and Federal employees would be able to compete for these activities. We have heard the frustration expressed with the current competition process, the A-76 process, from all sides of this issue. Federal employee representatives say that agencies ignore A-76 and directly contract out commercial activities. Private industry representatives say that Federal agencies ignore A-76 and keep commercial functions in-house. We will continue to work on this legislation to address these and other concerns raised about A-76. I have also asked GAO to study how OMB A-76 is working under OMB's leadership, specifically with the U.S. Departments of Commerce and the Interior. Preliminary results indicate that Federal agencies are simply disregarding OMB's competition policy. Furthermore, OMB's own competition policy, A-76, is not a significant priority within OMB. We will have a GAO witness testify and speak about the findings that they have found under their study. The purpose of today's hearing is to get to the bottom of this. Why is the current competition process not working? Why are agencies ignoring the current guidelines contained in A-76? Why is OMB's own policy not a priority within OMB and this administration? Why is implementation of the OMB circular inconsistent from one Federal agency to the next? We will be hearing from representatives from the GAO, OMB, the Department of Commerce and the Department of the Interior, who I hope will answer these important questions. I want to emphasize that our final goal is to make sure we are getting the most for each taxpayer's dollar. With that we have three panels of four total witnesses that will testify today. As I noted in here, this is actually the third hearing on this overall issue, although this one we will focus specifically on the A-76 process. With that I would like to call up the first panel witness, J. Christopher Mihm, Acting Associate Director, Federal Management Workforce Issues with the U.S. General Accounting Office, who will testify today regarding the GAO study that was recently completed. Mr. Mihm, thank you very much for joining us. Please identify the other two people who are at the table with you. TESTIMONY OF J. CHRISTOPHER MIHM,\1\ ASSOCIATE DIRECTOR, FEDERAL MANAGEMENT AND WORKFORCE ISSUES, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY BILL REINSBERG AND MARILYN WASLESKI Mr. Mihm. Yes, sir. Mr. Chairman, I am very fortunate to be joined today by two of my colleagues, first Bill Reinsberg, who has been leading much of our work, looking at managed competition in civilian agencies, and Marilyn Wasleski, who leads much of our work at the Department of Defense, looking at A-76 and out-sourcing issues. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Mihm appears in the Appendix on page 27. --------------------------------------------------------------------------- Senator Brownback. Welcome. Mr. Mihm. It is a pleasure to be here today. With your permission, Mr. Chairman, I ask that my written statement be included in the record and I will take just a few minutes to hit some of the highlights. Senator Brownback. Without objection. Mr. Mihm. Thank you, sir. This morning I would like to cover three major points. First, A-76 can be an effective management tool for improving operational efficiency and reducing costs. Second, within civilian agencies, A-76 has been little used in recent years and OMB accordingly, in our view, needs to augment its leadership efforts. And third, I will point out the elements that we have found to be necessary for a more active A-76 program. Turning to the first point, with the agreement between Congress and the administration to balance the Federal budget, agencies must increase their efforts to ensure that their operations are as efficient as possible. In that regard, A-76 is one of a series of tools that managers can use to make sound business decisions and to enhance performance through competition and choice. Experience with A-76 suggests that competition is the key to realizing savings, whether the functions are eventually performed by the private sector or remain in-house. Savings achieved through A-76 are the result of closely examining the work to be done and then reengineering those activities to perform them with fewer personnel. Reported savings estimates, in some cases as much as 20 percent, must be taken with caution, but nevertheless there appears to be a clear consensus that savings will be achieved when agencies undertake a disciplined approach such as that called for under A-76, to reviewing their operations and implementing needed changes or contracting out services. Turning to my second point, strong OMB leadership is needed to invigorate civilian agencies' A-76 programs. As shown in the table in my written statement, there has been very little activity among civilian agencies since the late 1980's in A-76. OMB's March 1996 revision of the A-76 supplement streamlined procedures and made other much-needed reforms. Since then, however, OMB has not consistently worked with agencies to ensure that the provisions of A-76 are being effectively implemented. For example, OMB has not aggressively followed up with agencies that fail to submit commercial activity inventories, with the result being that as of April 1998, six of the 24 largest agencies still had not provided inventories. OMB has also not systematically reviewed the inventories to determine if agencies are missing opportunities to generate savings. And finally and most important, it is not clear how consistently OMB has raised questions during the budget process about agencies' implementation of Circular A-76. That integration into the budget process is really where A-76 can get its teeth. As I understand Mr. DeSeve will discuss, OMB has recently taken some steps that, in our view, are a move in the right direction. However, sustained OMB commitment and follow-through will be vital to the success of that effort. Turning now to my third and final point this morning, several elements are needed for a successful A-76 effort across Federal agencies. First, as I have just noted, leadership commitment to use A-76 is important. Consistent and forceful leadership from OMB is essential to provide incentives for managers to subject themselves to the rigors of A-76. Second, A-76 will be most effective when it is integrated within a performance-based approach to management accountability. The annual performance plans that agencies are to develop under the government Performance and Results Act, which was passed under the leadership of this Committee, provide a ready-made annual vehicle that agencies and Congress can use to consider whether or not the most cost-effective strategies are in place to achieve agency goals. As part of this consideration, Congress can ask an agency about the tools the agency is using to increase effectiveness, including the status of its A-76 programs, and the specific choices that are being made about whether to keep a commercial activity or contract it out. In other words, Congress has a vehicle for beginning to raise these types of issues up on its radar screen. Third, improved cost data are critical. The government's lack of complete cost data, particularly for indirect costs, has increased the difficulty of carrying out A-76 because the government is not able to accurately determine the cost of activities it plans to compete. Continuing efforts to implement the Chief Financial Officers Act and the Federal Accounting Standards Advisory Board or FASAB managerial cost accounting standards are central to ensuring that agencies resolve their long-standing problems in generating vital information for decision-making. Fourth, an effective A-76 effort requires considerable contract management capability. An agency must have adequate capacity and expertise to successfully carry out the solicitation process and effectively administer and monitor contracts once they are awarded. Our work has shown that contract oversight and monitoring has been a consistent weakness in Federal efforts. In summary, Mr. Chairman, A-76 has shown itself to be an effective management tool for increasing efficiency of the Federal Government and saving scarce funds. However, despite its proven track record, A-76 is seldom used in civilian agencies. OMB needs, in our view, to more consistently strong send messages to the agencies that A-76 is a priority management initiative. Its recent efforts are an encouraging first step, but only a first step. Thorough implementation and follow-through will be needed to get A-76 on track. Agencies' development and Congress' use of annual plans under the Results Act provides an opportunity to consider A-76 and other competition issues within the context of the most efficient means to achieve agency goals. Mr. Chairman, this concludes my statement and I would be pleased to respond to any questions that you may have. Senator Brownback. Thank you. Thank you for your statement, your study and the conciseness of it. It does seem very puzzling in your chart, that the Defense Department has 760,000 total agency FTE's and they are reporting 445,000 plus involved in commercial activities. One would think that the military does not have that many functions necessarily associated with commercial activities. Then you go down to the Commerce Department, 34,900 employees, far less, and zero involved in commercial activities. Did they just choose not to participate in the activity? Mr. Mihm. I can speak to your question, Mr. Chairman. The chart I am referring to is a slightly different chart that comes from our testimony. I can bring you up a copy of that. It talks about the total FTE's that have been studied. Senator Brownback. Well, let's use your chart. I thought this one was. I'll look at your chart. Mr. Mihm. Ours is on page 7 of the written statement. Senator Brownback. So you go with united agencies, then. Why do you think, then, that civilian agencies--are just not participating in this. Do they not think that there are people that are doing commercial activities or performing commercial activities within their agencies? Mr. Mihm. I think there is a combination of reasons and we have had quite a few discussions with officials across the government, in particular the Departments of Commerce and Interior. Over the last few years they have perceived that there are higher priority management improvement initiatives, such as those led by the National Performance Review. They view A-76, in this sense correctly in our view, as one of a series of tools that they can use to improve effectiveness. Now, what concerns us is even viewing it as one of a series of tools, one would expect that there would be greater opportunities identified to apply that particular tool. There has also been concern expressed by officials in these agencies that they do not have the staff with the capacities or the knowledge, skills and abilities in order to do the systematic reviews that are needed to compete commercial activities, to let the contracts and to manage the contracts once they have been awarded. In our view, what has to happen is that OMB needs to really be making it very clear to agencies that A-76 is a priority initiative and it needs to drill this right into the budget process and, through the government Performance and Results Act, to start setting up some quite rigorous expectations that OMB will be looking at commercial activities and, where appropriate, agencies should be using A-76 to contract out. Senator Brownback. You seem to be pointing out a clear systems failure or some type of failure in the civilian agencies in the use of A-76. Is that correct? Mr. Mihm. Yes, sir. It just has not been a priority initiative. Senator Brownback. And you are citing several different reasons to this, but that we have had a failure of this law. Has it always been this way since A-76 has been in place? Have we always had the civilian agencies not participating or not seeing this as any sort of priority? Mr. Mihm. No. As a matter of fact, in the late 1980's and the early 1990's, as the top of the chart shows, there was some significant action that was taking place within civilian agencies. You can see there that 2,000--in some cases 5,000 in 1988--civilian FTE's were studied. The Department of Commerce had a large percentage of that. The General Services Administration did a large number of studies, as well as the Department of Transportation. Since then, as the data also indicates, there has been a great fall-off in the interest and use of A-76 among civilian agencies. What we think needs to happen again is getting this into the normal decision-making processes that OMB uses and really drilling this into the budget process, using the Government Performance and Results Act as one vehicle. Senator Brownback. For instance, in 1988 how many employees did the Department of Commerce say they had involved in commercial activities? Did you look at that? Mr. Mihm. We did look at that. I don't have that readily available. With your permission, Mr. Chairman, we will make sure we supply that for the record. INFORMATION FOR THE RECORD The Department of Commerce's last complete update of its commercial activities inventory, done in 1983, showed over 5,000 Full-time Equivalent (FTE) positions performing commercial activities. Senator Brownback. And what did they say in the most recent study that they had of FTE's performing commercial activities? Mr. Mihm. The last time the Department of Commerce did a complete update of its inventory of commercial activities was 1983, so it does not have a recent list of its commercial activities. One of the things that we view as being particularly important about the current OMB call for agencies to review their inventories is that the Department of Commerce and other cabinet agencies will be going through again and updating their list of commercial activities and the number of FTE's that are working in them. Senator Brownback. You have made a number of suggestions as to how its implementation can be improved. Are there other things, beyond its implementation, that you have studied, whether it needs to have more enforceability, more requirements associated with it? Have you studied any of those aspects? Mr. Mihm. No, sir. We really haven't looked at that. We have looked at similar initiatives that have taken place in State and local governments. In fact, some of the testimony that we have provided in front of this Subcommittee and other subcommittees talked about some of the lessons learned that we saw in various States and in the City of Indianapolis as to how they ran their privatization effort, which included A-76-like activities, but we have not looked at the issues that you are raising. Senator Brownback. But in conclusion on your study, basically the civilian agencies just are not doing this. Mr. Mihm. Yes, sir. We do not see that it is being used. We understand and fully agree with the position that A-76 is one of a series of tools that managers need to use. However, when we see zero FTE's being studied, and in some cases agencies not doing any studies over the last 10 or 11 years, that leads us to wonder whether or not A-76 is being fully appreciated as one of the tools that agencies can use. Senator Brownback. Good. That is an excellent study. I very much appreciate your willingness to study and look at this aggressively because in my estimation since we have been looking at and studying the bill that is brought forward, there has just been a systems failure of the current system and we needed to look and understand was that estimation on mine and a number of other people's parts accurate or inaccurate? And your study certainly gives us the factual basis of information to conclude that there has been a systems failure under the current system. I also note that you think there is some improvement taking place and some positive steps here recently, but we have had a systems failure over the last number of years, particularly of the civilian agencies. Mr. Mihm. Yes, sir. And the key to success for the steps that are taking place now, in particular the memo that the OMB director sent out in mid-May, will be effective implementation and follow-through on the part of OMB and the agencies. Senator Brownback. Thank you very much. Thank you for doing the study. I don't know if there is a chance for you to stay around. I hope for the hearing not to last too long but it might be good to have you here to be able to respond if we have additional questions later on. Mr. Mihm. I would be pleased to, sir. Senator Brownback. Thank you very much. Thank you for conducting the study and I thank your cohorts, as well. The second panel will be the Hon. G. Edward DeSeve, the Acting Deputy Director of the U.S. Office of Management and Budget. Mr. DeSeve, we welcome you back to the Subcommittee yet again. TESTIMONY OF G. EDWARD DeSEVE,\1\ ACTING DEPUTY DIRECTOR, U.S. OFFICE OF MANAGEMENT AND BUDGET Mr. DeSeve. Mr. Chairman, I am delighted to be here. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. DeSeve appears in the Appendix on page 48. --------------------------------------------------------------------------- Senator Brownback. Well, these can be tough inquiries and I am sure they are not days that you look forward to. Maybe you would rather go to the dentist on days like this than be here. But we do have serious things that we need to look at. We are having difficulties and failures in this system and I want to hear why it is we are seeing these sorts of systematic failures taking place because I sure think we need to address them. Thank you for joining us and the floor is yours. If you hear any of these comments that you would like to address quickly as they are fresh in your mind, feel free to do that; then we can take your full testimony later, if you would like to. Mr. DeSeve. I thought I would just give you a verbal statement which summarizes my full testimony and then respond to your questions. Senator Brownback. OK. Mr. DeSeve. I am pleased to be with you today to discuss OMB Circular A-76 and how the Federal Government acquires commercial support activities. As I noted in my testimony before you on March 24, we share the goal of seeking the most efficient and cost-effective source for provision of commercial support activities. The CFO Act, the Government Performance and Results Act, the Federal Acquisition Streamlining Act and the Clinger-Cohen Act and the A-76 process, all taken together, reflect important efforts to improve our effectiveness while recognizing the complexities of our financial, operating and management systems. The Defense Department is clearly setting the pace in the implementation of A-76. The Department is evaluating which functions are commercial in nature and subject to competition. The Department is now providing its employees the training and resources necessary to develop historical workload data, performance and evaluation criteria, the ability to perform results-oriented contracts and to compete within the private sector and with its own employees for functions currently being performed by civilian and military personnel. We are now engaged in the largest effort undertaken to compete commercial activity support services. More than 200,000 FTE's have been scheduled for review within the Defense Department. This represents more than twice the total number of FTE studies under A-76 by all agencies since 1981. The studies are expected to generate $6.4 billion in savings by the year 2002 and are in addition to the other acquisition, restructuring, consolidation, utility and family housing privatization initiatives that have also been undertaken by DOD. To put this in a somewhat broader reinvention context, as of the end of 1997, the administration had cut the civilian workforce by more than 316,000 employees using various reinvention tools, creating the smallest Federal workforce in 35 years and, as a share of total civilian employment, the smallest Federal workforce since 1931. In May of this year, OMB issued its 1998 A-76 inventory call. This inventory, which is due to OMB no later than October 31, 1998, will be reviewed by the President's Management Council, the Chief Financial Officers Council, will be published in the Federal Register and will be submitted to Congress. In conjunction with these reviews, an interagency panel will compare agency submissions to achieve consistency in the determination of what is inherently governmental and what is commercial in nature. It is critical that agencies like Commerce and Interior retain the flexibility to focus on any of a series of reinvention priorities, including certainly the use of A-76. Coordinating these competitions with other reinvention tools now available is a complex effort, particularly as we strive to ensure that the interests of our employees, the agencies, the private sector and the taxpayer remain protected. Over time, we believe that civilian agencies will come to rely more heavily on public/private competitions in order to increase savings. The March 1996 revision of A-76 was carefully crafted to encourage and permit agencies to incorporate into their reinvention and restructuring plans the work of A-76. It does no good to require cost comparisons of activities that can or should be discontinued, divested or fundamentally restructured. We need to reflect new technology and changes in mission requirements. Regionalization, consolidation, termination, closing of unneeded facilities, application of electronic commerce and other techniques may be more appropriate reinvention approaches and agency managers must reflect discretionary authority to implement these changes while remaining good employers. If changes are made to Circular A-76, they must contribute to the reinvention process and move it forward. Our principles for the review of proposed A-76 changes are quite clear. First, they must promote competition to achieve the best deal for the taxpayer, not simply undertaking out-sourcing. Second, it must not increase the level of judicial involvement in the government's management decision-making as to whether to out-source or not. Third, they must recognize that current guidance to promote a level playing field is in place. Fourth, the complexities of public/public and public/ private competition must be reflected in such changes. Fifth, any changes must be fair and equitable to all interested parties. Sixth, out-sourcing must be viewed in the context of the larger reinvention effort. Finally, it is inappropriate and may be detrimental to require the head of an agency to undertake competitions in accordance with a schedule mandated by law. Thank you very much, Mr. Chairman. That concludes my statement. I would be happy to answer any questions the Subcommittee has. Senator Brownback. Mr. DeSeve, thanks for the statement and any written record you would like to put in, we would be happy to have as part of the record. Really to get to the point of it, in looking at the chart on page 7 of the GAO study, and I don't know if you would like to get a copy. Mr. DeSeve. I have a copy. Senator Brownback. OK. You look at 1988. DOD FTE's involved in this competition, civilian agency FTE's, and you then go down through this chart and it looks like particularly on the civilian agency area, that they have just said, ``Look we are not doing this anymore.'' The old mule just laid down in the middle of the road; ``We are just not moving. We are not going to do this.'' And, for whatever reason, DOD says, ``OK, we will do this. We will fully engage.'' And DOD is providing you the leadership on this, not OMB. And certainly these agencies, many of them, and certainly the Commerce Department not having any FTE's involved in commercial activity, really strikes me as an odd statement. Why have they just stopped participating in this? Mr. DeSeve. I am going to let Department of Commerce give its own reason for not filling out the inventory form. I do not think that is acceptable. We are trying, by putting a new call for inventory out now, to work with each of the agencies to make sure that everybody responds and that we carefully review the commercial functions and inherently governmental functions. It needs to be done and the process for doing that is in place. In terms of agencies using A-76 as one of a set of tools, I think they chose other tools during that period. In the reinvention process we said to the agencies, ``First decide if you have to be in that business at all. We do not want to pave the cowpath. We do not want to out-source something where you should not be in the business at all.'' So we saw OPM, for example, divesting its investigations function. This Subcommittee had a series of hearings in which I participated and you participated. We talked about creating a private corporation, an ESOP, where that function would spin off. As a result of that and getting rid of their function of training--they did not out-source it; they got rid of it, they got out of the business--OPM has cut its workforce by more than 50 percent. The same set of choices was made by other domestic agencies, such as GSA which eliminated almost a third of its workforce along the way. So they chose a hatchet in some cases, as opposed to a machete. OMB A-76 might be categorized as a machete and some of the other efforts might be described as hatchets. The cutting was done, after all, and I think that is what we were trying to get at. We were trying to reduce the cost of government and eliminate unneeded functions. At the same time, DOD, which had also engaged in the same kinds of activities, found that A-76 was particularly valuable to them. It is, however, a cumbersome tool. It is a tool that we believe takes at least 2 years from the point of initiation to the point of realization. Some agencies wanted to see different tools used to produce more short-term results, whether those were RIFs, elimination through attrition, whether they were buy-outs, whether they were divestitures, whether they were downsizing or devolution to State and local governments, those tools were chosen in place of A-76. We think that is not enough. We think A-76, as better understood and better implemented, can, in fact, yield great results. DOD was not alone. We worked very closely and need to work very closely with DOD in setting its priorities and undertaking OMB A-76 reviews. I can't tell you the number of conversations I and my staff have had with them and we've encouraged them and they have been very receptive. Senator Brownback. So for me to understand your system of A-76, it is basically whether or not the agency wants to do it and you really do not care. I mean, you would like to see them participate but if they do not and they choose another set of tools, that is fine by you as OMB. Is that correct? Mr. DeSeve. That is correct. It is like the Government Performance and Results Act. We want to see the result. We want to see the outcome of a smaller, more efficient government. The means and strategies an agency uses should be consistent with the agency's individual plans. We are certainly working to encourage greater understanding, streamlining and use. A-76 has really been something that agencies have shied away from because of the time it takes and the complexity involved in the process. Senator Brownback. I am sure you have heard the charge that you have stated frequently that there has been a decline in the workforce of the Federal Government during this administration and I am sure you have heard the charge that most of that has come from the Department of Defense. And your numbers here seem to suggest that there is a lot more pushing on the Department of Defense to do some of these things than there is on a number of the civilian agencies that are involved. Clearly the charts that we have here, the information put forward by the GAO suggest that at least on the A-76 processes that you or others are strongly encouraging the Department of Defense to do this but are very much laissez faire with regard to anybody else. If one were to study the end product and try to determine why we got to this point, the Department of Defense is doing this, the others are not, and there appear to be no consequences whatsoever to the civilian agencies. If they want to participate, fine; if they do not want to, that is fine. But you do see this taking place in the Department of Defense. I note all that for you, Mr. DeSeve, because it looks like to me, and now you have the GAO study saying it, as well, that there is a systems failure on A-76 taking place amongst the civilian agencies. You just heard the testimony that we had and it had been my hunch for some time that that was the case. It turns out that that is indeed the case. You have the Department of Defense, the military agency that is participating greatly in this, according to GAO numbers, according to your numbers. We have the Department of Commerce which has many commercial competitive activities and the OMB saying, ``That is fine; we are not going to push you on this at all. And if you choose other tools, if you choose to add employees, if you choose to continue to compete, that is fine.'' That strikes me as a real systems failure if one is looking to try to identify commercial activities that are competing with the private sector, that we do not have any OMB leadership on this. The agency can choose, decide if they want to or do not want to participate in this, and the GAO confirms that, that we have a complete systems failure taking place. What has happened, for instance, in the number of FTE's at the Department of Commerce, total, over the last--if you have a good period of time on there, over the last 5 years? Mr. DeSeve. From 1993 to 1996 actually they have lost 2,900 FTE, which is about 8 percent of their workforce. If you extend that to 1997, they have lost a total of 4,100 or 11.2 percent of their workforce without using OMB Circular A-76. The choices---- Senator Brownback. How did they do that? Mr. DeSeve. I am going to ask Mr. Gould to comment on that. I think what you will find is that through buy-outs, through reductions in force in selected areas and through contracting mechanisms not entailed in A-76. A-76 is the prescribed mechanism for competing FTE. Other contracting, either for new work, for expanded activity, is not covered by A-76, so that out-sourcing, privatization and contracting can be accomplished in other ways than through the formalized A-76 mechanism. Senator Brownback. Let me follow up on that and I want to ask another question regarding that but I have used my time and I want to pass to Senator Thomas for him to ask a few questions. Senator Thomas. Thank you very much. Senator Brownback. Thanks for joining us. Mr. DeSeve. Senator, it is good to see you. OPENING STATEMENT OF SENATOR CRAIG THOMAS, A U.S. SENATOR FROM THE STATE OF WYOMING Senator Thomas. How are you, sir? Nice to see you. First of all, I appreciate very much having this hearing. I think the point of the whole program, of course, is to take a look at the purpose of A-76, which is, as I understand it, to take commercial activities within the government and give the private sector an opportunity to see if they can, in fact, perform them more efficiently. Isn't that what you consider to be the purpose of it? Mr. DeSeve. No, sir, I don't. Senator Thomas. Don't you? Tell me what it is, will you, please? Mr. DeSeve. Yes, Senator. I believe it is a chance to provide lower cost, a savings for the taxpayer, whether the private sector wins the competition or the public sector wins the competition. Senator Thomas. I think that is what I said. Do it more efficiently. Mr. DeSeve. I misunderstood. I thought you said---- Senator Thomas. Well, why don't we do that, then? Why isn't that happening? Now, this policy has been in place since President Eisenhower; isn't that right? Mr. DeSeve. I would have to look. That is probably---- Senator Thomas. Well, I will tell you it is. Mr. DeSeve. I will rely on you for that. Senator Thomas. It has been in place a very long time and still we have a million people on the Federal payroll doing things that are commercial in nature, most of which the private sector has not had an opportunity to compete for. Now, do you call that success? Mr. DeSeve. No, sir, I call that the status quo and I don't think it's---- Senator Thomas. That is exactly what I call it, too, and we in Congress are trying to do something about that. Mr. DeSeve. I agree with you and I think the Defense Department is providing great leadership in that area. Senator Thomas. I do, too. Mr. DeSeve. And I believe that other domestic agencies will see that process work in DOD and---- Senator Thomas. How long does it take, for heaven's sake? How long has this policy been in place? Mr. DeSeve. Unfortunately, A-76 itself takes about 2 to 2\1/2\ years. Senator Thomas. I am talking about how long does it take to implement a program, a concept that has been in place for a very long time? Let me just say I am a little impatient. We have been through this before and the feeling I get is that there is resistance from your agency and the rest of the Federal Government. You just don't want to do anything any differently from what you are currently doing. And even though GAO pretty clearly points out in their testimony that A-76 is not a high priority among the civilian agencies, pointing out here that many of the agencies do not even respond to OMB's A-76 inventory requests, and yet I hear from you, ``Oh, things are OK. We don't need to do anything. We are doing it.'' Now, that is really hard for me to understand. Mr. DeSeve. Let me be very clear. Things are not OK and the reason we put out a new inventory call was to get the agencies' inventories up to date, to encourage them to properly characterize their functions---- Senator Thomas. ``Encourage'' bothers me a little. Obviously encouraging does not get the job done, and that is why we in Congress are talking about some kind of statutory authority. I have met with you several times in an effort to make it as reasonable as we can. We are willing to continue to work with you. I am focused on results, the bottom line. I get awfully impatient with the idea of talking all the time about what we are doing when the measurement of result is really the issue, and the results do not show that it is being done. Mr. DeSeve. And again, Senator, I do not mean to belabor or restate the issue. When we look at results, as we would under the Government Performance and Results Act, we look at the total reduction in the size of the workforce---- Senator Thomas. Wait a minute. That is not the issue. The issue is to take commercial activities and to see if they can be done more efficiently, not the number of FTE's. The number of FTE's are down because of the Department of Defense downsizing and the savings and loan cleanup, and we all know that. So numbers down is not the only issue, is it? Mr. DeSeve. No, sir, but I think cost savings---- Senator Thomas. What about the Army Corps of Engineers? Tell me a little about how they have reduced their number of FTE's. Mr. DeSeve. I don't know the answer. Senator Thomas. Well, I will tell you the answer. Mr. DeSeve. I do not have it in front of me. Senator Thomas. Their budget has gone down substantially and the number of employees have not. Mr. DeSeve. I will be happy to look at the data and supply it for you. Senator Thomas. Well, isn't that your job, to look at that? Senator Brownback. The witness needs to be allowed to answer fully. I think, Mr. DeSeve, as you can tell, we are both pretty frustrated about what we---- Senator Thomas. We have had these types of answers, Mr. Chairman, before. Senator Brownback. I know, but I am trying to be nice about it. Senator Thomas. And I appreciate that. Mr. DeSeve. And Senator Thomas and I do not disagree on a lot of these issues and I understand his frustration in this area. Senator Thomas. So we are trying to create a statutory basis for accomplishing the same goals that you and I have talked about, and I don't understand the objection to that. Mr. DeSeve. I don't think we have objected to that, Senator. I think we set out a set of principles that we would like to see a statute adhere to. I do not believe we have objected to the statute. I do not believe we have objected to the ideas that you put forward, as long as they stay within the principles. There have been some bills out there at one time--not now but at one time--that would have simply out-sourced everything, regardless of cost. That was not a good idea, so we objected to that. Senator Thomas. Agreed. Mr. DeSeve. But we have indicated a willingness to work with the Subcommittee to try to understand your frustrations and try to do something about a bill. Senator Thomas. Maybe, Mr. Chairman, I should have had this as a statement rather than questions. I apologize if I haven't given you a chance, Mr. DeSeve. What about the May 12, 1998, memorandum? Why doesn't it provide a timetable for competition? What are you going to do differently to make this inventory call work, since the past two have not? Mr. DeSeve. I guess what we are going to do differently is we are going to say that agencies have done many good things; here is another chance, again especially with DOD breaking a path for us and showing us how to do things a little better in some of the areas. Agencies have not had a good roadmap themselves. So first we are going to say go back again and look much more carefully now at your workforce; tell us what is inherently governmental; tell us what is not. Let's get some of your peers who have been successful to review what you have done and perhaps give you some suggestions where you can think more thoughtfully about what that inventory looks like. And then we are going to strongly encourage agencies in the balanced budget world. After the Balanced Budget Act, the strictures are still on place. We talked about surpluses. But the caps in the domestic side are still in place and we believe agencies are looking for new and expanded tools to meet those caps. So that is our process from now through the budget season to try to get them to move in that direction. Senator Thomas. OMB Circular A-97 implements the Intergovernmental Cooperation Act that requires local governments to certify to OMB that services cannot be produced reasonably and expeditiously through ordinary business channels before a Federal agency can provide such services. How many such certifications have you on file? Mr. DeSeve. I would have to look. I do not have that data before me. I didn't come prepared to testify on that. I just do not know. Senator Thomas. I believe the answer is zero. Mr. Chairman, thank you. I will wait a while. Senator Brownback. Mr. DeSeve, thanks. We just look at the world differently, I guess is the problem here. The GAO study verifies what I suspected for some period of time, that we just weren't seeing the OMB leadership with the civilian agencies. You are verifying that by saying it is one of several tools. I think you can gather from Senator Thomas and I and many members of the legislative body that we think it should be clearly a very aggressively used tool. That is not happening. Commercial competition with Federal agencies decreased over the past 10 years. We do not think it is getting done. I am glad to hear your number of workforce decline in the Department of Commerce taking place. I want to look at it and com- pare it to some other agencies. Our point with that would be, as well, that that is not the whole issue here. We are talking about the FTE numbers is a good indicator. I think it is a very positive indicator if it is going in the right direction. But here you have a competition with private sector by the public sector that regardless of the issues of FTE size, should be clearly evaluated and we should not be having this head-to-head competition in places if it can be done more efficiently. And you have most of your civilian agencies really not participating in this at all by GAO studies, by your own numbers. And neither of us think that that is an acceptable way to go. Apparently the OMB--it is fine and there are no consequences for going a different way. Now, if that is different, if there are consequences for them not participating, I would sure like to know about it. Mr. DeSeve. Sir, there is an absolute budget cap that comes from the Balanced Budget Act for discretionary spending or military spending and we allow the agencies the flexibility to choose the path in meeting that cap, whether it is divestiture to State and local government, whether it is getting out of the business entirely, whether it is downsizing the workforce in other ways or using A-76. So we try to manage in such a way to give them the flexibility within their overall target, and the targets are very aggressive. This year, for example, if there is a 3 percent pay increase, that is 3 percent less in S&E budget. That cheese is going to bind, as my grandfather used to say, at some point and we believe that having them be much more familiar with A-76 and our continuing to focus on it--and we heard your message. The inventory call, and the new procedures for evaluating the inventories were certainly reflective of the kinds of issues that you have put forward. We agree with them and believe in them and I cannot defend the pace of change in this tool. I can only put it in the context of broader reinvention. Senator Brownback. Well, thank you for coming here today. You can go get your root canal now and get relieved from the two of us. We have a difference of opinion here. Mr. DeSeve. I know this is going to sound masochistic but I honestly enjoy coming because I think that both you and Senator Thomas and other Members of this Subcommittee are honestly trying to make things better. Senator Brownback. We are. Mr. DeSeve. This is not a personal attack and it is not even an attack on the fundamentals. It is really a difference of opinion about whether we should use, as I said earlier, the machete or the ax. We believe there is a time for the machete and we are going to continue to work with the agencies to try to show you how that can work. Senator Brownback. I don't view it as either machete or an ax but something that we clearly should be doing and that, if appropriately done, like the Department of Defense is doing, can be quite a positive tool. I have run a government agency before and if you let them just avoid it and choose their own path, they are not going to do this. And I think the proof is in the pudding. We are seeing that taking place. So machete or ax or plastic knife, call it what you would like. Thank you very much for joining us. Mr. DeSeve. Thank you very much, Mr. Chairman. Thank you, Senator Thomas. Senator Brownback. The third panel will be the Hon. John Berry, Assistant Secretary for Policy, Management and Budget, U.S. Department of the Interior. The other panel member is the Hon. W. Scott Gould, the Chief Financial officer and Assistant Secretary of Administration for the U.S. Department of Commerce. Gentlemen, thank you very much for joining us. We have lots of questions for you. We would be happy to take your statements into the record and we appreciate your being willing to join us. Mr. Berry, you are first up. TESTIMONY OF JOHN BERRY,\1\ ASSISTANT SECRETARY FOR POLICY, MANAGEMENT AND BUDGET, U.S. DEPARTMENT OF THE INTERIOR Mr. Berry. Mr. Chairman, thank you for this opportunity. If I could I would like to start with just a short overview of the Interior. I know Senator Thomas is here and this may be a little boring to him but I will only take 30 seconds or so on it to give you the context of where we are and where we are trying to get to. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Berry appears in the Appendix on page 55. --------------------------------------------------------------------------- Interior manages over 450 million acres of Federal land on the continental United States and 3 billion acres offshore on the outer Continental Shelf, which essentially boils down to one-sixth of our nation's land mass. We have over 57,000 buildings, dams, equipment and aircraft. We have 66,000 people and they are operating at over 2,000 sites around the United States. We are as close as the bottom of the hill and we are as far away as the islands of Micronesia, to give you a sense of the scope and scale of our Department. We are one of the most streamlined agencies in the Federal Government. You could not find a more streamlined agency. We manage that Department which I just described and that mission with no undersecretaries, no deputy undersecretaries, only five assistant secretaries and eight bureau directors. There is not one other Department in the Federal Government that can make that claim to you. Since 1993 we have cut 11,700 employees out of the Department of the Interior. That is a 15 percent reduction and the second largest in the domestic Federal Department cabinet agencies. In the D.C. area, in the headquarters, just so you do not think we are cutting these from the field, the bulk of this cut has come from the headquarters. We have taken 16 percent of our D.C. management headquarters out. Again that is the second greatest cut in domestic cabinet agencies, so we are very proud of that. The question is how have we done this? Essentially accomplishing this at the same time when our recreational load is going up on public lands, on the Bureau of Land Management, Fish and Wildlife Refuges. The public demands for the use of the outdoors has increased over this same period of time where we have had a decline. The question is and our response is how have we done this? We have done it two ways: essentially trying to operate smarter and by building strong partnerships with the private sector. Let me touch on smarter for a second. Smarter, for example, is using purchase cards, electronic purchase cards that have allowed us to cut our procurement staff 24 percent since 1993 and a 35 percent cut in the personnel in our central office finance functions. That is just by shifting those functions over to the private sector using cards that private sector companies can tell us and manage that data for us easier than we can ourselves. So we have been able to achieve significant reductions in our central office finance functions. We have put in place 34 reinvention labs that have eliminated red tape, habitat conservation plans which work with private sector landowners to accomplish goals of important Federal laws that Congress has adopted, and have cost-avoided through those measures over $100 million. Finally, we work very closely with the Congress, with the GAO and the IG on identifying areas where we can be better, we can be smarter. The Appropriations Committee and our authorizing committee--Senator Thomas could take a great deal of pride in this--brought a concern to a number of hearings, concern over the cost of how much it was taking to do things in the National Park Service. Our construction projects were just taking too much. We organized a study with the consent of the committees, with the National Academy of Public Administration--that will be in June--that is going to essentially require us in our Denver service center to get out of the contracting business and to shift those functions, reducing our Denver workforce significantly and shifting more functions in Denver over to the private sector. I can tell you now ahead of schedule, having been briefed by NAPA on that report, that we are going to carry out those recommendations. We are going to do it and you will be very proud and pleased to see the results at the end of it. The second area which I wanted to just touch on very quickly, Mr. Chairman, is partnership with the private sector. Forty percent of our budget authority--our BA for the Department of the Interior is $10 billion, so that means $4 billion is spent on outside contracts with private contractors, grants or agreements with State and local government. Over 17 percent of that is specifically with private companies. Over the last 5 years 95 percent of our procurement actions have been awarded competitively, and that is the highest rate in the U.S. Government. We use over double our workforce in volunteers. In the National Parks we have over 90,000 volunteers. On Fish and Wildlife lands we have over 30,000 volunteers. We are essentially doubling our workforce. And these are not folks who are just standing answering questions. They are people who are out in the field actually accomplishing work. They are retirees who we are trying to bring back in with their skills to accomplish our mission. Then finally, and this is something I know that is close to Senator Thomas' heart, is how we deal with concessions contracts in the Park Service, BLM, Bureau of Reclamation and Fish and Wildlife. In the National Park Service alone we have over 600 contracts, concessionaire contracts, that employ over 25,000 private sector people on our National Parks, enjoying gross receipts of over $700 million and the taxpayers get back from that very profitable association over $48 million return every year from the private sector. Concessionaires and our contracts at some of our parks greatly outnumber the employees at our parks. Yosemite is a good example of that. Yosemite, our concessionaire at Yosemite, a private sector contract, has 1,650 employees. The National Park Service employees at Yosemite are only 750, less than half of our number of employees there. And we have a wonderful relationship with our concessionaires in that they have actually, at Yosemite, for example, helped us rebuild after the massive floods we suffered 2 years ago. If I could, I would just put in a pitch for Senator Thomas' bill. Senator, we are deeply appreciative of your efforts this year on moving some concession reform standards and really are grateful for your efforts with the Secretary on S. 1693. If we can eliminate some of that preferential right on the concession stuff, it is really going to help us do more on that concession and move more of these functions into the private sector, so we are really pleased with your efforts in that regard. Thank you. Finally, A-76. It is one of our good tools. Under Secretary Babbitt's administration we have performed nine studies, most of them in the aircraft service areas. We have taken a photo lab from the Rocky Mountain Mapping Center and put that into the private sector. Our computer operations for the USGS in Reston, we have had great results in all those efforts. We are very impressed with it, very pleased. We have completed our inventories and have done that annually and submitted those to OMB and we will again this year resubmit, as directed by Mr. DeSeve, our inventory this summer, as directed. The most recent A-76 survey of the Department found 58 commercial activities with more than 10 employees; 53 of those 58 are in the National Park Service and the total is about 5,000 FTE's in terms of the impact. But the bottom line in how I look at is what we ought to be about is achieving the most efficient result we can. If the private sector can do it better, then by God, they ought to be doing it, and we ought to be getting that work transferred over to them as soon as we can, and we are about that. For example, this NAPA study and the Denver service study, I am not going to wait 2 years. That will be implemented within 6 months of June. We will draw down those people using creative things like buy-outs, early-out authority, which hopefully we are going to get from the Congress this year to help us do those things more creatively, with less pain to our Federal employee workforce. But the end result will be a leaner Federal workforce that will be much more heavily reliant on private contractors to carry out design, construction management in how we do things in the Na- tional Park Service. And we are going to be about accomplishing that in 6 months, not 2 years. So there is no question of our heavy reliance on the private sector. A-76 is one way of getting there. Reinvention is another. Using increasing concessionaires is another. And finally, management reforms is one basic one. So with that, Senator, I apologize for going a little--I saw the red light and I apologize. I appreciate your indulgence. Senator Brownback. Thank you very much for that upbeat report. We will have some questions but I do appreciate that and how you have presented it. Mr. Gould, welcome to the Subcommittee. TESTIMONY OF W. SCOTT GOULD,\1\ CHIEF FINANCIAL OFFICER AND ASSISTANT SECRETARY FOR ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE Mr. Gould. Mr. Chairman, Senator Thomas, thank you for the opportunity to appear before you today to discuss commercial activities specifically as they relate to the use of OMB Circular A-76 at the Department of Commerce. I would like to ask that my written statement be entered into the record and I have a short oral statement I would like to give. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Gould appears in the Appendix on page 63. --------------------------------------------------------------------------- Senator Brownback. Without objection. Mr. Gould. Thank you. Over the past several decades and continuing under the leadership of Secretary Daley, the Department has taken steps to ensure that Americans receive the best value for the tax dollars they spend on our programs. To accomplish this we need to apply the principles of competition and the free market to ensure that required services are provided at the best value to the taxpayer. This means identifying work that may be performed by an in- house organization, a contractor or through an interservice support agreement and ensuring that all parties are given the opportunity to compete to perform the work. A-76 is one valuable tool among many for achieving our cost efficiency and management performance goals. I wish to emphasize that over the past 6 years we have added many such tools to our toolbox as we collectively explore ways to make government more efficient and effective. Congress has also acted to promote improved government performance by passing the CFO Act, the Clinger-Cohen Act, GPRA and the Federal Acquisition Streamlining Act. Throughout the first Clinton administration, while the Office of Management and Budget was revising the A-76 supplemental handbook, we at Commerce shifted our emphasis to the principles of government-wide reinvention. During those years we explored new methods for cost savings and improving government performance, such as downsizing, reengineering, reinvention labs, performance-based organizations, franchise funds and customer service improvement. As a result of our efforts, overall from 1992 to 1997 we achieved a 7.4 percent reduction in our total FTE's. We reduced the number of managers and supervisors across the Department by 23 percent from December 1992 through December of 1997 and we have placed relatively greater staff power on the front lines, delivering services directly to our customers. In the early 1990's OMB indicated that a comprehensive revision of the supplemental handbook was under way. A-76 activity as undertaken not only by the Department but I also believe by many other Federal agencies was reduced, pending a review of policy concerns with the old version of the circular. In March of 1996 the supplemental handbook was reissued. Shortly afterward in June of 1996, OMB requested that each Federal agency prepare and submit an updated inventory. Very little activity at the Department of Commerce was identified for inclusion in that inventory. In September of 1997 we responded to OMB's request and identified one of our NOAA ships for review. Additionally, we are conducting a study of our finance and accounting functions to determine how its efficiency and effectiveness can be improved. Under the leadership of Secretary Daley, the Department has aggressively worked to strengthen internal management and ensure the effective use of public funds allocated for carrying out its mission. I would like to share just some of these efforts and successes with you. We are merging polar orbiting environmental satellites in cooperation with DOD and NASA to share technology and data. This cooperative effort is estimated to save over $1 billion during the life of the program. Since Secretary Daley was confirmed, we have reduced the number of political appointees by 100, over a third. We have proposed using statistical sampling to help us conduct the most accurate and cost-efficient 2000 census possible. We estimate that the use of sampling will save at least $276 million in fiscal year 1999 alone. We are adopting an integrated program management approach to acquisitions called the ``Concept of Operations'' to reengineer the acquisition process, improve the quality of what we buy and reduce the time needed to make purchases. And finally, next month we will complete testing on a fully operational pilot of an integrated core financial system known as the Commerce Administrative Management System. We have also taken an active role in overseeing NOAA's efforts to identify alternatives to the NOAA fleet. In fiscal year 1997 NOAA out-sourced 25 percent of its total requirement. Over the past years NOAA has decommissioned one-half of its hydrographic fleet and is moving ahead with plans to contract with the private sector for much of its hydrographic data requirements. In addition, we have downsized the NOAA corps from 415 in fiscal year 1994 to 299 in fiscal year 1997, resulting in savings of $6 million a year. These are just some of the examples of activities demonstrating our commitment to improve management processes within the Department and its operating units, and increase the efficiency and effectiveness with which we administer our programs. It provides, I believe, an important context for understanding that A-76 is one tool among many that can be used to achieve greater efficiency in government. As stated earlier, we do believe that A-76 is an important technique in helping us improve program management. Secretary Daley and Deputy Secretary Mallett are committed to reengineering and reinvigorating the Department's program. We have heard your message. Several fundamental issues should be considered in order to maximize the effectiveness of the A-76 program as one of our management tools. First, it is critical that accurate and timely data measuring the true cost of operations is readily available and reflected in inventories of commercial activities. Only by having consistently reliable information, both with respect to financial resources and FTE's, can we expect to make the type of sound business decisions that the circular is intended to foster. Further, this information is essential to understanding the full benefits achieved as we proceed to implement the circular. A cost comparison study performed under the rubric of A-76 can and should be considered an effective strategy for maximizing quality of service delivery. Finally, it should be noted that the importance of effective oversight of our procurement activities increases as we increase our level of contracting with the private sector for commercial products and services. The responsibility for ensuring that Federal funds are expended appropriately once they are in the hands of the private sector is very significant. Focussing on the Department of Commerce and our plans for moving forward in this area, very simply, again we have heard you. We will develop an updated inventory of our commercial activities. We will develop a practical list of out-sourcing opportunities based on the findings of that inventory history and will expeditiously identify resources to make those studies happen. In summary, Mr. Chairman, I want to reiterate Secretary Daley's commitment to this program, ensuring that the Department of Commerce works toward the benefit of American businesses and citizens. Thank you. This completes my remarks and I am glad to answer, I am sure, the many questions you may have. Senator Brownback. Thank you very much, Mr. Gould, and Mr. Berry. So that I understand, the Department of Commerce will be participating this year fully in A-76? Mr. Gould. That is correct. Senator Brownback. OK. Because you haven't in the past so I want to make sure that you will be this year. This Subcommittee has had a number of hearings on different functions within the Department of Commerce that compete with commercial sectors or have commercial sector activities. We have had quite a few studies done on it--GAO studies. Are you familiar with those? We had a hearing on the Weather Service. We have had them on NOAA, corps fleet. There have been GAO studies on NOAA. You really have quite a few activities over at the Department of Commerce that are competing with commercial sector already and have been identified and studied previously. Are you going to fully address those now? Mr. Gould. Yes, Mr. Chairman. If I may just add a point that my colleague Mr. Berry mentioned, presently 50 percent of our budget authority does go in either grants or contracts to the private sector. So half of what we are appropriated every year already ends up in the hands of nonfederal entities. So we feel we do have some substantial experience there in contracting out and procurement and using the competitive process to be able to deliver the best value for the taxpayer. Senator Brownback. Why have you chosen not to participate in A-76 in the past? Mr. Gould. Well, I would identify the following reasons. First, we have deliberately directed our efforts to a full toolbox, an array of opportunities to lower costs, decrease FTE's and shrink our budget, and we believe the facts speak for themselves. You just heard the numbers, the reduction in FTE's, 7.4 percent in a 5-year period. Those are the types of results that we think are the goal of A-76. We believe they can also be achieved through other means and we have demonstrated that. Senator Brownback. I don't mean to challenge you on your numbers because Mr. DeSeve's numbers were very positive for the Department of Commerce and your numbers are not quite as--it is pretty close to what his were. But I was looking at the budget for fiscal year 1999 Federal employment, Executive Branch. Now, they are showing your percentage as increasing 20 percent. Now, is that because of projected FTE requests that you have in? Mr. Gould. That is correct and let me give you three snapshots on numbers. Senator Brownback. What is your current FTE that you have at the Department of Commerce? Mr. Gould. Thirty-two thousand, five hundred. What you are seeing is the enormous spike effect of our ramp-up for the decennial census, which will grow the size of the Department of Commerce for a brief period to conduct the decennial, from in the low 30's to the mid 70,000 FTE's. We are beginning to see that effect in the ramp-up for the decennial census. But we believe that if you look at the base, from 1993 to 1996 you see a reduction of 7 percent and if you work off a 1993 base when the administration began to 1997, you actually come into the 11.2 percent figure that Mr. DeSeve cited a moment ago. So I believe that all of those numbers, in fact, are consistent and acknowledge the fact that in aggregate, the addition of those people that will be needed to conduct the decennial census, an extraordinary amount of people, 260,000 part-time positions and when you divide those by a full-time equivalent, you come out into the mid 70,000 FTE's. Senator Brownback. I am glad you explained that. I would also note for the record the Department of Defense, which neither of you would necessarily be aware of, had a reduction in force of 23.9 percent during that same period of time, so more than double the Department of Commerce, from a far larger group, a far larger number that was in place there. My big concern for both of you is, I think, we agree that the government should be involved in more steering than growing. I guess that is the philosophy. People that think about these things think it is correct, as well, for particularly the Department of Commerce. I will hand off to Senator Thomas, the Department of the Interior, which he would know far more about than I would, has not engaged that philosophy. I want to be real blunt with you because we have done hearings on this, studies on this and there seems to be a real hesitancy in that Department that is reflected in this chart here. We are asking about the Department of Commerce because it reflects so many other civilian agencies' attitude towards this competition. The FTE number is an important number. It is a good indicator number. It is a good indicator of being prudent, I think, with resources, but it really does not get at this issue here, which is competition with the private sector. And it seems as if the Department of Commerce, the agency that in my estimation should be leading the charge of letting the private sector do what it does and the government do what it does, is being the one that is being the most resistant to it. That is why we probably look at you more than any other, because it seems to me you should be the one leading this effort, and you have not been. So I hope you are reflecting a change in attitude. I still stand by earlier statements that we have had a systems failure on A-76 because if we were not having these hearings, I don't know that we would have anything taking place. Maybe we would have some--that is an overstatement, but we need to have improvements because the GAO studies and others are pointing out the current system just does not consistently work, and that is why both of us are so interested in improving that. Senator Thomas. Senator Thomas. Thank you, sir. Thank you, gentlemen. I appreciate it very much. Interior, of course, has done some good things and hopefully will do much more. I think, as Senator Brownback said, the FTE number is not really the issue. We all want to do it as efficiently as possible. The real issue is that we ought to give an opportunity for the private sector to see if they can perform these activities at a higher quality and for a lower price. So the idea that half of your money goes for grants or goes to procurement or those kinds of things really is not what we are focusing on here. The Denver service center is a good example, isn't it, of how that might be changed? It basically does engineering, does planning. Companies do it in the private sector generally by contract. Mr. Berry. There is no question. When I came and why I was happy to be very quick to do the NAPA study is when I looked at the percentage number of overhead in Denver on what we were charging--the Park Service was charging itself for contract management and for contract oversight and things like that, it was not in line with what I was familiar with what was going on in the private sector. It was significantly higher. So I knew that this study was going to come out and was going to be helpful in terms of how do we get those numbers more in synch with the private sector. And the response is one that I think we anticipated, and that is it is going to be by relying on the private sector. So what you are going to see in Denver is that whereas Denver now does everything, from cradle to grave on these projects, on the construction projects that you authorize, Denver will now be focussed on predesign and then contract management of the private contractors. So you are going to see--the report is probably going to recommend--there are 500 people now in Denver and I suspect when this is done and we are at the end of the day a year from now we will be around 300 people in Denver. So it is going to be a significant change in terms of how Denver is going to operate and function. Senator Thomas. That is good. Mr. Berry. Thanks to your leadership and Congressman Regula's leadership on that, as well. Senator Thomas. I think the Senator said about steering and rowing--there has to be then some adjustment in agencies to do contract oversight. Mr. Berry. Absolutely. Senator Thomas. And to the extent that we just take an agency and contract out something and leave the agency as it was, then you have not accomplished a great deal. Mr. Berry. Part of that effort, Senator, if I could, is the NAPA report is recommending and we will be following through on retraining for the employees that are left, that we can refocus those skills in terms of contract management. Senator Thomas. It is discouraging when the purpose of the park is to preserve the resource and you need people who are experts in that and then you go and see the guys in the green shirts emptying garbage and doing things that do not need that kind of special expertise. So hopefully we can make some positive changes. Commerce--OMB asked you, I think, to update your commercial activities. The agency has indicated it is unlikely to change from 1983. Interesting. Your commercial activities are not going to change from 1983? Mr. Gould. No, I do not think that is a reasonable perspective. We did our first master inventory in 1983 and came up with 174 commercial activities, a very comprehensive review. My sense is the organization sort of lived off that into 1991, and 1992. We did a lot of studies, some out-sourcing, discovered that it was a blind alley down one way, another was productive, and actually went ahead and did the studies, completed them and out-sourced to the private sector. Then, as I have said, 1992, and 1993 we began to switch over to a broader range of tools in the toolbox. A-76 largely remained dormant. When we were asked last by OMB to provide an update, we had one thing--the NOAA ship Ka'Imimoana, which is actually involved in ocean research and buoy tending and the like. It did not work. The private sector came back with no bid. There are a number of reasons for that but we just did not get a hit there and we need to take a look at that master inventory again. We need to ask the question, are there other things that we can be out-sourcing? Again if I may, Senator, there is an example of a blind alley I just went down in the last 6 months that may be helpful to you in your inquiry. Do I have a moment to describe that, the financial and accounting area? Senator Thomas. Please. Mr. Gould. In the quickest possible terms, we thought that out-sourcing the finance and accounting function in the Department had some merit. We had 70 percent of our assets with a disclaimer of audit opinion, 30 with a clean audit, and that is not a situation, as CFO, that I can abide for long. I needed to create a driver for change in the organization and thought that competition to which you have referred would be a useful tool. We brought in an outside contractor. We examined that. In the end I was confronted with an interesting problem. I have a goal to achieve clean financial audits in the Department across the board by fiscal year 1999 and I could out-source some finance and accounting mechanisms in one of my major bureaus. But the time it would take me to do that would cause me to fall short of the goal to get the clean financial audits and, in my view, I have gone at the idea of getting the clean financial audits as a paramount value for the Secretary and a priority for him to have clean financial audits for the Department. So there is a simple and a small example of where having the freedom to choose about whether to go forward with A-76 and do that study or not was important to us and it has led to, I believe, a strategy that will result in clean financial audits for the Department across the board by fiscal year 1999. Senator Thomas. Well, let me restate what we are trying to do, the goal here and the language in the bill itself that we are talking about. It simply requires that there be an identification of things that are commercial in nature. Then there is hopefully an opportunity to conduct a public/private competition. It does not require that the function be contracted out. It just says we ought to take a look at which entity produces the best result for the taxpayers. As I exhibited my impatience a little while ago and you both have talked about the merits of this concept, as I think most anybody would. The fact is, however, that it has been in place for over 40 years. Because it is not statutory, there has been no way to enforce it, so it has not been done. This opportunity to compete has not been implemented, and that is all we are seeking to do. You may decide that the private sector is not the best option in every case, but I hope we don't see more Icemans--the Department of Agriculture doing work for the FAA. But that is off the point? You took almost 2 years to do the NOAA ship study? Mr. Gould. Yes, sir. Senator Thomas. And you did not get a bid? That is interesting. Mr. Gould. Yes, sir. Six months in preprocurement planning and the balance, 13, in basically going through the procurement process, and we did not get a bid. Senator Thomas. I think all of us share the same goal. We intend, frankly, to move forward with this bill and draft it in such a way that it works for you and it also is meaningful. It would take an inventory of commercial activities and give the private sector a chance to compete for them and see if they can do them better. That is about the size of it. Thank you, sir. Senator Brownback. Thank you, Senator Thomas. Thank you both, gentlemen, for being here. I will note I appreciate both of your Federal service. Having been a Federal employee before, I appreciate what all of you do and what everybody does. I have not found anybody that I know of working for the Federal Government that does not do it with a good heart and they want to do what is right. We are confronted--we both believe and many of us do--that the taxpayer burden on this country is such that we have just got to get it down and that we need to be far more efficient with taxpayer dollars. We need to do the things we should do. We need to do them well and right. I think there are just a lot of things that we could be looking at. Having run a small agency before, I know if there is not really a push on the system, not a whole lot of things happen because the inertia of it takes over pretty easily. And this is not to castigate any employees. I also want to advise Senator Thomas and others that I am going to be looking, as well, on Capitol Hill for things that should be competed. We did that on the House side and had a fair number of things competed. I think if we are going to talk it, we need to do it. So there will be a few interesting things that will take place with that. Thank you all very much for joining us. If there is any other additions that need to be added to the record, the record will be kept open for 1 week from today. The hearing is adjourned. 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