<DOC>
[108th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:88195.wais]
BETTER TRAINING, EFFICIENCY AND ACCOUNTABILITY: SERVICES ACQUISITION
REFORM FOR THE 21ST CENTURY
=======================================================================
HEARING
before the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
ON
H.R. 1837
TO IMPROVE THE FEDERAL ACQUISITION WORKFORCE AND THE PROCESS FOR THE
ACQUISITION OF SERVICES BY THE FEDERAL GOVERNMENT, AND FOR OTHER
PURPOSES
__________
APRIL 30, 2003
__________
Serial No. 108-29
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri
CHRIS CANNON, Utah DIANE E. WATSON, California
ADAM H. PUTNAM, Florida STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma C.A. ``DUTCH'' RUPPERSBERGER,
NATHAN DEAL, Georgia Maryland
CANDICE S. MILLER, Michigan ELEANOR HOLMES NORTON, District of
TIM MURPHY, Pennsylvania Columbia
MICHAEL R. TURNER, Ohio JIM COOPER, Tennessee
JOHN R. CARTER, Texas CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota ------
MARSHA BLACKBURN, Tennessee BERNARD SANDERS, Vermont
(Independent)
Peter Sirh, Staff Director
Melissa Wojciak, Deputy Staff Director
Rob Borden, Parliamentarian
Teresa Austin, Chief Clerk
Philip M. Schiliro, Minority Staff Director
C O N T E N T S
----------
Page
Hearing held on April 30, 2003................................... 1
Text of H.R. 1837................................................ 6
Statement of:
Tiefer, Charles, professor of law, University of Baltimore;
Bruce Leinster, chairman, Information Technology
Association of America's Procurement Policy Committee,
testifying on behalf of the Information Technology
Association of America; Mark F. Wagner, vice president of
government affairs, Johnson Controls, testifying on behalf
of the Contract Services Administration; and Edward E.
Legasey, executive vice president and chief executive
officer, SRA International, testifying on behalf of the
Professional Services Council.............................. 176
Woods, William, Director, Contracting Issues, U.S. General
Accounting Office; Stephen Perry, Administrator, U.S.
General Services Administration; and Angela Styles,
Administrator, Office of Federal Procurement Policy, Office
of Management and Budget................................... 108
Letters, statements, etc., submitted for the record by:
Clay, Hon. Wm. Lacy, a Representative in Congress from the
State of Missouri, prepared statement of................... 240
Davis, Chairman Tom, a Representative in Congress from the
State of Virginia:
Prepared statement of.................................... 4
Prepared statement of Ms. Lee and Mr. Kelman............. 75
Legasey, Edward E., executive vice president and chief
executive officer, SRA International, testifying on behalf
of the Professional Services Council, prepared statement of 213
Leinster, Bruce, chairman, Information Technology Association
of America's Procurement Policy Committee, testifying on
behalf of the Information Technology Association of
America, prepared statement of............................. 196
Perry, Stephen, Administrator, U.S. General Services
Administration, prepared statement of...................... 128
Ruppersberger, Hon. C.A. Dutch, a Representative in Congress
from the State of Maryland, prepared statement of.......... 243
Styles, Angela, Administrator, Office of Federal Procurement
Policy, Office of Management and Budget, prepared statement
of......................................................... 141
Tiefer, Charles, professor of law, University of Baltimore,
prepared statement of...................................... 178
Wagner, Mark F., vice president of government affairs,
Johnson Controls, testifying on behalf of the Contract
Services Administration, prepared statement of............. 204
Waxman, Hon. Henry A., a Representative in Congress from the
State of California, prepared statement of................. 101
Woods, William, Director, Contracting Issues, U.S. General
Accounting Office, prepared statement of................... 112
BETTER TRAINING, EFFICIENCY AND ACCOUNTABILITY: SERVICES ACQUISITION
REFORM FOR THE 21ST CENTURY
----------
WEDNESDAY, APRIL 30, 2003
House of Representatives,
Committee on Government Reform,
Washington, DC.
The committee met, pursuant to notice, at 10:05 a.m., in
room 2154, Rayburn House Office Building, Hon. Tom Davis of
Virginia (chairman of the committee) presiding.
Present: Representatives Tom Davis of Virginia, Ose, Lewis,
Jo Ann Davis of Virginia, Schrock, Deal, Turner, Carter,
Blackburn, Waxman, Maloney, Cummings, Kucinich, Davis of
Illinois, Tierney, Clay, Watson, Sanchez, Ruppersberger,
Norton, and Cooper.
Staff present: Melissa Wojciak, deputy staff director;
Keith Ausbrook, chief counsel; Ellen Brown, legislative
director and senior policy counsel; Howie Denis and Jim Moore,
counsels; David Marin, director of communications; Scott
Kopple, deputy director of communications; Edward Kidd,
professional staff member; Teresa Austin, chief clerk; Corinne
Zaccagnini, chief information officer; Brien Beattie, staff
assistant; Rob Borden, parliamentarian; Phil Schiliro, minority
staff director; Michelle Ash, minority counsel; Mark
Stephenson, minority professional staff member; Earley Green,
minority chief clerk; Jean Gosa, minority assistant clerk; and
Cecelia Morton, minority office manager.
Chairman Tom Davis. Good morning. Thank you for bearing
with us. The committee will come to order.
Today's legislative hearing is on H.R. 1837, the Services
Acquisition Reform Act of 2003 [SARA], that I recently
introduced along with Congressman Duncan Hunter of the House
Armed Services Committee.
This hearing will build on hearings conducted during the
last Congress on H.R. 3832, the Services Acquisition Reform Act
of 2002, and on barriers Government agencies face in acquiring
the goods and services necessary to meet mission objectives.
The goal of this hearing is to discuss ways to provide the
Federal Government greater access to the commercial
marketplace.
The reforms of the early to mid-nineties have resulted in
significant streamlining, cost savings, access to technological
advancements, and reduced procurement cycles, which have
improved the quality of products and services purchased by the
Federal Government. Unfortunately, the Government is still not
able to approach the best practices of industry, particularly
regarding the acquisition of cutting-edge information
technology and management services.
Over the past decade, the growth of services acquisition,
both in terms of the percentage of the total tax dollars spent
by the Government and in raw numbers, has been staggering. Each
year our Government spends well over $200 billion buying goods
and services. According to the GAO, in 2001, this cost totaled
about 23 percent of the Government's discretionary resources.
In the same year the Government spent more than $135 billion
for services, an increase of about 24 percent since 1990,
establishing services as our largest single spending category.
The existing reforms were rooted in the late eighties and
early nineties context of products and major systems and
scarcely touched service acquisition. We are now faced with
Federal spending patterns that have undergone a vast change in
a relatively short time. With the advent of the war against
terrorism, the change will accelerate because of the critical
need for the rapid acquisition of high-tech services and
management expertise.
The new service-oriented, high-technology environment has
simply overwhelmed the current system. Right now we simply do
not have the right people with the right tools and the right
skills to manage the acquisition of the services and technology
that the Government so desperately needs.
Difficulties in managing the Government's acquisition
system caused GAO to place acquisition management on its high-
risk list. The current system, improved though it may be,
simply is inadequate to leverage the best and most innovative
services and products our vigorous private sector economy has
to offer. It has not kept up with the dynamics of an economy
that has over the last few years become increasingly service
and technology-oriented. Without change, the current system
cannot support the President's vision, expressed in his
management agenda, of a Government that is well-run, results-
oriented, citizen-centered, and market-based.
SARA is targeted at the root causes of our current dilemma.
SARA will put the tools needed to access the commercial service
and technology market in the hands of a trained work force that
will have the discretion necessary to choose the best value for
the Government and be held accountable for those choices.
SARA consists of a carefully crafted set of interrelated
legislative proposals that will address the multiple
deficiencies plaguing Government acquisitions today.
One, the lack of up-to-date, comprehensive training for our
acquisition professionals.
Two, the inability of the current Government structure to
reflect businesslike practices by integrating the acquisition
function into the overall agency mission and facilitating
cross-agency acquisitions and information-sharing.
And, three, the lack of good tools and incentives to
encourage the participation of the best commercial firms into
the Government marketplace.
These proposals are grounded on the Service Acquisition
Reform Act of 2002 from last Congress and the acquisition
hearings that we held last year in the Government Reform
Subcommittee on Technology and Procurement Policy. We have made
progress since then.
The Congress passed the Homeland Security Act and the E-
Government Act. The Homeland Security Act contains some
important procurement flexibilities while the E-Government
contains limited share-in-savings authority and cooperative
purchasing authority to expand the GSA schedules to State and
local governments.
Further, we have received the benefit of comments from a
wide variety of sources on the original version of SARA. We
have made a number of changes based on these experiences and
comments.
The hearing this morning will help us focus on the reform
initiatives included in SARA to enable Federal agencies to
update management practices and develop a strategic approach
for contracting services. Clearly, recent events have shown
these agencies must change how they do business in order to
meet homeland security goals. SARA is intended to streamline
procurement cycles and integrate agency mission goals and
acquisition goals in order to help agencies meet the challenges
presented by the war on terrorism.
I look forward to the testimony from our two panels of
expert witnesses. As the legislation makes its way through the
legislative process, we hope to tap the wisdom and the
knowledge of both public and private sectors that is so well-
represented by today's witnesses.
[The prepared statement of Chairman Tom Davis and the text
of H.R. 1837 follow:]
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Chairman Tom Davis. We invited two other witnesses to
today's hearing that were unable to attend: Ms Deidre Lee from
the Department of Defense and Dr. Steve Kelman from Harvard
School of Government. Ms. Lee couldn't appear because of a
death in her family, and Dr. Kelman has pressing classroom
obligations that prevented him from appearing. Both have
submitted statements for the record which are available at the
press table.
[The prepared statements of Ms. Lee and Mr. Kelman follow:]
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Chairman Tom Davis. I will now recognize the distinguished
ranking member, Mr. Waxman, for his comments, and thank him for
the way we are engaging on this and in issues in the previous
Congress that led us to some of our legislative victories. Mr.
Waxman.
Mr. Waxman. Thank you very much, Mr. Chairman.
Today we are going to hear testimony about the Service
Acquisition Reform Act [SARA]. This legislation was introduced
just yesterday. The issues addressed by this legislation are
complex, and they affect billions of dollars in Federal
spending. They deserve a thorough and detailed examination.
Mr. Chairman, you have stated that this legislation is
needed to, ``streamline,'' the procurement process. I support
streamlining efforts, but efforts at streamlining must be
weighed against competing goals of protecting against waste,
fraud, and abuse. We need to review each provision of this
legislation to ensure balance.
The Federal Government is the largest purchaser of goods
and services in the world, spending over $200 billion annually
on everything from fighter jets to paper clips to janitorial
services. In recent years, there has been an especially rapid
growth in the procurement of services. Contracting for
services, which is a major subject of the legislation we are
considering, now accounts for 43 percent of total contracting.
Each year the Government spends a staggering $87 billion on
service contracts, a larger amount than on any other category
of contracts.
There are two keys that protect the taxpayer from waste,
fraud, and abuse in service contracts: the Truth in
Negotiations Act [TINA], and the cost accounting standards.
These provisions ensure that the Government is not overcharged
on Federal contracts. TINA applies when the Government enters a
sole-source contract over $550,000. It requires the contractor
to submit to the Federal Government cost and pricing data that
justifies the reasonableness of the price being charged. The
idea is that this cost and pricing data serves as a substitute
for competition.
The cost accounting standards apply to cost-based contracts
above certain thresholds, generally, $7.5 to $15 million. Cost
accounting standards require that contractors consistently and
accurately account for their costs. These standards are
essential for ensuring that the Federal taxpayer is not
overcharged for costs such as overhead or executive pensions.
Chairman Davis believes that these accounting standards can
sometimes be too burdensome. In particular, he is concerned
that many smaller companies and startup companies refuse to do
business with the Federal Government because of the burdens of
complying with these standards. Thus, many of the provisions in
the bill waive the application of TINA and cost accounting
standards to service contracts by deeming these contracts to be
commercial items.
Under existing law, TINA and cost accounting standards do
not apply to contracts for commercial items, on the theory that
market forces keep prices down for commercial items. Now the
chairman may have a point. We do need to ensure that smaller
companies and other companies that don't normally do business
with the Federal Government are able to do so, but we must do
so in a way that protects the taxpayers against waste, fraud,
and abuse. We need to retain that balance.
My concern is that the bill before us goes too far.
Halliburton just received a sole-source, cost-based contract to
put out oil fires in Iraq and perform other oil field
construction. The contract is potentially worth up to $7
billion. I don't think anyone here would believe that
Halliburton should be excused from complying with the cost
accounting standards, especially given the company's track
record of overcharging the Government.
Yet, as I read this bill, the Halliburton contract could be
considered a, ``commercial service'' contract that is exempt
from these accountability standards. None of us wants to see a
return to the days of $600 toilet seats. Yet, some of these
provisions could lead to $600 contracts to repair broken
toilets.
These are far from academic concerns. For years, GAO, the
Inspector General, and private sector watchdogs have pointed to
contract management at Federal agencies as an area of high risk
for waste, fraud, and abuse. The Department of Energy and NASA
spend more than 90 percent of their budgets on contracts with
the private sector. Yet, they are consistently cited by GAO as
examples of poor contract management.
DOD spends over $100 billion a year on contracts. Yet, it,
too, is cited by GAO. Billions are lost through cost escalation
and failed projects. Given this record, we should be
strengthening the Government's tools to ensure accountability,
not weakening them.
I am also concerned about other provisions in the SARA
legislation such as a provision that allows employees from
private contractors to take over the management of Federal
procurement decisions. In essence, this provision could put the
fox in charge of the hen house.
Another problematic provision expands the so-called,
``share-in-savings'' contracts. Under a share-in-savings
contract, the contractor agrees to bear the initial project
costs, often entailing capital outlays, until the client agency
begins to achieve specified results from the work. Payment is
based on a percentage of the savings realized by the agency.
These contracts sound great, but they could rapidly become
a kind of slush fund. Since the contracts don't require upfront
payments, agencies don't have to come to Congress for
authorization to enter the contracts. Once again, this removes
accountability.
Mr. Chairman, these are major issues with potentially major
cost consequences. I know that you want to move this
legislation quickly, but it is more important that we do this
right rather than doing it fast. Thank you.
[The prepared statement of Hon. Henry A. Waxman follows:]
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Chairman Tom Davis. Thank you very much, Mr. Waxman. We
have a spirited debate on this issue. I think we come at it
from different directions, but I appreciate your comments and
look forward to working with you.
In the interest of time, Members can have 5 legislative
days to submit any further opening statements for the record.
Are there any other Members who wish to make a statement at
this time on my side? Any Members wish to make a statement? Are
there any Members who wish to make a statement?
[No response.]
Chairman Tom Davis. If not, let's move to our first panel.
We have Mr. William Woods, Director of Contracting Issues, U.S.
General Accounting Office; Mr. Stephen Perry, the Administrator
of the General Services Administration, and Ms. Angela Styles,
who is the Administrator of the Office of Federal Procurement
Policy of the Office of Management and Budget.
It is the policy of the committee that all witnesses be
sworn in before they testify. Would you please rise with me and
raise your right hands?
[Witnesses sworn.]
Chairman Tom Davis. Thank you very much for your time. All
of you are pronounced experts in the field. What I would like
you to do, we will start, Mr. Woods, with you, move down to
Administrator Perry, and then to Ms. Styles.
Try to do 5 minutes, if you can. We have your total
statements in the record. I have read them. Members have had an
opportunity to read it and base questions on your total
statements, which will be included in the record.
But if you could sum it up in 5 minutes--we have a light
down here, and when it turns orange, that means that you have 1
minute remaining. When it is green you have up to 4 minutes,
and then when it is red, the 5-minute limit, you could move to
sum up.
Mr. Woods, we will start with you, and thank you for being
with us.
STATEMENTS OF WILLIAM WOODS, DIRECTOR, CONTRACTING ISSUES, U.S.
GENERAL ACCOUNTING OFFICE; STEPHEN PERRY, ADMINISTRATOR, U.S.
GENERAL SERVICES ADMINISTRATION; AND ANGELA STYLES,
ADMINISTRATOR, OFFICE OF FEDERAL PROCUREMENT POLICY, OFFICE OF
MANAGEMENT AND BUDGET
Mr. Woods. Thank you, Mr. Chairman. It is a real pleasure
to be here. We appreciate the remarks, yours and Mr. Waxman's.
Thank you to the rest of the members of the committee for your
attention today.
We are here to discuss the Services Acquisition Reform Act
[SARA] which is H.R. 1837. The purpose of SARA is to provide
agencies with additional tools for addressing a number of
acquisition issues. What I would like to do today is to briefly
summarize our work addressing a variety of those acquisition
issues and also to discuss our views on specific provisions of
SARA that are related to some of those reports.
The first report that I would like to start with is one
that we are just issuing today to you, Mr. Davis, and to you,
Mr. Waxman. It is called, ``Federal Procurement Spending and
Workforce Trends.''
This report took a look at the 10 agencies across the
Federal Government that spend the most on acquisition.
Basically, that covers about 95 percent of the spending across
the Government.
We took a look at 15 key indicators, things that we thought
would tell us about the current state of affairs in acquisition
spending. We took a look at competition. We took a look at
goods versus services. We took a look at the acquisition work
force at each of these 10 agencies.
For each of the 15 data elements, you will see in the
appendix to the report that it addresses where these agencies
stood as of the close of fiscal year 2001. We do not yet have
on a governmentwide basis access to the fiscal year 2002 data.
We plan to update this report as soon as that information is
available.
I will not even begin to summarize all of the findings, but
I want to highlight two things. One is, why are we here today
and discussing services? The reason is that we see a fairly
significant growth in services over the course of the last few
years. Our report cites about 11 percent growth, but when you
look deeper than that, you find that the issue of services is
much more significant.
We have a chart here that is also available in our report,
but we thought it was worth bringing this to your attention.
These are the 10 agencies that we reviewed, and this chart
shows the extent to which these 10 agencies procure services.
These percentages on the righthand side are the percent of
services, the extent to which services constitute their total
acquisition spending.
You can see that six of the agencies, six of these large
Federal agencies, spend over 75 percent of their contract
dollars on services. A couple of agencies spend close to 100
percent. The Department of Energy, for example, spends about 98
percent of its contract dollars on services.
So this is an important area. It is one that we need to
devote a lot of attention to, and we welcome the Services
Acquisition Reform Act in addressing these important issues.
The other piece of information that I thought would be
particularly important to bring to your attention is that we
are going to hear a lot of discussion today about the work
force. There is data in this report that show the extent to
which our acquisition work force is currently under significant
pressures. We all have heard that the acquisition work force
has declined in recent years, and you will find data in this
report to support that.
But there is a particular piece of information that I want
to call your attention to, and that is, what is the workload
that the acquisition work force is being asked to address these
days? What we found is that across the board, at virtually
every agency, the number of small dollar contracts has declined
rather significantly. We think this is largely due to the use
of the purchase card, for transactions that are relatively low-
dollar value, generally under $25,000. These are now being
processed using the governmentwide purchase card.
But the other half of that is that acquisitions over
$25,000 have grown dramatically. Let me just highlight one
example from Mr. Perry's agency, the General Services
Administration.
We found that their low-dollar-value contracts had declined
82 percent over the period that we reviewed. Conversely, their
large-dollar-value actions have grown by 68 percent. So this
demonstrates that our acquisition work force today is being
asked to deal with a greater number of higher-dollar-value,
more complex actions, and that is something that we need to
keep in mind as we consider the rest of the provisions of SARA.
Now how does SARA relate to these issues? I want to just
touch on a couple of provisions of SARA that I think are
particularly relevant. We spent a fair amount of time last year
looking at how commercial companies are dealing with many of
the same issues that we are finding agencies having to deal
with. We looked at leading companies. We found a number of
characteristics in how they are taking a strategic approach and
are realizing very significant savings, sometimes on the order
of several hundred million dollars, by taking a strategic
approach.
The report we issued on this point outlined a number of
facts, but I want to just touch on one key one. That is, that
all of these companies believed that it was important to start
with leadership, that they needed to have what they termed, or
what the bill terms anyway, ``a Chief Acquisition Officer.'' It
was called different things at different companies, but the
concept was the same.
That is that acquisition was raised to a very prominent
level within these companies, so that a single individual had
responsibility for ensuring that individual could look out over
the entire enterprise and bringing to bear the resources at a
very senior level to improve their procedures. Section 201 of
the Services Acquisition Reform Act would require a Chief
Acquisition Officer at Federal agencies across the Government,
and we support that provision.
Another provision I want to touch on very briefly is the
exchange program, the Government-industry exchange program,
that would essentially provide for some of the high-performing
individuals on the Government side to spend time with the
private sector and, conversely, for private sector individuals
to spend periods of time with the Government. We think that
provision has enormous potential. It has payoff both during the
periods of time that these individuals are with different
organizations, but also it provides benefits down the road,
when they bring the different perspectives that they learned at
their different organizations back to their home organizations.
A couple of other provisions I want to touch on, again very
briefly. One is on performance-based contracting. As Mr. Waxman
identified, there is a provision that would provide for
expanded use of performance-based contracting and would make
that provision applicable to commercial items across the
government.
The data in our report--you will find this on page 9 of our
testimony--shows that there is significant room for growth in
the use of performance-based contracting across the board. In
fiscal year 2001, the administration had set a target of 10
percent of eligible contracts, those that the Federal
Acquisition Regulation deemed to be good candidates for the use
of performance-based contract. As you will see in that chart,
it shows that a number of agencies are lagging behind in
meeting that goal.
Share-in-savings. We did a report for this committee,
looking at how leading companies are implementing a share-in-
savings approach. We looked at four companies that had realized
some substantial benefits as a result of using share-in-
savings.
Our report identified four key criteria that would have to
exist before share-in-savings would be an appropriate tool to
be used for contracting. Share-in-savings is not something
that, in our view, will be useful in large numbers of
procurements across the Government, but in certain areas where
these four criteria are met, these would be good candidates for
share-in-savings, and the bill would provide for that authority
across the board.
Last, let me just mention time-and-materials contracts.
There is a provision in SARA that would permit the use of time-
and-materials contracts for commercial item procurements. We do
not know, frankly, the extent to which time-and-materials
contracts are used in the private sector. We have not done that
work.
What we do know, however, is that the Federal Acquisition
Regulation provides that, when agencies use time-and-materials
contracts, they are required to have proper safeguards in place
to ensure that the Government's interests are protected. The
Federal Acquisition Regulation makes this available across the
board for various types of procurements. We do not see any
reason why that should not be available to commercial item
procurements, provided, of course, that the requisite level of
surveillance is there to protect the Government's interest.
With that, Mr. Chairman and Mr. Waxman, let me stop there
and I will be happy to take whatever questions you have.
[The prepared statement of Mr. Woods follows:]
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Chairman Tom Davis. Thank you very much.
Mr. Perry, thanks for being with us.
Mr. Perry. Thank you, Chairman Davis, Congressman Waxman,
members of the committee. Thank you for inviting me to appear
before you today and discuss how we might improve the current
Federal acquisition process.
As you know, and you both alluded to the fact, each year
the Federal Government spends about $265 billion in goods and
services necessary to provide Government programs to the
American people. That is one very good reason why this is a
vitally important subject and that the Government's acquisition
process should, in fact, focus on efficiency, effectiveness,
and accountability.
I have submitted a copy of my full testimony for the
record. So at this point, Mr. Chairman, I would like to just
summarize some of the highlights of GSA's comments on the
proposed legislation. We have not reviewed the actual
legislation, so my testimony is based upon the summary that
your staff provided to our agency.
My first comment is on the issue of training, and, Mr.
Chairman, I would certainly emphatically agree that ongoing
training of the Federal acquisition work force is an essential
part of improving the Federal acquisition process. GSA is
committed to pursuing an effective training program for our
acquisition work force, and we agree that this must be
accomplished throughout the entire Government.
On the second item, the issue of the Acquisition Officer,
we support the concept of having a Chief Acquisition Officer,
just as we do at GSA. We believe that a Chief Acquisition
Officer is critical to the successful acquisition process at
GSA. For that reason, we believe that the legislation calling
upon agency heads to establish a Chief Acquisition Officer
position would certainly signal the importance of maintaining a
well-managed, integrated, agencywide acquisition plan and
process.
We also support the idea of creating a Chief Acquisition
Officers' Council. This would allow for the sharing of best
practices on acquisition policies and requirements across
agencies. This council could also provide a forum for the
development of innovative acquisition initiatives and the
promotion of effective business practices in the Federal
Government's acquisition system.
With respect to the review of laws and policies, we support
a review of acquisition laws and policies with a view toward
ensuring a greater use of commercial practices, when
appropriate, including practices such as performance-based
contracting. Such a review could result in recommendations for
the repeal or amendment of laws and regulations that are
unnecessary for the effective, efficient, and fair award and
administration of Government contracts.
We also support the new definition of the word
``acquisition'' that would encompass the entire spectrum of
acquisition processes, starting with the development of an
agency's requirements through the completion of all aspects of
contract administration. This, obviously, would enable all
parties, even beyond the Contracting Officers of organizations,
to understand their role and responsibility with respect to
this activity.
We continue to support your attempt to increase the use of
performance-based contracts on a governmentwide basis. We know
that performance-based contracting allows private sector
companies to offer innovative solutions to complex acquisition
challenges. Successful use in Government would require
developing skills in designing tasks in measurable, mission-
related terms and defining required outcomes which are critical
to successful contracting, and it would follow that rewarding
contractors for meeting challenging performance goals would
promote efficiency in Government operations and provide greater
value to taxpayers.
On the issue of increasing our use of time-and-materials
contracts, which is the fastest-growing sector of GSA's
multiple-award schedules program especially the acquisition of
services. While authorizing additional commercial contract
types, such as time-and-materials and labor-hour contracts with
appropriate safeguards, this legislation could ensure that the
Government's acquisition program has the flexibility needed for
additional effectiveness in the acquisition of services.
In summary, Mr. Chairman and members of the committee, we
believe that the Service Acquisition Reform Act of 2003 is
innovative. Its enactment would, in fact, enable or help
establish a modern, effective acquisition process
governmentwide, one that can meet the challenges and
opportunities that we face.
Thank you for inviting me to discuss this. I would be happy
to answer questions, and I certainly look forward to working
with you on this.
[The prepared statement of Mr. Perry follows:]
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Chairman Tom Davis. Thank you very much, Administrator
Perry.
Ms. Styles, thanks for being with us.
Ms. Styles. Thank you for having me. Chairman Davis,
Congressman Waxman, and members of the committee, I appreciate
the opportunity to appear before you today to discuss the
Services Acquisition Reform Act of 2003. I thank the committee
for engaging the administration in a productive dialog as we
seek to address the many procurement challenges related to
service contracting.
For our part, the Office of Federal Procurement Policy is
pursuing a variety of initiatives to lower costs and improve
program performance. These activities include establishing a
Federal Acquisition Council, which is a senior-level forum for
acquisition officials from over 25 departments and agencies.
The council held its first meeting almost 2 weeks ago, and we
established four working groups that are working toward very
specific, objective goals in human capital, competitive
sourcing, performance management, and small business.
We are also strengthening the use of competition in our
everyday acquisitions for services. We published proposed
changes to the Federal Acquisition Regulation in the Federal
Register earlier this month that will improve application of
acquisition basics and purchases for services from the
multiple-award schedules program.
We are revitalizing the use of performance-based service
acquisitions to capitalize on contractor innovation and meeting
the Government's needs. An OFPP-sponsored, interagency group is
working to make performance-based service acquisitions policies
and procedures more flexible and easier to apply. We are also
reducing transaction costs and increasing transparency through
technological advances.
Finally, we are pushing agencies to improve oversight for
purchase cards and to track buyer behaviors, so they can
realize cost savings in acquisition and finance operations
without wasting hard-earned taxpayer dollars. In pursuing these
and other initiatives, I have sought to take advantage of the
existing statutory authorities under a framework that has been
shaped by the leadership of this committee.
I believe there is more that can and should be done within
the existing statutory framework to improve acquisition
practices. For this reason, I have not actively sought
statutory changes during my tenure as Administrator. At the
same time, I recognize that carefully tailored, legislative
provisions can complement the administration's efforts to
achieve greater return on our investment of Federal resources.
My written testimony for the record is organized around
three themes: strengthening the management of the procurement
process, improving the use of contract incentives, and taking
greater advantage of the commercial marketplace.
I should make one caveat. The comments in my testimony are
based on a discussion I had with your staff. Because agencies
were not privy to this conversation, my statement does not
reflect the benefit of their full insight. After SARA is
introduced, which it has been, the administration will be able
to offer more formal views to help inform your thinking.
As one major goal, SARA seeks to improve the overall
management of the procurement process. Among other things, the
new bill would align management structures to better reflect
the integrated nature of acquisitions and require studies to
identify opportunities for further improvements. In my opinion,
both of these efforts have significant merit.
As a second goal, SARA would include various provisions to
encourage good contract performance. The new bill would provide
motivation for agencies to use performance-based service
contracts, codify the use of award-term contracting, expand the
application of share-in-savings contracting, and facilitate
telecommuting by Federal contractors. With a few caveats, these
are generally positive steps.
As a third goal, SARA will take several steps to further
facilitate access to the capabilities of the commercial
marketplace. Based on my understanding of the revised coverage
on time-and-materials and labor-hour contracting, I believe it
is a significant improvement over the originally proposed H.R.
3832.
I, however, believe that there are still some serious and
unresolved problems with this type of contracting. As an
example, at one agency from last year, from February to
December 2002, the overall cost of the contract grew from $104
million to $700 million, a sevenfold overrun on a time-and-
materials/labor-hour contract. There was no incentive for the
contractor to control costs. There is a very real need for
appropriate oversight and safeguards in time-and-materials,
labor-hour contracts, and their use should recognize these
safeguards.
Mr. Chairman, the administration shares many of the
committee's desires to strengthen procurement management, to
provide better incentives for our contractors, and to take
greater advantage of the commercial marketplace. While there
are some areas of disagreement, I believe with continued dialog
we can reach agreement on a significant number of these
legislative provisions that can serve to further our joint
vision of a results-oriented and market-driven Government.
I look forward to working with the committee as we work
toward the delivery of better value for our agencies and,
ultimately, for the taxpayer. Thank you.
[The prepared statement of Ms. Styles follows:]
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Chairman Tom Davis. Thank you, and thank you all very much.
Let me make just a couple of comments and then get into
some questions.
First of all, I think, just trying to respond very briefly
to a couple of comments made in my friend Mr. Waxman's opening
statement, cost-type contracts can't be used under commercial
procedures. So the cost accounting standards are not that
important.
And, second, the TINA waivers really applied to the
certification requirement. The agency still is required to get
the information it needs to find the price fair and reasonable.
We often lose some of these firms as competitors in the
Government market altogether. Alternatively, such firms may
form a separate entity or production line to deal with the
Government, at a considerable extra cost to both the consumers
and the taxpayers.
For example, a company may sell aircraft in the commercial
market that they can also sell similar aircraft under a special
configuration to meet Government needs. Normally, one would
expect the aircraft to be produced on the same line and under
the company's commercial accounting system. But if cost
accounting standards or data certification requirements were to
apply, the company would have to use a different accounting
system and sometimes even a different production line for the
products sold to the Government. How does that save anything?
A number of high-tech, commercial IT firms simply refuse to
compete for Government business because they refuse to change
their perfectly proper and legally sufficient accounting
systems to meet Government requirements. So that is our
challenge, is how to bring more competitors into the
marketplace and how to reduce the costs to taxpayers, and at
the same time balance Mr. Waxman's concerns and other concerns
expressed here on waste, fraud, and abuse, and making sure that
we can have a general check on these items.
Let me ask just a question for each of you to try to get
things started. Mr. Woods, share-in-savings contracts is one of
the innovative contracting techniques that we promote under
SARA. As we know, they can be misused if you use the wrong
contracting vehicles. Time-and-materials may not be an
appropriate vehicle in some areas.
I know you did work on this issue just recently. Could you
elaborate on some of your findings and tell us when this
technique has been successful?
And let me just say I used this in Fairfax County. I came
in as the head of a county government there where we had no
money to spend, and yet we needed IT improvements. That is
eventually how we would be able to get more efficient about the
way we do things. This was a way we didn't have to upfront the
costs. We were able to move and do a lot of things we never
would have been able to do, had we not had that vehicle.
So, from our experience, if it is used correctly, it can be
a real enhancer. Use it incorrectly--there is a tremendous
upside and it needs appropriate oversight and training. I think
that is what we are trying to get to.
Go ahead.
Mr. Woods. And that, Mr. Davis, is essentially what we
found in our review of the commercial companies' use. But, in
specific answer to your question in terms of what we found,
there were four key indicators, four essential ingredients that
needed to be in place in order to have successful share-in-
savings contracts.
First of all, the outcome needed to be clearly specified.
There needed to be agreement between the customer and the
provider, if you will, on exactly what they were trying to
achieve.
Second, the incentives for the contractor to perform needed
to be very clearly defined.
Third, there needed to be performance measures to make sure
that there was a way to track whether the outcomes were being
achieved and whether progress was being made toward that
result.
Then, last, and perhaps even most importantly, there had to
be top management commitment because, typically, what we found
is that these agreements tended to be most successful over
time. That is when the savings kick in, if you will. The
initial upfront investment is made by the contractor, but the
savings are achieved further downstream. So there had to be an
upfront commitment by the companies, by the leadership of the
companies, to maintain the arrangement with the contractor.
Those are the essential ingredients that we found in our work.
Chairman Tom Davis. OK, thank you.
Mr. Perry, let me ask you, you point out in your statement
GSA's commitment to training the Federal work force. You note
GSA's innovative training initiatives. In your view, would the
increased funding that could be made available through SARA's
work force training enhance these initiatives in a significant
fashion?
Mr. Perry. Well, certainly, increased funding is part of
the formula for success. I was really quite surprised when I
first learned the degree to which we at GSA, in terms of our
acquisition work force, fell well below the Clinger-Cohen
requirements. We have been aggressive in trying to move that
up, but we still have a long way to go.
Part of that will have to require resource investment. So
the issue of providing resources to make that possible on a
faster pace than we have been able to achieve it up to this
point certainly is essential.
Chairman Tom Davis. OK, thank you.
Ms. Styles, first of all, thanks for working with us as we
try to remold this legislation and we continue to try to
address some of your concerns as this moves through the
legislative process.
SARA would place commercial services on the same level as
commercial products. You express a concern about this concept.
I am not clear why commercial services shouldn't be put on the
same plane as products, and can you give us the differentiation
in your view on that?
Ms. Styles. Sure. I think it is just the extent to which
you can determine what the price in the marketplace is. I think
you made a very good example when you started off about, why
should you be applying cost accounting standards or intricate
accounting systems to a contractor if they are selling
something that is a service that is available in the commercial
marketplace?
I don't know if putting out oil field fires is available in
the commercial marketplace, but I assume it is, and I assume it
is available in substantial quantities and we could actually go
to the commercial marketplace and say, ``Here's the price for
doing this versus the price that we are paying in the Federal
Government.''
If you have that data and capacity to look at one service
that we are buying in the commercial marketplace and compare it
to what we are paying for it in the public sector, that is
really what we need. We need the capacity to look at that. As
long as it truly is commercial, I think that is fine.
It is a little harder sometimes to compare services than it
is commodities, and that is a little bit of the difficulty, but
I----
Chairman Tom Davis. Because of their uniqueness, basically?
Ms. Styles. Exactly. That is exactly right.
Chairman Tom Davis. OK. Do you think that the provisions in
SARA that would expand the coverage of commercial items to
include more services and to include items acquired from a
commercial entity would encourage the participation of more
firms in the commercial market?
Ms. Styles. I think it certainly could. I have seen it from
my perspective in working with defense contractors in the
private sector, that they do reorganize based on our
requirements and to meet them or not. That may not be the most
efficient way for us to be buying from some of these companies.
Whether that is the right solution or not or whether we can
come up with another solution, I think we do need to come up
with a solution for some of these companies that may be
spending more and ultimately charging us more in some of the
cost contracts because of the way they structure themselves to
meet our needs.
Chairman Tom Davis. Thank you very much.
Mr. Waxman.
Mr. Waxman. Thank you, Mr. Chairman.
Section 404 of the bill expands dramatically what kinds of
products and services can be considered, ``commercial'' items.
Commercial items are exempt from essential safeguards against
waste, fraud, and abuse, such as the cost accounting standards.
This section would provide that any product or service shall be
considered a commercial item if it is produced by an entity
whose primary customers are in the private sector at the time
the contract is entered into. Specifically, this section
provides that if 90 percent of a company's sales over the past
3 years were to non-government entities, then this would apply.
Now if an entity meets this test, it doesn't have to
provide any data to the Government to justify its costs and
prices under the Truth in Negotiation Act. It doesn't have to
account for overhead, travel, management, or other expenses
using standard cost accounting standards. In essence, it can
charge the Government whatever it wants without oversight.
Moreover, the proposal would allow, and even encourage,
contractors to manipulate the system by creating, ``special
purpose entities'' or subsidiaries that are set up specifically
to obtain commercial item status for goods or services.
Contractors could also make any contract for unique Government
items or services exempt from oversight through such
manipulation.
Now, Ms. Styles, you have testified that the administration
opposes this provision. The DOD IG also opposes this provision.
According to the IG, the provision, ``would allow contractors
to manipulate what is considered a commercial item by creating
or reorganizing business entities or allocating contracts to
different business entities in order to obtain commercial item
status for what are actually military-unique products.'' Can
you elaborate on why you are concerned about this provision?
Ms. Styles. Certainly. It is more a concern about the
method to resolve what I think are some real problems, and what
we need to work on is how we resolve some problems that
contractors are having in supplying us goods and services, and
how they are structured to meet, whether it is cost accounting
standards or truth in negotiation or whether it is an issue of
something that is commercial that we are not really buying as
commercial. So we are putting additional restrictions on there
that we may not need to protect our interests.
We certainly were concerned that this would allow a company
to sell us something that is not commercial, that is not
available in the commercial marketplace, that we wouldn't be
able to judge whether the pricing was fair and reasonable
pricing or not, because we didn't have sufficient purchases in
the commercial marketplace to make that comparison to what we
were paying.
Mr. Waxman. Mr. Woods, do you have concerns about this
provision?
Mr. Woods. We do have concerns, as Ms. Styles indicated,
that when you have a Government-unique item, in many cases you
need to have other tools available to help in the pricing
decision.
Mr. Waxman. Under current law, a service can be considered
a commercial item only if they are offered and sold
competitively because then you have a marketplace to make
judgments. Section 403 would change this definition
dramatically. It would expand the number of services that can
be considered commercial items. In fact, almost any service
that is offered, or that theoretically could be offered, to a
private sector purchaser can count as a commercial service
under the new definition. Even the contract with Halliburton to
extinguish oil well fires in Iraq or contract with Mr. Richard
Blum to do work in Iraq as well could potentially qualify under
this new definition.
Now the consequences of designating these services as
commercial items are profound. They exempt the services from
important accountability standards such as the Truth in
Negotiation Act and the cost accounting standards, Essentially,
they strip the Government of any means to check whether the
prices it is paying are reasonable for the services it is
receiving.
I believe there is a question of whether the definition of
commercial services should be changed. According to the IG,
``the current definition of commercial services is a very
reasonable definition with safeguards to prevent purchasing
non-commercial services. It permits services which are sold
competitively and for which a market price can be established,
to be treated as commercial services. This provision has
permitted the Government to purchase a myriad of services as
commercial services.''
Ms. Styles and Mr. Woods, how do you respond to the
comments of the DOD IG on this?
Ms. Styles. I think there is room for more flexibility in
determining what is commercial in the services arena. We do
have to be cautious here. I think we have to recognize that we
are cautious and we have to have some certainty that the price
we are receiving is fair and reasonable. I think it is a
difficult line to draw at times, but I think it is one that we
should recognize that we should seek, to the extent we can,
some additional flexibilities here.
Mr. Waxman. So you disagree with the DOD IG?
Ms. Styles. No, I don't think it is disagreeing. Well, I
mean, he says that we shouldn't change it at all, and I think
we should examine that. I think we should look at it and see if
we can be more flexible in the services arena.
Mr. Waxman. And, Mr. Woods, what are your concerns and
analysis? I don't know from Ms. Styles whether she agrees with
the definition in the bill or she thinks they ought to be
negotiated further to see what that provision should be.
Mr. Woods. Well, we at GAO, like the rest of this panel,
have not yet had a chance to review the precise language in
detail.
Mr. Waxman. That is a problem.
Mr. Woods. That said, though, buying services does present
very different challenges than goods. Let me give you an
example.
We did a report a couple of years ago looking at buying off
the General Services Administration Schedule. There are very
different procedures for doing that. It is relatively simple
when buying goods. You can go to the schedule. You can compare
the specifications and the prices.
It is not so easy for services. In fact, GSA has
established special ordering procedures for services to
highlight the difference.
Just very briefly, in buying services, particularly
professional/administrative services, that sort of thing, which
the Government is buying more and more of these days, or
information technology services in particular, it is not just
enough to go to the schedule, for example, and look at the
rates that are being charged for various positions or various
services that might be provided, such as the rates for
different skills categories.
You need to look at the mix of skills. You need to look at
how many hours are going to be provided by each of these
individuals. So it is a very different process than just
ordering goods. So there are some key differences there that we
need to take account of.
Mr. Waxman. Just yes or no, do you think we ought to go
with section 403 as it is in the bill or would you want it
changed or eliminated?
Mr. Woods. Well, I haven't seen the bill, sir, so I can't
really comment.
Mr. Waxman. OK. Ms. Styles, section 403, is it acceptable?
Ms. Styles. I have not seen what has been introduced. I
think we would still like the constraint of it being sold in
substantial quantities, though. We do want to be able to find
prices in the commercial marketplace to be able to make the
comparison.
Chairman Tom Davis. Thank you, and, of course, the whole
purpose of this is to allow that Contracting Officer to get--
they can determine what is fair and reasonable, but they have
to find the data to do it. If they can't, then this doesn't
lie.
Instead of having the company certify in this place, we are
really putting the onus on the Contracting Officer. But the key
here is that these buyers are going to be trained to do this,
and they are going to have to make the appropriate
substantiations.
So I don't think we are losing anything, but we would be
happy to get you the language. If you want to comment on that
and get that to Mr. Waxman, I think that would be an important
part of the record and we would welcome you doing this. Thank
you very much.
Mr. Lewis.
Mr. Lewis. Yes, thank you, Mr. Chairman.
I guess this question would go to Mr. Woods. Does the
increase in contract dollars spent on services, how does that
relate to a reduction in civil service personnel? Or does it?
Mr. Woods. We haven't really looked at those issues in
tandem. We are seeing both of those phenomena that you have
cited. We see, as indicated, a significant growth in services,
and then our work on looking at the civil service side has
focused just on the acquisition work force for the area that I
am responsible for. So I don't bring any particular expertise
across the board in civil service.
Mr. Lewis. I guess the other question, looking at the
decrease in the acquisition work force and the increase in the
number of high-dollar procurement actions, was there an
increase in contracts or a decrease in contracts in
relationship to the procurement actions?
Mr. Woods. What we find, when we look, relates to contract
actions. So it is not contracts, but contract actions. The
difference is that, when an agency awards a contract, there are
a number of contract actions that would follow from that.
Funding changes, just changes to the contract itself in terms
of the specification and the work required, task orders that
are issued under a multiple award, indefinite delivery contract
would qualify as an action. So there are multiple contract
actions.
In specific answer to your question, though, we found that,
by and large, the number of contract actions has declined
somewhat over the 5-year period that we looked at.
Mr. Lewis. I am wondering, is that because of more
centralized purchasing or procurement, and that is in direct
relationship to the decrease in the acquisition offices?
Mr. Woods. That could very well be. The primary
explanation, we think, is the use of purchase cards. Purchase
cards gets to your point about the acquisition work force. You
do not have to be a member of the acquisition work force in
order to use a purchase card. That was the design. The theory
was, why involve people with detailed contracting expertise
when all we need is someone from a program office to make a
purchase that is needed at a given point in time? So there has
been a decline in the numbers, and a lot of that--there is also
seen a decline in the work force, too.
Mr. Lewis. This piece of legislation that we are talking
about today, will that do anything, or can you tell me how it
will decentralize the acquisition or the procurement process?
Because I have a feeling that, with regional purchasing, it is
a one-size-fits-all-type purchasing philosophy that sometimes
causes a lot of waste.
I have seen that. I have Ft. Knox in my district. I have
seen that regional purchasing has put them in a situation,
where they actually don't receive the things that they actually
need where they could have purchased it locally.
So does that do anything to decentralize that process?
Mr. Woods. I don't believe that there are provisions in
SARA specifically on that point. But one of the reasons that we
support the Chief Acquisition Officer, for example, is we need
a person in the organizations that can take note of issues like
you are raising and determine whether we need more consolidated
contracting, or in some cases we may very well need less
consolidated contracting to meet specific needs. It is only
when you have an individual that is at a fairly senior level
that can look out across the organization to make those kinds
of assessments.
Mr. Lewis. OK, thank you.
Chairman Tom Davis. Mrs. Maloney.
Mrs. Maloney. Thank you. Thank you, Mr. Davis. I would like
to really be associated with the comments of Chairman Waxman. I
personally was very concerned that our panels----
Chairman Tom Davis. ``Chairman Waxman?'' [Laughter.]
Mrs. Maloney. Did I call him ``chairman?''
Chairman Tom Davis. I will permit a lot of freedom of
speech in this hearing.
Mrs. Maloney. ``Leader.'' Leader Waxman for the Democrats.
[Laughter.]
I think he raised some important points. As much as I
respect Mr. Davis, I tell you I have deep concerns about this
bill, having just read a 68-page bill that I got last night.
But I am concerned that the panelists hadn't even seen the
bill. I think that we should have another hearing on this after
the panelists have seen the bill.
We are the largest consumer in the world. We spend $215
billion in goods and services, and we need to make sure that
the taxpayers are protected in this.
I am particularly concerned that the Chief Acquisition
Officer, building on my colleague from the other side of the
aisle's comments, according to this bill, will not be a career
person. To me, when you are making decisions on $215 billion,
you should have a career person whose purpose is to serve the
Government, not someone who may be a political appointee from a
business that they may go back to after they award these
contracts to them.
So, at the very least, I have always known that what we
worked for was to professionalize the procurement system. Here,
if I am reading it correctly, the Chief Acquisition Officer is
to be non-career--in other words, political--but non-Senate-
confirmed appointees.
This, of course, is in the face of recommendations from
many quarters that there should not be political appointees
making contracting decisions. I come from a long history of
contract abuse from probably the biggest abuser in contracts in
the country, New York City. One of our biggest reforms that we
did was to make sure that whoever made these decisions was a
professional person trained in procurement, not someone who
comes in, in one administration, is gone the next, and when the
scandal hits the front pages, they can say, ``I don't know who
made that decision. They have already left.''
So I want to know, and just start with Ms. Styles and go
right down to Mr. Perry, and my eyes are so bad I can't even
see your name. Mr. Welsh.
Mr. Woods. Woods.
Mrs. Maloney. Woods. Do you believe that the Chief
Acquisition Officer should be a political appointee, like what
this bill does? Is that not in the face of what procurement
history has been and professionalism, not to mention the fact
that the IG has come out in opposition to this?
Ms. Styles. I would like to explain the problem that I see
at some agencies now. I certainly think there may be a lot of
ways to resolve it, but it is a real problem that we have
procurement officers, we have procurement executives at the
agencies who have been career people for a long time. With only
two, maybe three, exceptions that I can think of in my mind, do
they have access to the head of the agency, are they involved
in the front end from a program decision perspective, deciding
the requirements, knowing what they are, well before you make
any decisions about how it is going to be bought from a
procurement perspective.
So you can kind of see that our Chief Procurement Officer--
--
Mrs. Maloney. So are you saying that we shouldn't have
professionals making this, that it should be a political
appointee instead? Is that what you are saying?
Ms. Styles. Well, I am trying to address the problem----
Mrs. Maloney. Yes, OK.
Ms. Styles [continuing]. That I perceive here. I think
there is a lot of flexibility to figure out how to address the
problem, but it is a real problem that we have our procurement
executives, with a little ``p,'' focused on the laws and the
regulations of procurement, which clearly we need people to do,
but the problem in the acquisition arena is that we don't have
anybody that focuses on cradle-to-grave acquisition issues.
You can't take that little ``p'' person and make them a
Chief Acquisition Officer and expect in the culture of the
agency for them to suddenly be involved in program requirements
and management decisions. So you have to figure out----
Mrs. Maloney. So you think it is better to hire, say, an
executive from Lockheed or Bechtel to come in and do this job,
instead of a career person?
Ms. Styles. I don't know what the right answer is here, but
I do know that you have to figure out a way to give that person
access to the head of the agency and involvement from the front
end of procurement decisionmaking. Is that a political person?
Well, there is a much greater likelihood that a political
person is going to be able to have that upfront involvement
from cradle to grave than the little ``p'' procurement person
that we have had.
So there is a problem that needs to be resolved----
Mrs. Maloney. Excuse me. I am about to blow up. I cannot
believe that you said that, that it is better to bring in a
political appointee, a revolving door out to private industry,
who will benefit from these contracts, as opposed to
strengthening professionals to make these decisions.
But I am taking your challenge. I am offering an amendment
right now in the bill that will create a chief procurement--
what is it called--Chief Acquisition Officer who will be non-
partisan, professional, trained, and that person will have the
authority from the beginning to the end to make taxpayer-
protection, the benefit-of-our-country decisions on the $215
billion contracts in all of our agencies.
If it is such that our procurement officers cannot make
decisions and have no access to what the material is supposed
to be, then we need to change that, but certainly the answer is
not to go back and bring in political appointees. I find this
very, very wrong and very dangerous, particularly when we need
to be very careful in protecting our taxpayers' dollars.
And I must say--and I want to say something nice about the
chairman--he has consented to come to New York, and we are
suffering very deeply from the recession from September 11th,
to do a procurement conference. At first I was just going to do
it with September 11th businesses, but it is like a fire:
Everybody wants to come because everybody wants to have the
opportunity to build on Government contracts and to know how to
do it.
I thank you for doing that, but it shows that people want
access. I think if you have a system that is dependent on a
political appointee, it will undermine the confidence of the
American people in our contracting process.
I feel so strongly about it, because in New York City we
let a contract for hundreds of millions of dollars on
technology that didn't exist, on a program that didn't exist,
and gave it to a company that opened up a bank account the day
before with $25 in it. The way that happened is that there was
a political appointee making the contracting decisions.
We changed that. We now have Chief Acquisition Officers who
are professionals, who are trained, who have access, and who
make independent decisions for the benefit of the city of New
York and city of New York taxpayers to just get the best
product at the lowest price.
I feel this is a terrible example of cronyism. I am
adamantly opposed to it, Mr. Chairman, and we must get this
provision changed in the bill.
Very briefly, I am very concerned about transparency. From
my first glance in the 68-page thing, transparency is smudged
in it. One of the chief tenets and values and principles of
contracting has been that it be transparent and that it go to
the lowest competitive, competent bidder. That is removed in
this bill, and I find it very troubling.
My time has expired. Thank you.
Chairman Tom Davis. Thank you. I was going to bring, for
our procurement conference, I was going to bring some political
appointees up to New York. Can I do that, do you think?
[Laughter.]
Mrs. Maloney. No, I am not going to bring political
appointees. I am going to have businesses there that want to
learn how to bid on Government contracts. They will not even
bid on Government contracts if they believe a political
appointee is making that decision. They will feel that the way
to get the contract is to make a contribution to a political
party or somebody else, and that is wrong, instead of the
merits of the product that they are putting before the Federal
Government.
Chairman Tom Davis. Thank you. Well, for the record, the
Chief Acquisition Officer has no contracting warrants, does not
have any authority to contract anything. They are a policy
person. The theory here is to have someone that will have the
ear of the head of the agency, as opposed to someone who is
down there that can write memos that never make it to the top.
But I will be happy to work with the gentlelady on this
issue. I think we understand the concerns, but, again, the
Chief Acquisition Officer has no contracting authority to give
a contract to anybody. So I hope that will assuage some of her
thoughts, but I would be happy to work with the lady. I
appreciate her expressing her thoughts on this.
Mr. Turner.
Mr. Turner. I don't have any questions. Thank you.
Chairman Tom Davis. Let me see, Mr. Ruppersberger is next.
Mr. Ruppersberger. Yes, thank you, Mr. Chairman.
A couple of things, the specific areas that are contract
term, share-in-savings, if we have time, the government-
industry exchange program. What we are trying to do is to find
the best system. It is all about accountability and performance
in the end. We have learned from mistakes, and we need to learn
from mistakes, and then move forward.
As far as contract term is concerned, section 302 would
authorize agencies to extend the contract performance period
for service contracts by one or more periods. There are no
numerical limits on the number of such extensions. In effect,
this would make for a potentially unlimited contract which
really would permit service contracts to have options for an
unlimited number of extensions, each for a period of unlimited
duration. That is an issue I think we need to address.
In addition, the DOD Inspector General has commented, ``The
periodic expiration of a service contract should provide an
occasion to spur competition and permit the Government to
obtain a better deal or better technology than offered by the
incumbent.''
Now, I guess, Ms. Styles, the Competition in Contracting
Act requires full and open competition, correct?
Ms. Styles. Yes, that is right.
Mr. Ruppersberger. OK. Now at the end of a contract
performance period--generally, it is about 5 to 7 years--the
contract is recompeted. Now do you agree that this is important
to recompete contracts, and how long, if you do agree, should
they be recompeted?
Ms. Styles. Our current regulations, with the exception of
information technology, require recompetition every 3 to 5
years. Generally, recompetition is very important for receiving
lower prices, making sure we get the best quality, but you also
want some flexibility in there to be able to reward a
contractor that is clearly meeting your expectations at a low
cost.
So, you know, award-term contracting is actually allowed
under the current FAR. In many respects, this is a codification
of what is currently allowed.
Do we need to make sure that we are firm on recompetition
in a certain period of time? I think so, but it is also good to
incentivize our contractors as well.
Mr. Ruppersberger. Well, my concern is there are no
numerical limits on the number of such extensions. I think that
is a concern. You know, I would think you would have an
advantage if you have the contract and you are doing a good
job. But if you are not, then you need to recompete, and that
gives incentives to do the job. I am concerned with that
section. That is one issue.
The other, share-in-savings, the bill would authorize a
contract type called ``share-in-savings,'' where the contractor
agrees to bear the initial project cost, including capital
outlays, until the client agency begins to achieve specified
results from the work, and the payment is based on percentage
of the savings realized by the agency.
Now, at first look, I think that this is out of the box,
and I am not in favor of going out of the box. I think that
when we are trying to move ahead and be innovative, it is
something that I think we should do. As a result, I think, of
this type of program, which really puts a lot of the money and
burden on the contractor, not the Government.
I understand, after some negotiation, that there were about
15 pilot programs that are under this program right now, but
that these 15 programs have not really been analyzed yet, and
the results have not come back to make sure this is where we
want to go. Yet, this bill really opens the door for that.
I think there is one, and I am not sure, and I went to
visit Ft. Mead, and that is Government housing for your
military, where the contractor puts the money up, and it seems
to me to be extremely innovative. But the issue there is this
contract goes way out. It could go 50 years out. Anytime you
have something like that and you don't have accountability, an
accountability of performance, I have some concerns. Do you
have any comments, panel, on that share-in-savings provisions
of the bill?
Mr. Woods. Well, if I could----
Mr. Ruppersberger. Yes, anybody on the panel.
Mr. Woods [continuing]. Step out on this one, you are
absolutely right; accountability is extremely important, and
particularly as the contracts extend out in terms of years. You
need to have periodic performance measures. You need to have
people in place on the Government side to make sure that the
contractor is delivering on what it promised to do.
It is not enough just to award a share-in-savings contract
or any other type of contract, for that matter, and then sit
back and hope that you are going to get what you paid for. You
need to have very serious surveillance plans in place.
Mr. Ruppersberger. And that is my concern about this bill,
that some of that is lacking.
Finally, because I see the middle light and it is not how
long you take to answer questions sometimes, but the
Government-industry exchange program, again, something that I
think, if it works the right way, but it could be certain
people could say that it is basically the fox guarding the hen
house sometimes.
My concern really is not about that, if you have the checks
and balances, but it is about losing qualified, good people. We
have a lot of people that would go into the Government exchange
program, and we might lose our Government employees. They are
going to go to the private sector.
We train them. We develop their expertise, and then they
are gone as a result of that program. Are there any checks and
balances that you know of that we could use to make sure that
we protect our resources, that they don't go to the other side
for more money--when I say, ``the other side,'' to go to
private industry? Any comments on that? Anybody?
Mr. Woods. Well, again, not having seen the provisions of
the bill----
Mr. Ruppersberger. And that is why I bring it up.
Mr. Woods [continuing]. There could easily be requirements,
either in the statute or implementing regulations, that would
require the parties to come back for a certain period of time,
essentially, to enter into a contract with their agency that
says, ``yes, I will go to the private sector for a period of
time, but I will agree to come back.''
Chairman Tom Davis. Thank you. The gentleman's time has
expired.
Let me just make one comment. The key factor here is, if we
have a cadre of trained professional buyers for the Government
that are close to the customer, understand what the customer
wants, that we give them discretion. They are trained. It will
be transparent. They are going to have to substantiate it, but
better that than having everything driven by the same set of
central regulations that basically handicaps them when you have
a good performer where you have to make a change and the like.
You know, if there is a theory behind it, it is that we
think that is where the savings are. It is not fraud and abuse,
but it is waste.
Mr. Ruppersberger. I don't object to the program. I am just
saying the checks and balances to make sure that we don't----
Chairman Tom Davis. That is fine, and I think, as we work
through this, we are going to be interested in comments from
committee members. It is a work-in-progress. This isn't a take-
it-or-leave-it proposition. I understand the concerns being
raised, and that is why we are having a panel of a lot of
different opinions as we come into it.
But the fact of the matter is that we waste billions of
dollars annually in contracting that we are taking from our
taxpayers that don't need to be wasted, that we could be a lot
more efficient about doing this, and we are looking at ways to
do that. We have a panel of experts. On our next panel I think
they are going to be talking about their experiences in this.
I am not sure everybody has the right idea for the best way
to correct it, but we have heard from Ms. Styles and others
talking about some of the systematic problems in the current
system that are costing taxpayers billions annually. That is
what we are trying to get. I appreciate the gentleman's
comments.
Mr. Ruppersberger. One other thing, Mr. Chairman, if I
could just raise this issue: Basically, it seemed to me that at
one time it was strictly a bidding on the contract and the
lowest bidder. In my opinion, that has caused so much
inefficiency----
Chairman Tom Davis. Correct.
Mr. Ruppersberger [continuing]. Inferior product, inferior
performance, and that is why we need different programs and to
move forward in those programs. So I understand that. I assume
that we have come a long way since that time.
Chairman Tom Davis. We have, and we are trying to go a
little further. If the gentleman would be happy to sit with
some of our staff and Mr. Waxman's staff so he can ask
questions, whether you want to get comfortable with provisions
or maybe some additional amendments you would like to offer,
but I appreciate it.
Ms. Watson, thanks for being here.
Ms. Watson. Thank you so much, Mr. Chairman, and thank you
for the opportunity to have the comment from the General
Accounting Office.
I want to thank the GAO for raising the concerns, but I
find you very timid. I do know we are working in an atmosphere
where you are gagged in many ways if you are critical of what
is going on. That is very disturbing to me in a democracy.
I have seen things occur in the last few months that are
appalling. I was startled when I found that the deal was
already done and Halliburton received a contract without
competition. In a democratic society, should that ever occur?
At a time when we have a budget that is proposing a tax cut
that limits the revenues, at a time when States are hurting,
particularly mine with 35 million people, California, with a
$35 billion deficit, with tens of thousands of people out of
work, we have to watch every single penny. To give a contract
without competition to a firm that we know has been connected
to someone in this administration I think fits the definition
of abuse.
Now thank God for the GAO. You are supposed to raise these
concerns. Without any connection to partisan, you raise the
issues. I am just pleased that you have gone as far as you
have. I don't think you are strong enough, though.
What I am really concerned about, if these little in-house
deals are going to be made, and this proposed bill, as I
understand, you have not seen the provisions, am I correct?
Just nod your head. Have you seen the provisions?
Mr. Woods. We have all seen a detailed, section-by-section
analysis, I believe, but----
Ms. Watson. But have you seen the bill itself?
Mr. Woods. The bill was just introduced yesterday, and I
certainly have not had----
Ms. Watson. Of course, and neither have we. So we work in
the blind. I find it very troubling here in Congress working in
the blind. You never see the actual wording of the bill, and,
you know, a bill is law. Any word in that can be taken to court
for a definition. So, you know, we are operating, Mr. Chairman,
in the blind. We should have not the analysis, but the bill in
front of us, so that we could really have direct and relevant
comment.
But, anyway, it raises great concerns to me, representing
an area, a large urban area in Los Angeles that is suffering
because of lack of jobs. I want any one of you that is willing
to comment to let me know, if you know if this legislation
includes any protections to ensure that small businesses,
minority businesses, women-owned businesses have a realistic
chance to participate in the Federal procurement process as a
prime contractor.
Small businesses are the fuel that runs the engine of our
economy. From what I am seeing, we can expand language and
definitions and put our friends in, and small businesses,
minority businesses, women-owned businesses don't even try.
This is what I am gathering from this.
Some of the streamlining incentives and procedures I think
end up excluding, because, you know, we can do it real quick.
So I would like you to comment.
The other thing, too, and this goes to Ms. Styles, do you
see the need to start training these ``little people,'' as you
described like that, these ``little people,'' and do you see a
way, can you suggest to us or recommend to us a way to give
them a broader specter of what is going on from the
administration on down? Are we to say that the political
appointment is the only way to go here or can we make
professionals out of our staff? Or can we have someone employed
in this position that is not connected up to the
administration?
I mean I am trying to find a way around this. What would
you suggest?
Ms. Styles. I think there is a lot that can and should be
done to train our people in small business requirements and
what small business brings to the table in terms of innovation,
creativity, and lower cost. We have taken some steps to
encourage agencies to reallocate resources to their Offices of
Small and Disadvantaged Businesses, which actually include both
political and career appointees that report to the heads of
their agencies.
We also think, I personally think that we have a negative
culture toward small business within the Federal Government
that has developed because we have a very confusing set of laws
on the books in the small business arena. We have very
confusing judicial interpretations. We have very confusing
regulations. And we can train and train and train our
Contracting Officers, and they may still not be able to
understand whether they should prioritize a woman-owned
business, an 8(a), an SDB, a HUB Zone, a service-disabled
veteran, or a veteran-owned small business, because it is very
difficult to interpret and understand.
So I think that there is a lot that we can do, whether it
is training, whether it is streamlining, whether it is
simplifying a small business' entrance into the system or
simplifying it from the perspective of a Contracting Officer,
that they can check off one box or SBA can check off one box
and know for all procurements that business is a small
business, not just for this procurement and this NAICS or SIC
code or this industry; that this person is small for all
purposes, and that there is something that they can be
reassured that there is some accountability, that it really is
small and there is no question about whether it is an accurate
certification or not.
So I think that there is a lot that we can do, that we have
been pushing to do, within the administration, particularly
through the SBA, and I would say focusing in our Offices of
Small and Disadvantaged Businesses within the agencies to
really pursue opportunities for small businesses within their
agencies.
Chairman Tom Davis. Thank you. The gentlelady's time has
expired.
Let me just add one thing. We would be happy to work with
you on some clarification of this. I think by expanding the
definition of commercial entity, that opens it up to a lot of
small businesses that right now are reluctant to change their
accounting systems and deal with the Federal Government. But if
the gentlelady will work with us, maybe we can put some
language in there that could improve this.
Ms. Watson. Mr. Chairman, may I ask you a question?
Chairman Tom Davis. We have a vote in 5 minutes, and I want
to try to get through all the questions before----
Ms. Watson. OK. Just an ending question. It says that GAO
is not making recommendations. I am wondering if you could make
some recommendations and send them to the committee?
Chairman Tom Davis. I have asked them to try to do that.
That would be fine.
Ms. Watson. Thank you. Thank you very much for your
indulgence, Mr. Chairman.
Chairman Tom Davis. Thank you.
Mr. Davis.
Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
It seems as though whenever I sit next to the gentlewoman from
California, her thought processes kind of rub off on me.
[Laughter.]
And, plus, I just left some activity dealing with small
business.
How do we really get small businesses more actively
involved, if we have a policy that promotes contract bundling,
which I think in many instances raises the bar beyond the
ability of small businesses to participate? Do you have any----
Ms. Styles. We don't have a policy that promotes contract
bundling. We have been actively, at the suggestion of the
President, pursuing efforts to unbundle contracts. We came out
with recommendations in November, at his request. He asked my
office to come up with recommendations to unbundle Federal
contracts.
We have a nine-point action plan that the General
Accounting Office has looked at and believes is a good plan for
moving forward. We introduced regulations on January 31st to
address problems. We had a 60-day review period, and we are
requiring quarterly reports on agencies for their efforts to
unbundle contracts.
Mr. Davis of Illinois. So we have been active? This is
relatively new and current?
Ms. Styles. Absolutely.
Mr. Davis of Illinois. Because the records that we have
been reviewing have indicated that most Government agencies are
doing very poorly even itself with small businesses, in
contracting with small businesses, or finding ways for small
businesses.
I know the ones that I interact with catch holy Hell trying
to get some business, and they maintain that the processes do
not really help them, but pretty much shut them out. So I am
pleased to know that we are moving in a different direction,
and we will look forward to the kind of progress that we make.
Mr. Perry. Mr. Congressman, if I can answer that, add to
that answer, at GSA, while the congressional requirement for
the portion of business done with small businesses is 23
percent, we at the end of last year were able to achieve 40
percent. Under this directive, we are striving to make it
higher.
So unbundling is one of the aspects. But even in cases of
contracts which are bundled or remained bundled, it is with
special emphasis on small businesses being included.
Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
Chairman Tom Davis. Thank you very much.
The bells are going off for a vote. Mr. Cooper has not had
an opportunity yet. We will conclude with your questions and
you can stop, and then I will dismiss this panel. We will
recess for 15 minutes and come back and do the next panel.
Again, thank you for being here.
Mr. Cooper.
Mr. Cooper. I thank the Chair and I will try to be brief.
On the next panel, Professor Tiefer will be testifying. If
it is according to his written testimony, he makes several
claims here. One is that the bill is much broader than the
title would suggest. He says that ``its diverse provisions
outrun the stated general justifications for relaxing
procurement safeguards.'' It is hard to accurately title a
bill, but, still, I think that should raise concern to Members,
that we know the broad reach of the legislation.
Second, and much more alarming, he says, ``The rationale of
giving out incentives to favored contractors without
alternative disciplines for procurement risks just produces a
Christmas tree of procurement giveaways.'' I don't think
anybody on this panel on either side of the aisle is interested
in legislation that could backfire to that extent.
I see the chairman looking with some amusement. I assume
that you----
Chairman Tom Davis. Well, the gentleman has opposed every
reform measure that has come down through here. So he wants to
go backward, not forward, but we will get them in the next
panel.
Mr. Cooper. We will let the gentleman speak for himself.
It is particularly alarming because I am a business
Democrat, and I think competition built America. This gentleman
is claiming that under this legislation formal competition to
provide Government services could become an endangered species.
He is particularly worried that, when you couple this
legislation with the new and revised version of A-76, that it
will have a tendency, ``of the new A-76 toward contracting out
for contractor's sake rather than for the public interest.
Provisions like this could extend contract terms to create
contractors for life.''
Surely, that would be an unintended consequence of this
legislation, but contractors are hardy folks, and if there is a
way for them to get a contract for life, that is a pretty good
deal.
I would like to ask this panel, have you looked at the
downside of this legislation sufficiently--and I know you
haven't been given a detailed copy of it--so that you could
comment on the professor's concerns here? Because if true,
these are pretty serious allegations.
Ms. Styles. I certainly, from my review of what I have seen
so far, don't see how you would be creating a contract for life
for anyone. I think, you know, we will all----
Mr. Cooper. Should there be a numerical limit on contract
extensions?
Ms. Styles. We have them in regulation right now. Quite
frankly, the award-term provisions in my understanding of them,
and I don't have the text in front of me, is that it codifies
existing flexibilities. So I think the dangers may be
overrated.
Mr. Cooper. It is my understanding there are not any
numerical limits on contract extensions, and already many
billions of contracts are not competed out. Whether it is
Halliburton or somebody else, I think that should raise red
flags, shouldn't it? The American way is competition, healthy
and hardy competition.
Ms. Styles. Absolutely, and I think that we should always
be promoting competition, but you also have to recognize that
at times----
Mr. Cooper. Except for Halliburton.
Ms. Styles [continuing]. We are going to be able to get a
better value for the taxpayer if we award good-performing
contractors at a low cost for what they are doing, just like
the private sector does. So I think we have to have some
flexibility here.
Mr. Cooper. Flexibility with competition in as many cases
as possible?
Ms. Styles. Absolutely, absolutely. Absolutely.
Mr. Cooper. Any other panelists have a comment?
Mr. Perry. Well, I would just add that I think in all of
these cases we will have to put some emphasis on having
processes or procedures that are correct and that are
appropriate, but also some of what we are discussing is good
execution. In other words, if we don't have good execution, we
can have a very limiting or very open process, and without good
execution, it doesn't work.
I think some of the challenges that we will face in making
all this successful is to focus on good execution and not try
to make the process so proscriptive, such that we eliminate all
the flexibility, but at the same time manage that flexibility
with good execution. I think some of our difficulties will be
resolved by good execution.
Mr. Woods. If I could just add a couple of points?
Mr. Cooper. Yes, please.
Mr. Woods. One is on the competition issue that you raised.
I would refer you to our report that analyzes the extent of
competition at the 10 major agencies.
But, second, what we are trying to achieve across the board
with a number of these provisions and other initiatives is to
try to come up with incentives for good contract performance.
Chairman Tom Davis. Could the gentleman speak into the mic?
Mr. Woods. Oh, I'm sorry.
Chairman Tom Davis. It is hard to hear you.
Mr. Woods. We are trying to come up with incentives for
solid contract performance across the board in order to enhance
the value that the taxpayer gets for contract dollars. There is
a number of ways to do that, and two are on the table right
now. Periodic competition is certainly a good way to enhance
contractor performance. But another way perhaps would be to
provide the possibility for award-term contracts for good
performance. That is what I think this bill is trying to
accomplish.
Chairman Tom Davis. Let me thank the gentleman for his
questions. Let me also refer you to the testimony of Dr.
Kelman, who is a Harvard professor----
Mr. Cooper. I read that, too.
Chairman Tom Davis [continuing]. And the Clinton
administration's procurement czar, who is at Harvard today and
could not be down here. He takes a somewhat different view as
well.
There are a lot of views in here. We try to hear from
everybody and then put it together. I appreciate a lot of the
comments that Members are making, and, of course, we will take
this into account as we go into markup.
So we have a vote on the floor right now and----
Mr. Waxman. Mr. Chairman.
Chairman Tom Davis. Yes?
Mr. Waxman. Before we break----
Chairman Tom Davis. Yes, Mr. Waxman.
Mr. Waxman. I know Ms. Styles said that the administration
hasn't had an opportunity to offer proposed changes, but now
that there is actually a bill that has been introduced within
the last 24 hours, you will have a chance to do that, and maybe
the other two members of the panel----
Chairman Tom Davis. I invite all the panel members to
address the specifics.
Mr. Waxman. Yes, the problem we have, of course, is that we
originally were going to go to a markup tomorrow, which is a
very short period of time. I think we may have a little bit
more time than that, but I would request that we get some
further input from the three of you, now that you can look at
the details of the legislation, not simply a summary or a
discussion with the staff, so that we can have the full benefit
of your input.
Chairman Tom Davis. Thank you. Let me just add, 90 percent
of this bill everybody has seen before and we have held
hearings on, and I think they can address that in short order,
so you can have their comments, and I appreciate it.
Let me say to the panel, thank you very much for being with
us. I think this has been very, very helpful. I will dismiss
you at this point.
I will recess the meeting. We will come back for our next
panel in about 15 minutes. Thank you.
[Recess.]
Chairman Tom Davis. Thank you all for bearing with us.
We have on this panel Professor Charles Tiefer of the
University of Baltimore; Bruce Leinster, chairman of the
Information Technology Association of America's Procurement
Policy Committee; Mark Wagner, vice president of Government
Affairs, Johnson Controls, testifying on behalf of the Contract
Services Association, and Ted Legasey, the executive VP/chief
operating officer of SRA International, a northern Virginia
company.
It is the policy of this committee that we swear all
witnesses in. So if you would rise with me?
[Witnesses sworn.]
Chairman Tom Davis. Thank you.
Why don't you start, Professor Tiefer? We will start with
you and move right on down.
Again, the rules are 5 minutes. We have your total
statement in the record. You can see Members have read this.
When it turns orange, you have a minute to sum up. When it is
red, your time is up. Thank you very much.
STATEMENTS OF CHARLES TIEFER, PROFESSOR OF LAW, UNIVERSITY OF
BALTIMORE; BRUCE LEINSTER, CHAIRMAN, INFORMATION TECHNOLOGY
ASSOCIATION OF AMERICA'S PROCUREMENT POLICY COMMITTEE,
TESTIFYING ON BEHALF OF THE INFORMATION TECHNOLOGY ASSOCIATION
OF AMERICA; MARK F. WAGNER, VICE PRESIDENT OF GOVERNMENT
AFFAIRS, JOHNSON CONTROLS, TESTIFYING ON BEHALF OF THE CONTRACT
SERVICES ADMINISTRATION; AND EDWARD E. LEGASEY, EXECUTIVE VICE
PRESIDENT AND CHIEF EXECUTIVE OFFICER, SRA INTERNATIONAL,
TESTIFYING ON BEHALF OF THE PROFESSIONAL SERVICES COUNCIL
Mr. Tiefer. Thank you, Mr. Chairman. I am professor of
government contracts at the University of Baltimore Law School.
My overall view of the statute, of the proposed SARA bill,
is that in a situation we have now, where out of the total of
procurement $123 billion is not being competed fully each year
and one-third of the total procurement is being sole-sourced,
we need to be cautious about a series of provisions that are
primarily incentives. They are not primarily provisions in this
bill which have an alternative discipline which say we can
relax competition because we have some other discipline that
will take its place. We have gone in this bill far in the
direction of having incentives without disciplines.
Actually, rather than adhere to the format of my written
testimony, I was struck by the number of points on which the
administration and myself have the same criticisms of these
provisions. I will just go through several of those items in
the bill because the administration has a way of speaking less
than expressly, even though their point is quite clear.
With respect to the share-in-savings provision, section
301, I read the administration's testimony as that they are
opposed to any expansions of share-in-savings authority, the
reason being that the Congress just gave a hefty proposed SIS
provision for information technology. We have had no chance to
see how it is going to go. Why rush ahead with a provision that
basically authorizes backdoor spending until we have seen it?
So the administration is critical; I join them.
With respect to section 502, the so-called emergency
flexibility provisions, which were permanent for the Department
of Homeland Security, but which are only 1 year in duration
under current law, the administration, Ms. Styles said that
they should remain subject to an appropriate sunset date. They
have a 1-year sunset under current law. The proposal in the
SARA legislation is to make them permanent, and I agree with
the administration; they should remain subject to an
appropriate sunset date.
The danger is that you would be surprised at how much comes
under the very loose statements of what that could cover, since
it is governmentwide. I see no reason that Halliburton's
contract could not come under that because Halliburton is part
of a response to an Iraq situation, which could fit under the
definition of 502. So we could have a complete relaxation of
all procurement safeguards, which is the way 502 works,
permanently, wherever they can be dragged under a very broad
definition throughout the Government.
Section 404, the commercial entities provision, the
administration's objection is that they are, ``unable to find
any meaningful protections for the taxpayer,'' in this, the
reason being that if you have an entity that sells, like
General Electric, light bulbs commercially, but then sells
items that are utterly uncommercial, that are defense-only,
that are sole-sourced, if they can fit under 404, they get to
walk away from all the restrictions that the Government puts in
as safeguards.
To speak promptly about the last pair of provisions,
section 404, which says that commercial treatment can be given
to contracts as long as they are in performance-based terms,
this has no dollar ceiling on it. This can be a billion-dollar
services contract which aims the requirement that it be sold
and it applies even if the materials are not sold widely in the
commercial market. This, too, is something that cost-type
contracts are not clearly excluded from this, as they should
be.
And, last, with respect to section 402, the time-and-
materials provisions, I see no reason why--this is where the
administration pointed out that the DOD IG has found a
sevenfold cost overrun under such contracts. I see no reason
why Bechtel couldn't change its fixed-price construction
contracts to become time-and-materials under this provision.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Tiefer follows:]
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Chairman Tom Davis. Go ahead. Mr. Leinster, thanks for
being here.
Mr. Leinster. Mr. Chairman and members of the committee, I
am Bruce Leinster, director of contracts and negotiations of
IBM's Global Government-Industry Group, I guess effectively
IBM's chief procurement executive.
Thank you for inviting me today to testify on behalf of the
450 corporate members of the Information Technology Association
of America. I am here in my capacity as chairman of ITAA's
Procurement Policy Committee.
As you know, many of ITAA's member firms provide computer
software and services to the Federal Government, and it is with
great pleasure that I represent ITAA this morning.
IBM has worked with the U.S. Federal Government for more
than 90 years. IBM provides e-government solutions to a host of
agencies, including civilian, defense, and homeland security.
For over two decades, ITAA has been very active on issues
and legislation pertaining to Government procurement of
information technology. Additionally, our Procurement Policy
Committee worked with your staff to recommend some of the
provisions contained in the legislation, which was introduced
this week.
For these reasons, we are especially pleased to be able to
testify in strong support of the Services Acquisition Reform
Act [SARA]. We supported the bill when it was introduced in the
last Congress and continue our enthusiastic support for this
important legislation.
We live in interesting times, Mr. Chairman. Our Nation
remains under the threat of terrorist forces that seek to
destroy our way of life. When ITAA last testified in support of
SARA in March 2002, the creation of the new Homeland Security
Department was just being discussed.
Now that it is up and running, we believe that it and other
civilian agencies and the Department of Defense need now, more
than ever, to have quick, efficient access to IT solutions to
address the critical missions now facing them. In this regard,
steps that the Government takes in service acquisition reform
should be undertaken so as to build public confidence, improve
the delivery of critical Government services, and raise the
level of agency performance and interagency cooperation across
the board.
The Services Acquisition Reform Act is a very comprehensive
bill and covers a wide range of subjects. Therefore, ITAA will
not be able to comment on all of its provisions in this
statement, but we are supportive of the entire bill.
I would like to begin by focusing on what we believe are
the key provisions within SARA that are most critical to the
meaningful services acquisition reform from our members'
perspective.
The first would be the definition of commercial services.
ITAA has been advocating this change ever since the enactment
of the Clinger-Cohen Act. As you know, commercial items may be
purchased through streamlined acquisition procedures because
their availability in the marketplace provides buying agencies
an incontrovertible reference to quality and competitive price,
assuring that these agencies receive the best value for their
purchases.
Unfortunately, the definition of commercial services was
intended to be the same as commercial items when Clinger-Cohen
was passed by Congress, because commercial services and items
share the same policy rationale, justifying streamlined
acquisition procedures. Unfortunately, the definition of
commercial services was altered slightly, but significantly
enough that IT companies may have difficulty in meeting the
definition when selling a service to the Federal Government.
In many cases, services failing to meet the definition are
not exempt from the onerous cost accounting standard
provisions. ITAA believes that the changes in SARA would give
commercial services acquisition parity with commercial
products, a key distinction.
The next issue is the authorization of additional
commercial contracts. ITAA is delighted to support this
provision in SARA. We strongly believe that this provision will
clarify one of the most troubling problems that has faced the
IT services industry since FAR Part 12 was amended.
There seems to be a perception among many in the Federal
sector that time-and-materials contracts are not commonly used
in the commercial sector. In the case of my own company, IBM, I
can testify that not to be the case. ITAA has polled its
commercial companies, and we have found overwhelming evidence
that T&M contracts are commonly used in the commercial sector
along with fixed-price vehicles. They both play an appropriate
role in the commercial marketplace, and this provision would
provide badly needed clarification of the role of T&M contracts
in the Federal sector. This relief cannot come soon enough.
Agency acquisition protests: ITAA was one of the
associations recommending this addition to SARA, since we
believe that this technical change will act to reduce Federal
protests. Currently, when a company objects to a contract
award, it has the option to file an informal protest with the
contracting agency or a formal protest; for instance, before an
administrative forum like the General Accounting Office.
Under current law, in order to obtain a stay of procurement
activity, and, thus, retain meaningful relief, should it be
determined that the initial contract award was improper--a
company must file a protest within 10 days of contract award.
This requirement creates a problem. Even though a company may
wish to work informally with this agency customer, the reality
is that, if the agency does not answer the company within the
10-day post-award period, such a company is compelled to file a
GAO protest to stay the procurement. SARA's technical
correction will allow companies and agencies to work out
misunderstandings regarding this inconsistency.
Finally, Mr. Chairman, ITAA is disappointed that the co-
sponsors of SARA could not accept a change to the law regarding
the Trade Agreements Act, which was included in last Congress'
version of this bill. ITAA has long advocated reform in this
area.
TAA is a complex provision that is little understood by
many in both industry and Government, but it results in
onerous, elaborate, Government-unique tracking, monitoring, and
risk for vendors. It also imposes a serious restriction on
products available to Federal agencies.
The significant administrative burden and cost imposed on
IT contractors is unlike any that they confront in the
commercial marketplace. We understand that the purpose of the
Trade Agreements Act is to encourage countries to sign the GATT
Treaty by precluding Federal agencies from purchasing products
made in non-signatory countries. There is no evidence, however,
that the act has compelled more countries to sign, nor has it
persuaded companies to relocate their manufacturing sites.
TAA does, however, deny to the Federal Government the
widest array of products available because vendors are
reluctant to establish such monitoring systems separate from
their commercial businesses. For this reason, ITAA hopes that
the sponsors of SARA will reconsider their decision to remain
silent on this issue and to permit an IT exemption from the
TAA.
Thank you.
[The prepared statement of Mr. Leinster follows:]
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Chairman Tom Davis. Thank you very much.
Mr. Wagner, next, please.
Mr. Wagner. Thank you, Mr. Chairman, Mr. Waxman, members of
the committee. My name is Mark Wagner. I am with Johnson
Controls, and I am here today on behalf of the Contract
Services Association of America, representing a wide range of
over 400 companies providing services to the Federal
Government.
We are very pleased that you have recognized the need for
and have introduced SARA. In fact, last night at dinner, when I
was explaining to my 14-year-old daughter what I was going to
be doing today, she was very impressed that you named the bill
after her, and, trust me, it is tough for a father to impress
their 14-year-old. [Laughter.]
Chairman Tom Davis. Well, we do anything to get support.
[Laughter.]
Mr. Wagner. I appreciate it. Thank you.
In all seriousness, Mr. Chairman, in your letter of
invitation you asked several questions, and let me try to
answer those specifically.
First, you asked whether the various provisions of SARA
would help the Government address the lack of adequately
trained personnel and procurement professionals. Absolutely.
Training and education of the work force is a vital component
of the reform process, and your bill provides an innovative
method of funding for training and is a necessary and positive
step toward ensuring the acquisition work force has the proper
tools to implement service acquisition reform, particularly
with regard to performance-based service acquisition, which
holds great promise to reduce costs while increasing service
and quality. But properly implementing performance-based
contracting is not easy, and acquisition work force training is
essential to its success.
Also, we support the SARA provisions that would authorize
the development and utilization of a personnel exchange program
between the Government and the private sector to promote a
better understanding of, and an appreciation for, acquisition
issues confronting both parties.
Your second question was whether the provisions of title
II, including the establishment of a Chief Acquisition Officer,
will improve the Government's acquisition management function.
The establishment of a new CAO would help ensure that
acquisition activities are properly managed at civilian
agencies, and such a position can ensure the proper monitoring
of acquisition policies, activities, and evaluate them on
performance measurements. It would also focus attention and
establish accountability for the acquisition of services.
Third, you asked if it was constructive to again undertake
a review of the regulatory and statutory process surrounding
acquisition to determine what barriers exist to reform.
Absolutely. Such a review has not occurred since the monumental
report on the Acquisition Law Advisory Panel, which was the
basis for the 1994 Acquisition Streamlining Act.
Periodically, reviewing our laws and statutes is necessary
to ensure what we have on the books contributes to a
streamlined and effective process that allows the Government to
take advantage of commercial practices while at the same time
and, most important, protecting the interests of the U.S.
taxpayers.
With regard to performance-based contracting, you asked if
the preference for the use of these contracts establishes a
needed incentive to significantly increase their use
governmentwide. The answer is, most certainly. The SARA
provisions for performance-based acquisition should go a long
way in increasing their use throughout the Government.
Authorizing extension options will leverage the benefit of
performance-based contracts. Treating certain performance-based
contracts as contracts for commercial items will help encourage
their use and increase competition, and establishing a Center
of Excellence for service contracting will identify the best
practices to help enhance the use of performance-based
contracting.
Your last question was whether the other provisions in
title IV of SARA, including those regarding the use of time-
and-materials contracts, will increase leverage to the
commercial marketplace. Again, the answer is yes. The bill
would expand the availability of contract types by use of
Federal agencies acquiring commercial items, including
standard, commercial-type contracts such as T&M or labor-hour
contracts. In the commercial marketplace, services are
regularly acquired on a fixed rate per hour or day because the
method is flexible and predictable.
There are several other provisions worth noting. Improving
payment efficiencies for service contractors is a win/win for
both the Government and private sector contractors. It will
save money for the Government because contractors will have
less carrying costs that would otherwise be passed on to the
Government.
In this electronic age, we should be able to provide
electronic invoices and be paid electronically, ``as soon as
possible.'' Too often payments are held until the end of the
30-day period allowed by the Prompt Payment Act, even though
they could be paid sooner. Small businesses, in particular,
will benefit greatly from this SARA provision which will ease
cash-flow problems and help companies, particularly those small
ones, meet their payroll.
Mr. Chairman, in closing, let me commend you and the
members of the committee and your staff for your commitment to
improve service contracting for the Federal Government by
working to pass this important piece of legislation. I will be
happy to answer any of your questions.
[The prepared statement of Mr. Wagner follows:]
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Chairman Tom Davis. Thank you much.
Ted, thanks for being with us.
Mr. Legasey. Mr. Chairman, members of the committee, my
name is Ted Legasey, and I am the executive vice president and
chief operating officer of SRA International. SRA is an
information technology company. We have been in business for 25
years. We have about 2,500 people serving virtually all the
agencies of the Federal Government.
I have been with the company since there were just two of
us 25 years ago, and I have watched not only the evolution of
our company, but also the evolution of this industry as it has
grown to be a partner with Government.
I also serve as the vice chairman of the Professional
Services Council, which is the leading national trade
association representing the professional technical services
industry doing business with the Federal Government.
I appreciate the opportunity to testify this morning on
behalf of PSC and its more than 145 member companies. These
companies perform the full range of services to every agency of
the Federal Government, from IT projects to engineering,
consulting, scientific, and environmental services.
I want to express our appreciation to Chairman Davis for
his continued leadership on the full range of critical issues
related to Government management and procurement, and in
particular, his leadership on initiatives to enhance the
partnership between Government and the private sector.
As I have seen the relationship of the private sector and
Government evolve over the last 25 years, it is clear to me
that the partnership model that we have now is a whole lot
better way to do business and to ensure that we really get the
mission of Government accomplished, and is best for the
citizen, in the most effective and economical way possible.
The passage of the Services Acquisition Reform Act, also
referred to as SARA, will be an important and timely initiative
that will enhance and strengthen that critical partnership. PSC
strongly supports SARA and is committed to working closely with
the committee throughout the legislative process.
We believe that SARA appropriately focuses on the three
critical pillars of acquisition and management. That is people,
structure, and process.
First, let me talk about people. In services businesses
such as I have been in for many, many years, people are, our
most important asset. Indeed, at SRA we believe a key reason
that we have been selected as one of the 100 best companies to
work for in America for the last 4 years in a row is because
one of our core values is caring about our people. People
really are the most important thing we have.
The same should be true for the Federal work force. Our
focus on people is one of the hallmarks of our industry and one
of the reasons that PSC has been a strong, vocal advocate for a
well-trained, well compensated Federal acquisition work force.
We are really pleased to see that SARA includes several
provisions that address the key human capital issues for the
Federal acquisition work force. A well-educated work force has
to be there to be effective in today's environment. Things are
changing so fast, the way in which rules and regulations are
changing, the way in which new systems and techniques are
coming into play, it is really in the best interest of
Government and industry for these people to really be trained
as fully as possible.
While we prefer to see funds for this training be provided
through direct appropriations, as a practical matter, the funds
for those things would never survive the budget process.
Despite the good intentions of many, it simply doesn't happen.
This is a fact which we get reiterated repeatedly in a survey
of senior procurement executives that PSC has conducted, and we
are providing a copy of that survey for the committee's use.
The second point focuses on the most appropriate structure
for managing the growing responsibilities placed on the Federal
acquisition system. The bill creates in each agency a Chief
Acquisition Officer. It has been mentioned several times today
that the Federal Government procures well over $200 billion
worth of goods and services. The magnitude of this spending
deserves the full attention and commitment of key leadership in
each department and agency.
At PSC, we have worked successfully with senior procurement
executives in virtually all the Federal agencies. They are
dedicated people who have a passion for their work and a strong
professional commitment to the execution of their agency's
missions. In some cases, these individuals have the power to
lead their organizations. Unfortunately, in many cases they
simply do not, and the CAO provision seeks to address that.
Almost three decades ago, the Congress created the Office
of Federal Procurement Policy. More than a decade ago, the
Congress created a position of Under Secretary of Defense for
Acquisition and made that individual the third-ranking civilian
in the Department's hierarchy. He or she has a seat at the
table. Such a position is no less important in the other
agencies.
Third, I would like to say a few words about process. We
have talked a lot about performance-based contracting and T&M
contracts. These are good things if implemented properly. Sure,
there are reasons that excesses can take place, but the
procurement of services as a commercial item on time-and-
materials contracts, as my colleague from IBM indicated, is a
very common practice in the commercial world.
There is no reason why, without the right controls in
place, that this can't be a very powerful thing in Government.
We need to make sure that we have really good companies coming
into our industry, and these provisions will ensure that we
have that taking place.
The last point I would like to mention is that it is also
time to begin a serious discussion about the ways in which
Government behaviors as a buyer drives and shapes the market
for services. Today you see a number of procurement practices
that, if left unchecked and unaddressed, could result over the
long term in a market that is not as diverse and competitive as
it is today.
As a practical matter, the market is not a bunch of little
companies and a bunch of big companies. It is a broad spectrum
of companies that form this industry, and we need to recognize
that in all the practices that we follow.
The bottom line is that the Government is best served by a
robust, diverse, and balanced technology services marketplace.
The Government plays an important role in shaping that
marketplace. SARA will help play an important role in helping
to ensure that marketplace is healthy.
Thank you for the opportunity to testify today, and I would
be pleased to answer any questions that you may have.
[Note.--The Professional Services Council publication
entitled, ``PSC Procurement Policy Survey, Navigating a
Changing Landscape towards Acquisition Excellence,'' may be
found in committee files.]
[The prepared statement of Mr. Legasey follows:]
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Chairman Tom Davis. Thank you very much. I don't know where
to begin, but, Mr. Tiefer, let me just start with you.
You don't have any evidence that the White House played a
role in the Bechtel--what you call the ``sweetener of
indemnification'' or the Halliburton contract, do you?
Mr. Tiefer. Oh, on the contrary, my understanding is that
the sweetener of indemnification which was given in the Bechtel
contracting cannot be given out without White House approval,
and I saw repeated references, not from me but in the press,
that it had obtained White House approval.
Chairman Tom Davis. What about Halliburton? Any evidence
the White House was involved with Halliburton? Or the URS
Corp., which is Ms. Feinstein's husband's company? I mean, I
think this stuff--what we are trying to get away from is no
political involvement. We want trained professionals out there
in the front line, career, professional Contracting Officers in
touch with the customers, know what the customers want, which
is sometimes a huge problem in this business, going out, being
able to communicate what they want, and then getting the right
contractual vehicle and getting the best deal for the
Government, the career professionals.
I think it is a philosophical question sometimes whether
you trust trained, professional Federal employees if you train
them to do this job or if you want everything written with
centralized regulations that strap them, so that not only is it
inefficient, but the procedures drive the outcome.
We have seen so much waste under that procedure, and that
is the concern in bringing this up, not to give the White House
or politicians or political appointees control. There has been
a lot of stuff, not by you, Mr. Tiefer, but members here that
seems to be a misunderstanding of what we are trying to do.
And there are philosophical differences over the best way
to approach this, but let me ask you this: Our training fund, I
thought at least under the training fund that we set up that I
would get you to support that one, and you did compliment me
for dropping some language you consider to be on Davis-Bacon
and stuff like that. And that is the political realities; if it
were up to me, I would have kept it in, but we weren't going to
get it passed with that.
But the SARA provision that provides for a work force
training fund, this is a fund that you can't knock out in the
appropriations process, but when the agency's budget is cut,
they don't go to cut training and travel and the kind of things
that they usually do, so that we don't have officers that
understand the latest techniques and the latest technologies.
And your objections--and I may be misreading it; I want to
give you a chance to clarify it--but is your objection based on
your view that private firms might do some of the training?
Mr. Tiefer. I am going to plead guilty here. I don't wish
to come down hard on the training fund concept.
Chairman Tom Davis. OK, phew. [Laughter.]
You can say that loud. I just want to get it. [Laughter.]
Mr. Tiefer. As a law professor, I naturally would like to
see a little bit more emphasis on certain areas of training
that are not expressly recognized in that provision. But I wish
I could shed this negative image and this would be a good place
to start. [Laughter.]
Chairman Tom Davis. Well, a journey of 1,000 miles begins
with the first step.
Let me ask you this: You seem to take the view that the
expansion of the commercial acquisition provisions to services
is somehow anticompetitive. Do you have any evidence that the
establishment of the commercial procedures that was primarily
for products in the Federal Acquisition Streamlining Act and
Clinger-Cohen reduced competition? Because that would be the
appropriate analogy, it seems to me.
Mr. Tiefer. I stand with Angela Styles for the
administration when she said, with respect to that provision,
that if you are going to do something that makes services more
readily treatable as commercial, she said, ``I would further
recommend that the committee retain current requirements for
competitive sales in substantial quantities.'' It is the
dropping of the quantities of sales in the commercial market
that creates a risk because----
Chairman Tom Davis. Well, it is a risk because you don't
have the data, basically, in terms of forming the price. Isn't
that the problem?
Mr. Tiefer. It is not just data. It is susceptible to abuse
because, if there are not, as Ms. Styles--the reason I read
that she correctly says you should retain a requirement for
substantial quantities is that anybody can offer anything. I
could offer anything. But unless someone is buying it from me
in substantial quantities, it could be a shell game in which
what I am doing is saying, look, I offer to the commercial
market the following service: repairing war planes. So since I
am offering repairing war planes in the commercial market, but
of course no one buys it from me, so I am offering it, but it
is not being borne in substantial quantities. I then take a
walk from all the safeguards.
Chairman Tom Davis. Well, not necessarily. I mean, again,
the key here transparency. The Contracting Officer has to make
the case, has to have the data. If it is not there, as it
wouldn't be, I think, in the case that you have talked here, it
would not apply.
But, look, we are dealing with human beings. Contracting
Officers are human beings, and I think we need to understand
that they are going to make mistakes once in a while. But the
theory here is that somehow, by allowing to take the shackles
off them and allow, giving them enough contracting vehicles,
enough training, getting them in touch with the customers,
things that, frankly, they don't have now and that are costing
the Government a lot of money, not through fraud or abuse, but
by waste, that we would put up with the mistakes that human
beings make occasionally on these to get more streamlined
savings.
You have to trust your Federal employees to do that, but we
gave a great cadre if people I see out there that are dying to
learn the latest technical innovations, to learn the latest
procedures, if we just give them a chance, and yet we cut the
budgets for training. I mean, that is the theory.
I understand--we have gone back and forth. I have read the
history of Government contracts, how we go back and forth
between putting the shackles and the handcuffs on these people,
so that nobody makes a buck or steals a dollar, but they can't
do much of anything else either. And it is a question of
finding the right balance.
So your testimony is helpful, and I think we need to factor
all of these in. I have one other question for you.
We talked about these long-term contracts, and you note
that nothing in the provision limits the duration; that this is
where we authorize agencies to include options in service
contracts based on exceptional performance, something that
would have to be detailed, taken upstairs, reviewed by--not
politicians, not political appointees--by career professionals
that are trying to get the job done.
And under those exceptional areas, we will allow options in
service based on that performance. The provision is neutral. It
is the duration. So it operates under any current limits there
are in the length of service contracts.
But can you give us a view on what might be an appropriate
limit? Because I think we can agree there may be exceptional
types where someone has earned an option, and it is not worth
the time and trouble and expense to go out and bid it out maybe
for a short period, because someone is performing well; you are
getting your money's worth, and there is an agreement on that.
Could you suggest a duration period? Because I am not
adverse to putting a duration period in this legislation. I
want it to be reasonable. I certainly don't want to leave
everybody with the impression that we have cut a sweetheart
deal for Halliburton and we want this thing to continue for 100
years.
Mr. Tiefer. It would have to be less than 10 years for the
period, and I might couple that. I might couple that because,
as Ms. Styles correctly emphasized, it is also important that
at the end of whatever period there is that there be full and
open competition. The danger is, if we extend, if we take a
contractor who under current regulations really shouldn't be
getting that contract for longer than 3 to 5 years, and we say
you can extend 5 years and another 5 years, which, as I say, 10
years might be a reasonable number, we need a guarantee that at
the end of that 10 years there is full and open competition,
because, otherwise, the longer a contractor has a particular
piece of work, the more entrenched they get. The more that what
starts out as----
Chairman Tom Davis. They lose innovation. You get no
argument from me on that. I mean I don't think we disagree on
that.
The question--and public policy is tough. You can take all
your theories and stuff, but it doesn't always work out in the
process. So, no, I think it is a constructive suggestion. I
want you to know I am listening to you, and I was just trying
to find out, you know, where that might come down.
If I can have just a couple more questions and then we will
move on? I am a little over my 5, but I want to just try to get
through this.
Mr. Leinster, many worry that expanding the definition of
commercial items will bring more products and services outside
the traditional scrutiny of the Federal oversight provisions
and that it will undermine the benefits of competition. How do
you respond to that?
Mr. Leinster. Well, I guess my initial response would be to
say that I think it will enhance and increase competition
because so many companies, particularly the smaller companies
you mentioned this morning, are reluctant to get into the
Federal arena because of the onerous provisions----
Chairman Tom Davis. Regulations?
Mr. Leinster [continuing]. Regulations that they face. So I
think it will greatly enhance competition, which, by the way, I
do not think is lacking in the first place.
Second, as for scrutiny, I don't think changing definitions
or using different contract types is in any way going to reduce
scrutiny. Contracting Officers still have the responsibility to
determine that prices offered are fair and reasonable, and
there are ways to do that when you are dealing with commercial
items and commercial services that can be short of imposing
these God-awful provisions of the cost accounting standards
and/or TINA, for that matter.
Chairman Tom Davis. Do you think the Government is
disadvantaged in its ability to acquire the most leading-edge
technologies by the domestic source restrictions under the
Trade Agreements Act?
Mr. Leinster. Oh, absolutely.
Chairman Tom Davis. I take it from your statement?
Mr. Leinster. Yes, absolutely.
Chairman Tom Davis. Mr. Wagner and Mr. Legasey, do you have
a comment on that? Then I will ask Mr. Tiefer as well. The
Trade Agreements Act, the domestic source restrictions there,
do you think that limits our ability to get the best deal many
times and the best technologies, the lowest price?
Mr. Wagner. No, I agree, and I also agree with what Bruce
was saying with regard to the commercial-like contracts side.
It increases competition. At the end of the day if you have
encouraged competition all across the board and invited new
companies in, I mean I don't know of too many other better ways
to find out whether the Government got the best deal and had
vigorous competition out there.
Chairman Tom Davis. Yes. In fact, what keeps the big
companies out isn't the accounting systems and those
regulations. What keeps them out sometimes are the IT
provisions or the liability provisions that they are not
comfortable with.
Mr. Wagner. Yes.
Chairman Tom Davis. But the regulatory provisions are what
keep a lot of small companies from getting involved and
changing their whole accounting system or their whole lines of
production, it has been my experience, having worked in the
business for 20 years before I came here.
Mr. Legasey. I would agree also, and as somebody who
started out as one of two people in the business, I have had a
lot of people over the years come to me and ask me about how do
you get into this business and how you get started. It is just
daunting if you really don't have an understanding of that.
So any way in which we can ease the avenues by which
responsible small businesses can participate, without having to
go through the gauntlet of becoming CAS-qualified and all these
things before they can begin to deliver services and products,
is a healthy thing.
As a practical matter, this is a very competitive
marketplace. I am sitting here trying to figure out where all
this stuff that goes up without any competition is, and I
figure I have missed the mark for 25 years. [Laughter.]
I haven't seen this stuff. I mean it just doesn't exist in
the part of the industry that we are a part of.
Chairman Tom Davis. Yes, and I can assure you they didn't
write the bill, either, those people, because I haven't talked
to them, either.
And I remember when SRA started.
Mr. Legasey. Thank you, sir.
Chairman Tom Davis. I was at a young company called Adtech
then and met with your CAO. We just talked about some ideas.
How large are you now?
Mr. Legasey. We are 2,500 people.
Chairman Tom Davis. Thank you. How many of them in northern
Virginia?
Mr. Legasey. Most in northern Virginia, sir. [Laughter.]
Chairman Tom Davis. OK. Let me just ask Mr. Tiefer----
Mr. Legasey. But some in California. [Laughter.]
Chairman Tom Davis. And you are looking at that Baltimore
office, aren't you? [Laughter.]
Mr. Legasey. We actually have a Baltimore office.
[Laughter.]
Mr. Tiefer. With respect to the specific thing of the Buy
America Act exemption for commercial IT, I was thrilled when
the draft of the bill dropped that. [Laughter.]
So I would like to add that to the items I was praising you
for.
Chairman Tom Davis. Hey, you have taken two steps today.
[Laughter.]
Thank you. No, thank you very much.
Would you want to add anything else?
Mr. Leinster. A comment on participation: Certainly, my
company participates in Federal Government procurements and has
CAS-compliant systems, but we shield those systems and that
participation from the vast majority of our company. It is
those other areas of my company that the Government wants to
access, because you are buying commercial systems.
Chairman Tom Davis. Right.
Mr. Leinster. And, yet, it is extraordinarily difficult to
bring those skills into this arena without exposing them to the
requirements that my commercial divisions are not prepared to
and will never be----
Chairman Tom Davis. Well, the theory is, if you are
competing with this set of systems out in the open marketplace
every day at the commercial level, that you are competitive and
we don't have to come back and recheck the configuration. I
mean that is the whole key.
But this is very, very confusing for the average Member. I
have been in business 20 years, and I still learn things every
hearing in terms of the way this operates. That is why I think
you have shed a lot of light on the record. I am going to
probably come back for questions, but I want to give Mr. Waxman
an opportunity to ask some questions. I know he has something.
Mr. Waxman. Thank you, Mr. Chairman.
Mr. Tiefer, you and Ms. Styles from the administration have
a sort of mirror image of the way you have made your
presentation, but in many places you came out in the right--not
in the right, but in the same spot. She was praising all the
things she liked, but left to the bottom of her testimony the
things that she was critical of. You came out with the
criticisms right up front, and reluctantly--maybe not
reluctantly--but under questioning, you admitted, of course,
there are parts of this bill that you like.
I think all of us like the intent of this bill. We want to
train people to handle the acquisition of services who know
what they are doing, that are going to be professional about
it, and we want more people, businesses, to be able to come in
and offer these services.
But a very wise Republican President said, ``Trust but
verify.'' I don't think we want to let somebody have the job,
even as well-trained as they might be to enter into these
contracts, but then eliminate the safeguards in the law that
verify that the Government and the taxpayers that are paying
for all that--let's don't forget it is the taxpayers that are
paying all this money--that we are getting our money's worth.
It serves no one's interest to waste the taxpayers' dollars. So
that requires us to look at the details.
Section 404 of the bill expands dramatically what kinds of
products and services can be considered, ``commercial items.''
If it is considered a commercial item, then it is treated
differently.
Mr. Tiefer, the bill says that, if it is produced by an
entity who has 90 percent of its sales over the past 3 years to
non-governmental entities, then it would be considered a
commercial item. That is a change in the law.
What is it that concerns you about that change in the law?
Do you fear that it is going to allow contractors to manipulate
what is considered a commercial item by creating or
reorganizing business entities? Why shouldn't we go along with
this change in the law?
Mr. Tiefer. Because what gives commercial quality, as Ms.
Styles said, is unrelated; that is, the way 404 works, General
Electric sells light bulbs commercially, and so under 404 it
can get commercial treatment even if it sells a jet engine that
has only one--that is sole-sourced to the Defense Department.
The same with United Technologies Co.; it is fairly easy for a
mixed Defense Department and commercial company to get out from
under it.
I listened to the statements that the IT sector would like
to get free from accounting restrictions. The danger with 404
is I see many of its uses for very traditional Defense
Department contracting having nothing to do with IT.
Mr. Waxman. The bill expands the number of services that
can be considered commercial items. We talked about that in
terms of 90 percent of its sales, but there are others as well.
What are the consequences of this designation? Are they
something that we ought to be concerned about?
Mr. Tiefer. Yes. It is the end of full and open
competition. Once they are called commercial items, they can be
bought without having many of the requirements of full and open
competition, which this is the room in which CICA, in which the
requirement of full and open competition was originated in, and
apparently it is the room in which that requirement is going to
be done away with.
Mr. Waxman. Section 402 of the bill specifically permits
time-and-materials and labor-hour contracts to be considered
commercial items if the services covered by the contracts are
commonly sold to the general public through such contracts. Now
the DOD Inspector General opposed this section.
He stated, ``These time-and-materials and labor-hour
contracts are the highest-risk and least-preferred contract
types. Under these types of contracts, contractors have little
incentive to control costs or increase labor efficiencies. We
believe the use of these types of contracts should be
discouraged and not encouraged.'' Do you agree with those
comments?
Mr. Tiefer. 100 percent.
Mr. Waxman. I have more of a background in health policy
than I do in defense policy, but I can tell you, from a health
policy perspective, when you have a third party paying the
bill, and if you pay whatever the cost may be, there is no
incentive to hold down costs. I worry that we are opening the
door to this sort of thing for taxpayers' dollars. We had to
plug up those loopholes in the Medicare system over and over
again.
SARA establishes this Government-industry exchange program
for acquisition personnel. The idea is that we are going to get
better-trained personnel through this exposure. Should this
provision be modified to state that the private sector
employees detailed to the Department cannot perform inherently
governmental functions, and if we can get such an amendment
accepted, is that enough of a safeguard?
Mr. Tiefer. It is the beginning. The problem is that, given
that they are 6-month detailees, and then they go back to their
permanent company, the notion that they are not going to be
loyal to their permanent company all the way through their 6-
month Government service period is illusory.
So I don't know that there is anything you can do once you
let the fox in the hen house, particularly when they are only
there for a short period of time and they are still members in
good standing of the ``fox association.''
Mr. Waxman. We all start off with an understanding that we
do not have enough acquisition personnel with all the
qualifications we want. If we start sending some of them to the
private sector at taxpayers' expense, are we going to keep our
governmental agencies from having the services that we need
from these very same people?
Mr. Tiefer. They are going to be gone. The way the law is
written, they have to come back only for the period of time
they go out. So they go from the Government to a private
company for 6 months. Then they come back; they stay in the
Government 6 months. They have seen the greener pastures. They
pay their dues and they are out.
Mr. Waxman. So the training that we put in will be to train
for the private sector employees, not Government employees?
Mr. Tiefer. Oh, I'm sorry, I was thinking about the fox-
and-hen-house provision. I lost that.
Well, I have tried to be positive about the training
provision.
Chairman Tom Davis. You have taken a half-step backward
again. [Laughter.]
Mr. Waxman. It is just like the stock market; it doesn't go
down or up in a straight line. [Laughter.]
There is a sharing-in-savings provision. You have talked
about that, but I think it is worth exploring further because
we had a provision in the E-Government Act of 2003 which
authorized 15 share-in-savings contracts in military
departments and 15 in civilian agencies. The idea was that
these 30 contracts would serve as pilot projects or
demonstration projects.
Now we are, in effect, giving all the agencies permanent
authority to enter into an unlimited number of these contracts
before any of these pilot projects have even begun. There were
a few other pilots in place prior to passage of the E-
Government Act. Have there been demonstrable benefits to date?
And can you--well, why don't you answer that question first?
Mr. Tiefer. There has not been a demonstration. It is so
early. Until that provision was passed, we kept hearing how
important it was to try share-in-savings out for information
technology. Now the ink is barely dry on that, and we are
talking about making it governmentwide.
It is a backdoor mechanism by which non-appropriated
money--I think when you use the term ``slush fund,'' you are
exactly right--non-appropriated money gets, in effect, borrowed
from the contractor. They build it into the premium cost that
is in the contract, and then they are funding the Government.
I was struck that Ms. Styles who, as you say, tried to
express things in the kindest possible way would use the blunt
words, ``OMB is opposed.'' I mean, that is a strong negative
from the people who are responsible for the Treasury, for the
FISC.
Mr. Waxman. Another area where we are trying something out
before we know how well it is working is in the Homeland
Security Act, where we said that where procuring for defense
against terrorism or nuclear, biological, chemical, or
radiological attacks, all agencies for 1 year could treat such
procurements as commercial acquisitions. This bill would now
make these authorities permanent for all agencies.
Can you explain why treating these as commercial items
causes you concern?
Mr. Tiefer. Well, it is treating something as commercial
which is utterly non-commercial; that is, an item which has
never been, and would never be, sold in the private sector
receives all the exemptions from competition and safeguards
because it gets the commercial status.
What concerns me is this wide--that the terms used for
defining this are so wide open that we don't know the limits to
which they could be put. One particular example: There was an
exchange earlier where Mr. Davis said bluntly, ``Well, we
can't--of course, cost reimbursement, cost-type contracting
isn't available for commercial items.'' I wish it were clear
from the language of the legislation that was true, but it is
not clear from the language of the legislation that is true.
The reason I know it is not clear is that, if you look at
Angela Styles' testimony, she says: At least we ought to make
clear that you can't use this to bring cost-type contracting
under this loose commercial arrangement.
So we have no idea how far this authority can be pushed,
how far it can be used for even relatively routine contracting
throughout the Federal Government. The language is too new.
Chairman Tom Davis. Would the gentleman yield for just a
second? FASA prohibits the use of cost-type contracts for
commercial items. We don't change it. We don't change that.
Just for the record, we don't change that.
Mr. Tiefer. I would welcome it if--I mean no----
Chairman Tom Davis. No, I understand.
Mr. Tiefer. I strongly suspect from this, Mr. Davis, that
you could clarify this bill as it goes along----
Chairman Tom Davis. I just wanted to make it clear; that is
where we are. If when Mr. Waxman and I sit down we need
clarification, we will clarify that. I just want to make our
intent clear that is what it is. I appreciate your raising
this, and it is the first brush at it. We really do. We solicit
a lot of views here in trying to put this together, but I just
want to make it clear to everyone watching that this is not the
kind of thing that we are trying to do.
Mr. Waxman. Well, I appreciate that, and we need to pin
things down because in legislation, once it is a law, if we
open up a loophole, there are people and businesses that will
try to take advantage of that loophole. So I think we have to
be very, very careful, especially when we are talking about
taxpayers' money. Sometimes we have unintended consequences,
and I fear the unintended consequences.
But one area where we have an unintended consequence that I
fear would be made more routine is, the transactions dealing
with non-traditional contractors. Under current law, we permit
the Defense Department to enter into basic, applied, and
advanced research contracts without regard to many Federal
statutes and regulations. This bill would extend this other
transactions authority to all civilian agencies for research
and development of projects related to defense against
terrorism.
It sounds well-intended, but the other transaction
authority that was intended to give the Defense Department
greater flexibility in acquiring research and attract non-
traditional defense contractors has not, from what I
understand, worked. Do you have any sense of this? Have you
looked at this, Mr. Tiefer? Should we expand this program? Am I
correct in saying it appears that it has not worked?
The Defense Department Inspector General reported these
arrangements are subject to waste, fraud, and abuse. So if that
is what he thinks, should we be extending them to all civilian
agencies?
Mr. Tiefer. You are exactly right, Mr. Waxman. I cited a
GAO study of the use of other transaction authority by the
Defense Department. They looked at 97 contractors who had such
agreements to see whether they were, as we had hoped, non-
traditional, unusual, small research shops, or other such non-
traditional contractors. And GAO found that, of 97 contractors
who had this sort of wildcard, outside-the-law authority, 84
out of the 97 were traditional defense contractors--84 out of
97.
The authority purports to, but it is no way restricted. It
has not been written in such a way that it wouldn't just be a
get-out-of-jail-free card for every giant contractor.
Mr. Waxman. Businesses in my district want to be able to
compete for Government contracts, and they want the rules to be
fair, but the thing they want the most--and I hear over and
over again--is not to waste taxpayers' dollars, because if
taxpayers' dollars are wasted, they have to pay more in taxes,
and they lose confidence in Government, and they want
Government there to provide the basis for businesses to
succeed, businesses to operate. That is the value, the great
lesson this country gives to the world, that we have a country
that provides a climate for businesses to succeed and prosper,
and it does an enormous amount of good for all of us.
So I just want to be sure. As we look at this legislation--
I thought the three of you, and I didn't ask you questions--I
thought your points were excellent, why we need to make sure
that we can encourage businesses to come in and deal with the
Government and try to avoid some of the stumbling blocks. It is
a balance, and we need to achieve the right balance.
Mr. Chairman, I certainly want to work with you to
accomplish that.
Chairman Tom Davis. Thank you very much. And let me just
say, you talk about unintended consequences. The biggest
unintended consequences we have today are the costs of
verification and these rules and these regulations and these
burdens that we are putting on Contracting Officers and
companies that result in nothing except additional and
tremendous--tremendous--cost to the American taxpayer.
It is balance, and there is no question that, if we don't
have appropriate verification, much of this verification we
transfer from the old certifications to the Contracting
Officer, but we make it transparent. We train them. The key
here is trusting the Contracting Officers, Federal career
employees, not politicians, not political appointees, to make
the best buying decision for the customer. How we get there is
something that we will be talking about as we move----
Mr. Waxman. Let's put our trust in the rule of law and have
good individuals----
Chairman Tom Davis. Sure.
Mr. Waxman [continuing]. Administering them, but not
repealing the laws and then hoping that the good individuals do
what is right.
Mr. Wagner. Can I add a point to what you just said----
Chairman Tom Davis. Yes, sure.
Mr. Wagner [continuing]. Which I think is very important?
At the end of the day, you know, there is going to be an
individual decision on how a particular service is going to be
purchased, an acquisition. It is part of the acquisition
strategy. Whether they use some of the new authorities that we
are able to use here or not ought to be part and parcel of that
decisionmaking process.
Maybe the decision is that it ought to be a CAS-compliant,
you know, fully CAS-compliant contract that meets those types
of requirements.
Chairman Tom Davis. In fact, I would err on doing that, if
we have to make a----
Mr. Wagner. I almost felt at one point we were saying,
well, they have to do it this way and buy it commercially. No.
I think that those are decisions that these good, trained
people are going to make out there, and we have to trust them
to make good decisions. There are going to be some bad, horror
stories along the way, and we are going to have lessons learned
from it, I think.
Chairman Tom Davis. We have it under the current system,
too, a lot of them.
Mr. Wagner. Thank you.
Chairman Tom Davis. Thank you very much.
I'm sorry, you have been sitting there patiently, and thank
you for being with us.
Mr. Ruppersberger. That's fine, a good discussion.
Mr. Waxman. I would like to point out that our colleague,
Mr. Ruppersberger, has had the personal experience, sitting as
an executive in Baltimore, in dealing with those who come in
and apply for contracts who say they will do the work.
Chairman Tom Davis. As have I, for the record, in Fairfax
County.
Mr. Ruppersberger. And, Mr. Chairman, there is that, too.
It is a frustrating process. When you are administrating, you
want to get to the bottom line as quickly as you can. You want
efficiency. You want to hold people accountable.
But there is a balance, and I think, Mr. Legasey, your
comment about the relationship between Government and business
and how it is getting stronger, I think that is important. We
can't do it alone.
The only issue is that we would like to say we want to run
Government like a business, but there are a lot of issues and
things that we have to deal with that we can't completely do
that. Our shareholders are the voters, and there are a lot of
checks and balances.
I think Mr. Waxman said the comment of balance and that
balance is important. I think we need to learn from history. If
you look in the 1980's, I think there were a lot of abuses of
sole-source contracts. As a result of that, there was a lot of
investigations that occurred, and then probably the pendulum
went too far the other side, and the restrictions were there;
it made it almost impossible to do business, to get the right
people.
You know, the competitive bid just based on price was
ridiculous. You were getting incompetent contractors or you
weren't getting anything for your money, and you had to hire
somebody else to come in and fix it. I think we have come a
long way since then.
What we are trying to do now is to find a way to make it
work. Now I do have some concerns. I asked these questions
before. When there are not safeguards, when there are not
checks and balances and accountability--safeguards, checks and
balances, and accountability--I feel very strongly that they
have to be a part of the law that we, hopefully, and a policy
that we will set, so that we can all follow that law or policy
or procedures.
I will give an example. The contract term, that causes me
concern, that you don't have a check and balance and
accountability for contract term. Now I am going to mention IBM
because my wife worked for IBM in the seventies.
IBM was the greatest corporation in the world. Now they
have come back and they are still one of the best, but they had
a time when their management really took the wrong road from a
policy point of view and they were not able to do and to stay
where they needed to be because of a policy decision. Now if
IBM had a long-term contract with the Government and we were
relying 100 percent on IBM, and when they went through that
phase when they had some difficulties, we as a Government would
be in a position where we might not have been getting the best.
Yet, it is very difficult for anyone, small business as an
example, and a company like yours, Mr. Legasey, in the
seventies to compete with IBM because they were so big, so
wealthy, and had a great reputation. But they did not during
that period, and I am not saying about now because you have
come a long way.
I think your President or Chairman from Baltimore?
Mr. Leinster. Yes, Sam Palmisano.
Mr. Ruppersberger. I am glad to hear that. Do you have any
jobs in Baltimore, by the way, Mr Legasey? [Laughter.]
Mr. Legasey. Yes, sir.
Mr. Ruppersberger. But I use that as an example because
what my concern is, is that you don't have the accountability
of performance and that you don't have the incentive to
continually do better.
Now, on the other hand, to seek this balance, you don't
want to make it such a cumbersome process that it is going to
cost you money, time, hours on the Government's side and on the
contractor's side, that you have to turn around, and the
contract is not the type that you should really recompete every
3 years. You might need 7 years or 8 years, which leads me to
an issue, the contract itself.
That is an issue I think we have to look at, the contract
itself, the kickout, so to speak, you know, the accountability
in the contracts that will allow you to deal with lack of
performance and to do it quickly, just like you are saying you
want to do it quickly on the other side. I agree, the quicker,
the better, but the ability to have kickers and then to roll
somebody in right away, that is one issue. And I am making
statements instead of questions, but I would like to hear your
opinion.
The other thing I think that is important, I am concerned
that the commercial items, that we are going too far right now,
and that could be an avenue that could be subjected to abuses.
I mean, it is so broad.
And even you mentioned about how it doesn't help business.
I think, if anything, the commercial items, the way that it is
defined here, hurts small businesses. You know, a lot of small
businesses don't know how to do Government contracts or get
involved, and some of those small businesses, especially in
technology, as an example, might have the technology that we
need to help our troops or to do what we need to do in homeland
security. Usually, I mean, if you are smart, you are going to
come in as a subcontractor with one of the big boys. That is
the way I would look at it.
Any comments on what I have said?
Mr. Leinster. I guess I would argue that it is those very
small businesses that are going to get crippled by these
provisions that we are trying to be subjected to, our
commercial services.
Listen, when I put together an organization to design and
build a weapons system, I will put in place the accounting
standards necessary to meet that scrutiny. But when you are
buying my commercial services from my commercial divisions, we
are not prepared, because we don't have to, to establish and
maintain those kinds of rigorous cost accounting standards. We
have cost accounting standards, but they don't meet the
Government's.
Small businesses, in trying to penetrate this marketplace,
I think would be sorely disadvantaged.
Mr. Ruppersberger. Let me ask you this, and then my time is
up: But the issue of the contract itself, sometimes we are
trying to write laws that could be interpreted one way or
another, and we might really be hurting the whole process.
Don't you think we really need to look more into the actual
contract between the vendor and the Government?
Mr. Legasey. I would certainly agree, and the example Ms.
Styles gave this morning, that sounds like the biggest case of
mismanagement I have ever heard. We are not going to fix that
in the law. Where somebody had a seven times overrun, that is
not going to get fixed in legislation.
In every time-and-materials contract that my company has
ever been engaged in, there is either a limit on the number of
hours you can bill or the maximum dollars that are there, and
that doesn't get to be seven times what it is without a lot of
conscious decisions on the part of people who are involved. And
if people are not managing that process in a correct way, then
Government is not being served well, and, frankly, the industry
is not being served well.
But those are checks and balances and reasonable management
things that need to be in place.
Chairman Tom Davis. Would the gentleman yield for just a
second?
Mr. Ruppersberger. Yes.
Chairman Tom Davis. Let me just give you what my experience
has been, when these have gone bad, sitting on the contractor
side is it is either the Government doesn't know what they want
or they changed the requirements in the middle, and so you
spend a lot of money going one way and they want you to come
back another. That tends to be the Government's fault many
times when that happens.
Or sometimes you are just not overseeing these correctly.
You need Contracting Officers that ride herd on these
contractors, watch it, audit them, and do that. Sometimes there
are failures to do that.
That is why this training is such a critical component to
making this work. You throw out the training; this bill is
worthless, because you are not going to have people out there
overseeing. But if you train them right, a trained Contracting
Officer can do more to get the best value for the Government
than any rule or regulation that we can write. So that is kind
of where we are.
Mr. Ruppersberger. And we agree. Mr. Chairman, I would hope
that we could consider somehow focusing part of this bill on
the contract itself, and then, in the event that there is lack
of performance, a lack of whatever we need to do, and then if
there is a--because contracts take a long time, there needs to
be a kicker in there somehow that we can move quickly for the
benefit of Government, and a procedure that would say, if
someone is not performing, if someone is not doing what they
need to do, we need to move that contractor out quickly and
move to the next arena and get the right person in.
That is what I think needs to be done more than anything,
instead of passing a law that somehow will be reinterpreted
again. I mean we look at the seventies, the eighties, and we
keep going back and forth.
Mr. Wagner. I just wonder if I can add, I heard this term
this morning, ``contract for life.'' Like Ted said this morning
with all those sole-source contracts, I don't know where they
are and I would love to find them, if they are out there, but I
don't think they are out there. [Laughter.]
What you see, generally, on the award-term contracts now
are either some annual type of terms that you can add to this,
and trust me, there are contracts out there where, if the
contractor isn't performing midway into it, if it is a 5-year,
it is generally a 1-year plus four 1-year options out there.
There are contracts out there right now in year three they are
starting to think about recompeting because maybe that
particular contractor isn't providing the type of services they
want. So I think those safeguards are in there in most of the
contracts that we see.
Mr. Ruppersberger. What is the problem then? What is the
problem then?
Mr. Wagner. What's the problem?
Mr. Ruppersberger. What's the problem then? You say they
are there. I meant that as a little joke. [Laughter.]
Mr. Legasey. As a practical matter, when somebody is not
performing well on a contract, the rest of us would like to get
that contract and are pretty good about pointing out the fact
they are not performing well and trying to stimulate some kind
of----
Mr. Ruppersberger. You're all over each other.
Mr. Legasey. It is a very competitive industry.
Mr. Ruppersberger. Let me ask you this: If you were so
small, most small groups, how do you get involved? How did you
do it and you are doing well now?
Mr. Legasey. We founded our company in 1978, which was
before the Competition in Contracting Act, and we built our
company one person, one contract at a time by competing openly
long before competition in contracting, simply by trying to
write a better proposal and price it appropriately, and then
perform well.
Chairman Tom Davis. Were you a small business at the time?
Mr. Legasey. We were technically a small business, but as a
practical matter, in our 25 years of existence we only had two
small business contracts. It was not in the domain of interest
that we were after. So we competed full and open from the very
beginning, and we did it based upon trying to hire people who
really understood the customer's problem and really had the
right technical solution, and then going in and doing a good
job, which is what many people try to do.
But both of us had come out of Government and so understood
the workings of Government well. So it wasn't quite as thick a
marble wall that we had to get through to understand the rules
and regulations, and, therefore, we weren't as intimidated by
it, like someone who has not been part of the processes of
Government.
Chairman Tom Davis. Yes, but they also have been--not
blowing smoke--an excellent company in terms of the quality and
that kind of thing. That is how you win your share and you keep
growing, is through reputation in this business.
Mr. Legasey. Thank you, sir.
Chairman Tom Davis. Let me ask one other question. It is
kind of unrelated to where we are in the bill, but somewhere we
may go. We heard some of the members earlier express concern
about small business and minority businesses getting a piece of
this and bringing up the bundling issue. I think there is a lot
of utility in bundling, but the difficulty is that you bundle
pieces that used to be reserved for 8(a)'s or for small
businesses.
Now what we ask is the prime contractor is to take a piece
of that for 8(a), and they would choose their subcontractors
and team partners. The difficulty, from a small business, 8(a)
perspective, is that many times they don't get the choice
pieces or what they thought, and the prime contractor, who is
responsible for the overall operation and delivery of the
product, will take the choice pieces. There has been a lot of
grumbling and complaining, as you can imagine.
And the marketing strategies, instead of going right to the
Government and the Contracting Officers there and getting your
setaside, now have to market large firms and network with
larger companies.
But it is a concern of a lot of members on this committee
and in the Congress, and I think it is something that we may
address along the way. I know Representative Collins, I mean
Senator Collins, who chairs the committee in the Senate, is
concerned. We heard one of our members talk about it today. It
is something we need to address.
It may be that what we do is we make this more of a
priority as we bundle contracts, to hold accountable the
percentages that are going out. Does that give any of you any
concern, were we to do that? Mr. Tiefer, I would want to hear
your comments about how we do that, too.
I think the utility in bundling is, instead of the
Government being the integrator, you let the prime pick their
teammates, and I think there is some utility in doing that, but
we don't necessarily want to do that at the cost of small
businesses and 8(a)'s.
I will start with Mr. Tiefer and go down and see if there
is any reaction.
Mr. Tiefer. I would like to mention two things. One is a
recent headline in Federal Times, March 31, 2003: Most IT
spending goes to large firms.
We have been hearing a lot of what I think is happy talk
about how, even under existing law, acquisition reform opens
things up to the small business. It is the other way. The trend
has been that, as you end full and open competition, as you use
these governmentwide, ``commercial,'' vehicles, the contracts
go to the--it didn't happen by accident. Most IT spending is
now going to large firms.
Chairman Tom Davis. It has always been that way. I mean,
you have a large, multibillion dollar contract. What are you
going to pick? A three-man outfit to do it? I mean, that is the
nature of the beast. I don't know if that counts in the
subcontractors that they have and their team members as part of
that, that they distribute on down.
But my question is, I mean if you could just try to get the
question, maybe with stronger oversight, and this may place a
regulatory regime to hold people accountable in terms of their
final checks and stuff to ensure this is happening, because I
think sometimes these contracts, we talk about it and we don't
go back and check it to make sure the 8(a)'s and the small
businesses are getting the job.
I just want to see, is that an approach that would be
reasonable and workable? That is what I am asking.
Mr. Tiefer. Congressman Wynn has introduced in each
Congress a bill that would change the 23 percent figure for
what small business should get to 25 percent. I heard Mr. Perry
at GSA testify earlier today: ``Twenty-three percent? That's
easy. We are up at 40 percent.''
So why not move the figure governmentwide from 23 to 25
percent? That would add a pro-small business provision to this
bill.
Chairman Tom Davis. But it doesn't address the kind of
contracts you are getting, how they are administered, and these
businesses market the Government, or, in this case, in bundling
network with others. I just want to see if what I have talked
about is a workable way, because I don't know how close we are
checking this.
Any reaction? It is kind of out of the air, but----
Mr. Leinster. Right. The observation that I would make
regarding unbundling is that, if it is artificial, I think it
is wrong. The steps that are being proposed to make sure that
contracts are, indeed, properly bundled--that is, to have them
go to a procurement small business advocate within the
administration before they are released--again, our concern
there is that it will delay the procurement, and delays in the
procurement add to the acquisition costs, the cost of pursuing
the business.
We are all small business advocates. We use them
enormously. We use them in our commercial sector, where we had
no Federal regulation to do it. So utilization of small
business is an integral part of our strategy for going to
market, both in the Federal and the commercial marketplace.
So bundling/unbundling, it is not something we overly
concern ourselves with in terms of, would we be alarmed?
Chairman Tom Davis. Any other reactions?
Mr. Wagner. Mr. Chairman, I think at the prime contract
level, I think it is a balance. You have to be able to look at
what your goals are in your acquisition strategy, determine
what is available for setting aside for small businesses.
Frankly, we have seen in our business some fairly large
contracts out there set aside for small businesses, ones that
we might look to contract for, $10 and $20 million-type
contracts set aside. OK, that is fine. We need to know that up
front, and then we go on because there are other things out
there to bid.
Mr. Leinster. Or we sub to them. [Laughter.]
Mr. Wagner. On the subcontract level, we have some rigorous
requirements in all of our contracts to sub to small,
disadvantaged, minority, women-owned businesses, veteran-owned
businesses. The requirements continue to grow out there.
Anywhere from 25 to upwards of 40 percent of our contract might
have to be subcontracted out to small business.
I think if we do a better job of tracking those dollars and
accounting for those dollars at the congressional level as
well, I think the face of small business contracting out there
may actually look a little different.
Mr. Legasey. My reading of the study that was quoted--and I
did read that study--was that it dealt only with prime
contracts. It didn't measure the flowdown to small businesses.
Therefore, you really couldn't conclude how many dollars are
going to small businesses, only those that are going to small
businesses as a prime contractor, which is not the bulk of the
money that comes to small businesses.
As has been indicated, in virtually every program of any
size that our industry competes for, there is a small business
requirement, and those requirements are enforced. Case in
point: The largest contract that our company has ever won,
which was very recently, there were two things that we were
judged to be better than the other company. One was our use of
small businesses.
So the Contracting Officer made a significant enough point
to say that the way in which we had included small businesses
in that contract was a discriminator in a very, very large,
multiyear contract. These people are paying attention to this
fact, and it is being used. I would agree the data is not there
to really show how much it is being used.
A final point on small businesses: To throw a small
business out in the cold and ask them to be a prime contractor,
when they are really not well-equipped to do it, doesn't serve
that small business well because they get their reputation
tarnished before they have had a chance to really learn the
ropes. Working for a good prime contractor, who is going to
mentor them and help them really pick up the business processes
that they need and learn how to do business in this
environment, is a very, very constructive and important thing
to happen.
PSC would like to amplify on our views on small business,
if you would take some written commentary from us.
Chairman Tom Davis. We would be happy to. Get it as quickly
as you can----
Mr. Legasey. Yes, sir.
Chairman Tom Davis [continuing]. Because we could be
marking this up as early as next Tuesday.
Mr. Legasey. Yes, sir.
Chairman Tom Davis. Well, anything else anybody wants to
add?
[No response.]
Chairman Tom Davis. Let me just thank all of you for being
here today. It has been a spirited discussion.
I know you all have busy schedules, and we appreciate your
being here and staying with us through the votes and everything
else.
The committee stands adjourned.
[Whereupon, at 1:17 p.m., the committee was adjourned, to
reconvene at the call of the Chair.]
[The prepared statements of Hon. Wm. Lacy Clay and Hon.
C.A. Dutch Ruppersberger, and additional information submitted
for the hearing record follows:]
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