<DOC>
[105 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:48113.wais]
S. Hrg. 105-564
A FREE MARKET APPROACH TO FEDERAL CONTRACTING: THE FAIR COMPETITION ACT
OF 1998 AND THE COMPETITION IN COMMERCIAL ACTIVITIES OF 1998
=======================================================================
JOINT HEARING
before the
SUBCOMMITTEE ON OVERSIGHT OF
GOVERNMENT MANAGEMENT, RESTRUCTURING,
AND THE DISTRICT OF COLUMBIA
of the
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
AND THE
SUBCOMMITTEE ON GOVERNMENT MANAGE-
MENT, INFORMATION, AND TECHNOLOGY
OF THE
COMMITTEE ON
GOVERNMENT REFORM AND OVERSIGHT
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
SECOND SESSION
----------
MARCH 24, 1998
----------
Serial No. 105-140
----------
Printed for the use of the Committee on Governmental Affairs and the
Committee on Government Reform and Oversight
<snowflake>
U.S. GOVERNMENT PRINTING OFFICE
48-113 cc WASHINGTON : 1998
_______________________________________________________________________
For sale by the U.S. Government Printing Office,
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON GOVERNMENTAL AFFAIRS
FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware JOHN GLENN, Ohio
TED STEVENS, Alaska CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine JOSEPH I. LIEBERMAN, Connecticut
SAM BROWNBACK, Kansas DANIEL K. AKAKA, Hawaii
PETE V. DOMENICI, New Mexico RICHARD J. DURBIN, Illinois
THAD COCHRAN, Mississippi ROBERT G. TORRICELLI, New Jersey
DON NICKLES, Oklahoma MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania
Hannah S. Sistare, Staff Director and Counsel
Leonard Weiss, Minority Staff Director
Lynn L. Baker, Chief Clerk
------
SUBCOMMITTEE ON OVERSIGHT OF GOVERNMENT MANAGEMENT, RESTRUCTURING, AND
THE DISTRICT OF COLUMBIA
SAM BROWNBACK, Kansas, Chairman
WILLIAM V. ROTH, Jr., Delaware JOSEPH I. LIEBERMAN, Connecticut
ARLEN SPECTER, Pennsylvania MAX CLELAND, Georgia
Michael Rubin, Staff Director
Laurie Rubenstein, Minority Staff Director and Chief Counsel
Esmeralda Amos, Chief Clerk
------
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
J. DENNIS HASTERT, Illinois TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland ROBERT E. WISE, Jr., West Virginia
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
STEVEN SCHIFF, New Mexico EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California PAUL E. KANJORSKI, Pennsylvania
ILEANA ROS-LEHTINEN, Florida GARY A. CONDIT, California
JOHN M. McHUGH, New York CAROLYN B. MALONEY, New York
STEPHEN HORN, California THOMAS M. BARRETT, Wisconsin
JOHN L. MICA, Florida ELEANOR HOLMES NORTON, Washington,
THOMAS M. DAVIS, Virginia DC
DAVID M. McINTOSH, Indiana CHAKA FATTAH, Pennsylvania
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
JOE SCARBOROUGH, Florida DENNIS J. KUCINICH, Ohio
JOHN B. SHADEGG, Arizona ROD R. BLAGOJEVICH, Illinois
STEVEN C. LaTOURETTE, Ohio DANNY K. DAVIS, Illinois
MARSHALL ``MARK'' SANFORD, South JOHN F. TIERNEY, Massachusetts
Carolina JIM TURNER, Texas
JOHN E. SUNUNU, New Hampshire THOMAS H. ALLEN, Maine
PETE SESSIONS, Texas HAROLD E. FORD, Jr., Tennessee
MICHAEL PAPPAS, New Jersey ------
VINCE SNOWBARGER, Kansas BERNARD SANDERS, Vermont
BOB BARR, Georgia (Independent)
DAN MILLER, Florida
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
William Moschella, Deputy Counsel and Parliamentarian
Judith McCoy, Chief Clerk
Phil Schiliro, Minority Staff Director
------
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY
STEPHEN HORN, California, Chairman
PETE SESSIONS, Texas DENNIS J. KUCINICH, Ohio
THOMAS M. DAVIS, Virginia PAUL E. KANJORSKI, Pennsylvania
JOE SCARBOROUGH, Florida MAJOR R. OWENS, New York
MARSHALL ``MARK'' SANFORD, South CAROLYN B. MALONEY, New York
Carolina JIM TURNER, Texas
JOHN E. SUNUNU, New Hampshire
------ ------
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
J. Russell George, Staff Director and Chief Counsel
John Hynes, Professional Staff Member
Matthew Ebert, Clerk
Mark Stephenson, Minority Professional Staff Member
C O N T E N T S
------
Opening statements:
Page
Senator Brownback............................................ 1
Representative Horn.......................................... 3
Prepared statements:
Representative Maloney....................................... 10
Representative Kucinich...................................... 11
Representative Duncan........................................ 12
Representative Hoyer......................................... 15
WITNESSES
Tuesday, March 24, 1998
Hon. Craig Thomas, a U.S. Senator from the State of Wyoming...... 4
G. Edward DeSeve, Acting Deputy Director for Management, U.S.
Office of Management and Budget................................ 17
Skip Stitt, former Deputy Mayor, City of Indianapolis, testifying
on behalf of Hon. Steven Goldsmith, Mayor, City of Indianapolis 19
Steve Kelman, Ph.D., Weatherhead Professor of Public Management,
Harvard University............................................. 36
Bryan Logan, Chief Executive Officer, Earth Data International... 38
Larry Trammell, Corporate Vice President and General Manager,
Science Applications International Corp........................ 41
Douglas K. Stevens, Jr., Partner of Information Technology
Services Group, under Grant Thornton, LLP, representing the
U.S. Chamber of Commerce....................................... 42
Robert M. Tobias, National President, The National Treasury
Employees Union................................................ 44
Bobby L. Harnage, President, American Federation of Government
Employees...................................................... 46
Michael B. Styles, National President, Federal Managers
Association.................................................... 48
Alphabetical List of Witnesses
DeSeve, G. Edward:
Testimony.................................................... 17
Prepared statement........................................... 65
Harnage, Bobby L.:
Testimony.................................................... 46
Prepared statement........................................... 276
Kelman, Steve:
Testimony.................................................... 36
Prepared statement........................................... 81
Logan, Bryan:
Testimony.................................................... 38
Prepared statement........................................... 84
Stevens, Douglas K. Jr.:
Testimony.................................................... 42
Prepared statement........................................... 91
Stitt, Skip:
Testimony.................................................... 19
Prepared statement submitted on behalf of Mayor Stephen
Goldsmith.................................................. 72
Styles, Michael B.:
Testimony.................................................... 48
Prepared statement........................................... 337
Thomas, Hon. Craig:
Testimony.................................................... 4
Prepared statement........................................... 80
Tobias, Robert M.:
Testimony.................................................... 44
Prepared statement with attachments.......................... 97
Trammell, Larry:
Testimony.................................................... 41
Prepared statement........................................... 88
APPENDIX
Draft letter from David M. Gentry, American Federation of
Government Employees affiliated with the AFL-CIO, dated 16
March 1998..................................................... 34
Additional prepared statements submitted for the record from:
Procurement Round Table...................................... 346
National Treasury Employees Union............................ 368
Helicopter Association International......................... 370
American Congress on Surveying and Mapping................... 374
American Consulting Engineers Council........................ 381
Small Business Legislative Council........................... 384
National Federation of Federal Employees..................... 389
A FREE MARKET APPROACH TO FEDERAL
CONTRACTING: THE FAIR COMPETITION
ACT OF 1998 AND THE COMPETITION
IN COMMERCIAL ACTIVITIES OF 1998
----------
TUESDAY, MARCH 24, 1998
U.S. Senate,
Oversight of Government Management, Restructuring and the
District of Columbia Subcommittee, of the Committee on
Governmental Affairs, joint with U.S. House of
Representatives, Subcommittee on Government Management,
Information, and Technology, of the Committee on Government
Reform and Oversight.
Washington, DC.
The joint hearing met, pursuant to notice, at 2:11 p.m., in
room SD-342, Dirksen Senate Office Building, Hon. Sam
Brownback, Chairman of the Subcommittee on Oversight of
Government Management, Restructuring, and the District of
Columbia, presiding.
Present: Senator Brownback and Representatives Horn,
Sessions, Maloney, and Kucinich.
OPENING STATEMENT BY SENATOR BROWNBACK
Senator Brownback. The hearing will come to order.
Thank you all for joining us today. I want to welcome you
to our joint hearing examining the Fair Competition Act of 1998
and the Competition in Commercial Activities Act of 1998. I
would especially like to welcome our colleagues from the House
Subcommittee on Government Management, Information, and
Technology, Congressman Horn who is present, and I would
particularly like to note his leadership on this topic. For all
the years I have been in Congress, the House and the Senate has
been a leader on this topic, and we are moving forward with
something positive, and I am glad to be associated with him.
Our Subcommittee held a hearing in June of last year on the
previous version of S. 314, the Freedom from Government
Competition Act, and listened very carefully to industry and
Federal Government representatives testify about the strengths
and the weaknesses of our legislation. Since then, we have been
redrafting the legislation to accommodate various concerns, and
I believe we have come a long way to move this bill toward
enactment.
The reason for the legislation, I think is clear. The
current Federal competition policy, also known as OMB Circular
A-76--that is quite a title--is not working. A-76 provides
guidelines for a com-
petition process, but Federal agencies are not required to
follow these guidelines, and as a result, many agencies simply
ignore them.
Last year, OMB asked Federal agencies to provide the number
of Federal employees currently performing commercial activities
in-house. The results varied widely. For example, the
Department of Defense follows the OMB competition guidelines
under A-76. DOD acknowledged that about 59 percent of their
employees engaged in non-inherently government or commercial
activities. Other Federal Cabinet agencies, however, claimed
that on average approximately 5 percent of their employees are
performing commercial activities. Two agencies, the Department
of Commerce and the Department of State, chose not to respond
to the OMB survey at all. I hope that these responses are not
indicative of an attitude of resistance to competition in these
Federal Cabinet agencies, and I also hope that this discrepancy
between the Department of Defense and the rest of the Federal
agencies will be explained by some of our witnesses today.
In redrafting this legislation, representatives from the
Federal Employees Union and private industry made it clear that
OMB Circular A-76 does not work because Federal agencies ignore
it. We have got a little cartoon graphic here for that.
As a result, on one side of the table, private industry
says that Federal employees are favored because the agency
chooses to keep these functions in-house, and on the other side
of the table, the unions say Federal agencies choose to
immediately contract out commercial functions without giving
Federal employees a chance to compete for these functions.
In order to address these concerns from the Senate
Subcommittee at the last hearing, the new bill implements a
competitive process which includes both the private industry
and the Federal employees. Both sides have an opportunity to
compete on a level playing field.
Another concern raised at our Subcommittee's last hearing
is the need for flexibility in determining an inclusive
competition policy.
In addition, the unions expressed the need for cost
comparisons to be included when determining whether the
functions should be performed by the Federal Government or the
private sector.
Since then, all sides on this issue have acknowledged that
fair competition between the Federal agencies and private
industry is essential to ensure that the Federal Government is
getting the most for each taxpayer dollar spent on these non-
inherently governmental functions. As a response, we have
redrafted S. 314 to create a level playing field for fair
competition to take place between a private sector and the
Federal agencies. The Fair Competition Act addresses all of
these concerns. The ongoing discussions with representatives
from all sides of this issue are very important to redrafting
this bill. We are very serious about moving this legislation
through Congress this year, and I look forward to working with
our colleagues in the Senate and the House and the
administration to make this happen.
With that, I want to acknowledge Congressman Horn for an
opening statement and again state how pleased I am to be
associ-
ated with him on this effort that he has focused so much
intensity on in moving this issue forward.
Congressman Horn.
OPENING STATEMENT OF STEPHEN HORN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF CALIFORNIA
Mr. Horn. I thank you, Mr. Chairman. We are delighted to be
with you. We have learned to appreciate your expertise and
knowledge and commitment in the House. We are sorry you went
over here, where you have all this space and beautiful hearing
rooms, but it is nice to be on your turf.
Today, we are examining a policy in the area of commercial
activities performed by the Federal Government. Current policy
is governed by the Office of Management and Budget Circular A-
76, something I remember well, I happened to be in the
Eisenhower administration, which says: one, that agencies ought
to rely on private sources for commercial activities, and on
government sources for inherently governmental activities; two,
that agencies should not start new commercial activities if
they can get a contractor to perform the activity; and, three,
that agencies will subject their in-house commercial activities
to competition.
According to information provided by the Office of
Management and Budget, not one single agency, outside of the
Department of Defense, uses A-76 competitions. The Department
of Defense does follow the circular, largely because there is
an implicit agreement that savings will go to other agency
programs--namely, force modernization.
We have an administrative policy promulgated by the
President through OMB that is simply not followed. It is into
this vacuum between policy and practice that the current
legislative proposals seek to fill.
This policy dates from 1954, as I noted, President
Eisenhower's first term, when Congress passed a version of H.R.
9835, legislation establishing a policy of relying upon the
private sector sources for commercial activities. H.R. 9835
passed the House by a voice vote, was amended in the Senate,
but never became law. We have seen that happen a few times in
our careers.
Resistance to the current proposals sounds eerily familiar
to objections heard 40 years ago. In the House debate, then-
Representative Tip O'Neill, Jr., Massachusetts, argued for
retaining the plant in Massachusetts that made rope for the
Navy. Others discussed the Federal operations making coffee
roasters, dentures, sleeping bags, and even iron and steel
plants. Most of these operations are now defunct, and we have
contracted with private vendors to make dentures, and the
coffee to stain them, with specialized firms that have those
functions as their core missions. In response, the Bureau of
the Budget promulgated a bulletin on this issue, which evolved
into OMB Circular A-76.
In the private sector, specialization and competition have
reduced costs and improved performance and consumer choice. The
most competitive sectors of the economy are also the most
innovative. Federal antitrust policy is designed to ensure
competition, so that customers do not get gouged. We need an
antitrust policy for the Federal Government, to ensure that
competition brings benefits to taxpayers.
My own view is that some agencies already have the most
experienced and efficient people doing the job. But other
agencies do not, especially as buyouts have removed some of the
most capable performers. Competition can be a spur to improve
performance in either case. According to the General Accounting
Office, Congress' audit arms that program in money, competition
can reduce the cost of government by an average of 20 to 35
percent. That is real money.
I know that there are vendors who have been harmed by
government competition. I also know that there have been
Federal employees harmed by contracting out. There have been
spectacular failures by contractors, equally spectacular
failures in government agencies in functions performed by
Federal employees. But our primary purpose here today is to
focus on good government demanded by the taxpayers who sent us
here, and who ultimately pay the bills of not only Congress,
but the Executive Branch.
Today, we will hear from the sponsor of the bill, my next-
door neighbor my first year in Congress, Senator Craig Thomas
of Wyoming, a very distinguished, dedicated Member. Our
witnesses represent some of the best minds in this area at the
Federal, State, and local levels, and at the employee as well
as employer levels, and we look forward to their testimony.
I want to add that the staff has received several
unsolicited statements for the record of this hearing. The
Subcommittee would like to encourage additional thoughts on
this issue, and we will hold open the testimony for 3 weeks for
any person to provide a statement. We do not mean to close the
door to any point of view, and we encourage healthy debate.
Thank you very much, Mr. Chairman.
Senator Brownback. Thank you very much.
We would like to invite to the table, Senator Craig Thomas,
the sponsor of the Fair Competition Act of 1998. We were going
to have Congressman John Duncan, but his plane has been
delayed. So he will not be able to be with us.
Senator Thomas, I would note at the outset, after your
presentation and the questions, you would certainly be welcome
to join us on the dias if you would like to. I may have to slip
out at one point for an amendment that I have on the floor
during this hearing. So that may be something that has to take
place.
Welcome. I know you have been doing a lot of work on this
act, and please fill us in.
TESTIMONY OF HON. CRAIG THOMAS, A U.S. SENATOR FROM THE STATE
OF WYOMING
Senator Thomas. Thank you very much, Mr. Chairman. Mr.
Chairman, Steve, nice to see you.
I appreciate very much your having the hearing today. I
have appeared before both of you in the recent past. We have
made subsequent changes to the legislation, as you know, with
your cooperation and your involvement. So I appreciate the
opportunity to testify.
I also thank Congressman Duncan, my colleague, for his hard
work, and I am sorry he could not be here today.
For over 40 years, it has been the administrative policy of
the Federal Government to rely on the private sector for its
commercial needs, a policy that is now found in OMB Circular A-
76. The basis, of course, for this legislation is that A-76 is
a fundamentally flawed process that is basically ignored.
For example, OMB estimates there are nearly 500,000 Federal
employees who are doing commercial work. OMB acknowledges that
this is a conservative estimate because two Cabinet agencies
and a host of smaller agencies did not even bother to respond
and turn in a commercial inventory. What can OMB do about it?
Nothing.
The fact is CBO has estimated that well over a million
Federal employees do commercial work. Even those agencies that
do compile a commercial inventory maintain a government
monopoly by keeping commercial work in-house and refuse to
conduct A-76 cost comparisons.
Because A-76 is an administrative policy, there is little
OMB or the private sector can do to challenge these anti-free
market practices. In fact, under reinventing government
initiatives, agencies not only in-source without competitions;
they also market their services to the private sector. This is
such a big problem that all three sessions of the White House
Conference on Small Business rated unfair competition as one of
the top concerns to small entrepreneurs.
But, OMB lacks important data on the commercial work of the
Federal Government. OMB does not know the dollar value of
commercial activities the Federal Government conducts. It does
not know how much reimbursable work Federal agencies do for one
another. It does not know how much work the Federal Government
does for State and local governments.
In fact, in a recent article, the Washington Times named A-
76 as one of the seven worst regulations in America. It said,
``Circular A-76 has raised so many obstacles and regulatory
impediments to market reforms at the Defense Department, it is
having the opposite effect of its original intentions.'' A-76
studies often take more than 2 years to complete. The cost
comparison under A-76 are like comparing apples and oranges. A
level playing field does not exist due to differences in public
and private sector accounting structures, work organizations,
and budgeting processes, but the worst part of the whole A-76
mess is that the American taxpayer gets shortchanged.
Studies by OMB, DOD, and GAO show that the government can
save 20 to 30 percent or more when services are competed. That
means the Federal Government could get better goods and
services and actually save billions of dollars annually, but
since A-76 is not fair and is not used, the taxpayers never get
the benefits of those improved goods and services or the cost
savings associated with competition.
To inject free-market competition into government
monopolies, for the past several years, I have been the Senate
sponsor of the Freedom of Government Competition Act. Previous
versions of the bill would have codified the 40-year-old
administrative policy of re-
liance on the private sector. However, the new and improved
bill we are talking about today has been significantly
restructured, and I want to stress this point. No longer does
the bill require out-sourcing to the private sector. Instead,
it replaces the one-side cost comparison found in A-76 with a
competitive process, which will allow Federal employees and
private sector businesses to compete on a level playing field.
The redraft provides for simple and fair process. It
requires a list of non-inherently governmental activities. It
requires activities on the list to be subjected to competition.
It provides for a challenge process to these decisions. This
bill avoids the pitfalls of A-76, which is unfair, unused, and
unenforceable.
OMB will say the bill is not needed; that it is doing a
good job of implementing A-76. The fact is that an
administrative policy does not work and has not worked, and the
time has come for a statutory requirement that is, in fact,
enforceable.
OMB also will say that the judicial review portion of the
bill will tie up agencies' decisions in courts, and I share
OMB's dislike for litigation, but I do not think that a
taxpaying citizen should lose his job because the Federal
Government ran him out of business without giving him a chance
for some kind of judicial recource. The fact is judicial review
has been part of many other government reform laws.
Further, legislation introduced in the past by
congressional Democrats to ban contracting out included
judicial review. So there seems to be bipartisan agreement that
some kind of redress is appropriate.
OMB will, no doubt, criticize some other details of the
bill. Reasonable people can, in fact, disagree, and I
appreciate OMB's willingness to discuss these issues.
As I indicated to OMB in a meeting the other day, I am not
necessarily tied to this approach on how we get there. I think
the goal--which is fair competition and to allow the private
sector to participate on a fair playing field, and how we get
there is something that we can all talk about. I am more
interested in the results than the process, and the fact is
that A-76 is not producing the results.
In the past, unions have endorsed public-private
competition. This bill empowers Federal employees. They
complain that agencies are contracting without using A-76. They
feel that they do not have the opportunity to compete. They
ought to endorse this legislation. It allows them to compete on
a level playing field. Where they stand on this bill remains to
be seen.
This legislation has been fundamentally rewritten. Is it
perfect? No, but that is why we are here, and I am willing to
work with anyone that has an interest in this matter.
As I said before, I am not so concerned about the details
as I am in the outcome. Saving American taxpayers money,
creating a Federal Government that works better and costs less,
that is the goal.
So Chairman Brownback, and Chairman Horn, I thank you so
much for the opportunity, and I look forward to working with
you as we seek to perfect this legislation.
Senator Brownback. We look forward to working with you, and
we appreciate you bringing this bill forward. It is my hope
that we can move it forward this session of Congress through
the Subcommittees, the Committee, and onto the floor for a
successful vote, and hopefully get it to the President's desk.
I noted with interest your point of OMB's estimate that
500,000 Federal employees are doing private sector type of
work. That is a significant number and a conservative estimate.
We really need to get at that, so that the Federal taxpayer or
the taxpayers in the country can get their money's worth.
I appreciate the Senator's work, what he is doing on this,
and we will look forward to working with you as this process
moves on forward.
Senator Thomas. Thank you very much.
Senator Brownback. Congressman Horn.
Mr. Horn. Senator, I am curious if you can sum up in a
couple of sentences how your apparatus would work compared to
A-76, so we do not have the dilly-dallying we have had since
the Eisenhower administration.
Senator Thomas. Steve, no one can sum up in the Senate in a
couple of sentences. No, I am kidding.
Mr. Horn. Well, I am a college professor. I am use to 50-
minute dialogs, also.
Senator Thomas. I think your question is valid, you can do
different things. The key to it is that it is a statutory
requirement, currently it is not. So we have had this in place,
as you mentioned, since the Eisenhower administration. It has
been there. It has been the concept. It has been the notion. It
has been the policy, but it does not have any enforcement. So
what we are seeking to do, I think, basically is to accomplish
the same goal, but we have found that it does not work, and it
is the old saying, if you want different results, you cannot
keep doing the same thing. So I do not think we can keep doing
the same thing and expect the results to be different.
Mr. Horn. Well, if it is statutory, which it would be if we
passed it, what are the sanctions if they do not do it? There
is a lot of laws that the Executive Branch, regardless of
party, seems to have a great knack for not following.
Senator Thomas. Well, first, the responsibility would be
more ours (Congress) to ensure that it happened. After all, if
we put it into statute, then we have some responsibility to
ensure that it happens, as with any other law. I think that is
also why there is some opportunity for some sort of judicial
review. There should be some kind of a way to test that statute
and see that it works. I am certainly not one that encourages
litigation, but that is as fair here as it is everywhere else.
Mr. Horn. Should there be some kind of base closure
mandatory mechanism that each year an agency would have to put
certain things on the chopping block, and then that would be
looked at by an independent commission? Does that make any
sense?
Senator Thomas. I do not know. I frankly do not think it
would be that hard to enforce if, in fact, it were a statute,
if, in fact, agencies went through and did the listings with
respect to the various commercial activities, and I am sure
that you and I, for example, would get reactions from people at
home, in the private sector, and probably some reactions from
people in government if they did not think this was working,
and there would then be pressure to do something about it.
So I think it would be enforced if it were a statute, and I
believe that is what we ought to do.
Mr. Horn. Recently, we reviewed strategic plans from the
various agencies. Should we make this a fundamental element of
a strategic plan? That is also one way to deal with it.
Senator Thomas. Yes, absolutely.
Mr. Horn. That would force at least yearly goal-setting and
looking at a situation within a particular area.
Senator Thomas. As you said, we are in the process. I am
Chairman of the Subcommittee on Parks. In fact, that is where I
am supposed to be right now. We are trying to do some things on
management there, and we are pushing for a strategic plan at
the agency level, a strategic plan at the various park levels,
plans that include measurable results.
We have found through GAO studies that quite often the
budget proposals that are submitted by agencies for the
activities listed are not the activities that the money was
spent for. So I think you are exactly right. I think there
ought to be in the strategic plan and in the management plan
some measurable kinds of results, so that you could look at
them very easily, and this could be one of those.
Senator Brownback. Thank you very much, Senator Thomas.
Senator Thomas. My pleasure. Thank you.
Senator Brownback. We appreciate it. We look forward to
working with you.
Mrs. Maloney. Good to see you again, Senator Thomas.
Senator Thomas. Thank you. Nice to see you.
Mrs. Maloney. We miss you in the other body.
Senator Thomas. Well, I miss being over there, as a matter
of fact.
[The prepared statement of Senator Thomas follows:]
OPENING STATEMENT OF SENATOR THOMAS
Chairman Brownback, Chairman Horn, Members of the Subcommittees,
thank you for the opportunity to testify before you today regarding the
important issue of direct Federal Government competition with the
private sector. I especially want to thank both Chairmen for their hard
work and continued interest in this matter. I also thank Congressman
Duncan, the primary sponsor of this legislation in the U.S. House, for
his dedication to this topic.
Need for Legislation: A-76 is Fundamentally Flawed and Routinely
Ignored
For the past four decades, it has been the administrative policy of
the Federal Government to rely upon the private sector for its
``commercial'' needs. This policy was originally issued in 1955 during
the Eisenhower Administration in reaction to a bill very similar to the
original version of this legislation that was moving through Congress
at the time. However, Congress relented when President Eisenhower
agreed to solve the problem administratively. This policy is now found
in Office of Management and Budget (OMB) Circular A-76. Basically, it
requires Federal agencies to submit a list of commercial activities and
the number of Federal employees engaged in those activities to OMB. A-
76 lays out a process for dealing with these activities, namely cost
comparisons between public and private sources for the right to provide
a good or service. Unfortunately for the American taxpayer, that policy
is fundamentally flawed and routinely ignored.
For example, OMB estimates that there are nearly 500,000 Federal
employees currently doing work that is commercial in nature. Over 90
percent of these employees are in the Department of Defense. OMB
acknowledges that this is a conservative estimate because the
Department of Commerce and the State Department didn't bother to submit
commercial inventories to OMB. Further, most other smaller Federal
agencies declined to file a commercial inventory with OMB. In fact, CBO
has estimated in the past that well over one million Federal employees
are engaged in commercial work. And even in those agencies that do file
commercial inventories with OMB, they keep commercial work in-house and
maintain their government monopolies by refusing to conduct A-76 cost
comparisons. Because A-76 is an administrative policy, there is little
OMB can do to make agencies change their current monopolistic
practices.
But that's only part of the story. OMB has no idea what the dollar
value is of commercial activities the Federal Government engages in,
how much reimbursable work Federal agencies do for each other, or how
much work the Federal Government does for State and local governments.
Further, OMB and other Federal agencies ignore an existing Executive
Order that requires each agency to compete 3 percent of its commercial
activities each year.
A recent article in the Washington Times named A-76 as one of the
seven worst regulations in America. The article states, ``Alas,
Circular A-76 has raised so many obstacles and regulatory impediments
to market reforms at the Defense Department it is having the opposite
effect of its original intentions.'' For example, A-76 studies
routinely take over 2 years to complete and at best allow for apples to
oranges comparisons between public and private sector capabilities. A
level playing field does not exist due to differences in public and
private sector accounting structures, work organization and budgeting
processes.
It is unfortunate that A-76 is broken and ineffective because the
net effect to the American taxpayer is billions of dollars wasted each
year. Activities ranging from the mundane to the high-tech, from
laundry services to information technology are performed by government
monopolies, even when they can be obtained more cost effectively from
the private sector at equal or higher quality.
Studies by OMB, the Department of Defense (DoD) and the General
Accounting Office (GAO) show that the government saves 20 to 30 percent
or more when services are competed. Similar savings were found when the
private sector was utilized in several State and local governments in
the United States and throughout the world. Later today, Mayor
Goldsmith of Indianapolis will explain in detail the success he has had
in providing his constituents with better services at lower costs by
utilizing competitive market forces.
However, under the Clinton Administration's ``reinventing''
government initiatives, agencies not only engage in commercial
activities for their own use (or so called in-sourcing), but have
become entrepreneurial and are marketing their services to other
government agencies and the commercial marketplace. In many cases, they
are displacing private sector firms, a number of which are small
businesses. In fact, the problem has become so pervasive that all three
sessions of the White House Conference on Small Business ranked unfair
competition from government and government supported entities as one of
the biggest concerns to small entrepreneurs.
Legislation Has Been Significantly Re-Drafted
To inject market competition into government monopolies in
Washington, for the past several years I have introduced the Senate
version of the ``Freedom from Government Competition Act.'' Its main
premise was based on the 40-year-old policy that the Federal Government
should rely on the private sector for its commercial needs. However,
this legislation before you today has been fundamentally restructured.
Based on input from many parties, including OMB, GAO, private industry
and labor unions, this legislation has been re-drafted to establish a
simple and fair process.
For example, the bill no longer requires outsourcing all Federal
commercial functions. Instead of the one-sided cost comparison that
favors government production of commercial goods and services now found
in OMB Circular A-76, this legislation will allow Federal employees and
private sector businesses to compete on a level playing field. This
change will guarantee the American taxpayer will get the highest
quality goods and services for the lowest possible prices.
Basically, the re-drafted legislation does three things: (1) It
requires Federal agencies to compile a list of ``non-inherently
governmental activities;'' (2) It requires those agencies to run
competitions for those activities within a specific time frame; and (3)
It provides a process for both the public and private sector to
challenge agency decision. By narrowing the focus of the bill and
stripping it down to a simple process, this legislation avoids the
pitfalls of A-76, which is unfair, unused and unenforceable.
Criticism of Re-Drafted Legislation
OMB will testify today that this bill is not needed. My testimony
has already documented OMB's inability to enforce A-76. The fact of the
matter is that an administrative policy has been in place for over 40
years and it has not worked. The time for a statutory provision has
come.
Another objection OMB will make today is that passing this
legislation will invite lawsuits from private sector businesses and
labor unions that will tie up the process indefinitely. While I share
OMB's dislike for lawsuits, I do not share the belief that a tax paying
citizen should lose his job because the Federal Government ran him out
of business without giving him the ability to go to court. The fact is
that judicial review has been a part of several recently enacted laws
like the Regulatory Flexibility Act and there have been few problems.
Further, legislation introduced in the past by congressional Democrats
(Rep. Kanjorski for example) to ban contracting out has included
judicial review as a vital component, so there seems to be bipartisan
agreement that judicial review of some sort is appropriate.
No doubt OMB also will offer some criticisms of how the re-draft is
structured and how it would be implemented. Reasonable people can
disagree about some of these details. And I appreciate OMB's
willingness to discuss these issues. But what's inarguable is that the
American taxpayer is being shortchanged by the current system.
Even Federal employee labor unions think the current process has
problems. They complain that A-76 isn't used and that agencies contract
out regardless of cost or performance. Quite frankly, the labor unions
ought to endorse this legislation, because it provides Federal
employees the opportunity to compete with private sector businesses on
a level playing field. this bill would empower Federal employees. In
the past, the unions have said that they strongly endorse competition.
Where they stand on this bill will see if their actions match their
rhetoric.
Conclusion
This legislation has been fundamentally re-written. Is it perfect?
No. But that's why Congress has the committee process. I am willing to
work with anyone, with any group that has an interest in this matter.
Quite frankly, I am not so concerned about the details as I am about
the outcome--saving taxpayers' money and creating a Federal Government
that works better and costs less.
Again, I thank Chairman Brownback and Chairman Horn for their
continued interest in this issue. I also salute my colleague,
Congressman Duncan for carrying the banner on the House side for many
years now. I look forward to working with you and this Committee to
enact this good government, common sense reform.
Mr. Horn. Yes, sir.
Senator Brownback. Congresswoman Maloney and Congressman
Kucinich, do you have any questions of this witness?
Mrs. Maloney. I just, in the interest of time, would like
to know if my opening statement could be put in the record as
read.
Senator Brownback. Absolutely, without objection.
Mr. Kucinich. Mr. Chairman, I would like to do the same.
Thank you.
Senator Brownback. Absolutely.
[The prepared statements of Hon. Carolyn B. Maloney, Hon.
Dennis J. Kucinich, Hon. John J. Duncan, Jr., and Hon. Steny H.
Hoyer follows:]
PREPARED STATEMENT OF HON. CAROLYN B. MALONEY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW YORK
Thank you, Mr. Chairman. And welcome Representative Duncan and
Senator Thomas.
I look forward to today's hearing on the ``Freedom from Government
Competition Act,'' the ``Competition in Commercial Activities Act,''
and the ``Fair Competition Act.'' These bills go to the heart of the
debate about the nature and proper role of government. Which functions
should government perform and which functions should the private sector
perform.
Privatization, or contracting out, is not a cure-all for government
problems. But if implemented wisely, contracting out can be a useful
tool in providing services for the American public more economically
and efficiently. However, we must remember that it is just one tool.
Empowering workers through training, treating them as assets, and
striving to improve management techniques are all great examples of
tools we will need in government for the next century.
The Federal Government relies on commercial contractors for $120
billion annually in needed goods and services. The legislation we will
talk about today is designed to substantially expand that amount.
However, contracting out raises a number of difficult and contentious
issues, which we should discuss here today. Cost accounting standards,
contract management controls and job placement and training for
displaced workers are but a few.
We must also be cautious that contracting out a service doesn't end
up costing us more in the long run, because once turned over to the
private sector, it is often difficult and expensive for the government
to regain control. For example, private trash hauling in New York City
costs five times what it does in San Francisco. The Los Angeles school
district wound up a few years ago with a $3 million bill for deficits
run up by a contractor hired to run the school food services. On the
other hand, New York City gave park service workers greater control
over their jobs and found that they could operate more efficiently than
private contractors. In a 1992 experiment, the cost of tree removal in
Queens and the Bronx by city workers was thousands less than a
contractor would have charged.
Contracting out is a process which needs to be carefully
scrutinized. First, we need accurate and complete information on what
is to be privatized and why. Second, we must insist on sound contracts
that incorporate incentives for cost savings including severe penalties
for failure to perform. Finally, we should have a strong and effective
job placement program for displaced workers.
Thank you, Mr. Chairman, I look forward to hearing from our
witnesses.
__________
PREPARED STATEMENT OF HON. DENNIS J. KUCINICH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OHIO
Thank you, Mr. Chairman. I would also like to thank Chairman Horn
for agreeing to hold this hearing at my request. The issues raised by
this legislation are fundamental ones. How they are settled will have a
profound and lasting impact on the structure of the Federal Government,
on Federal employees, and on the American public. A full and fair
discussion of these issues is vital to the legislative process, so I
appreciate this opportunity, and the Majority's willingness to take
into account our views on what would constitute a balanced panel of
witnesses.
That being said, I must also frankly state that I have serious
concerns about this legislation as currently drafted. I'm sure that
every Senator and Representative here today believes that our job is to
constantly strive for a more efficient and cost-effective Federal
Government. The current administration has made great strides in that
effort through the longest-running government reform effort in
America's history. The policies have already saved American taxpayers
over $130 billion dollars. The size of the Federal workforce has been
reduced, through attrition and buyouts, by over 300,000 employees. We
now have the smallest Federal workforce since John F. Kennedy was
President.
This legislation seems to proceed from the premise that the Federal
Government is not contracting out enough, despite the fact that we
already spend more on the contracting of services--about $114 billion
in fiscal year 1997--than we spend on pay and retirement for the entire
civilian workforce. In fact, some of the more-recently created Federal
agencies like the Department of Energy, NASA and EPA have relied from
the start on contracting out for services rather than performing them
directly. Critics of the current process as embodied in OMB Circular A-
76 maintain that only the Defense Department is actively pursing
public-private competitions, yet almost 40 percent of the $114 billion
in service contracting comes from the civilian agencies.
So we are already spending vast amounts of money on services
contracts. Unfortunately, in many cases that money is probably being
poorly spent. According to both OMB and the General Accounting Office,
contract administration is one of the highest risk activities the
government engages in. Examples abound: Senate hearings uncovered $27
billion a year in contractor Medicare fraud; in 1995, $25 billion in
payments to defense contractors could not be matched invoices, and in
many cases DOD relies on the contractors themselves to identify
overpayments; at one DOE site, a contractor poured toxic and
radioactive waste into the ground, and stored more in leaky drums.
Whether from outright theft, charges of unallowable costs, lack of
top-level management attention to contract management, or ineffective
contract administration and auditing, the Federal Government is losing
billions of dollars a year. It seems to me that this bill puts the cart
before the horse. If we are truly interested in a more cost-effective
government, we should drastically improve contract management before
moving to contract out billions more in services. Yet the legislation
before us is silent on these vital issues.
The legislation before us also seems to me to have a one-sided
approach which favors the contractors, at the expense of Federal
employees and the American public. The bill requires Federal agencies
to create an inventory of functions which are not inherently
governmental. It then allows ``interested parties'' to challenge
omissions from this list--but not inclusions. Parties with a direct
economic interest in particular activities could, under the Senate
draft, sue in Federal court to challenge an omission. Affected public
interest groups, employees organizations and the general public are
given no similar standing if they feel a particular activity is an
inherently governmental function and should not be contracted out. In
addition, the bills seem to prohibit contracting in. Denying agencies
the ability to compete and bring certain functions back in-house is
inherently unfair to government employees. It also works against the
very efficiency and cost-effectiveness the bill is supposed to achieve.
Finally, Mr. Chairman, we need to establish a truly level playing
field if we are to embark on the course this bill envisions--including
comparable pay, benefits and working conditions between Federal
employees and contractor employees. The authors of this legislation
claim it will save substantial sums of money. I am not convinced that
is the case, but any savings must not be on the backs of American
workers, and dedicated Federal workers should be held harmless if they
lose their jobs.
I welcome our witnesses and thank you Chairmen.
__________
PREPARED STATEMENT OF HON. JOHN J. DUNCAN, JR., A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TENNESSEE
Chairman Horn, Chairman Brownback and Members of the House and
Senate Subcommittees, it is my pleasure to appear before you today. As
the sponsor of H.R. 716, the Freedom From Government Competition Act, I
am delighted that the Subcommittee is conducting this hearing to
explore legislative strategies that could and should be implemented to
save tax dollars, empower the private sector, eliminate unfair
government competition with and duplication of private firms, focus
loyal and hardworking Federal employees on those important functions
that only the government can and should perform, and to truly have a
government that works better and costs less.
As you know, Senator Thomas has introduced the Senate companion
bill to H.R. 716. I would like to thank him for his work on this
legislation. Our bills have bipartisan support with 66 cosponsors in
the House and 14 in the Senate. In addition, this legislation has been
endorsed by a number of organizations including the U.S. Chamber of
Commerce, the National Federation of Independent Business, and many
others.
I think the legislation that I have introduced with Senator Thomas
is a very modest proposal. It does not require the Federal Government
to contract everything out. We recognize that there are things that the
government does best and there are functions that only the government
should do. This bill does not require the government to contract out
functions that are related to national security or those things that
are related to the core mission of an agency. It requires only that the
Federal agencies look at those things they do which are commercial in
nature.
The history of government competition is a long one. Based on my
research, it is my understanding that legislation like mine was first
introduced in Congress in 1954. Faced with the prospect of enactment of
such a bill, the old Bureau of the Budget in the Eisenhower
Administration issued a policy statement on reliance on the private
sector. A bill was reported by the House Government Operations
Committee, passed the House and was reported by the Senate Governmental
Affairs Committee. The Executive Branch argued that legislation was not
necessary, that it inappropriately would inject the Legislative Branch
into the legitimate management functions of the agencies. So, in lieu
of that legislation, an Executive policy was issued. And over the past
40 years, Federal agencies have grown, the expanse of agency
performance of commercial activities has proliferated, and the extent
to which government activities duplicate, and indeed, compete with the
private sector has become extensive.
In fact, the genesis of contracting out legislation dates back even
further. The history of government competition is best described by Dr.
Allan V. Burman, President Bush's Administrator of the Office of
Federal Procurement Policy. In testimony be-
fore the Subcommittee on Human Resources of the Committee on Post
Office and Civil Service, on January 25, 1990, he said:
``As far back as 1932, a Special Committee of the House of
Representatives expressed concern over the extent to which the
government engaged in activities which might be more
appropriately performed by the private sector. The first and
second Hoover Commissions expressed similar concern in the
1940's and recommended legislation to prohibit government
competition with private enterprise. However, there was no
formal policy until 1955, when Congress introduced legislation
to require the Executive Branch to increase its reliance on the
private sector. Finally action was dropped only upon assurance
from the Executive Branch that it would implement the policy
administratively. Bureau of the Budget Bulletin 55-4 . . . was
issued in 1955 prohibiting agencies from carrying on any
commercial activities which could be provided by the private
sector. Exceptions were permitted only when it could be clearly
demonstrated in specific cases that the use of the private
sector would not be in the public interest.''
On January 15, 1955, the policy directive issued by President
Eisenhower stated:
``The Federal Government will not start or carry on any
commercial activity to provide a service or product for its own
use if such product or service can be procured from private
enterprise through ordinary business channels.''
Dr. Burman told the Subcommittee:
``Since 1955, every Administration has endorsed the general
policy of reliance on the private sector to provide commercial
and industrial services.''
Unfortunately, that policy has not been implemented. It is
estimated that as many as one million Federal employees are engaged in
commercial activities. While this policy has been endorsed by every
Administration, Republican and Democrat, since 1955, enforcement has
been poor.
This Federal policy is now found in Office of Management and Budget
Circular A-76. This circular is a miserable failure. It is completely
up to the agencies to decide if they want to convert their in-house
activities to contract. It is up to the agencies to decide if they want
to do an A-76 study. It is up to the agencies to decide whether to
perform an activity in-house or by contract.
It is my view that legislation is both necessary and desirable. It
is desirable because it has been estimated enactment of this bill could
result in as much as $9 billion per year in savings without cutting
services. It is necessary because the experience of the past 40 years
has shown that without a legislative mandate, agencies will not take
this action on their own. Numerous organizations have conducted studies
on contracting out. In 1984, the Grace Commission recommended
contracting out and estimated that $4.6 billion a year could be saved
by using private contractors to perform the commercial activities
currently accomplished in-house by Federal employees, while at that
time OMB estimated the savings at up to $3 billion annually.
In 1995, the Heritage Foundation issued a report, ``Cutting the
Deficit and Improving Services By Contracting Out'' which stated:
``Contracting out government services to the private sector
offers the new Congress the winning opportunity to make
substantial cuts in Federal spending as much as $9 billion per
year--without reducing essential constituent services.''
The 1995 report of the Commission on the Roles and Missions of the
Armed Forces, known as the ``White Commission'' indicated that in the
Department of Defense
``at least 250,000 civilian employees are performing
commercial-type activities that do not need to be performed by
government personnel . . . we are confident our recommendations
for greater use of private market competition will lower DoD
support costs and improve performance. A 20 percent savings
from outsourcing the Department's commercial-type workload
would free over $3 billion per year for higher priority defense
needs. . . . We recommend that the government in general, and
the Department of Defense in particular, return to the basic
principle that the government should not compete with its
citizens.''
In 1980, the first White House Conference on Small Business made
unfair competition one of its top issues. It said:
``The Federal Government shall be required by statute to
contract out to small business those supplies and services that
the private sector can provide. The government should not
compete with the private sector by accomplishing these efforts
with its own or non-profit personnel and facilities.''
The issue of government competition with the private sector has
become so pervasive that the 1986 White House Conference on Small
Business adopted as one of its leading planks:
``Government at all levels has failed to protect small business
from damaging levels of unfair competition. At the Federal,
State and local levels, therefore, laws, regulations and
policies should . . . prohibit direct, government created
competition in which government organizations perform
commercial services New laws at all levels, particularly at the
Federal level, should require strict government reliance on the
private sector for performance of commercial-type functions.
When cost comparisons are necessary to accomplish conversion to
private sector performance, laws must include provision for
fair and equal cost comparisons. Funds controlled by a
government entity must not be used to establish or conduct a
commercial activity on U.S. property.''
The 1995 White House Conference on Small Business, again made this
issue one of its top priorities. Its plank read:
``Congress should enact legislation that would prohibit
government agencies and tax exempt and anti-trust exempt
organizations from engaging in commercial activities in direct
competition with small businesses.''
The National Policy Forum, said:
``In reducing the size and scope of government, it is time for
Washington to learn from the lessons of the State and local
governments. In Indianapolis, Jersey City, Dallas, Charlotte
and Philadelphia, city governments under Democrat as well as
Republican administration are turning to privatization to do
more with less. In some cases, governments are getting out of
the business of doing things they never should have done in the
first place. In other cases, private companies compete with
public employees to provide service at the highest quality and
the lowest cost.
* * *
``The Federal Government can learn much from the new breed of
mayors and governors who are responding to the call from their
friends and neighbors to put government back in the hands of
the people who found it, to rethink the role of government; to
get out of businesses it doesn't belong in. . . .''
My bill, H.R. 716, the ``Freedom from Government Competition Act''
and S. 314 by Senator Thomas, would require each agency of the Federal
Government to obtain goods or services from the private sector through
ordinary and appropriate Federal acquisition processes if a competition
between the government agency and the private sector results in a
better value in contractor performance. I want to make that clear. In
past sessions of Congress, my bill followed the old 1955 policy that
the government should not compete. Senator Thomas and I modified our
bills in this Congress to inject the concept of competition between the
government and private sector on a level playing field. This was
suggested by GAO, OMB, government employee unions and many others. The
concept of public-private competitions is also championed by the books
``Reinventing Government'' and ``Banishing Bureaucracy'' by David
Osborne, and in the Administration's National Performance Review. So
there should be bipartisan support for this idea.
Our bill, as well as your committees' draft substitutes, establish
important exemptions, including activities where:
<bullet> Lin-house performance is necessary for national defense,
<bullet> Lthe activity is so inherently government in nature that
it is in the public interest to require performance in-house,
<bullet> La declared national emergency, or
<bullet> Lthere is no capable private source.
When we look for ways to cut the size of government, we should look
first at those activities which can be done by the private sector.
There is no reason for Federal employees to design roads and buildings
or do surveying and mapping when there are architecture engineer firms
and other private sector professionals that can do this work by
contract. There is no reason for agencies to operate motor pools when
maintenance of cars can be done by private contractors. There is no
reason for the government to operate laboratories or computer centers,
when the private sector can do it more efficiently. There is no reason
for the taxpayers to pay the salaries of Federal employees to operate
cafeterias, guard posts, perform janitorial services, painting,
printing, electrical work, and scores of other activities that can be
obtained from the private sector, including and especially small
businesses, woman-owned businesses and minority enterprises, if those
services can be performed better, cheaper and faster in the private
sector.
I believe we can and should enact H.R. 716. I believe that when
private enterprise is permitted to compete in the marketplace for the
right to win a contract to perform a commercial-type service or provide
goods for the Federal Government, that competition will result in the
best value for money. And that is what the taxpayers demand and
deserve.
I commend you for the leadership you have shown. I appreciate this
hearing. I strongly support the direction you are going in improving
the bill I first introduced. You are making it a better bill.
Let me end with a story. As you know, I have the honor of chairing
the Aviation Subcommittee of the House Committee on Transportation and
Infrastructure. Fixed wing air flight began with the Wright Brothers in
1903 in Kitty Hawk, North Carolina. Airplanes developed in the ensuing
years and air flight became an important part of World War I. The Post
Office Department realized the benefits of air flight and worked with
the Army Signal Corps to test the concept of air mail service. In 1910,
Congress enacted the Air Mail bill to determine the feasibility of
scheduled air transport of mail. The tests were a success. By 1918, it
was recognized that this was a civilian, not military function, and the
service was transferred to the Post Office. In 1925, Congress looked
forward to turning Post Office air mail routes over private operators--
I do not think the words privatization or contracting out or
outsourcing were used in those days. But legislation known as the Kelly
Act was passed to authorize the Post Office to negotiate the transfer
of air mail routes to commercial operators through competitive bidding.
A man named Walter Varney operated a small air-taxi operation known as
Varney Air Lines. He bid on a contract to carry mail by air between
Elko, Nevada and Pasco, Washington via Boise, Idaho. He won the
contract and successfully operated the route. Another route was won by
Eddie Hubbard and Philip Johnson. Those experiments in government
contracting not only established Air Mail as a service, but gave way to
the creation of America's great private airline and aircraft
industries. You see, Varney Air Lines is now known as United Air Lines
and Mr. Hubbard and Mr. Johnson joined with a Seattle businessman named
William Boeing to become officers of the Boeing Corporation.
Mr. Chairman, how many innovative, risk-taking small business men
and women are there across America just waiting for the chance to grow,
flourish, create jobs and become the future United Air Lines and
Boeings. It can all start with a single government-contract. Our
predecessors in Congress had the vision to contract for air mail
service. I hope we will have the vision to create thousands of new
opportunities for a new generation of Americans in the new millennium.
That is what this legislation is all about.
__________
PREPARED STATEMENT OF HON. STENY H. HOYER, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF MARYLAND
Chairman Brownback, Chairman Horn, Ranking Member Lieberman,
Ranking Member Kucinich and Members of the Joint Subcommittees, I want
to thank you for the opportunity to address you this afternoon.
As a Member of Congress who represents nearly 60,000 Federal
employees I have some serious concerns with the House draft legislation
entitled ``Competition in Commercial Activities Act'' and its Senate
counterpart the ``Fair Competition Act.''
I'd like to take just a few moments to point out some problems I
see with the draft legislation.
My first concern is that the premise of both bills is that there
are too many Federal employees and that the private sector is being
unnecessarily excluded from work currently being performed by the
public sector. Both these premises are false.
Since the enactment of the Workforce Restructuring Act the
government has eliminated 320,000 positions. The Federal Government is
the smallest since the Kennedy administration. Additionally, as a
percentage of the total workforce, the Federal component is the
smallest since 1931.
The second premise that the private sector is being shut out is
also false. The fact is that the Federal Government already contracts
out with the private sector at least $120 billion a year; fully $12
billion more than the entire Federal payroll including pay and
benefits.
In fact, according to OMB in its 1994 report on contracting
practices, it found that the acquisition of services from the private
sector is the ``fastest growing area of procurement.''
Clearly this legislation would cause a significant increase in the
amount of Federal activities performed by, and money spent on,
contractors. Unfortunately, contract oversight is currently not being
managed as well as it should.
According to OMB's testimony before the Civil Service Subcommittee
this January, we have no idea how many contractors the Federal
Government employs, which agencies they work for, where they work, or
how much they are paid.
Both OMB and GAO have been very critical of the Federal
Government's contract management. Just last week, DOD's Inspector
General testified before the Senate Armed Service Committee that DOD
paid $76.50 each for nearly 2,000 screws that usually sell for only 57
cents a piece at a hardware store.
I'm sure that Bobby Harnage, Bob Tobias and Mike Styles can provide
you with even more examples of poor oversight and abuse.
The legislation would also require agencies to create a
``contractor catalogue'' at taxpayer expense. Any function not deemed
inherently governmental would be reviewed for contracting out with 5
years.
Aside from the tremendous expense and effort this would require,
the bills allow contractors as ``interested parties'' to challenge
omissions from the list of commercial activities.
Regrettably, public interest groups, unions, and the general public
are not allowed to challenge an agency's decision to list an inherently
governmental function on the commercial activities list.
The Senate draft would go even further. It gives contractors the
right to challenge omissions in the U.S. Court of Federal claims. This
provision has the potential of hamstringing agencies under a mountain
of contractor lawsuits.
Notwithstanding my ardent support of Federal employees and the
outstanding service they perform. I recognize that the private sector
can, and often does, perform some work at less cost and better quality
than the public sector.
However, contracting out is not a panacea and this legislation is a
solution in search of a problem.
Competition is already taking place. It needs to be conducted in a
manner that provides the taxpayer with the best value while allowing
Federal employees to compete on a level playing field.
Senator Brownback. Our first panel of witnesses will be Ed
DeSeve, OMB Acting Deputy Director for Management; Skip Stitt,
former Deputy Mayor of the City of Indianapolis, who is here to
testify on behalf of Mayor Steven Goldsmith. They will be our
two panelists on this next panel.
I believe the House has them sworn in.
Mr. Horn. Unlike the Senate, our tradition is to give the
oath to all witnesses, except Members, gentlemen. Do you swear
the testimony you are about to give these joint Subcommittees
is the truth, the whole truth, and nothing but the truth, so
help you, God?
Mr. DeSeve. I do.
Mr. Stitt. I do.
Mr. Horn. The clerk will note that both voted in the
affirmative.
Senator Brownback. Thank you very much, gentlemen, for
joining us today. We appreciate your willingness to come here
and testify on your concerns and interests and, hopefully
support, ultimately for this bill.
With that, Mr. DeSeve, I would be happy to give you the
floor. Thank you for joining us.
TESTIMONY OF G. EDWARD DeSEVE,\1\ ACTING DEPUTY DIRECTOR FOR
MANAGEMENT, U.S. OFFICE OF MANAGEMENT AND BUDGET
Mr. DeSeve. Thank you, Mr. Chairman. I am glad to be back.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. DeSeve appears in the Appendix on
page 65.
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I am here to discuss proposed revisions to S. 314,
currently being cited as the Fair Competition Act of 1998, and
to H.R. 716, currently being cited as the Competition in
Commercial Activities Act of 1998.
We share with you the goal of seeking the most efficient
and cost-effective source for the provision of commercial
support activities required by the Federal Government.
Five years ago this month, the President announced and the
Vice President led an effort to fundamentally change the way
government operates. At the time, it seemed almost impossible.
Red tape, poor financial management systems, rigid hierarchies,
poor performance incentives, a procurement system in desperate
need of repair, systemic problems in our ability to acquire and
integrate information technology and senseless rules and
procedures separated Federal employees from managers, separated
managers from their missions, their responsibilities and their
employees, and separated the taxpayer from their government.
Today, reinventing government is the longest-running, most
dramatic and most successful government reform effort in our
history. Together, with you, we have streamlined our
infrastructure, eliminated business lines, created partnerships
with our employees to contribute to reform, eliminated red
tape, changed business practices, eliminated duplication, and,
yes, opened our commercial support activities to significantly
expanded levels of competition.
As of the end of fiscal year 1997, the administration had
cut the civilian Federal work force by over 316,000 employees,
creating the smallest Federal work force in 35 years, and as a
share of total civilian employment, the smallest Federal work
force since 1931.
Almost all of the 14 Cabinet departments have cut their
work forces. Only Justice and Commerce have growing work
forces. Through these and other reinvention efforts, the
administration has saved $137 million over these past 5 years.
The key to this success in working together with you,
because many of these were legislative accomplishments, not
simply administrative accomplishments, has been our ability to
overcome the rhetoric and work together to identify needed
reforms. In our view, the House and Senate drafts contain a
number of important improvements over last year's Freedom from
Government Competition Act. We appreciate that the revised
bills no longer center on who may or may not be eligible to
perform Federal work. Nothing is more ``unfair'' than to limit
or otherwise arbitrarily exclude a viable offerer, public or
private, from the competitive process. Each of us seeks to
expand the level of competition for both in-house and
contracted work in an effort to improve quality and reduce the
cost of services to the taxpayer.
This process works. The differences that remain are not
about goals, but, rather, are about how best to achieve them.
Contracting out is a tool, a tool for downsizing, a tool for
streamlining, and a tool for better performing work.
In the Defense Department, for example, over 150,000 full-
time-equivalent employees have been scheduled for competition
with the private sector over the next 5 years. DOD has realized
that given its budget pressure and the need to continue its
mission that it is going to significantly utilize the A-76
process during this period. Any legislation should contribute
to this process and move it forward.
Since we do not have a single bill to react to, let me
discuss some of the fundamental principles that a final bill
should embody, including some aspects that we hope could be
avoided.
First, the government must be permitted to choose the
alternative, public or private, which is most cost effective,
and in the best interest of the taxpayer.
Second, any legislation should avoid judicial involvement
in management decision regarding whether or not to out-source.
Third, the management documentation, employee
participation, costing, and source selection rules for the
competition must be well understood and able to be enforced and
impartial.
Fourth, source selection processes must permit efficient
and effective competitions between public and private offerers
for work presently being performed by the government or by a
private contractor.
Fifth, when an activity currently being performed in-house
is converted to performance by contract, the in-house employees
must be afforded the opportunity to compete to retain the work.
Finally, we must acknowledge that out-sourcing is just a
tool along with other reinventing and management improvement
initiatives. It is not an end in itself, and we must not let
out-sourcing delay or cause unnecessary administrative burdens
on agencies who are using a variety of tools to meet their
management challenges.
We would also have concerns with legislation that required
the head of an agency to undertake competitions in accordance
with a schedule mandated in law. This is not a good idea. We
are concerned that such schedules could be unduly burdensome
and may preclude agencies from considering a mix of
reinvention, reengineering, consolidation, privatization,
evolution, and cost comparison efforts.
In conclusion, I have tried to point out some of the
principles that we would all want to draw on. We do not believe
the proposed revisions to S. 314 and H.R. 716 will achieve the
quality improvement or cost reduction goals that I know you are
seeking.
Federal employees are some of our Nation's most highly
trained and dedicated employees. They operate within a complex
system of rules, regulations, and laws. They respond to a vast
array of missions, public concerns, and operational
requirements. They deserve, as does the private sector, the
opportunity to compete for their jobs on a fair and level
playing field. This means that the managerial complexities of a
public-public and public-private competition need to be
recognized. We do not believe that this legislation meets that
requirement. We are concerned that the proposed revisions can
result in higher costs to the taxpayer.
Thank you very much, and I would be happy to answer any
questions that you might have.
Senator Brownback. If I am understanding you, you say you
have got a list of criteria that you think need to be met in
this bill, but you do not think they are in this bill. You are
willing to work with us on seeing if some of these items can be
put in, and then you could be supportive of this bill. Is that
right, Mr. DeSeve?
Mr. DeSeve. Yes, sir. I think at this point, we oppose the
bill, but we think that the ideas embodied in the bill are
subject to being able to be worked together with you.
Senator Brownback. OK. And have there been ongoing
discussions at this point in time?
Mr. DeSeve. Yes. Senator Thomas alluded to one even last
week where we met with the Senator and his staff for that
purpose.
Senator Brownback. Good. Glad to hear that those are taking
place.
Mr. Stitt, thank you very much for joining us, and the
microphone is yours.
TESTIMONY OF SKIP STITT,\1\ FORMER DEPUTY MAYOR, CITY OF
INDIANAPOLIS, TESTIFYING ON BEHALF OF HON. STEVEN GOLDSMITH,
MAYOR, CITY OF INDIANAPOLIS
Mr. Stitt. Mr. Chairman, Chairman Horn, and Members of the
Subcommittee. My name is Skip Stitt, and I am here today on
behalf of the Indianapolis Mayor, Steven Goldsmith.
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\1\ The prepared statement of Mr. Goldsmith submitted by Mr. Stitt
appears in the Appendix on page 72.
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For most of the last 6 years, I had the privilege of
managing the Mayor's Competitive Government Initiative in
Indianapolis. I am pleased to provide this testimony to the
Subcommittee as part of its consideration of the Fair
Competition Act of 1998.
When the Mayor was elected 6 years ago, he ran on an
aggressive platform of privatization. Over the years, we have
modified that preliminary platform into a rigorous public-
private competition model. The model requires head-to-head
competition between public and private sector providers. In
Indianapolis, services that have been subjected to competition
include the operation of the Indianapolis International
Airport, our wastewater treatment plants, and our sewer
collection system, fleet service operations, printing, copying,
filling potholes and solid waste collection.
After 75 competitions, these efforts have generated savings
of nearly $420 million. The number of city workers, excluding
police officers and firefighters, has been reduced dramatically
in Indianapolis. Nonetheless, no union employees have lost a
job as a result of our competition efforts. Employee grievances
in several competed areas have actually fallen by as much as 90
percent, and workplace injuries in several competed areas have
been reduced dramatically as well.
We believe the central focus of this bill, that focus being
competition, is appropriate. We have found no better tool to
help control the cost to government services, while at the same
time ensuring their quality in Indianapolis.
We would also concur with your efforts to break up the
Federal monopoly on service provision, but to still let Federal
employees compete for that work.
As someone who has been in the trenches of the competitive
government effort for 6 years at the municipal level, let me
make a few general comments about the bill.
We operate on the assumption and the belief in Indianapolis
that government is full of very good people, most of whom are
caught in very bad systems. The regulations that will
inevitably be promulgated to implement this bill will need to
be very simple, very concise, and focus on results rather than
processes.
By reducing the rules and regulations, while simultaneously
increasing the decisionmaking authority and flexibility of your
talented employees, we believe you will see enormous benefits,
irrespective of whether the work is ultimately provided
privately or by incumbent employees.
Second, this bill and your efforts will likely be in vain
unless there is a very strong commitment at the top of your
organization to competition and smaller government.
We have studied many, many competition efforts around the
world and have yet to find one that has been successful without
strong leadership at the top. To fulfill that need and to serve
as an adjunct to the efforts outlined in this legislation,
Congress may even consider developing its own list of
activities for competition.
This bill also specifically addresses the need to develop
systems that support the make-or-buy decisionmaking process.
Doing this correctly will be essential to your progress. These
systems will likely include activity-based costing or a similar
costing methodology, as well as rigorous performance
measurement systems that focus on quality and quantity goals
for services.
Next, be sure to recognize that your incumbent employees
are a tremendous and extraordinary resource. We would encourage
you to be very thoughtful, where transitions occur, to pay
attention to employee needs, to salary ranges, to benefits, and
similar activities.
In Indianapolis, we also found that it was important to
reward employee performance when they produced, competed, and
won. Nothing got city employees more focused on the bottom line
and on serving customers than when we implemented an incentive
pay plan funded with operating savings they had identified.
Next, we would encourage you to connect these cost-saving
and service-enhancement efforts to positive outcomes. In
Indianapolis, we used the savings from our competition efforts
to lower our property tax rate and put more police officers on
the street.
I anticipate you will find, as we did, that most citizens
care very little about the concept of competition, but they
care a lot about safe streets, low taxes, and high-quality
government services.
Next, I would encourage you not to get caught in the
intellectual trap that lowing the cost of services will
necessarily lead to lower quality. Our experience with
competition in Indianapolis, when it is done right, has
indicated that it is possible in some circumstances to spend
less and still get more.
Next, this bill excludes activities involving fewer than 10
full-time employees. I understand and appreciate your emphasis
on larger budgets. However, one of the most productive
byproducts of our competition effort was the positive effect it
had on small, minority and women-owned businesses who competed
for and won many of these contracts. We would encourage you to
consider ways to extend more Federal market opportunities to
these small businesses.
Early on, some Indianapolis vendors confidentially
expressed concerns about our process. Many of these concerns
were eliminated once the vendor community saw our commitment to
continual, open, rigorous, fair, and comprehensive competition.
Although I do not have an answer for how you might protect
against this, I would anticipate that some Federal service
vendors might likewise be reluctant early on to challenge an
omission from the list of activities open to competition.
There may also be a concern over the increase in the number
of bid protests that would result from an increased number of
competitions. As you think both about this bill and about the
regulations that will be promulgated to implement it, I would
encourage you to focus very carefully on creating an open and
public process that maximizes competitive opportunities,
minimizes disputes, and eliminates politics from the
decisionmaking process.
We also believe it is important to separate staff
procurement decisions from staff production decisions. Our
experience has shown that it is very difficult for an incumbent
administrator to remain unbiased in a make-or-buy procurement
decision when their organization both consumes and produces the
good or service.
The final point is a comment with respect to A-76. The bill
discusses exempting certain A-76 cost comparisons from this
process. While we would not argue with that exemption, we feel
that A-76 more often frustrates competition than facilities
competition. Our experience in successfully privatizing the
Indianapolis-based Naval Air Warfare Center, which was done
outside of the A-76 process, generally supports that
conclusion.
We believe the Fair Competition Act of 1998 is one
preliminary step in the process of improving the quality of
government services, while at the same time lowering the cost.
As a companion effort, we would suggest that it is important to
identify the other legal, systemic, cultural, and
organizational barriers that exist to improving further
governmental efficiency.
To that end, Mayor Goldsmith has previously suggested to
the House leadership that a commission be formed specifically
to identify obstacles to fair and open competition.
We thank you for the opportunity to be here today and would
be happy to answer any questions you may have.
Senator Brownback. Thank you very much, Mr. Stitt, and
thank you for coming out from Indianapolis to testify at the
Subcommittee.
What we will do is we will run the time clock on a 5-minute
basis, and bounce back and forth, if that is all right. We will
have another panel that will follow this one as well. So, if we
can get the clock ticking here, we will make sure to keep it
tight on time.
Mr. DeSeve, I really appreciate you coming here, and your
statement earlier that you would be willing to work with us on
getting this pulled together. It strikes me that we are talking
about the number of employees here involved, 316,000 fewer
civilian employ-
ees that you have already worked with, and, yet, half-a-million
that are doing commercial type of work or non-inherently
governmental work. We have got even some further distance to go
along the track and the goal that you have, and certainly that
this Congress would like to see taking place. So I think it
really is important, if we can, to get this moving on forward
and us collectively working together.
The working days that we have in this Congress are not
going to be long at length. So we need to really get this
moving forward, if you folks can see fit to helping us out on
that, or if the figures that Senator Thomas put together is
fairly accurate of half-a-million employees involved.
Mr. DeSeve. I think it is 475,000 at the last count in
1996. We will do another inventory this year, probably starting
in about 30 days and lasting through the fall.
You have to take out of that the number that the Defense
Department is currently putting up for conversion or for review
for competition at this point. So we will not know until we get
the numbers back in October.
People have always felt it was a conservative estimate,
that is, on the low side, but you do have the DOD proposal to
review for competition. We want to be very clear. We favor
competition and reviewing these jobs for competition. At the
end of the day, I think as Mr. Stitt has indicated, some of
them may be retained in-house. About half the time when the
jobs are competed, they are retained in-house. So what we want
is a level playing field for competition on commercial
activities.
Senator Brownback. My concern was in looking through those
numbers is that the Department of Defense--that one would think
of as having generally a higher percentage of jobs that are
inherently governmental--is the one that comes up with this
enormous number of jobs that they say are not inherently
governmental, and, yet, all these other agencies didn't come up
with very many. I mean, it struck this observer of that
information that the others really were not too forthcoming on
their internal analysis. If you do not have the leadership at
the top pushing it, it is going to be a tough row to hoe.
Mr. DeSeve. Sure.
Senator Brownback. So we are really going to need your help
not only with the legislation, but with the implementation as
this moves on forward.
Mr. DeSeve. Yes. We will be happy to push it, as I say,
during the inventory this year.
One of the things about DOD, because they provide housing,
because they provide commissary services, because they provide
other forms of PX and other services, they kind of handle the
soldier from beginning to end. They do a lot more things that
are, in essence, commercial than a lot of the other civilian
agencies. So you are right. You would expect more of the
civilian agencies, but DOD is always going to be the leader in
this because of their beginning-to-end service to the soldier.
Senator Brownback. Don't you suspect that some of the other
agencies did not quite look very sharply on some of these? We
had a couple that did not even participate. So I would hope you
would think so in those areas.
Mr. DeSeve. I hate to guarantee you anything, but we will
certainly heavily encourage 100-percent participation in the
survey this time.
Senator Brownback. I do not know if my time is up or not.
It is like running a basketball game without a clock, but we
will move on to the next one.
Mr. Kucinich.
Mr. Kucinich. Thank you very much, Mr. Chairman. Mr. Horn,
it is a pleasure to join you and Mrs. Maloney here. I am
grateful to have a chance to be on this Subcommittee and to
have the opportunity now to serve as the Ranking Member of the
Government Management, Information, and Technology
Subcommittee. I know how important the issues are which come
before this Subcommittee, and I also know that part of the
great debate which is reflected in this legislation here is
considered to be pretty much over.
Listening to the testimony of Mr. DeSeve, quoting you, it
is really not about goals, but how to achieve them; that
Federal employees are some of the Nation's most highly trained
and dedicated employees. They operate within a complex system
of rules, regulations, and laws. They respond to a vast array
of missions, public concerns, and operational requirements.
They deserve, as does the private sector, the opportunity to
compete for their jobs on a fair and level playing field.
I really understand where that is coming from, and because
I do, I would like to pose this question, Mr. Chairman, just to
everyone here, for that matter. You can all answer in the
silence of your manifest positions.
I do not think the debate is over, with all due respect,
Mr. DeSeve. I say that with 30 years of involvement in public
life, off and on as an office-holder. I do not think the debate
is over.
So let me bring the ants to the picnic. You talk about it
is not about goals, but how to achieve them. I think that there
needs to be a debate again about what the proper role of
government is because I would contend that the role of
government is distinct from the role of the private sector. The
role of government is to provide a service, and taxpayers pay a
lot of money to make sure they get service. The role of the
private sector is to make a profit.
Now, I am sure in some unique situations, those two goals
may be mutually inclusive, but often we will find that they are
not. We see in the GAO's report on the Department of Energy's
contract management which put them in 1990 at the high-risk
series. We know the Department of Energy contracts out 91
percent of over $19 billion in obligations in the 1995 fiscal
year. We have got the Department of Defense contract
management, same thing, high-risk series. We have got the
Committee on Government Operations in 1991 issuing a report on
major aerospace contractors, problems with falsification and
fraudulent testing.
Now, my background is in municipal government, and I know
that people want to make sure that the garbage is picked up,
that the potholes are filled, that the police respond when
people call. Those are all things that people expect from
government, and when we start contracting out services
wholesale, it is illusory to think that suddenly we are going
to see an increase in service at a reduced cost. What is more
likely to happen and what is a more in-
structive paradigm is the HMO paradigm. Whereas, we transmitted
to HMOs in medical care, services have been cut and then
profits of the industry have gone up.
Now, I think there is a legitimate role in some places for
the private sector in participation with government, but when
we start from a presumption that it is not about goals, but it
is about how to achieve them, you are leaping over this whole
debate about what the purpose of government is.
Frankly, Senator Brownback, my feeling is that when we view
government as the enemy here, government's bad politics, bad
public employees, we are missing an opportunity to refresh
ourselves about the purpose of government in itself, which is
to provide service and it is to be responsive and it is to have
the public have direct control.
Privatization changes all that, and so I make that as a
statement. You have already answered my question. I know how
you feel about it. I know what your goals are. I understand the
Indianapolis model, but I am letting you know there is at least
one Member of the House of Representatives who thinks
differently on this, and I will be continuing to provide you
with a challenge to show me--and I am not from Missouri, I am
from Ohio--to show me as to where the benefits are because I
remain unconvinced, and I am not convinced that this just is
not another way to relieve the American people of the assets of
their government and increase the price they pay for it. So I
thank you for listening to me.
Thank you. I yield back.
Senator Brownback. Congressman Horn for 5 minutes.
Mr. Horn. Let me ask the gentleman from OMB, Mr. DeSeve,
how do you feel about the Defense programs in a number of
areas? For example, should they be contracting out things that
relate directly to the readiness of the fleet? Should they be
handling critical ammunition? Where would you draw the line
over there in defense?
Mr. DeSeve. We actually try to let the Defense experts draw
the line, Mr. Chairman. We ask them to distinguish between
inherently governmental functions and those functions which are
essentially commercial activities.
There are some functions which the Defense Department deems
as core to their mission, which they do contract out in a
commercial way as well, but we do not try in an A-76 to come in
and say this one is and this one is not. We try to leave that
to the folks at the Defense Department.
Mr. Horn. How would you feel as a citizen if apparently OMB
is not going to review judgments in the Defense Department when
you have got ships of the Pacific Fleet that need new
ammunition supplies? Do you want them contracted out to a
private agency where the employees could go on strike at any
time?
Mr. DeSeve. I guess, again, even as a private citizen, I
would look to my admirals and generals to try to do the thing
that they thought best along the way. I would not try to
second-guess them.
Wellington said, ``I can either fight a war or report to
the clerks in London,'' and Wellington did a pretty good job in
the war that he fought. So I use the judgment of the admirals
and the generals and those who are entrusted with making those
decisions and rely upon them, even as a citizen.
Mr. Horn. Well, ultimately, the commander-in-chief is
responsible, not the admirals and the generals. Now, you happen
to be in the agency that handles the budget, and hopefully one
of these days will handle the management of the Executive
Branch of the Federal Government. Now, it seems to me, you are
working for the President, not the generals and admirals, and
that is as it should be in a constitution that provides for
civilian authority over the generals and the admirals.
Mr. DeSeve. Correct. And one of the things you have told
me, sir, is that I will never get along very well unless I
delegate. I have heard that from your own lips in another room.
So what we try to do is say to Secretary Cohen, to Deputy
Secretary Hamre, to Controller Lynn and others who are the
civilian oversight, make sure that, as the generals and
admirals make these decisions, you provide oversight.
We will certainly comment if they come to us and say we
would like to do this, we would like to do that, and so, in a
specific situation, we certainly give them guidance, but, as a
general matter, we do not go in and oversee those decisions.
Mr. Horn. One of the criterion in this whole discussion for
40 years has been what is inherently governmental and what is
not inherently governmental.
Mr. DeSeve. Correct.
Mr. Horn. Now, I would say that when you are handling
nuclear weapons and when you are handling ammunition that might
explode everywhere, if you do not have skilled people doing it,
I do not understand why that is not considered inherently
governmental.
Mr. DeSeve. I want to go to your ``have skilled people
doing it.'' I think skilled people could be either contractors
or public employees. There is no skill in handling either
ammunition that is certainly made by private contractors or
nuclear weapons that are made by contractors.
It is very often the case, if you go to NASA where rockets
are launched, but it is difficult to tell the skills of the
contractors from the skills of the public employees.
Mr. Horn. Well, public employees and private employees all
need a lot of training to do their job.
Mr. DeSeve. Correct.
Mr. Horn. I guess my question is, when you have people that
have dedicated 10, 20, or 30 years of their life and they have
had no accidents that would explode and blow up a city near it,
that would be a pretty good record, wouldn't you say?
Mr. DeSeve. Yes, sir, and we want to make sure that those
public employees have every availability to continue that good
record of service to their government. We feel very strongly
about that.
And the bills before us limit that ability. If there is
work that is currently in the private sector, a public offeror
would not be able to make a bid on that work, even though they
had traditionally done that work. We think that is wrong. We
think those public employees in those circumstances should be
able to bid.
Mr. Horn. One of the things government employees--and I
realize this has been intruded upon at the municipal level--do
not do is strike, and that is very important. It seems to me,
when you are waging a war and you have ships of all varieties
come in to get ammunition put on or to get it taken off if they
have to be repaired, since you could not have people with
welding and all the rest that goes on, on a ship, and having
charged ammunition in storage there. Wouldn't that kind of
situation concern you?
Mr. DeSeve. It certainly would, and we would hope that the
contract, if it were a contract item, would absolutely preclude
that sort of thing for national defense purposes.
Mr. Horn. Well, I hope when you go back to your office in
my favorite building in Washington, which is the Executive
Office Building, built under Ulysses Grant's administration and
a great building--and any of you that have not seen it, you can
tour it on Saturday now and you will see Mr. DeSeve and all the
Presidential assistants in very nice areas over there--we hope
it promotes thinking.
Mr. DeSeve. We try not to work Saturday, but we usually
fail. We usually fail.
Mr. Horn. We hope it promotes thinking, but when you go
back there, you might ask the U.S. Navy why are they trying to
contract out at the Seal Beach Ammunition Depot, and by what
standard of safety and concern do they have to do it. I think
that is a typical example of where some people finally get
around to doing something and then they do the wrong thing, not
the right thing.
[The information referred to follows:]
Insert supplied for questions
1. The Navy announced a competitive A-76 study of Ocean
Terminal operations at Naval Ordnance Center Seal Beach on 15
January 1998.
2. A Naval Ordnance Center is full service activity for the
storage, assembly and maintenance of Naval ordnance. A Naval
Magazine is a smaller facility principally used for storage of
ordnance. As a general matter, neither a navel ordnance center
or a naval magazine is considered an inherently government
operation. As these types of ordnance, including our nuclear
arsenals, are manufactured and delivered to us by contractors,
the handling of such materials has not been a safety issue nor
is it considered inherently governmental.
3. This effort is similar to the A-76 conversion of the Ocean
Terminal functions at Naval Magazine, Leuleulei, Hawaii to
contract performance. A contract operation was put in place in
1985. This function has remained in the private sector since
then.
4. There have been concerns expressed regarding contract
performance of these kinds of activities. The Navy remains
satisfied, however, with the contract work at Naval Magazine
Leuleulei, During Operation Desert Storm the Naval Magazine at
Leuleulei, like other mobilization and shipping points in the
military infrastructure, was at it's busiest level in memory.
One of the numerous ships the Leuleulei Naval Magazine
contractor was tasked with loading was the ``Cape Judy.'' This
was a break bulk ship which was to be loaded with 5''/54 gun
ammunition. This ship was delayed approximately 2 weeks beyond
it's scheduled sailing date. This was the only significant
delay during this period at Leuleulei.
To load this ship the contractor had to clean the ship to the
cleanliness standards required for ordnance since the ship had
previously carried a cargo of rice which had spilled
everywhere. The contractor then had to remove temporary
bulkheads within the cargo holds and build new ones which were
suitable for ordnance. Then, finally, the ship had to be loaded
with the ammunition. The contractor did not pay a performance
penalty for this delay as it was caused principally by the Navy
setting an overly optimistic schedule for the load. The Navy
actually paid the contractor a $126,000 adjustment as
compensation for the additional work and materials used
building up the interior bulkheads.
Mr. DeSeve. And I would be delighted to go back and look at
that. I have heard about that today for the first time, and I
will be delighted to address that concern. And we will formally
give you an answer as to what is going on there as quickly as
we can.
Mr. Horn. Good. Thank you very much.
Senator Brownback. Thank you.
Congresswoman Maloney.
Mrs. Maloney. Thank you very much.
I would like to ask Mr. DeSeve--you have testified about
the success of Vice President Gore's Reinventing Government,
where we now have the smallest work force since 1931 with a
savings, you said, of $137 billion and a reduction in our work
force of 316,000 people. I would like to ask you and Mr. Stitt
how did you achieve this, and is the method that you are doing,
which is really the goal that Mr. Stitt mentioned, is we need a
smaller, more accountable, professional work force that gets
the job done professionally? Just comment on your approach and
Mr. Stitt's approach, both of you. How did you believe this
success, and do you need a competitive bid to make it happen?
And, second--you obviously do not because you already made
it happen--I would like to touch on the question that was
raised by Mr. Kucinich which is really quality control.
One thing with Federal workers, you have control over the
quality of work that is coming out of them, their honesty, the
way they treat people, the way they get their job done, and how
do you control that with a private contractor? And I think that
all of us bring to this table some of our past experiences in
government.
I recall in New York City, we at one point trying to drive
up our collections, something that Chairman Horn and I have
worked on, a debt collection, we contracted out to private
contractors, and they used such extreme cruel methods that
really violated the sense of decency, even for New Yorkers,
that we had to curtail that, and we now have a lot of debate
now in Congress with Vice President Gore and Mr. Clinton
talking about a consumer bill of rights so that HMOs don't go
over that fine line, and, truly, when you have a government
worker, you can control the end product. So how do you control
that if you are going to a contracted-out type of situation? So
those two questions, I would like you both to comment on them.
Mr. DeSeve. OK. Let me take them in order. First, one of
the things we tried to do in reinventing government was to
decide what things we needed to do.
If you are going to contract something out, if you really
do not need to do it at all, you have achieved a significant
savings by not doing it. What do I mean? If we look at the
investigations function in OPM, we decided that that was not
inherently governmental. We did not even need to be in that
business anymore. Training was the same way. We did not need to
be in the training business. There are a lot of people at the
Cato Institute, the Brookings Institution, and colleges and
universities who can do training. There are private sector
offerors who can conduct investigations as they are needed. So
we did not need to be in that business. We simply got out of
the business; in one case, through an ESOP, which Chairman Horn
and Mr. Mica were very helpful in creating. In the second case,
we simply divested the training function. It was picked up
first by the U.S. Department of Agriculture, and now I guess
others are doing that as well.
So we went through--we identified those things which we did
not need to do anymore, and also those things which we could do
with fewer people, whether those people were in-house or
outside the house, contracted out, whether it is the Department
of Housing and Urban Development, GSA. We could go down the
whole list. There are fewer people because we do not need----
Mrs. Maloney. So, if I could just--so you really were
accomplishing the intent of this bill by self-determining those
places where you feel could be contracted out or done cheaper,
but the difference is this bill would force you possibly to
contract out in areas that you do not think it would be a cost
benefit or result benefit for the American taxpayer. Is that a
correct----
Mr. DeSeve. It would take away the discretion of a manager,
to some extent, and force him by using valuable staff time to
conduct according to a schedule, a set of cost comparisons and
out-sourcings. He would have less time to spend in the other
kind of reengineering that we believe has already yielded
savings.
Mrs. Maloney. So it would force the out-sourcing, whereas
you have already been doing it. I think we have $900 billion in
procurement now with the Federal Government? It is a huge
number.
Mr. DeSeve. Yes, it is.
Mrs. Maloney. And--so go on.
Mr. DeSeve. So what we tried to do is by reengineering and
getting rid of some of the old functions and even devolving
some of the functions to State and local governments. They have
picked up a significantly greater role in combatting food stamp
fraud, and they were happy to do that because they knew that
they could prosper along the way.
So EBT, which we have also talked about, electronic benefit
transfer, enabled them to do things better and enabled us to
eliminate certain kinds of functions we did not need to do.
The second question you asked was about----
Mrs. Maloney. Could I ask, what are your further plans for
reinventing government? Are you continuing to do this, or have
you met your goals?
Mr. DeSeve. No, we are continuing to do it. We are
continuing to streamline. The President's Management Council,
in its April meeting, will be talking about internally the
various streamlining efforts.
We have heard today that the Defense Department has,
indeed, decided to contract out, or at least to expose to
competition--not to contract out, but to expose to competition,
and that is the thing we think is core. Other agencies are
likely to make that same judgment. Once they have gotten down
to the right functions, then they have to decide how to best
perform those functions, and we are getting closer and closer
to the right functions.
Mrs. Maloney. Now, you mentioned that government had grown
in two areas. One was Commerce, which is hiring really for the
Census----
Mr. DeSeve. That is correct.
Mrs. Maloney [continuing]. Which is once every 10 years.
What was the other area you mentioned?
Mr. DeSeve. The Justice Department. Both the Bureau of
Prisons----
Mrs. Maloney. The Justice Department.
Mr. DeSeve [continuing]. And the FBI have grown
significantly----
Mrs. Maloney. I know.
Mr. DeSeve [continuing]. And the Immigration and
Naturalization Service.
Mrs. Maloney. Right, and we hired 100,000 additional police
officers, too.
Mr. DeSeve. Right.
Why don't I let Mr. Stitt comment on the first question,
and then we will do the second.
Mr. Stitt. The first question I had down: Is competition
necessary? In Indianapolis, at the municipal level, we felt
that it was. I have debated this issue for 6 years with both
managers and my AFSCME colleagues. We have not found a tool
that has been as effective as competition.
We had a longstanding TQM program at the city for many
years, which essentially yielded no results. So we think it was
helpful in our community.
Mrs. Maloney. May I ask for a clarification?
Senator Brownback. Well, if we could get the witnesses to
directly, quickly respond to your two questions, and then I
think we will have to move it on.
Mrs. Maloney. All right. Are you alone in this----
Senator Brownback. If you would like to change the
question, we can----
Mrs. Maloney [continuing]. Or are there many----
Senator Brownback [continuing]. We can do it that way,
then.
Mrs. Maloney [continuing]. Municipalities doing the same
thing that you are doing?
Mr. Stitt. There are a number of municipalities around the
country that are looking at the concept of managed competition.
I think Indianapolis has probably done more, and done it more
quickly than other communities. But it is something that we are
seeing more and more at the municipal level, particularly in
utility service areas.
Mrs. Maloney. What about quality control?
Senator Brownback. Well, let us go back to another round of
questions.
Mrs. Maloney. OK.
Mr. Horn. Yes. I would like to get into it at some time.
Senator Brownback. I want to go to Congressman Horn and
then we will go back to Congressman Kucinich and then back to
you again for questions.
Mr. Horn. Let me ask you. You mentioned, Mr. DeSeve, that
there were two agencies that did not file a plan because they
have not had a cut in civilian employment, and that was Justice
and Commerce?
Mr. DeSeve. That was not the reason they did not file.
Those are happenstances.
Mr. Horn. And they have a growing work force, you said?
Mr. DeSeve. They have a growing work force, but that does
not relate to their not filing a plan.
Mr. Horn. Well, I assume Justice's growing work force is
based on all the independent counsels that have been appointed
by the court. So I can understand that one.
I look at NOAA, which is 60 percent of the budget of the
Department of Commerce, which I still want to get rid of--not
NOAA, just the rest of the Department--put it out and privatize
a lot of it, which reminds me of the Coast and Geodetic Survey;
35 or 40 years ago when I was on the Senate staff, I remember
we had--and this is before the Eisenhower--yes, it was a little
after the Eisenhower Declaration. It was 1960, 1962. We were
after the Coast and Geodetic Survey to contract things out
because they were simply duplicating which was already being
done by the private sector. The map-makers would remember the
firm. I think it is Jepson in Denver, Colorado. And the reason
we got into it, it was a subsidiary of the Los Angeles Times.
That was my first taste of where government employees were
doing work that is not inherently governmental; that can be
done just as well in the private sector, and it was not being
done. I just wonder if the OMB has looked at Commerce, when
they do not file any plans, and say, ``Hey, the little bit you
have got left around here, there are some things that could be
contracted out.''
Mr. DeSeve. I want to assure you that I will work very
hard, and we will ask Secretary Daley to make sure that a plan
is filed in this round of evaluations.
Mr. Horn. Thank you.
Senator Brownback. Mr. Kucinich.
Mr. Kucinich. I would like to use this time to continue my
homily about the importance of democratic control of the
process as exemplified by the systems of service which
government delivers.
The whole concept in this country of a United States
presupposes there is some unity in the States, and we were
brought together out of a community of interest. I mean, I
happen to believe that we, in fact, have an American community.
Government systems at every level reflect the needs of the
community. That is why those systems of support are organized
to extend services. The ability of government to control those
services is the ability of government to make sure that its
structures maintain democratic values.
We cannot look to the corporate world for democratic
values, even though we may have many fine leaders in the
corporate world who may practice democratic principles in their
daily life. We cannot look to the corporate sector to secure
democratic values. We have to look to the government and the
execution of the laws and the political process to do that.
So, when we have drawn an equivalency here between the
public sector and the private sector and, in effect, the
equation has put us in a position where we have equated the
work of the public sector and the work of the private sector,
we are basically ignoring that they have two separate goals
that are often mutually exclusive as opposed to what I said
earlier, where there might be some areas where their goals
might be inclusive mutually.
This is about goals, and you may have your plans to go
ahead and execute private contracts, but to tell government
employees that they have to start competing for their jobs is
in and of itself threatening not to just those employees and
their jobs, but it threatens the entire democratic system of
which they are a part.
I view public employees in a slightly different way. I do
not see them as widgets in some kind of autonomic machinery. I
see government employees as being an extension of democratic
values. We then have some control over that system.
Now, the honorable gentleman from Indianapolis mentioned
the contracting out of utility services. I will tell you, and
remind you, that there are over 2,000 municipally owned
utilities in this country, and one of the reasons we have that
is not only so people can have lower electric rates, which they
do, without any exception, and in those cases where they do not
have lower rates, it is usually because of the interference of
the private sector, but also because they have some control
over the system. They have the ability to be able to have input
in the process.
This whole idea of privatization, I would suggest to you,
notwithstanding the urgings of the administration, needs to be
looked at again in terms of the implication it has for
democratic values.
In the last few decades, there has been an attack on
government to cause people to be estranged from their
government, but if this is, in fact, a government of the
people, by the people, and for the people, as Lincoln's prayer
was so many years ago, then, in fact, when we attack
government, we are attacking ourselves. And unlike the
challenge of Poto that we have met the enemy and he is us, it
is up to us to recognize that this is our government. We can
make it work, not by dismantling it piece by piece, but by
finding ways for those systems to work in order to get the
people to do their job better, not by threatening them with
loss of their job, but by showing them how their jobs are
essential to the unfolding of the democratic process.
As a Member of this Subommittee and as a Member of the
Congress, I am going to continue to insist that we review again
and again the underlying premises which promote wholesale
privatization in the government because, in a democratic
society, government has to be there to protect democratic
values. We cannot look to the corporate sector to protect
democratic values.
I yield back.
Senator Brownback. Thank you very much.
I would note that the bill has nothing to do with the role
of government. It is just that if there are activities which
could be done by a contractor, the agency should determine how
to get the best deal, is what the structure of the bill has
tried to be. So I am hopeful we are being sensitive to your
point of view on this, and that we are just trying to get the
best deal we possibly can here.
Congresswoman Maloney.
Could this be our last question? We have a huge panel after
this one.
Mrs. Maloney. Back to my last question, quality control,
how do you maintain quality control with a private contractor?
Mr. Stitt. I can only speak to our experience in
Indianapolis, and as we have been visited over the years by
many folks who talk about our competition initiative, one of
the things we have told them is that it is not a cookie-cutter
approach. What worked in Indianapolis may not work in Miami or
the Twin Cities.
We inherited a system in Indianapolis that, although it was
regarded as one of the country's most well-run cities, it had
some pretty serious challenges. There was no effective quality
assurance, quality control mechanism over local government when
we got there. There was very, very little performance data, and
as I talked with municipalities and, quite frankly, State
employees around the country, that is common. They do not know
how much they produce or the quality of it in many
circumstances.
We set about developing a rigorous performance measurement
system that asked those questions, what did we produce, what do
our customers expect, and what is the quality we produce. We
have used that as we have gone into the marketplace to ask
employees and vendors to compete for that work.
Our experience has been that post-competition, whether
provided by public employees or a vendor, we generally see
improvements in the quality of those services. And in cases
where employees continue to provide that service, we
established quality benchmarks, much like we would in a private
vendor's contract. Today, we track on a monthly basis about 250
performance measures in our community.
Mrs. Maloney. Could you cite some examples of services you
contracted out that the employees, the government employees
won?
Mr. Stitt. Probably, the example that I am proudest of
involves the Indianapolis Fleet Services Garage, a group of
employees who maintain our 2,000-vehicle fleet. We asked them
to go head-to-head with the best vendors in the country. They
said, ``We will do that, but you have got to get some of these
bureaucratic structures off our back. We cannot be in a system
where it costs us more to buy a battery than it does the
private vendor or it takes longer to get training done or a new
employee brought in or the legal department will not let us do
anything creative and entrepreneurial.'' They competed and won
a 3-year contract to provide that service. They barely won that
contract, I might add, and as part of their proposal to us,
they asked us to implement an incentive plan that said if they
out-perform that contract, they could share in the savings. We
agreed to that, and the results were really quite remarkable.
Grievances fell by about 80 percent. Time lost to injuries
fell from about 6,000 hours a year to about 200 hours a year.
Customer complaints dropped dramatically. We saw an increase in
the number of line employees relative to managers. Productivity
grew by several hundred hours per employee, and I have had the
privilege of handing out incentive checks between $600 and
$1,100 a year to that employee group, while still generating
several million dollars of savings for taxpayers.
Mrs. Maloney. It seems, Mr. Chairman, that both have very
similar plans, with the only difference is that you are
forcing--or this bill would force a competition whether or not
there was a management decision, whether it was necessary or
not. Is that correct? You are forcing a competition on
everything that is ``commercial''? Whereas, Mr. DeSeve, if I
heard you correctly, you are making de-
cisions over what is, you think, something that can be reduced
or contracted out or kept with government?
So, in a sense, the bill could cost more money by forcing a
competition if there is a belief that it should not take place
or is not necessary. Is that an accurate statement, Mr. DeSeve,
or not?
Mr. DeSeve. I think that is what we have testified. We are
concerned, especially with some of the rules and regulations
that are inherent in the bill and the nature of judicial review
of management decisions that we could end up in that kind of a
situation.
Mrs. Maloney. Do you agree, Mr. Stitt?
Mr. Stitt. We did not implement a legislative or rulemaking
system. We were a billion-and-a-half dollars in the hole and
had a mayor who had promised not to raise property taxes. So we
were pretty aggressive about this approach because we did not
have another choice.
We would prefer to create systems that drive performance.
Mrs. Maloney. When did you start this approach?
Mr. Stitt. Six years ago.
Mrs. Maloney. Six years ago.
Mr. Stitt. We preferred to change the systems in which
employees work rather than legislate it; employee incentive
plans, pay for performance, incentive pay, rigorous performance
measures, and regular, routine and open public competition,
with the exception of those areas that we deemed to be
inherently governmental at the municipal level.
Mrs. Maloney. Mr. DeSeve, you have had an outstanding
success, reinventing government. I think it has not received
the attention it should, from the public. I think it has been a
tremendous success, and I know that OMB has really been the
implementer in that program.
Do you support this bill? Do you think this bill is
helpful, or do you think it would be costly and problematic?
What is your feeling on it, based on your years in government?
Mr. DeSeve. First of all, I want to say that we really did
try to form a partnership. Dr. Kelman is with us today, and
will be testifying a little later with these Subcommittees, the
Subcommittees we are before today. FASA, FARA, ITMRA, the Debt
Collection Act, and GPRA are all cases. GMRA, which I will
testify on next week in Mr. Horn's Subcommittee--they are all
partnerships. So, we oppose elements of the bill as it stands
today. We support the idea of competition, and when I refer to
a goal, the goal I was referring to was on the first page of my
statement. We share the goal of seeking the most efficient and
cost-effective sources for the provision of commercial support
activities required by the Federal Government to get the best
deal for the taxpayer. That is what we are seeking to do, and
we think that the way that the bill is structured, providing
this kind of a legislative framework does not do that.
Mrs. Maloney. Do you see a problem with quality control?
Senator Brownback. We are at 5 minutes. So, if we could
answer that one, and then let us go on from there.
Mrs. Maloney. OK.
Mr. DeSeve. What we try to do is we try to implement what
are called performance-based service contracts, very similar to
the no-
tion that Mr. Stitt had, that it is inherent in the contract
itself to specify the level of performance.
We see recently, for example, the Department of Education
competed a set of data centers and reduced their cost by more
than 50 percent from the prior contract. It had been a private
contractor. It stayed a private contractor, but the
performance-basing made the difference.
Mrs. Maloney. OK, thank you.
Senator Brownback. Thank you both, gentlemen, very much for
coming here.
Mr. DeSeve. Thank you, Mr. Chairman.
Senator Brownback. We look forward to working with you.
Mr. Stitt. Thank you, Mr. Chairman.
Senator Brownback. If we could call up our third panel:
Bryan Logan, Chief Executive Officer of Earth Data
International; Larry Trammel, Corporate Vice President and
General Manager, Science Applications International Corp.;
Douglas K. Stevens, Jr., Partner of Information Technology
Services Group, under Grant Thornton, LLP, representing the
U.S. Chamber of Commerce; Dr. Steve Kelman, Weatherhead
Professor of Public Management, Harvard University; Robert
Tobias, National President, The National Treasury Employees
Union; Bobby Harnage, President of the American Federation of
Government Employees; and Michael Styles, National President of
Federal Managers Association. So the rest of the room is up and
testifying.
Could the witnesses all stand to be sworn in, please?
Mr. Horn. Mr. Chairman, before I swear them in, let me just
put two documents in the record with the previous portion. One
is a letter from David M. Gentry, American Federation of
Government Employees, AFL-CIO, at the Weapons Support Facility
in Seal Beach. Since I raised the question of Seal Beach, I
would like his letter by unanimous consent to be at the end of
my question to Mr. DeSeve on that topic.
The letter referred to follows:
DRAFT LETTER FROM MR. GENTRY
American Federation of Government Employees
Affilliated with the AFL-CIO
16 March 1998
Local 2161, Weapons Support Facility
P.O. Box 2340, Seal Beach, CA 90740
Dear
We would like to communicate to you our concerns on the decision to
open the Navy Ordnance Receipt, Storage, Segregation and Issue (RSS&I)
Core functions for Commercial Activities (CA) Study, which consistently
has been an inherently governmental function. As tax payers and Federal
employees we understand the initiative to streamline government through
competition with the private sector. However, we must register strong
opposition to recent efforts by the Navy and Congress to outsource
(contract out) critical core logistics capabilities. It is essential
for the national defense that these capabilities be conducted by
government personnel to ensure effective and timely response to a
mobilization, national defense contingency situation and other
emergency requirements. By contracting these capabilities out the
United States Defense is vulnerable to contractor default, strike, or
non-response.
The Weapons Support Facility Seal Beach provides critical core
logistics to the fleet. Specifically, we directly support the fleet by
loading Naval ships with ordnance or munitions, such as Tomahawk
weapons, at our facilities at Seal Beach, Port Hadlock, Concord and
Fallbrook. The Nation cannot afford to become vulnerable because this
capability is contracted by the private sector. The necessity to
provide this critical service in the safest and most efficient manner
for the Navy and the surrounding Community is the guiding principle
that the employees of the Weapons Support Facility Seal Beach and its
detachments have lived by for the past 50 years.
History has shown that specific depots which were outsourced to
contractors, failed to answer the bell when called upon during times of
national defense. One such installation was the Naval Magazine located
at Leuleulei, Hawaii. During Operation Desert Storm, the contractor at
Leuleulei agreed to pay fines to the Navy, rather than load the ships
destined for the Persian Gulf, in a timely, as scheduled manner.
Leuleulei's ``economic'' decision adversely impacted the Navy's ability
to prevail in the Persian Gulf crisis. At the same time, other Naval
Weapons Stations operated by government civil service workers met the
challenge, carried their load and aided the Navy in completing its
mission.
In addition to the Weapons Support Facility Seal Bach providing the
Fleet critical core logistics, we continually strive to provide our
services to the fleet in the most cost effective manner possible. We
regularly bench mark our functions with the private industry and
systematically look for ways to re-engineer our processes. We are a
Naval working capital funded business oriented activity. As such, we
have conducted re-engineering processes. Over the past 10 years we have
re-engineered, streamlined, benchmarked, and implemented productivity
improvements.
As a government civil service manned activity, Weapons Support
Facility Seal Beach is recognized as one of the ``best of class'' in
Malcolm Baldridge National Quality Award criteria. Seal Beach,
consecutively achieves the highest level of Safety and Customer Service
during its years of operation. In addition, Seal Beach has achieved
numerous citations and awards, the following are just a few:
1995 Hammer Award, Vice President Gore's Reinvention of
Government
1995 Bronze Eureka Award, California equivalent of the Malcolm
Baldridge
Award
1996 Hammer Award
1996 Silver Eureka Award
1997 Silver Eureka Award
Munitions Carrier's Superior Achievement Award
We feel that this type of dedication, service, and integrity cannot
be achieved by Outsourcing. A contractor will only provide minimal
requirements and service at best. We strive for excellence. With your
continued support of Federal employees we will assure that the Navy can
meet its challenges today, tomorrow and in the future.
We would like to extend an invitation to you to come and visit our
world class facility. You will have an opportunity to see a streamlined
government manned, operation. We would like to make an appointment to
see you in the near future at your office if convenient.
Sincerely,
David M. Gentry
__________
Mr. Horn. The other matter just came to my attention, which
I find an excellent document. This is the Procurement
Roundtable,\1\ and it happens to be chaired by a person we all
respect, regardless of party, Elmer B. Stats, former Controller
General of the United States, former member of the Old Bureau
of the Budget, who knows more about government than, I guess,
the next 20 people in this town. This document is also prepared
under the acting chairmanship of the Procurement Roundtable,
Frank Horton, a very distinguished former Member of Congress
from New York. I would like unanimous consent to have this
published at the end of the first panel.
---------------------------------------------------------------------------
\1\ The document referred to above appears in the Appendix on page
346.
---------------------------------------------------------------------------
Senator Brownback. Without objection.
Mr. Horn. It has some excellent ideas, and we will use
them.
Gentlemen, our tradition in the House is to swear all
witnesses under oath. If you would, raise your right hands. Do
you swear the testimony you are about to give the joint
Subcommittees is the truth, the whole truth, and nothing but
the truth, so help you, God?
Mr. Logan. I do.
Mr. Trammell. I do.
Mr. Stevens. I do.
Mr. Kelman. I do.
Mr. Tobias. I do.
Mr. Harnage. I do.
Mr. Styles. I do.
Mr. Horn. I will note that the seven witnesses have
affirmed, and the clerk will enter that in the record.
Senator Brownback. Thank you all very much for joining us.
We will be on a 5-minute time frame. We have lights here. So
the yellow light comes on when you have 1 minute left to go.
There has been a request by Congresswoman Maloney that we
have Dr. Kelman go first, as she has to leave and wanted to
make sure--not that everybody's testimony isn't very important
and needed, but she had a particular request for that.
Mrs. Maloney. And we had not received his prepared
statement in advance, so I do not know what he is going to say.
Senator Brownback. So we have decided to go ahead and
concede with that. It will be a 5-minute testimony, and then we
will go ahead and start down the line.
Welcome, all of you. I hope you do not feel slighted for us
jumping out of order on this. We would like to keep your
testimony pretty tight. We can take the full testimony into the
record. So you can summarize, if you would like. Thank you very
much for joining us.
Dr. Kelman.
TESTIMONY OF STEVE KELMAN,\1\ Ph.D., WEATHERHEAD PROFESSOR OF
PUBLIC MANAGEMENT, HARVARD UNIVERSITY
Mr. Kelman. You are putting a lot of pressure on me, but,
all right, I will do my best.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Kelman appears in the Appendix on
page 81.
---------------------------------------------------------------------------
Actually, I apologize I do not have a formal statement. The
logistics are a little more complicated now. Back in academia,
I am now answering my own telephones, and I have one-third of a
staff-assistant time, stuff like that. So the logistics are a
little bit more difficult. So I apologize. It is very nice to
be back in front of the Subcommittee again.
With any luck, I will do this in less than 5 minutes. I had
just two big-picture messages that I wanted to try to
communicate today regarding this bill and regarding the whole
issue of competition and out-sourcing. The first is that I
really do think that it is time to lower the level of rhetoric
about out-sourcing and contracting out. I really do not believe
that this is about do you like big government or do you like
small government. It is not a question of big government or
small government, whether the payroll checks for soldiers and
other employees of the Defense Department are cut by government
employees or by private sector employees. Nor is it a question,
I think, of do you like or do not like the Federal work force.
Luckily, I was in town today to be able to come and testify
before the Subcommittee. I spent the morning interviewing
front-line procurement professionals at the Census Bureau in
the Department of Commerce for some research I am doing on
procurement reform, and those folks I spoke with this morning,
the front-line procurement professionals, are the kinds of
people I got to know while I was in government. We have a
fantastic Federal work force, and this is not about do you like
Federal workers or don't you like Federal workers.
I mean, the fact is the vast majority of out-sourcing that
takes place in the United States takes place between business
firms. It is commercial to commercial out-sourcing within the
commercial world, not even involving government, where one
commercial firm out-sources some work to another commercial
firm, that is growing extremely rapidly in the private sector.
If you read investment analysts, one big investment theme
in the stock market right now is investing in companies that
are in out-sourcing businesses, that out-source functions to
other commercial companies, and the reason that out-sourcing is
growing so rapidly commercial to commercial, again, just not
involving the government, is managers. Executives of firms have
increasingly realized that it is good management practice to
stick as much as you can to your own core competency as an
organization, to keep management time focused as much as
possible on your core mission and your core responsibilities,
and let the non-core responsibilities be taken over by other
organizations who themselves have as a core competency in
payroll, check-cashing, or things like that, which are not in
the core competency or core mission of the organization that is
doing the contracting out.
So, for years, obviously--and we do not even think of this
as contracting out--most commercial firms have contracted out
writing advertising, and a lot of their legal services. These
have taken place for decades, and in recent years, the amount
of contracting out and out-sourcing within the commercial world
has expanded dramatically.
Let us take one very mundane example, and I take it because
it involves a company that does not even do business with the
Federal Government. There is a company called Carabiner
International. It is very rapidly growing, publicly traded
company. The mission of their company is to out-source meetings
and conferences for private organizations, Ford Motor Company,
or whatever. And what they do is they go to those organizations
and say, ``Your core business is not running meetings and
running conferences. That is what we specialize in. That is
what we are good at,'' and, again, this company does, so far as
I know, no business with the Federal Government. That is a very
rapidly growing business. So the first point is this is about
good management, and it should not be seen, in my view, as an
ideological issue.
Second, without having considered every word of the
proposed bills as they have been revised, it does seem to me
that the two bills, by and large, have done a good job walking
a tightrope and walking a line between various bookend or
extreme positions on this issue.
I think that it is good that the revised bills make it
possible for Federal workers to compete for these jobs. I think
they should be allowed to compete for these jobs.
I believe that when Federal workers compete, we do need to
worry, and I think OMB's Circular A-76 revisions a few years
ago made some progress on this, about proper accounting for
indirect costs. I believe that the past performance of
government entities should be taken into consideration in these
competitions.
One feature from a quick read that I do not like in the
bill--and I agree with my former colleague, Ed DeSeve, on
this--is the various judicial review provisions. I do not think
it is necessary to have these management decisions second-
guessed by any sort of judicial review.
Last point, and I will be under the red light, I hope, is
that we really need to make an effort as government and
private, whether private business or private trade union folks,
to try to manage this transition, as I think they have tried to
do in Indianapolis, that when something is out-sourced, to hold
the existing Federal work force harmless insofar as possible,
through right-of-first-refusal provisions and other kinds of
things. That is one area that I hope the Executive Branch, as
the Executive Branch starts doing more out-sourcing, will
continue to pay attention to.
Thank you for your attention.
Senator Brownback. Thank you very much, Dr. Kelman, and we
will look forward to, hopefully, some questions and thoughts
for you, well recognized in this field.
Bryan Logan, Chief Executive Officer, Earth Data
International.
TESTIMONY OF BRYAN LOGAN,\1\ CHIEF EXECUTIVE OFFICER, EARTH
DATA INTERNATIONAL
Mr. Logan. Mr. Chairman, Mr. Horn, and Members of the
Subcommittee, I would like to put my full statement in place on
the record.
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\1\ The prepared statement of Mr. Logan appears in the Appendix on
page 84.
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Senator Brownback. Without objection.
Mr. Logan. One thing that is said--and I have 5 minutes
here--today we are going to try to put some high tech into my
5-minute speech here. So I will ask you to don some glasses in
a moment or two and dim the lights.
Senator Brownback. There will be no cameras in the audience
when we put these glasses on.
Mr. Logan. Right. [Laugher.]
The other thing is that a photograph says a thousand words,
and as I am restricted to 5 minutes, I am hoping this is going
to help my testimony.
As the past president of the Management Association of
Private Photogrametric Surveyors, MAPPS, a national association
of private mapping firms, I was also a delegate to the 1986
White House Conference on Small Business, where the problem of
government competition was a major issue both in 1980 and 1986
and 1995. I, today, would just like to focus on the fact that
what we are looking for in our particular field is free and
fair competition, and we do not believe that that exists at
this point in time.
If you want to look at an area where free and fair
competition does not work, we need to look at the mapping
industry and the GIS profession. As early as 1933--yes, 1933--a
report of a special House committee found the mapping business
subject to unfair government competition by government. For
years, government studies have found that an accomplished and
qualified private sector in surveying and mapping exists, and
recommended increased contracting.
In fact, in 1973, OMB reports said private cartographic
contract capability is not being used sufficiently. OMB's
fiscal year 1990 budget said specific areas where the
government could place greater reliance on the private sector
providers include map-making activities. That statement was
intended to target the surveying and mapping of OMB Circular A-
76 studies. Since the mapping initiative was included in fiscal
year 1990 budget, not a single Federal agency has conducted an
A-76 review for surveying and mapping activities.
Recently, OMB has changed A-76 to actually permit agencies
to do work for other agencies without conducting a cost
comparison, and that is what has led to Senator Thomas' floor
amendment to the Treasury Appropriations bill in 1996 and 1997.
Why has contracting out of mapping not increased
significantly? I believe it is because the principal tool for
moving services from government performance to the private
sector is OMB A-76, and the decision on whether or not A-76
studies are actually undertaken rests with the agencies.
What we have today is a monopoly, and I would like to say
that there were some people on the Hill a few weeks ago in the
software industry who would think that 95 percent of the
business undertaken in the mapping business, undertaken by the
government would be a monopoly even in their terms. That is
about the number right now. There is $1 billion a year spent by
Federal agencies on surveying and mapping activities. There is
about 6,000 employees involved in that, and the private sector
gets about $58 million worth of business per year from that.
About 5.8 percent of the work that the Federal Government
requires for surveying and mapping is actually done by the
Federal Government itself.
What we would like to see is that the Federal Government
rides the wave rather than makes the wave. There is no need any
longer for the wave to be made by the Federal agencies. The
private sector can certainly do that for them.
I would rather not have to compete against the government.
I would rather have a true, free system where we can, in fact,
look at individual projects that the government is undertaking
and put forward a proposal to undertake that work. That is
happening, I must add, with a number of agencies, such as the
Army Corps of Engineers, the Air Force, and the Navy. They have
traditionally contracted out, and, in fact, are contracting out
more.
In recent years, the USGS and NIMA, the new National Image
and Mapping Agency, have launched new programs for the private
sector.
As a result of that, we have moved quite a considerable
amount of work to the private sector, and my firm alone has
employed in the last few years over 20 Federal employees from
NIMA, TVA, USGS, and the Corps of Engineers and the military.
Presently, we have more than 40 positions in the firm that
can be filled by Federal employees who wish to move to the
private sector, and we will do so, should out-sourcing by NIMA
and NOAA and other agencies come to fruition. If this bill is
enacted and we, in fact, do get free and fair competition, I
think we will triple that number again.
I see my orange light has come on. So I would quickly
like--if we could bring the lights down--and I have got Nick
Palatiello over here who is on his out-to-work day from school,
who is going to make this all happen for us.
The first image here shows a comparison. The image on the
left is a government satellite, an older technology, 30-meter
resolution. In other words, any point on the ground 30 meters
or greater can be seen. The image on the right is going to be a
new private sector satellite that will be put into service this
coming year where we can see 4-meter resolution. As you can
see, the private sector here is certainly leading the
technology with regard to the image quality. Next slide,
please.
This is a typical map from the U.S. Geological Survey. It
is a somewhat static map, and on average, they tend to be out
of date by sometimes up to as much as 35 to 40 years.
The next image is a project that we are presently doing for
the District of Columbia and NCPC, a Federal agency, and if we
had time today, we could zoom in on the Capitol Building there
and see the actual tourists on the front steps of the Capitol.
This database is being built on which all the utilities, etc.,
for the District Government will be handled in due course. Next
slide, please.
This is a NOAA chart, and, again, you can see from this
chart, it is fairly basic, but if we look at the next slide, we
can see the detail of the same area, and this detail will allow
us to hide buildings and obstacles that would be potential air
obstacles for aircraft and/or sea obstacles for shipping and
navigation.
And the last slide, which we are going to move into, is
when we need the glasses, and if you look at this image here,
with your glasses on, please, you will actually see, I hope,
that the image turns into a three-dimensional model. For the
rest of the audience, you will not see that, but that three-
dimensional model is produced by technology that we have in the
private sector and have developed, admittedly with help of R&D
from Federal agencies, but what I would like to see is that
this technology that we have spent a considerable amount of
time on being replicated with the Federal agencies, State, and/
or local government agencies.
So, again, this technology is what we are bringing forward.
It shows that we can compete, and to summarize what we really
want today is to be in a position where we can compete for this
type of work and move people from government into the private
sector where they can have first-rate jobs with great benefits
and a great picture.
Thank you, Mr. Chairman.
Senator Brownback. Thank you, Mr. Logan.
Next will be Larry Trammell, Corporate Vice President and
General Manager, Science Applications International Corp. Mr.
Trammell, welcome.
LARRY TRAMMELL,\1\ CORPORATE VICE PRESIDENT AND GENERAL
MANAGER, SCIENCE APPLICATIONS INTERNATIONAL CORP.
Mr. Trammell. Thank you. I am pleased to be here today to
speak on behalf of industry groups, and I thank you very much
for your invitation, Mr. Chairman, and Subcommittee Members.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Trammell appears in the Appendix
on page 88.
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By way of introduction, I am employed by Science
Applications International Corp. to manage its services
company. SAIC is primarily a scientific and information
technology company who has provided services to the Federal
Government for almost 30 years. We are members of many industry
associations, including several of those represented today.
From this perspective, I will be providing my views on the
Federal Government marketplace.
In order for Congress to require agencies to meet its
balanced budget requirements, we believe there must be
legislation that supports the concepts embraced in the bills
before us today. We know that efficiency is required for
survival in the competitive private sector. Likewise,
government agencies owe it to the American taxpayer to be
efficient.
My discussion today is going to focus on six key principles
pertinent to this legislation, and they are provided on the
board to your right for reference.
On the first point, let me say that industry supports the
OMB guidance of what is and is not inherently governmental, and
we acknowledge the need to retain core capabilities in the
government. We in industry want smart, capable, and well-
informed customers to ensure that we meet the right objectives
to accomplish their mission. Our government partners must have
the capability to conceive and oversee the work to accomplish
its core mission.
We also believe that there is no place for an agency to
compete in the public market. As an industry, it is important
for each agency to focus on its core mission and to procure
from other sources those items which are non-governmental.
We believe fundamentally that work which is not inherently
governmental should be performed by industry. However, we
concede to enter into a competition with the government
activity for these non-core functions.
On item two, industry's perspective on the current process
for identification and selection of the right source is
cumbersome and inefficient. It unfortunately focuses only on
low cost. We understand that this legislation phases out these
procedures in favor of a best-value selection of the right
source to perform required services.
In regard to item three, competition, even public-private
competition, promotes general efficiencies and ultimately the
most efficient organization. We know that quality is the key to
effective and efficient performance, and higher quality may be
worth a higher price. We need legislation to allow latitude to
purchase at other than low price, and we are pleased to see the
emergence of this concept in this legislation in order to
assure that the American taxpayer receive the best value for
the tax dollar.
Item four, as mentioned, we advocate best-value awards and
seek to ensure a level playing field for evaluation. The
current approach does not require all costs of an activity to
be reflected in the public estimate of a cost. We need a common
approach to cost collection and reporting for both government
and private sectors. Government has already embraced this
concept, and industry supports that position.
It will be a challenge for government to adapt to activity-
based costing as it has been for our industry, but we are
pleased to see the emergence of this concept in this and in
previous legislation in order to assure a level evaluation.
Item five, sometimes what we do not know can hurt us. This
is the case with the current process in contracting out. There
is no current requirement for an agency to identify all its
opportunities to compete for efficiency. Industry supports this
legislation which does require evaluation of all agency
functions for competition.
And, last, we understand that this will be a program which
must have a time-phased implementation, and we believe the
schedule set forth in the legislation is fair and reasonable to
accomplish this important mission.
Having made these key points, I would like to commend you
and your Subcommittee for hard work on this important and long-
needed legislation, and I offer our continued support.
That concludes my remarks. I thank you again for this
opportunity and stand ready to address any questions.
Senator Brownback. Thank you very much, Mr. Trammel. We
appreciate your being here, and I am certain we will have some
questions.
Douglas K. Stevens, Jr., Partner of Information Technology
Services Group, under Grant Thornton, LLP, representing the
U.S. Chamber of Commerce. Mr. Stevens, thank you for joining
us.
TESTIMONY OF DOUGLAS K. STEVENS, JR.,\1\ PARTNER OF INFORMATION
TECHNOLOGY SERVICES GROUP, UNDER GRANT THORNTON, LLP,
REPRESENTING THE U.S. CHAMBER OF COMMERCE
Mr. Stevens. Thank you, Mr. Chairman. I have submitted
written testimony, and would just like to make some brief
comments, hopefully not too redundant with some that we have
heard previously.
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\1\ The prepared statement of Mr. Stevens appears in the Appendix
on page 91.
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Senator Brownback. Your testimony will be a part of the
record.
Mr. Stevens. I would like to comment on three very
important points: First, very briefly on the state of the
language of the draft bills that we have reviewed; second, on
some of the problems with the current version of OMB Circular
A-76; and, finally, on the activity-based costing language that
is included in the House version of the draft bill.
The current bills include two very major, very substantial
changes from previous bills. The first is the addition of
language about management competition, including the
incorporation of activity-based costing, and the second is the
inclusion of out-sourcing reporting requirements under the
Government Performance and Results Act.
The addition of the managed competition language should
remove, in our view, previous objectives by the various players
in this process, including the GAO, the OMB, and the Federal
employees and their unions who wanted an opportunity to compete
for work currently performed by the public sector and
designated as commercial, rather than automatically awarding
the work to a private sector organization.
The inclusion of agency reporting requirements under the
Performance Act is a critical mechanism, in my view, for proper
congressional oversight of the conversion process without
creating an entirely new reporting burden on the agencies.
In the area of the problems with the current A-76 circular,
the first problem that the proposed legislation addresses is
the fact that the A-76 competition process is converted from a
voluntary activity to a mandatory one.
Chairman Brownback has heard testimony before his
Subcommittee on this bill that government managers who have
voluntarily decided to perform A-76's have found that a career-
ending move. Therefore, government managers tend to avoid
conducting A-76 competition and use excuses like lack of staff,
budget time, or resources.
Since the legislation before us not only makes the
competitions for the agencies mandatory with the force of law,
but it also provides reporting under the Performance Act, we
believe that under the legislation, agencies will no longer be
able to make excuses to Congress, and, very importantly,
government managers will have the cover of a statutory mandate
to perform the A-76 competitions.
Second, the current version of A-76 allows for, but does
not require a standard cost-accounting methodology such as
activity-based costing. Thus, historically, agencies have had
the option to adjust numbers to arrive at a desired outcome by
using a different accounting system than the private sector
organization competing is forced to use.
The legislation before us requires that the agency consider
as many as possible of the same cost that a private sector
bidder would consider in a competition, and, really, it goes a
long ways toward leveling the playing field in an A-76
competition.
The third problem with the existing legislation that we see
is the inadequate inventory of commercial activities that is
maintained by OMB, and the business community applauds the
legislation's requirement that agencies prepare, maintain, and
publish in the Federal Register a catalog of all the commercial
work being done in-house.
Finally, about activity-based costing and cost accounting,
the House and Senate draft language on the issue of cost
accounting is very different, and my comments pertain to the
draft language from the House. We urge that the House language
be incorporated in the Senate bill to make sure that the
playing field is, indeed, level, and this opportunity to adjust
cost figures is eliminated.
The point of using activity-based costing is to ensure that
any comparable analysis between a government bid and a private
sector bid used a comparable and comprehensible cost-accounting
methodology. While there are a number of cost-accounting
methodologies that could be used, we believe that activity-
based costing provides the easiest method for obtaining similar
information from both parties and information that can be
easily understood.
A couple of, perhaps, technical points. We believe that the
cost-accounting standards board ought to be included in the
commenting process on the bill. The cost-accounting standards
board is the entity that governs cost-accounting standards for
private sector companies, and, therefore, ought to have a
legitimate role because it makes the rules that oversee the
government contractors that will be bidding.
Finally, there is an issue about recognizing the cost of
taxes in a private sector bid, and our approach is to simply
recommend that both the government and private sector bids not
include taxes as a cost item, so that the measurement is
straightforward.
Thank you.
Mr. Horn [presiding]. Well, we thank you for that excellent
statement. I particularly appreciate you tying it into the
actual legislation and what should be incorporated and moved
wherever.
We now begin with the various employee groups. Robert
Tobias is president of the National Treasury Employees Union.
Mr. Tobias.
TESTIMONY OF ROBERT M. TOBIAS,\1\ NATIONAL PRESIDENT, THE
NATIONAL TREASURY EMPLOYEES UNION
Mr. Tobias. Thank you, Mr. Chairman.
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\1\ The prepared statement of Mr. Tobias with attachments appears
in the Appendix on page 97.
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NTEU is very concerned that the legislation we are here to
discuss today represents a philosophical predisposition, rather
than a data-driven decisionmaking process concerning who can
deliver products to the taxpayers faster, better, and cheaper.
There is no data. There is no evidence that the private sector
is automatically better just because it is the private sector.
Rather, there is a great deal of evidence that just the
contrary is true.
It is also important to keep in mind that contracting work
to the private sector does not make it private sector work. It
remains government work performed by the private sector under
the supervision of the government for the benefit of the
public.
The issue is who will perform the work and at what cost,
not whether the work will be performed. Therefore, the
appropriate question is who can perform the work faster,
better, and cheaper.
It is not as though the Federal Government does not use
contractors with the private sector, $108 billion is spent in
salary and benefits for Federal employees, and the minimum
amount spent on private sector contracting is $120 billion, and
some estimate it is three times that amount.
And we know that the current contracts have led to
astronomical amounts of waste and fraud that have been well
documented by both GAO and OMB. The GAO has brought to
Congress' attention examples of millions of dollars of missing
government property that has been turned over to contractors,
and they admit their numbers are probably understated by
millions of dollars. They have documented instances of
unallowable and questionable overhead costs, and they have
suggested that this matter is a significant and widespread
problem, costing Federal agencies and the American taxpayers
potentially hundreds of millions of dollars annually.
I have with me today just a few of the relevant GAO and OMB
documents on this topic, and I ask that they be made part of
the record.\1\
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\1\ The documents submitted by Mr. Tobias appear in the Appendix on
pages 116-275.
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Mr. Horn. Without objection, so ordered.
Mr. Tobias. They raise serious issues, and they cannot be
ignored.
Both GAO and OMB have repeatedly pointed out that the
Federal Government is unable to adequately supervise all the
contracting it undertakes now. They have provided detailed
examples of contracts where the Federal Government could save
roughly 50 percent by performing the work in-house. They
highlight contract cost overruns, poor or nonexistent
oversight, lax management of contracts, as well as outright
fraud and abuse in the billions of dollars.
Some of these reports are more than 5 years old. Some are
relatively new. Yet, nothing has been done to address the
problems they highlight. Contract management and oversight are
not only within the jurisdiction of these Committees, they are
part of the names of these Subcommittees. Yet, when we ask why
the abuse and waste detailed in these studies is not addressed
in this legislation and why procedures are not put in place to
prevent such abuses in the future, we have been told simply
that this is beyond the scope of this bill.
We believe that contract reform must start with reform of
the oversight of the existing contracts before there is any
consideration of additional contracting out. This legislation
would also do away with A-76 which currently governs
contracting out. We fear that this will only lead to more
contracting with less cost comparisons.
Currently, 40 percent of contracts are let without
competition and cost comparisons. We need more competition, not
less. Congress should mandate the use of A-76 before any
contract is considered, not eliminate A-76.
This legislation would effectively remove congressional
oversight, allow work performed by the U.S. Government to be
done in foreign countries, and contains no safety net for
current Federal workers who might lose their job.
Finally, the legislation does not allow the Federal
Government to compete for the work once it is contracted out.
Administrations come and go. Congresses, too, come and go.
I suggest that we do not want the spirit of public service to
come and go. There are many services the public sector provides
that it should provide. We should not, on a political whim,
decide that our sons and daughters will be forced to depend on
a succession of private sector contractors to provide
government services, maybe reasonably, maybe not, maybe more
efficiently, maybe not. This legis-
lation would truly shut down the Federal Government, not all at
once as legislation eliminating Federal agencies would do, but,
over the long term, the effect would be the same.
The system in place now may not be perfect, but it is
accountable, and contracting out Federal services must continue
to be evaluated on a case-by-case basis. To do otherwise
ignores the problems pointed out time and again by GAO, OMB,
and the many private organizations who have completed their own
studies. I encourage the Members of the two Subcommittees
present today, as well as this Congress, to reject the
legislation that is before you.
Thank you very much.
Mr. Horn. Thank you very much.
Our next witness is Bobby Harnage, the president of the
American Federation of Government Employees. Your statement
will be automatically included in the record.
TESTIMONY OF BOBBY L. HARNAGE,\1\ PRESIDENT, AMERICAN
FEDERATION OF GOVERNMENT EMPLOYEES
Mr. Harnage. Thank you, sir.
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\1\ The prepared statement of Mr. Harnage appears in the Appendix
on page 276.
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Chairman Brownback, Chairman Horn, and Members of the
Senate and House Government Management Subcommittees, I want to
thank you for allowing me this opportunity to give AFGE's views
on the latest version of the Freedom of Government Competition
Act.
Chairman Brownback, my predecessor, the late John
Sturdivant, testified before your Subcommittee last year on
this legislation, and he later told me, after he appeared at
your Subcommittee, that you did conduct a very fair hearing on
the legislation, even though you happened to be one of the co-
sponsors, and I thank you for that, as well as the insights
that the Majority staff on the full Committee have shared with
AFGE prior to this hearing.
Senator Brownback. I remember him as just an outstanding,
wonderful member, a person with this great soul, too. He was a
wonderful man.
Mr. Harnage. Yes. We miss him.
And, Chairman Horn, let me thank you for your willingness
to work with AFGE on your recent travel card legislation, as
well as the interest you have shown in making child care more
affordable for lower-income Federal employees.
When AFGE last testified on the legislation that we are
concerned with today, we had several constructive suggestions:
Improving OMB Circular A-76 and requiring cost comparisons for
all service contracting; lifting arbitrary personnel ceilings
which cause wasteful contracting out; developing a better
understanding of the contractor work force; improving contract
administration; ending contractor's incentive to avoid unions
and shortchange workers on their pay and benefits; and
encouraging labor-management partnerships to make the
government even more effective.
I regret to report today that not even a single suggestion
AFGE has made managed to sneak into the draft legislation we
are considering today. Consequently, I am baffled that this
legislation is actually being characterized as a compromise.
I am even more baffled to hear contractors continue to
complain about not getting enough taxpayer dollars. The
government already contracts out for services in excess of $110
billion annually, an arbitrarily low number which does not come
close to indicating the private sector's deep involvement with
the Federal Government.
With an administration that has consistently racked up the
highest service contracting-out bills in the Nation's history
and a series of Congresses that cheer on privatization more so
than anyone which preceded them, contractors should be
celebrating their good fortune in grand style.
Attributing the failure of contractors to dig even deeper
into Treasury to a conspiracy not to use A-76 often enough to
suit the private sector, the legislation under consideration
today includes provisions that would put most of the government
up for sale over 5 years. Contractors are obviously frustrated
at the increasing success of Federal employees in competition
under OMB Circular A-76. Formerly, Federal employees lost 7 out
of 10 competitions. Now we are winning 50 percent of those
competitions. This is not the result of unfair competition for
the contractors. It is the result of reinvention-of-government
initiatives and MEOs. Contractors want to junk OMB Circular A-
76 in favor of a more pro-contractor framework. This is not
about saving taxpayers' dollars. It is about privatization at
any cost.
It is said that this legislation simply establishes a
process by which the Executive Branch can create a fair system
for public-private competition. Since the framework which would
succeed A-76 itself is not yet formed, the legislation sponsors
are imploring a don't-worry-be-happy strategy. To Federal
employees, your concerns will be dealt with later. Well, I was
taught at a very early age not to buy a pig in a poke. I am not
about to change my way this late in life.
Federal employees are justifiably apprehensive at the
prospects of a competitive framework that politicians and
contractors might devise in place of A-76. At a time when some
politicians' minds are impaired by notions that the public
sector can do nothing right, now is not the time to rewrite the
rules for Federal service contracting, public-private
competitions, if we truly want to save money for the taxpayers
and ensure that inherently governmental services continue to be
performed by Federal employees. And the often one-sided
approach of this legislation providing detailed instructions
about how to calculate in-house overheat, but conspicuously
solid on contracted in and the most efficient organization
process, it only increases our suspicions.
Let us talk about the most important reason why this
legislation is not designed to ensure fair competition, its
complete and total failure to even address in-house personnel
ceilings that force agencies to contract out work, even at
higher costs because of shortage of Federal employees, a
practice which has been extensively documented by GAO, OMB, and
other agencies.
Finally, I note that this legislation does absolutely
nothing about the dismal state of Federal contract
administration. The details are provided in my testimony, but,
clearly, there is no doubt that we are losing billions of
dollars every year because of waste, fraud, and abuse in
Federal contracting. Lawmakers considering this legisla-
tion need to ask themselves a very simple question. If it is
manifestly clear that the taxpayers are being billed for
billions of dollars in contractor waste, fraud, and abuse every
year as a result of the $110 billion in service contracting
currently undertaken, just what sort of extraordinary budget-
busting losses will we see when over a 5-year period the total
Federal Government is put up for bid?
Mr. Chairman, I appreciate the opportunity to appear before
you today, and I look forward to answering your questions.
Mr. Horn. Well, we thank you for that very full statement,
and we appreciate the timeliness with which you could deliver
it. I have never seen a panel so good as all of you that have
come within the 5-minute side, and it is sort of ironic. We are
in Senate territory, and on the House territory, I can never
get you to stop, but we thank you all for what you have done on
this.
We now have our last panelist, and then we will have
questions. Michael Styles is the national president of the
Federal Managers Association. Mr. Styles, it is a pleasure to
have you here.
TESTIMONY OF MICHAEL B. STYLES,\1\ NATIONAL PRESIDENT, FEDERAL
MANAGERS ASSOCIATION
Mr. Styles. Thank you, Mr. Chairman.
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\1\ The prepared statement of Mr. Styles appears in the Appendix on
page 337.
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In an effort to stay within the 5 minutes, I would like to
just comment briefly on the statement and some of the comments
that were made here today by other presenters.
One thing I would like to say, I am sorry that
Congresswoman Maloney left because I was born and raised in the
Bronx, and current privatization and contracting-out policies
have offended my sensibilities as well.
And I also think that Congressman Kucinich said it best
when he said ``of the people, by the people, and for the
people.'' That is what government is all about, and I think
what we have now is a misconception.
What we are talking about with the right-sizing of
government, we say that we are shrinking the size of
government. The American taxpayer believes that as we shrink
the Federal work force, we are actually shrinking the size of
government, and my premise is this, that moving work from one
sector to another does not, in fact, shrink the size of
government. It just moves the work from one sector to the
other.
I believe that there are more than 1.8 million people
working for the Federal Government. I believe there are
approximately 10 million people. I do not know for sure, but I
think it is something that we should look to because everyone
who has contracted or had contracted work with the Federal
Government works for the Federal Government.
A question was asked earlier about reinventing government.
I remember that we went through this in several phases. The
first phase was to say let us cut 272,900 Federal employees.
That was an arbitrary number that was brought about by the
administration to go out and cut Federal employees. The second
phase said to go up into the 400,000 range, and along with the
second phase, people said, ``And, by the way, let us take a
look at the agencies that these people work for and consider
their mission.'' I think we had it kind of backwards, and I
think what we are responsible for is providing the best
service, the best quality service for the lowest price to the
American taxpayer.
If you take a look at some of the organizations that we
have downsized to date, recently at a National Partnership
Council meeting at our national convention, we had a
presentation that was made by NAVAIR. In that presentation, we
talked about cutting the infrastructure by 56 percent, cutting
the work force by 49 percent, and most people would say to you
that we were shrinking the size of government, becoming more
efficient, quite the contrary in the sense that we are now
contracting out more of the services that were performed at
those installations, and, more importantly than that, we have
undermined our ability to provide immediate response capability
and surge capacity in those arenas.
I think that as we look at the overall issue of contracting
out, we have to look at some of the challenges that face us.
There are two primary concerns that FMA has. One is the fact
that contractor strikes can be imminent. We have in our
testimony several examples of that, but I would like to share
with you one on a personal note.
I went to an FMA-FAA conference-convention, and while we
were there, we were given a presentation by Airways Corporation
of New Zealand, and they talked about the privatization of the
New Zealand FAA. It was quite an impressive presentation. When
I asked of the presenter whether the now-privatized New Zealand
FAA controllers could go on strike, he said sure. I said,
``Well, what happens if they do?'' He said, ``They are above
that.''
Well, that was in October of that year, and I got a
Christmas card which I brought with me, which I thought is kind
of neat because it was approximately 2 months later. It says,
``Mike, you may have heard that the New Zealand controllers
went on strike over the conditions for their contract. It is a
long story with many interesting features and some personal
agendas. I will be writing to Bill,'' and blah, blah, blah,
``to let you know how it comes out.''
I think it is important for us to take a good look, a good
hard look at what it means to have a very competent skilled
work force working for us that is a strike-free work force.
Another point that we have issue with is the fact that we
do not very effectively track the cost of contracting. In our
recommendations, and I will get to them in a little bit, we do
recommend that we track the cost of contracting, and I believe
Congressman Cummings has put forth a bill before the House to
do exactly that.
Along with this, I believe that if you take a look at Seal
Beach Weapons Station--I was going to call them ``Chapter 55.''
I apologize. The situation that you mentioned earlier when you
talked about the weapons station at Seal Beach is a very
important one. We talk about the skilled labor that we have
within the Federal work force, and if you take a look at the
awards that have been won by the managers and supervisors at
that installation and the employees, you are talking about the
Government Hammer Award in 1995 and 1996, the Bronze Eureka
Award, California's equivalent to the Malcolm Baldridge Award
in 1995, and the Silver Eure-
ka Award in 1996 and 1997, and they have just recently learned
that they will be a part of this process.
Now, I realize that you have excluded the depots from this
process, and we appreciate that very much, but we are worried
about those other military entities as well who fall within
that definition that I provided before about immediate response
capability and surge capacity. I think these are issues that we
must look to, and I hope that we do in the future.
Thank you very much.
Mr. Horn. Well, we thank you.
I am now going to yield my time, 5 minutes, to the Vice
Chairman of the House Subcommittee on Government Management,
Information, and Technology, Mr. Sessions of Texas.
Mr. Sessions. Thank you, Mr. Chairman.
Dr. Kelman, I would like to address some of my questions to
you, if I could, first. I heard your testimony and have read
part of what you provided here. I think you were talking about
a balance in order to achieve this legislation.
I have heard from people here who are also equally on both
sides of this issue. Can you play out for me to the benefit of
the taxpayer--you have served on both sides, academic and
within the administration--what you believe those advantages
and/or disadvantages, once again, both sides could be?
Mr. Kelman. Yes. I think that we do need to keep in mind
the big picture, which is that the overwhelming amount of
evidence, both at the Federal level, the State and local level,
and even, again, the private-to-private level, to the extent we
have evidence. Is that when you subject activities such as
these to competition, costs tend to go down, typically quite
dramatically, 20-percent declines are not at all uncommon, and
quality tends to get better?
I mean, the idea of competition, which is the base on which
our marketplace system functions, also has its place in the
public sector in non-core functions.
I agree with Congressman Kucinich, there are core
government functions, core missions, decisions that we make as
a people democratically that should be implemented by Federal
employees, but that does not apply to grounds operations,
payroll checks, a lot of the medical services that are
delivered in-house by the Defense Department, and lots of the
commercial activities that are currently delivered in-house
without competition do not fall within that category. So I
think the benefits of competition are pretty straightforward.
I guess I was surprised to hear from some of my colleagues,
the union witnesses, these statements about the Federal
Government is unable to oversee these contracts. I am surprised
that they have such a disparaging view of Federal workers. I
believe that our Federal work force is perfectly capable of
overseeing these contracts. They are overseeing the contracts.
I am also surprised to hear cited a number of IG and GAO
investigations. These are exactly the kinds of studies that
when they are done about Federal programs, friends of
appropriate government, friends of government say, correctly,
these are extreme examples, these are unusual examples, do not
assume they are typical, the sort of thing that is on
``Fleecing of America'' that many of us, I assume, the union
witnesses and I, often blanche at seeing.
I am somewhat surprised and disappointed to hear some of
the union witnesses cite similar kinds of ``horror stories''
with reference to contract oversight. Almost all of those
examples of problems in contract oversight that were cited by
some of the earlier witnesses involve some of the more esoteric
kinds of contracts, often sometimes sole source for various
reasons. These are not the mainstream of commercial activities,
which it is very, very feasible using performance-based
contracts, gain-sharing, fixed-price contracting. There are
well-known techniques that the administration has been
promoting as part of procurement reform that allow us perfectly
well to oversee these contracts.
Mr. Sessions. Thank you.
Mr. Stevens, there were some discussions, and I believe it
was Mr. Logan who talked about the mapping. Was it you, Mr.
Logan?
Mr. Logan. That is correct.
Mr. Sessions. Can you please tell me some of those
functions that might mean to you--what were they? Core and out-
sourcing? Not referring to Mr. Logan, but Dr. Kelman. Was it
the core?
Mr. Kelman. Yes, core and non-core.
Mr. Sessions. OK. Can you tell me in your opinion what
might be core and not core, just in a brief minute or so,
please? Then, Mr. Styles, I would like to ask that you and Mr.
Harnage answer that also, please.
Mr. Stevens. I really would rather not comment on that. I
am here largely as a technician and simply can tell you that
once those things are defined, if the playing field is level
and the proper methodologies are used, the competition will be
fair.
Mr. Sessions. Because, evidently, the agencies will be
determining these things.
Mr. Harnage, do you have any comment on that, or concerns?
Mr. Harnage. What was your question again?
Mr. Sessions. Well, essentially, in this legislation, there
will be a determination made of what is core and then, in
essence, what is for competition. I have heard you talk about
the concerns that you have. Do you have any concerns about that
utilization or how that would be used that might be to a
disadvantage for a government employee?
Mr. Harnage. Well, I think our first concern was going to
be the amount of litigation that this bill is obviously going
to create whenever that can be challenged. What is decided to
now be inherently government is now subject to the courts of
where it is not before, and, oddly enough, the only thing that
can be challenged is when it is not decided to be contracted
out. It cannot be challenged if it is decided to be contracted
out. I think that is a very unfair advantage to the contractor
or disadvantage to the Federal employees, but we are not about
more litigation. We do not think this belongs in the courts. We
think this belongs in the upper management decisions. We think
this belongs in Congress and in making their decision and
passing the laws that look into these matters. I just do not
agree that litigation is the process.
Mr. Sessions. Mr. Styles.
Mr. Styles. Yes, sir.
Mr. Sessions. Mr. Chairman, if I might----
Mr. Horn. Yes. As long as you ask the question in the time
period in which you did, we let anybody that wants to answer
it, and we will do the same with the gentleman from Ohio.
Mr. Styles. I thank you very much.
U.S. law, Title X, Subtitle A, Part 4, Chapter 146,
specifically designates,
The necessity of the Department of Defense to keep core
logistics functions within the U.S. Government. It is essential
for the national defense that the Department of Defense
maintain a core logistics capability that is government-owned
and government-operated (including government personnel and
government-owned and government-operated equipment and
facilities) to ensure a ready and controlled source of
technical competence and resources necessary to ensure
effective and timely response to a mobilization, national
defense contingency situations, and other emergency
requirements.
When I talk about immediate response capability and surge
capacity, I am talking about the men, the women, the machines,
and the drydocks. All of those things are essential to the
readiness of this Nation.
So, when we talk about core, we are talking about all of
those entities. When you downsize and not right-size, when you
contract out--and I will use an example here. I will use the
shipyards, which is a good example. When we lost Brooklyn Navy
Shipyard, let us say, all of those resources were given to the
private sector. What happened was the drydocks and other things
went into decay. We lost a resource.
Now, understandably, we are in a new era. What we have to
do, though, I believe, is as we are downsizing or right-sizing,
as I would like to see it, when you talk about competition, I
believe the public sector should be able to compete with work
in order to maintain the skill levels at their depots and other
organizations so that they do not lose that force and readiness
at time of need.
Mr. Tobias. Mr. Sessions, I think that the issue that we
are talking about here is who defines ``core government
function,'' and what this legislation would do would be to
allow the courts to define ``core government function'' in the
context of litigation, as opposed to the Federal Government and
the Executive Branch defining ``core government function.'' I
do not think that the courts ought to be defining what is a
``core government function,'' and this legislation would allow
that to occur.
Second, in response to Mr. Kelman, who was surprised about
these horror stories----
Mr. Sessions. Mr. Tobias, I asked that question, and I
would not like to engage in anything that would be considered
pitting one Member of this panel against another. And I do
appreciate your comments. I would be pleased to hear that when
we get finished, that you may give that to me, but I would----
Mr. Tobias. Thank you.
Mr. Sessions. Thank you.
Mr. Horn. Well, for the next round. I now yield 5 minutes
to the gentleman from Ohio, Mr. Kucinich.
Mr. Kucinich. Mr. Chairman, thank you very much.
In reviewing this testimony, I am struck by what I would
call the epistemology of privatization, and, certainly, Dr.
Kelman, as a Har-
vard professor, understands the connotative as well as the
denotative meanings of words and phrases.
I was struck by your assertion that this is a non-
ideological profession, and, yet, when I see language which
speaks of the marketplace, leveling the playing field,
downsize, that certainly carries with it a particular and
peculiar kind of logic. How do you stand on your assertion that
this is not ideological, when, in fact, it seems to be replete
with references to a more corporate approach toward
interaction?
Mr. Kelman. I agree with your concern about what words
connote as well as what they denote. With Professor Horn in the
audience, you should maybe continue----
Mr. Kucinich. I have done a little teaching myself.
Mr. Kelman. I understand. So we have three teachers here.
Here is what I would say. What I would say is--I am here
speaking for myself--I care very deeply about the ability of
government to work effectively because I believe that
government performs some very crucial roles in our society.
If you look at the polls, the biggest threat to the
standing of government in the eyes of the American people--if
you ask the American people--and you see all these polls about
the high level of public dissatisfaction with government. If
you look at the most recent Pew Foundation poll that was on the
Federal page of the Washingotn Post a few weeks ago, what you
will find is most Americans agree with the goals, more or less,
that government is undertaking, but believe that government
wastes a lot of money and is not managed effectively.
I believe that we need to concentrate the effort of our
Federal executives and leaders on taking overall responsibility
for the core policy-making and policy implementation tasks of
government.
I believe that through increased use of out-sourcing, just
as is done commercial-to-commercial in the commercial world, we
can get government to be more effective, more efficient, and
save and turn around the reputation of government in the minds
of the American people.
So I believe, actually--I say this not to be ideological
because people who do not share my ideology might favor this
for other reasons--but, speaking for myself, as a friend of
government, as a former government employee, and as somebody
who is teaching kids who are going to work in public service,
who have chosen not to go to a business school, they have
chosen to study public policy and to work in public service,
that is what I have sort of devoted my life to. I care about
these things.
I believe that the appropriately increased use of out-
sourcing even from an ideological perspective--this is not an
ideological issue, but from my ideology, I would say that it is
an important way to salvage the standing and status of
government in the minds of taxpayers.
Mr. Kucinich. I would like to ask you, Doctor. You spoke
earlier about holding government employees harmless in a period
off privatization. Could I ask you, does that go to supporting
government employees, if they are in a transition, to a
privatized function, having the same level of benefits, the
same level of wages, the same pension rights? Do you support
that?
Mr. Kelman. That is a fair question to ask me.
Mr. Kucinich. Do you support it?
Mr. Kelman. Hold on. I think that has to be looked at on a
case-by-case basis. Keep in mind that when----
Mr. Kucinich. OK. I just want to point this out. Reclaiming
my time, with all due respect, Doctor.
Mr. Kelman. OK.
Mr. Kucinich. On the one hand, one of the witnesses--I
think it was Mr. Logan--said go to the private sector, get a
great job. Well, terrific, let us do it, but if we are going to
make that transition to the private sector, as Mr. Logan
advocates--thank you--then your profession is that we want to
hold--your words--hold harmless the government employees. Then
why can't they have the same wages and same benefit levels and
same pension levels?
And I will tell you why they do not, because that takes the
profit out of the deal. If you do that, there is no profit. So
the profit here in privatization comes from the wages, the
benefits, and the pensions of public employees, and a
consequent service reduction. I mean, I have seen that happen
in local government. So I just wanted to point out why it is
very vexing for such an esteemed professor and doctor as you
are, and you are, to be able to answer without qualification
the question about what would happen with respect to government
employees. It is a very difficult issue, Doctor.
Mr. Kelman. No, I agree it is a difficult issue, and I
think there are all sorts of pluses and minuses that might come
to employees when they move into the private sector. They get
part of a larger firm with more promotion opportunities and so
forth.
Mr. Kucinich. You are right. Doctor, the red light is on.
Mr. Kelman. Fine.
Mr. Kucinich. But may I say that, to use another private
sector euphemism, it is called the bottom line.
Mr. Logan. I would like to take exception with that. It was
I who said there were opportunities in the private sector. I
have employed people recently at higher wages and better
medical benefits joining our firm from Federal agencies.
And one thing that I would like to say is if we knew a
better way to understand the Federal employees, knew a better
way to understand what their various pension rights and whatnot
are--and I should be promoting a program called Soft Landing
that--that we would be able to get more people to leave the
government and join the private sector, but there is confusion
in that area right now, and I think there should be some help
to the employees, the government employees, to help them come
across to the private sector. But I must re-assert that those
people are leaving the government and coming into my profession
at higher salaries, with better benefits than they had when
they left the government, or why else would they have
voluntarily left the government?
Mr. Kucinich. That is a fine example you are setting for
the rest of the private sector.
Mr. Logan. And I think that is not alone. I can tell you
right now that there are 118 firms in my association, and there
are Federal employees who could get jobs with all of them right
now, in almost 50 States of this Union, if they wanted to go
there and have a better career path than they had with
government, and they will actually tell you that, if you
sometime want to take time and come out and talk to some of my
ex-Federal employees.
Mr. Kucinich. I am impressed with your presentation, and I
look forward to you setting the standards for the rest of the
private sector. Thank you.
Mr. Horn. I believe Mr. Trammel wanted to answer your
question, also, and that is fair game.
Mr. Trammell. I would just like to make a comment in regard
to what Mr. Logan was just talking about. We, too, have one of
the Soft Landing contracts from the government, which brings
some of the Federal employees into the private sector, and I
have had the exact same experience at our company (SAIC) as he
just described in regard to being able to provide equal or
greater-than benefits in every area, including vacations and
holidays and health and welfare benefits, etc.
Also, I would like to interject that our industry is
governed by certain laws, including the Service Contract Act,
which mandates certain wages to be paid to hourly employees,
and contractors take that law very seriously.
In fact, we can be debarred from doing any government
business for not being in compliance with that law. I assure
you that government service contractors take that law very,
very seriously. In our associations, for instance, the Contract
Services Association has developed a specific training course
in consonance with the Department of Labor. Actually,
Department of Labor officials teach that course twice a year
here in the D.C. area. Every time we teach that course, we have
an overflow of contractors and government employees which
attend those sessions.
Mr. Tobias. Mr. Kucinich.
Mr. Horn. Excuse me. Mr. Tobias, and then Mr. Styles.
Mr. Tobias. GAO's follow-up with employees who have been
involuntarily separated or went to work with contractors reveal
that over half received unemployment compensation or public
assistance.
Mr. Kucinich. Over half or under half?
Mr. Tobias. Over half. Moreover, 53 percent who went to
work for contractors said they received lower wages with most
reporting that contractor benefits were not as good.
Mr. Kucinich. What are you saying? Lower wages?
Mr. Tobias. Moreover, 53 percent who went to work for
contractors said they received lower wages with most reporting
that contractor benefits were not as good. That is a GAO
follow-up with work that is contracted out.
Mr. Kucinich. I think the panel has established there are
some people who want to pay people more, but we have to also
establish for the record that there are some people who want to
pay less.
Mr. Logan. I would like to just say that I also disagree
with your comment that the profit comes from paying people
less. I believe the profit comes from better utilization of
hardware or software, in our case, and better utilization of
the work force.
When we started to do some work for some Federal agencies,
those specs we were given were maybe 2-foot high. We have
reduced that now to two pages of everybody's effort, including
the team from the government side, and we are able to produce
data faster, better than ever before.
Mr. Kucinich. Sir, if I may, you have acquitted yourself
quite well as to what you do.
Mr. Logan. I am not asking of myself personally.
Mr. Kucinich. But when you show us these pictures--what
altitude are they taken from?
Mr. Logan. Well, which ones are you referring to?
Mr. Kucinich. The one where you--the picture of the White
House.
Mr. Logan. That one was taken at 8,000 feet.
Mr. Kucinich. OK. Well, when you show us those pictures
that are taken at 8,000 feet and you give us testimony that you
are providing a soft landing for your employees, I just wonder
if there are some people who are being dropped from 8,000 feet
or we have people who are making--53 percent making less money.
They are not landing soft. They are landing with a thud. So we
have to distinguish between people like you who are testifying
as to your sincerity to make sure that your employees are going
to be given top-notch treatment, and, that is the right thing
to do, and I congratulate you for that.
And, on the other hand, Mr. Tobias produces a GAO report
which says not working for everyone. So just comparing
records----
Mr. Horn. Mr. Styles.
Mr. Styles. There are two things that I would like to
reflect on here. One, we keep coming back to this thought or
notion that the Federal managers themselves are not doing a
fine job in effecting the best quality service for the American
people.
Our work force, if anybody wants to take a look at it, is
the finest work force assembled in the history of the world,
and all we have done is berate and belittle that work force.
Quite frankly, in public and in this House, I think we should
show great respect for the things that are done on a daily
basis by the American people working for the public sector.
A little earlier, also, a Senator made a comment that we
had to--the taxpayer. Well, guess what? All of us who work for
the Federal Government are taxpayers as well.
And I would also say that on those instances where we do
pay more or pay a decent wage to our folks who are being
privatized or contracted out, if you take a look at Louisville,
Naval Weapons Station, or you take a look at Newark Air Force
Base, then you look at the privatization aspect of it, and now
it costs $40-something-million a year more to operate those
facilities. So who is getting the biggest bang for the buck?
Are the American people getting the biggest bang? Not hardly.
Mr. Horn. OK. I thank you.
Mr. Kucinich. Mr. Chairman, I must----
Mr. Horn. Your time has long since expired.
Mr. Kucinich. It has, and I understand that. I want to
thank the Chair for his generosity and for helping to create
the circumstances for this hearing.
I have to go to another meeting right now, but I want to
thank you for what you have done to create this moment, and
also thank all the Federal employees who are out there for the
work that they do. Thank you.
Mr. Horn. I thank the gentleman and wish him well. I now
yield to the Vice Chairman, the gentleman from Texas, Mr.
Sessions.
Mr. Sessions. Well, thank you, Mr. Chairman.
The part of the discussion that has invoked my brain into
asking questions that are probably off the legislation--and I
do not know whether there is anybody that would object to the
germaneness of this discussion, but the question begs to me, is
there something that the Federal Government should do to help
this Soft Landing? You are looking at a person who spent 16
years working for a private firm, who left. I was not able to
take my benefits with me, chose not to accept the government--
and I do not know which side this is trying to help, but did
not accept the health care that the government offers from the
House of Representatives because it was worse than what I had
in the free market, and have chosen to continue buying that,
but are there things that we can do, Mr. Tobias, Mr. Harnage,
and Mr. Styles, to make this Soft Landing easier within how the
government treats a departing employee that we should look at?
Mr. Tobias.
Mr. Tobias. I think the answer to that is yes, Mr.
Sessions. I think that, certainly, no employee who loses a job
with the Federal Government is----
Mr. Sessions. Through no fault of his own, especially, or
her own.
Mr. Tobias. Through no fault of his own, loses his or her
job, is not entitled to pay at a level that is equivalent to
the pay received in the Federal Government, is not entitled to
benefits equivalent to the benefits of a Federal employee, and,
in fact, is not entitled to a job at all.
Some employees may be offered a job, but others not, at the
discretion of the private sector employer. So there is no real
safety net for folks who do lose their jobs as a result of
contracting out.
Mr. Sessions. I guess my question is, is there something
inherently involved with employees who default the Federal
Government, that we could change those circumstances that make
it better and easier for them, unrelated to where they are
going, but from what they are departing, from what they had? So
I guess I am really talking about benefit plans, things that
they had earned while in the government that they could begin
taking advantage of earlier.
Mr. Harnage.
Mr. Harnage. Well, there probably are some, but I think if
we get into that area, you are going to have two arguments, and
we have argued about this fairness for years. And I do not know
that we will ever agree on it, but if you are talking about
being able to carry some benefits into the private sector, you
are doing one of two things. Either the contractor is going to
be arguing that it is no longer fair because they are incurring
that additional cost that they otherwise would not, or the
government is going to have to be subsidized. In that case, the
taxpayer is paying for it, anyway, so why don't we go to the
private sector to start with.
Congress has been very good in the past in those areas of
downsizing, reinventing government, developing Soft Landings,
in the BRAC shutdowns, and retaining Federal employees. It has
done well in that area, but it has done absolutely nothing when
it comes to contracting out. I think we need to look at those
experiences in reinventing government and downsizing to draw
information from what can the government do.
Mr. Sessions. Good. Mr. Styles.
Mr. Styles. I think that especially in the Department of
Defense, they have done well as far as placing people, training
people, ensuring that there is a smooth transition for them. I
think other agencies have to learn a lot from that. I think
that cross-agency placement is essential if we are going to be
successful, but I also think that what Mr. Harnage just said is
something to look at.
Contracting out should not be mandated. Contracting out
should be a management tool to ensure the provision of the
finest services to the American people. When we talk about what
should be and what should not be contracted out, I think that
should be a management decision within an organization.
When I told you earlier that the NAVAIR organizations were
cut 56 percent in infrastructure and 49 percent in personnel,
they are still being mandated to contract out. Now, there is
something wrong with that because, as I said before, you are
now drifting past that point of no return.
When the skills within the work force are gone, what you
talked about, core is no longer with us, and that goes across
the board throughout all of the agencies, if you will. Once you
get past that, you cannot compete.
Mr. Sessions. Mr. Chairman, I would like to state that for
the people who are gathered before us, not only in panel, but
also these people who are in this room, that I do believe that
this hearing today has been very good. I believe that there are
Members of this Committee and Subcommittee who will take very
seriously the remarks that have been made today. I think the
things that you have seen, the vigorous discussion that we have
had, obviously, does ensue privately with us behind closed
doors, and that I have great respect for each and every part of
the testimony that has been made today.
With that, I will tell you that I am through with my
questions. Thank you, Mr. Chairman.
Mr. Horn. Well, we thank you very much. We appreciate the
testimony all of you had.
Let me ask just one last question. Is there anything that
you would like to get on the record in response to what any of
the other witnesses said, just to clarify the situation? I
believe in giving witnesses who spend their time coming here
from a long ways--I believe in giving you everything you can to
get in the record.
So, Mr. Tobias, anything getting you in the craw that you
heard and did not like that we have not covered?
Mr. Sessions. And, Mr. Chairman, let me state, and I said
it a minute ago, I had written Mr. Tobias a note here,
presumably to allow him now this opportunity on the record. So
thank you.
Mr. Tobias. Thank you very much, Mr. Chairman.
I do have a little bone to pick with Professor Kelman.
Mr. Horn. That will teach you to leave the government,
Steve. [Laughter.]
Mr. Tobias. I am surprised at Professor Kelman's testimony
that this represents a middle ground. There is no question that
the issue of competition is an important one. The issue that
competition lowers costs is an important idea and a well-
recognized idea and an idea that I accept, but what I do not
accept is the fact that under this legislation that the private
sector defines core government functions; and the court defines
core government functions.
I do not accept the idea that the Federal Government now
knows how to manage and does effectively manage the work that
is contracted out. You can cast that as if I am disparaging
Federal employees, but, rather, I am disparaging the system
that is in place today to manage the work of the--some of the
work of the private sector that GAO has reported.
Finally, I do not think that I am referring to horror
stories, but, rather, when GAO is asked to look at
transactions--and they are not exceptions--what is found is
that the private sector costs more, and part of that is because
there have not been competitions, and the competitions that
have been run have not been run well. So I think all of those
are issues that have to be addressed, and many of them are not
addressed in this legislation.
Finally, I think that the idea that somehow a core
government function can be, once and for all, defined over time
is wrong. The government performs the work it is performing
because people at one time decided that it ought to perform
that work, and the idea that somehow all of those decisions
were wrong and that over the next 5 years we are going to bid
all of that work just because we ought to, I think, is a wrong-
headed approach, both to government and managing the
government.
Mr. Horn. Mr. Logan.
Mr. Logan. I just wanted to close by saying that A-76, and
that has been core to this legislation, does not give or allow
decisions either on the core aspect of government because it is
in the hands of the agencies, and the agencies make the
decision as to whether A-76. In our case, they are just not
doing that.
It strikes me as strange that some agencies do contract out
exactly the same services that other agencies say cannot be
contracted out. They are saying this because they say only the
government can do it. Yet, we see from agency to agency the
same services in our particular field, one saying one thing,
one saying the other.
I would also like to just comment on the $600 hammer that
has come up again today. I believe a lot of that has happened
because of mil-specs by the government requesting very, very
unique services, and when you request very unique services and,
as I have said, with 2-foot-thick specifications, you will end
up with $600 hammers, but when you get it down to buying cots--
and I have to thank Steve Kelman for promoting this very
successfully--we have a situation with one agency right now
who, when we started to do work, they said that our costs
compared to their costs were approximately one-third more
because we were in a learning curve, too. Within a year, they
have pointed out that we are producing work for less than they
can do in-house, but I come back to the A-76 program. It does
not work because there is no incentive to make it work.
Thank you very much.
Mr. Horn. Thank you.
Mr. Trammell.
Mr. Trammell. Thank you. I will make a few quick comments
on key points from an industry perspective in relation to this
legislation. Industry is most interested in having an
opportunity to compete for the most efficient organization. We
do, indeed, believe that this competition does increase
efficiencies. However, we also should be provided a level
playing field in evaluation for these opportunities.
The last comment that I would like to make is from both the
perspective of my company--and industry. As we team with a
number of private sector companies as well as with the
government--my company and our industry endeavors to engage in
a partnership with the government when we perform activities
under contract to the government. We take that relationship
very seriously. We promote it. We believe that our government
counterparts embrace this concept. That is what I want to leave
you with; that industry promotes that partnership.
Mr. Horn. Thank you. I am going to skip Mr. Kelman and
bring him in last in case the other three are going to attack
him. I wanted to get you all in one place.
Mr. Stevens.
Mr. Stevens. Thank you, Mr. Chairman.
Again, from an industry perspective, I want to underline
that we believe that the draft legislation is a substantial
improvement over the existing A-76 process. It corrects a lot
of flaws, provides language that from a common-sense
perspective ought to be acceptable to most, if not all, of the
parties involved, and a warning that as in many things, the
devil is in the detail, and one needs to pay good attention to
how costs are calculated and measured and how they figure into
the competitive process.
Mr. Horn. Mr. Harnage.
Mr. Harnage. Yes. Rather than trying to add more testimony,
I think the opportunity was to address anything that may have
been said by other witnesses that may have taken exception to,
and what I would like to clarify, a previous witness talked
about the statements made by the late John Sturdivant
concerning AFGE's position on competition. I want that
understood.
When AFGE developed its policy on competition, I was
chairman of AFGE's Privatization Committee of the Executive
Board, which developed that policy. So I am very, very familiar
with that policy.
We were talking about in the context of reinventing
government where we were playing a role, a partnership role, in
trying to make the government the most efficient, the most
effective government. We were also participating in a
downsizing of the government as a result of the end of the cold
war, and, again, we were talking about the soft landings and
taking care of our people the best we could, recognizing that
there had to be some downsizing of government, and also
recognizing in today's world, there had to be better
efficiencies developed.
At the same time, we were participating in the revision of
OMB Circular A-76. We did not get all that we wanted, any more
than the contractors got all that they wanted, but at least we
were al-
lowed to participate, and we wanted to send the message clear
to both Congress and to the administration that we were not
fighting competition; that we wanted it fair, and we wanted it
reasonable, and we wanted what was best for the taxpayers. And
that was our interest.
I now say that because we may appear to be changing our
position on competition, it is like comparing me if I was to go
out here in the Reflection Pool of the Lincoln monument in a
rowboat and get out and say, ``Everybody ought to go rowing,''
and then somebody wants to know why I do not take a kayak down
the rapids. That is about the same comparison as me saying I
support competition with this bill as opposed to saying we
support the competition under the A-76 process, which is as
fair as we have been able to get it today. And we recognize--we
recognize that competition does bring about efficiencies, and
we would not be acting in the best interest of the taxpayers if
we totally opposed competition.
I do have a problem. I do not agree that competition is
right in all forms. I am a veteran, and I am very patriotic. I
love this country, and I am very concerned about the most
powerful government in the world, the leader of the free world,
being a government for profit. I have a real concern with that,
and at the same time, I am very concerned about the support of
our war fighters, the support of our war fighters, our national
security being subject to the low bidder.
I have a problem with that, the same as Senator John Glenn
had when they asked him how did he feel when they lit the fuse
on that first rocket that he took, and he said he was thinking
about that it was built by the low bidder. Well, I have that
same concern when it comes to national security.
So, please, nobody misunderstand us. We are not in favor to
competition in every case, and never will be, but we are not
opposed to competition in every case either.
Mr. Horn. We thank you on that, and as a former State
official, I certainly had my fill of low bidders that later
tried to jack the price up a million ways.
Mr. Styles.
Mr. Styles. Yes. Thank you, sir.
If there was anything that was said today that I took
offense to, I think it was the fact that perhaps the government
workers and managers do not do the job as efficiently as their
counterparts in the private sector.
Experience has shown me that we not only can compete, but
we have won competitions consistently against the private
sector, and I think when we do compete in the arena--and I will
use an example here. I know that Warner Robbins Air Logistics
Center in Georgia won a contract for the C-5 Galaxy transport,
and they beat out Boeing and Lockheed Martin, and the closest
private sector bid was $22 million more than the one turned in
by Warner Robbins. I think that is pretty efficient management
and effective workmanship.
When I was in the Experience with Industry Program, I spent
a year working with the private sector, and I will not mention
the corporation I worked with, but while I was there, they were
developing their total quality management philosophy, if you
will, and putting it in place. We were using the North Island
Rework Facility in San Diego, a Federal installation as an
example for them to put in place their total quality management
program.
I also, by the way--and I wanted to bring this in, and it
kind of works in here. We are talking about the biggest bang
for the buck for the American people. When I was with that
particular organization, I came across their pay schedule, and
for several weeks, I was very disturbed because I knew I had
thrown away my career because I was working for the wrong group
of folks. This is a 1988, March 5, pay schedule from that
private sector organization, and if you compare it to the
Federal Almanac's pay schedule for our Federal employees who
are very competent and equal at the task, that 1988 schedule
has higher salaries than ours do today.
So I think we should applaud the Federal employee and the
Federal manager for the incredible job that they do day in and
day out for our Nation, and I do not think the American people
should ever be given a picture of us as being less than our
counterparts on the other side of the fence.
Thank you.
Mr. Horn. We thank you. And now, Dr. Kelman?
Mr. Kelman. Let me first just back up what Mr. Styles said
at the end. I, too, have an enormous--as a taxpayer and as a
teacher, an enormous appreciation for the Federal work force
and for the qualities and public spirit and devotion to the
public good of our Federal work force.
I do not see that as being the issue here. It may be the
issue for some idealogues who want to berate the Federal work
force.
Mr. Tobias asked why I felt the bill was a compromise. I
see it as a, by and large, reasonable compromise because it
incorporates a principle that was not in the bill as introduced
last year, namely the ability of our Federal workers to compete
for those activities that are competed.
I agree with Mr. Tobias. The one provision, looking at the
bill, that I do not like is the judicial review. I do not think
that we should be having judicial challenges of these decisions
about whether something is inherently governmental. I would
want to keep that out of the courts.
But to me, the only ideology--and I will not impose it on
everybody else, but the ideology that I bring to this is an
ideology that says government needs to be managed better, to
restore the faith of the American people in the ability of
government to do its important missions.
Commercial companies themselves have found that
significantly increased out-sourcing promotes their abilities
as private firms to do their missions as private firms. I
believe the same will occur if we encourage greater competition
for more non-core government jobs.
Mr. Horn. Well, I thank you all, and just to reflect on a
little of this, I certainly agree with the point that has been
made by both private sector representatives and public sector
representatives that we have some excellent people, some very
fine people, dedicated civil servants and public servants in
government. As I listen to some of you and as we looked at the
number of years people had served in various capacities, I
noted that over the 40 years that I have worked, I spent 35 as
either a Federal official or a State official, and I spent 4\1/
2\ years with non-profit institutions known as Brookings and
American University. I spent half-a-year working my way through
college pumping gas for the Standard Stations, Inc., all jobs I
happen to have enjoyed, and I certainly would agree that we
want the best civil service we have. But I also agree with you,
and you said it, in both the public and the private sectors,
that competition can be a good thing for both Federal workers
and the taxpayers and the Federal workers are paying as much
taxes as anybody else, since we in the middle class are the
ones that pay the bills.
The poor, we took out in 1986, and the rich can find ways
to get around the tax laws. So most of us in this room are the
ones contributing to the salaries of everybody else in the
room, and I want to thank you all for coming.
We want to leave the record open for any of you that have
any other comments to say. We will leave it open for about 3
weeks, and we would welcome that, and we would welcome anybody
else in the audience and any other groups that we have not had
a chance to put at this table. We would certainly appreciate
the comments because we do want to get together with the Senate
and work out what makes sense and what will get the job done.
I think the only alternative I can see to the court aspect,
which is not in the House bill, it is in the Senate bill, is
that you have a very strong office of management, which I am
going to be proposing as opposed to an office of what is really
budget not management, and they would have to, then, on behalf
of the President, whoever that is at any point in time--they
would have to be giving some of the direction and analysis on
behalf of the President in his role as commander-in-chief, as
well as his role as domestic general manager, to a degree, and
assure that the various Cabinet Departments do take seriously
that basic policy of competition in some areas.
With the fleet control, for example, that the Army used in
Europe, they saved millions of dollars in that. GSA has saved
millions of dollars by careful bidding of a number of things,
and those were Hoover Commission reports, essentially, of 1949,
1952, that charged up the Executive Branch to take a look at
some of these things. I think your testimony has been very
helpful.
I also recall that we are working on the commendation and
appropriate salary to go with it for a procurement corps, and
praise was given by one of the witnesses here today on the
outstanding people we have in acquisition and procurement.
Well, a lot of those people are being bought off by the private
sector. We know we cannot keep everybody, but while the
salaries might be lower in some of the public sector in
relation to the private sector, you also have to look, to be
fair about this, at the benefits that come with various types
of public service that might not also come in the private
sector.
So, just as Mr. Sessions noted that he thought the House
package on health care, which is exactly what the Federal Civil
Service has, was not as good as what he had in the private
sector, I know what that is. It was not as good as what I had
in California State Government either. So there is a lot of
competition going on for good people, and the government needs
to keep up, and good people need to get involved.
I have been very pleased with the excellent suggestions
that have come from Members of the panel, and I look forward to
working with you on this side. I am sure Chairman Brownback
will be glad to work with you on the Senate side.
Let me thank now the staff that has gone into having this
excellent group and this dialog this afternoon. On behalf of
the House Subcommittee on Government Management, Information,
and Technology, our Staff Director and Counsel, J. Russell
George, who has been sitting over there by the phone because I
thought I would have to leave for a vote, but Mr. Shuster used
his usual charm, and, unanimously, everybody reported out the
bill, and I could stay here. Mark Brasher, our Senior Policy
Director, behind me, worked very hard on this particular
hearing, as did John Hynes, a professional staff member.
Matthew Ebert, our clerk, worked very closely with the Senate
clerk on this, and David Coher, our intern from USC has been
helpful in that area. Mark Stephenson for the Minority has been
his usual able self, and so has Dr. Julie Moses of Mr.
Kucinich's staff, and Chris Bitsko, who is the court reporter.
Also Earley Green, Minority Staff Assistant.
Now we get to the Senate Subcommittee on Government
Management, Restructuring, and the District of Columbia. We
have Michael Rubin, Staff Director; Marie Wheat, Deputy Staff
Director; Tom Palmieri, professional staff member; Joyce Yamat,
professional staff member; Pete Rowan, staff assistant, and
Esmeralda Amos, chief clerk for the Senate Subcommittee.
With that, I will bring down this hearing at about exactly
5 o'clock. Thank you.
[Whereupon, at 5:04 p.m., the joint hearing was adjourned.]
A P P E N D I X
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<all>