<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:67154.wais]
FEDERAL ACQUISITION: WHY ARE BILLIONS OF DOLLARS BEING WASTED?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
MARCH 16, 2000
__________
Serial No. 106-165
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
U.S. GOVERNMENT PRINTING OFFICE
67-154 CC WASHINGTON : 2001
COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
JOE SCARBOROUGH, Florida CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South DENNIS J. KUCINICH, Ohio
Carolina ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia DANNY K. DAVIS, Illinois
DAN MILLER, Florida JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas JIM TURNER, Texas
LEE TERRY, Nebraska THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California ------
PAUL RYAN, Wisconsin BERNARD SANDERS, Vermont
HELEN CHENOWETH-HAGE, Idaho (Independent)
DAVID VITTER, Louisiana
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
David A. Kass, Deputy Counsel and Parliamentarian
Lisa Smith Arafune, Chief Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on Government Management, Information, and Technology
STEPHEN HORN, California, Chairman
JUDY BIGGERT, Illinois JIM TURNER, Texas
THOMAS M. DAVIS, Virginia PAUL E. KANJORSKI, Pennsylvania
GREG WALDEN, Oregon MAJOR R. OWENS, New York
DOUG OSE, California PATSY T. MINK, Hawaii
PAUL RYAN, Wisconsin CAROLYN B. MALONEY, New York
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
J. Russell George, Staff Director and Chief Counsel
Randy Kaplan, Counsel
Bryan Sisk, Clerk
Trey Henderson, Minority Counsel
C O N T E N T S
----------
Page
Hearing held on March 16, 2000................................... 1
Statement of:
Hinton, Henry L., Jr., Assistant Comptroller General,
National Security and International Affairs Division,
General Accounting Office; Robert J. Lieberman, Assistant
Inspector General for Auditing, Department of Defense; Stan
Z. Soloway, Deputy Under Secretary for Acquisition Reform,
Department of Defense; and Deidre A. Lee, Administrator,
Office of Federal Procurement Policy, Office of Management
and Budget................................................. 6
Tuttle, General William, Jr. (Ret.), president, Logistics
Management Institute, on behalf of the Procurement Round
Table; Grant Thorpe, senior contracts manager, TRW, on
behalf of the Professional Services Council; Gary D.
Engebretson, president, Contract Services Association; and
Bruce E. Leinster, industry executive, contract and
acquisition policy, Government Industry Sector for IBM, on
behalf of the Information Technology Association of America 192
Letters, statements, et cetera, submitted for the record by:
Concklin, Bert M., Professional Services Counsel, prepared
statement of............................................... 221
Engebretson, Gary D., president, Contract Services
Association, prepared statement of......................... 231
Hinton, Henry L., Jr., Assistant Comptroller General,
National Security and International Affairs Division,
General Accounting Office, prepared statement of........... 9
Lee, Deidre A., Administrator, Office of Federal Procurement
Policy, Office of Management and Budget:
Information concerning training.......................... 97
Information concerning career management plans........... 162
Information concerning revised qualification standards... 167
Prepared statement of.................................... 79
Leinster, Bruce E., industry executive, contract and
acquisition policy, Government Industry Sector for IBM, on
behalf of the Information Technology Association of
America, prepared statement of............................. 250
Lieberman, Robert J., Assistant Inspector General for
Auditing, Department of Defense:
Information concerning procured goods and services....... 140
Information concerning small business participation...... 142
Prepared statement of.................................... 35
Soloway, Stan Z., Deputy Under Secretary for Acquisition
Reform, Department of Defense, prepared statement of....... 63
Turner, Hon. Jim, a Representative in Congress from the State
of Texas, prepared statement of............................ 4
Tuttle, General William, Jr. (Ret.), president, Logistics
Management Institute, on behalf of the Procurement Round
Table, prepared statement of............................... 195
FEDERAL ACQUISITION: WHY ARE BILLIONS OF DOLLARS BEING WASTED?
----------
THURSDAY, MARCH 16, 2000
House of Representatives,
Subcommittee on Government Management, Information,
and Technology,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2154, Rayburn House Office Building, Hon. Stephen Horn
(chairman of the subcommittee) presiding.
Present: Representatives Horn, Davis, Ose, Kelly, Turner,
and Maloney.
Staff present: J. Russell George, staff director and chief
counsel; Randy Kaplan, counsel; Bonnie Heald, director of
communications; Bryan Sisk, clerk; Ryan McKee, staff assistant;
Trey Henderson, minority counsel; Mark Stephenson, minority
professional staff member; and Jean Gosa, minority assistant
clerk.
Mr. Horn. A quorum being present, the hearing of the
Subcommittee on Government Management, Information, and
Technology will come to order.
Last year, the Federal Government bought nearly $200
billion worth of goods and services, everything from paper
clips and pens to sophisticated weapons and computer systems.
Over the past decade, Congress has enacted a number of laws
aimed at simplifying the government's acquisition process and
saving taxpayers money. These reforms eliminated burdensome
paperwork and encouraged agencies to buy commercially available
items. The reforms also gave agencies greater authority to
manage their procurement.
How well are agencies doing? The government is still buying
goods and services that cost more than they should, are
delivered late, or fail to meet expectations. The result is, of
course, that billions of taxpayers' dollars are still being
wasted.
For example, the Federal Aviation Administration has spent
more than $25 billion on its air traffic control modernization
effort, but because of cost overruns, schedule delays, and
performance shortfalls, the FAA anticipates spending another
$17 billion before the program's completion, scheduled for
2004.
The Department of the Interior recently put a hold on a $60
million computer system because of severe development problems.
This system was supposed to manage a $500 million oil royalty
fund, which is to pay Native Americans for oil that is
extracted from their tribal lands.
Problems and challenges also remain at the Department of
Defense, which accounts for nearly 70 percent of all government
purchases. The Inspector General at the Department of Defense
has raised concerns about the agency's failure to oversee its
service contracts adequately. The Department is still paying
far too much for spare parts and the Office of the Inspector
General in the Department of Defense has found that serious
problems exist with the Department's service contracts. In a
recent audit, the Inspector General found multiple errors in
the 59 contracts it reviewed, including problems such as
insufficient cost estimates and inadequate competition.
Together, these contracts are worth $6.7 billion.
Another emerging issue is an unintended result of
government downsizing the General Accounting Office and the
Inspector General report that the current Federal acquisition
work force is understaffed and undertrained. That problem will
be increasing dramatically as the baby boom generation begins
to retire over the next few years. How is the Department
planning for this attrition? We will examine these and other
issues today.
First, I would like to take a moment to welcome some
special guests in the audience, members of the so-called Front
Line Forum. The Front Line Forum is a group of 32 Federal
contracting officers and specialists who share new information
on government acquisition issues and then pass that information
on to senior procurement executives in their respective
agencies. We thank you for your service and we are glad you are
joining us. Would the Front Line Forum members stand up so we
can know where you are? Do not be shy.
There we are, folks. You mean there are only 10? What
happened to the 32? Are they drinking coffee in the Rayburn
cafeteria? It is not Starbucks quality. Anyhow, we are glad to
have you here. When I ran a large organization, I had a group
of young turks I met with every month. They were the only ones
who would tell me the truth in a bureaucracy, so I am counting
on you 32 to tell them the truth. That is what they need.
We are going to have a fine panel of witnesses, but before
that, I have some colleagues that want to make some opening
remarks. The first is a very valued colleague, the ranking
member on this committee, Mr. Turner of Texas. I am delighted
to give him as much time as he may wish to consume.
Mr. Turner. Thank you, Mr. Chairman. I appreciate the fact
that you are holding this hearing today. It is a very important
issue. As you mentioned, the Federal Government purchases over
$200 billion in supplies every year. Two-thirds of that is
acquired by the Defense Department, even though that has
declined slightly since the peak cold war years. I understand
the government now spends more on services than it does on
supplies.
The Federal Government has struggled with an inefficient
acquisition system. Over the years, we know that millions of
dollars in taxpayers' money have been wasted due to the
deficiencies in the Federal procurement system. Recently, the
administration and the Congress has taken a number of steps to
try to improve this situation. The Federal Acquisition
Streamlining Act of 1994, the Information Technology Management
Reform Act of 1996, and the Federal Activities Inventory Reform
Act of 1998 all represent significant steps forward in Federal
acquisition.
The efforts by the Congress and the administration have
focused largely on trying to simplify the process, but despite
the reforms, it seems that we do not yet have a model
purchasing system. Agencies may be acquiring goods and services
faster, but the Federal acquisition system still faces a number
of significant challenges. I hope those will be highlighted
today.
I appreciate the focus the chairman has placed on this
issue, and I want to join Mr. Horn in welcoming the members of
the Front Line Forum who have come today to observe our
hearing. You face difficult challenges in the work that you do
and meeting the expectation of the agencies and the Congress
and the public is indeed a difficult task. We have asked all of
you to adapt to new ways of doing business, trying to deliver
greater results than we have in the past, and we appreciate the
dedication that all of you have shown to your profession and to
those responsibilities.
Mr. Chairman, thank you and I look forward to hearing our
witnesses today.
[The prepared statement of Hon. Jim Turner follows:]
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Mr. Horn. Thank you very much.
If the witnesses will stand and raise their right hands, do
you swear or affirm that the testimony you are about to give
this subcommittee will be the truth, the whole truth, and
nothing but the truth?
[Witnesses sworn.]
Mr. Horn. The clerk will note that all four witnesses took
the oath.
We are going to start with Mr. Henry Hinton, Jr., the
Assistant Comptroller General of the United States in charge of
the National Security and International Affairs Division of the
General Accounting Office. I will introduce each as we go down
the line. So Mr. Hinton, start in. If you can summarize the
statement in 5 years--[laughter.]
I mean 5 minutes----
Mr. Hinton. I will do what I can do.
Mr. Horn. Obviously, I woke up a little later than I should
have. Anyhow, 5 minutes, but do not worry about it. If you go
beyond it, 10 minutes, we are not going to cry over it. But try
to summarize.
STATEMENTS OF HENRY L. HINTON, JR., ASSISTANT COMPTROLLER
GENERAL, NATIONAL SECURITY AND INTERNATIONAL AFFAIRS DIVISION,
GENERAL ACCOUNTING OFFICE; ROBERT J. LIEBERMAN, ASSISTANT
INSPECTOR GENERAL FOR AUDITING, DEPARTMENT OF DEFENSE; STAN Z.
SOLOWAY, DEPUTY UNDER SECRETARY FOR ACQUISITION REFORM,
DEPARTMENT OF DEFENSE; AND DEIDRE A. LEE, ADMINISTRATOR, OFFICE
OF FEDERAL PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET
Mr. Hinton. I will be as brief as I can. Thank you, Mr.
Chairman and Mr. Turner. I appreciate the opportunity to
participate in today's hearing. As you know, Mr. Chairman,
Federal acquisition is an important topic for many reasons, not
the least of which is the huge amounts of money involved. The
Federal Government spends nearly $200 billion annually buying
everything from office supplies to sophisticated weapons
systems.
This morning, I will: one, describe the changing
acquisition environment; two, summarize recent reform efforts;
and three, explore current and future challenges in this area.
First, the environment is changing, and I will call your
attention to some charts that I am going to use, Mr. Chairman,
to walk us through my summary. As shown in the first chart,
overall Federal contracting has declined from about $280
billion in 1985 to about $200 billion in 1999. Of this, defense
acquisition has declined about $100 billion, down to about $133
billion in 1999. On the other hand, spending by civilian
agencies has increased from $51 billion to $65 billion.
The next chart shows that DOD is still the dominant
purchaser. It accounts for two-thirds of all Federal spending
on goods and services.
The next chart shows that since the mid-1980's, there has
been a gradual shift in what the government buys. In 1985,
supplies and equipment accounted for the bulk of contracting
dollars, about $145 billion, or 56 percent. For 1999, the
largest acquisition category were services, at $78 billion, or
43 percent of total spending.
The last chart shows even more dramatically how spending
has shifted in recent years. As you can see to the right, the
government now spends more on services than on any other
acquisition category.
Let me briefly turn to recent reform efforts. As you have
mentioned, as the acquisition spending patterns have been
changing in recent years, Congress and the administration have
been taking a number of steps to improve the acquisition
process. These efforts have focused largely on simplifying the
process, particularly for buying commercial products and
services, and on attempting to improve decisionmaking and
acquiring information technology. As a result, the acquisition
process has become more streamlined as new contract vehicles
and techniques have allowed agencies to buy what they need much
faster than in the past. Questions remain, however, about
whether these efficiencies have come at the expense of
competition and good pricing.
Let me turn to the challenges, Mr. Chairman. Despite
reforms, the government still does not have a world class
purchasing system. Frequently, many of the products and
services the government buys cost more than expected, are
delivered late, or fail to perform as anticipated. Mr.
Chairman, I see three major challenges confronting the
acquisition system today.
First, our work indicates that far too often, the outcomes
of high-dollar-value defense acquisitions continue to fall
short of expectations. For example, we reported in August 1999
that after five program restructurings, the Army's Comanche
Helicopter Program contained significant risk of cost overruns,
schedule delays, and degraded performance. These risks exist
because, contrary to the practices of successful commercial
companies, program plans call for proceeding with product
development before key equipment technologies have matured.
But these results are not limited to highly sophisticated
weapons systems. We recently reported that the Army has
purchased some 6,000 cargo trailers, shown in the chart to my
left, that without modifications cannot be used as planned
because they pose a safety risk and could damage the vehicles
towing them. Today, these trailers that the Army has acquired
are warehoused.
We have compared the product development practices of
leading commercial firms with those used to acquire defense
systems. The key differences, Mr. Chairman, include the nature
of the business case required to support the start of a
program, the extent of product knowledge at critical decision
points, and the underlying incentives. In general, aspiring
defense programs rely on unproven technological advances to
successfully compete for limited defense funds. Commercial
companies, on the other hand, demand much more knowledge about
key technologies before proceeding with development of new
products. Mr. Chairman, when use of commercial best practices
is determined to be appropriate, the government should adopt
such practices unless there is a compelling reason not to do
so.
The second challenge is that the Federal Government is
increasingly dependent on information technology to improve
performance and meet mission goals. We have documented over
many years, however, that billions of dollars have been wasted
on information technology that failed to deliver expected
results. Poorly defined management processes have fostered sub-
optimal solutions to agency business needs, and unresolved
security issues have threatened the integrity of agency
operations. These problems have involved such important
functions as air traffic control, tax collection, Medicare
transactions, weather forecasting, and national defense.
Several recent reforms, as you mentioned in your opening
statement, Mr. Chairman, have helped to instill a much-needed
results-oriented approach toward IT acquisitions and in-house
development efforts. Some agencies, such as the IRS, have begun
to make significant progress in establishing a management
framework for making information technology investment
decisions. Other agencies, however, have yet to make
significant inroads into implementing the processes and
controls needed to manage these acquisitions effectively.
The third challenge is that successfully implementing
acquisition reform and achieving good contract management
requires that agencies have the right people with the right
skills. But throughout the Federal Government, there is a
looming human capital crisis. In more than 10 years of
downsizing, there has been relatively little hiring at the
entry level compared with earlier years. As a result, the
percentage of the work force age 30 and under, the pipeline of
the future agency talent and leadership, has dropped
dramatically, while the percentage of the work force age 50 and
above grows even larger. Within the next several years, we can
expect to see a huge knowledge drain as many of our more
experienced and valued people leave the Federal work force.
Dealing with this issue throughout the government,
including the important area of acquisition, will not be easy.
Agencies are facing ever-growing public demands for better and
more economical delivery of products and services, and at the
same time, the ongoing technological revolution requires not
just new hardware and software, but a work force with new
knowledge, skills, and abilities. And at the moment, agencies
must address these challenges in an economy that makes it
difficult to compete for people with the competencies needed to
achieve and maintain high performance.
Mr. Chairman, as you are aware, when the Y2K debate began,
we developed a guide that helped the agencies think through
their strategic decisions to deal with the issues coming up on
Y2K. We are in the process now of getting comments back on a
draft human capital guide that we have put together for agency
leaders to help them think through the strategic decisions they
need to address concerning their work force. The topics we have
in that guide concern strategic planning, organizational
development, leadership, talent, and performance culture.
Mr. Chairman, that concludes my opening statement and I
stand ready to take your questions.
Mr. Horn. Thank you very much, Mr. Hinton. We are going to
go through the next three witnesses and then we will have
questions for all of you.
[The prepared statement of Mr. Hinton follows:]
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Mr. Horn. Mr. Robert J. Lieberman is the Assistant
Inspector General for Audits of the Department of Defense.
Thank you for coming.
Mr. Lieberman. Good morning. I appreciate the opportunity
to testify here today on the always challenging and important
subject of defense acquisition management.
Last year, the Department of Defense took 14.8 million
purchasing actions. That means that on every working day,
57,000 times on the average working day, someone in the
Department of Defense buys something for the taxpayers, whether
it be an airline ticket or a nuclear submarine. The challenge,
of course, is how does one ensure that the taxpayers are
getting their money's worth on 57,000 procurement transactions
a day?
The complexity, variety of scale, and frequent instability
of defense acquisition programs pose a particularly daunting
management challenge. In my written statement, I have attempted
to summarize those challenges as well as just a few of the
Department's recent reform successes and goals.
Today, I would like to focus on three sets of issues using
recent audit results from the reports that are listed in the
attachment to my written statement. Those three areas are
contracting for services, spare parts pricing, and acquisition
work force reductions.
Issues related to defense weaponry and other equipment
attract the most oversight emphasis and publicity, yet the
annual DOD expenditures for contractor services constitute a
huge acquisition program in their own right. In 1992 through
1999, DOD procurement of services increased from $40 billion to
$52 billion annually. The largest subcategory of contracts for
services was for professional administrative and management
support services, valued at $10.3 billion. Spending in this
subcategory increased by 54 percent between 1992 and 1999 and
probably will continue to grow as DOD outsourcing initiatives
continue.
Deliverables from contracts for services often are not as
tangible as hardware, such as a missile or even a set of tires.
Quantifiable information requirements, performance, and cost
frequently are harder to develop and overworked contracting
personnel are more likely to give priority attention to
equipment procurements than to mundane contracting actions for
consulting services or information systems support. Also,
except for travel and transportation services, the increased
efficiencies derived from e-commerce pertain much more to goods
than to services.
So we believe that because of these factors, DOD managers
and contracting personnel were not putting sufficient priority
during the 1990's on this sector of defense acquisition, which
likewise was virtually ignored for the first few years of
recent acquisition reform efforts. Consequently, we think the
risk of waste in this area is higher than has been commonly
realized.
In my statement, I detail the results from two recent
audits on DOD service contracts. The first was reported in
April 1999 and had to do with multiple-award task order
contracts. We audited 156 orders valued at $144 million on 12
multiple-award contracts placed between 1995 and 1998. We found
few problems with 32 delivery orders, for goods but significant
problems with 124 task orders for $88 million worth of
services. Specifically, contracting officers awarded individual
task orders without regard to price, even though price also was
not a substantial factor in the original selection of vendors
for the multiple-award contract. As a result, higher-priced
contractors were awarded 36 of 58 task orders that were
competed. We identified $3 million in additional cost resulting
from awarding orders to contractors with higher-priced bids.
Second, contracting officers directed work and issued
orders on a sole-source basis for 66 task orders valued at $47
million without providing the other contractors a fair
opportunity to be considered. Only 8 of the 66 orders, valued
at $8.8 million, had valid justification for sole source award;
11 of the 66 had no justification at all. As a result, DOD
almost certainly paid higher prices than would have been the
case if competition had been sought.
These problems were caused by a variety of factors,
including difficulty in establishing pricing in the multiple
award contracts at the time of award because requirements for
the number and scope of subsequent task orders were not well
understood. Contractors also were not sure of the amount of
work they would receive, making it hard to forecast costs.
Regarding the failure to compete task orders, I believe the
causes were somewhat vague regulations, pressure to make task
order awards rapidly, and perhaps excessive pressure or
excessive workload on some contracting offices deterred them
from questioning a sole source preference input from program
managers.
The other audit covered 105 Army, Navy, and Air Force
contracting actions valued at $6.7 billion for a wide range of
professional administrative and management support services
amounting to about 104 million labor hours, which is the
equivalent of just over 50,000 labor years. We were startled by
the audit results because we found problems with every single
one of the 105 actions audited.
Problems pertained to every aspect of the purchasing
process. They are listed in my statement. I think the ones that
are most notable are, first, failure to define requirements,
which clearly you have to do in order to write a definitive
statement of work and to choose the appropriate contract type.
Second, unattributed, undated, unexplained, and not
demonstrably independent or well thought out government cost
estimates. Third, cursory technical reviews. Fourth, inadequate
competition, and so on as listed in my statement.
It was impossible to quantify the monetary impact of these
deficiencies, but clearly, waste was occurring. For example,
sole source cost-type contracts that placed a higher risk in
the government continued without question for the same services
for inordinate lengths of time, 39 years in one extreme case,
the pricing was questionable. We also observed that there were
no performance measures being used to judge the efficiency and
effectiveness of the services rendered.
The second major area I would like to discuss briefly is
spare parts pricing. In early 1998, we began a series of audit
reports principally in the aviation spares area. As you will
recall, this has been a controversial area for many years in
the defense procurement arena. The Department is still in a
transition mode, transitioning from the pre-acquisition reform
legislation method of doing things to what we have now, which
has much more emphasis on buying commercial products and using
commercial buying mechanisms. That transition still has not
been successfully made. We are still in a learning mode. Mr.
Chairman, you mentioned the lack of training in the acquisition
work force and that is certainly a key factor in this area.
Over the past year, we have issued five additional audit
reports. One was good news, four were not. The two most recent
ones are still somewhat restricted in terms of what I can
discuss in public at this point because we have not worked
through, with the contractor, what is proprietary data and what
is not. But suffice to say DOD is still paying excessive prices
for spares and has not quite figured how to calculate the cost-
benefit of different types of contractual arrangements, which
involve buying not just the part itself but also things like
inventory management and direct vendor delivery capability.
The third area I will stress today relates to the
acquisition work force. DOD has cut its acquisition work force
in half during the decade of the 1990's, from 460,516 to
230,556 as of September 1999, and further cuts are likely. If
workload had been reduced proportionately, eliminating half of
the acquisition positions could be regarded as a positive
achievement. Unfortunately, this has not been the case. The
value of DOD procurement actions over the decade decreased only
about 3 percent. The number of procurement actions, which is
more important, increased by about 12 percent. The greatest
amount of work for acquisition personnel occurs on contracting
actions over $100,000 and the actual number of those actions
increased by about 28 percent.
We surveyed 14 of the 21 major acquisition organizations
and found this growing imbalance between resources and workload
is a major concern. Acquisition personnel told us that the
adverse consequences of 10 years of constant downsizing, hiring
limitations, and resulting promotion slowdowns include a range
of staff management problems and performance deficiencies.
Again, those are detailed in my statement and in our report on
the acquisition work force reductions.
We have been pleased to see growing awareness over the past
year in both the Congress and the Department about the work
force acquisition problem. Many innovative and, I think,
constructive things are being done on the training front, and
that is vital. However, we also have to get a handle on
properly sizing the work force. It has become an acquisition
goal in and of itself to reduce the acquisition work force.
We think that is putting the cart before the horse. We need
to better understand what the workload in the acquisition
offices actually consists of and what are the impacts of
acquisition reforms on that workload. It has been assumed that
streamlining measures could make up for reducing half of the
work force, and that has proven not to be true. So we need a
better handle on how many people with what skills should be
where to manage this process efficiently.
With that, I will close. I apologize for running slightly
over, but I cannot talk as fast as Butch can.
Mr. Horn. Thank you. That was very helpful and I am glad
you did take the time.
[The prepared statement of Mr. Lieberman follows:]
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Mr. Horn. Mr. Stan Z. Soloway, Deputy Under Secretary for
Acquisition Reform, Department of Defense. Mr. Soloway, we are
glad to have you here.
Mr. Soloway. Thank you, Mr. Chairman. I speak much faster
than Mr. Hinton and I am afraid I am still going to go longer
than he did, but I will do my best. And also, if I could, I
would like to share in your welcome to the Front Line Forum. It
is a group that Ms. Lee and I have the pleasure of chairing,
and I think she would agree that we get some of the best
insight and information about what is really going on on the
front lines from these terrific professionals and we are
delighted that they are here, as well.
Mr. Chairman, I want to thank you for the opportunity to
share with you our views on acquisition management and reform,
and what I would like to start out by saying is that I think it
is important to be clear about one thing. Acquisition reform,
while not where we want it to be, has demonstrated repeatedly
that we can do business better and smarter.
We can look to the Joint Direct Attack Munitions, which
performed so flawlessly in Kosovo, and the cost of which,
thanks to aggressive program management and innovation, made
possible largely by the acquisition reforms of the last 7
years, is now less than half the cost of original projections.
We can also look to the PLGR field radio, a largely
commercial capability that is not only far less costly than its
military-unique predecessor but also requires only one operator
as opposed to two and includes significantly enhanced
capabilities.
We should also look at the new Virginia Class attack
submarine, which through the use of commercial technologies,
open systems architectures, and simplified requirements has led
to a reduced per-ship cost, and most importantly, a projected
30 percent reduction in total ownership or life cycle costs
over the comparable SEAWOLF.
The avionics circuit cards for the F-22 are being produced
largely on a commercial production line with a projected cost
that is more than 50 percent less than would otherwise be the
case.
The list does go on. The single process initiative which
facilitates our migration from unnecessary government-unique
standards to commercial performance standards has now yielded
cost savings and avoidance exceeding a half-billion dollars and
we have only just begun. The Commercial Support Savings
Initiative [COSSI], and the use of other transactions
authorities have enabled the Department to access dozens of
technology solutions and providers that have not previously
been able or willing to do business with us.
In short, much has changed and continues to change for the
better. I am often asked how we are doing with acquisition
reform and my usual answer is, pretty well. But as I noted
earlier, we have a long way to go and cannot afford to let up
on our commitment to making change. Let me mention three key
areas.
First, we all know that the typical cycle time for a major
system, from concept to operation, is too long, usually 12 to
15 or more years. Such long cycle times drive up costs, often
suboptimize the system itself, and keeps new needed capability
out of the hands of those who need it most, our men and women
in uniform.
Among the key factors that drive cycle time are the
requirements themselves, as Mr. Hinton pointed out.
Traditionally, requirements have been too inflexible, often
included exceptional technology reaches, and had too little
cost sensitivity.
Today, however, we are working closely with our colleagues
on the joint staff to put in place a model for the front end of
the acquisition process. This model will place a high priority
on more flexibility, open systems, and greater cost sensitivity
in the requirements documents, thus enabling us to make the
kind of intelligent tradeoff decisions driven by both
technology maturity and cost that is so critical to reducing
cycle time and getting capability into the field faster.
Second, we have made an unprecedented commitment to
enhancing the quality of our acquisitions of services. As
previous witnesses have already noted, our reliance on services
as opposed to products has greatly increased and we fully
recognize that we have not focused nearly enough attention on
providing training and tools to our work force in this critical
area. We do, however, have numerous initiatives in this area
underway that I think are both important and highly promising.
For instance, Under Secretary Gansler will soon issue new
policy that will require a much greater emphasis on
performance-based services acquisitions than has previously
been the case, including a requirement that 50 percent of all
services acquisitions be performance-based by 2005, as
recommended by the Inspector General. This policy will require
aggressive and accelerated training, planning, metrics, and
more, and I think we can all agree that performance-based
services acquisition represents a critical link to solving many
of the issues before us.
In addition, just 2 weeks ago, we launched a major new
performance-based services training initiative developed for us
by the National Contract Management Association and the
National Association of Purchasing Management, which is
available at a relatively nominal cost to all elements of our
work force, from the requirers to acquirers, financial
oversight, and other key elements of our work force. Moreover,
this training, while web-based, is also designed for live,
just-in-time team training of the kind we believe can be most
effective.
We are also putting the finishing touches on a performance-
based services guidebook, as well as a series of performance-
based services templates, that seek to demonstrate the ways in
which a performance-based approach can work in a wide range of
areas, from low-tech to high-tech requirements. These
initiatives will, we believe, significantly improve our
performance in the acquisition of services of all kinds,
including information technology, professional and advisory and
assistance services, and more.
Our reliance on services also extends, as Mr. Lieberman
pointed out, to those areas where we used to purchase products,
particularly in the spare parts arena. Where we purchased a
part 4 or 5 years ago, today, we are increasingly purchasing a
service, a service that includes a range of activities from
inventory control to warehousing and much more. In short, in
assessing such vehicles, one can no longer simply compare a
unit price from yesterday to current spare parts prices since
what we are actually buying is very different.
In the case of the contract referenced by Mr. Lieberman,
for instance, this strategy has resulted in a much higher parts
availability rate and 30 percent reductions in our repair
turnaround times, which then translate into higher mission
capability, and in commercial parlance, a much greater
availability of our critical capital assets, all of which has a
great value to us. The independent business case analysis
prepared for the Defense Logistics Agency looked at all of
these factors and concluded that this contract, assuming high
levels of performance which we are now seeing, would save
millions of dollars with much more in less tangible value.
This is not to say that within a given contract, which
could encompass thousands of items, the prices of some
individual items might not be unreasonable, and I believe DLA,
in response to previous Inspector General reports which have
pointed out some of these problems, have put in place better
mechanisms for detecting such price rises and a process for
segregating and negotiating better prices for those items.
In addition, in the last 18 months, additional training and
commercial supply chain management which speaks to these very
issues has been launched and more than 3,400 members of our
work force have now taken that training.
I believe, therefore, that we are making real progress in
this important area and we will continue to aggressively
address it and the full range of services acquisitions. The key
is not so much of what we do, and as noted by each of my
colleagues today, is and always will be our work force and how
well we do in preparing them for the challenges ahead. We are
committed to meeting that challenge.
Indeed, our acquisition work force has been reduced by
about 50 percent over the last 10 years, and today we face the
prospect that another 50 percent of that work force will be
eligible to retire within the next 5 years. The problem is
further exacerbated by the very real shortages in the
marketplace of many of the critical technology skills,
including those now required to optimize business processes and
the extraordinary competition in the marketplace for those
skills.
This demographic reality presents many challenges, as noted
by others this morning. But it also offers an extraordinary
opportunity to fundamentally transform the culture of the
world's largest buying organization, as I believe the General
Accounting Office has pointed out. That transformation will
only take place, however, if we do our jobs right.
To that end, let me conclude my testimony this morning with
a few examples of what we are doing in this most crucial of
arenas. We are launching a major future work force initiative
to develop a career development and management process to
facilitate the kind of multi-disciplinary work force that the
future work environment will require. This initiative seeks to
synthesize the work we have done over the past 2 years in both
identifying the critical attributes of our future work force
and assessing our current career development, education, and
training programs, and will also focus on the critically
important challenges associated with hiring, retention, and
developing future leaders.
At the same time, we are reengineering much of the formal
training and education provided to our work force, primarily
through the Defense Acquisition University. This reengineering
includes a much greater emphasis on business and commercial
practices training, a more integrated approach to our training
paths, and more diverse training opportunities.
We are expanding our assistance to the work force, as well,
in the area of continuous learning. Our work force will soon
have access to a web-based catalog of continuous learning
opportunities from inside and outside of government, and we
will soon put in place a core curriculum for continuous
learning which will direct our work force to ongoing
refreshment and training in critical areas as part of their
continuous learning requirement.
In addition, we are working with the services and the
defense agencies to put together a widely accessible knowledge
management system that, like the best in the commercial sector,
will create within the Department a virtual learning enterprise
where training, best practices and templates, lessons learned,
and more are available on a real-time basis to any member of
our work force.
And this past year, we opened the Change Management Center.
Modeled after the best in class in the commercial world, the
role of the CMC is to assist with the very daunting challenges
of the change process itself and to, at the same time, provide
a disciplined, leadership driven, and empowered capability to
accelerate the pace of change.
Mr. Chairman, the progress we have made is very
significant, but our need to move ever more aggressively
forward remains. The dynamics and pace of the technology
marketplace, the changing face of our mission requirements, the
need we have for speed and agility in business and on the
battlefield all require us to do so. Achieving our goals will
take perseverance, commitment, new and innovative training, and
education. We remain committed to the long haul and are equally
committed to continuing our vibrant partnership with the
Congress as together we move forward. The imperatives are clear
and we have no choice but to succeed.
That concludes my oral statement this morning, sir, and I
would be happy to answer any questions.
Mr. Horn. Thank you very much.
[The prepared statement of Mr. Soloway follows:]
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Mr. Horn. Our last witness on this panel is Ms. Deidre Lee,
the Director of the Office of Federal Procurement Policy of the
Office of Management and Budget. Ms. Lee.
Ms. Lee. Good morning. Chairman Horn, members of the
subcommittee, as this most likely will be my last hearing
before you as Administrator of the Office of Federal
Procurement Policy, I would like to thank you personally for
the stalwart support you have given the acquisition community.
You have been dedicated to improving the system, understanding
the challenges, and working with us to move forward. Thank you.
Mr. Horn. Thank you, Ms. Lee. You have done a fine job and
I think you must have read about Everett Dirksen, that honey is
better than vinegar, so thank you. [Laughter.]
Ms. Lee. Well, along that same ilk, I would also like to
take this opportunity to express my gratitude to the great
group of people who you have already recognized, the Front Line
Forum, and for all the people they represent. These are
dedicated people that make a difference every day and I thank
them for all that they do.
We are here today to discuss our current challenges and
priorities in reforming acquisition. There has been a great
deal of discussion about the $200 billion of products and
services we purchase each year, everything from the mundane to
the very unique and unusual to support our military. Our
success in improving the government's productivity depends very
much on our ability to improve our acquisition practices.
Over the past 7 years, this administration has worked
closely with Congress to develop a statutory and regulatory
structure that brings common sense back to acquisition. We have
moved much closer to commercial practices. Instead of focusing
on the low cost, we now emphasize best value contracts that
take into account the quality of performance expected based on
the overall package offered and the contractor's past
performance.
We have made it much easier for the government to purchase
and companies to sell commercial off-the-shelf products that
are suitable for government needs, and we have moved away from
the idea that we must have custom products to meet our every
need. We have made it possible for program officials to use
purchase cards to make purchases under $2,500, the so-called
micro purchases, and thereby allowing our contracting
professionals to focus on providing business advice for the
larger acquisition programs. These reforms allow agencies to
structure their contracting operations in a way that makes
sense and provides increased flexibility for contracting
officials to make and implement good business decisions.
Despite the progress that has been made, there is still
much more to be done. First, we must ensure that we are fully
using the increased flexibility, and second, we must continue
to look ahead, staying alert to changing commercial practices
and conditions and new technologies to identify additional
reforms with substantial potential benefits. And, as everyone
else here has said today, most importantly, we must have a
talented, prepared work force.
My written testimony provides more detail on the efforts we
have undertaken to meet these challenges. In the interest of
time, I will just briefly summarize current priorities and
comment on our approach to considering legislative changes.
First, our priorities are grouped into three general areas.
The first and foremost, as you have heard me say many times, is
we have to implement the opportunities that we have, and so I
am going to go through a very quick litany of a few things that
we have worked on.
First, we are making contractor performance a substantial
factor in contract administration and source selection. How
have you done? What are you going to give to us in the future?
We think that provides good information for making decisions.
We are encouraging results-oriented performance-based
contracts, where contractors have to innovate in deciding how
to perform the work and then trying to peg payment to
performance.
For purchases under $100,000 and on a test base for
commercial items up to $5 million, contracting officers use
simplified procedures that address market conditions and
product- or service-specific circumstances. For larger
purchases, we have modified FAR Part 15 to focus on obtaining
best value through competitive and intensive negotiation
process with the most highly rated sources.
We are using multiple award contracts, multiple award
schedules, and governmentwide acquisition contracts which were
endorsed by FASA, MACs, and GWACS, and these are more
commercial-like vehicles that permit streamlined competition
among contract holders.
We are emphasizing capital programming, and there are many
other contracting initiatives we could talk about today. But I
think a very important note here is, as we have noticed through
the other witnesses, there is still much need to focus on
planning and definition of requirement and assuring that we are
buying the right thing, not just buying it quickly.
The second tenet is the area of electronic commerce. We are
seeking to take advantage of the opportunities that are offered
through electronic commerce in terms of high returns for
significant process simplification, increased efficiency, and
more effective buying strategies. There is a plan, the
government strategic plan, on electronic commerce for buyers
and sellers that basically outlines three tenets of how we are
trying to make these improvements, and there is more detail of
that in my written testimony.
And finally and most important, here we go, people. Central
to the success in the first two areas of acquisition reform
overall is our ability to develop a work force that has the
capability and the knowledge to provide sound business advice
and the leadership to support them. We are addressing work
force issues and I think Mr. Soloway gave you some more
detailed information, but we are trying to define the
competencies, modify training, deliver the training, address
recruiting and retention, and certainly updating policies and
providing people the support and leadership they need. We need
to provide the acquisition work force with tools, training, and
flexibility to make good business decisions.
As we continue to review our statutory framework to ensure
it allows our acquisition work force to pursue innovation and
implement new commercial practices, this year, as you know, we
sought, among other things, to streamline the application of
cost accounting standards. We sought an extension of the test
authority from Clinger-Cohen so that we can use simplified
source selection procedures in commercial items up to $5
million. And we thank you for the favorable action that
Congress has taken on these proposals.
We have resubmitted our proposal to authorize the
substitution of electronic notice through a single point of
entry for the currently required paper notice. It is important
that we are able to transition along with the commercial market
from paper-based to paper-free process.
While we remain focused on taking advantage of the reforms
already enacted, we will not hesitate to seek further
congressional action as we identify statutory changes needed.
DOD in particular has some challenges, and I know Mr. Soloway
will shortly have a package on legislative changes, as well.
The challenge here, if the occasion arises, I hope that you
and this subcommittee will help us discourage legislative
proposals that would reverse the progress made to increase the
government's use of commercial practices and contracting
officials' discretion to exercise business judgment. As
promoters of acquisition reform recognized early on,
contracting officials must be willing to take prudent risks if
they are to succeed in making the fundamental business practice
changes that are necessary to improve government acquisition.
Our contracting officials have achieved much success in doing
so. But sometimes, mistakes will be made or events considered
to be low-risk will occur. I urge the members of this
subcommittee to work with us to resist efforts to repeal
acquisition reform as we continue to learn and demonstrate the
benefits.
The overarching challenge now is to deliver full benefits.
I have made it my focus since assuming the role of
Administrator to implement acquisition reform. Doing this
simultaneously as we continue to seek out additional ways to
improve complicates our task. However, having to implement
changes and at the same time continuously improve the system is
now common in the commercial world. The accelerating pace of
change is something everyone in business is experiencing. We in
the government must attack these problems with the same sense
of urgency that grips today's corporations. Taxpayers deserve
nothing less.
On behalf of the administration and the acquisition work
force, I again thank the subcommittee and the Members of
Congress for working to make these opportunities possible. It
has been a pleasure. Thank you.
Mr. Horn. Thank you very much.
[The prepared statement of Ms. Lee follows:]
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Mr. Horn. We are going to start the questioning with 5
minutes per person rather than the usual 10 minutes on
complicated matters. When Mr. Turner returns, we will go back
to 10 minutes for himself and myself and any members who are
staying. But we do have a guest this morning, and if my
colleagues would give me unanimous consent, the gentlewoman
from New York we will include in the 5-minutes and we will go
right down the line. Without objection, she will be part of the
subcommittee for this purpose. She has put in a very worthwhile
resolution and her questions and the answers are very
important. So if my colleagues would let her serve with us for
a while, all right. That would be for Ms. Kelly, and then you
and Mr. Davis.
Ms. Kelly, we will yield 5 minutes to you for your
questions.
Ms. Kelly. Thank you, Congressman Horn. I thank you very
much and I thank the committee for inviting me and allowing me
to speak here today.
As co-chair of the Women's Caucus and as vice chair of the
Small Business Committee, I am particularly concerned about
what the witnesses on the first panel have to say regarding how
acquisition reform will have an impact on the Federal
Government's small business and women-owned business goals. As
I am sure you are all aware, we are trying to award at least 5
percent of all government contracts to women-owned businesses.
Some agencies are doing quite well. Others, including the
Department of Defense, award less than 2 percent of their
contracts to women-owned firms. The Department of Energy has
yet to even report their figures.
I have noticed that few witnesses mentioned small
businesses, women-owned businesses, disadvantaged business
utilization in their testimony, so I am glad to be here to ask
a few questions. And again, I thank you for inviting me here,
and with that, I will begin.
I would like to ask Ms. Lee, you talk about training and
educational standards. What type of training do the contracting
officers receive in trying to uncover women-owned businesses
when they are doing their market studies on prospective
bidders?
Ms. Lee. Ms. Kelly, I see that you are ready for St.
Patrick's Day tomorrow. There is a great deal of training. We
are incorporating it into the everyday acquisition training and
trying to get people to acknowledge and understand what their
goals are, how to meet them, the tools that are available to
meet them----
Ms. Kelly. What specifically for women? I am sorry to
interrupt you, but that is really what I am interested in,
women, minority, and disadvantaged.
Ms. Lee. Specifically, it is included. We do not have a
separate small business course now. We are looking at that as
we have this online training and to provide specifically
separate. Right now, it is incorporated in the regular training
that people go through as they learn about acquisition.
Ms. Kelly. But it is present as----
Ms. Lee. Yes.
Ms. Kelly [continuing]. And it specifies talking with them
about doing these contracts?
Ms. Lee. They learn about Part 19. They learn about the
priorities, about women-owned business, HUB zones, veterans'
owned, small disadvantaged business, small business set-asides,
how to use those tools, what tools are available, what the
priorities are, what the goals are. That is part of education
for our acquisition work force.
Mr. Horn. If I might suggest to the gentlelady from New
York that we would like the curriculum material sent to the
committee and put in this at the appropriate place where Ms.
Kelly is making these questions.
Ms. Lee. OK. It is quite substantial.
Ms. Kelly. Thank you very much, Mr. Chairman.
[The information referred to follows:]
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Ms. Kelly. Mr. Lieberman, on page 1 and 2 of your
testimony, you cite a number of striking difficult balances,
but you fail to include the balance between efficient
procurement of goods and services and achievement of small and
women-owned business goals and I wonder why that is. I do not
see that in your testimony.
Mr. Lieberman. A pure oversight. I plead guilty. I was not
trying to give a comprehensive list, and there are probably a
couple of other challenges I left out also, frankly.
Ms. Kelly. Can you respond? Again, Mr. Chairman, I would
beg your indulgence, and perhaps we could ask you to respond to
that question in writing or back to the committee so we can get
some response for that. It would give you a chance to amplify
your statement.
Mr. Horn. Will you file a letter with the committee on the
question Ms. Kelly is raising right now and we will put it at
this point in the record, without objection.
Mr. Lieberman. I would be happy to.
[The information referred to follows:]
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Ms. Kelly. Again, I would like to go to Mr. Lieberman. In
your testimony on page 8, you talk about the contracting
services there and your statement reads, ``The largest
subcategory of contracts or services was for professional,
administrative, and management support services,'' and you give
a value of $10.3 billion. Do you have any information on what
percentage of those contracts belong to women, minority-owned
businesses, or disadvantaged businesses?
Mr. Lieberman. I do not have that information with me. I
would be happy to try to provide it for the record.
Mr. Horn. Without objection, we will reserve the spot in
the record at this point.
Ms. Kelly. Thank you very much.
[The information referred to follows:]
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Ms. Kelly. Then continuing on, Mr. Soloway, in the 12 pages
of your written statement concerning the modifications to the
Defense Department's procurement processes, there is not one
word about small businesses. Are you aware that Congress
enacted laws with respect to the utilization of small
businesses? What is the Department of Defense reform going to
do about the utilization of small business prime contractors?
Mr. Soloway. Congresswoman, I will plead guilty, as Mr.
Lieberman did, to simply an oversight on that point. This is an
area in which we expend a great deal of energy and effort to
ensure that we not only meet the goals that have been set
forth, which we did last year in most categories, although as
you noted, in women-owned small businesses, we did not meet our
goal.
But not only do we seek to meet the goals, but we make it
very clear and try to communicate regularly with our work force
about the innovations in both technology and business process
that take place in small, disadvantaged, and women-owned
businesses that need to be accessed, and I believe that one of
the things that is going to enable us to expand our access to
those businesses is much greater sense of market research, much
greater understanding of the commercial marketplace. There are,
of course, very few small businesses of that kind, women-owned
and so forth, that are defense-unique, if you will, which is
the marketplace we are used to dealing in. But the more we
expand our market, the more able to access to commercial
companies, the more able to utilize electronic means of doing
business and so forth that is going to expand our cognizance of
available quality services that are in the marketplace, and I
believe that is going to help us a great deal.
In response to the second part of your question, I do not
believe that acquisition reform in any way should or has ever
been designed to negatively impact our use of either small,
small disadvantaged, women-owned businesses, or other kinds of
veterans' preference or what have you. Nothing in the
legislation or in what we are trying to do in any way
diminishes our commitment to doing that, and we certainly have
made that clear to our work force. As Ms. Lee said, in the
training that they get, it is very clear what the expectations
are and the benefits that can be gained from an aggressive
effort in that area.
Ms. Kelly. My point here, Mr. Soloway, today is really to
try to impress upon all of you that in the general scheme of
acquisition reform, small business, women-owned, and minority
and disadvantaged businesses cannot be an oversight. They have
to be included because that is what Congress' intent has been
in all of our reform efforts.
On your testimony, I think it is on page 10, you talk about
the reengineering of formal training. You were just discussing
that. I am wondering, again, when you talk about online and so
on, there are women who are accredited contracting--they are
out there. In those online capabilities, in that education
effort that you are making, are you going to do some outreach
in that?
Mr. Soloway. The training that I referenced is, I believe,
going to lead to the outcome that you are talking about because
what we are trying to impress upon our work force and provide
to our work force are many greater tools and a greater
understanding of how to do the kind of market research that
opens one's eyes to all available solutions and providers,
particularly and certainly including small businesses, small
disadvantaged businesses, women-owned businesses, and so forth,
and I believe that our ability, with the authorities that we
have been given by the Congress and the way we have been
implementing them to rely more increasingly on the commercial
marketplace, does lead you to those types of solutions.
We do already impress upon our work force their
responsibilities under the law for good business reasons to
access and utilize small businesses of all kinds. So I do not
believe that is the issue. I think the issue really for us
becomes one of market research, expanding our marketplace and
so on, and that is, I think, going to result in the outcome
that you are talking about and that is really where the rubber
meets the road, is how well our work force is prepared to
examine the options that are available to meet any given
requirement.
Ms. Kelly. I thank you very much. Mr. Chairman, I obviously
would like very much to have some more time. I realize that my
time is up. I hope that perhaps I could submit some questions
to your panel and we could get the responses in writing. I will
try to stay as long as I can, but I thank you very much.
Mr. Horn. Well, we thank you because we do regard that as a
very serious matter and I was delighted when you volunteered to
lead the charge. I must say, I am a little shocked that the
administration has not done more in this area and I would like
to know what the difference has been between now and 5 years
ago. I sort of have a feeling there were more women getting
contracts 5, 10 years ago than maybe today. I think maybe they
have used our liberalization to just sort of say, oh, we can do
what we want now. We do not have to worry about these different
groups, and I think we ought to worry about them.
Ms. Kelly. Mr. Chairman.
Mr. Horn. Yes?
Ms. Kelly. I actually do have those figures, and I can tell
you that in the last 2 years, according to the General Services
Administration figures, the Department of Defense has increased
their women and minority and disabled businesses by only 0.1
percent in 2 years. It has only been up by 0.1 percent.
Mr. Horn. Even though we have given them a lot of
flexibility.
Ms. Kelly. Even though we have given more flexibility and
even though we have repeatedly emphasized the need.
Mr. Horn. They seem to have forgotten that Rosie the
Riveter made Second World War acquisition very possible.
Ms. Kelly. Exactly, and I am here fighting for Rosie.
Mr. Horn. Good. We have got a great oral history at the
university I was president of, if you ever want to get the
pictures and bring them in here.
We thank you for coming. We will take those questions and
we will followup on them.
I now yield to the gentleman from Virginia for 5 minutes. I
know you have another aspect of this procurement situation.
Mr. Davis. Well, I do. I have got a couple, actually. Let
me just start, you talked about needing a talented and prepared
work force. One of my concerns in this whole procurement cycle
is the Federal Government's ability to attract, train
procurement officers because they can walk across the street
and sometimes double or triple their income, and to keep them
motivated, to keep them trained is a huge problem. In my
judgment, I think we are going to need to rewrite some rules to
allow us to do that. Otherwise, you end up even having to
outsource the procurement process because this stuff gets so
complex and it changes so quickly. Any thoughts on that? I will
start with you, Ms. Lee.
Ms. Lee. We have looked at that and some of the things are
very simple, like recruiting you can pick up the Sunday paper
and you see kind of a flashy ad that crisply describes what
work is there; and you come in to look at a government ad and
you may have to fill out pages of paperwork. So we are trying
to figure out, how do we recruit? How do we interest the young
people into coming into the field? How can we be more crisp and
succinct and tell them how interesting and how important this
field is? We have got to do everything from recruiting and
training to retention.
Mr. Davis. Let me ask you, what are we doing on Internet
recruiting? A lot of companies out in my district are
recruiting through the Internet. That is the way a lot of it is
done. Northern Virginia is paying bonuses for good people, but
the Internet is a good way. I mean, just my gut is that the
government is not ahead on that curve, either.
Ms. Lee. I do not think we are ahead. We have very limited
authority to pay a hiring bonus, and to date, I think it has
been used mostly in the IT arena.
Mr. Horn. But as I understand the gentleman's question, It
is not a matter of paying the bonus. It is a matter of
communication and use the Internet to presumably get these
individuals.
Mr. Davis. I think, ultimately, the question is going to
involve pay and benefits, because that is what you are
competing with. Even if you get somebody good in, to keep them
more than 3 or 4 years, you have got to pay them or motivate
them, something close to what they are getting in the private
sector, and we are, in my judgment, way short of that and that
entails a whole other issue that maybe we ought to be talking
about with our Civil Service Subcommittee. But that is one
problem.
Ms. Lee. We have not done much hiring, so we recognize it
is ahead of us.
Mr. Davis. But we can do more on the Internet and make it
easier and stuff at least to get people in, and then we can
figure out the other. Are there any other comments?
Mr. Soloway. Mr. Davis, I think you have hit on not only
the most critical challenge we face but begun to touch on a
much broader issue. The way we look at it at the Department is
it is not just a matter of our contracting officers. This
affects the entire acquisition work force as you begin to look
at a different way of doing business. If you begin to look at
the revolution in industry not just in cutting-edge
technologies but the way technology is driving business
processes, from enterprise resource planning and all of these
other processes that are now coming into play and how we are
going to compete for that skilled work force when, in your
district, if you go out, and as I know you do all the time, and
talk to your constituents and they complain day in and day out
in the private sector about the lack of skills that are
available and the kinds of benefits that are available to those
who have those critical skills are enormous and it is a
tremendous challenge for the government across the board, not
just in IT but also just business process and being able to
optimize your business processes.
The comment Mr. Lieberman made earlier about having to do
so much more and are we cutting the work force, getting the
cart before the horse, what is happening in the private sector
is that technology has made so many more things possible and
increase efficiencies that we have not adequately graphed yet.
This is really the fundamental reason that we have created this
task force that I mentioned in my testimony, to look at this
future work force and really focus in on the very kinds of
questions you are asking. What are the skill sets that we need?
How are we going to recruit and retain people? What kinds of
people can we reasonably expect to go out and fight for, or
what areas are we simply not going to be able to maintain that
internal competency that we may have had in the past because of
the competition?
This issue also affects the military, as you well know.
They are having tremendous retention problems, particularly
with technology skills. So I think this is an enormous
challenge for us.
Mr. Davis. And we could have a hearing just on that and go
through. I have one other question I need to hit. I will just,
Ms. Lee, go from your testimony. On page 3, you talk about you
are seeking to ensure agencies make past performance a
substantial factor when evaluating contractors for award, and
you talk about the strategy and I understand all that and, I
think, basically agree with it.
But here is one of the problems. When small businesses
outgrow their relevant size standard and they move into the
mid-size category, they are cut loose and there is nothing
gradual about it, and we have a lot of companies that flounder
after graduating from 8(a) or small business that cannot move
up. A lot of the mid-sized companies are cut out of some of
these large procurements because you are looking about what
they have done before and they have not done something of a
relevant size. This has always been a problem where you have
the two ends of it. The large businesses and the small
businesses have something to take care of them and the mid-size
businesses are hurting. But we are seeing more consolidations
as a result of medium-sized businesses just not being able to
cut it.
My observation has been a lot of the best innovation is
coming because of the competition that some of these small and
mid-sized businesses are bringing to the fore. Now, is there
any way we could tilt the scales back a little bit and give
them a little bit--and that is kind of my open-ended, last
question before my time runs out.
Ms. Lee. Well, we focused on past performance, and I like
to say current and past performance. How are you doing on the
contracts you have today as well as what is your past record.
So you do not want to focus on just the past, but as well as
the current. But what we are trying to do is remind people that
you do not have to have performed this size, this exact work
before. What is your record of performance and what is your
proposal to perform this activity? I am concerned where we say
you have to have had $350 million worth of work in order to
qualify. We do not want those kind of disqualifiers, but we
look at what is the history and what is their proposal to do
this work right now and what is their capability.
Mr. Soloway. May I comment, also, Mr. Davis? As you know, I
came out of the private sector before coming to the Department
and many of the companies I worked with were small and middle-
sized and they were under tremendous pressures in the
marketplace because of the way in which the market was going.
But I would like to make a comment to suggest that the
advent of past performance, and indeed the whole concept of
best value contracting, in my view, is a benefit to those
companies as opposed to a hindrance, because what I saw when I
was in the private sector years ago was a tendency to do what
we call buying into contracts, where large companies could
afford to bid extremely low and then worry about the actual
costs as we went on. The more we focus on past performance and
best overall value, what you have in fact seen is a diminishing
amount of that kind of activity because of the pressures of
best value. What have you done before? What was your bid
before, and did you actually perform to what you bid and so
forth.
I have had a number of companies I worked with in the
private sector, one of which testified to this before the
Senate a couple of years ago, that said if it was not for best
value and past performance, they would never have succeeded in
making the transition from a small business into the open
marketplace. So I think that, in many ways, it is actually the
start of getting at the problem and a benefit to smaller
businesses.
At the same time, there have been, as Deidre indicated,
some application in the field of what we call relevancy factors
and so forth that sometimes have disadvantaged individual
companies, and I have cases of companies coming to me
relatively frequently where it has been a misapplication of
this concept. As Deidre said, what is relevancy and how do you
define it? If the company itself has not done the precise kind
of work we specifically put into the guidance, the fact that
key executives in the company and their performance in other
entities can be included and should be looked at so that you do
not disadvantage those who have not yet had the opportunity to
perform on increasingly larger and more complex requirements.
We have recently put together a guide that has gone out to
the field just in the last 6 months. It has gone across the
entire Department of Defense on past performance and does
address a number of these issues to try to ensure that we do
not have the reverse impact of what we want, which is getting
the top performance we can and giving opportunities to those
companies that perform, be they small, medium, or large, to
grow and prosper.
Mr. Davis. Thank you. My time is up. Mr. Chairman, I just
ask unanimous consent my statement for the record be submitted.
I appreciate it and wish we had more time.
Mr. Horn. It will be put in the beginning of the hearing
after Mr. Turner and as if read.
The gentleman from California, Mr. Ose.
Mr. Ose. Thank you, Mr. Chairman.
Mr. Lieberman, I would like to ask you a couple of
questions. I note on page 18 of your written testimony a rather
unequivocal statement which I found somewhat surprising. It
says, virtually all of the pricing problems identified by our
audits arose on sole source contracts. The question I have is
that on page 20 of your testimony, you note the 14.8 million
transactions that DOD had engaged in. Of those 14.8 million,
how many, roughly, were sole source transactions? Do you have
any feel on that?
Mr. Lieberman. I would have to try to get that number for
you for the record, because the 14.8 million includes about 9
million of credit card transactions.
Mr. Ose. 9 million transactions or $9 million?
Mr. Lieberman. 9 million transactions.
Mr. Ose. OK.
Mr. Lieberman. I do not know what the competitive/sole
source split is for those. For major contracts for supplies and
equipment slightly above 50 percent are competitive.
Mr. Ose. I did a little thumbnail analysis here and it
appears in your testimony there are about 125,000 transactions
that were larger than $100,000. That is in your testimony. If
you work back from the $14.8 million, that means you have got
about 14,675 million transactions under $100,000, which would
mean that they average about $1,000.
The question I have, from your experience, in contracts
averaging $1,000, are those contracts doing procurement of
unique things or are we buying plastic cups and paper and
chairs?
Mr. Lieberman. Defense buys an enormous variety of items
and I think the answer is both. There is a mix of military-
unique items, items that are still called out in terms of
military specifications and unique military standards, and a
lot of commercial products. So it is some of both.
Mr. Soloway. May I add a context on that, sir? Under the
credit card, the micro-purchase authority, purchases under
$2,500 for which there is no existing underlying contract,
there is no requirement to go through the normal competitive
processes and so on. That is the whole point of the credit
card, and I think that that has been a success that we have all
signed up to and said, this has really been a great innovation
for our work force. We have saved somewhere in the neighborhood
of $200 million in the Department of Defense alone through use
of the credit card because of the simplified process it can go
through and so on.
Now, there are in addition to that a number of small
transactions that are made as task orders and so forth on
contracts that already exist that could be $1,000, $1,200,
$1,500 for a part for a plane or whatever it might be, and we
could probably break all that down. That data does exist. But
we need to look at it in different categories.
When Mr. Lieberman talked about the credit card or the
$2,500, that is where there is no underlying contract
typically. That is you go down to the local store and buy
office supplies or what have you.
Mr. Ose. Does that fall in the sole source characterization
that you have applied on page 18, Mr. Lieberman?
Mr. Lieberman. No, sir. I was really not considering what
we call the micro-purchases, the small purchases, at all.
Mr. Ose. It is separate? All right.
The second question, Mr. Chairman, if I may, on page 19,
Mr. Lieberman, of your testimony, you highlight the fact that
the acquisition work force at DOD has been basically halved in
8 years. It has gone from about 460,000 to 230,000. Was that a
reduction that followed a directive from Congress or was that a
management decision? What drove that decision?
Mr. Lieberman. Congress has passed legislation mandating
specific acquisition work force reductions in the Department.
However, those reductions are also supported by the
administration in the overall context of government downsizing.
There is a dialog every year back and forth, both on what the
definition of the acquisition work force is and what the
reduction target should be, but both the administration and the
Congress have agreed over the past decade that the general
trend should be downward.
Mr. Ose. How many of the remaining 230,000-odd members of
the acquisition work force are actually contracting officers
with authority to award contracts?
Mr. Soloway. It is 19,000.
Mr. Lieberman. Mr. Soloway said it is 19,000. That sounds
about right. The number is included in our work force
acquisition reduction report.
Mr. Ose. Let me shift if I may, then.
Mr. Horn. If I might interrupt, the gentleman is free to go
as long as you would like. I am going to get over to the floor,
vote, and come back. So put the committee in recess when you
are finished with your questioning and I will try to make sure
they do not close it out on you.
Mr. Ose. I will tell you what, Mr. Chairman. I will go
ahead and submit my questions in writing because I, too, need
to vote.
If there are 19,000 who have current authority to award
contracts, how many were able in 1991 to award contracts? Was
it 38,000?
Mr. Soloway. I would have to get that specific number for
you. As I recall the statistics, and I do not have them with
me, in the contracting field, actually, the percentage
reduction has been slightly under the 50 percent, I believe,
within the Department, and maybe even considerably less than
the 50 percent reduction.
Let me just draw a little context to the numbers. When we
started down this path, when we talk about the 400,000-plus
people in the acquisition work force and then have come down to
the 235,000, give or take, that we have today, the initial
definitions of that work force really were based on the total
employment of organizations within DOD that have an acquisition
mission. In the discussions that Mr. Lieberman referenced with
the Congress over the last several years about mandatory
reductions, should we or should we not have them and so forth,
one of the things that we have tried to do is more accurately
and clearly define who is actually in the acquisition business,
which is far more than contracting officials, although they
play a critical role, and who in that employment base are gate
guards, doctors, and so on, other kinds of employees that work
in those organizations.
That led us to a new definition of the acquisition work
force that we submitted to Congress a couple of years ago,
which basically now defines the core acquisition and technology
work force at about 150,000. It is very difficult to relate
that to 1981 numbers because the data keeping and the way in
which we record these things is not necessarily consistent. But
that today is the core acquisition and technology work force,
and when we say 19,000 or 20,000 contracting officers, they
make up a little bit over 10 percent of that work force.
Mr. Lieberman. Mr. Ose, I have the exact numbers for you if
you would like them. They are on page 9 of our report, 2000-88.
If I could quote it, from fiscal year 1994 to fiscal year 1999,
the total number of DOD contracting officers decreased from
7,465 to 6,505, or 12.9 percent. Now, that is only for that 5-
year period. I do not have the numbers for prior to 1994.
Mr. Ose. Let me go on, if I might. One of the things that
concerns me greatly, and I need to explore this a little bit as
it relates to the 6,505 people who still do procurement that
you just highlighted or the 19,000 otherwise--and the others
have hinted at it earlier--is the degree to which those people
stay in those jobs and accumulate the experience that would
allow them to be that much more efficient in future years. It
is my impression that at least in some instances, people are
moved regularly, and I am inquiring, what is the average
tenure, if you will, of a DOD procurement officer?
Mr. Soloway. I do not know if Mr. Lieberman has specific
numbers with regard to that question, but I believe the average
tenure for someone in that position is 3 years plus, at least,
but that is just in a given position. I mean, they are in the
field. It is just like in a company, where you gain experience
in different parts of the company and get a broader context and
so forth. The average age of our acquisition work force, as you
know, is mid- to upper-40's. So I think we have actually had
relatively good stability of people who are working in the
field and gaining the experience they need.
One of our concerns, not just with contracting
professionals--and one of the differences I should point out
between the 6,000 and the 19,000 is it is not just contracting
officers who have the authority to do some of these actions. My
19,000 was based on your question of how many people can
actually sign contracts and so forth.
But one of the big concerns we have with this is the exit
of the institutional experience and knowledge and the fact that
we have not been, as Mr. Hinton pointed out, hiring over the
last number of years and therefore do not have that new
generation coming in. By the same token, it does give us an
opportunity to rethink and readdress the way in which we manage
the careers of those people coming into the process to give
them the kind of cross-cutting skills, those business
management skills, if you will, that we seek because we have
traditionally been much more stove-piped in our approach. So it
is both a challenge and an opportunity.
But traditionally, we have had relatively, I think, good
stability within the work force in terms of getting the years
of experience needed to understand the business of defense or
the business of treasury or whatever the agency that is being
discussed. And, in fact, I think there is great benefit to
doing a little bit more of what the military does, which is
rotating people around and giving them a variety of experiences
so they gain that much broader context of the overall
operation, if you will.
Mr. Ose. We are in recess.
[Recess.]
Mr. Horn. The recess is over and we will proceed with the
questioning of panel one.
Let us talk a little bit about service contracting. As I
understand it, on March 10, 2000, the Defense Inspector General
released an audit report on the use of service contracts by the
Department of Defense. The Inspector General reviewed 105
service contract actions valued at close to $7 billion. Mr.
Lieberman, you testified that you were startled by the audit
results. You found problems with all 105 contracting actions
that you studied. You identified poor cost estimates in 81
actions, incomplete price negotiation memorandums in 71 cases,
and 63 actions in which there had been inadequate competition.
Could you provide us with some examples in some of these
problems? I saw up on projection the cargo trailer for the Army
and I guess I would throw this in. Was that off the shelf, and
if it was off the shelf, which army was it from?
Mr. Lieberman. Mr. Hinton is the expert on the trailers. I
know nothing about trailers.
Mr. Horn. Do not worry. I am going right down the line with
all of you.
Mr. Lieberman. We were, indeed, startled by this finding,
and in my written testimony, I did not mean to be glib, but I
mentioned that I do not ever remember a case where we had 100
percent hit rate on any audit sample that we have done since I
have been running the IG audit organization and I have probably
signed close to 2,000 audit reports in my career.
To provide examples of the types of failures that we saw,
let me talk about the inability to transition to fixed-price
contracts. Even when DOD had the same contractor coming back to
do essentially the same thing year after year, expedient cost-
plus contracts were used. A fixed-price contract entails a
whole lot less risk to the government. Obviously, you cannot
enter into such an arrangement unless you have a pretty good
idea of what the services are that you are buying. We found
cases, however, where even though the work was very similar
from year to year, there was really no attempt made to
reconsider getting out of a cost-plus contractual arrangement.
We found cases in both the Army and Navy where this went on for
decades.
As I mentioned in the statement we found one in the Army
where for 39 years the same contractor had provided, in this
case, engineering support services to the Hawk Missile Program.
The Hawk Missile was introduced in 1958 and, of course, it has
had a few different generations fielded since then. But
basically, you have had the same contractor providing the same
kinds of services, for 39 years as of 1997.
A Navy example: for 35 years, a contractor providing the
same kind of program management support to a submarine weapons
systems program office. This was everything from evaluating the
work of other contractors to helping the program office prepare
procurement plans and other kinds of mundane tasks like that.
Again, there is really no excuse after a certain period of time
for not aggressively pushing toward fixed pricing for at least
some of the tasks.
But the easy thing to do is just renew the contract, and to
make a long story short, we found a definite tendency just to
accede to the program office's wishes to rapidly get the
preferred contractor under contract again. There was
insufficient consideration of the contract type, the statement
of work, and what the proper cost should be.
Mr. Horn. Let me have Mr. Soloway's views on this. How do
you respond to those audit results and how does the Department
of Defense recommend addressing the deficiencies?
Mr. Soloway. On balance, I do not think we take issue at
all with the concerns that have been raised by the Inspector
General, but what I would like to do is again try to put this
in a slightly different context.
First of all, I agree that in an environment where we are
using services for extensive amounts of support, we have to
continually be evaluating performance, other options, injecting
more competition, and so forth. So the point that Mr. Lieberman
just made I think is very valid.
I think there are a couple of things here also that we need
to consider. First of all, when we make an assumption that we
have had a contractor in place for 30 or 35 years and there is
no performance surveillance, I think the actual work they are
doing probably becomes a performance surveillance unto itself,
perhaps not as formally or in-depth as we all think it should
be, but clearly, the office that has been retaining that
contractor was not unhappy with the quality of work that they
were getting. So I am not sure it is a performance issue.
Second, when we talk about it, as the audit did, the issue
of how many cases where there could have been lower-price
bidders and so forth, clearly, price is always a factor in
these matters, but best-value contracting specifically says to
us, do not assume the low cost is always the best value. So I
do not think that in and of itself tells us a lot.
But the point that Mr. Lieberman made, in terms of really
defining the outcomes and defining the performance that we want
and ensuring we are getting them is critical, and I think that
as we do that more--as I mentioned in my statement, we have
made an unprecedented commitment to moving into a performance-
based services environment which really drives you into
defining the outcomes that you need and are seeking, which is
the link that takes you from a cost-plus environment in most
cases to that fixed price environment that he is talking about.
What we have had trouble over time doing, and I saw it when
I was in the private sector and certainly see it today, is
defining what the performance outcomes are going to be and
writing performance-based statements of work that both sides
can really sign up to in a fixed-price environment. That is
actually not as simple as it sounds, particularly as you get
into complex services. That is really what our training is
geared to enhance our ability to do, because ultimately that
becomes the linchpin to being able to move into a very
different way of dealing with these services.
Mr. Horn. On this point that you are stressing, as I look
at the figures here, and this might be the one you are
referring to, in one instance the Army had been using a cost-
type contract for support services related to the Hawk Missile
system for 39 years. I do not know how many of those you have.
I do not know if they have done a fine job or not. I do recall
when we got into this Bosnia mess that it was a shock wave in
the House of Representatives that there were no cruise missiles
on hand. No one had ever told anybody. Maybe they told somebody
in the Armed Services Committee, but we kicked them around a
little, too, for not informing the other Members.
How do you deal with those things in terms of the inventory
that you keep going to wage something, presumably in the
interest of the United States?
Mr. Soloway. I am not sure that there is a connection
between the Army contract and the Hawk missile office for
contractor support services and the availability of inventory
in wartime. I do not know what specific responsibilities in
that case the contractor had. My guess is that we are really
talking about professional and administrative services and not
program management and inventory and so forth, but I will
certainly look into that because I am not sure if there is, in
fact, a link there, although I do understand the concern that
arose during Kosovo.
Mr. Horn. Well, would you say that service contracts are
much more difficult than the traditional purchase contract for
not services but for a product or something?
Mr. Soloway. Well, if you are looking at a readiness type
of issue, is I think what you are thinking to, I think smart
service contracts, actually, we are using them because we think
they are going to get us increased readiness. I mean, the kinds
of contracts that we are putting in place for flexible
sustainment, is one term, power by the hour, what have you,
really says to the contractor, here is the outcome we need in
this specific case. We need to have our planes flying X number
of hours a month, and it is your responsibility if you have
that particular contract to ensure the availability of that
asset to be able to use it.
That is a performance-based service contract, as opposed to
saying to a contractor, we will order parts as we need to
maintain iron mountains of material in warehouses, material
that becomes obsolete because technology moves forward and so
forth. In fact, we think moving to much more of a performance-
based services environment for equipment maintenance and so
forth will benefit readiness, not negatively impact it. But it
has to be done right and it has to be in a performance
environment.
Mr. Lieberman. Mr. Chairman, could I just add two quick
points of clarification?
Mr. Horn. Yes.
Mr. Lieberman. In our audit, we did not look at the quality
of the performance of the contractor, so when I say that it was
untoward for the Army to keep the same contractor under
contract for 39 years on a cost-plus contract, I am really
criticizing the fact nobody else got a chance to compete and it
stayed on a cost-plus basis. I am not commenting on the quality
of that contractor's work.
Mr. Soloway. And we would agree with that.
Mr. Lieberman. The second thing is, we are also not saying
you always take the lowest bidder, God forbid.
Mr. Horn. Well, I completely agree with that. I was stunned
for many years by State of California low bids.
Mr. Lieberman. Indeed.
Mr. Horn. You just had to get rid of the people and start
all over or you were in lawsuits and all the rest of it.
Mr. Lieberman. Right. However, what we are saying is you do
have to consider price, and we are finding many instances where
price just literally was not a consideration, and that is
obviously unacceptable.
Mr. Horn. Is there any authority you need because of the
difference between service contracts and product commodity
contracts? Is Clinger-Cohen sufficient or is that helpful in
that regard?
Mr. Soloway. I think Clinger-Cohen was very helpful in
focusing our attention on services, particularly in the IT
world. I do not think it is a question for us at this point of
needing additional statutory authority, even regulatory
authority. What we really have tried to do, as I said, with
this new initiative on performance-based services is really
jump-start the training that is provided to our work force. If
you look at the charts that Mr. Hinton had and we talk about
product purchases really in a lot of major weapons systems and
so forth, that was where our training went. It was teaching
people how to acquire major systems. Now as that shift and that
transition has taken place, we have probably been a little slow
on the uptake to try to reorient our training to address the
new marketplace, but that is, in fact, what this initiative is.
As I think both Mr. Lieberman and Mr. Hinton suggested,
this really becomes a training and education issue and it
becomes a management issue, really providing the kind of
management oversight and discipline to this process to say
competition is important. We agree that price is a factor. We
also believe that ultimately getting to a true performance
environment, as is the rule now in the best of class in the
commercial world, is how we are going to get our arms around
this problem, and I think that is not really a legal or a
statutory issue anymore. It is really a matter of our
responsibility to really push forward with the training and
education our work force needs.
Mr. Horn. In terms of the so-called service contract, could
we also say another word for outsourcing, because we certainly
have a lot of government employee unions walking the halls of
Congress nervous when any agency thinks about outsourcing. They
see loss of membership, loss of dues, et cetera.
So how do we separate out on a service contract bulk, that
a lot of that is really outsourcing? And then the question is,
to what degree if something does happen on the Army side, let
us say, where they have outsourced cafeterias, whatnot on
bases, this kind of thing, which beats us all fixing potatoes
and all for the chef. But what do you do when the whole system
breaks down and where do you find those, and I am sure that is
what the armed services do say to the Defense Department.
Mr. Soloway. Certainly, most of the work we outsource is in
the services arena. Not all services we contract for, I am not
sure you would define it as outsourcing, but certainly when we
talk about competitive sourcing and the initiative at the
Department, most of what we are talking about are services. But
when you have a situation where a contractor, if the decision
is made to go to a contractor in that case for work that was
previously performed in-house, you go through a whole
competitive process. OMB Circular A-76 is typically the guiding
policy.
But if you get to a point in performance where the
contractor's performance is horrible and not delivering the
service, you can recompete that contract or you can go--you
have a whole process for curing deficiencies and giving them an
opportunity to fix the mistake, and if they do not, you go back
to the competitive market and take it away.
That is the pressure, that continual potential for
competition, and I think it goes back to Mr. Lieberman's point,
also. That is the pressure that really ultimately drives
performance, is the knowledge that there is competition out
there, there is innovation out there, and if you do not
maintain currency and if you do not perform at a high level,
you are going to lose this work, and I think that is really
what performance-based services really are about and that is
how you would deal with that situation. So it is not a matter
of not having the ability in-house necessarily, it is a
competitive marketplace that continues to drive that
innovation.
Mr. Horn. On that very point, in 1994, when on a bipartisan
basis we said, 5 years from now, we want to see a consolidated
balance sheet for every major organization in the Federal
Government. Now, one of the things we hoped for and we have
held hearings on is getting measures of performance, not simply
finance as the result, but was the job done well, is it meeting
what people thought they were getting, and have you come up
with what you would feel comfortable with, some measures to do
that on contracts and would that be helpful in your annual
budget review as to whether we do this or this, A or B? Have
you come up with some measurement quality that is not simply
how many dollars are at stake here and so forth?
Mr. Soloway. You have taken me a little bit out of my
bailiwick, so I will have to--the whole competitive sourcing
initiative and the outsourcing that you discuss really comes
out of a different organization within the Department and I can
certainly take the question for the record.
I can, however, on a more broad sense, address two points.
First of all, we do have a number of goals under the GPRA that
we are very committed to meeting and I think most of them--I do
not have the full statistics with me--most of them, we have
actually done quite well.
Second, in the area of performance, this is something that
Secretary Cohen, Deputy Secretary Hamry, and Dr. Gansler, the
Under Secretary, have been stressing and pushing across the
Department. In fact, on the defense reform initiative, which I
also have the pleasure of directing, we now have engaged or
entered into performance contracts with each of the defense
agencies. You will see, I think, increasingly throughout the
entire defense reform initiative and all the elements
associated with it, many of which relate to the issues we are
talking about here on acquisition and logistics, long-term
tough performance outcome measures publicly available on
websites and so forth that we are going to meet and so forth.
There have been extensive discussions, as a matter of fact,
with the GAO about this whole area because it is something I
think they have fairly criticized the Department for over the
years, for not having really good performance measures and
metrics.
So this is an area of heavy focus, and specifically with
regard to outsourcing and competitive sourcing, I can certainly
get back to you with the specific measures that are being put
in place.
Mr. Horn. We would appreciate that, so without objection,
space will be put in this part of the record on some of the
measurement standards that the Department of Defense is using
to evaluate performance.
Let me go back a minute to what was said in some of your
testimony on the spares. That is a very serious thing. I can
recall in my district Rockwell International made the Apollo
and the space laboratory, the shuttle, so forth, and I think
they correctly made the decision, hey, we have got all these
warehouses, as you used the word, but in the case of NASA, all
these warehouses for spares and we do not really need them
right, and if we do down the line, we will just get back to it.
There is no question that saved a lot of money for the
government. How many situations like that do we have in the
Pentagon, that there are warehouses filled with spares and some
people do not even know where the warehouses are?
Mr. Soloway. Sir, I would be lying if I told you I had an
exact number. So I do not mean to sound glib, but the answer is
probably a lot. We have a new strategic vision for logistics
and product support that has recently worked its way through
the Department which speaks to this issue extensively in trying
to mirror the best practices that we have seen in the
commercial industries when you look at people like Caterpillar
and John Deere and some of the real world-class operations and
how they have been able to reduce what I referred to earlier as
iron mountains of material, much of which not only gets lost,
but it becomes obsolete as technology goes on, and really move
to the kind of what we call prime vendor or virtual prime
vendor kinds of relationships or total system support, whatever
moniker you want to assign to it, in which we try to avoid
these massive warehouses and really work toward what our real
needs are with constant technology refreshment and supply
streams and so forth.
It is also consistent with where the military itself is
going. If you look at General Schelke's plan for the new
lighter Army, the air expeditionary forces in the Air Force and
so on, this whole concept of a lighter footprint and reducing
the kind of the permanent warehouse supply mentality and really
working toward a supply stream approach is fundamental to what
we are trying to get to in the Department.
Mr. Horn. On the issue of acquisition work force, the
Inspector General noted that none of the 25 contracting
personnel interviewed had received training related to service
contracting. Additionally, the Inspector General reviewed
course catalogs from both the Defense Systems Management
College and the Defense Acquisition University and found no
courses related to service contracting. So I guess, Mr.
Soloway, I would ask you, does the Department of Defense
currently offer in its acquisition work force training how to
negotiate, administer, manage service contracts? If not, when
will this training begin and are you making the Department's
acquisition executives aware of the problems identified in the
audit report?
Mr. Soloway. I think, sir, the answer to that is yes, we
are, and yes, we have. There are elements of various courses
that do touch on some of these issues, but Mr. Lieberman and
the IG is correct in that the fact is that there has been no
focused service contracting courses for the reasons I mentioned
earlier that the focus of the Department traditionally has been
on major systems and product buying and this transition to a
service economy is relatively recent, although in hindsight we
clearly acknowledge that we were slow to move on it.
As I mentioned in my testimony, we have now launched a web-
based training course on performance-based services acquisition
that is available to the entire work force. Dr. Gansler, in the
policy I mentioned where he is going to direct that 50 percent
of all of our service acquisitions be performance-based by
2005, which given the numbers is a very ambitious goal, will
also mandate that all members of the work force involved in
services acquisitions take this or an equivalent course within
the next 12 months. That is an extraordinarily ambitious goal,
but, of course, the wonders of the Internet are such that any
number of people can take it, and at $100 a head, which is
basically the nominal fee associated with it, it really becomes
very affordable.
So we have a very aggressive training agenda in mind as we
also reengineer the formal training within the schoolhouse,
within the Defense Acquisition University and DSMC. We will be
increasingly adding modules at various levels of that training,
from early on in the process to the more senior courses that
focus on services acquisition and more.
Finally, I should also mention that the Defense Logistics
Agency is about, as I understand it, about to launch a new
training course on commercial negotiation and pricing,
particularly in this new services world that they are entering
as well as the spare parts product world.
So the attention to education and training in this area is
very significant. We acknowledge that this has been a problem
in the focus of the Department and we have missed that boat,
but I think that we are moving out in the right direction.
Mr. Horn. In Mr. Lieberman's testimony, he noted that
overall disconnects between workload forecasts, performance
measures, productivity indicators, and plans for work force
sizing and training had major disconnects. I guess I would ask
you, Mr. Lieberman, I think we can guess at what disconnects
are, but give me your definition for it since you wrote the
sentence.
Mr. Lieberman. I believe there should be a logical planning
progression where you decide first of all what the mission of
the organization is, what has to be done to achieve that
mission. In terms of the acquisition work force, what is a
reasonable forecast of the workload that is going to have to be
done by all these different types of players in the acquisition
process? There is a lot of focus on the contracting officers
themselves, but they are supported by a whole panoply of other
disciplines without whom they cannot get from here to there. So
we have to talk about the acquisition work force as a whole.
We have to really analyze what the workload is, is all that
workload necessary, are there opportunities through the
insertion of technology or changing requirements to cut that
workload down, or is it uncontrollable? What is a reasonable
expectation for the individual person?
You asked me for some specific examples before and I only
gave you a couple of problems. Let me throw out another one. We
ran into a technical monitor at a program office who said he
was responsible for oversight of 43 contracts worth $621
million, but most of his time was being taken up negotiating 13
new contracts for a couple hundred million dollars. Now, I
would say that person is simply stretched too thin and that is
lousy staff management by whoever is in the chain. We have an
awful lot of that going on.
We have an evolving work force in many ways
demographically. The skills mix has to change also. People
nowadays have to be much more information technology conversant
than I did when I entered the work force.
All of the factors that go with any kind of work force
planning have to be laid out there. We have to decide how many
people we want and what needs to be done to hire them and
retain them. I think, frankly, there has been entirely too much
emphasis on just cut the number of bodies, period, and I think
our analysis of every other part of the process I just talked
about is way behind the eight-ball. The Department is trying to
catch up now, but we have very, very limited information. There
is a lot of information in this report that we should not have
had to wait for 10 years for auditors to go find out. This
should have been management information that DOD was looking at
all the time.
So we are getting a late start on it, but I do think that
we have the Department's attention and we applaud the
initiatives they are taking now. I am sorry for the long-winded
answer, but----
Mr. Horn. No, it is very helpful. Let me ask you, does the
Office of Personnel Management [OPM], have anything to do with
implementing Clinger-Cohen? I am going to get to Ms. Lee in a
minute in terms of the Office of Management and Budget, but
what is OPM doing to be helpful on this?
Mr. Lieberman. I really do not have enough knowledge of
what OPM is doing to comment on that, but I think Ms. Lee
probably could.
Mr. Soloway. Before Ms. Lee, may I jump in from a DOD
perspective on OPM and what we are doing that relates directly
to the work force? Congress instructed us a couple of years ago
to look at changing the way in which we compensate our work
force, to look more at performance and contribution as opposed
to time serviced. With congressional authority and mandate and
help from OPM, we now have an acquisition work force
demonstration project underway where we have some 5,000 to
7,000 members of our work force whose compensation is largely
tied to their contribution to the organization, which is a very
different way in a civil service environment to approach it. So
that is one way in which OPM, I think, was very helpful.
But also to Mr. Lieberman's point about the workload and
the sizing and the strategic view, we absolutely agree from a
global standpoint that is what our new initiative is really to
deal with, but the program offices and the organizations
independently have to do this. But we are also looking at new
ways of doing business in partnership with the IG, in fact,
where we are taking large contracts where somebody may have
hundreds and hundreds and hundreds of actions a year, much time
spent on individual pricing actions and so forth and trying to
create what we have mutually defined as a strategic alliance
with companies where you can have formulas and processes that
vastly simplify that process, so that if I have a contract with
tens of thousands of items covered and there are 5,000 or 6,000
orders against it a year, it might involve hundreds of
different contracting people around the country.
We can vastly simplify that, and to make that work in the
right way to ensure that we protect the public interest,
protect the public trust, and so forth, the Inspector General
has been working directly with us to try to put those alliances
together with industry, with the agencies, and so forth to try
to structure a different business construct. We have one or two
of them underway now that we, I think collectively, I think
have some tremendous potential to really dramatically reduce
workloads in some areas by getting us out of some of this down
in the weeds nitpicking every time we have an order and basing
it more on a kind of a strategic approach.
Mr. Horn. The Clinger-Cohen Act requires the agencies to
establish policies and procedures to manage the acquisition
work force effectively. Now, these policies should include
education, training, career development, but has the Department
of Defense done anything in those areas in particular and are
there other gaps here? That is what we are interested in.
Mr. Soloway. Sir, the Department of Defense is covered
under something called the Defense Acquisition Workforce
Improvement Act [DAWIA], which lays out a whole series of
certification requirements for people to handle certain kinds
of jobs and move into certain levels.
Mr. Horn. Did that come after Clinger-Cohen?
Mr. Soloway. That preceded Clinger-Cohen.
Mr. Horn. It preceded it? OK.
Mr. Soloway. The DAWIA really set forth kind of a series of
standards depending on what you are going to do. What we really
have to be doing now and what we are doing is relooking at some
of those and how this new work force, what we want out of this
new work force and how DAWIA currently fits into that. Much of
the training at the school, DAU and DSMC, is geared toward the
certification requirements that people have up through the
various levels of the department.
Mr. Horn. Do you find that you are losing the very
qualified procurement personnel because of inadequacies of one
sort or the other in terms of payment, retirement, so forth?
Mr. Soloway. We have some concern that we are, but I will
tell you, I think the concern that we are just slowly coming to
and one that really, in my dealings with the private sector
have suggested to me the private sector is beginning to
realize, is the more we become technology smart in our business
processes and elsewhere, the greater challenge it is going to
be for us to retain people with those technology skills.
I was down at Federal Express with some people a few months
ago talking about enterprise resource planning and IT
integration and so forth and here is a world class information
technology company for all intents and purposes. All of its
senior executives are IT experts. And they told us as they went
through this integration process, they lost 20 to 25 percent of
their top IT skills because they became so valuable on the
marketplace that even FedEx at the rates it pays could not keep
them, and I think that is something we need to keep our eye on
when Mr. Davis was talking about that changing dynamic of the
marketplace, and this is something that is beginning to affect
the military as well.
You hear stories of captains not wanting to bring ships
into port because their enlisted men who have basic
communications training are getting recruited right there on
the dockside. If you say to somebody, what are you making
today, $22,000, $23,000 a year, you have got a family of four
probably living in substandard housing and you are at sea 9
months a year and someone says, I will retrain you for a long-
term career, you can stay in a nicer home, you do not have to
travel 9 months a year, and oh, by the way, I will triple your
salary, it becomes very difficult to retain people.
So I think as we become more technology smart and as we
begin to need more technology skills to execute business
processes, that challenge is going to become even greater.
Mr. Horn. You put it very well, I think, and there is no
question that Mr. Davis' point on the competition in the
marketplace, we have to face up to it.
Ms. Lee, when I mentioned education, training, and career
development, I noted that you put out a policy letter on
September 12, 1997, and you gave the agencies until May 1,
1998, to issue those policies and procedures. Have all of the
agencies complied with that request?
Ms. Lee. All of the major agencies, the largest CFO
agencies, have submitted plans. We are still working with the
agencies on exactly how we want to implement it. It is this
concurrency that we are dealing with. We have existing training
classes and we could say, you must take these 10 training
classes. But as we have identified in here today, we want to
make sure that the content is current with the way we are doing
business. We do not want to teach the old process-oriented,
rules-oriented classes. So what we are trying to do is continue
to educate people but make sure that we think about the new
environment we want them to integrate into and the skills they
are going to need to do that. So we are trying to move them
both forward concurrently.
Mr. Horn. Has anybody not submitted a plan?
Ms. Lee. No.
Mr. Horn. It seems to me that is a piece of paper.
Ms. Lee. Perhaps some small agencies. I do not have the
exact list, but we tracked basically the major CFO agencies and
we have plans in. They are not all perfect.
Mr. Horn. Well, what about some of the smaller agencies,
independent agencies?
Ms. Lee. We do have some of those plans in. I can provide
for you a list of everybody we have in.
Mr. Horn. Could you just provide for the record who has put
them in, where is the status on it, et cetera.
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Mr. Horn. According to your testimony, you plan to issue a
revision to your guidance of May 1, 1998, or September 12,
1997, getting them to get it in by May 1, 1998. Well, that is a
couple of years ago, as I remember. When are you going to issue
that revision, especially if you are leaving?
Ms. Lee. Well, now, this is the civilian agency work force.
We have issued a revision having to do with their certification
requirements, their education and training requirements last
fall and provided waiver capability for the senior procurement
executives because there was a specific affirmative education
requirement there. So we have issued that guidance.
We are continuing to work with the Federal Acquisition
Institute to refine the program, and Mr. Soloway and I, in the
last several months, signed a memorandum of agreement because
one of the other things we want to do is have better
reciprocity between the defense acquisition work force and the
civilian work force so that we can leverage these resources.
Mr. Horn. When did you issue that revision?
Ms. Lee. I believe it was November or December.
Mr. Horn. How long is the revision, a couple of pages?
Ms. Lee. It is a couple of pages. It explains----
Mr. Horn. Could you put it in the record at this point?
Ms. Lee. Certainly.
Mr. Horn. Fine.
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Mr. Horn. Now, for the General Accounting Office, you have
been very quiet, Mr. Hinton. We have not bombarded you with
anything. Have there been any consequences for the Office of
Federal Procurement Policy's delay in issuing the revised
guidance?
Mr. Hinton. None that I am aware of right now, Mr.
Chairman.
Mr. Horn. The General Accounting Office recently reported
that the General Services Administration and the Department of
Veterans' Affairs had not complied with the OMB guidance
requiring them to establish training for their entire
acquisition work force. The GSA was requiring only 16 hours of
continuing education every 2 years, contrary to the 40 hours
required by the guidance. What would you say about that, Ms.
Lee? Is that the steps your office is taking to ensure that the
agencies are complying with your guidance?
Ms. Lee. I am aware of that GAO report and we are working
with the agencies on this overarching training plan, trying to
help them provide the training, Internet-based, et cetera,
because as you know, there are expenses and resources involved.
So we are trying to say, how can we deliver effective training
more efficiently and make it cross the acquisition work force?
Mr. Horn. Do you think a lot of that will be done before
you leave, or who is going to take over, do we know?
Ms. Lee. No, I do not, but the Federal Acquisition
Institute is working aggressively on that and we have got quite
a program going.
Mr. Horn. According to the Defense Inspector General, there
is inadequate auditing of acquisition programs at the
Department and the Inspector General notes that, currently,
less than 10 of the several hundred weapons systems projects
are being comprehensively reviewed each year. He calls for a
broad, systematic program of comprehensive audits of
acquisition programs. I guess, Mr. Soloway, would you agree
with the Inspector General of Defense on that matter?
Mr. Soloway. Truthfully, sir, for the record, I do not
think I would. I think we have extensive auditing that goes on
as a matter of course in particularly all of our major systems
programs. But I think the term of art when Bob talks about
auditing may be a little bit different than the standard
auditing that you and I may be thinking of.
But, in fact, I think we have a very aggressive program of
oversight and review of our major programs and have an
increasingly good handle on costs and performance and so on.
Where we do agree with the Inspector General is that in the
area of services acquisition, we have to get smarter about how
we do them and I think we are doing that and we are, in fact,
working with the IG in a number of areas along those lines.
Mr. Horn. The GAO, as you know, has cited a number of
instances in which the Department of Defense has initiated
production contracts on a weapons system, aircraft, other
vehicles prior to determining whether the item will work as
designed. This practice has resulted in cost overruns, schedule
delays, and degraded performance. Do you agree with that?
Mr. Soloway. I think overall we do agree with that, and
sir, I think in my testimony one of the points I tried to make,
and did not spend a lot of time on it, is that we are now in
the process of revamping what we call the front end of the
acquisition process, which is where the GAO really is focusing
this question, to focus more on the question of technology
maturity before moving into full program development and so on.
This new rewrite of what we call our 5,000 series, which is
the guidance and regulations for our program management systems
acquisition personnel, really now will focus on the
requirements of process and how we use flexibility in the
requirements to make smart decisions that are based largely on
technology maturity so that we do not get ourselves into that
bind. It is not only a question of technology capability and
whether the system is going to work. It also drives cycle
times, it drives costs. We end up occasionally with systems
that go into the field that the technology we have been
reaching for may be very current, but other technologies in the
system by that time are obsolete.
So what we are really trying to do is to capture some of
the best lessons we have learned through a program that is
known as the Advanced Concept Technology Development program,
where you really look at technology maturity and utility in the
field before you make that program decision. We have worked
very closely with the Joint Staff on this. The chairman has
already had his instructions rewritten and we are in the
process of revising ours so that we do not get into that
situation in the future.
Mr. Lieberman. Mr. Chairman, could I have just a couple of
seconds to comment?
Mr. Horn. Yes.
Mr. Lieberman. I think that the Y2K conversion experience
was a graphic example of the benefit of independent review of
information that is generated by program offices in any large
organization, and I do not think, frankly, that that exercise
would have been successful or credible had there not been a
source of independent verification. Auditors stepped up to that
role and I think our contribution was recognized.
Similarly, well, the whole question of auditing weapon
system programs has troubled me for many years. I have been in
the IG business now for 20 years. The acquisition community is
one of the few management groups in the Department of Defense
that sees very limited value in auditors coming in and looking
at their programs. There is absolutely no comparison between
the number of audit suggestions coming from, say, the logistics
community, the finance community, the health community, and the
number of suggestions coming from the acquisition community,
which takes a very passive attitude in general. There are
exceptions, but certainly for major weapon systems, I would
stand by that statement.
We are doing some audits of those systems, but many do not
get auditing at all. GAO steps into that gap and does quite a
bit, but there is still a gap left. When we do go in and look
at these systems, unfortunately, sometimes it is after the
fact. We were asked by the Congress to do post-mortems on two
failed programs last year, an Army tactical intelligence sensor
program that cost $900 million and achieved not much of
anything, and an information management system for the
commissary agency that cost more than $60 million and was a
complete failure. In both those cases, I know that we could
have given early warning that those programs were in trouble,
but what came through the management reporting chain was
unrelenting good news. Everybody is always moving forward and
nobody wants to admit problems because of the resource
competition that Mr. Hinton referred to earlier.
So I disagree with my good friend, Mr. Soloway. I think
there is a need for more auditing on a selective basis, driven
hopefully by risk assessment methodology so that we are sure we
are going to add some value.
Mr. Hinton. Mr. Chairman, could I also weigh in on this a
little bit? Mr. Soloway is exactly right. We have been working
with his office in terms of the body of work that we have done
over the years looking at the best practices in the acquisition
arena and making suggestions based on what we have learned from
our work as to how DOD could improve itself in overseeing and
managing the programs. We are encouraged by what we are hearing
as DOD is formulating its new regulations, but the proof is in
the pudding, that is, the implementation of what is going to
happen, the outcome of the recommendations.
Based on all the work that we have done over the years, in
order to really get at the problems that we have seen, you have
got to get at the root causes for the prevailing practices that
we see of overpromising on performance and underestimating
program costs. These causes go back to funding competition
within a service and between services, preserving programs from
candid criticisms, service rivalries and routinely making
exceptions to sound principles. Once we recognize the root
causes, I think there are three things that need to occur and
we need to see the Department demonstrate or else we will be
back here next year or the year after talking about the same
symptoms that we see in a lot of the acquisitions.
One of the first things that we see is the need to have a
policy that really spells out best practices that will work in
DOD. That policy must recognize the changes that are needed in
the environment, in the culture, in the incentives that will
drive the culture and the behavior to act differently.
A second point, and it is one that has been a constant
theme throughout the statements and in our oral statements this
morning has been that the acquisition work force needs to be
very effectively trained on how to implement that policy.
Third, and very importantly, the policy needs to be
enforced. And that goes right to the heart of funding, making
critical decisions when we have programs coming through and
someone raising their hand to say we have got problems. We
should not be going forward. The technology is not where we
need it to be before we move forward into the engineering and
manufacturing phase of the acquisition process.
It is going to be that case-by-case demonstration for us to
see whether or not the behavior and the policies are going to
change. That is based on a large body of work that we have
done, and like I say, I am encouraged with where DOD is headed,
but the proof is going to be in how it is implemented.
Mr. Soloway. Sir, may I just add one more point, not in an
argumentative vein, but to this issue.
Mr. Horn. Sure.
Mr. Soloway. I think that maybe we ought to look at the way
we are structuring the process now, and if I could suggest a
way in which we can achieve some of the goals that both Mr.
Hinton and Mr. Lieberman are talking toward. All of our major
weapons programs now are managed through what we call the IPT
process, Integrated Product Teams, bringing together the
various disciplines. It seems to me, to the extent that
resources permit and so forth or where there are high-risk or
high-visibility programs that are of interest to the Inspector
General's office, that an ongoing partnership as part of the
IPT might bring a different cast to bear, if you will, on the
process. There is always a tension between auditors and
performers and there is always this natural, sometimes very
constructive tension between people feeling like they are being
checked out as opposed to people feeling like they are in an
environment of partnership.
One of the successes that is in process, we think, now is
this whole, as I mentioned, strategic alliance, where the
Inspector General, our office, and a bunch of other players are
working together to construct a different business model, and I
think the IPT process that we have in place already with our
major programs really offers an opportunity to provide the
access and the insight for folks like the Inspector General to
then identify problems as they are coming along, potentially
work them out in that environment as opposed to the perception
of another check coming down the pike, which is always going to
create some tension.
Mr. Horn. Let me go back to spares on this particular
dialog here. The Inspector General in their report of March 8,
2000, noted that the Department paid from 124 percent to 148
percent more than what was fair and reasonable for propeller
blade heaters for the C-130 and the P-3 aircraft. Now, does the
Department of Defense agree with that or do they think it is
mythology by the auditors?
Mr. Soloway. To be very frank with you, sir, this is a
matter that has been under significant discussion and debate
between us and the Inspector General for some months now, and
it gets back to the point I made earlier. The price comparison
becomes questionable in our mind when one recognizes that
previous purchases of that part were for the part itself,
whereas today those purchases are part of a virtual prime
vendor or prime vendor arrangement in which a whole range of
services in addition to the part are being provided--supply
management, inventorying, warehousing. We are not buying
hundreds of parts and putting them into warehouses. All of that
responsibility has been turned over to the contractor and so
on. So there is a whole service associated with what we are
buying in those parts.
In addition to the actual cost there, you want to also look
at the impact of that relationship on the total business chain,
as any good business model would do, and this was the intent of
the independent business case that the Defense Logistics Agency
conducted, their analysis that they had conducted by KPMG some
time ago.
What we have seen with this contract to date, and we have
had several very aggressive reviews of it and put DLA through
some very difficult, tough questions, as well as the
contractors, brought them in and really looked hard at it, we
see significant improvement in parts availability across the
board. We see a 30 percent reduction in the repair turnaround
time, and all of that thus, as I said in my statement,
translates into increased readiness and mission capability and
availability of capital assets.
That analysis, that broad sort of supply chain or value
analysis, is not, in fact, part of the report that the
Inspector General's office has issued, so we have been engaged,
and I believe that--I have not seen the final version of the
report. Of course, we saw a draft, but we have been engaged in
an active discussion with them for some time over the need to
step back and look at some of these bigger questions.
Now, I will acknowledge to you that we cannot, the DLA
cannot or the Air Force cannot point to specific dollar values
for each of those pieces themselves. This is a very new
environment for the Department of Defense, as it is for much of
industry. How do you do value chain analysis across the board?
But what we do know is that a 30 percent reduction in repair
turnaround time, improved parts availability, improved
availability of capital assets has tremendous value. So we are
not at all convinced that the prices being paid are unfair and
unreasonable.
Now, in some cases, there are prices that are being paid
that have been identified either by the IG independently or
previously by Defense Logistics Agency, which in the last
couple of years has put into place a system, a sort of a red
flag system, if you will, to identify situations where one of
these thousands of parts prices has, in fact, gone up what
would appear to be precipitously, and in many of those cases,
they have been successful in renegotiating prices. I believe, I
am not sure if it is the blade heater specifically or one of
the other parts covered in that report, have recently reduced
the price by about 20 or 25 percent through negotiations, with
another expected reduction in the next round, the next renewal
of the contract.
So there is a system in place to identify this. It is
imperfect. We are dealing with tens and tens of thousands of
parts. We are dealing in some cases with parts that are
misidentified or mislabeled and so forth as a result of a
turnover of responsibility over the last several years from the
services to DLA of literally millions of NSNs, we call them,
part numbers. But I do think that if one looks at the steps
that have been taken, they are very much in consonance with
what the IG has recommended.
And for the most part, the timeframes of the actions cited
in this current C-130 report are contemporaneous with the
earlier reports. We are talking about sort of a 1996-1997
timeframe, not 1999-2000, because it would be impossible for
them to have had that audit visibility at this point. But the
performance on the contract and what it has resulted in to us
suggests to us that this is a very excellent vehicle. It works
very well for the benefit of the Department and the taxpayer.
Mr. Horn. Well----
Mr. Lieberman. Could I respond to that?
Mr. Horn. Please, because I was going to ask you this
question. You might want to respond to this, too. Why was your
focus limited to aviation spare parts or are you looking at
other situations of cost overrun and overpricing and
underpricing and all the rest? So maybe you could tell us a
little feel about that. You have done a great job where this
is.
Mr. Lieberman. Let me address those questions first. We got
into the aviation spares area because of a hotline complaint
regarding spare parts on a specific contract, a new type of
contract the Defense Logistics Agency referred to as a
corporate contract. Once we got into that, we found this was
merely one of a whole family of very similar contracts,
basically in the aviation spares area. The Defense Logistics
Agency was trying to adapt what it considered to be commercial
buying practices. This related mostly to going into commercial
catalogs that companies like Boeing and Allied Signal had in
order to buy spare parts.
So we have stayed in the aviation area because there were
multiple contracts and we have worked through half a dozen of
them now one by one. We have not been asked to look at other
types of spare parts, nor, frankly, do we have the staff to do
so. So whatever we say about spare parts, it is fair to say
that we should not generalize and I would not say that every
kind of commodity DOD buys has the same kind of problems.
Prices paid for aviation spares historically have been
controversial. The coffee pot, the toilet seat, and the hammer
were all going into airplanes, as I recall, or at least the
first two were, for sure. Aviation spares were really the
center of attention in the early and mid-1980's. Therefore, it
has always been a sore point. But we did not single out those
companies in those contracts. As I said, it was all driven by a
hotline allegation, which then led us to wonder whether the
problems on that contract were an anomaly or whether they were
widespread across that whole kind of contract and we found the
latter.
Now, talking about the virtual prime vendor contract, both
of our reports are out in final. I would urge Mr. Soloway to
read them because they address every single one of the points
he just made. I am constrained in talking about this at this
hearing because these reports are still for official use only.
We do not want to violate the law by disclosing proprietary
data of the contractor, and basically, we have to be very
careful with disclosing numbers.
What I can say, though, is that we are not mindlessly
comparing the cost in this contract with the cost of the part
way back when, and saying the difference is bad. We realize
full well that the Department is buying services along with the
parts on these contracts, and that would be fine if, and the
KPMG study has the same big ``if'' in it, you really need those
services. Do you need to hire a contractor who, in essence,
acts like a wholesale supplier? He is a vendor. He does not
make most of the things we are talking about. He goes out and
buys them for you. He acts just like the defense warehouse we
were talking about before, except hopefully he does it a lot
more efficiently in using modern business systems and modern
business practices.
Do you really need a wholesale level if, for example, you
have a part where you know exactly how many you are going to
need each month, the supply is very predictable, you know
exactly who is going to need them and where they are going to
be needed and it makes no particular sense to have any kind of
middleman or any wholesale inventory. Why not just ship
directly from whoever makes them to where they are needed? So
buying services, paying extra bucks to buy services that we did
not really need to buy in the first place has been a recurrent
issue through all of these audits.
Now, as Mr. Soloway has said, we have been working with the
Department to migrate out of that whole generation of
contracts, into a new generation of strategic supplier
alliances. I do not know who coined that term. I hope it was
not anybody in my office, but anyway, these are much more
sophisticated arrangements, much more precise pricing based on
what kind of support do we really need vis-a-vis each one of
this whole market basket of parts that we are talking about
with each one of these vendors. I believe that the vendors will
like it better, and DOD will like it better. DOD will certainly
get more value for its money under these arrangements.
Whether all the suppliers will be willing to negotiate
those kinds of arrangements or not, I do not know. They may not
be. But this is the way the tide is running right now. In fact,
the Defense Logistics Agency has agreed, this contract had
serious flaws and will be replaced, hopefully, by a new
arrangement, an SSA.
Mr. Horn. Mr. Lieberman, is it within the Inspector
General's jurisdiction to not only look at the money side but
to look where retirees have come from the civilian and military
side in some of these firms that seem to have this nice pricey
situation where they can raise the amount to 124 percent to 148
percent? I would like to see that, because obviously there are
some connections around here somewhere, I would think. We ought
to at least go in with that hypothesis.
Mr. Lieberman. Well, we have not done any recent work on
that. What you are talking about is the infamous revolving door
syndrome.
Mr. Horn. And what President Eisenhower had to say in his
last address to the Nation, which was the military industrial
complex.
Mr. Lieberman. Well, there are----
Mr. Horn. Some of us were discussing that last night around
here, that we actually remember that speech.
Mr. Lieberman. I have been around a long time. I have
worked under a lot of Presidents, too, but Eisenhower was not
one of them.
Mr. Horn. Well, I did. I was assistant to the Secretary of
Labor and he was a great man. He is slowly getting his own by
the historians that do not quite know how you should pick
Presidents anyhow. But Eisenhower had strong feelings on this.
We ought to give you the Eisenhower medal for those reports.
Mr. Lieberman. Well, there are very specific laws. In fact,
this is an area where, if anything, we probably over-regulated
in terms of what the standards are for avoiding conflict of
interest. The Ill Wind scandal of the mid-1980's where a senior
Navy official was bribed set off a chain reaction of
legislation and, in fact, the folks here on my left probably
know a lot more about that than I do.
We have, indeed, been asked from time to time to look into
situations where there was some evidence of breaking those
rules and those can turn into criminal cases and there have
been some criminal investigations driven by that sort of thing.
I cannot say, though, that we have done any audits that have
traced or found any particular trend in terms of who it is that
the contractors are employing or who owns the companies and
what kind of prices are charged to the Department as a result.
And in fairness, I should say that in all these spare parts
reports, it is not the contractor's fault. I think Mr. Soloway
would agree. These are not cases of DOD getting ripped off by
contractors. These are cases where DOD did not make very good
deals and the contract terms just were not particularly
favorable to the government.
Mr. Horn. How have we solved that, Mr. Soloway?
Mr. Soloway. I think that the point Mr. Lieberman just made
is the critical one, that we are not dealing by and large here
with cases where we are concerned that we are being ripped off,
if you will, but where we are making the intelligent decisions,
have systems in place to identify outlier prices, and have
training in place for our folks to really understand how these
processes can work and how these commercial practices of supply
chain management specifically can work, and that is much of the
training that I spoke of earlier during the day.
I think one good example of this is in the two of the three
reports that the IG released a couple of years ago in this
area. One of the major issues in those contracts was that we
were using the contract vehicles incorrectly and we had people
in the field who did not understand. For instance, we had a
contract, I believe it was with Boeing, where it was for urgent
requirements, where we had an aircraft on the ground and it was
a 24-hour guarantee, get the part anywhere in the world, for
which you obviously pay a premium price, and we found cases
where people were buying for stock from that because it was not
adequately trained and communicated to them the nature of the
contract.
So I think this really is, and I think that the Inspector
General, Mr. Lieberman, and others have been very clear about
the sense that we have started to take the right steps toward
training the work force, providing the training that is needed,
and creating a different sort of knowledge base that goes into
utilizing these business arrangements.
Mr. Horn. Ms. Lee, you have listened patiently to this
dialog. Do you have any comments to make on it?
Ms. Lee. I agree it is a work force challenge. We have got
a lot of work ahead of us, but there are good things happening
and we do need to look at what is the result. Do we have more
aircraft up? Do we have a shorter turnaround time? Are we more
ready? And somehow we have got to balance those very important
results issues with our business deals and that is why we are
trying to make sure we have workers who are truly business
managers and can make these kind of business decisions.
Mr. Horn. But you would agree the taxpayers deserve the
best price and the best quality?
Ms. Lee. Absolutely.
Mr. Horn. Mr. Hinton, what does the General Accounting
Office think of this debate?
Mr. Hinton. I am kind of coming out where Ms. Lee is there
and I do think that one of the most critical issues that we
have right now is two-fold, actually three-fold, Mr. Chairman.
One is looking at the major weapons systems and getting the
outcomes that we really want.
Second, as we move forward on all of these high dollar-
value information technology projects, we must have the right
leadership and the commitment in the leadership, a good game
plan going in, a good handle on the requirements of what we are
after, and a good finance plan.
And third, and I think very critically, is the issue that
we have all talked about today, the work force issue,
particularly in DOD, as DOD has downsized. We have embarked on
a very broad defense reform program over there. We are moving
into electronic commerce, a whole new area over there. It is
going to require new skills, new knowledge, new abilities, and
we are at a point where we have got to make sure that we have
got the right balance in the work force that is going to be
able to carry us forward from where we are right now. So I do
think that they are the top three from where we would come
from.
Mr. Horn. Somewhere in the back of my head, the figure
36,000 is applied to the Pentagon in terms of the number of
people they have got involved in acquisition, purchasing, so
forth. Is that a possibility?
Mr. Soloway. We have our total what we call core
acquisition and technology work force. It is not just
contracting people, but all, as Mr. Lieberman called it, the
panoply of skills that support them, is actually about 150,000,
about 19,000 of whom actually have the right to sign contracts
and commit.
Mr. Horn. Well, that is interesting.
Mr. Lieberman. In the congressional definition, it is
230,000.
Mr. Horn. The what? 230,000 overall or what?
Mr. Lieberman. There is a congressional definition that
includes everybody who works in an acquisition organization.
That includes many administrative people but that is the
congressional definition of acquisition work force and it adds
up to a whopping 230,000, even after being downsized from
460,000. But the acquisition core itself is 129,000.
Mr. Soloway. We actually went through a whole process with
Congress a couple of years ago to redefine that acquisition
work force because of some efforts Mr. Hunter and others had
underway to require reductions and there is a report we
submitted called the ``Section 912 Study'' in which we
redefined that work force and that is how we come up with this
130,000, 150,000, depending. It is a slightly variable number,
but it is a lot of people and a lot of training requirement.
Mr. Horn. Well, exactly. That is the point here, that when
you have got people working their way up to be sufficiently
qualified and see a career lying ahead of them, they might stay
there, and it seems to me that is even more that this
curriculum ought to be working through Internet, all the rest
of it, and distance learning when you are at bases spread all
over the world. We ought to be able to do a good job of that.
Has the IG or GAO looked into strictly the curriculum bit
there? I know in passing some of you did, but----
Mr. Hinton. In the acquisition arena, we have, Mr.
Chairman, and one of the best practice reviews we did was
looking specifically at training. And when we compare DOD as to
what commercial firms are doing outside, the commercial firms
have a very strategic approach to how they train on best
practices when an initiative comes about.
Key to that is having leadership, and key to that is being
focused and having the resources and the undivided attention of
the work force that you are trying to train. We sat down with
Mr. Soloway and have gone through that and that is one area, as
he remarked earlier, that they are embarking on and trying to
get revisions, improvements in the training program. I am
encouraged by the direction they are moving in.
Mr. Horn. Thank you. Does anyone want to make a last
comment on this? Yes, Mr. Lieberman.
Mr. Lieberman. Actually, we have not looked at DOD
acquisition training from an audit perspective, but I try to
send my auditors to the exact same training that the
acquisition people get. So we have a lot of first-hand feedback
from auditors who went and took courses. I would say that the
quality of the instruction is excellent. The problem has been
over the years that the curriculum is too limited. It is too
heavily oriented toward major weapon systems acquisition. It
needs to be somewhat expanded and DOD needs to find ways to
cycle more people through either formal training or, as you
say, nowadays there are other ways to provide people a way to
get themselves into this continual learning mode, which is what
we have to strive for.
Mr. Horn. Yes?
Mr. Soloway. We have a very tough continuous learning
requirement at DOD, relatively speaking, of 80 hours every 2
years. As I said earlier, we are going to be creating a core
curriculum within that, and most of that is distance learning,
web-based opportunities. We are going to be creating a core
curriculum which will require our work force to take some
percentage of that continuous learning from a given menu of
courses which will evolve and change over time. As we reach
certain training milestones with the work force, we will be
injecting new stuff into that and that will become a dynamic
core curriculum, if you will. But each of the things that have
been said here by Mr. Lieberman and Mr. Hinton in the training
area we agree 100 percent with and, I think, are really moving
out aggressively in all of those areas.
One of the things you also find in the corporate world, and
I just spent 2 days looking at this in a number of different
companies, is what they call corporate universities and how
they train their executives and do executive and practitioner
education. We have a schoolhouse in the Defense Acquisition
University which is not just a schoolhouse but extensive
distance learning, and we are in the process now of
transitioning some of those top attributes of a corporate
university, of the kinds of things that Mr. Hinton talked
about, which is real-time knowledge, real-time practitioner
experience, best practices, and specific targeted training,
into that system.
Mr. Horn. That is very helpful. Ms. Lee, one last comment.
The question I should have asked and did not, you can answer it
now.
Ms. Lee. The question you should have asked and did not?
Mr. Horn. Well, we will miss you. Maybe we will follow your
career over there or something and get you here as a witness
under oath.
Ms. Lee. Thank you very much. It has been a pleasure.
Mr. Horn. We thank you all. I know it has been a long day,
but we appreciate you sticking it out and sharing your views on
this. If you have any other thoughts you would like to add to
the record, just send it over to the staff. We will be glad to
put it in the record at whatever place you would like to have
it. We will now move to panel two, and we thank panel one.
We have General Tuttle and then Mr. Grant Thorpe, Mr. Gary
Engebretson, and Mr. Leinster.
Please raise your right hands.
[Witnesses sworn.]
Mr. Horn. Yes, sir. The clerk will note that the four
witnesses have taken the oath and we will begin with General
William Tuttle, Jr., who is retired, president of the Logistics
Management Institute on behalf of the Procurement Round Table.
General, we are glad to have you here.
STATEMENTS OF GENERAL WILLIAM TUTTLE, JR. (RET.), PRESIDENT,
LOGISTICS MANAGEMENT INSTITUTE, ON BEHALF OF THE PROCUREMENT
ROUND TABLE; GRANT THORPE, SENIOR CONTRACTS MANAGER, TRW, ON
BEHALF OF THE PROFESSIONAL SERVICES COUNCIL; GARY D.
ENGEBRETSON, PRESIDENT, CONTRACT SERVICES ASSOCIATION; AND
BRUCE E. LEINSTER, INDUSTRY EXECUTIVE, CONTRACT AND ACQUISITION
POLICY, GOVERNMENT INDUSTRY SECTOR FOR IBM, ON BEHALF OF THE
INFORMATION TECHNOLOGY ASSOCIATION OF AMERICA
General Tuttle. Chairman Horn, my name is Bill Tuttle. I am
the president of Logistics Management Institute, as you just
mentioned, but I am here today representing the Procurement
Round Table, a nonprofit organization of 39 former Federal
acquisition officials who serve pro bono in advising and
assisting the government in making improvements in Federal
acquisition. My statement, provided for the record, is our
recent paper entitled, ``The Federal Acquisition System:
Transitioning to the 21st Century.''
As has been mentioned before, annually, the Federal
Government acquires from the private sector roughly $200
billion in goods and services for its use. The Procurement
Round Table [PRT] as I will call it in the future--you have to
use the acronyms--our objective with this paper is to stimulate
continuing reforms in the process by which the government
obtains these goods and services, reforms that will help
prepare the critical Federal acquisition system to deal
effectively with the unprecedented changes occurring in both
the commercial marketplace and within the government itself.
Unabated technological change and competitive market forces are
producing a dramatically transformed marketplace, one in which
traditional market boundaries and relationships are
disappearing and new ways of doing business are being developed
at a challenging pace. Within the Federal Government, agencies
are changing their roles and depend to an increasing degree on
the private sector and State and local government to provide
essential services.
To cope with and, in fact, to help lead these changes, the
Federal acquisition system must implement a new series of
reforms that buildupon the encouraging foundation established
by the reforms of the 1990's. To this end, the PRT believes
that the following actions must be taken, and we have about
five recommendations in the paper.
First, to redefine the scope and vision of Federal
acquisition. For example, the present definition of acquisition
in the FAR is to ``acquire by contract.'' It connotes, ignoring
other means of obtaining goods and services through cooperative
agreements, other transactions, even grants. We recommend
broadening the definition to include the other methods of
obtaining goods and services and to include the whole
acquisition process, from requirement setting to life cycle
support of capital goods. Also, we recommend, in this context,
by law designating the senior procurement executive in each
agency as the chief acquisition officer, in effect, the senior
business manager.
Second, encourage results-oriented long-term relationships
between the government and its suppliers, for example,
contracting for products and services, such as producing,
installing, and supporting elements of the National Air Space
Management System over a 10 to 15-year period.
Third, adopt policies calling for government information
technology architecture and systems that are fully capable of
interfacing with each other and with those of industry. For
example, a government-industry agreed technical intranet/
internet architecture for contracts and grants process formats.
Fourthly, adopt a business-based approach to cost
accounting, budgeting, and acquisition policy guidance. For
example, multi-year budgets, greater reprogramming authority,
moving Federal cost accounting standards closer to generally
accepted accounting principles used in the private sector.
And fifth, place greater reliance on commercial industrial
capabilities. For example, agencies would use private sector
R&D capabilities unless there is no commercial capability
rather than compete with those commercial capabilities.
These new reforms will better prepare the Federal
acquisition system to contribute to lower acquisition costs,
rapid and more informed decisionmaking, higher quality products
and services, efficient life cycle sustainment, and integrity
for the taxpayer. As with the successful reforms in the 1990's,
implementing these additional reforms will be a challenging
task, one that will require the full commitment, advocacy, and
partnership of Congress and the executive branch.
To provide a foundation for that partnership and to serve
as an implementation mechanism for these reforms, the PRT
recommends that Congress enact legislation to direct the
executive branch to establish a high-level panel similar to the
DOD Acquisition Law Advisory Panel of the early 1990's,
otherwise known as a Section 800 panel, to identify the
specific actions required to implement the recommendations in
the paper.
In closing, while the millennial changes discussed in this
paper are not tied to the turning of the numbers on the
calendar, the changes are as critical as the millennium was
inevitable. The time to start is now.
Thank you, Chairman Horn, for the opportunity to offer the
Procurement Round Table's recommendations.
Mr. Horn. Thank you very much. We appreciate your
experience being brought here.
[The prepared statement of General Tuttle follows:]
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Mr. Horn. Mr. Grant Thorpe is the senior contracts manager,
TRW, on behalf of the Professional Services Council.
Mr. Thorpe. Mr. Chairman, on behalf of the Professional
Services Council, I would like to express our appreciation for
the opportunity to testify today on the government acquisition
process. I am Grant Thorpe, senior contracts manager with TRW,
representing Mr. Concklin and the Professional Services
Council.
The last 8 years have witnessed a dramatic transformation
in the way the Federal Government buys goods and services from
the private sector. It has been a deregulatory miracle. The
miracle is clearly underway but has a long way to go. I
recommend the following five priorities.
Removing additional regulatory burden. We still need to
reduce the regulatory requirements, continue to decrease the
reliance on military specifications, and reduce the need for
additional representations and certifications in contract
proposals. We must focus on results rather than on process and
contract administration, put funding into improving the payment
streams for contractor invoices, and cut the multiple reviews
of invoices, ACRN accounting, and additional audits. Legitimize
common sense. Increase the use of oral presentations and
continue to reduce the page limits on proposals.
Fourth, maximize commercial solutions. Use more commercial
off-the-shelf hardware and software, reduce the requirement for
cost accounting standards application and the request for
certified cost and pricing data.
And last, improve the opportunity for private industry to
compete by identifying non-inherently governmental functions
and privatizing them and making the public-private competitions
fair to industry by leveling the playing field in the A-76
process.
How do we do this? A major way is to invest substantially
in acquisition learning. Implement key elements of the reform
architecture, such as performance-based service contracting,
past performance, oral proposals, multiple award vehicles, best
value contracting, electronic commerce, and market research.
Many of those were mentioned in the prior panel.
How should we do this? Critical implementation areas
include, and I just mentioned a few of them, past performance,
performance-based service contracting, business process
reengineering, and market research.
In the acquisition learning area, focus on web-based
technologies and integrate learning programs with nationally
recognized certification processes, such as the National
Contract Management Association, and degree programs at
colleges and universities.
Third, merge procurement and technical functions. Undertake
an organizational and functional integration of the procurement
and the program technical manager functions.
And last, focus on technology-driven enterprise. There is
still too much emphasis on paper. All requests for proposals
should be forwarded electronically and responses provided in
the same medium.
We have not arrived at our ultimate goals and we must be
careful of incremental reform.
Mr. Chairman, I thank you for the opportunity to express
our opinions and look forward to working closely with this
subcommittee and committee to achieve these aggressive
objectives.
Mr. Horn. Thank you very much. We will get back to you with
some questions after the next two speakers.
[The prepared statement of Mr. Concklin follows:]
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Mr. Horn. Mr. Gary D. Engebretson, president of the
Contract Services Association. Tell us a little bit about your
organization.
Mr. Engebretson. Mr. Chairman, my name is Gary Engebretson
and I am president of the Contract Services Association of
America [CSA]. It is the Nation's oldest and largest
association of government service contractors. Now in its 35th
year, CSA represents more than 330 companies that provide a
wide array of services to the Federal Government as well as to
numerous State and local governments.
I greatly appreciate this opportunity to share with you the
views of our members on the Federal acquisition process. I have
submitted a more comprehensive statement and I ask that it be
inserted into the record.
Mr. Horn. I should have said at the beginning, the minute
we introduce you, it is automatically in the record.
Mr. Engebretson. Thank you. I commend you for holding this
hearing today. As former Representative Bill Clinger noted,
``Only through the most vigorous implementation will we achieve
the goal of creating a more responsive system which provides
more discretion to government buyers and freedom for those who
sell to them while maintaining the requisite degree of control
and fairness.''
Doing business with the government once meant increased
costs and little flexibility. The unique systems required kept
many qualified commercial firms out of the government
marketplace. Then in rapid succession, we saw the enactment of
the 1994 Federal Acquisition Streamlining Act and the 1996
Clinger-Cohen Act, along with the FAR Part 15 rewrite and the
initiatives in the fiscal year 2000 defense bill, all aimed at
developing a more functional, effective acquisition process.
It is exciting to see the contracting officials move
forward to the technology to further acquisition reform by
posting solicitations on the Internet and updating bidders via
e-mail, but I see these laws and initiatives as only the tip of
the iceberg for the overhauling of the procurement system,
particularly for the services contracting arena, which is an
increasingly crucial part of the government marketplace, as we
heard from previous people on the panel.
CSA is the co-chair of the Acquisition Reform Working Group
[ARWG], a coalition made up of industry trade associations
representing both hardware and service contractors. ARWG has
developed additional acquisition reform initiatives for
consideration during this fiscal year. I ask that a summary of
these proposals be included also in the record.
The ARWG recommendations are aimed at eliminating or at
least lowering the barriers to make government business
unattractive to commercial firms and inhibit greater
integration of commercial and government products and services.
The system is still a long way from where it needs to be. Our
companies tell me they still see supposed best value
competitions that end up being nothing more than thinly veiled
low-cost competitions and performance-based procurements with
specifically exacting requirements.
For example, why should a solicitation still require manual
inspections of a pumping system when a computer monitor could
provide the same information and probably even more timely and
more accurate. These problems are not the result of reform.
Rather, they reflect entrenched cultures that are slowly coming
to grips with a very significant change. But let us not walk
away from reform in the face of these difficulties. Instead, we
should face them head on together, and that means redoubling
our focus on education and training.
For CSA, the training and education for acquisition work
force consistently ranks as one of our membership's top issues.
It is a critically important element of the reform process.
Over the years, the practices and cultures of the government
and commercial sectors evolved separately. Now these sectors
must come together in terms of contracting and pricing and
quality design and manufacturing.
We are asking a work force that is used to a rigid, almost
confrontational system to embrace a system that is more open,
more empowering, and possibly more risky for all concerned, and
certainly more reliant on the contracting officer's business
judgment rather than an established set of rules.
Culture change and institutionalization of reform
initiatives through education and training will ensure that we
all reap the benefits of acquisition reform. Recognizing that
training is a two-way street, CSA is developing special
acquisition training programs for its members, in addition to
strengthening its existing programs on the Service Contract and
Davis-Bacon Acts.
CSA represents a significant number of small businesses and
supports programs that encourage and assist small businesses to
obtain a fair share of Federal procurement opportunities. Small
businesses are an important source of supply to the government.
Yet, they disproportionately feel the loss of business revenue
and unique burdens placed on the government's suppliers. These
businesses can least afford the additional overhead costs,
including the hiring of additional employees or lawyers to
ensure compliance associated with doing business with the
government. This is where acquisition reform truly benefits
small businesses.
Finally, the issues of outsourcing and privatization are
among the most prominent and important issues now facing the
Federal agencies. Much of what has been accomplished in the
area of acquisition reform can and must be applied to a more
aggressive and comprehensive policy of competing commercial
activities currently performed by government agencies.
While CSA recognizes that public-private competitions will
continue to be the rule, we are concerned that such
competitions ultimately disadvantage all parties. For the
private sector, the playing field is not and likely never will
be entirely level. Numerous factors make it extremely difficult
and often impossible for industry to win a competition,
especially for small businesses. Indeed, awarding the contract
to the government is not even made on a basis of best value, a
fundamental premise of acquisition reform.
If government agencies are to continue to compete against
private offerers to provide goods or services, it is vital that
such a competition be conducted on the basis of truly
comparable cost accounting practices, past performance, and
also best value. Until then, quality service contractors cannot
trust a process that can so easily be manipulated to provide
competitive advantages to what we call the in-house or most
efficient organization and are increasingly unwilling to
participate in the A-76 process, although I will admit there
are a few examples of individual commands pioneering the use of
acquisition reform tools to a great advantage.
CSA strongly supports the Federal Activities Inventory
Reform Act, which requires an inventory of all commercial
activities within the Federal Government and allows contracting
of those activities to achieve a best value for the taxpayer.
It is a rational and appropriate approach toward achieving the
proper balance between public and private resources.
In summary, the road to acquisition reform will be filled
with rough spots and abuses and some of them quite significant,
but nothing that we cannot overcome. In the words of one of our
member companies, he says, ``Where some people see threats and
potential abuses, my optimism causes me to see opportunities
for the overall procurement process.''
I thank you, Mr. Chairman, for this opportunity to share
our views and we will be open to any questions that you may
have.
Mr. Horn. We thank you.
[The prepared statement of Mr. Engebretson follows:]
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Mr. Horn. Our last panelist is Mr. Bruce E. Leinster,
industry executive, Contract and Acquisition Policy, the
Government Industry Sector for International Business Machines
[IBM], on behalf of the Information Technology Association of
America [ITAA]. We appreciate the testimony ITAA always
provides us and thank you for coming.
Mr. Leinster. Thank you, Mr. Chairman, and I am pleased to
be here today on behalf of ITAA to express our views on Federal
acquisition management challenges.
While I am with IBM, I am testifying today in my capacity
as chairman of ITAA's Procurement Policy Committee. ITAA's 400
corporate members represent U.S.-based firms offering software
products, professional services, network-based services, and
systems integration services to the private and public sector.
Thus, many of our member companies are actively engaged in the
Federal marketplace.
ITAA commends Chairman Horn and the subcommittee for
holding this critical oversight hearing today. With the
incredible pace of change in the procurement system that was
caused by the Federal Acquisition Streamlining Act [FASA], and
the Clinger-Cohen Act, it is most appropriate that the Congress
review how these reforms are being implemented. ITAA is very
enthusiastic in support of the changes brought about by these
landmark bills.
The Federal acquisition process, while by no means perfect,
has been greatly improved. The duration of acquisitions has
been shortened dramatically. The agencies have a wider range of
competitive vehicles to choose from, including governmentwide
acquisition contracts, so called GWACs, and the General
Services Administration's IT schedules, and the use of
commercial practices is more commonplace. Also, the elimination
of bid protests at the General Services Board of Contract
appeals has enhanced the relationship between customers and
vendors.
ITAA believes that both the use of GWACs and the GSA IT
schedules now offer the Federal customers choices of IT
products and services that they did not have before at
competitive prices and on a timely basis.
The intense competition among the commercial vendors
ensures fair prices for the government, and the length of the
acquisitions as well as the cost of the acquisitions has been
reduced from months to often a couple of days or weeks. The
modifications introduced by the Federal Supply Service in
recent years have greatly enhanced the attractiveness of the
GSA schedules.
In addition and most importantly, small firms continue to
enjoy a substantial share of schedule sales, not just numbers
of contracts but revenue generated from those contracts. We
urge the subcommittee to resist efforts to restore any of the
pre-FASA Clinger-Cohen regulations. In fact, ITAA has as one of
its priorities to ensure that these procurement reforms
continue and that there is no rollback of the gains made by
these laws. We understand, however, that there may still be
some laws in implementing the goals of FASA and Clinger-Cohen,
but we believe this can best be achieved by more training for
the acquisition personnel, a subject that was discussed at
length by the earlier panel.
Too often, the first budget cuts in Federal agencies take
place in areas of education and training. This has hampered
realizing the full benefits of the acquisition reforms and we
encourage the subcommittee to stress the importance of this
training when considering the agency budget requests.
ITAA, however, does believe that additional reforms are
still needed. We urge the subcommittee to review the entire
area of unique requirements for Federal vendors that do not
exist in the commercial sector. Some of these issues have been
included in the Acquisition Reform Working Group's statement
that was referred to earlier and ITAA would like to express our
support for this document.
We believe that elimination or modification of many of
these provisions would continue the road of reform the
subcommittee has paved. Issues like eliminating the ability of
agencies to terminate leasing contracts for convenience,
something not permitted in the private sector, would be offset
by the agencies realizing better rates and a greater selection
of finance companies.
The confusing, burdensome, and expensive requirements, and
most importantly, the constraint it places on government access
to IT products of the Buy America and Trade Agreement Act make
the government less attractive to commercial firms. The Advance
Payment Act is another requirement that flies in the face of
established commercial practices. Changes in this act would
again allow agencies to benefit from better prices and
commercial practices. Most commercial customers, for example,
sign up and pay for maintenance agreements in advance and this
will allow vendors to offer more attractive services to the
government.
There is not sufficient time at this hearing to detail all
of these provisions and their negative impact on Federal
contractors, but ITAA welcomes the opportunity to pursue them
with you and your staff.
Before moving to electronic government, I would like to
address three additional items that ITAA believes warrant your
immediate attention. We believe that an oversight occurred in
FAR Part 12 on the limitation permitting only the use of firm
fixed-price contracts for the acquisition of commercial
services. We strongly support the change to allow other
commercial practices such as time and materials contracts for
Federal customers. These are routine offerings in the
commercial sector and we do not understand the rationale of
prohibiting them in FAR Part 12.
Another change that could be perceived as minor but which
would have a very major impact on IT vendors is the adoption of
the same definition for commercial services that currently
exists for commercial items. The definition of a commercial
item is clear, requiring that a vendor merely demonstrate that
the product has been sold or offered to the private sector for
other than government purposes. The definition of a commercial
service, however, is difficult to understand and subjects the
proposed service to clumsy and unclear pass/fail criteria in
order to determine a commercial service.
ITAA would also like to urge the subcommittee to review the
antiquated practice on conflict of interest that is not found
in the commercial sector. The Federal Government generally
prohibits under organizational conflict of interest provisions
an IT company that designs a solution from bidding the
implementation of that solution to the government. The
unintended outcome of this restriction is that many of the
leading IT firms will not work to develop a solution since they
fear being precluded from bidding for the usually more
lucrative implementation phase of the program. We urge the
members to review this outmoded restriction.
ITAA's other priority is to encourage the Federal
Government's move into the Internet age. It is our view that
Federal agencies, despite pockets of initiative, are lagging
even the State and local governments in grasping the benefits
of the Internet for their constituents and customers. This
subcommittee must increase its efforts to prod, push, and pull
the Federal agencies to transform into an e-government. ITAA
and its member companies will be glad to assist you in this
undertaking.
It is common knowledge that many government IT systems are
20 to 30 years old. These systems are outdated, difficult to
maintain, with insufficient written documentation remaining.
While Y2K remediation permitted them to continue working into
2000, the systems were not updated to take advantage of the
latest technology. The private sector is continuing to
revolutionize the way it does business in the new economy by
utilizing the power of electronic business to transform its
operations. The Internet and network computers can improve
service, lower costs, and make government services more
accessible to citizens.
The fast-paced changes in technology have been accompanied
by a severe shortage of trained IT professionals, as was
discussed earlier. If the private sector is having trouble
retaining and hiring sufficient workers, the government has an
even greater challenge due to the lower pay and the lack of
benefits, such as stock options, to attract these sought-after
employees. The result will be that the Federal agencies will
face greater challenges to move to e-business solutions without
the help of the private sector. This will result in the Federal
agencies sometimes willingly and sometimes reluctantly turning
to the private sector for outsourcing of key functions. Short
of a serious recession, we do not foresee the Federal
Government having sufficient IT workers for their future needs.
In fact, ITAA's CIO survey for 1999 of 35 CIOs found that
within 3 years, a majority of the government's IT work force
will be eligible for retirement.
The Paperwork Elimination Act offers this subcommittee a
perfect vehicle for encouraging the Federal agencies'
transition to an electronic government. This very brief law
requires Federal agencies to transition to a paperless
environment by 2003. ITAA urges you to begin tracking the
agencies' plans now so that 2003 does not find us with
insufficient process and the government far from meeting this
ambitious goal. ITAA will be glad to discuss specific
milestones and suggestions on how the agencies can best achieve
this goal.
In the commercial and State and local government
marketplace, we are seeing revolutionary ways of procuring e-
commerce solutions that are still lacking in the Federal
marketplace. We are seeing innovative funding approaches, joint
ventures, transaction-based payments, value-based contracting,
as well as other methods that allow companies and government
agencies to acquire new technologies with little up-front
expenditures. Congress should encourage the Federal agencies to
explore these innovation solutions. ITAA remains disappointed
that the Clinger-Cohen pilots have not met with more success
within the agencies.
There are other important issues that I did not have time
to raise with you today, but ITAA has appreciated the
receptivity of you and your staff to industry's concerns. We
hope to continue to work with you on the subjects I mentioned
today, as well as others. At the appropriate time, I will be
glad to answer any questions you may have. Thank you.
Mr. Horn. Thank you very much.
[The prepared statement of Mr. Leinster follows:]
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Mr. Horn. We are going to start the questioning right now.
I was very interested in what this panel has said and what the
earlier panel has said, and let me see if I can pull together
here. As I understand the testimony, both panels have said
there is a lack of training and education of the Federal
acquisition work force as one of the biggest acquisition
problems facing the Federal Government. Specifically in your
testimony, Mr. Engebretson, you state that when contracting
with the Federal Government, your member companies have
encountered ``best value'' competitions that are nothing more
than low-cost competitions and performance-based procurements
that call for exacting requirements. Do you feel that the
acquisition reform initiatives have outpaced the ability of the
Federal work force to effectively operate in today's changing
acquisition environment?
Mr. Engebretson. First of all, Mr. Chairman, it was great
to hear Mr. Soloway state that they are going to have 50
percent of the DOD service contracts under performance-based
contracts by 2005. That to me is a good sign that things will
be moving along.
The complaints that we hear from the membership is exactly
as we say it in our statement, and that is that the buyer, the
contracting officer, has a tendency to not understand all the
tools that are at his or her fingertips, meaning that with FASA
and FARA and FAR Part 15 rewrite and all of these, there are
many things that they can use to help the system and buy and
purchase these services.
We think that the training is an absolute necessity, and as
we heard from the previous panel and especially Mr. Soloway,
that in the services area, there has not been adequate
training. We are glad to hear that they are putting all of this
into motion. But as I recall when we were working on FASA and
we were talking to Mr. Steve Kelman and going through the
processes of deciding how this should all work and working with
your committee, et cetera, the comments were made that, well,
it will be within the system probably 2 to 4 years, and I kind
of laughed at Mr. Kelman and said it probably would be closer
to 10 years, and I think that probably I am going to be a lot
closer, and I might even be conservative on the amount of time.
Training is absolutely needed, and it is not only just
within the government purchasers but we have to do the same
thing within our industry, as well, and we do have training
programs in place that we have started.
Mr. Horn. That is my next question. What practices do your
member companies use to train the procurement work force that
they have that the Federal Government could adopt to improve
the skills of its work force. Do you want to just go with this?
We will start with you, Mr. Engebretson, and then we will just
get everybody to comment on it.
Mr. Engebretson. Fine. We find that the large companies, of
course, do have good training programs in place and we find
that by using some of these, we are gathering our programs and
we are helping train these medium-sized companies and the small
companies. As the previous panel pointed out, you have the
medium-sized companies that once they graduate out of 8(a),
they are out there floating around and they have a very
difficult time staying in the system. We think it is most
important that we help and train them on the entire procurement
process and the changes that have been made, and so we are
making special efforts to do that.
Mr. Horn. How about you, Mr. Leinster?
Mr. Leinster. Yes, sir. Our company has a very vigorous
training program for its acquisition negotiations. I am the
senior executive for all of our public sector negotiators in
IBM and we have annual training inside the company as well as
outside. We encourage and sponsor participation by our
employees, our negotiators, in the National Contract Management
Association, which as you know is a very professional group of
government and industry personnel.
We also have, as the government moves more and more toward
commercial services, they also are hopefully moving toward
commercial buying practices and a company like IBM has a very
large commercial non-government sector. We sell many of these
professional services in the private sector and we have
rigorous training for our negotiators in the commercial sector
and my public sector take part in these training courses, which
frequently run for a week to 2 weeks at least once a year.
We also have, incidently, vigorous training on
identification and utilization of small businesses.
Mr. Horn. Mr. Thorpe, any thoughts on this?
Mr. Thorpe. The Professional Services Council, one training
course that I have taken advantage of at TRW is the monthly
Government Affairs Committee, and that is an opportunity for
many members of industry to find out the latest both in the
regulatory and legislative developments that are happening on
the Hill and within the OFPP, DOD, and other large agencies. It
consists of about a 3\1/2\ hour meeting with a rift of valuable
handouts to take back and distribute throughout the company,
and that has been extremely effective, in addition to PSC
holding numerous breakfasts and luncheons with prominent
people.
We just sat down 2 weeks ago with Bill Gormley, head of the
Federal Supply Schedule for GSA, and that is an up and coming
concern with GWACs and indefinite delivery type contracts. It
has been very helpful for all of industry, the PSC initiatives
in that area.
Mr. Horn. General Tuttle.
General Tuttle. I think a fundamental problem is that the
leadership in the agencies, including the Department of
Defense, although there has been a late wake-up with DAWIA,
still does not realize the importance of acquisition management
to effective program execution, whether it is large systems or
it is the service contracts we talk about. We will spend a year
or more training a pilot to fly an airplane. It is an expensive
aircraft and safety is involved, but we spend precious little
time in training our acquisition specialists to do business
management, a newer, much wider scope of responsibility.
We do not use case studies. You know, in most all the
business schools, training people, whether at the junior level
or the middle level, use case studies. Getting even the Defense
Department to invest the time and effort to write case studies
has been a frustrating experience for those of us that have
been trying to do that for the last 15 or 20 years.
So I think it is the whole approach to acquisition
education and training that really needs a major kick, and I
think Dr. Gansler has been trying, but I think the barriers to
it have just been huge, not to mention the cost of the
commitment.
Mr. Horn. I think you are absolutely right on the case
studies, and I wonder why the acquisition universities and
colleges cannot do that in terms of the faculty and the
students, because every course they have there, you have got
people that could write a good case and leave it open as to
what do you do now.
General Tuttle. I hate to say that these are not faculties
in the sense of what we have in universities. This is part of
the bureaucracy. I mean, it is nine-to-five. You have got your
35 slides. You are teaching the rules. There are some
occasional anecdotes that go in there, but there is no
systematic effort to develop case studies.
I think you should talk perhaps to some of the people that
have been on the Defense Acquisition University's advisory
board. Dr. Ron Fox from Harvard has been on it for years. He
knows case studies. He has written many, taught many. The
statements are made that you need to do this, it just falls on
deaf ears. You cannot change the culture. The culture of the
education environment is as rock-hard solid as we have found in
the culture in the acquisition work force itself.
Mr. Horn. Well, do they have a course on, say, Clinger-
Cohen and what it means for the acquisition?
General Tuttle. I am sure that someone has a group of
slides that they bring up in all the schools, whether it is at
Wright-Patterson or it is at Monterey or it is at Defense
Systems Management College that talks about what the course is.
The problem is, they need understanding in how to make
judgments. They need to understand. They need practice in
making judgments, and they will make a lot of wrong judgments
in training. But you would rather not have them make the wrong
judgments in their work, like the kind that you talked about
this morning that the IG brought up about the C-130 propeller
heater. That is when the taxpayer suffers, and the Department
suffers.
So you want to go through those experiences ``dry,'' just
like a pilot goes through a simulator. They spend lots of time
in simulators, but why? To prevent the dumb things happening
that could have been caught in training. So I think that is
where our effort really needs to be, and this committee could
lend a lot of weight to that, I think, by asking the Department
and insisting on not just case study use in the Defense
Department, but in all the agencies. They need that kind of
training.
Mr. Horn. That is a good suggestion. We will steal it from
you and make it a recommendation.
General Tuttle. Be my guest.
Mr. Engebretson. Mr. Chairman, if I could add to it, we
have gone so far as to give our member companies a little
plastic card such as on past performance to show what their
rights are and also citing the parts of the FAR, the
regulations, as to having the contractor officer--if they
contest it, they can say, well, look, right here it is and let
us go and look it up. We have done this and we are going to do
it on some others, as well, just to protect themselves.
Mr. Horn. Well, every bit helps, I will tell you, when you
are trying to educate somebody and get away from that previous
culture, which is difficult.
On the first panel, we heard testimony from the Inspector
General that some of the problems they identified in service
contracts, and he said that he was shocked when one or more
errors were identified in each of the 105 contracting actions
that they studied. I am curious. You have all been through this
yourself. Why do service contracts pose such a challenge for
acquisition work forces?
General Tuttle. It is difficult to write a statement of
work that specifies exactly what you want done. I notice they
talked about the engineering services for the Hawk missile.
Having come out of the Army Materiel Command, I know a little
bit about those kinds of contracts. You cannot predict from day
to day what the problems are.
Now, the question is, are there some tasks that could be
put in there and competed as fixed price? Probably, and I think
the IG is correct on that, and I think there is some work going
on. But there has not been much guidance. You are trying to get
metrics together. It is a very difficult process. You should
not underestimate it. It is hard to look at what outcomes are.
The private sector has had the same problems. So I think it is
just a matter of continuing work on trying to separate out what
is knowable and what is not knowable and then putting the
appropriate contract type, whether it is a T&M or a fixed
price, together and then competing the relevant parts of it.
As one of my colleagues mentioned earlier, the multiple
award schedules, I think, have been a big step forward in
making it clear and allowing the agencies to do bite-sized task
orders, where a nearer term is easier to specify. We see the
improvements because I am a contractor, too--a nonprofit--and
we compete for almost all of our work. So you see that the
skill is getting better.
Mr. Leinster. Mr. Chairman, I think it is worth noting that
the administration last year, in recognition of some of the
difficulties that were being experienced in service contracts,
promulgated regulations that mandated that under multiple award
schedules, written statements of work had to be issued for each
and every task and that the statement of work had to be
performance-based and that the response had to be firm fixed
price. Now, that latter piece is a bit troublesome to us, but
the point is that they have very strongly tried to put a
discipline into that process that perhaps was lacking before,
and you heard earlier that we have all said it is difficult to
write a performance-based statement of work, but it is the way
to go.
The other thing I wanted to comment on, when the gentleman
from the IG talked about errors and mistakes, he quoted the
number of sole source task orders that were issued, and I think
one of the things we in the industry understand is that if an
agency is known to be very satisfied with a contractor, when
they come up to recompete that business, we are going to be
very reluctant to spend lots of moneys to try to unseat that
vendor if we know, indeed, that the vendor is performing
satisfactorily for the customer. That is commercial practice
and we have got lots of other opportunities with which to
address our rather precious bid and proposal expenses.
Mr. Horn. Just in general, let me ask Mr. Engebretson,
according to your testimony, you had the implementation of
education and training requirements required by the Clinger-
Cohen Act and you thought they were fairly inconsistent among
the various agencies, and I guess I would ask you, which
Federal agencies are doing a good job implementing these
education and training requirements and which agencies are not?
And they will probably say you will never eat lunch with them
again.
Mr. Engebretson. That is exactly right. The truthful answer
is that DOD does the best, just no question about that, and
from that point on, it falls off very fast. Many of the other
agencies do not have a system that is even close to educating
any of their contracting officers as to understanding the
entire Clinger-Cohen bill or FASA or even the FAIR Act or any
of them. The other agencies really need, shall we say, a push.
Mr. Horn. Are these big agencies or little agencies?
Mr. Engebretson. Big agencies, you know, Veterans' Affairs
and DOE and the list goes on.
Mr. Horn. Now, is there a group--some of you are
representing groups--do they come out of these agencies and
meet once a month and share ideas with people or what?
Mr. Engebretson. Not that I am aware of. A lot of this is
done within the Department of Defense, within its agencies. But
sharing what is happening in the Army that might be successful
with the Veterans' Affairs, no, we do not see that being done.
Mr. Horn. That is sad, because there is no question the
services in recent years do know how to relate to each other.
Mr. Engebretson. Yes.
Mr. Horn. What is a real plus, the chief financial officers
are meeting. The chief information officers are meeting, and
that is very helpful when they share knowledge.
Mr. Engebretson. Yes, absolutely. Yes.
Mr. Horn. And I did notice the sort of saying we ought to
have a chief acquisition officer, and that would be the
business manager or would that be strictly full time on the
purchasing effort, because I have been irked at some of the
agencies around here. My pet peeve was the Treasury, where the
Assistant Secretary for Management said, oh, well, I am also
the Chief Financial Officer. I am the Chief Information
Officer. That is nonsense. That was a position created by the
Hoover Commission, which was great in 1949, 1952, but that is a
full-time 18-hour-a-day job for a large agency and you cannot
have him also as the Assistant Secretary for Management. It is
just that nothing is going to happen. Of course, they never
admit it and they foul up every year and have something else
that goes awry, but we will probably have to put it in the law,
we meant it.
Mr. Engebretson. Mr. Chairman, I was just reminded that we
have at present going on a Davis-Bacon training program. Today
is the last day, but we have people from Social Security that
are attending our training program because it is so in-depth
and to help them understand the act itself.
Mr. Horn. That is interesting. I am a big Davis-Bacon fan.
Is yours the only group doing it, or does the Department of
Labor sometimes do it?
Mr. Engebretson. We actually have training programs for
both Davis-Bacon and the Service Contract Act. The faculty is
made up of the Wage and Hour Division people and we think that
it is a unique program and probably the best for the simple
reason that the contractors that attend and the government
people that attend, they get a chance to talk to those very
people that are making decisions on their behalf. So this is a
2-day process and we put a manual together for them to follow
the act entirely and we have done the Service Contract Act now
for 10 years and it has been very successful, and the Davis-
Bacon we just started last year and it is turning out to be
very successful, as well.
Mr. Horn. Let me ask you, and I maybe should know this, but
I do not, and that is why I ask questions. Walsh-Healey, is
that off the books or----
Mr. Engebretson. Walsh-Healey is still on the books and we
still have----
Mr. Horn. So do you have reviews for that, too?
Mr. Engebretson. Yes, we do. We have some companies that
are under the Walsh-Healey Act, as well, and we are going to
have to implement that, as well, yes.
General Tuttle. Mr. Chairman, could I comment on the
question you asked about. Do the agencies get together for
meetings? As you know, there is a Procurement Executives
Council which is primarily the civil agencies, but, Dee Lee
has, I think, done a great job to legitimize that, make it a
formal organization. DOD is now participating, as I understand
it. In fact, we at LMI and the Procurement Round Table
sponsored a set of four seminars last year about this time, I
think, the last one was held, where the agencies came together
and almost every agency was represented, including defense,
talking about the acquisition work force and professional
development training. We did that on our own. We did not charge
anybody for it. We just thought this was a useful contribution
because we saw what you intimated, that there was precious
little of this kind of trading of information around, and I
think that maybe helped spark some increased relationships
between the agencies.
Mr. Leinster. Also, sir, under the umbrella of the
Federation of Government Information Resource Managers, they
have established an Industry Advisory Council that is very,
very active in bringing together members of industry and the
government to share acquisition experiences. I know that ITAA
has a monthly dinner series wherein a senior acquisition
executive comes in and shares their experience with industry
and it is a bilateral discussion that is very helpful. I am
glad General Tuttle mentioned Dee's Procurement Executive
Council, as well as the Front Line group that you recognized
earlier. The whole purpose of that is to share experiences. So
everybody is engaging. We all have ways to go, but it is so
much better than it ever was before.
Mr. Horn. Mr. Thorpe, give me an idea of how you would have
the process work on that five steps that you mentioned and take
a TRW contract or process, whatever, and show me how you would
improve that under Clinger-Cohen and what has that led you to.
Mr. Thorpe. Yes, sir. We do a lot of indefinite delivery
order contracts and I think part of the commonality or bridge
between the contracting officer and industry, it was one of the
ones I mentioned. The concern I would have, there is not a
consistent execution within the different agencies, mostly DOD,
that we do business with as far as the statement of work. We
need performance-based service contracting, writing the
statement of work.
Part of the benefits of writing the statement of work and
having, for example, a draft RFP, which we do not see a lot of,
is you get feedback from industry on all the procedural and
process initiatives and problems that result from the
government's perspective. They have a requirement. They either
want an indefinite delivery type contract, they want a time and
materials, even the contract type can be--this is not a smart
thing as far as the information, the type of contract. We often
change that, recommending a different contract type in the
draft RFP.
The relationship between the technical people that you are
dealing with in the government and the contracting people,
typically in the government, they do not often talk and they
are writing letters back and forth, both from the contractor to
the government and between the government activities. We see
the stove pipe still maintained. So I would remove the stove
pipes.
But funding the acquisition training, I think is a key
factor for any TRW contract or anybody's contract, and having
them be aware of the latest changes. I had a recent situation
where a senior contracting officer was asking for certified
cost and pricing data below the $500,000 threshold. They are
not permitted by law to do that, yet they were asking for a
specific change order for certified cost and pricing data. That
was a pretty major concern that we had with the process and the
knowledge level. So I think it would apply both in the kind of
business we do at TRW and for the General Services contract to
focus on the training side, remove the stove pipes, and provide
the process in a clear and determined manner.
Mr. Horn. How would you rate the Federal Government's use
of the Internet to make contracting opportunities available?
Mr. Davis mentioned that, and I did it in passing. Are they
taking advantage of it or is it still the old paper stuff?
Mr. Thorpe. It has dramatically improved, especially in
DOD. We are seeing a dramatic use in the Commerce Business
Daily of the electronic distribution. We are giving them the
opportunity in some of our delivery order contracts to respond
electronically. We do see paper flow back and forth, which is
so helpful when you draft documents back and forth. So we are
seeing a dramatic increase in that, but they can still go a lot
farther in perpetuating that kind of relationship
electronically.
Mr. Engebretson. Mr. Chairman, I think it is interesting
that he said DOD again, and this is really very true. DOD is
ahead of the other agencies tremendously.
One thing that excites me is this past performance issue,
or performance-based contracting, because if they follow what
was originally set up as the rules, the draft RFP would be
something that is a part of the requirement of this program and
that means that industry will then be able to review the RFP
before they actually put it on the street.
The second thing that develops is what we call a partnering
arrangement, where you work with the government officials and
try to find the best approach to whatever the issue may be or
whichever the project may be and the contractor and the
government works together to get the best results, of course,
for the taxpayers. So I think it has great potential.
Mr. Horn. You were probably here when the gentlewoman from
New York, Ms. Kelly, asked some of the questions because that
is certainly a concern of ours. Has the electronic commerce
revolution helped or hindered the ability of small and
disadvantaged businesses or women-run businesses to contract
with the Federal Government? What do you see? Do you see things
going downhill and opportunities not coming?
Mr. Engebretson. No, I see that this is helping small
business. Again, some small businesses do not have the
technical ability to tie into the Internet. There still are
businesses out there as such. But the small businesses that are
doing it and we are encouraging it, they are benefiting from
this, no question about it, yes.
General Tuttle. It is so much less expensive for them to
acquire marketing information now and to get onto the multiple
awards schedules. I know a couple companies where there are
just two or three people in the business that are on the
management organization/business improvement services schedule.
So it is a lot easier than it ever was, and I think GSA has
been very open with it. Bill Gormley's name was mentioned. We
found he has been proselytizing to try to get people to sign up
and his folks have really done a great job.
Mr. Horn. Can anyone get on that schedule or is there a
clearing process?
General Tuttle. There is a clearing process. In other
words, you have to have----
Mr. Horn. Who makes those judgments?
General Tuttle. In the case of the schedule, GSA does, but
it is a very broad set of criteria that are there. I mean, you
have some experience, some base, and you have rates, and then
you are, basically, you are on. I mean, it is hard not to be
accepted. You have got to be almost a person that has a company
that has had a series of defaults not to be able to get on.
Mr. Horn. In other words, you would have to have defaulted
on a contract or what?
General Tuttle. Yes, defaulted on a contract, probably more
than once, in order to not get on. It is very open.
Mr. Horn. We will need to check that with the staff just to
see how the process works and maybe get them to put a half-a-
page in the hearing record.
Mr. Leinster, according to your testimony, the Federal
Government is lagging behind State and local governments in
utilizing the Internet. Where are the best State uses of this
as you have seen it around the country?
Mr. Leinster. Arizona has a very good access to the citizen
service for vehicle registration, for license renewals, things
of that sort. The State of Washington is very advanced in their
utilization of Internet-based processes, again, access to the
citizen. And we are now seeing many local municipalities
springing up aggressively.
Mr. Horn. How about California and Pennsylvania? What is
your read on that?
Mr. Leinster. California is very aggressive and moving out
very rapidly. I mean, I think, quite frankly, that the States
are very quick to respond to private initiatives and they are
taking much more rapid advantage of the capabilities than the
Federal Government is at this point. California is a leader.
Pennsylvania has a real advanced system.
Mr. Horn. They have a program, yes. Governor Ridge has long
been very interested in the new information age and did a lot.
He was one of the first to care about Y2K as a Governor.
Governor Wilson was very close behind him.
Are there any other points you would like to make before we
adjourn this hearing?
[No response.]
Mr. Horn. Let me thank the staff that prepared this
hearing, and I might add that we are going to keep the record
open for 2 weeks should any of you have a thought that you want
to add to your testimony. Feel free to send it to Mr. Kaplan
here and we will put it in the hearing record. The Democratic
side will also have that opportunity.
I want to thank the staff director and chief counsel--he is
not here right now--J. Russell George for the Subcommittee on
Government Management, Information, and Technology. Randy
Kaplan is the staff counsel, to my left and your right. Seated
in the back row there is Bonnie Heald, director of
communications; Bryan Sisk, clerk; and Ryan McKee, staff
assistant. And then for the minority side, Trey Henderson has
been very patiently counsel for Mr. Turner, and Jean Gosa, the
minority assistant clerk. Mr. David Kasden is the court
reporter for today. We are sorry to wear you out so long. Your
ears must be pounding away in there saying, help, but thank you
for the find job you have done.
With that, we are in adjournment.
[Whereupon, at 1:37 p.m., the subcommittee was adjourned.]
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