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[109 Senate Hearings]
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S. Hrg. 109-631
GSA: IS THE TAXPAYER GETTING THE BEST DEAL?
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HEARING
before the
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
INFORMATION, AND INTERNATIONAL
SECURITY SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
JULY 26, 2005
__________
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and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia
Michael D. Bopp, Staff Director and Chief Counsel
Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL
SECURITY SUBCOMMITTEE
TOM COBURN, Oklahoma, Chairman
TED STEVENS, Alaska THOMAS CARPER, Delaware
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
LINCOLN D. CHAFEE, Rhode Island DANIEL K. AKAKA, Hawaii
ROBERT F. BENNETT, Utah MARK DAYTON, Minnesota
PETE V. DOMENICI, New Mexico FRANK LAUTENBERG, New Jersey
JOHN W. WARNER, Virginia
Katy French, Staff Director
Sheila Murphy, Minority Staff Director
John Kilvington, Minority Deputy Staff Director
Liz Scranton, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Coburn............................................... 1
Senator Carper............................................... 30
WITNESSES
Tuesday, July 26, 2005
David E. Cooper, Director, Acquisition and Sourcing Management,
U.S. Government Accountability Office.......................... 4
Emily W. Murphy, Chief Acquisition Officer, U.S. General Services
Administration................................................. 5
David H. Safavian, Administrator, Office of Federal Procurement
Policy, U.S. Office of Management and Budget................... 7
Kathleen S. Tighe, Counsel to the Inspector General, U.S. General
Services Administration........................................ 22
John B. Ames, Director, Contract Review and Evaluation Division,
Office of Inspector General, U.S. Department of Veterans
Affairs........................................................ 24
Thomas Graham, Chief Operating Officer, Networld Exchange,
Carlsbad, California........................................... 26
Alphabetical List of Witnesses
Ames, John B.:
Testimony.................................................... 24
Prepared statement........................................... 87
Questions and responses for the Record....................... 150
Cooper, David E.:
Testimony.................................................... 4
Prepared statement........................................... 37
Questions and responses for the Record....................... 120
Graham, Thomas:
Testimony.................................................... 26
Prepared statement........................................... 98
Murphy, Emily W.:
Testimony.................................................... 5
Prepared statement........................................... 50
Questions and responses for the Record....................... 128
Safavian, David H.:
Testimony.................................................... 7
Prepared statement........................................... 65
Questions and responses for the Record....................... 141
Tighe, Kathleen S.:
Testimony.................................................... 22
Prepared statement........................................... 77
Questions and responses for the Record....................... 144
APPENDIX
Letter to Ms. Emily W. Murphy, dated June 7, 2005, from Senator
Coburn......................................................... 35
Chart entitled ``OMC/GSA Comparison Table'' submitted by Senator
Coburn......................................................... 154
GSA: IS THE TAXPAYER GETTING THE BEST DEAL?
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TUESDAY, JULY 26, 2005
U.S. Senate,
Subcommittee on Federal Financial Management,
Government Information, and International Security,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:30 p.m., in
room 562, Dirksen Senate Office Building, Hon. Tom Coburn,
Chairman of the Subcommittee, presiding.
Present: Senators Coburn and Carper.
OPENING STATEMENT OF CHAIRMAN COBURN
Senator Coburn. Good afternoon. Today's hearing is
entitled, ``GSA: Is the Taxpayer Getting the Best Deal?''
It is no secret that the Federal Government spends hundreds
of billions of dollars on procurement of products and services.
When an agency wants to purchase a copy machine, office
furniture, or even paper clips, it generally turns to the
General Services Administration to do so. One of the most
widely-used vehicles and schedules is the GSA's Multiple Award
Schedules, which is supposed to make the process of buying
goods easier, faster, and, I would emphasize, cheaper.
Every 31 seconds, the Federal Government makes a credit
card purchase. Every 77 seconds, it issues a contract worth
$25,000 or less. Every 14 seconds, it signs a contract worth
more than $25,000. Statistics make it clear why we must ensure
that the products being bought by the Federal agencies through
GSA are being bought at the best prices available.
GSA's stated mission is to help Federal agencies better
serve the public by offering at best value superior workplaces,
expert solutions, acquisition services, and management
policies. Recent reports issued by the Government
Accountability Office and the GSA Office of Inspector General
concerning GSA's contract management point to many existing
problems that may account for why the taxpayers may not be
getting the best deal.
For example, GAO found that the General Services
Administration's Multiple Award Schedules program cannot be
effectively managed in its present form. It is intended to make
a wide variety of commercial products available to Federal
agencies, but there are too many items on the schedule, there
are too many suppliers of similar items, and GSA does not have
the capability to make sure that the government's interests are
protected.
In addition, there is little or no price competition in
negotiations or monitoring of the items ordered by the agencies
and little or no assurance that suppliers offer items at prices
that reflect the government's volume purchases.
In case you are wondering, these findings were released May
2, 1979, in a report entitled, ``Ineffective Management of
GSA's Multiple Award Schedules Program,'' a costly, serious,
and longstanding program. It was first identified as a problem
in 1971, 34 years ago.
For at least three decades or more, the GSA has been unable
to correct these ongoing problems. There are several reasons
why the cost associated with purchasing commercial goods and
professional services from GSA have continued to increase over
the past decade. In that regard, I must tell you, I am very
puzzled by the reluctance on the part of the GSA to use two of
the most powerful tools available to them for ensuring that
taxpayer dollars are being spent judiciously.
When a contract is being negotiated, it is imperative that
the buyer, in this case, our government, is obtaining the best
price. The best way to do that is by looking at the vendor's
books and other relevant records and documents to verify prices
and sales being submitted by the seller. One of the major goals
of GSA during contract negotiations should be to ensure that
the vendor pricing information is accurate, complete, and up to
date before the contract is awarded. Prequalifying of vendors
during contract negotiations has proved to be the most
effective method for achieving the best prices because it helps
avoid unnecessary cost by providing the agency with detailed
information about the vendor's commercial sales and marketing.
GSA's Office of Inspector General reported that as the
number of audits performed decreased, so did the amount of
negotiated savings. Other evidence that points to the use of
pre-award audits as a tool for cost avoidance comes from the
Department of Veterans Affairs. When the GAO performed audits
in 2004 and 2005 on the VA's pre- and post-award audit
programs, it found using these methods resulted in millions of
dollars of savings to VA.
When GSA issued a final rule modifying its policy in 1997,
the agency eliminated automatic post-award audit rights for
pre-award pricing information in every Multiple Award Schedules
contract. GSA's rationale for making this change was its belief
that a decrease in post-award audits would be offset by an
increase in the number of pre-award audits. However, GAO
recently reported there has been, in fact, a decrease in the
number of pre-award audits.
Despite resistance on the part of commercial contracts to
use the post-award contracts, this tool is the most effective
means available to verify that vendors are not overcharging the
American taxpayers.
We know from both the GAO and the GSA's IG that savings due
to pre- and post-award audits have saved the government
hundreds of millions of dollars.
In fact, I would ask at this time that the letter that I
sent to the GSA in response to their ANP, or Advanced Notice of
Proposed Rulemaking, on whether post-award audit provisions
should be included in the GSA's Multiple Award Schedules
contract and government acquisition contracts be included in
the record, and I will so order that now.\1\
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\1\ The letter from Chairman Coburn appears in the Appendix on page
35.
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When I started looking at what is driving up the costs,
several things came to mind. First of all, the cost to
purchase. Last year, the government secured $291 billion. We
paid GSA $20 billion to do that. That comes out to 6.87
percent. If you survey industry throughout the country, if you
survey other large buying groups, what you find is that is
about 3 percent--three times what it costs to buy anything
anywhere else.
And so there are some significant questions that we need to
ask and be answered. The goal is not to be critical of the GSA.
The goal is to be critical of not ever getting the best value
for the American consumers' price.
We have qualified people, people who care a lot at the GSA.
What we are looking for is to find the direction so that we
achieve that goal each and every time and we do it in a way
that gives the American taxpayer--and since we are in a deficit
and have been in a deficit since essentially 1973--any dollar
that we save is $5 or $10 that our children aren't going to
have to pay back.
We also have today a company testifying that charges a
blank 2 percent on everything. We are going to be introducing
into the record the last series of comparisons to GSA and Open
Market Quarter and we will be putting in the record they are
routinely 4 to 5 percent below GSA after paying a 2 percent
charge to them for purchasing. There has to be something that
can be learned by GSA from some of these open market and
competitive free enterprise firms.
Senator Coburn. I want to welcome our witnesses. I
understand Senator Carper will be here in a moment.
I would first like to introduce our first panel. David
Cooper, Director, Acquisition and Sourcing Management, the U.S.
Government Accountability Office. Next, Emily Murphy, Chief
Acquisition Officer, U.S. General Services Administration. And
next, Hon. David Safavian, Administrator, Office of Federal
Procurement Policy, Office of Management and Budget.
Your written statements will be made a part of the record.
I will make a note to talk to Mr. Safavian again. I have a
problem with OMB. We got your testimony last night at 8 p.m.
For me to effectively read what you want me to know, 24 hours
is required for my staff to clear it and me to actually--I am
one of those Senators that actually read the testimony. Every
OMB person that comes before this Subcommittee that does the
same thing, I need to send a message--the message is, our time
is just as important as yours and we would appreciate that be
recognized, and hopefully throughout the rest of the Congress,
they will come to expect that OMB will put the information
there on time.
With that, I would like to recognize Mr. Cooper. You will
have 5 minutes to summarize your testimony. Your complete
statement will be made a part of the record.
TESTIMONY OF DAVID E. COOPER,\1\ DIRECTOR, ACQUISITION AND
SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Cooper. Thank you, Mr. Chairman. I am very pleased to
be here this afternoon to discuss the results of our work on
GSA schedules contracts. As you pointed out, GSA plays a very
important role in Federal acquisition. Many agencies rely on
GSA to leverage the government's significant buying power to
negotiate the best possible deal for a wide range of
commercially available products and services.
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\1\ The prepared statement of Mr. Cooper appears in the Appendix on
page 39.
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Last year, Federal agencies purchased more than $32
billion, and I think this year it is approaching $40 billion,
through the Schedules program. However, our work and the work
of the GSA Inspector General's Office shows that GSA is not
always negotiating the best deal for Federal agencies and,
ultimately, the American taxpayers.
In February of this year, in response to a request by
Chairman Collins of your Committee, we reported serious
shortcomings in the way GSA negotiates contract prices and
manages its Schedules program. My testimony today is going to
focus on one of the key issues in that report, that issue being
the dramatic reduction in GSA's use of pre-award audits.
As you pointed out, such audits are crucial to negotiating
good prices. They tell GSA negotiators whether the information
provided by vendors is accurate and reliable and whether the
information forms a sound basis for negotiating fair and
reasonable prices. When such audits are performed, they have
saved hundreds of millions of dollars.
I have a couple of charts that I would like to put up to
show the decline in the number of pre-award audits and the
results of that. The chart is also in the first page of my
testimony for anyone who has that.
The chart shows that in the early 1990s, GSA conducted, on
average, about 125 pre-award audits annually, saving nearly
$496 million between 1992 and 1997, or an average of about $83
million a year. During that period, purchases from the
Schedules programs ranged roughly about $5 billion a year,
significantly less than what we are seeing in today's
environment.
Beginning in 1997 and continuing until now, GSA's use of
pre-award audits has declined dramatically. Since 1997, GSA has
conducted, on average, only 19 pre-award audits each year. As
the number of audits declined, so, too, did the savings.
Savings in recent years have only averaged about $18 million
per year.
These trends are troubling for several reasons. First, the
reduction in pre-award audits has come at a time when agency
purchases through GSA schedule contracts have sky-rocketed,
reaching to $32 billion last year.
Second, in 1997, GSA, as a matter of policy, virtually
eliminated the use of post-award audits. Such audits are a key
safeguard against excessive contract prices. They allow the
government to recover overpricing when it is determined that
vendors failed to provide accurate, complete, and current
pricing information during negotiations.
When GSA eliminated post-award audits, it expected to
offset that reduction with an increase in pre-award audits.
Thus, pre-award audits are one of the government's sole
remaining protections against overpricing. However, the
anticipated increase clearly, as shown in the charts, has not
materialized.
And finally, the failure to use pre-award audits today is
reminiscent of the problems GAO found throughout the 1970s and
into the 1980s. It is frustrating to see this longstanding
problem reappear. We found that GSA negotiators appear to be
motivated more toward getting contracts awarded quickly rather
than negotiating the lowest possible prices. Not enough time
and attention is being given to negotiating the best deal.
We have recommended that GSA take steps to address the
decline in audits. GSA agreed with our recommendations and has
initiated actions to address this longstanding problem.
However, unless GSA's actions are successfully implemented, the
risk of pricing problems will continue. If GSA is successful,
we believe hundreds of millions of dollars can be saved and
Federal agencies will get a better deal.
That concludes my statement and I will be glad to answer
any questions you might have.
Senator Coburn. Thank you, Mr. Cooper. Ms. Murphy.
TESTIMONY OF EMILY W. MURPHY,\1\ CHIEF ACQUISITION OFFICER,
U.S. GENERAL SERVICES ADMINISTRATION
Ms. Murphy. Thank you, Mr. Chairman. Thanks for inviting me
here today to testify on GSA's procurement practices and how we
at GSA are doing our best to ensure the taxpayer is getting the
best deal possible in the procurement process.
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\1\ The prepared statement of Mr. Murphy appears in the Appendix on
page 50.
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As you already stated, GSA's mission is to help Federal
agencies better serve the public by offering at best value
superior workplaces, expert solutions, acquisition services,
and management policies. Excellence in acquisition is the top
priority for GSA.
GSA's mission is important to the efficiency and
effectiveness of the Federal Government. We make a difference
in the process of delivering goods and services, good
government services, and to the well-being of the people of
this country. The agency is directly involved in the process of
entering into contracts on behalf of our customer agencies to
assist them in acquiring the products and services they need.
Our vehicle acquisition and leasing program are good
examples of how GSA provides best value. We acquire vehicles
for 33 percent below commercial pricing, and GSA lease rates
for vehicles are 32 percent below commercial lease rates.
Our long-distance telecommunication contracts have saved
the government $705 million last year alone due to negotiated
rates being below commercial prices.
Our schedule contract vehicles provide agencies with a
streamlined approach to acquisitions. This adds value, and as a
result, the utilization is increased. At the same time that the
utilization is increasing, GSA efficiencies have resulted in a
25 percent reduction in the cost recovery fee for the GSA
Multiple Awards Schedules program.
The Federal Technology Service, Federal Supply Service, and
Federal Building Service currently operate under revolving fund
authority. As you are aware, this is different than most
Federal agencies that operate with appropriated funding. GSA is
authorized to operate revolving funds under specific statutory
authority requiring that revolving funds fully recover all
costs for the program and operations in their estimated fees.
These costs include direct costs, such as labor and materials,
and indirect costs, such as rent and support services. These
fee rates are charged to Federal agencies for space, services,
and commodities. These fee structures are constantly evaluated
for adjustment.
Both the General Supply and Information Technology Funds
recover costs to GSA for the services and supplies that they
provide the customer through full cost recovery. For the IT
Fund, rates are established consistent with the costs and
capital requirements plan as approved by OMB. A capital reserve
provides financing for one-time capital investments and program
costs, allowing more stable rates for our services. The General
Supply Fund also sets appropriate rates based on projections
with any excess returning to the Treasury.
The Federal Building Fund finances PBS real property
management and real property-related activities. The FBF is
financed in large part by income from rental charges assessed
to occupants of GSA-controlled space approximate with
commercial rates, as well as some appropriated funds, typically
in the case of new construction. The FBF is subject to annual
enactment of new obligation authority by Congress and any
balance of the revenue not used in a particular year remains in
the fund until authorized for future use through future
appropriations acts.
Frequently, GSA's fees are compared to costs associated
with other government-wide procurement vehicles. However, other
agency GWACs and franchise funds do not include all direct and
indirect costs because some of the cost is offset by
appropriated dollars. This difference makes any comparison of
GSA's fees to other agency fees inequitable.
One of the issues we have been addressing recently is the
need to accomplish all of our acquisitions in full compliance
with the Federal Acquisition Regulations, GSA's policies, and
best practices. When we found instances of noncompliance, we
have done the right thing and referred them to the Inspector
General to conduct their own nationwide review, and we are
currently conducting through my office program management
reviews.
The ``Get it Right'' Plan is a result of that review and
demonstrates GSA's strong commitment to the proper use of GSA
contracting vehicles and services. The ``Get it Right'' Plan
has improved the Federal acquisition process, allowing agencies
to obtain best value when acquiring products and services
needed to accomplish their mission.
There are five components of the ``Get it Right'' Plan, the
first being to secure the best value for the Federal taxpayer
and for Federal agencies through efficient and effective
acquisition, ensuring full and open competition and instilling
integrity and transparency in the use of our vehicles. Second,
is to make acquisition policies, regulations, and procedures
clear and explicit. Third, to improve the education and
training of our workforce. Fourth, to ensure that we comply
with all Federal acquisition policies, because simply,
noncompliance is unacceptable. And fifth, is to communicate
with the acquisition community, how to use the GSA's
contracting vehicles and services.
We are making good progress on this initiative and
improving our ability to get best value for the taxpayer. To
ensure that we are getting it right, we are working very
closely with the Inspector General's Office, developing and
providing appropriate guidance for contracting officers in the
field.
As you are aware, sir, GSA is looking into post-award
audits of contracts as part of its continuing efforts to obtain
best value, having issued the Advanced Notice of Proposed
Rulemaking in April to solicit comments from interested
parties. Furthermore, we have significantly increased the
number of pre-award audits in recent years to assist in
achieving best value.
Finally, we have made the pre-negotiation panels that GAO
recommended in February mandatory and we revised our operating
procedures to require reporting on those pre-negotiation
clearance panels. Reports of these panels are then being used
to assess progress in the effectiveness of negotiations and
will be used as an opportunity to share best practices.
The acquisition officials at GSA and throughout the
government take our roles very seriously. We take seriously the
trust placed in us by Federal agencies that rely on our
acquisition expertise to obtain best value and adhere to the
high principles of ethics and integrity. And we also take
seriously our professionalism and our accountability to our
customer agencies, OMB, Congress, and most importantly, the
American taxpayer.
Thank you very much for the opportunity to testify before
you here today. I look forward to continuing to work with your
Subcommittee and would be happy to answer any questions you may
have.
Senator Coburn. Thank you, Ms. Murphy. Mr. Safavian.
TESTIMONY OF DAVID H. SAFAVIAN,\1\ ADMINISTRATOR, OFFICE OF
FEDERAL PROCUREMENT POLICY, U.S. OFFICE OF MANAGEMENT AND
BUDGET
Mr. Safavian. Chairman Coburn, thank you for holding this
important hearing today, and before I begin, my apologies to
you and your staff for being late on the testimony. It won't
happen again.
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\1\ The prepared statement of Mr. Safavian appears in the Appendix
on page 65.
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Senator Coburn. Can we get Mr. Bolton to assure us of that
for all the rest of the committees of Congress?
Mr. Safavian. Sir, that is above my pay grade.
Senator Coburn. Well, just so everybody will know, I sent
him a letter today. This is one of the problems with our
Federal Government. We are going to work together, and to do
that, we have got to communicate, and you can't communicate--we
had several hearings last week in other committees where the
stuff didn't come until 4 hours before a hearing. For us, for
the future of this country and the debt service load that we
have in front of us, we have got to do better. This isn't about
meanness or anger or anything else. It is just frustration. I
want to do a good job, and I know you all do. And everybody
else here got their testimony here on time. Thank you.
Mr. Safavian. As the Administrator for Federal Procurement
Policy, Chairman, I view my charge much like yours, to ensure
that the taxpayers get the best value when we buy services and
goods. I think we have all seen instances of poor contracting,
and indeed, criminal behavior, which call into question the
integrity and functionality of the current system. I can tell
you that leadership at OMB, GSA, and DOD, as well as other
acquisition agencies, take this very seriously and are working
together to cure the issues.
For example, DOD has been working in partnership with GSA
on the ``Get it Right'' campaign, and GSA Administrator Perry
has undertaken a reorganization to better use those agency
assets, reduce costs, and increase service quality.
As you consider additional policy recommendations, I would
also urge you to consider the entire picture, because we buy a
lot of stuff and we executed, last year, 37 million
transactions, and the vast majority of those commercial buys
were successful. It is easy to get caught up. There are very
specific bad examples, but I would just urge you to look at the
whole picture.
As you know, there is this ongoing debate about whether the
goal should be getting the absolute lowest price on every buy
or whether we should be seeking the best value overall with the
acquisition system. It is a nuance, but a critical distinction.
Some activities, such as the use of post-award audits,
generate transaction-specific cost savings, but their impact on
our government market as a whole can have collateral
consequences that may actually increase the total cost the
government pays for goods and services.
We can and do negotiate good prices in the current system.
In fact, I checked the other day. The GSA performance metric
for how it buys IT solutions, for example, is that it generally
buys them at 7 or 7\1/2\ percent less than independent
government cost estimates.
But some in the acquisition community argue that we need
more intrusive mandates and regulations, new types of audits,
and even legislation in the quest for better pricing, and it is
a very seductive argument, I will grant you. Some arguing that
subjecting vendors to these requirements can save taxpayer
dollars can point to very specific examples. But they fail to
take into account overhead charges to generate those savings.
But more importantly, they don't reflect the fact that the
more red tape we load on our vendors, the higher the prices are
they are going to charge. Simply stated, the more difficult it
becomes for companies to do business with us, the fewer vendors
we see who are willing to work with us. Less competition brings
higher prices, less innovation, and fewer choices, not to
mention the disproportionate impact on small businesses.
I think if we are thinking about the mundane types of
things we buy--staplers, office products--that type of dynamic
wouldn't be a big deal. But when you consider the homeland
security environment or the defense environment, the
consequences can be much more significant, and I want to just
give you two very brief examples.
I was at a trade show a little while back and I talked to a
guy that had come up with a new tool--he had shrunk down
magnetometers and he put them in a set of gloves so that people
could literally wand their hands over somebody to see if they
were carrying a weapon. When I said, ``Are you on the GSA
schedules?'' he said, ``No, I don't want to be. Its too
difficult to deal with the government.''
A similar example just crossed my desk the other day. There
is a Fortune 500 company that has technology right now ready to
go that can cut the weight of the battery packs that our
soldiers and Marines are carrying in the desert by 20 to 30
percent. They refuse to market that technology to the
government right now because of the government-specific
requirements we lay on them. And as a result, our guys are
carrying a whole lot more than they have to.
The issue we have here is a paradox. Increased post-award
audits and compliance may generate more savings on individual
contracts, but when you look at their impact as a whole, they
very well could increase costs when we have fewer companies
coming in to bid.
I can't sit here, Chairman Coburn, and defend the status
quo. We buy more than anyone else in the world. We should be
the best at buying it, and frankly, we are not. But before we
turn to these very intrusive alternatives, we should look at
the tools we have in our toolbox now, quite frankly, that we
aren't using, and that is something that is my responsibility
as the OFPP Administrator.
We are not using things like strategic sourcing, where
rather than buying a stapler here and a stapler there, we are
going out and we are saying, OK, how many staplers is the U.S.
Department of Agriculture going to use in the next year and let
us negotiate down from that price. We are not using share and
savings contracts, which is a technical type of contract where
we load the risk off on the vendor rather than have the
taxpayer shouldering the risk.
And frankly, one of the challenges we have, I have got to
tell you, is we have a human capital crisis coming up in the
acquisition community. As you can tell by the poster that your
staff put together, it is a very complicated system we have,
and we have a whole bunch of folks who know the system and they
are retirement-eligible. The numbers we have are 70 percent of
our senior executives, 40 percent of our mid-level managers are
retirement-eligible, and when those people leave, all the
experience that the taxpayers paid for is gone out the door.
And what is really disconcerting, what keeps me up in the
middle of the night, frankly, is those folks aren't the ones
that have started to retire now. It is the GS-7s, 9s, 11s, the
people who should be in journeyman training to step up. Those
are the people that are leaving. They don't have the golden
handcuffs of the pension program. They are taking their TSPs,
walking out the door, and selling out to the highest bidder.
And so when we see the senior folks that are doing the job now
leave, I am not sure we have enough folks to backfill.
I guess, in short, what I would say is that our acquisition
system is really delicate. Changes in one area have unexpected
consequences in another. And so when you read that 1977 report,
it is hard for me to say this, but I would say there are some
things we have to be careful of. We did reevaluate the
procurement system in the 1990s. The challenge for you all on
the Hill, us in the Administration, is to find this right
balance of rules and regulations and policy and law so that the
government continues to be the most sought after customer and
the taxpayers get the benefit from the competition.
I think I will sum it up there. That is the extent of my
oral remarks. Thank you again. I think this is an issue that we
need to explore. I hope I will have an opportunity to come back
and talk about a few other angles here, but I would be happy to
take your questions.
Senator Coburn. I would just note, in 1974, I had a
contract for the Defense Supply Agency in Philadelphia. I ended
up giving them the product because the cost that they wanted to
do it--I gave them $175,000 worth of ophthalmic lenses because
of the nightmare.
Now, the point I want to make with you is whose fault is
that that they won't sell us the magnetometers or the battery
packs? Is that their fault?
Mr. Safavian. It is hard for me to assess blame, and I am
not trying to dodge.
Senator Coburn. But the point is, how do we get to the
solution? Obviously, there are a lot of suppliers in this
country today that don't want to deal with the GSA and the
Federal Government for very good reasons----
Mr. Safavian. There is no doubt about it.
Senator Coburn [continuing]. And that has nothing to do
with price.
Mr. Safavian. You are right.
Senator Coburn. I was willing to take a large loss to just
get out of the contract because I didn't want to mess with it
anymore because of the hurdles that you had to jump. That is
what they are telling you.
One of the purposes for this hearing is, we are going to
spend $20 billion this year, right, GSA?
Mr. Safavian. If not more, a lot more.
Senator Coburn. OK. No, I am talking about the cost of
running the GSA, $20 billion. That is what we are going to
spend. Did anybody step back and say, is there a better way to
do all this? Does anybody start saying, are we just going to
tweak this around the edges or can we step back and say, times
are different. We have tremendous technology in terms of
electronic technology today. Isn't there a better way?
Shouldn't we change? Shouldn't we totally reform what we are
doing? Shouldn't we look at it?
I don't want a new bill. I don't want to give new
regulations. We are doing oversight. We are one of the few
committees in Congress that is going to do oversight. But the
way we find out how to change things is to talk about it and to
have you come and testify and to ask the tough questions so
that maybe we will look at that.
The entire picture, based on the numbers that you gave, it
is $600 per purchase based on what you just quoted to me, $600
for anything that the GSA purchases. That is what the cost is.
Well, that is pretty steep. If we went to any other large
purchaser--nobody is as big as the Federal Government, I
understand that. But in terms of segments, nobody is paying
$600 when they buy things.
Mr. Safavian. Let me challenge you if I may, sir. If that
number, and I don't know how that number came about, but GSA
doesn't just do acquisitions.
Senator Coburn. Oh, I understand that, but you all gave us
that only 4 percent of your cost is in management and billings?
Ms. Murphy. Management was what the question was. I
apologize if we were unclear in communicating that to your
staff.
Senator Coburn. OK.
Ms. Murphy. Four percent of our cost is in management.
Ninety-six percent of it is actually----
Senator Coburn. In acquisitions?
Ms. Murphy [continuing]. Spent with contractors or out in
the field.
Senator Coburn. So 4 percent is in management. Ninety-six
percent is outside of it. So the question comes--and it is not
to be critical of the individuals. This hearing is about two
generations from now, because as the purchases go up and the
lack of savings go down, the people that are paying for that
isn't us.
Mr. Safavian. It is our kids.
Senator Coburn. It isn't us. It is grandchildren.
So my challenge to OMB is to step back from this thing, get
way away and say, maybe rather than fix things around the
edges, like this thing has been saying for 30 years, which
nobody is fixing, maybe we need to say, is there a better way
for us to do it? That is my challenge.
Mr. Safavian. And I think we want to take you up on that
challenge. I think there are two data points here that I would
add to your point, which is well taken.
One is we are in the process of looking at the acquisition
system, particularly for commercial items which we are talking
about here, the schedules types of buys, and services. Congress
included in a bill about 3 years ago--2 years ago, the Services
Acquisition Reform Act, that required us to set up a panel. We
have 14 members on the panel who are looking at whether there
is a better way for us to skin this cat. They have been meeting
since February or so. They are supposed to send up a report to
you all as well as to me come the end of this year, and I
expect we are going to see them taking an outside-the-box
approach--at least I hope they will come back and give us an
outside-the-box look at how we are buying commercial goods and
services.
The other data point that I would give you is this--in the
President's budget, we directed GSA to begin reorganization to
do exactly what you are talking about. Let us find a different
way to do this where we are providing things better, faster,
and cheaper, where we are taking into account new technology.
And specifically, we directed that the Federal Technology
Service and the Federal Supply Service, these two entities that
have grown up over the last 30 years, be merged. I think in the
past, it used to be that we bought technology one way and we
bought commercial items another way and so we needed two full
organizations.
And so our hope is that Administrator Perry and his team,
as they are reorganizing, with a little bit of input, a light
touch from OMB, I will grant you, is looking at this to try to
come up with that so that we don't have vendors out there that
are taking a loss on their goods, but we don't have taxpayers
that are taking a bath, either.
Senator Coburn. That is great. They have been authorized
for 3 years?
Mr. Safavian. Two years.
Senator Coburn. And so this year, 2\1/2\ years, almost 3
years later, we are going to get something. That is the
problem.
Mr. Safavian. It is. We went without an Administrator of
Federal Procurement Policy for 18 months.
Senator Coburn. Last month, the House of Representatives
passed H.R. 2066, the GSA Modernization Act. It calls for GSA
to merge the FTS and the Federal Supply, which you talked
about. How is this going to impact GSA service fees,
particularly with respect to alignment with other government-
wide acquisition contracts and multiple award contracts?
Mr. Safavian. I would defer that to the GSA. I mean, I can
comment, as well, but I would defer that to the GSA folks.
Ms. Murphy. The guiding principle in our reorganization has
been efficiency, and if it is all right with you, we have
Barbara Shelton, who is the Acting Commissioner for the new
Federal Acquisition Service, which is going to be that merged
service, here with us today, so I may defer to her in a moment
to answer part of your question, as well.
But as we are looking at the organization and how we can be
a more efficient organization, how we can provide better value
for the taxpayer, part of that is going to be looking at our
normal process of evaluating our fees. At the same time,
comparing our fees to the fees that our other GWACs around the
government are charging isn't necessarily a one-on-one
comparison. Other GWACs and other franchise fund agencies only
retain about 4 percent of what they collect, and that is to go
towards additional management structure, putting in financial
systems. When GSA receives its funding, we--it has to pay 100
percent of our costs, and anything that we have left over at
the end goes back to the Treasury. It is not something that is
enriching us long-term.
Senator Coburn. How much did you all return to the Treasury
last year?
Ms. Murphy. Close to $100 million? Approximately $100
million, sir.
Senator Coburn. A $100 million, so 5 percent of your
budget.
Ms. Murphy. Only about $200 million of our budget, also, is
appropriated funding.
Senator Coburn. Oh, I know that----
Ms. Murphy. OK.
Senator Coburn [continuing]. But to me, that doesn't make
any difference. The fact is, what is the stimulus for GSA, if
they are a cost-plus organization, to control their costs?
Within GSA--I am not talking about purchasing, I am talking
about what is the stimulus--if you are cost-plus, you get a
percentage of anything you buy, what is the stimulus to control
your costs?
Ms. Murphy. Well, I will answer you this way, Senator. A
year ago, we actually reduced our costs, so it is something
that we have taken very seriously as a mandate, to be
performance-based, to only collect the amount that we need
every year that has to be reviewed by OMB, what fees we are
going to charge. We reduced the fees that we charge on our
Multiple Awards Schedules from 1 percent to .75 of a percent,
which was a savings of millions of dollars to customer
agencies----
Senator Coburn. Let me get you to clarify that. Your total
costs--not your rates but your total costs--went down in 2004
over 2003? Is that your testimony?
Ms. Murphy. I would have to get back to you on the record
for that. I apologize. I have only been with the GSA for about
5 months, but----
Senator Coburn. Well, I want you to answer that, because
that is how I measure costs. What are the total costs? And
again, with the system that we have set up today, what is the
incentive within GSA, if they are on a cost-plus basis, to
reduce costs?
Mr. Safavian. Let me take that on.
Senator Coburn. OK.
Mr. Safavian. You have really hit the nail on the head, at
least in terms of past practice. In my prior life, and I should
have disclosed this earlier, I was the Chief of Staff at GSA
and so I have a particular soft spot for that organization. But
what we found when I was there was that one of the performance
metrics driving employee behavior was volume. How many
contracts could you get in and out of the door? In fact,
following some IG reviews, what we found in one region was that
the contracts were coming out the door, I think every 2
minutes, 24/7, 365, not a constructive way to buy goods and
services. So first and foremost, that contributed to the
problem.
I think if the question you asked is what limits that cost-
plus dynamic, there are two major things. One is OMB has to--
and does--very carefully monitor where the money is going at
GSA. Particularly, we ride herd and keep a tight rein on head
count over there. So it is not as though we are inflating the
numbers of people to do more volume in order to build more
money.
But the other part is that we do have a quasi-competitive
system here. Prior to 1996, GSA was a mandatory source for
everything. You had to go to GSA and it took you 6 weeks to get
a box of paper clips--oversimplification, but you can see where
I am going. Post-1996, what we said was other agencies can
compete with GSA in certain circumstances. And so you have five
different agencies, GSA included, that run these big
contracting vehicles.
But the other measure that limits poor performance by GSA
is that if you are an agency and you don't like the fees that
you are being charged by GSA, unless it is a major commodity
buy, you are entitled to do it yourself, and most agencies do
that in one form or another. That is a check and balance in the
system and it does pose a challenge to GSA. When GSA charges
too much, business goes out the door to other agencies.
It is not perfect, and in fact, I can argue that in an
effort to generate in this theory that let us have competition
for GSA to keep price reduction down, we have actually gone a
little bit too far the other way insofar as we have too many
vehicles out there, too many organizations that are very
difficult for us to track.
And what it does is it encourages a strange dynamic. We
talked about how we encouraged volume at GSA. Well, the dynamic
you have when you have multiple agencies doing multiple buying
is you have agencies actually reaching out to see who can do it
fastest, who can get more volume in, and the result is we see
bent procurement rules and we don't see the taxpayers seeing
the best value.
So again, we have to find this right balance between GSA as
this mandatory source organization--we don't like that, that
doesn't work--and GSA, which is competing with a bunch of mini-
GSAs out there--that is not necessarily working, either. The
key is going to be, A, strong management at GSA, which they
have; B, strong oversight by you all and by OMB; and C, a
measure of competition among all of the Federal customers.
Senator Coburn. Thank you.
Ms. Murphy, did you go to Chrysler and Ford and GM and do
post-award audits to see if you got the best price? How do you
know you bought better than Avis?
Ms. Murphy. Now, I am not aware of what we did in any
specific contract. I would be happy to get back to you on that,
but----
Senator Coburn. Your testimony was that you bought at 33
percent better than all commercial buyers, right?
Ms. Murphy. Yes.
Senator Coburn. And my question is, how do you know that?
Ms. Murphy. It is one of the performance metrics by which
we track our----
Senator Coburn. I know, but how do we know it? Was there a
post-contract audit done on those purchases to know that?
Ms. Murphy. I do not believe so.
Senator Coburn. OK. So we can't know that.
Ms. Murphy. The way that we determine our prices going in
is we do a pre-negotiation panel. When we receive a
requirement, or a contractor comes to us and wants to do
business with GSA, for example, using our schedules, they would
send us an offer. The first thing that our contracting officer
or specialist does is review that offer and looking at their
pricing practices and their pricing guides. They then look at
similar prices that are available on GSA schedule, which are
available at GSA match, look at what is available commercially
for pricing. They look at----
Senator Coburn. That is process. I am wanting to know how
you know that you got that price.
Ms. Murphy. That is how we baseline the price. We go in, we
negotiate with them. What price are you offering Avis? What
price are you offering a large vendor?
Senator Coburn. No, but without a post-award notice, how do
you keep clarity and truth out there in the contracting? If I
am a supplier and I know you are not coming back to check me, I
have a wide range of latitude with which to deal with you.
Ms. Murphy. Well, we do pre-award audits, also. We have
been increasing those. I realize that there was a dip in the
late 1990s, but in the past--let me see, in 2003, there were
14. There will be 70 this year. We are going to see an increase
again next year. So we are increasing about 500 percent from
2003.
Senator Coburn. OK. So why are we increasing? We have
testimony that it has gone down, the savings have gone down.
Why all of a sudden this year are we increasing post-award
audits--I mean, pre-award audits?
Ms. Murphy. Actually, we began in November 2001. We formed
an IG working group. It is a very good working relationship
with the IG to try and address how we could do more pre-award
audits. In those negotiations, actually, the Federal Supply
Service has provided $2 million to the IG to hire additional
auditors so that they can conduct more pre-award audits. We
negotiate with them at the beginning of the year, or actually
we are in the process of negotiating for next year how many
audits they are going to do, what companies, which audits are
the ones that they need to be looking at. It has been a very
good and positive relationship. It is only one step, though, of
our quality control process.
Senator Coburn. But if a vendor knows that you are doing a
pre-award audit but you are not going to do a post-award
audit----
Ms. Murphy. Well----
Senator Coburn [continuing]. We will let you see everything
now, but things may change.
Ms. Murphy. We do still have the right to do compliance
audits to make sure that they are maintaining their pricing
structure, if they are starting to give someone else a better
price, that we also get that price.
Senator Coburn. How many compliance audits did you all do
last year on major purchases?
Ms. Murphy. I would have to get back to you on that one for
the record. I don't have that number.
Senator Coburn. Is it a significant number? Is it more than
17?
Ms. Murphy. Honestly, Senator, I apologize. I don't know
that number.
Senator Coburn. I think that is important information. I
mean, if you read their report, it is a pretty tough report on
the fact that they are saying the savings aren't coming now
because things--and what you are testifying is that has
changed. Is that correct?
Ms. Murphy. We are changing our pre-award audit process. We
are changing our price negotiation panels. This year alone, we
have done 57 price negotiation panels that covered over $2
billion in negotiations. The pre-award audits this year are
expected to cover another $5 billion in contracts.
And it is also important to remember that once someone is
on one of our schedule vehicles, there is additional price
competition in place. So while we may have established what is
a fair and reasonable price, we are teaching our customers, we
are teaching our own associates, and we have put in ordering
procedures that comply with DOD's rules as well as additional
rules for the civilian workforce to encourage additional
competition.
One tool we created was called e-buy that allows us to take
a requirement and push that to all the vendors on a schedule
and get back as many offers as we can and then negotiate to see
if there are even additional savings to be found.
Senator Coburn. I am excited that you are doing that. I
think that is really positive. The question my staff couldn't
answer and maybe you can is why can they negotiate a better
price than you have?
Ms. Murphy. Because when the Federal Government is
negotiating a schedule price, we are only--there is only a
guarantee usually of about $2,500 in purchases. If someone can
come in and say, ``I can guarantee you this is a contract that
is going to be for 3,000 laptops,'' you can give them a better
deal than if you are only buying three. If it is the end of the
model cycle----
Senator Coburn. Do we know how many laptops we bought 2
years ago in the Federal Government?
Ms. Murphy. I think we have some data on it. I couldn't
tell you comprehensively----
Senator Coburn. So then why wouldn't we----
Ms. Murphy. We are working toward strategic sourcing
those----
Senator Coburn. Yes, but why wouldn't we say $2,500 is out
the window on this. Here is what we know we will buy. And the
price range, if we don't buy that, then it can go up 1 or 2
percent. Why in the world would we negotiate something less
than the best price? This is the biggest purchaser in the world
of everything and everybody ought to get the best price every
time.
Mr. Safavian. But Chairman, let me weigh in here, because
there is a different dynamic. If we were going to market on
every purchase and saying, all 1.8 million civilian employees
are going to need a pen, so we need 1.8 million pens, we would
get the absolute best price. Unfortunately, the system doesn't
work like that.
Senator Coburn. Why not?
Mr. Safavian. It doesn't work like that because we will
have an agency--we can have USDA buying 40,000 pens----
Senator Coburn. Why?
Mr. Safavian. And the answer to that is we went from the
mandatory source where every purchase was funneled into GSA----
Senator Coburn. You can still have them purchase it.
Mr. Safavian. No, I am not defending the--and let me point
out, we went from a system where all of the funding was, or all
of the purchases were routed through GSA and GSA would make
these mass buys, in theory that we would get the best prices.
We stopped making GSA mandatory, but what we also did was we
walked away from any concept of leveraging our buying power to
that great extent.
One of the things that OFPP, my office has embarked upon is
a strategic sourcing effort. Strategic sourcing is just MBA-
speaking for us looking at what we are buying and then buying
it better. The first part of that, though, is it requires us to
understand what we bought last year. Every major company does
this, and when they do it, we see 20, 30, 40 percent price
reductions in commodities. And that is where we are going.
But I will tell you candidly, right now, our initiative has
training wheels on it. We have asked agencies to identify three
commodities and do three commodity councils at the agencies to
leverage the buys.
Senator Coburn. I want to make the point with you that
somebody making $20,000 a year in Oklahoma is paying $2,000 in
Social Security and Medicare taxes, another $2,000 in income
taxes. What you all have said basically is we can't get it done
fast enough, and what they are saying is why in the world, if
you are the biggest purchaser, why doesn't everybody in the
Federal Government get the best price? I don't think that--give
me some defense of what you can tell them. The reason is, is we
don't have the information, or we can't----
The fact is, the goal ought to be, I believe, is when you
go to a vendor, give us your best shot because here is what we
bought last year. Within plus or minus 20 percent, you are
going to get a shot at that. And anybody else that wants to
compete after we have competitive bidding can compete at that
price for a limited portion of the market. But the rest, the
guy that got out there and gave us the price and said they
were, they ought to be guaranteed a certain volume, and you can
do that.
To say we don't have the knowledge----
Mr. Safavian. That is true, though.
Senator Coburn. And so the testimony is we don't know what
we are buying----
Mr. Safavian. That is absolutely true.
Senator Coburn [continuing]. Because we can't use leverage
to get the best price.
Mr. Safavian. Not in all cases. Many cases, we do, and I
can give you chapter and verse on which agencies are doing a
great job on their strategic sourcing efforts--the Postal
Service, Agriculture, Homeland Security, surprisingly enough,
is doing a great job. The challenge is spreading that out to
all 26 major agencies and getting everybody singing off the
same page of the hymnal, and we are doing it.
Senator Coburn. But that is punching buttons on computers.
Mr. Safavian. No. I disagree with you. That is not punching
buttons on computers.
Senator Coburn. Then that means that our whole purchasing
system is a mess, because every organized business and other
entity out there now buys computerized generated purchase
orders--they have a list against which they buy. They know what
the maximum price is. They know what they are going to pay in
terms of freight charges. And at the end of the year, they
punch a button in February and they know what they bought the
last year and they are anticipating that in October, so they
are contracting for the next year, and you are telling me we
can't do that.
Mr. Safavian. We can to a limited extent. The government
buys differently than the private sector. Whether we like it or
not, we have certain mandates and certain social obligations. I
saw one of your posters over there that talked about JWOD and
talked about some other mandatory source requirements. Like it
or not, the procurement system has been turned into a tool of
socio-economic engineering in a number of cases and that makes
it a different type of buy.
Senator Coburn. Can you assess, can you give me a
percentage or a dollar cost for us doing the social engineering
through the purchasing system? What does it cost us in terms of
increased cost? I couldn't give you that number. I don't think
anybody can give you that.
Senator Coburn. Mr. Cooper, have you all looked at that?
Mr. Cooper. No, we haven't. I don't think there is any way
to come up with a dollar amount for that kind of thing.
But I would like to add a couple of points, and I think you
are raising some very important, fundamental questions. GSA
talks about getting a 33 percent discount. What they don't know
is the commercial customers for that same vendor were getting
43 percent discounts. If you look at the GSA IG report that was
done in 2001, you will find example after example after example
of where the commercial customers were getting a better deal
and GSA didn't know because they weren't doing the pre-award
audits. So the pre-award audits are very important to know
that.
The other thing that Mr. Safavian has raised about
strategic sourcing, I think he has got an excellent point. The
government can do much better. We have been pushing for the
last 4 years to get agencies to adopt strategic sourcing
initiatives. We don't know what we are buying. We have no idea.
We don't have the information systems. We don't know who we are
buying from. We don't know what we are paying. And we need to
have all of that information.
As you point out, any major corporation in this world that
is worth their salt, and we have gone out and done best
practices work at a number of those companies, take purchasing
as a very serious function, a function that adds to the profit
line of those companies.
Senator Coburn. You bet.
Mr. Cooper. And they go out and they get the best deals
they can do and they have the information systems and know who
they are buying from, how much they are buying. And the other
thing is, those companies also have socio-economic objectives
that they meet. So they are spreading that purchasing out. You
don't sacrifice one for the other. You have to manage both.
Senator Coburn. Let me ask you one question. Would it make
sense to you, if we are the biggest purchaser, we ought to get
the best price?
Mr. Cooper. Absolutely, the best possible price in every
case.
Senator Coburn. And the best service?
Mr. Cooper. And the best service, the best delivery terms,
you name it. The purchasing power of the government should be
used to its advantage.
Senator Coburn. And should that be done in a way that
vendors like doing business with the Federal Government?
Mr. Cooper. I think there is enough business coming from
the Federal Government, there are an awful lot of vendors that
want that business, yes.
Senator Coburn. OK. But there are real problems with
hurdles in doing business with the Federal Government.
Mr. Cooper. There is no question about that.
Senator Coburn. And is somebody working on solving those
problems?
Mr. Cooper. I would like to talk about the battery case for
just a minute, because we have, over the years, looked at a
number of different situations where companies are reluctant to
deal with the government because of the red tape, the intrusion
that Mr. Safavian talked about. The Congress has passed all
kinds of legislation that allow us to streamline our processes
to reach those people, and I think it comes down to the
companies making a business decision of whether it is in their
best interest or not to do business with the government.
We have something we call ``other transactions.'' It gets
away from cost or pricing data. It eliminates the requirement
to follow the Truth in Negotiations Act. It makes it much
easier for companies to deal with the Federal Government. There
are all kinds of ways. The contractors can ask for waivers of
cost or pricing data for these intrusive kinds of things that
some companies don't want to deal with.
Senator Coburn. So was that done in these two instances?
Mr. Safavian. No, but I think this is an absolutely
critical point. What we are saying is we can waive data
requirements when it is in the government's best interest or we
can ask for more data 20 years out after a contract is
executed. Those are the two ends of the continuum. Twenty years
is a long time. Let me rephrase that.
You can either do the post-award audits, where we are
asking for more data after the transaction, or as Mr. Cooper
said, there are flexibilities where we can use other
transaction authority and say, we really don't need the cost
and pricing data to go get this.
Senator Coburn. Or we can do what Ms. Murphy said. We can
have a continuing audit, which she alluded to earlier. You can
go in--there are other mechanisms which you can check that.
Mr. Safavian. I think that is right. But what the one thing
that I think all of us agree here is that at the pre-award
phase, when the vendors come in and say, here is our data, here
is what we want to charge you, GSA should be using more pre-
award audits. There is no doubt about that. Where we get into,
I think, probably an inter-family fight is when we are talking
about doing more post-award audits, and what we are talking
about is not whether or not Ford delivered the 1,000 cars it
said it was going to. We always have the authority to do that.
What we are talking about is 5 years after Ford came in and
negotiated its price, can we, as the government, go back to
Ford and say, we want to see all of the data that you
calculated your price 5 years ago so that we know whether that
price 5 years ago was the right price. That is the post-award
audit we are talking about.
Now, maybe for Ford, that is fine. But for my family
business in Trenton, Michigan, Trenton Forging, they are not
going to keep that data for 5 years or 10 years or 13 years,
depending on the length of the contract. And that is where we
get into that red tape issue.
Senator Coburn. Well, you are talking in terms much longer
than what I would use that tool. What I would use the tool--I
would never give away this tool, and the reason I wouldn't ever
give away the tool is you don't even have to use it but once or
twice. It is like my proposal. I think we ought to put some
doctors that are defrauding Medicare in jail, and if you did
that about ten times a year, there would be a whole lot less
fraud in Medicare. But we don't use that tool, and so
consequently, I believe you have kind of disarmed yourself by
the post-award audit, the lack of--saying it is not going to be
there, because what you have done is taken away a tool that is
going to intimidate the wrong behavior, to make sure the wrong
behavior doesn't happen in some of your contracts.
Look, most people are honest. I want to see a government
where we assume people are doing the right thing, not assume
people are doing the wrong thing, and all across our
government. We have gone in a different direction in this
country. We assume everybody is wrong. We have to prove you are
right. I would like to see it.
But the tool is to occasionally audit, and that doesn't
mean you audit everything. That means use the tool effectively
to lower the prices. I guess my comparison, having a pretty
long history in business before I was a physician, is we have
got great tools and you have got the information. It is just
you can't get it to you, somewhere, the information on what we
bought. Every agency knows what they bought. We spent $64
billion on IT equipment last year alone as a government.
Somewhere, that data is there. The question is that we haven't
got the CFOs in everyplace to get the transparency and to get
the accountability that we need to be able to get that. But if
we start running these under good financial standards, we ought
to be able to get that.
Mr. Safavian. Before we started today, David and I were
talking about the report that you all have, the most recent
report from GAO, and one of the recommendations, it says--let
me back up. When we are talking about post-award audits, these
relatively burdensome and intrusive audits, they are in place.
There is authority to do that currently at GSA, but it is a
very high threshold. To put it simply, it is the tool of last
resort, but it is still available.
And the one thing that I noticed in the GAO report was it
said--it didn't say that we should make--that we should be
lowering the threshold as to whether or not we should do those,
only that we need to inform our contracting officers that this
is a tool of last resort and that it is available.
Senator Coburn. And it ought to be used every now and then
so they still know it is going to be used.
Mr. Safavian. Once in a while.
Mr. Cooper. Yes. What we recommended was to give those
contracting officers guidance so they knew when to use the
post-award----
Senator Coburn. Yes.
Mr. Safavian. But the last thing we want to do is we don't
want to see every mom and pop or every large business subject
to post-award audits. That just hurts everybody.
Senator Coburn. You don't have to, because that is not the
intent of it. The intent of it is to be a tool to encourage
good behavior. If it is used properly, you don't have to use it
much. It is like a stick on your child. You don't have to use
it much.
Mr. Cooper. I think you will hear that from the next panel.
Senator Coburn. All right. Ms. Murphy, do you have any
comments on anything we have been talking about here just
recently?
Ms. Murphy. Well, I would just say that we at GSA also have
strategic sourcing, are trying to--we have been partnering with
the Department of Agriculture, partnering with Homeland
Security, partnering with other agencies to help them better
use our schedules, our tools to strategic source to bring down
prices. We have been--we really are trying to take a
comprehensive approach to prenegotiation. We have been training
our contracting officers and specialists. We have got a course
that is starting next week on pricing mods and how we can
better negotiate.
So we are taking this very seriously. We believe this
responsibility to the taxpayers is one of the penultimate
responsibilities of a contracting officer and we want to make
sure that our acquisition workforce has the tools it needs to
give that best value.
We also, though, are very conscious of the fact that 80
percent of our vendors are small businesses, and so any time we
impose additional burdens on those vendors, it is a real cost
of business for them----
Senator Coburn. And it is a reason some of them might not
want to do business with you. I understand that. I had personal
experience with it. I understand it.
First of all, let me thank each of you for coming. I am
going to invite you back 6 months from today--actually, maybe
not 6 months from today, that is after Christmas--after the
first of the year and I want us to discuss this again. I want
to see whether headway has been made. We are going to have
another set of people testifying here in a moment.
Ms. Murphy, you have promised to get us some answers to
some questions. We will expect that in a prompt manner, if you
would.
We are going to look at this, because there is not one area
of the Federal Government we shouldn't concern ourselves with,
and I am not just talking about GSA. If you look at the
hearings I am having, we are not picking on anybody. We are
picking on everybody, and we are going to help drive efficiency
and we are going to try to help drive to get rid of the waste.
This is not a criticism of anybody individually. I am proud
of the people that work for this government. I think they are
great people and I think they do a great service. But I think
sometimes the forest and the trees get confused and we need to
step back outside.
I would leave you with this to carry home. We ought to know
what we are buying. We ought to be able to evaluate that and we
ought to be able to use that as a tool to buy better and save a
ton of money. And every tool you have to perk that--I guarantee
you, the purchasing manager at Ford doesn't wince anything when
he goes to try to get a better price, and I guarantee he has
got a guaranteed price. Otherwise, that guy won't have the
contract the next year and he is going to check it. So we ought
to be modeling some of that behavior on a way, and I think that
you all will do that and I appreciate you coming to the
hearing. Thank you. This panel is dismissed.
I would hope somebody from GSA would remain and maybe
somebody from OMB to hear our next witnesses, just so you can
have input of what they are going to say, because we will be
using this in the next hearing.
Senator Coburn. Welcome. Thank you all. On our second panel
is Kathleen Tighe. She is Counsel to the Inspector General,
Office of the Inspector General, General Services
Administration. Also, John Ames, Director for Contract Review
and Evaluation Division, Office of Inspector General,
Department of Veterans Affairs. And also, Thomas Graham, the
Chief Operating Officer of Networld Exchange, Carlsbad,
California.
Welcome to each of you. Thank you, number one, for coming.
Thank you for giving us your testimony earlier than 12 or 13
hours before the hearing. Your full written statement will be
made part of the record, and if you would, try to keep your
comments to under 5 minutes.
Ms. Tighe.
TESTIMONY OF KATHLEEN S. TIGHE,\1\ COUNSEL TO THE INSPECTOR
GENERAL, U.S. GENERAL SERVICES ADMINISTRATION
Ms. Tighe. Thank you very much, Mr. Chairman. Before I
begin, I would like to note that our new Inspector General,
Brian Miller, was confirmed by the Senate on Friday----
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\1\ The prepared statement of Ms. Tighe appears in the Appendix on
page 77.
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Senator Coburn. Welcome, General.
Ms. Tighe [continuing]. So he is new to the Inspector
General community.
We greatly appreciate the opportunity to testify on GSA's
procurement processes and present the views of the Office of
Inspector General. I will primarily address the importance of
contract audit rights and the vital role we believe they play
in ensuring that taxpayers' interests are protected.
The experience of the Office of Inspector General in
contract auditing has arisen primarily in the context of the
MAS program we have been talking about so much today. One of
the aims of the MAS program is to provide agencies with the
widest possible choice among qualified vendors. In addition,
GSA commits to MAS users that schedule prices are fair and
reasonable. Because the goal of the program is to maximize
choice, there is no head-to-head competition as a means of
ensuring fair and reasonable pricing. Instead, what GSA does is
ask for information regarding a vendor's commercial pricing to
its best customers and seeks to negotiate a price that is equal
to its best price. It is this use by GSA of vendor-supplied
information that gives rise to the need to audit.
Currently, there are two main types of audits conducted of
MAS contracts, compliance audits and pre-award audits.
Compliance audits allow our auditors to examine a vendor's
books and records to check for overbillings and ensure
compliance with the price reduction and industrial funding fee
clauses.
The second type of MAS contract is the pre-award audit.
These audits, conducted at the request of contracting officers
in coordination with our office, are performed prior to GSA
awarding or extending MAS contracts. They examine the pricing
information a vendor provides in its proposal. This information
is then used by the CO to negotiate a better price for the
government under the MAS contract.
In a report issued by our office in 2001 which GAO
referenced, we noted the dramatic decline in the use of pre-
award audits in the late 1990s. For example, in 1997, only
eight pre-awards were conducted. That was the low point. This
report spurred the formation of a working group within GSA,
which Ms. Murphy noted, comprised of members of GSA's Federal
Supply Service and our own office and we were tasked, among
other things, with increasing the number of pre-award audits.
By the end of this fiscal year, we expect to have conducted
about 70 pre-award audits covering about $5.2 billion of
expected sales and we hope that the trend does go up, and we
are working, I hope, with GSA and have been fairly successfully
toward that end.
Prior to 1997, though, GSA also had the ability to conduct
post-award audits of pricing information provided during MAS
negotiations, the so-called defective pricing audits. We
initiated and conducted these audits and their purpose was to
determine whether this all-important pricing information MAS
vendors provided is current, accurate, and complete.
In 1997, GSA virtually eliminated the authority to conduct
post-award defective pricing audits. Although GSA did retain
language, which was discussed very briefly, that would allow
COs to modify MAS contracts to allow for defective pricing
audits, the modification requires a high level of approval and
a CO finding that there is a likelihood of significant harm
absent inclusion of this audit authority. To date at GSA, this
clause has never been modified to exercise defective pricing
authority.
We believe defective pricing audits are an important means
of protecting the integrity of pricing disclosures and should
be reinstated. In the 3-year period prior to the 1997 rule
change, 84 percent of our post-award audits contained findings
of defective pricing. Looking only at the small numbers of
these audits that were referred to the Department of Justice
because they had indications of fraud, we recovered $110
million in the 8 years prior to the rule change. This amount of
money does not include monies recovered by contracting officers
administratively. It also does not include the amounts
attributable to improved forward pricing, because the COs can
take these reports and negotiate good prices going forward,
also. It is not just about getting money back.
Every indication we have based on hotline calls and fraud
actions filed under the civil False Claims Act is that faulty
and incomplete pricing disclosures are still prevalent at GSA,
even though we can't audit for them.
We also don't think, as you yourself mentioned, Mr.
Chairman, that audits can be measured in terms of numbers of
contracts audited or dollars recovered. Even at the height of
our auditing, we conducted only about 40 to 50 post-awards a
year. It is really the existence of the audit right that serves
as a deterrent, we believe, to vendors that would misrepresent
their pricing information to the government, and I believe this
right encourages companies to put in place internal compliance
programs and other things and good housekeeping measures
internally and make them more responsible contractors.
We believe the success of the Department of Veterans
Affairs voluntary disclosure program is due in part to the fact
that it retained contractual defective pricing audit rights.
We have strongly urged GSA to reinstate post-award audit
access to negotiation information. The ability of GSA to
negotiate prices commensurate with the government's purchasing
power is dependent on getting current, accurate, and complete
pricing information from vendors. We believe that post-award
defective pricing audits are a critical adjunct to the existing
pre-award audits. Although we expect to perform 70 pre-award
audits this year, as I noted, this only represents a small
percentage of the over 17,000 total existing MAS contracts. We
believe that as long as GSA wants to maintain maximum choice,
the centerpiece of the MAS program, audit rights over pricing
information should be an appropriate, necessary feature of
these contracts.
Thank you very much. I am happy to answer any questions.
Senator Coburn. Thank you. Mr. Ames, thank you for being
here.
TESTIMONY OF JOHN B. AMES,\1\ DIRECTOR, CONTRACT REVIEW AND
EVALUATION DIVISION, OFFICE OF INSPECTOR GENERAL, U.S.
DEPARTMENT OF VETERANS AFFAIRS
Mr. Ames. Mr. Chairman, I am pleased to be here today to
explain why pre-award and post-award audits of Federal Supply
Schedule proposals and contracts are in the best interest of
the government and to discuss the need to maintain post-award
audit authority in all FSS contracts.
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\1\ The prepared statement of Mr. Ames appears in the Appendix on
page 87.
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We strongly believe that pre- and post-award audits help
ensure VA is getting the best possible price for the American
taxpayer. VA has been delegated authority by GSA to manage 11
schedules for health care products and services. These
schedules encompass over 1,400 contracts with annual sales
projected to exceed $7 billion in fiscal year 2005.
In fiscal year 1993, VA entered into a Memorandum of
Understanding with the OIG to provide audit services for VA's
FSS contracts on a reimbursable basis, paid for by VA's
revolving supply fund. This partnership with VA has proven to
be very successful. During the past 12 years, we have conducted
240 pre-award audits. These audits contain recommendations for
better use of funds by obtaining lower contract prices of
approximately $2.2 billion, of which $390 million was actually
sustained during contract negotiations.
In addition, 238 post-award audits were conducted,
resulting in approximately $319 million in recoveries for VA.
The recoveries have more than paid for the cost of conducting
these audits, with a return on investment of $11 for each
dollar expended. Of the 238 post-award audits, we initiated 107
in response to vendors' voluntary disclosures. These vendors
collectively offered to pay back $37.5 million in overcharges.
However, as a result of post-award audits, we actually
recovered $113 million for VA.
The number of voluntary disclosures shows that post-award
audit authority has had a deterrent effect on industry. These
audits also provide valuable insight into each vendor's
commercial practices, which VA has used to improve its
contracting and purchasing activities.
In response to industry objections to post-award audits of
FSS contracts, GSA issued a final rule in August 1997 that
virtually eliminated the clause permitting post-award
examination of records for the purpose of auditing pricing
information submitted during contract negotiations. Because of
opposition from VA, the Department of Justice, and the GSA OIG
to eliminating post-award audits, GSA compromised and the final
rule allowed the awarding agency some very limited discretion
to include the clause in schedules that were determined to be a
risk for harm if the clause was not included.
To further appease industry, the final rule imposed a 2-
year limitation on auditing commercial sales practices and
other information relied on by the contracting officer in
awarding a contract or modification.
In response to the final rule, VA evaluated its schedules,
identified those that were at risk, and took the actions
necessary to include the post-award examination of records
clause in these schedules. As a result, we have continued to
perform post-award audits.
In March 2005, GSA has once again raised the issue
concerning the need and benefit of post-award audits. In
response to their advance notice, we maintained our position
that post-award audit clauses, which existed prior to the
August 1997 final rule, should be reinstated and should be
included in all FSS contracts. We believe this is needed to
protect the interests of the government and to ensure that we
receive fair and reasonable pricing.
Throughout the past 10 years, industry has made a number of
arguments in opposition to post-award audits. A primary
argument is that the audits are overly burdensome on the
contractors' operations. Our on-site audits at the vendor's
place of business are only conducted on an as-needed basis and
are usually completed in 2 days or less. We have reviewed large
and small businesses and found that most maintain records in
electronic format, that the information is maintained for many
purposes, not just government audit requirements, and that the
information is readily available for review.
Last, notwithstanding GSA's lack of involvement with VA's
11 schedules, GSA retains the authority to interpret and issue
rules affecting all FSS schedules. Because of this, we propose
that GSA transfer to VA complete authority to manage its 11
schedules, including all rulemaking authority. This will ensure
our ability to continue to negotiate and obtain the best prices
for the government.
For the reasons stated above, we recommend that GSA
reinstate the post-award access to records and right to examine
records clause that was deleted by GSA's final rule. We also
recommend that Congress consider transferring the 11 schedules
that VA currently manages from GSA to VA.
I thank you for the opportunity to testify. This concludes
my formal statement. I will be pleased to answer any questions.
Senator Coburn. Thank you, Mr. Ames.
Mr. Graham, thank you. Welcome. We are glad you came. Thank
you for coming.
TESTIMONY OF THOMAS GRAHAM,\1\ CHIEF OPERATING OFFICER,
NETWORLD EXCHANGE, CARLSBAD, CALIFORNIA
Mr. Graham. Good to be here, sir. I really appreciate the
opportunity to appear before this Subcommittee to talk about
GSA--GSA fees.
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\1\ The prepared statement of Mr. Graham appears in the Appendix on
page 98.
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My answer to your question, is GSA getting the best deal,
or giving the taxpayer the best deal, I believe very strongly
that we have to look at this from a balanced and unique
perspective and we need to look at the current press on GSA,
which prior testimony more than documented. As we look at this
current press, it clearly indicates that there is a problem
within the GSA hierarchy in terms of is GSA doing the best job
for the American Government. We have to look at GSA not only
from the perspective of the fees that GSA charges, but we have
to look at GSA and contracting in terms of the effectiveness
and the efficiency in which the agency operates as they charge
those fees.
I believe that GSA, frankly, mirrors problems that are
endemic to the government acquisition domain, meaning that
problems at GSA can be found across the board when we talk
about franchise agencies as they conduct business for the U.S.
Government and as they charge fees in the conduct of that
business.
If we look at these fees from a larger perspective, one
could reasonably conclude that they are high. If we look at
these fees from the perspective of the value that the agencies
bring to the table and we measure the efficiency and the
effectiveness of these practices, one element becomes very
clear. GSA, to quote GSA, GSA has indicated that from their own
IG that they are not as efficient as they could be. So one
could conclude that with a bit of reform, with a bit of change
in the way the GSA does business, that, in fact, they could be
effective and efficient.
One of the things that I would like to propose today is
that that is, in fact, the case and, quoting from GSA's own
staff, the staff feels that if GSA could automate their
purchasing practices and create tools that automate what they
do across the board in terms of compliance and results, that a
lot of the issues that are being discussed today in terms of
costs for service and value would be decreased.
For example, GSA currently operates at a cost to the
taxpayer averaging 5 percent per action. In previous testimony,
it has been indicated that an average of about $600 per action
is the average cost.
In our case, we believe that we have, and when I say
``we,'' my company, Networld Exchange, has created in
cooperation with the Navy Postgraduate School and the
Department of Interior a contract that responds to a number of
the issues and questions that have been raised here today.
For example, the Federal Government has increased spending
on acquisition issues between 2000 and 2005 by about 30
percent. This data is public, and one of the things that we
know is that as the cost of goods and services have increased
and the cost of acquiring those goods and services using GSA
and other Federal agencies like GSA, what has occurred at the
same time is that the acquisition workforce that conducts these
actions have been actually decreasing, taking away with them
past knowledge that could be very useful in creating new
opportunities and new knowledge base to create new
opportunities.
The Navy Postgraduate School conducted a study a number of
years ago, and in the findings at the Navy Postgraduate School,
the question was raised whether the efficiency of the current
acquisition workforce could be improved to save money for the
Federal Government and the answer was clearly no. So as a
direct consequence, the Navy Postgraduate School created a
think tank that would study acquisition, logistics, research
and development, and the result of that effort was the creation
of what is currently called the Open Market Corridor.
The Open Market Corridor is administered by the Department
of Interior National Business Center in Fort Huachuca, Arizona,
and research and development in a constant form is conducted
between the Navy Postgraduate School and my company, Networld
Exchange. OMC was developed with zero up-front costs to the
Federal Government. The government paid nothing for the
software.
One of the other issues that OMC brought to the table was
the fact that this development was done in collaboration
between industry and the government. Current purchasing
practices at GSA does not have that selective kind of
collaboration, particularly when dealing with IT purchases.
Information technology purchases particularly are a fast-
growing item within the acquisition milieu of the Federal
Government.
The Federal Government pays more for IT purchases than the
private sector does, and one of the reasons for that is that
the knowledge base within the Federal Government regarding IT
purchases is suspect. As a matter of fact, recent publications
indicate that many agencies now are hiring chief executives to
handle IT purchases.
The intent of OMC was to demonstrate that a web-based
procurement execution and administration system compliant with
the FAR, particularly FAR 12, could be an effective tool that
could be applied across government. Using OMC, we think that
the shrinking procurement workforce can become a more efficient
organization in the sense that OMC allows greater use of time
and availability of folks that are involved in the procurement
domain.
Senator Coburn. Can I get you to summarize, if you would.
Mr. Graham. Yes, sir. We believe that, basically, as a
developer, that the government needs to take a very close look
at how purchases occur in terms of working collaboratively with
industry to reduce costs. Thank you.
Senator Coburn. Thank you.
Ms. Tighe, who set the policy that choice is more important
than price and quality?
Ms. Tighe. I think that has been the longstanding sort of
reason for the MAS program, so it was sort of no one person or
no one time. Ever since I have been involved in the MAS
program, which has been the last 15 years, that has been the
operating principle of the program.
Senator Coburn. Can you give me the background on why that
would be? I am having trouble understanding why that trumped
price and service.
Ms. Tighe. Well, I don't think it is intended to
necessarily trump price. I think it just means you have to go
about getting good prices another way. I mean, one way of
getting good prices on the MAS program would, of course, be to
limit the number of people who can get schedules. Now, that
would instill competition on the front end. You wouldn't
necessarily need to go get data, wouldn't necessarily need to
go do pre- or post-awards. But I think the intention is to--you
know, it is sort of the big umbrella for the Federal Government
and you want to--the agencies like to know that they can go at
a very low, good price and go to Dell Computer and buy
computers or go to Gateway or go to whoever they want to and
not be limited in their choice, and I think that has always
been sort of the reason behind the thought.
Senator Coburn. Can you give me the logical reason behind
it? I mean, there is not that much difference between a
Gateway, an IBM Thinkpad, and a Dell, other than price. I mean,
they are all using Intel chips. So can you explain to me where
that came about? What was the reason behind that? Is it because
that was demanded by the different agencies, that they wanted
more say in it?
Ms. Tighe. That is essentially my understanding, is that
was the feedback they were getting from other agencies.
Senator Coburn. You talked about the $5 billion that was
purchased this last year. I think you made mention of----
Ms. Tighe. Yes. Actually, I think it is--this year is
looking at, like, $31 billion under the MAS program.
Senator Coburn. But of the total government purchases--this
is an important number--$291 billion, right? And so if we look
at the total purchases and we look at what it costs to run GSA,
which is the $20 billion, we are at almost 7 percent cost. The
question is, if we are motivated based on choice, not on price,
and the price is actually too high, then that ratio actually
goes much higher, the cost of GSA services for the price.
Ms. Tighe. I understand. I believe it is possible to keep
what GSA wants to--maximum choice and get good prices if you do
a better job of looking at the information vendors give up
front and have ability to check it, spot check it as contract
terms go on.
Senator Coburn. And you agree that we need to have pre- and
post-award audits?
Ms. Tighe. I do agree. Yes, absolutely.
Senator Coburn. Was that a unilateral decision that was
made by GSA, to eliminate--this happened in 1997, correct?
Ms. Tighe. Nineteen-ninety-seven, correct.
Senator Coburn. To eliminate post-award audits?
Ms. Tighe. It was a decision made by GSA, but also with the
blessing of the Office of Federal Procurement Policy----
Senator Coburn. In OMB?
Ms. Tighe. Yes, in OMB. There was much discussion during
the time. Department of Justice had input. We had input. VA had
input. They certainly listened to our viewpoints, and I don't
quibble with that. But in the end, GSA made the decision that
it was going to eliminate post-award audit rights.
Senator Coburn. And if you were to try to defend that based
on what you have heard here today, can anybody legitimately
defend that position of not having that tool out there where it
can be used?
Ms. Tighe. In my opinion, no. I think it was very short-
sighted. I think GSA gave in to vendor pressure and arguments
that it was unduly burdensome, which I don't agree with.
Senator Coburn. Well, it could be.
Ms. Tighe. I understand that.
Senator Coburn. If you are a small business and you are
doing it all the time----
Ms. Tighe. Absolutely.
Senator Coburn. But that wasn't what it was intended and
that wasn't----
Ms. Tighe. And that is what we try to focus our auditing on
the large dollar contracts or the contractors with risk factors
or have a reason to audit. It is not done to go out and look at
small businesses.
Senator Coburn. Or to raise costs.
Mr. Ames, why does GSA want to take your authority for pre-
and post-audits away? You have done a wonderful job, another
area where the VA is leading. The VA is leading in the Internet
technology in health care. You are leading in terms of purchase
savings. Why do they want to take that away?
Mr. Ames. I would comment and echo some of the same
statements that Ms. Tighe just made. I distinctly remember the
years following up to the 1997 final rule. I felt as if we were
in the vanguard, trying to protect the pre- and post-award
audit rights. The GSA basically caved into industry pressure.
Now, you also had FASA of 1994 in that time frame and you had
the Clinger-Cohen Act and some people went so far as to say,
well, those pieces of legislation prohibited post-award audits.
We never saw it that way at all.
We didn't think the legislation did prohibit the audits,
and quite frankly, with the voluntary disclosures that we have
had, when I heard the critics mention that the audits are
overly burdensome and cumbersome, some of our best corporate
citizens, best corporate companies are ones that we have had
voluntary disclosures and we have had settlement agreements
with. One drug company in particular, we had an $8 million
settlement with. Following that settlement, they have come
forward with about 15 voluntary disclosures. So time and time
again, and they have come forward with things that probably we
would not have found had it not been for their disclosures.
So I think that, from our standpoint, we feel that we
conclusively know that were it not for post-award audits, the
voluntary disclosure program would dry up overnight. And we
equate business integrity and accountability. If you have
business integrity, you shouldn't mind being accountable for
your business transactions.
Senator Coburn. All right. I would like to submit for the
record an OMC/GSA comparison table on six items,\1\ and I think
these were in the last month, where it shows every time OMC
beats GSA, plus OMC is taking 2 percent off the top for their
own profits. We are going to ask for more records.
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\1\ Chart entitled ``OMC/GSA Comparison Table'' submitted by
Senator Coburn appears in the Appendix on page 154.
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There are also some other interesting things associated
with it. The delivery is faster, 2 weeks versus 5 days or 2
days. Vendor choice is not necessarily less. And yet the
savings looks to me about somewhere around 4 or 5 percent over
what GSA can buy the same thing.
Without your objection, Senator Carper, I would like to
introduce that into the record.
Senator Carper. Clearly, it ought to be in there.
Senator Coburn. I would like to recognize Senator Carper
now. We have had a great hearing. Sorry you couldn't be here
earlier. I know you had a conflict in your schedule, but we
have had good testimony and it is your time.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. I apologize for not being here for all of
it. We are trying to get to a place where we can bring the
Postal reform bill, that I know you have an interest in----
Senator Coburn. Yes.
Senator Carper [continuing]. To the Senate floor, so we
have been distracted with that for the last hour or so.
I have a number of questions, one of which I want to submit
for the record. I will mention that one first.
It is an outfit, a private company, I think they are called
Silver Oak Solutions, that works with a number of States, maybe
some local governments, as well, and one of the things that
they do is try to help those States to reduce their cost of
purchasing all kinds of items, and I think the approach is an
online bidding competition that pits all kinds of vendors for
the same particular commodity or product, enables them to bid
against each other, and in the end, somebody has the low bid
and wins the bid and the State walks off with a little bit of
savings and the goods that they need.
I just want you to take a look at it and see if there are
any lessons, any applicability for what is going on in those
State Governments that might help us at the Federal level.
Not having been here to hear your testimony, let me just
ask each of you, and I will just start with you, Mr. Graham,
because I like your first name----
Mr. Graham. OK. Fantastic. [Laughter.]
Senator Carper. I want to start with you and just ask you
to share with me some of the take-aways. I ask you, what should
I be taking away in terms of what you presented to this
Subcommittee?
The other thing I am going to ask, after we go through that
and talk about that for a while, I am going to ask you, what
should we do? What should this Subcommittee do? What should
this Committee do? What should the Senate and the Congress be
doing, and the Administration? What should we be doing?
We all know we have these huge budget deficits. They are
out of control. There are a variety of things we need to do,
probably all of them that we need to do, I think will help us
rein this deficit back in. But what should specifically this
Subcommittee and this Senate be doing in response to the
concerns that we are discussing here today?
First, though, if you will, the take-aways for me, and for
others who might not have been here.
Mr. Graham. OK, fantastic. The first take-away, I think we
would like to address, is the entire issue of government
acquisition and how it works. A number of folks here have
testified that government acquisition is actually--the way the
system works can be actually a deterrent to participation from
large and small business and that, in fact, occurs.
But the other thing, of course, is that is just part of the
problem. We want to talk about solutions and the solution
resides in really reform, and the particular issue that I would
like to bring forward is automation. There have been a number
of cases where agencies have decided to automate. There are a
number of initiatives in government, IAE initiatives and DOD.
However, there is no commonality among those initiatives so the
result is usually the same in the sense that everybody does
their own thing and there is no connectivity between those
agencies.
What I believe is that the Federal Government, particularly
this Subcommittee, should insist on that, especially insisting
on it within the milieu of Homeland Security. There are two
major IT projects currently in the Homeland Security Department
where they started last year, they awarded it to Bearing Point,
and less than a year later, they are not sure where they are
going, and both of those projects are literally today at a
standstill.
To address your suggestion from the company you are talking
about that helps the States, what you are talking about are
reverse auctions. The government has tested reverse auctions
with mixed results because----
Senator Carper. When you say the government, the Federal
Government?
Mr. Graham. The Federal Government, yes.
Senator Carper. OK.
Mr. Graham. Particularly the Navy. The U.S. Navy uses
reverse auctions quite frequently, and one of the things that
occurs is that----
Senator Carper. Do you think my interest in reverse
auctions has anything to do with my being a Naval flight
officer for 23 years? Do you think it is just a coincidence,
maybe? [Laughter.]
Mr. Graham. Probably a coincidence. I believe that the
results are not usually the results that are expected, because
many times, if you do a reverse auction, participants in that
reverse auction usually decrease over time if you use it as
your only tool.
For example, the Navy has a contract called Seaport
Enhanced. The entire Seaport Enhanced contract is a reverse
auction involving 650 vendors, and they have mixed success in
Seaport. They are in their third or fourth year. Today, they
still cannot quantify savings. So they are moving in the right
direction. However, there needs to be a little more oversight
of that program.
I don't know if there is any optimal solution to Federal
savings. However, I believe that the government, and I do agree
with you, Dr. Coburn, that the government can, in fact, demand
lowest price. The number of corporations in the United States
that would not exist without doing business with the
government, there are quite a few of them, and all the usual
suspects--the Lockheed Martins of the world and the SAICs of
the world.
The question still remains, however, is how do you
accomplish that, and I am not sure you can accomplish that with
the current practice across the board, including practices at
GSA.
Senator Carper. Later on, I will come back to you and just
ask what should we be doing.
Mr. Ames. Two major take-aways, Senator Carper, from my
testimony. The first is that we strongly believe that there is
a place for pre- and post-award audits under the Federal Supply
Schedule or Multiple Awards Schedules Program.
And the second matter is that we would like to see the 11
schedules that GSA has delegated to the VA--these schedules
deal with health care products and health care services--that
those be transferred to the VA and the VA have complete
rulemaking authority over those schedules.
Senator Carper. Ms. Tighe.
Ms. Tighe. I think my take-aways are very similar to Mr.
Ames's, because we are sort of like-minded on the issues of
pre- and post-award audits. At the Office of Inspector General,
we feel we work for the taxpayers ultimately and it is the
taxpayers we look to first to make sure that they are getting
the best prices or whatever the issue happens to be.
We worry about the prices on the MAS schedule, not because
we necessarily have hard, concrete data that there is
widespread overpricing problems, but we see enough problems in
the course of the few audits that we do that we worry about the
audits we don't do. Our past history has indicated that, in
fact, there is a problem out there and GSA has backed away from
it. We would like to see them reinstitute post-award defective
pricing audits and we will be happy to work with them, as we
are right now, to continue to increase the number of pre-
awards.
Senator Carper. Going back to you, Mr. Graham, were you in
the Navy?
Mr. Graham. No, sir. I am an Air Force person.
Senator Carper. Air Force, good for you. Were you ever
stationed at Dover?
Mr. Graham. No, sir.
Senator Carper. OK. What should we do in response to what
you are presenting to us and the first panel presented to us
today?
Mr. Graham. Well, I believe that the first order of
business is to insist that agencies like GSA do their job, and
by that I mean this. We see a lot of plans. We see a lot of
intentions, fully well documented intentions. For example, one
of those is the ``Get it Right'' Program. If you look at the
elements of the ``Get it Right'' Program that was just agreed
to between DOD and GSA, one would have no quarrels with that
if, in fact, it gets done and if, in fact, the results prove
the intent.
We think, and rather than do a shameless plug for my
company, we think that working with the Navy Postgraduate
School, we have at least gotten a handle on a number of the
problems that were raised here today, and I will give you a few
examples of those.
We have created a product where any company listed on the
central contractor registry can, in fact, do business with the
Federal Government. For example, Mr. Safavian gave an example
of two companies that had fairly innovative products that have
refused to do business with the Federal Government because of
the red tape.
Senator Carper. Because of what?
Mr. Graham. Red tape. Our contract, in effect, has
eliminated quite a bit of that red tape, at least in the
methodology that we use today. If the Federal Government needed
those products, wanted those products, they could get at those
companies today if they needed to use our contract.
One of the other issues that has been discussed extensively
here is the entire issue of audits and post-audits and more
than look at the element of the audits and post-audits, I think
that the Subcommittee needs to take into consideration why we
do these audits. One of the reasons that I think these audits
are necessary is to ensure that, in fact, the government is
getting what it is paying for.
In our situation, we have created a domain where every
element of every contract within the--or tasked within our
contract can be audited from the first time someone enters into
the system to the time they execute the buy to the time they
close out the buy. Every piece of paper that is attached to
that contract is done in an automated form and it is easy.
For example, one of the things that many vendors complain
about, particularly in post-audit situations, is the cost to
that vendor of money because, let us say the government,
particularly the Defense Department, DFAS, it takes a long time
for them to pay you sometimes, and if you are a small business,
90, 120 days is a very long time. It is probably, Dr. Coburn,
why you gave those folks those lenses a number of years ago,
because it is frustrating.
Well, we have created a situation where, in fact, the
agency and the vendor can actually look at issues as they
occur, pieces of paper. You go to the site and if you lost the
piece of paper which is necessary for payment in some cases,
you can download the form again that is filled out because the
computer does all that and sign the piece of paper and pay. And
I think that kind of automation needs to happen more often than
not in the government.
Senator Carper. Thank you. Mr. Ames, what should we do?
Mr. Ames. Senator Carper, I would say that in terms of what
I think you should do would be very similar to my two take-
aways that I gave in the testimony, and that is----
Senator Carper. This is what we call staying on message in
my business. [Laughter.]
Pretty good at it, too, isn't he? [Laughter.]
Mr. Ames. Which we do strongly feel that the post-award
audits and the pre-award audits have their place. We strongly
believe that we should be able to manage and do all of the
things that would be done with the 11 schedules that we have.
And also, I guess I would say that I certainly applaud the
opportunity to be at a hearing of this type, because I think it
is something that for years has needed to be looked at and I
applaud you for having the hearing.
Senator Carper. Well, it was hard for me to convince Dr.
Coburn to do this, but he finally relented. No, no, no----
[Laughter.]
It wasn't hard at all. It was hard to drag the rest of us
here.
Senator Coburn. I wonder which dog is dragging which?
[Laughter.]
Senator Carper. All right. Ms. Tighe, at least from you,
the last word in this round.
Ms. Tighe. Senator, I would would hope that GSA on its own
would restore our post-award audit rights that they took away
from us in 1997. If they aren't willing to do so
administratively on their own, it may be that some legislative
fix needs to happen. I think they are important and I think it
is an area that we could really do something for the taxpayer
by having that right back.
Senator Carper. Good. Thanks. I think my time may have just
expired. Thank you, Mr. Chairman.
Senator Coburn. Just for your benefit, Senator Carper, one
of the points I made with OMB is, and I will paraphrase it in a
different way, if somebody came to Earth today and said, you
are going to spend $291 billion for the American Government and
you want to design a system to buy it efficiently, on time,
best price, best quality, would you have the GSA, and that is a
legitimate question we have. Or, if not, how would you have it?
Would it be totally automated? Would it be to where everybody
had information at their fingertips? Would it be the audit
trail that you can track electronically rather than have to be
there? So I think there is a lot of place for movement.
I want to ask just a couple favors of you, Mr. Graham. You
said that there were a couple of projects with Bearing Point
ongoing right now that haven't maybe accomplished what they
intended. Would you mind giving that stuff to my staff?
Mr. Graham. Yes, I certainly will.
Senator Coburn. And I want to have a conversation with you
about the magnetometer, the hand-held, and the battery pack,
because I think it would be a wonderful demonstration project
if we started buying those for the Federal Government through
this Subcommittee so they could show they could buy them.
Mr. Graham. Yes, sir.
Senator Coburn. So I look forward to your help on that.
Any other questions, Senator Carper?
Senator Carper. I said earlier I was going to submit at
least one question in writing, and if you will take a few
minutes and look it over and give me a good response, I would
be grateful. Again, we appreciate your being here. Thank you.
Senator Coburn. Thank you all very much. The hearing is
adjourned.
[Whereupon, at 4:17 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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