<DOC>
[107th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:80842.wais]
THE BEST SERVICES AT THE LOWEST PRICE: MOVING BEYOND A BLACK AND WHITE
DISCUSSION OF OUTSOURCING
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT POLICY
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
JUNE 28, 2001
__________
Serial No. 107-80
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
U. S. GOVERNMENT PRINTING OFFICE
80-842 WASHINGTON : 2002
___________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
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COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California PATSY T. MINK, Hawaii
JOHN L. MICA, Florida CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
JOE SCARBOROUGH, Florida ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio
BOB BARR, Georgia ROD R. BLAGOJEVICH, Illinois
DAN MILLER, Florida DANNY K. DAVIS, Illinois
DOUG OSE, California JOHN F. TIERNEY, Massachusetts
RON LEWIS, Kentucky JIM TURNER, Texas
JO ANN DAVIS, Virginia THOMAS H. ALLEN, Maine
TODD RUSSELL PLATTS, Pennsylvania JANICE D. SCHAKOWSKY, Illinois
DAVE WELDON, Florida WM. LACY CLAY, Missouri
CHRIS CANNON, Utah DIANE E. WATSON,California
ADAM H. PUTNAM, Florida ------ ------
C.L. ``BUTCH'' OTTER, Idaho ------
EDWARD L. SCHROCK, Virginia BERNARD SANDERS, Vermont
JOHN J. DUNCAN, Tennessee (Independent)
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
James C. Wilson, Chief Counsel
Robert A. Briggs, Chief Clerk
Phil Schiliro, Minority Staff Director
Subcommittee on Technology and Procurement Policy
THOMAS M. DAVIS, Virginia, Chairman
JO ANN DAVIS, Virginia JIM TURNER, Texas
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
DOUG OSE, California PATSY T. MINK, Hawaii
EDWARD L. SCHROCK, Virginia
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
Melissa Wojciak, Staff Director
Victoria Proctor, Professional Staff Member
James DeChene, Clerk
Michelle Ash, Minority Counsel
C O N T E N T S
----------
Page
Hearing held on June 28, 2001.................................... 1
Statement of:
Gutierrez, Hon. Luis V., a Representative in Congress from
the State of Illinois...................................... 32
Harnage, Bobby, national president, American Federation of
Government Employees; Colleen Kelley, national president,
National Treasury Employees Union; Patricia Armstrong,
member, Federal Managers Association; Paul Lombardi,
president and chief executive officer, Dyncorp,
Professional Services Council; Timothy Psomas, president,
Psomas, American Consulting Engineers Council; and Colonel
Aaron Floyd (ret.), president AFB Enterprises, Inc.,
retired Military Officers Association...................... 112
Holman, Barry, Director, Defense Capabilities and Management,
U.S. General Accounting Office; Angela Styles, Director,
Office of Federal Procurement Policy, Office of Management
and Budget; and Ray Dubois, Under Secretary of Defense for
Installations and Environment, U.S. Department of Defense.. 50
Sessions, Hon. Pete, a Representative in Congress from the
State of Texas............................................. 5
Wynn, Hon. Albert, a Representative in Congress from the
State of Maryland.......................................... 13
Letters, statements, etc., submitted for the record by:
Armstrong, Patricia, member, Federal Managers Association,
prepared statement of...................................... 182
Davis, Hon. Thomas M., a Representative in Congress from the
State of Virginia, prepared statement of................... 2
Dubois, Ray, Under Secretary of Defense for Installations and
Environment, U.S. Department of Defense, prepared statement
of......................................................... 85
Floyd, Colonel Aaron, (ret.), president AFB Enterprises,
Inc., retired Military Officers Association, prepared
statement of............................................... 219
Gutierrez, Hon. Luis V., a Representative in Congress from
the State of Illinois, prepared statement of............... 35
Harnage, Bobby, national president, American Federation of
Government Employees, prepared statement of................ 115
Holman, Barry, Director, Defense Capabilities and Management,
U.S. General Accounting Office, prepared statement of...... 53
Kelley, Colleen, national president, National Treasury
Employees Union, prepared statement of..................... 174
Lombardi, Paul, president and chief executive officer,
Dyncorp, Professional Services Council, prepared statement
of......................................................... 196
Psomas, Timothy, president, Psomas, American Consulting
Engineers Council, prepared statement of................... 212
Sessions, Hon. Pete, a Representative in Congress from the
State of Texas, prepared statement of...................... 9
Styles, Angela, Director, Office of Federal Procurement
Policy, Office of Management and Budget, prepared statement
of......................................................... 77
Turner, Hon. Jim, a Representative in Congress from the State
of Texas, prepared statement of............................ 43
Waxman, Hon. Henry A., a Representative in Congress from the
State of California, prepared statement of................. 48
Wynn, Hon. Albert, a Representative in Congress from the
State of Maryland, prepared statement of................... 16
THE BEST SERVICES AT THE LOWEST PRICE: MOVING BEYOND A BLACK AND WHITE
DISCUSSION OF OUTSOURCING
----------
THURSDAY, JUNE 28, 2001
House of Representatives,
Subcommittee on Technology and Procurement Policy,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:15 p.m., in
room 2154, Rayburn House Office Building, Hon. Thomas M. Davis
(chairman of the subcommittee) presiding.
Present: Representatives Tom Davis of Virginia, Jo Ann
Davis of Virginia, Horn, Turner, Kanjorski, Mink, Waxman,
Cummings and Kucinich.
Staff present: Melissa Wojciak, staff director; Amy
Heerink, chief counsel; George Rogers, counsel; Victoria
Proctor, professional staff member; Jack Hession,
communications director; James DeChene, clerk; Phil Barnett,
minority chief counsel; Michelle Ash, minority counsel; Mark
Stephenson, minority professional staff member; and Jean Gosa,
minority assistant clerk.
Mr. Tom Davis of Virginia. If there is no objection, I'm
going to move ahead with our first panel and then we will give
opening statements, because I know some of you have other
things to do, and we appreciate you being here.
Let me start with Mr. Sessions, and then Mr. Wynn, we'll go
to you. You have a major piece of legislation you sponsored,
and then we'll move to you, Mr. Gutierrez, and thank you for
being with us.
[The prepared statement of Hon. Thomas M. Davis follows:]
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Mr. Tom Davis of Virginia. Pete, go ahead.
STATEMENT OF HON. PETE SESSIONS, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF TEXAS
Mr. Sessions. Thank you, Mr. Chairman and members of this
subcommittee. It's good to be back with you. Ms. Davis, it is
good to see you here also.
Mr. Chairman, thank you so very much for the opportunity to
appear before this subcommittee this afternoon. I commend each
of you for taking time to meet with this group of people,
including this panel that are here today on such an important
issue, and we look forward to your deliberations and the
outcome on this issue.
First, I want to say that I was one of those who is the
sponsor of the FAIR Act, because the American people deserve to
know that their hard earned tax dollars are being spent as
effectively and wisely as possible. The FAIR Act was therefore
the first step in a process of defining just what is government
work, and also what might be considered competitive. Among what
things those activities might logically be reviewed for
alternate delivery strategies also. It was, and I believe
remains an important first step for this government, like any
other institution, public or private, simply cannot be expected
to engage in such fundamental self-analysis and challenge on
its own.
In the private sector, such exercises are routine and
driven by the competitive nature of the marketplace. Those same
market forces are too absent from the government environment,
and thus the FAIR Act is a tool to help us move forward and
make progress, and I applaud this administration for its
unyielding commitment to ensuring that the results of the FAIR
Act inventories do not sit on the shelf, but rather capitalize
on to help ensure that the taxpayers of our Nation, in fact,
are getting the best value for their hard-earned tax dollars.
Mr. Chairman, I think competition is a good thing and a
healthy thing. It drives innovation and performance. It drives
efficiency and, in a high performing organization, it also
drives employee satisfaction and morale. I also believe in the
tenets of the government's longstanding policy of relying
whenever possible on the competitive private sector for the
provision of goods and services. That policy is built on
straightforward logic that is every bit as relevant today as it
was more than 50 years ago.
The private sector, not the government, is the engine that
drives our economy. The creation and expansion of private
sector employment, investment and profit is what makes this
engine run. Therefore, where the government is performing work
that a competitive private sector could perform, why wouldn't
you want to allow competition to exist? Why wouldn't we want to
seek and embrace the technology and innovations of the private
sector? The results work to everyone's benefit. The government
improves its efficiency and quality of service, the taxpayer
gets assurance that their tax dollars are being wisely managed,
and our economy grows. Quite frankly, I see no downside to that
equation.
This is not to say that everything done by the government
that is not strictly defined as inherently governmental must
simply be outsourced. In some cases, some form of competition
between the existing work force and the private sector bidders
does make sense, but in others, such competition are neither
beneficial nor possible. Moreover, while I fully agree that the
extraordinary men and women in our government and the work
force, that they deserve to be treated with respect and
fairness in recognition for the work that they do for this
country, I do not agree that such treatment must be
automatically extended to arbitrarily protecting Federal jobs.
After all, when the functions are outsourced, the evidence
is clear that few employees end up without a job and the
government accounting office and Rand Corp. and others have
made it clear that there is no evidence that they end up
sharply reducing wages and benefits. Indeed, we have had
testimony in this subcommittee that the opposite can happen.
So I see outsourcing as a tool, one that the private sector
uses every day and that we have responsibility to utilize. We
have no right to arbitrarily perform work in the government if
that work is neither inherently governmental nor of the kind
that must absolutely be performed by the organic work force.
And we have a responsibility as stewards of the public trust to
aggressively utilize competition to ensure that we're
fulfilling faithfully our roles.
Mr. Chairman, I must admit that I am sometimes amazed at
this debate and the rhetoric associated with it. After all,
this is not an academic exercise. It is a policy discussion
that has the benefit of years of experience and data in
support. That data and experience are eminently clear. First,
competition saves money. Although you don't need a study to
know it, it is the foundation of our whole economic system.
Second, the government is in an ever-growing danger of
falling further and further behind the private sector in the
use and application of innovative processes and technology.
Third, as the Federal work force grays and large
percentages approach retirement, this is a movement in history
where we can more aggressively than ever look at alternate
sourcing strategies and change the very culture of government.
Some would argue that we don't really know what outsourcing
saves the government, that there is somehow question of
accountability here, but such a suggestion ignores the facts.
Fact one is that we do know at the local activity level exactly
what is being spent on outsource services. Payments are subject
to a wide range of audits, validation and even more.
Unfortunately, the same cannot be said for our own internal
government operations. How many agencies have been able to
comply with the Chief Financial Officers Act? How many elements
within the government have true activity based costing that
enables full visibility into all costs? The answer to both
questions is few. As the Senate Governmental Affairs Committee
pointed out in a recent audit, and as GAO and others have
repeatedly reminded us, we have a serious management problem in
the government. It inhibits our ability as the representatives
of the American taxpayer to account for ways in which tax
dollars are spent. The problem with accountability lies not
with our contract work, rather with our own internal
operations.
With all due respect to my colleague and my friend from
Maryland, Mrs. Morella--excuse me, yes, Mrs. Morella, who is a
friend of mine, that's why I am so opposed to H.R. 721, and I
am sorry that she is not here today, but I am sure she will get
the message.
Mr. Tom Davis of Virginia. Mr. Wynn's a friend of yours,
isn't he?
Mr. Sessions. And Mr. Wynn is also.
Mr. Tom Davis of Virginia. Just want to get that on the
record.
Mr. Sessions. Mr. Wynn is a friend of mine. The so called
TRAC Act, it completely ignores the tremendous problems
associated with internal accountability and assumes problems
with accountability in our contracted work that simply do not
exist. In addition, the bill creates onerous requirements that
would make any further outsourcing extremely difficult. It
would do so by subjecting every single contract, modification,
task order or option to a public-private competition,
regardless of whether the government needs to perform the work
involved or whether the work force exists or whether it even
needs to be hired to do so.
The TRAC Act is a solution without a problem. It flies in
the face of all the acquisition reform that we have made over
the last 6 to 8 years and would limit Federal agency managers
flexibility as they try to carry out their mission. The bottom
line is that the bill amounts to a complete moratorium on all
contracting efforts. If we really want accountability, I would
suggest that the best way to achieve it would be to subject
every commercial activity in the government to the same kinds
of competitive pressures, accounting demands and performance
requirements that are contracted work subjected to. That would
do a lot more good for the American taxpayer than the current
bill that we are discussing today.
The government is not a business, nor can it be run exactly
as one would run a business, but we can learn from the
commercial sector. We can and should aggressively compete, and
where appropriate, directly outsource commercial activities
performed by the government so that our work force can focus on
its true core competencies. We can and we should outsource and
include competition as a tool that we cannot only use to enable
improved performance, but we can also reduce costs and access
to innovation, but also as tools through which the government
appropriately supports and assists the further growth and
strength of our national economy.
Mr. Chairman, I will end by saying this, that the FAIR Act
was a bill that we discussed across this committee and in this
Congress and it was debated in negotiation with the former
Clinton administration. It was one that was worked hard for a
compromise and one that was hewn for success, and I believe
that this new bill that we are talking about today would not
only take that carefully crafted opportunity that we had and
would do away with it, but it would lead this body to believing
that what we need to do is invest more and more money in
government without seeing the outcomes that would be based from
our tax dollars.
Thank you so much for allowing me the time.
Mr. Tom Davis of Virginia. Mr. Sessions, thank you. I
understand you may have to leave, and feel free to leave if we
don't get there for questions.
Mr. Sessions. Thank you so very much.
[The prepared statement of Hon. Pete Sessions follows:]
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Mr. Tom Davis of Virginia. Now, I'm going to call on your
friend, Mr. Wynn, to speak. Our welcome and thanks for being
here, and thank you for your interest in this subject.
STATEMENT OF HON. ALBERT WYNN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF MARYLAND
Mr. Wynn. Thank you very much, Mr. Chairman. I am not
always on this side of the table. But I am very delighted to be
here. I thank you for the opportunity to testify as well as to
be before our ranking member and my Democratic colleagues
today.
I also want to take this opportunity to thank the Federal
employees who are here because all too often we talk about
Federal employees, you don't get to see them enough. So they're
here today, here and in the hallway and they have a very great
interest in this issue because they are providing the services
that run our government, and in my opinion they're doing a very
good job.
We're here today to talk about privatization, outsourcing,
or more plainly, moving services previously performed by
government employees out to the private sector to for-profit
companies. I'm very pleased to discuss how we can assure that
the American taxpayer receives the best value in the provision
of these government services. One approach to assuring this
best value is embodied in Truthfulness, Responsibility and
Accountability and Contracting Act, H.R. 721, commonly known as
the TRAC Act, which I have introduced and which, to date,
enjoys a bipartisan support of more than 185 of our colleagues.
As my good friend, Mr. Sessions, indicated, in almost every
endeavor of human commerce, competition yields the best quality
and the best value and that's essence of the TRAC Act to ensure
there's a fair competition between hardworking in-house Federal
employees and private contractors to determine who can really
perform and provide the best value to the American public, both
quantitatively in terms of dollars and qualitatively in terms
of the service provided.
In recent years there seems to be a notion that has gained
momentum that outsourcing is the most cost efficient approach
providing government services. Unfortunately, to date there's
been no empirical evidence to prove this, either the
quantitatively or qualitatively, and thus I really question the
underlying assumption.
Supporters of contracting out, as you heard, claim that it
saves money for the taxpayers. Well, where is the evidence? GAO
has yet to provide concrete evidence that such savings exists,
and after several years and billions of dollars of outsourcing,
GAO cannot say that taxpayers are well served. Even my
Republican colleagues noted in the fiscal year 2000 defense
appropriations bill, there is no clear evidence that current
DOD outsourcing and privatization efforts are reducing the cost
of support functions within DOD, with high cost contractors
simply replacing government employees. In addition, the current
privatization efforts appears to have created serious oversight
problems for DOD, especially in those cases where DOD has
contracted for financial management and other routine
administrative functions.
In the absence of accountability and congressional
oversight, the problem caused by indiscriminate contracting out
and privatization will grow worse in both DOD and other
agencies. The TRAC Act basically prohibits any Federal agency
from making a decision to privatize, outsource, contract out or
contract for the performance of a function currently performed
by such agency unless five requirements are met. I submit these
are very reasonable and prudent requirements.
Prior to contracting out, agencies would have to meet the
following five objectives. First, many of the safeguards
against indiscriminate contracting out such as effective
contract administration to reduce waste, fraud and abuse
statutes prohibiting the management of Federal employees by
arbitrary personnel ceilings, as well as provision of the
Federal Workforce Restructuring Act to prohibit replacing
displaced Federal employees with contract employees have not
been followed. Commitments to Federal employees to make
contracting out and privatization more equitable have not been
kept.
The TRAC Act would temporarily suspend new contracts until
these oversights have been corrected and we have in place a
procedure which effectively reviews this issue. This will give
agencies an incentive to correct these longstanding problems.
There would be exceptions for national security, patient care,
blind and handicap contract and situations involving economic
harm. So the suggestion that somehow the TRAC Act would grind
government to a halt is simply not true.
Second, the TRAC Act would require the establishment of
systems to monitor the cost efficiency and savings of this
outsourcing. Currently agencies do not monitor the cost or the
efficiency of billions of dollars in contracting out and
privatization. There's no oversight of contracts after they
have been awarded to compare past costs with current costs,
which is to say that the contract goes out and there's an
assumption that this is the most efficient way to do business,
but yet there is no monitoring to see if there is actual
savings.
The third requirement of the bill, it will allow agencies
to hire additional Federal employees when they can do the work
more economically and efficiently than private contractors.
There are instances when if an agency had been allowed to hire
three or four more additional personnel, they could have done
the work more cheaply than the outside contractor.
The fourth provision of the act requires that Federal
employees and private contractors have the same level of
public-private competition, and here we get back to that
notion. Public-private competition should work both ways.
Contractors compete for Federal Government jobs. Federal
employees ought to be able to compete for their own jobs.
Right now there are twice as many contract employees
working on the Federal payroll as Federal employees, and they
perform this work without any competition. So for those who
believe we need more competition, I suggest the TRAC Act
provides it.
Fifth, the TRAC Act requires Office of Personnel Management
and Department of Labor to compare the wages and benefits of
Federal employees and their contractor counterparts. The point
here is it is not good policy to contract out simply to avoid
paying health benefits, and we ought to analyze this issue to
compare whether or not we're handing government work to
contractors who simply are able to low ball because they don't
offer reasonable benefits.
I believe the TRAC Act addresses the major concerns that we
in government have about quality and taxpayer value without
interfering with the operation of government. As I indicated,
the suspension of contracts is prospective only, only affecting
new contracts. Any existing contract would not be interrupted.
The suspension is only temporary until the requirements of
reasonable oversight are put in place and at that point the
agency may proceed. There has to be a competition, a simple
competition analyzing whether we can do a better job in
government or outside of government.
Now, one of the criticisms that you will hear is that the
A-76 circular, which is a vehicle for this competition, is too
burdensome and that may be, but then what we ought to do is
focus on streamlining the A-76 procedure rather than
eliminating the competition between Federal employees and
private sector employees. We have a responsibility to the
taxpayers to ensure that they get best value, and the only way
we can do this is through a real competitive analysis of what
Federal Government employees can provide in terms of quality
and cost with that which is provided on the outside by the
private sector.
I believe that the TRAC Act is a reasonable approach to
solving this problem. I believe it shows respect for the
efforts that have already been made by very loyal and committed
Federal employees, and I hope that this committee, in analyzing
this bill, other pieces of legislation, as well as the GAO
study that is currently underway, would keep in mind that we do
need a fair competition and we do need significant oversight of
the contracting out that's occurring, and that ultimately, our
responsibility is not to the notion of outsourcing or the
philosophy of outsourcing, but to assuring best value for the
taxpayer.
Thank you for your time, Mr. Chairman.
Mr. Tom Davis of Virginia. Mr. Wynn, thank you very much
for your interest in this subject.
[The prepared statement of Hon. Albert Wynn follows:]
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Mr. Tom Davis of Virginia. Mr. Gutierrez, thank you for
being with us.
STATEMENT OF HON. LUIS V. GUTIERREZ, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Gutierrez. Good afternoon, Chairman Davis, Ranking
Member Turner, and members of the subcommittee. I want to thank
you for the opportunity to testify today. I have come to talk
to you about a bill I introduced in March, H.R. 917, the
Federal Living Wage Responsibility Act of 2001.
The bill has a simple premise: Employees who work full time
should be paid a wage that assures that they will not live in
poverty. This legislation mandates a livable wage for all
employees under Federal contracts and subcontracts. 78
representatives currently cosponsor this important legislation.
It is important to note that the Federal Government does
not collect data on Federal contract workers. The only data
available concerning the number of workers earning less than
$8.50 an hour comes from the General Services Administration.
With the implementation of the TRAC Act, we would be able to
acquire these necessary data since the TRAC Act mandates the
Secretary of Labor to conduct a study on the wage and benefit
levels of contractor employees.
However, GSA data and other data is startling and
demonstrates the importance of quick Federal action. A recent
study by the Economic Policy Institute finds that an estimated
162,000 Federal contract workers earn less than $8.50 an hour.
Their income does not reach the poverty threshold of $17,650
per year for a family of four. These workers represent 11
percent of the total 1.4 million Federal contract workers in
the United States.
According to the Office of Personnel Management, a total of
4,974 full-time Federal employees earn a salary below the
poverty level for a family of four, as dictated by Health and
Human Services. The majority of these low-wage contracts and
subcontracts are concentrated in the defense industry, 62
percent, and most of them are large business, 59 percent.
Private sector workers earning less than a living wage are
mostly female, adult, full-time workers, and they are
disproportionately minorities.
My bill addresses these inequities. It mandates that the
Federal Government and any employer under a Federal contract or
subcontract of an amount exceeding $10,000, or a subcontract
under that contract to pay each of their respective workers an
hourly wage or salary equivalent sufficient for a worker to
earn while working 40 hours a week on a full-time basis the
amount that the Federal Government dictates is above the
poverty level for family of four as determined by the
Department of Health and Human Services.
The bill also requires an additional amount, determined by
the Secretary of Labor, based on the locality in which a worker
resides sufficient to cover the costs to such a worker to
obtain any fringe benefits not provided by the worker's
employer. Fringe benefits include medical, hospital care or
contributions to health care insurance plans, contributions to
retirement, life insurance, disability, vacation and holiday
pay. Although Congress passed laws such as Davis Bacon Act and
the Service Contract Act to help ensure that employees of the
Federal contractors earn a decent wage, thousands of Federal
workers and federally contracted workers still do not earn
enough to support themselves or their family according to our
own Federal Government and the standards set forth by Health
and Human Services.
This legislation will allow hardworking Americans to earn
quality wages and to increase their savings for such essential
needs as their retirement and their children's education. The
Federal Government must take responsibility, workable steps to
reward working Americans and to help keep them out of poverty.
This bill represents a practical step toward that goal.
In 1999, only 32 percent of Federal contract workers were
covered by some sort of law requiring that they be paid at
least a prevailing wage, which is usually defined as the median
wage of each occupation and industry. But even this minority of
covered workers are not guaranteed a living wage under current
laws. For example, the Department of Labor has set its minimum
pay rate at a level below $8.50 an hour for workers covered
under the Service Contract Act in 201 job classifications.
Health and Human Services says you have to earn $17,700 for
a family of four to live above poverty, and our government then
in another Department says we are going to pay you less than
that.
I believe it's vital for the Federal Government at a time
of record surpluses to send all of its full-time employees home
with a paycheck that allows them to lift their families out of
poverty.
Mr. Chairman, it should be noted that 65 cities and
counties nationwide have already passed laws that require
companies doing business with tax dollars to pay a living wage
to employees. There are an additional 75 cities considering
enacting living wage laws. This legislation also has gained
backing from profamily worker advocates around the country,
groups like ACORN and the National Campaign for Jobs and Income
Support in Chicago, New York, Boston and dozens of other cities
have rallied in support.
I share a deep concern for many workers who, although
employed full-time, are unable to support themselves and their
families in a dignified manner. Today the working poor are the
largest growing sector of the economy. They fulfil many of the
basic needs of our community, but their efforts are not
rewarded with wages sufficient to care for a family's basic
need.
This bill is in keeping with the President's initiative to
raise the pay and benefits of enlisted military personnel.
Civilians employed by the Department of Defense are among the
government employees most likely to earn subpoverty level wages
while two-thirds of contractors paying poverty level wages are
in the defense industry. The defense of our Nation is a
combined effort involving military personnel and their civilian
peers. President Bush's effort to increase the pay of uniformed
personnel would be well complemented by an effort to ensure
that no individual involving keeping the Nation secure is
vulnerable to the difficulty and risks of poverty.
Mr. Chairman, more than 50 years ago the General Assembly
of the United Nations adopted the Universal Declaration of
Human Rights. Article 23 of that document states, ``everyone
who works has the right to just and favorable remuneration,
ensuring for one's self and one's family an existence worthy of
human dignity.'' However, this is an impossibility for
countless families nationwide in the 21st century America. The
Federal Government goes to great lengths to monitor the poverty
level and with good reason, but the government should also
determine whether it is allowing its own workers to meet that
standard.
Mr. Chairman, the basic purpose of the legislation is
simple. We should not pay Federal employees that work for us or
contractors that work for us to a family of four less than what
our own Health and Human Services Department dictate is
poverty, and if we do that Mr. Chairman, here's what we're
doing, they're collecting Medicaid, they're collecting food
stamps, they're section 8 subsidies on their rental. All we're
doing is subsidizing the very contractors by allowing them to
pay, because then these employees obviously are allowed, under
our welfare standards, to apply for other--it's terrible to
work for the Federal Government on the one hand, full-time 40
hours a week, and on the other hand, get a check from another
part of the government because the Federal Government hasn't
ensured that you made a living wage.
Thank you very much, Mr. Chairman.
Mr. Tom Davis of Virginia. Mr. Gutierrez, thank you very
much for that testimony.
[The prepared statement of Hon. Luis V. Gutierrez follows:]
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Mr. Tom Davis of Virginia. Mr. Wynn, thank you. Do we have
any questions? I know we have two other panels. I think--Mr.
Wynn, sure.
Mr. Wynn. Mr. Chairman, with your indulgence I'd like to
add two statements to my testimony if that could be submitted.
Mr. Tom Davis of Virginia. We'd be happy to enter that into
the record, and we appreciate both of your interests in this
and Mr. Sessions, too, who's left. I know y'all have very
strong feelings about this. You have put forward legislation
and we appreciate the opportunity to hear from you today.
Before I call our first panel, I think I'm going to go now
to opening statements from Members so that Members will have an
opportunity to put in statements, and I will start as the
chairman of the subcommittee and welcome everybody to today's
oversight hearing about outsourcing in the Federal Government.
In light of the recent creation of the General Accounting
Office's commercial activities panel, I decided to call this
hearing to review whether or not outsourcing is an effective
means to enhance cost savings and efficient delivery of
services while ensuring the equitable treatment of Federal
employees. We will also take a look at Federal agencies
implementation of the Federal Activities Inventory Reform Act
[FAIR] Act.
Over the years, the executive branch has emphasized
spending reductions and focused on maximizing efficiencies in
the Federal Government. The introduction of competition in the
procurement process has played a decisive role in creating the
incentives necessary to achieve cost savings and improving
efficiency. The executive branch has encouraged outsourcing by
Federal agencies as a way to purchase commercially available
goods and services from the private sector instead of competing
against its citizens.
In 1966, OMB formalized this policy in circular A-76. The
subsequent supplemental handbook explains the procedures for
conducting cost comparison studies through managed competitions
to determine whether an agency's commercial activities should
be performed in-house by Federal employees, by another Federal
agency through an interservice support agreement or by
contractors. GAO has reported that the policy results in cost
savings in the Defense Department. However, most other Federal
agencies choose not to implement A-76 studies. Have these
agencies found alternatives to A-76? Are they still realizing
cost savings while improving their delivery of services? It's
understandable that some agencies may shy away from using the
A-76 process. It is lengthy, it's complex, it's burdensome and
participants in the Federal work force as well as the private
sector have raised valid concerns which we will hear more about
later today.
As we review the process today I think we need to keep in
mind the Federal Government's responsibility to the taxpayers.
The government should strive to provide taxpayers with the best
quality services at the lowest price. So the first question I
pose to our witnesses today is should the lowest price continue
to be the deciding factor for job competitions? Is there any
benefit for using best value as the benchmark?
I have several other concerns that I hope witnesses will
try to address. First, Federal employees are disadvantaged
during A-76 cost comparison studies because they are not
adequately trained to write performance work statements.
Additionally, if the contract is awarded to the private sector
the Federal employees are seldom trained to write contracts and
effectively manage them to protect taxpayer interest.
Second, the lengthy A-76 process creates uncertainty among
Federal employees whose jobs are being competed. Frequently you
can have such a demoralizing effect that our best skilled and
dedicated employees look elsewhere for the work. Since the
Federal Government work force is dwindling rapidly and nearly
50 percent of Federal employees are eligible to retire over the
next 5 years it's imperative that the government establish
initiatives to prevent the unnecessary loss of Federal workers.
And third, there's a perception among some contractors that
costs such as overhead are calculated differently in the
private sector from the Federal Government, and therefore, not
enough accurate cost information is available to ensure fair
cost comparisons, and after a contract has been awarded, there
are some concerns that the government accounting system is not
advanced enough to accurately track cost savings.
The A-76 process, in my opinion, is broken, but what can be
done to fix it? To help in this regard, section 832 of the
Floyd D. Spence National Defense Authorization Act for 2001
mandates GAO convene a panel of experts to study the policies
and procedures governing the transfer of the Federal
Government's commercial activities from its employees to
contractors. The panel will report to Congress next May with
recommendations for improvements, and I look forward to the
panel's report.
Now I'd like to reiterate that the government's job is to
provide taxpayers with the best value for their money. It's
neither our responsibility to protect jobs nor is it our
responsibility to outsource jobs. In addition to our
examination of outsourcing, I think we should reevaluate Civil
Service rules and employee compensation as part of the larger
human resources crisis facing the Federal Government today.
My colleague, Representative Wynn, introduced the TRAC Act,
which would place a moratorium on new contracting and prohibit
Federal agencies from exercising options, extensions and
renewals of current contracts. It affects all contracting at
every level of government, and there's no termination date for
the bill. The TRAC Act is one proposed solution. It's the
result of the frustrations felt by public sector employees in a
process that, in my opinion, needs revamping.
But an adversarial approach to Federal Government
outsourcing raises other concerns about the continuity of
service delivery to taxpayers. Let's focus our attention on
constructive reforms to improve the government's performance of
its core functions. How can it provide the greatest efficiency
and highest quality of services at the best value to taxpayers?
We need to examine these issues in the context of the Federal
Government's human capital management crisis and determine what
initiatives and reforms must be implemented to recruit and
retain well-qualified employees.
And finally, while the FAIR Act does not require that
agencies outsource commercial functions, it's a potentially
powerful strategic tool to help agencies identify possible
opportunities for outsourcing and/or management reform. But I
am alarmed by the OMB's recent directive that in the fiscal
year 2002 agencies are required to outsource 5 percent of
Federal jobs designated as not inherently governmental and
listed on the agency's inventories under the FAIR Act. And just
last week, OMB added a directive requiring 10 percent of these
jobs be outsourced in fiscal year 2003. No justification for
these percentages has been offered to date. I remain
unconvinced that arbitrarily assigning Federal agencies target
figures is the best means to ensure cost savings in the
government. I expect OMB will clarify this directive today.
I thank you and I would now recognize my ranking member Mr.
Turner, for any statement he'd like to make.
Mr. Turner. Thank you, Mr. Chairman. I appreciate very much
the fact that you have held this hearing today on contracting
out by the Federal Government, and I think this is, perhaps,
the best attended subcommittee hearing that we have had in my
memory with a long line of our loyal Federal employees out in
the hall unable to get into the hearing room, but we do
appreciate the interest that has been expressed by all of you,
and I want to join in expressing my appreciation to all of our
participants today and to our Federal employees who do such a
fine job, taking care of the business of the public in their
roles in the respective agencies.
I understand today we may have people from all over the
United States. I know the American Federation of Government
Employees tell me that they have people here from California
and New York and Maine and Florida today. So we are certainly
glad to have all of you here.
Our purpose, of course, is to conduct a hearing to try to
ensure that the taxpayers receive the very best services at the
lowest cost. That sounds like a simple goal to try to achieve,
and yet it is fraught with complexity and in ensuring fair
treatment for our Federal employees must certainly be a
priority in this process. This subcommittee will explore why
Federal agencies implement so few public private competitions
under the circular A-76, and also examine what alternatives we
may pursue to ensure efficiency in cost savings.
Contracting out of commercial services has become an
increasingly important and controversial teacher of Federal
procurement in recent years, and the Bush administration has
indicated that it will promote greater outsourcing by the
Federal Government. It is in light of that that it is
particularly timely that this hearing be held.
I want to thank the chairman for giving Mr. Wynn the
opportunity to use this hearing to lay out his bill, the TRAC
Act. He has done an exceedingly large amount of work over the
years with regard to these issues, and he represents, of course
as you do, Mr. Chairman, a large number of Federal employees.
His legislation raises many of the issues that we as a
committee need to be addressing.
Circular A-76 contains the Federal policy that governs how
contracting out decisions are made in the Federal Government.
The objective of that program has been to achieve efficiencies
by encouraging competition between the private sector and
Federal employees for commercial activities. No one seems to be
particularly happy with the way A-76 works in practice, no
matter which side you sit on. That is why I think it's
important that the Congress authorize the study contained in
the Defense Authorization Act of last year in which the GAO is
directed to examine the A-76 procedure and to report its
findings to Congress no later than May 1, 2002.
I was particularly pleased to see the GAO taking this
responsibility very seriously as I think particularly indicated
by the fact that the head of the agency, General Walker, chose
to chair the panel himself. I think this hearing today will be
very productive, and I think that if we all approach it with
the right objective in mind, that is, trying to provide the
best services for our Federal employees at the best price
possible, we will make significant process.
Thank you, Mr. Chairman.
[The prepared statement of Hon. Jim Turner follows:]
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Mr. Tom Davis of Virginia. Thank you very much.
Ms. Davis.
Ms. Jo Ann Davis of Virginia. Thank you, Mr. Chairman. I'd
just like to say thank you for holding this hearing and I'm
anxious to hear from the witnesses to learn more about it. I
have heard a lot about the A-76 program in my own home
district, and I'd like to know where we're going on it. So
thank you very much.
Mr. Tom Davis of Virginia. Thank you very much.
Mr. Waxman. Mr. Kanjorski.
Mr. Kanjorski. Thank you very much, Mr. Chairman, and I
congratulate you for holding the hearing. I just hope that Mr.
Turner recognizes that we also have people from Pennsylvania
here as one of the States.
Mr. Tom Davis of Virginia. Let the record be so reflective.
Mr. Kanjorski. Mr. Chairman, I have been very familiar with
A-76 over the last 14 years, and at one time in the past served
as chairman of the subcommittee, the jurisdiction of those
factors. I am disturbed in the beginning of the 21st century, I
have heard the testimony of my two colleagues from Maryland and
from Illinois, when they indicate that we actually have Federal
employees that are being paid below the poverty level working
for the U.S. Government, and I think it is important that we
set an example, not only that they should get a fair wage but
also that we don't allow ourselves to go to the least common
denominator, and to a large extent contracting out is, as I
have observed it over the last decade or better, we are missing
the fundamental points of what government work is all about in
terms of looking at quality for the best price. But we also
tend to drive those jobs that are at the lower income scales
out into the private sector and the private contractor
generally gets the benefit by not providing the basic service
that all of us believe workers should have, that is, medical
and health care, pension programs and a minimum earning wage
for a family.
I had the occasion to see firsthand some of this work, and
I just make two more observations. One, as Mr. Sessions says,
we should do this because we can save money at practically any
expense. Well, I made two visits to two military installations
more than 12 years ago, one in Utah and one in Alaska. In Utah,
the private contractor came on the base and within several
months of running the security operation on the base, 21
missiles were missing and never found. I don't know how you
account for that lack of security when you have private workers
coming and going and opening up these bases.
In Kodiak, AK, they actually contracted out the entire base
operation, and the contractor failed to perform, and after 1
year, the base itself was in jeopardy of operating and that is
the main headquarters for the Coast Guard of the United States.
So, in many regards, I have seen contracting out turn into
an absolute disaster. I think the bill that Mr. Wynn has
introduced, the TRAC bill, represents the best thinking to get
the best job done for the American worker and the American
taxpayer, and I urge the sunlight to shine on this problem so
that we don't dumb ourselves down to the least common
denominator.
Thank you, Mr. Chairman.
Mr. Tom Davis of Virginia. Thank you.
Mr. Waxman.
Mr. Waxman. Thank you very much, Mr. Chairman. I want to
thank you for holding this hearing. As you know, I joined 22 of
our colleagues on this committee requesting that Truthfulness,
Responsibility and Accountability in Contracting Act [TRAC]
Act, be the focus of the hearing. Although today's hearing
covers all the issues of outsourcing, I'm pleased that we'll
have the opportunity to review the TRAC Act. The TRAC Act now
has over 180 cosponsors and deserves our serious attention.
Since 1955 the executive branch has promoted outsourcing by
Federal agencies as a means to purchase commercially available
goods and services from the private sector. In 1966 the Office
of Management and Budget issued circular A-76, which
established how contracting out decisions should be made in the
government. Most recently, the Bush administration moved to
promote increased outsourcing by the Federal Government.
Advocates of outsourcing believe this action will enhance the
cost savings and efficient delivery of services.
Well, in my view, the key to cost savings and efficiency is
competition between the private sector and Federal employees
for commercial activities, not automatic outsourcing. I'm
amazed how often the assumption is that outsourcing is always
better and is automatically accepted as fact. The real fact of
the matter is that Federal employees all across our country do
superb work and often at a fraction of the price contractors
would charge. The Federal work force is an invaluable resource
that is often taken for granted and, even worse, sometimes
deliberately denigrated. That makes no sense and it absolutely
makes no sense to insist on outsourcing when work can be done
more efficiently and better by Federal workers.
Unfortunately, the Federal Government has often avoided
competition, avoided competition by directly converting work to
the private sector or by labelling work as new so that
competition becomes impossible.
Every Member of Congress should support government
efficiency and saving taxpayer dollars, but in order to
determine whether taxpayers are receiving savings, true cost
comparisons must be performed.
In addition, agencies should be required to keep records of
the costs and savings associated with both contracting out and
contracting in. That's why I support the TRAC Act, which
requires agencies to track the costs and savings of contracting
out and to conduct public-private competitions. Moreover, the
TRAC Act abolishes the use of arbitrary personnel ceilings and
would also require agencies to subject work performed by
contractors to the same level of public-private competition as
work performed by Federal employees.
Mr. Chairman, outsourcing exists because of the theory that
it saves money and improves efficiency. Unfortunately, for too
long, we have failed to apply any accountability to whether or
how often
that theory really works. I want to work with you to make sure
we have solid data for cost comparisons and then we should
apply that data in a fair and unbiased way to outsourcing
decisions.
Thank you very much.
[The prepared statement of Hon. Henry A. Waxman follows:]
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Mr. Tom Davis of Virginia. Thank you Mr. Waxman. Mrs. Mink,
any opening statement?
Mrs. Mink. No.
Mr. Tom Davis of Virginia. I'm not sure if we have anyone
from Hawaii here today.
Mrs. Mink. May I ask, Mr. Chairman, if there is anyone here
in the audience from Hawaii?
Mr. Tom Davis of Virginia. There you go.
Mrs. Mink. Aloha.
Mr. Tom Davis of Virginia. All I can say is that's
dedication.
We are going to call our second panel of witnesses at this
point. We have Barry Holman, from the U.S. General Accounting
Office. We have Angela Styles who is the Director of the Office
of Federal Procurement Policy, Office of Management and Budget.
And we have Ray DuBois who is the U.S. Department of Defense
Under Secretary of defense for installations and environment.
I would just say, as you know, it is the policy of this
committee that all witnesses be sworn before you testify and if
you'd rise with me and raise your right hands. And Ms. Styles,
I understand this is your first day back from maternity leave?
Ms. Styles. Yes, it is.
Mr. Tom Davis of Virginia. Thank you very much for being
here.
[Witnesses sworn.]
Mr. Tom Davis of Virginia. Please be seated. Just for
efficient time for questions, we have your testimony in the
record. All of it will be entered into the record. We'd like
you to keep your submissions to 5 minutes. There's a light in
front. You will have green for the first 4 minutes. It will be
yellow for your 4th minute and at the end of 5 minutes the red
light will go on, if you could proceed to summarize at that
point. I'll give you a few seconds. If you don't, I'll tap the
gavel and ask you to summarize at that point. So Mr. Holman,
we'll start with you and thank you for being here.
STATEMENTS OF BARRY HOLMAN, DIRECTOR, DEFENSE CAPABILITIES AND
MANAGEMENT, U.S. GENERAL ACCOUNTING OFFICE; ANGELA STYLES,
DIRECTOR, OFFICE OF FEDERAL PROCUREMENT POLICY, OFFICE OF
MANAGEMENT AND BUDGET; AND RAY DUBOIS, UNDER SECRETARY OF
DEFENSE FOR INSTALLATIONS AND ENVIRONMENT, U.S. DEPARTMENT OF
DEFENSE
Mr. Holman. Mr. Chairman, I'm pleased to be here today to
present our observations on DOD's use of OMB circular A-76 to
conduct cost comparison studies to determine whether commercial
activities should be performed by the government or by the
private sector. DOD refers to A-76 cost comparison studies as
competitive sourcing.
My comments today are based on work that we have carried
out in recent years monitoring DOD's progress in implementing
its A-76 program with the goal of saving money that may be
applied to other priority needs. My testimony focuses on the
evolution of the A-76 program in DOD and addresses the question
of whether savings are being realized, identifies some key
issues we've identified that may be useful to other agencies as
they think about using the A-76 process, and I'll provide a few
comments on the work of the commercial activities panel which
you've already referred to.
First, let me say that DOD has been a leader among Federal
agencies in the use of the A-76 process in recent years, and at
one point planned to study over 229,000 positions under that
process. However, the number of positions planned for study,
the timeframes for launching and completing those studies, has
changed over time as the program has evolved. DOD now plans to
study 160,000 positions under A-76, still a rather ambitious
goal.
At the same time, the Department has now augmented its A-76
program for what it terms strategic sourcing, a broader array
of reinvention and reengineering options that may not
necessarily involve A-76 competitions, at least in the short
term. Strategic sourcing may encompass consolidation,
restructuring, reengineering activities, privatization, joint
ventures for the private sector or the termination of obsolete
services. Strategic sourcing can involve functions or
activities regardless of whether they're considered inherently
governmental, military essential or commercial. I should add
also that these actions are recognized in the introduction to
the A-76 handbook as being part of a body of options in
addition to A-76 that agencies must consider as they
contemplate reinventing government operations.
The broader emphasis on strategic sourcing today is
intended to help DOD realize the sizable savings goals that it
established under its program. DOD has already reprogrammed
over $11 billion in anticipated savings from A-76 and strategic
sourcing into its modernization account.
The second point I would make is that one of the greatest
topics of interest to observers of the A-76 process is whether
savings are being realized. My answer to that question is yes,
and that savings have resulted primarily by reducing the number
of positions needed to perform activities being studied. This
is true regardless of whether the government or the private
sector wins the competitions.
At the same time, I must add that a variety of factors make
it difficult to measure the precise amount of net savings from
A-76. Moreover savings may be limited in the short term because
the up front investment costs associated with conducting and
implementing results of these studies. Further reported savings
from A-76 studies will continue to have some element of
uncertainty and imprecision and will be difficult to track in
the outyears because workload requirements change, affect
program costs, a baseline from which savings are calculated.
However, considering that DOD has already reduced its operating
budget on the outyears on the assumption of these savings, it's
crucial that its estimates be as accurate as possible.
Third, there are issues which we have raised concerning
DOD's A-76 program that may serve as a useful lesson for other
agencies that use the A-76 process. They include the finding
that studies have generally taken longer than initially
expected and have generally required greater resources than
initially projected. Finding and selecting functions to compete
can be difficult, notwithstanding the existence of the FAIR Act
inventories, and making premature budget cuts on the assumption
of projected savings can be risky.
These issues should not detract from a need to explore
options for achieving savings but should serve as indicators of
things to watch for in planning and conducting such studies.
Finally, increased emphasis on A-76 has served to
underscore concerns expressed by both government employees and
industry about the A-76 process. Federal managers and others
have been concerned about organizational turbulence that
typically follows the announcement of A-76 studies. Government
workers have been concerned about the impact of competition on
their jobs, their opportunity for input to the competitive
process and the lack of parity with industry offers to appeal
A-76 decisions. The industry representatives have complained
about the fairness of the process and the lack of a level
playing field between the government and the private sector.
Everyone has been concerned about the time required to complete
the studies.
Amid these concerns over the process as you have already
indicated, the Congress enacted section 832 of this year's
National Defense Authorization Act. The legislation required
the Comptroller General to convene a panel of experts to study
the policies and procedures governing the transfer of
commercial activities from government personnel to Federal
contractors. The panel, which includes the Comptroller General
as the Chair, includes senior officials from DOD, private
industry, Federal labor organizations and OMB.
Among the issues the panel will be reviewing are the A-76
process and implementation of the FAIR Act. The panel had its
first meeting on May 8th of this year, its first public hearing
on June 11. At the first hearing, over 40 individuals
representing many perspectives presented their views. The panel
currently plans to hold two additional hearings, one on August
8th in Indianapolis, IN, and the other on August 15 in San
Antonio, TX. The panel is required to report its findings and
recommendations to the Congress by May of next year.
Mr. Chairman, Members, this concludes my summary, and I'd
be please to answer any questions you might have.
Mr. Tom Davis of Virginia. Thank you very much and we'll be
back with you for questions.
[The prepared statement of Mr. Holman follows:]
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Mr. Tom Davis of Virginia. Ms. Styles, welcome. Thank you
for coming.
Ms. Styles. Thank you. Mr. Chairman and members of the
subcommittee, I'm pleased to be here today to discuss the
administration's competitive sourcing initiative and the
proposed Truthfulness, Responsibility and Accountability in
Contracting Act [TRAC] Act.
There are two points I want to clearly communicate today.
First is the administration's commitment to competition. Second
is the administration's strong opposition to the TRAC Act.
Competition is fundamental to our economy and to our system of
procurement. It drives better value, innovation, performance
and importantly significant cost savings. A major element of
our commitment to competition is the administration's
competitive sourcing initiative. The President has committed to
opening one half of the Federal commercial workload listed on
the FAIR Act inventories to competition.
Implementing this initiative, OMB has taken several steps.
First, budget was linked to performance planning through the
President's budget blueprint and through a February 14, 2001
memorandum from Mitch Daniels, the Director of OMB to the
departments and agencies.
Second, this guidance was followed by a March 9, 2001
memorandum from Shawn O'Keefe, the Deputy Director of OMB to
the departments and agencies. The memorandum requested agencies
to develop performance plans to implement the A-76 competitive
sourcing initiative. For fiscal year 2002, this memo requested
that the agencies complete competitions or directly convert not
less than 5 percent of the commercial workload listed on the
agency's FAIR Act inventories.
To assist the agencies in meeting this competitive sourcing
goal, OMB has undertaken a three-part initiative. First, OMB is
invigorating the use of circular A-76 by introducing positive
monetary incentives. Agencies get to retain the savings that
are achieved through A-76 public private competitions.
Second, OMB will make one or two immediate amendments to
the circular to expand and improve the process. Importantly,
tomorrow a proposed change to A-76 will be published in the
Federal Register for notice and comment. This proposal, if
promulgated, would remove the current grandfather provision in
A-76 that exempts inner service support agreements from
competition. Agencies have long provided commercial support
services to other agencies on a reimbursable basis. This
includes a wide variety of commercial support services from
paycheck services and ADP to facilities operation and
maintenance.
The example that I often use is OMB paychecks. Myself and
all other OMB employees receive their paychecks from DFAS, the
Defense Finance and Accounting Service within the Department of
Defense. In other words, the provision of paychecks to OMB
employees, a clearly commercial service, is provided to OMB by
the Department of Defense on a reimbursable basis. OMB, or the
Executive Office of the President, pays DFAS for providing
these paychecks. The concern is that A-76 exempts this clearly
commercial service, the provision of paychecks, from
competition with the private sector. Could these services be
provided less expensively or more efficiently by the private
sector? We don't know, because these services don't have to be
competed right now. The proposed change would require
competition of these commercial services provided on an
interagency basis every 3 to 5 years.
The third part of OMB's initiative is the establishment of
an A-76 streamlining working group. They will be working with
the GAO commercial activity panel and taking a hard look at how
we can improve the A-76 process. As many of you know, the A-76
process has become difficult to implement. The process takes
too long, it has generated significant distrust and several GAO
reports have found weaknesses in the current structure and
application. What was designed to provide reasonable estimates
of costs on a level playing field has become so rigid that the
process itself is an impediment to competition.
In the long term, OMB anticipates vastly simplifying this
cumbersome process by replacing the complex and artificial A-76
cost requirements with a budgeted measure of full agency costs.
With full cost budgeting the agency's budget cost will
substitute for the complex A-76 cost comparison requirements.
The difficulties in implementation of A-76 and our plans to
make long-term changes do not, however, reflect on our
commitment to use the current circular to achieve our
competitive sourcing goals. The circular provides an effective
and established policy framework that has resulted in
significant performance improvement and substantial economic
savings. We are committed to public-private competition, and we
are committed to using the current A-76 circular to meet the
fiscal year 2002 competitive sourcing goals.
I want to make very clear, however, that in supporting
public-private competition, we support the provision of
government service by those best able to do so, be that the
private sector or the government itself. This is not an
outsourcing initiative. We are subjecting government functions
to competition. What is the most important is the cost, quality
and availability of this service, not who provides it. An often
forgotten fact in this discussion is that more than 50 percent
of the time the in-house organization wins the public-private
competition. The simple fact that the commercial function
undergoes competition creates cost savings, innovation and
improved performance.
The second but related issue that I want to address is the
administration's strong opposition to the TRAC Act. Freezing
all currently contracted activities to determine if they could
be performed more effectively by the private sector would put
at risk the Federal Government's ability to acquire needed
support services in both the short and the long term. This
legislation would seriously affect several primary functions of
government, including the public health and welfare,
constituting a threat to national security.
Mr. Tom Davis of Virginia. Ms. Styles, I've given you a
little bit of time. Could you sum up?
Ms. Styles. I'm almost done.
Mr. Tom Davis of Virginia. OK.
Ms. Styles. Even Medicare would not be able to issue
payments since this function is performed by contract. We
estimate the TRAC Act would affect over 230,000 contract
actions, a simply untenable
outcome.
Mr. Chairman that concludes my statement and I'll be glad
to answer questions.
Mr. Tom Davis of Virginia. Thank you very much.
[The prepared statement of Ms. Styles follows:]
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Mr. Tom Davis of Virginia. Mr. DuBois.
Mr. DuBois. Mr. Chairman, thank you very much for allowing
me to represent the Secretary of Defense in front of this
important subcommittee and to address this important issue. I
have submitted a written statement as you know, but I would
like to bear particular attention to certain issues that the
Secretary asked me to bring up this afternoon.
A-76 competitions, as we all know, attract a lot of
attention. They generate vital savings results, but they need
to be put into perspective. Service contracting performed as a
result of A-76 competitions is estimated to comprise less than
2 percent of all defense service contracting. While our
competitive sourcing program may be small in the greater scheme
of things, it has generated some gratifying results.
Between fiscal 1995 and 2000, we've completed over 550 A-76
initiatives that have affected over 25,000 government
employees. As Ms. Styles said, more than half of those A-76
competitions, specifically 57 percent in the DOD, were won by
the government's most efficient organization. The remainder of
the competitions, 43 percent, were won by the private sector.
Savings are achieved regardless of whether the work stays in-
house or moves to the private sector. We saw a reduction of
12,000 government positions involved in the activities studied,
but relatively few personnel, about 10 percent suffered
involuntary separation actions. 1,311 were removed from the
Federal work force through a RIF. We have found that in these
A-76 initiatives between 1995 and 2000 that we have averaged 34
percent in savings.
Now, I know that both Congressman Wynn and Congressman
Waxman referred to the fact that there were no empirical
evidence to date underlying these savings. In fact, I believe
Congressman Wynn also made the comment that GAO has not yet
provided concrete evidence of those savings. Now, I will defer
obviously to my colleague to my right from GAO, but we believe
that both GAO and the Rand Corp. and the Center for Naval
Analysis examined these savings and their results, their
analysis unanimously support the fact that realistic savings
have been achieved.
In the past year, we specifically asked again that the
issue of long-term savings be examined and again, the CNA,
Center for Naval Analysis, confirmed the savings garnered are
persistent.
Now, there are a number of issues today that we need to
talk about to include bill 721, the TRAC Act. We believe in the
Department of Defense that because the reality of those savings
is so strong, that any form of temporary suspension of
competitive sourcing activities would, as a practical matter,
create an expensive, destructive and unprogrammed cost as
anticipated savings would not be realized. While there are
legitimate concerns surrounding this program, we believe it
would be a real mistake to stop it in its tracks until all
questions are answered.
Now, A-76 cost comparison studies are subject to intense
scrutiny by both internal and external parties. It is certainly
frustrating that problem situations get a disproportionate
share of attention, but I know that you are well familiar with
that phenomenon in the various issues that we all struggle
with. We identify systemic problems. We have been proactive in
identifying required changes to procedures, and while the
process is far from perfect and we continue to seek
improvement, we conversely do not want to overreact to
anomalous errors made by well-intentioned, hardworking
employees.
It is again important to recognize that among these
hundreds of decisions during fiscal year 1995 to 2000, only six
tentative cost comparison decisions were reversed through
appeal or protest. Sixty-nine percent of all decisions resulted
in no appeal, and 88 percent of all decisions resulted in no
protest at all. Unfortunately, the problem cases tend to
overshadow the many decisions that reflect a solid program.
The Secretary of Defense this morning testified before the
House Armed Services Committee, and this afternoon as we speak,
is testifying in front of the Senate Armed Services Committee.
In his testimony, he refers to the obligation that we, the
Department of Defense, the entire Federal Government, have to
taxpayers to spend their money wisely as reflected also in your
comments, Mr. Chairman.
The Department of Defense needs greater freedom to manage
so we can save the taxpayers money in as many areas as we can.
The Secretary this morning and this afternoon addressed the
issue that he is going to submit to the Congress for their
consideration, that is to say, rationalization and
restructuring of the DOD infrastructure. Ms. Styles, I believe,
referred to increasing threshholds in the Davis Bacon Act.
But we also must address the issue of more aggressive
contracting out, both in terms of housing and in terms of other
services that are not military core competencies and that can
be more efficiently performed in the private sector.
I just want to make one final remark if I might, Mr.
Chairman. Yesterday I testified before the Military
Construction Subcommittee of the House Appropriations
Committee. I was reminded by Chairman Dave Hobson that I had
returned to government after 24 years. Both Secretary Rumsfeld
and I left the Federal Government, left the Department of
Defense in 1977. We went into the private sector. My first 10
years from 1977 to 1987 were spent focused on productivity
improvements both in terms of process, systemic and human. I
have never been involved with an organization, either as an
consultant or as an employee or an executive in the private or
the public sector that could not by better management, by
better systems, including information systems, operate at least
5 percent, if not more, more efficiently if given the freedom
to do so.
Now in the Department of Defense, one last comment, if I
might, 5 percent of the DOD budget is over $15 billion. Those
savings could go a long way to satisfying many of the unfunded
requirements that exist.
Thank you, Mr. Chairman, and I look forward to your
questions.
[The prepared statement of Mr. DuBois follows:]
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Mr. Tom Davis of Virginia. Thank you very much. Let me
start the questioning for 5 minutes. Ms. Styles, in your
testimony, you discussed OMB's recent directive that agencies
compete 5 percent of Federal jobs designated as not inherently
governmental and listed on the agency's inventories under the
FAIR Act, and then OMB, as I understand, has just added a
directive requiring 10 percent of these jobs be outsourced in
fiscal year 2003. What analysis is going in to directing a
percentage--isn't that prejudging the situation and are we
becoming subject to quotas here that we have to meet in
prejudging--that gives me some concern.
Ms. Styles. I think we need to clarify what may be a
fundamental misunderstanding is that we are asking agencies to
compete a percentage of their FAIR Act inventories. We are not
asking them to outsource a percentage of their FAIR Act
inventories. When these jobs are competed through the A-76
process or these functions are competed through the A-76
process, more than 50 percent of them are won in-house. So it's
not a question--it is simply a measure of competition, not a
measure of outsourcing the number of jobs that will be going to
the private sector.
Mr. Tom Davis of Virginia. Because I think we can agree--I
hope we can agree that the bottom line is savings to the
government and to the taxpayer.
Ms. Styles. Absolutely.
Mr. Tom Davis of Virginia. And that's what ought to drive
this. I think we're going to hear testimony later, we've heard
some earlier, how do you best determine that? There are clearly
some consequences and some concerns right now about the way
it's being measured. You have up front costs with your A-76
that have to be absorbed, and I haven't heard anybody say A-76
is the greatest thing going, and you all are relying a lot on
the A-76 not exclusively, but a lot for that to try to meet
your goals.
Ms. Styles. Absolutely, and I'd like to add, it's not just
cost savings. We're seeing improved management, improved
performance. We're seeing innovation. All of these things are
just as important as the cost savings.
Mr. Tom Davis of Virginia. OK. All right. Thank you. Is OMB
providing agencies with detailed guidance to help them
implement this policy and choose the positions to compete?
Ms. Styles. No. It's going to vary on agency-by-agency
basis on the number of not inherently governmental positions
they have, their missions and goals. So we're letting the
agency decide what is best to meet 5 percent competitive
sourcing goal.
Mr. Tom Davis of Virginia. OK. One of the interesting
things in your testimony, you state that part of the
administration's policy will include allowing agencies to
retain the savings they achieve through the A-76 process. Do
you have limitations on how the agency uses that money? I
mention that because when I was the head of the county
government in Fairfax, we would go to our agency heads in tough
budget times and ask them for cuts, and when we allowed them to
keep it and then gave them discretion as to how to use it, all
of a sudden the savings were forthcoming.
So I'm intrigued by allowing them to do that. We find a
great reluctance on the part of agencies or subagencies to cut
their budgets just to pay for somebody that overran their
budget somewhere else. I assume that's the philosophy that
you're doing that. I guess my questions are No. 1, how will
agencies be permitted to use the money, could it be used as a
work force retention tool to give bonuses to employees for
their cost savings accomplishments? And also, if an agency
receives the cost savings, will it affect their budget for the
following year?
Ms. Styles. Right. In the past, there have been some
negative monetary incentives that have been implemented to try
and get agencies to use the A-76 process. We've decided that
positive monetary incentives are the best way to achieve these
goals and we are letting the agencies decide how to use the
savings that they will be achieving and how to best invigorate
the employees.
Mr. Tom Davis of Virginia. Is there any prohibition on
using that, for example, for bonuses?
Ms. Styles. There is no prohibition on it.
Mr. Tom Davis of Virginia. OK. I think that's important.
One of the fundamental problems we have in government right
now, and one of the things I see with so much of this
outsourcing going, is it's hard to keep in-house capabilities
sometimes given the different pay differentials between, and
particularly in IT areas but in some others, between what you
can make on the outside and what you make inside, and if we
don't reform, how we are compensating people within government,
that outsourcing is inevitable no matter what your past because
you have to get the job done and you're not being able to get
and reward and train people that are in government to do the
job now. How do you see that? And I'll also ask the other
panelists if they'd like to comment on that, particularly you,
Mr. DuBois. Is that a problem at Defense?
Mr. DuBois. I think that the issues of how many we've got
to address will always provide a certain amount of problems for
us.
Mr. Tom Davis of Virginia. Say that again.
Mr. DuBois. I'm sorry, repeat your question so I better
understand it.
Mr. Tom Davis of Virginia. I'm saying in-house training,
retraining people, recruiting, retaining good people in-house
is increasingly difficult in some of these areas, given the
compensation methodologies that you have available to you and
what competition offers on the outside. Outsourcing is
inevitable under that panel unless you substantially alter the
compensation package within agencies. Do you think that's an
accurate statement?
Mr. DuBois. That's right, and of course on the military
side we have a bonus structure that can somehow address those
issues. We also have a bonus structure with respect to SCS
employees, although we are constrained to the extent we don't
have the same flexibility as the private sector does. When it
feels or when it believes it needs to, a company needs to
attract computer programmers in a particular language, it can
immediately adjust the opening salary or the attractiveness of
that salary to do so. We can't do that in the government.
Mr. Tom Davis of Virginia. Thank you. My time's up.
Mr. Turner.
Mr. Turner. Mr. Holman, I want to ask you, based on your
experience to address one of the, what I think is one of the
more difficult issues we face. We know the administration has
suggested these percentages that we need to look at in terms of
outsourcing, and Ms. Styles has said well, the intent is to be
sure there's competition, it's not an automatic, and yet when
this proposal was initially laid out by the administration, I
believe it was the Deputy Director of Management, Mr. O'Keefe,
when he was asked the question about how this would all be
carried out and whether or not to reach these numbers, the
agencies would just have to go to direct conversion rather than
competition, and his response, as I recall from reading that
interchange was, he said well, let's talk. So that left a lot
of the Federal employees groups very uncertain about how this
is all going to work, and obviously if you're going to be
pushed toward some magic number, it will be a lot easier just
to go to that conversion, and I understand there are some
difficulties, there's some time constraints involved in doing a
true public-private competition.
The numbers that I have indicated that only about 1 percent
of the service contracts undertaken by DOD were undertaken with
public-private competition. In the civilian agencies as a
whole, that number is about one-tenth of 1 percent, and at the
heart of this seems to be that we're trying to achieve a fair
competition, and in many instances, the Federal employees can
submit a proposal that would be superior to a private
contractor and yet the way this process seems to be working, we
really don't see that happening very often. Why is it that we
have such low percentages of true public-private competition in
outsourcing?
Mr. Holman. That's one of those questions that I wish that
there were more data available that would help us to get a
handle on that issue. I mean, you're absolutely right. The data
we've seen suggests between 1 and 2 percent of contracts that
are awarded; service contracts are done under A-76. As we've
seen data that looks at where are the increases in service
contracting that's occurring, we see it's occurring for
information technology; or we see it's occurring for studies
and so forth. I can't give you a precise answer as to why we
don't see more in that area, other than perhaps it's for work
that's not already being done in house. It's additional work
that's required, new work or so forth.
But in terms of your earlier question, in terms of the
direct conversion, one of the things we're still looking
forward to see is to see what the impact of OMB's new directive
in terms of DOD's ongoing program. I mean, DOD is the only
agency that's got an extremely robust A-76 program already. So
we're looking ourselves to see how OMB's new direction would
impact that program, whether it would add to it to the existing
plans for competitive sourcing studies.
Certainly, DOD has done its share of direct conversions,
and those are authorized. When you have fewer than 10 employees
that are affected by the action, you can do that. Or if you are
converting military positions. So a good share of DOD's actions
under A-76 have been direct conversions. How many of them will
be in the future, I'm not sure. But it does have a fairly
robust program of public-private competitions.
Mr. Turner. Well, obviously you've done 10 times better
than the rest of the Federal agencies. But it does seem it's
going to require a commitment, Ms. Stiles, from the
administration to insure that there's a vigorous effort made to
have a true competition. I also have some concerns about a
problem that I always have suspicioned exists, that once we out
source, then it also becomes sort of an out-of-sight and out-
of-mind decision.
You know, it's often easy to criticize the Federal
Government for not being aggressive about promoting competition
and continuing to maintain a large Federal work force. And yet
the other side of the coin can also be true, once out sourced,
if it becomes an out-of-sight, out-of-mind decision, then that
activity becomes a captive to the private contractor; and when,
in fact, upon renewal of the contract, often times the price
continues to rise at a rate that it would not or should not
were there again, true competition.
And I'm interested in the DOD's experience, the degree to
which you conduct, if at all, postcontract reviews of outsource
activities to assess whether or not there are cost savings that
are achieved over time. As you know, the GAO reported, as well
as the administration recently, that there's been very little
savings as a total in terms of the cumulative activities of
outsourcing, very little savings, if any, even though there
were examples of savings in certain activities. But overall it
seems the A-76 program has not resulted in significant savings,
if any at all, based on the administration's reports, as well
as the GAO reports. So what do we do to insure there is an
accurate and adequate postcontract review, see if there's
really savings there?
Mr. Holman. Well, Mr. Turner, we in GAO we've looked at a
number of case studies of A-76 competitions. We've tried to
address that issue; and certainly one of the things we see,
that it becomes difficult to track what happens to these
examinations--results of these actions over time, if
contracting action is the result of an A-76 competition. You
certainly can tell it at the point of the competition because
you have the comparison between the public and the private
sector. As that contracting action ages, you have changes in
the work requirements; new work may be added. And we'd look to
see what extent there may have been limitations to how the
original performance work statement was written that would
cause changes to occur. You have changes in the mandated wage
rates under the service-contracting act. Those things happen
over time.
It sort of gives you a distorted picture or an inability to
make a direct comparison to where things were at the original
point of competition. But to the extent we've been able to do
some case studies within 1 or 2, 3 years of competitions, we've
seen that those savings are still there. We've seen some of the
things I've talked about in terms of wage-rate changes. We've
seen changes in performance work statements. We've seen
limitations and how the original savings were calculated;
limitations in the baseline, to use to compare savings. But
when we take all those things into consideration, based on the
case studies we've been able to do, the majority of them, we
found savings continue. I think over time the issue becomes one
of if you want to assure continued savings, it becomes an issue
of recompetitions after so many years, again, to--I think the
issue is competition as the driver to force, encourage the
savings. I think that is probably the answer.
Mr. DuBois. Mr. Turner, may I add a comment?
Mr. Turner. Yes, Mr. Secretary.
Mr. DuBois. As I indicated in my opening statement, the
Center for Naval Analysis has done and continues to study these
issues. In fact, they examined in detail 16 cost-comparison
studies, and the study found that real savings were generated,
were persistent, and that in more than 80 percent of the cases,
performance levels were sustained or improved as reflected in
satisfaction levels of users and observers of performance.
There are two in particular that I think are worthy of note:
one in your home State of Texas, Goodfellow Air Force base,
where in the MOU the Government in-house officer was the
winning offer. Back in October 1994, there were 311 total
government positions in competition. And this was for base
operating support, things such as facility maintenance and
repair, motor vehicle operations, supply operations, base
telephone, switchboard, etc. The in-house offer which won
reduced from 311 the number of government positions to 176
civilians. A 37 percent expected savings was predicted, $22
million. The observed savings was also achieved at that level,
and the effective savings, that is, to say the difference
between the baseline costs and the real costs to providing the
same set of functions as defined in the performance work
statement was $27 million.
There was one other issue, one other specific that I
thought was worth mentioning, wherein the private sector won,
Peterson Air Force base in Colorado. The functions competed
were vehicle operations and maintenance. The original number of
government positions in competition were 99. The private sector
bid won, resulting in 73 positions, a $7.3 million expected
savings; in terms of observed savings, slightly less, $6.6
million. In both cases, the performance level results were
satisfied or very satisfied by the user.
There were a couple of other points that you made that
perhaps I could clear up just a bit. And one is that A-76
procedures only apply to work currently done in house. My
comment that 2 percent, only 2 percent of the services
outsourced were done under the A-76. It doesn't include new
work or, as an example, the Navy-Marine Corps intranet
procurement. It's essentially a service contract, but it's also
$13 billion, the largest in the history of the Department, and
was not done under A-76. The issue about competition or the
sustainment of a competitive environment and atmosphere, of
course, the contract is not forever. It is not in perpetuity.
Most contracts are recompeted every 5 years, and every contract
is reviewed every year. And some contracts have been
discontinued, as was mentioned earlier today. Thank you.
Ms. Stiles. Mr. Turner, if I could make a statement there.
I'd like to clarify A-76, the circular itself, does apply to
new work. In-house organizations can submit a bid for new work
under the circular. And I'd also like to say that for our
fiscal year 2002 goals, only direct conversion, under 10 people
applies. And only A-76 private--public-private competitions
apply. So those are the only two things that the agency can use
to meet our goals.
Mr. Turner. Thank you. Thank you, Mr. Chairman.
Mr. Tom Davis of Virginia. Thank you. Ms. Davis.
Mrs. Jo Ann Davis of Virginia. Thank you, Mr. Chairman; and
thank you all for being here to testify today. Mr. Holman, one
of the most important elements of the competitive outsourcing
is the ability of the Government to access the latest in
technologies provided by our private industries. It's
especially true with our Armed Forces. Do you believe that, if
implemented, the TRAC Act will hinder the military as it moves
into the 21st century?
Mr. Holman. Ms. Davis, that's--I like that question. It's a
tough one to answer, but I like it. I'm in sympathy with much
of what's being tried to be accomplished with the TRAC bill in
terms of trying to get more information. Certainly, there's a
frustration there at times of not being able to know more of
what's taking place. One of the issues as I look at the TRAC
bill is just that one, what would happen in the area, say, of
information technology if the TRAC bill is intended to cover
all contracting actions and, as I indicated just a few minutes
ago, we see so much of the contracting actions taking place
today, a large increase related to information technology. We
know there's difficulty in attracting and retaining personnel
with that capability. So it does raise a question of how it
would affect that area.
Mrs. Jo Ann Davis of Virginia. Thank you, Mr. Holman.
You'll find that the Armed Forces, or Armed Services, is very
important to me for my district. And in the same light, you
know, we just had a problem with one of our small bases where
the A-76 study was being conducted; and I had a lot of
constituents, quite a few actually, who only had a year left
until they retired. So you know, it's a double-edged sword for
me. I don't want to see, you know, my constituents lose their
jobs; but yet our national security interest is of utmost
importance for me.
Which brings me to a question for you, Mr. DuBois. The TRAC
bill, according to Mr. Wynn's testimony, would make exceptions
in the case of the national security interest. Who would
determine the national security interest? Under the TRAC act,
could the DOD remove itself or would the GAO make that
decision? Do you know?
Mr. DuBois. I'm not sure, Ms. Davis. I'll have to look into
that and report back to you.
Mrs. Jo Ann Davis of Virginia. If you could let me know
that, I would really appreciate it.
Ms. Stiles. I believe it would be OMB that makes the
determination.
Mrs. Jo Ann Davis of Virginia. OK. Thank you very much, Mr.
Chairman.
Mr. Tom Davis of Virginia. Thank you very much. Mr. Waxman.
Mr. Waxman. Thank you, Mr. Chairman. Ms. Stiles, as you
know, a panel of experts chaired by GAO Controller General
David Walker has been established to examine the OMB circular
A-76, and they're due to report to Congress on reforms next
year. We've heard those in support of the TRAC action we should
wait until next year before pushing for its passage so that we
may have the benefit of the panel's report. On the other hand,
the Bush administration certainly didn't take this approach.
As you mentioned in your testimony, in a March 9
memorandum, OMB's Deputy Secretary Sean O'Keefe expressed the
President's commitment to review at least one-half of the
Federal positions listed on the FAIR Act inventory of
commercial functions for possible contracting out. That
translates to a cut in the Federal work force of as many as
425,000 people. Reducing the Federal work force by 425,000 jobs
certainly appears to be a broad change. I'm curious to know why
the Bush administration didn't wait for the panel's report
before choosing to aggressively promote contracting out.
And before I ask you to comment on that, I want to point
out that from the beginning of its tenure, the Bush
administration has taken a series of antiworker actions. First,
President Bush issued a number of Executive orders, including
one that eliminated the National Partnership Counsel, which was
created to improve labor management relations throughout the
Federal Government. Second, the administration repealed their
ergonomics rule and is working to permanently delay
implementation of the contractor-responsibility rule. Now the
Bush administration is pushing for more outsourcing. You've
suggested you're just opening the work to competition, not
automatically outsourcing; yet the March 9 memorandum states
that direct conversion is possible as an alternative to public-
private competition.
The Bush administration, in my view, should rescind this
latest policy of aggressive outsourcing and follow its own
rhetoric. It should wait until it has heard from the panel of
experts about how the Federal Government can improve, but
certainly not abolish the private-public competition process.
What's your response?
Ms. Stiles. Direct conversions are part of the A-76
circular, and only direct conversions of less than 10 employees
will apply. So if you look at the competitive-sourcing goal,
it's a competitive sourcing initiative. Competition is the key.
It is not outsourcing. The only two items that will apply are
direct conversions of less than 10 people, this is for fiscal
year 2002, and A-76 public-private competitions.
Mr. Waxman. There's been repeated talk and pressure to
reduce the Federal work force; and those who call for a
reduction in the Federal Government, they said the Government
will get smaller if we have a smaller work force and taxpayers
save money. But the facts show that shrinking the Federal work-
force does not shrink the Federal Government because
contractors are hired in place of the Federal workers. Paul
Light of the Brookings Institution estimates a contractor work
force is 5.6 million people strong and the Federal work force
is less than a third of that, at about 1.8 million people. He
further explains that except for DOD and DOE reductions due to
the end of the cold war, the size of the contractor work force
is increasing rapidly, and the trend is to continue expansion.
With a contractor work force more than triple that the size
of the Federal Government, I find it troubling that some
suggest we're decreasing the size of government. Now President
Bush wants to reduce the Federal work force by as many as
425,000 more people. Do you have any guarantees that this
further reduction will result in a smaller Federal Government
and save taxpayers dollars?
And before you answer that question, I want to add that I
think we're heading in the wrong direction. The existence of
5.6 million contractors is stunning. Sometimes agencies have to
hire contractors to be the overseers of other contractors. OMB
should be reviewing its policies to decrease its reliance on
contractors. Also OMB should ensure that Federal workers are
available as contract managers. In addition, OMB should be
measuring the Federal Government's performance by quality, not
by reductions in quantity. And even if the goal is to reduce
the Federal work force, which I think is a misguided goal, we
cannot suggest that we have made such a reduction if we've
added contractors to replace Federal employees.
What do you have to say to that?
Ms. Stiles. I'm sorry. What is the question?
Mr. Waxman. Well, my question is, how do you respond to the
comment by Mr. Light at Brookings that we're not reducing
government? And then do we have any guarantees that this
further reduction in the work force will result in a smaller
Federal Government and save taxpayers dollars?
Ms. Stiles. The A-76 Competitive Sourcing Initiative is
part of a much larger goal of the administration to link budget
to performance. This isn't an outsourcing initiative. We want
to be able to reflect the true cost of contracting to the
taxpayer. What A-76 does is when you have the public-private
competition, you get to see what the true cost is, which you
don't get to see in the current budget process. So it's part of
a much larger initiative that we're looking at right here. I
think several people from OMB have spoken earlier this week on
our move for full cost budgeting.
Mr. Waxman. Well, let me ask you to respond to that first
question I asked you and that's, why isn't the Bush
administration waiting for the GAO report on this whole subject
before moving aggressively in the area of reducing the work
force of the Federal Government?
Ms. Stiles. We're not aggressively moving to reduce the
work force. We're moving for competition for the goals of
savings, innovation and improved performance, as well as
improved management.
Mr. Waxman. I know, but GAO will tell us whether we're
really get savings and efficiency and all of those good goals.
We ought to find out their evaluation of what we've done to
this point first.
Ms. Stiles. We are actively participating in the GAO review
panel, but we're not going to wait for the benefits of
competition.
Mr. Waxman. Well, my time is up. I think you're not waiting
until you get the benefits of the information that I think
would give you a better basis for making a decision as to what
direction to pursue. Thank you, Mr. Chairman.
Mr. Tom Davis of Virginia. Just to go on with what Mr.
Waxman was saying, if I could continue. One of the major
concerns--and I think I expressed this in my early concerns--I
think I was allayed with what you said, but let me make sure I
understand. Cutting Federal employees doesn't mean you save a
nickel. You agree with that. Correct?
Ms. Stiles. Absolutely.
Mr. Tom Davis of Virginia. I mean, the real question we
ought to ask is not how many Federal employees you have or
don't have, but how much money are we saving the taxpayers. And
I think I've heard at least from this panel a unanimous
agreement that just by competing out, even if it's kept in-
house, it gets more efficient by having to go through the
competition. Is that, at least on this panel, is that how it's
felt?
Ms. Stiles. Absolutely.
Mr. Tom Davis of Virginia. But ultimately I think the
previous administration set some arbitrary numbers. We had some
problems in our district where a number of people were going to
be cut from the Federal work force as if this somehow
accomplished something good. And at the end of the day, we've
got to ask did you save any money by it. And it's something
this subcommittee's got to watch because we're interested in
savings, absolutely. But I am not sure that you can always
equate getting rid of Federal positions as savings.
And you have to make that case, and I think how we measure
that is, as I read the study from GAO, we're not always
accurate in terms of how we determine that. We need to look for
better ways to do that. Certainly, from the Federal employee
community, there's a concern that some of these go out; and you
track it 3, 4 years later as the work orders change, it's very
difficult to measure if you've got real savings or not. And I
think you can understand that.
Ms. Stiles. I think a large part of the problem was, as I
was trying to describe, is that we don't have full cost
budgeting right now. A program manager in the Federal
Government can't make a rational decision based on the true
cost to the taxpayer because of the current budget process, and
we are trying to change that. We are trying to reflect the true
cost so they will know and be able to make a rational decision
on what should be performed, and by whom.
Mr. Tom Davis of Virginia. OK. The FAIR Act by publishing
yearly inventories of commercial functions by positions has
made commercial activities within the Federal Government
transparent. What efforts does OMB plan to provide the same
transparency with the contractor work force? Do you understand
what I'm saying?
Ms. Stiles. No. Can you repeat that?
Mr. Tom Davis of Virginia. Yeah. We publish yearly
inventories of commercial functions by positions within the
Federal Government. OK? And you do that under the FAIR Act. On
stuff that's already outsourced, are we reviewing that to make
sure that this meets the same criteria in looking at bringing
some of that in-house or not?
Ms. Stiles. There has been initiative within the Army,
which----
Mr. Tom Davis of Virginia. All right. Maybe Mr. Dubois, are
you familiar with that?
Ms. Stiles. But I can also say----
Mr. DuBois. I'm not familiar with the specifics of the
Army.
Mr. Tom Davis of Virginia. Well, could you look at that and
get back with us.
Mr. DuBois. I certainly will.
Mr. Tom Davis of Virginia. I think everybody needs to
understand all the rules. This is very complicated. I've been
doing it for years, and there's still things I don't
understand.
Ms. Stiles. I mean, as a general proposition, we know the
service dollars that are being contracted. I think the cost of
determining the contract employees far out weights the benefits
of knowing that number. I mean, the cost to determine that is
rather substantial, and ultimately it comes back to the
taxpayer because contractors, if they're going to have to tell
us those numbers, are simply going to charge us more for the
goods and services they're providing.
Mr. Tom Davis of Virginia. Let me ask you this: in recent
years there's been a significant emphasis on reducing the size
of government. To what extent are FTE ceilings, full-time
equivalent employee ceilings, on the Federal Government or
civilian work force, either implicitly or explicitly forcing
agencies to contract for services? Have you seen any of that?
Ms. Stiles. No, and that is not certainly any part of our
initiative.
Mr. Tom Davis of Virginia. It's not in here. It has been,
though. It was previous to this that there were FTE goals that
were sent out, both by Congress and the administration.
Ms. Stiles. We do not believe the agency--Department should
be managing based on FTE ceilings.
Mr. Tom Davis of Virginia. OK. Mr. Holman, you agree with
that?
Mr. Holman. I think in the past we've seen concerns on the
part of government workers the perception that there were
artificial ceilings that were forcing work to go out of house.
It's one of those things that's difficult to gauge. But to the
extent there are, you know, arbitrary ceilings or artificial
cuts mandated in the Federal work force that aren't necessarily
tied to specific reductions in work, I think it fosters that
perception.
Mr. DuBois. Mr. Chairman, if I might, both in the public
and in the private sector, I've seen these so-called head-count
exercises. In fact, as a practical matter, the Congress
requires the Department of Defense to submit every year a
management report on how many folks are in their so-called
headquarter units and components beginning with, obviously, the
Office of the Secretary of Defense. My view, and I think the
view of the Secretary, is that to utilize only that metric--the
metric of head-count and not the metric of how much we're
spending to get what level of service doesn't make much sense.
Mr. Tom Davis of Virginia. Last question for the GAO here.
Could you report to the subcommittee, not today, all of the
reporting and the auditing requirements that contractors have
to comply with today when they're contracting with the
Department of Defense. That would be helpful for us. And if you
could then say also with the civilian agencies and just look at
what we are asking them to do in terms of getting information
back to us on these, that would be helpful to us. As you know,
we end up getting charged for this.
Mr. Holman. Dealing with the A-76 process?
Mr. Tom Davis of Virginia. Contract-wide.
Mr. Holman. OK. We can work with you on that.
Mr. Tom Davis of Virginia. And in general there are going
to be obviously specific contracts where you're asking for
other items and stuff. But we'd like to understand what burden
we're putting on contractors in terms of reporting back; what
information we're getting; is it the right information; should
we be getting additional information, or is there some
information here that's maybe not useful.
Mr. Holman. OK. Yes, sir.
Mr. Tom Davis of Virginia. I thank you. I'm sorry. Mr.
Kanjorski.
Mr. Kanjorski. Thank you very much, Mr. Chairman. The
testimony I've heard so far sort of concentrates on cost and
quantity, the cost to the Government and the quantity of
employees, or the private sector contractor employees. I'm more
interested, have you done any followup, Mr. Holman, on the
effect of quality? Let me give you an example. If we wanted to
save in congressional offices, we'd just adopt a policy that we
fire an entire staff every 2 years and rehire them, because
they'd never have to be paid an incrementally higher amount.
But then we'd be trading off some experience and some quality
that we assume employees gain over a number of years of
performing a certain task. Are you examining the loss of
quality in the Federal work force that occurs by this shifting
to the private sector?
Mr. Holman. Well, Mr. Kanjorski, we've done some case
studies ostensibly to try to get information on what happens to
costs. We've also been sensitive to that issue of quality of
service being provided; and certainly, you know, we've seen
cases here or there where there have been contractor problems,
contractor default. But they've been the minority of cases that
we've looked at. I mean, one of the benefits of the A-76
process is that agencies are required to put in place a
management plan to oversee these contracts. And again--and it's
been a limited number we've been able to look at; but where we
looked at them, the quality has pretty much been there.
Mr. Kanjorski. OK. Well, I'm curious. I could give you a
suggestion to the Defense Department. A number of years ago, I
went through your educational program and it's probably 9,000
teachers in the Defense Department. Many of them have 20, 30
years of experience. They're exceptional. You could fire them
all and hire recent college graduates and save an enormous
amount of money, probably 50 percent. Now, I don't know what
the tradeoff is there.
But let me talk about something that does disturb me and
that is recently we sent helicopters to Kosovo, and I think
they were on the ground for at least 60 or 90 days and never
took off. And as I understand, the reason is that they were not
maintained and ready for combat service, because all of the
maintenance and service for most type of facilities and most
aircraft in the Defense Department are provided by contractor
employees not government employees. Now, I was astounded to
find out that we're sending combat forces into combat zones,
and we have to bring contract employees to service them. I
can't believe that's a moving Army. And if you can justify that
in the name of savings, I've got a good deal. China Inc. has
offered to maintain the entire Air Force of the United States
at a much cheaper price. They'll even build the planes for you
cheaper. But is that where we want to go?
Mr. DuBois. No, I don't think that's where we want to go,
Congressman. I would suggest that particular situation, which
is in another component other than mine, the helicopters and
the maintenance contracts----
Mr. Kanjorski. Well, is that correct or not?
Mr. DuBois [continuing]. Were not the Department of
Defense. They were another agency.
Mr. Kanjorski. They were what?
Mr. DuBois. They were not Department of Defense contracts,
as far as I understand. They were another agency's contracts.
Mr. Kanjorski. They weren't the Air Force?
Mr. DuBois. Not to my knowledge.
Mr. Kanjorski. Do we have a helicopter service or
something?
Mr. DuBois. No. You might address your question to the Drug
Enforcement Agency.
Mr. Kanjorski. I'm sorry.
Mr. DuBois. You might address your question to the Drug
Enforcement Agency as opposed to----
Mr. Kanjorski. In Kosovo it was the Drug Enforcement
Agency?
Mr. DuBois. No. I'm sorry. I thought you were talking about
South America.
Mr. Kanjorski. No, I was talking about Kosovo. We put in 90
Black helicopters, or whatever they call them.
Mr. DuBois. Blackhawks.
Mr. Kanjorski. None of them flew in combat because they
were not ready for combat and because we did not have the
maintenance force in place to service them. That's what my
understanding was.
Mr. DuBois. I think it's a legitimate question. I'll get
you an answer on that. It's an area outside my component.
Mr. Kanjorski. OK. Am I correct that all these military
bases across the country, the military does not provide the
maintenance work force; but, in fact, those are all private
contracts out there?
Mr. DuBois. To my knowledge that is not correct, sir.
Mr. Kanjorski. OK. Do you know what number is privately
contracted out?
Mr. DuBois. No, I don't. I'll get that answer for you.
Mr. Kanjorski. OK. I would suggest there is a military base
outside of Boston, MA, that has 1,500 aircraft maintenance
people. They're all private contractors. They're not government
employees. Now, I haven't checked the others; but I'd like you
to look into that because I think it goes right down to the
level of what I'm talking about, quality, and providing the
needed operation. I've got a facility in my district that's a
depot and it's an electronic depot. And now they're allowing
contractors to provide throwaway items that do not meet
military specifications. And a lot of this equipment's going to
get into the field and not work. And what are we going to do
about this? We have billions of dollars and a strong Army to
move; but all because of this cost, and I don't not want to
save costs.
But carried to its ultimate result, we should hire the
Chinese Army. It'd be a lot cheaper in defense. And I'm afraid
in government we're getting carried away. Ms. Stiles, I'm not
picking on you. But a couple of years ago, one of the
administrations wanted to replace the IRS accounting with
private contracting firms. And it makes eminent sense. You
could make a great argument about it. But I can tell you, I'm
one of the taxpayers that doesn't want a private contractor
person knowing what my income tax statement is. And there's
confidential information in government all the time that is
given to government because they can lose their jobs; they can
be prosecuted. They have to perform a standard to keep their
job. But you're looking at it from a dollar sense. Your
paycheck, you know, do you want a private contractor to provide
that paycheck and know everything about you? It's up to you. I
don't particularly think that's always the best quality of
service.
Mr. Tom Davis of Virginia. Thank you. The gentleman's time
has expired.
Ms. Stiles. If I can address that?
Mr. Tom Davis of Virginia. Sure.
Ms. Stiles. I think even if there were not any cost savings
associated with our competitive sourcing initiative, there is
so much improvement in management and performance and
innovation it would probably be worthwhile if there weren't the
savings there.
Mr. Kanjorski. Why don't you start on the management side,
as Mr. Waxman said, and wait for the review board to come back
before we start putting in these new Executive orders and
change the system?
Ms. Stiles. We don't have any new Executive orders, and we
were working with the GAO review panel; and we intend to
continue to do so.
Mr. Tom Davis of Virginia. The gentleman's time has
expired. Ms. Davis.
Mrs. Jo Ann Davis of Virginia. Yes, I just have one quick
question, Mr. Chairman. Ms. Stiles, you stated when I asked the
question earlier on the TRAC legislation that OMB will
determine the national security interest. Currently with the
outsourcing, who determines whether something is national
security interest when they hire, you know, when they outsource
it?
Ms. Stiles. If it's an inherent governmental function, it
is not subject to A-76.
Mrs. Jo Ann Davis of Virginia. Would maintenance of
aircraft be considered national security interest?
Ms. Stiles. I'm assuming the determination is probably made
by the Department of Defense.
Mr. DuBois. Right. And certain aircraft are maintained by
the original equipment manufacturer. Other aircraft are
maintained in our depot systems, and that is determined by the
service chief in each individual service.
Mrs. Jo Ann Davis of Virginia. Thank you, Mr. Chairman.
Mr. Tom Davis of Virginia. Mr. Cummings.
Mr. Cummings. Thank you very much, Mr. Chairman. Ms.
Stiles, and all of you, I thank you for being here. And Ms.
Stiles, I want to pick up where you left off question before
last. You said even if there wasn't cost savings--could you
repeat that for me?
Ms. Stiles. This initiative would be worthwhile even if
there weren't savings associated with it because what we see
through public-private competitions is significantly improved
management, be that on the private sector side or in in-house
organizations. We see innovations, and the benefits are
significant. It's not just cost savings.
Mr. Cummings. And I'm sure that you could refer us to the
reports that you're talking about so we have a basis for what
you just said?
Ms. Stiles. Well, I think Mr. Holman, a few minutes ago,
was talking about the quality; and I think they have said that
the quality is good. But I would certainly submit for the
record.
Mr. Cummings. Yeah, I'd like to know what you base your
opinion on. OK?
Ms. Stiles. OK.
Mr. Cummings. One of the things I guess that has always
concerned me--and as I walked up the hall to see all the people
in the hallway and I have a lot of Federal employees in my
district, it seems like so often what happens is Federal
employees get a bad rap. And I think that--and these are hard-
working Americans who give so much to their country. They are
the glue to keep our country together. And sometimes I really
begin to wonder about whether we are true to them as they are
to us.
And then I look at a situation where just yesterday it was
reported by the General Accounting Office that there were some
health care contractors who were taking seminars given by
consultants on how to take advantage of Medicare and Medicaid
through questionable billing techniques. And then a matter that
I'm very close to since I'm the ranking member on our Criminal
Justice Subcommittee, Ogilvie and Mather, who was contracted by
the Federal Government to produce some--we contracted with
them, this advertising agency, to do some work for us with
regard to our antidrug messages. And they have been referred to
the Justice Department by this administration.
Can you tell me what guidance your office has given
agencies to insure that the proper contract--the managers are
in place to avoid this kind of abuse? Because we should be just
as upset about people, private contractors who allegedly, in
this case, abuse the system, misuse our tax dollars that we've
worked hard to give to the Government. We should be just as
concerned about them as we are about the things that you're
talking about today. And since these are folks--and we spent
millions, millions upon millions of dollars for an ad agency to
put out ads to help our children, to save their lives, to keep
them off of drugs. And now we've got a referral by the Bush
administration to the Justice Department. So help me with that.
Ms. Stiles. I think there are always going to be problems,
but hopefully they're ones that we can solve through our
current Federal acquisition system. I think your first
reference was to the Medicare contractor; is that correct?
Mr. Cummings. Yes.
Ms. Stiles. Medicare contracts are not governed by the same
rules that other contracts are governed by the Federal
acquisition regulation. Hopefully, though, those regulations do
work. And the system does work most of the time. And to the
extent it doesn't, I think we need to try and fix it.
Mr. Cummings. I mean, are you doing anything to--again, my
question was, what guidance are you giving OMB as to how to
deal with these agencies to ensure that these kinds of things
don't happen?
Ms. Stiles. Well, I mean, we have a whole set of
regulations that we work with all of the civilian agencies to
implement to make sure that we have a procurement system that
works. And the entire Federal acquisition regulation is there
to ensure that we provide--that the contracts that we have are
good contracts and run efficiently and effectively and that we
avoid these problems. But I think they are going to happen
sometimes.
Mr. Cummings. Now, going back to my first statement, when
you've got people who have worked hard for the Government for
many years, who have tennis shoes to buy this September, who
have to feed their families, and who have done a good job over
and over again, I mean, I'm just wondering what's the Bush
administration's feeling about them, like the people who are
sitting behind you, all of whom represent families----
Ms. Stiles. Absolutely. I don't think----
Mr. Cummings [continuing]. Just like you do.
Ms. Stiles. Actually, I don't think our feelings are any
different than yours.
Mr. Cummings. I'm sorry. I didn't hear you.
Ms. Stiles. We fully support the Federal work force. My
experience has been with the acquisition work force before
coming to this job, and it's been an excellent experience. We
have good workers out there.
Mr. Tom Davis of Virginia. OK. Thank you very much. The
gentleman's time has expired. Mr. Kucinich.
Mr. Kucinich. Thank you very much, Mr. Chair. I want to
thank the Chair for his indulgence in allowing me to ask a few
questions, and I want to thank the panelists for their
participation. Mr. Chairman, I just want to start out by
explaining that I have a situation back in my home district in
Cleveland, OH, where the Defense Financial and Accounting
Service [DFAS], employs about 450 people in Cleveland who
perform retiree and annuitant pay functions for the military.
This operation was recently contracted out through an A-76
review to a company called ACS Government Solutions Group. And
apparently, this firm has said that it's going to provide
savings to the Government over the next 10 years. So this
conclusion is certainly subject to close consideration.
I would like to ask a question to Ms. Stiles. Do agencies
monitor the type of wage-and-benefits package contractors offer
their employees once work is outsourced?
Ms. Stiles. As a general proposition, no. There has been an
initiative----
Mr. Kucinich. Could you speak closer to the mic?
Ms. Stiles. Certainly. As a general proposition, there has
been a general initiative----
Mr. Kucinich. There has been an initiative?
Ms. Stiles. Yeah, to take a look at the contractor work
force. So we're going to have to get back to you.
Mr. Kucinich. So what's your answer, that you really
haven't monitored it, but you're going to?
Ms. Stiles. No. There's been an initiative that was
recently suspended within the Army to take a look at the
contractor work force, the number of contractor employees that
are working, as well as some more of the specifics. I mean,
there was an initiative to collect some of the data, but aside
from that, no.
Mr. Kucinich. So I'll just go over the question again
because this question is phrased, as you know, quite
deliberately; and I just want to make sure I have your right
response. Do agencies monitor the type of wage-and-benefits
packages contractors offer their employees once the work is
outsourced?
Ms. Stiles. As a general proposition, no.
Mr. Kucinich. No. OK. Isn't it possible that companies like
ACS Government Solutions out-bid Federal workers by providing
less compensation to employees over the life of the contract?
Ms. Stiles. I believe that's possible, yes.
Mr. Kucinich. OK. The Economic Policy Institute reports
that more than 1 in 10 Federal workers earn less than a living
wage. Now, isn't it possible that contractors realize savings
by fighting unionization and otherwise violating the spirit of
labor laws?
Ms. Stiles. I'm sure that they are paying the wage based on
the competitive pressures that they face.
Mr. Kucinich. OK. And do you think this puts the Government
in this difficult position of being in the business of saving
money on the backs of workers who are also U.S. taxpayers, who
are loyal, who are well trained, who are honest and who are,
you know, being supervised under government laws and
regulations. I mean, does that--how do you respond to that?
Ms. Stiles. I think the dynamic of competition benefits
everyone, particularly when we're looking at this A-76
initiative. We're looking at cost-savings improved-performance
innovation. It's a benefit to everyone involved.
Mr. Kucinich. OK. Thank you. Do any of the agencies monitor
how contractors treat their employees once they receive work?
Ms. Stiles. No, not that I know of.
Mr. Kucinich. And Mr. Holman, has GAO conducted any such
study?
Mr. Holman. Congressman, we've done some work to try to
evaluate what happens to the pay and benefits of Federal
employees that are affected by A-76 studies. It's more on a
case-study approach. And I have to say that as a result of it
we have to say we can't draw universal conclusions what
happens, because it varies with so many factors. A lot of it
has to do with the locality where the action takes place, the
technical nature of the work. A lot of it has to do with the
age of the Federal employees.
Mr. Kucinich. Well, I'd like to--I can appreciate there are
variables. Now, according to the numbers I have from the DOD,
of the 286 A-76 reviews it conducted over the last 5 years,
only 8 of them were on work performed by contractors. Would GAO
be receptive to a request from, perhaps, the ranking member,
with his indulgence or from any member of the Government Reform
Committee to do such a study which deals with the type of wage-
and-benefit packages that are offered employees once they're
outsourced and also to look at some of these issues that are
raised here with respect to how contractors treat their
employees once they receive work?
Mr. Holman. We're certainly receptive to doing more work in
that area as needed. But let me say that, you know, we have
looked at that issue and we've seen instances where employees,
as a result of the contracting action, the work is outsourced
they may make less. They may make more. One of the
difficulties, again, is with the age of the Federal work force,
so many nearing retirement age. When a contract, an A-76
action, happens, an award goes to the private sector, the
contractor is anxious to have those workers. That's how they're
going to build their work force, a skilled work force, if they
can.
Mr. Kucinich. I know my time's expired.
Mr. Tom Davis of Virginia. It is.
Mr. Kucinich. I want to thank the Chair, and I just want to
say that my concern would be that it's easier to pay younger
workers less and get rid of dedicated older workers. I'll send
a followup letter to GAO. I want to thank the Chair for his
kindness.
Mr. Tom Davis of Virginia. Let me just say from my
perspective I think one of the problems is that we have too
much oversight of some of these contractors in terms of what
they're paying, how much they can pay benefits. In my
experience back before I came here, I saw just a lot of
overregulation, sometimes from auditors and stuff looking at
things that had no bearing at all on what level of service the
Government was getting or how much they were paying and trying
to tell companies how they had to run their business. So Mr.
Kucinich thinks we don't have enough regulation. One of the
questions I asked before is maybe we have too much in that
area. So we have divergent opinions on that. But you're going
to hear that because we have a lot of different opinions up
here today. I appreciate your indulgence. Anything anybody
wants to add before I dismiss this panel and move on to the
next?
Mr. DuBois. I think there is one issue that has now been
raised both by Mr. Cummings and Mr. Kucinich, and that is a
concern that I have about the fabulous quality that we have in
the Federal work force today, which is very close over the next
5 years, a large percentage of that Federal work force, that
quality work force is eligible for retirement. And one of the
ironies here may very well be that the only way to access that
quality work force is after they voluntarily retire is contract
for them.
Mr. Tom Davis of Virginia. One of the other parties--I
think we talked before about some of the incentives we have
within the existing Civil Service structure to retain good
employees in their early career and given the career path. The
current Civil Service system doesn't really allow what we need
to do in those areas. But you're right, the next 5 years are a
huge test for us; and because of some of the revolving-door
arguments that have been put in by preceding Congresses, the
only way we can access some of these people is to move them out
into the private sector. Mr. Turner has a couple of questions,
and then we'll let you go.
Mr. Turner. Ms. Stiles, you mentioned earlier in your
remarks and testimony that there is a new change in the A-76
procedure that will permit interagency servicing agreements to
be open to competition and it would be published tomorrow in
the Federal Register. Is that an invitation for comment, or is
that a directive that this change will occur?
Ms. Stiles. Invitation for notice and comment.
Mr. Turner. And Mr. Holman, from your perspective--
obviously we've talked about DFAS, the Defense Finance and
Accounting Service--and Mr. Kucinich referred to it having lost
a contract to the private sector. That agency, as we mentioned
earlier, does a lot of interservice, or interagency servicing,
of the checks and those kind of things for other agencies. Do
you happen to know why interagency servicing agreements were
exempt initially from A-76?
Mr. Holman. I'm not sure why they were exempted other than
perhaps there was probably an interest at a point in time to
encourage interservicing as a way to take advantage of
capabilities that existed across agencies to achieve
efficiencies that way. That would be just speculation on my
part, though.
Mr. Turner. I know you may not have been familiar with the
news just announced, but it seems to me that this is going to
be a--quite a difficult area to move into. I'm sure DFAS has
made a significant investment in equipment and personnel to
handle the interagency servicing agreements that it does
currently manage; and obviously, we want those kinds of
interagency agreements to work as efficiently as possible. But
in truth and fact, whatever payments are being made by other
agencies for that service is going back into the Treasury as a
result of the interagency agreement.
So it seems to create quite a much more difficult area to
analyze; and, in fact, if some of our agencies begin to lose
interagency contracts, the investments in equipment and
personnel and training that have been made may create losses to
us that will be difficult to evaluate, as well as we may lose
economies of scale that exist perhaps in DFAS that performs
those services for a large number of Federal agencies.
So I would be interested if you have any concerns about
moving into that area of interagency servicing agreements.
Ms. Stiles. Can I clarify the scale that we're looking at
here? These are only interagency service support agreements
that were entered into prior to 1997, so the universe is
smaller than you might think. Ones after that point in time are
subject to competition. So this is just removing a
grandfathering provision.
Mr. Turner. And would that affect DFAS?
Ms. Stiles. Yes.
Mr. Turner. OK.
Ms. Stiles. To the extent that the agreement was entered
into before 1997.
Mr. Holman. Right. Again, I think the driving factor behind
the A-76 process is--the forcing action is competition as a way
to achieve greater savings, whether the existing government--
obviously, the current activity is competing for that,
continuing that work. Again, that's why so many of the
competitions are won by the in-house organizations. Where they
lose--again, many of the contractors are very anxious to try to
recruit the former government employees because they do see
that as an experienced base of workers.
Sometimes it's difficult to attract those workers, though,
because many of them are in that age group of that it's just a
few years of retirement and they don't--they're wanting to seek
that retirement under the Civil Service Retirement System or
the FERS system. So that does make it difficult to track those
workers at times. But on the other hand, our work has shown
that many workers do retire and many of them do go work for
these contractors and can fare rather well. I'm sure you know
it's a mixed bag. Again, it's very difficult to draw universal
conclusions, but you do see a range of actions that many times
are very positive.
Mr. Turner. Thank you, Mr. Chairman.
Mr. Tom Davis of Virginia. Thank you very much. Let me
thank this panel very much. Ms. Stiles, thank you very much for
being here, your first day back. I think you did a great job. I
hope the administration ought to be proud of what you've done.
Ms. Stiles. Thank you.
Mr. Tom Davis of Virginia. We look forward to working with
you, and I think you can hear the array of views we have up
here in the Congress on these issues that we can synthesize and
work with over the next 2 years. So we thank all of you very
much.
Mr. Tom Davis of Virginia. Let's take a 2-minute break as
we move the next panel up. Anybody who will be on the next
panel need to refresh themselves or anything here before we get
on because I know you've been sitting here a long time, we'll
be happy to accommodate you. All right. It's customary to swear
in our witnesses. If you would just rise and raise your right
hands.
[Witnesses sworn.]
Mr. Tom Davis of Virginia. We have your full statements,
and they will all be made part of the record. What I would ask
is try to limit your comments to 5 minutes, and then we'll have
plenty of time for some questions and some give and take. I'm
sorry it's been so late getting to you, but this is really the
heart of the panels right here. We're going to get some
different ideas on these issues and go back and forth. And let
me just say in advance we really appreciate everybody taking
the time to be here.
Mr. Harnage, we'll start with you, and we'll work straight
on down. Thank you for being with us.
STATEMENTS OF BOBBY HARNAGE, NATIONAL PRESIDENT, AMERICAN
FEDERATION OF GOVERNMENT EMPLOYEES; COLLEEN KELLEY, NATIONAL
PRESIDENT, NATIONAL TREASURY EMPLOYEES UNION; PATRICIA
ARMSTRONG, MEMBER, FEDERAL MANAGERS ASSOCIATION; PAUL LOMBARDI,
PRESIDENT AND CHIEF EXECUTIVE OFFICER, DYNCORP, PROFESSIONAL
SERVICES COUNCIL; TIMOTHY PSOMAS, PRESIDENT, PSOMAS, AMERICAN
CONSULTING ENGINEERS COUNCIL; AND COLONEL AARON FLOYD (RET.),
PRESIDENT AFB ENTERPRISES, INC., RETIRED MILITARY OFFICERS
ASSOCIATION
Mr. Harnage. Mr. Chairman and members of the subcommittee,
the AFG represents over 600,000 Federal and D.C. Government
employees across the Nation and around the world. And, Mr.
Chairman, last year you promised us that we would have a
hearing on our TRAC Act, and I want to thank you and let you
know I appreciate this opportunity to appear before this
committee. My written testimony includes a detailed discussion
on the need for prompt passage of the TRAC Act, a comprehensive
Federal service contract and reform legislation that has been
cosponsored by 185 lawmakers, and it's supported by 103
organizations that represent over 15 million Americans.
Mr. Chairman, it is clear to us that OMB is working hand in
hand with contractors to sell off the Government. Over the next
4 years, the jobs of 425,000 Federal employees will be tossed
up for grabs, either directly converted to contractor
performance without public-private competition or be subjected
to public-private competition. No one knows what the mix will
be, but it's fairly obvious the intent of the message.
The failure of agencies to carefully track the more than
$100 billion already spent on service contracts is well
documented. Nevertheless, OMB is directing agencies to
undertake massive increases in service contracting-out without
first establishing systems to readily track the cost of this
scheme. Although OMB officials say they favor public-private
competition, their policies tell the real story. They're
encouraging agencies to use direct conversions to fulfill their
arbitrary quotas of reviewing under A-76 the jobs of 42,000
Federal employees in fiscal year 2002 and another 85,000 in
fiscal year 2003, a process that deprives Federal employees of
the opportunity to compete in defense of their jobs.
If the savings are in the competition, as OMB officials
contend, and not in contract amount, why eliminate the
competition, especially given that we win approximately 60
percent of those petitions? Or is that the reason for direct
conversions? OMB officials are also very selective about how
they use public-private competitions. Not a single job in the
massive service contractor work force will be reviewed for
public-private competition or direct conversion over the next 4
years.
And there is no sign that OMB will allow Federal employees
opportunities to compete for new work. OMB insists that whether
or not Federal employees should be allowed to compete for new
work or work currently performed by a contractor is a decision
that must be left to agency discretion. However, it does not
leave that same discretion to the agencies when it comes to
Federal employee work.
Let's look at the facts. For years contractors have
acquired almost all of their work without public-private
competition. And for years, contractors' work is almost never
subject to the scrutiny of the A-76 process. The evidence that
its agencies have abused their discretion to not allow Federal
employees opportunity to complete is simply undisputable.
Federal employees have paid a steep price for these failures,
and the interests of every single American who relied on
Federal Government services have not been well served either.
That's why AFG is a strong supporter of the TRAC Act
because it would require the agencies to establish systems to
track the cost of service contracting. And it will ensure that
Federal employees have opportunity to compete for our work and
new work as well as contracted work to the extent that they
compete for ours. By ensuring that agencies can run themselves
like businesses, and always at least considering the
possibility of in-house performance before giving work to
contractors, the Federal Government can improve contract
administration and begin recovering from the human capital
crisis, the natural results of years of mindless downsizing and
indiscriminate service contracting, the self-inflicted crisis
we face today.
I also ask the subcommittee to support two additional
pieces of legislation, the legislation referred to by
Congressman Gutierrez of the Federal Living Wage Act, and I
also urge the subcommittee to include in this year's defense
authorization bill Representative Charlie Gonzales's bill to
establish fairness and equity by providing standing to DOD
employees to contest bad A-76 decisions before the Federal
claims court or the General Accounting Office.
As you know, the TRAC Act has won the allegiance of Federal
employees across the Nation and around the world because it is
our best hope of finally making Federal service contracting
fair to Federal employees and accountable to the taxpayers.
Today, in this hearing room and out in the hall, we have
employees from Maine to Georgia, from Virginia to Wisconsin,
from Kentucky to Oregon. They do not want to work for an
employer driven by the bottom line. They want to work for their
country and provide the best service to the American public.
Although there will be a comparison bill introduced in the
very near future, possibly today or tomorrow in the Senate, Mr.
Chairman, I look forward to working with you and to move this
important piece of legislation. Thank you for this opportunity
to appear before the subcommittee, and I'll be glad to answer
any of your questions.
Mr. Tom Davis of Virginia. Mr. Harnage, thank you very much
for being here.
[The prepared statement of Mr. Harnage follows:]
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Mr. Tom Davis of Virginia. Ms. Kelley.
Ms. Kelley. Thank you, Chairman Davis, ranking member
Turner, the subcommittee. As the national president of the
National Treasury Employees Union, I want to thank you for the
opportunity to testify today on behalf of NTEU members across
the country, Federal employees, 150,000 strong who do the work
of our Federal Government every day. We are here to debate who
should deliver government services and what the process should
be for making that determination.
I'm sure we can agree on a couple of things. We can agree
that government services should be delivered to the American
taxpayers in the most reliable, most efficient, and most cost-
effective manner. We can agree that steps need to be taken to
resolve the Government's human capital crisis to ensure that
there are Federal employees to deliver the work of the Federal
Government in the years ahead. And we can agree that taxpayers
rightly demand and expect that there is accountability for how
their tax dollars are spent on delivering services.
When it comes to accountability and oversight of the
Federal work force there is crystal clear transparency. There
is very little we do not know about the quality and the costs
of the government services that are delivered by Federal
employees.
However, we know virtually nothing about the contractor
work force and the work being done by contractors. What we do
know is often based on reports from the media, sometimes
successes of course but more often problems. One was referenced
earlier by Mr. Cummings concerning the Washington Post article
on the advertising agency that's producing anti-drug messages
for the Government.
We also learned earlier this year that a contractor hired
by the IRS mistakenly mailed out forms that contained
confidential taxpayer information to the wrong taxpayers, and
just this week the Boston Globe reported that a contractor
hired by the IRS has lost checks from 1,800 taxpayers.
Now, there should be the same level of transparency and
accountability for the work performed by contractors as there
is for -7e work performed by Federal employees. Before Congress
even considers methods to change Federal accounting procedures
or Federal contracting procedures, the taxpayers deserve to
know exactly how their tax dollars are being spent on current
contracts.
Even though more dollars are doled out every year for
contractor work than is spent on the Federal work force, there
is little or no oversight of the Federal contracts once they
have been awarded. We need to get a better handle on the
current contracts under a new system, and NTE believes the way
to do that would be for Congress to support and approve the
TRAC Act, which of course would require agencies to implement
systems to track whether current contracting efforts are saving
money, whether the contractors are delivering services on time
and efficiently and that when a contractor is not living up to
his or her end of the deal that the government work is then
brought back in-house.
Unfortunately, even though no new accountability procedures
have been adopted, the administration has taken the extreme
actions that will undoubtedly exacerbate this problem with
contracting out and the lack of oversight. For example, OMB
recently directed agencies to include inherently governmental
jobs on the fair inventory lists to be submitted this month.
Inherently governmental work was deliberately excluded from the
scope of the FAIR Act because there was a bipartisan consensus
that inherently governmental work should be performed by
Federal employees. If it is listed, it will just be a matter of
time before contractors are performing inherently governmental
jobs.
It is very, very difficult to assign cost values to the
protection of the privacy of America's taxpayers, to the
security of our Nation internally and externally, or responding
to the economic or unknown crisis in the future. But the
question is, is it worth the long-term risks to our Nation to
shut the Government out of the government service business. I
think the answer is no.
NTE agrees with your concerns, Mr. Chairman, on the recent
OMB directive to agencies that at least 5 percent of the jobs
on the FAIR Act inventories must be either put up for
competition or directly converted to the private sector without
competition during fiscal year 2002, and the administration
will then direct agencies to open up 10 percent of the jobs in
2003 as part of a larger effort toward the 425,000 Federal jobs
that have been targeted. But how can the administration set
these arbitrary quotas without first evaluating their impact on
an agency's ability to deliver the services? Quotas are not the
answer.
Furthermore, since many agencies have very little
experience in administering public private competitions, they
are turning to contractors to run the competitions. For
example, at the Farm Service Agency in order to meet the 5
percent directive from OMB, the agency is hiring a contractor
to develop the agency's most efficient organization, to develop
the agency's statement of work, and then the official
government cost estimate for performing the work will be
delivered by a contractor, and the agency is using additional
contractors to train the agency's contracting personnel.
Something is inherently wrong when private contractors are
being hired to put the Government's bid together and to train
the government employees on how to administer the competitions.
Our fear, as you noted, Mr. Turner, is that the agencies
will opt instead to direct conversions of these jobs in order
to meet the OMB targets. What incentives do agencies have to go
through the expense of hiring contractors to run a competition
when they can just as easily directly convert the work. As my
friend National President Bobby Harnage and I stated recently
in a letter to OMB Director Mitch Daniels, absent a compelling
rationale arising out of an extraordinary set of circumstances
there can be no justification for a direct conversion to
private contractors, no matter how many or how few jobs are at
stake.
We're also concerned about the number of contractor
oversight employees available in the services today, in the
agencies that can oversee these contracts. As you know, I am a
member of the Commercial Activities Panel, which was
established last year by Congress to look at the subject we are
discussing today. I am hopeful that this subcommittee will wait
for the panel to complete its work before legislating any
changes at all to government contracting pro-
cedures. However, I do believe there should be more
accountability controls put in place, and I am hopeful that
this subcommittee will work with us to address those.
Thank you.
[The prepared statement of Ms. Kelley follows:]
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Mr. Tom Davis of Virginia. Thank you very much. Ms.
Armstrong, thank you for being here.
Ms. Armstrong. Chairman Davis, Ranking Member Turner and
members of the subcommittee, my name is Patricia Armstrong. On
behalf of the 200,000 executives, managers and supervisors in
the Federal Government whose interests are represented by FMA,
I would like to thank you for allowing us to present our views
before this distinguished subcommittee.
I am currently a program analyst, Industrial Management
Branch, Naval Air Systems Command, at Patuxent River, MD.
Previously I spent 20 years at the Naval Air Depot at Cherry
Point. My statements are my own in my capacity as an FMA member
and do not represent the views of the Department of Defense or
the Navy.
When balancing interests, government needs, employee rights
and contractor concerns, there are fundamental value
differences in costs, accountability and control between
performing work in the private and public sectors. The
Government is ultimately responsible for the work and must
abide by legal and ethical rules that do not apply in the
private sector, such as the Freedom of Information Act. Civil
servants also face challenges in managing third party
contractors who are outside their hierarchical authority. The
private sector, whether performing more efficiently or not,
differs in that it is guided by profit motive.
FMA is encouraged by the direction taken by the
administration to ask agencies to submit reports this week on
work force planning and restructuring before moving forward
with any government right-sizing. Arbitrary figures without
reasoned justification do not have a place in the right-sizing
arena. OMB announced this week, however, the requirement for
agencies to compete at least 10 percent of all government
positions considered commercial in nature in fiscal year 2003.
FMA has concerns about the use of arbitrary targets when
attempting to achieve the most efficient organization across
government.
The FAIR Act reporting process is flawed in that it assumes
the job title is always a commercial activity across
government, even though this assessment is best made by the
agency based on responsibilities of the person in that
particular position. The term ``inherently governmental'' as
defined under the FAIR Act has never been clear. Perhaps a
checklist of questions should be created to determine whether
or not work is inherently governmental before contracting out
work. For FAIR Act reporting, lack of clear definitive guidance
and revisions of guidance as well as misinterpretation of
intended requirements all result in confusion as to what is and
what is not inherently governmental.
Caution should be exercised if commercial activity studies
are thought to be a panacea for efficiency savings. Conducting
a cost comparison generally consumes 2 to 3 years and is paid
for by the agency using contractors and government employees.
Implementing the results of cost comparison, either the
Government MEO or contractor MEO, generally consumes another
year. Since most activities are dynamic in nature, the CA study
costs generally outweigh the planned benefits.
Furthermore, there are many issues that impact the
activities aside from just cost, such as morale, downgrading of
employees, loss of experienced workers and the training cost of
new employees. In many cases the work force has achieved its
right size by normal attrition, and the A-76 cost comparison
which results in an MEO is at the required staffing level or in
some cases must hire up to fulfill the MEO staffing
requirements. Cost savings are calculated and reported on all
completed studies. However, whether the MEO results in a
smaller work force or just a lesser paid work force, the cost
savings are just not there when the cost of the studies are
considered.
An alternative A-76 that I know, Mr. Chairman, you have
taken an interest in is the bid-to-goal process, which gives
Federal employees the chance to streamline their operations.
Similar to an A-76 competition, bid-to-goal begins with the
creation of a performance work statement. Contractors and the
in-house group then submit bids to fulfill the performance
requirements at the lowest cost. The in-house team is afforded
the first opportunity to meet the performance standards at the
lowest cost bid. If the in-house team is unable to meet this
performance threshold, the work is then outsourced to the
private sector.
Another idea is the use of transitional benefit
corporations [TBCs]. Unlike A-76 procedures, however, the TBC
model would also allow outsource workers to retain their
Federal health and pension benefits. With respect to TBCs and
the bid-to-goal, however, we at FMA would want to be assured
that the initial outsourcing of the activity is warranted in
the first place.
President Bush directed the Secretary of Defense to provide
an assessment of our future defense needs. The President's 2002
defense budget has increased $33 billion over fiscal year
2001's budget in an attempt to improve readiness. But if we
don't match that plan with an assessment of what the Government
should maintain as an in-house capability, we may find that we
are at the mercy of nongovernment forces when it comes to
contingency response. We do not want to create monopolies or
limit ourselves to foreign suppliers of our defense needs. We
must ensure competition by maintaining an ongoing strike-free,
in-house depot capability that can quickly gear up for any
contingency.
I have got one more paragraph.
Forty-three percent of depots have already been closed. The
20 remaining depots account for only 4.4 percent of the
domestic bases. For military readiness, any future BRAC should
exclude depot bases.
Mr. Chairman, FMA applauds Congress for establishing the
GAO Commercial Activities Panel to hold public hearings and
look for a better approach to the problems. As I testified
before this panel 2 weeks ago, it is our hope that the A-76
process will be changed to empower Federal managers to
determine what is a commercial activity and what is inherently
governmental and implement their own MEOs, MEOs that measure
the entire work force both public and private, and report their
cost and performance. FMA urges support for legislation, the
TRAC Act, to correct several longstanding inequities in the
contracting out process.
Thank you, Congressmen Kanjorski, Waxman, Cummings,
Kucinich, Congresswoman Mink for cosponsorship.
I want to thank you again, Mr. Chairman, for having FMA to
serve as a sounding board in an effort to ensure that policy
decisions are made rationally and provide the greatest return
for the taxpayer. I hope these experiences are helpful.
This concludes my statement. I'll be happy to answer your
questions, including those on best value and actual studies.
[The prepared statement of Ms. Armstrong follows:]
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Mr. Tom Davis of Virginia. Thank you very much. Mr.
Lombardi, thank you for being here.
Mr. Lombardi. Mr. Chairman, members of the subcommittee, my
name is Paul Lombardi. I am the president and CEO of DynCorp, a
technical and professional services firm. I'm also the chairman
of the Professional Services Council, which is the principal
trade association representing technical and professional
service providers. It is in that capacity I appear before you
today. I have also supplied the subcommittee with my written
testimony and now wish to focus my remarks in three areas,
outsourcing, TRAC bill and public and private competition under
A-76. I will keep my comments very short.
Outsourcing is not a new concept. In fact, many high
performance companies like IBM, Microsoft, British Aerospace
and others outsource noncore functions to service providers as
well as focusing on their true mission and product lines. More
and more State governments and local governments are
outsourcing, like the city of Indianapolis, who has saved an
enormous amount of their budget while getting good citizen
satisfaction.
In the Federal Government outsourcing should be about
quality and performance of service. It's about having
government employees focus on inherently governmental and core
capabilities. It's about a constructive partnership with the
private sector to serve the taxpayer in a more efficient and
productive manner. It's about doing more with less. It's about
smart, strategic management.
There are a number of recent reports that have been quoted
already to the subcommittee from GAO and CNA, the Center for
Naval Analysis, that positively talks to these very issues.
That brings me to the TRAC Act, which I believe is an ill-
conceived piece of legislation for the following reason, and
all the benefits of innovation that it would bring. It would
stop outsourcing. It would also severely slow down all service
contracts, including options. It would have a severe impact on
a large number of government contractors that we represent.
It is hard to argue against truthfulness responsibility and
accountability, but this bill does nothing to improve any of
that. If it is accountability you want in the bill, the bill
completely ignores that, that the Government already has a
complete insight into all contractor activities, yet really has
no insight into the governmental control of its internal
activities. Furthermore, Congress has already addressed
truthfulness responsibility and accountability by passing the
Federal Acquisition Streamlining Act in 1984, Clinger-Cohen in
1996 and the Government Performance and Results Act. We do not
need this new proposed legislation.
Simply put, TRAC is not about accountability at all. It is
about killing competition and outsourcing.
Finally, although the PSE does not truly endorse public-
private competition, if it must occur a better process must be
put in place. The A-76 process is severely flawed and must be
rewired to meet the government needs of today. A new model must
be followed. It must clearly eliminate the built in conflict of
interest in source selection. It must require the Government to
utilize full activity-based cost accounting systems internally
so real costs can be accurately accrued. It must eliminate the
practice of technical leveling. It must require that all
offers, public and private, be subjected to similar best value
evaluations and it must seek innovative solutions.
Mr. Chairman, PSE's position on this matter is aligned with
recent goals announced by the Office of Management and Budget
and the Bush administration. We believe that government
industry outsourcing is good government. We believe that H.R.
721 is a redundant piece of legislation and could be
devastating to the Government. We believe that A-76 reform is a
must.
Although my comments before you today are short and to the
point, they are further elaborated in my written testimony.
Thank you for your time this afternoon. I'll be happy to
take any questions.
[The prepared statement of Mr. Lombardi follows:]
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Mr. Tom Davis of Virginia. Thank you very much. Mr. Psomas.
Mr. Psomas. Thank you, Mr. Chairman. Mr. Chairman and
members of the subcommittee, thank you for the opportunity to
appear before you this afternoon and to share my views on the
outsourcing of government commercial activities. My name is Tim
Psomas. I'm president of Psomas Engineering, a California-based
company that provides professional engineering services to both
the public and private sector. We provide civil and
environmental engineering, surveying and geographic information
systems services to the Federal Government.
My firm is an active member of the American Council of
Engineering Companies [ACEC], which is the primary business
association of the engineering industry, representing over
5,800 engineering companies in the United States and totaling
over 500,000 employees. These firms range from large multi-
disciplined architectural and engineering firms to small
business and minority-owned firms. Regardless of size, ACEC
members deliver vital infrastructure services to the American
people, including the design and construction of roads,
airports, power plants and waste water treatment facilities,
the safe disposal of unexploded ordnance, the cleanup of
Superfund sides and brownfield redevelopment. The quality and
innovation that ACEC's members bring to the environment ensures
the safety of those who ultimately pay for these services, the
U.S. taxpayers.
Today's topic, outsourcing of government commercial
activities, is the No. 1 issue of ACEC this year. We applaud
the Bush administration for campaigning on the importance of
outsourcing in smart government, and we appreciate the efforts
of Mitch Daniels, Director of OMB, and his Secretary Angela
Styles for advancing the concept of best value procurement.
The debate that is currently taking place regarding the
outsourcing of government commercial activities occurs at a
critical time for the U.S. Government. As Federal agencies face
tight budgets and a looming capital crisis, a human capital
crisis, the need to efficiently allocate scarce resources has
become increasingly important. Outsourcing is a proven
management tool that directly contributes to enhanced
performance through improved quality, reduced standby costs,
increased innovation and access to technical expertise not
available in-house.
Regarding improved quality, outsourcing provides a direct
source of accountability and responsibility by tying contractor
compensation to the successful implementation of contracts.
Regarding reduced standby costs, most public agencies have
found that it is not cost efficient to retain highly
specialized individuals for work that is infrequent and use
outsourcing as a means to easily draw upon a reliable pool of
expertise.
Regarding increased innovation, when private firms are
required to compete for the government contracts, a climate is
created that spurs new ideas and innovative thinking.
And regarding access to expertise, as private engineers are
exposed to a wide variety of clients with challenging projects,
they often bring unparalleled experience to their assignments.
I am particularly interested in commenting on anti-
outsourcing legislation that was introduced in February, as I
am a veteran of a similar battle that occurred in the State of
California, and let me tell you my story.
In 1998, the professional engineers and California
government introduced Proposition 224, which aimed at severely
limiting outsourcing. The reasons were similar to the reasons
articulated by representatives of the Federal Employees Union.
Chief among them was the supposed high cost of contractors. The
union argued that a cost comparison is the only fair way to
choose the design team. What they didn't say is that their
proposed method of comparing costs was anything but fair, as it
would take into account only the marginal cost of State work
and compare them with the total cost for private work, and the
competitions that were proposed would require a long process of
solicitation with various government agencies and locations
throughout the State, an untenable situation.
Despite the attempt of the union, 62 percent of California
voters rejected the idea that the use of private design
consultants by State and local public agencies should be
severely limited. A huge coalition, including private sector
unions, local governments, broad based business groups,
taxpayer groups, contractors, transportation groups and ANE
firms vocally opposed Proposition 224. Following defeat of that
proposition, the engineering industry led a coalition that
sponsored a ballot measure to change the California State
constitution to allow State and local governments to outsource
architectural engineering services.
Along with Federal contractors, the engineering industry
was disappointed that the TRAC bill was reintroduced this year.
The legislation is not only out of step with current trends in
Federal procurement, but it's also out of step with the advice
that the multilateral development banks give to former Soviet
bloc countries as it would dramatically increase the size and
scope of government. As with the PEG initiative in California,
this legislation is based on a flawed assumption that
government contractors are not held accountable for cost
performance. Performance of outsourced measures is routinely
measured and monitored in the Federal system.
Mr. Chairman, thank you for allowing me to share my
thoughts on this important public policy issue.
[The prepared statement of Mr. Psomas follows:]
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Mr. Tom Davis of Virginia. Thank you very much. Colonel,
thank you for being here. You're last, but not least. Save the
best for last.
Mr. Floyd. Absolutely. I thank you, Mr. Chairman and
members of the committee, for allowing me to testify this
afternoon on these issues. Like the gentlemen, before me I've
already submitted my information for testimony. I want to
summarize a couple of things here that are important to my
group.
My name is Aaron B. Floyd. I'm a Colonel, retired from the
Air Force, and I own a company, a small business, and I
represent 110 other small business persons, all colonels or
majors or lieutenant colonels from the Army, Air Force and
Navy. We have, last year we, combined, our income was like $400
million. We provide jobs for thousands of people around the
Beltway, thousands of folks, and we are Federal Government
employees before when we're on active duty. Now we're on the
other side of the street, and we think that outsourcing is the
way to go. We actually believe that because we can see it as it
works out, because if you don't outsource then where are we
going to go, what are we going to have for ourselves in terms
of work? We've earned it, we're veterans, we fought in the
wars, and now we own companies and want an opportunity to
participate, and outsourcing gives us that opportunity.
We believe that the TRAC legislation goes the wrong way. We
believe if it goes the way it's purported to go it will stop
competition and stifle it, and it will create a lot of folks on
payrolls that don't need to be there. We believe a fair and
equitable way to do that is the A-76 and the way it is going. I
want to make that clear from my group.
There's one other thing that my group is concerned with,
however, that is not on the agenda, and that's the effect of
bundling. We believe as small business persons that the way
bundling is now done is not fair for us. Right now the
Government takes the large--the contracts and gives them to a
bunch of large guys and then the little guys only get what's
left, and we can't compete with Lockheed Martin and the other
large companies involved, and the only way you can grow a small
company is to have one prime contract. You don't get one when
you bundle. When you bundle the only contract you get is a
subcontract. With a subcontract all you get is a technical
person and you don't get any money for overhead or for finance
or all the things that requires a company to be a company.
So I have survived in this business for 13 years. I have
one great contract that is not bundled. I won it fair and
square in competition and--but it was a small contract when I
got it, about $7 million. Now it's worth about $28 million. I
am the readiness contractor for the Pentagon. I run the
readiness data base that tells the chairman, when he wants to
send people to Kosovo it tells him what forces can go and their
readiness status. I am surviving because I'm the prime on that
contract, and I have been able to grow it that way. If I was
not the prime, I wouldn't be here talking to you today. So
bundling is anti-that. It keeps us from being private; it's the
antithesis of allowing small businesses to grow.
Those are basically my comments. I think basically again
the A-76 is a good practice and it just needs to be fine-tuned.
The FAIR Act is basically fair, and TRAC is a bad bill.
Thank you.
[The prepared statement of Mr. Floyd follows:]
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Mr. Tom Davis of Virginia. Thank you very much. Well, let
me start the questioning. OK. First, let me ask Ms. Kelley, let
me ask you and Mr. Lombardi and Mrs. Armstrong, when is it
appropriate to outsource? Can you describe in your opinion when
is it appropriate to go outside government for contracts? Can
you give us some idea where you think this might be
appropriate?
Ms. Kelley. I think it's always fair to ask the question of
if it's appropriate to contract out, and on that point when the
question is asked, the processes have to be in place to ensure
that the right questions are being asked, and if the answer is
yes, then the question is what are the procedures that should
be used, and all of these things are things that are being
looked at and under the purview of the Commercial Activities
Panel. These are exactly the questions that this panel is
wrestling with and that will be part of the report in May 2002.
Mr. Tom Davis of Virginia. Are you comfortable that you're
having adequate input into that panel and having a dialog with
people on both sides of this issue?
Ms. Kelley. Yes, there is a lot of dialog, a lot of input
and I actually believe everyone on the panel has come there
with a very open mind and a very good listening mode. We've
been sharing incredible amounts of information even though we
have different opinions perhaps on what the solution is, but
I'm hopeful that as we work through the process, by the time
it's time for our report we will have been able to learn and
absorb all of this and come up with the best answers for the
Government in this recommendation.
Mr. Tom Davis of Virginia. I think this committee is
eagerly watching what happens there. That doesn't mean we won't
act before or after or will even act on it, but we think it is
a good format for exchanging views, and as you can see, even
among Members from both sides there's a lot of different views
on this. So I think the dialog is important. So everyone
understands everyone's position because I'm not sure anybody's
wrong here but there are different perspectives as we get into
it, and I think we need to be guided at the end of the day by
the best value for the American taxpayer. That's my own view on
this. I appreciate the comment.
Mr. Harnage, do you have any comment?
Mr. Harnage. Yes. And you know we haven't implied an end to
A-76 and we haven't implied an end to outsourcing. We've
noticed today and before today there's a lot of people like
hollering fire in a theater. What amazes me so far is that
everybody wants to throw away the solution rather than develop
the solution. If there's some problems with TRAC let's talk
about the problem with TRAC and make it a better piece of
legislation rather than just say we don't want any
transparency, we don't want any accountability of the contract.
Certainly there are times that outsourcing makes sense. The
construction industry, for example, would be the first one that
would pop to my mind, something that we only have a temporary
need, whether it be a 3-month construction project or a 2-month
construction job, probably too expensive for the Government to
maintain that capability in-house, but it makes sense to keep
the maintenance of that construction once it's done in-house.
The same with we don't want to build aircraft, but it makes
sense that once the aircraft is turned over to the Government
the Federal employees, the military people maintain that
aircraft, because it's really not cost efficient for that
contractor to maintain that inventory. They want to move on to
bigger, newer and better aircraft.
So there are areas that surely it makes sense to outsource,
and our position has not been to end the outsources as some
people might want to imply.
What we're asking for is competition and the opportunity to
compete for the jobs, and what we're asking for is that it not
always be our job that's competed. OMB says competition saves
money, but why does OMB say but we are only going to look at
the Federal employee? We're saying let's look at new work. If
it makes sense to bring it in-house, if we can do it better and
less expensive, why not do it, why is it a foregone conclusion
that it is going to go out-house, and that's a pun intended.
Mr. Tom Davis of Virginia. OK. Ms. Armstrong.
Mr. Armstrong. I think there are cases where outsourcing is
useful. It's certainly been used successfully since BRAC and
the defense depots, mainly out of necessity more than the
choice. For example, at the depots they always carry a
quadrille of contractors that work on the aircraft itself and
that's beneficial. When you have a certain workload, you can
hire contractors, and when the workload goes down, you can let
them go. But as far as where it's best used, I think that
partnering with industry to bring in new technology to help
train Federal workers in those areas, those core skill areas,
is helpful. You don't exactly want to turn over your core
functions to contractors, but have them come in and partner. I
think that's beneficial, and that's the Federal manager can
make that decision.
Mr. Tom Davis of Virginia. That's helpful. Mr. Lombardi,
let me ask and you and the panel on the other side. We always
get in this fight of price versus value. This has been, ever
since I have been involved in government contracting, the
question is should price drive it, should value drive it. Do
you have a general philosophy of where you think price ought to
drive it? Clearly, if you are cutting grass or something, price
ought to be the determinative, but when you get into some of
these complex IT areas, building a spaceship, you need to look
at overall value. Do you have a criteria on what ought to be
price and value driven or do you think they're intertwined?
Mr. Lombardi. Yeah. I would say, Mr. Chairman, they're
somewhat intertwined. It's difficult in every case to
generalize that price is the only issue. The Government has
gone a long way, I believe, in terms of bringing best value
back into the procurement process. Price is an issue, that's
part of the best value, but certainly quality performance,
innovation, technology, bringing technology to bear where it
hasn't been before. That's what the private sector is here to
support.
Mr. Tom Davis of Virginia. So basically you're saying you
get more innovation at the private level and that's what you
get by bringing that into the processes?
Mr. Lombardi. I think what the Government has always
depended upon is to bring technology and innovation to the
table.
Mr. Tom Davis of Virginia. OK. I appreciate it. Any
comments on it?
Mr. Psomas. Mr. Chairman, thank you. In that regard the AE
and design-related services industry has been somewhat
fortunate to have the advantage of the Brooks Act procurement
process, which is really a two-step best value procurement
whereby the competition is really for qualifications and the
availability of the best qualified, the individual who can
deliver that service to the Government, and so on that basis a
selection is made. And then the second step is the negotiation
of scope, fee, budget, schedule with the contractor that's
selected to do that work. So again the AE industry perhaps has
a good deal of experience with a competition that is really a
two-step, best value competition.
Mr. Tom Davis of Virginia. Thank you very much. Colonel
Floyd, you want to add anything to that?
Mr. Floyd. Just finally, I think the two watchwords ought
to be fairness and equity on any legislation we're talking
about, and that's what I think that my constituents would like
me to ensure, that in it all, whether it be TRAC or whether it
be A-76, that it's fair and equitable and there's an
opportunity for all of us to participate.
Mr. Tom Davis of Virginia. Thank you. Mr. Turner.
Mr. Turner. Thank you, Mr. Chairman. One of the issues that
I'd be interested in your comments on is this initial decision
as to whether or not to allow a public-private competition, and
I noticed Mr. Lombardi in the suggestion that you had made of
the Professional Services Council model for public-private
competition, it addresses a number of the deficiencies that you
see in the current A-76 process, but your model assumes, as I
read the presentation of it, that the agency would first make
the determination as to whether or not they should conduct a
private-public competition based on what you referred to in
your statement as some obvious factors. I want a little help on
this because there clearly are some activities that you might
look at on their face obviously wouldn't be appropriate to
contract out if it's an activity that is currently being
carried out by government employees. If those government
employees want to submit a proposal or try to be competitive,
what's wrong with always allowing that as an option, because
many times obviously that option would not be exercised,
depending on these obvious circumstances that you're referring
to. So what would be wrong with allowing that in the mix?
Mr. Lombardi. Mr. Turner, I think the A-76 process is again
what my comments were focused in on. The public-private
competition, it's not a level playing field from the private
sector's point of view. It is just not a way in the public
sector to get accountability for costs. I have a wing full of
auditors that are defense auditors who basically audit
everything my company does and so do all defense contractors.
So in DOD I think there are certain things that public-private
competition is important and, in fact, competition over and
over again every 3 to 5 years doesn't disallow the public
sector from coming back into play. I think there's a lot of
misconceptions associated with A-76. We think it's the process
that has to be fixed, not whether or not there should be
public-private competition.
Now having said that, in the civil sector, where there's
new work coming out, not work that has been done previously by
the Government, Federal employees and I might also say, I'm a
Federal employee from 17 years so I have access to both sides
of that equation. When innovation and technology is required in
an agency, mostly in the civil agencies, we believe that it
should just be a competition between the private sector
involved. That is the motivation. It's not a profit motivation
per se. It is winning that private competition that motivates
us. That's what our society allows us to do.
Mr. Turner. Any of the other panelists have a comment on
the issue of the initial decision about a public-private
competition? I mean, I'm asking that question basically in
light of the fact that we have very few of them and it could be
that in many cases there they are not appropriate, but I'm
wondering if we're missing an opportunity here not to allow a
little more flexibility with regard to the initial decision as
to whether or not there should be a public-private competition.
Ms. Kelley. Mr. Turner, I believe there always should be
that option. I agree, as you say, that many times the option
may not be exercised, but the fact that the work is not done
today in the Government and now someone has determined it needs
to be done for the Government, that the Government and the
employee should surely have the opportunity to be a part of the
process to determine who can do it best for America's
taxpayers, and I think the, you know, words that many of us
have used over and over again that would oversee that process
would be one of fairness, one of oversight, a level playing
field has been mentioned often, and the issue of transparency.
So I believe the opportunity should be there and then to be
exercised in each case as the situation dictates.
Mr. Armstrong. Mr. Turner, I have a comment. Yes, I agree
that we should be offered the opportunity to have a
competition. In most cases we have not been able to. It has
always been decisions to outsource with no competition. As far
as the cost is concerned, I think that the Federal Government
is making great strides in activity-based costing, ERP and
other initiatives to have a better accounting system for their
costs. And it's in the TRAC bill we are asking for the cost of
contractors to be reported, if it's true. As my colleague Mr.
Lombardi says, that companies have a team of auditors to have
audit information on their costs, why would it be such a burden
to report that so that we can have true competition. I think we
need to get better at doing that and share more information.
Mr. Harnage. Mr. Turner, if I might I'd like to add, I
think you have hit on a very important point of the TRAC Act. I
refer to this often as a magician, a magician tries to divert
your attention to somewhere else other than what he's doing his
deed. We've heard testimony today that 2 percent at best, maybe
a little over, of all the privatization service contracting is
done by A-76. That means that between 97 and 98 percent of the
service contract done in the Federal Government is done without
public-private competition, and if we look at OMB and this
administration's proposal to increase the amount of
competitions under the FAIR Act, we're only going to raise that
a few percentage points. You know, maybe we'll get to 5 percent
or 8 percent, let's say 10 percent, but nobody wants to focus
on that other 9 percent and what's happening to it. We want to
continue focusing on that small percentage of what's happening,
that small A-76 process where it all ought to be under
competition and not just a Federal employee job or not just
every now and then.
So I think you've hit on a very important point, and that's
what the TRAC Act says; let there be competition. Everybody
agrees that competition saves the taxpayers dollars, whether it
stays in-house or whether it goes outside. So let's have, if
that's true then let's compete all of it. Let's just not be
selective in what we compete, and it shouldn't always be the
Federal employee's job that's competed. If competition is good
for us, it's good for them.
Mr. Lombardi. Mr. Turner, I would also--I support that it's
only been 2 percent of service contracting which is under A-76
competition. So what about the other 98 percent? By far the
largest growth area in service contracting has been in the ADP
or IT arena. In the civilian agencies the growth over 10 years
has been more than 300 percent. At DOD the growth has been 100
percent, but it's all in the ADP area. We are not displacing
Federal employees in those areas. The private sector is
introducing the technology that's being purchased and it is
being competed, severely competed in the private sector.
Mr. Turner. And I would assume those types of contracts
would be contracts that Federal employees would have no
interest in competing in, probably do not have the ability or
the capability to compete for those types of contracts. Would
that be accurate?
Mr. Lombardi. I wouldn't judge that. All I would say to you
is that if the governmental agencies are going out-house, so to
speak, to get new technology, that technology isn't being
developed by the public sector. It's being developed--enabling
technology being developed and introduced by the private
sector.
Mr. Turner. I notice in your presentation you mentioned a
number of deficiencies that exist in the current A-76 process.
I'm looking here at the new model for public-private
competition. Would you mind discussing those six areas that you
have identified as being problem areas for the A-76 process.
Some of them I'm not sure I understand exactly the nature of
the problem you're describing is the reason I was asking you to
refer to them.
Mr. Lombardi. OK. In my written testimony, Mr. Turner, I
have included a PSE document which gives you some further
explanation of that. Just to talk to these points though,
conflict of interest is one, in our opinion, on the private
sector, the people whose jobs could be displaced as a result of
the A-76 competition, judge the whole procurement, including
the private sector's proposal. To me that's an inherent
conflict of interest. Activity-based cost accounting, we have
that. My cost of my office, my salary, my fringe is included in
every bid that goes out. I doubt very seriously whether the GNA
costs associated with the Government overhead employees, not
the people who actually perform the job are going to be layered
into those bids. That's why we need activity-based accounting
in the Federal Government.
Technical leveling is a way whereby there's constant
discussion between the contracting official on the government
side and the competitors on the private sector side. Now
remember in A-76 the public sector picks a private sector
winner and the private sector then competes against the public
sector. So we have a tendency to be leveled in that particular
area before we even compete with the public sector bid.
And innovative solutions, if we introduce ways of including
technology to displace people, we're saving the Government
money, we are also helping our bid in terms of its
discrimination against our competition, and that is usually
taken out because we're competing against an MEO in many cases.
So these are the kinds of things I think would be further
elaborated in our point paper, which is included in my
testimony.
Mr. Turner. What does ``transfusion'' refer to? You
mentioned that in relationship, you say the ``syndrome of
technical leveling and transfusion.'' What does ``transfusion''
refer to? That's in that same list of deficiencies in the
current process that you were, I think, looking at the same
list that I'm looking at, which is on page 2 of the new model
for public-private competition.
Mr. Lombardi. OK. Well, I don't have that in front of me.
Mr. Turner. I'm looking at a different document. Another
item that you mention on here is a distorted application of
best value procurement to only the private sector bidders and
not to the Government bidder. What does that refer to?
Mr. Lombardi. When we introduce our proposals on the
private sector side, again we're introducing new ideas, new
technologies. We spend an inordinate amount of time and money
in the development of these proposals. When we then go up
against the public sector's bid, we are only going against
what's called the MEO, which is the Mean Effective
Organization. Our value proposition, as it were, is not
compared against anything on the public sector side. That is
what I had in mind there.
Mr. Turner. And the model that you recommend to remedy
these deficiencies that you have outlined involves, as I
understand it, an advisory committee that would actually make
the decision separate and apart from the agency itself is that
at kind of the heart of your structure of your revised model.
Mr. Lombardi. What I had in mind, there is in the
evaluation of the public sector bid and the private sector bid
that the agency procuring--I mean the actual people who are
involved in the MEO creation should be taken out of the process
of source selection, and in fact that has happened in many
cases and the most recent being the A-76 out of Andrews Air
Force Base on the 89th Wing.
Mr. Turner. And one of the factors that you say should be a
part of this process is a generic, you say generic standard
soft landing procedures for displaced Federal employees be
incorporated in every solicitation to assure consistency and
avoid any gaming in this most sensitive area. Speak to that
issue.
Mr. Lombardi. Yes. I think the--there's no question that
when the private sector wins an A-76 competition, the first
place they look for the work force, especially in regions that
don't have vast work forces available, is to the work force
that has been displaced as a result of that particular
decision. So soft landing issues would be to have a process
built into the A-76 process to take right of first refusal on
the part of the displaced employees to have a soft landing in
terms of the development of the new work force under the
private sector tutelage, and in fact that happens in many
places, if not in all places. I don't have the exact
statistics, but somewhere around 80 percent of the Federal
employees who are displaced as a result of a private competitor
win are asked back into the private sector, many at higher pay
grades.
Mr. Turner. But you're suggesting that information be
included as a part of the initial proposal rather than being an
after the fact offer to those employees?
Mr. Lombardi. It can be and it could also be one of the
issues, one of the process changes that goes into the A-76
review process. In other words, if we--if the committee were to
use the authorization bill that's already been passed to
restudy A-76 our proposition would be that would be fertile
ground to be included in the new process.
Mr. Turner. Now, Ms. Kelley, would that be an improvement,
the suggestion Mr. Lombardi just made?
Ms. Kelley. It would surely address issues that have been
issues for some employees, but I think it's a much bigger
question. It is a start and would it be well received by some.
Depending on where they are in their Federal career and what
the salary and growth opportunities were, sure, I definitely
think it would be seen as a step forward. I don't think it
solves the whole problem, but I see it as a step forward.
Mr. Turner. Thank you, Mr. Chairman.
Mr. Tom Davis of Virginia. Thank you very much. One of the
concerns that I have with the TRAC Act as it's currently
drafted in particularly some of these very complex, high level
IT procurements is the inability of the current Federal work
force, given the training and capital management issues, to
handle those in-house. We have not done a good job in the
Federal Government of being able to train and retrain people
with the latest technologies and bring people in with a skill
level and retain them in that. We just have not done the job.
Part of it is our competition. And part of it is the training
is one of the first things that get cut when budgets get cut.
We aren't utilizing some of our most skilled and valuable
people in the best way possible, and OMB has come up now with a
restructuring initiative to assess human capital management,
what they call a crisis in the Government, but I think that is
part of it, and that is part of my concern, is that we are just
not ready yet to step up to the plate on at least one level of
procurement. That's not to say we're not in some other areas,
but in many of the areas that Mr. Lombardi's group, the
engineering groups that they represent in these levels, we
don't have the in-house skills at this point or the in-house
compensation packages to try to compete at the Federal level,
given current Civil Service regulations, and I think it would
take a change of those to bring us up to a competitive level,
and I understand your frustration, Ms. Kelley, when you talk
about how some of these procurements are managed by outsiders.
We outsource procurements. We have people in the frustration
level. That certainly isn't the fault of your workers. It's not
a fault of your members, but it is a failing of the Government,
appropriately, I think, to utilize what they have and to look
for it, and until we get that solved I think in these
procurements that it would be in my judgment very difficult to
implement at least in these sectors, some of the things that
the TRAC Act calls for.
That's my concern. I'd like anybody to address that over on
the left side of the table if you have any, you want to rebut
me or share a concern or add to what I'm saying.
Mr. Harnage. Well, we have the same, some of the same
concerns that you do. You know, this did not happen by
accident. I have had a lot of frustrations in trying to deal
with the Department of Defense over the last few years. And for
20 years now we've--it's not a matter of whether we should have
been training our people to keep up with the high-tech
industry. The decision was made not to do that. Who made that
decision I'm not sure, but some of it was through budget cuts
and some of it's through the agencies not using the funds
available to them for training and using them somewhere else. I
had high hopes of working with Senator Voinovich on that
because every one of his subjects that we had several meetings
over is how do we get more training into the Federal Government
so that we would have that capability, and I think the question
that you have to ask when it comes to high-tech, and I think
you're absolutely right on the current situation, but should we
have that capability in-house in order not only to be
competitive but to serve as an oversight of those contracts
that we do have to have.
Mr. Tom Davis of Virginia. If I could add to that, I don't
think Mr. Lombardi would disagree for a second that you ought
to have more in-house capability. It's frustrating for them on
some of these procurements, too, to have officers who aren't
trained to oversee them. Is that correct, Mr. Lombardi? And I'm
not trying to put words in your mouth. I don't think there's
any disagreement on these things, but we are dealing with a
structure that has evolved before we were on the scene, and it
just has gotten worse and worse and worse.
Mr. Harnage. You're that young, I'm not.
Mr. Tom Davis of Virginia. I don't mean to interrupt, but
thank you.
Mr. Lombardi. At the fear of adding a little levity to the
hearings, I'd have to give you an analogy. My son is an
engineer, mechanical engineer. He's 4 years out of Virginia
Tech. He happens to be an Oracle finance expert, if you want to
say that, 4 years out of Virginia Tech. He happens to make more
than the Secretary of Defense.
Mr. Tom Davis of Virginia. Probably worth more than the
Secretary of Defense we could argue on some days. It just
depends on how you look at it. At least that's what the
marketplace judges.
Mr. Psomas. Mr. Chairman, I'd like to add to that if I
might. ACEC really looks to a very strong Federal work force,
well paid, well trained. That's really where we want to work.
We see this as really a partnership. However, even in my firm
there are activities that are not really activities that we're
going to train employees in. They're not things that we do
regularly and for this special expertise we go outside and we
outsource. So there is--I think there are situations that it's
really not prudent to provide staffing on a full-time,
permanent basis for activities or technologies that change, for
things that are not going to be reusable by any organization,
whether it's governmental or private.
Mr. Tom Davis of Virginia. OK.
Ms. Kelley. Mr. Chairman, if I could just add, I do think
this borders on another issue that has garnered a lot of
activity over the past year, and unfortunately what I continue
to see is that we talk about it but don't do a lot about it,
and that is the Government stepping up to the need for funding
to provide recruiting and retention incentives for the on-board
work force so that expertise can be retained and can be
increased, and we don't do that. We talk about it a lot but
nothing happens, and as a result we are facing this critical
loss of expertise that will only raise the question even higher
as to whether outsourcing is the appropriate answer, because
there's just no one left.
Mr. Tom Davis of Virginia. Well, and just to take it a step
further on this, I mean one of the arguments that was made in
the previous panel and I would say we've all seen it happen, is
people leave government service, they walk across the street
after retirement or whatever, they go to work maybe for one of
the companies Mr. Lombardi represents and they make more money
doing something that's outsourced either because we don't have
the in-house capability to do the work or sometimes it is
managed better and they take people and can pay them more. How
does that work, Mr. Lombardi, where you can walk and pay people
more on the outside and at the same time save the Government
money?
Mr. Lombardi. Well, it works, I would say.
Mr. Tom Davis of Virginia. Yeah. I want to know how.
Mr. Lombardi. I don't have an exact number for you, Mr.
Chairman, but a fair amount of our work force is previous
government employees, maybe 70 percent, and not only do they
bring the expertise with them, they bring the culture with
them, and they bring the understanding of the various agencies.
Mr. Tom Davis of Virginia. You have a more flexible
management style, don't you, than you do in government?
Mr. Lombardi. And we can also train them because we have
within our own--we have to train them or we lose them. So the
work force has to be continuously upgraded in that regard, and
I think, I don't want to confuse TRAC with the compensation
issue for Federal employees. I don't think those are the same
issues here at all.
Mr. Tom Davis of Virginia. No, they're not.
Mr. Lombardi. I left government service because of
compensation issues.
Mr. Tom Davis of Virginia. I understand. Let me ask Mr.
Floyd, you have people who have worked for the Government, they
come over and work for you, they seem to be doing pretty well,
and yet I think you would say you manage these better than you
could do some of these in-house. Is it just because we have so
many rules in government that don't allow this and this isn't
the fault of the employees; this is just because we have rules
and regulations and things that inhibit management from being
as efficient as it might be?
Mr. Floyd. First thing, you're right, that in my company,
for instance, I have 60 people. I would think 40 to 60 percent
are ex-government employees and some of them because the
Government didn't, in the computer area, some of the Government
services decided not to promote those people at all and those
are the very people I wanted and the Government had a job for
those people but they wouldn't promote them so they got out and
came to work for me. I was able to pay them and my company
offers all the services. We offer health care and benefits and
all those kinds of things, but because we have to maintain a
certain--when we bid we have to maintain our bid rate. We know
what we have to pay and we know what we can do. We can pay them
more but we don't have 10 people doing the job where two people
can do it. We put two people on it and get it done that way.
Mr. Tom Davis of Virginia. So it's management flexibility
basically?
Mr. Floyd. Absolutely, and someone mentioned that
contractors don't get oversight. We in fact do get a lot of
oversight and that my contracts are normally 5-year contracts,
1 base year and 4 option years, and every quarter they look to
see how I'm doing and if I don't do well I won't get those
option years. So I am just kept, you know, on an even keel by
the Government oversight. There is oversight.
Mr. Tom Davis of Virginia. Let me just say this to all of
you. We have a series of votes now, so I'm going to recess. I
think you all have been very articulate for your particular
points of views, and on some of these issues there is no
difference. We understand the basic problems and we need to
address them at a different level than this committee has, but
we need to--I think there is unanimity on that. I think we are
going to keep talking with some of the committees that we have
organized, and we will revisit this as well and try to meet
with everybody individually as well to look at this, but I just
appreciate everybody coming out here today.
I particularly want to thank the employees who have taken
probably a day off to come here, sit through these hearings. We
understand the concerns that you have. We want to try to
address them. It's more complex. I hope you get an appreciation
for some of the complexity of this as well, but we hear you and
we understand it.
And before we close, I want to just again thank everybody
and I want to thank our staff for organizing this. We're going
to keep the record open for 10 days if you would like to submit
anything as a followup, something occurs to you, you just want
to enter into the record and make sure it's part of the public
record. I'm going now to enter into the record a briefing memo
that was distributed to the subcommittee members.
Again, I guess we're going to hold the record open for 2
weeks instead of 10 days from this date for those who may want
to move forward with submissions for possible inclusion, and
again thank all of you very much and these proceedings are
closed.
[Whereupon, at 5:32 p.m., the subcommittee was adjourned.]
[Additional information submitted for the hearing record
follows:]
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