<DOC>
[107th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:84514.wais]
THE SERVICES ACQUISITION REFORM ACT [SARA]
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT POLICY
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
MARCH 7, 2002
__________
Serial No. 107-151
__________
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
84-514 WASHINGTON : 2003
___________________________________________________________________________
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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
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
BOB BARR, Georgia DENNIS J. KUCINICH, Ohio
DAN MILLER, Florida ROD R. BLAGOJEVICH, Illinois
DOUG OSE, California DANNY K. DAVIS, Illinois
RON LEWIS, Kentucky JOHN F. TIERNEY, Massachusetts
JO ANN DAVIS, Virginia JIM TURNER, Texas
TODD RUSSELL PLATTS, Pennsylvania THOMAS H. ALLEN, Maine
DAVE WELDON, Florida JANICE D. SCHAKOWSKY, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
ADAM H. PUTNAM, Florida DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia ------
JOHN J. DUNCAN, Jr., Tennessee BERNARD SANDERS, Vermont
------ ------ (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
Teddy Kidd, Clerk
Mark Stephenson, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on March 7, 2002.................................... 1
Statement of:
Kelman, Steven, professor of public management, Harvard
University; Steven Schooner, associate professor of law,
the George Washington University Law School; Scott Dever,
vice president of global procurement, Hasbro, Inc.; Richard
Roberts, senior vice president and managing director,
Federal services, KPMG Consulting, Inc.; Roberta
StandsBlack-Carver, president and CEO, Four Winds Services,
Inc.; and Jerry S. Howe, senior vice president and general
counsel, Veridian.......................................... 76
Woods, William, Director for Acquisition and Sourcing
Management, U.S. General Accounting Office; Angela Styles,
Administrator, Office of Federal Procurement Policy;
Stephen Perry, Administrator, U.S. General Services
Administration; and Deidre Lee, Director of Procurement,
U.S. Department of Defense................................. 12
Letters, statements, etc., submitted for the record by:
Davis, Hon. Thomas M., a Representative in Congress from the
State of Virginia, prepared statement of................... 2
Dever, Scott, vice president of global procurement, Hasbro,
Inc., prepared statement of................................ 118
Howe, Jerry S., senior vice president and general counsel,
Veridian, prepared statement of............................ 138
Kelman, Steven, professor of public management, Harvard
University, prepared statement of.......................... 79
Kucinich, Hon. Dennis J., a Representative in Congress from
the State of Ohio, prepared statement of................... 6
Lee, Deidre, Director of Procurement, U.S. Department of
Defense, prepared statement of............................. 62
Perry, Stephen, Administrator, U.S. General Services
Administration, prepared statement of...................... 47
Roberts, Richard, senior vice president and managing
director, Federal services, KPMG Consulting, Inc., prepared
statement of............................................... 124
Schooner, Steven, associate professor of law, the George
Washington University Law School, prepared statement of.... 104
StandsBlack-Carver, Roberta, president and CEO, Four Winds
Services, Inc., prepared statement of...................... 132
Styles, Angela, Administrator, Office of Federal Procurement
Policy, prepared statement of.............................. 25
Turner, Hon. Jim, a Representative in Congress from the State
of Texas, prepared statement of............................ 10
Woods, William, Director for Acquisition and Sourcing
Management, U.S. General Accounting Office, prepared
statement of............................................... 15
THE SERVICES ACQUISITION REFORM ACT [SARA]
----------
THURSDAY, MARCH 7, 2002
House of Representatives,
Subcommittee on Technology and Procurement Policy,
Committee on Government Reform,
Washington, DC.
The subcommittee met pursuant to call, at 2:25 p.m., in
room 2154, Rayburn House Office Building, Hon. Tom Davis
(chairman of the subcommittee) presiding.
Present: Representatives Davis, Horn, and Turner.
Staff present: Melissa Wojciak, staff director; Victoria
Proctor, professional staff member; Amy Heerink, chief counsel;
Mark Stephenson, minority professional staff member; and Jean
Gosa, minority assistant clerk.
Mr. Davis. I apologize for being late. I was summoned to
the Speaker's office and I leave when he tells me I can leave.
I think you know what that is like.
I want to just say good afternoon and welcome to today's
legislative hearing on H.R. 3832, the Services Acquisition
Reform Act. Today's hearing builds on others conducted over the
past year on the continuing barriers government agencies face
in acquiring the goods and services necessary to meet mission
objectives. SARA is intended to assist agencies in overcoming
those barriers by adopting better management approaches in
purchasing tools governmentwide to facilitate the efforts of
acquisition managers in meeting agencies' goals.
I am going to put the rest of my statement in the record so
that we can move ahead, and yield to Mr. Turner for any
statement he may wish to make.
[The prepared statement of Hon. Thomas M. Davis follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Turner. Mr. Chairman, I will do the same in the
interest of time.
Mr. Davis. Thank you. We may end up being ahead of where we
were when you--[laughter]--Mr. Horn, you are welcome to make a
statement.
Mr. Horn. I will bypass (off-mic).
We had a hearing on the problem of the interest cards, and
I see in here that $2,500 is the mark at this point and it
wants to go to $25,000. We have had a real situation with the
Navy that is just irresponsibility, and so we need to somehow
get accountability and responsibility.
Mr. Davis. Thank you. I think the question is, how do you
find the right balance and not running for paperwork every time
you need some little item, but at the same time making sure
people are accountable for what they do.
I am going to call--yes, Mr. Turner.
Mr. Turner. I had a statement handed to me by
Representative Dennis Kucinich. I would like to offer it into
the record.
Mr. Davis. Without objection, it will be put in the record.
[The prepared statement of Hon. Dennis J. Kucinich
follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Turner. And if I could also offer my statement as well,
which also includes a request from the minority that three
items be included in the record that I might mention, first,
the comments of the Inspector General at the GSA dated March 5,
2002, which refers to several provisions of the bill; second,
the minority would request inclusion of the Acquisition Reform
Report prepared by the Project of Government Oversight; and
finally it is my understanding that the Inspector General at
the Department of Defense is preparing written comments on the
bill which should be ready within a few days, and we would ask
that they also be included in the record.
[The prepared statement of Hon. Jim Turner follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Davis. Thank you.
I am going to call our first panel of witnesses. As you
know, it is the policy of the committee that all witnesses be
sworn before you testify. If you would rise with me and raise
your right hands.
[Witnesses sworn.]
Mr. Davis. Thank you. Be seated.
To afford sufficient time for questions, if you would try
to limit yourselves to no more than 5 minutes for your opening
statement. All written statements will be made part of the
permanent record, and without objection, Mr. Turner, the items
that you have just presented will be put in the record.
We will begin with Mr. Woods, followed by Mr. Perry, Mr.
Styles and Ms. Lee. Thank you.
STATEMENTS OF WILLIAM WOODS, DIRECTOR FOR ACQUISITION AND
SOURCING MANAGEMENT, U.S. GENERAL ACCOUNTING OFFICE; ANGELA
STYLES, ADMINISTRATOR, OFFICE OF FEDERAL PROCUREMENT POLICY;
STEPHEN PERRY, ADMINISTRATOR, U.S. GENERAL SERVICES
ADMINISTRATION; AND DEIDRE LEE, DIRECTOR OF PROCUREMENT, U.S.
DEPARTMENT OF DEFENSE
Mr. Woods. Thank you, Mr. Chairman.
We appreciate the opportunity to be here today to
participate in the hearing on the Services Acquisition Reform
Act of 2002. The bill's proposals focus on strengthening the
acquisition work force, moving toward a performance-based
contracting environment, and improving the management of
service acquisitions. Each of these areas is in need of
improvement and we support the efforts of the subcommittee in
addressing them.
In my statement today, I would like to cover three areas.
First, I would like to discuss our recent findings on how
leading companies tackle the same kinds of problems the bill is
seeking to remedy. Second, I would like to cover a number of
provisions of the bill that emulate the best practices we found
at those leading companies. And third, I would like to cover a
number of provisions of the bill about which we have some
concerns.
In a recent report January 2002, we covered our review
about how six leading commercial companies changed their
approach to acquiring services. The companies we studied found
themselves in a situation several years ago similar to the one
that Federal agencies are in today. They were spending a
substantial amount of money on services, but did not have a
good grasp of where those dollars were being spent. They were
not effectively coordinating purchases and they lacked the
tools to make sure that they were getting the best overall
value for the taxpayer.
The companies we studied were able to turn the situation
around by adopting a more strategic perspective to service
spending. By that I mean each company focused more on what was
good for the company as a whole, rather than just individual
business units.
On the chart we have here to my right, your left, we tried
to identify some common elements among each of the six leading
companies that we reviewed. While each company took a number of
different approaches in the area of service acquisition, we
were able to distill some common elements. The first is
knowledge. We found that the companies we visited analyzed
their spending on services to answer the basic question about
how much was being spent and where the dollars were going. In
doing so, they realized that they were buying similar services
from numerous providers, often at greatly varying prices.
The companies we studied used this knowledge to change how
they were acquiring services in very significant ways. Again,
they took a variety of approaches. For example, some elevated
or expanded the role of the company's procurement organization.
Others designated what they called commodity managers to
oversee key services. And others made extensive use of cross-
functional teams to help identify their service needs, conduct
market research, evaluate and select providers, and manage
performance.
The third common element that we found was support. By
that, we really identified two things. One was they used
communication throughout the organization to make sure that
everyone understood what the common goals were. Then second,
each one used a variety of performance measures to keep track
of how well they were doing in terms of, for example, financial
performance or customer satisfaction.
The key, though, that we found was commitment. We found
that in order to overcome these challenges, the companies found
that they needed to have sustained commitment from their senior
leadership, first to provide the initial impetus to change, and
second to maintain the momentum. The significance and the
importance of commitment is why we chose to put that in the
middle of our chart.
Now, why should all these particular practices matter in
looking at how to reform the service acquisition approach in
the Federal Government? Well, in a word, the answer is results.
Each of these companies was able to achieve significant dollar
savings and each was able to achieve improved delivery of
services. In one case, we found a company that saved over $210
million from adopting some of these approaches.
Let me turn next to some provisions in the bill that track
some of the practices that we found in reviewing these leading
service companies. One is section 401 of the bill, which would
promote greater use of performance-based contracting.
Performance-based contracting is simply a process where the
contracting agency specifies the outcome or the result that it
desires to achieve, and leaves it to the vendor to decide how
best to achieve those outcomes. We have work under way for this
subcommittee to look at how Federal agencies are implementing
performance-based contracting. Very briefly, we found that
although they are meeting the goals established by the Office
of Management and Budget--the OMB established a 20 percent goal
for the use of performance-based contracting--and the agencies
are somewhat exceeding that goal. We found that there was
widespread inconsistency in the application of the definition
of performance-based contracting.
The second provision, and this is an example of
performance-based contracting, is share and savings, which
under the bill section 301 would be promoted in a variety of
ways. We have also a job under way for the subcommittee looking
at how the leading companies are implementing this share and
savings concept. What we are finding is that the real key to it
is establishing the baseline. That is a very difficult issue
and that will be the focus of our review as to how companies
establish the baseline in order to be able to measure the
savings.
The third provision in the bill that we found common among
the companies we looked at was the chief acquisition officer.
Section 201 of the bill would create a chief acquisition
officer in each agency, a practice that we found common among
the companies. But one of the differences that we found is that
at the leading companies the chief acquisition officer, and it
was not always designated as such, but that position, whatever
it was called, had the authority to influence decisions on
acquisition to implement needed structural, process or role
changes, and most importantly to provide the necessary clout
within the organization to obtain initial buy-in and acceptance
of whatever changes were required. Under the Services
Acquisition Reform Act, section 201, it is not clear that the
chief acquisition officer would have comparable responsibility
and authority.
Finally, I would like to mention three provisions in the
bill that we have some concerns about. The first is section 211
of the proposed bill which would permit service contractors to
invoice the government on a bi-weekly rather than monthly
basis. We have two concerns about that. One is that there would
be an obvious effect on the Treasury in terms of the time value
of money. But equally important, we have issued a series of
reports over the years that have focused on erroneous payments.
Our concern in this area is that if you increase the frequency
of payments, that might also increase the possibility for
erroneous payments.
Second, there is a provision in the bill, section 223, that
would strengthen the process under which agencies decide
challenges to their procurement decisions. That is a provision
that we support. We support agencies deciding protest at the
lowest level and the most expeditious way. Our concern here is
that the bill would require decisions by agencies within 10
working days. Frankly, we think that is probably too brief a
period to provide for meaningful consideration and decision of
the protest.
The last provision I wanted to mention is section 404 of
the bill. That provision would designate as a commercial item
any product or service sold by a commercial entity. Our concern
is that this provision would allow for products or services
that had never been sold, or in fact even offered for sale in
the commercial marketplace, to be considered as a commercial
item. In such cases, the government may not be able to rely on
the assurances of the marketplace in terms of quality and
pricing of the product or service.
Mr. Chairman, this concludes my prepared statement. I would
be happy to take your questions.
[The prepared statement of Mr. Woods follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Ms. Styles. Chairman Davis, Congressman Turner and
Congressman Horn, I commend your leadership in the area of
procurement and I appreciate your invitation to participate in
today's discussion.
SARA challenges the procurement community to take a fresh
look at several key aspects of our acquisition processes and
policies, from the way we manage contracts and incentivize our
contractors to the approaches we employ for capitalizing on the
ingenuity of the commercial marketplace. As responsible
stewards of the $220 billion in goods and services the Federal
Government buys each year, I share your desire to ensure these
subjects receive priority attention.
Since I appeared before you in November, the President has
unveiled a budget that reiterates this administration's
commitment to results. The fiscal year 2003 budget places a
new-found emphasis on how well programs and the initiatives we
have designed to manage them serve the needs of our citizenry.
In describing the budget, Mitch Daniels has emphasized that the
days when programs float along year after year, spending
taxpayers' dollars with never a showing of reasonable results
or returns, must give way to an era of accountable government.
SARA gives us the opportunity to more carefully study the
subcommittee's vision for positioning the procurement work
force to meet the many challenges that face our country in the
21st century. Since results are what count in the end, our
review must consider whether processes as SARA would change
them will help agencies to better execute the programs that you
have entrusted them to carry out.
In this regard, I am pleased by several features of SARA
which offer the promise of greater return on our investment of
Federal resources. These aspects of SARA include for instance a
pilot to simulate performance-based service contracting and the
concept of statutorily reinforcing more integrated
decisionmaking among the various disciplines that are
responsible for the acquisition process.
I believe the path to improved performance begins with
ensuring that the processes are shaped to effectively balance
all the acquisition basics. Balance is achieved by appropriate
attention to acquisition planning, competition, contract
structure and contract management. We also must be sensitive to
operational efficiency, but in doing so recognize that it is
not an end in and of itself.
Unfortunately, lax application of acquisition basics
continues to be a major contributor to shortfalls in program
performance, insufficient attention to requirements
development, weak cost and price analysis, inconsistent use of
competition, ineffective negotiations, poorly structured
contracts, and inadequate contract management plague even the
most streamlined and protest-proof of our acquisition tools. To
improve performance, agencies must recognize that acquisitions
are the shared responsibility of a variety of disciplines,
including program, technical, contracting, budget, financial,
logistics and legal personnel. These disciplines must work
together so the respective expertise that each offers is better
integrated in agency decisionmaking.
In particular, program offices must be willing to commit
sufficient attention to the acquisition planning and contract
management. They must understand that no amount of training on
the part of procurement personnel and no degree of operational
efficiency afforded by contracting tools can serve as a
substitute for these activities. For their part, agency
procurement officials must not allow pressures for expediency
to divert attention away from the application of fundamental
contracting principles that lie at the heart of any successful
acquisition process, no matter the agency or the requirement.
Far from the mechanical or administrative-laden label that
some might assign to the contracting function, procurement
personnel are the key component of our acquisition work force
and are looked upon to ensure sound application of the very
contracting tools now available to them. To use the President's
own words, ``We are here not to mark time, but to make progress
to achieve results, and to leave a record of excellence.'' The
message is clear. We must remain firm in our resolve to improve
the performance of government and the culture that drives our
investment decisions.
The importance of agency procurement offices in this
transformation cannot be emphasized enough. Program offices
across government, from those that serve the needs of our war
fighters to those that support the government's efforts to
promote educational excellence for our students, must
ultimately depend on our procurement personnel to draft and
negotiate the sound contracts that form the underpinning for
successful performance.
I thank the subcommittee for recognizing the critical role
played by procurement officials throughout the government, and
also for challenging us to revisit the principles that lie at
the heart of our procurement processes. On behalf of the
administration, I accept this challenge. In doing so, I intend
to ensure that our procurement processes are results-oriented
and to work with this subcommittee and the other Members of
Congress to change them where they are not.
This concludes my prepared remarks, but I am happy to
answer questions.
[The prepared statement of Ms. Styles follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Davis. Thank you very much.
Commissioner Perry.
Mr. Perry. Thank you Congressman Davis and Congressman
Turner and members of the subcommittee. Thank you for inviting
me to appear before you to discuss ideas on how to improve the
Federal Government's acquisition process.
Chairman Davis, I too would like to take this opportunity
to thank you in particular for your leadership in this area
over the years, and for your current initiative to bring the
need for additional acquisition reform to the attention of the
Congress.
As you know, each year the Federal Government spends over
$200 billion goods and services in order to meet the agency
requirements to provide government programs and services to the
American public. That is why it is so important for the
government's acquisition process and regulations to focus on
efficiency, effectiveness and accountability. Additionally, the
acquisition process and regulations should be easily understood
by all the parties who are involved in the process and should
be based upon a common sense approach. Finally, when
appropriate, the Federal Government's acquisition process and
regulations should resemble the best commercial sector buying
procedures.
As you know, at GSA we have been actively implementing a
number of initiatives to improve the Federal acquisition
process and work force. This includes items such as the
integrated acquisition system, which is a part of the
administration's e-government strategy. Several of the
initiatives that we are working on are detailed in the written
testimony that I have submitted for the record.
At GSA, we are developing our acquisition work force as a
part of our overall human capital management initiative. For
example, to develop the skilled acquisition work force we need
at GSA, we are developing competency-based assessments to
determine the specific areas where our training of the GSA
acquisition work force to date has achieved the needed results.
We are also looking at areas where we still have deficiencies.
We are using this information regarding the skill mix of the
GSA acquisition work force to develop and implement a specific
action plan tailored to the identified training needs at our
agency. We believe that all Federal agencies should be doing
the same kind of self-assessment and correction of deficiencies
as a part of their human capital management initiatives.
The Services Acquisition Reform Act proposal to require GSA
to establish a work force fund for interagency training
purposes shows a strong commitment to improving the knowledge
and skills of the acquisition work force in particular, and
that of the total Federal work force in general. While we fully
support your concept of developing a well-trained acquisition
work force, the administration would support adequate funding
to agencies through normal budget and appropriations processes.
We believe that several of the other provisions of the
Services Acquisition Reform Act will help agencies improve
their acquisition work force, for example, section 102 of the
bill, which calls for a government-industry exchange program;
additionally, section 105 of the bill which calls for an
acquisition work force recruitment and retention pilot program;
and third, section 107 of the bill which encourages contractors
to allow their employees to telecommute. These sections and
others in the bill that I have cited are examples of the
provisions in this legislation which would in fact help
agencies improve their acquisition work force.
On another matter having to do with the chief acquisition
officer, as reflected in your legislation it is important to
keep in mind that without management leadership, initiatives to
streamline the current acquisition process could end up
becoming just another layer of regulations. That is why we
support the concept of each agency having a chief acquisition
officer. We have such a position at GSA and we believe that the
ability of that person to aid GSA in developing a strong
acquisition strategy is critically important to our success.
For that reason, we believe that section 201 of the
legislation requiring agency heads to establish a chief
acquisition officer position is an interesting proposal and
would signal the importance of maintaining a well-managed,
integrated, agency-wide acquisition plan.
In summary, Mr. Chairman, we believe that the Service
Acquisition Reform Act is a very sweeping proposal offering
several beneficial programs and ideas. We appreciate your
leadership in bringing these matters before this subcommittee
and before the Congress and before the administration. As you
can see from our comments and from the various initiatives that
we are working on at GSA, we share your commitment to making
the needed improvements to the Federal acquisition process and
to the Federal acquisition work force. With that in mind, we
are anxious to continue to work with the subcommittee to find
ways to make significant improvements in the current Federal
acquisition process.
Once again, thank you for inviting me to discuss these
items and this very important issue with you today. I will be
happy to answer questions.
[The prepared statement of Mr. Perry follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Davis. Thank you very much.
Ms. Lee.
Ms. Lee. Chairman Davis, Mr. Turner, I appreciate the
opportunity to appear before you today and discuss the proposed
Services Acquisition Reform Act.
As I testified before you last November, the business
environment within the Department of Defense remains very
complex, particularly in the acquisition services. The amount
of money the Department spends on service has increased
significantly over the past decade, to the point where we now
spend approximately an equal amount of money for the
acquisition of services as we do for equipment.
We must ensure that all acquisitions, whether for products
or services, are well-planned, executed and managed. We fully
support the efforts of the subcommittee in a number of areas
related to how the Department of Defense acquires goods and
services. We have reviewed the draft package of proposals which
comprise SARA, and since the introduction of the bill last
week, are more thoroughly studying these proposals.
I would like to offer my perspective on several of them.
First, people or work force--this is also my No. 1 priority. We
must have talented, well-trained people in the acquisition
field, particularly as we move to more and more challenging
business arrangements. As you know, the Department of Defense
has a very robust and continually evolving training program. By
centralizing the funding for training within the Department
through the Defense Acquisition University, we have
demonstrated a commitment and provided stability to training
our acquisition work force. To keep our acquisition work force
trained and highly qualified to meet challenging missions, we
are transforming DAU by moving from purely classroom training
to more Web-based learning modules and by emphasizing critical
thinking skills and business case reasoning.
The DAU provides a strong foundation and we appreciate the
subcommittee's recognition of this contribution and our
exemption from the training fund. We look forward to working
with the civilian agencies in the Federal Acquisition Institute
in developing a training program that ensures the work force
acquires the right skills and capabilities to be able to
contribute effectively in this changing acquisition
environment.
We also support a government-industry exchange program. We
believe that by tapping into the knowledge base of the private
sector, we not only maximize the business relationships with
our industry partners, but we can also improve the Department's
acquisition process and procedures. For years now, the
Department has found it very valuable to have programs where we
send our military members and our civilians to work with
industry counterparts.
However, we do not have a program to bring industry into
the Department. Currently, an industry person would have to
sever ties with his company in order to accept a government
assignment, which we believe is probably an unrealistic
expectation, particularly as people are planning and managing
their own retirement portfolios and those by necessity involve
a broad range of other relationships. We applaud the
subcommittee's efforts to establish a government-industry
exchange program, and we believe that issues related to
conflict of interest and compensation need to be clarified in
the proposed legislation.
The Department is sensitive to retraining and attracting
people, especially since we are faced with 50 percent of our
work force being eligible to retire by the year 2005. We do
have a new plan which was submitted last week about the work
force of 2005 that has some ideas and issues on how the
Department plans to deal with these challenges, and we
certainly support the idea of work force and retention pilot
programs as a way to attract a new talent pool to meet the
challenges of our increasingly complex procurement. We note
that there are many things going on in this arena, and we
support those activities.
We also support revisions to share-in-savings initiatives.
The share-in-savings authority as defined by the Clinger-Cohen
Act has not been fully implemented by the Department for a
number of reasons. A primary concern within DOD has been to
ensure that funds spent for payment of savings are the right
type of funds. Additionally, there may have been some
reluctance by contractors to providing all of the non-recurring
funds for the investment, even with a long-term payback.
We need a policy for using share-in-savings contracts that
not only encourages our contractors to undertake aggressive
cost reduction programs, but one that also stimulates agency
interest by allowing them to retain a portion of the savings
after contract payment.
I look forward to working with the subcommittee on
additional provisions of SARA. In closing, I would really like
to thank the subcommittee for your continued interest in
procurement and acquisition issues and focusing all of us on
the need to continue to improve. I would like to also make my
commitment to work on those issues in the Department.
Thank you very much for the opportunity to talk about these
things today.
[The prepared statement of Ms. Lee follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Davis. Thank you very much.
Ms. Lee, let me ask you on these purchasing cards--moving
the threshold from $2,500 to $25,000. In the SPAWAR situation,
I think it was in San Diego----
Ms. Lee. Yes, sir.
Mr. Davis. One of the concerns I always have about
government is we spend so much time and energy making sure that
nobody steals any money who is involved in government, whether
it is politicians or officials, that we strap them that they
cannot do much of anything else either. The question is to try
to find, if you have confidence in your employees and you train
them correctly, that this ought to be more efficient. Can you
talk about that situation a little bit and some of the
safeguards we can put in to make sure these are not abused, but
at the same time not be running papers around for every
procurement over $2,500, because you lose time, you lose money,
you lose efficiency with the thresholds that low. I do not know
what the right balance is, but you might reflect on the
situation there in San Diego. Mr. Horn had raised it, and I
just wanted to ask you to start with that, and then I will
yield to Mr. Horn for questions.
Ms. Lee. Certainly.
Mr. Horn. I thank the chairman, and that is exactly the
question I was going to ask. What can the Defense Department
and General Services and the GAO advise us on how you can look
at the fraud, and they were absolutely irresponsible. A Marine
major allegedly conspired with cardholders under his
supervision to make more than $400,000 in fraudulent purchases
from five companies, two of which he owned, two of which were
owned by acquaintances, and one of which was owned by his
sister. The charges included purchases such as DVD players,
palm pilots, desktop and laptop computers.
Another example--a cardholder made more than $17,000 in
fraudulent transactions covering personal items from Wal-Mart,
Home Depot, shoe stores, pet stores, boutiques, eye care
centers and restaurants over a 7-month period.
Now, obviously when we go to hold a hearing outside of
Washington we use our government card for the hotel and the per
diem that you are paid for restaurants. And people like our
administrative people would catch something if there was about
the whole suite or the whole end of the hotel for your buddies
for a reunion, that would be caught on Capitol Hill, and
inspectors general are all over the place. In the Defense
Department, they ought to be looking very carefully at this.
Why should we take the taxpayers' money--good, hard-earned
money? They would sure like to have $17,000, but they do not.
But when we use their $17,000, we have got to figure out a way
to get the controls. There were no controls with the Navy, and
one captain is not going to make admiral, given that. So I do
not know if that is the punishment or what, but I do not want
to see it happen in the first place.
So could you tell us how you do it, Ms. Lee? What kind of
program--I know the game. Two subcommittees differ, and the
subcommittee that has the Defense Department--fine. But you
have got to do something on your side to act like leaders, and
not just let this fraud go out.
Ms. Lee. Yes, sir. It is absolutely unacceptable.
Mr. Horn. OK. Now, how do you do it? How do you organize
it?
Ms. Lee. This particular instance, which happens to be
SPAWAR, cards and the entire command have been suspended as of
last Friday. There is new leadership in there. First, they are
going through and making sure everyone has their currency
training, and reminding them of what those obligation are. They
are reviewing all cards, the thresholds that the cards are
authorized, the number of holders, and the number of
cardholders per reviewer, and the relationship between those
reviewers. In addition to that, we have put in place an
electronic system that kind of lets us do the trend analysis to
see what purchases are bought.
Additionally, I have asked our Department of Defense IG to
come with me, and they have done so, and formed a consolidation
where they look across the Department of Defense at all IG
audits regarding purchase cards, and they consolidate those.
They are also looking for trends and going to give us specific
recommendations.
The rest of the Department watched that shot across the bow
and it is very clear to them how important it is.
Mr. Horn. You might have been right the first time.
[Laughter.]
OK. I do not care how you do it, just so you do it.
Ms. Lee. It is unacceptable to us.
Mr. Horn. Yes.
Mr. Administrator Perry, for whom I have fond affection and
a fine agency you preside over. What can we do with GSA so they
do not run away with it? Do you have a system right now?
Mr. Perry. We do. I would just reiterate what my colleague
has said. It is an unacceptable position or situation. We do
need to have the right controls in place and we have to look
after it vigorously.
At the same time, I would like to believe that most of our
Federal workers are in fact trustworthy and conscientious, and
this is something that would only be done by a few. The remedy
that we take in the case of those few who have been discovered
I think will send a very strong message.
In the case of GSA, we also use the controls, the trend
analysis. On a monthly basis, each manager receives reports
from our CFO's office indicating if there have been any
purchases from vendors which would appear to be not appropriate
or if there have been purchases of items which would appear to
be not appropriate. And then it is the responsibility for the
manager of the person using the card to oversee that to make
sure that inappropriate use is not undetected.
I think we just have to stay with it, but not dispense with
the program entirely because of the actions of a few.
Mr. Horn. Mr. Woods, has GAO gone back to some of these
situations now to see if anything has changed? I mean, that is
what I wanted to have done maybe 2 months from now, whatever.
Has it happened in between?
Mr. Woods. Yes, sir, it has. As you know, the findings that
you talked about earlier were based on a report that we did
last year at two Navy installations in the San Diego area.
Mr. Horn. That was the one with Senator Grassley.
Mr. Woods. That is correct. And we have gone back and you
will be hearing more next week about the results of that
review. But if I could just talk a little bit about the
problems or the source of the problems, it all gets back to
internal controls. In order to be able to properly exercise the
flexibilities that the Congress has provided below the micro-
purchase threshold and therefore in the use of purchase cards,
there needs to be effective internal controls. What we have
found by and large in the course of that review is that the
controls were there. They were not being exercised properly. It
is not a lack of controls, it is just they were not adhering to
those controls.
Another issue was training. Many of the examples that you
listed are obvious. You do not use a government purchase card
for personal items. You do not need training on that. But other
areas are not so obvious. For example, meals--my understanding
is food is not a permissible item for the use of the government
purchase card. That may or may not be so obvious. It requires
additional training.
Another issue, frankly, is just too many cards. We found
that there was a proliferation of cards in both of those
facilities, and that is an issue as well.
Mr. Horn. Thank you, Mr. Chairman.
Mr. Davis. Let me just ask a question before I yield to Mr.
Turner. The number of issued cards at civilian agencies is
proportionally much smaller, is it not? Or are you not familiar
with that?
Mr. Woods. I am not familiar with that, sir.
Mr. Davis. Can anybody help me on that?
Ms. Styles. We did supply data I believe on the exact
number of cards. It is also available on a publicly available
Web site.
Mr. Davis. I will put that in the record and figure it out.
I think one of the ways you control this is by controlling
the people that have access to the cards, making sure they were
trained and you are not supervising everybody. One of the
difficulties in procurement is anytime you move more of the
authority out to your line officials, you have more chances for
somebody to make a mistake. On the other hand, we found out
that when it is too centralized, it is a very, very inefficient
process. So it is a question of finding the right balance.
Mr. Turner.
Mr. Turner. Thank you, Mr. Chairman.
I wanted to address the issue of share-in-savings
contracts. I know, Ms. Styles, you had some concerns that you
expressed. Ms. Lee, you had some concerns specifically. I
notice, Ms. Styles, in your testimony you express the concern
that the expanded share-in-savings contract authority should
remain as a pilot project. And you said that we need to see
more results, agencies need to gain greater experience in
developing baselines, obviously, as you say, proper baselines
in combination with guaranteed savings clauses are critical to
ensuring savings can be validated and realized.
I have had a concern about where we get the expertise
within our agencies to actually negotiate share-in-savings
contracts. Obviously for them to work, there has got to be a
fair deal for both the government and for the supplier of the
service. Both sides need to have competent people negotiating
it. Otherwise, it is going to turn out to be a very unhappy
experience for one side or the other.
So your caution that you have expressed, and I think you
went on also in that same statement to say, ``We should also
consider the impact of these contracts on other activities in
light of the extended contract duration that may be required to
recoup savings and the generally high termination costs.'' If
you will, just expand a little bit on your concerns there, and
particularly what you mean by that statement that I just read
there about the problems you see. And then address for me how
we can get the kind of expertise that we really need to make
share-in-savings work effectively.
Ms. Styles. Certainly. I think we need to take share-in-
savings in some appropriate steps. What we are seeing, we have
had some experience with share-in-savings in the Federal
Government. We have got some contracts with the Department of
Education that are share-in-savings contracts, and we have some
contracts with the Department of Energy that are share-in-
savings contracts, energy savings performance contracts.
The Department of Education ones are short-term contracts,
3-year contracts dealing with a lot of IT infrastructure
complex problems. It took them a long time to develop the
baselines and even then the baselines were not accurate
baselines. They had to go back after an IG report and change
the baselines on those contracts. That is not to say that it is
wrong for them to be innovative. I think it is good for them to
be innovative, but they also recognize that they are not going
to get the appropriate return on their money in a longer period
than 3 years, particularly when you are dealing with something
like an IT project.
The other concern we have is we have seen no savings yet in
those contracts. Obviously, we are at the very beginning of
those contracts. They had to restructure the baselines, but we
still have not seen any savings with those.
Energy savings performance contracts are 25-year contracts.
That limits the flexibility of the agency if it needs to
restructure or if it needs to be a little bit more nimble in
delivering services to the citizens. Those have been in place
for a longer period of time. We have still not seen savings on
those contracts.
So it is not to say that the concept of share-in-savings is
not right. It is that we need to take this in steps. The first
step in many respects is performance-based service contracting.
We are still having some difficulties with performance-based
service contracting, with understanding how it works, with
negotiating that with the contractors. So we have to take it in
appropriate steps as we move forward. If we jump to a broad
share-in-savings-type proposal, you are learning to run before
you actually learn to walk, I think is the way I put it in my
testimony. And you really have to take appropriate steps to, in
many respects, protect the taxpayer dollars in exactly the way
you said, is that we need to know how to negotiate these
contracts and to create appropriate metrics and baselines.
Mr. Turner. It seems that you do have to have some
experience to negotiate these kind of contracts. I do not know
where you go in some agencies to find that expertise.
Obviously, establishing the baseline is the critical first step
to making sure it works. Do you think it would be helpful if
there was some other entity or individual that helps in that
process? It has been suggested to me perhaps the inspector
general in the agency should take a second look at the
development of the baseline, be sure it is fair? Is there some
way in there that we can look forward to the point where we
could know that we have got people in the Federal Government
who can actually negotiate these deals and that they are going
to be sound?
Ms. Styles. And a lot of it is training. A lot of it is
going forward with training with performance-based service
contracts and training in this area. And I think all of the
help they can get as they negotiate the baselines is
appropriate because second looks at these are good. Even at the
Department of Education, they realized in student financial aid
that the second look of the IG at their baseline was
appropriate and identified things that they did not see. I
believe they have changed the baselines as a result.
Mr. Turner. Ms. Lee, you shared some other concerns with
share-in-savings initiatives. One point you made, I am not sure
I understood, but you suggested that, ``A primary concern
within DOD has been to ensure that funds spent for payment of
savings are the right type of funds.'' What did you mean by
that?
Ms. Lee. Particularly on some of the O&M-type work where we
have funds that are for operation and maintenance to make sure
that we have got the contract structured appropriately so in
fact it is an appropriate expenditure of operation and
maintenance funds. Or if, for example, we had R&D funds, so
that when the contract is structured and the payments are made
on an annual basis, that they are backed from the funding as
appropriated by the Congress.
Mr. Turner. You also shared an interest in an idea to
ensure that there is some incentive in the agency to enter into
share-in-savings, not just an incentive on the part of the
service provider. How would you envision that working?
Ms. Lee. Sir, as you know, and I am not sure that it should
be this way, but it is, in that in an organization, the current
way our funding often works is that if you save money, you get
less the next year. And so to recognize from an incentive
standpoint that these people have done a good thing and the
fact that they have less money does not necessarily mean that
their appropriations should be, or that their amount should be
decreased the next year, that it should be recognized that they
are doing good things more efficiently and that in fact they
should be budgeted accordingly.
Mr. Turner. Has the Defense Acquisition University entered
into any kind of training program to help people be able to be
well-versed in how to negotiate share-in-savings contracts?
Ms. Lee. Not specifically. We are, however, looking at this
more modularized work force and incorporating industry more as
well. So we would have modules that are available both to DOD,
industry people, civilian agencies, and are working with agency
and academia to say what are the right topics, what are the
right formats, and what is the easiest and most efficient
delivery method for our entire acquisition community--
government, industry, academia--and not just limit it to the
Department of Defense.
Mr. Turner. Is your acquisition education program available
to non-DOD Federal employees?
Ms. Lee. Mr. Turner, technically it is, but the reality is
that we can hardly get all the DOD people through it, so the
slots are rare and difficult to come by.
Mr. Turner. Thank you.
Thank you, Mr. Chairman.
Mr. Davis. Thank you very much.
Ms. Styles, let me just say on the Department of Education
contract, my understanding is that the Department of Education
came back to the IG and said they had some difficulties
measuring baseline; that there were savings and the IG
concurred with that. We can look at it further, and as we draw
this, we want to work with you to try to make sure that this is
a vehicle that can achieve maybe at the Federal level some of
the savings we have seen in the private sector.
Ms. Styles. If I can clarify, we have not yet seen the
savings because it is so early in the contracts, but they do
anticipate having savings. I have to say I want to commend them
for doing a very good job working under the current structure
to come up with a share-in-savings contract and to take hard
looks at their baselines. I think they did a very good job.
Mr. Davis. Maybe if we had some tools we would give them
under this, they could have done better, but I think we will
continue to dialog on that.
Let me also ask, Ms. Styles, you talked about adequate
funding is needed for training, but that the funding stream
ought to be the result of the normal budget and appropriation
process. I think in a perfect world, I would agree with you,
but let me tell you what happens in the real world. When an
agency budget gets cut, the first two things to go are your
travel and your training. That is just the way it works because
agencies like to keep their people. You can do that maybe with
one cycle or another, but I have been in government at the
county level and at the Federal level now for over 20 years.
That is just the nature of government. It does not work as
ideally as we might like.
It is for that reason that I feel if you do not have a
specified fund earmarked to go there, we will continue to see
in tough budget years agencies cut their training budget. It
clearly has taken a toll. I think you can take a look at the
situation you had with the Navy in San Diego and say this is a
result of training, of not having appropriate oversight. If you
do these things appropriately, you can cut down on the fraud.
So I think that is where the disagreement is, and I will
give you a chance to respond to that. But I think the current
process of relying on normal budget and appropriations has
resulted in not funding the work force training the way it
should have been.
Ms. Styles. You know, there may be an opportunity for an
interagency fund that is appropriated by Congress. My concerns
relate to the fact that we have to be willing to step up to the
plate and recognize that we need training money, and Congress
should recognize that money should be appropriated in a
specific fund.
My concern about the structure of the current legislation
is that we may affect a very effective contracting vehicles by
taking percentages and money out of that to train people. I am
particularly concerned that, as I look at training, I am trying
to integrate civilian and defense people in training. The way
it is currently set up, it would actually take money from the
Department of Defense to train the civilian agencies, because
the Department of Defense is such a high volume user of these
contracts, but then they would not have access to this fund to
be able to train their people.
I think we need to recognize the commitment to training to
be able to fund it appropriately. Otherwise, I think we are
going to have trouble holding agencies to a training
commitment, or to actually training their people appropriately.
Mr. Davis. I just say good luck in being able to get the
non-Defense agencies and the Defense agencies together on
training. You have the tiger by the tail there. There is a lot
of turf and a lot of history on that, but ideally that would
be----
Ms. Styles. I think as we face this retirement crisis and
the human capital crisis, it is more important than ever to be
able to have one acquisition community working together, and to
have access to the skills of the Department of Defense and for
the Department of Defense to have access to the civilian
agencies.
Mr. Davis. If we were business, that would be easy to do.
SARA, as you know, would place commercial services on the
same level as commercial products by amending the definition of
commercial items currently in the OFPP Act. You express some
concern about this proposal, but it is not clear to me why
commercial services should not be on the same plane as
products. Could you try to explain?
Ms. Styles. Which portion specifically are you talking
about?
Mr. Davis. SARA puts commercial services on the same level
as commercial products. Are you with me?
Ms. Styles. Yes.
Mr. Davis. OK. It does it by amending the definition of
commercial items that are currently in the OFPP Act. You have
expressed concern about the proposal. I am just not sure why
the commercial services should not be on the same plane as
products.
Ms. Styles. If you can tell me which provisions
specifically--are we talking about time, material, labor, hour
contracts? Are we talking about the commercial business entity?
Mr. Davis. It comes from the FAR part 12 amendments.
Ms. Styles. I mean, there are distinctions between----
Mr. Davis. OK. I will give you this written and again have
you get it back, if that would be all right to clarify that.
Ms. Styles. OK.
Mr. Davis. Melissa tells me it is section 403, but you can
get back to us in writing on that.
Let me ask Mr. Perry, how do you coordinate GSA's
acquisition strategy over the agency's diverse business units?
Mr. Perry. That strategy coordination over our diverse
activities within GSA is in part coordinated through the fact
that we have an acquisition officer in the organization who
helps us to make that happen. He also obviously provides
services beyond GSA. That is a big part of it. Your proposal
suggests that other agencies might use that same model, and we
support that idea. But we also at the same time would leave
open the fact that there may be some agencies where it is more
crucially important than in others. That may be something for
agencies to deal with, but we feel that having that centralized
approach is useful.
Mr. Davis. Ms. Lee, let me ask you. SARA provides in
section 223 for a statutory agency-level protest process. Now,
in that process, we call for 10 working days for resolution of
protests. Is that adequate, do you think?
Ms. Lee. Congressman Davis, I do think that we are trying
to teach our people to be responsive and make sure that when
there is an issue, they solve it. I would actually ideally like
to see it solved before it gets to a protest level-type of
discussion. That would be my No. 1 goal.
However, if it does get to be a formal protest,
particularly in an agency as large as the Department of
Defense, there is a lot of review that is necessary. So I do
think the 10 days would put us in a very tight timeframe and
might not get as good and thorough a review as it should have.
Mr. Davis. OK. Is DOD satisfied with the access it
currently has to the commercial services market?
Ms. Lee. We believe there are quite a few other vendors
that we would like to encourage to do business with the
Department. We have seen a particular interest after September
11th. Some of it I think may be perhaps patriotism; others
realizing all the diverse activities that the government does
participate in. As a result of our broad agency announcement,
we got over 12,500 responses from people, and we see a lot of
people wanting to do business with the government.
We have also found that creative and aggressive contracting
officers can accomplish that. There are some additional
flexibilities that we would like to attain and we would like to
work with you through SARA and other methods to ensure we can
get those.
Mr. Davis. Thank you.
Mr. Woods, let me just ask you, you note in your testimony
that the chief acquisition officer that we include in SARA
ought to be structured differently. Do you have any
recommendations for the placement and operation of a chief
acquisition officer within the civilian agencies?
Mr. Woods. I do not have specific recommendations along
those lines, but I do note that when you compare that to the
chief financial officer, for example, the CFO is a direct
report to the head of the agency. Now, I am not suggesting that
would need to be the case with the chief acquisition officer,
because I think agencies need the flexibility to be able to
determine where the position would best be placed. But the key
is that wherever it is placed, it needs to have the necessary
authority to have the clout to make sure that the changes can
be made.
Mr. Davis. OK.
I have one more question for Ms. Styles. You express some
concern about SARA's expansion of the scope of commercial item
procedures. Why shouldn't the government just be able to buy
products and services of a commercial firm without any further
analysis of the actual nature of the item? That is what the
private sector does.
Ms. Styles. It has to be something that commercial firm
actually sells commercially. As it is structured right now, if
80 percent of the firm's business is coffee makers and the
other 20 percent is smart bombs, the smart bombs can be
considered commercial in nature, even though there is no
adequate price competition in the commercial marketplace. As a
result, there is no transparency into the cost for that smart
bomb and there is no assurance that there is a commercial price
for that.
Mr. Davis. Well, I hope that is not how we are buying our
smart bombs. [Laughter.]
Ms. Styles. This would allow that.
Mr. Davis. All right. So the language--just tighten it. You
do not have any problem with the concept?
Ms. Styles. With the concept, if it is commercial and it is
sold commercially in substantial quantities, and we can assess
the price and protect the government--no, I do not have a
problem. Or in the alternative, if it is not sold commercially,
that we have sufficient transparency into how they put that
price together.
Mr. Davis. We could give example after example where the
government goes out and buys items that are more expensive than
you can get off the shelf. So what we are trying to do in a
case like this is I think give them the flexibility to get
things quickly when they are sold across the counter every day.
Ms. Styles. If it is commercially available on the shelf,
then they can buy it commercially.
Mr. Davis. I am just trying to get the concept. We can
worry about the language later.
OK, Ms. Lee, smart bombs are not bought from coffee makers
are they, at DOD? I just wanted to be reassured here.
All right. That is all the questions I have for this panel.
Why don't we take about a 3-minute break and get our next panel
up here.
Thank you very much.
We will welcome our second panel--Steve Kelman of Harvard
University; Professor Steven Schooner of The George Washington
University Law School; Scott Dever of Hasbro; Mr. Richard
Roberts of KPMG Consulting, testifying on behalf of the
Information Technology Association of America; Ms. Roberta
StandsBlack-Carver of Four Winds Services, testifying on behalf
of the Contracts Services Association; and Mr. Jerry Howe of
Veridian, testifying on behalf of the Professional Services
Council.
Will you please stand and raise your right hands?
[Witnesses sworn.]
Thank you very much.
Please be seated. Again, we have the statements, if we
could start with Dr. Kelman and we will move straight down.
Steve, welcome.
STATEMENTS OF STEVEN KELMAN, PROFESSOR OF PUBLIC MANAGEMENT,
HARVARD UNIVERSITY; STEVEN SCHOONER, ASSOCIATE PROFESSOR OF
LAW, THE GEORGE WASHINGTON UNIVERSITY LAW SCHOOL; SCOTT DEVER,
VICE PRESIDENT OF GLOBAL PROCUREMENT, HASBRO, INC.; RICHARD
ROBERTS, SENIOR VICE PRESIDENT AND MANAGING DIRECTOR, FEDERAL
SERVICES, KPMG CONSULTING, INC.; ROBERTA STANDSBLACK-CARVER,
PRESIDENT AND CEO, FOUR WINDS SERVICES, INC.; AND JERRY S.
HOWE, SENIOR VICE PRESIDENT AND GENERAL COUNSEL, VERIDIAN
Mr. Kelman. Chairman Davis, thanks very much for asking me
to come and testify. Congressman Turner, thank you for the
opportunity to be here today. I am here to testify in support
of the Services Acquisition Reform Act. This piece of
legislation really is the next step in the continuation of the
efforts we have undertaken over the last decade to create a
business-like, modern procurement system in the Federal
Government.
Really, it has two basic principles--the reform effort. The
first is make government contracting, to the extent we can, as
much as possible like the way a world-class commercial company
would buy products or service for itself. That has been
principle No. 1. Principle No. 2 has been, stop the obsessive
focus with bureaucracy and process, and start focusing the
system on achieving results for taxpayers.
The changes in the last decade have not been
uncontroversial. It is never easy to change old, hide-bound
processes. But there has really been an alliance of moderates
in both parties, Democrats and Republicans, often sort of
fighting against people further to our right and people further
to our left, that have allowed these changes to take place. I
think it is fair to say that the procurement system is better
because of those changes, not just faster, but better.
The most recent addition of the history of government
contracting, which comes out of The George Washington
University Government Contracts Program, it came out in 1999,
on the last page of the book--this is the new edition, the
revised edition--says--this is as is described at the end of
the 1990's--the situation is as healthy as any I can recall in
the history of peacetime government contracting. That is not to
say it is idyllic. Protests and lawsuits still abound. See,
there are other people besides me who still think there is too
much litigation in the system. Government contracts----
Mr. Davis. You would never expect a law professor to agree
with that, though, right?
Mr. Kelman. This comes out of George Washington Law School.
[Laughter.]
Government contracts still dwarf their nongovernment
counterparts in size, minutiae and risks. Contracting officers
still trained in the old system--some refuse to change. But all
in all, the 1990's have improved the process.
We have seen that in Afghanistan. There has been a lot of
publicity around the JDAM, the smart bomb that is being used
very successfully in Afghanistan. It not only works better than
its predecessor, the laser-guided bombs, but also, as an
article in my hometown newspaper the Boston Globe pointed out,
one of the reasons 70 percent of the bombs in Afghanistan are
smart bombs compared to 3 percent in the Gulf War is that smart
bombs used to cost $100,000 each. They now cost $20,000 each
and they work better.
What has not been pointed out is that JDAM is a poster
child for acquisition reform. They started procuring it before
acquisition reform began in the early 1990's, and pulled it
back and redesignated it an acquisition reform pilot program;
introduced the various acquisition reform techniques. The price
went down 50 percent compared to what it had been before.
If I can add a personal example. A few years ago, I was
invited by the Defense Department to be a keynoter at an
electronic commerce conference, and actually I had to get to an
academic conference at Johns Hopkins about an hour after I was
supposed to finish speaking, so I said, gee, I don't know if I
can do it. So they said they would pay my transportation and
they gave me a driver to drive me down to Baltimore. The driver
happened to be a Marine who had just returned back to the
Pentagon after being abroad for 21 years. He was not a
contracting person. He was a Marine. And he was saying to me,
``Sir, a few years ago I started noticing that just my every
day life in the Marines as a Marine was getting better. The
food was getting better; stuff that had not been there before
that got out of stock was arriving faster. We could get things
easier. And I never knew why it was. I just noticed my life was
getting better.'' He was interested to learn when he now had a
procurement detail that this was as a result of the acquisition
reforms of the 1990's.
I have got to say, and I mentioned this to Deidre Lee, I
think all of us, when I heard that, was really proud of what
all of us had accomplished in terms of making this Marine's
life better. Above all, the people who accomplished it are the
frontline career contracting people in the Federal Government.
Mr. Davis. Steve, let me just say, you have accomplished
then, and I will not take your time on this, but making Army
chow edible. This is something that for generations we have
tried to get at and procurement reform did it. [Laughter.]
Mr. Kelman. Because what happened was we used to buy
MilSpec food, and now we are buying commercial food from
commercial vendors. That is the secret to it.
There has been a bipartisan effort, but just a word on why
this was initiated by a Democratic administration and why I
think Democrats should be supporting SARA, this piece of
legislation. As a Democrat, I believe that government has the
ability to serve people and to accomplish things for us as a
society. But to do that, government has to work well. It has to
work effectively. It has to have modern management principles
associated with it. That is the basic message behind
procurement reform.
So in my testimony, I support pretty much every provision
in this legislation. There are a number of areas where I have
made some suggestions for some changes. I hope we have a chance
to talk about some areas like share-in-savings. The only way to
get people to learn to walk is give them a chance. And the
current pilot project--it was an unintended consequence I was
involved in doing. We were trying to encourage agencies to do
share-in-savings. It has had the effect of discouraging them.
Let's teach them to do it by giving them some of the
authorities in this bill. The very last thing, because I have
gone a little bit over my time, nobody has talked about the
provision in the bill on cooperative purchasing. This has been
an area where you, Chairman Davis, have led a lonely fight
against special interests, trying to prevent--what this
basically is saying, let State and local governments on a
completely voluntary basis, if they would like access to the
GSA schedules, use them if they want to. A coalition of special
interests succeeded in repealing the provision in the Federal
Acquisition Streamlining Act, allowing this. Congressman Davis
played a lead trying to save it. Congressman Kucinich, I worked
with Congressman Kucinich while I was in the administration,
played a lead trying to save it. I am glad to see that this
pro-taxpayer feature is coming back into legislation again.
I have a whole bunch of detailed comments in my testimony,
but this is good government.
Thank you.
[The prepared statement of Mr. Kelman follows:]
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Mr. Davis. Thank you very much.
Professor Schooner. You have been quoted already.
Mr. Schooner. I should stop while I am ahead, but I won't.
Thank you.
Chairman Davis, Congressman Turner, first let me thank you
for the opportunity to be here today. As the hearing
highlights, the Federal procurement system has experienced
dramatic change during the 1990's. Against that backdrop, as I
flesh out more in my testimony, I will address four topics
briefly today.
First, I encourage this committee to do anything within its
power to restore meaningful oversight to the procurement
process. Second, I encourage you to invest in the acquisition
work force. Third, I strongly recommend that you drop the
proposal to increase the purchase card threshold. And fourth, I
suggest caution and further study on the provisions related to
commercial purchasing.
During the 1990's, it is my opinion that the government
failed to prepare its acquisition work force for or support it
through the dramatic transition. At the same time, the
acquisition work force, particularly at DOD, experienced a
sustained, dramatic reduction in force that was made without
empirical evidence supporting the reductions. At the same time,
the promise of DAWEA and the mirror provisions in the Clinger-
Cohen Act remain underfunded and accordingly unfulfilled. As a
result, much of our current work force is overwhelmed,
undertrained, and as you heard earlier, retirement eligible.
SARA does not offer the solutions to the startling decrease
in oversight in Federal procurement. In my opinion, the bill's
provisions related to the acquisition work force unfortunately
appear more cosmetic and they do not require the necessary
investment of resources needed to solve the pressing problems.
You will get only what you pay for, as you discussed earlier
with Ms. Styles and Ms. Lee. I think we need more and better
personnel and we need the training of that personnel, and that
requires money. I believe that this committee is extremely
well-positioned to make the case that investing in additional
acquisition personnel and work force training is needed to
restore meaningful oversight to Federal procurement.
Specifically, as my written testimony explains at length, I
fear that the training fund will not enhance the current state
of training for all acquisition personnel. The government
repeatedly has issued broad proclamations supporting training
and professional development, such as DAWEA and Clinger-Cohen,
while failing to invest in a properly trained work force. I
believe this initiative continues that trend.
I have a similar reaction to the government-industry
acquisition professional exchange program. I applaud the
initiative, but it will not generate sufficient return on
investment. My experience in government makes me skeptical that
senior managers will release their most talented personnel for
these opportunities. Also, the potential for conflicts of
interest, both actual and apparent, is sufficiently great so as
to merit further study.
I offer a similar response to the proposal regarding
performance-based service contracting. I support any initiative
to broaden the government's use of performance-based
contracting. As the government increases its reliance on the
private sector for commercial services, performance-based
service contracting expertise grows in importance, but
statutory exhortations are not enough. Congress needs to
appropriate money to train government personnel in the use of
PBSC. They need to mandate classroom training. They need to
specify that training will include practical drafting and
negotiation exercises.
As I suggest in my testimony, you might want to consider
establishing an annual high profile, governmentwide contest
that awards excellence in drafting performance-based statements
of work and publishing lessons learned from successful
performance-based acquisitions.
As I address at length in my testimony, particularly pages
8 through 10, I am extremely concerned regarding the state of
high-volume, low-dollar purchasing. The proliferation of
purchase cards has revolutionized government purchasing, but
with few exceptions the government has accepted an ostrich-like
approach to oversight. I do not doubt the efficiency of the
purchase card when used appropriately. But given the
proliferation of cardholders, insufficient investment in
training, and the current absence of oversight, we cannot
conclude that purchase card use is under control.
Even as disclosure of purchase card abuse has become
widespread, few are willing to rein in the purchase card. This
bill would increase purchase card authority ten-fold, while
imposing no controls. This expanded authority would encompass
98.5 percent of all government purchases, and for those
purchases buyers could ignore all of the government's normal
procurement rules, procedures and protections.
Also, it is undeniable that such a change would further
reduce small business participation in Federal Government
procurement, and in effect the bill would exempt 98.5 percent
of the government's purchases from all congressionally mandated
social and economic policies.
With regard to the provisions related to commercial
acquisition, I urge caution. I am concerned with permitting the
use of time and material or labor hour contracts under FAR Part
12. Use of these vehicles seems antithetical to your policy
statement favoring performance-based service contracting.
Further, the authority in effect would facilitate the
government's use of cost-plus percentage of cost arrangements,
which as you know are prohibited.
Similarly, I question the value of the designation of
commercial business entities. As I see it, the proposal invites
corporate organizational gamesmanship, which has no place in
the public procurement regime.
Finally, I am not aware that a compelling case has been
made for changes to the current definition of commercial items.
I believe the current definition accommodates reasonable and
appropriate uses of commercial purchasing authority. I think
the initiatives are premature and they require further study.
In their current form, they pose undue risk to the system.
Mr. Chairman, in concluding, I do want to make clear that,
as Steve Kelman knows, I generally supported the acquisition
reform
movement. What I call for is appropriate oversight to see that
those reforms are implemented appropriately.
Thank you again for the opportunity to be here. Obviously,
I would be pleased to answer any questions you may have.
[The prepared statement of Mr. Schooner follows:]
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Mr. Davis. Thank you very much.
Mr. Dever.
Mr. Dever. Chairman Davis, Congressman Turner, Congressman
Horn, as a private sector purchasing professional and taxpayer,
I commend you for the work that you are doing here in this
important area of reform, and thank you for the opportunity to
participate.
I am currently Vice President of Global Procurement for
Hasbro, Incorporated, based in Rhode Island. Hasbro is a
worldwide leader in children's and family leisure-time
entertainment products and is involved in the design,
manufacture and marketing of traditional and high-tech games
and toys. Mr. Woods from the GAO in panel one mentioned several
companies that were involved in their study, and Hasbro was one
of those.
Over the past 3 years, Hasbro has worked to enhance the
value of its supplier relationships by taking a more strategic
approach to the selection and integration of various suppliers.
We have taken several actions designed to improve our
purchasing effectiveness across the organization. For example,
we have centralized the development of sourcing strategies for
key raw materials and have taken a more broad-scoped approach
to supplier selection and negotiation.
We have adopted a more streamlined supply chain management
organization to reduce costs and improve customer service. We
have created a new section of the purchasing organization whose
primary focus is on non-production goods and services. This
function works collaboratively across the various Hasbro
businesses and locations to rationalize the supply base in
various categories. And finally, we have selectively adopted
new technologies such as electronic procurement and purchasing
cards to help streamline activities and improve the sourcing
process.
In line with the intent of the legislation which you have
introduced, Mr. Chairman, the focus of this testimony will be
on Hasbro's experience in managing service providers.
Hasbro relies on service providers in support of many areas
of our business. Historically, decisionmaking in the selection
of providers has been decentralized. Our intent was to improve
the process for acquiring services, without restricting the
business manager's ability to select the most appropriate
suppliers. We noted that there were opportunities to reduce the
number of suppliers in more tactical areas of service
acquisition, while providing broader exposure to service
providers in more strategic areas. We felt that we could, in
fact, improve the quality of the supplier selection process and
reduce costs concurrently.
In this testimony, I would like to define two broad
categories of service providers and discuss the traditional
approach for acquiring such services, key considerations, and
our desired approach to acquisitions. It should be noted that
Hasbro is in various stages of implementation and is
continually considering further opportunities for improvement
in all areas of procurement.
The first category of service contractors is service
contractors. In the course of conducting business, Hasbro
sometimes requires certain services that do not make good
business sense to develop internally. Facilities maintenance,
security, administrative and catering are examples of services
that are purchased externally. Such services are highly
leverageable because the requirements are easy to define and
there are several qualified sources which behave competitively
in the market. Traditionally, each Hasbro location or business
unit established one or more supplier relationships for a given
service need. Accordingly, the process for requisitioning and
contracting for services varied by department and location. Our
strategy was to reduce the number of suppliers across our
various locations and to implement a standardized
requisitioning system that streamlined the ordering process.
Cross-functional teams representing various stakeholders
work collaboratively to establish consistent service
requirements, review supplier proposals, and negotiate primary
source agreements. Through these efforts, we have negotiated
lower costs and improved service standards. Such standards
ensure that all locations are being serviced consistently. We
measure the performance of the suppliers against the agreed
standards and renegotiate agreements annually.
The second category of service acquisition that we
identified was professional services, which are typically
provided by independent contractors or specialized agencies
which represent individuals with unique skill sets. During peak
workloads, Hasbro requires the support of such resources to
support our business. There are also situations where we need
to acquire specific knowledge or experience that we have not
developed internally. Services provided within this category
include technology support like programming, systems
integration, creative services, and business consulting.
The selection process has not been fully competitive in the
past. Multiple proposals from alternative suppliers are not
always obtained. Project specification and desired outcomes
have not been clearly specified in all cases, and supplier
payments are not always tied to clear delivery of value against
specified objectives. We also found that the tactical
purchasing aspects of their acquisition process were cumbersome
and often delayed the commencement of work and payment to the
service providers.
Our approach in this area has been to provide tools and
purchasing support to the business, which encourages a more
thorough review of qualified providers. We recognize and
support the need for business managers to quickly identify and
acquire the most qualified resources for their specific
requirement. We have found that when the process for selecting
professional service providers is more competitive, there is
more flexibility on cost and other agreement terms.
We have also developed a more consistent process for
requesting such services, thereby ensuring that Hasbro's
liability and risk is minimized. We require a detailed
breakdown of resources, time, and billing rates to help ensure
that each phase of the project is completed successfully and
invoiced appropriately.
We have recently adopted a Web-based system which
facilitates a more rapid identification of multiple qualified
resources. This system helps ensure competitive pricing and a
more consistent approach to engagement management. In order to
ensure that services acquisition is managed effectively, we
have created a position within the purchasing department which
is focused on services acquisition. This position will continue
to provide support in the selection, negotiation, contracting
and management of service providers from tactical to strategic.
Thank you again for your time, and I would be happy to
address any questions you may have.
[The prepared statement of Mr. Dever follows:]
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Mr. Davis. Thank you very much.
Mr. Roberts.
Mr. Roberts. Mr. Chairman and members of the subcommittee,
I am a Senior Vice President and Managing Director of Federal
Services at KPMG Consulting, Incorporated. Thank you for
inviting me here today to testify on behalf of the 500
corporate members of the Information Technology Association of
America, ITAA. KPMG Consulting is one of the world's largest
consulting and business systems integration firms and is a
proud member of ITAA. ITAA has long been active on issues
pertaining to government procurement of IT. Additionally, we
have worked with your staff to recommend some of the provisions
contained in the legislation introduced this week.
We are especially pleased to testify in strong support of
H.R. 3832, the Services Acquisition Reform Act. A recent ITAA
survey, which I will include with my testimony, found that this
year Federal CIOs are highly focused on information security
and infrastructure. Their overriding concern is to address
security issues raised by the war on terrorism.
As Federal agencies and the rest of the Nation shift to
this new focus, it is particularly important that the Federal
Government have fast, efficient access to the best IT
solutions. We are certain that these solutions are resident
primarily in the private sector, and we believe SARA can help
the Federal Government to acquire them.
The leadership shown by this subcommittee to consider
changes in the acquisition of services by the Federal agencies
is timely for two other reasons. First, IT services has been
the fastest growing sector in Federal IT procurement. Second,
because the Federal Government is forecasting such a dramatic
decrease in the number of Federal IT workers in the next 5
years due to retirement, IT services will likely continue to
grow in importance for both government agencies and
procurement.
I would like to focus on what ITAA believes are the few key
provisions in the bill that will enable meaningful access to
commercial solutions. Acquisition work force recruitment and
retention--by the middle of this decade, the government will
face significant retirement numbers, particularly within the
acquisition work force. Agencies will be left to track not only
talented individuals, but also those individuals capable of
being schooled in the new contracting practices that have
evolved over the last decade. These individuals will be called
upon the facilitate the government's increasingly complex
requirements.
Recognizing the growing urgency of the government's human
resource needs, ITAA is pleased to support the chairman's goal
to establish an acquisition work force recruitment and
retention pilot program. This program will assist agencies in
matching their respective work forces efficiently and
effectively to their needs. ITAA stands ready to assist the
subcommittee in this important effort.
Acquisition work force training fund--hand in hand with
recruitment is the need for the government to train its
acquisition work force. For acquisition reform to be of any
value, those who implement the acquisition system must
understand how it works. Despite programs put in place with
previous acquisition reform legislation, training programs
throughout the government are still insufficient. ITAA has long
been a supporter of increasing funding for employee training.
We have also been highly critical of the fact that these funds
were too often the first cut when budget reductions were
necessary.
Establish a regulatory review process--despite a decade of
acquisition reform, many laws and regulations still inhibit
greater use of commercial practices. A continuous review of
these laws and regulations is needed, especially in light of
the ever-changing dynamics of our marketplace. This will
maintain a constant critical eye on acquisition law, always
working toward the optimization of the acquisition process.
ITAA strongly supports such a review process and would also
appreciate the opportunity to participate in an appropriate
manner.
Limitation on commercial liability--Federal contracting
officers are reluctant to limit the amount of liability a
contractor must accept, even though the common practice in the
commercial marketplace is to cap liability at the total
contract level, a multiple of it, or a specific dollar amount.
By forcing contractors to assume all risk, the Federal
Government will attract fewer competitors or companies who will
offer only low-risk solutions and higher prices. ITAA commends
the sponsors for considering this change to align more closely
with commercial practices.
And the last area, conflict of interest--in many instances,
the Federal Government may be denying itself services of
companies with the deepest and best understanding of particular
agency requirements. Many firms elect to forego opportunities
to provide front-end consulting to government agencies in order
to comply with procurement rules that would bar them from
pursuing larger development and implementation and maintenance
contracts. ITAA supported the provisions in the earlier drafts
of the Clinger-Cohen Act that revised the Federal Government's
rigid conflict of interest requirements. ITAA believes that the
commercial sector's flexibility in selecting the best contract
to provide a total solution should also be extended to Federal
customers.
Mr. Chairman, that concludes my comments. ITAA thanks you
for this opportunity to comment on this critical piece of
legislation. We also stand ready to assist you in any
modifications or additions to SARA. We again commend you for
taking this important and timely reform effort.
Thank you for the opportunity to appear today. I will be
happy to address any questions.
[The prepared statement of Mr. Roberts follows:]
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Mr. Davis. Thank you very much.
Ms. StandsBlack-Carver.
Ms. StandsBlack-Carver. Mr. Chairman and members of the
subcommittee, my name is Roberta Carver, President and CEO of
Four Winds Services, Inc. I am here today on behalf of Contract
Services Association of America, where I serve on its board of
directors.
I incorporated in 1991 Four Winds Services, Inc., as an
8(a) certified Native American woman-owned business company
that provides various types of contracting services to military
installations nationwide. Based on excellent customer service
and past performance record of excellence, Four Winds is the
recipient of several prominent awards.
I am a member of the Ponca Tribe located in Ponca City, OK.
I greatly appreciate the opportunity to testify before you on
services acquisition reform, a subject very important to my
company, as well as the entire membership of CSA. Services
acquisition reform remains one of the top three policy issues
for the members of CSA. We applaud your introduction of
Services Acquisition Reform, or SARA, and are committed to
working with you to ensure its passage.
I would like to touch briefly on a few key areas of your
bill that are particularly important to my company and all
small service contractors. I have provided a written statement
for the record which addresses the majority of the bill's
provisions in greater detail.
For CSA, the training and the education is a vital
component of the acquisition work force and ranks high as a key
area for all concerned. This is certainly true as we move
toward greater PBSA contracting, which both Congress and the
administration have embraced. PBSA allows the government to
identify the what, and it lets the contractor determine the
how. PBSA holds great vision and promise to reduce costs, while
increasing service quality. It capitalizes on the private
sector expertise and leverages IT innovations. Small businesses
will greatly benefit from such innovative contract types.
Properly implementing PBSA as a standard is another story.
For example, we have bid and won a PBSA contract. It is a
worthwhile challenge, but it has been our experience that
continual micromanagement is practiced by the government to the
extreme, which defeats the whole purpose and leads to
unnecessary internal conflicts.
Training is a big stumbling block. Your bill, Mr. Chairman,
which provides an innovative method for funding for training,
is necessary and a positive step toward ensuring that the
acquisition work force have the proper tools to implement PBSA
and all the acquisition policies. For example, the Native
American Incentive Act, it took literally an act of God to find
out the exact source of payment, and then became a self-
training effort for us in explaining the Act and its process to
our government personnel so that they could properly implement
it.
Also, improving payment terms for the service contractors
is a win-win for both the government and the private sector
contractors. It has definitely been a cost savings to the
government because the contractor will have less carrying cost
that would otherwise be passed on to the government. In this
electronic age, we should be able to provide electronic
invoices, which will expedite the process for getting paid for
services already rendered. The provisions in SARA will help
alleviate my cash-flow problems and help me meet my payrolls,
and saves the government from paying late interest fees.
Recently, it came to our knowledge that a January invoice
was not submitted in a timely manner by a government
contracting officer, and the payment was held up for 1 month
before being submitted to DFAS. Electronic invoicing would have
alleviated this problem.
Now, I would like to address the benefits of the longer
terms of 7 to 10 years for service support contracts, rather
than the traditional 3 to 5 year. There are currently only a
few agencies taking advantage of this. The benefits are easy to
quantify. The government benefits from the ability for
contractors to invest in more productive and efficient
capabilities for the job that would not be possible under the
short-term contracts. It is common knowledge in our industry
that the first couple of years are trouble-shooting and
implementing our new innovations to improve the service. A
longer-term contract would allow us to perfect and improve our
processes. Examples include state-of-the-art quality control
plans such as ISO 9000, modern innovative management practices,
and new software and efficiency programs.
Finally, as the bill moves through the legislative process,
I would urge the subcommittee to consider the revisions to the
Service Contract Act. SCA remains an important element to the
services contracting arena. It provides basic protections to
workers employed under government service contracts,
particularly unskilled and semi-skilled workers. While the
premise of SCA remains sound, certain revisions are needed to
update the Act and move ahead in the 21st century.
For example, the current threshold of $2,500 established
upon the Act's enactment in 1965 has not been increased since
that time. The SCA threshold should be increased to $100,000,
the current simplified acquisition threshold level. There also
should be a regular inflationary adjustment to tie to the SCA,
as you proposed in your SAT. I have long pushed for similar
adjustments in statutory thresholds mandated for the Small
Business Administration's 8(a) program. It just makes good
common sense. Increasing the SCA threshold would certainly
benefit my company and other small service contractors, while
still ensuring the Act remains in place on a majority of
government contracts.
Thank you for this opportunity to share my views with the
subcommittee, and I will be happy to answer any questions.
[The prepared statement of Ms. StandsBlack-Carver follows:]
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Mr. Davis. Thank you very much.
Mr. Howe.
Mr. Howe. Chairman Davis, Mr. Turner, Mr. Horn, I am Jerry
Howe, Senior Vice President and General Counsel of Veridian, a
leading provider of information-based systems, solutions and
services to the U.S. Government. We specialize in mission-
critical national security programs, primarily for the
intelligence community, the Department of Defense, law
enforcement and other government agencies.
I am pleased to be testifying today on behalf of the
Professional Services Council, a membership organization
including 140 members, which is the Nation's principal trade
association of government professional and technical services
providers. The PSC is a strong supporter of the Services
Acquisition Reform Act of 2002. We support the legislation
because of its focus on three interrelated aspects of a
successful system for the acquisition of services--people,
structure and processes. I will touch on each of these and hold
the rest of my observations for our written testimony.
Mr. Chairman, for services companies there is no more
important aspect of what we do than our people. The same is
true of the Federal work force. Too often, though, the impact
of economic change and legislative and regulatory actions are
ignored or dismissed as immaterial. That is a serious policy
mistake when dealing with the Federal work force. For our
members, it is a prescription for disaster.
Our focus on people is one of the hallmarks of our industry
and one of the reasons why PSC has been a vocal advocate for a
well-trained, well-compensated Federal acquisition work force.
SARA properly includes several provisions that address key
human capital needs in the Federal acquisition work force.
Among them are the provisions of Title I of the bill regarding
a funding mechanism to ensure that work force has meaningful
access to ongoing relevant training.
We, like many other witnesses before the committee today,
would prefer to see direct appropriations made available to
meet employees' training needs, ensuring that Federal employees
have ready access to those funds. Regrettably, as has been
observed several times also this afternoon, that is not the
reality of the current process.
Therefore, as a second-best choice, we have recommended and
strongly supported creating an alternative funding mechanism to
ensure at least a meaningful amount of training funds are
available. Section 102 of the bill is clear in moving toward
this purpose. By setting aside for training of the Federal
acquisition work force a small portion of the user fees on the
transactions made under multiple-award contracts, Congress will
have taken a significant step in addressing this important
matter.
Another key theme of the legislation is the focus on the
appropriate structure for managing growing responsibilities
placed on the Federal acquisition system. At PSC, we have
worked successfully with the senior procurement executives in
many of the Federal agencies. They are dedicated people who
have a passion for the work and a strong professional
commitment to the execution of their agency's missions. The
Federal Government spends $220 billion on goods and services.
Of that, $87 billion is spent on services. The magnitude of the
spending, which is increasing every year both in absolute terms
and as a proportion of the total, deserves the government's
full attention and commitment. In the formal structure of an
organization, including the placement of key leadership, is one
way to reflect that attention and commitment. Section 201 of
the bill creates in each agency a chief acquisition officer. We
believe the position of chief acquisition officer with
authority for assuring uniformity and accountability across
agency activities is crucial.
The Federal Government is slowly upgrading the tools and
techniques it uses to acquire services. Many of the best
practices for services contracting such as the use of
performance-based contracting have been around for decades. Not
as much progress is being made in the Federal sector. While
progress is being made, agencies' procurements are becoming
increasingly complex and technology-driven in the services
area. It is important to recognize that agencies need the
maximum flexibility to meet their mission needs, consistent
with smart acquisition planning and responsible oversight and
safeguards. Many of the provisions in Titles III, IV and V of
the bill are designed to do just that.
For instance, section 401 makes permanent the temporary
authority that exists to treat performance-based contracts or
task orders valued at less than $5 million as commercial items
eligible for use as special contracting techniques available
for commercial items. We support making that authority
permanent and governmentwide. While the test program being made
permanent is clearly a step in the right direction, more can
eventually need be done to address to address the barriers to
widen Federal agency use of commercial items purchases of
services.
Section 402 acknowledges that many services that Federal
agencies acquire are best performed on a time-and-materials or
labor-hours basis. These contract types are used widely in
commercial marketplace for services, and should be made
available for use by Federal agencies. Many of the specialized
training needs of Federal employees could be met by such
contracts.
The nature and scope of services acquisition is evolving
and the law should be updated to permit agencies to use a
contract type that is most appropriate for the needs, and
consistent with commercial practices.
Finally, while Congress examines services acquisitions, it
must do so within the broader context of strategic sourcing
decisions that agencies make for performing their mission. PSC
has consistently opposed legislation that would seek to
specifically mandate or give preference to an in-house sourcing
policy for the Federal work force or that would further tip the
evaluation scales in favor of in-house performance. There is no
need for any legislation in this area particularly at this
time.
Mr. Chairman, the Services Acquisition Reform Act of 2002
is an important contributor to improving the way the Federal
Government acquires services. We at PSC strongly support it.
Thank you for the opportunity to appear before the
subcommittee, and I would be pleased to answer any questions
you might have.
[The prepared statement of Mr. Howe follows:]
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Mr. Davis. Thank you very much. I want to thank all the
panelists very much for your testimony.
I will start with questions, and I will begin with Mr.
Horn, the gentleman from California.
Mr. Horn. Thank you, Mr. Chairman.
I think all of us respect the purposes of this fine bill
that you have put together, and we do need flexibility and we
do need to focus on things. But for those of you that might
have still been here when the first panel was, my question to
you is the same, whether you are in a corporate frame or
whether you are a contractor or whatever, and not in a
corporate frame. But can you tell me what kind of
responsibility and accountability will you put in your
organization so that we do not have the kind of thing that we
have had in the Navy in San Diego? Can you tell me how you will
structure it and how you will have accountability and
responsibility? Because otherwise, it is one great Ponzi
scheme, just like this Enron thing, and you have once, and you
get away with it, and then of course Congress will just murder
it, and they should. So I would like to hear from you, just
right down the line.
Dr. Kelman.
Mr. Kelman. I would like to hear from the gentleman from
Hasbro. I guess what I would say is that, first of all, if
people commit fraud, you send them to jail. That is the first
thing.
Mr. Horn. That is right.
Mr. Kelman. You have review procedures--actually the
purchase card makes it easier to do this kind of review than
the traditional system. We don't know what was going on in the
traditional system. The purchase card provides computer records
of purchases that can be easily scanned, can be data-analyzed
and so forth. With the proper management controls in place, it
is easier to detect fraud and problems with a purchase card
than it is with the pre-purchase card system. I think we should
also be careful, and I know your concerned with this as well,
Congressman Horn, that as Chairman Davis said, we keep a
balance here.
Let's remember we have 23 million purchase card
transactions a year. Two facts to keep in mind. First, in these
small purchases, whether it be in government or in industry, we
have learned that the administrative costs of the traditional
system, just putting the paper back and forth in the
requisition and so forth, are often greater than the amount of
the purchase itself; that it runs about $150 whether private
sector or public. I have seen some studies in Intel and some
private sector companies, and it did that in the government.
The government is saving $100 per transaction in administrative
costs from the purchase card. If you ask why were we able to
downsize the procurement work force in the 1990's, mostly it
was people doing these small purchase card transactions.
At 23 million transactions a year, that means the Federal
Government is saving $2.3 billion a year in administrative
paperwork using the purchase card. So we have to be careful to
put in the proper controls, make sure they are there, but it
would be, in my view, an anti-taxpayer policy to get rid of or
sort of say the purchase card is bad. The purchase card has
been a great innovation for the taxpayer, but we need the kinds
of controls that you have been talking about.
Mr. Schooner. Congressman Horn, if I could do three things
first. If you have the opportunity, if I could draw your
attention to pages 8 through 10 of my testimony where I discuss
section 221 and the purchase card at great length. I think you
will find that there are a number of useful statistics in there
and you will see that I have addressed a number of the concerns
that you have raised.
Second, one thing that concerns me quite greatly, and Steve
Kelman may remember this also, but when the purchase card was
actually being implemented during the acquisition reform
movement, and we went to the multiple award program that
permitted the various agencies to choose purchase card vendors,
one thing that we pushed very hard, and at the time I was at
OMB, we encouraged the agencies to adopt and accept those
vendors that were offering smart card technology power, rather
than necessarily just blindly chasing the rebates.
Having said that, in 100 percent of the cases, agencies
chose rebates over the kind of smart card technology that could
do the kind of oversight that Steve Kelman was just referring
to. The kind of oversight that we could do automatically
through the charge card vendors is mindboggling, but as a
general rule the government has not invested in that.
In addition, on page 10 in my testimony, I talk about some
specific steps that could be made with regard to the purchase
card, but I think the single most important thing that I would
recommend in that regard is, as Mr. Woods mentioned, in the
followup GAO report on the Navy issues and the purchase card,
they list page after page of potential controls that could be
used at various agencies. I think those are the kind of things
that ought to be considered in lieu of what section 221 does,
which is simply raise the threshold and not impose any
controls.
So I think that there are a number of things that could be
done, and I share your concern on the purchase card. I consider
221 to be the single most threatening thing in the entire SARA
legislation.
Mr. Horn. Mr. Dever.
Mr. Dever. Congressman Horn, the purchasing card has been
available in the private sector for probably 10 years. Hasbro
adopted its purchasing card about 5 years ago. These are
companies that watch dollars very carefully, and yet they
continue to find ways to expand the use of p-cards. At Hasbro,
as have transaction limits. Per transaction, we have limits per
month. The summary billings are reviewed by management. So if
there were any abuse, it would be detected quickly.
Additionally, there are, with the smart card technology
anyway, the ability to block those cards from being used for
certain types of purchases. For example at Hasbro, you cannot
use a p-card to buy a computer because we have a different
process for procuring computers, so certain retail
establishments can be blocked. And there are mechanisms to
highlight things that would point toward abuse as well.
So I think the controls are in place. It would be a matter
of consistent policy.
Mr. Horn. Mr. Roberts.
Mr. Roberts. I would agree with that. The biggest things we
have in any business is internal controls. They are
implemented, they are in place, and they are understood by all.
People are trained on what the controls are, and the key is it
comes down to simple individual accountability and
responsibility, as well as supervisory responsibility and
accountability, and those two things connected. We do not do
things at KPMG Consulting with our purchase cards. Again, we
have controls, but the key is people understand what the
controls are and they are acted upon, and they are trained on
it and you know what you are up against in all cases.
Mr. Horn. Ms. Roberta StandsBlack-Carver.
Ms. StandsBlack-Carver. Currently, Four Winds Services does
not maintain a contract in which we utilize the smart card. But
it is a general consensus in our CSA memberships that we do not
permit or accept any fraud among our membership companies. In
our other financial business practices, though, without the
smart card, we do have our own internal checks and balances in
which we do random reviews to ensure that there wasn't any
fraud taking place on any of our contracts. And we also are
consistently audited by an outside Federal agency, DCAA, on our
larger cost-plus-type contract.
Mr. Horn. Mr. Howe.
Mr. Howe. I will address the question from the point of
view of the seller of the services. Our company does not sell
any services since we are in the national security arena that
could readily be converted to personal use, such as DVD player.
But I will address the question this way, our company, and I
dare say all members of the PSC, have adopted codes of ethics
and standards of conduct which are enforced by internal
controls and disciplinary actions when appropriate.
Our company in particular has just opened something that we
call the Veridian Institute, which gives training a prominent
place within our company and pulls together all the disparate
resources and augments them that were previously used to
reinforce these kinds of procedures and controls. I think that
brings us back to the point that at least I started with, which
is the importance of training because you can have as many
rules as you would like, if people do not understand the
importance of those rules through training and know how to
comply with them, it won't work.
Mr. Horn. Any other comments you want to make on this very
possible interest of when we need to redraft something in the
bill? So I will look at a number of yours, and hopefully we can
work something out. I do not know if there are any other
suggestions, especially in the training course. You are right,
Mr. Howe, that if they are not serious and it is not good
teaching, not much is going to happen. So I would hope that all
of you would be able to put that program together.
Is there a model somewhere in the United States right now
that would be the best kind of corporate teaching, as well as
control in the particular card?
Dr. Kelman.
Mr. Kelman. We have it at Harvard, but I am sure it is not
a model.
Mr. Horn. Yes.
Mr. Kelman. We do have them, though.
Mr. Horn. You mean the model is Harvard?
Mr. Kelman. We have p-cards.
Mr. Horn. Yes.
Mr. Kelman. My assistant uses one, and actually I have one
as well for some expenditures, but I will not claim that we are
a model. Nobody reviews my purchase card expenditures at
Harvard. I am sure I am engaging in fraud all the time without
knowing it, but whatever. [Laughter.]
Don't throw out the baby with the bath water, I would say,
Mr. Chairman.
Mr. Horn. Thank you.
I will yield now to Mr. Turner, the ranking member on this
subcommittee, for questioning.
Mr. Turner. Thank you, Mr. Horn.
Mr. Schooner, I read what you had to say about the purchase
card authority. As you said, that is your greatest concern with
this legislation, adding that single zero. Do I take it that
your position is that it just should not be raised at all, but
what we should do is impose accountability and controls? Or if
we had accountability and controls, do you think it would be
appropriate also to increase it in some amount?
Mr. Schooner. Well first, as I suggested in I believe a
footnote, I think that it would be entirely appropriate to put
an inflationary adjustment on it. I do not see any reason why
it arbitrarily has to be $2,500 forever. It seems to me that
if, and this is a significant if, if we can establish internal
controls, appropriate training and stop the proliferation of
cards in terms of numbers of shareholders, and demonstrate some
level of stabilities and use some of this technology in the
near term to someone's satisfaction, hypothetically GAO's
satisfaction, then I think we should in fact be looking at
increasing the threshold. But now is not the time, and I guess
that the short answer to your question is, for the current, I
would hold the threshold where it is and increase controls
dramatically. I think that they should be both technological,
training-oriented and the like. Only when those controls are in
place and only when we have accountability should that increase
be made.
I think one of the most important things to remember is
when the original initiative for the purchase card and
procurement was made, the theory was to make the contracting
officer more efficient by giving him or her the purchase card
to, as Dr. Kelman said, save a lot of transaction costs. But a
funny thing happened on the way to the forum, when 670,000
government employees have a purchase card who on the average
have less than 4 hours of training and are unbound by any of
the conventional rules related to government procurement. This
is a process gone awry.
Mr. Turner. Dr. Kelman, do you agree with that?
Mr. Kelman. It is a little bit unclear what the proposed
statutory language does. Frankly, I was a little confused when
I read it. There are two different ways to use a purchase card,
Congressman Turner. One is as a purchasing device--in other
words, you use it, you decide what you get and then you use it
to pay for something. Using the purchase card as a purchasing
device is limited to $2,500. As I understand it, the language
in SARA continues using it in terms of the controls, the
procurement controls--having to get bids, all sorts of things
that the language in SARA does not change that. What it does is
to allow it to be used as a payment device from $2,500 to
$25,000. Now, in fact if that is what it does, and frankly it
is a little bit unclear to me what exactly it does, but if that
is what it does, actually since right now you can use it above
$2,500 only for contracts that have been negotiated already by
the government. And the biggest way it is being used now over
$2,500 is on these various large computer contracts where the
government has negotiated fantastic prices. They are world-
beating contracts. They are amazing contracts. They are
wonderful vehicles with great prices, great terms and
conditions and so forth. And people are using a purchasing card
to buy computers off of those contracts.
Those, frankly--the ones above $2,500 are actually probably
the ones least subject to abuse. If there is abuse and problems
and problems with controls, it is actually probably more in the
ones under $2,500, which the law does not change at all.
So I think I agree with Congressman Horn. I agree with
Steve Schooner that we need to do some more fraud controls in
general in the system. If all that SARA says is allow people to
pay for something using the purchasing card above $2,500, where
the contract has already been pre-negotiated and we know we are
getting good prices, they are just buying it off the Internet,
or whatever, I don't think that is an area of concern or
problem. I think probably the problems are more in the under-
$2,500 that this statute does not touch.
Mr. Schooner. May I comment?
Mr. Turner. Yes, Professor.
Mr. Schooner. My understanding is the intent of the statute
was to actually change the micro-purchase threshold, and I see
Mr. Brosnan nodding.
Going back to the point that Steve made, when the original
OMB report on electronic payment and purchasing came out in
1998, the theory was use the purchase card up to $2,500 for
purchasing, but up to $100,000 for payment. And as Steve has
suggested, there are huge efficiencies associated with payment.
But my understanding is this bill would in fact raise the
micro-purchase threshold to $25,000, which would basically be
98.5 percent of all government purchase transactions--no rules,
no controls, no nothing. And I think that is an accident
waiting to happen.
Mr. Turner. Well, as Mr. Horn pointed out a minute ago,
when you have examples of abuse, it is certainly a difficult
time to make major changes. I think we all understand the
private sector, if you abuse a purchase card, you are going to
be held accountable as an employee of the company, but you
won't likely read it in a newspaper. In government, you are
going to read it in the newspaper and it is going to be called
a scandal. So we I think share a common interest in proceeding
cautiously.
Professor Schooner, you also made a comment regarding the
acquisition training exchange portion of this bill in your
testimony. You suggested that we ought to be more careful about
protecting against conflicts of interest. Would you expand on
that? What kind of concerns should be looking out for? What
kind of protections against conflicts should we be including in
this legislation to ensure that problem you raised is
addressed?
Mr. Schooner. Off the cuff, let me confess that I think it
would be hard to come up with what those controls could be. I
think, for example, that an exchange program, whether you call
it the DigiCorps or in the scientific community, it is very,
very clear how these exchanges could pay tremendous dividends
for both sides, both private industry and government.
But consider the fundamental scenario where, and we are
only really talking about senior acquisition executives--a
senior acquisition executive goes to work for Lockheed-Martin
for a year and then comes back. Under the conventional rules
today, they would be recused from every doing business with
them directly, or at least doing business with them for a
certain period of time. These would be the minimum standards.
But the amount of pressure that this would put both ways--
imagine the Lockheed-Martin purchaser going to work in the
government office. Are they simply not to work with Lockheed-
Martin? How would they be perceived by Lockheed-Martin's
competitors when they came in to negotiate with those people?
I would love to tell you that I have concrete answers for
you, but I think that it is so complex, and despite all its
best intentions it raises issues that really need to be studied
before we take a shot like this.
There are plenty of people who have lots of experience with
regard to this. We have the Office of Government Ethics who
might be able to draft something, but I think we need to do a
lot of thinking about this because even if we could come up
with those rules, the rules that we would probably need would
probably be disadvantageous to the career progression of the
people who would most benefit from the program. And so I think
we could fall into a vicious cycle.
I apologize I do no have a concrete solution for you, but
at a minimum I think we need some hardcore study.
Mr. Turner. Let's address a minute the share-in-savings
contract concept. I know, Dr. Kelman, you have spent a lot of
time studying it and advocating it. You heard Ms. Lee make the
comment today that she thought there ought to be more incentive
built in for the Federal agency. I think what she was referring
to is, even though it is fundamental in the definition, that
the agency shares in savings. She saw a deficiency because I
guess the specific section of DOD that was doing the
contracting or the negotiating was not going to get the direct
share of the savings. It was going to go to the Department of
Defense generally.
It does seem that here again we have the potential for
conflicts of interest; that an agency negotiating a share-in-
savings clearly wants to be able to show sometime during the
contract period that there is a savings. And so there would be
a natural tendency to want to make the baseline as low as
reasonably possible so we can show those savings, that we have
actually done something that was positive.
How can we be assured that, No. 1, our Federal work force
contracting officers have the expertise to negotiate contract-
in-savings? And second, how can we be assured that they are not
going to have an inherent conflict of interest when they
structure those contracts, because they want to be sure they
show some savings?
Mr. Kelman. Well, I think--a few observations. People were
talking during the first panel about the need to learn to walk.
We are not going to learn to walk unless we take some steps
such as those outlined in SARA to make it easier for agencies
to get the experience doing this. There is experience. There is
positive experience in the IT area. Much of it is at the State
and local level. One very prominent example which has been
highlighted by the Council for Excellence in Government, which
is a good government organization here in town, is the
successful modernization of the California income tax system,
done through a share-in-savings contract while IRS has had
many, many problems over the years getting successes in their
own modernization.
There have been a number of examples, again at the State
and local level, involving parking enforcement, actually tax
modernization in a number of other jurisdictions, and so forth.
The Education Department contract, which was referred to
earlier, even if you accept the IG's version of the baseline,
and the Education Department does not agree with it, and it has
some--to my mind, I have looked at both the IG report and the
Education Department response, the IG report has some to me
very obvious errors in it. But even if you hypothetically were
to accept the IG baseline, over a 5-year period, the Education
Department and the taxpayer will be saving $15 million. By
using the IG's numbers, the taxpayers will be spending $15
million less for those services than they would be if that
contract had never been signed. And if you accept a more
realistic baseline, it is more than $15 million.
I guess what I would say, sir, I think that we need to
experiment with how we develop that expertise, get those best
practices together. One possibility is involving the IGs in the
development of baselines. There are also Federal, you know,
FFRDCs, people like Mitre Corp. and so forth, who sort of serve
as the government's nonprofit, non-partisan consultants. They
could be brought in to help the government develop baselines. I
think you are right to raise that as an issue and to say, hey,
we need to figure out how to do the best possible job here.
What I think would be a mistake, let's remember the status
quo. The status quo is far too many failed information
technology modernization projects in the Federal Government.
The status quo is agencies having the same conflict of interest
of claiming that this is going to work--you know, coming up
with exaggerated budget numbers. I mean, some of those
problems, that is why we have Congress. That is why we have
oversight. That is why we have, you know, whatever.
The status quo is not acceptable. The status quo is not
enough incentive for contractors to deliver results for the
taxpayer and for the agencies. This is a very creative--this is
the most creative idea in contracting that I have come across
in the last decade. This is a creative approach that rewards
the contractor only to the extent they deliver results.
Compared to the status quo, the status quo, sir, is often that
we pay contractors tens and sometimes even hundreds of millions
of dollars for projects that deliver no results. Share-in-
savings says that if you don't deliver results, you don't get
paid.
I want to do anything we as a government can to move us
from a situation where we just pay regardless of results, to a
situation where we pay only for results. Will we make some
mistakes along the way? Of course, but we have got to work to
change the way we do business and improve the way we do
business in the taxpayers' interest. And let's all again, be it
Mitre, be it agency best practices in sharing information about
best practices on developing baselines, be it DCAA should be
brought in maybe to help on these things, other accounting
firms--baseline issues are often accounting issues. So you
know, you bring in an accountant or bring in the government's
own accountants--again, DCAA. Let's instead of sort of saying,
well, this is not perfect so let's stop it before it gets
started, let's say we need to move this forward, and I think
the provisions in SARA do a great job of trying to move it
forward. Let's move it forward and let's exert careful
oversight from your end--plural--from Congress' end and let's
bring in experts and let's do the best we can so we figure out
how to make this work better.
But the potential for moving from a culture that allows or
pays for failure and one that only pays for results for the
taxpayer, that is too great an opportunity for the taxpayer and
the government and us as a people to pass up on, I think.
Mr. Turner. Thank you.
Thank you, Mr. Chairman.
Mr. Davis. Mr. Kelman, let me just continue. You and a
number of other witnesses today have just cautioned that the
SARA provision that would reserve for work force training 5
percent of the fees collected by agencies under their multi-
agency contracts could results in agencies merely substituting
money that is collected for funds currently used for such
training, rather than adding to the current levels. It is hard
to measure how much money is used for training. We tried to go
through the budget, but here is what my cursory research shows,
is that SARA can produce $600 million to $800 million a year in
a training pool. DOD, we find, uses about $100 million a year
in training now.
So this would, even if they replace it, I think do a better
job, and more importantly it is there year after year. I know
that changes--I think we are still want to pay attention to
what you cautioned on this, but that may make you feel better
if those numbers indeed go up.
Mr. Kelman. Yes, that is interesting. What I suggested,
Chairman Davis, in my written testimony was one way to prevent
against that danger, if one is worried about the danger, is to
say that the money cannot be used to meet existing statutory
requirements under DAWEA or the Clinger-Cohen existing training
provisions. Instead, we asked the procurement executives to
come up with some special topics--share-in-saving baselining,
performance-based contracting, whatever--that would be the
subjects of training negotiating techniques; things that help
the government, to use Deidre Lee's expression, become business
advisor or help the contracting folks become business advisors.
Have it be topics in intelligent ways to do business, and use
the fund for that reason.
If I could add one other thing, the administration in its
testimony referred to this as being, you know, it should come
under, this is bad budgeting practice to not have to have sort
of a separate line item for this. I am not particularly a
budgeting expert, although I know some budgeting experts at the
Kennedy School. I guess I would say that there are lots of
budgeting experts in academia who would strongly disagree with
the view that we should have a micro-line item for every little
micro-area. They would argue that this is perfectly acceptable,
perfectly good budgeting policy.
Mr. Davis. I am sure in academia you can find someone to
support almost any position. [Laughter.]
Let me ask Mr. Schooner, in your testimony, I think if I
heard you right, you believe that the lack of external
oversight is negatively impacting the procurement process.
Mr. Schooner. I do.
Mr. Davis. And by lack of external oversight, do you mean
lawyers filing suits? Bid protests?
Mr. Schooner. To the extent that Steve has already taken
his cheap shot at me on this one today, and to the extent that
we disagree, I take your point, Congressman Davis, that I would
not want to come here today and suggest that litigation is a
public good. Conversely, the concept of third party monitoring,
external monitoring, or private attorney general activity is
more important when we have a massive reduction in internal
oversight like we saw in the 1990's. It would be absurd for me
to come before you and say that generally, in a vacuum, that
third party oversight is the preferred alternative. But we have
viscerated our oversight system during the 1990's. And so as a
second-best alternative, it frightens me that we also saw the
reduction in external oversight.
Mr. Davis. I think a recurrent theme I am hearing today is
the concern over the smart card. Whenever you embolden or
empower your purchasers out there in the field to do things,
more mistakes are going to happen. That is natural. You gain a
lot of efficiencies as a result of that, a lot of good things
happen. But you are going to get more mistakes and one way to
hopefully curb that and limit your mistakes is by appropriate
oversight as is appropriate training.
How you do that, I don't think you are keen on how you do
that one way or the other, either internally or externally, but
you feel, and I think probably everybody feels, you need to
make sure we have enough oversight.
Mr. Schooner. Right. Clearly, I prefer the internal
oversight to the extent that we could have it, but let me also
say to the extent that you mention the smart card technology,
one of the other things that I propose if you do want to speak
to the purchase cards, one excellent suggestion that this
committee could make would be to push the government in the
direction of leveraging their purchase power. Right now, no one
is concatenating the data on what the government buys from
large retailers so that we can go to Home Depot and go to
Stapes and go to these places----
Mr. Davis. Economies of scale.
Mr. Schooner [continuing]. And basically say, we spent $20
million with you last year, so now we want a point-of-sale
discount when someone shows up with a government purchase card.
We do it with the travel card with hotels and rentals cars and
the like. We should do it with the purchase card as well.
Mr. Davis. Absolutely.
Mr. Schooner. And the technology is there to do it.
Mr. Davis. Mr. Kelman, you would agree with that, too,
wouldn't you?
Mr. Kelman. Yes. That is actually done already to a fairly
large extent. GSA, for example, if you use a purchase card at
True Value Hardware Stores, you get an automatic I think it is
10 percent discount off the GSA schedules. And of course, a lot
of purchases--I think in the long run----
Mr. Davis. We do it for hotels, at government rates and
stuff.
Mr. Kelman. We do it for hotels. We do it--absolutely--we
do it for air fare and we do it for off-the-shelf computers
where the government gets fantastic prices.
Mr. Davis. But obviously this is a place where we can
expand it and maybe we ought to include something like that
here.
Mr. Kelman. Absolutely.
Mr. Davis. The government's goals in this ought to be able
to get the best value for the taxpayer dollar; not be concerned
with whether it gets outsourced or in-house or all these other
rules, and that is what we are trying to get at.
Let me just ask a few more questions. Mr. Dever, in your
statement you describe some of the innovative approaches that
Hasbro has undertaken to manage its acquisition services. What
were the drivers or motivators behind your effort?
Mr. Dever. Improved financial performance for the most
part, and moving away from a decentralized approach to more of
a centralized one.
Mr. Davis. So basically the bottom line drove it.
Mr. Dever. Yes. And there are significant service
enhancements, increased value, kind of non-financial value
opportunities.
Mr. Davis. Does Hasbro have the equivalent of an executive
level chief acquisition officer?
Mr. Dever. That is my role.
Mr. Davis. OK. So you are the guy, so to speak.
Mr. Dever. The role was created 4 years ago and I was hired
into it at that time.
Mr. Davis. OK. Do you use performance-based contracting for
services?
Mr. Dever. Yes. We negotiate service level agreements with
various providers and measure that performance on a regular
basis, and ultimately renegotiate those contracts based on
that.
Mr. Davis. OK.
Let me ask Mr. Roberts if you can answer this. Do you know
what barriers IT companies would encounter when selling
commercial IT services to the Federal Government under the
current FAR Part 12 definition?
Mr. Roberts. Under the current FAR?
Mr. Davis. Just under the current law. Don't worry about
the FAR.
Mr. Roberts. The biggest things right now are probably
conflict of interest, where current IT providers will go in and
can do the requirements analysis, but are precluded, though,
from doing implementations in some cases.
Mr. Davis. OK.
Mr. Roberts. On the commercial side usually you will have,
if they can do both, they will do both. A lot of times in the
government, some people will be conflicted out just for
purposes of conflict. I think that needs to--what is nice about
the SARA bill is that takes that out.
Mr. Davis. Does KPMG currently do share-in-savings
contracting?
Mr. Roberts. We do not.
Mr. Davis. OK. Do you assist companies in developing
appropriate baselines?
Mr. Roberts. What we will do is we will help the government
determine yes--with some of our clients, we will go and do
activity-based costing and determine what the cost of that
activity is. We would be in a position to help set up that
baseline since you could do a share-in-savings contract. Yes.
Mr. Davis. Ms. StandsBlack-Carver, let me ask you, you
point out that the SARA provisions on electronic invoicing and
agency-level protests are particularly advantageous for
innovative small businesses like yours. Are there any other
SARA provisions that you find particularly attractive from a
small business point of view?
Ms. StandsBlack-Carver. Since the bill was just really
introduced on Monday, I really have not had a thorough review
on it. But I could get back to you in writing on that, because
there are several that are advantageous to small business.
Mr. Davis. If you find anything, you can get back to me.
All right, I was just throwing it off the top.
Well, let me ask you this, in your testimony you note the
ongoing problems with DFAS due to problems we are all
encountering with mail. We are having terrible problems with
mail on Capitol Hill.
Ms. StandsBlack-Carver. I have heard.
Mr. Davis. Is this still the case? Is DOD offering any
assistance to small businesses in overcoming these significant
time delays through the mail that you have seen?
Ms. StandsBlack-Carver. To be honest, no, sir, not really.
There is very little recourse for small businesses.
Mr. Davis. OK. Thank you. I don't think that was anything
that was anticipated when we went through, but the mail has--e-
mails to my office have increased 100fold and regular mail--we
have some pictures we took with the President and they were
getting them back and they got zapped in the machine and they
didn't turn out--I mean, those kind of situations that nobody
recognizes, but mostly it is just a delay in everything. And
when you are trying to meet a payroll and you are waiting for
that check and everything else, it is, for small businesses in
particular, it can be----
Ms. StandsBlack-Carver. Luckily, we do have the electronic
payments, which have really been great.
Mr. Davis. Right.
Ms. StandsBlack-Carver. The invoice--the whole process
should be electronic.
Mr. Davis. But you cannot invoice electronically?
Ms. StandsBlack-Carver. No, sir.
Mr. Davis. You can hand-carry it, I guess. Have you done
that?
Ms. StandsBlack-Carver. And we do.
Mr. Davis. We used to do that.
Ms. StandsBlack-Carver. We still do that.
Mr. Davis. Mr. Howe, can you elaborate on the reference you
made to intellectual property issues in your testimony?
Mr. Howe. I think that it is important for there to be a
correct balance between the rights of the owners of the
intellectual property being the contractors and the government.
Fundamentally in this area, what the government is trying to
obtain is a solution to a problem. And if the problem can
deliver the solution to that problem, there is no reason for
the government to be obtaining any intellectual property rights
in all of the research and development and thinking and know-
how that the contractors have put into that.
Obviously, the government needs a license to use whatever
technological solution is provided, but it does not need any
license to any of the background technology or the preceding
intellectual property.
Mr. Davis. OK, great.
Mr. Horn, do you have any other questions? Anyone from the
panel want to add anything in rebuttal or anything that has
occurred to you?
Mr. Dever. Could I make a comment on shared savings
proposals?
Mr. Davis. Sure.
Mr. Dever. I have had the opportunity to negotiate a
limited number of shared savings, and they tend to be pretty
complicated for a number of reasons. But there are some
criteria that we look at or that we consider before entering
into a shared savings agreement that I think you might adopt.
First of all, and it has been brought up, the ability to
accurately benchmark and then measure the savings. If we don't
agree on what the savings are, it is hard to share.
Second, these are useful to the supplier. They will take
some risk up front on the chance that savings will be
delivered, and then they get paid more as a result. If we are
very confident that savings will come out of that engagement,
then there is no need to share it. OK?
So there is something in between the idea of don't pay
unless there are results, and we are paying for no results, and
that is pay a fair price and expect and negotiate results. But
the shared savings proposals, there is a tendency to overpay.
Mr. Davis. Well, if you don't know what you are doing,
absolutely. I mean, the whole point there is making sure that
your government purchasers when they are doing the deal
understand enough technically to know what they ought to get
and what that cost ought to be. And that is difficult. That is
where the training comes in and that is where we are trying to
get the private sector into government and back and forth to
understand the different cultures. It all comes into play. But
if you have a smart buyer, and you don't want to take the risk
at the governmental level of ending up as we have so many times
ended up, buying something that doesn't work or isn't what we
wanted and paying tremendous costs, share-in-savings is great.
Now, I think that the difficulty we have is, No. 1, you do
not have the tools to do that today. You can try to do it, but
it is kind of convoluted to try and do it within government.
And second, this will be something that your purchasers are
going to be reluctant to use initially, because they are afraid
somebody is going to make a big profit on them. But I will tell
you what, it is better for that to happen than it is to put a
lot of money in and end up with nothing, which happens so many
times.
I have been on both sides of that equation and it is no
fun, and usually it is the problem with the government just not
supervising the contract correctly, asking for what they want.
The nice thing about the way we are buying things now, the old
days when I was a general counsel, you would respond to an RFP,
you would come in and you would go to the best and final. You
always worried about a bid protest. And at the end of the day,
the government would get something that wasn't quite what they
wanted, but it met the criteria and it didn't really work. We
wasted a lot of money that way, not just on lawyers. We also
wasted a lot of money on systems and stuff because you had to
justify it and go through too much external oversight.
There is always a balance to this, and that is what we are
trying to get at. It all starts and ends with having your
government employee, that official on the front lines who is
buying for the agencies, and there is an assumption somehow
that purchase knows more about what the agency wants than we do
in Congress or the other people who are not as closely involved
are, and that they are then trained and have the know-how to go
out and drive the best deal for the government.
That takes a lot of training, and it means good people. But
if you have it, that is the way it works. And there are
tremendous savings, in my opinion, that can be made, and that
is what we are trying to get at. And I recognize in all of this
that somebody is going to abuse the purchase card. They are
going to overcharge, take their friends out to dinner. I mean,
who knows what is going to happen. You have had that in
government, making long-distance phone calls--you live with a
certain amount of that petty stuff because of what you make up
over the long term. But human beings are human beings, and you
want to exercise oversight so that people are not constrained
from doing this and creating efficiencies, but on the other
hand, enough oversight so that it is not abused.
And what that balance is, I mean if you look at the history
of government procurement, we never quite find the balance. But
there is a recognition of the Federal Government being the
largest purchaser of IT goods in the world today, that we are
spending and wasting billions of dollars, sometimes just
because our own rules and regulations require it. And from my
perspective, I would rather overpay somebody who gives me a
system that I can use and ends up saving me money, than I would
to pay somebody who gives me something I can't really use. And
we see that all too often in government, if you have to make
that tradeoff. Hopefully, we do not have to make the tradeoff.
And I will tell you the other thing about a share-in-
savings contract is you incentivize companies to work
efficiently because, No. 1, they are going to eat any problems,
they have to eat it, on the one hand. On the other hand, if
they come up with a good solution, there can be a huge high-
end. But again, if you negotiate the agreement bad from the
start, then you are going to be overpaying, and the key is
making sure you have an adequate baseline, our people are
trained and we can do that. So that is what we are working on.
But I appreciate everybody's comments today, and I think
all of you have been on the front lines of this. We don't all
agree on every single issue. In fact, I will go back and read
the testimony, and I probably won't agree with some of the
stuff that I thought earlier in the day, but that is why we
hold these hearings. And if we can continue to have discussions
with you and meet with you, maybe we can come out with
something we can at least get a majority of the committee, at
least in the House, to agree to and move it through.
Thank you all very much. Before we close, again I want to
thank everyone for attending this important oversight hearing.
I want to thank the witnesses. I want to thank my ranking
member, Representative Turner. I want to thank Mr. Horn who has
been a partner in these issues going back several congresses.
And I want to thank my staff for organizing what I think has
been a very productive hearing.
We are going to keep the record open for 2 weeks for
anybody who wants to add anything, get questions through, and
the briefing memorandum will be entered into the record.
These proceedings are closed.
[Whereupon at 4:48 p.m., the subcommittee was adjourned, to
reconvene at the call of the Chair.]
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