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1993.
10.26 :  Briefing on Savings from Procurement Reform

THE WHITE HOUSE
Office of the Press Secretary

BACKGROUND BRIEFING BY SENIOR ADMINISTRATION OFFICIALS
October 26, 1993
The Old Executive Office Building
11:21 A.M. EDT


Q:  On that crime -- the $4 to $5 billion for crime, is that to
come out of the first $10 billion-plus that you know CBO will
accept, or from the rest that gets you to the $22 or $30 billion?

SENIOR ADMINISTRATION OFFICIAL [Names deleted]:  Our estimates
are that the first year of procurement reform will yield $5.6
billion in savings.  And the estimate is that $5.6 billion is a
very conservative number, it can easily can be saved.  It
represents--think of it--it's $5.6 out of $200 billion.  If we
can't save that amount of money, then we've really got problems,
particularly if we loosen up the system.  And that should be
sufficient to pay for the crime bill.

Q:  You promise $10 billion in cuts-- 

SENIOR ADMINISTRATION OFFICIAL:  That's deficit reduction.  

Q:  Now, if you have $10 billion in deficit reduction.

SENIOR ADMINISTRATION OFFICIAL:  Yes, that's deficit reduction.

Q:  Now the $5 billion is beyond that?

SENIOR ADMINISTRATION OFFICIAL:  Beyond that. Yes.

Q:  But it's not counted in the CBO scoring?

SENIOR ADMINISTRATION OFFICIAL:  No.  Well, CBO hasn't scored
this yet because Senator Glenn is just introducing his bill this
afternoon.

Q:  You said you knew you were going to get the $10 billion plus
some $3 to $5 billion from CBO.

SENIOR ADMINISTRATION OFFICIAL:  We hope we'll get $3 to $5
billion from CBO, yes.

Q:  Okay, is that where the crime money is or is it from the
rest?

SENIOR ADMINISTRATION OFFICIAL:  Yes, that's where the crime
money is.

Q:  Three to $5 billion is in the first--do you think CBO is
going to score this $3 to $5 billion in the first year?

SENIOR ADMINISTRATION OFFICIAL:  In the first year of procurement
reform, yes.  We hope.

Q:  And your estimate of where those savings come from--is that
primarily in lower prices?

SENIOR ADMINISTRATION OFFICIAL:  Yes.

Q:  Or is that--is a lot of that in fewer government workers?

SENIOR ADMINISTRATION OFFICIAL:  Well, it's--let's go through
that because I think it's very important to this discussion. The
studies on defense procurement indicate--have various estimates
on how much money you can save.  And I will let Colleen and Al
talk to some details about this.  Essentially the National
Performance Review estimated that we could save--we took a 
very low number, five percent, some studies were as high as 12
percent--that would result from procurement reform.  Five percent
of $800 billion over a four-year period, okay, gives you $40
billion.  We then took $17 billion out of that because we didn't
want to double-count personnel that might be used for procurement
reform.  We put that into a separate personnel number.  So the
NPR recommended--suggested--that we will save $22 billion over a
four-year period.  We didn't count anything for the first year
because we didn't know how fast we'd get this enacted.  Obviously
if we get it faster, we'll get the money faster--$22 billion over
a four-year period, $5.6 billion in the first year.

Now, since we have already counted in our other cuts--the
personnel--that is primarily in the cost of lower products to the
federal government.  And as I say, look at it in the context.  If
you're buying $200 billion worth of goods and services a year,
you ought to be able, particularly if the constraints on your
volume are lifted as this procurement bill would do--saving $5
billion dollars out of that should not be terribly difficult.  We
think it's very doable.  Did you want to say anything on this? 
It's very important.

SENIOR ADMINISTRATION OFFICIAL:  Perhaps I could just refer you
to some studies that have been done that I think give credibility
to these numbers and give you a sense of the magnitude of savings
that are likely.

The Center for Strategic and International Studies at Georgetown
University has completed two studies over the last two years
looking at this very issue.  What they found is that firms
--particularly firms who are in the commercial marketplace--had
tended to separate their work.  They just don't want to have the
increased burdens and the increased audit requirements, the
possibility of losing technical data to the federal government. 
And, as a result, they've set up separate entities to do their
work for the government.  When you take a look at what these
entities charge the government in terms of paying for the items
that we buy from them, they suggest that there's an
administrative overhead cost three times higher for what the
government gets than what the private sector gets.

The Defense Science Board just recently did a study, as well,
looking at this very same issue.  And in their report which was
released just recently,  identified a whole series of specific
savings as well.  For example, they mention Motorola developing a
secure telephone that costs one-tenth the cost of what the
government would have had to pay for it if Motorola hadn't used a
commercial process for developing this item.

They talk about electronics savings, which is clearly important
for defense weapon systems, since you're seeing significant
amounts of money being spent in that area, even on the most
technical government requirement.  And here again, 30 percent to
60 percent of those  kinds of costs for what the Defense
Department buys is often electronics gear--savings 20 percent to
30 percent here.  So there's a whole host of these kinds of
reports that we feel give good credibility to the notion that a
five-percent estimate of savings is a conservative estimate.

Finally, there's one other effort that was recently completed,
and this is something that had been referred to as well.  The
Section 800 panel that was set up by Congress to look at how we
could streamline the way Defense does business, and the report of
that panel suggested that commercial firms doing business with
the government were paying up to 12 percent more--the government
was paying up to 12 percent more for the items being produced by
these firms when the government buys these items, as opposed to
when they're out in the private sector.  So we see significant
gains to be achieved here.  And we feel that the percentage that
we're estimating is a responsible number and, really, an average
of many of these other figures coming from these other studies
being done.

Q:  So if you save $5.6 billion in the first year and that goes
to the crime bill, then the $10 billion for deficit reduction
comes when and where?

SENIOR ADMINISTRATION OFFICIAL:  The estimate is a savings of
$22.5 billion over a five-year period with none of the savings in
the first year.  So the estimate is at a $5 billion rate per
year, each year.

Q:  Starting in which year?

SENIOR ADMINISTRATION OFFICIAL:  Starting in 1995.

SENIOR ADMINISTRATION OFFICIAL:  No.  In the report, we started
the savings in '96.  That's because we didn't know how long it
would take--

Q:  So no deficit reduction will occur as a result of your action
until 1996, is that correct?

SENIOR ADMINISTRATION OFFICIAL:  No, let me say in the report we
started the savings in '96 because we did not know how long it
would take to develop and pass a comprehensive procurement reform
bill.  So we gave ourselves a year.  If this bill passes, as we
hope it will in a couple of months, we can start seeing savings
right away.  We can start seeing savings right away.  We can
start seeing savings in '95.  The package that Director Panetta
talked about, the $10 billion package, is $10 billion dedicated
to deficit reduction over five years.

Q:  I understand that you want to pass the procurement reform
package very quickly, but are there going to be hearings to get
industry input very quickly on these?

SENIOR ADMINISTRATION OFFICIAL:  Yes, my understanding is the
Senate plans for hearings.  I believe they'll be joint hearings
with the Armed Services and the Governmental Affairs Committee. 
And they are also committed to trying to make something happen
this fall as is Mr. Conyers.  So we hope to see something done
over the next few weeks.

Q:  And industry witnesses to--

SENIOR ADMINISTRATION OFFICIAL:  We expect that there will be
witnesses from all sectors who will be interested in the
procurement reform effort, including people from the private
sector, from industry as well.

Q:  How do account for the large gap between what the CBO is
likely to score the procurement savings at and the $200 billion
that you hope eventually to get out of this?

SENIOR ADMINISTRATION OFFICIAL:  No, no, no--not $200 billion--

Q:  Well, $40 billion.

SENIOR ADMINISTRATION OFFICIAL:  --that's what we spend a year--
$22 billion.

Q:  Twenty-two billion, right.

SENIOR ADMINISTRATION OFFICIAL:  We don't account for that
because we don't know yet how CBO will score this.  We're hoping
--we would score it-- if we were scoring it, as anywhere from $3
to $5 billion per year.  In the report, we said we think it will
save $5 billion.  Here's the problem with scoring it.  The
problem with scoring it is it involves an estimate on what will
be the reduction in the cost of goods and services to the
government.  And that's very--that's a difficult thing to do.

Q:  The report included a recommendation on Davis-Bacon I don't
see in this package.  Vice President Gore mentioned something
about working with Senator Bingaman on that.  Can you tell us
more about that?

SENIOR ADMINISTRATION OFFICIAL:  Davis-Bacon crosses several of
the--the jurisdictions of several committees in the House and in
the Senate.  So far we've been working with the Government Ops
Committees and with the Armed Services Committees.  Senator
Bingaman will be working with us and with the Labor Committees to
come up with an amendment dealing with Davis-Bacon and the
Service Contract Act.

Q:  Can you elaborate on one of the executive orders that's
supposed to be released dealing with reducing unfunded mandates
to state and local governments as well as this idea of increasing
waivers in statutory and regulatory requirements?

SENIOR ADMINISTRATION OFFICIAL:  The President signed that
mandate this morning in a meeting with the representatives of the
Big Seven--the states, the counties, municipalities, governors
associations.  And that executive order is drawn from the
National Performance Review.  It basically sets up a procedure
for having input from state and local governments in the making
of regulations, and it advocates in legislation greater waiver
authority for agency heads and Cabinet secretaries so that they
can accommodate the law to special situations that arise at the
states and localities.  And that, of course, has been a big
problem for smaller states, et cetera.

Q:  Could you give us some examples of unfunded mandates?  What
do have in mind there?

SENIOR ADMINISTRATION OFFICIAL:  I think that there is a lot of
examples of unfunded mandates, and it kind of is in the eye of
the beholder because the states and localities will define them
somewhat differently.  But a lot of environmental questions fall
into that category, many health care provisions--it's all over
the place.  And--

Q:  But how do you--who is the ultimate determiner of what is an
unfunded mandate?

SENIOR ADMINISTRATION OFFICIAL:  Again, it's in the eye of the
beholder.  The people in Congress who pass the laws don't think
they're doing such damage.  Sometimes, the people on the ground
who have to implement the laws complain about them and say this
is really posing an enormous fiscal burden on my city or my
county, and I can't deal with it.

We want to create a process--we have created a process where we
can have a better dialogue between the local governments and the
federal government on all those issues.

Q:  So before you could actually reduce the number of unfunded
mandates, you have to decide what they are.

SENIOR ADMINISTRATION OFFICIAL:  Yes.

Q:  A follow-up on that question.  Does that mean the executive
order deals with stuff in the future rather than existing--

SENIOR ADMINISTRATION OFFICIAL:  That's right.

THE PRESS:  Thank you.

END 11:32 A.M. EDT