witnesses who know these issues to discuss for us their views on how we might better manage the defense industrial base what the criteria for that better management are what kind of solutions that we employed in the past and what kind of problems that we've raised in the past we're going to look at workforce quality issues and workforce we're going to look at issues of technology we're going to look at a number of different issues that this but suffice it to say i'm sure this will be an ongoing problem to find the proper balance between a predictable set of expectations for enterprises and the marketplace level of competition among those enterprises so that the the this hearing in the topic you've chosen is a very important one i think you captured both you and mr conway captured very well the importance of the discussion that has to take place let me start by suggesting that we don't have an industrial base we have multiple industrial bases and even represented this table you have two separate bases that i was going to focus my conversation you have the industrial base that is primarily responsible for the manufacture developing the major weapons systems on the hardware side and then there's a services industry a professional services technology services industry and while they're very much integrated in many ways they are also very separate and very very different dynamics and i'll address some of that in my testimony and a little more detail of course is contained in my written statement in fact the defense department has for a long time focused on impacts on the defen industrial base of many of its actions there is an office of industrial affairs that is primarily set up to do that in the defense department the same time department spent over one hundred eighty billion dollars last year on services forty percent or more of the total contract spending  it has invested relatively little time in really understanding and developing at a keen awareness of the dynamics and structure of the services industrial base which is so significantly realized in other words even as we have been trying to probe to build better oversight of services contracts and services contracting in the department our insight into the supplier base forming on those contracts at the department level remains limited with regard to the base itself the services industrial base in two thousand and six the center for strategic and  international studies with the strong support of p f c undertook the first ever analysis of the federal professional services industry this is actually never been done before this c s i s study is available on our website i believe we have some copies here with us today but there are several key insights that they found that i want to share number one the services sector is incredibly diverse both in terms of size and in terms of capability second more than seventy percent of the contracts in the services sector in the federal government are competitively awarded that's competitive business to the extent that there a least two if not more bidders on everyone on each of retirements third the growing use of large multiple award contracts under which companies must compete to get on the contract and then compete again to get task orders under which the actual work is performed has driven up transaction costs for everybody in the marketplace with a particular impact on small and mid tier firms who most cost a particular precious and finally for a variety of reasons there has been a real pressure placed on the mid tier of the marketplace if you have a natural market psyche of small mid to and large the mid to or of the services market is under pressure in some segments particularly i t services those market share reductions have been as much as forty percent the defense department did utilize the c s i s study to do some internal analysis of its own share of the professional services market but to date not much has been done with those analyses yet the department and to some extent congress continues to promulgated new policies regulations and laws that will impact that industrial base absent that details understanding of there is an impact and we believe that ought to with the cart before the horse on the policy side and actions taking place within the defense department that really three things out of one a very briefly touch on number one small and mid to your business the government company is a good example of there are multiple tiers within the services sector in each size category so just this binary view immediately starts you from a presumption that does not reflect the reality of the market second some people increasing numbers of people in small businesses particularly entrepreneurial technology based companies mid summer companies are beginning to question the the premise of our small business programs not that they disagree with them but what's the goal is it to create small businesses or is it to create sustainable small businesses that have the ability to grow to the extent of their capabilities and ambition that is actually it may sound like a fine distinction but a very critical distinction because our focus has been on the former which is to create businesses and less on the latter is what are we doing to foster growth and development beyond th mr chairman you mentioned the workforce issues with a very critical element of understanding the dynamics of the industry because the fact is that industrial base issues principally revolve around as in any business relationship risk and risk management what are the risks what are the predictable elements what are the non predictable elements and how do i manage those and as a customer you have to understand how your supplier base to find manages and identifies risks that is not a core component of the acquisition training in the defense department today for people doing services acquisition and we think it should be a core component of that training finally there's a number of specific policy initiatives underway today that bear some discussion and in my written statement i mention three insourcing organizational conflicts of interest and fixed price contracting three very disparate kinds of policy issues and how we think they actually have an industrial base effect in the interest of time what i'd like to do is just touch on one and that's the end sourcing question in sourcing is very much an issue of industrial base concern and mr chairman i think you captured it very well in your opening statement when you talked about predictability and competition we have a marketplace and services that is highly competitive but in sourcing if it's done wrong completely destroys that competitive base because we're no longer competing we are taking the government acting in a monopoly manner just taking work and second it destroys the cum predictability in the marketplace it creates risk it creates uncertainty it breaks down partnership trust and relationships so it is an industrial base issue the secretary has set a goal the sector of defense of realigning and rebuilding critical skills in the defense department that's one stream of insourcing we've heard a lot about we are very supportive of that initiative while we may disagree and have specific elements of how it's done it's an initiative that's important we all recognize that there's been a fall off in skill sets particularly in acquisition so we do not object  effectively would support strategic looks at how we can rebuild that workforce but the other insourcing that has taken place in the in the department or beginning to emerge in the department some of the driven by legislation which is structured the department to consider in sourcing a variety of functions not a mandate but to consider and then budget bogeys that have been given to the military services are driving an entirely less strategic and i think less beneficial behavior for example on the on the legislative side b has put out a memo on july twenty ninth directing how to implement congressional direction and there's a very good job of defining the term consider makes it clear this is a source neutral decision and that this should be part of your thinking should we perform the work in house or  performer by contract and then lays out a number of decision levels that you have to go through to make that decision that discipline at this point does not appear to be taking place within the department i'm not blaming this on the secretary at because they've been primarily focused on the workforce rebuilding part which is a whole different decision that's a strategic human capital initiative but as you have this insourcing taking place in the field where people perceive it either to be a mandate or not doing full cost analysis where they really look at what is the cradle to grave cost for the government across the board not just your own personnel line or your own benefits line but what are the infrastructure costs that somebody else who's paying for the lifetime health care who's paying for workforce development how do i know i'm getting the right skill at the right place that might be slightly less expensive but maybe i need actually a higher level of skill for which the marketplace is determined there's a higher value to that skill and so forth those analyses to the best of our knowledge have not been done in fact what's happening in many services is they have declared outright that for every position that the service in sources the service is taking a thirty to forty percent savings per position and our question is based on what if i have a contractor mr got to get sick of this much better than i since he has a situation if i have a contract and i have seventy five people performing on that contract and you look at that cost and then say well by person person here's what i think i could say by insourcing it i mean it we walked away from the fundamental premise premise of business which is competition what if i said to the marketplace i need to reduce my costs or what's the marketplace adjustment going to be i could maybe do it by person per by person cost might be higher but i might be doing it with fewer people with better technology more agility on a performance space where i can actually move people around so that all of these factors that go into a good business decision that have huge impacts on the industrial base his ability to do business with the defense department which we're concerned the current insourcing trend is stepping away from their fundamental premises that i think we ought to focus our attention on final point i polish as one last point on the is there is great concern amongst many companies about the degree to which the government is today overtly targeting and soliciting contractor employees and let me be very clear there are a lot of people in government who have suggested for years that contractors hire govern employees and simply build them back to the government sometimes  higher rates i'm not sure the extent to which that actually happens but i can tell you from a organizational perspective all three hundred fifty member companies we would agree that that's inappropriate in that case and it's any appropriate when you do it with our folks where there is a direct business relationship where you have me under contract or i have you under contract we should not be soliciting each other's employees in the private sector that's anathema there are not solicit taishan on poaching clauses routinely across private sector relationships to protect the integrity of the relationship but nonetheless what we see is a very aggressive effort on the part of the government to do just that and we find that both high cost to companies unfair interference with employer employee relationships and frankly it raises real questions about the merits system's hiring process and whether they're actually circumventing established rules which is full committee has made clear the department they expect them to follow so i think that's another stream here that is important to address and does have impacts on companies like mr gotcha's bigger companies and even smaller companies mr chairman thank you again very much for the opportunity  for the questions when we get finished thank you mr solid mr sylvester welcome to the comm conaway members of the panel i'm honored to be here today representing america and provide you with our thoughts a little more focused area and that's on the acquisition of technology at the department of defense the most important point i want to make today is that the department of defense and the rest of the u s government for that matter seems to have moved away from that the tenets adopted congress adopted in the last ten to fifteen years to make acquisition of commercial and items more affordable now agencies are moving towards an environment that provides requires government unique items in both the requirements placed on the products and services being acquired and in the terms  conditions under which the acquisitions can occur we believe if we continue down this path the government will find it increasingly difficult to attract and retain commercial and technology providers and subsequently to unearth and utilize the kinds of innovation we see in the commercial markets today one of the main reasons for this is because the role in the global marketplace is diminishing which leads to decrease competition currently it accounts for less than one tenth of one nother reason is because of technology takes a significant time period in the commercial product life cycle and is vastly different from the commercial buying process because technology refreshes at a minimum of every eighteen to twenty four months of commercial acquisition best practice is to identify the products and services buy them and deploy them in less than twenty four months the time frame is feasible because market  two thousand and seven so this fragment of buying practice coupled with the increased risk for commercial companies and the rising cost of winning and sustaining contrasts has diminished the attractiveness of the market we also have significant significant decline in the numbers of that workforce with the adequate skills to understand complex information systems attracting the best and brightest workforce is crucial to the development of adequate requirements which leads to the creation of effective systems and enterprise wide solutions the last point i wanted to note is the increasingly risk adverse environment under which we are currently operating which only leads to decisions based largely on avoiding rests instead we believe that the acquisition practices should be aligned to reward actions to acquire services or products in a timely cost effective manner we must find a way back to a more open environment that creates incentives and rewards for the after work force and the time made reference to the additional costs that we incur with the multiple award task order contracts and certainly the more transactions that have to take place in the procurement process the greater cost what a subtracts it's certainly correct that it can and i didn't mean to suggest that multiple award vehicles are the wrong kind of vehicle i think maybe if i were to recast my comment it would be for many years we've been moving in this direction of getting a group of companies to compete to get on the contract and that each requirement comes up they compete again and it's been generally accepted as a good competitive model that enables the government to buy more incrementally rather than always buying one large package at the same time so it's had some great benefit what has happened in recent years is at least amongst our membership which includes a of i t and services firms and others is the dramatic growth in these vehicles and some real questions of how much redundancy we're going to have in the system how many times do i have to compete to offer the same capability to the government thirty times forty times  each agency wants its own contract to do everything and so it's an added it's an additive issue not the fact of the multiple award vehicles if that makes sense it's the that the number of them has grown so greatly it has now created some real cost and price pressures on everybody and questions of diminishing returns i think perhaps a procurement regime where there's more jointness where we're each agency does one set of procurement actions rather than multiple would solve a problem well that would that might help i think more kind of a shared services approach that started a few years ago has some benefit but i don't we also to be very careful because the other impact of multiple award contracts which is really a were a management issue for the department i'm not sure that we in industry of all the answers or the congress or what have you is a very often these large contracts have fifteen or twenty different capabilities you have to demonstrate to get on the master contract well for small and small mid to your firms many of them have four or five terrific capabilities but they don't have to fifteen or seventeen so they might even qualify to get on the initial vehicle so once a company is bidding for so they've been found responsible they're betting on a contract i want to i think we should evaluate the wages and benefits they pay their contract workers and again it's on a sliding scale not in   and we are going to have a database online at some point that's supposed to have a company's entire record of behavior with regard to federal law and contracting officers are going to be asked to make decisions that are exactly the kind of decisions are you responsible if you've had nine labor law violations in a company with forty thousand employees over four years versus a company that had a tax violation three years ago and so forth so the line is a very critical one but the point that was missed here and i think is really important is that when i mentioned earlier separating out the different elements of the industry in construction and in services there are prevailing wage laws that govern the wages except by the department of labor that tell contractors what they must pay and what the health and welfare benefits must be and the penalties for violating the law when are actually fairly significant the second thing is both are so complicated both the department of labor and industry will tell you they are incredibly complicated we put hundreds of people a year through training programs that we run to help them comply with the service contract act that violations of the act  most often completely unintentional and yet they go into the record as a violation so i think dr madelyne overarching point of responsible contractors paying good wages and good benefits is the absolute right one but i don't think we can have that discussion without looking at the things i think and i suspect i'm speaking for all of our colleagues are the number one is the workforce issue there is no question that the defense department as experienced substantial workforce atrophy over the last decade and a half i had some responsibility act with acquisition workforce when i was in the came through the entire defense industry complexes now i think part of it's the demography that is just what you said but i think the other issue is that as the department of defense was downsizing in the late ninety's early to mid ninety's we had a thirty eight percent reduction in workforce across the department of defense and the acquisition workforce took a substantial reduction as well what was not foreseen and those of us who were there and those have been there since did not adequately address was the fact that the mission was actually still growing even though we were doing the number of bases and so forth so there was not an alignment of resources skills and capabilities to the mission that was a kind of an across the board reduction the second thing is and mr gutteridge touched on this the workforce has never been invested in adequately both from an acquisition perspective and acquisition skills particularly in services i would argue in our field but also in terms of technology so how do i implement and integrate cutting edge technologies into a defense department requirement now requires me to other outside do that little differently and maybe do it more than that in an evolutionary approach there might be some benefit and in terms of reducing risk as well as speeding up the process  government procurement process congressman andrews and this team have been working to improve our acquisition system so that it provides the best for our men and women in uniform and i truly thank all of you for that my question is every year billions of federal dollars go to companies with history of labor and workplace safety violations aside from a major concern about the mistreatment of employees it seems to me that some companies are double dipping the taxpayer first obviously the cost of a contract but second for the cost of the benefits that they're poorly cabins get workers qualify for such as medicaid and food stamps and doctor mother night one in five according your testimony today last year for example alley processing corporations employees claim that the company used intimidation tactics including bribery and threats of deportation their union organizing campaign the company even organs even photographs that were companies photographed with a banner that read obama says unions are bad deal for workers today save your job and vote no union according to news accounts workers at ali quote were paid only minimum wage and no were given paid vacation sick leave for health care and vote in the first couple of months of two thousand and nine ali is already received over three hundred fifty thousand dollars in federal contracts in two thousand and two tyson foods  sufficient steps to implement controls of protective equipment to reduce exposure to this gas and their negligence that the tragedy just one year after that two thousand and two incident the same exact thing happened a worker was exposed to this toxic gas except this time the man by his name was jason kelly again tyson foods they paid a fine and despite this record they received one point three billion in the part of the fence related contract since the two thousand and two tragedy so my question that a panel and first dr madden can you quantify the cost to taxpayers of awarding contracts to contractors like these who poorly captaincy and poorly treat their employees and how factors such as pay benefits and treatment of employees currently take into account before warding a contract and how can we improve the process i know all paso texas for example has implemented scoring system weighing whether companies provide certain recognizes mr kaufman hear i think prior to the legislation that was passed was i think we certainly heard from the public sector about that that there was a deficit or a lack of qualified acquisition personnel and we needed to go and we needed to do more in sourcing of that but we i think until today we really never heard of the consequences to the private sector where in your mind is your appropriate balance mr kaufman i think that  day answer your question and by pointing to the july twenty ninth memorandum as the that the ministration issued guidance to implement the insourcing legislation which actually did a very good job of laying out kind of a hierarchy of how you think about federal functions and positions on the disk various decisions you can make associated with the very briefly they are basic at four categories one is inherently governmental functions that we all agree absolutely formed by govern employees the second were functions are actually positions that an organization determined are absolutely essential to its ability to control and oversee its own mission they might not be technically inherently governmental but it's like any organization you would want that as an in house capability then there are other fairly significant positions for which you would make a decision you have some flexibility where the greatest skills the basis benefits and so forth and then the final category very routine functions based operating support services commercial functions and so forth where it's kind of a classic make buy decision i think the issue for the department is how do you actually do a broad strategic human capital plan that accurately captures kind of those four different pieces and looks at them in a truly strategic manner it's going to vary from organization to organization one organization may need more engineers in house because of what they do than others which may be able to rely more outside engineering support for example so i think it's a it is it is a strategic human capital process i think that the o m b memo that came out on july twenty ninth actually does a pretty good job of laying out kind of the structure it's only been six weeks since it came out so it's too early to say whether it's having an effect but even before it goes into effect and even before the department of defense has come out with its actual cost guidance internally assumptions of already been built into the budget so the quote benefits of insourcing i think it's kind of a carpet for the horse that you ation i mean why take one point i'm sorry to keep coming back to this but in the dr madeline's comment that i want to remind mr murphy that we would not sit here and support companies that behave in the manner in which you describe some of the companies in the record you have  but again it's a it's critical if we think about the issue of benefits and treatment of workforce that we recognize the different standards that already exist and how they apply in different industries segments the service contract that was created to prevent precisely what you're talking about and so the twenty percent of that figure that after madeleine is a twenty percent of contract workers who are getting below poverty level wages are almost certainly not working for companies who are doing service contracts under the service contract act and if they are there are penalties in law today that that should be applied if it's not being enforced adequately but are being forced more more effectively the second piece is there are a lot of us in industry who believe the service contract wages the determinations of service contract that puts out are woefully out of date and so the government itself is creating a dynamic in the marketplace by saying here is the wage you must pay and that wage may or may not be an adequate wage in that region because it has been updated recently enough so i would suggest the first step here to achieve the goal i think we all share in terms of reasonable and fair treatment of workers is to focus on whether the service contract is adequately updated modernised and management in minist really for the past six seven eight years where we've literally lost dozens of people where we contract that expanded contract expanded literally in the tune of hundreds of people per year to cause a significant stress  in our challenges in the benefit does it cost us to create muscles that most companies our size don't have but the challenge we had is really trying to guess what the future requirements are going to be because the lead time for going out and basically to be able to mr mr wells i think it's a great question i think it's a question that came up when we were in your district with you and a number of your companies a year ago and some of them were in the market and some who want to get it want to get into the market i think it's a very tough question because the government does have as mr a whole set of unique requirements that make it very difficult for particularly small or purely commercial companies to figure out how to get in and whether they can afford to get in as an organization we've participated in probably a dozen seminars in various congressional districts around the country for members who are getting the very same questions from their constituents and tried to help explain to them here are the rules of the road and kind of how you can get into this market but it is not an easy market to get into and a lot of it is driven by the often appropriate sort of checks and balances that are in the system because this is a tax payer system not a purely commercial market but also by some of the behaviors of the customer and the incentives that are put out in the marketplace i do think it's a fair question i think there are ways for small companies to get into the market many have been created and found a way mr company started a very small company but it is it is a challenge and i think that for those who are the faint of heart it may not be the best market in the world because the government does put very heavy  burdens on all of its companies that are doing business even if we could argue whether we need more or less in certain areas the basic requirements to get into the system are not simple let me let me change of subject little bit we talked about this is call change orders for the sake of that certainly safety of our troops is paramount if they need something done to fix a weapon fix something that keeps them safe or a vast a helmet but how much does discuss a little bit about  that what might go on someone sees a better idea an idea comes from the field a manufacturer something let's change the strap from this this would not be better if it were an inch wider and then looking at well i've got this great big marketplace over here and i've got the smaller market over there and this thing has this direct benefit to my bottom line because it increases my sales or whatever so the service contract did you have any comments and if they could comment i just wanted to make the point that i think that the the the ethic of what dr med was talking about is something we could all sign up to and that we actually talked briefly earlier about sitting down trying to figure some of this out but i think the issues that mr andrews referenced earlier about where you draw the line here and what kind of guidance and objective criteria are going to provide to government contracting officers to make what could be some really complicated decisions about relative severity of relative kinds of violations of different laws the truth is without without in any way defending a company that's a scofflaw some of the companies that referenced in the record and so forth many companies have some kind of violations somewhere inadvertently committed and how you start majority of the time in fact the majority of government contracts are awarded on a low bid basis best value contracting is actually the exception not the rule that we've advocated it be used more i think you sometimes get what you pay for if you will and using all these other factors in a source election decision makes sense but the best majority of government contracts with their seal bid which is simply look at the cost of what we call low price technically acceptable which is not a cost tradeoff process so i think that the ethic of what dr madelyne is proposing is something we can all sign up to i think that the service  contract prevailing wage laws like the service contract act and are very important in ensuring that standards are driven down but they're not very effective in raising standards just to give you a couple examples of what the actual prevailing wages for evaluating whether a company is responsible how many labor law violations this is a very important and difficult question to answer but i want to emphasize that many many states have been doing this for years california massachusetts tons of local governments have developed quantified systems where they evaluate this many standards this this many viruses this many points and you need to have this many points to be determined responsible so it's it's a determination difficult but it's something that only that government only evaluate most based on cost well in the low cost techniques up until they do look at non cost factors and just whether a minimum threshold is met most contracts most competitive bid contracts due respect i would just point out that again the threshold issue is a critical issue in california i believe you feel for violations of the davis bacon act you get zero points on their scoring system but if i have thousands and thousands of workers i could have four violations fairly quickly whether that's the right or the wrong standard is another issue but i think that is a really important point the other last point i'll make about the service contract that davis bacon and the other prevailing wage laws that exist whether they were designed to do this or not they have in fact become a floor they are a minimum the idea of a prevailing wage is it's supposed to be the prevailing wage what is the appropriate wage for a work in a given district or given region of the country and on top of that you then have to pay a certain given health and welfare benefit so perhaps with the discussion should begin with are the prevailing wage laws in fact getting us to veiling race or to the floor the doctor madeline the voice was talking about that is it of a policy decision for the congress and the administration to make from an industry perspective as long as the congress and the mission recognize whatever the all of the implications are for driving raise at whatever level the congress immiseration decide is appropriate that's a different discussion from an industry perspective it's a relatively level field we're all going to be getting to the same rules  you will but there is a difference between the minimum and a prevailing wage and so the question perhaps is whether the service contract that is prevailing or setting just a floor i want to go back to the metrics we look at you know we t about the database earlier example two thousand a proper international largest manufacturer of uniforms in the united states military said our case what that national labor relations board after employees charged at the company did not grant legally required paid sick days or vacation days and the company violated labor laws by threatening employees who were trying to organize so according to the press accounts this company d l a which had awarded that which had the word of the contract offer to going forward take labor law violations into account when a review contractors performance using a national database that tracks you file a sion so my question to the panel and also dr maryland can you describe to us how the database is currently utilized by officials and if consulting the data is generally voluntary as it would seem based on proper international cases and what we do need to do to maximize its potential in a carriage or require potentially officers to consult it prior to awarding a contract thank you thank you your question is correct the database is just being created supposed to be created by october of this year and the proposed rules state that the standards and i think there's going to vary is a very complicated question the database is a reality it's happening how we set the standards give guidance to the workforce number one the database should never be made public because a lot of sensitive proprietary information is subject to all kinds of misinterpretation of the workforce in terms of water relative make a decision what's the pattern of a individual instances a company could have had three or four years and of abuses and then completely thrown out all of their management change their business practices and processes and this is now a good company how it responds to problems is not an important issue so i think all of these issues and then the question of how we actually guide the workforce towards making reasoned fair transparent decisions think this is a very very complicated issue the last point i'll make is i would hope that congress would not go back and revisit the question of whether we should include settlements on which there were no findings from a perspective of law if i settle a case with you and i don't admit guilt and you don't admit that i was innocent that's why we have settlement that's a very dangerous road to go down to presume that somebody is guilty because they settled the case as i think we all know there are a lot of settlements in which you do it for other reasons so i think that the standards issue here is the critical question we thank you mr murphy and thank the members of the panel as is generally the case well briefed and prepared witnesses generate more questions and then they answer which is good i mean that as a compliment i think what the panel will take away from this morning that in this process of creating the right environment for a vibrant and stable set of industrial bases as mr salo way points out we need to do number of things for mr salo way we heard that although multiple award task order contracts have a certain value we need to be sure that they don't add more costs and they generate benefit that we carefully evaluate the use of those vehicles and mr sylvester certainly we do need to look at you was that we don't want to from the benefit of the commercial global marketplace because of requirements that are necessary we all agree that security process that we need to refocus on so i appreciate the witnesses and my friends here on the panel the committee will continue to explore these issues essential to our work plan which i discussed with which we discussed with the