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OMB’S FINANCIAL MANAGEMENT LINE OF BUSINESS INITIATIVE DO RECENT CHANGES TO THE

IMPLEMENTATION GUIDANCE CLARIFY THE

RULES?

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

FINANCE, AND ACCOUNTABILITY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JUNE 28, 2006

Serial No. 109–224

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

JON C. PORTER, Nevada

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

CHARLES W. DENT, Pennsylvania

VIRGINIA FOXX, North Carolina

JEAN SCHMIDT, Ohio

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. DUTCH RUPPERSBERGER, Maryland

BRIAN HIGGINS, New York

ELEANOR HOLMES NORTON, District of

Columbia

———

BERNARD SANDERS, Vermont

(Independent)

DAVID MARIN, Staff Director

LAWRENCE HALLORAN, Deputy Staff Director

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, FINANCE, AND ACCOUNTABILITY

TODD RUSSELL PLATTS, Pennsylvania, Chairman

VIRGINIA FOXX, North Carolina

TOM DAVIS, Virginia

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

EDOLPHUS TOWNS, New York

MAJOR R. OWENS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

HENRY A. WAXMAN, CALIFORNIA

MIKE HETTINGER, Staff Director

TABETHA MUELLER, Professional Staff Member

ERIN PHILLIPS, Clerk

ADAM BORDES, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on June 28, 2006 ............................................................................... 1

Statement of:

Combs, Linda, Controller, Office of Federal Financial Management, Office

of Management and Budget; and Mary Mitchell, Deputy Associate Administrator, General Services Administration ........................................... 4

Combs, Linda ............................................................................................. 4

Mitchell, Mary ........................................................................................... 11

Soloway, Stan, president, Professional Services Council; Jacque Simon,

public policy director, American Federation of Government Employees;

and James Krouse, acting director, public sector market analysis,

Input .............................................................................................................. 45

Krouse, James ........................................................................................... 71

Simon, Jacque ............................................................................................ 58

Soloway, Stan ............................................................................................ 45

Letters, statements, etc., submitted for the record by:

Combs, Linda, Controller, Office of Federal Financial Management, Office

of Management and Budget, prepared statement of .................................. 6

Krouse, James, acting director, public sector market analysis, Input, prepared statement of ........................................................................................ 73

Mitchell, Mary, Deputy Associate Administrator, General Services Administration, prepared statement of ........................................................... 15

Platts, Hon. Todd Russell, a Representative in Congress from the State

of Pennsylvania, prepared statement of ...................................................... 3

Simon, Jacque, public policy director, American Federation of Government Employees, prepared statement of ..................................................... 60

Soloway, Stan, president, Professional Services Council, prepared statement of ........................................................................................................... 49

Towns, Hon. Edolphus, a Representative in Congress from the State

of New York, prepared statement of ........................................................... 90

(1)

OMB’S FINANCIAL MANAGEMENT LINE OF

BUSINESS INITIATIVE DO RECENT

CHANGES TO THE IMPLEMENTATION GUIDANCE CLARIFY THE RULES?

WEDNESDAY, JUNE 28, 2006

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

FINANCE, AND ACCOUNTABILITY,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 2:06 p.m., in room

2247, Rayburn House Office Building, Hon. Todd Russell Platts

(chairman of the subcommittee) presiding.

Present: Representatives Platts, Duncan, and Foxx.

Staff present: Mike Hettinger, staff director; Tabetha Mueller,

professional staff member; Erin Phillips, clerk; Adam Bordes, minority professional staff member; and Teresa Coufal, minority assistant clerk.

Mr. PLATTS. This hearing of the Government Reform Subcommittee on Government Management, Finance, and Accountability will

come to order.

In 2004 the Office of Management and Budget announced the

creation of its line of business initiatives which was designed to

consolidate duplicative functions across the Federal Government

using a shared services model. Today this model is being used on

a small scale to consolidate functions within departments and to

create efficiencies for smaller bureaus and agencies.

Applying the shared service concept on a larger scale—Government-wide in this case—may present greater challenges. In fact, as

the financial management line of business has evolved, Federal

managers and commercial sector hosts have raised important questions with regard to the structure of the initiative and the competition framework.

On March 15th of this year this subcommittee held its first hearing on the topic and it provided a constructive discussion on some

of the challenges inherent in such a large undertaking. It was evident that Federal managers and commercial host providers were

eagerly awaiting clear sub-guidelines, and OMB released its draft

migration planning guidance on May 22, 2006. That new guidance

made significant changes to the original concept, and this hearing

will provide OMB with an opportunity to outline those changes.

We will also discuss what these changes will mean for stakeholders, including commercial hosts and Federal employee unions. If

2

this initiative is to be successful, we must ensure that all stakeholders are fully informed and that the user community is ready,

willing, and able to embrace this proposal.

We certainly thank all of our witnesses who are going to be with

us here today. On the first panel we will have the Honorable Dr.

Linda Combs, Controller of the Office of Federal Financial Management at the Office of Management and Budget, and Ms. Mary

Mitchell, Deputy Associate Administrator of the General Services

Administration. Our second panel will include Mr. James Krouse,

Acting Director, Public Sector Market Analysis for INPUT; Ms.

Jacque Simon, Public Policy Director for the American Federation

of Government Employees; and Mr. Stan Soloway, president of the

Professional Services Council. We look forward to all of your testimonies.

[The prepared statement of Hon. Todd Russell Platts follows:]

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Mr. PLATTS. We would ask the first panel of witnesses to stand

and be sworn in.

[Witnesses sworn.]

Mr. PLATTS. The clerk will note that both witnesses affirmed the

oath.

While we will give you guidance of roughly that 5 minutes as far

as opening, we certainly are again grateful for your preparation

and being here with us today, and if you need to go over, that is

fine. We look forward to getting into Q&A after your testimonies.

Dr. Combs, we will begin with you.

STATEMENTS OF LINDA COMBS, CONTROLLER, OFFICE OF

FEDERAL FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET; AND MARY MITCHELL, DEPUTY ASSOCIATE ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION

STATEMENT OF LINDA COMBS

Ms. COMBS. Thank you, Chairman Platts.

Chairman Platts, Congressman Towns, and members of the committee, I thank you for the opportunity to appear before you once

again to discuss financial management line of business initiative.

I am pleased to provide you with an update on the financial management line of business and describe how recent accomplishments

bring us closer to our over-arching objective of ensuring that Federal managers have accurate and timely financial information for

decisionmaking.

Since I last testified, a great deal has been accomplished. First

of all, we have released a draft of the migration planning guidance

and received several hundred comments from agencies, commercial

service providers, and others. We are currently reviewing and updating the migration planning guidance based on these comments.

We have released, in conjunction with the draft migration planning guidance, a memorandum presenting a competition framework

for financial management line of business migrations.

We have continued ongoing efforts with a common Governmentwide accounting code and the standard business process projects.

None of these tasks could have been performed without the commitment, support, and input from the Federal financial management community, from both the public and the private sectors. As

always, we appreciate the opportunity to have formal and informal

discussions with you, Mr. Platts, and your staff.

The migration planning guidance supports the financial management line of business vision that I articulated in my last appearance here, to improve the cost, quality, and performance of financial management systems by leveraging shared service providers

and implementing other Government-wide reforms that foster efficiencies in Federal financial systems and in operations. Its purpose

is to help agencies prepare for and manage a migration of their financial management system operations to a shared service provider by outlining provider and client responsibilities.

The Financial Systems Integration Office has received over 700

written comments on this material and has been working feverishly

with my staff to respond to each of those comments. While we don’t

5

have answers, obviously, today for every one of those comments, we

really look forward to addressing those with you as we go through

them ourselves, and we certainly have a commitment that we will

continue to work over the next several months until we have addressed all of them.

OMB believes that the routine use of competition as part of the

migration process will help agencies to maximize value by considering alternative solutions in a reasoned and structured manner to

select the best available public or private provider of financial management services. The approach we have taken and continue to

take with the financial management line of business and all of its

underlying projects is one that has been open and transparent. We

continue to incorporate the most current thinking in financial systems and operations, as well as to gain buy-in from the individuals,

agencies, and commercial partners who are responsible for implementing the financial management line of business vision.

As I stated when I last testified, more must be done to advance

the objective of having accurate and timely financial information

for decisionmaking, particularly with respect to implementing financial systems. The financial management line of business is our

opportunity to strengthen how we select, implement, and operate

the Government’s financial systems. By doing so, the administration is asking that agencies consider the investment risk, implementation risk, and life cycle cost when they perform their analysis.

As with any new initiative, there will be questions and some uncertainty. I remain committed to answering those questions and

keeping this initiative open and transparent to all of its stakeholders.

I look forward to our dialog today.

Thank you.

[The prepared statement of Ms. Combs follows:]

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Mr. PLATTS. Thank you, Dr. Combs.

Ms. Mitchell.

STATEMENT OF MARY MITCHELL

Ms. MITCHELL. Chairman Platts, Congressman Towns, and members of the subcommittee, thank you for this opportunity to participate in today’s hearing. As the Deputy Associate Administrator for

the General Services Administration Office of Technology Strategy

and the Financial Systems Integration Office executive, I also serve

as the project manager for the financial management line of business.

As you know, Kathleen Turco, GSA’s Chief Financial Officer, appeared before your subcommittee recently and testified how GSA

fully supports the FMLB initiative and is participating in the four

work streams that we are undertaking under this year’s activities.

I am also here looking forward to discuss how the initiative has

evolved since its inception in 2004 and appreciate your subcommittee’s interest in this important initiative.

First, let me address GSA’s role in this effort. You asked about

our role, and in December 2005 the Financial Systems Integration

Office was moved under the GSA Office of Government-wide Policy,

formerly known as GFMIP, Joint Financial Improvement Program,

it was placed within my office. The financial management line of

business responsibility came with that move.

GSA was named as the managing partner by OMB and made responsible for the project management, including organizing the

work effort, which involves really the entire Federal CIO community, and seeking to accomplish the schedule set forth by us in the

priorities established by OMB and our executive sponsors.

GSA’s management role and the Office of Government-wide Policy is to serve all executive agencies by providing those agencies

with the tools necessary to succeed in implementing the FMLOB

concept. We have worked closely with OMB and the Chief Financial Officers Council to update the scope of activities.

We continue to support the historical functions under the formal

JFMIP staff office that came along. I want to review just briefly

what those responsibilities are.

The FSIO office is responsible for the requirements, development,

and testing of Federal financial systems. We work with agencies to

develop new requirements and also to conduct testing and certification of commercial Federal financial management systems. Both

agencies and vendors are involved in this process.

We also undertake special priority projects under the direction of

OMB and the CFO Council. The financial management line of business is just one of those, only a very large special project. So our

office is responsible for really planning and managing those work

activities and organizing the work teams to accomplish the work.

We have brought together subject matter experts from the vast

majority of the Federal agencies and focused their efforts to develop, review, and upgrade tools that will be used in helping agencies make better decisions about migrating to a shared service provider concept. Some of these tools Dr. Combs has already mentioned, migration planning guidance, but also performance measVerDate 11-MAY-2000 11:11 Apr 11, 2007 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 C:\DOCS\33867.TXT HGOVREF1 PsN: HGOVREF1
12

ures and the important standards efforts and business process

standards and a common Government-wide accounting code.

Our last major responsibility is outreach. We conduct annually a

financial management conference and related activities that are

aimed at improving the core competencies of the Federal financial

community.

Historically, JFMIP, and now under its new name, FSIO, we

have served as a well-respected, impartial intermediary between

Federal agencies and the private sector; in other words, the honest

broker that seeks to balance the interests of key stakeholders.

We operate separately from the Office of the Chief Financial Officers Federal shared service provider effort known as the Federal

Integrated Solutions Center, and their mission is really to provide

best value on products and services for other Federal agencies.

The FMLOB governance structure was also an area of your interest. We have brought together the key stakeholders in really the

following structure. The Office of Management and Budget is the

central authority that sets policy and works with us to set our priorities. They also and we also interact heavily with the Office of

Electronic Government. They both participate in all of our management meetings. We have an Executive Steering Committee that

has been stood up, and that is comprised of myself and the chairman of the CFO Council Transformation Team, as well as six Executive agency CFOs or deputy CFOs.

The next level down is a transformation team that operates really at the advisory level. It is made up of representation from all

of the CFO Act agencies. We really rely on this team and have

called them to help us maintain the credibility of the work products

we are producing, participating and drawing in their own agency

into the internal review function and forwarding and formulating

recommendations for consideration by the Executive Committee.

I wanted to spend a few minutes talking about the original business case and how that concept has evolved into today’s effort. The

concept basically is formed around consolidating financial management systems across the Federal Government into Federal shared

service providers, both Federal and commercial. At a minimum,

these services were to provide the IT hosting and application management for the financial service products that agencies use. Further, the initiative called for standardization of core business processes that would facilitate really that consolidation.

Some of the goals and efficiencies we hoped were really long-term

reduction in cost in maintenance and operations, the ability to retire stovepiped and outdated agency financial systems, really facilitating more reliable and accurate financial information coming out

of those systems in a standard format; in other words, to help

agencies make better decisions and improve their financial systems.

The original concept really is unchanged. We have made minor

refinements, but the concept is still firmly in place. The concept

calls on leveraging shared service solutions and implementing Government-wide reforms to foster efficiency in Federal financial operations.

The goals include: providing timely and accurate data for better

decisionmaking; facilitating stronger internal controls; reducing

13

cost by providing better competitive alternatives for agencies;

standardizing systems, business processes, and data elements; and

achieving seamless data interchange between those systems.

We have evolved this concept in a few ways that I think are important. The scope of agency migrations was initially to limit the

migration really to that technical architecture, the IT hosting environment. The current approach encourages agencies to evaluate

their end-to-end financial operations and select appropriate additional services. The initial business case called for new Government-run SSPs and running an open competition with the commercial sector, thereby driving the service and cost and performance

improvements across all of the shared service providers with the

private sector competing for shared services among those agencies.

The current approach allows for, on the term and timing of the

migration, the current approach allows for the business process

standardization to be delivered on a timeline that is really driven

by the agency financial replacement instead of driving that standardization prior to migration.

The scope of the migration: currently there are 84 executive

branch organizations and 4 legislative branch organizations that

have migrated or are in the process of migrating to the shared

service provider concept. In addition, when we look at commercial

experience with the shared service provider concept and State and

local experience, the evidence is really compelling. If done right,

this is really an easy case to be made.

One other difference in the original business concept was it was

really based on an assumption of six shared service providers. Currently, we have designated four Federal shared service providers,

and commercial shared service providers are being identified

through an open competition at the agency when they determine

it is the right time to migrate. Our four Federal shared service providers are the Department of Treasury’s Bureau of Public Debt, the

Department of Interior National Business Center, the Department

of Transportation Enterprise Services Center, and the GSA Federal

Integrated Solutions Center.

Prior to selecting these Federal shared service centers, a couple

of agencies had already made this decision. The Small Business

Administration began its migration to a commercial financial service provider, Corio, in 2003, and more recently the Department of

Labor selected an Oracle solutions provider, Mythics.

Let me also address the timing of the business process standardization work. This is a major thrust of the 2006 work program. We

have looked at what is the best time and what is the appropriate

time for agencies to begin adopting these standard business processes that we are developing and have determined that what

should be done is that agencies should look at their own enterprise

architecture once we have finalized on these standards and evaluate the right path for them to evolve into implementing these

standards.

We expect to have the exposure draft for these detailed business

process standards and data standards to be released in the fall,

and then we will begin working with agencies on an implementation strategy. The OMB migration policy calls for agencies to conVerDate 11-MAY-2000 11:11 Apr 11, 2007 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 C:\DOCS\33867.TXT HGOVREF1 PsN: HGOVREF1
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duct a public/private competition in determining what migration

path is appropriate.

In summary, we believe that the FMLOB has great promise, significant participation and momentum. The tools that are being developed under the FM line of business will give agencies the tools

to make better decisions.

I wish to thank you for the opportunity to appear here today and

am delighted to answer any of your questions.

[The prepared statement of Ms. Mitchell follows:]

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Mr. PLATTS. Thank you, Ms. Mitchell.

We are pleased to be joined by the gentleman from Tennessee,

Mr. Duncan. Thank you for being with us.

Mr. DUNCAN. Thank you.

Mr. PLATTS. We will go to questions. Maybe I will start first with

just the relationship with GSA and OMB.

It seems with GSA being basically identified as a project manager for the financial management line of business and kind of the

day-to-day responsibility, and as we move forward finalize the migration guidance and everything will the agencies and departments

be coming to GSA for answers or will it be OMB? How is that going

to work, that kind of routine oversight or interaction with those

who are looking to migrate or looking to become shared service centers, whatever it may be?

Ms. COMBS. Let me address that first, and then if Mary has

something else to add I am happy to have her do so. One of the

things that Mary pointed out in her testimony was the fact that

OMB sets the policy and the priority for the work that her group

does. I, as Controller of OMB and Chair of the CFO Council—that

is a joint work product setting venture.

We do work that the other CFOs believe is going to be important

to them across Government, and having been a participant in the

CFO Council for many, many years as a CFO, myself, as well as

now chairing that group. And as controller at OMB, I certainly

have a view of how important it is to set the right priorities and

set the right policies. The policies and priority setting is what

comes through OMB. Mary and her group are the operational support that we rely on in carrying out those policies and procedures.

In reality, the way it works, obviously, because I have a dual role

as chair of CFO Council and have a very close working relationship

with CFOs and deputy CFOs, when they have an initiative that

they want to embark upon, whether it is financial management initiative or, as we have talked about, our A–123 controls, many of

those important cross-cutting efforts, the CFOs and deputy CFOs

work with me and my deputy, Danny Werfel, very, very closely.

So often we get questions of a policy nature. We get questions

sometimes of an operational nature, as well. Then we rely very

heavily on the good work that Mary and her group do to carry out

all of their duties, not just the special ones that they are working

with us on.

Mr. PLATTS. So the way I hear you or understand is that the

GSA’s responsibility is really not in that policymaking field or discretion. It really goes to the issue, because you are a shared service

center in the sense of any kind of conflict of interest, you are really

not setting the parameters by which somebody could be deemed a

shared service center or how they will operate as a shared service.

That is with OMB as a policymaker?

Ms. MITCHELL. Right.

Mr. PLATTS. OK.

Ms. MITCHELL. So GSA would be gathering the data, the evaluation materials on how the shared service providers are doing, and

OMB would be then making the decisions.

Mr. PLATTS. OK. On the migration planning guidance that was

put out May 22nd and comments, I realize you are still kind of

25

working through those as far as definitive answers. Are either of

you able to summarize a common theme that you are hearing in

the responses to the guidance that has been put out?

Ms. COMBS. We have received a number of comments, and we are

happy to have received a number of comments, because I think the

more comments we have from the various stakeholders the better

policies that we can create. I know you folks would agree with that.

It helps us to work with you all better, too, to say, here is what

we are hearing from the community.

I think the comments that we have looked at so far, and we did

kind of a special look knowing we were going to be talking with you

today to see if there were any categories comments that fell into

line here. I think that one of the things that we have been asked

in some of the comments was: should commercial vendors be prescreened, as well, much like we have done our Federal entities?

One of the things that we have talked informally with your staff

about, too, that we know has been a concern that has also been expressed was, what happens if there are contract disputes between

Federal agencies if there are public participation here?

I guess one of the other things that we have been looking at, as

well, in the comments, people have been thinking about how they

are going to define their performance matrix for shared service providers and what kinds of remedial actions would need to be taken

for non-performers, or what kind of out-of-the-box performance matrix do the customers need to have and what kind of quality measures do we need to make sure that the providers have.

So there are comments from all segments of the stakeholder community, and we are quite happy that we have had those comments.

I guess one of the other categories might be what I would classify

as the level playing field, with potential level playing field between

Federal and commercial, as well.

Mr. PLATTS. I want to expand on that, but I will come back to

that specific area.

In your opening statement you talked about, over the coming

months, working through. Is there a timeframe that you have in

mind when you hope to have a final guidance revised and issued?

Ms. COMBS. Yes. We are hoping we can work through these this

summer and that this fall we will have a final guidance issued, but

we have a lot of work to do with the stakeholder community, you

folks. We want your full participation in this and we want the full

participation of the stakeholder community, as well. We expect it

is going to take us a few more months to do that.

Mr. PLATTS. And, as our dialog back in March and again here

today and with staff in between and as we go forward, your efforts

in soliciting those comments and taking them to heart and working

through them, because certainly the intent here is one that is a

worthy intent and it is doing it in a way that the buy-in from all

participants is substantial so that success can be achieved.

Mr. Duncan, did you have questions?

Mr. DUNCAN. Yes, Mr. Chairman.

Let me ask you this. You know, I have been following the Congress and politics and Government since at least the early 1960’s,

and then I came here in 1988, and long before I got here I frequently heard people say, well, Government needs to operate more

26

like business, and I bet everybody here has heard things like that.

I guess what I am getting at, you know, I read through some of

this and I see a lot of flowery language and I see a lot of bureaucratic language.

I read here ‘‘a high-level, Government-wide business process

standardization framework was developed for the enterprise architecture level, agency-wide level in 2004. Detailed Government-wide

business process standardization work is still ongoing with the help

of agencies due to individual agency needs to migrate sooner than

completion of the detailed Government-wide business process

standardization framework. Business process standardization is not

currently a precedent for agency migration.’’

I bet there are very few people here that could tell you what I

just read. In fact, just in the short time I have been here I have

noticed four people—I haven’t even been counting or looking

around, but I have seen four people with their eyes closed halfway

asleep.

What I am wondering about, can either of you put this in plain,

down-to-earth, east Tennessee language and tell me what we are

trying to accomplish here and how we are going to do that with an

agency? You know, the Government is filled with good people. The

Federal Government is filled with good people, and they think they

are working really hard and doing great jobs. And so you are going

to go to an agency now, XYZ agency, and you are going to come

in with this new FMLOB process, the financial management line

of business, I think is what it is called.

How is that going to work? What are we going to be doing differently? What are we going to accomplish? I am not against it; I

am just wanting to understand it better. I want to get it in plain,

down-to-earth language, 60 Minutes or USA Today type language.

Ms. COMBS. Well, Mr. Duncan, let me try.

Mr. DUNCAN. OK.

Ms. COMBS. I have been married to a man for 36 years from east

Tennessee, so maybe I can help.

Mr. DUNCAN. Good. He must be a good man.

Ms. COMBS. Oh, my, you just made his day, I am sure. You know,

I think one of the things that we do lose sight of, and, as you say,

we try to explain things and we try to explain them in a way that

maybe is not as clear from time to time as it needs to be, but what

we really are trying to do here is to bring best practices, lowest

cost, and higher competition into all of the things that we are trying to do in financial management.

Now, one of the things that I would share with you is we have

standards in many of the departments, but we haven’t escalated

that to a higher level. We haven’t escalated it across Governmentwide. So in some departments you will find accounts payables and

accounts receivables being done in a very consistent way, much like

you would find in a small business in east Tennessee. But in some

departments it is going to be done differently.

We are trying to make consistency across Government-wide on

doing that because, one, that helps us with all of our employees

Government-wide. I think if you were running a worldwide business you would try to be doing that, and that is what we are doing.

We are running a worldwide business.

27

Mr. DUNCAN. Right.

Ms. COMBS. My vision is that we would be able, eventually, to

exchange seamlessly information, financial information, across

Government agencies. That is one of my visions. Right now we are

not able to do that, and in order to get a Government-wide clean

opinion at some point in time, as well as be more productive and

have more useful information to the managers in these departments and agencies that manage these programs that our taxpayers pay good money for, we need to be able to have more standardization and more consistency across Government than we have

right now.

Mr. DUNCAN. I guess, you know, what I was kind of getting at,

I don’t know when this program was first created. When was it?

A year ago? Two years ago?

Ms. COMBS. I believe it was created before I came on the scene,

and I believe that was in 2004.

Mr. DUNCAN. All right. What I was getting at was trying to see,

you know, I wonder if people from those agencies in 2003 would

have said, well, you know, we are already doing this or attempting

to do this under a program by a different name. Are you going to

have problems doing that when you have departments and agencies

doing such different functions? I mean, the Defense Department

and what they do is totally different from what the National Park

Service does, and the National Park Service is totally different

from the Social Security Administration, and on and on and on.

Ms. COMBS. Before I became Controller I was the CFO at EPA

and the CFO at the Department of Transportation. Those are very

different entities. Yes, within those two entities we did have some

very similar things that we needed to do, however, and they related

to the financial management functions of those departments or

agencies, regardless of their mission. I like to say debits are debits

and credits are credits.

We have to figure out ways to put those in ways of arraying the

financial information that is going to be useful to the program

managers who are managing those specific programs, whether it is

air and water in EPA or whether it is trains and planes in DOT.

In all simplistic terms, that is what we are trying to do. We are

trying to create a more simplistic system for every department and

agency that would be more standardized across all of the Federal

Government.

Mr. DUNCAN. Well, I tell you this, those sound like good goals.

Some people know I was a lawyer and a judge before I came here.

Even in the legal community, though, I think we need to get away

from some of the legalese in certain situations. But all I am saying

is this: I certainly am for lower cost. Every group up here rates me

one of the most fiscally conservative Members of Congress.

One article said that the main question I always ask at some of

these hearings is how much does it cost. Not enough people ask

that. And so these sound like good goals, but what I am saying is

I hope, because I have seen things like this, initiatives or programs

like this in the past that seem to leave us right where we are

today, and I hope that we can get beyond the bureaucratic and

flowery language and actually accomplish some of these things.

28

Ms. COMBS. Thank you. That is a very good suggestion. We are

all about results and accomplishments at a reduced cost.

I think one of the things that may help us talk about this and

have a conversation about it, as well, is, when we think about the

cost, we are not asking agencies or departments to do anything

until they have a need to upgrade their systems. That helps, as

well, with the cost, because there are certain life cycles of some of

these initiatives that they have had before in financial management, for example, or certain financial systems that they are already working with. They may not be consistent Government-wide

right now, but they are working for that department. We are not

asking them to do anything right now until that life cycle cost and

life cycle of that particular endeavor is over. Then when they do

that is when the trigger would start for some of these other standardizations.

Mr. DUNCAN. Let me ask you one last thing. You set me off on

another thing when you said upgrade the systems, because, you

know, every time a Government agency messes up they always say

one of two things or both. They say they were underfunded, when

they are getting way more money than they were getting 5 or 10

years ago, or they say their computers are not talking to each other

or are out of date.

Well, you know, they tell me that the computers are obsolete the

day they are taken out of the box. So are we going to run into this

situation before we can implement this? You said they can’t really

do it until they upgrade their systems. Now, are we going to have

one agency that has upgraded its system or its computers and then

another one hasn’t done it yet, so then you can’t get it systemwide? Do you see what I am getting at?

Ms. COMBS. I see exactly what you are getting at because that

is where we are right now. We have various departments at various stages of implementation, and we are not saying to them, you

need to upgrade your system in order to keep controls, for example.

We don’t listen to that argument when they come in and say, I

can’t get a clean audit because I don’t have a good financial system

to help me do that. No. You can keep control of your financial systems whether you have a good financial system or not. People did

it for years before we ever had such.

Mr. DUNCAN. Right.

Ms. COMBS. What I am saying though—and if I mis-spoke, I

apologize—we are not asking agencies to invest any money to do

these simple things that they could be doing anyway. We really

have a mixture right now of agencies at various levels, and we will

have for a while. We can’t do this overnight. It is very complicated.

Mr. DUNCAN. Well, I have to say you have done a pretty good job

explaining a very complicated thing even to somebody like me, so

thank you.

Ms. COMBS. Thank you. I told you I have had 36 years experience.

Mr. DUNCAN. You did all right.

Mr. PLATTS. I thank the gentleman for his questions and participation, as always.

It really is a point where I want to pick up on the life cycle issue,

Dr. Combs and Ms. Mitchell. One, I think the OMB envisions this

29

is really about what we think is a 10-year project because people

are going to come into line with the FMLOB as they do make these

major life cycle changes. I guess where I would like to come back

to is: what do you envision or how do you define a major life cycle

change that kicks in the requirement that they either become a

shared service center or migrate to a shared service center?

Ms. COMBS. Yes. That trigger that Congress can see is that request for development, modernization, and investigation funds.

That is the trigger that tells you that the agency has decided it is

time to replace the financial system or the operating environment

that runs in with more modern technology. That is the trigger.

Mr. PLATTS. Is there a dollar value on what they request, or is

it more the program they are using is going to be replaced?

Ms. COMBS. It is really out of date. They need to do functions

that are no longer being supported or aren’t being supported adequately in the product and environment they have. That determination of what is the appropriate time is something an agency

does need to consider. And this migration strategy really was

aimed at getting around the fact of doing duplicative investments

to upgrade and modernize. By migrating to a shared service center,

they are already gaining that modern technology. They are already

gaining the experience and the skill base to lower the risk in that

migration that typically has been troublesome in many agencies.

I guess a couple of questions here. One, how defined is that going

to be in the guidance for that trigger? Again, it is probably subjective, because I think every department agency is probably every

year making capital investments with technology and program, the

new version of whatever program.

Ms. COMBS. Sure.

Mr. PLATTS. So if it is very subjective, that is a big issue. Again,

when does the trigger kick in?

Ms. MITCHELL. Some of them are very obvious. When they want

to migrate from one major financial system to another or a major

release, that is a clear, easy trigger. When they need to replace or

add major components that are costly components, that is another

obvious choice. It is when you get down to, well, I want to upgrade

and do some minor enhancement, that is where that level is not—

that needs to be a discussion that happens. You can’t just arbitrarily set a dollar limit, because these systems are tied together. You

have financial feeder systems, and so you need to consider the big

picture in making that decision.

Mr. PLATTS. Who will that discussion occur between, GSA and

the entity or OMB?

Ms. MITCHELL. OMB. So we would provide the tools that would

make it clear what options are available to them and what some

of the considerations, what some of the industry practices are, and

OMB would work with that agency.

Mr. PLATTS. OMB would say, yes, you either need to migrate or

become a shared service based on this action that you are looking

at taking?

Ms. COMBS. Yes. We tell people the very, very first thing you

should do if you are even thinking about either an upgrade or a

change in your financial management system is come talk to us,

come talk to OMB. That is the No. 1 tenet that has to take place.

30

We have, of course, such great working relationships with our

CFOs that happens automatically.

Mr. PLATTS. And once that conversation happens and there is a

decision, yes, this is a major life cycle change, so the trigger kicks,

they need to do the exhibit 300 analysis.

Ms. COMBS. Correct. Yes.

Mr. PLATTS. And I guess I would like to maybe go back to my

colleague’s approach about the simple layman’s understanding. The

way I have come to look at the financial management line of business is more of a process re-engineering than just simply a capital

investment. You are making a change on your process approach.

So, whereas exhibit 300 seems to be more of a capital inventory

analysis can you explain why that is a good match for this initial

review internal?

Ms. COMBS. Yes. Yes, we can. So first of all that major business

process re-engineering, that is a significant part of this initiative,

but it really is a recommended practice for any major IT investment, right? You shouldn’t begin by plowing the cow path again.

You should do that. But the 300 really does include some fairly significant technology investments. You are talking about the hosting

environment, the financial system, all of the ability to interface

other systems to that system.

All of those things really do fit well within that summary OMB

300 exhibit. But that exhibit is just a summary. All of the analysis

and examination of alternatives really goes behind and happens behind the scenes before an agency comes to prepare that capital investment plan.

Mr. PLATTS. So it is not just the 300; it is really a broader analysis that really gets to the cost/benefit issue here.

Ms. COMBS. Correct.

Mr. PLATTS. That is what we are really after.

Ms. COMBS. Correct.

Mr. PLATTS. Let me stay here. I want to recognize that we are

glad to be joined by the gentlelady from North Carolina, Ms. Foxx.

We will come to you if you have questions shortly.

The business case assumes that, for somebody who is going to

migrate, on average a $5 million cost for the migration. Do I understand that assumption correctly? And, if so, how is that arrived at?

Ms. COMBS. I understand that was in the original business case.

I don’t know that we have any updated information on that yet relative to anything specific. The original business case that was done

back on 2003 and 2004, probably we need to look at that and we

will do that as part of our ongoing effort here.

Mr. PLATTS. I guess I’d encourage——

Ms. COMBS. Yes.

Mr. PLATTS [continuing]. Because certainly that is part of the

cost/benefit analysis——

Ms. COMBS. Absolutely.

Mr. PLATTS [continuing]. For the whole plan, not just the individual migrations but there has to be some determination of when it

is wise to migrate, even if the trigger kicks in, that you need to

make the analysis, migrate or not, and what does an average or expected migration cost versus the long-term benefit of the migraVerDate 11-MAY-2000 11:11 Apr 11, 2007 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 C:\DOCS\33867.TXT HGOVREF1 PsN: HGOVREF1
31

tion? So I think that is something that needs to be fleshed out a

little more.

Ms. COMBS. We will definitely do that. Mary may have something else to add, but I would just say that in those initial development stages, that, of course, is a very important step.

Ms. MITCHELL. Right. I can talk to the work process that happened in coming up with that figure, which was the work team

took a look at the core financial requirements, which include really

that core financial requirement as well as some very common interfaces. This was a rough order of magnitude estimate. They looked

at a couple of systems that had recently migrated and relied really

on those figures, and then went back to the 15 agencies who were

participating in that task force effort to say, does this sound about

right? It did. That is the number they went with as a rough estimate.

Mr. PLATTS. Is it fair that in that analysis they were all smaller

agencies that were involved?

Ms. MITCHELL. Well, it wasn’t every interface that every agency

has across its entire enterprise. It was a few limited core interfaces

and assuming one instance of an implementation, not trying to

modernize a whole enterprise agency through all of its bureaus and

departments.

Mr. PLATTS. Is more of a limited migration what you are looking

at?

Ms. MITCHELL. Correct.

Mr. PLATTS. That is something I want to get into in more detail

later, but as part of that modeling was there an assumption that

there will be some failures in migration and what impact that

would have on that cost, that you would plan to migrate and seek

to migrate but it would not end up playing out as hoped?

Ms. MITCHELL. I am not aware. I will have to do some further

research on that in the historical files.

Mr. PLATTS. I have some other questions I want to come back to.

On the original business case again, and you talked in your testimony a little bit, but there is originally assumed to be six then centers of excellence or shared service centers, and we have four identified now. In the original plan was it assumed that all six would

be Government. Or was six Government or private or mix thereof?

What was the initial assumption?

Ms. MITCHELL. The assumption was that it would be a mix of

Federal and commercial.

Mr. PLATTS. The fact that we only have four now and are moving

forward has an impact on how quick the migration can happen if

there are no additional, at least in the near future, just in the ability of those four to handle migrations. Ms. Mitchell, I believe it was

in your comments you talked about private sector shared service

centers and that the way they will come to be is in open competition at basically each agency as it decides that it wants to migrate,

that then there will be an open competition for a private sector entity to become a shared service center; is that correct?

Ms. MITCHELL. That is correct.

Mr. PLATTS. Can you walk me through what you mean by that?

Ms. MITCHELL. Sure.

32

Mr. PLATTS. Really, in your testimony you reference SBA migrating to Corio in 2003 and Department of Labor recently to Oracle,

an Oracle solutions provider, Mythics. How do those migrations

happen with private sector entities? And does that mean that these

entities are shared service centers?

Ms. MITCHELL. Actually, that is a topic that is open for discussion. Those decisions were made, particularly the SBA one, before

the FMLOB concept.

Mr. PLATTS. That was prior to the formal FMLOB?

Ms. MITCHELL. Right, so SBA actually is on our Executive Board,

and they could speak better to whether the requirements that we

have set for shared service providers are met by their provider. The

Department of Labor was actually at that point in time one of the

originators in the financial line of business concept, and they had

access to all of the information, to the degree that it had been formalized when they did their competitive selection. There is at least

one other agency who has been using the materials from the

FMLOB and is in process of doing an open competition right now.

Their decision has not been made yet.

Mr. PLATTS. But when you referenced SBA and then even Department of Labor, it sounded like the individual department will

get to decide if they are with a shared service center?

Ms. MITCHELL. Currently OMB——

Mr. PLATTS. It seems an FMLOB decision.

Ms. MITCHELL. OMB is not designating commercial providers

currently.

Mr. PLATTS. Right, so——

Ms. COMBS. Let me just clarify a minute about what happened

with the Department of Labor. They held an open competition at

the Department of Labor.

Mr. PLATTS. An A–76 competition?

Ms. COMBS. An open competition with public and private both

competing. The private won out in that particular case.

Mr. PLATTS. When you say open competition, though, was it a

formal A–76 with most efficient?

Ms. COMBS. It was not an A–76. No.

Mr. PLATTS. Are they less then 10 employees? It sounds like yes.

Ms. COMBS. Yes, they are.

Mr. PLATTS. I am seeing a head nod back here. So they are less

than 10, so they didn’t have to do a formal A–76; they did some

open competition, and that really leads to another area I want to

get into.

Ms. COMBS. Right.

Mr. PLATTS. But let’s stay here first on the fact that they did a

competition and they went to a private provider, but for that to be

OK under financial management line of business that private provider needs to be a shared service center designated to be approved

under the plan, right? It is not just having a competition; it is having a competition that you are going to be either shared service,

yourself, or you are going to migrate to a shared service center?

Ms. COMBS. Well, what we have said is that we want a limited

number of stable, high-performing service providers.

Mr. PLATTS. Public or private?

33

Ms. COMBS. Public or private, that are providing competitive alternatives, because we know with competitive alternatives we will

get the best for the American taxpayer. And we want these agencies, as they invest in these modernizations of their financial systems, we want them to, first and foremost, be competitive and

enter into competitive processes, public and private.

Mr. PLATTS. But the first assessment is just internal of whether

they cannot compete with somebody else but can they, themselves,

be a shared service center.

Ms. COMBS. In their own agency.

Mr. PLATTS. Correct.

Ms. COMBS. Right. If we can just step back for a minute, when

we talked about doing the business case 300’s and the other kinds

of considerations that have to take place during that decisionmaking time, one of the steps that each agency has to look at at

that same time when they have decided on the business case, OK,

this is what I want, this is what I need, the very next step they

have to go through in their own internal agency is to say to themselves, do I have anything in-house here in my own department or

agency that will help me to do this? So that is actually the next

step.

Then, if they do, then they say, OK, if this in-house solution will

work, then does it contain more than 10 FTEs? We can talk about

that a little bit further, too. I am sure you may want to get into

that. But if the answer is no at that point, that they don’t have

anything in-house to help them do what they want to get done and

share the service within their own internal department or agency,

then they have to look at a private/public competition, and they

would go out to the market at that point and do a public/private

competition. Public and private competition, I should say.

Mr. PLATTS. I guess first within house.

Ms. COMBS. Right.

Mr. PLATTS. They say, we believe we can stay in-house. To do

that, my understanding is OMB is then going to have to say, OK,

we designate you as a shared service center, yourself, so you don’t

have to migrate to another shared service center.

Ms. COMBS. If that makes sense at that point in time, but

remember——

Mr. PLATTS. Who makes that determination?

Ms. COMBS. We, talking with the department and agency, will

make that determination. Obviously, the department or agency will

have a great deal of thought, because they will have gone through,

by that point, a lot to determine what they actually need. They will

realistically be able to look at what they’ve got in-house to determine whether or not they can be capable of doing that.

Mr. PLATTS. Right. Using the specific example of the Department

of Labor, they went through their analysis, decided we are not

going to stay in-house. We are going to go outside and compete, selected a private sector that they’ve now gone with, but that private

entity has not yet been deemed a shared service center. So how did

they know that they could go to that entity and comply with the

requirements of FMLOB?

Ms. COMBS. We are very smart. We have a lot of expertise. One

of the things that we have done is we do work very, very closely

34

with these departments and agencies, and we do help them understand what is out there that has already been designated. If they

could fit the bill at that point in time, they could become—we

haven’t hit that particular scenario yet.

Mr. PLATTS. But they have migrated since you started in 2004.

They are recent migration, so Mythics has not been designated,

right, as a shared service center?

Ms. COMBS. Well, the agency would make the call at that point.

Of course, they’d consult with us, but they make the call whether

or not what they could do in-house would be supported by their

business case.

Mr. PLATTS. But we come back to a little bit where we were in

March. Some of it is maybe getting the cart ahead of the horse because we are doing migrations and we haven’t finalized the terms,

the guidance for those migrations, and we are doing migrations to

entities that have not been deemed a shared service center.

So if I am going to compete and do an open competition, there

is no use for somebody to compete that is not going to be deemed

a shared service center. What’s the use of having them in the competition? So I need to know that this entity is a shared service center and eligible to compete for my migration. But that has not happened, yet the migration has happened. So, Ms. Mitchell——

Ms. MITCHELL. Could I address that?

Mr. PLATTS. Please do.

Ms. MITCHELL. Yes, OMB has not designated commercial shared

service providers. We do not have a pre-qualification process that

looks at all of the requirements and says, you meet them all, you

are on the list. However, those requirements, the agencies that are

competing for these migrations are incorporating those requirements in their request for proposal, so the requirement to have

service level agreements and the requirement to go through some

of the same due diligence items that the Federal agencies were

evaluated on before they were designated, that is the process that

is currently in use. The guidance will formalize that a lot more

than it was. The two agencies, the one that has selected, Labor,

and the one that is in the process of making that determination,

we are working very closely with the FMLOB project and we were

reviewing those documents before they were put out under their request for proposal.

Mr. PLATTS. Is there a reason to not wait for the migration to

occur and to finalize your guidance so you know exactly what is required prior to continuing to migrate agencies to entities that may

not end up being designated shared service centers? I guess if they

are designated a shared service center and in this manner with the

competition that is not A–76 compliant because it is not required,

it was less than 10, but once they are designated as a shared service center, if an entity that is competing that is larger than 10, how

is that going to impact? I mean, again it gets in to some of the details. Good or bad, I am a stickler for details in whatever I am engaged in or involved with. How does that work?

Ms. COMBS. Let me just add one thing. You know, we have been

doing a lot of shared service provider work across Government for

many, many years. People have been doing it on their own. They

have been able to determine what they need and go out and find

35

it in many, many different places and have been engaging in that

for quite some time.

So when the agency determines that if a private provider, for example, can do this work for them, then they would do an open competition. But the agency has to know what they need, first and

foremost. That is very, very important. Often we are able to help

them with that because we have seen a lot of different people who

have engaged in either upgrading their financial management—

having done it myself, I am keenly aware of what it takes, but it

takes a very, very long time to do these.

I think the point of not stopping something in order to start

something else is one we can’t lose here in our discussion, because

people do have needs. They have things that they have worked on

for a very, very long time. That is why in our original guidance,

both in December and even in the one we are working on that we

will be coming out with now, we are offering flexibility and some

exceptions to doing some things here that we know people need to

do because they are in various stages of integration and movement

from one system to another, for example.

Mr. PLATTS. That raises a couple of issues. One is it sounds like

the importance of deference to the agency because they know what

their needs are, and that kind of came back to where I started on

this question with Ms. Mitchell’s comment about an open competition in agencies in looking at private sector, that in some way they

would have that discretion as part of their competition to say this

private entity does fulfill the requirements of the guidance and

meet our needs. So the agency will decide that, as opposed to OMB

actually being the arbiter of that.

Ms. COMBS. Well, we certainly should consider this as we are

moving forward here. We are very much appreciative of that concern. We have that concern, as well. We share that with you.

The other thing I think we have to keep in mind, though, is we

have some very, very important projects that are underway right

now that we can’t just stop in the middle or tell agencies you must

stop these or do something else, because they have been involved

in these for a very, very long time.

Ms. MITCHELL. If I could just add to that, yes, you have an agency who has a significant need now, or in all reality a year or two

ago when they decided, it is time for me to modernize. I need to

make a decision and move forward. They decided, along with OMB,

to use the best available guidance to help them make that decision.

And yes, the guidance will be finalized and published, but the reality is we will continue to incorporate the best practice and experience as we have learned from these migrations. So those tools will

never be perfect and we can’t stop making improvements while

waiting for perfection.

Mr. PLATTS. So is it assumed that those migrations that are happening are deemed shared service centers because the migrations

have been allowed to go forward, that Department of Labor,

Mythics, is a shared service center?

Ms. COMBS. I don’t think that is an appropriate assumption.

Mr. PLATTS. When will the Department of Labor know if it is an

absolute fact and not just an assumption? Because if they are not,

36

it seems that they have contradicted the whole intent here, which

is to migrate to a center with certain standards that are required.

Ms. COMBS. Well, they have a business need for doing what they

are doing right now. That is why they are embarking upon the

process that they are on right now. They haven’t embarked upon

this in order to become a shared service center. They have embarked upon this to satisfy the business needs that they have at

the Department of Labor.

So one of the things that I think we have learned and we have

talked about and we have engaged in some conversation is how

much stability do these places need in order to become a shared

service center. Well, everybody isn’t going to be a shared service

center just because they are getting together their own business

case and they have the needs for themselves. They may not choose

to provide service for someone else in another agency or department.

Mr. PLATTS. Is it fair to say that those at Department of Labor,

and I think there was another one ongoing right now, that because

the guidance is not yet finalized they are not, in a technical sense,

under the financial management line of business requirements, and

that they are where they need to be for the time being, and that

they are going to be allowed to stay there, and the next time they

need to make a major life cycle change, whether it is 5 years from

now or 10 years from now, and the guidance is finalized by then,

that then it would be a more definitive treatment of that provider

being yes or no shared service center or not?

Ms. COMBS. Obviously, as we clarify specific things in the guidance, as the guidance becomes more complete, we will obviously

hold those standards to the agencies that are using them at that

time.

Ms. MITCHELL. The other thing I would like to point out is, as

those agencies take advantage of those commercial entities, these

are acquisitions that have option years, that have the ability to put

requirements as they are defined by the financial management line

of business into those agreements so that we have this common set

of performance matrix and measures, service level agreements, and

all of the requirements so that——

Mr. PLATTS. Not set in stone.

Ms. MITCHELL. Correct. On an annual option year, or whatever

their term, their acquisition contract term is, they have the ability

to improve on those requirements.

Mr. PLATTS. OK. Go ahead.

Ms. COMBS. I was just going to say also, as you recall, in the previous discussions we have had, we have talked about exceptions to

some of these policies, as well, and how we don’t know that all the

lights are green along the way. We may come upon some things

where we need to have some limited exceptions in some of the ways

that we are doing business.

Mr. PLATTS. I was going to go to a different area, but that raises

something that was further down on my list, and that is the possible exception or a flexibility in how you deal with the question

we talked about in March. We dealt with GSA and the clean audit,

or you not getting a clean audit.

37

Is there more thought to what happens if a designated shared

service center that has had entities migrate to them then loses

their clean audit, which was a requirement to become a shared

service center? What happens to those that have migrated there

and its status as a shared service center once it has lost it, especially if the audit problems relate to the operations that pertain directly to it being a shared service center?

Ms. COMBS. Right. I think one of the things we talked about in

our previous discussion is that the department in one specific case

lost their clean audit, but the particular entity had not had specific

problems, as well. But even if it did, the departments and agencies,

as they are preparing to move into the new financial system that

they are trying to acquire, and as they start developing their business case and doing the work necessary to do that, that is obviously one of the things that they are to look at, and that is important for them to consider for any shared service provider.

Mr. PLATTS. So the entity that is looking to migrate should, in

the terms of their agreement with the shared service center, individually spell out in that agreement what the ramifications are if

they lose their audit? It will not be a standard OBM, that you are

responsible then for the cost of them migrating to somebody else

if they choose?

Ms. COMBS. Well, that is one of the things we are looking at in

our documents right now. I think that was one of the sub-avenues

of one of the things I pointed out to you earlier.

Mr. PLATTS. Failed, and the need to re-migrate or, you know, to

change who covers that cost?

Ms. COMBS. Well, my opinion is that if we do a good job in spelling out both what is important for the provider in terms of specifics

and what they are required to do, and we spell out what are some

of the things that the people who are seeking service should be

looking for, if we do a good job with both of those we will have

hopefully none of those scenarios that we know are potentially out

there, but we hope, if we do a good job spelling out the requirements and holding the providers to those specific requirements,

and holding the people who are seeking the service accountable for

keeping quality very, very high, that then we will be in good shape.

Mr. PLATTS. Somewhere, either in the overriding guidance and

requirements or in those individual agreements, though, you need

to account for—if it remains that a requirement to be a shared

service center is having a clean audit, which I believe is still the

case or was in the previous guidance. If that remains a requirement, then somehow you have to spell out definitively what happens if you lose your clean audit for future years. I appreciate that

is something that is still part of the mix as you go forward in trying to finalize.

Ms. COMBS. We appreciate your thoughts on that, as well.

Mr. PLATTS. One of the other aspects of the original business

case was the development of a Government-wide standardization of

core business processes, and that would occur prior to the migration. I believe when we talked in March that the hope was to have

the goal of developing that common accounting code by September

30th of this year. I was just wondering where we are on that and

38

how does that relate to the hope of finalizing the guidance before

this fall, as well.

Ms. COMBS. We are doing very, very well with that. Mary will

be able to speak about the specifics, but we are definitely on target

for defining our standards and the common data definitions and

standard processes that we have and Mary and the very, very

broad group that meets monthly with dozens of agencies to spell

this out will definitely be defining those standards by the end of

September. So we are going to have a very, very busy fall. I think

we have really some very, very good work that is going on across

Government relative to that. We have a very large group of stakeholders from the Federal financial community that are working

through this.

One of the things though I think we need to step back and understand is that, while we may have the standards set out and the

standards in place, that it is probably going to take a number of

years for all of the departments and all of the agencies to actually

be working under the standards that we have.

Mr. PLATTS. So the hope is still, by later this year, to get an

across-the-board standard, but that won’t necessarily be in place or

in use across every department or agency for several years?

Ms. COMBS. Right. Putting this in use entails an awful lot, as

you can imagine, of work.

Mr. PLATTS. Does that impact the guidance at all? No?

Ms. MITCHELL. No. So yes, overall standardization will make a

tremendous amount of difference, and it is not something you do

overnight but it is a very worthwhile goal.

Mr. PLATTS. I agree.

Ms. MITCHELL. But yes, once we get the standard in place we

really need to bring both the Federal agencies, along with some of

the industry, together to determine what the best implementation

strategy is, because there can be some major differences in the

speed and success of really implementing and adopting those

standards. That may be one of the factors that draws agencies to

a shared service provider, success in already having implemented

those new sets of standards.

Mr. PLATTS. The variation of the standards on accounting is the

standards for the competition, and we have touched on a little bit

the issue of A–76 and how standardized this process is going to be.

I want to make sure I understand what is envisioned by an entity,

an agency wanting to make a major life cycle change and therefore

trigger to make the evaluation to become a shared service center

or migrate, and, if you migrate, public versus private. So they are

going to do the 300 cost/benefit analysis on the exhibit 300 and review of that data and make an analysis that we are going to stay

in-house and have the ability to do it or no, we are going to openly

compete it. Is that the first step?

Ms. COMBS. You have it.

Mr. PLATTS. OK. When they’ve decided we are going to compete,

is it up to that agency whether they are just going to compete within the Government, public to public, or are they required to open

it up to anybody, public or private, to compete for the work, regardless of size?

39

Ms. COMBS. Well, right now we are asking them to do as much

competition as they possibly can because we realize more competition, both public and private, will lead to better pricing, thus better

savings for the taxpayer. So we are asking them to do both public

and private.

Mr. PLATTS. But that is not something you are asking them right

now, are you?

Ms. COMBS. Well, we have people at all stages, so if somebody

came to me today I would say competition is good.

Mr. PLATTS. This may sound like we are going backward a little

bit here——

Ms. COMBS. That is all right.

Mr. PLATTS. If I am going to compete it, I would think as an

agency I want to compete it with designated shared service centers,

and right now there are only four and they are all public. There

is no private designated shared service centers. So, again, am I just

asked to do it but if I want to keep it in-house and think, hey, I

am just going to do it with the public sector, that is my agency

choice, how much of an individual choice is that for the agency versus a requirement versus a request? And then, if it is you have to

do it with private included, who do they compete with now without

any private entities that have been designated?

Ms. COMBS. Well, because private entities have not been designated doesn’t mean they are not out there offering shared services. There are private companies out there that do shared service,

obviously.

Mr. PLATTS. But they are not a designated shared service center

in fulfilling the requirements of the financial management line of

business program?

Ms. COMBS. Correct. They are not designated.

Mr. PLATTS. That is who I am supposed to migrate to, right? I

am supposed to migrate to an approved shared service center?

Ms. COMBS. You are supposed to do a public/private competition.

Mr. PLATTS. Among designated or approved shared service centers, right? Or among anybody?

Ms. COMBS. Competition. We haven’t said that if you are in the

private sector you can’t come in and bid.

Mr. PLATTS. So it is not a requirement that I have to migrated

to a shared service center; I just have to migrate to whoever will

give me the best deal?

Ms. COMBS. No. In the public there are four public shared service

centers that are identified.

Mr. PLATTS. Right.

Ms. COMBS. And if one of those four meet your needs, then you

go to the next step of several laws that come into play at that

point, you know, one of them being section 842. So we have several

steps along the way after you decide, OK, in-house we can’t do it.

OK?

Mr. PLATTS. Right.

Ms. COMBS. So if we can’t do it in-house, then we decide does it

have 10 FTE or more, and if it has more than 10 FTE then we go

into another step which says public/private competition that includes we look at the A–76, we look at section 842, both of those.

We have to make a decision at that point then whether we would

40

select a shared service provider from those or whether we would

have a non-shared service provider from in-house.

Mr. PLATTS. It seems like we still don’t have an answer, though.

That basic premise from where we started in March—and I continued to be under the understanding—is if I am the agency and the

trigger kicks in, I have to migrate to a shared service center if I

am not to be one myself, an approved shared service center.

Ms. COMBS. We have four public shared service centers to date.

Mr. PLATTS. So if I am going to compete today, openly compete,

I am only going to have those four public shared service centers

compete for my work, because that is the only four that are out

there, public or private, at this point in time? That is where we

are?

Ms. COMBS. We are not restricting public competition.

Mr. PLATTS. But how do you compete a private entity if they are

not a designated shared service center? Why would I include them

in my competition if OMB, GSA, somebody hasn’t said, yes, they

are an approved shared service center that you can migrate to? I

mean, somebody has got to make that determination or there is no

use having them spend money to compete with me in the competition.

Ms. MITCHELL. Right. So under the one that is underway currently, what was done is they incorporated all of the requirements

that are stated for shared service provider, service level agreement,

use blah, blah, blah, blah.

Mr. PLATTS. In their request for proposals——

Ms. MITCHELL. Right.

Mr. PLATTS [continuing]. You had all those requirements.

Ms. MITCHELL. Correct.

Mr. PLATTS. With the understanding that if you meet all these

you are, therefore, a designated shared service center, which is the

requirement to get my competition, get my work under financial

management line of business?

Ms. MITCHELL. So they are technically evaluated to have the experience and meet those requirements. OMB is the one who would

designate. Right now the agency does not designate.

Mr. PLATTS. Because in our last hearing we had a private entity,

CGI, and they said they were a shared service center. I said, well,

how did you get that designation? And they said, we were just

deemed it. We were just made a shared service center.

Ms. COMBS. They gave it to themselves.

Mr. PLATTS. But it doesn’t——

Ms. MITCHELL. This is one of the issues that is under work and

this is one of the ones that Linda mentioned that we are still working on.

Mr. PLATTS. And I think that is clear that if I am a public entity

and I am required to compete, and I am encouraged to compete

publicly and privately, that I am only going to compete, have people compete for my work that I know at the end of the day are

going to be shared service centers as required by the financial management line of business.

Ms. COMBS. Well, let me just say this. We have not, as I mentioned before, we have not pre-screened any private sector shared

service providers.

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Mr. PLATTS. Is that envisioned?

Ms. COMBS. Let me carry it one more step before I answer that

question.

Mr. PLATTS. Sure.

Ms. COMBS. Agencies can still choose any of the private sector

entities that are out there that offer them the services that they

have described that they need in their proposal and in their 300’s

and in their business cases. The agencies have an obligation to describe what they need. There are a number of private companies

that will respond and say they can provide X, Y, or Z, and if it is

screened out technically, as Mary just talked about, in the departments and agencies, and it is determined that these private entities can meet the business needs, then they would be able to compete with those.

Mr. PLATTS. So my understanding though all along from the beginning of this program, was that OMB was going to put in place

standards, you know, to get the efficiencies which we are all after,

either within the public side, or if it is private, but to get the efficiencies in a fair and responsible way, and that OMB was going to

say these are the standards that we are going to have everyone follow. If you want to do a major life cycle change, then you have to

review internally.

Can you handle it inside to upgrade your abilities and be a

shared service center? Then it was called center of excellence. And

if you can’t or don’t want to, then you have to migrate to a center

of excellence/shared service center, and that OMB will decide who

meets that. But what we are really saying is that if you are an

agency out there and you are competing your work, that as long

as that agency can go forward with a total comfort level that, in

their request for proposals for that competition, as long as they

put, here are the existing, as we best know them today, requirements of a shared service center.

As long as you meet these requirements or this guidance, then

we can compete with you or you can compete for us with the work

and you will be deemed a shared service center, regardless of what

OMB, itself, really thinks, but because you can comply with these

requirements or this guidance. So it really comes back to that individual entity saying, all right, we want to compete, we want these

guys to compete, and we have laid out the guidance as part of the

request for proposals that they said they can meet that; therefore,

they are a shared service center and we can go with them.

Ms. COMBS. Well, that is as it is today. You are exactly correct.

You described it beautifully. The decisions that we have before us

now with the comments that are coming in, we need to look at this

very, very carefully and see whether or not the current determinations that we have made, which was not to certify shared service

providers that are private, we need to look at that and see whether

or not we should make it either a different decision than the current operation that we are undergoing or whether we need to maintain the posture that we have currently.

Mr. PLATTS. I think that is an absolute necessity for the final

guidance. You need to lay out very clearly when you compete, you

know, either clearly that private entities can pre-screen and be designated so that they are competing as pre-designated shared servVerDate 11-MAY-2000 11:11 Apr 11, 2007 Jkt 000000 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 C:\DOCS\33867.TXT HGOVREF1 PsN: HGOVREF1
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ice centers so that agency has that comfort, or, in the alternative,

you need to lay out that for the agencies, if you compete, including

with the private sector, you know, being part of the competition,

that as long as the requirements of the guidance that are laid out

in the guidance to be a shared service center, as long as they are

part of the request for proposal and those requirements are met,

then you in good faith can move forward and with all assurance

that OMB is going to sign off on who you went with. One or the

other has to be in there, or even a variation of both, really.

Ms. COMBS. OK. I thank you for those comments and certainly

that will be one of the areas that we will want to come up and have

some additional discussions with you.

Mr. PLATTS. I will look forward to it.

I do want to touch on one final area just a little bit more. Our

second panel has been very patient. It is the issue of A–76. The

original, from our meeting in March, the way I took it, it was not

initially envisioned that A–76 would apply to these competitions,

and the fact that some competitions are already happening that

seem to be outside of A–76 that maybe should have been in, based

on where we are today it is clear, and I appreciate the actions

OMB has taken in making it clear that A–76 does comply for 10

or more FTEs.

The open competition that happens where it is less than 10 will

still emulate the goals of the A–76 as far as the competition, the

manner in which it goes forward? And also, in the language of having at least a 10 percent or $10 million savings, is that going to

continue to apply even to those non-A–76 competitions?

Ms. COMBS. We believe that if we generally rely on circular A–

76, that we can ensure that Federal employees are treated consistently in private and public competitions. We also believe that is

very, very important as we move forward in our considerations

here to make absolutely certain that we are complying with all of

the laws and all of the regulations that have been set before us.

I think the nature of the migrations that we expect certainly, as

we have talked about, we want to hold up the spirit and letter of

the law, but at the same time we will probably run into some few

cases where we may need to look for some deviations or some

methodologies that are going to, on a case-by-case basis, as I said,

be consistent with laws and principles and values that we hold

dear in fairness and transparency. But we may run into some cases

when we haven’t anticipated some of these and we need some flexibility to work through some of that.

Mr. PLATTS. I should know the answer to this, or part of this.

With A–76, if it is a competition internal so it is to look at one of

the other four existing public shared service centers, so it is not

private competition, A–76 is not kicking in in the sense because

you are not going private, correct?

Ms. COMBS. That is correct.

Mr. PLATTS. And so if 1 of the 4 or down the road and there is

10, and there is a shared service center that is a public entity but

the work is all by that shared service center contracted out, so they

did an A–76 competition years back or tomorrow or whatever, and

so they’ve got a private contractor doing all their work, but then

they go and compete for other work to have migrated to them.

43

Is A–76 going to kick in if the actual work is being done by private contractors for that public entity that is the shared service

center? So if GSA’s work is done by a private contractor that they

are going to get, they are, in essence, kind of the front partner, so

agency A says, all right, we are going to migrate to GSA. In reality,

that work is going to be done by a private contractor who is contracting with GSA. Is A–76 going to apply to that competition or

not, because the front person is a public entity?

Ms. COMBS. If I understand the premise of your question, you are

speaking of shared service providers that are both public and private.

Mr. PLATTS. If agency and Department of Defense says, the trigger is kicked in, we are going to migrate to somebody. We are going

to migrate to GSA, and GSA I think contracts with CGI actually

to do this work. When I look to migrate and have my work from

Defense agency XYZ, the competition is currently within the public

entity—GSA is another public entity—but the work is really being

done by a private contractor, CGI. So does A–76 apply to that competition with GSA?

Ms. COMBS. Well, you know, I think you have to go back to who

the entity is that is actually providing the service. In this case it

is GSA. So I would say at that point I am not sure we have any

of those right now.

Ms. MITCHELL. We do have partners that are providing some of

the services.

Ms. COMBS. Some, but not all.

Ms. MITCHELL. But they tend not to be in the transaction or the

financial transactions.

Mr. PLATTS. But it seems that there is some of that type of participation now and potential for a lot more, and it is one of those

questions that I think we need to think about going forward, because if A–76 does not apply, otherwise you could have public agency XYZ say, all right, we are going to be a shared service center

and we are going to contract all this out.

Ms. COMBS. OK.

Mr. PLATTS. And then go after work. It would be a way of circumventing the A–76 requirements, which is not appropriate.

Ms. COMBS. I understand exactly where you are headed, and that

would certainly not be the intent, to circumvent that.

Mr. PLATTS. I appreciate that, because we want to fulfill not just

the letter of the law but the intent of the laws.

Ms. COMBS. Right.

Mr. PLATTS. I would encourage you to look at that in the guidance, that if the work that is being contracted out migrated to Public Entity XYZ, say GSA, if the work is actually going to be by a

contractor for GSA, then spell out that A–76 does apply, whether

it legally under A–76 says that, but in your guidance you are going

to require that as part of the financial management line of business. That way the intent of A–76 is fulfilled and not circumvented.

Ms. COMBS. Thank you. I appreciate that. We will definitely look

into that.

Mr. PLATTS. I think that is the way we get what we are all

after—competition in the most transparent, fair——

Ms. COMBS. Right.

44

Mr. PLATTS [continuing]. And the manner in which Congress and

the executive branch have said we are going to do it where it is

truly private jobs competing for work that is currently public.

Ms. COMBS. OK.

Mr. PLATTS. I appreciate both of your patience with me as we

have worked through the details. As I said, I am a stickler for

those details. As we go forward we look forward to continuing to

work with you. I appreciate your testimonies and your answers to

my questions and, again, day in and day out your devotion to our

country and trying to improve the management of the Federal Government, which is what we certainly all share as an important goal

for our Nation.

Is there anything you want to add that we didn’t touch on or you

want to summarize?

Ms. COMBS. I just want to say thank you again for your interest

in this area. We are trying to do something that hasn’t been done

before and we appreciate your patience and your thoughtfulness.

Your staff gives us time and energy. We appreciate that very, very

much because it is working together that we will come out with the

best product possible. We can’t do it alone. We thank you for your

kindness and your efforts on our behalf.

Mr. PLATTS. I appreciate the kind words. It is the intent here.

No question is intended to create a problem, but just to avoid a

problem down the road by thinking all the scenarios and possibilities through that we, up front, give the best guidance possible to

the agencies as they look to make the right decision for their agency and for the taxpayers. So thank you again.

We are going to take maybe a 3-minute recess while we reset for

the second panel and then we will reconvene.

[Recess.]

Mr. PLATTS. We are pleased to have our second panel and especially appreciate their patience with the hearing, especially my

lengthy questions of the first panel.

We are glad to have with us Mr. James Krouse, acting director

of the public sector market analysis for INPUT; Ms. Jacque Simon,

public policy director, American Federation of Government Employees, and Mr. Stan Soloway, president, Professional Services Council.

Would all three of you stand to be sworn in?

[Witnesses sworn.]

Mr. PLATTS. The clerk will note that all three witnesses affirmed

the oath.

We are going to begin, Mr. Soloway, with your testimony, then

we will move across.

Again, we will use the 5-minutes as a kind of guide, but if you

need to go over a little bit we understand that.

Your written testimony was very helpful. I call it my homework.

I especially appreciate your getting it in early. Usually I do it about

midnight the night before, and all of you were very helpful in getting it to me early, so I actually did it during the daylight hours

yesterday in preparing for the hearing. We appreciate that.

We are told that we have probably a lengthy series of votes probably between 4:45 or 5. Our hope is if we get your testimonies and

some good exchange, that we will get done in the next hour so that

45

you are not sitting here waiting, because I think it is going to be

a lengthy round of votes.

With that, Mr. Soloway, if you would like to begin.

STATEMENTS OF STAN SOLOWAY, PRESIDENT, PROFESSIONAL

SERVICES COUNCIL; JACQUE SIMON, PUBLIC POLICY DIRECTOR, AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES; AND JAMES KROUSE, ACTING DIRECTOR, PUBLIC SECTOR MARKET ANALYSIS, INPUT

STATEMENT OF STAN SOLOWAY

Mr. SOLOWAY. Thank you, Mr. Chairman. On behalf of the Professional Services Council we thank you very much for the invitation to testify here today to share our perspectives on the lines of

business initiative. PSC and our more than 200 member companies

are committed to working with OMB and the Congress to make the

initiative a success.

My comments today address the entire LOB initiative and are

not solely related to the financial management element. In the interest of time, let me simply just summarize the five major points.

First of all, the foundation for the Government’s lines of business

initiative is sound and rational. It is the right thing to do. To its

credit, OMB has clearly put a great deal of thought and effort into

the various initiatives and is committed to their success. They also

recognize many of the steep challenges they face.

OMB also recognizes that the initiative is a long-term undertaking and that full migration could easily take 10 or more years as

it and the individual agencies struggle with decades-old legacy systems, processes, and, significantly, cultures, let alone a substantial

change management and communications challenge. Indeed, this

initiative is fundamentally not about information technology or

even about outsourcing. Rather, it is about rationalizing broad

agency business practices and processes, and achieving that goal

requires the early and continuing involvement of all stakeholders.

Notwithstanding the sound strategic underpinning of the initiative, there are some unresolved questions relating to its implementation. First, I think it is fair to ask whether entrepreneurial government genuinely serves the public interest when agencies build

business capabilities unrelated to their core mission. It is one

thing, for instance, for the Department of Interior to share its expertise in natural resource management with other agencies; it is

entirely another thing for that department or any other to build a

business line completely disassociated from that core mission.

Questions also abound relative to the competitive playing field on

which such activities will be conducted. Today, as the Government

faces severe budget and human capital challenges, it is all the

more important to carefully assess whether it is beneficial to devote

the people, technology, and other resources required to continuously maintain excellence in a function outside of a designated

agency’s core mission requirement. This is particularly true for

smaller agencies for which these investments are especially onerous.

As you know, one of the Government’s greatest challenges for

many years has been finding adequate resources to maintain pace

46

with rapid advances in technology and associated technology skills,

resources that companies derive from their profits. In today’s environment, it is difficult to imagine how organic shared service providers are going to be able to maintain that currency for a long period of time.

Second, the success of the LOB is directly tied to the creation of

appropriate performance measures and matrix and to agency and

Government-wide adherence to them. The inter-agency developed

migration guidance issued by OMB contains just such a list. Our

initial review suggests that the list, itself, might be too extensive

and could result in some sub-optimization, but it certainly represents an important start.

The more salient and immediate question is whether that list,

properly streamlined, could as effectively serve as the Governmentwide baseline requirements for any significant investments and upgrades that all agencies must meet, while leaving agency implementation to a competitive best value procurement conducted

among commercial providers, either those who have competed to

become shared services providers or, where appropriate, through

an open market procurement.

As it stands now, OMB’s business case process has imposed a

significant hurdle for any agency investment or acquisition decision

other than migration to a designated Federal agency shared service

provider.

Third, as a result of the fiscal year 2006 Transportation Treasury

Appropriations Act, OMB has determined that virtually all activity

conducted under the line of business initiative must utilize the procedures under OMB circular A–76. If the requirements of A–76 are

forced against the LOB initiatives, the initiative will face potentially insurmountable obstacles to success. There is a reason that

industry, by and large, has walked away from A–76. It is not because companies are afraid of competition, because they face it

every day. But A–76 competitions take 2 to 3 years to complete and

are so fraught with process inequities and so burdened by unique

restrictions, including restrictions on the use of best value source

selections, which are the accepted norm not only throughout Federal contracting but in the commercial sector, as well, that most

companies have determined that, except in rare circumstances, the

A–76 field is far too tilted to justify the expenditure of precious bid

and proposal resources. That is why most A–76 competitions have

no real competition at all.

For the LOB initiative the problem is further exacerbated by the

potential need to impose A–76 at two levels, first in the competitions among and between agencies and commercial companies to be

designated as shared services providers, and then again each time

an agency opts to utilize a designated shared service provider for

a given requirement.

There is also an important political dimension to the A–76 issue

that cannot be ignored. Virtually every announced A–76 competition becomes the focus of a targeted congressional amendment to

prohibit the competition from going forward in the first place. In

virtually every case where a private contractor has won an A–76

competition, a rare event in and of itself, there have been efforts

47

in Congress, sometimes successful, to legislatively overrule the procurement process.

For example, just last week the House adopted, with no debate,

an amendment to the Defense Appropriations Act that would prohibit the implementation of a duly awarded contract at Walter

Reed Army Medical Center, a contract that was awarded only after

an almost unprecedented post-award oversight process that included GAO protests and detailed reviews by the Army Audit

Agency. Can you imagine if every LOB agreement were subject to

that kind of uncertainty, political interference, and schedule slippage?

Without relief at least from the new statutory restriction, the effect could be devastating to the entire initiative and deny the agencies and the taxpayer the substantial value that would otherwise

be possible.

Fourth, as OMB has recognized, the success of the initiative is

also dependent upon the clarity, quality, and firmness of the Government’s requirements. It is unfortunate but true that the Federal

landscape is littered with examples of great technological and business solutions that fail to deliver the expected and promised results

because the Government requirements process, itself, was unclear

and/or constantly shifting.

For the initiative to succeed and achieve the anticipated savings

and synergies, it is essential that disparate agencies agree on a

firm, clear, rational, and common framework for each element of

the initiative, a framework that meets the needs of both the large

and small agencies without becoming so riddled with individual

customer demands that it loses the very efficiencies and synergies

it was designed to create and, as a result, it drives costs upward.

Further, there is an important cross LOB requirement connected

to this initiative. For example, HR systems must interface with finance, travel, and other functional areas. As such, some further explanation or understanding as to how business reference models

and architectures are integrated across the various elements would

be helpful for both the Government and its industry partners.

Just last month the Center for Strategic and International Studies released a report detailing the critical trends in the Federal

professional services marketplace relating to the nature and scope

of Government buying and the ways in which the professional services industry is responding to and being shaped by the Government’s activities. The report clearly documents a growing market

squeeze on mid-sized firms and limited growth opportunities for

small businesses. This brings me to the fifth and final comment I

would like to make.

There are questions as to whether the LOB initiative could serve

as a barrier to access to or growth within the Federal market for

businesses of all sizes, particularly small and mid-sized firms, especially if shared service providers become mandatory or near mandatory sources for their relevant functional capabilities. This has

not been widely discussed as part of the LOB initiative, but we believe it is essential to promptly do so.

Mr. Chairman, we applaud OMB for launching the initiative and

believe it is the right thing to do. My comments today are truly not

intended to suggest otherwise. But we do have concerns about critiVerDate 11-MAY-2000 11:11 Apr 11, 2007 Jkt 000000 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 C:\DOCS\33867.TXT HGOVREF1 PsN: HGOVREF1
48

cal implementation challenges and important policy dimensions of

the initiative. As such, we continue to look forward to working with

OMB and this committee on strategies to help ensure the long-term

success of the initiative.

Thank you for your time. I look forward to your questions.

[The prepared statement of Mr. Soloway follows:]

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Mr. PLATTS. Thank you, Mr. Soloway.

Ms. Simon.

STATEMENT OF JACQUE SIMON

Ms. SIMON. Thank you, Chairman Platts, for allowing AFGE,

which represents more than 600,000 Federal employees across the

Nation and around the world, the opportunity to present our views

on OMB’s controversial financial management lines of business initiative.

Chairman Platts, AFGE commends you, in particular, for your

attention to the details and consequences of this initiative, your determination to get answers about it from a frequently

unforthcoming OMB and your interest in hearing a diverse range

of views on the initiative at today’s hearing.

We started hearing about this initiative in late 2005 in the form

of warnings from senior procurement officials with whom we normally spar over A–76. Official after official and agency after agency

warned us that an alternative to A–76 was being prepared in relative secrecy, and that this alternative to A–76 would be used to

conduct direct conversions of information technology functions.

Direct conversions is a polite euphemism for taking work away

from Federal employees and giving it to contractors without any

public/private competition or even any promise of savings; that is,

wasting taxpayer dollars and stealing jobs from Federal employees.

Unfortunately, those warnings have proven to be accurate.

Mr. Chairman, I think we can all stipulate, as the lawyers say,

that, regardless of whether one supports the FMLOB initiative and

regardless of how OMB may try to present its case to you, its guidance in no way provides for the use of so-called competitive

sourcing. In fact, OMB has repudiated its own rhetoric and its own

rules in preparing its FMLOB initiative guidance on what it alleges

is competition.

Direct conversions, as we said, wasting taxpayer dollars and

stealing jobs from Federal employees, are encouraged for functions

involving up to 10 FTEs and are thus inevitable for larger functions. Financial management work performed by Federal employees

can be moved to another agency and then privatized without any

public/private competition. Agencies can use a form of so-called

best value that is so subjective, so costly, and so extreme that even

OMB would not include it in its 2003 revisions of A–76. OMB’s

guidance encourages agencies to come up with their own rules for

privatization reviews which, if passed as prologue, will be contrary

to the interest of taxpayers and Federal employees. All new Government work and all already outsourced Government work related

to financial management will continue to be a monopoly for contractors.

There is actually more to this that is even worse. The FMLOB

initiative is actually a revival of the very worst principles of OMB’s

discredited wholesale privatization agenda. In 2001 OMB imposed

numerical privatization quotas on all agencies, insisting that they

review for privatization under A–76 at least 5 percent of the jobs

on their Fair Act inventories in fiscal year 2002, another 10 percent

in fiscal year 2003, as down payments on an OMB dictate that all

agencies combined review for privatization by the end of 2004 at

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least 425,000 Federal employee jobs. Agencies were explicitly encouraged to use direct conversions to achieve these infamous numerical privatization quotas.

It is so extreme and so indefensible that it is difficult to conceive

of today: OMB officials insisting, in a classic one-size-fits-all approach, that all agencies, regardless of their needs or missions,

compete under A–76 or directly privatize specific numbers of Federal jobs in all but the most extraordinary circumstances, or else

face sanctions in the budget process. Fortunately, the Congress outlawed the use of numerical privatization quotas, and in its May

2003, rewrite of A–76 OMB officials were forced to abolish direct

conversions absent specific authority from OMB.

As OMB officials reluctantly provide this subcommittee with details of the FMLOB initiatives, many Federal employees are experiencing a sense of deja vu. Again OMB is insisting that all agencies

in all but the most extraordinary circumstances compete or directly

convert a certain number of jobs or else face sanctions in the budget process. However, instead of that numerical privatization quota

being 15 or 50 percent of an agency’s entire commercial work force,

it is, instead, 100 percent of an agencies financial management

work force.

Indeed, the FMLOB initiative may actually be worse for agencies

in that OMB has unilaterally determined that financial management functions in all agencies, regardless of those agencies’ needs

or missions, are commercial, and that every agency’s financial management functions are appropriate for contractor performance.

Agencies consequently have no flexibility under these new numerical privatization quotas. They certainly cannot decide either to

compete or convert financial management functions which have

been outsourced to in-house performance.

Mr. Chairman, thank you for this opportunity to present to your

subcommittee AFGE’s concerns about OMB’s financial management lines of business initiative. I would be delighted to respond

to any questions from you or your colleagues.

Thank you.

[The prepared statement of Ms. Simon follows:]

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Mr. PLATTS. Thank you, Ms. Simon.

Mr. Krouse.

STATEMENT OF JAMES KROUSE

Mr. KROUSE. Thank you, Chairman Platts. I am honored to appear before you and to provide an analytical perspective of the Federal lines of business in general and on the financial management

lines of business in particular.

In the initial release, the stated goal for establishing the lines of

business according to OMB was to identify opportunities to reduce

the cost of Government and to improve service delivery to citizens

with business performance improvement. The concept and rationale

behind lines of business may prove to be a logical approach for the

Government to achieve efficiencies in programs and processes, for

limiting a current array of disparate agency systems, and to leverage the relative strengths of some agencies to act as centers of excellence or, as we have identified, shared service providers.

Many questions have remained outstanding since the creation of

the lines of business over 2 years ago. Perhaps not surprisingly,

clarifications were expected with the release of more formal guidance, such as that supporting the financial management LOB

issued on May 22nd of this year.

The mechanics of the lines of business, particularly the agency

migration plans, unfortunately do raise some questions and confusions. In particular, the provisions that will open competitions between Federal centers of excellence and private sector vendors for

the administration of the Government business lines appear somewhat unclear. While it may be noble to promote fair and open competition between public and private entities, the expectation that a

private sector vendor can be guaranteed fair and open competition

or, alternately, that a vendor can manage existing contract relations across agencies that it may ultimately face as competitors

may be feasible in theory but may prove different in reality.

While the Federal management lines of business guidance seeks

to provide directions for Federal agencies migrating financial management systems and services to either a ‘‘public shared services

center or a qualified private sector provider under the financial

management lines of business initiative,’’ some of the most significant language suggests that historical OMB circular A–76 processes for strategic sourcing will prevail. There remains some question whether the rules of A–76 can be efficiently and effectively and

equitably overlaid on the new LOB migration process. Furthermore, it is curious, from an analytical perspective, why it took 2

years to determine that the standing A–76 rules for competitive

sourcing would govern the FMLOB migration process.

For some time suspicion has been that vendors may find themselves filling support roles while the prime spots as LOB shared

service providers go to agencies. To date, this certainly appears to

be the case, since migrations have already begun prior to any competitive guidance having been released. The use of A–76 competitive sourcing rules only strengthens this theory, especially when

considering that, from the period between 2003 and 2005, according to OMB, Government employees won approximately 80 percent

of the work competed through public/private partnerships.

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Limitations on the scope of the agency-by-agency migration process present additional questions. Agencies are only being held to

migrate a minimum set of services, and agencies are not required

to migrate all bureaus at the same time.

Finally, an agency may simply decide that the path of least resistance is to become a shared service provider and avoid the migration process altogether.

In conclusion, while the principles behind the creation of lines of

business appear grounded in logic to reduce inefficient Government

services and migrate business processes to more efficient shared

service providers, be they public or private, many questions remain

regarding the mechanics of guaranteeing free and open competition

during the migration process.

This concludes my prepared remarks. I am at your disposal to

answer any questions.

[The prepared statement of Mr. Krouse follows:]

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Mr. PLATTS. Thank you, Mr. Krouse.

Mr. Soloway, I think I will start with you. This goes to a lot of

the questions I had with our first panel with trying to get specific

answers to the exact nature of where we are and how we are going

forward.

In your testimony you identify or you state essential predicate

steps need to be taken to really succeed. The fact that the guidance

has not been finalized, that is still a work in progress, the core financial or accounting standards still in the works, is it a fair reading of your testimony and your statements here today that we have

put the cart ahead of the horse, to some degree, with where we

are? Or is it something that we can move forward but there is

going to be some catch-up that has to happen?

Mr. SOLOWAY. I think it is a fair statement. I think that our concern as we look at this is that the strategic underpinning is there

and a lot of strategic thinking has gone into this. You hear, when

you listen to Dr. Combs testify, they have really thought this

through. I am not criticizing OMB. But you get to a point of implementation where a lot of the questions that you were posing this

afternoon you really need to have answered before you really understand where you are headed. It is not just in the FM lines of

business. There are other LOB initiatives underway.

I think clarity around what those procedures and processes are

going to be is critical, and so when we think about the final standards, final regulations, the final migration guides, even the issue

of the overlay of A–76, which is a relatively new one—and the reason it is new is that we have the new statutory requirement this

year which changed the dynamic a little bit. Those are questions

that really do need to be answered, and particularly looking at it

from where I sit in the private sector, for all the private sector

partners who are looking to participate, those are answers they

desperately need to know because they don’t know what they are

proposing to or around until they have some of those answers, so

the risk factors go up dramatically.

Mr. PLATTS. And specifically the private sector, in really yours

and Mr. Krouse’s testimony, is it fair to say that in the private sector there is a belief that private entities could be designated,

deemed, or in some way pre-certified as shared service centers to

compete for the work?

Mr. SOLOWAY. I think that among the folks I have talked to that

would certainly be the hope. I think that OMB does not appear to

have made a firm decision on that and, as I said in my testimony,

the default position today is designation of Federal shared services

providers. As OMB said, they are not yet at a point where they are

prepared to designate a commercial provider as a shared services

provider, although there are certainly commercial capabilities along

those lines available. I know there are folks in the field who would

certainly see themselves in that position and potentially playing

that role.

There are others who are already—and I believe you raised the

question in another context with the previous panel—there are others who are already providing these services to agencies that are

now being designated shared services providers, but there are also

those who are providing these services to agencies that are not

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being designated shared services providers. It raises an interesting

marketplace issue.

Are you, by virtue of this, inadvertently going to diminish the

competitive marketplace for other requirements as we move forward elsewhere? Folks who are providing financial management

systems and capabilities are not necessarily just financial management systems firms. I mean, they can provide a variety of capabilities. So there are a number of different impacts that I think we

have to look at.

Mr. PLATTS. Mr. Krouse, did you have anything you wanted to

add?

Mr. KROUSE. Well, I would concur. It is interesting that he used

the word hope, because that is exactly the word I was thinking. I

think it is the hope of the private sector entities that they would

be designated at shared service providers. In the absence, I think

the very real fear is they will be subjugated to subcontracting for

the primes, which would be agencies across the board.

Mr. PLATTS. And that kind of touches on a number of issues and

followup with Mr. Soloway with the entities, that there are some

private entities that are currently contracting for, say, GSA, and

they are deemed shared service but they are contracting for somebody else who is not a shared service. It gets to that inconsistency.

What are the guidelines for being a shared service center? If the

same entity is doing the work in reality for two different agencies,

why aren’t they both? Kind of what is going to be the process for

deeming someone a shared service center, public or private?

And then the issue of subcontracting, and it relates into the A–

76 issue and really my final line of questions with Dr. Combs of

how A–76 will apply if it is a public entity with really work being

done with a private contractor, Because it sounds like her statement of the intent is A–76 would apply, to not circumvent it, but

I am not sure that is currently a correct interpretation.

Mr. SOLOWAY. I think that there are a couple of different aspects

and nuances to the A–76 issue. Clearly, if the issue is agency A is

looking for services and they look at designated shared services

providers that are Federal agencies as well as commercial providers, there is no doubt that A–76 applies there. There is no room

in the statute that Congress passed, which frankly we opposed

strongly because it does so restrict agency flexibility, even in cases

where these kinds of competitions don’t make any sense for a variety of reasons. But leave that aside for a moment. There is no

question that it is going to apply there.

I think OMB has been fairly clear of late to folks who are looking

at the LOB initiative and said, we have no choice, A–76 will apply

there.

Mr. PLATTS. That is a surprise, I think, to the private sector, and

maybe to everybody, because prior to our March hearing A–76 was

really never mentioned in any of the dialog.

Mr. SOLOWAY. I think the dynamic that we saw there, in all fairness, is that this was an initiative—and I think I mentioned this

in the written statement—this is an initiative that largely emanated from the CIO e-Government community which has been

doing some really creative and important work. It was not necessarily as fully coordinated with the acquisitions side of the house

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as it needed to be, and this is a new statute, and I think we had

a little bit of crossing in the middle. But that issue has now been

settled.

I think the questions that you raised, which were interesting,

was, one, if I have a shared services provider who has outsourced

all or a portion of the work being done for that provider, does A–

76 apply? Our view would be it absolutely does because you are potentially converting work, if there are more than 10 employees,

from a Federal employee to a private provider. So we don’t see how

you could get around that.

If you are dealing strictly with an organic shared services provider, strictly all the work being done by organic Federal employees, the statute might not apply but the circular, in our view,

should because the circular very clearly covers inter-agency support

services agreements, and that was done very intentionally to prevent the creation of a perverse incentive to create business lines as

an excuse not to look at other competitive alternatives.

I think that you do have a pretty strong case to make that A–

76 overlay does apply. The problem is that, because of the problems

with A–76, the net impact could be very negative for the initiative.

I am not advocating that it apply; it is just our read of the law and

the policy. So if we had our druthers we’d like to see the statute

changed anyway because it so restricts agency flexibility. But right

now it is a very, very big issue. As I said in the testimony, it could

be an insurmountable obstacle absent some legislative relief.

Mr. PLATTS. On the private side, when you look at A–76, because

I think 80 percent or so of competitions are in-house by the public

employees, is that going to be a significant deterrent to private sector actually competing for this work just because the investment of

funds and the odds are of not being successful?

Mr. SOLOWAY. Let me share some basic data. I don’t want to say

this is exact, but it is pretty darned close. First of all, the 80 percent is 80 percent of the positions, it is not 80 percent of the competitions, and so it is a much higher percentage of the actual number of competitions. If you take out the one large competition the

Federal Aviation Administration conducted, a very robust one, a

year ago, you are well over 90 percent.

As we have looked at all of the A–76 studies that have been

done, what we have found is well over half, if not closer to 70 percent, had less than two private sector bidders. There is an old business school adage that says it takes three to make a market. If I

have only got one bidder bidding against the Government, you have

some competition. You’ll drive some improvements and efficiencies,

but you are definitely not able to claim you have optimized because

you don’t have enough pressure on the marketplace to create that.

So what industry has done is voted with its feet. Looking at the

restrictions congressionally imposed on this case, unfortunately, on

the use of best value, and although OMB did allow best value competition under the revised circular, it was removed by Congress.

The Comptroller General has testified numerous times that it

seems a bit inappropriate to have major source selection decisions

based on low cost when you really want to look at a variety of other

factors. He has been a very strong advocate of using best value

strategies.

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But when you are not able to use a best value strategy, which

is the norm in industry and particularly in this technology world

we are talking about with the lines of business, where there are

so many variables besides low cost—and often low cost is important

but not nearly the only factor—those kinds of restrictions, and then

all of the delays, the length of time the process takes, usually 2 to

3 years even for small studies, protests, appeals, and so forth, and

then ultimately potential of a congressional intervention—and,

again, I am being very blunt—as a business person you step back

and go, the risk factors here are way too high to participate. So industry has voted with its feet.

I fear in the LOB case that large numbers of potential top drawer providers will either walk away because they just can’t tolerate

that or what you’ll see is some partnering between the Government

and industry that doesn’t involve a public/private competition

which will help the cause, but, again, you won’t have that kind of

level of competition you are looking for, and I think that the initiative really needs.

Mr. PLATTS. I would be interested in all three of your opinions

of A–76. Again, it is trying to think what could come down the pike

if we move forward in the direction we are going. Say one of the

current shared service centers, Government entity, is doing the

work in-house. Bureau of Public Debt is in-house, as an example.

So the work goes there. They decide to contract out. They are now

a shared service center getting work.

If they take that work and contract out, they are going to have

to do an A–76 competition, so that comes back to the premise in

the statute that if they already had that contract in place, even

though the front person is Bureau of Public Debt, it is still an A–

76 competition clearly because the work is actually being done. Is

that it?

Mr. SOLOWAY. That would be our read on it.

Mr. PLATTS. Everybody?

Ms. SIMON. I think a lot of mis-statements have been made today

about A–76 and what it would involve and what it would require.

While there is A–76 in the absence of this financial management

lines of business initiative policy guidance and then there is this

policy guidance, and the restrictions in A–76, this is the version of

A–76 that includes the revisions in 2003.

Even apart from the Transportation Treasury Appropriations

language that had further restrictions on A–76 competitions along

the lines of requiring at least some promised savings or something

to cover the transition costs and getting rid of these completely

non-competitive direct conversions, the kind of thing that is most

glaring in the policy guidance has to do with these so-called best

value competitions and best value opportunities, I should say, for

Mr. Soloway’s clients.

I am just right here looking at the language in the policy guidance. The A–76 revisions in 2003 put very strict limits on the use

of best value because best value is so costly. It encourages the contractors to add what would be otherwise unnecessary and very

costly bells and whistles that the agency didn’t ask for and doesn’t

necessarily need, and then allows a source selection to choose that,

even if it is less responsive to the solicitation and more costly.

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It is certainly not the case that the new A–76, the revisions of

2003 require only low cost and no consideration of quality. The

quality standards have to be put forth in the solicitation. The best

value criteria, the non-cost criteria that might be used in a decision

have to be acknowledged in advance. Their relative weight has to

be acknowledged in advance, and combined they can’t account for

more than 50 percent of the factors in the decision.

Under the policy guidance, anything goes. Cost can be completely

irrelevant. It is a blank check in best value.

I know that the contractor community likes to argue and we hear

a lot of rhetoric about the fact that this is the norm in the private

sector, but I am an economist by training and, as far as I understand the way markets work, a business that gave no regard to

cost in its procurements wouldn’t be a very profitable business.

Mr. PLATTS. I would be interested, Mr. Krouse and Mr. Soloway,

in your take on that language of the best value that it does, because I think that is a legitimate concern from a taxpayer standpoint if cost is not part of it.

Mr. SOLOWAY. Let’s be very clear here. I know the purpose of the

hearing is not to dig way down into A–76, but it is a critical issue

because it relates so directly to the LOB initiative. Congress mandated the creation of something called the Commercial Activities

Panel, which the Comptroller General chaired, Jacque’s then-boss,

myself, a number of others were on it, public sector folks, industry,

unions, and what have you.

Two-thirds of the panel, a super majority of the panel, recommended to OMB that the A–76 process permit what they call

cost technical tradeoffs, best value competitions, that the rules be

applicable equally to both the public and the private sector, and

that effectively what we do with A–76, which is a sort of unique

animal in Federal procurement, is apply traditional Federal procurement standards to it.

The revisions of the circular in 2003 that came out of OMB did

not go as far as the panel recommended, for a variety of reasons,

some of them political, but leaving that aside the fact of the matter

is that no one has suggested ever that cost should not be a significant factor. In fact, the one major A–76 competition of which I am

aware where they requested a waiver from OMB—this predates the

Treasury appropriations language—from that cost requirement, the

50 percent must be cost based, as Jacque just described.

OMB came right back and said, yes, but we are not giving you

a blank slate. No matter how many factors you have, cost must be

the single most important variable. It doesn’t have to be 50 percent, because you might have nine variables. In a major, complex

technology requirement I could have 9 or 10 really critical factors

but cost has to be 50 percent, well then the others are 4 and 5 percent each so they don’t really play.

So no one is suggesting that cost is not an essential element;

what we are suggesting is in a high technology, complex environment it is not always going to be half or more of your decision and

shouldn’t be mandated as such.

Mr. PLATTS. But that language in that case where OMB said it

still must be the most important——

Mr. SOLOWAY. Correct.

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Mr. PLATTS [continuing]. Of 9 or 10, or whatever, that is not in

the guidance.

Mr. PLATTS. No. That was a waiver that OMB issued in that specific case.

Mr. PLATTS. Because that would go closer in the sense that reaffirming that cost is an important factor, you know, as opposed to

your position.

Ms. SIMON. Right. The two most progressive, if you will, restrictions in the new A–76 were the elimination of direct conversion authority, because it was embarrassing to the Bush administration to

have promoted competitive sourcing as one of the pillars of the

President’s management agenda, and during the early years of that

agenda’s life virtually everything that went on under the banner of

competitive sourcing took place as a direct conversion—in other

words was not competitive. As long as they wanted to be able to

continue to call it competitive sourcing they had to get rid of these

direct privatizations that denied Federal employees the opportunity

to compete in defense of their jobs.

The other thing, as Stan said, grew out of the Commercial Activities Panel’s preference for best value. Because there was concern

with fiscal prudence, restrictions were more severe than what is allowed in private/private competitions under the FAR were written

into the new A–76, and that is what Stan was referring to, the fact

that together all these non-cost, subjective, and very costly criteria

couldn’t amount to more than half of the factors in a decision in

an A–76. And it was supposed to be limited to IT contracts unless

you got specific permission for a deviation and had to have a rationale for going this best value route, which had never been used

for a public/private competition before.

Mr. KROUSE. Can I add a comment?

Mr. PLATTS. Yes.

Mr. KROUSE. If I may, I think what I take away from the OMB

testimony and the OMB plans for the financial management line

of business and line of business, in general, this is a long-term

strategy, a long-term strategy for a major conversion in Government. I don’t discount that costs are important when you are contracting these types of initiatives, but I think if you look for the

long-term return on investment, improving the efficiencies, the improvement in program efficiencies, and improvement in processes,

that in some cases best value may make sense, maybe not next

week but maybe next year.

Mr. PLATTS. Let me followup on that with the premise that this

is a long-term and a major undertaking and something we want to

get right. Doesn’t the fact that to be able to compete and get this

work to be a shared service center, whether that is the current

ones that have been deemed by their conduct or those who may yet

be, you have to meet a kind of a list of criteria that go to your ability, your quality, which does get to that low cost isn’t the only issue

here, you know, because to be a shared service center you have to

say, hey, we have the ability to deliver in a positive way. So we

are adding value beyond just cost, just by the fact that you can’t

compete, or ultimately you won’t be able to.

In this transition period, as we heard in the first panel, obviously

there are some people getting the work that aren’t yet deemed

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shared service centers, but that does add value beyond just cost in

and of itself, doesn’t it?

Mr. SOLOWAY. On some level it does. I think that is a fair point.

But I think Mr. Krouse has touched on a really critical issue bringing this whole A–76 question back to the intent of the LOB initiative. One of our complaints in the private sector for years about A–

76 and certainly about mandatory use of the circular and the mandatory 50 percent of cost and so forth, we can nit pick over the details, but the biggest concern is that it takes A–76 fully out of being

a really strategic tool and it becomes a cookie cutter tool.

So I can’t step back and look within my organization and say,

what are my human capital resources? What are my skill sets?

What are my chances of hiring and being able to retain the right

people? How much will it take to invest to bring my work force up?

How much technology investment do I need to do? And put that

over here, and look over here and say the other option would be

to do an outsourcing, and in so doing I have to, because we are firm

believers in this, account for and protect the interest of the affected

Federal employees. And there are plenty of strategies to do that

that generally haven’t been utilized.

That is a strategic decicion I make, any institution would make

in terms of how do I source and my long-term vision. I think what

Mr. Krouse said is critical. This could be a 10 or 11 or 12 year process, and A–76 looks at the immediate functional cost. How much

does it cost to have that IT shop running that IT?

Well, IT is an enabler for a much broader scope of business processes, and so if I can reform those business processes I might be

able to generate for the agency outside of that functional area dramatic savings, even if my costs of performing that function go up

dramatically. I think that is part of the point Mr. Krouse was trying to make. A–76 makes it very, very difficult to get to that kind

of strategic decisionmaking.

Mr. PLATTS. But it is not just the cost of that service; it is also,

as that other entity may bring additional knowledge and capabilities that the employees who are there also, their wealth of knowledge and experience from being there for many years.

Mr. SOLOWAY. All of those factors play in.

Mr. PLATTS. Right.

Mr. SOLOWAY. But I am saying you can’t step back and take that

broad——

Mr. PLATTS. If you guys will indulge me for 2 minutes I have a

meeting I have to say hello to here in the hallway, but rather than

wrapping this up before we get to come to a good conclusion, if we

could stand in recess for 2 minutes I promise I’ll be right back in

and we will continue.

We are recessed for 2 minutes.

[Recess.]

Mr. PLATTS. I will switch hats here back to A–76 and financial

management line of business.

I think where I was going to pick up is, Mr. Soloway, with the

competition or the in-house decision. I think OMB seems to, I

think, contend that initially the exhibit 300 analysis in cost/benefit

is supposed to maybe go after some of what you are saying what

you want to happen what are my own resources and abilities and

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how can I use them versus going outside and competing. Do you

think that exhibit 300 approach is satisfactory in that sense? Does

it really get to a significant or substantive cost/benefit analysis to

I think get after what you said needs to be done?

Mr. SOLOWAY. It doesn’t change the fact that, regardless of the

outcome of the 300 process, you still have the A–76 issue on top

of it. So, the 300 is an important process and it has a lot of value

relative to IT investments and capital planning and so forth and

business cases, but it doesn’t get you to that fundamental issue

that I was talking about, which is a generic A–76 question.

Again, the issue is a strategic question. I am not going to sit here

and tell you I think, nor has PSC ever taken the position, that A–

76 has no place. What we are suggesting is that agencies have to

have some flexibility to manage in a smart management environment, and statutory requirements that mandate you do the A–76

every time you have more than 10 employees are problematic.

Your question to Dr. Combs about the role of A–76 relative to

inter-agency agreements where you have an organic work force performing the work is an interesting one, because I think there, too,

there is some concern in the private sector that if it is all going to

be driven that way because that is deemed by OMB to be a way

not to do A–76, which, by the way, will be a huge disincentive. Forget industry. Agencies don’t like to go through the A–76 process.

So then they might be driven to that other solution if it is an organic Federal work force, which may be a good solution in many

cases. I am not suggesting the Federal work force is incapable in

any way, but you won’t know if it is the right solution because it

may be the only solution that is looked at.

I think there are a number of problems. I think what we need

to focus on is, because particularly the purposes of this hearing and

what you are trying to get at is less how to fix A–76, but if you

can do it we’d applaud, but really how to make the lines of business initiative work better and be successful. There the issue really

becomes if we start overlaying A–76 at the first level when we are

designating shared services providers, and then at the second level

every time there is a requirement that comes from agency A to a

services provider where A–76 might apply again, and potentially a

third level where a shared services provider that was once organic

then decides maybe I can deliver better service to my customers by

outsourcing. So you could have multiple layers of A–76 competitions involving lots of the same players.

Mr. PLATTS. But if you don’t have A–76 in place, isn’t the intent

there to prohibit that for political reasons you don’t privatize Federal work that is about either a just general belief that privatization is a good thing, beneficial or not, or political in the sense of

rewarding contributors in that privatization is used as a means of

giving work to those who help put whatever administration into office. A–76, part of that is that if you are going to privatize you need

to make the case for the taxpayer and for the public, in general.

Mr. SOLOWAY. Absolutely.

Mr. PLATTS. So that is the initial premise of why you have it,

isn’t it?

Mr. SOLOWAY. Yes. It was created as a means of providing a fairness to affected Federal employees. I served in the Clinton adminVerDate 11-MAY-2000 11:11 Apr 11, 2007 Jkt 000000 PO 00000 Frm 00088 Fmt 6633 Sfmt 6633 C:\DOCS\33867.TXT HGOVREF1 PsN: HGOVREF1
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istration. We did probably as much if not more A–76 competition

then than has been done today. This has been for many years a

major focus of the Defense Department as they have been trying

to rationalize and transform the Department.

No one is suggesting, No. 1, that A–76 has no place. More importantly, no one is suggesting that the Federal employees involved

should not be seriously and completely considered in the process.

What I am suggesting is that there are going to be cases where it

doesn’t make sense, and in those cases there are a variety of strategies and tools one can use to ensure that the employees impacted

by it are not unfairly impacted or certainly not lose their positions

and so forth, because no one wants to do this on the back of Federal employees.

But that doesn’t mean that from a strategic standpoint it is the

right thing to do to have the competition, particularly under the

rules of engagement that currently exist within A–76, as I am not

certain and I don’t think most people in the private sector believe

that the current A–76 structure delivers the best answer for the

Government, which is ultimately the end result that we seek out

of our procurement system.

Mr. PLATTS. Ms. Simon.

Ms. SIMON. It is interesting to talk about flexibility in the context

of this policy guidance. The second paragraph in the memo that accompanies the guidance tells the agencies that they must either

migrate, they must consider pursuing becoming a shared service

center. The word must is used throughout. There is very little flexibility here.

And it is also odd to keep talking about the application of A–76

in the context of this initiative because the policy guidance is all

about deviations from A–76, and deviations in ways—I hadn’t

raised this earlier just because it is so awkward given the recent

conviction of the former OFPP administrator, but the potential for

corruption in the context of these best value blank checks is enormous.

When political appointees of either party, of course, are in the

position of being able to exercise enormous discretion and make

these kinds of sourcing decisions on the basis of subjective factors,

not an objective factor, cost, but subjective factors, you open the

door to politicizing these kinds of decisions, you open the door to

corruption, and that is why it was so controversial to even bring

a limited amount of best value into A–76. That is why it was constrained so strictly. It was only allowed to apply to certain A–76

competitions, and then it was restrained, and the Congress has restrained it even more.

This document, far from having A–76 be incidental, is really all

about A–76 and all about providing a new version of A–76, a

shockingly new version that takes away the kinds of constraints

that keep politics out of these decisions, that keep the lid off costs,

and get rid of these direct conversions that aren’t competitive at

all. If we want to find out whether the private sector or a public

sector service provider is the better choice, the only way to do that

is to have a competition based on objective factors. When you do

direct conversion you are not having a competition based on objecVerDate 11-MAY-2000 11:11 Apr 11, 2007 Jkt 000000 PO 00000 Frm 00089 Fmt 6633 Sfmt 6633 C:\DOCS\33867.TXT HGOVREF1 PsN: HGOVREF1
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tive factors, you are just handing it over on the basis of promises

that will never be verified.

Mr. KROUSE. Can I add a comment? I respectfully disagree with

the usage of the word must. In OMB’s position, if I may be so bold,

they were giving agencies a choice. They didn’t say, you must do

it this way, period. It is an either/or principle. You must either do

it this way or this way. There is some flexibility allowed to the

agencies to get to that point.

Now, given the history of bureaucracies’ resistance to change

within governments, I mean, the final goal—and I stress again the

long-term strategy of OMB, which I think is well placed—is the ultimate role for an enterprise architecture that is going to maximize

consolidation, efficiencies, and like processes across agencies. If you

give them too many options you might ultimately never get to that

consolidated entity known as the EA that we so likely abbreviate

it. So I think allowing too much flexibility is going to work against

you.

Mr. SOLOWAY. Mr. Chairman, one of the interesting twists as we

have this whole conversation about A–76 and whether it applies or

it doesn’t is your colleagues are on the floor today debating one of

the appropriations bills—I believe it is Commerce, Justice, and

State. Mr. Jones and Mr. Andrews have an amendment to the bill

that would prohibit any of those agencies from implementing A–76

on anything. That would be an interesting twist where we have an

appropriations bill that is still in effect that says you must use A–

76 for everything. If this amendment were to pass it says you can’t

use A–76 at Commerce, Justice, and State.

Well, those three agencies have just been taken out of the lines

of business initiative. It is this kind of backward and forth that industry looks at and goes, what are the rules? How are we going to

participate? How is the playing field going to be leveled? And

where is the clarity?

Mr. PLATTS. I think that is one of the overriding themes today

with our first panel and the questions and our discussion here. For

anything to work, all the partners need to know what the rules are

that you are going to play by, whether it be the public entities or

the private sector. What are the rules that everyone is governed

by?

One of my worries is we heard about exceptions or deviations

from the rules. What are going to be the rules for allowing those

deviations or those exceptions? I mean, there has to be certainty.

If you are going to have that long-term success, you can’t go into

it with this gray area out here. That really is something we kind

of touched on a little bit but not directly, the fact that we are moving forward without the standard core business processes finalized

and some of the things that are in the works that really go to that

standardization of the process, that we are moving forward without

waiting for that. If we want that long-term success, my worry is

we are getting that cart ahead of the horse more and more if we

want permanent solutions here. Is that a worry?

Mr. KROUSE. I think it is a very definite worry. If I may be so

bold on your behalf, what I think we are looking for is more rules

on the rules. I mean, increased guidance without a doubt is, I think

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anybody would agree that is before you today, paramount if it is

going to ultimately be successful.

Ms. SIMON. I think another problem, however, with this—it was

interesting to hear Mr. Soloway lobby you, since he can’t be in two

places at the same time—when Congress passes these laws that

conflict with A–76 or when an agency engages in, for example, a

direct conversion, even though it is illegal both with respect to the

laws passed by Congress and the published policy guidance of OMB

in the form of A–76, at least for the past 3 years OMB has not enforced its own circular.

These deviations, you know, we bring to their attention deviations, instances of direct conversion that have deprived Federal

employees of the opportunity to compete for their jobs. I cite two

of them in my written testimony and there are certainly many

more such instances. We bring all the facts to the attention of OMB

and we never hear from them.

Congress wonders why are we always trying to have Congress respond to these problems in the form of the passage of legislation

that answers these problems. It is because we don’t get any kind

of response from either OMB or the agencies with regard to the application of the so-called rules. That is why we have to bring it to

Congress, because we can’t go to the courts and OMB doesn’t respond.

Mr. PLATTS. It is interesting that in our office, whether it be in

this type of scenario of a department not being responsive from a

legal inquiry and therefore is pursued legislatively, or the simple

example of a case work problem, and the reason we have so much

case work is a constituent trying to get an answer from his department or agency doesn’t so they come to us, and lo and behold they

get the answer that they should have gotten in the first place, but

they are able to, just by some additional public light on the issue

through a congressional office we get the result that they were

after in the first place. That is kind of what you are saying is happening here legislatively.

Ms. SIMON. Exactly.

Mr. SOLOWAY. I was just going to say, Mr. Krouse made an important point. I didn’t want it to slide through without us focusing

on it a little bit more, this flexibility issue. I think it is in my testimony also that we have had a lot of experience in the Federal Government over the last 15 or 20 years doing information technology

and other broad transformational programs where we have had

real problems with the requirements process, where we haven’t

been clear about requirements and we haven’t stuck to the requirements or we have tried to do things across agencies.

And the Defense Department certainly has had plenty of experience with this where they have gone across the various military departments and tried to harmonize their needs. We are going to do

this, and so Army what do you want? Navy, what do you want? Air

Force, what do you want? Next thing you know you have something

glommed up and you are redeveloping a whole solution set that already existed in the private sector that you could have done entirely differently.

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I think OMB clearly recognizes that and they are trying to get

at that. Whether they’ve gotten it right yet may be an issue, but

they recognize that piece of it.

I think our point would be you don’t have to necessarily do designated Federal shared services providers to achieve that goal. The

key is to have a very clear set of performance standards and measures that everybody is required to adhere to. You could have some

flexibility in that piece of it, as long as you don’t deviate from what

those agreed-upon standards are, as long as you have built them

with all the stakeholders involved.

Mr. PLATTS. And that was in my discussion with Dr. Combs and

afterwards, basically what they are saying the current entity that

is bidding on a project or migration has really done. They took the

standards that they believe are the requirements for a shared service center, put it into the request for proposal that you have to

meet these standards to get our work, and, in essence, if they do

OMB is going to say well then yes, you are a shared service. So

that is, in essence, what they kind of are doing right now.

Mr. SOLOWAY. Although they are not clear yet on the role of commercial providers.

Mr. PLATTS. Right. They are not saying that, but that is how

they are acting. My comment to her is that the agencies need to

know one way or the other. Either you pre-screen private that are

going to be able to openly compete so that they know they can compete in A–76 or whatever the competition is, if it is a smaller entity

under 10, or they know that if we compete and meet these requirements then we are automatically deemed a shared service. I mean,

somehow they have to have a definitive answer.

Mr. SOLOWAY. Their guidance is at this point presents a pretty

high hurdle to go anywhere other than a designated shared service

provider. I think that is a piece of clarity and an additional rule.

Mr. KROUSE. If I may add, I think currently our clientele, who

are the private sector entities largely that are competing for this

business, are dumbfounded as to how to develop a strategy even to

compete in this environment. We get the question time and again,

how do we even position ourselves? Our answer is invariably, we

don’t know. To your words, it is gray.

Mr. PLATTS. And that came through in March, and 3 months

later it still comes through, whether come to fall and we get further

definitive guidance, whether it will be clarified more for the private

sector and for the agencies that are saying, hey, we have to either

be one or migrate to one how do we do that and what are the ramifications, such that we migrate to somebody that then goes and

turns out they really didn’t have as good books as we thought and

now they are not doing a clean audit, so under the supposed requirements, therefore they are not shared service center any more.

What does that mean for us? I mean, there are some very significant questions out there that just have to be answered.

Mr. SOLOWAY. One of the challenges in technology, especially,

with business as a whole always is when you commit to something

over the long term do you want to always commit and absolutely

stick with one player or one capability, because there is always

something better being invented elsewhere and you have to always

have the ability to look for alternatives as time moves forward.

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It is the Sears Roebuck example. In the 1960’s Sears was on top

of the world, but for whatever reason they didn’t keep pace with

the market and with technology and so forth, so you have to guard

against that. Companies look at this. They need consistency, they

need certainty, and they need predictability in order to understand

what to deliver for their customer in any business, and right now

I think, what we are looking for with the LOB is a little bit more

predictability, certainty, and clarity.

Mr. PLATTS. Well, your input, all three of you, in your written

testimony for us as we continue to work with OMB and in your testimony here today is very helpful. Our hope is that, through the

hearing today and with our first panel, that we will help everybody

involved in this process to keep pushing down the road as far as

what the specifics are to get more definitive answers, but this is

an ongoing process. As we move forward with our staff and your

organizations and OMB and others involved in this, we look forward to continuing partnering with you.

At the end of the day, if we are going to have this work, that

we have competition that is in the best interest of the taxpayers,

that is done in a fair way to Federal employees, and in the end gets

a good result for the American people in all regards.

Is there anything that any of you want to add?

[No response.]

Mr. PLATTS. We will keep the record open. If there is anything

that comes up or something to followup you want to submit for the

record, the record will be open for 2 weeks.

We are grateful, again, for your patience with the length of the

first panel. I forget who told me they were here in this room until

7:30 recently at a hearing. We are glad to get you out early, 3

hours later, early. But thanks. We will keep the record open for 2

weeks. We are grateful for everyone’s participation.

This hearing stands adjourned.

[Whereupon, at 5:03 p.m., the subcommittee was adjourned.]

[The prepared statement of Hon. Edolphus Towns follows:]

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