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81–929 PDF 2002

MOVING FORWARD WITH SERVICES ACQUISITION

REFORM: A LEGISLATIVE APPROACH TO UTILIZING COMMERCIAL BEST PRACTICES

HEARING

BEFORE THE

SUBCOMMITTEE ON TECHNOLOGY AND

PROCUREMENT POLICY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

NOVEMBER 1, 2001

Serial No. 107–111

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

BOB BARR, Georgia

DAN MILLER, Florida

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

DAVE WELDON, Florida

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

C.L. ‘‘BUTCH’’ OTTER, Idaho

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

JANICE D. SCHAKOWSKY, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

——— ———

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

JAMES C. WILSON, Chief Counsel

ROBERT A. BRIGGS, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT POLICY

THOMAS M. DAVIS, Virginia, Chairman

JO ANN DAVIS, Virginia

STEPHEN HORN, California

DOUG OSE, California

EDWARD L. SCHROCK, Virginia

JIM TURNER, Texas

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

MELISSA WOJCIAK, Staff Director

VICTORIA PROCTOR, Professional Staff Member

JAMES DECHENE, Clerk

TANIA SHAND, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on November 1, 2001 ........................................................................ 1

Statement of:

Soloway, Stan Z., president, Professional Services Council; Mark Wagner,

vice president, Federal Government affairs, Johnson Controls, Inc.;

Renato DiPentima, president, SRA consulting and systems integration,

SRA International, Inc.; Charles Mather, chief executive officer, Acquisition Solutions, Inc.; and Charles Tiefer, professor of law, University

of Baltimore Law School ............................................................................... 60

Woods, William T., Acting Director, Acquisition and Sourcing Management; Stephen A. Perry, Administrator, U.S. General Services Administration; Angela B. Styles, Administrator for Federal Procurement, Office of Management and Budget; and Deidre A. Lee, Director, Defense

Procurement, Office of the Under Secretary of Defense for Acquisition,

Technology and Logistics, Department of Defense ..................................... 8

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

Davis, Hon. Thomas M., a Representative in Congress from the State

of Virginia, prepared statement of .............................................................. 2

DiPentima, Renato, president, SRA consulting and systems integration,

SRA International, Inc., prepared statement of ......................................... 99

Lee, Deidre A., Director, Defense Procurement, Office of the Under Secretary of Defense for Acquisition, Technology and Logistics, Department of Defense, prepared statement of ..................................................... 45

Mather, Charles, chief executive officer, Acquisition Solutions, Inc., prepared statement of ........................................................................................ 108

Perry, Stephen A., Administrator, U.S. General Services Administration,

prepared statement of ................................................................................... 19

Soloway, Stan Z., president, Professional Services Council, prepared

statement of ................................................................................................... 63

Styles, Angela B., Administrator for Federal Procurement, Office of Management and Budget, prepared statement of ............................................. 26

Tiefer, Charles, professor of law, University of Baltimore Law School,

prepared statement of ................................................................................... 132

Turner, Hon. Jim, a Representative in Congress from the State of Texas,

prepared statement of ................................................................................... 6

Wagner, Mark, vice president, Federal Government affairs, Johnson Controls, Inc., prepared statement of ................................................................ 69

Woods, William T., Acting Director, Acquisition and Sourcing Management, prepared statement of ........................................................................ 10

(1)

MOVING FORWARD WITH SERVICES ACQUISITION REFORM: A LEGISLATIVE APPROACH

TO UTILIZING COMMERCIAL BEST PRACTICES

THURSDAY, NOVEMBER 1, 2001

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT

POLICY,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 3:40 p.m., in room

2154, Rayburn House Office Building, Hon. Tom Davis (chairman

of the subcommittee) presiding.

Members present: Representatives Davis, Turner, Kanjorksi, and

Mink.

Staff present: Melissa Wojciak, staff director; Amy Heerink, chief

counsel; George Rogers, counsel; Victoria Proctor, professional staff

member; James DeChene, clerk; Tania Shand, minority professional staff member; and Jean Gosa, minority assistant clerk.

Mr. DAVIS. Good afternoon and welcome to today’s legislative

hearing on the Services Acquisition Reform Act legislation.

Because of the time delays we have had, and I appreciate your

bearing with us and the fact that we’re going to have votes again

in another hour, what I’m going to do is put the entirety of my

statement in the record, and yield to Mr. Turner for any statement

he may wish to make.

[The prepared statement of Hon. Thomas M. Davis follows:]

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Mr. TURNER. I will follow your lead and do the same, Mr. Chairman.

[The prepared statement of Hon. Jim Turner follows:]

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Mr. DAVIS. Thank you very much.

I guess no one else is here to make an opening statement, so I’m

going to call our first panel of witnesses to testify. We have a distinguished panel. As you know, it’s the policy of this committee

that all witnesses be sworn before you testify. So if you’d rise with

me and raise your right hands.

[Witnesses sworn.]

Mr. DAVIS. Thank you. Be seated.

To afford sufficient time for questions, if you’d try to limit your

remarks to no more than 5 minutes. We have a timer in front of

you. When it turns orange, you have 1 minute left. It will be green

for 4 minutes, orange for 1 minute and then red, and then try to

sum up.

The entire written statement is part of the permanent record.

We’ll begin with Mr. Woods, followed by Mr. Perry, Ms. Styles and

Ms. Lee. Thank you for being with us.

STATEMENTS OF WILLIAM T. WOODS, ACTING DIRECTOR, ACQUISITION AND SOURCING MANAGEMENT; STEPHEN A.

PERRY, ADMINISTRATOR, U.S. GENERAL SERVICES ADMINISTRATION; ANGELA B. STYLES, ADMINISTRATOR FOR FEDERAL PROCUREMENT, OFFICE OF MANAGEMENT AND BUDGET; AND DEIDRE A. LEE, DIRECTOR, DEFENSE PROCUREMENT, OFFICE OF THE UNDER SECRETARY OF DEFENSE

FOR ACQUISITION, TECHNOLOGY AND LOGISTICS, DEPARTMENT OF DEFENSE

Mr. WOODS. Good afternoon, Mr. Chairman, Mr. Turner.

I am pleased to be here today to assist the subcommittee in its

consideration of proposals to improve the Government’s acquisition

of services. We fully support the efforts of the subcommittee in addressing this very important issue.

As we testified before this subcommittee in May, agencies face a

number of challenges in ensuring that their procurement of services are conducted as efficiently as possible. The package of proposals the subcommittee is considering, which together would comprise the Services Acquisition Reform Act, would address many of

these challenges. We look forward to working with the subcommittee as these proposals continue to evolve.

My statement today focuses on three areas. First, strengthening

management oversight of services acquisitions. Second, improving

the acquisition work force and third, moving toward a more performance based contracting environment.

Strengthening management oversight begins with leadership.

And in this regard, the proposed legislation would create a chief acquisition officer within each agency. Such an approach is consistent

with that of the leading companies in the private sector.

Our discussions with a number of those companies about how

they buy services indicate that a chief acquisition officer can play

a critical role in changing an organization’s culture and practices.

Equally important, however, was the corporate decision to adopt a

more strategic perspective in acquiring services. For many companies, this meant taking an enterprise-wide approach to acquiring

services in order to leverage their buying power.

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But in all cases, committed leadership was critical to realizing efficiencies and improving service levels. These are clearly outcomes

Federal agencies desire, and we believe an agency chief acquisition

officer could do much to help agencies achieve those outcomes.

Second, we are pleased to see that a number of the proposals are

designed to strengthen the acquisition work force. Addressing

human capital issues in acquisition is not just a matter of the size

of the work force. It is also a capacity issue. While acquisition reforms in recent years have helped streamline the process, Federal

contracting still remains a complex and technical area. The products and services the Government buys are becoming increasingly

more sophisticated, particularly in the area of information technology. Yet agencies are at risk of not having enough of the right

people with the right skills to manage these procurement.

Last, the legislative proposals are intended to promote greater

use of performance based contracting. Today I would like to highlight one particular form of performance based contracting known

as share-in-savings contracting.

Share-in-savings contracting can take many forms. But perhaps

one of the best known examples in Government is the Federal Energy Management Program. Under this program, contractors are

expected to contribute all of the up-front costs to identify a facility’s

energy needs. And then at their cost, to install, operate and maintain energy efficient equipment. In return, the companies get a

share of the energy savings generated by these improvements.

Since 1998, the Department of Energy has issued 57 orders

under the program. Preliminary indications are that these 57 orders will allow the agency to obtain almost $150 million in capital

improvements. In addition, the agency expects to realize significant

reductions in energy usage, resulting in millions of dollars in continuing savings.

The subcommittee has asked us to undertake a review to identify

examples of how commercial companies use share-in-savings contracting. And we look forward to reporting back to the subcommittee with the results of that review.

In conclusion, the increasing significance of service contracting

has prompted a renewed emphasis by the Congress and by the administration on resolving longstanding problems with service contracts. We support the committee’s efforts, and we look forward to

continuing to assist the subcommittee in its development of the

Services Acquisition Reform Act. This concludes my statement.

[The prepared statement of Mr. Woods follows:]

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Mr. DAVIS. Thank you very much.

Mr. Perry, thanks for being with us.

Mr. PERRY. Chairman Davis, Mr. Turner, thank you for the opportunity to appear before this subcommittee and discuss the acquisition process within the U.S. General Services Administration,

and to also talk about its impact upon our customers throughout

the Federal Government. I will also outline GSA’s views on the proposal in the bill, the Service Acquisition Reform Act.

First, we’ll talk a bit about the current state of our procurement

system as we see it. We are all aware, I think, of the significant

effort by what was called the Section 800 panel in the early 1990’s

in this area. Following the issuance of the Section 800 panel report,

the changes to the acquisition system have been really dramatic.

The positive impact of those changes was shown once again recently as we responded using our existing procurement processes to

respond to the attack on September 11th. Literally hours after that

attack began, we were using these processes to acquire and ship

protective clothing, including 65,000 suits and 5,000 face masks,

3,000 respirators, 1,000 entrenching tools, 400 cars, trucks and

trailers, 500 phone sets, 250 cells, just to name a few items. My

point being that we were able to respond because of some of the

improvements that have been made to the process over the years.

We also were able to provide millions of square feet of office space

to help re-establish the offices and 3,200 workstations.

Even given all this, while the legislative changes that have resulted from the Section 800 panel report, namely the Federal Acquisition Streamlining Act and the Clinger-Cohen Act, which allow

us to provide goods and services to agencies in a more efficient and

cost-effective manner, in spite of all this, GSA does believe that the

current system could still be improved.

Since the passage of Clinger-Cohen in 1996, GSA has been focused in terms of its efforts on ensuring that the acquisition work

force has the skills and competencies necessary to provide the quality services that GSA customers require. To ensure that members

of our acquisition work force have these skills and competencies,

GSA has established mandatory core training requirements for contract specialists, for purchasing agents, for contracting officer representatives and for warranted contracting officers. The training is

provided by private sector vendors, and the syllabus for the training was jointly developed by the Federal Acquisition Institute and

the Defense Acquisition University.

We also have had an active education program within GSA to

help our acquisition work force earn undergraduate degrees and acquire college level training in business. GSA faces many challenges,

such as a work force where many of our associates are approaching

retirement eligibility and an increased need for strategic human

capital management to ensure that our associates have the appropriate skills and competencies.

Further, the nature of the agency’s business requires that associates develop specialties for the markets in which they do business.

Given this, we believe that it requires not only training but on the

job experience.

We also need to review the training delivery options and evaluate whether our associates have acquired the skills and comVerDate 11-MAY-2000 08:46 Oct 21, 2002 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 C:\DOCS\81929.TXT HGOVREF1 PsN: HGOVREF1
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petencies that are necessary to obtain best value as we provide

goods and services, construction and real estate for our customer

agencies. We will measure our success both in terms of the information retained at the end of these education and training programs and also in terms of the improved performance that we

achieve over time.

With respect to our views on the proposed legislation, we believe

that both as a supplier of acquisition services to other Federal

agencies and as a user of the acquisition system, that more could

be done to improve the Federal acquisition system. However, I

must qualify my remarks only to the extent that I need to state

that GSA has not yet reviewed the draft of the bill’s language. I’m

basing my comments on draft summaries of the proposed bill.

Nevertheless, GSA believes that agencies should make training

a priority and they should be held accountable for determining the

current and future needs of their acquisition work force. The Government has the ability today to extend contract terms based upon

reviews of contractor performance, rewarding contractors with good

performance with longer performance terms under the contract.

In fact, current law and regulations provide agencies with the

flexibility to incentivize contractors to achieve or exceed agreedupon performance criteria. These tools can be used in conjunction

with performance based contracting to incentivize good performance and thus produce a better return on the taxpayers’ dollar.

Finally, we believe that the simplified acquisition threshold

should be adjusted periodically to reflect inflation and to ensure

that the original purpose of the legislation is in fact achieved.

In conclusion, Mr. Chairman, I believe that significant progress

has been made over the past decade improving our Federal acquisition system. However, we also believe that any legislative proposal

must not compromise fundamental notions of integrity, competition

and transparency. We believe that changes we have discussed

today could make the Government a more efficient buyer of goods

and services.

I’m pleased to offer these comments and that concludes my statement.

[The prepared statement of Mr. Perry follows:]

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Mr. DAVIS. Thank you very much.

Ms. Styles.

Ms. STYLES. Chairman Davis, Congressman Turner, I commend

your leadership in the area of procurement and I appreciate your

invitation to participate in today’s discussion.

Service contracting represents an increasing proportion of the roughly $200 billion in procurement we spend each year. We must

ensure that those dollars are invested wisely so that our procurement process delivers the cost effective quality service that forms

the underpinning of successful mission performance.

As you know, the President has called upon agencies to become

market based and results oriented rather than process driven. If

we take away just one message from the President’s management

agenda, it is that results are what matter in the end, not just making promises, but making good on promises. The message has important ramifications for our procurement system which provides a

critical link for turning promises made to our citizenry into positive

results.

As described in your letter of invitation, the vision behind SARA

is to ensure that the Government is maximizing efficiency for service contracting. While efficiency is important, recent reviews of our

acquisition processes conducted by the GAO, IGs and others, serve

as an important reminder to our procurement community at large

that there is no substitute for vigilant application of the acquisition

basics, namely, sound acquisition planning, consistent use of competition, well structured contracts designed to produce cost effective, quality performance from contractors small and large, and

solid contract management.

Even the most streamlined and efficient acquisition tools, such as

the multiple award task and delivery order contract, and multiple

award schedules, cannot produce quality results if requirements

are inadequately defined, competition is not used consistently or

price evaluations are weak. My point is not that the tools of efficiency are doomed to failure. In fact, I share the subcommittee’s belief that we can ill afford a reduction in efficiency.

At the same time, Mr. Chairman, I am of the strong opinion that

we also cannot afford to weaken our resolve in adhering to the

other basic building blocks of our processes, including, importantly,

competition, that are critical to securing better prices and higher

quality. Getting back to basics must be a priority.

I think that SARA challenges us to reassess various facets of our

procurement process, from our reliance on the commercial marketplace and our use of contracting mechanisms that will motivate

better contractor performance to the effectiveness of our current

management structures and our investment in the acquisition work

force. This assessment will prove to be a worthy endeavor if it is

pursued in an environment where all acquisition basics are emphasized and the public’s trust is fostered through results oriented

processes that promote fairness, integrity and transparency in addition to efficiency.

I am of the firm belief that competition is a key to integrity.

With competition we ensure integrity in the expenditure of taxpayer dollars, fulfilling our fundamental job as public servants. I

want to look at a few examples. In the pursuit to buy commercial,

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we must continue to break down the barriers that limit our access

to marketplace efficiencies, so that agencies have effective Government access to the state of art commercial technologies that drive

costs down and quality up.

At the same time, we must ensure that our commercial item purchases are well planned through meaningful market research and

negotiated effectively, and we are not simply relying on published

catalog prices as evidence of fair and reasonable pricing. We must

further ensure that our policies are not stretched to the point

where we are no longer able to negotiate deals that are in the best

interest of the Government.

We should, for example, be using contract types that provide appropriate incentives for our contractors to perform efficiently and

effectively. And we must not shy away from concepts such as performance based service contracting, that would enable us to achieve

better acquisition solutions from our service contractors by fostering their creativity and initiative.

On the other hand, we must be willing to return to the basics

when our continued efforts to make progress fall short. For PBSC,

that means reviewing definitional building blocks and reaching a

common understanding on how to define PBSC.

I would also like to the pilots of GSA and DOD with PBSC. They

are good examples for going forward with this type of contracting

in the future.

As appropriate opportunities arise, we must seek to be innovative but be careful to ensure that our pilot efforts yield demonstrable results before they are made permanent. We must not endorse tools that have not yet proven their ability to help agencies

perform their mission successfully.

Finally, as we identify opportunities for improvement, we must

distinguish those that require legislative action from those that

may be better left to executive implementation. Business management reforms, for example, may oftentimes be more appropriately

addressed administratively. This can help to minimize the potential

for imposing one size fits all solutions on agencies with varying

structures and roles.

In the coming months and years, the expectations of our citizens

will rest heavily on the shoulders of our procurement process and

its ability to maximize return on taxpayer investment at a time in

our Nation’s history when results count more than ever. Meeting

this challenge will take work. I applaud the subcommittee for its

willingness to engage the administration in this important dialog.

The changes in the past decade have enabled agencies to satisfy

many of its needs more expeditiously. Unfortunately, these changes

have not as yet been as effective in helping us meet more important goals, namely, prices and quality. To make progress on all

fronts, we must as a start focus on getting back to our tried and

true proven acquisition basics. Only in this way will we ensure the

resources entrusted to the Federal Government are well managed

and wisely used.

I look forward to working with the subcommittee as we embark

together to improve the performance of Government. This concludes my prepared remarks.

[The prepared statement of Ms. Styles follows:]

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Mr. DAVIS. Thank you very much.

Ms. Lee.

Ms. LEE. Good afternoon, Chairman Davis, Mr. Turner.

I appreciate the opportunity to appear before you today to discuss acquisition. Our economy, including the business of the Department of Defense, has become more service oriented. Over the

past decade, the amount spent on services in the Department of

Defense has steadily increased such that we now expend almost

$60 billion yearly, or approximately 45 percent of our expenditures

on service contracts.

Certainly with this shift, we have and will continue to increase

our focus on how we acquire and manage services. As your SARA

bill notes, to achieve excellence in all acquisition, we must have a

well prepared work force. The Defense Acquisition Work Force Improvement Act of 1990 serves as a baseline for professional development and certification of the DOD acquisition professional. During the last 2 years, DOD has initiated an aggressive strategy to

invigorate education and training, and particularly to provide currency or updated skills to our work force.

To be successful, we recognize that we must reach all members

of the acquisition community, users, program managers, logistics

and quality people, as well as the contracting professionals. To

reach this broad audience, we are using non-traditional training

methods to deliver educational opportunities. Since June 1997, the

Department’s Acquisition Initiatives, previously the Acquisition Reform Office, has produced 22 satellite broadcasts on a variety of acquisition topics. We’re using the Web sites and the Internet to effectively communicate. We have a defense procurement Web site

that posts weekly information of use to the contracting officers. The

DAR Council is now on line and trying to provide rulemaking in

a more timely fashion. And we will soon move to a more interactive

forum in that area.

Specific to services, we have established a Web site that links to

over 100 templates for guidance in structuring performance based

acquisitions. We’re also moving to be more Web based training, including specific topic modules and service contracting, both the

methods and the successes and the challenges, will certainly be one

of the early topics to be deployed.

We recognize that program and contract management, as mentioned by the GAO, attention to results after contract award are

vital factors in success, and we must provide more work force education and support in these areas. In addition to training and more

current information, we have developed and employed various information technology systems throughout the Department to

streamline the procurement process. You’re familiar with many of

these, and in the interest of time, I’ll just mention central contractor registration, electronic data access, the Federal Business Opportunities, FedBizOps, where everyone can now access all Government-wide opportunities. And we are working on the Past Performance Information System, which is an automated retrieval, where

both industry and Government can look at their performance

record and consider that for future activities.

But this is certainly not enough, and we have specific initiatives

regarding services. We’ve stepped up education on how to properly

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use the schedules, the GWACs and the MACs, in regard to competition and specifically services. DOD is leading the effort to require all agencies to report in the Federal Procurement Data System purchases made by one agency on behalf of another. And this

information is particularly important to us, so that DOD can manage our service dollars and actions.

We are exploring how the Department oversees very large acquisition of services as we go to more base operating and more service

oriented support systems, and whether this oversight process is effective and properly managed. We’re trying to improve it by developing an oversight policy for non-hardware acquisitions that will

provide senior DOD officials the opportunity to ensure that these

acquisitions are of the highest quality, support DOD goals and follow the Secretary of Defense direction.

I greatly appreciate the committee’s continuing interest in acquisition and the near term focus on services. I agree that we have

made much progress but there is always more to be done. And on

behalf of the Department I would like to affirm my commitment to

improve the business process, to have appropriate oversight and to

provide the acquisition work force with the necessary support to

achieve excellence in all acquisitions, including services.

Mr. Chairman and Mr. Turner, I look forward to working with

you and your exceptional staff on these challenges, and thank you

for the opportunity to appear here today. I look forward to answering your questions.

[The prepared statement of Ms. Lee follows:]

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Mr. DAVIS. Thank you very much.

Mr. Perry, I understand you need to leave quickly. Could you

stay for just a couple questions?

Mr. PERRY. I certainly will.

Mr. DAVIS. I’ll start quickly and then yield to Mr. Turner. We’ll

focus on you and then get to the rest of the panel.

Do you think it’s appropriate to revisit acquisition reform legislatively?

Mr. PERRY. Well, there’s always the opportunity for improvement, so yes. Yes, to revisit for purposes of identifying opportunities for improvement, for sure. I would have no hesitancy in subscribing to that.

Mr. DAVIS. Do you think that we can effectively clean up regulatory and statutory barriers to improved acquisition performance

without legislation?

Mr. PERRY. That I’m not as sure about. I think that is part of

what we would need to review.

Mr. DAVIS. I think that obviously this committee wants to do is

to work with all of you to try to see where you need legislative help

to do it, and we’re going to give you some suggestions. But to try

to work together to craft something with Mr. Turner and Mr. Waxman and others that can move through and have some meaningful

effect on procurement.

So in our opinion, part of that’s a legislative fix, part of it can

be done administratively.

Mr. PERRY. That would be very prudent, to pursue that and to

study that and determine the results of that study. At this point,

we haven’t reviewed any document along those lines, but we would

be inclined to do so.

Mr. DAVIS. Well, we’ll put something out as a talking point and

go from there, I think in very short order.

A couple other questions. Do you believe that the chief acquisition officer within each Federal agency could assist GSA in performing daily operations?

Mr. PERRY. Certainly there needs to be a person designated in

each agency or some part of the agency to do this important work.

Speaking for GSA, we happen to have a position, it’s not titled

chief acquisition officer, but a person who does report directly to

me for acquisition related matters. And so we would advise that

other agencies should do something similar.

Mr. DAVIS. One of our challenges is to ensure that the training

and the education which the acquisition work force would receive

under the work force training fund would reach the right people at

the right time to provide sufficient depth to help program offices

implement acquisition reform initiatives. We would need to work

with you to ensure that’s being done. That is a tough nugget, basically, how you continue to train and retrain people and bring them

up to snuff and where do you spend that money.

Mr. PERRY. Absolutely. That’s the whole issue of what some call

succession planning and what some call human capital, strategic

management of human capital. It needs to be done, and it needs

to be done, as you point out, in a targeted way, that is to first identify what the skill gaps are and where they are, and then to adVerDate 11-MAY-2000 08:46 Oct 21, 2002 Jkt 000000 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 C:\DOCS\81929.TXT HGOVREF1 PsN: HGOVREF1
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dress those skill gaps, as opposed to having a one size fits all approach.

But that’s the issue, having to be at the right place at the right

time. And I think each agency has to be involved in identifying

what is the right place and the right time. Again, in GSA’s case,

we have attempted initially, by establishing mandatory training for

all of our acquisition work force, but now are involved in doing

competency assessments, so that we can have even more targeted

training to make sure that we are delivering training to the right

people at the right time.

Mr. DAVIS. In your work with share-in-savings, GAO noted that

it was often difficult for GSA to approve projects with this type of

contract vehicle, because agencies have difficulty in measuring the

baseline. Do you have any tools that you think agencies need to

have in place to better establish a baseline for share-in-savings vehicles?

Mr. PERRY. Well, some of that does come as part of the training

on performance based contracting, identifying performance expectations, understanding what the cost savings are and how they will

be shared. It’s not something that is not currently done with some

success. So I think we could use the models that are in place and

provide training to people. There may also be some cultural issues,

if you will, that are also involved in that.

And some of those cultural issues have to do with the risk sharing that comes along with savings sharing, because the flip side of

sharing the savings is, well, what if there aren’t the savings, and

how do I deal with that in my budgetary process. But it could even

be structured such that the risk is transferred to the private sector

partner as opposed to the Federal agency.

Mr. DAVIS. In the work your agency’s done to date with horizontal acquisitions, like FTS 2001, you have encountered some significant barriers to meeting goals of the contract. What do you see

as ongoing barriers to greater cross-agency acquisition information

sharing?

Mr. PERRY. As I understand, some of those barriers are potentially legislative, or I should say statutory or either regulatory,

where there are in fact some parts of statutes that make it more

difficult for agencies to work with one another in that way. Here

again, I think that another part of the barrier is cultural. We hopefully are daily moving more and more away from the cultural barrier that prevents agencies from working closely with one another,

and even within agencies, to have parts of agencies work in a collaborative fashion to the extent we should.

And then last, but I think very importantly, there is also the concern about when the objective of this working across agencies falls

often is efficiency. And that efficiency can have an impact on employment. I think that’s a real concern but one that has to be addressed forthrightly and directly.

Mr. DAVIS. Finally, do you think that agencies can sufficiently

share best practices to improve acquisition Government-wide?

Mr. PERRY. Yes. Again, there are models of that being done, getting over the barriers of not invented here. But even more importantly than that, that cultural issue, is to have an effective process

for disseminating the information with respect to best practices.

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Even within agencies, I think it happens today that a best practice

is invented in one part of the agency and it’s slow to be disseminated to other parts of the agency. That only gets magnified when

you think about the whole Government.

But I agree with you that it can and should be done.

Mr. DAVIS. Those are my questions. Do you have any questions,

Mr. Turner?

Mr. TURNER. Mr. Chairman, I’ll pass in the interest of Mr. Perry’s time. I can ask my questions in writing.

Mr. DAVIS. Thank you very much for being here.

Mr. Turner, I’ll yield to you, any questions you want to ask of

the panel.

Mr. TURNER. Let me perhaps start with a question of Mr. Woods.

As I understand performance based contracting, it’s a broader term

that would include the share-in-savings contracts. And I understand that we’ve had, I think one example that you cited of a successful share-in-savings contract involved the Department of Energy, you mentioned that.

I’m also advised that there was a share-in-savings contract proposed at the Department of Education that would use share-in-savings contracting for the student financial assistance program modernization effort. And that the inspector general at the Department

of Education found some problems or difficulties with utilizing that

in that effort.

Could you describe what type of problems were noted there and

are there other potential red flags that we ought to be aware of

when we start talking about moving into this area of share-in-savings?

Mr. WOODS. Mr. Turner, I’m not familiar with the inspector general’s findings. But I do know that we have some concerns as we’ve

been looking at share-in-savings. Those concerns are that it is very,

very difficult for agencies to establish the requisite baseline. And

that’s really the first step in trying to approach share-in-savings,

is you have to know what the activity is costing the agency now

in order to use that as a starting point.

And then the other very critical point that we also have concern

about is being able to establish metrics and outcomes for how

you’re going to determine success. Those are two challenges that

our preliminary work in this area have revealed.

Mr. TURNER. So I take it in the example you cited of the Department of Energy that baseline was pretty easy to determine?

Mr. WOODS. That was easy, yes, sir.

Mr. TURNER. Where’s another example of where it would be easy

to determine a baseline, so that this type of contracting might be

valuable or useful?

Mr. WOODS. Well, there’s another example that we’re familiar

with in the debt collection area. There are a number of programs

where the Federal Government is owed debts by various companies

and individual citizens in some cases. In that instance, it might be

relatively easy to look back over time and see what the collections

have been over a given period of time. That might establish the

requisite baseline. And then if there’s improvement as a result of

the contributions of the contractor, it may be relatively easy to use

that as the baseline to measure the savings.

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Mr. TURNER. Share with us some examples of where it’s difficult

to establish a baseline, the kinds of problems that we might see in

other areas.

Mr. WOODS. I think any time you move beyond the hard numbers, for example, let’s say we wanted training, for example. It’s

very difficult to establish metrics on training. How would an agency be able to repay a contractor based on improvements in training

of, let’s say, the acquisition work force? We don’t know if that

would be very difficult to track savings and attribute that to the

contributions of the contractor.

Mr. TURNER. And legislation that would encourage greater utilization of share-in-savings contracts or performance based contracts,

would it be wise to have some limitation that would define the

areas where perhaps Federal agencies should not try to utilize this

type, or should there be some control statutorily over the discretion

of the agencies to use this type of contracting?

Mr. WOODS. I think one approach to that might be the pilot program that was authorized a couple of years ago in Clinger-Cohen.

That might get to the issues that you’re looking at. To be able to

test it out on a couple of programs, perhaps, and then learn from

those programs about what those additional legislative requirements and restrictions might be, I think we first have to start with

some pilots. So far we have not seen the pilot program that’s authorized by Clinger-Cohen in the information technology area carried out.

Mr. TURNER. What other type of performance based contracting,

other than the share-in-savings approach, do you think has the potential for offering some advancements and some improvements in

our acquisition policies?

Mr. WOODS. I think what the requisite imagination that almost

any area in the, that the Government procures services, could be

likely good candidates for a share-in-savings approach. Building

maintenance, for example, you may be able to say, here’s what

we’re getting in terms of, here’s our standards today, here’s what

we’re paying for that, we’d like you to accomplish that same set of

standards with whatever approach industry wants to bring to it

and whatever savings results from that, we’ll share those savings.

Mr. TURNER. Thank you, Mr. Chairman.

Mr. DAVIS. Thank you. Thank you very much.

Again, it comes down at the end of the day to the contracting officer picking the right vehicle for what you’re trying to accomplish.

Mr. WOODS. Absolutely.

Mr. DAVIS. And not all these vehicles work all the time in what

you want to do. That’s where training of acquisition officers is so

important.

One difficulty in share-in-savings contracts is that corporations

that bid them correctly can make a lot of money. And there’s a

huge upside that if you did another vehicle, they may not. On the

other hand, Government may be willing to try a share-in-savings,

because there’s no downside for Government, in ways that they

wouldn’t otherwise.

So these are tough calls. I don’t think they ought to be made

from Congress. I think they ought to be made right down there on

the street where they ought to be made by the agencies. And we

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want to give you the ability to do that. That’s kind of what it’s all

about at the end of the day.

Mr. WOODS. Well, they are tough calls, and agencies need that

flexibility. Frankly, we have not, we as a Government have not had

that much experience with share-in-savings. Preliminary indications are that it is a more widely used, we don’t know how much,

but a more widely used practice in the private sector. One of the

things that we’re doing for the subcommittee is to go and take a

look at those practices. Then we can report back and identify the

candidates that are most suitable for use in the Government.

Mr. DAVIS. Have you noticed what State and local governments

have done for IT modernization and stuff in the share-in-savings?

Mr. WOODS. No, we have not.

Mr. DAVIS. I would just say, my experience in local government,

you get groups like Service Master, that would come in areas

where we were afraid to go out and try it and say, well, we’ll guarantee these savings, and it doesn’t cost you a penny if you don’t

produce, allowed us to do some things otherwise we would have

been afraid to undertake. It did tremendous streamlining. But

again, it depends on the right vehicle at the right time for the right

purpose.

In your testimony, you note that many private sector companies

have created a chief acquisition officer or similar position. If legislative language gives agencies enough flexibility in determining

how such a position is placed in an organization, do you think it

will allow for greater strategic acquisition planning?

Mr. WOODS. Absolutely, Mr. Chairman. We found that to be a

key attribute of some of the leading private sector organizations.

And as you point out, flexibility is needed in order for the agencies

to be able to determine exactly where in the organization that person should be.

But what we found uniformly is that the person needs to be at

a sufficiently high position in the organization to be able to take

that strategic look across the organization. We compare this somewhat to the chief financial officer or the chief information officer at

many agencies. We would think something analogous to that position might be appropriate.

Mr. DAVIS. Have you reviewed the Davis Bacon Act and the Service Contract Act thresholds for procurement?

Mr. WOODS. No, sir, we have not.

Mr. DAVIS. Would you consider reviewing these provisions and

provide the committee with an analysis on the impact on Federal

agency procurement?

Mr. WOODS. Certainly.

Mr. DAVIS. I’d like to see some objective analysis in terms of

where the current thresholds are and the impact that they’re having. Thanks.

Although the benefits of performance based contracting I think

are widely recognized, this type of contracting is still in my judgment not sufficiently utilized. To what extent are agencies utilizing

performance based contracting for services?

Mr. WOODS. Well, in my written statement, Mr. Chairman, we

pointed out that the reported use of performance based contracting

is right now at about 15 percent. We’d like to see that higher. The

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administration has set a target for 20 percent for this year. Part

of the problem is that the definition of performance based is not

universally shared among all agencies. So that’s a starting point.

We will have to review as part of the ongoing review that we’re

doing for the subcommittee about how reliable those numbers are,

about 15 percent.

Mr. DAVIS. OK. Ms. Styles, let me ask you a few questions. As

I understand my good friend and colleague Steve Horn, who

chaired this subcommittee previously, tried unsuccessfully on several occasions to have OMB and agencies comply with training requirements that were set forth in the Clinger-Cohen Act. Additionally, he worked tirelessly to get agencies to adequately fund acquisition training.

It’s still not an OMB or agency priority, as I look at it. What additional efforts do you think can be made to ensure that agency

budgets are sufficient for acquisition work force training, and if we

don’t establish a centralized fund and develop a program based on

commercial best practices, do you share my concern that we will

still have many of the same problems that exist today?

Ms. STYLES. Yes, we’re very concerned about training. As a first

step, what we are trying to do, and I think GAO is also trying to

do, is assess how much we are actually spending on training right

now. I’m very concerned that before we make additional expenditures on training that we know exactly how much we’re spending.

The problem that we’ve seen in the past at OMB is that when

agencies, and agencies specifically, specifically the problems they’ve

seen is that when they call out their training budget, that is usually the first one to go when it comes back up to the Hill, is that

it’s easy to cut the training budget so they’re very hesitant to call

it out.

We need to know what we’re spending and we want to move forward from there to make sure that they are appropriately spending

the money and managing the money that’s being spent on training.

We need to know that they’re getting the right training, that the

money is being managed well and that we’re getting something for

what we’re spending.

Mr. DAVIS. One of our concerns is that we see so much contracting going out the door because we haven’t done enough just training people in-house to do it. We have good, strong, capable Federal

employees and they’re just not getting trained.

Ms. STYLES. I think the training is a major concern for all that

we’ve seen go out the door, particularly in light of the administration’s competitive sourcing initiative. We have to focus, and it is

one of the Government-side initiatives in the President’s management agenda, is human capital.

I think the critical piece of that is the acquisition work force. We

can’t go forward with any of the other Government-wide initiatives

until we have a very good, well trained acquisition work force that

we recruit well and we retain these people well. So we really have

to focus on those people, because we’re not going to manage these

contracts well unless these people are trained well.

Mr. DAVIS. As I read your statement, you talk about the concept

of a chief acquisition officer, which we’ve thrown out. Do you think

that greater flexibility is given to the executive branch for the

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placement of such a position this would help agencies accomplish

better strategic planning?

Ms. STYLES. There are two sides to this. One is that with our

freedom to manage initiative, we really don’t want to see a one size

fits all solution in any area. On the other side of this, I see some

very difficult cultural problems when you look at the requirements

part of the work force, the management, program management and

the procurement piece. We’ve got to make these people in the civilian agencies start working better together.

You can see the DOD, these pieces work together well. And we

need to find a way that does it to give the agencies enough flexibility that it isn’t one size fits all. Because I think you can end up

harming some of the smaller agencies that aren’t as flexible and

nimble to put people in appropriate places and force them to have

a chief acquisition officer in a place that might not be appropriate

in using their agency’s resources effectively.

Mr. DAVIS. OK. I think that’s reasonable.

In your statement, you express a concern with the, well, can you

comment on the shared past performance data base that was mentioned in Ms. Lee’s testimony?

Ms. STYLES. We actually have been working very hard with the

Department of Defense, NIH and NASA to take the information

from their data bases and put it into one retrieval system, so each

one independently keeps retrieving past performance information,

it’s thrown over into a barrier, and we’re able to, everyone is able

to retrieve information from other agencies on past performance.

Mr. DAVIS. OK, thank you.

Ms. Lee, I’ve got a few questions for you. It’s my understanding

that DOD is currently pursuing more hiring flexibility and Civil

Service flexibility for acquisition personnel. Can you comment on

these efforts, and do you think that a work force exchange program

would benefit DOD acquisition personnel?

Ms. LEE. Yes, sir, human capital is an issue. As you know, one

of the significant decreases has been at the Department of Defense.

We’ve downsized our total acquisition work force substantially. So

we have the real challenges of, I like to say, treating the people we

have now right, because we do need to have them be the mentors

and we do need to have them continue to support our work.

We also need to look forward to the future at how we’re going

to recruit and train those new people. But certainly some flexibility

in hiring those people. Right now it is discouraging for a college

graduate to be at a fair, we’ve increased the affirmative education

requirement for the Department of Defense. Now it must be a college degree plus 24 hours. So we certainly go out and try to recruit

these people.

And we can’t offer them a job for an extended period of time, versus they can immediately be offered a job. As we all know, as parents, it’s good to get them off the payroll, so you like when they

pick up the jobs. So I think we need to find a way to more quickly

access the folks. We also need to look at, with that very stringent,

which I support, educational requirement, the direct hiring right

now to the 3.5. We’ve talked informally about could we change that

to allow ourselves to have a larger pool to access.

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Mr. DAVIS. How do you think expanding the current definition of

commercial services under FAR Part 12 would affect DOD service

contracting?

Ms. LEE. There are two pieces on commercial. Right now, and I’m

trying to focus our folks as well, there’s calling, buying a commercial item and using the Part 12 procedures because you are purchasing a commercial item. I also think there are cases where we

ought to use commercial like procedures for the purchase of an

item, whether that be a truly commercial item with some additional uniques, or whatever.

So I’m looking at how can we have more simplified procedures

for purchases and continue to support commercial item procedures.

Mr. DAVIS. OK. Would you comment further on the DOD PBSA

guide? How is the work force utilizing this guide? And can you further elaborate on the issue that needs to be addressed as a result

of your PBSA conference discussed in your testimony?

Ms. LEE. We certainly identified in the performance based service contracting, as everyone has said here, and I think as Ms.

Styles eloquently put, no matter how well the contracting people

understand it, we’ve got to have the rest of the team there. That

is the user and the program manager have got to be thinking about

their need in terms of a performance based standard and a measurable result.

So one of the things we found from our conferences, we can educate the people on how to get the contract in place. But we’ve also

got to work with the rest of the community to make sure that

they’re on board as well and thinking more results oriented and

more measurable. It’s been a big challenge.

Mr. DAVIS. How does DOD view the proposed use of longer term

and award term contracts? What measures could you take to ensure good performance? For instance, the proposed base year for

multi-year service contracts is 7 to 10 years. Is this too long, even

with the provisions to shorten the performance period for poor performance?

Ms. LEE. It certainly depends on the product or service. It depends on the investment that needs to be made up front for that

particular product or service. So I think you need to, again, you

need to have it and look at the individual procurement and make

the right decision. We currently can use and are using award term

contracts, which is an elegant way of, if someone is performing. We

found this through studies, that one of the motivators of companies

was continued work, and the ability to have that work planned

ahead.

So what we have now in award term is when someone is performing well, we can give them an additional time period of performance as a recognition of that. I think that helps us with that

as well.

Mr. DAVIS. Do you think it’s appropriate to revisit acquisition reform legislatively?

Ms. LEE. Sir, we’ve always got ideas. And there’s more that can

be done.

Mr. DAVIS. OK. Thank you very much.

Mr. Turner.

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Mr. TURNER. Mr. Woods, what would your opinion be regarding

providing incentives to a contractor when the contract expires, if

they’ve done a good job, to give them some financial advantage in

the rebidding process? Is that a good idea, or is there really no reason to provide that kind of performance incentive?

Mr. WOODS. I think the better performance incentive, frankly,

might be the award term provision that Ms. Lee just mentioned.

In that situation, all of the contractors would compete up front,

knowing that if they perform well in the contract itself, there

would be a provision for extending the contract for good performance. That might be the better way to go.

Mr. TURNER. When we get into acquisition reform, the issue of

the Davis Bacon Act always comes up. In many ways, certain reforms could have the effect of undermining the protection that

Davis Bacon was intended to give to workers. Could you describe

briefly what kinds of issues that we need to be aware of that would

in effect erode the protections of Davis Bacon, and are there ways,

perhaps, these issues could be dealt with without having to deal

with the Davis Bacon issue that inevitably, I think, perhaps comes

up? But is there some way to avoid that in terms of trying to address acquisition reform?

Mr. WOODS. As I said earlier, Mr. Turner, we have not looked at

Davis Bacon in quite a few years. I would not be prepared, at this

time, I think, in response to the Chairman’s question, we’ll be

doing some work, but we’re not really prepared to address that at

this time.

Mr. TURNER. Thank you. Thank you, Mr. Chairman.

Mr. DAVIS. I’m not sure we’re ready to address it either, but I

thought I’d ask the question or some questions to get a baseline on

it. And there are a lot of stakeholders on that I think we’d want

to hear from before we go anywhere. But it would be nice just to

hear your input into it.

Mr. WOODS. Sure.

Mr. DAVIS. Let me just thank this panel. I appreciate your bearing with us and we look forward to continuing to work with you

on acquisition matters.

Let me take a 2-minute break as we get our next panel up.

We welcome this panel to the witness table. Stan Soloway of

PSC, Dr. Renato DePentima, of SRA International, Mark Wagner,

of Johnson Controls, Charles Mather of Acquisition Solutions, and

Dr. Charles Tiefer, of the University of Baltimore Law School.

Thank you all for being with us.

As you know, it’s our custom here to swear in our witnesses. Rise

with me.

[Witnesses sworn.]

Mr. DAVIS. Mr. Turner has informed me we have votes scheduled

in about 20 minutes, 25 minutes. We’ve read the testimony. Everything that you have is in the record. So you’re given 5 minutes to

say what you need, with the usual rules. But to the extent that we

can expedite that, we can get into questions a little longer.

Mr. Soloway, thanks for being with us. We have a translator

here, so you can do that.

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STATEMENTS OF STAN Z. SOLOWAY, PRESIDENT, PROFESSIONAL SERVICES COUNCIL; MARK WAGNER, VICE PRESIDENT, FEDERAL GOVERNMENT AFFAIRS, JOHNSON CONTROLS, INC.; RENATO DI PENTIMA, PRESIDENT, SRA CONSULTING AND SYSTEMS INTEGRATION, SRA INTERNATIONAL, INC.; CHARLES MATHER, CHIEF EXECUTIVE OFFICER, ACQUISITION SOLUTIONS, INC.; AND CHARLES

TIEFER, PROFESSOR OF LAW, UNIVERSITY OF BALTIMORE

LAW SCHOOL

Mr. SOLOWAY. Mr. Chairman, members of the committee, thank

you very much for the opportunity to testify before you today on

an important and timely piece of legislation. I am Stan Soloway,

president of the Professional Services Council, the principal national trade association of the professional and technical services

industry. Our diverse membership includes more than 130 companies performing information technology, engineering, maintenance,

high-end consulting and many other critical services for virtually

every agency of the Federal Government.

Today the professional and technical services sector accounts for more than $125 billion Federal spending per year, and that amount

is certain to rise. Indeed, it is clear that the Government’s partnership with and reliance on the competitive, commercial services sector must continue to evolve and grow if the Government is to access and capture the cutting edge solutions that will enable the

Government to optimize its performance and deliver excellent service to its citizens. For that reason, Mr. Chairman, we applaud your

leadership and commitment to fostering an environment that will

enable that vital partnership to grow.

We gather today at a unique time in our history, a time of uncertainty, real peril and unique challenges. Some have attempted to

use the current crisis as an excuse to roll back the clock, to suggest

that the Government’s focus on its partnership with the private

sector should be put on hold, and that one of our Nation’s responses to this crisis should be to curtail our commitment to the

public-private partnership and outsourcing.

Mr. Chairman, as you, through your words and leadership have

said, such a response is both ill conceived and certain to be counterproductive. So many of the skill sets and capabilities the Government needs, and will continue to need, in its long battle against

the scourge of terrorism of all kinds, are resident today in the competitive private, not public, sector. Moreover, beyond immediate national security needs, the Government’s responsibility to ensure

that the remaining, and vast majority, of its missions are executed

in a manner that optimizes both performance and efficiency has

never been greater. That will not happen if the Government crawls

back into its protective shell; that can only happen if the Government aggressively seeks to bring the pressures of the competitive

marketplace to the Government monopoly.

Indeed, if one reviews the Government’s expenditures for services

over the last decade, there’s been a fundamental shift in the type

of services being acquired. We’ve seen declines in research and development, operations and management of facilities, and maintenance of equipment, areas in which the Federal work force has also

been reduced. And we have seen real increases in architectural/enVerDate 11-MAY-2000 08:46 Oct 21, 2002 Jkt 000000 PO 00000 Frm 00064 Fmt 6633 Sfmt 6633 C:\DOCS\81929.TXT HGOVREF1 PsN: HGOVREF1
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gineering, professional services, information technology and medical services, increases that track with those areas in which the

Government has sought to expand its work force and areas in

which the Government has the most difficulty competing with the

private sector for people and skills. Nonetheless, far too many highly innovative, cutting-edge providers remain wary of the Government market and all too often opt not to participate.

And that, Mr. Chairman, is why this legislation is even more

critical today than when you first began work on it many months

ago. Our collective need for smart, flexible, open and effective policies and processes for the acquisition of services of all kinds has

never been greater. Over the past decade, we have made tremendous progress in the acquisition process. Much more progress can

and must be made, and this legislation will help significantly. The

acquisition reforms of the last decade were designed to achieve

many goals: greater access to the commercial sector and its innovative offerings; a greater focus on performance, past, present and future; more open communications between buyer and seller; greater

degrees of flexibility and innovation; and the beginnings of a true

partnership that both serves the needs of the Government customer and protects the interests of the American taxpayer.

Imperfect as the process is today, the reforms of the last decade

have put us on the right path and we cannot afford to stray from

it. There are those who think more reform is unwise, that somehow

the reforms of the last decade were significantly misguided and focused primarily on administrative convenience. One paper I recently read suggested that a good measure of the failure of acquisition reform has been the decrease in lawsuits and disputes which,

the author maintains, is indicative of a process that doesn’t work

and is too focused on the kinds of administrative convenience that

can lead to bad decisions and implementation. Such arguments

miss the point of previous reforms and the need for further process

change and improvement.

Mr. DAVIS. Stan, is your microphone on?

Mr. SOLOWAY. The timer is, does this mean I get to start again?

Mr. DAVIS. No, it’s all in the record.

Mr. SOLOWAY. OK.

Mr. DAVIS. We had some debate whether we ought to turn it on

or not. [Laughter.]

Mr. SOLOWAY. We strongly support your proposal to dedicate to

acquisition work force training a percentage of the administrative

fees collected through multiple award Government-wide and GSA

schedule purchases. The Government simply has not made the investments in its people that are necessary to foster the kind of high

performing business savvy environment the Government needs and

the taxpayer deserves.

In a time of tough budgets, such critical elements as training too

often are the first to fall by the wayside. When the business environment is more dynamic than ever and changes in solution sets

are a daily occurrence, it is crucial that the Government make that

investment.

By creating this fund, we believe the resources finally will be

available to achieve that highest order of priorities. The Government is blessed with an acquisition work force of committed people.

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If you give them the tools, they can do great things. And the most

important tool is training.

The proposal for a Government industry exchange falls into this

same category. As you may know, when I was at the Defense Department, we proposed a similar concept. And you of course have

been the leader in creating the Digital TechCorps. We believe this

concept not only will greatly enhance the knowledge base of the

Government’s acquisition corps, but also be the kind of career enhancing experience that people so often look for in their workplace.

The legislation’s call for a regulatory review process is also timely and important. Many regulations and policies that worked in the

past are irrelevant in today’s environment. Worse, they continue to

serve as inhibitors to the full engagement of the competitive technology marketplace. One good example is the treatment of intellectual property, a subject on which this committee has already held

hearings, and one on which I believe you need to continue to focus

your attention.

Finally, the legislation places a vital spotlight on contract incentives, on that wide range of business arrangements that can drive

higher performance. Share-in-savings concepts, award term contracts and more provide the right kinds of incentives and are essential elements of performance based acquisition, are proven to

drive efficiency and performance, and are advantageous for all concerned.

Some have argued illogically that such incentive strategies disadvantage the Government. If a supplier, however, is able to drive

down costs beyond initial expectations and deliver the same or better levels of performance than initially contracted for, how could

that represent a disadvantage for the Government or any other

buyer? And why would we not want to reward such innovation and

excellence?

Mr. Chairman, let me again express our deep appreciation to you

and the committee for your leadership. The Services Acquisition

Reform Act is an important legislative initiative that has our full

support. Moreover, we stand ready, particularly when it comes to

the all important training and education that must accompany its

implementation, to play an active role in helping to foster the kind

of services acquisition and management environment we all seek.

Thank you very much for your time today. I’ll be happy to answer any of your questions.

[The prepared statement of Mr. Soloway follows:]

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Mr. DAVIS. Thank you.

Mr. Wagner.

Mr. WAGNER. Thank you, Mr. Chairman.

My name is Mark Wagner, and I do work for Johnson Controls,

but I’m also here on behalf of the Contract Services Association,

representing 330 member companies with a wide range of Government services. I might also add, I’m a resident of the 11th District

of Virginia and very well represented, I might add, in Congress.

Mr. DAVIS. You can have a couple extra minutes. [Laughter.]

Mr. WAGNER. Thank you. I appreciate that.

We’re pleased that you’ve recognized the need for SARA, Mr.

Chairman, and applaud yours and the committee’s effort. I’d just

like to touch on three points because you’ve got my statement in

the record. First, acquisition work force training and performance

based contracting, second, shared savings and third, the economics

of service contracting.

I combine work force training and performance based contracting

because they’re inextricably linked. If we don’t properly train our

acquisition work force in the ways of performance based contracting, we’ll never increase the number of performance based contracts in the Government today.

Learning how to develop a performance based contract is hard.

It’s not easy to write a request for a proposal that addresses the

proverbial issue, tell the contractor what you want, not how to do

it.

It takes perseverance and a change in mind set to do things differently, not to rely on all of the specifications that clog our Federal

shelf space, that have told us over the years how to do things. Acquisition professionals need to resist the temptation to grab those

specs, insert them in the RFP, call for metrics on a large number

of those specs and then call it performance based contracting.

Frankly, that’s the worst of both worlds.

Learning how to write a performance based contract is only the

first step. As Dee Lee mentioned, there’s also a need for training

in the source selection under a performance based contract. Acquisition teams need to apply more rigorous due diligence in selecting

contractors, particularly for large, best value contracts.

Finally, we must make sure that during the performance of the

contract we don’t backslide into old ways and to allow the spec

based approach to take over the administration of the contract.

SARA can go a long way in addressing these issues.

With respect to share-in-savings, we’ve already discussed the

issue of baselining. We’ve got some personal experience in ESPC,

and frankly, I can tell you it’s easy to baseline those contracts. It’s

the best example of shared savings.

But we’ve also had some experience in base operation support

contracts with shared savings that tried and have failed, they

haven’t worked. One of the other problems is, you have to be able

to adequately measure the savings that you’re going to apply to the

project. If the payback isn’t there, the contractor is not going to

have the necessary incentive to develop those efficiencies in the

first place and those shared savings will fail. Title III of your proposed legislation proposes improvements in shared savings, and I

hope we can address those issues.

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Finally, this legislation goes a long way in addressing the systemic problem in service contracting by accelerating payments on

contractor invoices. This will not only benefit contractors, but the

Government as well, by lowering the cost of services to the Government. As service contractors, we don’t make products or supplies

or weapons systems. Much of our invoices to the Government are

to cover paychecks we issue to our workers.

Currently, the Government waits the full allowable 30 days before paying an approved invoice, despite the fact it could be paid

much quicker, particularly in this age of electronic payments. This

means that contractors will actually have a lag time of at least 50

to 60 days between having to meet payroll and being paid for the

work performed.

Extended payment cycles put the burden of financing the capital

costs on the contractor. While interest payments can’t specifically

be charged to the Government, the carrying costs of this debt is ultimately going to be reflected in the margins that contractors include in their bids. For small businesses, this can mean being able

to make the next payroll or maybe even survival. The only one benefiting under this current payment scheme are the bankers. We’re

very pleased that your legislation will address this payment problem.

Thank you, Mr. Chairman, for the opportunity to testify today.

And thank you very much for introducing SARA.

[The prepared statement of Mr. Wagner follows:]

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Mr. DAVIS. Well, thank you very much.

Dr. DiPentima.

Mr. DIPENTIMA. I’m testifying today on behalf of the 500 corporate members of the Information Technology Association of

America. Having said that, I should state up front that I have a

personal interest in acquisition reform. Prior to joining SRA, I was

for many years the Deputy Commissioner and CIO of Social Security. As such, I chaired the initial IT—— Mr. DAVIS. You’ve been on both sides of it, then.

Mr. DIPENTIMA. I’ve been on both sides, that’s really my point.

I chaired the IT acquisition review board, whose findings were in

large part encompassed in FASA and in Clinger-Cohen. So I’ve sort

of enjoyed the argument from both sides of the table.

I’d like to focus very briefly on just some of the elements of the

legislation. First of all, I concur with the recognition that there is

a training gap and a dearth of experienced acquisition professionals. Despite the passage of Clinger-Cohen in 1996, its implementation has been inconsistent from agency to agency. It has been

my observation that as a matter of practice, the emphasis has been

on audit requirements rather than on the act’s training provisions.

I believe there is a demonstrated need for a civilian equivalent of

the present acquisition work force vested in the Defense Acquisition Work Force Improvement Act.

The Service Acquisition Reform Act would establish an acquisition training fund paid by the administrative fees of 5 to 10 percent

collected from existing fees on Government-wide multiple award

contracts. ITAA has not taken a position on those financing mechanisms. As president of a company with a portfolio of Governmentwide acquisition vehicles, in fact, we did over $200 million in

GWAC awards last year, I would support the funding mechanism.

The earmarked funds are minimal compared to the benefit of a better trained GWAC acquisition work force.

There is a crucial need for trained acquisition professionals to facilitate speedy procurement through the GWACs and the schedules

in response especially to the recent national emergency.

ITAA agrees that performance metrics for such training are important. Such metrics might include agency confirmation of every

contract officer’s knowledge and skill level before his or her warrant is granted. ITAA supports establishment of a chief acquisition

officer role to be held by a career employee within an agency who

should serve as an agency representative to the procurement executive council. From my own experience in procurement reform, and

currently as the chairman of the industry advisory council’s CIO liaison committee, I also agree with this. It would be especially useful if this type of position would foster improved strategic planning

for major acquisitions.

Third, revision of the standard payment terms will benefit Government and industry. Remedies that would eliminate routine

delays in payments would aid small and large businesses alike. Another important reform to streamline timely payment would be the

elimination of pre-validation requirements.

Finally, rigorous implementation of the fiscal year 2001 National

Defense Authorization Act, particularly emphasizing elimination of

overly burdensome paperwork requirements, would be a welcome

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improvement. To my knowledge, little has changed since 1995

when I left Government service. To cite one example, and I wish

it wasn’t true, at the Government direction, my company has spent

days of manpower reporting on billing a discrepancy of 1 cent. We

rounded the wrong way and billed the Government incorrectly by

1 cent. We spent somewhere between $3,000 and $5,000 correcting

this paperwork.

ITAA and others in industry stand ready to support this legislation.

Finally, I noticed some institutional resistance to performance

based contracting and share-in-savings, despite the Government’s

publicized interest in pursuing them along with other commercial

items, procurement under FAR Part 12. ITAA members, SRA and

our industry partners in the professional service business would

benefit from expanding the commercial acquisitions to include services. The Government would benefit most.

However, while the FAR currently recognizes performance based

contracting as an allowable cost, there is no general agreement

about the content, style or format of performance based contracts.

Most would agree that a contract is performance based if it specifies results instead of processes and includes measurable performance standards, clearly defined by the customer. The Government

should decide what it wants and convey those requirements clearly

and succinctly to industry.

Since this legislation contains so many reforms of vital interest

to the IT service sector, it is impossible to address them all.

Of course, you have our written statement. Mr. Chairman, I

thank you for your attention, and we’d be happy to answer any

questions you may have.

[The prepared statement of Mr. DiPentima follows:]

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Mr. DAVIS. Thank you very much.

Mr. Mather.

Mr. MATHER. Mr. Chairman, distinguished subcommittee members, ladies and gentlemen, it is a privilege and honor to appear

today before the House Subcommittee on Technology and Procurement Policy. My name is Chip Mather, and I’m a partner with Acquisition Solutions, Inc., a company which I co-founded to assist

Government agencies to identify and implement acquisition best

practices.

We currently provide acquisition support services to over 60 Federal agencies, which provides us a unique understanding of the

considerable challenges agencies face in implementing new acquisition policies and practices. From that knowledge base, I’m pleased

to have the opportunity to offer opinion and perspective on the proposed Service Acquisition Reform Act and how your actions will

serve as a positive force to assist agencies to take full advantage

of commercial best practices in acquiring services.

In the time I have from my prepared statement, I first want to

commend Chairman Davis and the committee for focusing their attention on this important topic. Service contracting has increased

in both size and importance within Government acquisition. In

1985, services accounted for 23 percent of the Federal contract dollars. Today that percentage has nearly doubled and is still growing.

But perhaps more important, yet I think little understood, is the

significant transformation agencies are undergoing in acquiring

these services. Agencies are going from being the direct provider of

service to the citizen to managing contractors who are the service

provider. Clearly, the acquisition of services is an increasingly critical factor in agencies’ ability to perform their mission and provide

service to their constituents.

However, it is also clear there has been little change in the way

agencies plan, acquire and manage service contracts. While a gross

generalization, we believe current legislative budget and acquisition systems are for the most part still focused on buying capital

assets, things, and not acquiring results. For example, as someone

who has witnessed the power of performance based contracting and

the positive results that occur when both parties focus on the outcome and results, I am struck by how this truly superior method

of acquisition has had limited implementation within the Federal

Government.

That is why we believe the proposed SARA legislation is so important. It identifies and removes legislative impediments to implementing innovative service acquisition methods, such as share-insavings incentives. It raises the dollar thresholds on Service Contract Act and Davis Bacon Act from levels set 40 plus years ago.

It authorizes the use of additional contract types and clarifies definition of commercial items, both of which will make it easier for

agency use to FAR Part 12, acquisition of commercial items for

their service requirements.

Perhaps of greater significance, the proposed legislation contains

what we consider are two critical components that have the power

to appreciably improve the Government’s acquisition of services.

First, the legislation provides an alternative funding mechanism to

provide much needed training to the acquisition work force. You

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cannot do expert level buying with people who have not had expert

level or even advanced acquisition training.

Even in the best of years, the training budget available from traditional funding methods has failed to meet the new demands of

a professional acquisition work force. Improved training opportunities for the acquisition work force is more important than ever in

the face of downsizing, retirements and changing workplace demographics. The proposed acquisition work force training funds would

guarantee that much needed funds were available to help ensure

that critical training requirements were being met.

Second, the establishment of a senior acquisition official will

move acquisition from the back room to the board room within civilian agencies. Long recognized as a strategic function within the

Department of Defense, the establishment of a senior acquisition

official will provide a strong voice within agencies of the importance of horizontal acquisition. Through the office of a senior acquisition official, the essential alignment of the goals and objectives of

the acquisition will be integrated with the agency goals and objectives.

Consider this: if agencies’ heads asked how much of their budget,

and by extension, their agencies’ service delivery, was expended

through contracts or grants, I think they would have a significantly

different view of the role of acquisition in their organizations. One

cabinet level department, budgetary object class data indicates that

a full 60 percent of their budget authority is expended through contracts and grants. By any measure, the office that is responsible for

this level of support must be viewed as a strategic asset.

Your proposed establishment of a senior acquisition official recognizes the strategic value of acquisition and places the appropriate

focus for this function within an agency. We understand that implementing change of the magnitude necessary to alter the Government’s acquisition processes to focus on results requires a multifaceted approach to identify and remove legislative and regulatory

impediments, provide proper incentives, positive and negative, and

hold managers responsible for results.

One thing is clear. This is not just a procurement problem. Acquisition is much larger than procurement. Implementation of a

new service acquisition model that adopts and embraces the best

practice of the commercial section requires the collective efforts of

Congress, the administration, senior agency officials, program managers, requestors, contracting officers and industry. There must be

top down support, bottom up implementation.

In closing, we at Acquisition Solutions commend Chairman Davis

and the committee for proposing legislation that focuses on the

vital role of service contracting. We believe that SARA is an important step to moving the Government to a new model for the acquisition of services.

Thank you, and I’ll be happy to answer any questions the committee might have.

[The prepared statement of Mr. Mather follows:]

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Mr. DAVIS. Thank you very much.

Professor.

Professor TIEFER. Thank you, Mr. Chairman. I’m Professor

Charles Tiefer and the author of ‘‘Government Contract Law: Cases

and Materials.’’ I’m going to launch into a couple of points on the bill. First of

all, I have already, with respect to what the bill would do with respect to the Davis Bacon Act and the Service Contracting Act, I

sense from what I’ve heard already today some tentativeness in

legislating in this area. I think that tentativeness is well advised.

The history of successful procurement reform legislation is that

it needs to be bipartisan. The particular sub-proposal there to exempt commercial subsidiaries on commercial contracts from these

statutes is not simply a matter of trimming the way these statutes

work, it’s not just a matter of easing the paperwork burdens. It

would make a partial repeal of these statutes, including when they

applied to very large contracts affecting very large numbers of employees. I think it would be a polarizing and ideological proposal,

and I think it would bring down on the bill the kind of opposition

that would hold the bill back.

Second, and that’s the only provision of the bill I’m saying that

about, second, the bill has a provision that would say that if a traditional Government contractor creates something that’s called a

commercial business segment, this segment of the business would

be treated as though it was selling commercial products, which I

take to mean that it would be exempt from the Truth and Negotiations Act, be exempt from TNA.

There is no safeguard built into this provision. It is very easy for

a traditional Government contractor, like a General Dynamics or

Lockheed, to gerrymander its products to say, oh, let’s create a division and we’ll put all our small numbers of commercial products

and our small numbers of privately sold products in there, and now

it’s a commercial division.

And on that basis, if I understand how the provision would work,

that division would be free to engage in what would otherwise be

defective pricing. Without safeguards, a provision like that is dangerous.

The third provision I would comment on in the bill, and here I

am not speaking for consensus of the witnesses, to put it mildly,

is that I express a number of cautious about share-in-savings programs. They have been tried in some areas, but in other areas they

have not been tried. They have the potential to be very risky.

First of all, something that’s not been said about them is that

they are a back door financing provision. They are a provision by

which a program that is not getting money from the appropriations, through the appropriations prices, gets financed by contractors. Under some circumstances, what that means is the Government is borrowing from the contractor, instead of, which is expensive, because contractors borrow in the marketplace, at higher interest rates.

Furthermore, there can be a long term lock in. Imagine if 10

years in 1991 we took a 10 year lock in contract and the contractor

said, well, I will do better over the next 10 years than our current

technology, which at that time would have been 286s or 386s. And

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over the following 10 years, while in general arrangement one

could have changed contractors, changed technology, the contractor

would say, it’s not economical for me, I’m still saving the Government over what it was doing in 1991 by keeping those 286s and

386s in place.

Well, 10 years later you don’t want to be using the technology

that you were using 10 years ago. So that’s the risk with the long

term lock in arrangement which is SIS.

I’m going to simply say in conclusion that I salute the Chairman,

Mr. Davis, and I salute the Ranking Minority Member Mr. Turner

for holding this hearing. There is a great tradition on this committee going back to Jack Brooks and Frank Horton, who to my mind

wrote the Competition and Contracting Act in this room. Procurement reform legislation is a thankless task. You have to put in long

hours. It’s pretty tedious on arcane points. I’m appreciative that

you’re doing it.

[The prepared statement of Professor Tiefer follows:]

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Mr. DAVIS. Thank you very much.

Professor Tiefer, I’m going to start with you. I’m so glad you’re

here, because it’s good, when you have everybody zigging, to have

somebody zagging a little bit. I have a couple questions. I recognize

from a Davis Bacon perspective politically what that does to any

proposal. And we want to get a proposal through.

But I just would ask this. If we get a report from GAO and it

talks about the thresholds, losing Government money and maybe

they ought to be readjusted for inflation or whatever, and we don’t

move ahead because it’s politically not viable, my question is, who’s

being ideological about it? Not that I’m not very pragmatic about

it, and that I even want to reach it.

I want to see what the facts are, and I think we have that duty

to the public, to lay out what the facts are before we proceed. But

if nothing else, I’m a realist, and there are some very good things

I think we can move through here and I can assure you I want everybody at the table before this thing moves. Not everybody is

going to like every piece of it. That’s why I appreciate your being

here today.

Share-in-savings contracts, they can be risky, but I think they’re

riskier for the contractor, having sat on that side, than they are for

the Government. Because the downside is really borne by the contractor. A tremendous upside could be gained.

But having been in local government and having been in charge,

you’re the No. 1 guy in a local government, which has the second

largest county budget in the country. Share-in-savings allowed us

to do some things we just couldn’t have done otherwise, because we

could not take the risk. These were savings we were trying to

achieve. You do run the risk over time of maybe over-paying for

something, if a contractor does it.

But I think there are some places where that is usable, but as

you say, there are some places where it would be wrongly used.

That’s why there’s a huge training component in this.

I guess the philosophical difference we have here is, do you trust

your procurement officers to make these decisions, the guy in the

agency buying for the agency, that Federal employee who is out

there trying to do the best for their agencies, do we want to give

them all the tools they need to save that agency money, or do we

want to prescribe rules and regulations that certainly stop them

from abusing it, but also stop them from doing some other good

things for that agency in the meantime?

And listen, there has been a tendency, if you go back 150 years

in Government contracts, to over-regulating and under-regulating.

We never seem to get the right balance.

So I think your testimony is helpful. There should always be a

cautionary note. There is no question that if you send contracting

officers out there without the right training, without the right guidance, even if you give them additional tools, there are going to be

abuses going on. People are human, they make mistakes. You have

a buddy system, all these kinds of things.

And yet if you put too many restrictions on what they do, they

can’t get the job done. Finding that balance is important, and I

hope you’ll be a part of that dialog as we move through trying to

get it. I’m not sure what it is. Please comment.

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Professor TIEFER. Mr. Chairman, I doubt if I had put a proposal

on the table and had said about it a bunch of criticisms that I could

have achieved the philosophical expression that you just said.

That’s all I would say.

Mr. DAVIS. I appreciate you, and I’m glad you’re here.

Mr. Wagner, if you were to eliminate the need for the Service

Contract Act, to be flowed down to commercial subcontracts of covered primes, how are we to be certain that the service class of employees are not being taken advantage of in the areas of wages and

benefits?

Mr. WAGNER. I don’t think you can. And I think it would be a

bad idea, quite frankly. I think it can become, it’s the great equalizer, if you will, to make sure that workers and payments aren’t

being abused, and that you don’t have contractors diving to the bottom, if you will, on the backs of their subcontractors.

Mr. DAVIS. OK. Dr. DiPentima, let me ask you, can you comment

on the impact of the Trade Agreements Act on the IT community?

Are IT companies forced to manufacture the same items in separate facilities because of the TAA?

Mr. DIPENTIMA. I think it’s both ITAA’s position as well as my

own that really has to be looked at. When you look at the complexity of some of these products nowadays, not only IT, look at the

automobile industry as an example. I think that really has to be

looked at. I think we’re limiting ourselves too much. I think your

proposed bill has the right slant, the right view on how you should

be examining it.

Mr. DAVIS. OK. For Mr. Wagner and Dr. DiPentima, would both

of you comment on training within your companies? How do you

keep your own employees current on the latest business practices,

the latest technology, and how do you measure the effectiveness of

that training?

Mr. WAGNER. We do this, do facilities support in a commercial

marketplace as well. We’re constantly learning from the other side

of our business, trading employees back and forth, bringing those

best practices. We have a data base of those best practices that we

share among our project managers. Because there’s always new

and good ideas out there.

I think a lot of this is sharing of the information and the ways

to do this. One of the problems I think we find, and problems in

the Government, is we’re trying to recreate the wheel all the time.

I don’t think we do as good a job of sharing good processes as much

as we could.

Mr. DIPENTIMA. Mr. Chairman, we see training as a strategic investment for us, quite frankly. We like to believe we live on sort

of the higher end of the food chain. We like to find complex problems and solve them. And you can only do that if you have very

well trained people. We spend a substantial amount of our indirect

funds on training people. Every person has a training plan. We try

to have three or four training experiences for each person a year.

Not all of it is just in time training. We run our own internal

SRA university in which our employees help train themselves. We

have a wide variety of training videos, CDs, training labs and the

rest. We put a lot of energy and a lot of our money into training

our folks. I might add, unlike the days when you’re on a large

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CICS COBOL mainframe systems where you could train someone

and maybe get 2 or 3 years out of that training, you’re lucky if you

get 90 days out of some of the training nowadays on the newest

packages and the newest tools.

Mr. DAVIS. OK, thank you.

Professor Tiefer, let me just ask you, let me anticipate your reaction. Training is a very important component, but you still need a

policeman, even if you train these contracting officers, to look over

and check them, is that right?

Professor TIEFER. Actually I wanted to say, as someone who’s in

the business, as a professor of training people, I couldn’t agree—

training in Government contracting, which is what you’re talking

about. I did want to ascertain whether some of that money could

be spent in law schools for training. As long as it’s so, I’m a strong

supporter of it. [Laughter.]

Mr. DAVIS. I don’t know how to react to that. They seem to have

done a good job of training you, that’s all I can say.

I think it needs to be there across the board. Government contracts is not probably one of your most sought after areas in law

school, is it?

Professor TIEFER. I’ve seen many people running in the opposite

direction.

Mr. DAVIS. I never took a Government contracting course in law

school. I went to the University of Virginia Law School. And yet I

became general counsel for a billion dollar company, PRC. I wish

I had taken it, it should be basic to understanding. Hindsight.

Mr. Soloway, can you further address the need for us to revisit

the intellectual property law in order to improve Government access to the commercial marketplace? And why do you think it’s appropriate, assuming that’s it, why do you think it’s appropriate to

revisit IT issues legislatively?

Mr. SOLOWAY. I think intellectual property, Mr. Chairman, is one

of those issues that falls into a broad category of technology challenges and technology issues that serve as primary inhibitors to a

lot of the technology based from engaging with the Government.

Let me just share a couple of examples with you.

If you go out and talk to the commercial technology base, particularly in the information technology arena, you’ll find that a very

large percentage of those companies will not do business with the

Government, particularly in research and development and developmental areas, where they’re not dealing with finished commercial capabilities. The principal reason they give is the risk of their

intellectual property, which is the greatest capital that they have

in their companies.

So what they have found in the history of Government, in the old

days when Government was the principal owner and progenitor of

technology, there was a practice of, the Government owned and

controlled most of the intellectual property. Today when exactly the

reverse situation exists where you have probably three quarters of

the research and development in this country being done in the

commercial sector, the Government is no longer the owner nor the

principal customer for a lot of that intellectual capability, that

technology. I think it requires us to re-look at the cultural and

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other practices that have been driving Government procurement in

this area for a long time.

Mr. DAVIS. All right. Mr. Mather, I’ll start with you on this, but

it’s for everybody.

How are the interests of Government protected if the definition

for commercial services is expanded? Are there other mechanisms

to assure that Federal agencies can exercise an appropriate degree

of oversight? Any thought on that?

Mr. MATHER. Yes, I think the definition of the commercial items,

though, it goes really to which section of the FAR you’re going to

use. I mean, it literally just says, am I going to use Part 15, full

and open competition, or am I going to use Part 12 with commercial items. Honestly, from a contracting officer perspective, which

I was in the Air Force for 19 years, it really doesn’t make that

much difference to me. I can use the Part 12 procedures which give

me commercial terms and conditions. I have the commercial

changes clause, I have the commercial disputes and default.

The procedures are basically the same after that, though. I’m

looking for competition. I’m looking to structure the acquisition in

such a way that I can maximize the value. So while the definition

will allow those folks that have read very carefully, you know, a

lot of agencies are not making this distinction between labor hours

and commercial items, those that do are going to the other sections

of the FAR and applying those.

This will allow more agencies to use Part 12 commercial procedures, which will simplify with the commercial items.

Mr. DAVIS. And frankly, most contracting officers try to find competition because it covers them, right?

Mr. MATHER. Absolutely.

Mr. DAVIS. And that’s just the nature, that you want to be covered.

Mr. MATHER. Exactly.

Mr. DAVIS. And yet, at the same time, there’s a buddy system

sometime, particularly if somebody’s been reliable 10 times straight

and has delivered for you, that you’d kind of like to nudge it their

way. We get concerned, or I hear concerns sometimes on the schedules that you get on the scheduler or you get it on the GWACs, but

then after that, you’re not getting the competition after that, and

that has been a concern that’s been raised here. I’d like for anybody that would like to comment on that to do so.

Mr. SOLOWAY. Mr. Chairman, before we do that, I’d like to go

back to Mr. Mather’s point for a second. I think the other point on

commercial services that’s important to remember is that internal

to the Government, it’s important for the contracting work force to

understand the authorities that are available to them. But Part 12

requires competition. It’s not like using Part 12 you can escape

competition. That’s one of the prerequisites.

Mr. DAVIS. Right.

Mr. SOLOWAY. But it’s also important to the outside world, as we

try to access more commercial capabilities, that they have a clear

understanding of what the rules of engagement are going to be,

and the way in which those rules are, to the maximum extent possible, concurrent with best commercial practice, while still protecting the Government’s equities.

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I’ll give you one quick example. When I was at DOD, I had a

company, a very large company, come to see me. Their commercial

division had decided to stop selling commercial products to DOD.

This is under Part 12. The reason was an invoice which they said

was one in a series they had submitted, I’m sorry, from the Government, where the Government had handed them a requirement

for a commercial product under Part 12 to which they had added

15 contract clauses, several of which were statutorily prohibited

under Part 12. All for an invoice worth about 59 cents.

So this company’s general counsel——

Mr. DAVIS. That’s a lot more than the penny.

Mr. SOLOWAY. Yes, it’s a little bit more than the penny that Rene

talked about. But someone in your position can understand the

general counsels in this company said, this is just not worth it. It’s

putting us at certain risks and so forth. So I think clarifying all

of these pieces is very important. The defense authorization last

year gave much broader authority to DOD to define commercial

services in a performance based environment and so forth. But we

still have this need, I think, both for internal and external consumption and understanding, to clarify exactly what we’re talking

about.

Mr. DIPENTIMA. On your competition question, I actually see it

opposite to that. We do a lot of work on the GWACS and IIQs and

the rest. The fact of the matter is, the pressure is on me constantly

to perform, not only because of the past performance provisions,

but when you take a contract like CIOSP, with dozens of prime

contractors and hundreds of subs, if I don’t perform, there’s no reason to come back to me on the next task order. They have such a

large number of other companies and subs that they can select

from.

So I think I feel I’m always in competition and always

incentivized to do a good job. Because in fact, it is easy to replace

me if in fact I’m not delivering what the Government needs.

Mr. SOLOWAY. And if you look at the statistics from the Federal

procurement data system, in IT, 91 percent of all actions are competitively awarded. That’s a pretty high percentage.

Mr. DAVIS. OK. Professor Tiefer, I think you suggested that one

of the critical differences between the products and services market

is the products market tends to be more competitive. And that one

is more appropriate for the kinds of reforms we’ve made in recent

years. Is that fair to say?

Professor TIEFER. That’s correct.

Mr. DAVIS. Let me just ask some more of the reps, would they

agree with that?

Mr. SOLOWAY. Statistically speaking, it’s factually incorrect from

a Government perspective. As I just said, if you look at the Federal

procurement data system for fiscal year 2000, you find that the

procurement of services is more competitive than the procurement

of products by the Government. Something like 91 percent of information technology services are competitively procured, 80 some odd

percent of total services are competitively procured. I believe, I

don’t have the figure with me, that something under 60 percent of

products are competitive.

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So I think in the Government market it actually is exactly the

reverse.

Mr. WAGNER. And in our arena, with base operation support contracting, I can tell you, it’s extremely competitive out there. There

are a number of contractors out there that are making this marketplace very competitive and very tough to be in.

Mr. DIPENTIMA. Mr. Davis, I would say that there is one instance

in which it might be interpreted as a lack of competition. But if I

look at a competition coming out, let’s say, on a GWAC, and I know

that there’s a particular company that has done excellent work,

high customer satisfaction and has been doing a good job for that,

that’s not where I’m going to invest my B&P money. I’m not going

to foolishly spend a lot of money to try to unseat someone who is

in fact doing a very fine job for the Government.

Now, if other people feel like me and we don’t particularly bid

that task order, you could be perceived as being non-competitive,

when in fact, it’s the whole decision that was competitive and we

decided not to compete on that.

Mr. DAVIS. That’s not like the business that Mr. Turner and I

were in, where if you’re doing a fine job for the Government people

still try to unseat you. [Laughter.]

But that’s a different business altogether.

Osborn and Gaber, in their book, Reinventing Government,

which is now a decade old, but was a good primer at the time, I

know that Vice President Gore brought Osborn in to help him in

the reinventing Government, make an observation about Government being mission driven versus regulation driven. In point of

fact, you come to the point sometimes where you have so many regulations you can’t get the job done.

One of the examples they used was Mayor Guiliani in New York,

when he was first elected. He’d go into these neighborhoods. The

one request he got uniformly as went across the city was for stop

signs in neighborhoods, to stop the cut-through traffic, the kids

were out there, the school buses, or playing ball.

So he’d go, oh, yeah, I’ll take care of it. He’d go back to city hall,

they’d put a memo out, they’d send it to their traffic people who

would do the appropriate counts, they would weigh this against the

international engineering standards for signage. He’d go back 6

months later and they’d say, Rudy, what happened to that stop

sign? We never got the stop sign.

If you go through the regulations, you’d never get the stop sign.

Anybody who’s in local government knows, you’d just never get it.

Because the purpose of the regulations is to move traffic.

So what Guiliani did is, he learned. He went out to these neighborhoods and he would always have a trunk full of stop signs with

him in the back. And they’d go up and weigh it, and he’d just take

it out and write the permit and give it to them. [Laughter.]

Now, I don’t think we want to take Government so it’s that mission driven, or you’d never be able to move traffic. There are reasons. But it’s finding, as we said before, what’s the right balance.

And we have had a lot of acquisition reform over the last decade.

It has been to some extent bipartisan. You had President Clinton

and the administration working with, for the most part, Republicans in Congress, and some Democrats, working to get these in

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there. We are trying to digest, I think they brought a lot of efficiencies.

I know for one thing they had fewer bid protests. Excuse me, but

any time you keep the lawyers out of it, that’s efficiency in my

opinion.

So traditionally, you don’t do procurement more than once a decade, at most. And here we are trying to followup. But the services

side is an area in my opinion where we see more and more buying

going in there. And as a result, I think sometimes more and more

waste without the right oversight and without the right tools for

our contracting officers to be able to get out there and get the best

products, the best value if you can.

So I think we need to revisit this. I think we need to make some

changes. We heard from the previous panel they’re not sure how

much should be legislative and how much should be directed from

the inside, and we’re going to work with the administration to do

that.

But I also think we need to keep in mind what Professor Tiefer

was saying, and that is, you can go overboard on some of this stuff.

Without the appropriate oversight sometimes, the law of unintended consequences kicks in. We’ll try to figure it out.

All your testimony has been very helpful, I think, in building the

record for this, and we look forward to hearing further comments

you want to make as we move through this process.

I’m going to now turn it over to Mr. Turner for any questions he

has.

Mr. TURNER. Well, this has been an interesting panel. It does

bring to mind a lot of issues that obviously we are going to have

to deal with in trying to put together a reform package.

I think as the chairman mentioned, there are so many differences in contracting in the private sector versus Government

contracting that we have to keep in mind that it makes it a very

difficult area to work our way through. Inevitably, I think the

standards of accountability that we are obligated to carry out in

Government vary and differ from the private sector. We are concerned not only about cost and profit, but we are concerned with

public safety and other issues that really represent the fulfillment

of the public trust that those of us who serve in elected office and

those who are appointed and service as acquisition officers have to

carry out, which is a somewhat higher standard than perhaps is required of a business executive in trying to structure a deal or make

a profit.

Also I guess it’s true that a lot of public policy considerations

enter into the contracting process, things that collectively we agree

should be considerations that may have absolutely no relevance if

you’re in the private sector.

I was interested, Dr. Tiefer, you cited for us two articles that you

commended us to take a look at. I wish you would maybe just give

us a little sense of what those articles are all about. One of them

I believe was an American University law review. It was one, I believe, entitled, ‘‘Fear of Oversight, the Fundamental Failure of

Business-Like Government.’’ And then the other one you mentioned

was the Project on Government Oversight, ‘‘Defense Waste and

Fraud Camouflaged as Reinventing Government’’ article.

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Share with us a little bit about what we would learn if we were

to have the time to review those two articles.

Professor TIEFER. I’m holding up a copy of Professor Schooner’s

article on ‘‘Fear of Oversight, the Fundamental Failure of BusinessLike Government.’’ Professor Schooner, this is something of a magnum opus for him. He did numerical studies showing a number of

areas, one of which is the decline in the number of protests.

He has seen that the result of FASA and FARA and reinventing

Government, things which he believes show a decline in competition and by the decline in protest disputes and things like that, a

decline in the oversight, in the enforcement of public policy goals

that are achieved through procurement law. It’s a strong thesis.

He’s the co-director of the Government law program at George

Washington Law School, which is in some ways the most distinguished Government contracting law program in the country.

So there’s a great deal of attention being given to his thesis. And

it calls for caution in going a lot further a lot faster in the same

acquisition reform direction. He’s not totally against going anywhere, he just says caution.

The other study, which I wont’ talk about at length, the project

on Government oversight pointed out a number of, actually it mostly picked up a number of General Accounting Office studies, inspector general studies which has shown that there’s been in certain

areas less competition. Some of the other abuses that we fear in

Government contracting. I think the project on Government oversight actually submitted written testimony for today’s hearing.

Mr. DAVIS. It’s in the record.

Mr. SOLOWAY. Mr. Turner, if it would be all right with you and

then the chairman, what I would like to offer is to take Professor

Schooner’s article and the POGO report and submit some comments for the record. And I’ve read Professor Schooner’s article and

engaged in extensive discussion with him about it, and frankly find

the thesis less tenable perhaps than my colleague, Dr. Tiefer.

But what I’d like to do, if it’s OK with you, for the record, is submit some comments on both Professor Schooner’s article and the

POGO report, which unfortunately also had some errors of fact and

so forth and perhaps some misconceptions as to what’s really going

on, from my time at the Department of Defense.

Mr. DAVIS. Certainly. That would be fine.

Do you have the article with you? I can read it on the plane tomorrow. I’d be happy to read it.

Professor TIEFER. I will submit it for the chairman’s reading.

Mr. DAVIS. That would be great. I will read it. Thank you very

much.

Do you have any more questions?

Mr. TURNER. That’s all. Thank you.

Mr. DAVIS. Well, we have a vote on, so this is a good time to conclude. Let me thank all of you for your input into the process. We

look forward to working with you. We’re going to keep the record

open for 2 weeks, if you want to do anything to supplement what

you said, any other ideas. We have other testimony that groups

have submitted that will be made part of the record and that we

will address as we move through.

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I want to thank everybody for attending the subcommittee’s important oversight hearing today. I want to thank the witnesses, I

want to thank Representative Turner and the staff for helping to

put this together. I think it’s been a productive hearing and the

proceedings are closed. Thank you.

[Whereupon, at 5:35 p.m., the subcommittee was adjourned, to

reconvene at the call of the Chair.]

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