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23–165 PDF 2006

S. Hrg. 109–631

GSA: IS THE TAXPAYER GETTING THE BEST

DEAL?

HEARING

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, AND INTERNATIONAL 

SECURITY SUBCOMMITTEE

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

JULY 26, 2005

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE 

TOM COBURN, Oklahoma, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

THOMAS CARPER, Delaware 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey

KATY FRENCH, Staff Director 

SHEILA MURPHY, Minority Staff Director 

JOHN KILVINGTON, Minority Deputy Staff Director 

LIZ SCRANTON, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Coburn ................................................................................................. 1

Senator Carper ................................................................................................. 30

WITNESSES 

TUESDAY, JULY 26, 2005

David E. Cooper, Director, Acquisition and Sourcing Management, U.S. Government Accountability Office ............................................................................. 4

Emily W. Murphy, Chief Acquisition Officer, U.S. General Services Administration ................................................................................................................... 5

David H. Safavian, Administrator, Office of Federal Procurement Policy, U.S. 

Office of Management and Budget ..................................................................... 7

Kathleen S. Tighe, Counsel to the Inspector General, U.S. General Services 

Administration ..................................................................................................... 22

John B. Ames, Director, Contract Review and Evaluation Division, Office 

of Inspector General, U.S. Department of Veterans Affairs ............................. 24

Thomas Graham, Chief Operating Officer, Networld Exchange, Carlsbad, 

California .............................................................................................................. 26

ALPHABETICAL LIST OF WITNESSES

Ames, John B.: 

Testimony .......................................................................................................... 24

Prepared statement .......................................................................................... 87

Questions and responses for the Record ......................................................... 150

Cooper, David E.: 

Testimony .......................................................................................................... 4

Prepared statement .......................................................................................... 37

Questions and responses for the Record ......................................................... 120

Graham, Thomas: 

Testimony .......................................................................................................... 26

Prepared statement .......................................................................................... 98

Murphy, Emily W.: 

Testimony .......................................................................................................... 5

Prepared statement .......................................................................................... 50

Questions and responses for the Record ......................................................... 128

Safavian, David H.: 

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 65

Questions and responses for the Record ......................................................... 141

Tighe, Kathleen S.: 

Testimony .......................................................................................................... 22

Prepared statement .......................................................................................... 77

Questions and responses for the Record ......................................................... 144

APPENDIX 

Letter to Ms. Emily W. Murphy, dated June 7, 2005, from Senator Coburn ..... 35

Chart entitled ‘‘OMC/GSA Comparison Table’’ submitted by Senator Coburn .. 154

(1)

GSA: IS THE TAXPAYER GETTING THE BEST 

DEAL? 

TUESDAY, JULY 26, 2005

U.S. SENATE, 

SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT,

GOVERNMENT INFORMATION, AND INTERNATIONAL SECURITY, 

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:30 p.m., in room 

562, Dirksen Senate Office Building, Hon. Tom Coburn, Chairman 

of the Subcommittee, presiding. 

Present: Senators Coburn and Carper. 

OPENING STATEMENT OF CHAIRMAN COBURN 

Senator COBURN. Good afternoon. Today’s hearing is entitled, 

‘‘GSA: Is the Taxpayer Getting the Best Deal?’’

It is no secret that the Federal Government spends hundreds of 

billions of dollars on procurement of products and services. When 

an agency wants to purchase a copy machine, office furniture, or 

even paper clips, it generally turns to the General Services Administration to do so. One of the most widely-used vehicles and schedules is the GSA’s Multiple Award Schedules, which is supposed to 

make the process of buying goods easier, faster, and, I would emphasize, cheaper. 

Every 31 seconds, the Federal Government makes a credit card purchase. Every 77 seconds, it issues a contract worth $25,000 or 

less. Every 14 seconds, it signs a contract worth more than 

$25,000. Statistics make it clear why we must ensure that the 

products being bought by the Federal agencies through GSA are 

being bought at the best prices available. 

GSA’s stated mission is to help Federal agencies better serve the 

public by offering at best value superior workplaces, expert solutions, acquisition services, and management policies. Recent reports issued by the Government Accountability Office and the GSA 

Office of Inspector General concerning GSA’s contract management 

point to many existing problems that may account for why the taxpayers may not be getting the best deal. 

For example, GAO found that the General Services Administration’s Multiple Award Schedules program cannot be effectively 

managed in its present form. It is intended to make a wide variety 

of commercial products available to Federal agencies, but there are 

too many items on the schedule, there are too many suppliers of 

2

similar items, and GSA does not have the capability to make sure 

that the government’s interests are protected. 

In addition, there is little or no price competition in negotiations 

or monitoring of the items ordered by the agencies and little or no 

assurance that suppliers offer items at prices that reflect the government’s volume purchases. 

In case you are wondering, these findings were released May 2, 

1979, in a report entitled, ‘‘Ineffective Management of GSA’s Multiple Award Schedules Program,’’ a costly, serious, and longstanding program. It was first identified as a problem in 1971, 34 

years ago. 

For at least three decades or more, the GSA has been unable to 

correct these ongoing problems. There are several reasons why the 

cost associated with purchasing commercial goods and professional 

services from GSA have continued to increase over the past decade. 

In that regard, I must tell you, I am very puzzled by the reluctance 

on the part of the GSA to use two of the most powerful tools available to them for ensuring that taxpayer dollars are being spent 

judiciously. 

When a contract is being negotiated, it is imperative that the 

buyer, in this case, our government, is obtaining the best price. The 

best way to do that is by looking at the vendor’s books and other 

relevant records and documents to verify prices and sales being 

submitted by the seller. One of the major goals of GSA during contract negotiations should be to ensure that the vendor pricing information is accurate, complete, and up to date before the contract is 

awarded. Prequalifying of vendors during contract negotiations has 

proved to be the most effective method for achieving the best prices 

because it helps avoid unnecessary cost by providing the agency 

with detailed information about the vendor’s commercial sales and 

marketing. 

GSA’s Office of Inspector General reported that as the number 

of audits performed decreased, so did the amount of negotiated savings. Other evidence that points to the use of pre-award audits as 

a tool for cost avoidance comes from the Department of Veterans 

Affairs. When the GAO performed audits in 2004 and 2005 on the 

VA’s pre- and post-award audit programs, it found using these 

methods resulted in millions of dollars of savings to VA. 

When GSA issued a final rule modifying its policy in 1997, the 

agency eliminated automatic post-award audit rights for pre-award 

pricing information in every Multiple Award Schedules contract. 

GSA’s rationale for making this change was its belief that a decrease in post-award audits would be offset by an increase in the 

number of pre-award audits. However, GAO recently reported there 

has been, in fact, a decrease in the number of pre-award audits. 

Despite resistance on the part of commercial contracts to use the 

post-award contracts, this tool is the most effective means available 

to verify that vendors are not overcharging the American taxpayers. 

We know from both the GAO and the GSA’s IG that savings due 

to pre- and post-award audits have saved the government hundreds 

of millions of dollars. 

In fact, I would ask at this time that the letter that I sent to the 

GSA in response to their ANP, or Advanced Notice of Proposed 

3

1The letter from Chairman Coburn appears in the Appendix on page 35. 

Rulemaking, on whether post-award audit provisions should be included in the GSA’s Multiple Award Schedules contract and government acquisition contracts be included in the record, and I will 

so order that now.1

When I started looking at what is driving up the costs, several 

things came to mind. First of all, the cost to purchase. Last year, 

the government secured $291 billion. We paid GSA $20 billion to 

do that. That comes out to 6.87 percent. If you survey industry 

throughout the country, if you survey other large buying groups, 

what you find is that is about 3 percent—three times what it costs 

to buy anything anywhere else. 

And so there are some significant questions that we need to ask 

and be answered. The goal is not to be critical of the GSA. The goal 

is to be critical of not ever getting the best value for the American 

consumers’ price. 

We have qualified people, people who care a lot at the GSA. 

What we are looking for is to find the direction so that we achieve 

that goal each and every time and we do it in a way that gives the 

American taxpayer—and since we are in a deficit and have been 

in a deficit since essentially 1973—any dollar that we save is $5 

or $10 that our children aren’t going to have to pay back. 

We also have today a company testifying that charges a blank 2 

percent on everything. We are going to be introducing into the 

record the last series of comparisons to GSA and Open Market 

Quarter and we will be putting in the record they are routinely 4 

to 5 percent below GSA after paying a 2 percent charge to them 

for purchasing. There has to be something that can be learned by 

GSA from some of these open market and competitive free enterprise firms. 

Senator COBURN. I want to welcome our witnesses. I understand 

Senator Carper will be here in a moment. 

I would first like to introduce our first panel. David Cooper, Director, Acquisition and Sourcing Management, the U.S. Government Accountability Office. Next, Emily Murphy, Chief Acquisition 

Officer, U.S. General Services Administration. And next, Hon. 

David Safavian, Administrator, Office of Federal Procurement Policy, Office of Management and Budget. 

Your written statements will be made a part of the record. I will 

make a note to talk to Mr. Safavian again. I have a problem with 

OMB. We got your testimony last night at 8 p.m. For me to effectively read what you want me to know, 24 hours is required for my 

staff to clear it and me to actually—I am one of those Senators that 

actually read the testimony. Every OMB person that comes before 

this Subcommittee that does the same thing, I need to send a message—the message is, our time is just as important as yours and 

we would appreciate that be recognized, and hopefully throughout 

the rest of the Congress, they will come to expect that OMB will 

put the information there on time. 

With that, I would like to recognize Mr. Cooper. You will have 

5 minutes to summarize your testimony. Your complete statement 

will be made a part of the record. 

4

1The prepared statement of Mr. Cooper appears in the Appendix on page 39. 

TESTIMONY OF DAVID E. COOPER,1 DIRECTOR, ACQUISITION 

AND SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. COOPER. Thank you, Mr. Chairman. I am very pleased to be 

here this afternoon to discuss the results of our work on GSA 

schedules contracts. As you pointed out, GSA plays a very important role in Federal acquisition. Many agencies rely on GSA to leverage the government’s significant buying power to negotiate the 

best possible deal for a wide range of commercially available products and services. 

Last year, Federal agencies purchased more than $32 billion, and 

I think this year it is approaching $40 billion, through the Schedules program. However, our work and the work of the GSA Inspector General’s Office shows that GSA is not always negotiating the 

best deal for Federal agencies and, ultimately, the American taxpayers. 

In February of this year, in response to a request by Chairman 

Collins of your Committee, we reported serious shortcomings in the 

way GSA negotiates contract prices and manages its Schedules program. My testimony today is going to focus on one of the key issues 

in that report, that issue being the dramatic reduction in GSA’s use 

of pre-award audits. 

As you pointed out, such audits are crucial to negotiating good 

prices. They tell GSA negotiators whether the information provided 

by vendors is accurate and reliable and whether the information 

forms a sound basis for negotiating fair and reasonable prices. 

When such audits are performed, they have saved hundreds of millions of dollars. 

I have a couple of charts that I would like to put up to show the 

decline in the number of pre-award audits and the results of that. 

The chart is also in the first page of my testimony for anyone who 

has that. 

The chart shows that in the early 1990s, GSA conducted, on average, about 125 pre-award audits annually, saving nearly $496 

million between 1992 and 1997, or an average of about $83 million 

a year. During that period, purchases from the Schedules programs 

ranged roughly about $5 billion a year, significantly less than what 

we are seeing in today’s environment. 

Beginning in 1997 and continuing until now, GSA’s use of preaward audits has declined dramatically. Since 1997, GSA has conducted, on average, only 19 pre-award audits each year. As the 

number of audits declined, so, too, did the savings. Savings in recent years have only averaged about $18 million per year. 

These trends are troubling for several reasons. First, the reduction in pre-award audits has come at a time when agency purchases through GSA schedule contracts have sky-rocketed, reaching to $32 billion last year. 

Second, in 1997, GSA, as a matter of policy, virtually eliminated 

the use of post-award audits. Such audits are a key safeguard 

against excessive contract prices. They allow the government to recover overpricing when it is determined that vendors failed to proVerDate 0ct 09 2002 13:25 Oct 25, 2006 Jkt 023165 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 C:\DOCS\23165.TXT SAFFAIRS PsN: PAT
5

1The prepared statement of Mr. Murphy appears in the Appendix on page 50. 

vide accurate, complete, and current pricing information during negotiations. 

When GSA eliminated post-award audits, it expected to offset 

that reduction with an increase in pre-award audits. Thus, preaward audits are one of the government’s sole remaining protections against overpricing. However, the anticipated increase clearly, as shown in the charts, has not materialized. 

And finally, the failure to use pre-award audits today is reminiscent of the problems GAO found throughout the 1970s and into the 

1980s. It is frustrating to see this longstanding problem reappear. 

We found that GSA negotiators appear to be motivated more toward getting contracts awarded quickly rather than negotiating the 

lowest possible prices. Not enough time and attention is being 

given to negotiating the best deal. 

We have recommended that GSA take steps to address the decline in audits. GSA agreed with our recommendations and has initiated actions to address this longstanding problem. However, unless GSA’s actions are successfully implemented, the risk of pricing 

problems will continue. If GSA is successful, we believe hundreds 

of millions of dollars can be saved and Federal agencies will get a 

better deal. 

That concludes my statement and I will be glad to answer any 

questions you might have. 

Senator COBURN. Thank you, Mr. Cooper. Ms. Murphy. 

TESTIMONY OF EMILY W. MURPHY,1 CHIEF ACQUISITION 

OFFICER, U.S. GENERAL SERVICES ADMINISTRATION 

Ms. MURPHY. Thank you, Mr. Chairman. Thanks for inviting me 

here today to testify on GSA’s procurement practices and how we 

at GSA are doing our best to ensure the taxpayer is getting the 

best deal possible in the procurement process. 

As you already stated, GSA’s mission is to help Federal agencies 

better serve the public by offering at best value superior workplaces, expert solutions, acquisition services, and management policies. Excellence in acquisition is the top priority for GSA. 

GSA’s mission is important to the efficiency and effectiveness of 

the Federal Government. We make a difference in the process of 

delivering goods and services, good government services, and to the 

well-being of the people of this country. The agency is directly involved in the process of entering into contracts on behalf of our customer agencies to assist them in acquiring the products and services they need. 

Our vehicle acquisition and leasing program are good examples 

of how GSA provides best value. We acquire vehicles for 33 percent 

below commercial pricing, and GSA lease rates for vehicles are 32 

percent below commercial lease rates. 

Our long-distance telecommunication contracts have saved the 

government $705 million last year alone due to negotiated rates 

being below commercial prices. 

Our schedule contract vehicles provide agencies with a streamlined approach to acquisitions. This adds value, and as a result, the 

utilization is increased. At the same time that the utilization is inVerDate 0ct 09 2002 13:25 Oct 25, 2006 Jkt 023165 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\DOCS\23165.TXT SAFFAIRS PsN: PAT
6

creasing, GSA efficiencies have resulted in a 25 percent reduction 

in the cost recovery fee for the GSA Multiple Awards Schedules 

program. 

The Federal Technology Service, Federal Supply Service, and 

Federal Building Service currently operate under revolving fund 

authority. As you are aware, this is different than most Federal 

agencies that operate with appropriated funding. GSA is authorized to operate revolving funds under specific statutory authority 

requiring that revolving funds fully recover all costs for the program and operations in their estimated fees. These costs include direct costs, such as labor and materials, and indirect costs, such as 

rent and support services. These fee rates are charged to Federal 

agencies for space, services, and commodities. These fee structures 

are constantly evaluated for adjustment. 

Both the General Supply and Information Technology Funds recover costs to GSA for the services and supplies that they provide 

the customer through full cost recovery. For the IT Fund, rates are 

established consistent with the costs and capital requirements plan 

as approved by OMB. A capital reserve provides financing for onetime capital investments and program costs, allowing more stable 

rates for our services. The General Supply Fund also sets appropriate rates based on projections with any excess returning to the 

Treasury. 

The Federal Building Fund finances PBS real property management and real property-related activities. The FBF is financed in 

large part by income from rental charges assessed to occupants of 

GSA-controlled space approximate with commercial rates, as well 

as some appropriated funds, typically in the case of new construction. The FBF is subject to annual enactment of new obligation authority by Congress and any balance of the revenue not used in a 

particular year remains in the fund until authorized for future use 

through future appropriations acts. 

Frequently, GSA’s fees are compared to costs associated with 

other government-wide procurement vehicles. However, other agency GWACs and franchise funds do not include all direct and indirect costs because some of the cost is offset by appropriated dollars. 

This difference makes any comparison of GSA’s fees to other agency fees inequitable. 

One of the issues we have been addressing recently is the need 

to accomplish all of our acquisitions in full compliance with the 

Federal Acquisition Regulations, GSA’s policies, and best practices. 

When we found instances of noncompliance, we have done the right 

thing and referred them to the Inspector General to conduct their 

own nationwide review, and we are currently conducting through 

my office program management reviews. 

The ‘‘Get it Right’’ Plan is a result of that review and demonstrates GSA’s strong commitment to the proper use of GSA contracting vehicles and services. The ‘‘Get it Right’’ Plan has improved the Federal acquisition process, allowing agencies to obtain 

best value when acquiring products and services needed to accomplish their mission. 

There are five components of the ‘‘Get it Right’’ Plan, the first 

being to secure the best value for the Federal taxpayer and for Federal agencies through efficient and effective acquisition, ensuring 

7

1The prepared statement of Mr. Safavian appears in the Appendix on page 65. 

full and open competition and instilling integrity and transparency 

in the use of our vehicles. Second, is to make acquisition policies, 

regulations, and procedures clear and explicit. Third, to improve 

the education and training of our workforce. Fourth, to ensure that 

we comply with all Federal acquisition policies, because simply, 

noncompliance is unacceptable. And fifth, is to communicate with 

the acquisition community, how to use the GSA’s contracting vehicles and services. 

We are making good progress on this initiative and improving 

our ability to get best value for the taxpayer. To ensure that we 

are getting it right, we are working very closely with the Inspector 

General’s Office, developing and providing appropriate guidance for 

contracting officers in the field. 

As you are aware, sir, GSA is looking into post-award audits of 

contracts as part of its continuing efforts to obtain best value, having issued the Advanced Notice of Proposed Rulemaking in April 

to solicit comments from interested parties. Furthermore, we have 

significantly increased the number of pre-award audits in recent 

years to assist in achieving best value. 

Finally, we have made the pre-negotiation panels that GAO recommended in February mandatory and we revised our operating 

procedures to require reporting on those pre-negotiation clearance 

panels. Reports of these panels are then being used to assess 

progress in the effectiveness of negotiations and will be used as an 

opportunity to share best practices. 

The acquisition officials at GSA and throughout the government 

take our roles very seriously. We take seriously the trust placed in 

us by Federal agencies that rely on our acquisition expertise to obtain best value and adhere to the high principles of ethics and integrity. And we also take seriously our professionalism and our accountability to our customer agencies, OMB, Congress, and most 

importantly, the American taxpayer. 

Thank you very much for the opportunity to testify before you 

here today. I look forward to continuing to work with your Subcommittee and would be happy to answer any questions you may 

have. 

Senator COBURN. Thank you, Ms. Murphy. Mr. Safavian. 

TESTIMONY OF DAVID H. SAFAVIAN,1 ADMINISTRATOR, OFFICE OF FEDERAL PROCUREMENT POLICY, U.S. OFFICE OF 

MANAGEMENT AND BUDGET 

Mr. SAFAVIAN. Chairman Coburn, thank you for holding this important hearing today, and before I begin, my apologies to you and 

your staff for being late on the testimony. It won’t happen again. 

Senator COBURN. Can we get Mr. Bolton to assure us of that for 

all the rest of the committees of Congress? 

Mr. SAFAVIAN. Sir, that is above my pay grade. 

Senator COBURN. Well, just so everybody will know, I sent him 

a letter today. This is one of the problems with our Federal Government. We are going to work together, and to do that, we have 

got to communicate, and you can’t communicate—we had several 

hearings last week in other committees where the stuff didn’t come 

8

until 4 hours before a hearing. For us, for the future of this country 

and the debt service load that we have in front of us, we have got 

to do better. This isn’t about meanness or anger or anything else. 

It is just frustration. I want to do a good job, and I know you all 

do. And everybody else here got their testimony here on time. 

Thank you. 

Mr. SAFAVIAN. As the Administrator for Federal Procurement 

Policy, Chairman, I view my charge much like yours, to ensure that 

the taxpayers get the best value when we buy services and goods. 

I think we have all seen instances of poor contracting, and indeed, 

criminal behavior, which call into question the integrity and 

functionality of the current system. I can tell you that leadership 

at OMB, GSA, and DOD, as well as other acquisition agencies, take 

this very seriously and are working together to cure the issues. 

For example, DOD has been working in partnership with GSA on 

the ‘‘Get it Right’’ campaign, and GSA Administrator Perry has undertaken a reorganization to better use those agency assets, reduce 

costs, and increase service quality. 

As you consider additional policy recommendations, I would also 

urge you to consider the entire picture, because we buy a lot of 

stuff and we executed, last year, 37 million transactions, and the 

vast majority of those commercial buys were successful. It is easy 

to get caught up. There are very specific bad examples, but I would 

just urge you to look at the whole picture. 

As you know, there is this ongoing debate about whether the goal 

should be getting the absolute lowest price on every buy or whether 

we should be seeking the best value overall with the acquisition 

system. It is a nuance, but a critical distinction. 

Some activities, such as the use of post-award audits, generate 

transaction-specific cost savings, but their impact on our government market as a whole can have collateral consequences that may 

actually increase the total cost the government pays for goods and 

services. 

We can and do negotiate good prices in the current system. In 

fact, I checked the other day. The GSA performance metric for how 

it buys IT solutions, for example, is that it generally buys them at 

7 or 71⁄2 percent less than independent government cost estimates. 

But some in the acquisition community argue that we need more 

intrusive mandates and regulations, new types of audits, and even 

legislation in the quest for better pricing, and it is a very seductive 

argument, I will grant you. Some arguing that subjecting vendors 

to these requirements can save taxpayer dollars can point to very 

specific examples. But they fail to take into account overhead 

charges to generate those savings. 

But more importantly, they don’t reflect the fact that the more 

red tape we load on our vendors, the higher the prices are they are 

going to charge. Simply stated, the more difficult it becomes for 

companies to do business with us, the fewer vendors we see who 

are willing to work with us. Less competition brings higher prices, 

less innovation, and fewer choices, not to mention the disproportionate impact on small businesses. 

I think if we are thinking about the mundane types of things we 

buy—staplers, office products—that type of dynamic wouldn’t be a 

big deal. But when you consider the homeland security environVerDate 0ct 09 2002 13:25 Oct 25, 2006 Jkt 023165 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 C:\DOCS\23165.TXT SAFFAIRS PsN: PAT
9

ment or the defense environment, the consequences can be much 

more significant, and I want to just give you two very brief examples. 

I was at a trade show a little while back and I talked to a guy 

that had come up with a new tool—he had shrunk down 

magnetometers and he put them in a set of gloves so that people 

could literally wand their hands over somebody to see if they were 

carrying a weapon. When I said, ‘‘Are you on the GSA schedules?’’ 

he said, ‘‘No, I don’t want to be. Its too difficult to deal with the 

government.’’

A similar example just crossed my desk the other day. There is 

a Fortune 500 company that has technology right now ready to go 

that can cut the weight of the battery packs that our soldiers and 

Marines are carrying in the desert by 20 to 30 percent. They refuse 

to market that technology to the government right now because of 

the government-specific requirements we lay on them. And as a result, our guys are carrying a whole lot more than they have to. 

The issue we have here is a paradox. Increased post-award audits and compliance may generate more savings on individual contracts, but when you look at their impact as a whole, they very well 

could increase costs when we have fewer companies coming in to 

bid. 

I can’t sit here, Chairman Coburn, and defend the status quo. We 

buy more than anyone else in the world. We should be the best at 

buying it, and frankly, we are not. But before we turn to these very 

intrusive alternatives, we should look at the tools we have in our 

toolbox now, quite frankly, that we aren’t using, and that is something that is my responsibility as the OFPP Administrator. 

We are not using things like strategic sourcing, where rather 

than buying a stapler here and a stapler there, we are going out 

and we are saying, OK, how many staplers is the U.S. Department 

of Agriculture going to use in the next year and let us negotiate 

down from that price. We are not using share and savings contracts, which is a technical type of contract where we load the risk 

off on the vendor rather than have the taxpayer shouldering the 

risk. 

And frankly, one of the challenges we have, I have got to tell you, 

is we have a human capital crisis coming up in the acquisition community. As you can tell by the poster that your staff put together, 

it is a very complicated system we have, and we have a whole 

bunch of folks who know the system and they are retirement-eligible. The numbers we have are 70 percent of our senior executives, 

40 percent of our mid-level managers are retirement-eligible, and 

when those people leave, all the experience that the taxpayers paid 

for is gone out the door. 

And what is really disconcerting, what keeps me up in the middle of the night, frankly, is those folks aren’t the ones that have 

started to retire now. It is the GS–7s, 9s, 11s, the people who 

should be in journeyman training to step up. Those are the people 

that are leaving. They don’t have the golden handcuffs of the pension program. They are taking their TSPs, walking out the door, 

and selling out to the highest bidder. And so when we see the senior folks that are doing the job now leave, I am not sure we have 

enough folks to backfill. 

10

I guess, in short, what I would say is that our acquisition system 

is really delicate. Changes in one area have unexpected consequences in another. And so when you read that 1977 report, it 

is hard for me to say this, but I would say there are some things 

we have to be careful of. We did reevaluate the procurement system in the 1990s. The challenge for you all on the Hill, us in the 

Administration, is to find this right balance of rules and regulations and policy and law so that the government continues to be 

the most sought after customer and the taxpayers get the benefit 

from the competition. 

I think I will sum it up there. That is the extent of my oral remarks. Thank you again. I think this is an issue that we need to 

explore. I hope I will have an opportunity to come back and talk 

about a few other angles here, but I would be happy to take your 

questions. 

Senator COBURN. I would just note, in 1974, I had a contract for 

the Defense Supply Agency in Philadelphia. I ended up giving them 

the product because the cost that they wanted to do it—I gave 

them $175,000 worth of ophthalmic lenses because of the nightmare. 

Now, the point I want to make with you is whose fault is that 

that they won’t sell us the magnetometers or the battery packs? Is 

that their fault? 

Mr. SAFAVIAN. It is hard for me to assess blame, and I am not 

trying to dodge. 

Senator COBURN. But the point is, how do we get to the solution? 

Obviously, there are a lot of suppliers in this country today that 

don’t want to deal with the GSA and the Federal Government for 

very good reasons——

Mr. SAFAVIAN. There is no doubt about it. 

Senator COBURN [continuing]. And that has nothing to do with 

price. 

Mr. SAFAVIAN. You are right. 

Senator COBURN. I was willing to take a large loss to just get out 

of the contract because I didn’t want to mess with it anymore because of the hurdles that you had to jump. That is what they are 

telling you. 

One of the purposes for this hearing is, we are going to spend 

$20 billion this year, right, GSA? 

Mr. SAFAVIAN. If not more, a lot more. 

Senator COBURN. OK. No, I am talking about the cost of running 

the GSA, $20 billion. That is what we are going to spend. Did anybody step back and say, is there a better way to do all this? Does 

anybody start saying, are we just going to tweak this around the 

edges or can we step back and say, times are different. We have 

tremendous technology in terms of electronic technology today. 

Isn’t there a better way? Shouldn’t we change? Shouldn’t we totally 

reform what we are doing? Shouldn’t we look at it? 

I don’t want a new bill. I don’t want to give new regulations. We 

are doing oversight. We are one of the few committees in Congress 

that is going to do oversight. But the way we find out how to 

change things is to talk about it and to have you come and testify 

and to ask the tough questions so that maybe we will look at that. 

11

The entire picture, based on the numbers that you gave, it is $600 per purchase based on what you just quoted to me, $600 for 

anything that the GSA purchases. That is what the cost is. Well, 

that is pretty steep. If we went to any other large purchaser—nobody is as big as the Federal Government, I understand that. But 

in terms of segments, nobody is paying $600 when they buy things. 

Mr. SAFAVIAN. Let me challenge you if I may, sir. If that number, 

and I don’t know how that number came about, but GSA doesn’t 

just do acquisitions. 

Senator COBURN. Oh, I understand that, but you all gave us that 

only 4 percent of your cost is in management and billings? 

Ms. MURPHY. Management was what the question was. I apologize if we were unclear in communicating that to your staff. 

Senator COBURN. OK. 

Ms. MURPHY. Four percent of our cost is in management. Ninetysix percent of it is actually——

Senator COBURN. In acquisitions? 

Ms. MURPHY [continuing]. Spent with contractors or out in the 

field. 

Senator COBURN. So 4 percent is in management. Ninety-six percent is outside of it. So the question comes—and it is not to be critical of the individuals. This hearing is about two generations from 

now, because as the purchases go up and the lack of savings go 

down, the people that are paying for that isn’t us. 

Mr. SAFAVIAN. It is our kids. 

Senator COBURN. It isn’t us. It is grandchildren. 

So my challenge to OMB is to step back from this thing, get way 

away and say, maybe rather than fix things around the edges, like 

this thing has been saying for 30 years, which nobody is fixing, 

maybe we need to say, is there a better way for us to do it? That 

is my challenge. 

Mr. SAFAVIAN. And I think we want to take you up on that challenge. I think there are two data points here that I would add to 

your point, which is well taken. 

One is we are in the process of looking at the acquisition system, 

particularly for commercial items which we are talking about here, 

the schedules types of buys, and services. Congress included in a 

bill about 3 years ago—2 years ago, the Services Acquisition Reform Act, that required us to set up a panel. We have 14 members 

on the panel who are looking at whether there is a better way for 

us to skin this cat. They have been meeting since February or so. 

They are supposed to send up a report to you all as well as to me 

come the end of this year, and I expect we are going to see them 

taking an outside-the-box approach—at least I hope they will come 

back and give us an outside-the-box look at how we are buying 

commercial goods and services. 

The other data point that I would give you is this—in the President’s budget, we directed GSA to begin reorganization to do exactly what you are talking about. Let us find a different way to do 

this where we are providing things better, faster, and cheaper, 

where we are taking into account new technology. And specifically, 

we directed that the Federal Technology Service and the Federal 

Supply Service, these two entities that have grown up over the last 

30 years, be merged. I think in the past, it used to be that we 

12

bought technology one way and we bought commercial items another way and so we needed two full organizations. 

And so our hope is that Administrator Perry and his team, as 

they are reorganizing, with a little bit of input, a light touch from 

OMB, I will grant you, is looking at this to try to come up with 

that so that we don’t have vendors out there that are taking a loss 

on their goods, but we don’t have taxpayers that are taking a bath, 

either. 

Senator COBURN. That is great. They have been authorized for 

3 years? 

Mr. SAFAVIAN. Two years. 

Senator COBURN. And so this year, 21⁄2 years, almost 3 years 

later, we are going to get something. That is the problem. 

Mr. SAFAVIAN. It is. We went without an Administrator of Federal Procurement Policy for 18 months. 

Senator COBURN. Last month, the House of Representatives 

passed H.R. 2066, the GSA Modernization Act. It calls for GSA to 

merge the FTS and the Federal Supply, which you talked about. 

How is this going to impact GSA service fees, particularly with respect to alignment with other government-wide acquisition contracts and multiple award contracts? 

Mr. SAFAVIAN. I would defer that to the GSA. I mean, I can comment, as well, but I would defer that to the GSA folks. 

Ms. MURPHY. The guiding principle in our reorganization has 

been efficiency, and if it is all right with you, we have Barbara 

Shelton, who is the Acting Commissioner for the new Federal Acquisition Service, which is going to be that merged service, here 

with us today, so I may defer to her in a moment to answer part 

of your question, as well. 

But as we are looking at the organization and how we can be a 

more efficient organization, how we can provide better value for the 

taxpayer, part of that is going to be looking at our normal process 

of evaluating our fees. At the same time, comparing our fees to the 

fees that our other GWACs around the government are charging 

isn’t necessarily a one-on-one comparison. Other GWACs and other 

franchise fund agencies only retain about 4 percent of what they 

collect, and that is to go towards additional management structure, 

putting in financial systems. When GSA receives its funding, we—

it has to pay 100 percent of our costs, and anything that we have 

left over at the end goes back to the Treasury. It is not something 

that is enriching us long-term. 

Senator COBURN. How much did you all return to the Treasury 

last year? 

Ms. MURPHY. Close to $100 million? Approximately $100 million, 

sir. 

Senator COBURN. A $100 million, so 5 percent of your budget. 

Ms. MURPHY. Only about $200 million of our budget, also, is appropriated funding. 

Senator COBURN. Oh, I know that——

Ms. MURPHY. OK. 

Senator COBURN [continuing]. But to me, that doesn’t make any 

difference. The fact is, what is the stimulus for GSA, if they are 

a cost-plus organization, to control their costs? Within GSA—I am 

not talking about purchasing, I am talking about what is the stimVerDate 0ct 09 2002 13:25 Oct 25, 2006 Jkt 023165 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 C:\DOCS\23165.TXT SAFFAIRS PsN: PAT
13

ulus—if you are cost-plus, you get a percentage of anything you 

buy, what is the stimulus to control your costs? 

Ms. MURPHY. Well, I will answer you this way, Senator. A year 

ago, we actually reduced our costs, so it is something that we have 

taken very seriously as a mandate, to be performance-based, to 

only collect the amount that we need every year that has to be reviewed by OMB, what fees we are going to charge. We reduced the 

fees that we charge on our Multiple Awards Schedules from 1 percent to .75 of a percent, which was a savings of millions of dollars 

to customer agencies——

Senator COBURN. Let me get you to clarify that. Your total 

costs—not your rates but your total costs—went down in 2004 over 

2003? Is that your testimony? 

Ms. MURPHY. I would have to get back to you on the record for 

that. I apologize. I have only been with the GSA for about 5 

months, but——

Senator COBURN. Well, I want you to answer that, because that 

is how I measure costs. What are the total costs? And again, with 

the system that we have set up today, what is the incentive within 

GSA, if they are on a cost-plus basis, to reduce costs? 

Mr. SAFAVIAN. Let me take that on. 

Senator COBURN. OK. 

Mr. SAFAVIAN. You have really hit the nail on the head, at least 

in terms of past practice. In my prior life, and I should have disclosed this earlier, I was the Chief of Staff at GSA and so I have 

a particular soft spot for that organization. But what we found 

when I was there was that one of the performance metrics driving 

employee behavior was volume. How many contracts could you get 

in and out of the door? In fact, following some IG reviews, what we 

found in one region was that the contracts were coming out the 

door, I think every 2 minutes, 24/7, 365, not a constructive way to 

buy goods and services. So first and foremost, that contributed to 

the problem. 

I think if the question you asked is what limits that cost-plus dynamic, there are two major things. One is OMB has to—and does—

very carefully monitor where the money is going at GSA. Particularly, we ride herd and keep a tight rein on head count over there. 

So it is not as though we are inflating the numbers of people to 

do more volume in order to build more money. 

But the other part is that we do have a quasi-competitive system 

here. Prior to 1996, GSA was a mandatory source for everything. 

You had to go to GSA and it took you 6 weeks to get a box of paper 

clips—oversimplification, but you can see where I am going. Post1996, what we said was other agencies can compete with GSA in 

certain circumstances. And so you have five different agencies, 

GSA included, that run these big contracting vehicles. 

But the other measure that limits poor performance by GSA is 

that if you are an agency and you don’t like the fees that you are 

being charged by GSA, unless it is a major commodity buy, you are 

entitled to do it yourself, and most agencies do that in one form or 

another. That is a check and balance in the system and it does pose 

a challenge to GSA. When GSA charges too much, business goes 

out the door to other agencies. 

14

It is not perfect, and in fact, I can argue that in an effort to generate in this theory that let us have competition for GSA to keep 

price reduction down, we have actually gone a little bit too far the 

other way insofar as we have too many vehicles out there, too 

many organizations that are very difficult for us to track. 

And what it does is it encourages a strange dynamic. We talked 

about how we encouraged volume at GSA. Well, the dynamic you 

have when you have multiple agencies doing multiple buying is you 

have agencies actually reaching out to see who can do it fastest, 

who can get more volume in, and the result is we see bent procurement rules and we don’t see the taxpayers seeing the best value. 

So again, we have to find this right balance between GSA as this 

mandatory source organization—we don’t like that, that doesn’t 

work—and GSA, which is competing with a bunch of mini-GSAs 

out there—that is not necessarily working, either. The key is going 

to be, A, strong management at GSA, which they have; B, strong 

oversight by you all and by OMB; and C, a measure of competition 

among all of the Federal customers. 

Senator COBURN. Thank you. 

Ms. Murphy, did you go to Chrysler and Ford and GM and do 

post-award audits to see if you got the best price? How do you 

know you bought better than Avis? 

Ms. MURPHY. Now, I am not aware of what we did in any specific 

contract. I would be happy to get back to you on that, but——

Senator COBURN. Your testimony was that you bought at 33 percent better than all commercial buyers, right? 

Ms. MURPHY. Yes. 

Senator COBURN. And my question is, how do you know that? 

Ms. MURPHY. It is one of the performance metrics by which we 

track our——

Senator COBURN. I know, but how do we know it? Was there a 

post-contract audit done on those purchases to know that? 

Ms. MURPHY. I do not believe so. 

Senator COBURN. OK. So we can’t know that. 

Ms. MURPHY. The way that we determine our prices going in is 

we do a pre-negotiation panel. When we receive a requirement, or 

a contractor comes to us and wants to do business with GSA, for 

example, using our schedules, they would send us an offer. The 

first thing that our contracting officer or specialist does is review 

that offer and looking at their pricing practices and their pricing 

guides. They then look at similar prices that are available on GSA 

schedule, which are available at GSA match, look at what is available commercially for pricing. They look at——

Senator COBURN. That is process. I am wanting to know how you 

know that you got that price. 

Ms. MURPHY. That is how we baseline the price. We go in, we 

negotiate with them. What price are you offering Avis? What price 

are you offering a large vendor? 

Senator COBURN. No, but without a post-award notice, how do 

you keep clarity and truth out there in the contracting? If I am a 

supplier and I know you are not coming back to check me, I have 

a wide range of latitude with which to deal with you. 

Ms. MURPHY. Well, we do pre-award audits, also. We have been 

increasing those. I realize that there was a dip in the late 1990s, 

15

but in the past—let me see, in 2003, there were 14. There will be 

70 this year. We are going to see an increase again next year. So 

we are increasing about 500 percent from 2003. 

Senator COBURN. OK. So why are we increasing? We have testimony that it has gone down, the savings have gone down. Why all 

of a sudden this year are we increasing post-award audits—I mean, 

pre-award audits? 

Ms. MURPHY. Actually, we began in November 2001. We formed 

an IG working group. It is a very good working relationship with 

the IG to try and address how we could do more pre-award audits. 

In those negotiations, actually, the Federal Supply Service has provided $2 million to the IG to hire additional auditors so that they 

can conduct more pre-award audits. We negotiate with them at the 

beginning of the year, or actually we are in the process of negotiating for next year how many audits they are going to do, what 

companies, which audits are the ones that they need to be looking 

at. It has been a very good and positive relationship. It is only one 

step, though, of our quality control process. 

Senator COBURN. But if a vendor knows that you are doing a preaward audit but you are not going to do a post-award audit——

Ms. MURPHY. Well——

Senator COBURN [continuing]. We will let you see everything 

now, but things may change. 

Ms. MURPHY. We do still have the right to do compliance audits 

to make sure that they are maintaining their pricing structure, if 

they are starting to give someone else a better price, that we also 

get that price. 

Senator COBURN. How many compliance audits did you all do 

last year on major purchases? 

Ms. MURPHY. I would have to get back to you on that one for the 

record. I don’t have that number. 

Senator COBURN. Is it a significant number? Is it more than 17? 

Ms. MURPHY. Honestly, Senator, I apologize. I don’t know that 

number. 

Senator COBURN. I think that is important information. I mean, 

if you read their report, it is a pretty tough report on the fact that 

they are saying the savings aren’t coming now because things—and 

what you are testifying is that has changed. Is that correct? 

Ms. MURPHY. We are changing our pre-award audit process. We 

are changing our price negotiation panels. This year alone, we have 

done 57 price negotiation panels that covered over $2 billion in negotiations. The pre-award audits this year are expected to cover another $5 billion in contracts. 

And it is also important to remember that once someone is on 

one of our schedule vehicles, there is additional price competition 

in place. So while we may have established what is a fair and reasonable price, we are teaching our customers, we are teaching our 

own associates, and we have put in ordering procedures that comply with DOD’s rules as well as additional rules for the civilian 

workforce to encourage additional competition. 

One tool we created was called e-buy that allows us to take a requirement and push that to all the vendors on a schedule and get 

back as many offers as we can and then negotiate to see if there 

are even additional savings to be found. 

16

Senator COBURN. I am excited that you are doing that. I think 

that is really positive. The question my staff couldn’t answer and 

maybe you can is why can they negotiate a better price than you 

have? 

Ms. MURPHY. Because when the Federal Government is negotiating a schedule price, we are only—there is only a guarantee usually of about $2,500 in purchases. If someone can come in and say, 

‘‘I can guarantee you this is a contract that is going to be for 3,000 

laptops,’’ you can give them a better deal than if you are only buying three. If it is the end of the model cycle——

Senator COBURN. Do we know how many laptops we bought 2 

years ago in the Federal Government? 

Ms. MURPHY. I think we have some data on it. I couldn’t tell you 

comprehensively——

Senator COBURN. So then why wouldn’t we——

Ms. MURPHY. We are working toward strategic sourcing 

those——

Senator COBURN. Yes, but why wouldn’t we say $2,500 is out the 

window on this. Here is what we know we will buy. And the price 

range, if we don’t buy that, then it can go up 1 or 2 percent. Why 

in the world would we negotiate something less than the best 

price? This is the biggest purchaser in the world of everything and 

everybody ought to get the best price every time. 

Mr. SAFAVIAN. But Chairman, let me weigh in here, because 

there is a different dynamic. If we were going to market on every 

purchase and saying, all 1.8 million civilian employees are going to 

need a pen, so we need 1.8 million pens, we would get the absolute 

best price. Unfortunately, the system doesn’t work like that. 

Senator COBURN. Why not? 

Mr. SAFAVIAN. It doesn’t work like that because we will have an 

agency—we can have USDA buying 40,000 pens——

Senator COBURN. Why? 

Mr. SAFAVIAN. And the answer to that is we went from the mandatory source where every purchase was funneled into GSA——

Senator COBURN. You can still have them purchase it. 

Mr. SAFAVIAN. No, I am not defending the—and let me point out, 

we went from a system where all of the funding was, or all of the 

purchases were routed through GSA and GSA would make these 

mass buys, in theory that we would get the best prices. We stopped 

making GSA mandatory, but what we also did was we walked 

away from any concept of leveraging our buying power to that 

great extent. 

One of the things that OFPP, my office has embarked upon is a 

strategic sourcing effort. Strategic sourcing is just MBA-speaking 

for us looking at what we are buying and then buying it better. The 

first part of that, though, is it requires us to understand what we 

bought last year. Every major company does this, and when they 

do it, we see 20, 30, 40 percent price reductions in commodities. 

And that is where we are going. 

But I will tell you candidly, right now, our initiative has training 

wheels on it. We have asked agencies to identify three commodities 

and do three commodity councils at the agencies to leverage the 

buys. 

17

Senator COBURN. I want to make the point with you that some- body making $20,000 a year in Oklahoma is paying $2,000 in Social Security and Medicare taxes, another $2,000 in income taxes. 

What you all have said basically is we can’t get it done fast enough, 

and what they are saying is why in the world, if you are the biggest purchaser, why doesn’t everybody in the Federal Government 

get the best price? I don’t think that—give me some defense of 

what you can tell them. The reason is, is we don’t have the information, or we can’t——

The fact is, the goal ought to be, I believe, is when you go to a 

vendor, give us your best shot because here is what we bought last 

year. Within plus or minus 20 percent, you are going to get a shot 

at that. And anybody else that wants to compete after we have 

competitive bidding can compete at that price for a limited portion 

of the market. But the rest, the guy that got out there and gave 

us the price and said they were, they ought to be guaranteed a certain volume, and you can do that. 

To say we don’t have the knowledge——

Mr. SAFAVIAN. That is true, though. 

Senator COBURN. And so the testimony is we don’t know what we 

are buying——

Mr. SAFAVIAN. That is absolutely true. 

Senator COBURN [continuing]. Because we can’t use leverage to 

get the best price. 

Mr. SAFAVIAN. Not in all cases. Many cases, we do, and I can 

give you chapter and verse on which agencies are doing a great job 

on their strategic sourcing efforts—the Postal Service, Agriculture, 

Homeland Security, surprisingly enough, is doing a great job. The 

challenge is spreading that out to all 26 major agencies and getting 

everybody singing off the same page of the hymnal, and we are 

doing it. 

Senator COBURN. But that is punching buttons on computers. 

Mr. SAFAVIAN. No. I disagree with you. That is not punching buttons on computers. 

Senator COBURN. Then that means that our whole purchasing 

system is a mess, because every organized business and other entity out there now buys computerized generated purchase orders—

they have a list against which they buy. They know what the maximum price is. They know what they are going to pay in terms of 

freight charges. And at the end of the year, they punch a button 

in February and they know what they bought the last year and 

they are anticipating that in October, so they are contracting for 

the next year, and you are telling me we can’t do that. 

Mr. SAFAVIAN. We can to a limited extent. The government buys 

differently than the private sector. Whether we like it or not, we 

have certain mandates and certain social obligations. I saw one of 

your posters over there that talked about JWOD and talked about 

some other mandatory source requirements. Like it or not, the procurement system has been turned into a tool of socio-economic engineering in a number of cases and that makes it a different type 

of buy. 

Senator COBURN. Can you assess, can you give me a percentage 

or a dollar cost for us doing the social engineering through the purchasing system? What does it cost us in terms of increased cost? 

18

I couldn’t give you that number. I don’t think anybody can give you 

that. 

Senator COBURN. Mr. Cooper, have you all looked at that? 

Mr. COOPER. No, we haven’t. I don’t think there is any way to 

come up with a dollar amount for that kind of thing. 

But I would like to add a couple of points, and I think you are 

raising some very important, fundamental questions. GSA talks 

about getting a 33 percent discount. What they don’t know is the 

commercial customers for that same vendor were getting 43 percent discounts. If you look at the GSA IG report that was done in 

2001, you will find example after example after example of where 

the commercial customers were getting a better deal and GSA 

didn’t know because they weren’t doing the pre-award audits. So 

the pre-award audits are very important to know that. 

The other thing that Mr. Safavian has raised about strategic 

sourcing, I think he has got an excellent point. The government can 

do much better. We have been pushing for the last 4 years to get 

agencies to adopt strategic sourcing initiatives. We don’t know 

what we are buying. We have no idea. We don’t have the information systems. We don’t know who we are buying from. We don’t 

know what we are paying. And we need to have all of that information. 

As you point out, any major corporation in this world that is 

worth their salt, and we have gone out and done best practices 

work at a number of those companies, take purchasing as a very 

serious function, a function that adds to the profit line of those 

companies. 

Senator COBURN. You bet. 

Mr. COOPER. And they go out and they get the best deals they 

can do and they have the information systems and know who they 

are buying from, how much they are buying. And the other thing 

is, those companies also have socio-economic objectives that they 

meet. So they are spreading that purchasing out. You don’t sacrifice one for the other. You have to manage both. 

Senator COBURN. Let me ask you one question. Would it make 

sense to you, if we are the biggest purchaser, we ought to get the 

best price? 

Mr. COOPER. Absolutely, the best possible price in every case. 

Senator COBURN. And the best service? 

Mr. COOPER. And the best service, the best delivery terms, you 

name it. The purchasing power of the government should be used 

to its advantage. 

Senator COBURN. And should that be done in a way that vendors 

like doing business with the Federal Government? 

Mr. COOPER. I think there is enough business coming from the 

Federal Government, there are an awful lot of vendors that want 

that business, yes. 

Senator COBURN. OK. But there are real problems with hurdles 

in doing business with the Federal Government. 

Mr. COOPER. There is no question about that. 

Senator COBURN. And is somebody working on solving those 

problems? 

Mr. COOPER. I would like to talk about the battery case for just 

a minute, because we have, over the years, looked at a number of 

19

different situations where companies are reluctant to deal with the 

government because of the red tape, the intrusion that Mr. 

Safavian talked about. The Congress has passed all kinds of legislation that allow us to streamline our processes to reach those people, and I think it comes down to the companies making a business 

decision of whether it is in their best interest or not to do business 

with the government. 

We have something we call ‘‘other transactions.’’ It gets away 

from cost or pricing data. It eliminates the requirement to follow 

the Truth in Negotiations Act. It makes it much easier for companies to deal with the Federal Government. There are all kinds of 

ways. The contractors can ask for waivers of cost or pricing data 

for these intrusive kinds of things that some companies don’t want 

to deal with. 

Senator COBURN. So was that done in these two instances? 

Mr. SAFAVIAN. No, but I think this is an absolutely critical point. 

What we are saying is we can waive data requirements when it is 

in the government’s best interest or we can ask for more data 20 

years out after a contract is executed. Those are the two ends of 

the continuum. Twenty years is a long time. Let me rephrase that. 

You can either do the post-award audits, where we are asking for 

more data after the transaction, or as Mr. Cooper said, there are 

flexibilities where we can use other transaction authority and say, 

we really don’t need the cost and pricing data to go get this. 

Senator COBURN. Or we can do what Ms. Murphy said. We can 

have a continuing audit, which she alluded to earlier. You can go 

in—there are other mechanisms which you can check that. 

Mr. SAFAVIAN. I think that is right. But what the one thing that 

I think all of us agree here is that at the pre-award phase, when 

the vendors come in and say, here is our data, here is what we 

want to charge you, GSA should be using more pre-award audits. 

There is no doubt about that. Where we get into, I think, probably 

an inter-family fight is when we are talking about doing more postaward audits, and what we are talking about is not whether or not 

Ford delivered the 1,000 cars it said it was going to. We always 

have the authority to do that. 

What we are talking about is 5 years after Ford came in and negotiated its price, can we, as the government, go back to Ford and 

say, we want to see all of the data that you calculated your price 

5 years ago so that we know whether that price 5 years ago was 

the right price. That is the post-award audit we are talking about. 

Now, maybe for Ford, that is fine. But for my family business in 

Trenton, Michigan, Trenton Forging, they are not going to keep 

that data for 5 years or 10 years or 13 years, depending on the 

length of the contract. And that is where we get into that red tape 

issue. 

Senator COBURN. Well, you are talking in terms much longer 

than what I would use that tool. What I would use the tool—I 

would never give away this tool, and the reason I wouldn’t ever 

give away the tool is you don’t even have to use it but once or 

twice. It is like my proposal. I think we ought to put some doctors 

that are defrauding Medicare in jail, and if you did that about ten 

times a year, there would be a whole lot less fraud in Medicare. 

But we don’t use that tool, and so consequently, I believe you have 

20

kind of disarmed yourself by the post-award audit, the lack of—

saying it is not going to be there, because what you have done is 

taken away a tool that is going to intimidate the wrong behavior, 

to make sure the wrong behavior doesn’t happen in some of your 

contracts. 

Look, most people are honest. I want to see a government where 

we assume people are doing the right thing, not assume people are 

doing the wrong thing, and all across our government. We have 

gone in a different direction in this country. We assume everybody 

is wrong. We have to prove you are right. I would like to see it. 

But the tool is to occasionally audit, and that doesn’t mean you 

audit everything. That means use the tool effectively to lower the 

prices. I guess my comparison, having a pretty long history in business before I was a physician, is we have got great tools and you 

have got the information. It is just you can’t get it to you, somewhere, the information on what we bought. Every agency knows 

what they bought. We spent $64 billion on IT equipment last year 

alone as a government. Somewhere, that data is there. The question is that we haven’t got the CFOs in everyplace to get the transparency and to get the accountability that we need to be able to 

get that. But if we start running these under good financial standards, we ought to be able to get that. 

Mr. SAFAVIAN. Before we started today, David and I were talking 

about the report that you all have, the most recent report from 

GAO, and one of the recommendations, it says—let me back up. 

When we are talking about post-award audits, these relatively burdensome and intrusive audits, they are in place. There is authority 

to do that currently at GSA, but it is a very high threshold. To put 

it simply, it is the tool of last resort, but it is still available. 

And the one thing that I noticed in the GAO report was it said—

it didn’t say that we should make—that we should be lowering the 

threshold as to whether or not we should do those, only that we 

need to inform our contracting officers that this is a tool of last resort and that it is available. 

Senator COBURN. And it ought to be used every now and then so 

they still know it is going to be used. 

Mr. SAFAVIAN. Once in a while. 

Mr. COOPER. Yes. What we recommended was to give those contracting officers guidance so they knew when to use the postaward——

Senator COBURN. Yes. 

Mr. SAFAVIAN. But the last thing we want to do is we don’t want 

to see every mom and pop or every large business subject to postaward audits. That just hurts everybody. 

Senator COBURN. You don’t have to, because that is not the intent of it. The intent of it is to be a tool to encourage good behavior. 

If it is used properly, you don’t have to use it much. It is like a 

stick on your child. You don’t have to use it much. 

Mr. COOPER. I think you will hear that from the next panel. 

Senator COBURN. All right. Ms. Murphy, do you have any comments on anything we have been talking about here just recently? 

Ms. MURPHY. Well, I would just say that we at GSA also have 

strategic sourcing, are trying to—we have been partnering with the 

Department of Agriculture, partnering with Homeland Security, 

21

partnering with other agencies to help them better use our schedules, our tools to strategic source to bring down prices. We have 

been—we really are trying to take a comprehensive approach to 

prenegotiation. We have been training our contracting officers and 

specialists. We have got a course that is starting next week on pricing mods and how we can better negotiate. 

So we are taking this very seriously. We believe this responsibility to the taxpayers is one of the penultimate responsibilities of 

a contracting officer and we want to make sure that our acquisition 

workforce has the tools it needs to give that best value. 

We also, though, are very conscious of the fact that 80 percent 

of our vendors are small businesses, and so any time we impose additional burdens on those vendors, it is a real cost of business for 

them——

Senator COBURN. And it is a reason some of them might not 

want to do business with you. I understand that. I had personal experience with it. I understand it. 

First of all, let me thank each of you for coming. I am going to 

invite you back 6 months from today—actually, maybe not 6 

months from today, that is after Christmas—after the first of the 

year and I want us to discuss this again. I want to see whether 

headway has been made. We are going to have another set of people testifying here in a moment. 

Ms. Murphy, you have promised to get us some answers to some 

questions. We will expect that in a prompt manner, if you would. 

We are going to look at this, because there is not one area of the 

Federal Government we shouldn’t concern ourselves with, and I am 

not just talking about GSA. If you look at the hearings I am having, we are not picking on anybody. We are picking on everybody, 

and we are going to help drive efficiency and we are going to try 

to help drive to get rid of the waste. 

This is not a criticism of anybody individually. I am proud of the 

people that work for this government. I think they are great people 

and I think they do a great service. But I think sometimes the forest and the trees get confused and we need to step back outside. 

I would leave you with this to carry home. We ought to know 

what we are buying. We ought to be able to evaluate that and we 

ought to be able to use that as a tool to buy better and save a ton 

of money. And every tool you have to perk that—I guarantee you, 

the purchasing manager at Ford doesn’t wince anything when he 

goes to try to get a better price, and I guarantee he has got a guaranteed price. Otherwise, that guy won’t have the contract the next 

year and he is going to check it. So we ought to be modeling some 

of that behavior on a way, and I think that you all will do that and 

I appreciate you coming to the hearing. Thank you. This panel is 

dismissed. 

I would hope somebody from GSA would remain and maybe 

somebody from OMB to hear our next witnesses, just so you can 

have input of what they are going to say, because we will be using 

this in the next hearing. 

Senator COBURN. Welcome. Thank you all. On our second panel 

is Kathleen Tighe. She is Counsel to the Inspector General, Office 

of the Inspector General, General Services Administration. Also, 

John Ames, Director for Contract Review and Evaluation Division, 

22

1The prepared statement of Ms. Tighe appears in the Appendix on page 77. 

Office of Inspector General, Department of Veterans Affairs. And 

also, Thomas Graham, the Chief Operating Officer of Networld Exchange, Carlsbad, California. 

Welcome to each of you. Thank you, number one, for coming. 

Thank you for giving us your testimony earlier than 12 or 13 hours 

before the hearing. Your full written statement will be made part 

of the record, and if you would, try to keep your comments to under 

5 minutes. 

Ms. Tighe. 

TESTIMONY OF KATHLEEN S. TIGHE,1 COUNSEL TO THE INSPECTOR GENERAL, U.S. GENERAL SERVICES ADMINISTRATION 

Ms. TIGHE. Thank you very much, Mr. Chairman. Before I begin, 

I would like to note that our new Inspector General, Brian Miller, 

was confirmed by the Senate on Friday——

Senator COBURN. Welcome, General. 

Ms. TIGHE [continuing]. So he is new to the Inspector General 

community. 

We greatly appreciate the opportunity to testify on GSA’s procurement processes and present the views of the Office of Inspector 

General. I will primarily address the importance of contract audit 

rights and the vital role we believe they play in ensuring that taxpayers’ interests are protected. 

The experience of the Office of Inspector General in contract auditing has arisen primarily in the context of the MAS program we 

have been talking about so much today. One of the aims of the 

MAS program is to provide agencies with the widest possible choice 

among qualified vendors. In addition, GSA commits to MAS users 

that schedule prices are fair and reasonable. Because the goal of 

the program is to maximize choice, there is no head-to-head competition as a means of ensuring fair and reasonable pricing. Instead, what GSA does is ask for information regarding a vendor’s 

commercial pricing to its best customers and seeks to negotiate a 

price that is equal to its best price. It is this use by GSA of vendorsupplied information that gives rise to the need to audit. 

Currently, there are two main types of audits conducted of MAS 

contracts, compliance audits and pre-award audits. Compliance audits allow our auditors to examine a vendor’s books and records to 

check for overbillings and ensure compliance with the price reduction and industrial funding fee clauses. 

The second type of MAS contract is the pre-award audit. These 

audits, conducted at the request of contracting officers in coordination with our office, are performed prior to GSA awarding or extending MAS contracts. They examine the pricing information a 

vendor provides in its proposal. This information is then used by 

the CO to negotiate a better price for the government under the 

MAS contract. 

In a report issued by our office in 2001 which GAO referenced, 

we noted the dramatic decline in the use of pre-award audits in the 

late 1990s. For example, in 1997, only eight pre-awards were conducted. That was the low point. This report spurred the formation 

23

of a working group within GSA, which Ms. Murphy noted, comprised of members of GSA’s Federal Supply Service and our own 

office and we were tasked, among other things, with increasing the 

number of pre-award audits. By the end of this fiscal year, we expect to have conducted about 70 pre-award audits covering about 

$5.2 billion of expected sales and we hope that the trend does go 

up, and we are working, I hope, with GSA and have been fairly 

successfully toward that end. 

Prior to 1997, though, GSA also had the ability to conduct postaward audits of pricing information provided during MAS negotiations, the so-called defective pricing audits. We initiated and conducted these audits and their purpose was to determine whether 

this all-important pricing information MAS vendors provided is 

current, accurate, and complete. 

In 1997, GSA virtually eliminated the authority to conduct postaward defective pricing audits. Although GSA did retain language, 

which was discussed very briefly, that would allow COs to modify 

MAS contracts to allow for defective pricing audits, the modification requires a high level of approval and a CO finding that there 

is a likelihood of significant harm absent inclusion of this audit authority. To date at GSA, this clause has never been modified to exercise defective pricing authority. 

We believe defective pricing audits are an important means of 

protecting the integrity of pricing disclosures and should be reinstated. In the 3-year period prior to the 1997 rule change, 84 percent of our post-award audits contained findings of defective pricing. Looking only at the small numbers of these audits that were 

referred to the Department of Justice because they had indications 

of fraud, we recovered $110 million in the 8 years prior to the rule 

change. This amount of money does not include monies recovered 

by contracting officers administratively. It also does not include the 

amounts attributable to improved forward pricing, because the COs 

can take these reports and negotiate good prices going forward, 

also. It is not just about getting money back. 

Every indication we have based on hotline calls and fraud actions 

filed under the civil False Claims Act is that faulty and incomplete 

pricing disclosures are still prevalent at GSA, even though we can’t 

audit for them. 

We also don’t think, as you yourself mentioned, Mr. Chairman, 

that audits can be measured in terms of numbers of contracts audited or dollars recovered. Even at the height of our auditing, we 

conducted only about 40 to 50 post-awards a year. It is really the 

existence of the audit right that serves as a deterrent, we believe, 

to vendors that would misrepresent their pricing information to the 

government, and I believe this right encourages companies to put 

in place internal compliance programs and other things and good 

housekeeping measures internally and make them more responsible contractors. 

We believe the success of the Department of Veterans Affairs voluntary disclosure program is due in part to the fact that it retained 

contractual defective pricing audit rights. 

We have strongly urged GSA to reinstate post-award audit access 

to negotiation information. The ability of GSA to negotiate prices 

commensurate with the government’s purchasing power is dependVerDate 0ct 09 2002 13:25 Oct 25, 2006 Jkt 023165 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 C:\DOCS\23165.TXT SAFFAIRS PsN: PAT
24

1The prepared statement of Mr. Ames appears in the Appendix on page 87. 

ent on getting current, accurate, and complete pricing information 

from vendors. We believe that post-award defective pricing audits 

are a critical adjunct to the existing pre-award audits. Although we 

expect to perform 70 pre-award audits this year, as I noted, this 

only represents a small percentage of the over 17,000 total existing 

MAS contracts. We believe that as long as GSA wants to maintain 

maximum choice, the centerpiece of the MAS program, audit rights 

over pricing information should be an appropriate, necessary feature of these contracts. 

Thank you very much. I am happy to answer any questions. 

Senator COBURN. Thank you. Mr. Ames, thank you for being 

here. 

TESTIMONY OF JOHN B. AMES,1 DIRECTOR, CONTRACT REVIEW AND EVALUATION DIVISION, OFFICE OF INSPECTOR 

GENERAL, U.S. DEPARTMENT OF VETERANS AFFAIRS 

Mr. AMES. Mr. Chairman, I am pleased to be here today to explain why pre-award and post-award audits of Federal Supply 

Schedule proposals and contracts are in the best interest of the 

government and to discuss the need to maintain post-award audit 

authority in all FSS contracts. 

We strongly believe that pre- and post-award audits help ensure 

VA is getting the best possible price for the American taxpayer. VA 

has been delegated authority by GSA to manage 11 schedules for 

health care products and services. These schedules encompass over 

1,400 contracts with annual sales projected to exceed $7 billion in 

fiscal year 2005. 

In fiscal year 1993, VA entered into a Memorandum of Understanding with the OIG to provide audit services for VA’s FSS contracts on a reimbursable basis, paid for by VA’s revolving supply 

fund. This partnership with VA has proven to be very successful. 

During the past 12 years, we have conducted 240 pre-award audits. 

These audits contain recommendations for better use of funds by 

obtaining lower contract prices of approximately $2.2 billion, of 

which $390 million was actually sustained during contract negotiations. 

In addition, 238 post-award audits were conducted, resulting in 

approximately $319 million in recoveries for VA. The recoveries 

have more than paid for the cost of conducting these audits, with 

a return on investment of $11 for each dollar expended. Of the 238 

post-award audits, we initiated 107 in response to vendors’ voluntary disclosures. These vendors collectively offered to pay back 

$37.5 million in overcharges. However, as a result of post-award 

audits, we actually recovered $113 million for VA. 

The number of voluntary disclosures shows that post-award 

audit authority has had a deterrent effect on industry. These audits also provide valuable insight into each vendor’s commercial 

practices, which VA has used to improve its contracting and purchasing activities. 

In response to industry objections to post-award audits of FSS 

contracts, GSA issued a final rule in August 1997 that virtually 

eliminated the clause permitting post-award examination of records 

25

for the purpose of auditing pricing information submitted during 

contract negotiations. Because of opposition from VA, the Department of Justice, and the GSA OIG to eliminating post-award audits, GSA compromised and the final rule allowed the awarding 

agency some very limited discretion to include the clause in schedules that were determined to be a risk for harm if the clause was 

not included. 

To further appease industry, the final rule imposed a 2-year limitation on auditing commercial sales practices and other information 

relied on by the contracting officer in awarding a contract or modification. 

In response to the final rule, VA evaluated its schedules, identified those that were at risk, and took the actions necessary to include the post-award examination of records clause in these schedules. As a result, we have continued to perform post-award audits. 

In March 2005, GSA has once again raised the issue concerning 

the need and benefit of post-award audits. In response to their advance notice, we maintained our position that post-award audit 

clauses, which existed prior to the August 1997 final rule, should 

be reinstated and should be included in all FSS contracts. We believe this is needed to protect the interests of the government and 

to ensure that we receive fair and reasonable pricing. 

Throughout the past 10 years, industry has made a number of 

arguments in opposition to post-award audits. A primary argument 

is that the audits are overly burdensome on the contractors’ operations. Our on-site audits at the vendor’s place of business are only 

conducted on an as-needed basis and are usually completed in 2 

days or less. We have reviewed large and small businesses and 

found that most maintain records in electronic format, that the information is maintained for many purposes, not just government 

audit requirements, and that the information is readily available 

for review. 

Last, notwithstanding GSA’s lack of involvement with VA’s 11 

schedules, GSA retains the authority to interpret and issue rules 

affecting all FSS schedules. Because of this, we propose that GSA 

transfer to VA complete authority to manage its 11 schedules, including all rulemaking authority. This will ensure our ability to 

continue to negotiate and obtain the best prices for the government. 

For the reasons stated above, we recommend that GSA reinstate 

the post-award access to records and right to examine records 

clause that was deleted by GSA’s final rule. We also recommend 

that Congress consider transferring the 11 schedules that VA currently manages from GSA to VA. 

I thank you for the opportunity to testify. This concludes my formal statement. I will be pleased to answer any questions. 

Senator COBURN. Thank you, Mr. Ames. 

Mr. Graham, thank you. Welcome. We are glad you came. Thank 

you for coming. 

26

1The prepared statement of Mr. Graham appears in the Appendix on page 98. 

TESTIMONY OF THOMAS GRAHAM,1 CHIEF OPERATING 

OFFICER, NETWORLD EXCHANGE, CARLSBAD, CALIFORNIA 

Mr. GRAHAM. Good to be here, sir. I really appreciate the opportunity to appear before this Subcommittee to talk about GSA—GSA 

fees. 

My answer to your question, is GSA getting the best deal, or giving the taxpayer the best deal, I believe very strongly that we have 

to look at this from a balanced and unique perspective and we need 

to look at the current press on GSA, which prior testimony more 

than documented. As we look at this current press, it clearly indicates that there is a problem within the GSA hierarchy in terms 

of is GSA doing the best job for the American Government. We 

have to look at GSA not only from the perspective of the fees that 

GSA charges, but we have to look at GSA and contracting in terms 

of the effectiveness and the efficiency in which the agency operates 

as they charge those fees. 

I believe that GSA, frankly, mirrors problems that are endemic 

to the government acquisition domain, meaning that problems at 

GSA can be found across the board when we talk about franchise 

agencies as they conduct business for the U.S. Government and as 

they charge fees in the conduct of that business. 

If we look at these fees from a larger perspective, one could reasonably conclude that they are high. If we look at these fees from 

the perspective of the value that the agencies bring to the table 

and we measure the efficiency and the effectiveness of these practices, one element becomes very clear. GSA, to quote GSA, GSA has 

indicated that from their own IG that they are not as efficient as 

they could be. So one could conclude that with a bit of reform, with 

a bit of change in the way the GSA does business, that, in fact, 

they could be effective and efficient. 

One of the things that I would like to propose today is that that 

is, in fact, the case and, quoting from GSA’s own staff, the staff 

feels that if GSA could automate their purchasing practices and 

create tools that automate what they do across the board in terms 

of compliance and results, that a lot of the issues that are being 

discussed today in terms of costs for service and value would be decreased. 

For example, GSA currently operates at a cost to the taxpayer 

averaging 5 percent per action. In previous testimony, it has been 

indicated that an average of about $600 per action is the average 

cost. 

In our case, we believe that we have, and when I say ‘‘we,’’ my 

company, Networld Exchange, has created in cooperation with the 

Navy Postgraduate School and the Department of Interior a contract that responds to a number of the issues and questions that 

have been raised here today. 

For example, the Federal Government has increased spending on 

acquisition issues between 2000 and 2005 by about 30 percent. 

This data is public, and one of the things that we know is that as 

the cost of goods and services have increased and the cost of acquiring those goods and services using GSA and other Federal 

agencies like GSA, what has occurred at the same time is that the 

27

acquisition workforce that conducts these actions have been actually decreasing, taking away with them past knowledge that could 

be very useful in creating new opportunities and new knowledge 

base to create new opportunities. 

The Navy Postgraduate School conducted a study a number of 

years ago, and in the findings at the Navy Postgraduate School, the 

question was raised whether the efficiency of the current acquisition workforce could be improved to save money for the Federal 

Government and the answer was clearly no. So as a direct consequence, the Navy Postgraduate School created a think tank that 

would study acquisition, logistics, research and development, and 

the result of that effort was the creation of what is currently called 

the Open Market Corridor. 

The Open Market Corridor is administered by the Department of 

Interior National Business Center in Fort Huachuca, Arizona, and 

research and development in a constant form is conducted between 

the Navy Postgraduate School and my company, Networld Exchange. OMC was developed with zero up-front costs to the Federal 

Government. The government paid nothing for the software. 

One of the other issues that OMC brought to the table was the 

fact that this development was done in collaboration between industry and the government. Current purchasing practices at GSA 

does not have that selective kind of collaboration, particularly 

when dealing with IT purchases. Information technology purchases 

particularly are a fast-growing item within the acquisition milieu 

of the Federal Government. 

The Federal Government pays more for IT purchases than the 

private sector does, and one of the reasons for that is that the 

knowledge base within the Federal Government regarding IT purchases is suspect. As a matter of fact, recent publications indicate 

that many agencies now are hiring chief executives to handle IT 

purchases. 

The intent of OMC was to demonstrate that a web-based procurement execution and administration system compliant with the 

FAR, particularly FAR 12, could be an effective tool that could be 

applied across government. Using OMC, we think that the shrinking procurement workforce can become a more efficient organization in the sense that OMC allows greater use of time and availability of folks that are involved in the procurement domain. 

Senator COBURN. Can I get you to summarize, if you would. 

Mr. GRAHAM. Yes, sir. We believe that, basically, as a developer, 

that the government needs to take a very close look at how purchases occur in terms of working collaboratively with industry to 

reduce costs. Thank you. 

Senator COBURN. Thank you. 

Ms. Tighe, who set the policy that choice is more important than 

price and quality? 

Ms. TIGHE. I think that has been the longstanding sort of reason 

for the MAS program, so it was sort of no one person or no one 

time. Ever since I have been involved in the MAS program, which 

has been the last 15 years, that has been the operating principle 

of the program. 

28

Senator COBURN. Can you give me the background on why that 

would be? I am having trouble understanding why that trumped 

price and service. 

Ms. TIGHE. Well, I don’t think it is intended to necessarily trump 

price. I think it just means you have to go about getting good prices 

another way. I mean, one way of getting good prices on the MAS 

program would, of course, be to limit the number of people who can 

get schedules. Now, that would instill competition on the front end. 

You wouldn’t necessarily need to go get data, wouldn’t necessarily 

need to go do pre- or post-awards. But I think the intention is to—

you know, it is sort of the big umbrella for the Federal Government 

and you want to—the agencies like to know that they can go at a 

very low, good price and go to Dell Computer and buy computers 

or go to Gateway or go to whoever they want to and not be limited 

in their choice, and I think that has always been sort of the reason 

behind the thought. 

Senator COBURN. Can you give me the logical reason behind it? 

I mean, there is not that much difference between a Gateway, an 

IBM Thinkpad, and a Dell, other than price. I mean, they are all 

using Intel chips. So can you explain to me where that came about? 

What was the reason behind that? Is it because that was demanded by the different agencies, that they wanted more say in it? 

Ms. TIGHE. That is essentially my understanding, is that was the 

feedback they were getting from other agencies. 

Senator COBURN. You talked about the $5 billion that was purchased this last year. I think you made mention of——

Ms. TIGHE. Yes. Actually, I think it is—this year is looking at, like, $31 billion under the MAS program. 

Senator COBURN. But of the total government purchases—this is 

an important number—$291 billion, right? And so if we look at the 

total purchases and we look at what it costs to run GSA, which is 

the $20 billion, we are at almost 7 percent cost. The question is, 

if we are motivated based on choice, not on price, and the price is 

actually too high, then that ratio actually goes much higher, the 

cost of GSA services for the price. 

Ms. TIGHE. I understand. I believe it is possible to keep what 

GSA wants to—maximum choice and get good prices if you do a 

better job of looking at the information vendors give up front and 

have ability to check it, spot check it as contract terms go on. 

Senator COBURN. And you agree that we need to have pre- and 

post-award audits? 

Ms. TIGHE. I do agree. Yes, absolutely. 

Senator COBURN. Was that a unilateral decision that was made 

by GSA, to eliminate—this happened in 1997, correct? 

Ms. TIGHE. Nineteen-ninety-seven, correct. 

Senator COBURN. To eliminate post-award audits? 

Ms. TIGHE. It was a decision made by GSA, but also with the 

blessing of the Office of Federal Procurement Policy——

Senator COBURN. In OMB? 

Ms. TIGHE. Yes, in OMB. There was much discussion during the 

time. Department of Justice had input. We had input. VA had 

input. They certainly listened to our viewpoints, and I don’t quibble 

with that. But in the end, GSA made the decision that it was going 

to eliminate post-award audit rights. 

29

1 Chart entitled ‘‘OMC/GSA Comparison Table’’ submitted by Senator Coburn appears in the 

Appendix on page 154. 

Senator COBURN. And if you were to try to defend that based on 

what you have heard here today, can anybody legitimately defend 

that position of not having that tool out there where it can be used? 

Ms. TIGHE. In my opinion, no. I think it was very short-sighted. 

I think GSA gave in to vendor pressure and arguments that it was 

unduly burdensome, which I don’t agree with. 

Senator COBURN. Well, it could be. 

Ms. TIGHE. I understand that. 

Senator COBURN. If you are a small business and you are doing 

it all the time——

Ms. TIGHE. Absolutely. 

Senator COBURN. But that wasn’t what it was intended and that 

wasn’t——

Ms. TIGHE. And that is what we try to focus our auditing on the 

large dollar contracts or the contractors with risk factors or have 

a reason to audit. It is not done to go out and look at small businesses. 

Senator COBURN. Or to raise costs. 

Mr. Ames, why does GSA want to take your authority for preand post-audits away? You have done a wonderful job, another area 

where the VA is leading. The VA is leading in the Internet technology in health care. You are leading in terms of purchase savings. Why do they want to take that away? 

Mr. AMES. I would comment and echo some of the same statements that Ms. Tighe just made. I distinctly remember the years 

following up to the 1997 final rule. I felt as if we were in the vanguard, trying to protect the pre- and post-award audit rights. The 

GSA basically caved into industry pressure. Now, you also had 

FASA of 1994 in that time frame and you had the Clinger-Cohen 

Act and some people went so far as to say, well, those pieces of legislation prohibited post-award audits. We never saw it that way at 

all. 

We didn’t think the legislation did prohibit the audits, and quite 

frankly, with the voluntary disclosures that we have had, when I 

heard the critics mention that the audits are overly burdensome 

and cumbersome, some of our best corporate citizens, best corporate companies are ones that we have had voluntary disclosures 

and we have had settlement agreements with. One drug company 

in particular, we had an $8 million settlement with. Following that 

settlement, they have come forward with about 15 voluntary disclosures. So time and time again, and they have come forward with 

things that probably we would not have found had it not been for 

their disclosures. 

So I think that, from our standpoint, we feel that we conclusively 

know that were it not for post-award audits, the voluntary disclosure program would dry up overnight. And we equate business integrity and accountability. If you have business integrity, you 

shouldn’t mind being accountable for your business transactions. 

Senator COBURN. All right. I would like to submit for the record 

an OMC/GSA comparison table on six items,1 and I think these 

were in the last month, where it shows every time OMC beats 

30

GSA, plus OMC is taking 2 percent off the top for their own profits. 

We are going to ask for more records. 

There are also some other interesting things associated with it. 

The delivery is faster, 2 weeks versus 5 days or 2 days. Vendor 

choice is not necessarily less. And yet the savings looks to me about 

somewhere around 4 or 5 percent over what GSA can buy the same 

thing. 

Without your objection, Senator Carper, I would like to introduce 

that into the record. 

Senator CARPER. Clearly, it ought to be in there. 

Senator COBURN. I would like to recognize Senator Carper now. 

We have had a great hearing. Sorry you couldn’t be here earlier. 

I know you had a conflict in your schedule, but we have had good 

testimony and it is your time. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. I apologize for not being here for all of it. We 

are trying to get to a place where we can bring the Postal reform 

bill, that I know you have an interest in——

Senator COBURN. Yes. 

Senator CARPER [continuing]. To the Senate floor, so we have 

been distracted with that for the last hour or so. 

I have a number of questions, one of which I want to submit for 

the record. I will mention that one first. 

It is an outfit, a private company, I think they are called Silver 

Oak Solutions, that works with a number of States, maybe some 

local governments, as well, and one of the things that they do is 

try to help those States to reduce their cost of purchasing all kinds 

of items, and I think the approach is an online bidding competition 

that pits all kinds of vendors for the same particular commodity or 

product, enables them to bid against each other, and in the end, 

somebody has the low bid and wins the bid and the State walks 

off with a little bit of savings and the goods that they need. 

I just want you to take a look at it and see if there are any lessons, any applicability for what is going on in those State Governments that might help us at the Federal level. 

Not having been here to hear your testimony, let me just ask 

each of you, and I will just start with you, Mr. Graham, because 

I like your first name——

Mr. GRAHAM. OK. Fantastic. [Laughter.] 

Senator CARPER. I want to start with you and just ask you to 

share with me some of the take-aways. I ask you, what should I 

be taking away in terms of what you presented to this Subcommittee? 

The other thing I am going to ask, after we go through that and 

talk about that for a while, I am going to ask you, what should we 

do? What should this Subcommittee do? What should this Committee do? What should the Senate and the Congress be doing, and 

the Administration? What should we be doing? 

We all know we have these huge budget deficits. They are out 

of control. There are a variety of things we need to do, probably all 

of them that we need to do, I think will help us rein this deficit 

back in. But what should specifically this Subcommittee and this 

31

Senate be doing in response to the concerns that we are discussing 

here today? 

First, though, if you will, the take-aways for me, and for others 

who might not have been here. 

Mr. GRAHAM. OK, fantastic. The first take-away, I think we 

would like to address, is the entire issue of government acquisition 

and how it works. A number of folks here have testified that government acquisition is actually—the way the system works can be 

actually a deterrent to participation from large and small business 

and that, in fact, occurs. 

But the other thing, of course, is that is just part of the problem. 

We want to talk about solutions and the solution resides in really 

reform, and the particular issue that I would like to bring forward 

is automation. There have been a number of cases where agencies 

have decided to automate. There are a number of initiatives in government, IAE initiatives and DOD. However, there is no commonality among those initiatives so the result is usually the same 

in the sense that everybody does their own thing and there is no 

connectivity between those agencies. 

What I believe is that the Federal Government, particularly this 

Subcommittee, should insist on that, especially insisting on it within the milieu of Homeland Security. There are two major IT 

projects currently in the Homeland Security Department where 

they started last year, they awarded it to Bearing Point, and less 

than a year later, they are not sure where they are going, and both 

of those projects are literally today at a standstill. 

To address your suggestion from the company you are talking 

about that helps the States, what you are talking about are reverse 

auctions. The government has tested reverse auctions with mixed 

results because——

Senator CARPER. When you say the government, the Federal 

Government? 

Mr. GRAHAM. The Federal Government, yes. 

Senator CARPER. OK. 

Mr. GRAHAM. Particularly the Navy. The U.S. Navy uses reverse 

auctions quite frequently, and one of the things that occurs is 

that——

Senator CARPER. Do you think my interest in reverse auctions 

has anything to do with my being a Naval flight officer for 23 

years? Do you think it is just a coincidence, maybe? [Laughter.] 

Mr. GRAHAM. Probably a coincidence. I believe that the results 

are not usually the results that are expected, because many times, 

if you do a reverse auction, participants in that reverse auction 

usually decrease over time if you use it as your only tool. 

For example, the Navy has a contract called Seaport Enhanced. 

The entire Seaport Enhanced contract is a reverse auction involving 650 vendors, and they have mixed success in Seaport. They are 

in their third or fourth year. Today, they still cannot quantify savings. So they are moving in the right direction. However, there 

needs to be a little more oversight of that program. 

I don’t know if there is any optimal solution to Federal savings. 

However, I believe that the government, and I do agree with you, 

Dr. Coburn, that the government can, in fact, demand lowest price. 

The number of corporations in the United States that would not 

32

exist without doing business with the government, there are quite 

a few of them, and all the usual suspects—the Lockheed Martins 

of the world and the SAICs of the world. 

The question still remains, however, is how do you accomplish 

that, and I am not sure you can accomplish that with the current 

practice across the board, including practices at GSA. 

Senator CARPER. Later on, I will come back to you and just ask 

what should we be doing. 

Mr. AMES. Two major take-aways, Senator Carper, from my testimony. The first is that we strongly believe that there is a place for 

pre- and post-award audits under the Federal Supply Schedule or 

Multiple Awards Schedules Program. 

And the second matter is that we would like to see the 11 schedules that GSA has delegated to the VA—these schedules deal with 

health care products and health care services—that those be transferred to the VA and the VA have complete rulemaking authority 

over those schedules. 

Senator CARPER. Ms. Tighe. 

Ms. TIGHE. I think my take-aways are very similar to Mr. 

Ames’s, because we are sort of like-minded on the issues of preand post-award audits. At the Office of Inspector General, we feel 

we work for the taxpayers ultimately and it is the taxpayers we 

look to first to make sure that they are getting the best prices or 

whatever the issue happens to be. 

We worry about the prices on the MAS schedule, not because we 

necessarily have hard, concrete data that there is widespread overpricing problems, but we see enough problems in the course of the 

few audits that we do that we worry about the audits we don’t do. 

Our past history has indicated that, in fact, there is a problem out 

there and GSA has backed away from it. We would like to see them 

reinstitute post-award defective pricing audits and we will be 

happy to work with them, as we are right now, to continue to increase the number of pre-awards. 

Senator CARPER. Going back to you, Mr. Graham, were you in 

the Navy? 

Mr. GRAHAM. No, sir. I am an Air Force person. 

Senator CARPER. Air Force, good for you. Were you ever stationed 

at Dover? 

Mr. GRAHAM. No, sir. 

Senator CARPER. OK. What should we do in response to what you 

are presenting to us and the first panel presented to us today? 

Mr. GRAHAM. Well, I believe that the first order of business is to 

insist that agencies like GSA do their job, and by that I mean this. 

We see a lot of plans. We see a lot of intentions, fully well documented intentions. For example, one of those is the ‘‘Get it Right’’ 

Program. If you look at the elements of the ‘‘Get it Right’’ Program 

that was just agreed to between DOD and GSA, one would have 

no quarrels with that if, in fact, it gets done and if, in fact, the results prove the intent. 

We think, and rather than do a shameless plug for my company, 

we think that working with the Navy Postgraduate School, we have 

at least gotten a handle on a number of the problems that were 

raised here today, and I will give you a few examples of those. 

33

We have created a product where any company listed on the central contractor registry can, in fact, do business with the Federal 

Government. For example, Mr. Safavian gave an example of two 

companies that had fairly innovative products that have refused to 

do business with the Federal Government because of the red tape. 

Senator CARPER. Because of what? 

Mr. GRAHAM. Red tape. Our contract, in effect, has eliminated 

quite a bit of that red tape, at least in the methodology that we 

use today. If the Federal Government needed those products, wanted those products, they could get at those companies today if they 

needed to use our contract. 

One of the other issues that has been discussed extensively here 

is the entire issue of audits and post-audits and more than look at 

the element of the audits and post-audits, I think that the Subcommittee needs to take into consideration why we do these audits. 

One of the reasons that I think these audits are necessary is to ensure that, in fact, the government is getting what it is paying for. 

In our situation, we have created a domain where every element 

of every contract within the—or tasked within our contract can be 

audited from the first time someone enters into the system to the 

time they execute the buy to the time they close out the buy. Every 

piece of paper that is attached to that contract is done in an automated form and it is easy. 

For example, one of the things that many vendors complain 

about, particularly in post-audit situations, is the cost to that vendor of money because, let us say the government, particularly the 

Defense Department, DFAS, it takes a long time for them to pay 

you sometimes, and if you are a small business, 90, 120 days is a 

very long time. It is probably, Dr. Coburn, why you gave those folks 

those lenses a number of years ago, because it is frustrating. 

Well, we have created a situation where, in fact, the agency and 

the vendor can actually look at issues as they occur, pieces of 

paper. You go to the site and if you lost the piece of paper which 

is necessary for payment in some cases, you can download the form 

again that is filled out because the computer does all that and sign 

the piece of paper and pay. And I think that kind of automation 

needs to happen more often than not in the government. 

Senator CARPER. Thank you. Mr. Ames, what should we do? 

Mr. AMES. Senator Carper, I would say that in terms of what I 

think you should do would be very similar to my two take-aways 

that I gave in the testimony, and that is——

Senator CARPER. This is what we call staying on message in my 

business. [Laughter.] 

Pretty good at it, too, isn’t he? [Laughter.] 

Mr. AMES. Which we do strongly feel that the post-award audits 

and the pre-award audits have their place. We strongly believe that 

we should be able to manage and do all of the things that would 

be done with the 11 schedules that we have. 

And also, I guess I would say that I certainly applaud the opportunity to be at a hearing of this type, because I think it is something that for years has needed to be looked at and I applaud you 

for having the hearing. 

Senator CARPER. Well, it was hard for me to convince Dr. Coburn 

to do this, but he finally relented. No, no, no—— [Laughter.] 

34

It wasn’t hard at all. It was hard to drag the rest of us here. 

Senator COBURN. I wonder which dog is dragging which? [Laughter.] 

Senator CARPER. All right. Ms. Tighe, at least from you, the last 

word in this round. 

Ms. TIGHE. Senator, I would would hope that GSA on its own 

would restore our post-award audit rights that they took away from 

us in 1997. If they aren’t willing to do so administratively on their 

own, it may be that some legislative fix needs to happen. I think 

they are important and I think it is an area that we could really 

do something for the taxpayer by having that right back. 

Senator CARPER. Good. Thanks. I think my time may have just 

expired. Thank you, Mr. Chairman. 

Senator COBURN. Just for your benefit, Senator Carper, one of 

the points I made with OMB is, and I will paraphrase it in a different way, if somebody came to Earth today and said, you are 

going to spend $291 billion for the American Government and you 

want to design a system to buy it efficiently, on time, best price, 

best quality, would you have the GSA, and that is a legitimate 

question we have. Or, if not, how would you have it? Would it be 

totally automated? Would it be to where everybody had information 

at their fingertips? Would it be the audit trail that you can track 

electronically rather than have to be there? So I think there is a 

lot of place for movement. 

I want to ask just a couple favors of you, Mr. Graham. You said 

that there were a couple of projects with Bearing Point ongoing 

right now that haven’t maybe accomplished what they intended. 

Would you mind giving that stuff to my staff? 

Mr. GRAHAM. Yes, I certainly will. 

Senator COBURN. And I want to have a conversation with you 

about the magnetometer, the hand-held, and the battery pack, because I think it would be a wonderful demonstration project if we 

started buying those for the Federal Government through this Subcommittee so they could show they could buy them. 

Mr. GRAHAM. Yes, sir. 

Senator COBURN. So I look forward to your help on that. 

Any other questions, Senator Carper? 

Senator CARPER. I said earlier I was going to submit at least one 

question in writing, and if you will take a few minutes and look 

it over and give me a good response, I would be grateful. Again, 

we appreciate your being here. Thank you. 

Senator COBURN. Thank you all very much. The hearing is adjourned. 

[Whereupon, at 4:17 p.m., the Subcommittee was adjourned.] 

(35)

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