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[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]

     FEDERAL ACQUISITION: WHY ARE BILLIONS OF DOLLARS BEING WASTED?

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
                      INFORMATION, AND TECHNOLOGY

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 16, 2000

                               __________

                           Serial No. 106-165

                               __________

       Printed for the use of the Committee on Government Reform

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

                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
67-154 CC                   WASHINGTON : 2001

                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South     DENNIS J. KUCINICH, Ohio
    Carolina                         ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                             ------
PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont 
HELEN CHENOWETH-HAGE, Idaho              (Independent)
DAVID VITTER, Louisiana

                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
           David A. Kass, Deputy Counsel and Parliamentarian
                    Lisa Smith Arafune, Chief Clerk
                 Phil Schiliro, Minority Staff Director
                                 ------                                

   Subcommittee on Government Management, Information, and Technology

                   STEPHEN HORN, California, Chairman
JUDY BIGGERT, Illinois               JIM TURNER, Texas
THOMAS M. DAVIS, Virginia            PAUL E. KANJORSKI, Pennsylvania
GREG WALDEN, Oregon                  MAJOR R. OWENS, New York
DOUG OSE, California                 PATSY T. MINK, Hawaii
PAUL RYAN, Wisconsin                 CAROLYN B. MALONEY, New York

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
          J. Russell George, Staff Director and Chief Counsel
                         Randy Kaplan, Counsel
                           Bryan Sisk, Clerk
                    Trey Henderson, Minority Counsel

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 16, 2000...................................     1
Statement of:
    Hinton, Henry L., Jr., Assistant Comptroller General, 
      National Security and International Affairs Division, 
      General Accounting Office; Robert J. Lieberman, Assistant 
      Inspector General for Auditing, Department of Defense; Stan 
      Z. Soloway, Deputy Under Secretary for Acquisition Reform, 
      Department of Defense; and Deidre A. Lee, Administrator, 
      Office of Federal Procurement Policy, Office of Management 
      and Budget.................................................     6
    Tuttle, General William, Jr. (Ret.), president, Logistics 
      Management Institute, on behalf of the Procurement Round 
      Table; Grant Thorpe, senior contracts manager, TRW, on 
      behalf of the Professional Services Council; Gary D. 
      Engebretson, president, Contract Services Association; and 
      Bruce E. Leinster, industry executive, contract and 
      acquisition policy, Government Industry Sector for IBM, on 
      behalf of the Information Technology Association of America   192
Letters, statements, et cetera, submitted for the record by:
    Concklin, Bert M., Professional Services Counsel, prepared 
      statement of...............................................   221
    Engebretson, Gary D., president, Contract Services 
      Association, prepared statement of.........................   231
    Hinton, Henry L., Jr., Assistant Comptroller General, 
      National Security and International Affairs Division, 
      General Accounting Office, prepared statement of...........     9
    Lee, Deidre A., Administrator, Office of Federal Procurement 
      Policy, Office of Management and Budget:
        Information concerning training..........................    97
        Information concerning career management plans...........   162
        Information concerning revised qualification standards...   167
        Prepared statement of....................................    79
    Leinster, Bruce E., industry executive, contract and 
      acquisition policy, Government Industry Sector for IBM, on 
      behalf of the Information Technology Association of 
      America, prepared statement of.............................   250
    Lieberman, Robert J., Assistant Inspector General for 
      Auditing, Department of Defense:
        Information concerning procured goods and services.......   140
        Information concerning small business participation......   142
        Prepared statement of....................................    35
    Soloway, Stan Z., Deputy Under Secretary for Acquisition 
      Reform, Department of Defense, prepared statement of.......    63
    Turner, Hon. Jim, a Representative in Congress from the State 
      of Texas, prepared statement of............................     4
    Tuttle, General William, Jr. (Ret.), president, Logistics 
      Management Institute, on behalf of the Procurement Round 
      Table, prepared statement of...............................   195

 
     FEDERAL ACQUISITION: WHY ARE BILLIONS OF DOLLARS BEING WASTED?

                              ----------                              

                        THURSDAY, MARCH 16, 2000

                  House of Representatives,
Subcommittee on Government Management, Information, 
                                    and Technology,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2154, Rayburn House Office Building, Hon. Stephen Horn 
(chairman of the subcommittee) presiding.
    Present: Representatives Horn, Davis, Ose, Kelly, Turner, 
and Maloney.
    Staff present: J. Russell George, staff director and chief 
counsel; Randy Kaplan, counsel; Bonnie Heald, director of 
communications; Bryan Sisk, clerk; Ryan McKee, staff assistant; 
Trey Henderson, minority counsel; Mark Stephenson, minority 
professional staff member; and Jean Gosa, minority assistant 
clerk.
    Mr. Horn. A quorum being present, the hearing of the 
Subcommittee on Government Management, Information, and 
Technology will come to order.
    Last year, the Federal Government bought nearly $200 
billion worth of goods and services, everything from paper 
clips and pens to sophisticated weapons and computer systems. 
Over the past decade, Congress has enacted a number of laws 
aimed at simplifying the government's acquisition process and 
saving taxpayers money. These reforms eliminated burdensome 
paperwork and encouraged agencies to buy commercially available 
items. The reforms also gave agencies greater authority to 
manage their procurement.
    How well are agencies doing? The government is still buying 
goods and services that cost more than they should, are 
delivered late, or fail to meet expectations. The result is, of 
course, that billions of taxpayers' dollars are still being 
wasted.
    For example, the Federal Aviation Administration has spent 
more than $25 billion on its air traffic control modernization 
effort, but because of cost overruns, schedule delays, and 
performance shortfalls, the FAA anticipates spending another 
$17 billion before the program's completion, scheduled for 
2004.
    The Department of the Interior recently put a hold on a $60 
million computer system because of severe development problems. 
This system was supposed to manage a $500 million oil royalty 
fund, which is to pay Native Americans for oil that is 
extracted from their tribal lands.
    Problems and challenges also remain at the Department of 
Defense, which accounts for nearly 70 percent of all government 
purchases. The Inspector General at the Department of Defense 
has raised concerns about the agency's failure to oversee its 
service contracts adequately. The Department is still paying 
far too much for spare parts and the Office of the Inspector 
General in the Department of Defense has found that serious 
problems exist with the Department's service contracts. In a 
recent audit, the Inspector General found multiple errors in 
the 59 contracts it reviewed, including problems such as 
insufficient cost estimates and inadequate competition. 
Together, these contracts are worth $6.7 billion.
    Another emerging issue is an unintended result of 
government downsizing the General Accounting Office and the 
Inspector General report that the current Federal acquisition 
work force is understaffed and undertrained. That problem will 
be increasing dramatically as the baby boom generation begins 
to retire over the next few years. How is the Department 
planning for this attrition? We will examine these and other 
issues today.
    First, I would like to take a moment to welcome some 
special guests in the audience, members of the so-called Front 
Line Forum. The Front Line Forum is a group of 32 Federal 
contracting officers and specialists who share new information 
on government acquisition issues and then pass that information 
on to senior procurement executives in their respective 
agencies. We thank you for your service and we are glad you are 
joining us. Would the Front Line Forum members stand up so we 
can know where you are? Do not be shy.
    There we are, folks. You mean there are only 10? What 
happened to the 32? Are they drinking coffee in the Rayburn 
cafeteria? It is not Starbucks quality. Anyhow, we are glad to 
have you here. When I ran a large organization, I had a group 
of young turks I met with every month. They were the only ones 
who would tell me the truth in a bureaucracy, so I am counting 
on you 32 to tell them the truth. That is what they need.
    We are going to have a fine panel of witnesses, but before 
that, I have some colleagues that want to make some opening 
remarks. The first is a very valued colleague, the ranking 
member on this committee, Mr. Turner of Texas. I am delighted 
to give him as much time as he may wish to consume.
    Mr. Turner. Thank you, Mr. Chairman. I appreciate the fact 
that you are holding this hearing today. It is a very important 
issue. As you mentioned, the Federal Government purchases over 
$200 billion in supplies every year. Two-thirds of that is 
acquired by the Defense Department, even though that has 
declined slightly since the peak cold war years. I understand 
the government now spends more on services than it does on 
supplies.
    The Federal Government has struggled with an inefficient 
acquisition system. Over the years, we know that millions of 
dollars in taxpayers' money have been wasted due to the 
deficiencies in the Federal procurement system. Recently, the 
administration and the Congress has taken a number of steps to 
try to improve this situation. The Federal Acquisition 
Streamlining Act of 1994, the Information Technology Management 
Reform Act of 1996, and the Federal Activities Inventory Reform 
Act of 1998 all represent significant steps forward in Federal 
acquisition.
    The efforts by the Congress and the administration have 
focused largely on trying to simplify the process, but despite 
the reforms, it seems that we do not yet have a model 
purchasing system. Agencies may be acquiring goods and services 
faster, but the Federal acquisition system still faces a number 
of significant challenges. I hope those will be highlighted 
today.
    I appreciate the focus the chairman has placed on this 
issue, and I want to join Mr. Horn in welcoming the members of 
the Front Line Forum who have come today to observe our 
hearing. You face difficult challenges in the work that you do 
and meeting the expectation of the agencies and the Congress 
and the public is indeed a difficult task. We have asked all of 
you to adapt to new ways of doing business, trying to deliver 
greater results than we have in the past, and we appreciate the 
dedication that all of you have shown to your profession and to 
those responsibilities.
    Mr. Chairman, thank you and I look forward to hearing our 
witnesses today.
    [The prepared statement of Hon. Jim Turner follows:]
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    Mr. Horn. Thank you very much.
    If the witnesses will stand and raise their right hands, do 
you swear or affirm that the testimony you are about to give 
this subcommittee will be the truth, the whole truth, and 
nothing but the truth?
    [Witnesses sworn.]
    Mr. Horn. The clerk will note that all four witnesses took 
the oath.
    We are going to start with Mr. Henry Hinton, Jr., the 
Assistant Comptroller General of the United States in charge of 
the National Security and International Affairs Division of the 
General Accounting Office. I will introduce each as we go down 
the line. So Mr. Hinton, start in. If you can summarize the 
statement in 5 years--[laughter.]
    I mean 5 minutes----
    Mr. Hinton. I will do what I can do.
    Mr. Horn. Obviously, I woke up a little later than I should 
have. Anyhow, 5 minutes, but do not worry about it. If you go 
beyond it, 10 minutes, we are not going to cry over it. But try 
to summarize.

   STATEMENTS OF HENRY L. HINTON, JR., ASSISTANT COMPTROLLER 
GENERAL, NATIONAL SECURITY AND INTERNATIONAL AFFAIRS DIVISION, 
   GENERAL ACCOUNTING OFFICE; ROBERT J. LIEBERMAN, ASSISTANT 
INSPECTOR GENERAL FOR AUDITING, DEPARTMENT OF DEFENSE; STAN Z. 
    SOLOWAY, DEPUTY UNDER SECRETARY FOR ACQUISITION REFORM, 
DEPARTMENT OF DEFENSE; AND DEIDRE A. LEE, ADMINISTRATOR, OFFICE 
 OF FEDERAL PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET

    Mr. Hinton. I will be as brief as I can. Thank you, Mr. 
Chairman and Mr. Turner. I appreciate the opportunity to 
participate in today's hearing. As you know, Mr. Chairman, 
Federal acquisition is an important topic for many reasons, not 
the least of which is the huge amounts of money involved. The 
Federal Government spends nearly $200 billion annually buying 
everything from office supplies to sophisticated weapons 
systems.
    This morning, I will: one, describe the changing 
acquisition environment; two, summarize recent reform efforts; 
and three, explore current and future challenges in this area.
    First, the environment is changing, and I will call your 
attention to some charts that I am going to use, Mr. Chairman, 
to walk us through my summary. As shown in the first chart, 
overall Federal contracting has declined from about $280 
billion in 1985 to about $200 billion in 1999. Of this, defense 
acquisition has declined about $100 billion, down to about $133 
billion in 1999. On the other hand, spending by civilian 
agencies has increased from $51 billion to $65 billion.
    The next chart shows that DOD is still the dominant 
purchaser. It accounts for two-thirds of all Federal spending 
on goods and services.
    The next chart shows that since the mid-1980's, there has 
been a gradual shift in what the government buys. In 1985, 
supplies and equipment accounted for the bulk of contracting 
dollars, about $145 billion, or 56 percent. For 1999, the 
largest acquisition category were services, at $78 billion, or 
43 percent of total spending.
    The last chart shows even more dramatically how spending 
has shifted in recent years. As you can see to the right, the 
government now spends more on services than on any other 
acquisition category.
    Let me briefly turn to recent reform efforts. As you have 
mentioned, as the acquisition spending patterns have been 
changing in recent years, Congress and the administration have 
been taking a number of steps to improve the acquisition 
process. These efforts have focused largely on simplifying the 
process, particularly for buying commercial products and 
services, and on attempting to improve decisionmaking and 
acquiring information technology. As a result, the acquisition 
process has become more streamlined as new contract vehicles 
and techniques have allowed agencies to buy what they need much 
faster than in the past. Questions remain, however, about 
whether these efficiencies have come at the expense of 
competition and good pricing.
    Let me turn to the challenges, Mr. Chairman. Despite 
reforms, the government still does not have a world class 
purchasing system. Frequently, many of the products and 
services the government buys cost more than expected, are 
delivered late, or fail to perform as anticipated. Mr. 
Chairman, I see three major challenges confronting the 
acquisition system today.
    First, our work indicates that far too often, the outcomes 
of high-dollar-value defense acquisitions continue to fall 
short of expectations. For example, we reported in August 1999 
that after five program restructurings, the Army's Comanche 
Helicopter Program contained significant risk of cost overruns, 
schedule delays, and degraded performance. These risks exist 
because, contrary to the practices of successful commercial 
companies, program plans call for proceeding with product 
development before key equipment technologies have matured.
    But these results are not limited to highly sophisticated 
weapons systems. We recently reported that the Army has 
purchased some 6,000 cargo trailers, shown in the chart to my 
left, that without modifications cannot be used as planned 
because they pose a safety risk and could damage the vehicles 
towing them. Today, these trailers that the Army has acquired 
are warehoused.
    We have compared the product development practices of 
leading commercial firms with those used to acquire defense 
systems. The key differences, Mr. Chairman, include the nature 
of the business case required to support the start of a 
program, the extent of product knowledge at critical decision 
points, and the underlying incentives. In general, aspiring 
defense programs rely on unproven technological advances to 
successfully compete for limited defense funds. Commercial 
companies, on the other hand, demand much more knowledge about 
key technologies before proceeding with development of new 
products. Mr. Chairman, when use of commercial best practices 
is determined to be appropriate, the government should adopt 
such practices unless there is a compelling reason not to do 
so.
    The second challenge is that the Federal Government is 
increasingly dependent on information technology to improve 
performance and meet mission goals. We have documented over 
many years, however, that billions of dollars have been wasted 
on information technology that failed to deliver expected 
results. Poorly defined management processes have fostered sub-
optimal solutions to agency business needs, and unresolved 
security issues have threatened the integrity of agency 
operations. These problems have involved such important 
functions as air traffic control, tax collection, Medicare 
transactions, weather forecasting, and national defense.
    Several recent reforms, as you mentioned in your opening 
statement, Mr. Chairman, have helped to instill a much-needed 
results-oriented approach toward IT acquisitions and in-house 
development efforts. Some agencies, such as the IRS, have begun 
to make significant progress in establishing a management 
framework for making information technology investment 
decisions. Other agencies, however, have yet to make 
significant inroads into implementing the processes and 
controls needed to manage these acquisitions effectively.
    The third challenge is that successfully implementing 
acquisition reform and achieving good contract management 
requires that agencies have the right people with the right 
skills. But throughout the Federal Government, there is a 
looming human capital crisis. In more than 10 years of 
downsizing, there has been relatively little hiring at the 
entry level compared with earlier years. As a result, the 
percentage of the work force age 30 and under, the pipeline of 
the future agency talent and leadership, has dropped 
dramatically, while the percentage of the work force age 50 and 
above grows even larger. Within the next several years, we can 
expect to see a huge knowledge drain as many of our more 
experienced and valued people leave the Federal work force.
    Dealing with this issue throughout the government, 
including the important area of acquisition, will not be easy. 
Agencies are facing ever-growing public demands for better and 
more economical delivery of products and services, and at the 
same time, the ongoing technological revolution requires not 
just new hardware and software, but a work force with new 
knowledge, skills, and abilities. And at the moment, agencies 
must address these challenges in an economy that makes it 
difficult to compete for people with the competencies needed to 
achieve and maintain high performance.
    Mr. Chairman, as you are aware, when the Y2K debate began, 
we developed a guide that helped the agencies think through 
their strategic decisions to deal with the issues coming up on 
Y2K. We are in the process now of getting comments back on a 
draft human capital guide that we have put together for agency 
leaders to help them think through the strategic decisions they 
need to address concerning their work force. The topics we have 
in that guide concern strategic planning, organizational 
development, leadership, talent, and performance culture.
    Mr. Chairman, that concludes my opening statement and I 
stand ready to take your questions.
    Mr. Horn. Thank you very much, Mr. Hinton. We are going to 
go through the next three witnesses and then we will have 
questions for all of you.
    [The prepared statement of Mr. Hinton follows:]
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    Mr. Horn. Mr. Robert J. Lieberman is the Assistant 
Inspector General for Audits of the Department of Defense. 
Thank you for coming.
    Mr. Lieberman. Good morning. I appreciate the opportunity 
to testify here today on the always challenging and important 
subject of defense acquisition management.
    Last year, the Department of Defense took 14.8 million 
purchasing actions. That means that on every working day, 
57,000 times on the average working day, someone in the 
Department of Defense buys something for the taxpayers, whether 
it be an airline ticket or a nuclear submarine. The challenge, 
of course, is how does one ensure that the taxpayers are 
getting their money's worth on 57,000 procurement transactions 
a day?
    The complexity, variety of scale, and frequent instability 
of defense acquisition programs pose a particularly daunting 
management challenge. In my written statement, I have attempted 
to summarize those challenges as well as just a few of the 
Department's recent reform successes and goals.
    Today, I would like to focus on three sets of issues using 
recent audit results from the reports that are listed in the 
attachment to my written statement. Those three areas are 
contracting for services, spare parts pricing, and acquisition 
work force reductions.
    Issues related to defense weaponry and other equipment 
attract the most oversight emphasis and publicity, yet the 
annual DOD expenditures for contractor services constitute a 
huge acquisition program in their own right. In 1992 through 
1999, DOD procurement of services increased from $40 billion to 
$52 billion annually. The largest subcategory of contracts for 
services was for professional administrative and management 
support services, valued at $10.3 billion. Spending in this 
subcategory increased by 54 percent between 1992 and 1999 and 
probably will continue to grow as DOD outsourcing initiatives 
continue.
    Deliverables from contracts for services often are not as 
tangible as hardware, such as a missile or even a set of tires. 
Quantifiable information requirements, performance, and cost 
frequently are harder to develop and overworked contracting 
personnel are more likely to give priority attention to 
equipment procurements than to mundane contracting actions for 
consulting services or information systems support. Also, 
except for travel and transportation services, the increased 
efficiencies derived from e-commerce pertain much more to goods 
than to services.
    So we believe that because of these factors, DOD managers 
and contracting personnel were not putting sufficient priority 
during the 1990's on this sector of defense acquisition, which 
likewise was virtually ignored for the first few years of 
recent acquisition reform efforts. Consequently, we think the 
risk of waste in this area is higher than has been commonly 
realized.
    In my statement, I detail the results from two recent 
audits on DOD service contracts. The first was reported in 
April 1999 and had to do with multiple-award task order 
contracts. We audited 156 orders valued at $144 million on 12 
multiple-award contracts placed between 1995 and 1998. We found 
few problems with 32 delivery orders, for goods but significant 
problems with 124 task orders for $88 million worth of 
services. Specifically, contracting officers awarded individual 
task orders without regard to price, even though price also was 
not a substantial factor in the original selection of vendors 
for the multiple-award contract. As a result, higher-priced 
contractors were awarded 36 of 58 task orders that were 
competed. We identified $3 million in additional cost resulting 
from awarding orders to contractors with higher-priced bids.
    Second, contracting officers directed work and issued 
orders on a sole-source basis for 66 task orders valued at $47 
million without providing the other contractors a fair 
opportunity to be considered. Only 8 of the 66 orders, valued 
at $8.8 million, had valid justification for sole source award; 
11 of the 66 had no justification at all. As a result, DOD 
almost certainly paid higher prices than would have been the 
case if competition had been sought.
    These problems were caused by a variety of factors, 
including difficulty in establishing pricing in the multiple 
award contracts at the time of award because requirements for 
the number and scope of subsequent task orders were not well 
understood. Contractors also were not sure of the amount of 
work they would receive, making it hard to forecast costs.
    Regarding the failure to compete task orders, I believe the 
causes were somewhat vague regulations, pressure to make task 
order awards rapidly, and perhaps excessive pressure or 
excessive workload on some contracting offices deterred them 
from questioning a sole source preference input from program 
managers.
    The other audit covered 105 Army, Navy, and Air Force 
contracting actions valued at $6.7 billion for a wide range of 
professional administrative and management support services 
amounting to about 104 million labor hours, which is the 
equivalent of just over 50,000 labor years. We were startled by 
the audit results because we found problems with every single 
one of the 105 actions audited.
    Problems pertained to every aspect of the purchasing 
process. They are listed in my statement. I think the ones that 
are most notable are, first, failure to define requirements, 
which clearly you have to do in order to write a definitive 
statement of work and to choose the appropriate contract type. 
Second, unattributed, undated, unexplained, and not 
demonstrably independent or well thought out government cost 
estimates. Third, cursory technical reviews. Fourth, inadequate 
competition, and so on as listed in my statement.
    It was impossible to quantify the monetary impact of these 
deficiencies, but clearly, waste was occurring. For example, 
sole source cost-type contracts that placed a higher risk in 
the government continued without question for the same services 
for inordinate lengths of time, 39 years in one extreme case, 
the pricing was questionable. We also observed that there were 
no performance measures being used to judge the efficiency and 
effectiveness of the services rendered.
    The second major area I would like to discuss briefly is 
spare parts pricing. In early 1998, we began a series of audit 
reports principally in the aviation spares area. As you will 
recall, this has been a controversial area for many years in 
the defense procurement arena. The Department is still in a 
transition mode, transitioning from the pre-acquisition reform 
legislation method of doing things to what we have now, which 
has much more emphasis on buying commercial products and using 
commercial buying mechanisms. That transition still has not 
been successfully made. We are still in a learning mode. Mr. 
Chairman, you mentioned the lack of training in the acquisition 
work force and that is certainly a key factor in this area.
    Over the past year, we have issued five additional audit 
reports. One was good news, four were not. The two most recent 
ones are still somewhat restricted in terms of what I can 
discuss in public at this point because we have not worked 
through, with the contractor, what is proprietary data and what 
is not. But suffice to say DOD is still paying excessive prices 
for spares and has not quite figured how to calculate the cost-
benefit of different types of contractual arrangements, which 
involve buying not just the part itself but also things like 
inventory management and direct vendor delivery capability.
    The third area I will stress today relates to the 
acquisition work force. DOD has cut its acquisition work force 
in half during the decade of the 1990's, from 460,516 to 
230,556 as of September 1999, and further cuts are likely. If 
workload had been reduced proportionately, eliminating half of 
the acquisition positions could be regarded as a positive 
achievement. Unfortunately, this has not been the case. The 
value of DOD procurement actions over the decade decreased only 
about 3 percent. The number of procurement actions, which is 
more important, increased by about 12 percent. The greatest 
amount of work for acquisition personnel occurs on contracting 
actions over $100,000 and the actual number of those actions 
increased by about 28 percent.
    We surveyed 14 of the 21 major acquisition organizations 
and found this growing imbalance between resources and workload 
is a major concern. Acquisition personnel told us that the 
adverse consequences of 10 years of constant downsizing, hiring 
limitations, and resulting promotion slowdowns include a range 
of staff management problems and performance deficiencies. 
Again, those are detailed in my statement and in our report on 
the acquisition work force reductions.
    We have been pleased to see growing awareness over the past 
year in both the Congress and the Department about the work 
force acquisition problem. Many innovative and, I think, 
constructive things are being done on the training front, and 
that is vital. However, we also have to get a handle on 
properly sizing the work force. It has become an acquisition 
goal in and of itself to reduce the acquisition work force.
    We think that is putting the cart before the horse. We need 
to better understand what the workload in the acquisition 
offices actually consists of and what are the impacts of 
acquisition reforms on that workload. It has been assumed that 
streamlining measures could make up for reducing half of the 
work force, and that has proven not to be true. So we need a 
better handle on how many people with what skills should be 
where to manage this process efficiently.
    With that, I will close. I apologize for running slightly 
over, but I cannot talk as fast as Butch can.
    Mr. Horn. Thank you. That was very helpful and I am glad 
you did take the time.
    [The prepared statement of Mr. Lieberman follows:]
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    Mr. Horn. Mr. Stan Z. Soloway, Deputy Under Secretary for 
Acquisition Reform, Department of Defense. Mr. Soloway, we are 
glad to have you here.
    Mr. Soloway. Thank you, Mr. Chairman. I speak much faster 
than Mr. Hinton and I am afraid I am still going to go longer 
than he did, but I will do my best. And also, if I could, I 
would like to share in your welcome to the Front Line Forum. It 
is a group that Ms. Lee and I have the pleasure of chairing, 
and I think she would agree that we get some of the best 
insight and information about what is really going on on the 
front lines from these terrific professionals and we are 
delighted that they are here, as well.
    Mr. Chairman, I want to thank you for the opportunity to 
share with you our views on acquisition management and reform, 
and what I would like to start out by saying is that I think it 
is important to be clear about one thing. Acquisition reform, 
while not where we want it to be, has demonstrated repeatedly 
that we can do business better and smarter.
    We can look to the Joint Direct Attack Munitions, which 
performed so flawlessly in Kosovo, and the cost of which, 
thanks to aggressive program management and innovation, made 
possible largely by the acquisition reforms of the last 7 
years, is now less than half the cost of original projections.
    We can also look to the PLGR field radio, a largely 
commercial capability that is not only far less costly than its 
military-unique predecessor but also requires only one operator 
as opposed to two and includes significantly enhanced 
capabilities.
    We should also look at the new Virginia Class attack 
submarine, which through the use of commercial technologies, 
open systems architectures, and simplified requirements has led 
to a reduced per-ship cost, and most importantly, a projected 
30 percent reduction in total ownership or life cycle costs 
over the comparable SEAWOLF.
    The avionics circuit cards for the F-22 are being produced 
largely on a commercial production line with a projected cost 
that is more than 50 percent less than would otherwise be the 
case.
    The list does go on. The single process initiative which 
facilitates our migration from unnecessary government-unique 
standards to commercial performance standards has now yielded 
cost savings and avoidance exceeding a half-billion dollars and 
we have only just begun. The Commercial Support Savings 
Initiative [COSSI], and the use of other transactions 
authorities have enabled the Department to access dozens of 
technology solutions and providers that have not previously 
been able or willing to do business with us.
    In short, much has changed and continues to change for the 
better. I am often asked how we are doing with acquisition 
reform and my usual answer is, pretty well. But as I noted 
earlier, we have a long way to go and cannot afford to let up 
on our commitment to making change. Let me mention three key 
areas.
    First, we all know that the typical cycle time for a major 
system, from concept to operation, is too long, usually 12 to 
15 or more years. Such long cycle times drive up costs, often 
suboptimize the system itself, and keeps new needed capability 
out of the hands of those who need it most, our men and women 
in uniform.
    Among the key factors that drive cycle time are the 
requirements themselves, as Mr. Hinton pointed out. 
Traditionally, requirements have been too inflexible, often 
included exceptional technology reaches, and had too little 
cost sensitivity.
    Today, however, we are working closely with our colleagues 
on the joint staff to put in place a model for the front end of 
the acquisition process. This model will place a high priority 
on more flexibility, open systems, and greater cost sensitivity 
in the requirements documents, thus enabling us to make the 
kind of intelligent tradeoff decisions driven by both 
technology maturity and cost that is so critical to reducing 
cycle time and getting capability into the field faster.
    Second, we have made an unprecedented commitment to 
enhancing the quality of our acquisitions of services. As 
previous witnesses have already noted, our reliance on services 
as opposed to products has greatly increased and we fully 
recognize that we have not focused nearly enough attention on 
providing training and tools to our work force in this critical 
area. We do, however, have numerous initiatives in this area 
underway that I think are both important and highly promising.
    For instance, Under Secretary Gansler will soon issue new 
policy that will require a much greater emphasis on 
performance-based services acquisitions than has previously 
been the case, including a requirement that 50 percent of all 
services acquisitions be performance-based by 2005, as 
recommended by the Inspector General. This policy will require 
aggressive and accelerated training, planning, metrics, and 
more, and I think we can all agree that performance-based 
services acquisition represents a critical link to solving many 
of the issues before us.
    In addition, just 2 weeks ago, we launched a major new 
performance-based services training initiative developed for us 
by the National Contract Management Association and the 
National Association of Purchasing Management, which is 
available at a relatively nominal cost to all elements of our 
work force, from the requirers to acquirers, financial 
oversight, and other key elements of our work force. Moreover, 
this training, while web-based, is also designed for live, 
just-in-time team training of the kind we believe can be most 
effective.
    We are also putting the finishing touches on a performance-
based services guidebook, as well as a series of performance-
based services templates, that seek to demonstrate the ways in 
which a performance-based approach can work in a wide range of 
areas, from low-tech to high-tech requirements. These 
initiatives will, we believe, significantly improve our 
performance in the acquisition of services of all kinds, 
including information technology, professional and advisory and 
assistance services, and more.
    Our reliance on services also extends, as Mr. Lieberman 
pointed out, to those areas where we used to purchase products, 
particularly in the spare parts arena. Where we purchased a 
part 4 or 5 years ago, today, we are increasingly purchasing a 
service, a service that includes a range of activities from 
inventory control to warehousing and much more. In short, in 
assessing such vehicles, one can no longer simply compare a 
unit price from yesterday to current spare parts prices since 
what we are actually buying is very different.
    In the case of the contract referenced by Mr. Lieberman, 
for instance, this strategy has resulted in a much higher parts 
availability rate and 30 percent reductions in our repair 
turnaround times, which then translate into higher mission 
capability, and in commercial parlance, a much greater 
availability of our critical capital assets, all of which has a 
great value to us. The independent business case analysis 
prepared for the Defense Logistics Agency looked at all of 
these factors and concluded that this contract, assuming high 
levels of performance which we are now seeing, would save 
millions of dollars with much more in less tangible value.
    This is not to say that within a given contract, which 
could encompass thousands of items, the prices of some 
individual items might not be unreasonable, and I believe DLA, 
in response to previous Inspector General reports which have 
pointed out some of these problems, have put in place better 
mechanisms for detecting such price rises and a process for 
segregating and negotiating better prices for those items.
    In addition, in the last 18 months, additional training and 
commercial supply chain management which speaks to these very 
issues has been launched and more than 3,400 members of our 
work force have now taken that training.
    I believe, therefore, that we are making real progress in 
this important area and we will continue to aggressively 
address it and the full range of services acquisitions. The key 
is not so much of what we do, and as noted by each of my 
colleagues today, is and always will be our work force and how 
well we do in preparing them for the challenges ahead. We are 
committed to meeting that challenge.
    Indeed, our acquisition work force has been reduced by 
about 50 percent over the last 10 years, and today we face the 
prospect that another 50 percent of that work force will be 
eligible to retire within the next 5 years. The problem is 
further exacerbated by the very real shortages in the 
marketplace of many of the critical technology skills, 
including those now required to optimize business processes and 
the extraordinary competition in the marketplace for those 
skills.
    This demographic reality presents many challenges, as noted 
by others this morning. But it also offers an extraordinary 
opportunity to fundamentally transform the culture of the 
world's largest buying organization, as I believe the General 
Accounting Office has pointed out. That transformation will 
only take place, however, if we do our jobs right.
    To that end, let me conclude my testimony this morning with 
a few examples of what we are doing in this most crucial of 
arenas. We are launching a major future work force initiative 
to develop a career development and management process to 
facilitate the kind of multi-disciplinary work force that the 
future work environment will require. This initiative seeks to 
synthesize the work we have done over the past 2 years in both 
identifying the critical attributes of our future work force 
and assessing our current career development, education, and 
training programs, and will also focus on the critically 
important challenges associated with hiring, retention, and 
developing future leaders.
    At the same time, we are reengineering much of the formal 
training and education provided to our work force, primarily 
through the Defense Acquisition University. This reengineering 
includes a much greater emphasis on business and commercial 
practices training, a more integrated approach to our training 
paths, and more diverse training opportunities.
    We are expanding our assistance to the work force, as well, 
in the area of continuous learning. Our work force will soon 
have access to a web-based catalog of continuous learning 
opportunities from inside and outside of government, and we 
will soon put in place a core curriculum for continuous 
learning which will direct our work force to ongoing 
refreshment and training in critical areas as part of their 
continuous learning requirement.
    In addition, we are working with the services and the 
defense agencies to put together a widely accessible knowledge 
management system that, like the best in the commercial sector, 
will create within the Department a virtual learning enterprise 
where training, best practices and templates, lessons learned, 
and more are available on a real-time basis to any member of 
our work force.
    And this past year, we opened the Change Management Center. 
Modeled after the best in class in the commercial world, the 
role of the CMC is to assist with the very daunting challenges 
of the change process itself and to, at the same time, provide 
a disciplined, leadership driven, and empowered capability to 
accelerate the pace of change.
    Mr. Chairman, the progress we have made is very 
significant, but our need to move ever more aggressively 
forward remains. The dynamics and pace of the technology 
marketplace, the changing face of our mission requirements, the 
need we have for speed and agility in business and on the 
battlefield all require us to do so. Achieving our goals will 
take perseverance, commitment, new and innovative training, and 
education. We remain committed to the long haul and are equally 
committed to continuing our vibrant partnership with the 
Congress as together we move forward. The imperatives are clear 
and we have no choice but to succeed.
    That concludes my oral statement this morning, sir, and I 
would be happy to answer any questions.
    Mr. Horn. Thank you very much.
    [The prepared statement of Mr. Soloway follows:]
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    Mr. Horn. Our last witness on this panel is Ms. Deidre Lee, 
the Director of the Office of Federal Procurement Policy of the 
Office of Management and Budget. Ms. Lee.
    Ms. Lee. Good morning. Chairman Horn, members of the 
subcommittee, as this most likely will be my last hearing 
before you as Administrator of the Office of Federal 
Procurement Policy, I would like to thank you personally for 
the stalwart support you have given the acquisition community. 
You have been dedicated to improving the system, understanding 
the challenges, and working with us to move forward. Thank you.
    Mr. Horn. Thank you, Ms. Lee. You have done a fine job and 
I think you must have read about Everett Dirksen, that honey is 
better than vinegar, so thank you. [Laughter.]
    Ms. Lee. Well, along that same ilk, I would also like to 
take this opportunity to express my gratitude to the great 
group of people who you have already recognized, the Front Line 
Forum, and for all the people they represent. These are 
dedicated people that make a difference every day and I thank 
them for all that they do.
    We are here today to discuss our current challenges and 
priorities in reforming acquisition. There has been a great 
deal of discussion about the $200 billion of products and 
services we purchase each year, everything from the mundane to 
the very unique and unusual to support our military. Our 
success in improving the government's productivity depends very 
much on our ability to improve our acquisition practices.
    Over the past 7 years, this administration has worked 
closely with Congress to develop a statutory and regulatory 
structure that brings common sense back to acquisition. We have 
moved much closer to commercial practices. Instead of focusing 
on the low cost, we now emphasize best value contracts that 
take into account the quality of performance expected based on 
the overall package offered and the contractor's past 
performance.
    We have made it much easier for the government to purchase 
and companies to sell commercial off-the-shelf products that 
are suitable for government needs, and we have moved away from 
the idea that we must have custom products to meet our every 
need. We have made it possible for program officials to use 
purchase cards to make purchases under $2,500, the so-called 
micro purchases, and thereby allowing our contracting 
professionals to focus on providing business advice for the 
larger acquisition programs. These reforms allow agencies to 
structure their contracting operations in a way that makes 
sense and provides increased flexibility for contracting 
officials to make and implement good business decisions.
    Despite the progress that has been made, there is still 
much more to be done. First, we must ensure that we are fully 
using the increased flexibility, and second, we must continue 
to look ahead, staying alert to changing commercial practices 
and conditions and new technologies to identify additional 
reforms with substantial potential benefits. And, as everyone 
else here has said today, most importantly, we must have a 
talented, prepared work force.
    My written testimony provides more detail on the efforts we 
have undertaken to meet these challenges. In the interest of 
time, I will just briefly summarize current priorities and 
comment on our approach to considering legislative changes.
    First, our priorities are grouped into three general areas. 
The first and foremost, as you have heard me say many times, is 
we have to implement the opportunities that we have, and so I 
am going to go through a very quick litany of a few things that 
we have worked on.
    First, we are making contractor performance a substantial 
factor in contract administration and source selection. How 
have you done? What are you going to give to us in the future? 
We think that provides good information for making decisions.
    We are encouraging results-oriented performance-based 
contracts, where contractors have to innovate in deciding how 
to perform the work and then trying to peg payment to 
performance.
    For purchases under $100,000 and on a test base for 
commercial items up to $5 million, contracting officers use 
simplified procedures that address market conditions and 
product- or service-specific circumstances. For larger 
purchases, we have modified FAR Part 15 to focus on obtaining 
best value through competitive and intensive negotiation 
process with the most highly rated sources.
    We are using multiple award contracts, multiple award 
schedules, and governmentwide acquisition contracts which were 
endorsed by FASA, MACs, and GWACS, and these are more 
commercial-like vehicles that permit streamlined competition 
among contract holders.
    We are emphasizing capital programming, and there are many 
other contracting initiatives we could talk about today. But I 
think a very important note here is, as we have noticed through 
the other witnesses, there is still much need to focus on 
planning and definition of requirement and assuring that we are 
buying the right thing, not just buying it quickly.
    The second tenet is the area of electronic commerce. We are 
seeking to take advantage of the opportunities that are offered 
through electronic commerce in terms of high returns for 
significant process simplification, increased efficiency, and 
more effective buying strategies. There is a plan, the 
government strategic plan, on electronic commerce for buyers 
and sellers that basically outlines three tenets of how we are 
trying to make these improvements, and there is more detail of 
that in my written testimony.
    And finally and most important, here we go, people. Central 
to the success in the first two areas of acquisition reform 
overall is our ability to develop a work force that has the 
capability and the knowledge to provide sound business advice 
and the leadership to support them. We are addressing work 
force issues and I think Mr. Soloway gave you some more 
detailed information, but we are trying to define the 
competencies, modify training, deliver the training, address 
recruiting and retention, and certainly updating policies and 
providing people the support and leadership they need. We need 
to provide the acquisition work force with tools, training, and 
flexibility to make good business decisions.
    As we continue to review our statutory framework to ensure 
it allows our acquisition work force to pursue innovation and 
implement new commercial practices, this year, as you know, we 
sought, among other things, to streamline the application of 
cost accounting standards. We sought an extension of the test 
authority from Clinger-Cohen so that we can use simplified 
source selection procedures in commercial items up to $5 
million. And we thank you for the favorable action that 
Congress has taken on these proposals.
    We have resubmitted our proposal to authorize the 
substitution of electronic notice through a single point of 
entry for the currently required paper notice. It is important 
that we are able to transition along with the commercial market 
from paper-based to paper-free process.
    While we remain focused on taking advantage of the reforms 
already enacted, we will not hesitate to seek further 
congressional action as we identify statutory changes needed. 
DOD in particular has some challenges, and I know Mr. Soloway 
will shortly have a package on legislative changes, as well.
    The challenge here, if the occasion arises, I hope that you 
and this subcommittee will help us discourage legislative 
proposals that would reverse the progress made to increase the 
government's use of commercial practices and contracting 
officials' discretion to exercise business judgment. As 
promoters of acquisition reform recognized early on, 
contracting officials must be willing to take prudent risks if 
they are to succeed in making the fundamental business practice 
changes that are necessary to improve government acquisition. 
Our contracting officials have achieved much success in doing 
so. But sometimes, mistakes will be made or events considered 
to be low-risk will occur. I urge the members of this 
subcommittee to work with us to resist efforts to repeal 
acquisition reform as we continue to learn and demonstrate the 
benefits.
    The overarching challenge now is to deliver full benefits. 
I have made it my focus since assuming the role of 
Administrator to implement acquisition reform. Doing this 
simultaneously as we continue to seek out additional ways to 
improve complicates our task. However, having to implement 
changes and at the same time continuously improve the system is 
now common in the commercial world. The accelerating pace of 
change is something everyone in business is experiencing. We in 
the government must attack these problems with the same sense 
of urgency that grips today's corporations. Taxpayers deserve 
nothing less.
    On behalf of the administration and the acquisition work 
force, I again thank the subcommittee and the Members of 
Congress for working to make these opportunities possible. It 
has been a pleasure. Thank you.
    Mr. Horn. Thank you very much.
    [The prepared statement of Ms. Lee follows:]
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    Mr. Horn. We are going to start the questioning with 5 
minutes per person rather than the usual 10 minutes on 
complicated matters. When Mr. Turner returns, we will go back 
to 10 minutes for himself and myself and any members who are 
staying. But we do have a guest this morning, and if my 
colleagues would give me unanimous consent, the gentlewoman 
from New York we will include in the 5-minutes and we will go 
right down the line. Without objection, she will be part of the 
subcommittee for this purpose. She has put in a very worthwhile 
resolution and her questions and the answers are very 
important. So if my colleagues would let her serve with us for 
a while, all right. That would be for Ms. Kelly, and then you 
and Mr. Davis.
    Ms. Kelly, we will yield 5 minutes to you for your 
questions.
    Ms. Kelly. Thank you, Congressman Horn. I thank you very 
much and I thank the committee for inviting me and allowing me 
to speak here today.
    As co-chair of the Women's Caucus and as vice chair of the 
Small Business Committee, I am particularly concerned about 
what the witnesses on the first panel have to say regarding how 
acquisition reform will have an impact on the Federal 
Government's small business and women-owned business goals. As 
I am sure you are all aware, we are trying to award at least 5 
percent of all government contracts to women-owned businesses. 
Some agencies are doing quite well. Others, including the 
Department of Defense, award less than 2 percent of their 
contracts to women-owned firms. The Department of Energy has 
yet to even report their figures.
    I have noticed that few witnesses mentioned small 
businesses, women-owned businesses, disadvantaged business 
utilization in their testimony, so I am glad to be here to ask 
a few questions. And again, I thank you for inviting me here, 
and with that, I will begin.
    I would like to ask Ms. Lee, you talk about training and 
educational standards. What type of training do the contracting 
officers receive in trying to uncover women-owned businesses 
when they are doing their market studies on prospective 
bidders?
    Ms. Lee. Ms. Kelly, I see that you are ready for St. 
Patrick's Day tomorrow. There is a great deal of training. We 
are incorporating it into the everyday acquisition training and 
trying to get people to acknowledge and understand what their 
goals are, how to meet them, the tools that are available to 
meet them----
    Ms. Kelly. What specifically for women? I am sorry to 
interrupt you, but that is really what I am interested in, 
women, minority, and disadvantaged.
    Ms. Lee. Specifically, it is included. We do not have a 
separate small business course now. We are looking at that as 
we have this online training and to provide specifically 
separate. Right now, it is incorporated in the regular training 
that people go through as they learn about acquisition.
    Ms. Kelly. But it is present as----
    Ms. Lee. Yes.
    Ms. Kelly [continuing]. And it specifies talking with them 
about doing these contracts?
    Ms. Lee. They learn about Part 19. They learn about the 
priorities, about women-owned business, HUB zones, veterans' 
owned, small disadvantaged business, small business set-asides, 
how to use those tools, what tools are available, what the 
priorities are, what the goals are. That is part of education 
for our acquisition work force.
    Mr. Horn. If I might suggest to the gentlelady from New 
York that we would like the curriculum material sent to the 
committee and put in this at the appropriate place where Ms. 
Kelly is making these questions.
    Ms. Lee. OK. It is quite substantial.
    Ms. Kelly. Thank you very much, Mr. Chairman.
    [The information referred to follows:]
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    Ms. Kelly. Mr. Lieberman, on page 1 and 2 of your 
testimony, you cite a number of striking difficult balances, 
but you fail to include the balance between efficient 
procurement of goods and services and achievement of small and 
women-owned business goals and I wonder why that is. I do not 
see that in your testimony.
    Mr. Lieberman. A pure oversight. I plead guilty. I was not 
trying to give a comprehensive list, and there are probably a 
couple of other challenges I left out also, frankly.
    Ms. Kelly. Can you respond? Again, Mr. Chairman, I would 
beg your indulgence, and perhaps we could ask you to respond to 
that question in writing or back to the committee so we can get 
some response for that. It would give you a chance to amplify 
your statement.
    Mr. Horn. Will you file a letter with the committee on the 
question Ms. Kelly is raising right now and we will put it at 
this point in the record, without objection.
    Mr. Lieberman. I would be happy to.
    [The information referred to follows:]
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    Ms. Kelly. Again, I would like to go to Mr. Lieberman. In 
your testimony on page 8, you talk about the contracting 
services there and your statement reads, ``The largest 
subcategory of contracts or services was for professional, 
administrative, and management support services,'' and you give 
a value of $10.3 billion. Do you have any information on what 
percentage of those contracts belong to women, minority-owned 
businesses, or disadvantaged businesses?
    Mr. Lieberman. I do not have that information with me. I 
would be happy to try to provide it for the record.
    Mr. Horn. Without objection, we will reserve the spot in 
the record at this point.
    Ms. Kelly. Thank you very much.
    [The information referred to follows:]
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    Ms. Kelly. Then continuing on, Mr. Soloway, in the 12 pages 
of your written statement concerning the modifications to the 
Defense Department's procurement processes, there is not one 
word about small businesses. Are you aware that Congress 
enacted laws with respect to the utilization of small 
businesses? What is the Department of Defense reform going to 
do about the utilization of small business prime contractors?
    Mr. Soloway. Congresswoman, I will plead guilty, as Mr. 
Lieberman did, to simply an oversight on that point. This is an 
area in which we expend a great deal of energy and effort to 
ensure that we not only meet the goals that have been set 
forth, which we did last year in most categories, although as 
you noted, in women-owned small businesses, we did not meet our 
goal.
    But not only do we seek to meet the goals, but we make it 
very clear and try to communicate regularly with our work force 
about the innovations in both technology and business process 
that take place in small, disadvantaged, and women-owned 
businesses that need to be accessed, and I believe that one of 
the things that is going to enable us to expand our access to 
those businesses is much greater sense of market research, much 
greater understanding of the commercial marketplace. There are, 
of course, very few small businesses of that kind, women-owned 
and so forth, that are defense-unique, if you will, which is 
the marketplace we are used to dealing in. But the more we 
expand our market, the more able to access to commercial 
companies, the more able to utilize electronic means of doing 
business and so forth that is going to expand our cognizance of 
available quality services that are in the marketplace, and I 
believe that is going to help us a great deal.
    In response to the second part of your question, I do not 
believe that acquisition reform in any way should or has ever 
been designed to negatively impact our use of either small, 
small disadvantaged, women-owned businesses, or other kinds of 
veterans' preference or what have you. Nothing in the 
legislation or in what we are trying to do in any way 
diminishes our commitment to doing that, and we certainly have 
made that clear to our work force. As Ms. Lee said, in the 
training that they get, it is very clear what the expectations 
are and the benefits that can be gained from an aggressive 
effort in that area.
    Ms. Kelly. My point here, Mr. Soloway, today is really to 
try to impress upon all of you that in the general scheme of 
acquisition reform, small business, women-owned, and minority 
and disadvantaged businesses cannot be an oversight. They have 
to be included because that is what Congress' intent has been 
in all of our reform efforts.
    On your testimony, I think it is on page 10, you talk about 
the reengineering of formal training. You were just discussing 
that. I am wondering, again, when you talk about online and so 
on, there are women who are accredited contracting--they are 
out there. In those online capabilities, in that education 
effort that you are making, are you going to do some outreach 
in that?
    Mr. Soloway. The training that I referenced is, I believe, 
going to lead to the outcome that you are talking about because 
what we are trying to impress upon our work force and provide 
to our work force are many greater tools and a greater 
understanding of how to do the kind of market research that 
opens one's eyes to all available solutions and providers, 
particularly and certainly including small businesses, small 
disadvantaged businesses, women-owned businesses, and so forth, 
and I believe that our ability, with the authorities that we 
have been given by the Congress and the way we have been 
implementing them to rely more increasingly on the commercial 
marketplace, does lead you to those types of solutions.
    We do already impress upon our work force their 
responsibilities under the law for good business reasons to 
access and utilize small businesses of all kinds. So I do not 
believe that is the issue. I think the issue really for us 
becomes one of market research, expanding our marketplace and 
so on, and that is, I think, going to result in the outcome 
that you are talking about and that is really where the rubber 
meets the road, is how well our work force is prepared to 
examine the options that are available to meet any given 
requirement.
    Ms. Kelly. I thank you very much. Mr. Chairman, I obviously 
would like very much to have some more time. I realize that my 
time is up. I hope that perhaps I could submit some questions 
to your panel and we could get the responses in writing. I will 
try to stay as long as I can, but I thank you very much.
    Mr. Horn. Well, we thank you because we do regard that as a 
very serious matter and I was delighted when you volunteered to 
lead the charge. I must say, I am a little shocked that the 
administration has not done more in this area and I would like 
to know what the difference has been between now and 5 years 
ago. I sort of have a feeling there were more women getting 
contracts 5, 10 years ago than maybe today. I think maybe they 
have used our liberalization to just sort of say, oh, we can do 
what we want now. We do not have to worry about these different 
groups, and I think we ought to worry about them.
    Ms. Kelly. Mr. Chairman.
    Mr. Horn. Yes?
    Ms. Kelly. I actually do have those figures, and I can tell 
you that in the last 2 years, according to the General Services 
Administration figures, the Department of Defense has increased 
their women and minority and disabled businesses by only 0.1 
percent in 2 years. It has only been up by 0.1 percent.
    Mr. Horn. Even though we have given them a lot of 
flexibility.
    Ms. Kelly. Even though we have given more flexibility and 
even though we have repeatedly emphasized the need.
    Mr. Horn. They seem to have forgotten that Rosie the 
Riveter made Second World War acquisition very possible.
    Ms. Kelly. Exactly, and I am here fighting for Rosie.
    Mr. Horn. Good. We have got a great oral history at the 
university I was president of, if you ever want to get the 
pictures and bring them in here.
    We thank you for coming. We will take those questions and 
we will followup on them.
    I now yield to the gentleman from Virginia for 5 minutes. I 
know you have another aspect of this procurement situation.
    Mr. Davis. Well, I do. I have got a couple, actually. Let 
me just start, you talked about needing a talented and prepared 
work force. One of my concerns in this whole procurement cycle 
is the Federal Government's ability to attract, train 
procurement officers because they can walk across the street 
and sometimes double or triple their income, and to keep them 
motivated, to keep them trained is a huge problem. In my 
judgment, I think we are going to need to rewrite some rules to 
allow us to do that. Otherwise, you end up even having to 
outsource the procurement process because this stuff gets so 
complex and it changes so quickly. Any thoughts on that? I will 
start with you, Ms. Lee.
    Ms. Lee. We have looked at that and some of the things are 
very simple, like recruiting you can pick up the Sunday paper 
and you see kind of a flashy ad that crisply describes what 
work is there; and you come in to look at a government ad and 
you may have to fill out pages of paperwork. So we are trying 
to figure out, how do we recruit? How do we interest the young 
people into coming into the field? How can we be more crisp and 
succinct and tell them how interesting and how important this 
field is? We have got to do everything from recruiting and 
training to retention.
    Mr. Davis. Let me ask you, what are we doing on Internet 
recruiting? A lot of companies out in my district are 
recruiting through the Internet. That is the way a lot of it is 
done. Northern Virginia is paying bonuses for good people, but 
the Internet is a good way. I mean, just my gut is that the 
government is not ahead on that curve, either.
    Ms. Lee. I do not think we are ahead. We have very limited 
authority to pay a hiring bonus, and to date, I think it has 
been used mostly in the IT arena.
    Mr. Horn. But as I understand the gentleman's question, It 
is not a matter of paying the bonus. It is a matter of 
communication and use the Internet to presumably get these 
individuals.
    Mr. Davis. I think, ultimately, the question is going to 
involve pay and benefits, because that is what you are 
competing with. Even if you get somebody good in, to keep them 
more than 3 or 4 years, you have got to pay them or motivate 
them, something close to what they are getting in the private 
sector, and we are, in my judgment, way short of that and that 
entails a whole other issue that maybe we ought to be talking 
about with our Civil Service Subcommittee. But that is one 
problem.
    Ms. Lee. We have not done much hiring, so we recognize it 
is ahead of us.
    Mr. Davis. But we can do more on the Internet and make it 
easier and stuff at least to get people in, and then we can 
figure out the other. Are there any other comments?
    Mr. Soloway. Mr. Davis, I think you have hit on not only 
the most critical challenge we face but begun to touch on a 
much broader issue. The way we look at it at the Department is 
it is not just a matter of our contracting officers. This 
affects the entire acquisition work force as you begin to look 
at a different way of doing business. If you begin to look at 
the revolution in industry not just in cutting-edge 
technologies but the way technology is driving business 
processes, from enterprise resource planning and all of these 
other processes that are now coming into play and how we are 
going to compete for that skilled work force when, in your 
district, if you go out, and as I know you do all the time, and 
talk to your constituents and they complain day in and day out 
in the private sector about the lack of skills that are 
available and the kinds of benefits that are available to those 
who have those critical skills are enormous and it is a 
tremendous challenge for the government across the board, not 
just in IT but also just business process and being able to 
optimize your business processes.
    The comment Mr. Lieberman made earlier about having to do 
so much more and are we cutting the work force, getting the 
cart before the horse, what is happening in the private sector 
is that technology has made so many more things possible and 
increase efficiencies that we have not adequately graphed yet. 
This is really the fundamental reason that we have created this 
task force that I mentioned in my testimony, to look at this 
future work force and really focus in on the very kinds of 
questions you are asking. What are the skill sets that we need? 
How are we going to recruit and retain people? What kinds of 
people can we reasonably expect to go out and fight for, or 
what areas are we simply not going to be able to maintain that 
internal competency that we may have had in the past because of 
the competition?
    This issue also affects the military, as you well know. 
They are having tremendous retention problems, particularly 
with technology skills. So I think this is an enormous 
challenge for us.
    Mr. Davis. And we could have a hearing just on that and go 
through. I have one other question I need to hit. I will just, 
Ms. Lee, go from your testimony. On page 3, you talk about you 
are seeking to ensure agencies make past performance a 
substantial factor when evaluating contractors for award, and 
you talk about the strategy and I understand all that and, I 
think, basically agree with it.
    But here is one of the problems. When small businesses 
outgrow their relevant size standard and they move into the 
mid-size category, they are cut loose and there is nothing 
gradual about it, and we have a lot of companies that flounder 
after graduating from 8(a) or small business that cannot move 
up. A lot of the mid-sized companies are cut out of some of 
these large procurements because you are looking about what 
they have done before and they have not done something of a 
relevant size. This has always been a problem where you have 
the two ends of it. The large businesses and the small 
businesses have something to take care of them and the mid-size 
businesses are hurting. But we are seeing more consolidations 
as a result of medium-sized businesses just not being able to 
cut it.
    My observation has been a lot of the best innovation is 
coming because of the competition that some of these small and 
mid-sized businesses are bringing to the fore. Now, is there 
any way we could tilt the scales back a little bit and give 
them a little bit--and that is kind of my open-ended, last 
question before my time runs out.
    Ms. Lee. Well, we focused on past performance, and I like 
to say current and past performance. How are you doing on the 
contracts you have today as well as what is your past record. 
So you do not want to focus on just the past, but as well as 
the current. But what we are trying to do is remind people that 
you do not have to have performed this size, this exact work 
before. What is your record of performance and what is your 
proposal to perform this activity? I am concerned where we say 
you have to have had $350 million worth of work in order to 
qualify. We do not want those kind of disqualifiers, but we 
look at what is the history and what is their proposal to do 
this work right now and what is their capability.
    Mr. Soloway. May I comment, also, Mr. Davis? As you know, I 
came out of the private sector before coming to the Department 
and many of the companies I worked with were small and middle-
sized and they were under tremendous pressures in the 
marketplace because of the way in which the market was going.
    But I would like to make a comment to suggest that the 
advent of past performance, and indeed the whole concept of 
best value contracting, in my view, is a benefit to those 
companies as opposed to a hindrance, because what I saw when I 
was in the private sector years ago was a tendency to do what 
we call buying into contracts, where large companies could 
afford to bid extremely low and then worry about the actual 
costs as we went on. The more we focus on past performance and 
best overall value, what you have in fact seen is a diminishing 
amount of that kind of activity because of the pressures of 
best value. What have you done before? What was your bid 
before, and did you actually perform to what you bid and so 
forth.
    I have had a number of companies I worked with in the 
private sector, one of which testified to this before the 
Senate a couple of years ago, that said if it was not for best 
value and past performance, they would never have succeeded in 
making the transition from a small business into the open 
marketplace. So I think that, in many ways, it is actually the 
start of getting at the problem and a benefit to smaller 
businesses.
    At the same time, there have been, as Deidre indicated, 
some application in the field of what we call relevancy factors 
and so forth that sometimes have disadvantaged individual 
companies, and I have cases of companies coming to me 
relatively frequently where it has been a misapplication of 
this concept. As Deidre said, what is relevancy and how do you 
define it? If the company itself has not done the precise kind 
of work we specifically put into the guidance, the fact that 
key executives in the company and their performance in other 
entities can be included and should be looked at so that you do 
not disadvantage those who have not yet had the opportunity to 
perform on increasingly larger and more complex requirements.
    We have recently put together a guide that has gone out to 
the field just in the last 6 months. It has gone across the 
entire Department of Defense on past performance and does 
address a number of these issues to try to ensure that we do 
not have the reverse impact of what we want, which is getting 
the top performance we can and giving opportunities to those 
companies that perform, be they small, medium, or large, to 
grow and prosper.
    Mr. Davis. Thank you. My time is up. Mr. Chairman, I just 
ask unanimous consent my statement for the record be submitted. 
I appreciate it and wish we had more time.
    Mr. Horn. It will be put in the beginning of the hearing 
after Mr. Turner and as if read.
    The gentleman from California, Mr. Ose.
    Mr. Ose. Thank you, Mr. Chairman.
    Mr. Lieberman, I would like to ask you a couple of 
questions. I note on page 18 of your written testimony a rather 
unequivocal statement which I found somewhat surprising. It 
says, virtually all of the pricing problems identified by our 
audits arose on sole source contracts. The question I have is 
that on page 20 of your testimony, you note the 14.8 million 
transactions that DOD had engaged in. Of those 14.8 million, 
how many, roughly, were sole source transactions? Do you have 
any feel on that?
    Mr. Lieberman. I would have to try to get that number for 
you for the record, because the 14.8 million includes about 9 
million of credit card transactions.
    Mr. Ose. 9 million transactions or $9 million?
    Mr. Lieberman. 9 million transactions.
    Mr. Ose. OK.
    Mr. Lieberman. I do not know what the competitive/sole 
source split is for those. For major contracts for supplies and 
equipment slightly above 50 percent are competitive.
    Mr. Ose. I did a little thumbnail analysis here and it 
appears in your testimony there are about 125,000 transactions 
that were larger than $100,000. That is in your testimony. If 
you work back from the $14.8 million, that means you have got 
about 14,675 million transactions under $100,000, which would 
mean that they average about $1,000.
    The question I have, from your experience, in contracts 
averaging $1,000, are those contracts doing procurement of 
unique things or are we buying plastic cups and paper and 
chairs?
    Mr. Lieberman. Defense buys an enormous variety of items 
and I think the answer is both. There is a mix of military-
unique items, items that are still called out in terms of 
military specifications and unique military standards, and a 
lot of commercial products. So it is some of both.
    Mr. Soloway. May I add a context on that, sir? Under the 
credit card, the micro-purchase authority, purchases under 
$2,500 for which there is no existing underlying contract, 
there is no requirement to go through the normal competitive 
processes and so on. That is the whole point of the credit 
card, and I think that that has been a success that we have all 
signed up to and said, this has really been a great innovation 
for our work force. We have saved somewhere in the neighborhood 
of $200 million in the Department of Defense alone through use 
of the credit card because of the simplified process it can go 
through and so on.
    Now, there are in addition to that a number of small 
transactions that are made as task orders and so forth on 
contracts that already exist that could be $1,000, $1,200, 
$1,500 for a part for a plane or whatever it might be, and we 
could probably break all that down. That data does exist. But 
we need to look at it in different categories.
    When Mr. Lieberman talked about the credit card or the 
$2,500, that is where there is no underlying contract 
typically. That is you go down to the local store and buy 
office supplies or what have you.
    Mr. Ose. Does that fall in the sole source characterization 
that you have applied on page 18, Mr. Lieberman?
    Mr. Lieberman. No, sir. I was really not considering what 
we call the micro-purchases, the small purchases, at all.
    Mr. Ose. It is separate? All right.
    The second question, Mr. Chairman, if I may, on page 19, 
Mr. Lieberman, of your testimony, you highlight the fact that 
the acquisition work force at DOD has been basically halved in 
8 years. It has gone from about 460,000 to 230,000. Was that a 
reduction that followed a directive from Congress or was that a 
management decision? What drove that decision?
    Mr. Lieberman. Congress has passed legislation mandating 
specific acquisition work force reductions in the Department. 
However, those reductions are also supported by the 
administration in the overall context of government downsizing. 
There is a dialog every year back and forth, both on what the 
definition of the acquisition work force is and what the 
reduction target should be, but both the administration and the 
Congress have agreed over the past decade that the general 
trend should be downward.
    Mr. Ose. How many of the remaining 230,000-odd members of 
the acquisition work force are actually contracting officers 
with authority to award contracts?
    Mr. Soloway. It is 19,000.
    Mr. Lieberman. Mr. Soloway said it is 19,000. That sounds 
about right. The number is included in our work force 
acquisition reduction report.
    Mr. Ose. Let me shift if I may, then.
    Mr. Horn. If I might interrupt, the gentleman is free to go 
as long as you would like. I am going to get over to the floor, 
vote, and come back. So put the committee in recess when you 
are finished with your questioning and I will try to make sure 
they do not close it out on you.
    Mr. Ose. I will tell you what, Mr. Chairman. I will go 
ahead and submit my questions in writing because I, too, need 
to vote.
    If there are 19,000 who have current authority to award 
contracts, how many were able in 1991 to award contracts? Was 
it 38,000?
    Mr. Soloway. I would have to get that specific number for 
you. As I recall the statistics, and I do not have them with 
me, in the contracting field, actually, the percentage 
reduction has been slightly under the 50 percent, I believe, 
within the Department, and maybe even considerably less than 
the 50 percent reduction.
    Let me just draw a little context to the numbers. When we 
started down this path, when we talk about the 400,000-plus 
people in the acquisition work force and then have come down to 
the 235,000, give or take, that we have today, the initial 
definitions of that work force really were based on the total 
employment of organizations within DOD that have an acquisition 
mission. In the discussions that Mr. Lieberman referenced with 
the Congress over the last several years about mandatory 
reductions, should we or should we not have them and so forth, 
one of the things that we have tried to do is more accurately 
and clearly define who is actually in the acquisition business, 
which is far more than contracting officials, although they 
play a critical role, and who in that employment base are gate 
guards, doctors, and so on, other kinds of employees that work 
in those organizations.
    That led us to a new definition of the acquisition work 
force that we submitted to Congress a couple of years ago, 
which basically now defines the core acquisition and technology 
work force at about 150,000. It is very difficult to relate 
that to 1981 numbers because the data keeping and the way in 
which we record these things is not necessarily consistent. But 
that today is the core acquisition and technology work force, 
and when we say 19,000 or 20,000 contracting officers, they 
make up a little bit over 10 percent of that work force.
    Mr. Lieberman. Mr. Ose, I have the exact numbers for you if 
you would like them. They are on page 9 of our report, 2000-88. 
If I could quote it, from fiscal year 1994 to fiscal year 1999, 
the total number of DOD contracting officers decreased from 
7,465 to 6,505, or 12.9 percent. Now, that is only for that 5-
year period. I do not have the numbers for prior to 1994.
    Mr. Ose. Let me go on, if I might. One of the things that 
concerns me greatly, and I need to explore this a little bit as 
it relates to the 6,505 people who still do procurement that 
you just highlighted or the 19,000 otherwise--and the others 
have hinted at it earlier--is the degree to which those people 
stay in those jobs and accumulate the experience that would 
allow them to be that much more efficient in future years. It 
is my impression that at least in some instances, people are 
moved regularly, and I am inquiring, what is the average 
tenure, if you will, of a DOD procurement officer?
    Mr. Soloway. I do not know if Mr. Lieberman has specific 
numbers with regard to that question, but I believe the average 
tenure for someone in that position is 3 years plus, at least, 
but that is just in a given position. I mean, they are in the 
field. It is just like in a company, where you gain experience 
in different parts of the company and get a broader context and 
so forth. The average age of our acquisition work force, as you 
know, is mid- to upper-40's. So I think we have actually had 
relatively good stability of people who are working in the 
field and gaining the experience they need.
    One of our concerns, not just with contracting 
professionals--and one of the differences I should point out 
between the 6,000 and the 19,000 is it is not just contracting 
officers who have the authority to do some of these actions. My 
19,000 was based on your question of how many people can 
actually sign contracts and so forth.
    But one of the big concerns we have with this is the exit 
of the institutional experience and knowledge and the fact that 
we have not been, as Mr. Hinton pointed out, hiring over the 
last number of years and therefore do not have that new 
generation coming in. By the same token, it does give us an 
opportunity to rethink and readdress the way in which we manage 
the careers of those people coming into the process to give 
them the kind of cross-cutting skills, those business 
management skills, if you will, that we seek because we have 
traditionally been much more stove-piped in our approach. So it 
is both a challenge and an opportunity.
    But traditionally, we have had relatively, I think, good 
stability within the work force in terms of getting the years 
of experience needed to understand the business of defense or 
the business of treasury or whatever the agency that is being 
discussed. And, in fact, I think there is great benefit to 
doing a little bit more of what the military does, which is 
rotating people around and giving them a variety of experiences 
so they gain that much broader context of the overall 
operation, if you will.
    Mr. Ose. We are in recess.
    [Recess.]
    Mr. Horn. The recess is over and we will proceed with the 
questioning of panel one.
    Let us talk a little bit about service contracting. As I 
understand it, on March 10, 2000, the Defense Inspector General 
released an audit report on the use of service contracts by the 
Department of Defense. The Inspector General reviewed 105 
service contract actions valued at close to $7 billion. Mr. 
Lieberman, you testified that you were startled by the audit 
results. You found problems with all 105 contracting actions 
that you studied. You identified poor cost estimates in 81 
actions, incomplete price negotiation memorandums in 71 cases, 
and 63 actions in which there had been inadequate competition. 
Could you provide us with some examples in some of these 
problems? I saw up on projection the cargo trailer for the Army 
and I guess I would throw this in. Was that off the shelf, and 
if it was off the shelf, which army was it from?
    Mr. Lieberman. Mr. Hinton is the expert on the trailers. I 
know nothing about trailers.
    Mr. Horn. Do not worry. I am going right down the line with 
all of you.
    Mr. Lieberman. We were, indeed, startled by this finding, 
and in my written testimony, I did not mean to be glib, but I 
mentioned that I do not ever remember a case where we had 100 
percent hit rate on any audit sample that we have done since I 
have been running the IG audit organization and I have probably 
signed close to 2,000 audit reports in my career.
    To provide examples of the types of failures that we saw, 
let me talk about the inability to transition to fixed-price 
contracts. Even when DOD had the same contractor coming back to 
do essentially the same thing year after year, expedient cost-
plus contracts were used. A fixed-price contract entails a 
whole lot less risk to the government. Obviously, you cannot 
enter into such an arrangement unless you have a pretty good 
idea of what the services are that you are buying. We found 
cases, however, where even though the work was very similar 
from year to year, there was really no attempt made to 
reconsider getting out of a cost-plus contractual arrangement. 
We found cases in both the Army and Navy where this went on for 
decades.
    As I mentioned in the statement we found one in the Army 
where for 39 years the same contractor had provided, in this 
case, engineering support services to the Hawk Missile Program. 
The Hawk Missile was introduced in 1958 and, of course, it has 
had a few different generations fielded since then. But 
basically, you have had the same contractor providing the same 
kinds of services, for 39 years as of 1997.
    A Navy example: for 35 years, a contractor providing the 
same kind of program management support to a submarine weapons 
systems program office. This was everything from evaluating the 
work of other contractors to helping the program office prepare 
procurement plans and other kinds of mundane tasks like that. 
Again, there is really no excuse after a certain period of time 
for not aggressively pushing toward fixed pricing for at least 
some of the tasks.
    But the easy thing to do is just renew the contract, and to 
make a long story short, we found a definite tendency just to 
accede to the program office's wishes to rapidly get the 
preferred contractor under contract again. There was 
insufficient consideration of the contract type, the statement 
of work, and what the proper cost should be.
    Mr. Horn. Let me have Mr. Soloway's views on this. How do 
you respond to those audit results and how does the Department 
of Defense recommend addressing the deficiencies?
    Mr. Soloway. On balance, I do not think we take issue at 
all with the concerns that have been raised by the Inspector 
General, but what I would like to do is again try to put this 
in a slightly different context.
    First of all, I agree that in an environment where we are 
using services for extensive amounts of support, we have to 
continually be evaluating performance, other options, injecting 
more competition, and so forth. So the point that Mr. Lieberman 
just made I think is very valid.
    I think there are a couple of things here also that we need 
to consider. First of all, when we make an assumption that we 
have had a contractor in place for 30 or 35 years and there is 
no performance surveillance, I think the actual work they are 
doing probably becomes a performance surveillance unto itself, 
perhaps not as formally or in-depth as we all think it should 
be, but clearly, the office that has been retaining that 
contractor was not unhappy with the quality of work that they 
were getting. So I am not sure it is a performance issue.
    Second, when we talk about it, as the audit did, the issue 
of how many cases where there could have been lower-price 
bidders and so forth, clearly, price is always a factor in 
these matters, but best-value contracting specifically says to 
us, do not assume the low cost is always the best value. So I 
do not think that in and of itself tells us a lot.
    But the point that Mr. Lieberman made, in terms of really 
defining the outcomes and defining the performance that we want 
and ensuring we are getting them is critical, and I think that 
as we do that more--as I mentioned in my statement, we have 
made an unprecedented commitment to moving into a performance-
based services environment which really drives you into 
defining the outcomes that you need and are seeking, which is 
the link that takes you from a cost-plus environment in most 
cases to that fixed price environment that he is talking about.
    What we have had trouble over time doing, and I saw it when 
I was in the private sector and certainly see it today, is 
defining what the performance outcomes are going to be and 
writing performance-based statements of work that both sides 
can really sign up to in a fixed-price environment. That is 
actually not as simple as it sounds, particularly as you get 
into complex services. That is really what our training is 
geared to enhance our ability to do, because ultimately that 
becomes the linchpin to being able to move into a very 
different way of dealing with these services.
    Mr. Horn. On this point that you are stressing, as I look 
at the figures here, and this might be the one you are 
referring to, in one instance the Army had been using a cost-
type contract for support services related to the Hawk Missile 
system for 39 years. I do not know how many of those you have. 
I do not know if they have done a fine job or not. I do recall 
when we got into this Bosnia mess that it was a shock wave in 
the House of Representatives that there were no cruise missiles 
on hand. No one had ever told anybody. Maybe they told somebody 
in the Armed Services Committee, but we kicked them around a 
little, too, for not informing the other Members.
    How do you deal with those things in terms of the inventory 
that you keep going to wage something, presumably in the 
interest of the United States?
    Mr. Soloway. I am not sure that there is a connection 
between the Army contract and the Hawk missile office for 
contractor support services and the availability of inventory 
in wartime. I do not know what specific responsibilities in 
that case the contractor had. My guess is that we are really 
talking about professional and administrative services and not 
program management and inventory and so forth, but I will 
certainly look into that because I am not sure if there is, in 
fact, a link there, although I do understand the concern that 
arose during Kosovo.
    Mr. Horn. Well, would you say that service contracts are 
much more difficult than the traditional purchase contract for 
not services but for a product or something?
    Mr. Soloway. Well, if you are looking at a readiness type 
of issue, is I think what you are thinking to, I think smart 
service contracts, actually, we are using them because we think 
they are going to get us increased readiness. I mean, the kinds 
of contracts that we are putting in place for flexible 
sustainment, is one term, power by the hour, what have you, 
really says to the contractor, here is the outcome we need in 
this specific case. We need to have our planes flying X number 
of hours a month, and it is your responsibility if you have 
that particular contract to ensure the availability of that 
asset to be able to use it.
    That is a performance-based service contract, as opposed to 
saying to a contractor, we will order parts as we need to 
maintain iron mountains of material in warehouses, material 
that becomes obsolete because technology moves forward and so 
forth. In fact, we think moving to much more of a performance-
based services environment for equipment maintenance and so 
forth will benefit readiness, not negatively impact it. But it 
has to be done right and it has to be in a performance 
environment.
    Mr. Lieberman. Mr. Chairman, could I just add two quick 
points of clarification?
    Mr. Horn. Yes.
    Mr. Lieberman. In our audit, we did not look at the quality 
of the performance of the contractor, so when I say that it was 
untoward for the Army to keep the same contractor under 
contract for 39 years on a cost-plus contract, I am really 
criticizing the fact nobody else got a chance to compete and it 
stayed on a cost-plus basis. I am not commenting on the quality 
of that contractor's work.
    Mr. Soloway. And we would agree with that.
    Mr. Lieberman. The second thing is, we are also not saying 
you always take the lowest bidder, God forbid.
    Mr. Horn. Well, I completely agree with that. I was stunned 
for many years by State of California low bids.
    Mr. Lieberman. Indeed.
    Mr. Horn. You just had to get rid of the people and start 
all over or you were in lawsuits and all the rest of it.
    Mr. Lieberman. Right. However, what we are saying is you do 
have to consider price, and we are finding many instances where 
price just literally was not a consideration, and that is 
obviously unacceptable.
    Mr. Horn. Is there any authority you need because of the 
difference between service contracts and product commodity 
contracts? Is Clinger-Cohen sufficient or is that helpful in 
that regard?
    Mr. Soloway. I think Clinger-Cohen was very helpful in 
focusing our attention on services, particularly in the IT 
world. I do not think it is a question for us at this point of 
needing additional statutory authority, even regulatory 
authority. What we really have tried to do, as I said, with 
this new initiative on performance-based services is really 
jump-start the training that is provided to our work force. If 
you look at the charts that Mr. Hinton had and we talk about 
product purchases really in a lot of major weapons systems and 
so forth, that was where our training went. It was teaching 
people how to acquire major systems. Now as that shift and that 
transition has taken place, we have probably been a little slow 
on the uptake to try to reorient our training to address the 
new marketplace, but that is, in fact, what this initiative is.
    As I think both Mr. Lieberman and Mr. Hinton suggested, 
this really becomes a training and education issue and it 
becomes a management issue, really providing the kind of 
management oversight and discipline to this process to say 
competition is important. We agree that price is a factor. We 
also believe that ultimately getting to a true performance 
environment, as is the rule now in the best of class in the 
commercial world, is how we are going to get our arms around 
this problem, and I think that is not really a legal or a 
statutory issue anymore. It is really a matter of our 
responsibility to really push forward with the training and 
education our work force needs.
    Mr. Horn. In terms of the so-called service contract, could 
we also say another word for outsourcing, because we certainly 
have a lot of government employee unions walking the halls of 
Congress nervous when any agency thinks about outsourcing. They 
see loss of membership, loss of dues, et cetera.
    So how do we separate out on a service contract bulk, that 
a lot of that is really outsourcing? And then the question is, 
to what degree if something does happen on the Army side, let 
us say, where they have outsourced cafeterias, whatnot on 
bases, this kind of thing, which beats us all fixing potatoes 
and all for the chef. But what do you do when the whole system 
breaks down and where do you find those, and I am sure that is 
what the armed services do say to the Defense Department.
    Mr. Soloway. Certainly, most of the work we outsource is in 
the services arena. Not all services we contract for, I am not 
sure you would define it as outsourcing, but certainly when we 
talk about competitive sourcing and the initiative at the 
Department, most of what we are talking about are services. But 
when you have a situation where a contractor, if the decision 
is made to go to a contractor in that case for work that was 
previously performed in-house, you go through a whole 
competitive process. OMB Circular A-76 is typically the guiding 
policy.
    But if you get to a point in performance where the 
contractor's performance is horrible and not delivering the 
service, you can recompete that contract or you can go--you 
have a whole process for curing deficiencies and giving them an 
opportunity to fix the mistake, and if they do not, you go back 
to the competitive market and take it away.
    That is the pressure, that continual potential for 
competition, and I think it goes back to Mr. Lieberman's point, 
also. That is the pressure that really ultimately drives 
performance, is the knowledge that there is competition out 
there, there is innovation out there, and if you do not 
maintain currency and if you do not perform at a high level, 
you are going to lose this work, and I think that is really 
what performance-based services really are about and that is 
how you would deal with that situation. So it is not a matter 
of not having the ability in-house necessarily, it is a 
competitive marketplace that continues to drive that 
innovation.
    Mr. Horn. On that very point, in 1994, when on a bipartisan 
basis we said, 5 years from now, we want to see a consolidated 
balance sheet for every major organization in the Federal 
Government. Now, one of the things we hoped for and we have 
held hearings on is getting measures of performance, not simply 
finance as the result, but was the job done well, is it meeting 
what people thought they were getting, and have you come up 
with what you would feel comfortable with, some measures to do 
that on contracts and would that be helpful in your annual 
budget review as to whether we do this or this, A or B? Have 
you come up with some measurement quality that is not simply 
how many dollars are at stake here and so forth?
    Mr. Soloway. You have taken me a little bit out of my 
bailiwick, so I will have to--the whole competitive sourcing 
initiative and the outsourcing that you discuss really comes 
out of a different organization within the Department and I can 
certainly take the question for the record.
    I can, however, on a more broad sense, address two points. 
First of all, we do have a number of goals under the GPRA that 
we are very committed to meeting and I think most of them--I do 
not have the full statistics with me--most of them, we have 
actually done quite well.
    Second, in the area of performance, this is something that 
Secretary Cohen, Deputy Secretary Hamry, and Dr. Gansler, the 
Under Secretary, have been stressing and pushing across the 
Department. In fact, on the defense reform initiative, which I 
also have the pleasure of directing, we now have engaged or 
entered into performance contracts with each of the defense 
agencies. You will see, I think, increasingly throughout the 
entire defense reform initiative and all the elements 
associated with it, many of which relate to the issues we are 
talking about here on acquisition and logistics, long-term 
tough performance outcome measures publicly available on 
websites and so forth that we are going to meet and so forth. 
There have been extensive discussions, as a matter of fact, 
with the GAO about this whole area because it is something I 
think they have fairly criticized the Department for over the 
years, for not having really good performance measures and 
metrics.
    So this is an area of heavy focus, and specifically with 
regard to outsourcing and competitive sourcing, I can certainly 
get back to you with the specific measures that are being put 
in place.
    Mr. Horn. We would appreciate that, so without objection, 
space will be put in this part of the record on some of the 
measurement standards that the Department of Defense is using 
to evaluate performance.
    Let me go back a minute to what was said in some of your 
testimony on the spares. That is a very serious thing. I can 
recall in my district Rockwell International made the Apollo 
and the space laboratory, the shuttle, so forth, and I think 
they correctly made the decision, hey, we have got all these 
warehouses, as you used the word, but in the case of NASA, all 
these warehouses for spares and we do not really need them 
right, and if we do down the line, we will just get back to it. 
There is no question that saved a lot of money for the 
government. How many situations like that do we have in the 
Pentagon, that there are warehouses filled with spares and some 
people do not even know where the warehouses are?
    Mr. Soloway. Sir, I would be lying if I told you I had an 
exact number. So I do not mean to sound glib, but the answer is 
probably a lot. We have a new strategic vision for logistics 
and product support that has recently worked its way through 
the Department which speaks to this issue extensively in trying 
to mirror the best practices that we have seen in the 
commercial industries when you look at people like Caterpillar 
and John Deere and some of the real world-class operations and 
how they have been able to reduce what I referred to earlier as 
iron mountains of material, much of which not only gets lost, 
but it becomes obsolete as technology goes on, and really move 
to the kind of what we call prime vendor or virtual prime 
vendor kinds of relationships or total system support, whatever 
moniker you want to assign to it, in which we try to avoid 
these massive warehouses and really work toward what our real 
needs are with constant technology refreshment and supply 
streams and so forth.
    It is also consistent with where the military itself is 
going. If you look at General Schelke's plan for the new 
lighter Army, the air expeditionary forces in the Air Force and 
so on, this whole concept of a lighter footprint and reducing 
the kind of the permanent warehouse supply mentality and really 
working toward a supply stream approach is fundamental to what 
we are trying to get to in the Department.
    Mr. Horn. On the issue of acquisition work force, the 
Inspector General noted that none of the 25 contracting 
personnel interviewed had received training related to service 
contracting. Additionally, the Inspector General reviewed 
course catalogs from both the Defense Systems Management 
College and the Defense Acquisition University and found no 
courses related to service contracting. So I guess, Mr. 
Soloway, I would ask you, does the Department of Defense 
currently offer in its acquisition work force training how to 
negotiate, administer, manage service contracts? If not, when 
will this training begin and are you making the Department's 
acquisition executives aware of the problems identified in the 
audit report?
    Mr. Soloway. I think, sir, the answer to that is yes, we 
are, and yes, we have. There are elements of various courses 
that do touch on some of these issues, but Mr. Lieberman and 
the IG is correct in that the fact is that there has been no 
focused service contracting courses for the reasons I mentioned 
earlier that the focus of the Department traditionally has been 
on major systems and product buying and this transition to a 
service economy is relatively recent, although in hindsight we 
clearly acknowledge that we were slow to move on it.
    As I mentioned in my testimony, we have now launched a web-
based training course on performance-based services acquisition 
that is available to the entire work force. Dr. Gansler, in the 
policy I mentioned where he is going to direct that 50 percent 
of all of our service acquisitions be performance-based by 
2005, which given the numbers is a very ambitious goal, will 
also mandate that all members of the work force involved in 
services acquisitions take this or an equivalent course within 
the next 12 months. That is an extraordinarily ambitious goal, 
but, of course, the wonders of the Internet are such that any 
number of people can take it, and at $100 a head, which is 
basically the nominal fee associated with it, it really becomes 
very affordable.
    So we have a very aggressive training agenda in mind as we 
also reengineer the formal training within the schoolhouse, 
within the Defense Acquisition University and DSMC. We will be 
increasingly adding modules at various levels of that training, 
from early on in the process to the more senior courses that 
focus on services acquisition and more.
    Finally, I should also mention that the Defense Logistics 
Agency is about, as I understand it, about to launch a new 
training course on commercial negotiation and pricing, 
particularly in this new services world that they are entering 
as well as the spare parts product world.
    So the attention to education and training in this area is 
very significant. We acknowledge that this has been a problem 
in the focus of the Department and we have missed that boat, 
but I think that we are moving out in the right direction.
    Mr. Horn. In Mr. Lieberman's testimony, he noted that 
overall disconnects between workload forecasts, performance 
measures, productivity indicators, and plans for work force 
sizing and training had major disconnects. I guess I would ask 
you, Mr. Lieberman, I think we can guess at what disconnects 
are, but give me your definition for it since you wrote the 
sentence.
    Mr. Lieberman. I believe there should be a logical planning 
progression where you decide first of all what the mission of 
the organization is, what has to be done to achieve that 
mission. In terms of the acquisition work force, what is a 
reasonable forecast of the workload that is going to have to be 
done by all these different types of players in the acquisition 
process? There is a lot of focus on the contracting officers 
themselves, but they are supported by a whole panoply of other 
disciplines without whom they cannot get from here to there. So 
we have to talk about the acquisition work force as a whole.
    We have to really analyze what the workload is, is all that 
workload necessary, are there opportunities through the 
insertion of technology or changing requirements to cut that 
workload down, or is it uncontrollable? What is a reasonable 
expectation for the individual person?
    You asked me for some specific examples before and I only 
gave you a couple of problems. Let me throw out another one. We 
ran into a technical monitor at a program office who said he 
was responsible for oversight of 43 contracts worth $621 
million, but most of his time was being taken up negotiating 13 
new contracts for a couple hundred million dollars. Now, I 
would say that person is simply stretched too thin and that is 
lousy staff management by whoever is in the chain. We have an 
awful lot of that going on.
    We have an evolving work force in many ways 
demographically. The skills mix has to change also. People 
nowadays have to be much more information technology conversant 
than I did when I entered the work force.
    All of the factors that go with any kind of work force 
planning have to be laid out there. We have to decide how many 
people we want and what needs to be done to hire them and 
retain them. I think, frankly, there has been entirely too much 
emphasis on just cut the number of bodies, period, and I think 
our analysis of every other part of the process I just talked 
about is way behind the eight-ball. The Department is trying to 
catch up now, but we have very, very limited information. There 
is a lot of information in this report that we should not have 
had to wait for 10 years for auditors to go find out. This 
should have been management information that DOD was looking at 
all the time.
    So we are getting a late start on it, but I do think that 
we have the Department's attention and we applaud the 
initiatives they are taking now. I am sorry for the long-winded 
answer, but----
    Mr. Horn. No, it is very helpful. Let me ask you, does the 
Office of Personnel Management [OPM], have anything to do with 
implementing Clinger-Cohen? I am going to get to Ms. Lee in a 
minute in terms of the Office of Management and Budget, but 
what is OPM doing to be helpful on this?
    Mr. Lieberman. I really do not have enough knowledge of 
what OPM is doing to comment on that, but I think Ms. Lee 
probably could.
    Mr. Soloway. Before Ms. Lee, may I jump in from a DOD 
perspective on OPM and what we are doing that relates directly 
to the work force? Congress instructed us a couple of years ago 
to look at changing the way in which we compensate our work 
force, to look more at performance and contribution as opposed 
to time serviced. With congressional authority and mandate and 
help from OPM, we now have an acquisition work force 
demonstration project underway where we have some 5,000 to 
7,000 members of our work force whose compensation is largely 
tied to their contribution to the organization, which is a very 
different way in a civil service environment to approach it. So 
that is one way in which OPM, I think, was very helpful.
    But also to Mr. Lieberman's point about the workload and 
the sizing and the strategic view, we absolutely agree from a 
global standpoint that is what our new initiative is really to 
deal with, but the program offices and the organizations 
independently have to do this. But we are also looking at new 
ways of doing business in partnership with the IG, in fact, 
where we are taking large contracts where somebody may have 
hundreds and hundreds and hundreds of actions a year, much time 
spent on individual pricing actions and so forth and trying to 
create what we have mutually defined as a strategic alliance 
with companies where you can have formulas and processes that 
vastly simplify that process, so that if I have a contract with 
tens of thousands of items covered and there are 5,000 or 6,000 
orders against it a year, it might involve hundreds of 
different contracting people around the country.
    We can vastly simplify that, and to make that work in the 
right way to ensure that we protect the public interest, 
protect the public trust, and so forth, the Inspector General 
has been working directly with us to try to put those alliances 
together with industry, with the agencies, and so forth to try 
to structure a different business construct. We have one or two 
of them underway now that we, I think collectively, I think 
have some tremendous potential to really dramatically reduce 
workloads in some areas by getting us out of some of this down 
in the weeds nitpicking every time we have an order and basing 
it more on a kind of a strategic approach.
    Mr. Horn. The Clinger-Cohen Act requires the agencies to 
establish policies and procedures to manage the acquisition 
work force effectively. Now, these policies should include 
education, training, career development, but has the Department 
of Defense done anything in those areas in particular and are 
there other gaps here? That is what we are interested in.
    Mr. Soloway. Sir, the Department of Defense is covered 
under something called the Defense Acquisition Workforce 
Improvement Act [DAWIA], which lays out a whole series of 
certification requirements for people to handle certain kinds 
of jobs and move into certain levels.
    Mr. Horn. Did that come after Clinger-Cohen?
    Mr. Soloway. That preceded Clinger-Cohen.
    Mr. Horn. It preceded it? OK.
    Mr. Soloway. The DAWIA really set forth kind of a series of 
standards depending on what you are going to do. What we really 
have to be doing now and what we are doing is relooking at some 
of those and how this new work force, what we want out of this 
new work force and how DAWIA currently fits into that. Much of 
the training at the school, DAU and DSMC, is geared toward the 
certification requirements that people have up through the 
various levels of the department.
    Mr. Horn. Do you find that you are losing the very 
qualified procurement personnel because of inadequacies of one 
sort or the other in terms of payment, retirement, so forth?
    Mr. Soloway. We have some concern that we are, but I will 
tell you, I think the concern that we are just slowly coming to 
and one that really, in my dealings with the private sector 
have suggested to me the private sector is beginning to 
realize, is the more we become technology smart in our business 
processes and elsewhere, the greater challenge it is going to 
be for us to retain people with those technology skills.
    I was down at Federal Express with some people a few months 
ago talking about enterprise resource planning and IT 
integration and so forth and here is a world class information 
technology company for all intents and purposes. All of its 
senior executives are IT experts. And they told us as they went 
through this integration process, they lost 20 to 25 percent of 
their top IT skills because they became so valuable on the 
marketplace that even FedEx at the rates it pays could not keep 
them, and I think that is something we need to keep our eye on 
when Mr. Davis was talking about that changing dynamic of the 
marketplace, and this is something that is beginning to affect 
the military as well.
    You hear stories of captains not wanting to bring ships 
into port because their enlisted men who have basic 
communications training are getting recruited right there on 
the dockside. If you say to somebody, what are you making 
today, $22,000, $23,000 a year, you have got a family of four 
probably living in substandard housing and you are at sea 9 
months a year and someone says, I will retrain you for a long-
term career, you can stay in a nicer home, you do not have to 
travel 9 months a year, and oh, by the way, I will triple your 
salary, it becomes very difficult to retain people.
    So I think as we become more technology smart and as we 
begin to need more technology skills to execute business 
processes, that challenge is going to become even greater.
    Mr. Horn. You put it very well, I think, and there is no 
question that Mr. Davis' point on the competition in the 
marketplace, we have to face up to it.
    Ms. Lee, when I mentioned education, training, and career 
development, I noted that you put out a policy letter on 
September 12, 1997, and you gave the agencies until May 1, 
1998, to issue those policies and procedures. Have all of the 
agencies complied with that request?
    Ms. Lee. All of the major agencies, the largest CFO 
agencies, have submitted plans. We are still working with the 
agencies on exactly how we want to implement it. It is this 
concurrency that we are dealing with. We have existing training 
classes and we could say, you must take these 10 training 
classes. But as we have identified in here today, we want to 
make sure that the content is current with the way we are doing 
business. We do not want to teach the old process-oriented, 
rules-oriented classes. So what we are trying to do is continue 
to educate people but make sure that we think about the new 
environment we want them to integrate into and the skills they 
are going to need to do that. So we are trying to move them 
both forward concurrently.
    Mr. Horn. Has anybody not submitted a plan?
    Ms. Lee. No.
    Mr. Horn. It seems to me that is a piece of paper.
    Ms. Lee. Perhaps some small agencies. I do not have the 
exact list, but we tracked basically the major CFO agencies and 
we have plans in. They are not all perfect.
    Mr. Horn. Well, what about some of the smaller agencies, 
independent agencies?
    Ms. Lee. We do have some of those plans in. I can provide 
for you a list of everybody we have in.
    Mr. Horn. Could you just provide for the record who has put 
them in, where is the status on it, et cetera.
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    Mr. Horn. According to your testimony, you plan to issue a 
revision to your guidance of May 1, 1998, or September 12, 
1997, getting them to get it in by May 1, 1998. Well, that is a 
couple of years ago, as I remember. When are you going to issue 
that revision, especially if you are leaving?
    Ms. Lee. Well, now, this is the civilian agency work force. 
We have issued a revision having to do with their certification 
requirements, their education and training requirements last 
fall and provided waiver capability for the senior procurement 
executives because there was a specific affirmative education 
requirement there. So we have issued that guidance.
    We are continuing to work with the Federal Acquisition 
Institute to refine the program, and Mr. Soloway and I, in the 
last several months, signed a memorandum of agreement because 
one of the other things we want to do is have better 
reciprocity between the defense acquisition work force and the 
civilian work force so that we can leverage these resources.
    Mr. Horn. When did you issue that revision?
    Ms. Lee. I believe it was November or December.
    Mr. Horn. How long is the revision, a couple of pages?
    Ms. Lee. It is a couple of pages. It explains----
    Mr. Horn. Could you put it in the record at this point?
    Ms. Lee. Certainly.
    Mr. Horn. Fine.
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    Mr. Horn. Now, for the General Accounting Office, you have 
been very quiet, Mr. Hinton. We have not bombarded you with 
anything. Have there been any consequences for the Office of 
Federal Procurement Policy's delay in issuing the revised 
guidance?
    Mr. Hinton. None that I am aware of right now, Mr. 
Chairman.
    Mr. Horn. The General Accounting Office recently reported 
that the General Services Administration and the Department of 
Veterans' Affairs had not complied with the OMB guidance 
requiring them to establish training for their entire 
acquisition work force. The GSA was requiring only 16 hours of 
continuing education every 2 years, contrary to the 40 hours 
required by the guidance. What would you say about that, Ms. 
Lee? Is that the steps your office is taking to ensure that the 
agencies are complying with your guidance?
    Ms. Lee. I am aware of that GAO report and we are working 
with the agencies on this overarching training plan, trying to 
help them provide the training, Internet-based, et cetera, 
because as you know, there are expenses and resources involved. 
So we are trying to say, how can we deliver effective training 
more efficiently and make it cross the acquisition work force?
    Mr. Horn. Do you think a lot of that will be done before 
you leave, or who is going to take over, do we know?
    Ms. Lee. No, I do not, but the Federal Acquisition 
Institute is working aggressively on that and we have got quite 
a program going.
    Mr. Horn. According to the Defense Inspector General, there 
is inadequate auditing of acquisition programs at the 
Department and the Inspector General notes that, currently, 
less than 10 of the several hundred weapons systems projects 
are being comprehensively reviewed each year. He calls for a 
broad, systematic program of comprehensive audits of 
acquisition programs. I guess, Mr. Soloway, would you agree 
with the Inspector General of Defense on that matter?
    Mr. Soloway. Truthfully, sir, for the record, I do not 
think I would. I think we have extensive auditing that goes on 
as a matter of course in particularly all of our major systems 
programs. But I think the term of art when Bob talks about 
auditing may be a little bit different than the standard 
auditing that you and I may be thinking of.
    But, in fact, I think we have a very aggressive program of 
oversight and review of our major programs and have an 
increasingly good handle on costs and performance and so on. 
Where we do agree with the Inspector General is that in the 
area of services acquisition, we have to get smarter about how 
we do them and I think we are doing that and we are, in fact, 
working with the IG in a number of areas along those lines.
    Mr. Horn. The GAO, as you know, has cited a number of 
instances in which the Department of Defense has initiated 
production contracts on a weapons system, aircraft, other 
vehicles prior to determining whether the item will work as 
designed. This practice has resulted in cost overruns, schedule 
delays, and degraded performance. Do you agree with that?
    Mr. Soloway. I think overall we do agree with that, and 
sir, I think in my testimony one of the points I tried to make, 
and did not spend a lot of time on it, is that we are now in 
the process of revamping what we call the front end of the 
acquisition process, which is where the GAO really is focusing 
this question, to focus more on the question of technology 
maturity before moving into full program development and so on.
    This new rewrite of what we call our 5,000 series, which is 
the guidance and regulations for our program management systems 
acquisition personnel, really now will focus on the 
requirements of process and how we use flexibility in the 
requirements to make smart decisions that are based largely on 
technology maturity so that we do not get ourselves into that 
bind. It is not only a question of technology capability and 
whether the system is going to work. It also drives cycle 
times, it drives costs. We end up occasionally with systems 
that go into the field that the technology we have been 
reaching for may be very current, but other technologies in the 
system by that time are obsolete.
    So what we are really trying to do is to capture some of 
the best lessons we have learned through a program that is 
known as the Advanced Concept Technology Development program, 
where you really look at technology maturity and utility in the 
field before you make that program decision. We have worked 
very closely with the Joint Staff on this. The chairman has 
already had his instructions rewritten and we are in the 
process of revising ours so that we do not get into that 
situation in the future.
    Mr. Lieberman. Mr. Chairman, could I have just a couple of 
seconds to comment?
    Mr. Horn. Yes.
    Mr. Lieberman. I think that the Y2K conversion experience 
was a graphic example of the benefit of independent review of 
information that is generated by program offices in any large 
organization, and I do not think, frankly, that that exercise 
would have been successful or credible had there not been a 
source of independent verification. Auditors stepped up to that 
role and I think our contribution was recognized.
    Similarly, well, the whole question of auditing weapon 
system programs has troubled me for many years. I have been in 
the IG business now for 20 years. The acquisition community is 
one of the few management groups in the Department of Defense 
that sees very limited value in auditors coming in and looking 
at their programs. There is absolutely no comparison between 
the number of audit suggestions coming from, say, the logistics 
community, the finance community, the health community, and the 
number of suggestions coming from the acquisition community, 
which takes a very passive attitude in general. There are 
exceptions, but certainly for major weapon systems, I would 
stand by that statement.
    We are doing some audits of those systems, but many do not 
get auditing at all. GAO steps into that gap and does quite a 
bit, but there is still a gap left. When we do go in and look 
at these systems, unfortunately, sometimes it is after the 
fact. We were asked by the Congress to do post-mortems on two 
failed programs last year, an Army tactical intelligence sensor 
program that cost $900 million and achieved not much of 
anything, and an information management system for the 
commissary agency that cost more than $60 million and was a 
complete failure. In both those cases, I know that we could 
have given early warning that those programs were in trouble, 
but what came through the management reporting chain was 
unrelenting good news. Everybody is always moving forward and 
nobody wants to admit problems because of the resource 
competition that Mr. Hinton referred to earlier.
    So I disagree with my good friend, Mr. Soloway. I think 
there is a need for more auditing on a selective basis, driven 
hopefully by risk assessment methodology so that we are sure we 
are going to add some value.
    Mr. Hinton. Mr. Chairman, could I also weigh in on this a 
little bit? Mr. Soloway is exactly right. We have been working 
with his office in terms of the body of work that we have done 
over the years looking at the best practices in the acquisition 
arena and making suggestions based on what we have learned from 
our work as to how DOD could improve itself in overseeing and 
managing the programs. We are encouraged by what we are hearing 
as DOD is formulating its new regulations, but the proof is in 
the pudding, that is, the implementation of what is going to 
happen, the outcome of the recommendations.
    Based on all the work that we have done over the years, in 
order to really get at the problems that we have seen, you have 
got to get at the root causes for the prevailing practices that 
we see of overpromising on performance and underestimating 
program costs. These causes go back to funding competition 
within a service and between services, preserving programs from 
candid criticisms, service rivalries and routinely making 
exceptions to sound principles. Once we recognize the root 
causes, I think there are three things that need to occur and 
we need to see the Department demonstrate or else we will be 
back here next year or the year after talking about the same 
symptoms that we see in a lot of the acquisitions.
    One of the first things that we see is the need to have a 
policy that really spells out best practices that will work in 
DOD. That policy must recognize the changes that are needed in 
the environment, in the culture, in the incentives that will 
drive the culture and the behavior to act differently.
    A second point, and it is one that has been a constant 
theme throughout the statements and in our oral statements this 
morning has been that the acquisition work force needs to be 
very effectively trained on how to implement that policy.
    Third, and very importantly, the policy needs to be 
enforced. And that goes right to the heart of funding, making 
critical decisions when we have programs coming through and 
someone raising their hand to say we have got problems. We 
should not be going forward. The technology is not where we 
need it to be before we move forward into the engineering and 
manufacturing phase of the acquisition process.
    It is going to be that case-by-case demonstration for us to 
see whether or not the behavior and the policies are going to 
change. That is based on a large body of work that we have 
done, and like I say, I am encouraged with where DOD is headed, 
but the proof is going to be in how it is implemented.
    Mr. Soloway. Sir, may I just add one more point, not in an 
argumentative vein, but to this issue.
    Mr. Horn. Sure.
    Mr. Soloway. I think that maybe we ought to look at the way 
we are structuring the process now, and if I could suggest a 
way in which we can achieve some of the goals that both Mr. 
Hinton and Mr. Lieberman are talking toward. All of our major 
weapons programs now are managed through what we call the IPT 
process, Integrated Product Teams, bringing together the 
various disciplines. It seems to me, to the extent that 
resources permit and so forth or where there are high-risk or 
high-visibility programs that are of interest to the Inspector 
General's office, that an ongoing partnership as part of the 
IPT might bring a different cast to bear, if you will, on the 
process. There is always a tension between auditors and 
performers and there is always this natural, sometimes very 
constructive tension between people feeling like they are being 
checked out as opposed to people feeling like they are in an 
environment of partnership.
    One of the successes that is in process, we think, now is 
this whole, as I mentioned, strategic alliance, where the 
Inspector General, our office, and a bunch of other players are 
working together to construct a different business model, and I 
think the IPT process that we have in place already with our 
major programs really offers an opportunity to provide the 
access and the insight for folks like the Inspector General to 
then identify problems as they are coming along, potentially 
work them out in that environment as opposed to the perception 
of another check coming down the pike, which is always going to 
create some tension.
    Mr. Horn. Let me go back to spares on this particular 
dialog here. The Inspector General in their report of March 8, 
2000, noted that the Department paid from 124 percent to 148 
percent more than what was fair and reasonable for propeller 
blade heaters for the C-130 and the P-3 aircraft. Now, does the 
Department of Defense agree with that or do they think it is 
mythology by the auditors?
    Mr. Soloway. To be very frank with you, sir, this is a 
matter that has been under significant discussion and debate 
between us and the Inspector General for some months now, and 
it gets back to the point I made earlier. The price comparison 
becomes questionable in our mind when one recognizes that 
previous purchases of that part were for the part itself, 
whereas today those purchases are part of a virtual prime 
vendor or prime vendor arrangement in which a whole range of 
services in addition to the part are being provided--supply 
management, inventorying, warehousing. We are not buying 
hundreds of parts and putting them into warehouses. All of that 
responsibility has been turned over to the contractor and so 
on. So there is a whole service associated with what we are 
buying in those parts.
    In addition to the actual cost there, you want to also look 
at the impact of that relationship on the total business chain, 
as any good business model would do, and this was the intent of 
the independent business case that the Defense Logistics Agency 
conducted, their analysis that they had conducted by KPMG some 
time ago.
    What we have seen with this contract to date, and we have 
had several very aggressive reviews of it and put DLA through 
some very difficult, tough questions, as well as the 
contractors, brought them in and really looked hard at it, we 
see significant improvement in parts availability across the 
board. We see a 30 percent reduction in the repair turnaround 
time, and all of that thus, as I said in my statement, 
translates into increased readiness and mission capability and 
availability of capital assets.
    That analysis, that broad sort of supply chain or value 
analysis, is not, in fact, part of the report that the 
Inspector General's office has issued, so we have been engaged, 
and I believe that--I have not seen the final version of the 
report. Of course, we saw a draft, but we have been engaged in 
an active discussion with them for some time over the need to 
step back and look at some of these bigger questions.
    Now, I will acknowledge to you that we cannot, the DLA 
cannot or the Air Force cannot point to specific dollar values 
for each of those pieces themselves. This is a very new 
environment for the Department of Defense, as it is for much of 
industry. How do you do value chain analysis across the board? 
But what we do know is that a 30 percent reduction in repair 
turnaround time, improved parts availability, improved 
availability of capital assets has tremendous value. So we are 
not at all convinced that the prices being paid are unfair and 
unreasonable.
    Now, in some cases, there are prices that are being paid 
that have been identified either by the IG independently or 
previously by Defense Logistics Agency, which in the last 
couple of years has put into place a system, a sort of a red 
flag system, if you will, to identify situations where one of 
these thousands of parts prices has, in fact, gone up what 
would appear to be precipitously, and in many of those cases, 
they have been successful in renegotiating prices. I believe, I 
am not sure if it is the blade heater specifically or one of 
the other parts covered in that report, have recently reduced 
the price by about 20 or 25 percent through negotiations, with 
another expected reduction in the next round, the next renewal 
of the contract.
    So there is a system in place to identify this. It is 
imperfect. We are dealing with tens and tens of thousands of 
parts. We are dealing in some cases with parts that are 
misidentified or mislabeled and so forth as a result of a 
turnover of responsibility over the last several years from the 
services to DLA of literally millions of NSNs, we call them, 
part numbers. But I do think that if one looks at the steps 
that have been taken, they are very much in consonance with 
what the IG has recommended.
    And for the most part, the timeframes of the actions cited 
in this current C-130 report are contemporaneous with the 
earlier reports. We are talking about sort of a 1996-1997 
timeframe, not 1999-2000, because it would be impossible for 
them to have had that audit visibility at this point. But the 
performance on the contract and what it has resulted in to us 
suggests to us that this is a very excellent vehicle. It works 
very well for the benefit of the Department and the taxpayer.
    Mr. Horn. Well----
    Mr. Lieberman. Could I respond to that?
    Mr. Horn. Please, because I was going to ask you this 
question. You might want to respond to this, too. Why was your 
focus limited to aviation spare parts or are you looking at 
other situations of cost overrun and overpricing and 
underpricing and all the rest? So maybe you could tell us a 
little feel about that. You have done a great job where this 
is.
    Mr. Lieberman. Let me address those questions first. We got 
into the aviation spares area because of a hotline complaint 
regarding spare parts on a specific contract, a new type of 
contract the Defense Logistics Agency referred to as a 
corporate contract. Once we got into that, we found this was 
merely one of a whole family of very similar contracts, 
basically in the aviation spares area. The Defense Logistics 
Agency was trying to adapt what it considered to be commercial 
buying practices. This related mostly to going into commercial 
catalogs that companies like Boeing and Allied Signal had in 
order to buy spare parts.
    So we have stayed in the aviation area because there were 
multiple contracts and we have worked through half a dozen of 
them now one by one. We have not been asked to look at other 
types of spare parts, nor, frankly, do we have the staff to do 
so. So whatever we say about spare parts, it is fair to say 
that we should not generalize and I would not say that every 
kind of commodity DOD buys has the same kind of problems.
    Prices paid for aviation spares historically have been 
controversial. The coffee pot, the toilet seat, and the hammer 
were all going into airplanes, as I recall, or at least the 
first two were, for sure. Aviation spares were really the 
center of attention in the early and mid-1980's. Therefore, it 
has always been a sore point. But we did not single out those 
companies in those contracts. As I said, it was all driven by a 
hotline allegation, which then led us to wonder whether the 
problems on that contract were an anomaly or whether they were 
widespread across that whole kind of contract and we found the 
latter.
    Now, talking about the virtual prime vendor contract, both 
of our reports are out in final. I would urge Mr. Soloway to 
read them because they address every single one of the points 
he just made. I am constrained in talking about this at this 
hearing because these reports are still for official use only. 
We do not want to violate the law by disclosing proprietary 
data of the contractor, and basically, we have to be very 
careful with disclosing numbers.
    What I can say, though, is that we are not mindlessly 
comparing the cost in this contract with the cost of the part 
way back when, and saying the difference is bad. We realize 
full well that the Department is buying services along with the 
parts on these contracts, and that would be fine if, and the 
KPMG study has the same big ``if'' in it, you really need those 
services. Do you need to hire a contractor who, in essence, 
acts like a wholesale supplier? He is a vendor. He does not 
make most of the things we are talking about. He goes out and 
buys them for you. He acts just like the defense warehouse we 
were talking about before, except hopefully he does it a lot 
more efficiently in using modern business systems and modern 
business practices.
    Do you really need a wholesale level if, for example, you 
have a part where you know exactly how many you are going to 
need each month, the supply is very predictable, you know 
exactly who is going to need them and where they are going to 
be needed and it makes no particular sense to have any kind of 
middleman or any wholesale inventory. Why not just ship 
directly from whoever makes them to where they are needed? So 
buying services, paying extra bucks to buy services that we did 
not really need to buy in the first place has been a recurrent 
issue through all of these audits.
    Now, as Mr. Soloway has said, we have been working with the 
Department to migrate out of that whole generation of 
contracts, into a new generation of strategic supplier 
alliances. I do not know who coined that term. I hope it was 
not anybody in my office, but anyway, these are much more 
sophisticated arrangements, much more precise pricing based on 
what kind of support do we really need vis-a-vis each one of 
this whole market basket of parts that we are talking about 
with each one of these vendors. I believe that the vendors will 
like it better, and DOD will like it better. DOD will certainly 
get more value for its money under these arrangements.
    Whether all the suppliers will be willing to negotiate 
those kinds of arrangements or not, I do not know. They may not 
be. But this is the way the tide is running right now. In fact, 
the Defense Logistics Agency has agreed, this contract had 
serious flaws and will be replaced, hopefully, by a new 
arrangement, an SSA.
    Mr. Horn. Mr. Lieberman, is it within the Inspector 
General's jurisdiction to not only look at the money side but 
to look where retirees have come from the civilian and military 
side in some of these firms that seem to have this nice pricey 
situation where they can raise the amount to 124 percent to 148 
percent? I would like to see that, because obviously there are 
some connections around here somewhere, I would think. We ought 
to at least go in with that hypothesis.
    Mr. Lieberman. Well, we have not done any recent work on 
that. What you are talking about is the infamous revolving door 
syndrome.
    Mr. Horn. And what President Eisenhower had to say in his 
last address to the Nation, which was the military industrial 
complex.
    Mr. Lieberman. Well, there are----
    Mr. Horn. Some of us were discussing that last night around 
here, that we actually remember that speech.
    Mr. Lieberman. I have been around a long time. I have 
worked under a lot of Presidents, too, but Eisenhower was not 
one of them.
    Mr. Horn. Well, I did. I was assistant to the Secretary of 
Labor and he was a great man. He is slowly getting his own by 
the historians that do not quite know how you should pick 
Presidents anyhow. But Eisenhower had strong feelings on this. 
We ought to give you the Eisenhower medal for those reports.
    Mr. Lieberman. Well, there are very specific laws. In fact, 
this is an area where, if anything, we probably over-regulated 
in terms of what the standards are for avoiding conflict of 
interest. The Ill Wind scandal of the mid-1980's where a senior 
Navy official was bribed set off a chain reaction of 
legislation and, in fact, the folks here on my left probably 
know a lot more about that than I do.
    We have, indeed, been asked from time to time to look into 
situations where there was some evidence of breaking those 
rules and those can turn into criminal cases and there have 
been some criminal investigations driven by that sort of thing. 
I cannot say, though, that we have done any audits that have 
traced or found any particular trend in terms of who it is that 
the contractors are employing or who owns the companies and 
what kind of prices are charged to the Department as a result.
    And in fairness, I should say that in all these spare parts 
reports, it is not the contractor's fault. I think Mr. Soloway 
would agree. These are not cases of DOD getting ripped off by 
contractors. These are cases where DOD did not make very good 
deals and the contract terms just were not particularly 
favorable to the government.
    Mr. Horn. How have we solved that, Mr. Soloway?
    Mr. Soloway. I think that the point Mr. Lieberman just made 
is the critical one, that we are not dealing by and large here 
with cases where we are concerned that we are being ripped off, 
if you will, but where we are making the intelligent decisions, 
have systems in place to identify outlier prices, and have 
training in place for our folks to really understand how these 
processes can work and how these commercial practices of supply 
chain management specifically can work, and that is much of the 
training that I spoke of earlier during the day.
    I think one good example of this is in the two of the three 
reports that the IG released a couple of years ago in this 
area. One of the major issues in those contracts was that we 
were using the contract vehicles incorrectly and we had people 
in the field who did not understand. For instance, we had a 
contract, I believe it was with Boeing, where it was for urgent 
requirements, where we had an aircraft on the ground and it was 
a 24-hour guarantee, get the part anywhere in the world, for 
which you obviously pay a premium price, and we found cases 
where people were buying for stock from that because it was not 
adequately trained and communicated to them the nature of the 
contract.
    So I think this really is, and I think that the Inspector 
General, Mr. Lieberman, and others have been very clear about 
the sense that we have started to take the right steps toward 
training the work force, providing the training that is needed, 
and creating a different sort of knowledge base that goes into 
utilizing these business arrangements.
    Mr. Horn. Ms. Lee, you have listened patiently to this 
dialog. Do you have any comments to make on it?
    Ms. Lee. I agree it is a work force challenge. We have got 
a lot of work ahead of us, but there are good things happening 
and we do need to look at what is the result. Do we have more 
aircraft up? Do we have a shorter turnaround time? Are we more 
ready? And somehow we have got to balance those very important 
results issues with our business deals and that is why we are 
trying to make sure we have workers who are truly business 
managers and can make these kind of business decisions.
    Mr. Horn. But you would agree the taxpayers deserve the 
best price and the best quality?
    Ms. Lee. Absolutely.
    Mr. Horn. Mr. Hinton, what does the General Accounting 
Office think of this debate?
    Mr. Hinton. I am kind of coming out where Ms. Lee is there 
and I do think that one of the most critical issues that we 
have right now is two-fold, actually three-fold, Mr. Chairman. 
One is looking at the major weapons systems and getting the 
outcomes that we really want.
    Second, as we move forward on all of these high dollar-
value information technology projects, we must have the right 
leadership and the commitment in the leadership, a good game 
plan going in, a good handle on the requirements of what we are 
after, and a good finance plan.
    And third, and I think very critically, is the issue that 
we have all talked about today, the work force issue, 
particularly in DOD, as DOD has downsized. We have embarked on 
a very broad defense reform program over there. We are moving 
into electronic commerce, a whole new area over there. It is 
going to require new skills, new knowledge, new abilities, and 
we are at a point where we have got to make sure that we have 
got the right balance in the work force that is going to be 
able to carry us forward from where we are right now. So I do 
think that they are the top three from where we would come 
from.
    Mr. Horn. Somewhere in the back of my head, the figure 
36,000 is applied to the Pentagon in terms of the number of 
people they have got involved in acquisition, purchasing, so 
forth. Is that a possibility?
    Mr. Soloway. We have our total what we call core 
acquisition and technology work force. It is not just 
contracting people, but all, as Mr. Lieberman called it, the 
panoply of skills that support them, is actually about 150,000, 
about 19,000 of whom actually have the right to sign contracts 
and commit.
    Mr. Horn. Well, that is interesting.
    Mr. Lieberman. In the congressional definition, it is 
230,000.
    Mr. Horn. The what? 230,000 overall or what?
    Mr. Lieberman. There is a congressional definition that 
includes everybody who works in an acquisition organization. 
That includes many administrative people but that is the 
congressional definition of acquisition work force and it adds 
up to a whopping 230,000, even after being downsized from 
460,000. But the acquisition core itself is 129,000.
    Mr. Soloway. We actually went through a whole process with 
Congress a couple of years ago to redefine that acquisition 
work force because of some efforts Mr. Hunter and others had 
underway to require reductions and there is a report we 
submitted called the ``Section 912 Study'' in which we 
redefined that work force and that is how we come up with this 
130,000, 150,000, depending. It is a slightly variable number, 
but it is a lot of people and a lot of training requirement.
    Mr. Horn. Well, exactly. That is the point here, that when 
you have got people working their way up to be sufficiently 
qualified and see a career lying ahead of them, they might stay 
there, and it seems to me that is even more that this 
curriculum ought to be working through Internet, all the rest 
of it, and distance learning when you are at bases spread all 
over the world. We ought to be able to do a good job of that.
    Has the IG or GAO looked into strictly the curriculum bit 
there? I know in passing some of you did, but----
    Mr. Hinton. In the acquisition arena, we have, Mr. 
Chairman, and one of the best practice reviews we did was 
looking specifically at training. And when we compare DOD as to 
what commercial firms are doing outside, the commercial firms 
have a very strategic approach to how they train on best 
practices when an initiative comes about.
    Key to that is having leadership, and key to that is being 
focused and having the resources and the undivided attention of 
the work force that you are trying to train. We sat down with 
Mr. Soloway and have gone through that and that is one area, as 
he remarked earlier, that they are embarking on and trying to 
get revisions, improvements in the training program. I am 
encouraged by the direction they are moving in.
    Mr. Horn. Thank you. Does anyone want to make a last 
comment on this? Yes, Mr. Lieberman.
    Mr. Lieberman. Actually, we have not looked at DOD 
acquisition training from an audit perspective, but I try to 
send my auditors to the exact same training that the 
acquisition people get. So we have a lot of first-hand feedback 
from auditors who went and took courses. I would say that the 
quality of the instruction is excellent. The problem has been 
over the years that the curriculum is too limited. It is too 
heavily oriented toward major weapon systems acquisition. It 
needs to be somewhat expanded and DOD needs to find ways to 
cycle more people through either formal training or, as you 
say, nowadays there are other ways to provide people a way to 
get themselves into this continual learning mode, which is what 
we have to strive for.
    Mr. Horn. Yes?
    Mr. Soloway. We have a very tough continuous learning 
requirement at DOD, relatively speaking, of 80 hours every 2 
years. As I said earlier, we are going to be creating a core 
curriculum within that, and most of that is distance learning, 
web-based opportunities. We are going to be creating a core 
curriculum which will require our work force to take some 
percentage of that continuous learning from a given menu of 
courses which will evolve and change over time. As we reach 
certain training milestones with the work force, we will be 
injecting new stuff into that and that will become a dynamic 
core curriculum, if you will. But each of the things that have 
been said here by Mr. Lieberman and Mr. Hinton in the training 
area we agree 100 percent with and, I think, are really moving 
out aggressively in all of those areas.
    One of the things you also find in the corporate world, and 
I just spent 2 days looking at this in a number of different 
companies, is what they call corporate universities and how 
they train their executives and do executive and practitioner 
education. We have a schoolhouse in the Defense Acquisition 
University which is not just a schoolhouse but extensive 
distance learning, and we are in the process now of 
transitioning some of those top attributes of a corporate 
university, of the kinds of things that Mr. Hinton talked 
about, which is real-time knowledge, real-time practitioner 
experience, best practices, and specific targeted training, 
into that system.
    Mr. Horn. That is very helpful. Ms. Lee, one last comment. 
The question I should have asked and did not, you can answer it 
now.
    Ms. Lee. The question you should have asked and did not?
    Mr. Horn. Well, we will miss you. Maybe we will follow your 
career over there or something and get you here as a witness 
under oath.
    Ms. Lee. Thank you very much. It has been a pleasure.
    Mr. Horn. We thank you all. I know it has been a long day, 
but we appreciate you sticking it out and sharing your views on 
this. If you have any other thoughts you would like to add to 
the record, just send it over to the staff. We will be glad to 
put it in the record at whatever place you would like to have 
it. We will now move to panel two, and we thank panel one.
    We have General Tuttle and then Mr. Grant Thorpe, Mr. Gary 
Engebretson, and Mr. Leinster.
    Please raise your right hands.
    [Witnesses sworn.]
    Mr. Horn. Yes, sir. The clerk will note that the four 
witnesses have taken the oath and we will begin with General 
William Tuttle, Jr., who is retired, president of the Logistics 
Management Institute on behalf of the Procurement Round Table. 
General, we are glad to have you here.

 STATEMENTS OF GENERAL WILLIAM TUTTLE, JR. (RET.), PRESIDENT, 
 LOGISTICS MANAGEMENT INSTITUTE, ON BEHALF OF THE PROCUREMENT 
 ROUND TABLE; GRANT THORPE, SENIOR CONTRACTS MANAGER, TRW, ON 
     BEHALF OF THE PROFESSIONAL SERVICES COUNCIL; GARY D. 
  ENGEBRETSON, PRESIDENT, CONTRACT SERVICES ASSOCIATION; AND 
BRUCE E. LEINSTER, INDUSTRY EXECUTIVE, CONTRACT AND ACQUISITION 
 POLICY, GOVERNMENT INDUSTRY SECTOR FOR IBM, ON BEHALF OF THE 
         INFORMATION TECHNOLOGY ASSOCIATION OF AMERICA

    General Tuttle. Chairman Horn, my name is Bill Tuttle. I am 
the president of Logistics Management Institute, as you just 
mentioned, but I am here today representing the Procurement 
Round Table, a nonprofit organization of 39 former Federal 
acquisition officials who serve pro bono in advising and 
assisting the government in making improvements in Federal 
acquisition. My statement, provided for the record, is our 
recent paper entitled, ``The Federal Acquisition System: 
Transitioning to the 21st Century.''
    As has been mentioned before, annually, the Federal 
Government acquires from the private sector roughly $200 
billion in goods and services for its use. The Procurement 
Round Table [PRT] as I will call it in the future--you have to 
use the acronyms--our objective with this paper is to stimulate 
continuing reforms in the process by which the government 
obtains these goods and services, reforms that will help 
prepare the critical Federal acquisition system to deal 
effectively with the unprecedented changes occurring in both 
the commercial marketplace and within the government itself. 
Unabated technological change and competitive market forces are 
producing a dramatically transformed marketplace, one in which 
traditional market boundaries and relationships are 
disappearing and new ways of doing business are being developed 
at a challenging pace. Within the Federal Government, agencies 
are changing their roles and depend to an increasing degree on 
the private sector and State and local government to provide 
essential services.
    To cope with and, in fact, to help lead these changes, the 
Federal acquisition system must implement a new series of 
reforms that buildupon the encouraging foundation established 
by the reforms of the 1990's. To this end, the PRT believes 
that the following actions must be taken, and we have about 
five recommendations in the paper.
    First, to redefine the scope and vision of Federal 
acquisition. For example, the present definition of acquisition 
in the FAR is to ``acquire by contract.'' It connotes, ignoring 
other means of obtaining goods and services through cooperative 
agreements, other transactions, even grants. We recommend 
broadening the definition to include the other methods of 
obtaining goods and services and to include the whole 
acquisition process, from requirement setting to life cycle 
support of capital goods. Also, we recommend, in this context, 
by law designating the senior procurement executive in each 
agency as the chief acquisition officer, in effect, the senior 
business manager.
    Second, encourage results-oriented long-term relationships 
between the government and its suppliers, for example, 
contracting for products and services, such as producing, 
installing, and supporting elements of the National Air Space 
Management System over a 10 to 15-year period.
    Third, adopt policies calling for government information 
technology architecture and systems that are fully capable of 
interfacing with each other and with those of industry. For 
example, a government-industry agreed technical intranet/
internet architecture for contracts and grants process formats.
    Fourthly, adopt a business-based approach to cost 
accounting, budgeting, and acquisition policy guidance. For 
example, multi-year budgets, greater reprogramming authority, 
moving Federal cost accounting standards closer to generally 
accepted accounting principles used in the private sector.
    And fifth, place greater reliance on commercial industrial 
capabilities. For example, agencies would use private sector 
R&D capabilities unless there is no commercial capability 
rather than compete with those commercial capabilities.
    These new reforms will better prepare the Federal 
acquisition system to contribute to lower acquisition costs, 
rapid and more informed decisionmaking, higher quality products 
and services, efficient life cycle sustainment, and integrity 
for the taxpayer. As with the successful reforms in the 1990's, 
implementing these additional reforms will be a challenging 
task, one that will require the full commitment, advocacy, and 
partnership of Congress and the executive branch.
    To provide a foundation for that partnership and to serve 
as an implementation mechanism for these reforms, the PRT 
recommends that Congress enact legislation to direct the 
executive branch to establish a high-level panel similar to the 
DOD Acquisition Law Advisory Panel of the early 1990's, 
otherwise known as a Section 800 panel, to identify the 
specific actions required to implement the recommendations in 
the paper.
    In closing, while the millennial changes discussed in this 
paper are not tied to the turning of the numbers on the 
calendar, the changes are as critical as the millennium was 
inevitable. The time to start is now.
    Thank you, Chairman Horn, for the opportunity to offer the 
Procurement Round Table's recommendations.
    Mr. Horn. Thank you very much. We appreciate your 
experience being brought here.
    [The prepared statement of General Tuttle follows:]
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    Mr. Horn. Mr. Grant Thorpe is the senior contracts manager, 
TRW, on behalf of the Professional Services Council.
    Mr. Thorpe. Mr. Chairman, on behalf of the Professional 
Services Council, I would like to express our appreciation for 
the opportunity to testify today on the government acquisition 
process. I am Grant Thorpe, senior contracts manager with TRW, 
representing Mr. Concklin and the Professional Services 
Council.
    The last 8 years have witnessed a dramatic transformation 
in the way the Federal Government buys goods and services from 
the private sector. It has been a deregulatory miracle. The 
miracle is clearly underway but has a long way to go. I 
recommend the following five priorities.
    Removing additional regulatory burden. We still need to 
reduce the regulatory requirements, continue to decrease the 
reliance on military specifications, and reduce the need for 
additional representations and certifications in contract 
proposals. We must focus on results rather than on process and 
contract administration, put funding into improving the payment 
streams for contractor invoices, and cut the multiple reviews 
of invoices, ACRN accounting, and additional audits. Legitimize 
common sense. Increase the use of oral presentations and 
continue to reduce the page limits on proposals.
    Fourth, maximize commercial solutions. Use more commercial 
off-the-shelf hardware and software, reduce the requirement for 
cost accounting standards application and the request for 
certified cost and pricing data.
    And last, improve the opportunity for private industry to 
compete by identifying non-inherently governmental functions 
and privatizing them and making the public-private competitions 
fair to industry by leveling the playing field in the A-76 
process.
    How do we do this? A major way is to invest substantially 
in acquisition learning. Implement key elements of the reform 
architecture, such as performance-based service contracting, 
past performance, oral proposals, multiple award vehicles, best 
value contracting, electronic commerce, and market research. 
Many of those were mentioned in the prior panel.
    How should we do this? Critical implementation areas 
include, and I just mentioned a few of them, past performance, 
performance-based service contracting, business process 
reengineering, and market research.
    In the acquisition learning area, focus on web-based 
technologies and integrate learning programs with nationally 
recognized certification processes, such as the National 
Contract Management Association, and degree programs at 
colleges and universities.
    Third, merge procurement and technical functions. Undertake 
an organizational and functional integration of the procurement 
and the program technical manager functions.
    And last, focus on technology-driven enterprise. There is 
still too much emphasis on paper. All requests for proposals 
should be forwarded electronically and responses provided in 
the same medium.
    We have not arrived at our ultimate goals and we must be 
careful of incremental reform.
    Mr. Chairman, I thank you for the opportunity to express 
our opinions and look forward to working closely with this 
subcommittee and committee to achieve these aggressive 
objectives.
    Mr. Horn. Thank you very much. We will get back to you with 
some questions after the next two speakers.
    [The prepared statement of Mr. Concklin follows:]
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    Mr. Horn. Mr. Gary D. Engebretson, president of the 
Contract Services Association. Tell us a little bit about your 
organization.
    Mr. Engebretson. Mr. Chairman, my name is Gary Engebretson 
and I am president of the Contract Services Association of 
America [CSA]. It is the Nation's oldest and largest 
association of government service contractors. Now in its 35th 
year, CSA represents more than 330 companies that provide a 
wide array of services to the Federal Government as well as to 
numerous State and local governments.
    I greatly appreciate this opportunity to share with you the 
views of our members on the Federal acquisition process. I have 
submitted a more comprehensive statement and I ask that it be 
inserted into the record.
    Mr. Horn. I should have said at the beginning, the minute 
we introduce you, it is automatically in the record.
    Mr. Engebretson. Thank you. I commend you for holding this 
hearing today. As former Representative Bill Clinger noted, 
``Only through the most vigorous implementation will we achieve 
the goal of creating a more responsive system which provides 
more discretion to government buyers and freedom for those who 
sell to them while maintaining the requisite degree of control 
and fairness.''
    Doing business with the government once meant increased 
costs and little flexibility. The unique systems required kept 
many qualified commercial firms out of the government 
marketplace. Then in rapid succession, we saw the enactment of 
the 1994 Federal Acquisition Streamlining Act and the 1996 
Clinger-Cohen Act, along with the FAR Part 15 rewrite and the 
initiatives in the fiscal year 2000 defense bill, all aimed at 
developing a more functional, effective acquisition process.
    It is exciting to see the contracting officials move 
forward to the technology to further acquisition reform by 
posting solicitations on the Internet and updating bidders via 
e-mail, but I see these laws and initiatives as only the tip of 
the iceberg for the overhauling of the procurement system, 
particularly for the services contracting arena, which is an 
increasingly crucial part of the government marketplace, as we 
heard from previous people on the panel.
    CSA is the co-chair of the Acquisition Reform Working Group 
[ARWG], a coalition made up of industry trade associations 
representing both hardware and service contractors. ARWG has 
developed additional acquisition reform initiatives for 
consideration during this fiscal year. I ask that a summary of 
these proposals be included also in the record.
    The ARWG recommendations are aimed at eliminating or at 
least lowering the barriers to make government business 
unattractive to commercial firms and inhibit greater 
integration of commercial and government products and services. 
The system is still a long way from where it needs to be. Our 
companies tell me they still see supposed best value 
competitions that end up being nothing more than thinly veiled 
low-cost competitions and performance-based procurements with 
specifically exacting requirements.
    For example, why should a solicitation still require manual 
inspections of a pumping system when a computer monitor could 
provide the same information and probably even more timely and 
more accurate. These problems are not the result of reform. 
Rather, they reflect entrenched cultures that are slowly coming 
to grips with a very significant change. But let us not walk 
away from reform in the face of these difficulties. Instead, we 
should face them head on together, and that means redoubling 
our focus on education and training.
    For CSA, the training and education for acquisition work 
force consistently ranks as one of our membership's top issues. 
It is a critically important element of the reform process. 
Over the years, the practices and cultures of the government 
and commercial sectors evolved separately. Now these sectors 
must come together in terms of contracting and pricing and 
quality design and manufacturing.
    We are asking a work force that is used to a rigid, almost 
confrontational system to embrace a system that is more open, 
more empowering, and possibly more risky for all concerned, and 
certainly more reliant on the contracting officer's business 
judgment rather than an established set of rules.
    Culture change and institutionalization of reform 
initiatives through education and training will ensure that we 
all reap the benefits of acquisition reform. Recognizing that 
training is a two-way street, CSA is developing special 
acquisition training programs for its members, in addition to 
strengthening its existing programs on the Service Contract and 
Davis-Bacon Acts.
    CSA represents a significant number of small businesses and 
supports programs that encourage and assist small businesses to 
obtain a fair share of Federal procurement opportunities. Small 
businesses are an important source of supply to the government. 
Yet, they disproportionately feel the loss of business revenue 
and unique burdens placed on the government's suppliers. These 
businesses can least afford the additional overhead costs, 
including the hiring of additional employees or lawyers to 
ensure compliance associated with doing business with the 
government. This is where acquisition reform truly benefits 
small businesses.
    Finally, the issues of outsourcing and privatization are 
among the most prominent and important issues now facing the 
Federal agencies. Much of what has been accomplished in the 
area of acquisition reform can and must be applied to a more 
aggressive and comprehensive policy of competing commercial 
activities currently performed by government agencies.
    While CSA recognizes that public-private competitions will 
continue to be the rule, we are concerned that such 
competitions ultimately disadvantage all parties. For the 
private sector, the playing field is not and likely never will 
be entirely level. Numerous factors make it extremely difficult 
and often impossible for industry to win a competition, 
especially for small businesses. Indeed, awarding the contract 
to the government is not even made on a basis of best value, a 
fundamental premise of acquisition reform.
    If government agencies are to continue to compete against 
private offerers to provide goods or services, it is vital that 
such a competition be conducted on the basis of truly 
comparable cost accounting practices, past performance, and 
also best value. Until then, quality service contractors cannot 
trust a process that can so easily be manipulated to provide 
competitive advantages to what we call the in-house or most 
efficient organization and are increasingly unwilling to 
participate in the A-76 process, although I will admit there 
are a few examples of individual commands pioneering the use of 
acquisition reform tools to a great advantage.
    CSA strongly supports the Federal Activities Inventory 
Reform Act, which requires an inventory of all commercial 
activities within the Federal Government and allows contracting 
of those activities to achieve a best value for the taxpayer. 
It is a rational and appropriate approach toward achieving the 
proper balance between public and private resources.
    In summary, the road to acquisition reform will be filled 
with rough spots and abuses and some of them quite significant, 
but nothing that we cannot overcome. In the words of one of our 
member companies, he says, ``Where some people see threats and 
potential abuses, my optimism causes me to see opportunities 
for the overall procurement process.''
    I thank you, Mr. Chairman, for this opportunity to share 
our views and we will be open to any questions that you may 
have.
    Mr. Horn. We thank you.
    [The prepared statement of Mr. Engebretson follows:]
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    Mr. Horn. Our last panelist is Mr. Bruce E. Leinster, 
industry executive, Contract and Acquisition Policy, the 
Government Industry Sector for International Business Machines 
[IBM], on behalf of the Information Technology Association of 
America [ITAA]. We appreciate the testimony ITAA always 
provides us and thank you for coming.
    Mr. Leinster. Thank you, Mr. Chairman, and I am pleased to 
be here today on behalf of ITAA to express our views on Federal 
acquisition management challenges.
    While I am with IBM, I am testifying today in my capacity 
as chairman of ITAA's Procurement Policy Committee. ITAA's 400 
corporate members represent U.S.-based firms offering software 
products, professional services, network-based services, and 
systems integration services to the private and public sector. 
Thus, many of our member companies are actively engaged in the 
Federal marketplace.
    ITAA commends Chairman Horn and the subcommittee for 
holding this critical oversight hearing today. With the 
incredible pace of change in the procurement system that was 
caused by the Federal Acquisition Streamlining Act [FASA], and 
the Clinger-Cohen Act, it is most appropriate that the Congress 
review how these reforms are being implemented. ITAA is very 
enthusiastic in support of the changes brought about by these 
landmark bills.
    The Federal acquisition process, while by no means perfect, 
has been greatly improved. The duration of acquisitions has 
been shortened dramatically. The agencies have a wider range of 
competitive vehicles to choose from, including governmentwide 
acquisition contracts, so called GWACs, and the General 
Services Administration's IT schedules, and the use of 
commercial practices is more commonplace. Also, the elimination 
of bid protests at the General Services Board of Contract 
appeals has enhanced the relationship between customers and 
vendors.
    ITAA believes that both the use of GWACs and the GSA IT 
schedules now offer the Federal customers choices of IT 
products and services that they did not have before at 
competitive prices and on a timely basis.
    The intense competition among the commercial vendors 
ensures fair prices for the government, and the length of the 
acquisitions as well as the cost of the acquisitions has been 
reduced from months to often a couple of days or weeks. The 
modifications introduced by the Federal Supply Service in 
recent years have greatly enhanced the attractiveness of the 
GSA schedules.
    In addition and most importantly, small firms continue to 
enjoy a substantial share of schedule sales, not just numbers 
of contracts but revenue generated from those contracts. We 
urge the subcommittee to resist efforts to restore any of the 
pre-FASA Clinger-Cohen regulations. In fact, ITAA has as one of 
its priorities to ensure that these procurement reforms 
continue and that there is no rollback of the gains made by 
these laws. We understand, however, that there may still be 
some laws in implementing the goals of FASA and Clinger-Cohen, 
but we believe this can best be achieved by more training for 
the acquisition personnel, a subject that was discussed at 
length by the earlier panel.
    Too often, the first budget cuts in Federal agencies take 
place in areas of education and training. This has hampered 
realizing the full benefits of the acquisition reforms and we 
encourage the subcommittee to stress the importance of this 
training when considering the agency budget requests.
    ITAA, however, does believe that additional reforms are 
still needed. We urge the subcommittee to review the entire 
area of unique requirements for Federal vendors that do not 
exist in the commercial sector. Some of these issues have been 
included in the Acquisition Reform Working Group's statement 
that was referred to earlier and ITAA would like to express our 
support for this document.
    We believe that elimination or modification of many of 
these provisions would continue the road of reform the 
subcommittee has paved. Issues like eliminating the ability of 
agencies to terminate leasing contracts for convenience, 
something not permitted in the private sector, would be offset 
by the agencies realizing better rates and a greater selection 
of finance companies.
    The confusing, burdensome, and expensive requirements, and 
most importantly, the constraint it places on government access 
to IT products of the Buy America and Trade Agreement Act make 
the government less attractive to commercial firms. The Advance 
Payment Act is another requirement that flies in the face of 
established commercial practices. Changes in this act would 
again allow agencies to benefit from better prices and 
commercial practices. Most commercial customers, for example, 
sign up and pay for maintenance agreements in advance and this 
will allow vendors to offer more attractive services to the 
government.
    There is not sufficient time at this hearing to detail all 
of these provisions and their negative impact on Federal 
contractors, but ITAA welcomes the opportunity to pursue them 
with you and your staff.
    Before moving to electronic government, I would like to 
address three additional items that ITAA believes warrant your 
immediate attention. We believe that an oversight occurred in 
FAR Part 12 on the limitation permitting only the use of firm 
fixed-price contracts for the acquisition of commercial 
services. We strongly support the change to allow other 
commercial practices such as time and materials contracts for 
Federal customers. These are routine offerings in the 
commercial sector and we do not understand the rationale of 
prohibiting them in FAR Part 12.
    Another change that could be perceived as minor but which 
would have a very major impact on IT vendors is the adoption of 
the same definition for commercial services that currently 
exists for commercial items. The definition of a commercial 
item is clear, requiring that a vendor merely demonstrate that 
the product has been sold or offered to the private sector for 
other than government purposes. The definition of a commercial 
service, however, is difficult to understand and subjects the 
proposed service to clumsy and unclear pass/fail criteria in 
order to determine a commercial service.
    ITAA would also like to urge the subcommittee to review the 
antiquated practice on conflict of interest that is not found 
in the commercial sector. The Federal Government generally 
prohibits under organizational conflict of interest provisions 
an IT company that designs a solution from bidding the 
implementation of that solution to the government. The 
unintended outcome of this restriction is that many of the 
leading IT firms will not work to develop a solution since they 
fear being precluded from bidding for the usually more 
lucrative implementation phase of the program. We urge the 
members to review this outmoded restriction.
    ITAA's other priority is to encourage the Federal 
Government's move into the Internet age. It is our view that 
Federal agencies, despite pockets of initiative, are lagging 
even the State and local governments in grasping the benefits 
of the Internet for their constituents and customers. This 
subcommittee must increase its efforts to prod, push, and pull 
the Federal agencies to transform into an e-government. ITAA 
and its member companies will be glad to assist you in this 
undertaking.
    It is common knowledge that many government IT systems are 
20 to 30 years old. These systems are outdated, difficult to 
maintain, with insufficient written documentation remaining. 
While Y2K remediation permitted them to continue working into 
2000, the systems were not updated to take advantage of the 
latest technology. The private sector is continuing to 
revolutionize the way it does business in the new economy by 
utilizing the power of electronic business to transform its 
operations. The Internet and network computers can improve 
service, lower costs, and make government services more 
accessible to citizens.
    The fast-paced changes in technology have been accompanied 
by a severe shortage of trained IT professionals, as was 
discussed earlier. If the private sector is having trouble 
retaining and hiring sufficient workers, the government has an 
even greater challenge due to the lower pay and the lack of 
benefits, such as stock options, to attract these sought-after 
employees. The result will be that the Federal agencies will 
face greater challenges to move to e-business solutions without 
the help of the private sector. This will result in the Federal 
agencies sometimes willingly and sometimes reluctantly turning 
to the private sector for outsourcing of key functions. Short 
of a serious recession, we do not foresee the Federal 
Government having sufficient IT workers for their future needs. 
In fact, ITAA's CIO survey for 1999 of 35 CIOs found that 
within 3 years, a majority of the government's IT work force 
will be eligible for retirement.
    The Paperwork Elimination Act offers this subcommittee a 
perfect vehicle for encouraging the Federal agencies' 
transition to an electronic government. This very brief law 
requires Federal agencies to transition to a paperless 
environment by 2003. ITAA urges you to begin tracking the 
agencies' plans now so that 2003 does not find us with 
insufficient process and the government far from meeting this 
ambitious goal. ITAA will be glad to discuss specific 
milestones and suggestions on how the agencies can best achieve 
this goal.
    In the commercial and State and local government 
marketplace, we are seeing revolutionary ways of procuring e-
commerce solutions that are still lacking in the Federal 
marketplace. We are seeing innovative funding approaches, joint 
ventures, transaction-based payments, value-based contracting, 
as well as other methods that allow companies and government 
agencies to acquire new technologies with little up-front 
expenditures. Congress should encourage the Federal agencies to 
explore these innovation solutions. ITAA remains disappointed 
that the Clinger-Cohen pilots have not met with more success 
within the agencies.
    There are other important issues that I did not have time 
to raise with you today, but ITAA has appreciated the 
receptivity of you and your staff to industry's concerns. We 
hope to continue to work with you on the subjects I mentioned 
today, as well as others. At the appropriate time, I will be 
glad to answer any questions you may have. Thank you.
    Mr. Horn. Thank you very much.
    [The prepared statement of Mr. Leinster follows:]
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    Mr. Horn. We are going to start the questioning right now. 
I was very interested in what this panel has said and what the 
earlier panel has said, and let me see if I can pull together 
here. As I understand the testimony, both panels have said 
there is a lack of training and education of the Federal 
acquisition work force as one of the biggest acquisition 
problems facing the Federal Government. Specifically in your 
testimony, Mr. Engebretson, you state that when contracting 
with the Federal Government, your member companies have 
encountered ``best value'' competitions that are nothing more 
than low-cost competitions and performance-based procurements 
that call for exacting requirements. Do you feel that the 
acquisition reform initiatives have outpaced the ability of the 
Federal work force to effectively operate in today's changing 
acquisition environment?
    Mr. Engebretson. First of all, Mr. Chairman, it was great 
to hear Mr. Soloway state that they are going to have 50 
percent of the DOD service contracts under performance-based 
contracts by 2005. That to me is a good sign that things will 
be moving along.
    The complaints that we hear from the membership is exactly 
as we say it in our statement, and that is that the buyer, the 
contracting officer, has a tendency to not understand all the 
tools that are at his or her fingertips, meaning that with FASA 
and FARA and FAR Part 15 rewrite and all of these, there are 
many things that they can use to help the system and buy and 
purchase these services.
    We think that the training is an absolute necessity, and as 
we heard from the previous panel and especially Mr. Soloway, 
that in the services area, there has not been adequate 
training. We are glad to hear that they are putting all of this 
into motion. But as I recall when we were working on FASA and 
we were talking to Mr. Steve Kelman and going through the 
processes of deciding how this should all work and working with 
your committee, et cetera, the comments were made that, well, 
it will be within the system probably 2 to 4 years, and I kind 
of laughed at Mr. Kelman and said it probably would be closer 
to 10 years, and I think that probably I am going to be a lot 
closer, and I might even be conservative on the amount of time.
    Training is absolutely needed, and it is not only just 
within the government purchasers but we have to do the same 
thing within our industry, as well, and we do have training 
programs in place that we have started.
    Mr. Horn. That is my next question. What practices do your 
member companies use to train the procurement work force that 
they have that the Federal Government could adopt to improve 
the skills of its work force. Do you want to just go with this? 
We will start with you, Mr. Engebretson, and then we will just 
get everybody to comment on it.
    Mr. Engebretson. Fine. We find that the large companies, of 
course, do have good training programs in place and we find 
that by using some of these, we are gathering our programs and 
we are helping train these medium-sized companies and the small 
companies. As the previous panel pointed out, you have the 
medium-sized companies that once they graduate out of 8(a), 
they are out there floating around and they have a very 
difficult time staying in the system. We think it is most 
important that we help and train them on the entire procurement 
process and the changes that have been made, and so we are 
making special efforts to do that.
    Mr. Horn. How about you, Mr. Leinster?
    Mr. Leinster. Yes, sir. Our company has a very vigorous 
training program for its acquisition negotiations. I am the 
senior executive for all of our public sector negotiators in 
IBM and we have annual training inside the company as well as 
outside. We encourage and sponsor participation by our 
employees, our negotiators, in the National Contract Management 
Association, which as you know is a very professional group of 
government and industry personnel.
    We also have, as the government moves more and more toward 
commercial services, they also are hopefully moving toward 
commercial buying practices and a company like IBM has a very 
large commercial non-government sector. We sell many of these 
professional services in the private sector and we have 
rigorous training for our negotiators in the commercial sector 
and my public sector take part in these training courses, which 
frequently run for a week to 2 weeks at least once a year.
    We also have, incidently, vigorous training on 
identification and utilization of small businesses.
    Mr. Horn. Mr. Thorpe, any thoughts on this?
    Mr. Thorpe. The Professional Services Council, one training 
course that I have taken advantage of at TRW is the monthly 
Government Affairs Committee, and that is an opportunity for 
many members of industry to find out the latest both in the 
regulatory and legislative developments that are happening on 
the Hill and within the OFPP, DOD, and other large agencies. It 
consists of about a 3\1/2\ hour meeting with a rift of valuable 
handouts to take back and distribute throughout the company, 
and that has been extremely effective, in addition to PSC 
holding numerous breakfasts and luncheons with prominent 
people.
    We just sat down 2 weeks ago with Bill Gormley, head of the 
Federal Supply Schedule for GSA, and that is an up and coming 
concern with GWACs and indefinite delivery type contracts. It 
has been very helpful for all of industry, the PSC initiatives 
in that area.
    Mr. Horn. General Tuttle.
    General Tuttle. I think a fundamental problem is that the 
leadership in the agencies, including the Department of 
Defense, although there has been a late wake-up with DAWIA, 
still does not realize the importance of acquisition management 
to effective program execution, whether it is large systems or 
it is the service contracts we talk about. We will spend a year 
or more training a pilot to fly an airplane. It is an expensive 
aircraft and safety is involved, but we spend precious little 
time in training our acquisition specialists to do business 
management, a newer, much wider scope of responsibility.
    We do not use case studies. You know, in most all the 
business schools, training people, whether at the junior level 
or the middle level, use case studies. Getting even the Defense 
Department to invest the time and effort to write case studies 
has been a frustrating experience for those of us that have 
been trying to do that for the last 15 or 20 years.
    So I think it is the whole approach to acquisition 
education and training that really needs a major kick, and I 
think Dr. Gansler has been trying, but I think the barriers to 
it have just been huge, not to mention the cost of the 
commitment.
    Mr. Horn. I think you are absolutely right on the case 
studies, and I wonder why the acquisition universities and 
colleges cannot do that in terms of the faculty and the 
students, because every course they have there, you have got 
people that could write a good case and leave it open as to 
what do you do now.
    General Tuttle. I hate to say that these are not faculties 
in the sense of what we have in universities. This is part of 
the bureaucracy. I mean, it is nine-to-five. You have got your 
35 slides. You are teaching the rules. There are some 
occasional anecdotes that go in there, but there is no 
systematic effort to develop case studies.
    I think you should talk perhaps to some of the people that 
have been on the Defense Acquisition University's advisory 
board. Dr. Ron Fox from Harvard has been on it for years. He 
knows case studies. He has written many, taught many. The 
statements are made that you need to do this, it just falls on 
deaf ears. You cannot change the culture. The culture of the 
education environment is as rock-hard solid as we have found in 
the culture in the acquisition work force itself.
    Mr. Horn. Well, do they have a course on, say, Clinger-
Cohen and what it means for the acquisition?
    General Tuttle. I am sure that someone has a group of 
slides that they bring up in all the schools, whether it is at 
Wright-Patterson or it is at Monterey or it is at Defense 
Systems Management College that talks about what the course is. 
The problem is, they need understanding in how to make 
judgments. They need to understand. They need practice in 
making judgments, and they will make a lot of wrong judgments 
in training. But you would rather not have them make the wrong 
judgments in their work, like the kind that you talked about 
this morning that the IG brought up about the C-130 propeller 
heater. That is when the taxpayer suffers, and the Department 
suffers.
    So you want to go through those experiences ``dry,'' just 
like a pilot goes through a simulator. They spend lots of time 
in simulators, but why? To prevent the dumb things happening 
that could have been caught in training. So I think that is 
where our effort really needs to be, and this committee could 
lend a lot of weight to that, I think, by asking the Department 
and insisting on not just case study use in the Defense 
Department, but in all the agencies. They need that kind of 
training.
    Mr. Horn. That is a good suggestion. We will steal it from 
you and make it a recommendation.
    General Tuttle. Be my guest.
    Mr. Engebretson. Mr. Chairman, if I could add to it, we 
have gone so far as to give our member companies a little 
plastic card such as on past performance to show what their 
rights are and also citing the parts of the FAR, the 
regulations, as to having the contractor officer--if they 
contest it, they can say, well, look, right here it is and let 
us go and look it up. We have done this and we are going to do 
it on some others, as well, just to protect themselves.
    Mr. Horn. Well, every bit helps, I will tell you, when you 
are trying to educate somebody and get away from that previous 
culture, which is difficult.
    On the first panel, we heard testimony from the Inspector 
General that some of the problems they identified in service 
contracts, and he said that he was shocked when one or more 
errors were identified in each of the 105 contracting actions 
that they studied. I am curious. You have all been through this 
yourself. Why do service contracts pose such a challenge for 
acquisition work forces?
    General Tuttle. It is difficult to write a statement of 
work that specifies exactly what you want done. I notice they 
talked about the engineering services for the Hawk missile. 
Having come out of the Army Materiel Command, I know a little 
bit about those kinds of contracts. You cannot predict from day 
to day what the problems are.
    Now, the question is, are there some tasks that could be 
put in there and competed as fixed price? Probably, and I think 
the IG is correct on that, and I think there is some work going 
on. But there has not been much guidance. You are trying to get 
metrics together. It is a very difficult process. You should 
not underestimate it. It is hard to look at what outcomes are. 
The private sector has had the same problems. So I think it is 
just a matter of continuing work on trying to separate out what 
is knowable and what is not knowable and then putting the 
appropriate contract type, whether it is a T&M or a fixed 
price, together and then competing the relevant parts of it.
    As one of my colleagues mentioned earlier, the multiple 
award schedules, I think, have been a big step forward in 
making it clear and allowing the agencies to do bite-sized task 
orders, where a nearer term is easier to specify. We see the 
improvements because I am a contractor, too--a nonprofit--and 
we compete for almost all of our work. So you see that the 
skill is getting better.
    Mr. Leinster. Mr. Chairman, I think it is worth noting that 
the administration last year, in recognition of some of the 
difficulties that were being experienced in service contracts, 
promulgated regulations that mandated that under multiple award 
schedules, written statements of work had to be issued for each 
and every task and that the statement of work had to be 
performance-based and that the response had to be firm fixed 
price. Now, that latter piece is a bit troublesome to us, but 
the point is that they have very strongly tried to put a 
discipline into that process that perhaps was lacking before, 
and you heard earlier that we have all said it is difficult to 
write a performance-based statement of work, but it is the way 
to go.
    The other thing I wanted to comment on, when the gentleman 
from the IG talked about errors and mistakes, he quoted the 
number of sole source task orders that were issued, and I think 
one of the things we in the industry understand is that if an 
agency is known to be very satisfied with a contractor, when 
they come up to recompete that business, we are going to be 
very reluctant to spend lots of moneys to try to unseat that 
vendor if we know, indeed, that the vendor is performing 
satisfactorily for the customer. That is commercial practice 
and we have got lots of other opportunities with which to 
address our rather precious bid and proposal expenses.
    Mr. Horn. Just in general, let me ask Mr. Engebretson, 
according to your testimony, you had the implementation of 
education and training requirements required by the Clinger-
Cohen Act and you thought they were fairly inconsistent among 
the various agencies, and I guess I would ask you, which 
Federal agencies are doing a good job implementing these 
education and training requirements and which agencies are not? 
And they will probably say you will never eat lunch with them 
again.
    Mr. Engebretson. That is exactly right. The truthful answer 
is that DOD does the best, just no question about that, and 
from that point on, it falls off very fast. Many of the other 
agencies do not have a system that is even close to educating 
any of their contracting officers as to understanding the 
entire Clinger-Cohen bill or FASA or even the FAIR Act or any 
of them. The other agencies really need, shall we say, a push.
    Mr. Horn. Are these big agencies or little agencies?
    Mr. Engebretson. Big agencies, you know, Veterans' Affairs 
and DOE and the list goes on.
    Mr. Horn. Now, is there a group--some of you are 
representing groups--do they come out of these agencies and 
meet once a month and share ideas with people or what?
    Mr. Engebretson. Not that I am aware of. A lot of this is 
done within the Department of Defense, within its agencies. But 
sharing what is happening in the Army that might be successful 
with the Veterans' Affairs, no, we do not see that being done.
    Mr. Horn. That is sad, because there is no question the 
services in recent years do know how to relate to each other.
    Mr. Engebretson. Yes.
    Mr. Horn. What is a real plus, the chief financial officers 
are meeting. The chief information officers are meeting, and 
that is very helpful when they share knowledge.
    Mr. Engebretson. Yes, absolutely. Yes.
    Mr. Horn. And I did notice the sort of saying we ought to 
have a chief acquisition officer, and that would be the 
business manager or would that be strictly full time on the 
purchasing effort, because I have been irked at some of the 
agencies around here. My pet peeve was the Treasury, where the 
Assistant Secretary for Management said, oh, well, I am also 
the Chief Financial Officer. I am the Chief Information 
Officer. That is nonsense. That was a position created by the 
Hoover Commission, which was great in 1949, 1952, but that is a 
full-time 18-hour-a-day job for a large agency and you cannot 
have him also as the Assistant Secretary for Management. It is 
just that nothing is going to happen. Of course, they never 
admit it and they foul up every year and have something else 
that goes awry, but we will probably have to put it in the law, 
we meant it.
    Mr. Engebretson. Mr. Chairman, I was just reminded that we 
have at present going on a Davis-Bacon training program. Today 
is the last day, but we have people from Social Security that 
are attending our training program because it is so in-depth 
and to help them understand the act itself.
    Mr. Horn. That is interesting. I am a big Davis-Bacon fan. 
Is yours the only group doing it, or does the Department of 
Labor sometimes do it?
    Mr. Engebretson. We actually have training programs for 
both Davis-Bacon and the Service Contract Act. The faculty is 
made up of the Wage and Hour Division people and we think that 
it is a unique program and probably the best for the simple 
reason that the contractors that attend and the government 
people that attend, they get a chance to talk to those very 
people that are making decisions on their behalf. So this is a 
2-day process and we put a manual together for them to follow 
the act entirely and we have done the Service Contract Act now 
for 10 years and it has been very successful, and the Davis-
Bacon we just started last year and it is turning out to be 
very successful, as well.
    Mr. Horn. Let me ask you, and I maybe should know this, but 
I do not, and that is why I ask questions. Walsh-Healey, is 
that off the books or----
    Mr. Engebretson. Walsh-Healey is still on the books and we 
still have----
    Mr. Horn. So do you have reviews for that, too?
    Mr. Engebretson. Yes, we do. We have some companies that 
are under the Walsh-Healey Act, as well, and we are going to 
have to implement that, as well, yes.
    General Tuttle. Mr. Chairman, could I comment on the 
question you asked about. Do the agencies get together for 
meetings? As you know, there is a Procurement Executives 
Council which is primarily the civil agencies, but, Dee Lee 
has, I think, done a great job to legitimize that, make it a 
formal organization. DOD is now participating, as I understand 
it. In fact, we at LMI and the Procurement Round Table 
sponsored a set of four seminars last year about this time, I 
think, the last one was held, where the agencies came together 
and almost every agency was represented, including defense, 
talking about the acquisition work force and professional 
development training. We did that on our own. We did not charge 
anybody for it. We just thought this was a useful contribution 
because we saw what you intimated, that there was precious 
little of this kind of trading of information around, and I 
think that maybe helped spark some increased relationships 
between the agencies.
    Mr. Leinster. Also, sir, under the umbrella of the 
Federation of Government Information Resource Managers, they 
have established an Industry Advisory Council that is very, 
very active in bringing together members of industry and the 
government to share acquisition experiences. I know that ITAA 
has a monthly dinner series wherein a senior acquisition 
executive comes in and shares their experience with industry 
and it is a bilateral discussion that is very helpful. I am 
glad General Tuttle mentioned Dee's Procurement Executive 
Council, as well as the Front Line group that you recognized 
earlier. The whole purpose of that is to share experiences. So 
everybody is engaging. We all have ways to go, but it is so 
much better than it ever was before.
    Mr. Horn. Mr. Thorpe, give me an idea of how you would have 
the process work on that five steps that you mentioned and take 
a TRW contract or process, whatever, and show me how you would 
improve that under Clinger-Cohen and what has that led you to.
    Mr. Thorpe. Yes, sir. We do a lot of indefinite delivery 
order contracts and I think part of the commonality or bridge 
between the contracting officer and industry, it was one of the 
ones I mentioned. The concern I would have, there is not a 
consistent execution within the different agencies, mostly DOD, 
that we do business with as far as the statement of work. We 
need performance-based service contracting, writing the 
statement of work.
    Part of the benefits of writing the statement of work and 
having, for example, a draft RFP, which we do not see a lot of, 
is you get feedback from industry on all the procedural and 
process initiatives and problems that result from the 
government's perspective. They have a requirement. They either 
want an indefinite delivery type contract, they want a time and 
materials, even the contract type can be--this is not a smart 
thing as far as the information, the type of contract. We often 
change that, recommending a different contract type in the 
draft RFP.
    The relationship between the technical people that you are 
dealing with in the government and the contracting people, 
typically in the government, they do not often talk and they 
are writing letters back and forth, both from the contractor to 
the government and between the government activities. We see 
the stove pipe still maintained. So I would remove the stove 
pipes.
    But funding the acquisition training, I think is a key 
factor for any TRW contract or anybody's contract, and having 
them be aware of the latest changes. I had a recent situation 
where a senior contracting officer was asking for certified 
cost and pricing data below the $500,000 threshold. They are 
not permitted by law to do that, yet they were asking for a 
specific change order for certified cost and pricing data. That 
was a pretty major concern that we had with the process and the 
knowledge level. So I think it would apply both in the kind of 
business we do at TRW and for the General Services contract to 
focus on the training side, remove the stove pipes, and provide 
the process in a clear and determined manner.
    Mr. Horn. How would you rate the Federal Government's use 
of the Internet to make contracting opportunities available? 
Mr. Davis mentioned that, and I did it in passing. Are they 
taking advantage of it or is it still the old paper stuff?
    Mr. Thorpe. It has dramatically improved, especially in 
DOD. We are seeing a dramatic use in the Commerce Business 
Daily of the electronic distribution. We are giving them the 
opportunity in some of our delivery order contracts to respond 
electronically. We do see paper flow back and forth, which is 
so helpful when you draft documents back and forth. So we are 
seeing a dramatic increase in that, but they can still go a lot 
farther in perpetuating that kind of relationship 
electronically.
    Mr. Engebretson. Mr. Chairman, I think it is interesting 
that he said DOD again, and this is really very true. DOD is 
ahead of the other agencies tremendously.
    One thing that excites me is this past performance issue, 
or performance-based contracting, because if they follow what 
was originally set up as the rules, the draft RFP would be 
something that is a part of the requirement of this program and 
that means that industry will then be able to review the RFP 
before they actually put it on the street.
    The second thing that develops is what we call a partnering 
arrangement, where you work with the government officials and 
try to find the best approach to whatever the issue may be or 
whichever the project may be and the contractor and the 
government works together to get the best results, of course, 
for the taxpayers. So I think it has great potential.
    Mr. Horn. You were probably here when the gentlewoman from 
New York, Ms. Kelly, asked some of the questions because that 
is certainly a concern of ours. Has the electronic commerce 
revolution helped or hindered the ability of small and 
disadvantaged businesses or women-run businesses to contract 
with the Federal Government? What do you see? Do you see things 
going downhill and opportunities not coming?
    Mr. Engebretson. No, I see that this is helping small 
business. Again, some small businesses do not have the 
technical ability to tie into the Internet. There still are 
businesses out there as such. But the small businesses that are 
doing it and we are encouraging it, they are benefiting from 
this, no question about it, yes.
    General Tuttle. It is so much less expensive for them to 
acquire marketing information now and to get onto the multiple 
awards schedules. I know a couple companies where there are 
just two or three people in the business that are on the 
management organization/business improvement services schedule. 
So it is a lot easier than it ever was, and I think GSA has 
been very open with it. Bill Gormley's name was mentioned. We 
found he has been proselytizing to try to get people to sign up 
and his folks have really done a great job.
    Mr. Horn. Can anyone get on that schedule or is there a 
clearing process?
    General Tuttle. There is a clearing process. In other 
words, you have to have----
    Mr. Horn. Who makes those judgments?
    General Tuttle. In the case of the schedule, GSA does, but 
it is a very broad set of criteria that are there. I mean, you 
have some experience, some base, and you have rates, and then 
you are, basically, you are on. I mean, it is hard not to be 
accepted. You have got to be almost a person that has a company 
that has had a series of defaults not to be able to get on.
    Mr. Horn. In other words, you would have to have defaulted 
on a contract or what?
    General Tuttle. Yes, defaulted on a contract, probably more 
than once, in order to not get on. It is very open.
    Mr. Horn. We will need to check that with the staff just to 
see how the process works and maybe get them to put a half-a-
page in the hearing record.
    Mr. Leinster, according to your testimony, the Federal 
Government is lagging behind State and local governments in 
utilizing the Internet. Where are the best State uses of this 
as you have seen it around the country?
    Mr. Leinster. Arizona has a very good access to the citizen 
service for vehicle registration, for license renewals, things 
of that sort. The State of Washington is very advanced in their 
utilization of Internet-based processes, again, access to the 
citizen. And we are now seeing many local municipalities 
springing up aggressively.
    Mr. Horn. How about California and Pennsylvania? What is 
your read on that?
    Mr. Leinster. California is very aggressive and moving out 
very rapidly. I mean, I think, quite frankly, that the States 
are very quick to respond to private initiatives and they are 
taking much more rapid advantage of the capabilities than the 
Federal Government is at this point. California is a leader. 
Pennsylvania has a real advanced system.
    Mr. Horn. They have a program, yes. Governor Ridge has long 
been very interested in the new information age and did a lot. 
He was one of the first to care about Y2K as a Governor. 
Governor Wilson was very close behind him.
    Are there any other points you would like to make before we 
adjourn this hearing?
    [No response.]
    Mr. Horn. Let me thank the staff that prepared this 
hearing, and I might add that we are going to keep the record 
open for 2 weeks should any of you have a thought that you want 
to add to your testimony. Feel free to send it to Mr. Kaplan 
here and we will put it in the hearing record. The Democratic 
side will also have that opportunity.
    I want to thank the staff director and chief counsel--he is 
not here right now--J. Russell George for the Subcommittee on 
Government Management, Information, and Technology. Randy 
Kaplan is the staff counsel, to my left and your right. Seated 
in the back row there is Bonnie Heald, director of 
communications; Bryan Sisk, clerk; and Ryan McKee, staff 
assistant. And then for the minority side, Trey Henderson has 
been very patiently counsel for Mr. Turner, and Jean Gosa, the 
minority assistant clerk. Mr. David Kasden is the court 
reporter for today. We are sorry to wear you out so long. Your 
ears must be pounding away in there saying, help, but thank you 
for the find job you have done.
    With that, we are in adjournment.
    [Whereupon, at 1:37 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
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