U.S. GOVERNMENT PRINTING OFFICE

67–154 CC WASHINGTON : 2001

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

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

HELEN CHENOWETH-HAGE, Idaho

DAVID VITTER, Louisiana

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

HAROLD E. FORD, JR., Tennessee

JANICE D. SCHAKOWSKY, Illinois

———

BERNARD SANDERS, Vermont

(Independent)

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

THOMAS M. DAVIS, Virginia

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

JIM TURNER, Texas

PAUL E. KANJORSKI, Pennsylvania

MAJOR R. OWENS, New York

PATSY T. MINK, Hawaii

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

(III)

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

(1)

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.

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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 FedVerDate 11-MAY-2000 12:40 Jan 10, 2001 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\DOCS\67154.TXT HGOVREF1 PsN: HGOVREF1
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eral 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

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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 highdollar-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

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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 resultsoriented 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 offiVerDate 11-MAY-2000 12:40 Jan 10, 2001 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 C:\DOCS\67154.TXT HGOVREF1 PsN: HGOVREF1
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cers 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, higherpriced 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 contract- ing 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

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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.

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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.

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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

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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

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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

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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 accountVerDate 11-MAY-2000 12:40 Jan 10, 2001 Jkt 000000 PO 00000 Frm 00081 Fmt 6633 Sfmt 6633 C:\DOCS\67154.TXT HGOVREF1 PsN: HGOVREF1
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ing 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

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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 womenowned 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

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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

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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

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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 midsize 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

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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.

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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.

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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

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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

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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,

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gressively 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 bestvalue 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.

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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.

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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

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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 loVerDate 11-MAY-2000 12:40 Jan 10, 2001 Jkt 000000 PO 00000 Frm 00159 Fmt 6633 Sfmt 6633 C:\DOCS\67154.TXT HGOVREF1 PsN: HGOVREF1
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gistics, 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

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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 webbased 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

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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.

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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,

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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?

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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

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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,

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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.

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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

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ment 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

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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

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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

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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

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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

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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?

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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.

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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

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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.

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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 performancebased 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,

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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 twoway 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 increasVerDate 11-MAY-2000 12:40 Jan 10, 2001 Jkt 000000 PO 00000 Frm 00233 Fmt 6633 Sfmt 6633 C:\DOCS\67154.TXT HGOVREF1 PsN: HGOVREF1
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ingly 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 ClingerCohen 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.

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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

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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, transactionbased payments, value-based contracting, as well as other methods

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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

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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 31⁄2 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.

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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.

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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 opportuVerDate 11-MAY-2000 12:40 Jan 10, 2001 Jkt 000000 PO 00000 Frm 00264 Fmt 6633 Sfmt 6633 C:\DOCS\67154.TXT HGOVREF1 PsN: HGOVREF1
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nities 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.

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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.

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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.

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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.

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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.]

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