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i 

53–058 2010

[H.A.S.C. No. 111–94] 

THE DEPARTMENT OF DEFENSE AND 

INDUSTRY: DOES DOD EFFECTIVELY 

MANAGE ITS INDUSTRIAL BASE AND 

MATCH ITS ACQUISITION STRATEGIES 

TO THE MARKETPLACE? 

HEARING 

BEFORE THE

PANEL ON DEFENSE ACQUISITION REFORM 

OF THE

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

SEPTEMBER 17, 2009 
(II) 

PANEL ON DEFENSE ACQUISITION REFORM 

ROBERT ANDREWS, New Jersey, Chairman 

JIM COOPER, Tennessee 

BRAD ELLSWORTH, Indiana 

JOE SESTAK, Pennsylvania 

K. MICHAEL CONAWAY, Texas 

DUNCAN HUNTER, California 

MIKE COFFMAN, Colorado 

ANDREW HUNTER, Professional Staff Member 

JOHN WASON, Professional Staff Member 

ALICIA HALEY, Staff Assistant 
(III) 

C O N T E N T S 

CHRONOLOGICAL LIST OF HEARINGS 

2009 

Page 

HEARING: 

Thursday, September 17, 2009, The Department of Defense and Industry: 

Does DOD Effectively Manage Its Industrial Base and Match Its Acquisition Strategies to the Marketplace? .................................................................... 1 

APPENDIX: 

Thursday, September 17, 2009 ............................................................................... 31 

THURSDAY, SEPTEMBER 17, 2009 

THE DEPARTMENT OF DEFENSE AND INDUSTRY: DOES DOD EFFECTIVELY MANAGE ITS INDUSTRIAL BASE AND MATCH ITS ACQUISITION STRATEGIES TO THE MARKETPLACE? 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

Andrews, Hon. Robert, a Representative from New Jersey, Chairman, Panel 

on Defense Acquisition Reform ........................................................................... 1 

Conaway, Hon. K. Michael, a Representative from Texas, Ranking Member, 

Panel on Defense Acquisition Reform ................................................................ 3 

WITNESSES 

Gutridge, Robin ‘‘Pug,’’ President, Cherokee Information Services, Chairman, 

TechAmerica ......................................................................................................... 11 

Madland, Dr. David, Director, American Worker Project, Center for American 

Progress Action Fund ........................................................................................... 13 

Soloway, Stan Z., President and CEO, Professional Services Council ................ 5 

Sylvester, Richard K., Vice President of Acquisition Policy, Aerospace Industries Association ................................................................................................... 9 

APPENDIX 

PREPARED STATEMENTS: 

Gutridge, Robin ‘‘Pug’’ ...................................................................................... 68 

Madland, Dr. David .......................................................................................... 75 

Soloway, Stan Z. ............................................................................................... 35 

Sylvester, Richard K. ....................................................................................... 49 

DOCUMENTS SUBMITTED FOR THE RECORD: 

KBR Statement ................................................................................................. 89 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

Mr. Andrews ..................................................................................................... 97 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

[There were no Questions submitted post hearing.] 

(1) 

THE DEPARTMENT OF DEFENSE AND INDUSTRY: DOES 

DOD EFFECTIVELY MANAGE ITS INDUSTRIAL BASE 

AND MATCH ITS ACQUISITION STRATEGIES TO THE 

MARKETPLACE? 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, 

PANEL ON DEFENSE ACQUISITION REFORM, 

Washington, DC, Thursday, September 17, 2009. 

The panel met, pursuant to call, at 8:00 a.m., in room 2237, Rayburn House Office Building, Hon. Robert Andrews (chairman of the 

panel) presiding. 

OPENING STATEMENT OF HON. ROBERT ANDREWS, A REPRESENTATIVE FROM NEW JERSEY, CHAIRMAN, PANEL ON 

DEFENSE ACQUISITION REFORM 

Mr. ANDREWS. Good morning, ladies and gentlemen. The panel 

will come to order. 

We welcome our witnesses and members of the public to another 

in our series of hearings. 

I would like to welcome our colleagues back from what I am sure 

was an eventful district work period in August. We are happy to 

be rejoining our mission here. 

We began the work of the panel with a series of propositions that 

we wanted to pursue. The first of those propositions was to explore 

whether there are measurements that properly explore the difference between the cost that taxpayers are paying and the value 

that we are receiving for goods and services in the defense budget. 

We had a series of discussions about how to measure that difference, if any. 

We then proceeded to a series of hearings that raise hypotheses 

about the reason for the gap between what we pay and what we 

receive. 

This morning’s hearing is another in those series of hypotheses. 

We have looked at a number of hypotheses before this. For example, we have looked at the fact that the rapid pace of development 

in the information technology field does not fit the procurement 

systems of the Department of Defense (DOD) at all, and, therefore, 

that misfit is leading to part of the problem. We looked at a number of other issues, as well. We looked at the development, or the 

lack thereof, of our workforce in procurement and so forth. 

This morning, we are exploring the hypothesis that problems in 

the management of our industrial base lead to deficiencies or lead 

to gaps between what the taxpayer pays and what value those in 

uniform and the taxpayers receive. 
2 

Now, I will define the term ‘‘industrial base’’ to mean the enterprises which supply goods and services to the Department of Defense where the Department of Defense is a major customer, if not 

an exclusive customer, of that enterprise. It is a loosely defined 

term, but that is what we are going to mean when we say ‘‘industrial base.’’ 

The problem raised in the industrial base is, frankly, the opposite problem that we often grapple with in public policy considerations here. Much of the health care discussion, for example, is now 

centered around the issue of how do you deal with a marketplace 

where there are many, many, many purchasers but perhaps only 

one or two providers? It is a classic monopoly or oligopoly situation. 

The problem raised in the defense procurement field for goods 

and services is the opposite. Perhaps it might be described as a monopsony problem, which, as a non-economist, I understand to mean 

a situation where there are a relatively high number of providers 

but only one purchaser. And that is, of course, the situation that 

we have here. By definition, a member of the industrial base, a 

company or enterprise that is in the defense industrial base is living in a world where his or her only customer, or major customer, 

is the United States Department of Defense. 

Now, this raises a lot of problems. One problem is that if we 

don’t demonstrate some long-term commitment to a contract, the 

enterprise in the industrial base doesn’t have the security and the 

cash flow to sustain its physical plant and its workforce. If you are 

not sure from year to year whether you are going to get the work, 

you can’t maintain the industrial base. On the other hand, if we 

do not induce the kind of competition that we want so there are 

many potential sellers to the monopsony buyer, you run into a situation where you lose value, you lose efficiency, and perhaps you 

lose quality, as well. So it is a classic problem. 

I want to say from the outset, the premise of this hearing is not 

that the Department of Defense has done a poor job managing the 

defense industrial base. That is, in some ways, the question, not 

the conclusion. 

And I also want to recognize the fact that this is a very difficult 

problem that is not easily managed. We don’t want to split the Defense Department into several units and so we have many more 

buyers than one. That doesn’t make any sense on a lot of levels. 

It is a difficult problem. 

And so the purpose of this morning’s hearing is to hear from 

some very experienced witnesses who know these issues to discuss 

for us their views on how we might better manage the defense industrial base, what the criteria for that better management are, 

what kind of solutions that we have seen employed in the past and 

what kind of problems that we have seen raised in the past. 

We are going to look at workforce quality issues and workforce 

fairness issues. We are going to look at issues of technology. We 

are going to look at a number of different issues that fit this. 

But suffice it to say, I am sure this will be an ongoing problem, 

to find that proper balance between a predictable set of expectations for enterprises in the marketplace but a sufficient level of 

competition among those enterprises so that the uniform personnel 

get the very best quality product and the taxpayer gets the best 
3 

deal. And that is the premise on which we are approaching this 

morning. 

At this point, I would like to turn to my friend and colleague, the 

senior Republican member of the panel, Mr. Conaway, for his remarks. 

STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE FROM TEXAS, RANKING MEMBER, PANEL ON DEFENSE 

ACQUISITION REFORM 

Mr. CONAWAY. Well, thank you, Mr. Chairman. I appreciate it. 

Good morning, gentlemen. Thank you for being here this morning. I appreciate that. 

We had asked Kellog, Brown, and Root (KBR), another provider, 

to actually come and testify this morning. They are unable to be 

with us, so I would ask unanimous consent to submit their written 

testimony for the record. 

Mr. ANDREWS. Without objection. 

[The information referred to can be found in the Appendix on 

page 89.] 

Mr. CONAWAY. As the chairman said, this is a very important 

subject. One of the issues that concerns me is that the Department 

seems to operate under the assumption that we will always have 

an industrial base that can meet their changing requirements. This 

is particularly an issue in a budget-constrained environment. 

And although Secretary Gates is quoted as saying that the industrial base concerns played no role in his 2010 budget decisions, the 

new Under Secretary of Defense for Acquisition, Technology, and 

Logistics, Dr. Carter, has indicated that he intends to elevate industrial base concerns within the Department of Defense. 

This is reassuring because there is no doubt that defense strategy has a significant impact on the industrial base. It is one of the 

reasons, I believe, that we need to carefully look at the pending 

Quadrennial Defense Review to ensure we minimize any potential 

consequences of undermining or impairing the defense industrial 

base’s ability to meet the future needs of the Department. 

I am puzzled on the word ‘‘manage,’’ Mr. Chairman, that you had 

used, that it is actually the role of the Department of Defense to 

manage the industrial base. I am going to chew on that one. ‘‘Manage’’ typically means you have total control over it and you are 

managing those resources. And I have to think about that one. 

My other concern, which the chairman has appropriately highlighted in the past and this morning, is in regards to the aging 

workforce, particularly in the field of engineering. We have the 

most modernized industrial base in the world, but without the 

properly trained workforce, we are not going to be able to produce 

much. 

I look forward to our witnesses’ testimony, and I look forward to 

our discussions on these issues. 

Thank you, Mr. Chairman. 

Mr. ANDREWS. I thank my friend. 

And I appreciate his comment on the word ‘‘manage.’’ It probably 

is an inartful word. The meaning I was wanting to convey was to 

put in place a set of policies that achieve the twin goals that I 
4 

talked about, of stability for the enterprises and quality and best 

value for the taxpayer. I think your improvement is a correct one. 

I do want to note that we are joined this morning by a member 

of the full committee who is not a member of the panel but, as all 

members of the full committee, is welcome to join us. That is Congressman Patrick Murphy from Pennsylvania, who, several months 

ago, suggested that the panel focus on issues of the quality of the 

workforce and the fairness to the workforce, which I think are 

intertwined, and we have some discussion on that this morning. 

So thank you, Patrick, for your participation. 

I want to proceed by introducing our four witnesses. 

I think you are all veterans of this process, but I would remind 

you that your written statements, without objection, are being 

made a part of the record of the hearing. We would ask you to synopsize those written statements in about five minutes. And we 

would ask you to stick to that five minutes so we can then have 

questions-and-answer time with the panel, which I think we find 

is the most productive part of the hearing. 

I am going to start with—I am going to read each of the biographies. And when I have completed each of them, we will start, 

Mr. Soloway, with your testimony. 

Stan Z. Soloway is the president and Chief Executive Officer 

(CEO) of the Professional Services Council (PSC), the principal national trade association of the government professional and technical services industry. PSC is widely known for its leadership on 

the full range of government acquisition, procurement, and outsourcing and privatization issues. 

Mr. Soloway assumed the presidency in January of 2001. PSC 

has a membership of over 330 companies of all sizes performing 

services of all kinds for virtually every agency of our government. 

In recognition of his leadership while he served in the Department of Defense in his illustrious career, Mr. Soloway was awarded 

both the Secretary of Defense Medal for Outstanding Public Service 

and the Secretary of Defense Medal for Distinguished Public Service while serving at the DOD. 

Mr. Soloway earned his degree in political science from Denison 

University, where he was elected to the national men’s journalism, 

national men’s leadership, and national political science honorary 

societies. 

Welcome, Mr. Soloway. It is great to have you with us. 

We are joined this morning by Richard K. Sylvester, who is the 

vice president for acquisition policy of the Aerospace Industries Association (AIA). 

Mr. Sylvester joined the Aerospace Industries Association in August of this year. He is heading AIA’s Procurement and Finance Division, responsible for directing the development and coordination 

of the association’s positions on proposed procurement-related legislation, regulations and their implementation. 

Mr. Sylvester served in the Department of Defense in a number 

of capacities for 35 years, prior to joining the AIA, most recently 

as Deputy Director of the Acquisition Resources and Analysis for 

Acquisition Management in the Office of the Under Secretary of 

Defense for Acquisition. 

You must have a very large business card. 
5 

Mr. Sylvester graduated from the University of Michigan—so he 

must be happy with last weekend’s football results—with a Bachelor of Arts (BA) in political science and economics. 

Welcome, Mr. Sylvester. We are glad that you are with us. 

We have with us Mr. Robin ‘‘Pug’’ Gutridge. As president of 

Cherokee Information Services, Mr. Gutridge oversees a highly successful information technology and management services company 

that supports the government and private sector. 

Mr. Gutridge came to Cherokee in 1998 after a successful career 

in the United States Coast Guard, where he graduated from the 

U.S. Coast Guard Academy and served as a helicopter pilot, engineer, and acquisition professional. 

He is also active in various organizations such as the United 

States Chamber of Commerce, TechAmerica, and the Association 

for Corporate Growth. In these organizations he serves on a number of committees, all related to improving the manner in which 

business is conducted and services are provided. 

Mr. Gutridge, thank you and welcome. 

And, finally, Dr. David Madland is the director of the American 

Worker Project at the Center for American Progress. He has written academic articles, books, op-eds, and commentaries on a range 

of economic issues, primarily focused on retirement, jobs, and public opinion. 

He has a Doctor of Philosophy (Ph.D.) in government from 

Georgetown University and received his Bachelor of Science (BS) 

from the University of California at Berkeley. 

Prior to joining American Progress, David helped lead a range of 

advocacy campaigns as a consultant to labor unions and environmental organizations. He worked for Congressman George Miller, 

now chairman of the Committee on Education and Labor, on which 

I serve. 

And we are very happy to welcome David to be with us here this 

morning. 

So, gentlemen, we are going to ask if you would begin your testimony. As I said, your written statements have been accepted as 

part of the record. 

Mr. Soloway, we will begin with you. 

STATEMENT OF STAN Z. SOLOWAY, PRESIDENT AND CEO, 

PROFESSIONAL SERVICES COUNCIL 

Mr. SOLOWAY. Thank you, Mr. Chairman, members of the panel. 

It is really an honor to be here. And I do want to say that the focus 

of this hearing and the topic you have chosen is a very important 

one. I think you have captured—both you and Mr. Conaway—captured very well the importance of the discussion that has to take 

place. 

Let me start by suggesting that we don’t have an industrial base; 

we have multiple industrial bases. And even represented at this 

table you have two separate bases. Where I am going to focus my 

conversation, you have the industrial base that is primarily responsible for the manufacture and development of major weapons systems on the hardware side, and then there is a services industry, 

a professional services, technology services industry. And while 

they are very much integrated in many ways, they also are very 
6 

separate and have very different dynamics. And I will address 

some of that in my testimony, and a little bit more detail, of course, 

is contained in my written statement. 

In fact, the Defense Department has for a long time focused on 

impacts on the defense industrial base of many of its actions. There 

is an Office of Industrial Affairs that is primarily set up to do that 

in the Defense Department. At the same time, the Department spent over $180 billion last 

year on services, 40 percent or more of its total contract spending, 

yet it has invested relatively little time in really understanding and 

developing a keen awareness of the dynamics and structure of the 

services industrial base on which it so significantly relies. 

In other words, even as we have been trying, appropriately so, 

to build better oversight of services contracts and services contracting in the Department, our insight into the supplier base that 

are performing on those contracts at the Department level remains 

limited. 

With regard to the base itself, the services industrial base, in 

2006, the Center for Strategic and International Studies (CSIS), 

with the strong support of PSC, undertook the first-ever analysis 

of the federal professional services industry. This had actually 

never been done before. The CSIS study is available on our 

website. I believe we have some copies here with us today. But 

there are several key insights that they found that I want to share. 

Number one, the services sector is incredibly diverse, both in 

terms of size and in terms of capability. 

Second, more than 70 percent of the contracts in the services sector in the Federal Government are competitively awarded; that is, 

competitive to the extent that there are at least two, if not more, 

bidders on each of those procurements. 

Third, the growing use of large multiple award contracts, under 

which companies must compete to get on the contracts and then 

compete again to get task orders under which the actual work is 

performed, has driven up transaction costs for everybody in the 

marketplace, with a particular impact on small and mid-tier firms 

for whom those costs are particularly precious. 

And, finally, for a variety of reasons, there has been real pressure placed on the mid-tier of the marketplace. If you have a natural market cycle of small, mid-tier, and large, the mid-tier of the 

services market is under pressure. In some segments, particularly 

IT services, the market share reductions have been as much as 40 

percent. 

The Defense Department did utilize the CSIS study to do some 

internal analysis of its own share of the professional services market, but, to date, not much has been done with those analyses. Yet 

the Department and, to some extent, Congress continues to promulgate new policies, regulations, and laws that will impact that industrial base, absent that detailed understanding of those impacts. 

And we believe that ought to come—the cart before the horse. 

On the policy side and actions taking place within the Defense 

Department, there are really three things that I want to very briefly touch on. 

Number one, small and mid-tier business. The government has 

a presumption in all government procurement that says you are ei-
7 

ther small or other than small. That is the only distinction drawn 

in federal procurement as to the size of companies. Yet, as the 

CSIS study told us, as Mr. Gutridge’s company is a good example 

of, there are multiple tiers within the services sector in each size 

category. So just this binary view immediately starts you from a 

presumption that does not reflect the reality of the market. 

Second, some people, increasing numbers of people in small businesses, particularly entrepreneurial technology-based companies, 

mid-tier companies, are beginning to question the premise of our 

small-business programs. Not that they disagree with them, but 

what is the goal? Is it to create small businesses? Or is it to create 

sustainable small businesses that have the ability to grow to the 

extent of their capabilities and ambitions? 

That actually may sound like a fine distinctions, but it is a very 

critical distinction, because our focus has been on the former, 

which is to create businesses, and less on the latter, what are we 

doing to foster growth and development beyond the size standards 

as they exist. 

Mr. Chairman, you mentioned the workforce issues as a very 

critical element of understanding the dynamics of the industry. Because the fact is that industrial-based issues principally revolve 

around as, in any business relationship, risk and risk management. 

What are the risks? What are the predictable elements? What are 

the nonpredictable elements? And how do I manage those? And, as 

a customer, you have to understand how your supplier base defines, manages, and identifies risk. That is not a core component 

of the acquisition training in the Defense Department today for 

people doing services acquisition, and we think it should be a core 

component of that training. 

Finally, there is a number of specific policy initiatives under way 

today that bear some discussion. And in my written statement I 

mention three: in-sourcing, organizational conflicts of interest, and 

fixed-price contracting—three very disparate kinds of policy issues 

in how we think they actually have an industrial base effect. In the 

interest of time, what I would like to do is just touch on one, and 

that is the in-sourcing question. 

In-sourcing is very much an issue of industrial base concern. 

And, Mr. Chairman, I think you captured it very well in your opening statement when you talked about predictability in competition. 

We have a marketplace in services that is highly competitive. But 

in-sourcing, if it is done wrong, completely destroys that competitive base because we are no longer competing; the government is 

acting in a monopoly manner, just taking work. And, second, it destroys the predictability in the marketplace. It creates risk, it creates uncertainty. It breaks down partnership trust and relationships. So it is an industrial base issue. 

The Secretary has set a goal, the Secretary of Defense, of realigning and rebuilding critical skills in the Defense Department. That 

is one stream of in-sourcing we have heard a lot about. We are very 

supportive of that initiative. While we may disagree on the specific 

elements of how it is done, it is an initiative that is important. We 

all recognize that there has been a falloff in skill sets, particularly 

in acquisition. So we do not object conceptually and, in fact, would 

support strategic looks at how we can rebuild that workforce. 
8 

But the other in-sourcing that has taken place in the Department, or beginning to emerge in the Department, some of it driven 

by legislation which instructed the Department to consider insourcing a variety of functions—not a mandate, but to consider— 

and then budget bogies that have been given to the military services are driving an entirely less strategic and, I think, less beneficial behavior. 

For example, on the legislative side, Office of Management & 

Budget (OMB) has put out a memo on July 29th directing how to 

implement congressional direction and does a very good job of defining the term ‘‘consider.’’ Makes it clear this is a source-neutral 

decision, that this should part of your thinking, should we perform 

the work in-house or should we perform it by contract, and then 

lays out a number of decision levels that you have to go through 

to make that decision. 

That discipline, at this point, does not appear to be taking place 

within the Department. I am not blaming this on the secretariat, 

because they have been primarily focused on the workforce rebuilding part, which is a whole different decision. That is a strategic 

human capital initiative. 

But as you have this in-sourcing taking place in the field, where 

people perceive it either to be a mandate or not doing full-cost 

analysis where they really look at what is the cradle-to-grave cost 

to the government. Across the board, not just your own personnel 

line or your own benefits line, but what are the infrastructure costs 

that somebody else is absorbing? Who is paying for the lifetime 

health care? Who is paying for workforce development? How do I 

know I am getting the right skill at the right place? It might be 

slightly less expensive, but maybe I need actually a higher level of 

skill, for which the marketplace has determined there is a higher 

value to that skill and so forth. Those analyses, to the best of our 

knowledge, have not been done. 

In fact, what is happening in many services is they have declared 

outright that for every position that the service in-sources, the 

service is taking a 30 to 40 percent savings per position. And our 

question is, based on what? If I have a contract—and Mr. Gutridge 

could speak to this much better than I since he has this situation— 

if I have a contract and I have 75 people performing on that contract, and you look at that cost and then say, ‘‘Well, by person by 

person, here is what I think I could save by in-sourcing it,’’ I have 

immediately walked away from the fundamental premise of business, which is competition. What if I said to the marketplace, ‘‘I 

need to reduce my costs here. What is the marketplace adjustment 

going to be?’’ I could maybe do it—my person by person costs might 

be higher, but I might be doing it with fewer people, with better 

technology, more agility, on a performance basis where I can actually move people around. 

So there are all of these factors that go into a good business decision that have huge impacts on the industrial base’s ability to do 

business with the Defense Department which we are concerned the 

current in-sourcing trend is stepping away from. And there are fundamental premises that I think we ought to focus our attention on. 

Final point—I apologize—one last point on the in-sourcing is 

there is great concern amongst many companies about the degree 
9 

to which the government is today overtly targeting and soliciting 

contractor employees. 

And let me be very clear: There are a lot of people in government 

who have suggested for years that contractors hire government employees and simply bill them back to the government, sometimes at 

higher rates. I am not sure the extent to which that actually happens, but I can tell you from an organizational perspective, all 350 

member companies, we would agree that that is inappropriate in 

that case, and it is inappropriate when you do it with our folks. 

Where there is a direct business relationship, where you have me 

under contract or I have you under contract, we should not be soliciting each other’s employees. In the private sector, that is anathema. There are nonsolicitation, nonpoaching clauses routinely 

across private-sector relationships to protect the integrity of the relationship. 

But, nonetheless, what we see is a very aggressive effort on the 

part of the government to do just that. And we find that both highcost to companies, unfair interference with employee-employer relationships. And, frankly, it raises real questions about the merit system’s hiring process and whether they are actually circumventing 

established rules which this full committee has made clear to the 

Department they expect them to follow. 

So I think that is another stream here that is important to address and does have impacts on companies like Mr. Gutridge’s, bigger companies, and even smaller companies. 

So, Mr. Chairman, thank you again very much for the opportunity. And I look forward to the questions when we get finished. 

[The prepared statement of Mr. Soloway can be found in the Appendix on page 35.] 

Mr. ANDREWS. Thank you, Mr. Soloway. 

Mr. Sylvester, welcome to the committee. 

STATEMENT OF RICHARD K. SYLVESTER, VICE PRESIDENT OF 

ACQUISITION POLICY, AEROSPACE INDUSTRIES ASSOCIATION 

Mr. SYLVESTER. Thank you very much. Chairman Andrews, Congressman Conaway, members of the panel, on behalf of Aerospace 

Industries Association, our 300 manufacturers and suppliers of defense aerospace equipment and supplies and our over 800,000 

workers, I appreciate the opportunity to come before you today and 

talk to you about some issues that we think are very significant. 

My written statement contains a lot of information about some 

of the things we are considering. I just want to make a few key 

points this morning. 

AIA is supportive of major acquisition reform initiatives that advance the stability of programs and requirements, expand workforce skills and experience, and provide better contract incentives 

to reward good performance, enable firms to attract capital and 

earn fair returns on contracts. 

By institutionalizing such changes and obtaining more affordable 

and predictable acquisition outcomes, the acquisition system will 

become more transparent, predictable, and cost-effective. To that 

end, the recently passed ‘‘Weapons Systems Acquisition Reform 

Act,’’ which your panel was part of creating, was a step in the right 

direction. 
10 

AIA also believes that a dedicated effort should be made to encourage more, not less, dialogue between DOD, industry, and Congress on acquisition industrial base matters. 

Furthermore, the government should resist the creation of new 

barriers to the employment of qualified acquisition personnel, 

many of whom come from industry and understand the many challenges and opportunities to implement improved acquisition procedures. Flexible rules that preserve program integrity, while allowing for the recruitment and retention of a well-trained and experienced acquisition workforce, should be our common goal. 

Although there are multiple areas in which defense acquisition 

could be improved in coming years, AIA recommends that the government focus primarily on three overarching goals. 

The first goal is to promote stability and fairness in contracting 

and financial policies. In order to maintain a competitive industrial 

base that effectively supports the warfighter and the Nation, AIA 

urges the government to promote contracting and financial policies 

that offer the opportunity for reasonable returns and cash flow in 

the industry’s performance of government contracts. 

Such reform should be based on good performance. Contracting 

and financial policies that offer the opportunities for reasonable returns for good performance would: one, make companies more likely to invest in independent research and development and make 

capital expenditures; two, provide for reasonable base fees and hire 

available award and incentive fees, giving industry a reasonable 

chance of earning a fair return; and, three, prohibit fixed-price options before design reaches an acceptable level of maturity and stability. 

The second goal is to reform the major elements of the defense 

acquisition system. Government and industry agree, there is a 

major disconnect in the defense acquisition process between requirements, programs, and budgets. This critical element of the defense acquisition process must be repaired. 

Former Under Secretary of Defense for Acquisition, Technology 

and Logistics John Young reviewed major defense acquisition programs and identified three key contributors to the problem: inaccurate cost estimates at the beginning of the program; requirement 

instability during the development of the program; and budget instability through the development and acquisition process. 

These three areas must be effectively addressed to further restore confidence in DOD’s acquisition system. Again, the recently 

passed ‘‘Weapons System Acquisition Reform Act’’ addressed stability for budgets, cost realism, and requirement stability, but there 

is more work that needs to be done there. 

The third and final goal is to promote the competitiveness and 

efficiency of the aerospace and defense industry. The defense business is increasingly taking on a global character. Competitiveness 

and efficiency should be promoted within this market by ensuring 

access to the best sources in the global supplier base. We are the 

best at what we do, and we do not fear competition with other nations. This is demonstrated by the $60 billion trade surplus which 

our industry enjoys, a trade surplus surpassing any other manufacturing industry. Government policies designed to correct perceived 

deficiencies in the contracting process or protect specific U.S. 
11 

sources could undermine that competitiveness and diminish our industrial base. 

AIA is also concerned with recently enacted tax provisions, such 

as the 3 percent tax withholding on every government payment to 

contractors, which the DOD itself estimates would cost the American taxpayer $17 billion over 5 years. 

Other items that hinder efficiency and effectiveness in competition include barriers to the commercial marketplace such as demands for detailed cost data from commercial item suppliers and 

expert controller regime that punishes our allies and drives technology development overseas. 

The requirements for our national security have not changed. 

The threats from many sources remain, along with the need to 

modernize, recapitalize, and reset our equipment. In order to maintain a competitive industrial base that effectively supports the 

warfighter and the Nation, the government must promote balanced, stable, and fair contracting and financial policies that offer 

the opportunity for reasonable returns and cash flow in the industry’s performance of government contracts. 

Industry acknowledges that such reforms should be based on 

good performance. In today’s resource-strapped environment, industry takes its role to be a responsible acquisition partner seriously. 

Thank you, and I would be happy to answer your questions. 

[The prepared statement of Mr. Sylvester can be found in the Appendix on page 49.] 

Mr. ANDREWS. Mr. Sylvester, thank you very much. 

Mr. Gutridge, welcome this morning. 

STATEMENT OF ROBIN ‘‘PUG’’ GUTRIDGE, PRESIDENT, CHEROKEE INFORMATION SERVICES, CHAIRMAN, TECHAMERICA 

Mr. GUTRIDGE. Thank you, Mr. Chairman. 

Good morning, Chairman Andrews and Ranking Member Conaway, members of the panel. I am honored to be here today representing TechAmerica and provide you with our thoughts on a little bit more focused area, and that is on the acquisition of technology at the Department of Defense. 

The most important point I want to make to you today is that 

the Department of Defense and the rest of the U.S. Government, 

for that matter, seems to have moved away from the tenets Congress adopted in the last 10 to 15 years: to make acquisition of 

commercial and cost items easier and more affordable. 

Now, agencies are moving towards an environment that requires 

government-unique items in both the requirements placed on the 

products and services being acquired and in the terms and conditions under which the acquisitions can occur. 

We believe, if we continue down this path, the government will 

find it increasingly difficult to attract and retain commercial IT 

and technology providers and, subsequently, to unearth and utilize 

the kinds of innovation we see in the commercial market today. 

One of the main reasons for this is because the DOD role in the 

global Information Technology (IT) marketplace is diminishing, 

which leads to decreased competition. Currently, it accounts for 

less than one-tenth of 1 percent. So incorporating the government- 
12 

unique requirements I mentioned previously will only make it more 

difficult for a company to enter the DOD or government market to 

support and sustain a presence. 

Another reason is because DOD acquisition of technology takes 

a significantly longer time period than the commercial product 

lifecycle and is vastly different from the commercial buying process. 

Because technology refreshes at a minimum of every 18 to 24 

months, a commercial acquisition best practice is to identify the 

products and/or services by them and deploy them in less than 24 

months. The time frame is feasible because market research, due 

diligence, and presolicitation processes are much more open to dialogue and establishing trusted relationships than in the federal acquisition process. 

The current buying practices of the Department also disguise its 

presence in the commercial marketplace. Although DOD spends a 

considerable amount of its budget on IT, the average contract action size is reduced from nearly $2.5 million in 2000 to $204,000 

in 2007. So this fragmented buying practice, coupled with the increased risk for commercial companies and the rising cost of winning and sustaining contracts, has diminished the attractiveness of 

the DOD market space. 

We also have significant concerns that the erosion of the acquisition workforce is making the DOD less able to keep pace and deploy innovative solutions. We have seen an increasing ratio of contract transaction numbers and size to the number of employees. 

But, as Stan pointed out, the CSIS study talks about that. And we 

see a significant increase, almost a trebling, in the number of 

transactions per the number of employees. 

But we have also seen a significant decline in the numbers of 

that workforce who had the adequate skills to understand complex 

information systems. Attracting the best and brightest workforce is 

crucial to the development of adequate requirements, which leads 

to the creation of effective systems and enterprise-wide solutions. 

The last point I wanted to note is the increasingly risk-adverse 

environment under which we are currently operating, which only 

leads to decisions based largely on avoiding risk. Instead, we believe that the acquisition practices should be aligned to reward actions to acquire IT services or products in a timely, cost-effective 

matter. We must find a way back to a more open environment that 

creates incentives and rewards for the acquisition workforce and 

the contracting community to produce outcomes based upon best 

value for the warfighter and the taxpayer. 

Thank you again for the opportunity to provide our perspective, 

and I look forward to answering any questions. 

[The prepared statement of Mr. Gutridge can be found in the Appendix on page 68.] 

Mr. ANDREWS. Mr. Gutridge, thank you. And thank you for your 

service to our country. 

Dr. Madland, welcome. 
13 

STATEMENT OF DR. DAVID MADLAND, DIRECTOR, AMERICAN 

WORKER PROJECT, CENTER FOR AMERICAN PROGRESS ACTION FUND 

Dr. MADLAND. Chairman Andrews, Ranking Member Conaway, 

thank you very much for having me. I am David Madland, Director 

of the American Worker Project at the Center for American 

Progress Action Fund. I am pleased to be a part of this panel and 

applaud your ongoing efforts to ensure that taxpayers receive good 

value for their federal contracting money. 

While the center has advocated a range of reforms to achieve 

these goals, including increased competition, strengthening the acquisition workforce, and preventing the contracting out of essential 

government functions—— 

Mr. ANDREWS. Mr. Madland, I am sorry. I think your microphone 

may not be on. 

Dr. MADLAND. The light—— 

Mr. ANDREWS. Okay. I wonder what procurement process we 

used to buy the microphone. Okay. I just want to be sure the members and the audience can hear you. 

Dr. MADLAND. All right. We are back. 

I want to focus on a less well-known but equally critical issue: 

the pay, benefits, and working conditions of the low-wage contracted workforce. 

In my testimony, I want to make three main points. First, many 

federally contracted workers have low-quality jobs. The workers I 

am talking about sew military uniforms, rebuild Army bases, provide security for secure facilities. And, second, while poor treatment of workers is an important problem in its own right, much 

more to the point of this panel: limited benefits, low pay, poor 

working conditions can impose costs on the government and taxpayers and make it hard for high-road companies to compete. 

Third, promoting higher labor standards can be part of a strategy 

for ensuring better value in contracting. Let me elaborate on each 

of those points. 

First, the scope of the problem. I want to emphasize that the 

data are rough because the Federal Government doesn’t keep or 

make publicly available quality data, but all the evidence points in 

the same direction. For example, estimates from the Economic Policy Institute indicate that about 20 percent of all federally contracted workers earn poverty-level wages. This means one out of 

five workers on a Federal contract do not earn enough to keep a 

family of four out of poverty. And low wages and inadequate benefits are much more common in some contracted industries, according to Paul Light, a professor at New York University (NYU). 

Not only is pay quite low for many contracted workers, but working conditions are often of low quality, with contracting companies 

frequently violating labor laws. 

Second, these kind of working conditions can cause taxpayers to 

receive less than full value. When workers are poorly compensated 

on the front end, taxpayers often bear additional costs on the back 

end, such as for Medicaid, Earned-Income Tax Credit, and food 

stamps. Furthermore, research finds that when contractors cut corners to their workers, they often cut corners in the final products 

they deliver to taxpayers, which imposes additional costs. 
14 

Third, promoting good workplace practices can be a good value 

for taxpayers. Not only can they reduce these unintentional subsidies, but it can also promote increased competition and reduce 

the likelihood that companies will operate in a wasteful fashion. 

Let me just give you one example. The State of Maryland implemented a living-wage standard recently, and the Legislative Analyst’s Office did this study. And they found that the average number of bids for contracts in the State increased nearly 30 percent, 

from 3.7 to 4.7 bidders per contract. 

They went out and surveyed the companies. Nearly half of contracting companies interviewed by the State said that the new 

labor standards encouraged them to bid because it leveled the playing field. Several of the companies commented that in the future 

they will only bid on these kinds of contracts with the higher 

standards. And one contractor noted that her current contract was 

the first that she had ever bid on with the State because she explained that, without strong labor standards, quote, ‘‘The bids are 

a race to the bottom. That is not the relationship we want to have 

with our employees.’’ 

Now, over the past decade, state and local governments have 

been leading the way to promote higher standards for the treatment of contracted workers, as an excellent report by the National 

Employment Law Project makes clear. To build on these models 

and improve the treatment of the contracted workforce and promote better value for the taxpayers, there are many steps Congress 

can take, but I want to just highlight two of the most important. 

First, to limit the number of contracts that are awarded to lowroad companies, the Federal Government should ensure that it only 

does business with responsible companies by doing a better job of 

screening companies based on their overall regulatory record, including their compliance with labor laws. And, second, the contracting process should promote higher labor standards by evaluating proposals based in part on the quality of jobs they provide for 

workers. 

These kind of reforms would be the right thing to do for workers, 

but they will also improve accountability and increase transparency, while limiting wasteful contracting and helping ensure 

good value for taxpayers. 

I want to thank the panel for its time and consideration and express my willingness to work with you on these reforms. 

[The prepared statement of Dr. Madland can be found in the Appendix on page 75.] 

Mr. ANDREWS. Dr. Madland, thank you very much. 

I would like to thank all the witnesses. And we will begin with 

the question time. 

Mr. Soloway, you made reference to the additional costs that we 

incur with multiple award task order contracts. And, certainly, the 

more transactions that have to take place in the procurement process, the greater cost that is added. 

What about the benefits of it, though? Isn’t it accurate that, if 

companies not only have to compete for the right to provide the 

services but the actual provision of the services from time to time, 

that that adds more value than it subtracts? 
15 

Mr. SOLOWAY. It is certainly correct that it can. And I didn’t 

mean to suggest that multiple award vehicles are the wrong kind 

of vehicle. I think maybe if I were to recast my comment, it would 

be: For many years, we have been moving in this direction of getting a group of companies to compete to get on the contract, and 

then as each requirement comes up they compete again. And it has 

been generally accepted as a good, competitive model and enables 

the government to buy more incrementally rather than always buying one large package at the same time. So it has had some great 

benefit. 

What has happened in recent years, at least amongst our membership which includes a lot of IT and IT services firms and others, 

is the dramatic growth in these vehicles and some real questions 

of how much redundancy we are going to have in this system. How 

many times do I have to compete to offer the same capability to the 

government, 30 times, 40 times? Each agency wants its own contracts to do everything. 

And so it is an additive issue, not the fact of the multiple award 

vehicles, if that makes sense. It is that the number of them has 

grown so greatly, it has now created some real cost and price pressures on everybody and questions of diminishing returns, I think, 

as well. 

Mr. ANDREWS. So perhaps a procurement regime where there is 

more jointness, where each agency does one set of procurement actions rather than multiple, would solve the problem. 

Mr. SOLOWAY. Well, that might help. I think more, kind of, the 

shared services approach that started a few years ago has some 

benefit. 

But we also have to be very careful, because the other impact of 

multiple award contracts, which is really a management issue for 

the Department—I am not sure that we in the industry have all 

the answers, or the Congress or what have you—is that, very often, 

these large contracts have 15 or 20 different capabilities you have 

to demonstrate to get on the master contract. 

Well, for small and mid-tier firms, many of them have four or 

five terrific capabilities, but they don’t have 15 or 17, so they might 

not even qualify to get on the initial vehicle. So balancing that out 

becomes a real issue. 

Mr. ANDREWS. I see. Thank you. 

Mr. Sylvester, you testified a concern about—which I think it is 

self-evident—of having a reasonable rate of return for companies so 

they can attract capital in fixing the price of these contracts. 

Is there any evidence that companies in the defense manufacturing field are having trouble raising capital? 

Mr. SYLVESTER. There are a number of cases that we have seen 

that have come out of DOD that have decreased payments of fees 

and where work needs to be done or certain things need to be done 

after the actual manufacturing work has been done. So that becomes a cash-flow problem for us, which reduces our rates of return. And that becomes an issue as you look at the capital markets. 

Mr. ANDREWS. I certainly understand that an unexpected cashflow problem makes a company less profitable, which therefore 

makes it less attractive. But are there generic trends in the equity 
16 

markets or the bond markets that say it is harder for these firms 

to attract capital? 

Mr. SYLVESTER. I don’t believe that that is the case, although the 

rates of return that we are seeing, as you look over the time frame, 

you will see that there are smaller rates of return on a lot of these 

companies. 

Mr. ANDREWS. Do you know off the top of your head—I wouldn’t 

expect you to, but if you could supplement the record, I would appreciate it—how many of your members are closely held and how 

many are publicly traded? Do you know? 

Mr. SYLVESTER. I don’t know, but I can give you that figure. 

[The information referred to can be found in the Appendix on 

page 97.] 

Mr. ANDREWS. Is it mostly publicly traded? 

Mr. SYLVESTER. A lot of the larger companies are certainly publicly traded. 

Mr. ANDREWS. Okay. If you could just supplement the record, I 

would like to know. 

Mr. Gutridge, I think you made a compelling case about how a 

very tiny portion of the global market becomes the tail wagging the 

dog, right? So that if most of the marketplace you are working is 

not DOD procurement but you have a set of what I think you called 

government-specific requirements, that makes it unattractive to bid 

on those jobs. 

What are some of the government-specific requirements you are 

talking about that you think make the bid unattractive? 

Mr. GUTRIDGE. I think two right now are causing a lot of uneasiness. One is certainly the security requirements. And, again, we believe that there needs to be particular attention paid to the overall 

security issue. But, again, making that—— 

Mr. ANDREWS. Do you mean background checks on employees, or 

do you mean security where the product is handled? 

Mr. GUTRIDGE. Security of the product itself. So a piece of technology has a certain capability or it doesn’t have a certain feature. 

So that is one particular area. 

Mr. ANDREWS. Don’t you think that is kind of inevitable, though, 

I mean, given the nature of the work that we are doing here? 

Mr. GUTRIDGE. Well, we think it is. And, again, we think, in 

many cases, that is kind of application-specific, if you will. And we 

would encourage that, that those types of measures continue in 

that area. 

The second area has to do with the origin of the particular technology, kind of gets wrapped into the Buy America Act. And, again, 

it kind of is subtly introduced into the whole notion of security— 

malicious code, backdoors, those types of things being written into 

the software. 

So, again, for large global companies that basically see this as a 

huge cost driver, they see this, again, as an increased cost into a 

marketplace that has more and more uncertainty and appears to 

be a lower, lower portion of their potential revenues going forward. 

Mr. ANDREWS. I understand. 

Dr. Madland, I will conclude with you. If we were to be more aggressive in debarment of contractors that were violating labor laws 

and other type regulations, where should the standard be set for 
17 

a violation that results in debarment? You know, putting it in 

layperson’s term, you don’t put a person in prison for jaywalking, 

but you do put someone in prison for rape or murder. Where is the 

line between jaywalking and rape or murder? 

Let me just play devil’s advocate. It is fairly easy to have an Occupational Safety & Health Administration (OSHA) violation if you 

put the wrong form on a bulletin board. I think most of us would 

agree that there is no way that should disqualify a company from 

consideration. However, if you have had several fatalities because 

of careless or reckless practices, that is debarment. 

Where should the line be drawn? 

Dr. MADLAND. I think you are asking a very good question, but, 

first, let me be clear: I am not advocating for a different kind of 

debarment process. Certainly, what I am advocating for are two 

things. 

First is a better screening process. This is for responsible contractors; the law is that we are supposed to only do business with 

responsible contractors and supposed to look at their track record. 

Labor law is usually not—it could be part of that evaluation process, but it is usually not. The database that is going to go online 

is a big part of that. And that is something that contractors will 

look through and evaluate. 

There is clearly no black-line standard you can make because, 

also, for different kinds of contracts, it is going to be different. You 

know, for example, if you are having security guards guarding a 

kind of facility, if they are repeatedly hiring people with criminal 

records or something like that, that is going to be a more significant kind of problem than if they had one OSHA violation. 

Mr. ANDREWS. So you are saying you think the standard is clear, 

but we are not doing a very good job evaluating? 

Dr. MADLAND. No, the standard is actually not clear. The contracting officers could definitely benefit with increased clarity. And 

they could also benefit with better tools with which to make the determination. 

So, for example, the database that is going to go online will not 

capture most labor law violations, for many reasons, but the two 

most important are that the fines for most labor laws, like the violation of minimum wage or the right to organize, are not fines that 

are high enough to reach the threshold of the database. They are 

also often settled without a finding a fault, and finding a fault is 

necessary to be part of the database. 

And then the second thing, to be clear, that I am advocating for 

is, once a company is bidding for—so they have been found responsible, they are bidding on a contract, I think we should evaluate 

the wages and benefits they pay their contracted workers. And, 

again, that is on a sliding scale, not a black line. 

Mr. ANDREWS. Okay. Thank you. 

I am going to turn to Mr. Conaway for his questions. 

Mr. SOLOWAY. Mr. Chairman, is it appropriate to make a comment? 

Mr. ANDREWS. Briefly, if you would. I want to make sure we get 

to the other members. 

Mr. SOLOWAY. Thank you. I just want to make two quick comments because I think the issue here is really a very complex one. 
18 

You touched on one critical issue, which is how do you make the 

judgment of where the line is. And we are going to have a database 

online at some point that is supposed to have a company’s entire 

record of behavior with regard to Federal law. And contracting officers are going to be asked to make decisions that are exactly the 

kind of decisions—are you responsible—if you have had nine labor 

law violations in a company with 40,000 employees over 4 years 

versus a company that had a tax violation 3 years ago and so forth. 

So the line is a very critical one. 

But the point that was missed here and I think is really important is that—I mentioned earlier separating out the different elements of the industry. In construction and in services, there are 

prevailing wage laws that govern the wages, set by the Department 

of Labor, that tell contractors what they must pay and what their 

health and welfare benefits must be. And the penalties for violating 

the law are actually fairly significant. 

The second thing is, both are so complicated. Both the Department of Labor and industry will tell you they are incredibly complicated. We put hundreds of people a year through training programs that we run to help them comply with the Service Contract 

Act, that violations of the act are most often completely unintentional, yet they go into the record as a violation. 

So I think Dr. Madland’s overarching point of responsible contractors paying good wages and good benefits is the absolute right 

one, but I don’t think we can have that discussion without looking 

at the underpinnings of current law that guide that, with regard 

particularly with services and construction. 

Mr. ANDREWS. Understood. Thank you. 

Mr. Conaway. 

Mr. CONAWAY. Thank you. 

Let’s look at the defense acquisition system itself. Can you look 

at it from two perspectives? What are the top three problems with 

the system? And then what are the top three problems the system 

causes those of you that are trying to deal with the Federal Government? And it may be the same question, but just take a shot 

at it. What are the top three things you would fix? 

Mr. SOLOWAY. I think—and I suspect I am speaking for all our 

colleagues here—that number one is the workforce issue. There is 

no question that the Defense Department has experienced substantial workforce atrophy over the last decade and a half. 

I had some responsibility for the acquisition workforce when I 

was in the Pentagon. I worked with Rick on the issues for many 

years. The workforce—— 

Mr. CONAWAY. Is that because of that system, though, or is that 

just—— 

Mr. SOLOWAY. I am sorry? 

Mr. CONAWAY. The workforce atrophy, has that been caused by 

the system? Or is that just the fact that the baby-boomer bulge 

that came through the entire defense industrial complex is now—— 

Mr. SOLOWAY. I think part of it is the demography, just what you 

said. But I think the other issue is that, as the Department of Defense was downsizing in the early to mid-1990s—we had a 38 percent reduction in workforce across the Department of Defense, and 

the acquisition workforce took a substantial reduction as well. 
19 

What was not foreseen, and those of us who were there and those 

who have been there since did not adequately address, was the fact 

that the mission was actually still growing even though we were 

reducing the number of bases and so forth. So there was not an 

alignment of resources, skills, and capabilities to the mission. It 

was a kind of an across-the-board reduction. 

The second thing is—and Mr. Gutridge touched on this—the 

workforce has never been invested in adequately, both from an acquisition perspective in acquisition skills, particularly in services, 

I would argue, in our field, but also in terms of technology. So how 

do I implement and integrate cutting-edge technologies into a Defense Department requirement? And that requires me to get other 

outside help to help me figure that out, because I don’t have the 

capabilities internally. 

So some of it was system, and some of it was other factors. 

Mr. CONAWAY. All right. 

Comments from the other witnesses? 

Mr. SYLVESTER. I have a couple of comments. 

On the issue of workforce, one of the problems that DOD has had 

over time is a continuing education process. Everyone that is in the 

acquisition workforce has to be certified up to a particular level 

that is identified with their position. 

There aren’t really capabilities within the Department to have 

continuing education as that process changes. So as we go to things 

like more use of commercial products or we go to things like 

changes in the way we manage services, there isn’t a push to get 

people who have already been certified back in to be retrained and 

reeducated in those areas. And that causes some problems in the 

system. 

The other thing I would make a comment on is the whole factor 

of stability. I mentioned that in my statement. One of the problems 

the Department has continuously is, requirements change through 

the life of the contract, which causes rework and causes people to 

have to go back and redesign things as new requirements pop up. 

Now, some of that makes sense. As you learn new things, you 

have to do some of that. But some of it is just a factor of, we want 

something different now. Couple that with instability in the program budgeting process and the funding process and the yearly 

look at all of the programs and changing dollars, which causes a 

tremendous impact on costs and variability. 

Mr. CONAWAY. All right. 

Mr. Gutridge. 

Mr. GUTRIDGE. From my opening remarks, I made a couple of 

points. I just want to elaborate on it. 

Number one is the issue of transparency in that early dialogue 

prior to the presolicitation. Again, that is an area that I think we 

can really make some tremendous strides in. That will help us to 

better understand what our customer requirements are. 

But the other one, I think the Defense Science Board report hit 

it pretty well, especially in the area of IT. It is just a long, cumbersome, difficult, challenging, complex process to buy big stuff. 

And so if there were some ways, especially from an IT and services 

perspective, to start to look at how do you do that a little differently, maybe do it more in an evolutionary approach, there 
20 

might be some benefit, in terms of reducing risk as well as speeding up the process. 

Mr. CONAWAY. Okay. 

Anything, Dr. Madland. 

Dr. MADLAND. I think to the chairman I responded with the two 

main things. 

Mr. CONAWAY. All right. I thank the witness, and I yield back. 

Mr. ANDREWS. Thank you, Mr. Conaway. 

The Chair recognizes Mr. Cooper. 

Mr. COOPER. Thank you, Mr. Chairman. 

In view of the shortness of time, I would like to yield my time 

to Mr. Murphy. 

Mr. ANDREWS. Mr. Murphy is recognized. 

Mr. MURPHY. Thanks, Mr. Chairman. 

Thank you, Mr. Cooper. 

I want to first thank the panel of guests today but also to Congressman Andrews and the entire Defense Acquisition Reform 

Panel for holding this incredibly important hearing to shed light on 

the problems with our government procurement process. Congressman Andrews and this team have been tenacious in working to improve our acquisition system so that it provides the best for our 

men and women in uniform. And I truly thank all of you for that. 

My question is, every year, billions of federal dollars go to companies with a history of labor and workplace safety violations. Aside 

from the major concern about the mistreatment of employees, it 

seems to me that some companies are double-dipping the taxpayer: 

first, obviously, the cost of the contract; but, second, for the cost of 

the benefits that their poorly compensated workers qualify for, 

such as Medicaid and food stamps. And, Dr. Madland, I wrote ‘‘one 

in five,’’ according to your testimony today. 

Last year, for an example, Alle Processing Corporation’s employees claimed that the company used intimidation tactics, including 

bribery and threats of deportation, during a union organizing campaign. The company was even photographed with a banner that 

read, ‘‘Obama says unions are a bad deal for workers today. Save 

your job and vote ‘no union.’ ’’ According to news accounts, workers 

at Alle, quote, ‘‘were paid only minimum wage, and none were 

given paid vacation, sick leave, or health care,’’ end quote. In the 

first couple of months of 2009, Alle has already received over 

$350,000 in federal contracts. 

In 2002, Tyson Foods were fined the maximum criminal penalty 

on top of a fine from OSHA after a worker was poisoned by exposure to hydrogen sulfate gas, a toxic byproduct of their facility, and 

yet nothing was done. The company failed to take sufficient steps 

to implement controls and protective equipment to reduce exposure 

to this gas, and their negligence led to tragedy. Just 1 year after 

that 2002 incident, the same, exact thing happened. A worker was 

exposed to this toxic gas, except this time the man died. His name 

was Jason Kelly. Again, Tyson Foods, they paid a fine. And despite 

this record, they received $1.3 billion in Department of Defense-related contracts since the 2002 tragedy. 

So my question to the panel and, first, to Dr. Madland, can you 

quantify the cost to taxpayers of awarding contracts to contractors 

like these who poorly compensate and poorly treat their employees? 
21 

And how are factors such as pay, benefits, and treatment of employees currently taken into account before awarding a contract? 

And how can we improve the process? 

I know El Paso, Texas, for example, has implemented a scoring 

system, weighing whether companies provide certain benefits to 

their employees. And are these ideas that we should consider as a 

panel? 

Dr. MADLAND. Thank you very much for that question. I think 

there were two key pieces there, questions, sort of how do you 

quantify these costs that we were talking about in the second, and 

how do you reform the process. 

The first, how can you or can you quantify, well there are a couple of different kinds of costs. The first kind is the cost such as 

Medicaid, food stamps, earned income tax credit can definitely be 

quantified. Studies in many states and localities have quantified 

these kinds of hidden costs for providing public assistance to lowwage workers. It has not been done at the federal level. Now, it 

would have to be an extrapolation because we do not exactly know 

how many federally contracted workers there are, but I think you 

could make some reasonable estimates and come up with a good 

number. In California they have done this and they estimate about 

$10 billion a year in state subsidies for full-time workers who earn 

near the minimum wage, so I think you could do something similar 

at the federal level. 

But the kinds of costs that are much harder to capture but are 

real are the kinds of quality, the connection between bad workplace 

practices and quality. Just to give you an example of some of these 

kinds of relationships, there was a Department of Housing & 

Urban Development (HUD) audit found a direct correlation between labor law violations and poor-quality construction. New York 

City survey of construction contractors found that those with workplace law violations were over five times as likely to have poor performance ratings. I can list others, but those kind of costs are much 

harder to quantify. I think, for example, if you asked Government 

Accountability Office (GAO) to look at both kinds that would be a 

good step. 

So what do we do about this? I started to talk to Chairman Andrews—you asked actually how does the government evaluate 

these kinds of things; does it consider labor standards? It legally 

could, and it occasionally does, but very often it does not. 

So there are two primary ways that I think this panel could look 

at, and the first, as I said, was better screening for whether a company is responsible. And I think that this better screening requires 

two things. This is clarifying the standards—this gets to the point 

that Chairman Andrews was asking about—clarify the standards 

for evaluating whether a better—that demonstrates a satisfactory 

record of integrity and business ethics. For example, you know, 

how many violations, et cetera. 

And then second, you need to create better tools to help contracting officers make this determination. The database, as we 

talked about, is a big first step, but it does not capture many of 

the important violations. 

And the second key step is almost all federal contracts that are 

competitively bid are awarded on a best value approach in which 
22 

the government considers both price and other non-cost factors, 

past performance, small business subcontracting plan, technical approach, managerial capacity. We recommend that one of those noncost factors that are used to evaluate contractors may be the pay 

in benefits that they provide their workers. You mentioned El Paso. 

That is exactly what El Paso has done for health care benefits. And 

they give a score for the quality of health benefits they provide, 

and that is one of the factors in determining whether the bidder 

receives the award. 

Mr. ANDREWS. The gentleman’s time has expired. Thank you, Mr. 

Murphy and Mr. Cooper. 

The Chair recognizes Mr. Coffman. 

Mr. COFFMAN. Thank you, Mr. Chairman. 

Just a question on this insourcing. I think, Mr. Soloway, you 

raised it, and I think, Mr. Gutridge, you also, I think, touched on 

it: Where is that appropriate balance? One thing we did not hear, 

I think, prior to the legislation that was passed was, I think, 

from—we certainly heard from the public sector that there was a 

deficit or a lack of qualified acquisition personnel, and we needed 

to do more insourcing of that. But I think until today we never 

really heard of the consequences to the private sector. So where, in 

your mind, is the appropriate balance? 

Mr. SOLOWAY. Mr. Coffman, I think that I would answer your 

question by pointing to the July 29th memorandum that the Administration issued, guidance to implement the insourcing legislation, which actually did a very good job of letting out kind of a hierarchy of how you think about federal functions and positions and 

the various decisions you can make associated with each. 

So, very briefly, they basically get four categories. One is inherently governmental functions that we all agree absolutely have to 

be performed by government employees. 

The second were functions of—actually positions that an organization determined were absolutely essential to its ability to control 

and oversee its own mission. They might not be technically inherently governmental, but it is in any organization you would want 

that as an in-house capability. 

Then there were other fairly significant positions for which you 

would make a decision. You have some flexibility. Where are the 

greatest skills, the greatest benefits and so forth. 

And then the final category, very routine functions, base-operating support services, commercial functions and so forth, where it 

is kind of a classic make-buy decision. 

I think the issue for the Department is how do you actually do 

a broad strategic human capital plan that accurately captures kind 

of those four different pieces and looks at them in a truly strategic 

manner? It will vary from organization to organization. One organization may need more engineers in-house because of what they do 

than others, which may be able to rely more on outside engineering 

support, for example. 

So I think it is a strategic human capital process. I think that 

the OMB memo that came out on July 29th actually does a pretty 

good job of laying out kind of the structure. It has only been 6 

weeks since it came out, so it is too early to say whether it is having an effect, but even before it goes into effect, and even before 
23 

the Department of Defense has come out with its actual cost guidance internally, assumptions have already been built into the budget to the, quote, ‘‘benefit’’ of insourcing. I think it is kind of a ‘‘cart 

before the horse’’ situation. 

One other point—I am sorry to keep coming back to this in Dr. 

Madland’s comment—I want to remind Mr. Murphy that we would 

not sit here and support companies that behave in the manner in 

which you described some of the companies in the record that you 

have. But again, it is critical, as we think about the issue of benefits, and pay, and treatment of workforce, that we recognize the different standards that already exist and how they apply in different 

industry segments. The Service Contract Act was created to prevent precisely what you are talking about. So the 20 percent—the 

figure that Dr. Madland used, the 20 percent of contract workers 

who are getting below poverty-level wages are almost certainly not 

working for companies who are doing service contracts under the 

Service Contract Act, and if they are, there are penalties in law 

today that should be applied. If it is not being enforced adequately, 

it ought to be enforced more effectively. 

The second piece is there are a lot of us in the industry who believe the Service Contract Act wages, the determinations that the 

Service Contract Act puts out, are woefully out of date. And so the 

government itself is creating a dynamic in the marketplace by saying, here is the wage you must pay, and that wage may or may not 

be an adequate wage in that region because it has not been updated recently enough. So I would suggest the first step here to 

achieve the goal I think we all share in terms of reasonable and 

fair treatment of workers is to focus on whether the Service Contract Act is adequately updated, modernized, and managed and administered. 

Mr. GUTRIDGE. May I respond? 

Mr. COFFMAN. Mr. Gutridge, did you have a comment to one of 

my questions? 

Mr. GUTRIDGE. Yes, sir, I did. I just wanted to really underscore 

Mr. Soloway’s comments here. Having been in the thick of this in 

that particular industry, dealing with that particular issue, not just 

recently, but really for the past six, seven, eight years, where we 

have literally lost dozens of people where we contracted and expanded, contracted and expanded literally in the tune of hundreds 

of people per year, it has caused us significant stress. And our challenge has been and the benefit to us is it causes us to create muscles that most companies our size do not have. But the challenge 

we had is really trying to guess what the future requirements are 

going to be, the lead time for going out and basically refilling the 

pipeline once the government has basically hired those people away 

from us. It takes several months. You know, when you are dealing 

with one or two, it is not so bad. But when you are dealing with 

10, 20, 30, 40, 50, it creates a significant strain and a significant 

burden on a company our size, any company realistically. 

So the challenge that we have is it is fine if we had a more strategic understanding of where they were trying to get to, how can 

we help them get there from here, develop an integrated plan that 

allows that to happen. And I think underscoring really trying to decide what is that sweet spot in terms of the number of these types 
24 

of critical decisions, critical skills that the organization needs for 

future requirements, and then how do they effectively augment 

those with other type, whether it be contract or other types of services and support. I think that is where the challenge always is. 

Mr. COFFMAN. Thank you, Mr. Chairman. 

Mr. ANDREWS. Thank you, Mr. Coffman. 

The Chair recognizes Mr. Ellsworth. 

Mr. ELLSWORTH. Thank You, Mr. Chairman. 

Thank you, gentlemen. 

I guess my question would be for Mr. Soloway or Mr. Sylvester. 

I have had several calls in my tenure here from vendors and manufactures in my district mainly that suggest that they have tried to 

break into the system, or they have looked at breaking into the system, and they know they have a better way or a product they have 

seen manufactured, and they can do it cheaper, better, and yet feel 

the system is designed to not let them break in to get into the system, or it is designed for the current vendor to keep the contract, 

that they have no chance. Do you see that in yours to be true? Are 

they just not having people in place to navigate the procurement 

system? That would be my first question, is it a fair and balanced 

competitive edge that most companies, if they want to get in, 

should be able to. 

Mr. SOLOWAY. Mr. Ellsworth, I think it is a great question, and 

I think it is a question that came up when we were in your district 

with you and a number of your companies a year ago, some of 

whom were in the market and some who wanted to get into the 

market. 

I think it is a very tough question, because the government does 

have, as Mr. Gutridge said, a whole set of unique requirements 

that make it very difficult for particularly smaller, purely commercial companies to figure out how to get in and whether they can 

afford to get in. 

As an organization we have participated in probably a dozen 

seminars in various congressional districts around the country for 

members who are getting the very same questions from their constituents and tried to help explain to them, here are the rules of 

the road and kind of how you can get into this market, but it is 

not an easy market to get into. And a lot of it is driven by the often 

appropriate sort of checks and balances that are in the system, because this is a taxpayer system, not a purely commercial market, 

but also by some of the behaviors of the customer and the incentives that are put out in the market. So I do think it is a fair question. 

I think there are ways for small companies to get into the market. Many have been creative and found a way. Mr. Gutridge’s 

company started as a very small company, but it is a challenge, 

and I think that for those who are the faint of heart, it may not 

be the best market in the world, because the government does put 

very heavy burdens on all of its companies that are doing business. 

Even if we could argue whether we need more or less in certain 

areas, the basic requirements to get into the system are not simple. 

Mr. ELLSWORTH. Thank you. 

Mr. Sylvester, let me change the subject a little bit. We talked 

about—let us just call them change orders for the sake of that. Cer-
25 

tainly the safety of our troops is paramount, and if they need something done to fix a weapon or fix something that keeps them safer, 

a vest or helmet, how much—discuss a little bit about what might 

go on. Someone sees a better idea, an idea comes from the field, 

a manufacturer sees something. Oh, let us change this strap from 

this to this, wouldn’t that be better if it were an inch wider, and 

then can manipulate the system. Let us change this, charge more, 

redesign. And do we get taken advantage of that way in companies 

changing up orders on equipment, on small and maybe insignificant and nonuseful changes, that they could then bill back the government? 

Mr. SYLVESTER. While I am sure that happens from time to time, 

I do not think, at least from my experience, that is really prevalent 

where we have companies who are making those small incremental 

changes and then saying, here we have this idea, and we are going 

to charge the government for this. What I see more is companies 

that have ideas about things and go talk to the requirements drafters and say, we can do these kinds of things if you will change the 

requirements to allow us to do that. In some cases those particular 

requirements have been demonstrated, and in some cases they 

have not. And so the people who are in the requirements process 

would look at that and make changes in the contracts. There is a 

place for that to have that done. 

But again, going back to this idea of stability, once we beginning 

a manufacturing process, except for things that are safety related 

or those kinds of things, we need some stability in that process, 

which goes back to the evolutionary acquisition idea. If we can 

have a system that is truly evolutionary, we can begin to take 

those new ideas and introduce them into the system and get them 

into the requirements that way, in a logical way that doesn’t impact our manufacturing capability. 

Mr. ELLSWORTH. Mr. Gutridge, you shook your head in the affirmative. I assume you agree with that, or do you have a comment? 

Mr. GUTRIDGE. Putting my previous life’s hat on where I dealt 

with this issue on a daily basis with aviation, engineering change 

proposals were always a struggle. When you are buying unique 

items, when you are buying a lot of them, you know, we consider 

those things very carefully. But we control the process because they 

were basically producing something for us. 

When we get into the commercial marketplace, it changes the 

paradigm entirely, because all of a sudden now producers are looking at, well, I have got this great big marketplace over here, and 

I have got this smaller niche market over there, and if I did this 

thing, well, it has this direct benefit to my bottom line because it 

increases my sales or whatever. 

So part of the challenge that we always struggle with when we 

get into buying commercial products is that there is the recognition 

and understanding that a bit you give up that control over that 

configuration of that end item. And that is a business decision that 

the Department makes on a regular basis. And part of it has do 

with how long are we going to use it; what is the total life-cycle 

cost. And these are all considerations that are taken into account 

in that acquisition process. 
26 

Mr. ELLSWORTH. Mr. Chairman, I do not know how much time 

I have left, but if I could yield the balance of my time to Mr. Murphy. He had another question. 

Mr. ANDREWS. Absolutely. Mr. Murphy is recognized. 

Mr. MURPHY. Thank you, Mr. Chairman. 

Thank you, Mr. Ellsworth. 

Mr. Soloway, I know you mentioned about the Service Contract 

Act. Do you have any comments? And if Dr. Madland could comment. 

Mr. SOLOWAY. I just wanted to make the point that I think that 

the ethic of what Dr. Madland is talking about is something we 

could all sign up to, and we actually talked briefly earlier about sitting down and trying to figure some of this out. 

But I think the issues that Mr. Andrews referenced earlier about 

where you draw the line here, and what kind of guidance and objective criteria you are going to provide to government contracting 

officers to make what could be some really complicated decisions 

about relative severity of relative kinds of violations of different 

laws, the truth is without in any way defending a company that 

is a scofflaw, some of the companies that are referenced in the 

record and so forth, many companies have some kind of violation 

somewhere inadvertently committed, and how you start making 

those decisions I think is an enormously complex issue. 

Mr. MURPHY. May Dr. Madland comment on that? 

Mr. SOLOWAY. Yes, but one last point. The second point I want 

to make is we do not, in fact, in government contracting make 

these best-value trade-offs the majority of time. In fact, the majority of government contracts are awarded on a low-bid basis. Bestvalue contracting is actually the exception, not the rule. Now, we 

have advocated if you use more, I think you sometimes get what 

you pay for, if you will. And using all these other factors in a 

source-selection decision makes sense, but the vast majority of government contracts are either a sealed bid, which is just they simply 

look at the cost, or what we call low-priced technically acceptable, 

which is not a cost trade-off process. 

So I think that the ethic of what Dr. Madland is proposing is 

something we can all sign up to. I think that the Service Contract 

Act is a leveler. It is designed to try to avoid these kinds of issues. 

Mr. MURPHY. Dr. Madland, my time—— 

Mr. ANDREWS. Well, actually Mr. Murphy, you are entitled to be 

recognized for five minutes on your own time. So you are recognized for five minutes. 

Mr. MURPHY. Thank you. 

Dr. Madland. 

Dr. MADLAND. Thank you. 

There were three big issues that I wanted to hit on: Talk about 

the Service Contract Act, how you sort of quantify the standards 

for whether a company is responsible, and then this idea of best 

value. 

The service contract, other prevailing wage laws like the Service 

Contract Act and Davis-Bacon are very important in assuring that 

standards aren’t driven down, but they are not very effective at 

raising standards. Just to give you a couple of examples of what 

the actual prevailing wages are right now, $8.17 for a janitor in 
27 

Houston, $9.49 for a security guard in Tucson, $7.25 for a fast food 

worker in Chicago, without benefits. That includes the total package. And these were just updated a couple months ago. 

So these prevailing wage laws are important to ensure that 

standards are not driven down totally to the bottom, but they are 

not—not sufficient. 

The second idea was sort of how you develop the standard for 

evaluating whether a company is responsible, how many labor law 

violations, et cetera. This is a very important and difficult question 

to answer, but I want to emphasize that many, many states have 

been doing this for years. California, Massachusetts, tons of local 

governments have developed quantified systems where they evaluate, okay, this many standards is this many violations is this many 

points, and you need to have this many points to be determined responsible. So it is a determination that, while difficult, it is something that other procurement systems regularly do. 

And then the last idea, my point was about low-cost technically 

acceptable—Mr. Soloway claims that I think he was saying we— 

the government procurement only evaluates most bids based on 

cost. Well, in the low-cost technically acceptable, they do look at 

non-cost factors; it is just whether a minimal threshold is met. 

Most competitively bid contracts include those low-cost technically 

acceptable or the more fully negotiated process where there is actual trade-offs between cost and non-cost factors. 

Mr. MURPHY. Do you want to comment, Mr. Soloway? 

Mr. SOLOWAY. This is going to be a long discussion, and I said 

that in all due respect. I would just point out that, again, the 

threshold issue is a critical issue. In California I believe if you have 

four violations of the Davis-Bacon Act, you get zero points on their 

scoring system. But if I have thousands and thousands of workers, 

I could have four violations fairly quickly. Whether that is the right 

or the wrong standard is another issue, but I think that is a really 

important point. 

The last point I will make about the Service Contract Act, DavisBacon, and the other prevailing wage laws that exist, whether they 

were designed do to do this or not, they have, in fact, become a 

floor; they are a minimum. The idea of a prevailing wage is supposed to be the prevailing wage. What is the appropriate wage for 

work in a given district or a given region of the country, and on 

top of that you then have to pay a certain given health and welfare 

benefit. 

So perhaps the discussion should begin with are the prevailing 

wage laws, in fact, getting us to prevailing rates or to the floor that 

Dr. Madland was talking about. That is a policy decision for the 

Congress and the Administration to make. From an industry perspective, as long as the Congress and the Administration recognize 

whatever all of the implications are for driving wages, whatever 

level the Congress and Administration decide is appropriate, that 

is a different discussion. From an industry perspective it is a relatively level field. We are all going to be bidding to the same rules, 

if you will. But there is a difference between the minimum and a 

prevailing wage, so the question perhaps is whether the Service 

Contract Act is prevailing or setting just a floor. 
28 

Mr. MURPHY. I want to go back to the metrics. You know, we 

talked about the database earlier. To give an example, 2008, 

Propper International, the largest manufacturer of uniforms for the 

United States military, settled a case with the National Labor Relations Board after employees charge that the company did not 

grant legally required paid sick days or vacation days, and the 

company violated labor laws by threatening employees who were 

trying to organize. So according to the press account about this 

company, Defense Logistics Agency (DLA), which had awarded the 

contract, offered that, going forward, it would take labor law violations into account when it reviewed contractors’ performance using 

a national database that tracks these violations. 

So my question to the panel, and I will start with Dr. Madland, 

can you describe to us how the database is currently utilized by 

procurement officials and if consulting the data is generally voluntary as it would seem based on the Propper International case? 

And what do we need to do to maximize its potential and encourage or require potentially officers to consult prior to awarding a 

contract? 

Dr. MADLAND. Thank you. 

Your question is correct. The database is just being created. It 

is supposed to be created by October of this year. And the proposed 

rules state that contracting officers shall consider all the information in the database, which seems like a pretty strong standard. So 

that seems like a good thing. And I am not sure how much further 

you could go, although you should be aware that even like in the 

debarment category where they must look at it, oftentimes contract 

officers still don’t, and GAO has done studies and found that. 

And so this database is going to be a big, big improvement, but 

as I mentioned before, the standards of exactly how it is applied 

are not quite clear, and it will miss many labor law violations. In 

addition, it does not capture private-sector compliance, so we are 

missing half the story or more. It is not publicly available. 

Now, a step is I think defense authorization this year, I think 

that is correct, will allow Members of Congress to look at it. It also, 

as I said, does not capture settlements without acknowledgement 

of fault, and the minimum threshold for fines is often below the 

level. 

Now, you mentioned the case of Propper International. They are 

the largest military uniform manufacturer, and some of their violations would probably be captured by this database, and there 

would be a record on which to judge them. So they had 152—157 

health and safety violations over the past 20 years; 58 of those categorized as serious violations, or death, or serious physical harm 

could have resulted to workers. The more recent ones probably 

would be captured. 

Mr. ANDREWS. I just want to ask if Mr. Soloway would want to 

comment, because the gentleman’s time is expired. Thank you, Dr. 

Madland. 

Mr. SOLOWAY. I will just go back to the point Dr. Madland 

touched on. The issue here is how we set the standards. I think 

there is going to be—it is a very complicated question. The database is a reality, it is happening. How we set the standards, they 

give guidance to the workforce. Number one, the database should 
29 

never be made public because there is a lot of sensitive proprietary 

information subject to all kinds of misinterpretation. 

How we guide the workforce in terms of how you make a decision, what is a pattern of abuse versus individual instances. A company could have had three or four years of abuses and then completely thrown out all of their management, changed their business 

practices and processes, and said, hey, this is now a good company. 

How an institution responds to problems is not an unimportant 

issue. 

So I think all of the issues—and the question of how we actually 

guide the workforce towards making reasoned, fair, transparent decisions. Companies are going to have access to their own records, 

so they can see what is in there. But they will have no access to 

information as to why they were determined to be responsive or 

not, which is essentially debarment. If you are not responsible, you 

cannot bid. You have been effectively barred from the process. So 

I think this is a very, very complicated issue. 

The last point I will make is I would hope Congress would not 

go back and revisit the question of whether we should include settlements on which there were no findings. From a perspective of 

law, if I settle a case with you, and I do not admit guilt, and you 

do not admit that I was innocent, that is why we have settlements. 

And that is a very dangerous road to go down to presume that 

somebody is guilty because they settled a case. As I think we all 

know there are a lot of settlements in which you do it for other reasons. So I think the standards issue is the critical question. 

Mr. ANDREWS. We thank you, Mr. Murphy, and thank the members of the panel. As is generally the case, well briefed and prepared witnesses generate more questions than they answer, which 

is good. I mean that as a compliment. 

I think what the panel will take away this morning is that in 

this process of creating the right environment for a vibrant and 

stable set of industrial bases, as Mr. Soloway points out, we need 

to do a number of things. From Mr. Soloway we heard that although multiple-award task order contracts have a certain value, 

we need to be sure that they do not add more costs than they generate benefit, that we carefully evaluate the use of those vehicles 

and others. 

Mr. Sylvester, certainly we do need to look at the overall capitalraising environment in which his members are operating. They are 

not just competing against other defense companies, they are competing against tech companies and financial services companies, a 

lot of other people. 

Mr. Gutridge, one lesson I think we learned from you is that we 

do not want to wall ourselves off from the benefit of the commercial 

global marketplace because of requirements that are superfluous or 

unnecessary. I think we all agree that security requirements, quality requirements are non-negotiable. But we may be precluding 

ourselves from some excellent bidders because we are having the 

tail wag the dog. 

And finally, Dr. Madland, I think your efforts and Mr. Murphy’s 

efforts really do point out that the strongest value for the people 

in uniform and for the taxpayer comes from a fair workplace relationship, and where that workplace relationship is unfair or miss-
30 

ing, that is a deficiency in the whole process that we need to 

refocus on. 

So I appreciate the witnesses and my friends here on the panel. 

The committee will continue to explore these issues. Essentially 

our work plan, which I discussed with—which we discussed with 

the minority staff, is to continue a series of hearings where we explore hypotheses about the reasons for this gap between price and 

value for the balance of the calendar year. The panel will then convene in the first quarter of 2010, and the Members will discuss 

among ourselves recommendations that we will then want to make 

to our colleagues in the full committee with a report that we hope 

will be the basis for legislative action in next year’s defense authorization bill. 

So again, we thank the witnesses for their time and thank our 

colleagues. The hearing stands adjourned. 

[Whereupon, at 9:25 a.m., the panel was adjourned.] 
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Mr. SYLVESTER. Of the 106 regular members of Aerospace Industries Association, 

68 or 64% are publicly traded and 38 or 36% are privately held. [See page 16.] 

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