U.S. GOVERNMENT PRINTING OFFICE

64–652 CC WASHINGTON : 2000

THE IMPLEMENTATION OF THE FEDERAL

ACTIVITIES INVENTORY REFORM ACT

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

INFORMATION, AND TECHNOLOGY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

OCTOBER 28, 1999

Serial No. 106–122

Printed for the use of the Committee on Government Reform

(

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

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

HELEN CHENOWETH-HAGE, Idaho

DAVID VITTER, Louisiana

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

HAROLD E. FORD, JR., Tennessee

JANICE D. SCHAKOWSKY, Illinois

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

DAVID A. KASS, Deputy Counsel and Parliamentarian

CARLA J. MARTIN, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY

STEPHEN HORN, California, Chairman

JUDY BIGGERT, Illinois

THOMAS M. DAVIS, Virginia

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

JIM TURNER, Texas

PAUL E. KANJORSKI, Pennsylvania

MAJOR R. OWENS, New York

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

J. RUSSELL GEORGE, Staff Director and Chief Counsel

BONNIE HEALD, Director of Communications/Professional Staff Member

CHIP AHLSWEDE, Clerk

TREY HENDERSON, Minority Professional Staff Member

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C O N T E N T S

Page

Hearing held on October 28, 1999 .......................................................................... 1

Statement of:

Duncan, Hon. John J., Jr., a Representative in Congress from the State

of Tennessee .................................................................................................. 16

Kucinich, Hon. Dennis J., a Representative in Congress from the State

of Ohio ............................................................................................................ 22

Mihm, Christopher, Associate Director, Federal Management Work Force

Issues, General Accounting Office; Deidre Lee, Acting Deputy Director

for Management, Office of Management and Budget; Sallyanne Harper,

Chief Financial Officer, Environmental Protection Agency; William

Early, Chief Financial Officer, General Services Administration; and

Linda Bilmes, Acting Assistant Secretary for Administration, Acting

Chief Financial Officer, Department of Commerce .................................... 77

Sessions, Hon. Pete, a Representative in Congress from the State of

Texas .............................................................................................................. 11

Thomas, Hon. Craig, a U.S. Senator from the State of Wyoming ................ 7

Letters, statements, et cetera, submitted for the record by:

Bilmes, Linda, Acting Assistant Secretary for Administration, Acting

Chief Financial Officer, Department of Commerce, prepared statement

of ..................................................................................................................... 148

Duncan, Hon. John J., Jr., a Representative in Congress from the State

of Tennessee, prepared statement of ........................................................... 18

Early, William, Chief Financial Officer, General Services Administration,

prepared statement of ................................................................................... 141

Harper, Sallyanne, Chief Financial Officer, Environmental Protection

Agency, prepared statement of .................................................................... 134

Horn, Hon. Stephen, a Representative in Congress from the State of

California:

OMB proposal to amend the Federal Acquisition Regulation ............... 159

Prepared statement of ............................................................................... 3

Prepared statements of the Contract Services Association of America,

the American Federation of Government Employees, the National

Treasury Employees, and the 1999 FAIR Act Inventory of the

General Services Administration .......................................................... 24

Questions and responses of Linda J. Bilmes ........................................... 164

Lee, Deidre, Acting Deputy Director for Management, Office of Management and Budget:

Budget procedures memorandum No. 829 .............................................. 108

Prepared statement of ............................................................................... 93

Mihm, Christopher, Associate Director, Federal Management Work Force

Issues, General Accounting Office, prepared statement of ........................ 80

Sessions, Hon. Pete, a Representative in Congress from the State of

Texas, prepared statement of ....................................................................... 13

Thomas, Hon. Craig, a U.S. Senator from the State of Wyoming, prepared

statement of ................................................................................................... 9

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

prepared statement of ................................................................................... 5

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THE IMPLEMENTATION OF THE FEDERAL

ACTIVITIES INVENTORY REFORM ACT

THURSDAY, OCTOBER 28, 1999

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 2:35 p.m., in room 2154, Rayburn House Office Building, Hon. Stephen Horn (chairman of the subcommittee) presiding. Present: Representatives Horn, Walden, and Ose.

Staff present: J. Russell George, staff director and chief counsel; Randy Kaplan, counsel; Bonnie Heald, director of communications

and professional staff member; Chip Ahlswede, clerk; Rob Singer,

staff assistant; P.J. Caceres and Deborah Oppenheim, interns; Trey

Henderson, minority professional staff member; and Jean Gosa, minority staff assistant.

Mr. HORN. The Subcommittee on Government Management, Information, and Technology will come to order. The Federal Activities Inventory Reform Act called the FAIR Act was signed into law

on October 19, 1998. The law requires that each year executive

branch agencies compile a list of the commercial activities they perform and make the list available to the public.

Agencies are required to submit their lists to the Office of Management and Budget for review and then make them available to

Congress and the public. Interested parties such as private companies, trade associations, and employee unions can challenge the inclusion or exclusion of the activities on the list.

The FAIR Act represents the first time that the Federal departments and agencies have been statutorily required to develop and

publish lists of the commercial activities they perform. One of the

main purposes of the FAIR Act is to make agencies account for the

commercial activities they perform. Once these activities are identified, agencies can then decide whether to make these positions

available to the private sector through a competitive bidding process. Opening these commercial activities to competition could reduce the cost of government by as much as 35 percent according

to the General Accounting Office.

The FAIR Act does not demand that Federal agencies outsource

these commercial activities. When agencies do outsource, however,

the law requires them do so through a competitive bidding process.

In this case, they must follow the guidance contained in OMB Circular A–76.

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The A–76 administrative policy, which dates back more than 40

years to the Eisenhower administration in which I happened to

serve, states that Federal departments and agencies should rely on

private sector sources for commercial goods and services. In addition, the policy states that agencies should not begin new commercial activities if they can get a contractor to perform these activities.

The question before us today: Is the FAIR Act working? On September 30, 1999, 52 Federal departments and agencies released

their FAIR Act lists. According to the Office of Management and

Budget, Federal civilian agencies identified 120,000 of their 1.1

million jobs as commercial in nature that could be outsourced.

Among the agencies that are represented before us today, the Department of Commerce listed 8,529 jobs as commercial in nature

but indicated that only about 936 of them would be open to competition. The Environmental Protection Agency labeled about 830

positions as commercial in nature, but only 30 could be put up for

competition. The General Services Administration listed 7,249 activities or individuals in the activities as commercial, of which

4,556 could be put up for competition. The subcommittee would like

to learn more about these numbers and these categories.

The FAIR Act was broadly drafted to give agencies some flexibility in developing their inventory lists. Consequently, there is little

uniformity in either format or method of publication of these lists.

Ready access to these lists in a user-friendly format which is essential for those who want to challenge the inclusion or omission of a

commercial activity. Today we will examine how well the FAIR Act

is or is not working.

We are pleased to have with us some of the key sponsors of this

legislation and active enthusiasts, Senator Craig Thomas of Wyoming who sponsored the FAIR Act legislation in the Senate, Representative John Jimmy Duncan who sponsored the legislation in

the House. Joining them will be Representative Pete Sessions,

former vice chairman of this subcommittee, and Representative

Dennis Kucinich, the subcommittee’s former ranking member. We

welcome all of our witnesses today, and we look forward to their

testimony. And we are always glad to see you. And you may start.

[The prepared statements of Hon. Stephen Horn and Hon. Jim

Turner follows:]

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STATEMENT OF HON. CRAIG THOMAS, A U.S. SENATOR FROM

THE STATE OF WYOMING

Senator THOMAS. Thank you, Mr. Chairman. I appreciate you holding this hearing today. I think it’s important that we talk

about this issue. As an alumnus of this committee it is a pleasure

to be here, along with my friend, Jimmy Duncan. We were the primary sponsors of this legislation along with Congressman Sessions

who played a crucial role in getting the bill signed into law. The FAIR Act was a result of significant compromise during the negotiations between the Congress and the Office of Management

and Budget. I think that’s an important point that we started a little differently than where we came out on the basis that OMB

thought they could do much of this administratively, and we were

going to come together and work together that way. As you’ve pointed out, the law requires a submission of an inven- tory on those activities which are non-inherently governmental by

the end of third quarter, June 30th to make those available to the

public and Congress. You have 30 days then to challenge the content of the agency’s list and finally after an appeal have a chance

to review whether or not outsourcing would be more cost efficient. Mr. Chairman, unfortunately it’s my belief the executive branch has not been consistent with either the spirit or the letter of the

law. The FAIR Act was signed on October 18, 1998; OMB did not

issue the final guidance for implementation until June 14, 1999,

just 16 days before the inventories were due. Consequently, the inventories were not publicly released until September 30th. However, even now a substantial number are still not available.

Aside from the long delay, the guidance, I think, was inadequate

to the task. We’ve heard that from various agencies and employees

that it was not clear exactly what we were doing and that the guidance was inconsistent with the intent of Congress.

For example, Congress clearly intended that OMB Circular A–76

be replaced. Consequently, I have strong reservations about the implementation of the FAIR Act because of the modest changes that

were made to the supplemental handbook. Further, the method in

which the inventories were released was not adequate. No central

point of contact was provided. As designated FAIR officers vary

from agency to agency, potentially interested parties have had difficult times having access to the inventory. I think there ought to

be a more effective means of doing that.

Further, the quality of the inventories is not good. They’re ambiguous and do not identify the functions in a reasonable manner

for interpretation by the agency management or outside parties.

Functions are categorized in a rather confusing fashion I think.

Similar functions appear multiple times; extremely difficult to identify the functions. For example, EPA’s inventory identifies financial

and payroll processing functions at both headquarters and regional

offices. But nowhere does the agency list the function of payroll

processing.

So, I think it makes it very difficult to implement this bill. I realize this is the first time for implementation. I recognize it is not

going to be perfect. I recognize that it is something new, almost developing a new culture within a bureaucracy which isn’t easy to do.

So I think all of us have to have some patience with this process.

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I am hopeful, as promised, OMB will work with us to improve implementation of the FAIR Act.

I am still dedicated to the notion that there are many instances

in which the private sector could better do these functions and

should have an opportunity at least to show which is the most economic and efficient way.

Mr. Chairman, I hope we can continue to monitor and continue

to work to implement what I think is something that would be very

good for government, good for the American people.

Mr. HORN. Do you have any language you think that might tighten it up given this first round really?

Senator THOMAS. I guess, Mr. Chairman, my concern is more adhering to the language that we already have, then if we find having done that, that language needs to be changed, certainly we

ought to do that. But I believe, as I mentioned I think, some of the

current guidance is not consistent with the intent of the statute.

Mr. HORN. Thank you.

[The prepared statement of Hon. Craig Thomas follows:]

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Mr. HORN. The gentleman from Texas is next.

Mr. SESSIONS. Thank you, Mr. Chairman. I appreciate being here

before this subcommittee again, a subcommittee which I have previously served as vice chairman in the 105th Congress, and I would

like to ask unanimous consent that my written statement be included in the record in addition to those comments which I intend

to make.

Mr. HORN. It’s automatic that the minute we introduce the

speaker the complete statement is in the record at that point. We

would love to have you sort of just summarize it.

STATEMENT OF HON. PETE SESSIONS, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF TEXAS

Mr. SESSIONS. Good. Thank you, Mr. Chairman. I would be very

pleased to do that. First of all, I would like to be associated with

the comments from Senator Thomas. I believe that his careful evaluation exactly mirrors comments that I would make probably.

To summarize very quickly, the day that the initial reports, the

FAIR reports, the documentation came out from the agencies, we

went about the manner of trying to get a copy of all those that

would be available. And I would say that we found it, from our perspective, frustrating to find a point of contact within the agencies

and then when we did receive the information, we were disappointed in some of the presentations that were made.

With that said, I believe Senator Thomas has adequately stated

this was the first time, this was the first opportunity on behalf of

OMB and the administration to do this, and that I believe that

they recognize that they can, should, and must do a better job.

With that in mind, I sent OMB Director, Mr. Lew, a letter that

same day indicating that I felt like that a meeting with him would

be something that I felt like could iron out some of the differences

that I, in my own mind, had.

As a matter of fact, that meeting took place yesterday with Dee

Lee from the OMB. And I found her presentation, her demeanor,

and her willingness to work with us and to accept feedback admirable. And the feedback that I provided her was that I felt like that

Federal employees, Federal agencies, I felt like had employees that

could do a better job than what they did, that they would need to

get some feedback based upon the information that they provided,

that they should be more instructive to provide narratives about

what they were providing and summarizing the information about

why it was important and the conclusions that they were drawing

even if they were—it was preliminary information.

I also further stated to her that I felt like that at some time next

year knowing that the next two or three rounds of release by the

administration is probably too far along that I felt like that next

year’s releases, the people should receive information about the administration’s view about what lessons they have learned about the

earlier releases. In other words, that they should advise people who

are going to release information next year that there could be more

information, a better format and to be more forthcoming in a lot

of information.

And I believe that OMB will accept those recommendations and

will try and make not only the formatting but the information more

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user friendly. And I believe that if we allow them the opportunity

to provide feedback, they would be the first ones to say that they

have learned a lot in this process and intend to get better. I received a sense of willingness and openness on their part; and I believe that we can work together, that your subcommittee can work

with them; and I will be very interested finding out their testimony

before you today about their ideas on making this better. Thank

you.

Mr. HORN. Well, we thank you very much. You’ve had a major

role in this as chairman of the sort of responsibility and performance caucus. And I congratulate you for that.

[The prepared statement of Hon. Pete Sessions follows:]

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Mr. HORN. the gentleman from Tennessee, Mr. Duncan.

STATEMENT OF HON. JOHN J. DUNCAN, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TENNESSEE

Mr. DUNCAN. Thank you, Mr. Chairman. And I would like to

thank you for your interest in this legislation and for taking the

time to schedule and hold this oversight hearing on the implementation of the Federal Activities Inventory Reform Act or the FAIR

Act as we’re calling it.

I would also like to thank my good friend, Senator Thomas, who

sponsored the Senate version of this bill for all of his hard work

on this legislation. Certainly we couldn’t have done it without him.

And finally, I want to thank Representative Sessions for his great

leadership not only on the floor but since then even up until yesterday working on this. As you know, I sponsored the original House

version of the FAIR Act. The purpose of this law is to show how

many commercial activities Federal agencies are now performing

and to see if any of these activities could be more economically and

efficiently carried out by the private sector.

Mr. Chairman, since the Eisenhower administration in 1955, it

has been official U.S. policy and was stated at that time that ‘‘the

Federal Government will not start or carry on any commercial activity to provide a service or product for its own use if such a product or service can be procured from private enterprize through ordinary business channels.’’ This has been—in fact I think at one of

the most recent White House conferences on small business, this

was listed as their No. 1 concern, what they felt like was competition from government agencies. The legislation we passed in the

last Congress will help the Federal Government to adhere to this

policy that has been the policy, supposedly, since the Eisenhower

administration as you noted in your opening statement.

The FAIR Act requires Federal agencies to submit a list of commercial activities in which they are involved to the OMB and, in

addition, the law requires OMB to release a list of these activities

known as inventories to Congress and the public.

Now, however, we are running into some road blocks in the early

stages of attempting to make this law work for our—the citizens

of this great country. First, these inventories are not being released

to the public in an efficient manner. When we passed this legislation, most of us believed that these inventories would be readily

available to all interested parties and, more importantly, would be

easily accessible.

However, instead of publishing a list of the activities that Federal agencies were performing that could be carried out by the private sector only contacts, names, and phone numbers were printed

in the Federal Register. It was necessary for interested parties to

call these contact numbers in order to obtain a copy of the inventories for each agency. I have been told that when some of these

phone numbers were called the individuals at the agencies were

not familiar with the FAIR Act or its requirements. And in some

cases, these phone numbers were cell phones that were not even

answered at all.

This, of course, obviously creates a problem. Once these inventories are released, a member of the public only has 30 days to apVerDate 11-MAY-2000 09:03 Aug 23, 2000 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 C:\DOCS\64652.TXT HGOVREF1 PsN: HGOVREF1
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peal any inventory which does not list a specific activity that could

be considered commercial in nature. In addition, these inventories

were not compiled in any uniform manner. Thus they varied from

agency to agency making it difficult to interpret their contents.

I do not know if we have any copies of those inventories here

today, but if we do not, I would encourage members of the subcommittee to take a quick glance at a couple of them to see how

user unfriendly they are.

I also think it is very important that the OMB create some type

of one stop shopping where the public can easily access the inventories submitted by any agency. I believe it would be easy to post

these lists on OMB’s website or at least provide links to the agency’s websites where the inventories could be viewed.

The purpose of this act is not to serve as a witch hunt for jobs

to privatize within agencies. However, if certain functions performed by agencies can be more economically carried out by the

private sector, we need to look at those situations. This would then

free up finances and manpower so that Federal agencies can better

focus on their core missions.

I hope the OMB will reinforce this point to Federal agencies so

that they will provide us with clear inventories, and we can have

a more effective government.

Finally, Mr. Chairman, when we were working on this legislation

during the 105th Congress, the Heritage Foundation released a report which found that we could easily save at least $9 billion a year

by contracting out certain commercial activities performed by Federal agencies. You mentioned, Mr. Chairman, in your opening

statement that GAO had estimated the cost of government to be reduced by 35 percent by outsourcing many activities.

I have seen estimates which say we could save billions and billions and really tremendous amounts. We need to make sure that

this act is carried out in a manner that will help us achieve these

savings. Our Founding Fathers felt that most problems could be

solved by the private sector and government should do only those

things which people cannot do for themselves; and I think that if

we could enforce the FAIR Act, we could come closer to the vision

of this government that the Founding Fathers gave to us. And so

I yield back the balance of any time that I might have left. Thank

you very much.

[The prepared statement of Hon. John J. Duncan, Jr., follows:]

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Mr. HORN. Well, thank you. You’ve had a lot to do with this and

the progress that’s been made. I might add if you have any exchange of letters with OMB, we would be glad to put them in the

record at this point. And without objection they will go in the

record.

This was strictly a Federal panel from the legislative branch,

panel one, and the panel two is essentially the executive branch.

We do have a lot of very fine statements submitted by management

and labor and without objection we will put those in at the end of

Mr. Kucinich’s testimony.

And some of the ones here are the American Council of Independent Laboratories, the American Electronics Association, the

Contract Services Association, the Management Association for Private Photogrammetric Surveyors, the National Division Industrial

Association, the Small Business Legislative Council, the Contract

Services Association of America, and also the American Federation

of Government Employees, AFL–CIO. And that’s a very thorough

document. And we also have similar thorough document from the

National Treasury Employees Union. And let’s see. That’s some information from the General Services Administration. Anyhow, they

will go at the end really of the testimony here on panel one.

So we now have the gentleman from Ohio, the former ranking

member of this subcommittee, a very constructive person, the Honorable Dennis Kucinich from Ohio.

STATEMENT OF HON. DENNIS J. KUCINICH, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO

Mr. KUCINICH. Thank you, Mr. Chairman. And I want to say

what a privilege it was to work with you in the last Congress on

the committee. And I stress the word work with because we had

a constructive debate, and I know my friend, Mr. Sessions, and I

actually had a chance to debate this particular act thoroughly.

Mr. SESSIONS. And form a friendship.

Mr. KUCINICH. Absolutely. And I understand the spirit in which

Congressman Duncan and Congressman Sessions have advanced

this. And I think they’re to be commended for their interest in trying to get government to function more effectively and more efficiently. And I certainly understand that the people of this country

want that to happen.

Now, as you know, Mr. Chairman, I was skeptical when the bill

was debated last year. And now that the bill has become law, and

I still want to indicate it’s my belief the skepticism is in order. The

purpose of the law is to direct the Federal Government to identify

likely targets for privatization or contracting out.

The underlying assumption is that small business faces a big

problem from the public provision of services. I thought the assumption was incorrect last year, and I think it’s still incorrect

even though I have and I share the sympathy which my esteemed

colleagues have for small business. For all the problems that small

businesses face, I wonder how significant is the provision. If there

is a problem that’s created by the public provision of services, I’m

not sure that despite the spirited debate that we had in the last

Congress that the case was made before the bill was passed.

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While the bill concerned contracting out to private companies, it

did not exist—it did not address the existing problems afflicting

contracting. According to both the Office of Management and Budget and the General Accounting Office, contract administration remains one of the highest risk activities which the government engages in. And examples abound. Senate hearings uncovered $27

billion a year in health care fraud. In 1995, $25 billion in payments

to defense contractors could not be matched to invoices. And in

many cases the Department of Defense relies on contractors themselves to identify overpayments.

Nevertheless, the Federal Government reduced its contract oversight personnel by over 12 percent between 1992 and 1997. Without adequate personnel to oversee contractors and discover fraud

and abuse, the costly problems associated by contracting out cannot

be systematically prevented. But in passing the bill, Congress expanded contracting out and it would be logical to conclude expanded the cost of contractings problems.

Last year’s bill could have been dramatically improved had it

squarely confronted the modern realities of contracted services. Today’s hearing concerns the implementation and compliance with

the law. And I want to say as a Member of this Congress, you know

when we pass a law whether or not I agree with the law, I mean

the law is to be obeyed. That’s something that I support, and I

hope all of my colleagues would. I may not agree with it, but it’s

the law.

So I look forward to learning about the agency’s experience with

the law and what analysis has been conducted to determine the effect of the law on fraud and abuse perpetrated on taxpayers by unscrupulous contractors.

So again, I thank the Chair for his ongoing interest in this, and

it’s an honor to be here with Mr. Duncan and Mr. Sessions.

[The prepared statements of the Contract Services Association of

America, the American Federation of Government Employees, the

National Treasury Employees, and the 1999 FAIR Act Inventory of

the General Services Administration follow:]

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Mr. HORN. I thank the gentleman. I’m going to have questioning

done by two of your colleagues and we can start with the gentleman from Oregon, Mr. Walden.

Mr. WALDEN. Thank you very much, Mr. Chairman, and yes

we’re delighted to have you here. I want to thank you as someone

who has come late to this process having had this past last session,

we appreciate what you’re trying to accomplish. Do you think that

there are some specific legislative changes that should be made to

make this a more user friendly document? I mean, I was glancing

through some of what we have here and it’s—and as a small business person in real life, I’m not sure I would be any better off looking at this than not knowing.

Mr. SESSIONS. Perhaps there would be some disagreement that

we have here, but I believe that we should work further with the

process that OMB did not provide a one-size-fits-all package to tell

people how to do their job but rather left it up to the agencies to

do their own determination, their own fact finding, their own evaluation. And somehow I believe that even though the end product

the first time was not exactly what I would have wanted, I believe

that they recognize the importance of following the law and that

they see where providing—learning from their—what they have

first done and providing more information will be very valuable internally, most of all to their own employees. Because once these

documents are presented, they don’t answer questions that employees would have, they don’t provide information to employees or to

the vendor community; and they need to go a little bit further. And

I think the internal working would allow them that opportunity to

get closer.

And at this point, it would be my recommendation not to offer

advice but rather to ask them what do you think needs to be

changed. I think they should be asked here today, what with the

realistic expectation that not the next time and not the next time

because the Department of Defense will be released in December,

I understand, but early next year up on the releases that they

would have had a chance to provide information and to get better

at it. And then that would be a chance if we did not—if we had

disagreement then to go in and tinker with our reporting process.

But I’m happy with the outline we’ve given them and believe

they are prepared even perhaps today to admit that themselves.

Mr. DUNCAN. I agree with that. We ought to be able to work with

the agencies; and if over this next year, we keep running into these

problems in spite of guidance being given to the different agencies,

then that—then we could consider some changes.

Mr. HORN. Any comments from the gentleman from Ohio?

Mr. KUCINICH. Again I think to hear the agencies’ experience

with this is really going to be essential. And I will repeat that you

know, Congress passed this law, agencies are going to have to

abide by it. But it’s important to see what the fit is between the

conceptual framework of the law and the practical experience in

the administration of it. So and I think that’s—that’s the whole

process here in Congress: We keep learning; we pass the law, then

we see how it works.

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Mr. WALDEN. There’s been some concern voiced about the impact

of the FAIR Act inventories on Federal employees. Do you have any

concerns or——

Mr. KUCINICH. Well, I would say to the gentleman that you know

I’m generally philosophically opposed to privatization. I’ll just put

my cards on the table there. I think that government does have a

role to play in our society and certainly this committee in particular has the ability to make the government work better through

providing some guidance.

I do understand the concerns which my good friend, Mr. Sessions, advanced throughout the debate over this about how there

are certain areas that there’s a question as to whether government

should be in it or not. I don’t think there’s anything wrong with

reviewing those. But just as a matter of course you know, I am not

for dismantling the government. At least not while I’m a Member

of Congress.

Mr. SESSIONS. My feedback, if I could add on with Mr. Kucinich,

would be this, that I believe that the information that is provided

by agencies is being followed very closely by employee groups and

that they should receive every bit of information and be told is this

preliminary, is this final, how is this going to be used, that they

should know what’s at risk, that they should be able to plan themselves.

And if you just look at the substance that’s been provided, it

makes it seem like that your job is gone. It’s far from that. There’s

a lot of information that is still yet to be gleaned and this is the—

really, the first shot or first evaluation that has been made about

determining, I think, whether something is inherently governmental or whether it’s competitive. So there’s a whole lot of things

that we need to learn and get more information and employees

would be one of those groups of people that needed just as much

as the community that might wish to participate in being a part

of it.

Mr. WALDEN. Two other issue areas that I might just float out

there. One is does this act cover the Postal Service as well as they

get into look—at getting into different private sector activities.

Mr. SESSIONS. I would have to defer to somebody that knows

what they’re talking about. But in my opinion, no. Well, a year

ago—there’s bound to be somebody that knows about it; but in my

opinion, no. I didn’t get sworn in, did I? In my opinion, no.

Mr. HORN. We do not swear in Members I’m told by Chairman

Clinger after I was swearing them in all the time. And we do have

a little code here that if anybody lies to us it’s the last time we

speak to them.

Mr. SESSIONS. Does that apply to Russell too or just the Members? I think not to answer your question.

Mr. WALDEN. What I’m hearing may be unclear, so we’ll ask the

second panel.

Mr. SESSIONS. In my opinion, that was specifically a part of a

discussion that we had; and, in my opinion, they were not included

because of their statutory—where they fit in the scope.

Mr. KUCINICH. If I may, I think one of the aspects of that is selfevident is that if the Postal Service had been included in that, they

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would have to hold this hearing in a field house because there’s

such strong feelings about that particular issue. So I’m——

Mr. WALDEN. I’ve run into that. That’s why I wondered.

The second question I have which may be totally off the wall, but

in terms of prison labor and competition there, does this act get

into that at all? I’ll tell you from a State perspective, we had a ballot measure passed in Oregon that said we’re going to put all prisoners to work 40 hours a week.

The upshot of that is they are mandated to go do jobs now and

are literally taking jobs away not only from the private sector but

from the nonprofit sector. My own little community there was an

organization that dealt with mentally handicapped people who

were doing piecework, and the prison laborers could do it cheaper,

and they lost their contracts. That’s going on in the recycling industry and elsewhere. So actually, I think, we’re modifying that

change in the law in Oregon. But I wonder at the Federal level.

Mr. SESSIONS. To answer that question, as I recall the Department of Justice is included and every one of its employees would

be included but not——

Mr. WALDEN. Prison programs. OK.

Mr. SESSIONS [continuing]. Those people who were engaged as

prisoners any sort of activities.

Mr. KUCINICH. I would say, however, at a future date it would

be interesting to see where prison labor might be replacing jobs in

the private sector. I would be interested in that as well.

Mr. WALDEN. I heard another one, this is all, you know, those

little stories you pick up at town meetings and all about a fellow,

a college kid who was no longer out fighting fires because they

were using prison laborers to come in and fight forest fires. I

haven’t run that one down. But there is some of that going on out

that there where we’re displacing law abiding citizens.

Mr. KUCINICH. Wonder if they had anybody convicted of arson

doing that.

Mr. WALDEN. How do you start a fire?

Thank you, Mr. Chairman.

Mr. HORN. The gentleman from California, Mr. Ose.

Mr. OSE. Thank you, Mr. Chairman. My questions really are very

specific and that is how do we get from the position where we’re

at right now relative to these reports to a position where the report

is standardized so that anybody in 10 minutes time can understand

what’s possible and what’s not. I think that’s the objective. Obviously we started somewhere. OK. Well, this doesn’t work. I mean

it’s just—well, I’m not a rocket scientist.

Mr. SESSIONS. I’ll give a stab at it. I think that’s what we’ve been

talking about. And I believe in continuous improvement, and I believe that the OMB does also, that they want to have an opportunity to learn from what the exercise that they’ve been through.

And that I think they call it gymnastics as opposed to just regular

floor exercise, that this was a tough thing. We were dealing with

people that aren’t as familiar with this. But I think that’s their

goal.

I would just once again state they’ve got two more releases that

are already in print, don’t look at the next one or the next one, say

by golly they didn’t hear us. In fact they do hear us, they’ve got

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great ears, they were listening. And I’ll be very much listening

today to hear how open they are because they’ve had at least 15

or 20 hours since my meeting to think about it. And so we’ll see

what they come back with.

Mr. OSE. One of the things I did do, and this follows up on one

of Mr. Kucinich’s concerns, is I read the testimony from the Treasury Employees Union. And there is a provision—I’m still not—it’s

still not on, Mr. Chairman. Can you hear me? The act itself includes a provision for costing an in-house proposal. I think it’s section 2 subparagraph E, realistic and fair cost comparisons. And I

would hope that as we look specifically at that, as we are refining

these reports, we can also give some thought as to how to get a fair

costing algorithm, for instance, for current Federal agency employees to bid on this work. I think that’s the height of fairness and

would serve us all well. I think that would address much of the

concern that you have.

Mr. KUCINICH. I think the gentleman’s point is well taken. You

know, when you consider the cost of employees you also have to include not just their wages but their benefits as well. And in the private sector, from the experience that I’ve seen, is that let’s say on

a municipal level, contracting out, the contractor may not offer the

same wages, the same level of benefits. That’s why this privatization issue is so powerful in some places in the country because people feel that their ability to make a decent wage with benefits is

under attack. That’s like another area of concern.

So I would suggest that your point is well taken in terms of trying to get a fair-cost comparison. I would like to see that the benefits and as well as wages added. Because my guess is that most privatization would—most of the contractors would not want to pay

the same wages and same benefit levels because where they’re

making the money I would respectly suggest often is in reduction

of wages and benefits. That’s why this can be such a very vexing

issue because what we want, while we want government to be efficient, at the same time we should be concerned that we’re not engaging in the construction of public policies that would undermine

the very constituencies that we’re here to serve.

Mr. OSE. I would echo your remarks, and I think you covered a

couple of things in section 2 E. But I would also make sure that

we cover the either real or imputed overhead costs that might come

from office space, utilities, phones, supplies, and whatever and

price that not at the margin, but at the core costs.

My other question, Mr. Chairman, and I appreciate any senior

input on this is how do we accurately define what is a core activity

as opposed to a non-core activity? I understand exempt versus nonexempt, but how do we define core versus non core?

Mr. HORN. Well, I think we’re going to ask that question of Ms.

Lee and the various orders that OMB has put out in guidance because you’re absolutely right that we’ve got to get a little firm definition. And I would hope this round has just as you did in lifting

that report that we would get some clarification as to how you can

deal with it. And when you do something like this, obviously a lot

of people in agencies, not just in government, but large human organizations just sort of throw up their hands and say what are

these people really trying to ask us. So we need to clarify that with

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panel two since we’ll have the working people that put it all together.

Mr. OSE. Thank you, Mr. Chairman.

Mr. HORN. OK. No more questions? Well, we thank you very

much, and you’re welcome to stay since you’re both government

groupees. You’re certainly welcome if you like. Thank you very

much for coming.

We now will swear in panel two. And it will be the Honorable

Deidre Lee, Acting Deputy Director for Management, Office of

Management and Budget; Mr. Christopher Mihm, Associate Director, Federal Management Work Force Issues, General Accounting

Office; and the Honorable Sallyanne Harper Chief Financial Officer

of the Environmental Protection Agency; Mr. William Early, the

Chief Financial Officer, General Services Administration; Ms.

Linda Bilmes, Acting Assistant Secretary for Administration, Acting Chief Financial Officer, Department of Commerce.

So if you have staff with you that might be also saying things

let’s get them all sworn in at once behind you, if you have any.

Anybody have them here. OK. We’re now talking with essentially

five witnesses then. Please raise your right hands.

[Witnesses sworn.]

Mr. HORN. The clerk will note all five witnesses affirmed. And

I’m going to switch a minute. On this agenda it wasn’t quite put

together right. I want the GAO first, and then we will go to the

members of the administration. So, Mr. Mihm, you can begin as

usually we have the GAO first.

And we welcome you.

STATEMENTS OF CHRISTOPHER MIHM, ASSOCIATE DIRECTOR,

FEDERAL MANAGEMENT WORK FORCE ISSUES, GENERAL

ACCOUNTING OFFICE; DEIDRE LEE, ACTING DEPUTY DIRECTOR FOR MANAGEMENT, OFFICE OF MANAGEMENT AND

BUDGET; SALLYANNE HARPER, CHIEF FINANCIAL OFFICER,

ENVIRONMENTAL PROTECTION AGENCY; WILLIAM EARLY,

CHIEF FINANCIAL OFFICER, GENERAL SERVICES ADMINISTRATION; AND LINDA BILMES, ACTING ASSISTANT SECRETARY FOR ADMINISTRATION, ACTING CHIEF FINANCIAL

OFFICER, DEPARTMENT OF COMMERCE

Mr. MIHM. Thank you, Mr. Chairman. And again it’s a pleasure

and and honor to appear before you today to discuss the implementation of the FAIR Act. As you mentioned in your opening statement, the act requires executive agencies to list their activities that

are not inherently governmental.

The implementation of the FAIR Act, as we heard from the first

panel, is in its very early stages. Many agencies have only recently

released the inventories of activities, and many other agency inventories have not yet been made available to the public including 14

of the 24 CFO Act agencies, the largest agencies in the Federal

Government.

At the request of this subcommittee, we are beginning a body of

work to assess agencies’ efforts under the FAIR Act. This afternoon, I’ll briefly describe the status of initial steps taken to implement the act, then I will highlight some of the questions that are

being raised by our examination of the FAIR Act inventories from

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the Department of Commerce, Environmental Protection Agency,

and the General Services Administration. We will be following up

to get answers to these questions at those agencies and other CFO

Act agencies as other inventories are released.

In regards to my first point on the status of FAIR Act implementation, as you pointed out in your opening statement, the act requires executive agencies to submit each year to OMB inventories

of activities that are not inherently governmental. In addition to

listing the activities, the inventories are to include information

about: First, the fiscal year an activity first appeared on an inventory; second, the number of full-time-equivalent, that is FTE, staff

years to do the activity; and then, third, a contact point for additional information.

As was mentioned, inventories from 52 agencies have been made

available. Of these 52 inventories, 10 were from CFO Act agencies

including five cabinet departments, Agriculture, Commerce, Education, Health and Human Services, and HUD. The remaining 42

inventories were from smaller agencies.

Clearly then the agencies and OMB still have plenty of work

ahead to implement even the first step of the FAIR Act, and that

is the issuing of the inventories. Nevertheless, our initial review of

the selected inventories that have been released raise a number of

important questions that we plan to pursue at the request of this

subcommittee. These questions include: First, what decisions did

agencies make about whether or not activities were eligible for

competition and what were the reasons for those decisions.

Second, what processes did agencies use to develop their inventories.

Third, how useful were the inventories—and we heard quite a bit

of commentary on that from the first panel.

And finally, what supplemental information can be included in

the inventories to increase their usefulness. This is information

over and above what is required by the FAIR Act.

As I mentioned, we’ll be seeking answers to these and other

questions over the coming months in order to assess agency efforts

and to develop a body of best practices as efforts under the FAIR

Act move forward. In doing so, we hope to contribute to the oversight of this subcommittee and others in Congress.

Each of these questions is discussed in some detail in my written

statement, so in the interest of brevity I’ll discuss on just the first

and the fourth of these questions this afternoon.

First then, what decisions did agencies make about whether or

not activities were eligible for competition and what were the reasons for those decisions. Our initial review of the inventory suggests that questions can be raised about how agencies decided

whether or not a commercial activity could be subject for competition. This is not the distinction between an inherently governmental activity, but once we’ve decided an activity is commercial,

whether or not it should be competed. This particularly is an issue

when an agency reports that relatively few of its commercial activities should be competed.

For example, the Environmental Protection Agency’s inventory

shows that EPA has decided that most of its commercial activities

are exempt from competition. This includes about 775 FTEs or over

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93 percent of the total number of full-time equivalents performing

commercial activities at EPA. According to EPA, these activities

are exempted from competition because EPA needs to retain a core

staff capability. For example, EPA told us that the exempted positions were selected positions requiring scientific expertise in its Research and Development Office that oversee the work done in laboratories by other contractors.

The second question is what supplemental information can be included to increase the usefulness of the inventories. We are seeing

that beyond the requirements of the FAIR Act, some agencies are

including information with their inventories that provides additional very helpful perspective on the contracting and management

issues confronting that agency. Specifically, some of the agencies

are listing inherently governmental activities which are not required by the act.

Second, they’re also describing the scope of activities currently

under contract to provide a sense of the overall level of contract

support within that agency.

And third, they’re discussing how listed activities contribute to

the agency’s strategic and annual performance. In that regard, the

inventory for the Environmental Protection Agency was particularly helpful in showing how commercial activities were aligned

with the strategic goals of the agency. For example, including information about inherently governmental functions as GSA did helps

provide perspective about all of the agency’s activities not just

those that the agency considers commercial and the relationships

between commerical and inherently governmental activities.

In summary, Mr. Chairman the agencies and OMB still have

plenty of work ahead to implement the FAIR Act. By enacting

FAIR, Congress has increased the visibility of agencies’ commercial

oversight activities. Oversight hearings such as today’s and, I

should add, the statements from the Members of Congress that we

heard on the first panel, send clear messages to agencies that Congress is serious about improving the efficiency and effectiveness of

government operations and the effective implementation of the

FAIR Act.

We look forward to continuing to work with you and other Members of Congress as your oversight efforts continue. That concludes

my statement. I would be happy to take any questions that you or

other members of the subcommittee may have.

[The prepared statement of Mr. Mihm follows:]

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Mr. HORN. Well, thank you very much. As you know, we wait

until the full panel has presented their particular arguments. I appreciate that study that you’re doing, and we’ve got about four

more studies in mind. So I don’t want to wear you all out. But we

have a long series of spring hearings coming up.

Mr. MIHM. Thank you. Looking forward to it.

Mr. HORN. Thank you. That’s the spirit. There’s the Hill, and

Lieutenant Mihm and the squad charge it.

We now go to Ms. Deidre Lee, the Acting Deputy Director for

Management, Office of Management and Budget.

Ms. LEE. Mr. Chairman, good to see you. Mr. Chairman, members of the committee, I had a schedule conflict so that’s probably

how this got confused. We were able to make some adjustments, so

thank you for understanding.

Mr. Chairman, members of the committee, I’m here to discuss

with you today the implementation of the Federal Activities Inventory Reform Act, we all call it the FAIR Act. Today we face the

challenge of managing in the new balanced budget environment.

That challenge is to provide a government that, through empowered employees, adopts better business practices, provides better

service, and costs less.

Over the last several years, the Congress and the administration

have developed a range of management tools and strategies that

have encouraged us to save, redirect, and extend limited resources.

Like the Government Performance and Results Act of 1993, the

FAIR Act was designed to focus government attention on what we

are getting for the money we’re spending.

The Federal Government seeks to achieve economy, enhance productivity, improve the quality of services, and obtain the best service at least cost to the taxpayer through competition. This policy

has been provided by OMB Circular A–76, the Performance of

Commercial Activities. And the FAIR Act codified some of this

guidance in law. In particular, the act codified the definition of inherently governmental function and required agencies to inventory

their activities and make these inventories public.

This inventory process has proven to be both a significant administrative effort and a massive data collection effort. The FAIR Act

inventory is the first inventory of commercial activities that has

been required by law, and it is the first that has ever been prepared for release to the Congress or the public. It is also the first

inventory where agency decisions about what are inherently governmental activities are subject to administrative challenge and appeal by outside parties. Not surprisingly, the initial inventory submissions have taken longer to prepare and have required more

analysis on the part of agencies and OMB than previous A–76 activities.

As a matter of policy and now as a matter of law, an inherently

governmental function is one that is so intimately related to the exercise of the public interest as to mandate performance by Federal

employees. We’ve been working with the agencies to help them

apply this guidance. Not all functions may be performed by contractors. Just as it is clear that certain functions such as the negotiation of foreign policy should not be contracted, it is also clear

that other functions such as building maintenance or food services

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may be contracted. The OFPP policy letter, which is a precursor to

this, actually provides other examples of inherently governmental

and governmental functions and activities. The difficulty is in applying the general test to activities that fall between these extremes.

That said, we must balance the emphasis on the business opportunities identified by the FAIR Act and the need to maintain core

agency functions, such as the right level of skilled people to manage our business relationships, something that Mr. Kucinich talked

about, and also the management of financial expenditures. We also

need to provide smart buyers. We’ll see of that in EPA’s testimony

that we need a level of technical expertise to make sure that what

we’re outsourcing or spending our money on we’re doing correctly

and right. So there’s a balance between that need for internal

knowledge and the outsourcing or the management of those contracts.

Agencies also have to be prepared to meet research and development needs, emergency capabilities, and related work loads. So

we’re trying to find and strike that balance.

A great deal of work and debate has gone into these inventories

both on the part of OMB and each agency. As with any new program, there continues to be some difficulties in gaining complete

agency understanding of the specific requirement of the FAIR Act;

and, in some cases, there were questions as to whether the FAIR

Act even applied to an agency.

In those cases, determinations have been made on a case by case

basis. By tomorrow, OMB will have released two groups of agency

inventories prepared under the FAIR Act. The initial group covered

about 320,000 Federal employees working in 52 agencies, and over

120,000 were listed as potentially commercial in nature. The second group which is scheduled for release tomorrow covered 120,000

Federal employees working in approximately 42 agencies with an

additional 35,000 employees listed as potentially commercial.

Mr. HORN. Just to interrupt for a minute to make sure I understand those, and there’s no use waiting until the end on this, that

adds up to 475,000 or is there overlap?

Ms. LEE. That’s a cumulative number, you add them together.

We still have more to go. We still have approximately 25 more releases to go.

Mr. HORN. So roughly half a million. OK. Thank you.

Ms. LEE. We will continue the process and, Mr. Sessions said, we

anticipate probably one or two more releases, and hope to get them

all out by December. There are additional 25 releases including

some independently submitted IG offices. Major agencies yet to be

released include Justice, Transportation, State, Treasury, Veterans

Affairs and the Department of Defense which you can imagine is

quite large.

As Mr. Sessions noted, and as clearly discussed here previously

there’s some work to be done. I don’t in any way shape or form say

this process was perfect the first go round. We recognize the need

to do some more work. We are actually anxious to get the first

group of inventories out and then immediately begin having meetings with the Congress, the staff, the GAO, the Federal employee

groups themselves and to say how can we do this better next time

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and what issues do we need to approach. So we are absolutely open

to that, and what we’re looking for now is to try to get ourselves

through this and learn from that. It’s already time to start queing

up because the next inventories are due next June.

One piece that OMB has done is to require for next year when

the agencies do their inventories due in June to also have something we’ve kind of added in the spirit of the law. They need to tell

us what actions have been taken against the previous inventory. So

we will begin to see a record of what we released in these inventories, and here’s what we’ve done with them.

Mr. Chairman, I will reiterate we are open to working with folks.

We know we need to continue to work this process and try to make

these inventories quickly available and absolutely usable and user

friendly, and we’ve got a ways to go on that. Thank you.

[The prepared statement of Ms. Lee follows:]

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Mr. HORN. Before I call on Mr. Ose to begin the questioning this

one, I want—one little thing here on page 6, you say, ‘‘On July 12,

1999, OMB issued Budget Procedures Memorandum No. 829. This

memorandum, which went to all OMB staff, outlined the responsibilities of OMB’s Resource Management Offices and OMB’s Budget Review Division which is responsible for implementing the FAIR

Act and OMB Circular A–76.’’ if you wouldn’t mind I would like in

the record at this point to have Budget Procedures Memorandum

829 just so we have——

Ms. LEE. We’ll provide it for the record.

[The information referred to follows:]

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Mr. HORN. And also there’s been no change in Circular A–76, I

take it.

Ms. LEE. There have been changes over the years but not as of

this event.

Mr. HORN. So what we have in the record already, we don’t have

to worry about. The gentleman from California, Mr. Ose.

Mr. OSE. Mr. Chairman, are we going to hear from the other

three witnesses first?

Mr. HORN. Sorry on that. You’re able to stay; right?

Ms. LEE. Yes, sir.

Mr. HORN. I thought you had a problem there. But Ms. Harper

then is next with the Environmental Protection Agency, CFO.

Ms. HARPER. Thank you, Mr. Chairman. Mr. Chairman and

members of the subcommittee, as Chief Financial Officer of the Environmental Protection Agency, my office is responsible for EPA’s

implementation of the Federal Activities Inventory Reform Act, the

FAIR Act. Let me begin by thanking you for this opportunity to

discuss our work in connection with the FAIR Act. I share your

commitment to effective and efficient government service and I will

pleased to be able to describe for you EPA’s approach to the FAIR

Act compliance. OMB’s early guidance and support helped us to

make a quick, informed start on an inventory of functions characterized as commercial under the FAIR Act. To satisfy the spirit and

intent of the act, we set out to produce a comprehensive inventory

of all commercial functions and activities and the full-time equivalents or FTE performing them.

We decided that ‘‘at bottom-up approach’’ would yield more accurate information. So we assigned responsibility for the inventory to

EPA’s 22 major organizational units or national program offices at

headquarters and our regional offices. We convened an agency-wide

work group with representatives from each of the organizational

units as well as from our unions. Our purpose was to reinforce a

common understanding of the criteria outlined in FAIR and in

OMB Circular A–76 and to emphasize the importance of linking

the inventory and activity function codes to EPA’s strategic goals.

This work group approach, along with staff oversight and review

of the draft inventories, further assured the quality and consistency

of the information we gathered.

EPA’s inventory, completed on June 30, 1999, showed that approximately 5 percent of the agency’s work force or 829 FTE are

involved primarily with activities characterized as commercial

under FAIR. Most functions identified in EPA’s inventory represent, in our judgment, core capabilities that should be retained

in house. In our evaluation, we considered several factors including

the nature and the function, the degree of discretion exercised in

performing that function, the sensitivity and the confidentiality of

information required to perform the function, and the significance

to the core agency activities. EPA’s regulatory role is unique and

important. To meet our statutory mandates and emergency requirements, we must maintain the in-house expertise and staff capabilities we need to effectively apply and enforce the Nation’s environmental laws.

Although a FAIR ‘‘commercial’’ characterization of 5 percent of

EPA’s work force may, at first glance, appear low; it is important

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to understand the context in which it is based. Historically, EPA’s

dependency on contractors has raised some special concerns. During the decade preceding 1995, the Agency’s contract resources increased at 10 times the rate of EPA’s staff. You may recall that the

agency was severely criticized by the Congress, the GAO, and our

own Inspector General for an overreliance on contractor support.

Over time, we lost critical in-house scientific expertise and, in some

cases, improperly contracted functions that are inherently governmental.

In 1995, Congress approved the Agency’s request to realign resources and convert 900 work years of contractor support to Federal work years. Currently, about 75 percent of EPA’s budget or

$5.7 billion supports extramural work, work performed outside of

the Agency by contractors, States, universities, outside researchers

and others. It was against this backdrop that the EPA inventory

was performed.

I submitted our inventory to OMB on July 1, 1999. OMB subsequently completed their review and consultation on our inventory

and the availability of the inventory was published in the Federal

Register on September 30, 1999. This started the 30-day clock running for interested parties to submit their challenges. To date, we

have received 22 requests for the inventory and one challenge.

I should also add that the General Accounting Office which is

represented here today is reviewing our inventory process. My understanding is, as Chris has testified, that they will be performing

a thorough analysis of the similarities and differences among the

several agency inventories. I welcome this effort and think it will

improve our future inventories at EPA.

I would like to take a moment to emphasize how useful we found

it at EPA to link our FAIR inventories with structures we have put

in place under the Government Performance and Results Act. We

associated each FTE identified as ‘‘commercial’’ with one of the

agency’s strategic goals. This can contribute to more informed work

force planning and budgeting by highlighting among each goal activity any opportunities for cost effective public private partnership.

I want to thank the subcommittee for this opportunity to testify

on our implementation of FAIR. We appreciate your interest in

EPA’s work and count on your continued support. I would be happy

to respond to any questions that the chairman and subcommittee

may have.

[The prepared statement of Ms. Harper follows:]

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Mr. HORN. Thank you. We’ll proceed with Mr. William Early, the

Chief Financial Officer of the General Services Adiminstration.

Mr. EARLY. Thank you, Mr. Chairman, I’m pleased to be here

today to share the experiences and perspectives of the GSA with

regard to the development of our 1999 FAIR Act inventory. GSA

is unique among Federal agencies in that it is our mission to provide commerical goods and services to the Federal community. GSA

has a long and continuing history of successfully using various

management tools to reduce its size and cost while continuing to

meet its mission requirements. In 1989, GSA’s employment was

19,000. Today it’s 14,000, a 27 percent reduction.

GSA has used OMB’s Circular A–76, delegations of authority to

our customers, GSA’s Federal Operations Review Model [FORM],

process reengineering and other reinvention initiatives stemming

from the national performance review. We are continually reviewing and improving our operations, implementing the best delivery

method for our customers and the taxpayer. We are nonmandatory

and customer funded. Therefore, we are controlled by the marketplace and must be aware of commercial prices for our products.

In the spring of 1998, OMB issued a data call for a complete

functional inventory. We took that requirement very seriously. We

were aware of pending legislation—the FAIR Act—and developed

an inventory using the full GSA management team. The inventory

we released on September 30 under the FAIR Act requirements is

the result of those efforts. Our basic set of principles was to one,

develop an accurate inventory of all our functions; two, review and

reflect an accurate assessment of each function without any preconceived notion about its nature—such as inherently governmental or commercial—and, three, support each assessment with

factual information.

We took the following steps to develop the inventory: We used a

core team with representation from each of our services. This organizational approach led to the comprehensive organized involvement of the entire agency. We recognized that to produce the inventory, we needed an updated working knowledge of the pending

legislation—the FAIR Act—and the latest issuance of OMB’s Circular A–76 and its supplemental handbook. To acquire that knowledge, training was identified, tailored to meet GSA’s specific needs,

and conducted onsite exclusively for GSA personnel.

After achieving a working knowledge of the requirement, the core

team developed agency guidelines and further refined our training

to emphasize the inventory requirement. GSA then trained hundreds of GSA personnel, representing all levels and organizations

within the agency. In concert with our Office of Communications,

we conducted a campaign to keep everyone informed. This included

letters from the administrator as well as establishment of an Internet site that made available all pertinent documents available to

all employees.

Union representatives participated in our training and were included as potential team members within the various organizations. We conducted briefings of union representatives, and they received a copy of the final draft of the inventory before it was released to all GSA employees or to OMB. Even though heads of

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ing their respective inventories, an agency-wide inventory still

needed to be created. Therefore, we contracted for professional facilitation services at an offsite location and convened a meeting

consisting of leadership and management representatives from all

areas, including our chief of staff and general counsel. We desired

an open and frank dialog to surface, evaluate, and incorporate suggested alterations to our plan while ensuring that we were producing an inventory that was consistent, accurate, and responsive to

the requirement.

On September 30, 1999, GSA posted its entire inventory on its

CFO Internet site, and used it as the inventory’s primary method

of distribution. Inquiries on inventory content were coordinated

centrally. GSA has a single point of contact for inquiries, challenges and appeals which are logged and routed to all members of

our core team for research and comment. I, as the Chief Financial

Officer, will be issuing replies to challenges, and the Administrator

will issue replies to any subsequent appeals.

This process, in conjunction with performance measures, can lead

agencies to improving the effectiveness of in-house functions or to

contracting out those functions that can be performed more efficiently by the private sector. GSA has already achieved many such

efficiencies through process reenginering, A–76 competitions, and

bench marking. These efforts have improved the productivity of our

in-house work force as we strive to ensure that GSA operations

meet or exceed commercial standards.

At GSA, we have always found that self-knowledge has value,

and have shown a historical commitment to, and success with, the

A–76, FORM, and FAIR Act processes. GSA has undertaken many

initiatives to either improve the way we conduct business or to find

better alternatives to meet government needs. We look for both low

cost and best value. Our diligence and our review of the GSA’s

FAIR Act inventory will be guided by those same values. This completes my prepared testimony, and I look forward to answering

your questions.

[The prepared statement of Mr. Early follows:]

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Mr. HORN. Thank you very much. Our last witness is Ms. Linda

Bilmes, the Acting Assistant Secretary for Administration and the

Acting Chief Financial Officer, Department of Commerce.

Ms. BILMES. I thank you. Good afternoon, Mr. Chariman and

members of the subcommittee. I appreciate the opportunity to appear before you today to discuss private sector contracting with the

Department of Commerce and, more specifically, the Department’s

implementation of the FAIR Act.

Secretary Daley and the Department of Commerce are committed

to the principles embodied by the FAIR Act; that is, we believe as

a Department covering a great deal of the Nation’s business that

private sector firms should, to the greatest extent possible, have

the opportunity to compete with Federal entities to carry out commercial activities.

As the acting CFASA, as we call the Chief Financial Officer and

Assistant Secretary for Administration, I am responsible for policymaking and oversight for a broad range of administrative functions. I consider the FAIR Act to be an important tool in our management portfolio available to help us serve the American public.

We are also improving our performance by vigorously implementing the CFO Act, the Clinger-Cohen Act, the Federal Acquisition

Streamlining Act, and, in particular, the Government Performance

and Results Act. In fact, in the past year, we have expended a

great deal of effort to increase the effectiveness and use within our

agency of GPRA, in particular in the Annual Performance Plan,

which this year received a score of 86 from Congress, the highest

in government.

Commerce also has an aggressive and innovative acquisition program. Over the past 11 years, the funds expended on contracts has

more than doubled from just over $500 million in 1987 to more

than $1.1 billion in 1998. Our use of A–76 has been helpful in this

regard with contract wins in many areas. Three examples include:

PTO’s work in providing copies of patents, which had cost the Department $1.5 million annually and required 78 FTE; NOAA’s library and information services, which had cost the Department

$722,000 annually and required 28 FTE; and the Office of the Secretary’s activity in providing mail and messenger service, which

had cost the Department 400,000 annually and required 8 FTE.

The decennial census accounts for another billion plus dollars in

procurements. We estimate that contracts in our core programs

save the Department from directly employing somewhere between

5,000 and 7,000 FTEs.

As part of our procurement innovations, we established the Commerce Information Technology Solutions, COMMITS, which is the

first ever GWAC, Government-Wide Acquisition Contract, reserved

exclusively for small, minority and women-owned firms. Over the

next 5 years, this unique initiative is expected to make up $1.5 billion in Federal technology contracts available to the 29 participants.

In the past 6 years, Commerce has increased its service contracting by approximately 15 percent and reduced its FTE by roughly

7 percent. During this time, we also reduced the number of managers and supervisors, placed greater staff on the front lines, and

improved service delivery to our customers. Under Secretary

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Daley’s leadership, we continued to explore opportunities for

streamlining and improving Commerce management.

Now, I’d like to discuss the process that we used to classify our

activities and develop our A–76 inventory in 1998. We used a similar process this year to develop our FAIR inventory. First, we used

the OMB-provided definitions and template; and we requested each

bureau to develop and submit an inventory of all their activities.

We met with bureau representatives and worked closely with them

to ensure adherence to OMB guidance. We identified cross-functional activities, such as the classification of FTE assigned to

human resource management and procurement, to develop and ensure consensus and a consistent approach throughout the Department.

When we reviewed the bureaus’ information, we met with them

and clarified through dialog with our bureau contacts inventory

where we had questions.

Finally, we reconciled the Democrat’s data with the official payroll information maintained by the National Finance Center.

As a result of this process, we were happy to meet OMB’s October 31, 1998, deadline; and to be the first department in government to submit its A–76 inventory to OMB under the Raines guidelines.

Since the passage of the FAIR Act, we used essentially the same

model to develop our inventory this year. Using OMB-provided advice and formatting guidelines, we tasked the bureaus to review

and update their portions of the inventory. We reviewed their input

with the bureaus and used the same methods to reconcile the crosscutting areas.

Following this process, we were again among the first to transmit the Department’s submission, delivering it to OMB on July 9th

of this year. On September 30th of this year, OMB published a notice in the Federal Register that our inventory, along with 51 other

agencies, was available to the public. Since then, we’ve received 34

requests for copies of the inventory and one challenge received just

this morning having to do with coding.

As reflected in the current inventory, 27 percent of our work

force is involved in commercial activities. Of this, 13 percent has

been classified as exempt, 11 percent has been classified in core activities not open to competition, leaving 3 percent in commercial

competitive activities.

We have reviewed this 3 percent in detail, and we believe it is

reasonable because of the factors mentioned earlier: Extensive A–

76 activity during the 1980’s, the restructuring and 7 percent

downsizing of the Commerce Department during the 1990’s, and an

aggressive contracting program. All of which have contributed significantly to reducing that portion of the Department’s activity that

remains available for contracting.

During fiscal year 1998 the last year for which we have complete

data, the Department expended 28 percent of its discretionary

funding on procurements. This is an increase over the past 15

years of 11 percent. In addition, we spent $1.1 billion in direct

grants. This limits the universe for additional contracting opportunities to 44 percent of our discretionary budget authority.

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Over the past 21⁄2 years since Secretary Daley took office, the Department has used A–76 and the FAIR Act to provide valuable

baseline data. We are currently assessing several new opportunities for outsourcing. These include substantial aspects of our information technology management and the administration of the

Workers’ Compensation program.

During the last year, we have redirected staff resources and continued to build on our existing in-house expertise to implement the

FAIR Act. We have also, just this summer, added an additional

person to work full time on FAIR Act implementation.

We will continue to review the Department’s inventory in detail

and to work closely with our bureaus to ensure that private sector

firms have every opportunity to compete with Federal agencies.

Let me just add that this is a new program. I believe that the

feedback we have received and will continue to receive from GAO,

OMB, and from you will prove helpful in this effort. I certainly look

forward to receiving GAO’s report on its findings as well as hearing

how my colleagues in other departments are implementing the

FAIR Act. Thank you again for the opportunity to appear before

you today.

[The prepared statement of Ms. Bilmes follows:]

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Mr. HORN. It is difficult to get it nicely timed in the 5-minute

modules. We appreciate every one of your statements. They have

given us perspective on this. Now Mr. Ose, the gentleman from

California, will begin the questioning.

Mr. OSE. Thank you, Mr. Chairman. I think the first question I

would have is perhaps to ask for a little guidance from you. If I

understand the purpose of the FAIR Act, it was to identify those

folks within government currently, the tasks of which might be

convertible to a private contractor basis? I mean this was the first

step, identifying what we could do and then there would be general

legislation. Am I—I’m serious. I’m asking for guidance here. Is that

what——

Mr. HORN. This was tried in the Eisenhower administration. I

was then Assistant to the Secretary of Labor, and I remember he

griped about the contract employees all the time. He said, ‘‘They

aren’t like the civil service employees. This place is still dusty.’’ So

it didn’t go too far then with some of the cabinet to say the least.

And what we’re trying to do here is in this round see first, how the

agencies respond in terms of that commercial governmental bit.

And then it’s just an experiment. You’ve got to try it; people can

challenge it if they don’t like it. And we’ll get into union participation and so forth on that.

Mr. OSE. Do I——

Mr. HORN. In other words, if you see a big gap in the existing

law, please feel free to fill it.

Mr. OSE. I’m trying to get to what the intent starting this process was. And if I understand correctly, it is to try and find those

functions that could, for instance, be bid on by private contractors.

Mr. HORN. That’s correct.

Mr. OSE. First step being identifying and then subsequently——

Mr. HORN. Right.

Mr. OSE. That does bring me to just a quandry that I have and

that is that having started down this process through the legislative channels, the other branches of the government might be

working in a different direction. And I bring that up because I have

serious concerns about the implementation through our efforts to

open up these job opportunities or what have you to private bidding if the administration is pursuing a different tact, in effect

changing the FAR regs such as to make it far more difficult for

companies not only to bid but to retain the jobs that they otherwise

might successfully be awarded. I specifically—I’m sorry, I don’t

have the——

Mr. HORN. Well I think Mrs. Lee can answer what the plan is

down the line. We’re just, at this point, identifying the ones that

would be eligible. And then what kind of administrative guidance

do you have next?

Mr. OSE. That does bring me to my question. Because Ms. Lee

and I have had a meeting previously. We had the benefit of having

Mr. Davis and Mr. Moran join us regarding the proposed regulations to the FAR. And I don’t want to see these proposed regulations which can be adopted from a regulatory standpoint completely obviate our ability legislatively to pursue this track that

was clear in Congress’s intent. I want to explore that a little bit

if with Ms. Lee, if I may.

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Mr. HORN. Right. In other words, administrative regulations are

supposed to carry out the will of Congress. But administrations, regardless of party, if they didn’t like something, tried to work their

way around it. Or if we put something in and we had a euphemism

because maybe the Senate didn’t agree to it and we put the euphemism in and nobody knows quite which direction that goes, and

they tear their hair out in good faith saying, hey what do these

people mean? So that’s what you are fishing for.

Mr. OSE. Correct. And the euphemism I’m referring to is the

issue of black listing. You knew I was going to get to it.

Ms. LEE. Yes, sir one way or another.

Mr. OSE. The question I have and you were very kind, I mean

someone, I think Ms. Gore, responded to our questions in the meeting in the Capitol about the statutory authority under which the

regs were being promulgated and the case law has been cited dating from 1928, 1934 and 1940, but the question arises subsequent

to those, to that case law there have been instances where Congress has expressed a clear intent, in particular, as it relates to

this. And the net result of which is a determination that an agency

cannot promulgate regulations which conflict with a clear expression of congressional intent.

And that’s why I asked the chairman the questions about this

FAIR Act and what the intent was. And if I heard him correctly,

it was to establish a process whereby certain jobs that currently

exist in the Federal agencies could be bid out whether in house or

otherwise for private contracting. And yet I see the standards that

are currently out for comment closing a door that we’re trying to

open because of the full, nebulous nature of the criteria, that being

worker training or worker retention, standards that really don’t

have much to do with what our challenge is right now.

And specifically, I want to just get into the record a couple

things. Congress has in fact—in line with what some call the black

listing proposals, Congress has, in fact, twice considered and rejected efforts to add a provision to the National Labor Relations

Act, first being in 1977 and the second in 1997, both of which were

ultimately rejected. That would prohibit the award of a Federal

contract to any entity that was found to have committed a willful

violation of the act.

In other words, Congress considered that as a piece of legislation

and rejected its application. That was in 1977. In 1997, Senator

Simon sponsored an amendment to amend the National Labor Relations Act to include a debarment remedy based, in part, on the

results of the 1995 GAO study, and again Congress rejected that

amendment. So I have great trouble with the various criteria that

are proposed for amendment within the FAR as currently defined

especially as they relate to nebulous things. I’m scrambling here—

oh, here we are. Never mind.

Ms. LEE. Substantial noncompliance.

Mr. OSE. Yeah, as to the definition of substantial noncompliance.

Thank you. She knows where I’m going. I could be in deep trouble

here.

Mr. HORN. Now you know who runs the government.

Mr. OSE. So I would appreciate any input you have. Because I

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tions. So if you would care to offer any comment, I would be happy

to entertain it.

Ms. LEE. That’s a long one, Mr. Ose. I will try to make it very

succinct for this group. We obviously are working on some issues

regarding a proposed amendment. A proposed rule to the FAR is

out for public comment. We’re expecting public comments. It would

be an understatement to say this is an issue of great interest, and

we’ve got some issues to work on that.

If I could jump over here for the FAIR Act for a minute, that the

FAIR Act inventories are really the first step: Where agencies look

and say why do I exist, what do I do, and then they look and say

basically what are my people doing. And of those people, how many

are doing commercial-like activities. They then look at the commercial-like activities and take the next management decision. And it

truly is a management decision because I think we all agree, people say oh, engineers, you know certainly the commercial activity

agency can do engineering. But we say we still need some expertise

in the agency so you can’t totally declare a type or a function to

be outsourced. So there’s some management decisions that must go

on, and the agency must decide how to best conduct their business

and how to do that balance.

Once that decision is made, then we go into looking at a publicprivate competition process whereby we start to go into the procurement arena and we run an A–76 competition which is a private

competition. Based on that you select a winner. Based on that you

move over here to the most efficient organization whereby the government folks who now do that work are able to business reengineer or whatever, and then you then have a competition among

those two.

Wearing my Acting Deputy Director for Management hat in talking about the FAIR Act is one thing. When I really take that off

and put on my OFPP hat, the FAIR activity, is of interest to us

in the contracting community because that’s one community where

outsourcing and downsizing truly is an oxymoron. Because the

more you downsize your people the fewer there are. But the more

you outsource, the more and the more complex business arrangements we have. So there’s a need for smart buyers, smart managers so we can spend this money wisely.

So there certainly is a tension there. That’s that process. The

issue you’re talking about does absolutely kick in to when we get

into the procurement process; and we are running a private competition, how do we determine who should be considered and their

eligibility requirements. And, yes, we are talking about responsibility in trying to further hone that rule, and that’s where that fits

into this piece here.

Mr. HORN. If I might at this point, so some future Ph.D. Student

who studies this will have all the documents in one place, the OMB

proposal to amend the Federal Acquisition Regulation beginning

with contractors’ responsibility. And we will put that in the record

at this point without objection.

[The information referred to follows:]

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Mr. OSE. Thank you, Mr. Chairman. As always, you’re very thorough. What I’m trying to avoid is again have we opened the door

for us to, if you will, run the government more efficient. I don’t

want us to close the door by virtue of these proposed regulations

and place us back into this purgatory where we don’t know whether we can or we can’t. The standards under which or the standards

that are under consideration right now, in my mind, will serve to

frustrate and prevent our ability to pursue Congress’s intent starting in the last session of Congress. And I think if I could just reenforce one thing to Ms. Lee, it would just be that that will not

make some of us very happy. Because——

Mr. HORN. Well, the question certainly is is it in the law or isn’t

it?

Mr. OSE. Correct. And it’s clear here from our discussion alone

that it’s the intent of Congress to examine whether or not we can

privitize or run the government more efficiently. And yet the net

result of this, Mr. Chairman, with the nebulous nature of these

standards is that we will have achieved with one hand an objective

that is taken away from the other. That is a serious, serious concern. Whether you talk about IT or real estate or mere supplies or

what have you, it is an evisceration of our ability to achieve our

goal. With that I yield back.

Mr. HORN. Well, you have a very pertinent point there. And I

think it should be taken into account. If it is specifically said in the

law somewhere, that’s one thing in the regulation. If it isn’t, it

shouldn’t be an undercutting of the basic law that is trying to get

government to be more efficient.

And if we take Mayor Goldsmith’s view of how he turned Indianapolis around, he had not only the workers but unions also participating in that. And we don’t have a lot of—as I understand it, we

don’t have a lot of criticism on that because he kept—got everybody

involved. And I think that’s basically what the Congress and, I

think, the administration, certainly some of the things the President said before he was President as well as when he has been

President, that efficiency and effectiveness are very important.

So I would hope that the two branches of government can agree

on that. And then the question is the procedures. And you’ve made

a very good point. Does one set of procedures countermand the

overall attempt here to have effectiveness, financial savings, so

forth. But what Mr. Kucinich brought up is certainly a realistic

question in terms of look at the benefits. And that’s what a lot of

people would say. Wait a minute, you know, all you’re gaining is

taking benefits away. So that comes into play.

Mr. OSE. If the proposed changes to the FAR were to come forward legislatively that’s a different question, again. But I keep

going back to what the intent of Congress was. And that’s the thing

that I find so frustrating. It’s clear to me that the intent of Congress is to move further in the direction as outlined by the FAIR

Act from the last session. And yet my antenna, however poorly refined, tell me that this other action will serve to frustrate that. I

don’t want to lose regulatorily what we achieve legislatively.

Mr. HORN. Well put. And that’s the relationship and a question

that we could apply to almost every agency where an authorizing

committee might do this, the appropriations subcommittee which

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isn’t supposed to legislate on an appropriations bill, strong rule of

the House, but it’s waived on every appropriations bill. So pretty

soon, you have the appropriations people giving the signals, and

the authorization people giving them. And when you’ve got two

bodies, you’ve got four entities some of which are undercutting the

other. So what else is new in 200 years of democracy and efficiency

and effectiveness? So Mr. Walden didn’t have any questions.

Mr. OSE. I think I drove him out of the room.

Mr. HORN. No, you’ve got a very pertinent point. Does staff feel

we should ask one or two questions, or should we just send it to

them and have them file it for the record? Staff feels one question

is worth asking.

So the FAIR Act authorizes OMB to review each agency’s commercial activities inventory and consult with the agency regarding

its content. Describe the guidance and feedback each of you receive

from OMB in the development of your inventories. You want to

start with the Department of Commerce then go to GSA then go

to EPA. You’re a cross section of the American executive branch.

Ms. BILMES. We worked closely with OMB on this as with all

issues, but basically they send out their instructions in the form of

memos. And we supplied our inventory. They subsequently sent us

questions.

Which we are in the process of answering at the moment, including questions about our coding and other particular issues. For example, they’ve asked us about the National Logistics Supply Center

which was listed as exempt. There was a question as to why it was

listed as exempt. The situation with this one was that it had been

through an A–76 process and was contracted out. There was a

problem with the contractor, and the activity come back in house,

but with the result that we went from originally—pre-FAIR Act—

doing this function in house, with 72 people to contraction out, then

to it being done once again in the Commerce Department with only

26 people.

I think the question from OMB was basically to explain the situation; the background with this particular entity. I think it was a

worthwhile question because the issue was unclear. Then there is

a question about one of our codes, R–600, applied research that we

have added for NOAA. Obviously this is a new program. There’s

some teething pain with the coding. One size did not fit all in

terms of how you code what every agency does. We didn’t feel there

was a code that was appropriate for some of the NOAA functions.

So, we requested the R–600 series. They’ve asked us about that. I

think you could summarize by saying that we’ve had a constructive

engagement with OMB to try and refine the process. I discussed

with Dee that should she convene any kind of interagency group

to work on this and refine it further, we would be happy to participate.

Mr. HORN. Let me ask you, the word participation is what I have

not asked about. But did you have an opportunity to go and participate at a lower level of the particular civil service group, let’s say

with GS–5’s down so forth, how did that work in Commerce? Did

you get them involved in the participation of this process or was

it simply trickling down to the management-side of Commerce? Because when you’re into a reform thing like this, having been a chief

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executive that’s reform oriented, you got to make sure that the people at the grass roots understand what’s going on. Because there’s

a lot of fear that’s going to come, the rumor mill, the water coolers,

and all the rest. And sometimes the water-cooler gossip is right

and way ahead of management. But what did you do on that front?

Ms. BILMES. I think that’s a very good question, and I take your

point exactly in terms of what you’re saying. At the Commerce Department as you know, we have numerous bureaus with different

tasks. We had decentralized this to each bureau. I am not familiar

with what exactly each bureau did. I will submit back to the record

the answer on that.

Mr. HORN. The question is did the Commissioner or the Administrator or the Director consult with other people.

Ms. BILMES. No, I understand your question very well.

Mr. HORN. And that includes the employee unions. I mean granted they can represent sometimes, but sometimes it’s just worthwhile to get them all in a room and say here’s—Congress did this

or didn’t do this and OMB is doing it now. And here’s what this

all means.

Ms. BILMES. I would suspect that some bureaus did and some bureaus did not. But I will go back and ask each bureau how exactly

they put together the categories.

Mr. HORN. We’ll save a place in the record, and without objection

it will be put in the record at this point.

[The information referred to follows:]

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Mr. HORN. How about GSA, Mr. Early?

Mr. EARLY. We opened communication with OMB at the beginning of this activity in the spring of 1998, and maintained a dialog

with them through the conclusion of the process. Throughout, we

kept OMB apprised of our approach. When we had questions, we

discussed them with OMB, and factored their input into our action

plans. Once we submitted our inventory to OMB, the only feedback

we received was a request for additional detail and a few technical

questions. We provided the detail requested and answers to their

questions, and that concluded our review and consultation process.

OMB did not question the identification of our functions.

Mr. HORN. Within GSA, are you aware how far down into the hierarchy the discussion and ideas percolated? GS–5s, for example,

did they get talked to and exposed to and had a chance to ask questions?

Mr. EARLY. We did a top-down approach, but when we conducted

training, we involved the union with that. We included our regions.

We had numerous communication pieces that went out to all employees by letter and by web to keep all employees at all grade levels current with what we were doing, what our approaches were

and the processes that we were undertaking. In the political discussions and decisionmaking, I do not believe we had the grade 5 levels involved. We certainly did have 11’s, 12’s, and 13’s, participating in the identification of functional areas and classifications.

Mr. HORN. Having, in a previous incarnation, taken it down right

to the groundwork—the janitors, the Secretaries, the Assistants, so

forth—I found you got some terrific ideas there. And all I’m saying

is I think—don’t underestimate what your people know. Because

often they say, why doesn’t the boss just think of this? And yet

they’re too shy to go in and say it because they’re afraid somebody

will put something in some file or something they’ll never get promoted.

Mr. EARLY. We thought about that. And when we looked at the

assignment of addressing the classification of inventories, we did

not go to that level. The discussion that we had during our training

was that when we addressed how to do the business, how to contract it out, how to evaluate the cost, the best way of addressing

the delivery of services and such organizations, at that time we

would include all those people because that’s when those ideas are

most helpful and would affect the outcome.

Mr. HORN. Well, thank you.

Ms. Harper, how about the EPA?

Ms. HARPER. Mr. Chairman, we also had had extensive consultation with OMB from the prior—A–76 prior year exercise and continued that as we formulated our inventory. We did a bottom-up

inventory. We went out to each of the regional locations and each

of the national program managers.

On our central work group, a group looking at consistency and

defining issues, we did not go down to the GS–5 level. That was

usually a management side representative and union representative. At the EPA, the representative function for our workforce belong to the unions; the labor-management partnership, makes it

more challenging to reach far down into the organization without

full involvement of the unions.

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That said in the individual entities, for instance, in a region,

they did have to do a bottom-up. So although it was not a centrally

managed involvement, there were entities, I believe, that did get

that far down, although I wouldn’t be able to tell you right now

which those were.

The one thing I would say about our OMB consultation and review, it was an interesting and I think very fruitful dialog between

the management side of OMB and our budget examiner side of

OMB. I think that was one of the benefits of their review and consultation because we were able to have it put in the context of how

much we already contract out and give out grants and cooperative

agreements. So that was a very helpful thing that OMB did.

Mr. HORN. Director Lee, what do you think on this? Does OMB

ever go down and get the grass-roots feeling on what could be improving the government’s efficiency and effectiveness?

Ms. LEE. Mr. Chairman, as you know, OMB is a relatively small

organization, some 500 people, and——

Mr. HORN. That is not small to most Americans.

Ms. LEE. OMB itself is a very collegial group. People work together, side by side, hand in hand. We certainly have Mr. Childs,

who is the A–76 and the FAIR Act expert, but he worked through

the resource management offices, the budget examiners, who in

turn worked with each of the agencies. So I would say there is a

great deal of knowledge and awareness of what we’re trying to do,

a recognition that this is the first step of an inventory, those tough

management decisions, and how do we and when do we outsource?

If that’s the right answer, what are the next steps?

Mr. HORN. How many people do you have in OMB that are dealing with management, by the way?

Ms. LEE. All the people at OMB deal with management.

Mr. HORN. You must have been here when Mr. Koskinen gave

me the same silly answer, because if 540 people are devoting their

efforts to management, it means nobody is devoting their efforts to

management. He gave me that at his last appearance here before

retirement and before reincarnation as the czar of Y2K.

But no, how many seriously spend a lot of time on management?

I’m just curious.

Ms. LEE. Seriously, a lot of people, because we’ve tried to integrate management and the budget better. So the budget people

who used to just focus on the budget, they actually do more. In

fact, they’re doing Director’s reviews as we speak here.

The Director’s review packages, actually they address GPRA,

how did your agency address GPRA? If there were specific management issues identified, and in fact, there were a couple of agencies

where we have some issues with the area acquisition system, you

actually have the people who are considered the resource management officers, who used to be considered the budget people, have

those things in their review package with the Director and the

statutory offices participate in those reviews.

Mr. HORN. Well, I’m glad in the annual budget review that management questions come up. That had been my hope. But I’ve had

so many tell me that it hasn’t worked for the last 10 years, that

we just aren’t getting anywhere on major—well, Y2K is a good example—should have been done years before, took a lot of work to

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get them to even do it. And they should have been doing it when

the Social Security Administration started.

Ms. LEE. I was supposed to be in a review this afternoon, but I

told them I would rather spend the afternoon with you.

Mr. HORN. I knew. I’ll forget the oath I’ve administered to you.

I wonder if we have a U.S. attorney that can deal with that response. But OK. I know we don’t.

So anyhow did the EPA—let me ask you, did EPA and the Department of Commerce go through a similar process to develop a

lot of their inventory basically? Has there been comparability between agencies in terms of the use of the inventory, the categories

and the inventory, this kind of thing?

Ms. HARPER. Mr. Chairman, we did not—given that this was our

first time through the inventory, we did not do broad consultation

with the other agencies and departments. We did have, it sounds

like, a very similar process to the Department of Commerce; and

in terms of the categorizations that we used, we stuck with the A–

76 definitions and we stayed very close, as did the Department of

Commerce, with the OMB guidance. Although there was a lot of

flexibility, we followed the ‘‘let’s try and keep it as simple and

straightforward as possible’’ rule.

Ms. BILMES. I think we did follow a fairly similar process, although we did not link our inventory into our GPRA and our strategic plan. But I think that is an excellent idea. As we are redoing

our strategic plan, we’ll certainly consider doing that this year. I

think that’s a great idea.

Mr. HORN. You are becoming a professional congressional witness when you say words like that. We are very pleased with that.

So thank you.

Let me ask you, Mr. Mihm—I don’t want to leave you out here

this afternoon, and you looked at the analysis, very thoroughly as

usual by the General Accounting Office, how would you rate Federal department and agency compliance with the requirements of

the FAIR Act? Did you get a nice little matrix somewhere along the

line that checked them off?

Mr. MIHM. That’s still work to be done, because we’re still at

such an early stage with many of the agencies. As I mentioned,

some of our largest agencies haven’t released their inventories to

the public.

We still have the challenge process. As Mr. Ose was mentioning,

even beyond the challenge process, we have to start getting into

the substantive use of these inventories and decide whether or not

we’re going to contract out or whether or not, if we do go through

a competitive process, the Federal Government wins that competitive process.

It is certainly clear that the FAIR Act has moved competition

and competitive contracting much higher on agencies’ agendas than

I think it was under A–76. A–76, especially in civilian agencies,

had been relatively dormant. When OMB requested inventories of

commercial activities a couple of years ago, those that they got in

some cases were a number of years old. There wasn’t a lot of effort

to update bid inventories. So unquestionably the current effort to

develop inventories effort, because of FAIR, knowing that there

would be hearings such as this has certainly moved contracting to

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a much higher level on the agencies’ agendas. Now, of course, as

I mentioned, the next step is to keep carrying through to get better

in the inventories next time around and to actually start using

those inventories substantively to start making decisions.

Mr. HORN. Well, well said. When do you think some of that will

be completed?

Mr. MIHM. Well, one important indicator will be the results of

the challenges that interested parties are now eligible to make.

We’ll be looking very closely at the reports that agencies are required—or that OMB is requiring that they submit. And I think

that Ms. Lee’s decision to require that agencies in their next round

of submissions talk about how they’re using these inventories, I

think is a wonderful idea and an important achievement. So I

think all of that will begin to start giving a very rich body of information as to how these inventories are being used.

Mr. HORN. Are there some models, Ms. Lee, that are acceptable

across the executive branch? Is there a possibility here to get a uniform type of appeal system? What’s the thinking on this?

Ms. LEE. The uniformity right now is the timeframe. In each

agency they were to designate someone to handle the initial appeal,

and the Secretary is the final appeal. There has been, I know, some

cross-agency discussion about how to answer those. But we are saying, address each individual issue and respond to that challenge as

appropriate.

Mr. HORN. Now, is OMB leaving that to the agency and is there

an appeal beyond the agency to OMB?

Ms. LEE. No, sir. The FAIR Act specifically says initial appeal

must be filed within 30 days to whoever is designated in the agency. And I know the agencies have all designated someone.

The agency has 28 days to respond. Then there’s 10 more days

if the person receiving the response wants to appeal the challenge.

They appeal to the Secretary and the Secretary must respond.

Mr. HORN. Is there guidance one way or the other in terms of

who does this in an agency? Is it a member of management? Is it

a member of the area that is perhaps being contracted out,

outsourced, whatever you want to call it; or is it through the administrative law judge approach? What’s the thinking on that?

Ms. LEE. It’s left up to the agency to designate the appropriate

appeal point.

Mr. HORN. OK. So you could have 14 different ways to solve this?

Ms. LEE. Yes, sir.

Mr. HORN. That’s fair enough. Maybe we’ll learn something from

it. And then go and do it another way the next year or something.

I understand, Ms. Lee, some of the interested parties that have

had difficulty obtaining the inventories, some inventories were published on agency websites while others were made available in

hard copy. For those that wish to challenge the inclusion or exclusion of an activity on the inventories, it is important that they be

readily available. So how would OMB suggest making future inventories more accessible? Do you feel there’s a need for that?

Ms. LEE. I feel there’s a need to make them readily accessible

and as user friendly as we can. As Congressman Sessions noted,

we plan to go through and get them all out there so people can see

the first round and then get together. And I had committed to his

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staff or anyone else that’s interested that we would work together

on that.

It is interesting to note that as we talk about commercial endeavors, as you know, there is a commercial entity that very quickly

picked them up and did consolidate the inventories. So it’s an interesting question there of government presentation and commercial

value added to this process.

Mr. HORN. This might sound like a silly question, but sometimes

people worry about words like this: Many of the inventories used

the term ‘‘exempt’’ or ‘‘competitive’’ and ‘‘core’’ to classify the commercial activities. Could you give us a definition for these terms or

do you leave that to the agencies?

Ms. LEE. No, sir. We actually have some codes that specify.

When I did a cursory review myself, I said, if we were looking at

these, I would be looking for Bs and Fs because it clearly tells you

that the B code says that it’s being looked at and the F code indicates that they have to do some further restructuring or decisionmaking process.

There are reason codes in the A–76 itself.

Mr. HORN. Now, does that go into a computer program at most

of the agencies, or is there a common program that they can plug

into that when they’re totaling it all up as to is this position exempt or competitive or core, as the case may be, I mean, how do

we keep reports on that? Or are we not keeping records on that?

Ms. LEE. We haven’t provided them a template. They have determined how to do it themselves, and as we move down this path,

we’ll figure out if those are going to merge or whether there’s some

common points that we need to deal with.

Mr. HORN. On page 1, Ms. Bilmes, of the Department of Commerce’s inventory, you list a number of activities as core and exempt yet you provide a reason code B for these activities. And reason code B, we believe, says that the activity is subject to a cost

comparison.

Could you describe how an activity can be listed as core or exempt yet be subject to cost comparisons?

Ms. BILMES. I can’t answer that question off the top of my head.

Mr. HORN. Why don’t you answer it for the record?

Ms. BILMES. I will answer it for the record.

I would note that we have questioned a number of things that

look like apparent discrepancies. For example, we have 177 FTEs

in our aeronautical mapping and charting, which were listed as

competitive, but then coded with a G which said ‘‘prohibited by legislation from being competitive,’’ so that didn’t seem to be reconcilable.

When we actually looked back, and I’m familiar with this particular division because they are one of our last to be Y2K compliant, it developed that the reason is they are being transferred. In

fact, the money has already been transferred to the Department of

Transportation, but the FTE have not been transferred yet, pending the Y2K compliance effort. We didn’t have a specific code in

which to capture this situation.

When NOAA did the coding, they basically said this group is

competitive but were prohibited by legislation from being competed.

Mr. HORN. Which legislation was that, by the way?

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Ms. BILMES. It would be the legislation that was transferring

them to the Department of Transportation.

Mr. HORN. I see.

Ms. BILMES. Legislation that is completely unrelated to the FAIR

Act legislation.

Mr. HORN. You rang a bell way in the back of my head that in

the 1950’s I remember the fight between the private enterprise on

mapping versus the Department of Commerce on mapping. And

that was a long night up here of letters back and forth and all the

rest of it. So I guess that’s still—that little battle is still around.

You’re saying somebody, some friendly member, put legislation in

on that.

Ms. BILMES. It’s nice to know—I just came back from maternity

leave—that after 12 weeks some things are still around. It must be

nice to know after 30 years some things are still around.

Mr. HORN. Same old thing, right.

And, Ms. Lee, there are only about one or two questions more.

As I indicated in the opening statement and as GAO testified, the

vast majority of activities have been classified as exempt from the

A–76 cost comparison process.

What steps has the OMB taken to ensure the thoroughness and

accuracy of the FAIR Act inventories?

Ms. LEE. I think Ms. Bilmes actually addressed what’s happening as we go through these; we are asking questions, we’re dealing

with the agencies. Are we going to catch them all first round? No.

But as we do the next inventory—and they actually have to say,

here’s what I reported last year, here’s what has been accomplished

on that—we’ll just continue to work through it.

Mr. HORN. OK. We might send you a few questions for the record

and they would be put in the record at this place. And, sorry, I

didn’t mean to take all that time.

I didn’t see you come back into the room.

Mr. OSE. I have been sitting here listening. I’m sitting here listening to your questions.

When you talked about how many folks are at OMB, it spurred

a question in my mind and, Ms. Lee, I want to come back to you

on this: These proposed regulations that we were talking about earlier, who’s preparing them? Who prepared them? Who’s in charge

of them?

Ms. LEE. The proposed regulation is to—the proposed regulation

of the Federal Acquisition Regulation, it is prepared by the FAR

Council. The council is made up of—the principals on the council

are representatives from the General Services Administration,

which is currently Ms. Ida Usted.

Mr. OSE. Would you spell that please?

Ms. LEE. I-d-a U-s-t-e-d. She has been ill. And there is someone

acting in her stead. The Deputy—the Administrator for Procurement at NASA, and that is Mr. Tom Luedtke and——

Mr. OSE. Would you spell that. I know how to spell Tom.

Ms. LEE. L-u-e-d-t-k-e, I believe.

Mr. OSE. L-u-e-d-t-k-e.

Ms. LEE. A good Wisconsin man.

And Ms. Eleanor Spectre, who is, you probably know, from the

Department of Defense. The makeup of the council is like that beVerDate 11-MAY-2000 09:03 Aug 23, 2000 Jkt 000000 PO 00000 Frm 00174 Fmt 6633 Sfmt 6633 C:\DOCS\64652.TXT HGOVREF1 PsN: HGOVREF1
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cause they basically—DOD Title 10, GSA Title 41 represents civilian agencies, and NASA is sometimes Title 10 and sometimes 41.

And that’s how that council is made up. Below them, of course,

they have a subcouncil made up of working folks who—and I actually have a review with this group probably every other month of

all the cases and all the rules that they are promulgating, most of

them generating from various pieces of legislation or changes in

our system, clarifications that are requested. The FAR, as you

know, is actually kind of the working book for the many, many contracting officers out there.

Mr. OSE. Could you tell us the legislation under which Ms.

Usted, Mr. Luedtke, and Ms. Spectre are proposing these changes

to the FAR? I mean, not the authority, but the—because I got the

authority cited, but the legislation driving the change?

Ms. LEE. There is not a specific legislation that I—on this particular activity. As you know, we’re proposing to clarify or add a

parenthetical under some policy that is already in the FAR. There

is a statement currently, right now—I wish I could give you the

cite, 9105.4(d) maybe—that says that every offer, before you can do

business with the government, you must have—one of the many

conditions, you must have a satisfactory record of business ethics

and integrity. That is currently in the Federal regulation based on

the Office of Federal Procurement Policy regulation, which I

couldn’t provide you the cite of, but there is a legislative, statutory

basis for that.

We’re proposing to add the parenthetical under there that further describes what a satisfactory record of business ethics and integrity is.

Mr. OSE. I think that is where the discussion is based.

Ms. LEE. Yes, sir, I think it is.

Mr. OSE. Thank you, Mr. Chairman.

Mr. HORN. Thank you very much.

I guess we could say in summary here that the Federal agencies’

Office of Management and Budget still have a lot of work ahead

to fully implement the FAIR Act, and that would include the public

release of more inventories and the resolution of challenges.

What would be the other big categories that your own feeling is?

Ms. LEE. You clearly articulated the next releases of inventories

that everyone is probably familiar with; DOD is a large one. I owe

an answer to Congressman Sessions about how we are going to

make this some 2,000-page inventory easily and readily available.

And that’s something we’re working on.

After we get those all out—the goal is to get all the inventories

out by December—we need to get back together and say what did

we learn, what did we learn in the challenge process, what did we

learn in the preparation process and what direction and information do we need to get out better information, because it’s already

almost time to start for next inventories next year. June 30th,

they’re due.

Mr. HORN. Yeah. Does OMB anticipate making any changes in

its guidance for the remaining inventories that are already due

out?

Ms. LEE. No, sir. The inventories with three exceptions are in the

consultation and review process. The one significant change we

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have made. Mr. Childs and another person in our office have called

every single number and said, are you ready, do you understand

what you’re supposed to do when it comes out tomorrow? Because

we did have two erroneous phone numbers the last time. So they’ve

been on the phone, making 42 phone calls, checking and doublechecking.

Mr. HORN. Well, beyond the ones we’ve had in this exchange and

what you said in your testimony and what you said just now and

tomorrow, how do you plan to improve the process for the future?

Any other particular plans that we haven’t discussed?

Ms. LEE. I don’t have the specifics—certainly we are concerned

about the timely accessibility because of the short challenge period.

And I think we’ll need to discuss among the agencies, abd certainly

with you and your staffs, any recommendations for that. I’ve had

everything from people who say, put it on a disc and distribute the

disc, to put it on the Internet, to make sure we have a method of

distribution. And there has been some comment perhaps about

more commonality among the inventories themselves.

The other quite valuable comment that I’ve heard is, to provide

more of an explanation on the front of the inventories. We probably

missed that because we saw it as a big picture, but yet if you just

pull one agency’s inventory without the big picture to support it,

it can be quite confusing. So maybe we need an instruction to the

reader that says, here’s what you’re seeing, here’s what that all

means. And that’s a possible part of the new package.

Mr. HORN. Well, I think that’s a very good idea. I certainly think

using the Internet is very good idea. I think we’ve got to use it a

lot more throughout government in just this type of situation. It

could save everybody a lot of time once you get the thing working

in some sensible way.

And I think we’ll be asking the General Accounting Office their

thoughts on that. But that’s another meeting, shall we say.

And I guess in terms of the other things we might think about

is the degree—you mentioned FAR, and the degree to which the

Clinger-Cohen Act has made a difference. And you’ve got obviously

a very fine set of people on there that deal with those. And you

dealt with those as a member in NASA, didn’t you?

Ms. LEE. Yes, sir.

Mr. HORN. So we’ll be holding a hearing in a few months on the

Clinger-Cohen thing and streamlining the acquisition process, if it’s

happening. If it isn’t, why, then why not—that sort of thing.

So thank you all for coming. I am now going to thank the staff

for its work in putting this together. And most of you know the

staff director, J. Russell George, chief counsel; Randy Kaplan is on

my left, your right, who set up the immediate hearing; Bonnie

Heald is director of communications down there at the end, professional staff member; Chip Ahlswede, clerk for the subcommittee.

And then we’ve got Rob Singer, a staff assistant; P.J. Caceres, an

Intern; and Deborah Oppenheim, an intern—they’re both giving all

of us great help.

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Minority Staff: Trey Henderson, professional staff member; and

Jean Gosa, minority staff assistant.

And Julia Thomas has been today’s court reporter.

Thank you very much, all. And with that, we’re adjourned.

[Whereupon, at 4:45 p.m., the subcommittee was adjourned.]

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