```

[Senate Hearing 107-465]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 107-465
 
 WHO'S DOING WORK FOR THE GOVERNMENT?: MONITORING, ACCOUNTABILITY AND 
       COMPETITION IN THE FEDERAL AND SERVICE CONTRACT WORKFORCE
=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 6, 2002

                               __________

      Printed for the use of the Committee on Governmental Affairs

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_____________________________________________________________________________
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                   COMMITTEE ON GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 FRED THOMPSON, Tennessee
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
RICHARD J. DURBIN, Illinois          SUSAN M. COLLINS, Maine
ROBERT G. TORRICELLI, New Jersey     GEORGE V. VOINOVICH, Ohio
MAX CLELAND, Georgia                 PETE V. DOMENICI, New Mexico
THOMAS R. CARPER, Delaware           THAD COCHRAN, Mississippi
JEAN CARNAHAN, Missouri              ROBERT F. BENNETT, Utah
MARK DAYTON, Minnesota               JIM BUNNING, Kentucky
           Joyce A. Rechtschaffen, Staff Director and Counsel

                       Lee Ann Brackett, Counsel

Marianne Clifford Upton, Staff Director and Chief Counsel, Oversight of

  Government Management, Restructuring and the District of Columbia 
                              Subcommittee

              Richard A. Hertling, Minority Staff Director

                Ellen B. Brown, Minority Senior Counsel

    John Salamone, Minority Professional Staff Member, Oversight of

   Government Management, Restructuring and the District of Columbia 
                              Subcommittee

                     Darla D. Cassell, Chief Clerk

                            C O N T E N T S

                                 ------                                
Opening statement:
                                                                   Page
    Senator Lieberman............................................     1
    Senator Thompson.............................................     3
    Senator Durbin...............................................     5
    Senator Voinovich............................................     8
    Senator Carnahan.............................................    11
    Senator Bennett..............................................    21
Prepared statements:
    Senator Akaka................................................    10
    Senator Bunning..............................................    47

                               WITNESSES
                        Wednesday, March 6, 2002

Hon. Angela B. Styles, Administrator, Office of Federal 
  Procurement Policy, Office of Management and Budget............    12
Barry W. Holman, Director, Defense Capabilities and Management, 
  U.S. General Accounting Office.................................    14
Bobby L. Harnage, Sr., National President, American Federation of 
  Government Employees, AFL-CIO..................................    26
Stan Z. Soloway, President, Professional Services Council........    28
Colleen M. Kelley, National President, National Treasury 
  Employees Union (NTEU).........................................    31
Mary Lou Patel, Chief Financial Officer, Advanced Systems 
  Development, Inc...............................................    33
Dan Guttman, Fellow, Washington Center for the Study of American 
  Government, Johns Hopkins University...........................    36

                     Alphabetical List of Witnesses

Guttman, Dan:
    Testimony....................................................    36
    Prepared statement...........................................   119
Harnage, Bobby L., Sr.:
    Testimony....................................................    26
    Prepared statement...........................................    76
Holman, Barry W.:
    Testimony....................................................    14
    Prepared statement...........................................    60
Kelley, Colleen M.:
    Testimony....................................................    31
    Prepared statement...........................................   112
Patel, Mary Lou:
    Testimony....................................................    33
    Prepared statement...........................................   116
Soloway, Stan Z.:
    Testimony....................................................    28
    Prepared statement...........................................   105
Styles, Hon. Angela B.:
    Testimony....................................................    12
    Prepared statement...........................................    48

                                Appendix

Prepared statements for the Record submitted by:
    Hon. Craig Thomas, a U.S. Senator from the State of Wyoming..   147
    American Council of Engineering Companies (ACEC).............   152
    Paul C. Light, The Brookings Institution.....................   157
    Contract Services Association and National Defense Industrial 
      Association................................................   159
    Terence M. O'Sullivan, General President, Laborers' 
      International Union of North America.......................   166
    U.S. Chamber of Commerce.....................................   167
    Aerospace Industries Association, Airport Consultants 
      Council, American Council of Independent Laboratories, 
      American Council of Engineering Companies, American 
      Electronics Association, American Institute of Architects, 
      Associated General Contractors of America, Business 
      Executives for National Security, Contract Services 
      Association of America, Design Professionals Coalition, 
      Electronic Industries Alliance, Information Technology 
      Association of America, Management Association for Private 
      Photogrammetric Surveyors, National Association of RV Parks 
      and Campgrounds, National Defense Industrial Association, 
      Professional Services Council, Small Business Legislative 
      Council, Textile Rental Services Association of America, 
      The National Auctioneers Association, and the United States 
      Chamber of Commerce........................................   172

 WHO'S DOING WORK FOR THE GOVERNMENT?: MONITORING, ACCOUNTABILITY AND 
       COMPETITION IN THE FEDERAL AND SERVICE CONTRACT WORKFORCE

                              ----------                              

                        WEDNESDAY, MARCH 6, 2002

                                       U.S. Senate,
                         Committee on Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:35 a.m., in 
room SH-216, Hart Senate Office Building, Hon. Joseph I. 
Lieberman, Chairman of the Committee, presiding.
    Present: Senators Lieberman, Akaka, Durbin, Carnahan, 
Thompson, Voinovich, and Bennett.

             OPENING STATEMENT OF SENATOR LIEBERMAN

    Chairman Lieberman. The hearing will come to order.
    Good morning and welcome to all who are here today. Today's 
hearing is entitled, ``Who's Doing Work for the Government?: 
Monitoring, Accountability and Competition in the Federal and 
Service Contract Workforce.''
    I am pleased to open this hearing as Chairman of the full 
Committee. I am grateful that when Senator Durbin, who is Chair 
of the relevant Subcommittee, arrives that he will preside. He 
has a particular interest in the matter before the Committee 
today.
    It is obvious that Americans all have a new sense of 
awareness today about how important it is that the Federal 
Government performs its job well and how important it is, 
therefore, that we not only have the best people working for 
the Federal Government, but that we treat them as the true 
professionals that they are.
    This Committee has long focused on government performance 
as part of its general oversight responsibilities. But in this 
era of new security threats, post-September 11, performance 
issues have clearly taken on new and more important meaning.
    Terms like outsourcing and service contracts generally 
glaze the eyes of those who hear them spoken. But in many cases 
how decisions are made surrounding questions like outsourcing 
and service contracts can truly determine the quality of 
Federal Government work, from the most routine of tasks to 
critical life and death responsibilities.
    Again, post-September 11, Federal employees are playing an 
even more critical role in our homeland defense efforts than 
they have in the past. We are depending even more, for 
instance, on the Customs Service, the Immigration and 
Naturalization Service, and the Coast Guard, to name just a 
few, to keep our country safe. So we must treat Federal 
employees well because we depend on them.
    I do think that we have to give Federal employees the right 
to be engaged in discussions about how best we and they 
together can serve and protect the American people.
    Outsourcing of services by Federal agencies and 
departments, in this regard, deserves close scrutiny. We need 
to know, for example, whether a given job is one that should be 
contracted out in the first place. Once that question is 
answered, we need to know if appropriate and fair competition 
for the job has occurred. And then we must ask does the 
decisionmaking process treat Federal workers fairly, making 
government work an attractive option and not less attractive 
than it might otherwise be.
    I must say that I am troubled by the competitive sourcing 
requirements in the President's fiscal year 2003 budget. The 
arbitrary nature of the requirement that the agencies compete 
on 50 percent of the employees performing ``inherently non-
governmental work'' as defined by the FAIR Act in order to earn 
a green light rating from OMB may, in effect, prevent the 
agencies from making the right and responsible decisions in 
carrying out their missions. That is a concern I have.
    It is vital for every agency to consider how to achieve 
savings for the taxpayer while getting the best possible 
result. Decisions about what functions should be subjected to 
competitive sourcing must be made in a thoughtful and 
deliberative manner and on an independent basis, weighing many 
factors.
    So I am concerned that imposing mandatory goals with an 
arbitrary timetable may well damage the quality of those 
decisions and cause agencies to subject programs to competitive 
sourcing that could and/or should be performed within the 
existing government agencies by existing Federal personnel at a 
best cost to the taxpayer.
    Significantly, the Department of Defense has, in fact, in 
recent months voiced objection to the administration's approach 
to defined targets for competitive sourcing. More broadly, and 
this has been an ongoing concern of this Committee, 
particularly led by Senator Voinovich of Ohio and Senator 
Durbin has worked closely on this, we are facing a human 
capital crisis in government. A continuing need exists to 
recruit the highest quality employees into Federal service and 
to keep those high quality Federal employees that we already 
have.
    Use of contracting out without proper balance and 
thoughtfulness can create unwarranted uncertainty in and 
disregard for the careers of Federal employees, at worst 
causing them to leave Federal service prematurely.
    In recent years, this Committee and this Congress have 
worked hard to update and improve procurement law. Contracting 
out can help improve our lives by producing high quality work 
at a savings to taxpayers, or it can result in shoddy work, a 
lack of governmental supervision, and a greater cost to the 
taxpayers.
    So we have got to weigh those possibilities and implement 
this idea thoughtfully. We have got to give Federal employees 
the opportunity to compete fairly for their jobs and ensure 
that the Federal Government determines the costs of work that 
have been contracted out versus work that is done within the 
government.
    Because of the changing demands of the workplace, spurred 
by vast technological leaps forward, this Committee is 
committed to continuing to examine how best to approach this 
matter with the aim of achieving the fairest and most 
productive result for the American people, including those 
American people who work for the Federal Government.
    I look forward to the hearing. I cannot stay much longer 
because I have a competing and conflicting schedule, but I am 
grateful that Senator Durbin will take the chair in a moment.
    At this point, I would like to yield to Senator Thompson 
for an opening statement.

             OPENING STATEMENT OF SENATOR THOMPSON

    Senator Thompson. Thank you, Mr. Chairman.
    I want to welcome everyone here.
    I think for those who may be watching, it is interesting to 
point out, I think this is the largest hearing room in the 
Senate and it is jam packed here today. We had a hearing the 
other day in a subcommittee on a question of weapons of mass 
destruction threat to this country, and you could probably get 
all the people who attended that in one row here in this 
hearing room today. It is an interesting question of 
priorities.
    But nonetheless, this is obviously interesting to a whole 
lot of people, so I appreciate your holding the hearing.
    Not since this Committee considered and approved the 
Federal Activities Inventory Reform Act, the FAIR Act, in 1998, 
have we looked at the issues involved in whether commercial 
activities should be performed under contract with private 
sector sources or in-house using government facilities and 
personnel.
    When this Committee considered the FAIR Act, we recognized 
that we were establishing only the beginning of a process. OMB 
Circular A-76, since 1966 has provided the administrative 
policy regarding the performance of activities that are not 
inherently governmental functions and it set forth procedures 
for determining whether such activities should be performed in-
house by Federal employees, by another Federal agency's 
employees, or by contractors in the private sector.
    The policy embodied in OMB Circular A-76--that the Federal 
Government will rely on the private sector for goods and 
services that are not inherently governmental--is more than 45 
years old. This policy was first promulgated through Bureau of 
Budget bulletins in 1955, 1957 and 1960. OMB Circular A-76 was 
issued in 1966 and revised in 1967, 1979, 1983, and in response 
to the FAIR Act in 1999.
    But conventional wisdom says that the Circular A-76 process 
is still broken and needs to be fixed. Clearly, this is a 
complicated issue which has caused much controversy and debate, 
and which prompted Congress to establish the GAO Commercial 
Activities Panel in 2000.
    The panel, which is due to report to Congress on May 1, and 
frankly, I think, then would be a much more interesting time to 
have a hearing, is studying the policies and procedures 
governing the transfer of commercial activities performed by 
the Federal Government from government personnel to Federal 
contractors.
    All of us who struggle with these issues look forward to 
seeing what is in that report. I am pleased that we have with 
us today several members of that panel to share with us not the 
work of the panel itself, I suppose, but their positions on 
many of the issues that are involved in this debate.
    This Committee has spent much time trying to focus 
attention on the Federal Government's management challenges. We 
published a report last June, ``Government on the Brink,'' that 
laid out in detail many of the management problems that have 
persisted over the years. This administration has put an 
unprecedented emphasis on improving both the efficiency and the 
effectiveness of the Federal Government.
    With the submission of the most recent budget documents, 
the President ought to be credited with keeping a focus on 
fixing what is wrong with government operations. The 
President's Management Agenda has an impressive array of 
solutions for addressing the government's major management 
challenges. We may not agree with all of them, but the 
President set concrete goals to solve problems that we have 
been dealing with here for years and years on how some of these 
programs operate.
    One of the most important goals is the initiative on 
competitive sourcing, which has breathed needed life into the 
FAIR Act. When we passed the FAIR Act, there was hope that the 
lists of the many activities agencies perform would be married 
with the efficiencies that could be realized through 
outsourcing. Only with these inventories could we decide 
strategically what was conducive to outsourcing and what was 
not.
    So I look forward to hearing from the administration 
witness on this initiative, as part of the management agenda.
    I know there have been legislative solutions proposed to 
deal with some of the problems that we all agree are there with 
the Circular A-76 process. The effort by some in Congress to 
require that all activities be subject to a lengthy 
competition, not just the ones the government currently 
performs, does not move us in the right direction. In fact, I 
think the solution would be worse, agencies would be less 
efficient, and ultimately the taxpayer would be ill-served.
    So I look forward to hearing from the witnesses today, Mr. 
Chairman.
    Chairman Lieberman. Thanks very much, Senator Thompson. I 
do want to indicate that Senator Craig Thomas will be 
submitting a statement for the record of the hearing.\1\
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Thomas appears in the 
Appendix on page 147.
---------------------------------------------------------------------------
    Chairman Lieberman. Senator Richard Durbin of Illinois is 
the Chair of the Subcommittee on Oversight of Governmental 
Management, Restructuring and the District of Columbia, which 
is the Subcommittee that has jurisdiction over the matter 
before us. He is broadly experienced in these questions, and I 
am very grateful to him that he will Chair the hearing. I do 
not know if we symbolically should turn the gavel over, but I 
am happy to give it to you, and I wish you a good morning.
    Senator Durbin [presiding]. Thank you very much.
    Senator Thompson. Mr. Chairman, I might point out, Senator 
Voinovich is the Ranking Member and will be serving that role 
here today, also.

              OPENING STATEMENT OF SENATOR DURBIN

    Senator Durbin. Thank you very much. Thank you, Chairman 
Lieberman and Senator Thompson, my colleagues on the Committee.
    This hearing about Who's Doing Work for the Government?: 
Monitoring, Accountability and Competition in the Federal and 
Service Contract Workforce, as Senator Thompson has noted, is a 
popular hearing. I came in the main door here and there is a 
long line standing outside trying to get into this room. I 
think it is a topic of great interest to not only those in 
attendance, but to everyone who has been following the events 
of the last year.
    Six months ago, our Nation's collective consciousness was 
jolted when heinous acts of terrorism were committed on 
American soil. As a result of those horrific acts we are not, 
and never will be, the same. We are stronger in our response, 
more steeled in our resolve, more vigilant about identifying 
and eliminating our vulnerabilities.
    Overnight, that experience forced us to seriously evaluate 
the workings of our government. For instance, I am not sure 
that before September 11 of last year any of us paid too close 
attention to who was monitoring security at our airports. But 
we started paying much closer attention. We started giving 
thought to the people who were being hired and trained and 
those who would oversee the front line in security when it came 
to our airlines and their services.
    We are now looking at homeland security in a completely 
different way, protecting our borders and our ports, nuclear 
power plants, chemical plants, water supplies, and other 
critical infrastructure. The Department of Defense is 
reorganizing for homeland security and functions that may not 
have seemed essential to their mission now are very essential. 
Conversely, there may be functions that would be better done in 
the private sector, allowing the Department of Defense to focus 
on some other missions.
    I would like to offer an example to illustrate this point. 
After last September 11, I asked my staff to secure a briefing 
on the security of a chemical munitions storage depot that sits 
30 miles from the Illinois border. The United States is in the 
process of destroying deadly munitions which could kill 
hundreds of thousands of people pursuant to the Chemical 
Weapons Convention.
    I learned the depot had only one uniformed military 
officer, the commander, to protect it because security had been 
provided by private contractors. About a week after that, 
National Guard troopers arrived and joined the private 
contractors in protecting the site.
    I am very disappointed that the Department of Defense was 
not able to send a witness to this hearing. There are a lot of 
important questions that need to be asked of that Department 
about the reassessment that they are undertaking as a result of 
September 11. We notified the Department of Defense of this 
hearing about 10 days ago and asked them if they could spare 
someone in this particular area for 2 hours to come and tell us 
their side of the story about what is going to happen. But they 
could not. If the Department of Defense cannot send a spokesman 
to Capitol Hill, perhaps they will consider contracting that 
responsibility out.
    [Applause.]
    Last year, the General Accounting Office elevated strategic 
human capital management to its list of high risk government-
wide challenges. In testimony last February, before our 
Committee, Comptroller General David Walker stressed that 
Federal agencies have not consistently made essential 
principles of valuing and investing in employees a part of 
their strategic and programmatic approach to meeting their 
missions. There has been no stronger spokesman on this issue on 
Capitol Hill than my colleague, Senator Voinovich of Ohio.
    Time and again, he has brought these issues of retention 
and recruitment before every single witness. He understands, as 
we all do, that if we are going to maintain and improve the 
morale of the people who serve this Nation through public 
service in the public sector, then we have to have an attitude 
when it comes to management that reflects it. And I am sure 
that Senator Voinovich will have his own statement and 
observations and questions along those lines as we proceed.
    On the heels of this human capital crisis that faces the 
Federal workforce, the administration launched a major 
initiative requiring Federal agencies to compete or directly 
convert to private sector performance at least 5 percent of the 
full-time equivalent jobs listed on their Federal activities 
inventory under the FAIR Act. An additional 10 percent of the 
jobs are to be competed or converted by the end of fiscal year 
2003--that is 85,000 jobs--for an aggregate of 15 percent of 
all Federal jobs considered commercial nature.
    In the grand scheme, as evidenced by the budget scorecard 
standard, agencies must use either public/private or direct 
conversion competition of no less--no less--than 50 percent of 
the FTEs listed on the approved FAIR Act inventories in order 
to get a green light. That means 425,000 jobs over time.
    It strikes me that it will be as formidable as the perils 
of Sisyphus to make any headway in reigning in this public 
sector human capital risk by trying to recruit and retain the 
best and brightest in the Federal workforce when in the same 
breath you are telling them that oh, by the way, over the next 
few years one out of every four jobs is potentially slated to 
disappear into the private sector.
    You cannot have it both ways.
    [Applause.]
    I do not think that we can send key agencies who are now 
facing critical crises in terms of personnel to college 
campuses in cities across America and say it is time for you to 
make a career decision to go into the public sector and become 
a Federal employee when you cannot promise them that a year, 2, 
3, or 4 years from now their job will even be there. We have to 
be very honest about this.
    If a response to the Federal employee retirement wave is to 
simply replace the retiring workers with contractors, we may 
lose any benefit from trying to find the best management plan 
and most efficient mix of public and private workers.
    It also strikes me we have a catch-22. In an effort to meet 
quotas, Federal agencies may not have the people in place to 
even handle the competitions. So as they bump up against the 
deadlines this October, they may end up just directly 
converting work to the private sector.
    We do not have a trove of solid agency-by-agency 
information about the cost and performance of work that is 
being performed by the government under contract.
    I have been interested in this for a long time. I can 
remember the first time that I faced this about 8 years ago, as 
a member of the House Appropriations Committee, when someone 
raised the possibility of outsourcing, putting on the private 
sector, a specific responsibility of the Department of 
Agriculture. I asked them is there money to be saved by doing 
this. There was a pause and the person answered by saying that 
is not the point.
    And I think that reflects a mentality that says if you can 
just keep turning out the lights, frankly that is the goal. And 
I do not buy that. What we have is a responsibility to the 
American people to perform essential services. We have men and 
women who have dedicated their lives to do that. If there is a 
cost savings to be gained by private sector competition, let us 
hear it. Let us have that competition. Let us make a 
determination as to whether or not it is in the best interest 
of the taxpayers.
    But to start off with a goal of eliminating Federal jobs, I 
think, is to really sacrifice some of the very best people who 
have served this Nation and given their lives to public 
service.
    [Applause.]
    I have introduced legislation to try to get a handle on 
this. The TRAC Act would require Federal agencies to track the 
cost and savings from contracting out. It is simple. I just 
want to see the balance sheet. I am a lawyer and maybe I will 
need an accountant--I will have to be careful how I choose 
one--but perhaps I will need an accountant to help me 
understand this. But I think that is not unreasonable to ask 
whether there is money to be gained for the treasury and for 
the taxpayers over the long run--not momentarily, not in the 
first and second year. And I think that is a reasonable 
standard.
    It calls for a comparative study of wages and benefits by 
OPM and the Department of Labor to get better information. The 
General Accounting Office has indicated since contractors have 
no obligation to furnish the necessary data, it is currently 
difficult to assess this.
    I am particularly interested in this hearing today to bring 
out some points of view, and there will be differing points of 
view on this issue. We have to find out what is the history and 
experience here. How did OMB derive the targets? How are 
agencies implementing the administration's competitive sourcing 
plan? And what efforts are being taken to give in-house talent 
a fair opportunity to compete for the work?
    I am looking forward to hearing from the witnesses and, as 
I said earlier, I am particularly happy that my colleague, 
Senator Voinovich is here. He is truly on the front line of 
this effort on Capitol Hill to maintain quality in our Federal 
workforce. At this point, I turn it over to my colleague.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. Thank you, Senator Durbin. I want to 
thank you for your cooperation and help over the last 3 years 
as we have been addressing the Federal Government's human 
capital crisis.
    I agree with your Committee and feel that arbitrary goals 
for public/private competitions simply do not make sense. Logic 
tells me that this policy does not equate given the fact that 
the Federal Government may lose up to 70 percent of the Senior 
Executive Service by 2005, through retirement or early 
retirement, and about 55 percent of the Federal workforce by 
2004.
    Arbitrary contacting goals send the wrong message to our 
Federal workforce especially since so many of them enjoy public 
service and are dedicated to their jobs. I remember Professor 
Patton, my law school contracts professor once said, ``Look to 
your right, look to your left, next year that person may not be 
here.''
    I think that this is something that the administration 
should give very serious consideration to. It just does not 
make sense. I think the President should reevaluate the 
competitive sourcing goals outlined in his management agenda as 
soon as possible.
    I would like to welcome the members of the American 
Federation of Government Employees and the National Treasury 
Employees that are in town for their annual legislative 
conferences. Senator Durbin, you coincidentally held this 
hearing just when they were in town.
    [Applause.]
    During the 1990's, the composition of the Federal workforce 
began to diminish, a transformation that continues to this day. 
As the Federal Government downsized, some agencies experienced 
an increase in the number of service contracts to make up for 
the loss of employees.
    The trend created a shadow workforce of contractors that 
work side-by-side with our Federal employees. In his book, 
``The True Size of Government,'' Paul Light from The Brookings 
Institution estimated that the shadow workforce consisted of 
12.6 million full-time equivalent jobs, including 5.6 million 
generated under Federal contracts, 2.4 million created under 
Federal grants, and 4.6 million encumbered under mandates to 
State and local government.
    Every day, Federal employees solve complex policy and 
programmatic problems facing our Nation, often with inadequate 
recognition. I can sympathize with Federal employees who feel 
threatened that they may lose their job to a Federal 
contractor. Even though the public service competition process 
is safeguarded by OMB Circular A-76, the guidance on public/
private competition in the FAIR Act, as Ms. Kelley and Mr. 
Harnage will discuss later in their testimony, there are 
reasonable questions regarding the current Federal contracting 
environment.
    Furthermore, I am concerned about the negative effect that 
outsourcing may have on prospective government employees. In 
the 1990's, the Federal workforce experienced significant 
downsizing, and now the Bush Administration is proposing an 
equally significant outsourcing. A workforce in a seemingly 
constant state of uncertainty sends a negative message, which 
dissuades college graduates and mid-career professionals from 
pursuing jobs in the Federal Government.
    Over the past several months, I have been participating in 
executive sessions sponsored by the JFK School on the 
government's human capital crisis. One of the things that 
Harvard graduate students are saying is that public/private 
competition may deter them from pursuing Federal employment. To 
me, the students seem somewhat reluctant to take a Federal job 
because they are worried that their jobs may be contracted out. 
This is not a healthy environment for making the Federal 
Government an employer of choice.
    Unfortunately, the problems of performance-based management 
are not limited to the competitive civil service. We have seen 
an influx of contractors in the Federal workforce. Anecdotal 
evidence suggests we have not witnessed a significant 
improvement in Federal agencies' management of service 
contracts.
    It is the goal of my proposed human capital legislation to 
increase the performance and accountability of Federal 
workforce, and I believe we should ask no less of our contract 
employees. In other words, do we know what we are getting from 
our contractors? Do we have the systems in place to measure 
their performance?
    Mr. Chairman, I know there is often inadequate oversight of 
contractors. I know in my own experiences, and I speak from 
experiences as a county official, as mayor, and as governor of 
the State of Ohio. When I was county assessor, we had a 
horrible experience with a contractor because they could not 
fulfill their obligations.
    [Applause.]
    And I had to hire a cadre of professionals to guarantee 
that our next appraisal would meet predetermined performance 
standards. And there was a vast difference in the outcome of 
the appraisal.
    But too often, when work is contracted out, agencies do not 
have the right people to manage the work. When I was first 
elected mayor of the city of Cleveland, our data processing 
function had been contracted to a firm in San Francisco. 
Unfortunately, I discovered that we were being overcharged, 
that our systems really were not up to where they should be 
because the cost was so prohibitive. Fortunately, I had a 
private sector management auditor examine the situation, and 
they suggested that we re-establish our own data processing 
within the city of Cleveland.
    [Applause.]
    And I think that similar problems can be found at the 
Federal level.
    Fortunately, GAO has been working diligently to expose 
long-standing problems in the Federal service contracting, 
including poor planning, inadequately defined requirements, 
insufficient price evaluation, and lax oversight of contract 
performance.
    In fact, as we speak, GAO is spearheading the Commercial 
Activities Panel to study the A-76 process. The panel's report 
is due on May 1 and I look forward to reviewing it, and I am 
sure you do, Mr. Chairman.
    If I may, Mr. Chairman, I would like to make two 
suggestions for improving the Federal contracting environment. 
First, I suggest that this Committee carefully consider the 
Commercial Activities Panel's report. I am confident that this 
panel, which includes some of the most distinguished witnesses 
before us today, will provide solid recommendations to improve 
the implementation and oversight of government contracts.
    Second, I urge Congress to enact the human capital reform 
legislation that we have introduced this session. This 
Committee will be, in fact, considering several pieces of human 
capital legislation in the coming weeks which will improve the 
entire Federal workforce and therefore, by implication, improve 
the contract management workforce.
    I look forward to continuing to work with my colleagues to 
resolve the Federal Government's human capital needs. However, 
even with human capital reform, it is probable, given the 
current retirement projections, that contractors are going to 
play a prominent role in the daily operations of the Federal 
Government in the future. Therefore, the importance of 
addressing outsourcing becomes even more crucial to the future 
of our government.
    In addition to contracting, I would like to mention pay 
comparability and health benefits reform as two important 
issues that I pledge to look into.
    [Applause.]
    Thank you, Mr. Chairman.
    Senator Durbin. Thank you very much, Senator Voinovich.
    I am sorry that Senator Akaka of Hawaii, who was here 
earlier, had to leave to chair a hearing in another 
Subcommittee. He is very interested in this topic and will be 
submitting a statement for the record.
    [The prepared statement of Senator Akaka follows:]
              OPENING PREPARED STATEMENT OF SENATOR AKAKA
    Mr. AKAKA. Good morning. I want to thank Chairman Lieberman and 
Senator Durbin, who chairs the Subcommittee on the Oversight of 
Government Management, for calling today's hearing. I also wish to 
thank our witnesses for sharing their insights with us this morning. 
Lastly, I extend my appreciation to two of our witnesses, Colleen 
Kelley, President of the National Treasury Employees Union, and Bobby 
Harnage, President of the American Federation of Government Employees, 
for the work they do on behalf of their members.
    September 11 has raised a new awareness of the importance of cost-
effectiveness and accountability in government. Many agencies are now 
required to fulfill homeland security missions they had not considered 
just a year ago. To ensure that new and existing missions are met, we 
must make certain that agencies have the necessary people, skills and 
technologies to carry out their responsibilities.
    Last week, I chaired an Armed Services Readiness Subcommittee 
hearing where we reviewed the achievements and challenges of Federal 
acquisition.
    I want to welcome Angela Styles, who testified in last week's 
hearing. I enjoyed our discussion last week and look forward to working 
with you on these issues. While we have made progress in making our 
government acquisition system more responsive to the commercial 
environment, we continue to see significant shortcomings in DOD's 
management of its $53 billion in services contracts. Moreover, contract 
management and acquisitions have been identified as high-risk areas by 
GAO.
    There are a number of actions we need to take to meet these 
challenges:
    We need to achieve transparency of costs--both in government and 
among Federal contractors. To do this, we must work to improve the 
management of contracts and the collection of timely and accurate 
information about those who perform the work. We must stop erroneous 
and improper payments to contractors. For example, between FY94 and 
FY98 defense contractors returned $4.6 billion in erroneous payments to 
the Department of Defense.
    We must ensure that the government has the people and tools they 
need to determine costs for both government and contracted out 
activities over the long-term.
    Contracting out for goods and services raises fundamental questions 
of accountability at a time when we are demanding more from Federal 
employees whose jobs and responsibilities are expanding. One of our 
witnesses today, Mr. Dan Guttman, points out that there are 
approximately two million Federal employees and 8 million employees who 
work for the government on grants and contracts. Who are these 
contracted workers, and who are they ultimately accountable to? What 
are the long-term costs of contracting out, both in terms of money 
spent and the effect of losing in-house expertise? What are the 
national security consequences of this?
    Over the past decade, the Federal workforce has been dramatically 
cut at a time when agency homeland security missions were not as 
obvious as they are today. Do we know if the Federal Government has the 
people it needs to accomplish these new missions? How much 
institutional knowledge are we losing by cutting the Federal workforce 
through outsourcing? I hope our witnesses can address these questions.
    We must learn from the past and avoid the same kind of procurement 
abuses that accompanied previous episodes of rapid budget growth, like 
the spare parts scandals that plagued the Department of Defense in the 
1980's. In the face of broadened and more complex agency missions, 
resources are too scarce to allow this to happen again.
    Because of limited resources, we need to make sure that Federal 
contractors achieve cost-effectiveness and are accountable to the 
agencies they serve.
    I wish to express my appreciation to our witnesses again for their 
testimonies.

    Senator Durbin. At this point, I would like to recognize my 
colleague from Missouri, Senator Jean Carnahan.

             OPENING STATEMENT OF SENATOR CARNAHAN

    Senator Carnahan. Thank you, Mr. Chairman.
    You do not have to spend much time in Washington to hear 
criticisms of the faceless Federal bureaucracy. They are a 
convenient punching bag. But Oklahoma City, the embassy 
bombings, and September 11 have put faces on our Federal 
workforce.
    [Applause.]
    Who are these Federal workers? They are the civilians of 
the Department of Defense who make it possible for our Armed 
Forces to execute their mission. And they are Federal law 
enforcement agents that put their lives on the line every day, 
to track down terrorists, criminals, and drug dealers. And they 
are our diplomats serving in dangerous posts. And they are our 
air traffic controllers. And they are our intelligence agents, 
seeking the whereabouts of Osama bin Laden. They are the ones 
who make sure that the seniors get their assistance that they 
need.
    Today, more than ever, we need a highly skilled, effective 
Federal workforce to meet the challenges of the 21st Century.
    [Applause.]
    The Federal Government has been contracting out services 
for years. When it is appropriate for services to be handled 
outside of the government and with genuine cost-savings to the 
taxpayers, the services should be considered for contracting 
out.
    The difficult issue is devising a fair, efficient process 
to identify which services can be shifted to the private sector 
and to calculate potential cost savings. Last year the Office 
of Management and Budget set out specific targets for 
contracting out that each Federal agency must meet. The setting 
of targets appears to be an arbitrary process. We should 
examine which specific services are amenable to contracting out 
and then see if these services can be performed less 
expensively in the private sector. Competition should be the 
touchstone of the process.
    I approach the entire subject with some sensitivity due to 
an experience that occurred at the National Imagery Mapping 
Agency in St. Louis.
    [Applause.]
    Last year NIMA employees in St. Louis contacted me because 
their jobs were being contracted out to a corporation in 
Alaska. The 300 employees did not have the ability to compete 
to keep their jobs due to a loophole in the law that allowed 
for direct conversion. NIMA was not able to present any 
definite study that demonstrated that direct conversion would 
produce cost savings. There was no public/private competition, 
or even private/private competition for the contract.
    So now the employees are performing the exact same tasks 
for the Alaska corporation that they were doing for NIMA. But 
we really do not know if we are saving money or spending money. 
So I am very concerned about proposals to allow even more 
direct conversion without competition.
    [Applause.]
    Workers should have a chance to compete for jobs.
    [Applause.]
    Adelai Stevenson once said that public service is a noble 
and worthy calling. Mr. Chairman, that is truer today than it 
has ever been before.
    Thank you very much. [Applause.]
    Chairman Lieberman. Thank you, Senator Carnahan.
    Our first panel consists of the Hon. Angela Styles, who is 
the Administrator of the Office of Federal Procurement Policy 
of the Office of Management and Budget, and Barry Holman, 
Director of Defense Capabilities and Management for the U.S. 
General Accounting Office.
    We welcome you today, and Ms. Styles, if you would like to 
make your statement a part of the record and summarize it at 
this point, we welcome that testimony.

STATEMENT OF HON. ANGELA B. STYLES,\1\ ADMINISTRATOR, OFFICE OF 
  FEDERAL PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET

    Ms. Styles. Thank you, Senator Durbin and Members of the 
Committee.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Styles appears in the Appendix on 
page 48.
---------------------------------------------------------------------------
    I am pleased to be here today to discuss the 
administration's competitive sourcing initiative and the 
management of service contracts. I am particularly pleased to 
see so many dedicated Federal employees in the hearing room 
today. It is because of these people, and other Federal 
employees just like them, that the public trust in the 
government is at the highest point in 40 years and record 
numbers of young people are considering careers in public 
service. Without the dedication, commitment, and integrity of 
these people, our country would not be able to achieve great 
things.
    I had the rare opportunity earlier this week to speak 
before the AFGE legislative conference. As I told this 
conference on Monday, and I will tell you now, free, open, and 
robust dialogue on these issues is essential. We may not always 
agree, but that does not mean that we should be afraid to 
discuss these issues.
    I am often surprised by the fact that once the dialogue 
gets underway, people with opposing views often have much in 
common. For that reason, I am pleased to have the opportunity 
to discuss the administration's competitive sourcing initiative 
here today.
    There are two points I want to clearly communicate. First, 
the administration's commitment to competition. Competition is 
fundamental to our economy and to our system of procurement. It 
is competition that drives better value, innovation, 
performance, and importantly, significant cost savings.
    Second, is the President's commitment to results. He wants 
to see some fundamental improvements in the way we are managing 
the Federal Government. To use his own words, we are not here 
to mark time, but to make progress, to achieve results, and 
leave a record of excellence.
    The competitive sourcing initiative fulfills both of these 
commitments. By exposing commercial jobs to the rigors of 
competition, we will reduce costs, improve performance, and 
infuse the Federal Government with the innovation of the 
private sector.
    There has, however, been a tremendous amount of confusion 
surrounding this initiative. I usually clarify this confusion 
by explaining what competitive sourcing is not about. 
Competitive sourcing is not, and I repeat not, an outsourcing 
initiative. Similarly, competitive sourcing is not about 
reducing the Federal workforce. There is no goal here to reduce 
the Federal workforce.
    Competitive sourcing is a commitment to better management 
and it is a commitment to competition. No one in this 
administration cares who wins a public/private competition. 
What we care about is competition and the provision of 
government service by those best able to do so, be that the 
private sector or the government itself. What we care about is 
cost, quality and availability of service, not who provides it.
    Competitive sourcing is also a commitment, a commitment 
from this administration that Federal employees will have the 
opportunity to compete for their jobs.
    There is one other point I want to clarify. Public/private 
competition through OMB Circular A-76 process or otherwise, is 
not an end in and of itself. It is simply a means to an end, 
the end being the better management of our government and 
better services for our citizens.
    I often describe A-76 as one tool in the management toolbox 
for departments and agencies. The bottom line is that we need 
to do a better job of managing the Federal Government.
    All this talk about competitive sourcing, however, does not 
mean we do not recognize the need to improve the process. 
Public/private competition is not easy and the A-76 process has 
its share of detractors. With some frequency I meet with 
members of Congress to discuss the very real impact of this 
process on their constituents. Real people with real concerns 
about their job security.
    I have spent a tremendous amount of time since I came into 
office assessing the process and determining where and how we 
can make improvements. I recognize that there are faults and I 
am actively seeking input to improve that process.
    Unfortunately, we have yet to find a silver bullet and 
achieving consensus on a strong set of reforms supported by all 
of the key stakeholders remains a challenge. However, I am 
confident that we can work with industry and Federal employees 
to make significant changes and improvements to the current 
process.
    An average duration between 24 to 32 months to complete a 
public/private competition is simply unacceptable. A 3-year 
competition to determine who should provide a commercial 
service hurts everyone. Employees are demoralized and private 
firms expend tremendous amounts of money to compete.
    Finally, I would be remiss if I did not mention what I 
believe is a key element to effective management: Timely and 
accurate information about who helps departments and agencies 
perform their mission. Departments and agencies should be 
looking at more than just the Federal workforce that performs 
commercial tasks. Departments must look at the universe of how 
they meet their mission. The portion of the workforce 
performing inherently governmental tasks, the workforce 
performing commercial tasks, and importantly, private sector 
contractors.
    Some recent incidents have highlighted for me the lack of 
information the departments and agencies have available to 
manage the work that contractors do for the Federal Government. 
This is not a criticism of the contractors. It is a recognition 
that we, in the Federal Government, need to do a better job of 
collecting information about our contracts with the private 
sector, and we need to do a better job of managing those 
contracts.
    My office is working to create a web-based contract 
management information tool to be known as the Federal 
Acquisition Management Information System. Our goal is to take 
advantage of current technology to provide timely, relevant, 
and reliable information to support agency decisionmaking. We 
believe that FAMIS will significantly help OMB and agency 
managers understand and manage private sector contracts.
    An agency cannot manage well unless they know how the 
private sector is helping overall to meet mission needs. Thank 
you again for having me here today. That concludes my 
statement, but I am pleased to answer any questions.
    Senator Durbin. Thank you for your testimony.
    I would like to invite Director Holman to submit his 
statement for the record and summarize at this point. Thank 
you, sir.

STATEMENT OF BARRY W. HOLMAN,\1\ DIRECTOR, DEFENSE CAPABILITIES 
         AND MANAGEMENT, U.S. GENERAL ACCOUNTING OFFICE

    Mr. Holman. Mr. Chairman and Members of the Committee, I am 
pleased to be here today to participate in the Committee's 
hearing on competition and accountability in service 
contracting, and specifically use of OMB Circular A-76.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Holman appears in the Appendix on 
page 60.
---------------------------------------------------------------------------
    Although A-76 represents a relatively small portion of 
service contracting activity, it has been the subject of much 
controversy, as you have already alluded to, with concerns 
raised both by the public and private sectors.
    DOD has been the primary user of A-76 in recent years; 
however again, as already alluded to, OMB is making a 
significant push to have all Federal agencies directly convert 
or compete a significant number of positions on their 
commercial activity inventories.
    My comments today are based on our work in recent years in 
tracking DOD's progress in implementing its program. I want to 
make just a few comments about its progress and about its 
efforts to identify positions to be studied, challenges faced 
by DOD that I think other agencies will face as they embark on 
this challenging endeavor, and touch briefly on the work of the 
Commercial Activities Panel, which is chaired by Comptroller 
General David Walker.
    Let me begin with just some brief comments about DOD and 
the number of positions that they are studying. The number of 
positions that DOD planned to study under A-76 and the 
timeframes for completing those studies have fluctuated greatly 
over time. They have varied as the department encountered 
difficulties in identifying positions to be studied and 
actually getting the studies underway.
    At one point, DOD planned to study over 225,000 positions 
by the end of fiscal year 2002. The number now stands at about 
183,000 positions that would be studied over a timeframe from 
fiscal year 1997 to 2007.
    As some of the military services encountered delays and 
difficulties in launching their studies and meeting their study 
goals, DOD began permitting the service to augment A-76 with 
what it calls strategic sourcing. That is business process, 
reengineering, consolidations, and restructuring--that type of 
thing.
    I want to cite what we have seen in DOD to make some 
observations about what other agencies may face as they follow 
the administration's guidance to engage in outsourcing. In 
tracking DOD's progress with its A-76 program, we identified a 
number of issues that other agencies may encounter.
    They include again, as I have already indicated, 
difficulties identifying positions to be studied, expanded time 
and resource requirements to complete those studies, and 
difficulties developing precise estimates of savings. Let me 
give you a few examples.
    In identifying functions and positions to be studied, the 
FAIR Act guidance recognizes that it may be appropriate to 
exclude certain commercial activities from competitions, such 
as patient care in government hospitals. Other factors, such as 
the inability to separate commercial activities from inherently 
governmental ones, can limit the number of positions to be 
studied once you start trying to undertake a specific study. It 
becomes important to consider such factors as these in 
determining what portion of the FAIR Act inventories are 
expected to be competed.
    Additionally, we found it took much longer to complete A-76 
studies and cost more than initially expected. The costs per 
position studied have varied with some ranging up to several 
thousand dollars per position. One factor increasing the cost 
of these studies was the use of contractors to help conduct the 
studies. Given differences in experience levels between DOD and 
other agencies in conducting A-76 studies, other agencies may 
devote greater resources to training their personnel to 
undertake these studies or otherwise obtain outside assistance 
in completing them.
    Further, developing and maintaining reliable estimates of 
savings has been difficult. Considerable questions have been 
raised about the extent to which DOD has realized savings from 
its A-76 studies. Our own work has shown that A-76 studies can 
produce significant savings. But assigning a precise number to 
those savings is a very challenging process.
    Savings also may be limited in the short term because of 
the up front investment costs associated with conducting and 
implementing the studies, costs that must be absorbed before 
net long-term not recurring savings begin.
    Finally, just a couple of comments about the Commercial 
Activities Panel. As has already been indicated today, both 
government and industry have expressed considerable frustration 
over A-76. Government workers have been concerned about the 
impact of competition on their jobs, their opportunity for 
input to the competitive process, and the lack of parity with 
industry offerers to protest Circular A-76 decisions.
    Industry representatives have complained about the lack of 
a level playing field between the government and the private 
sector. Concerns have also been registered about the adequacy 
of the oversight of the competition winner's subsequent 
performance, whether won by the public or the private sector.
    Such concerns gave rise to the legislation creating the 
Commercial Activities Panel. It required the Comptroller 
General to convene a panel of experts to study the policies and 
procedures governing the transfer of commercial activities. The 
panel includes senior officials from DOD, OMB, the Office of 
Personnel Management, private industry, Federal labor 
organizations, and academia.
    The panel held its first meeting on May 8 of last year, at 
which time it adopted a mission statement calling for improving 
the current framework and processes so they reflect a balance 
among taxpayer interest, government needs, employee rights, and 
contractor concerns. The panel held three public hearings, the 
first in Washington, DC, the others in Indianapolis, Indiana 
and San Antonio, Texas.
    Since completion of the field hearings the panel members 
have met several times, augmented between meetings by the work 
of the staff. Panel deliberations continue with the goal of 
meeting the May 1 date for a report to the Congress.
    This concludes my summary statement and I would be pleased 
to answer any questions you might have.
    Senator Durbin. Thank you very much, Director Holman.
    As I mentioned in my opening statement, I am disappointed 
that the Department of Defense would not send a spokesman here 
today, after we had invited them 10 days ago to do so. It is 
particularly, I think, noteworthy that the Department of 
Defense dwarfs all other agencies of government in the amount 
of contracting out that it does, $142 billion in fiscal year 
2000 alone, $72 billion of that in services, research, and 
development, according to a GAO report.
    I think one of the reasons, Ms. Styles, that they did not 
send someone over here was the fact that it could have been the 
confrontation within the administration. And let me point 
specifically to a letter that was sent to the OMB by the 
Department of Defense last December. In light of the September 
11 attack, agencies across government were asked to reassess 
the security of America. And we certainly look to the 
Department of Defense as the leader in that reassessment.
    The letter that was sent by Mr. Aldrich, who is the 
Undersecretary at the Department of Defense, really called into 
question the OMB guidelines, standard, and schedule for 
privatizing in that Department. I think that he questioned 
directly whether the A-76 was appropriate in light of our new 
concerns about national security. He called for reassessment 
and he said, in his letter to OMB, such a reassessment may very 
well show we have already contracted out capabilities to the 
private sector that are essential to our mission, or that 
divestiture of some activities may be more appropriate than 
public/private competition or direct conversion.
    That, as I see it, was a red flag to OMB to at least stop 
in place and assess whether or not holding to these goals of 
privatization and outsourcing made sense in light of our 
Nation's security. And yet, from the budget which has been sent 
to Capitol Hill, it appears that what Undersecretary Aldrich 
recommended has been totally ignored.
    How would you respond?
    Ms. Styles. Thank you for asking that question, Senator 
Durbin. I think there has been a lot of confusion since that 
letter was released to the press.
    I would first like to point out that letter was in the 
middle of a process that we are going through with many 
departments and agencies and how it is appropriate for them to 
meet their goals in some instances. It is not appropriate for 
some agencies to be considering for public/private competition 
15 percent of their commercial workforce. So we are sitting 
down with each department and agency, working through a plan 
that is appropriate for each of those agencies.
    What concerned us when we saw that letter from Pete 
Aldridge was the focus on divestiture. A significant protection 
in the A-76 process is the fact that public sector employees 
have the opportunity to compete for their jobs. If you have 
divestitures or direct outsourcing, there would be no 
opportunity to compete for their jobs.
    As I said when I first started answering this question, 
that memo came out at the beginning of a discussion that we had 
been carrying on with the Department of Defense. Since then, we 
have sat down with the Department of Defense. We have had 
continued discussions with them.
    They fully intend to meet the 2002 and 2003 goals of 
subjecting 15 percent of their commercial activities to public/
private competition. As they move forward towards meeting the 
50 percent goal, they are going to ensure that there is 
appropriate competition and appropriate protections in place 
for the Federal employees in that 50 percent.
    Senator Durbin. But then he wrote in the letter ``rather 
than pursuing narrowly defined A-76 targets, we propose to step 
back and not confine our approach to only A-76.''
    Now as I understand what OMB is setting out to do, and you 
correct me if I am wrong here, is that they are saying by the 
end of fiscal year 2003 the Pentagon is supposed to have 
competed out 15 percent of all jobs designated as commercial, 
or directly convert them to private sector contracts. And 
ultimately, the administration's goal is to compete or convert 
50 percent, equivalent to 225,000 jobs, at the Pentagon alone.
    I do not understand why Undersecretary Aldrich wrote the 
letter if it did not change your assessment of your goals in 
light of the needs of America's homeland security.
    Ms. Styles. I think he wrote the letter to explain what a 
lot of departments and agencies are doing, and which we are 
encouraging them to do, is to not just look at A-76 as the only 
way to manage their agency. That is not the point. It is a tool 
that they have available for them to manage their agency, and 
it is a tool that we have found is tremendously effective when 
it is used properly.
    What he is describing is the process that many agencies are 
going through as they determine how to manage their agency. And 
once we sat down and talked about it and we exchanged ideas on 
this, they realized that taking a look at 15 percent for 
public/private competition was appropriate for the Department 
of Defense.
    Senator Durbin. Let me ask you this from the OMB point of 
view, because you are a valuable and important agency in our 
Federal Government, I am asking you to really step back and 
give me your candid answer here. Is your goal here numbers on a 
board, notches on a gun, or beans on a counter? Or are we 
really going to step back in light of September 11 and make an 
assessment of what is important for the security of our 
country? And it may not mean that we are going to compete out 
or outsource or put on the private side as many jobs as we had 
originally hoped we could, or at least the administration hoped 
it could.
    Ms. Styles. Certainly. As we sit down with each department 
and agency, we consider the needs of each department, their 
mission, and what is an appropriate level of competition. We 
put 15 percent up over 2 years as a goal that we thought was 
appropriate for almost every department and agency to meet 
because they had not subjected, as a general proposition--
particularly at the civilian agencies--they had never subjected 
any of these jobs that are clearly commercial in nature to the 
pressures of competition.
    So we sat down with each department and agency over the 
period of the past, I would say 6 to 9 months, to determine 
what was an appropriate plan for that agency. There are 
agencies where it is not appropriate right now for them to be 
competing 15 percent.
    Senator Durbin. Do you believe this so-called commercial 
application, the commercial category of jobs, has to be 
reassessed and reconsidered because of September 11?
    Ms. Styles. I am sorry, the commercial category?
    Senator Durbin. Yes, categorizing some jobs as not 
inherently governmental but commercial in nature? Would you 
step back after September 11 and look at that differently?
    Ms. Styles. I think we are perfectly willing to consider 
that in the normal process we go through with the FAIR Act 
inventory, where some might be more appropriately categorized 
as inherently governmental.
    Senator Durbin. I think that is critical. Let me ask you, 
is the goal here to save the taxpayers money?
    Ms. Styles. Absolutely.
    Senator Durbin. So whenever there is to be a competition, 
we are going to try to compare apples to apples, to find out 
what services can currently be provided by public employees at 
the ultimate cost to the government, as opposed to the services 
and quality of performance of those who are competing with 
them. Is that correct?
    Ms. Styles. We want to provide the best service to our 
citizens at the lowest price we can.
    Senator Durbin. So it is a matter of savings money?
    Ms. Styles. Well, I think public/private competition also 
brings innovation, it brings creativity, it brings performance 
improvements. I hate to focus on the cost alone.
    Senator Durbin. Let me just say in closing on this round of 
questioning, that is what bothers me.
    [Applause.]
    I am going to ask the audience, even though I love 
applause, to please refrain from responding at this point. We 
are going to try to complete this and to show respect to all 
the witnesses.
    But your last statement, inviting private competition which 
encourages creativity. Do you realize what you have just said 
about public employees? I mean, it really reflects on Senator 
Voinovich's point earlier, that if we are going to try to 
attract and keep the best and brightest in government, we have 
to concede that sometimes they are creative, too, and that we 
do not have to look outside to private competition to have 
bright ideas.
    The presumption that these are just dull bureaucrats 
marching back and forth to work every day is going to create an 
impression of government which cannot bring bright people like 
yourself to public service.
    Ms. Styles. Can I respond to that, Senator Durbin?
    Senator Durbin. Certainly.
    Ms. Styles. I think the best thing about this initiative is 
the fact that more than 60 percent of the time the public 
sector wins. They beat the private sector.
    Senator Durbin. That is good. And I think frankly, if it is 
a fair competition, the numbers might even be higher.
    Ms. Styles. That is exactly right.
    Senator Durbin. Thank you. Senator Voinovich.
    Senator Voinovich. Thank you, Mr. Chairman.
    Ms. Styles, at a May 2000 Subcommittee hearing I chaired 
which focused on the downsizing initiative of the Clinton 
Administration, Paul Light stated that downsizing ``. . . has 
been haphazard, random and there is no question that in some 
agencies we have hollowed our institutional memory and we are 
on the cusp of a significant human capital crisis.''
    In other words, the downsizing goals adopted by the Clinton 
Administration were arbitrary and damaging. I believe that. 
They were more interested in downsizing instead of 
strategically reshaping the agencies in order to help them 
accomplish their mission. They did not provide Federal 
employees with the tools, the technology, the training, there 
was no money for training, and no quality management. It was a 
mindless kind of operation.
    Now, in order for agencies to score a green on the 
President's competitive sourcing scorecard, they now must 
complete public/private competitions or directly convert no 
less than 50 percent of the full time equivalent employees 
listed on the FAIR Act inventory.
    Ms. Styles, I am concerned that the benchmarks the 
administration has adopted for its competitive sourcing are 
arbitrary and potentially damaging, as were the Clinton 
Administration's downsizing efforts. What measurement criteria 
did the administration use to come up with a 50 percent figure? 
What is the logic behind it?
    Ms. Styles. The President actually established the 50 
percent criteria himself.
    Senator Voinovich. Well, then I think the President may 
have received poor advice. I think the administration's plan 
puts too much emphasis on meeting an arbitrary quota.
    And the emphasis ought to be, in this administration, on 
giving the people that work in this government the tools, the 
technology, and the training that they need to get the job 
done. Take care of the internal customers.
    I am really sincere about that. Too often in this business 
we go ahead and we establish arbitrary percentages without 
giving thoughts to what those percentages are translated into.
    I want to know from you, and I am going to send a letter to 
the President, on this issue. One of my Ohio constituents 
brought the administration's contracting goals to my attention 
yesterday. I am very concerned about the effect the goals are 
having on the Federal workforce.
    It sends the wrong message, and I think that you ought to 
re-evaluate that. I am asking you, where did the 50 percent 
come from? Who gave him the idea? Did he just pick it out of 
the air? Was it based on any kind of information from the 
experts in the area? Where did it come from?
    Ms. Styles. I can explain to you the 5 and the 10 percent, 
and I can certainly understand the concerns about the metrics 
here. I think it is unfortunate that it uses an FTE metric, but 
public/private competition is a proven, effective tool that we 
want to continue to use.
    That does not mean that the Federal agencies should not be 
appropriately managing their agencies when they look at 
commercial functions or their other functions as well. Or, for 
that matter, what is being done by the private sector.
    Senator Voinovich. Have there been any studies that measure 
contractor performance? I have been a mayor for 10 years, I was 
a governor for 8 years, I was a county official for 7 years. 
And, as I mentioned in my opening statement, farming work out 
does not equate to getting the job done--you read Paul Light's 
books on this issue.
    This idea that you would farm it out and it is just going 
to be wonderful, and I think Mr. Holman you may be coming back 
with looking at this whole process. But I think at this stage 
of the game we need to re-evaluate what we are doing in this 
area. There is no magic wand that says that you farm it out and 
it is the best way of doing it.
    Ms. Styles. If I can respond, we certainly can do a better 
job of understanding, from a higher level management 
perspective, what our contractors are doing to help us meet our 
mission needs. With that said, though, there are contractors, 
the Lockheed-Martins, the Raytheons, the General Dynamics of 
the world, that have thousands of auditors onsite that review 
everything they do.
    Senator Voinovich. Like on the Enron situation?
    Ms. Styles. No, sir. Actually, these are Defense Contract 
Audit Agency auditors that actually look at the costs that are 
charged, the amount of salaries, the reasonableness of their 
costs every day. That is their job.
    Senator Voinovich. As Senator Thompson often mentions, at 
any given time the Defense Department cannot account for 
billions of dollars.
    All I am saying is if you are starting out on a new game, 
you have been at it a year. I think that somebody ought to sit 
down and start to look at some of this. And I just want you to 
know that I really care about human capital, and I really want 
to make a difference for our Federal workforce. Furthermore, I 
am very concerned about what is happening here. And I am going 
to spend a lot of time on it.
    Senator Durbin. Thank you, Senator Voinovich. Senator 
Bennett.

              OPENING STATEMENT OF SENATOR BENNETT

    Senator Bennett. Thank you, Mr. Chairman.
    The old Yogi Berra line deja vu all over again, one of the 
most serious issues that I had to deal with during the previous 
administration was this whole question of privatizing versus 
government employees. I heard a lot of rhetoric similar to that 
which, frankly, is going around in this situation, but it was 
reversed.
    That is, I was defending the government employees at Hill 
Air Force Base against spokesmen from the Defense Department 
that kept saying we could do things a whole lot better with 
private contractors that just happened to be at McClelland and 
Kelly, which were two bases that the BRAC Commission said ought 
to be closed. BRAC said they should be closed and the work 
transferred to Hill.
    Now I do not mean to be overly cynical about it, but Kelly 
and McClelland were in Texas and California, which happened to 
have a fairly substantial number of electoral votes. And Hill 
happened to be in Utah, where the President finished third in 
the first election in 1992. So there was a suggestion that 
maybe the issue of privatization versus the public employees 
was driven by politics.
    Indeed, there was an attempt made to make sure that 
contracting out to private corporations would occur to keep the 
base at McClelland open. Now they put a sign on the base that 
says this has been closed, but they kept all the work there in 
the name of privatization in place. And it took Congressional 
action to force the President to actually close McClelland and 
move the jobs to Hill. Again and again we heard the private 
people can do it better. And again and again, we knew the 
government employees at Hill knew what they were doing in this 
circumstance, dealing with specific Defense Department issues 
and that the government employees at Hill could do it better.
    Hill Air Force Base is now up to 22,000 employees. They had 
only 12,000 at the time of the BRAC. But the Air Force, of all 
of the depots, rated Hill No. 1. It is amazing that we had to 
use political muscle, if you will, in the Congress to get the 
previous President--and Senator Voinovich has made reference to 
what was done in the previous administration in this issue--to 
get the President to recognize that government employees in the 
proper process need to be recognized for their ability and 
their skill.
    Now Ms. Styles, I do not hear anything in your presentation 
that suggests that you are opposed to giving government 
employees recognition of their expertise and their skill. There 
have been some that might want to posture you in that role, but 
I have not heard you say anything that says that this 
administration denigrates existing government employees, 
denigrates those who have put in significant careers and that 
are making significant contribution.
    And I want to make that point because I think there may be 
a sense that you have tried to do that. I do not hear that you 
have tried to do that, and I do not think it would be fair to 
characterize you as trying to do that.
    Ms. Styles. No, sir. I think we recognize that we have 
Federal employees that are doing a terrific job. And this is an 
opportunity for them to be able to prove they can beat the 
private sector. We do not care about who provides the service. 
We want the person who can best provide the service to our 
citizens to be providing that service. And often times, that 
means a Federal employee is providing that service.
    I have to tell you, Senator, that is a significant change 
from the previous administration. The OMB Circular A-76 right 
now presumes that the private sector is the better sector to 
provide services to the Federal Government. We have no such 
presumption. And that is a significant change.
    Senator Bennett. That is the point that I wanted to make, 
that there was, in the previous administration, a clear bias. 
Now from my point of view, frankly, it came out of the 
political dynamic of where the jobs would be, which could be 
translated into votes in an electoral rich State.
    I am delighted to have you say that that bias has been 
changed. Now I would, with Senator Voinovich, ask you to take a 
look at the numbers. The numbers do have the appearance of 
being arbitrary. I hope you will take another look at them. But 
I think the record should be clear that we are moving in the 
right direction here. That this is not something that just 
sprung up. And it is a problem that has been with us for a long 
time, a problem that I and the other members of the Utah 
delegation faced. We fought long and hard for recognition of 
the competence and patriotism and sincerity of the government 
employees at our Federal installations, and we won that fight 
ultimately against an administration that wanted to go in the 
other direction.
    So I have nothing further to add to this debate, simply to 
make the point that this is not a new issue. It has been around 
for a number of administrations, and I feel that the record of 
your administration, at least the direction that you are 
talking about, is an improvement over that which we had before. 
But I would, with Senator Voinovich, ask that you take another 
look at the possibly arbitrariness of the specific numbers that 
have been laid down.
    Ms. Styles. OK.
    Senator Bennett. Thank you, Mr. Chairman.
    Senator Durbin. Thank you, Senator Bennett.
    Let me do this follow up question, because this is what I 
am troubled with. Ms. Styles, you have said this is about 
saving the taxpayers money. You have said that it should be a 
fair competition, let the best person win. But you have already 
established standards by which at least 85,000 Federal 
employees have to lose by the end of this year.
    Ms. Styles. They will not lose. You are assuming that they 
will lose the competition, that the Federal sector will lose 
the competition. They do not.
    Senator Durbin. Ten percent of the jobs would be competed 
or converted by the end of fiscal year 2003.
    Ms. Styles. Subject to public/private competition. And I 
can tell you, when a department or agency comes to me and says 
I want to meet these goals through directly converting these 
jobs, my answer is absolutely not.
    Senator Durbin. But what am I to expect at the end of this 
next fiscal year, in light of this budget? Are these agencies 
being given red lights, or green lights in terms of how many 
Federal employees FTEs are removed from their workforce?
    Ms. Styles. No, absolutely not.
    Senator Durbin. So at the end of this competition if, in 
fact, the Federal employees prevail and there are no jobs that 
are eliminated, then frankly why did the administration set the 
goals? Why did you put specific numbers in the budget?
    Ms. Styles. Because even when the public sector wins, we 
are getting cost savings exceeding 30 percent.
    Senator Durbin. You are not answering my question. Again, 
following Senator Voinovich's question, why does the 
administration have specific numbers of Federal jobs that they 
are saying have to be competed or converted at the end of the 
fiscal year--85,000--another 400,000 plus in the out years, if 
this is just about competition and the Federal employees have 
an equal chance of winning?
    Ms. Styles. Because we had to build an infrastructure at 
the civilian agencies in order to be able to have public/
private competitions. There were no public/private 
competitions, generally speaking, going on in civilian agencies 
before this administration. We saw the benefits of public/
private competition. We set up a goal that we thought was a 
minimum goal in order to build the infrastructure to have 
public/private competition.
    And I think I should emphasize that that is the same 
infrastructure, if you want to look at work that is already 
been contracted out and you want to have Federal employees 
compete for that work, you also have to have that 
infrastructure in place to be able to do that.
    Senator Durbin. Let me ask you, if it is about competition 
and quality service, are you prepared to take jobs currently 
held by private contractors and allow them to be bid again with 
public employees?
    Ms. Styles. We have no problems with departments and 
agencies, where appropriate, looking at the jobs that are 
currently contracted out, and when they come up for 
recompetition, allowing the public sector, as appropriate 
because you have to make a commitment of dollars here, to be 
able to compete for those jobs. And we are looking at this as a 
full competition initiative.
    Senator Durbin. Let me make sure I understand this, when 
you say 85,000 jobs, the head of an agency might comply by 
saying I will tell you what we will do, we have 10,000 people 
who are working for private contractors that took over jobs 
that once were in the Federal service. We are going to 
recompete those and let the Federal employees compete with 
those. So that would be adequate? That would be OK, from your 
point of view?
    Ms. Styles. No, we think the jobs--those jobs have 
already--no, I think I have the job to clarify this.
    Senator Durbin. I want you to.
    Ms. Styles. The jobs that are in the private sector right 
now have been subject to the pressures of competition. The jobs 
that are in the public sector right now, that are any variety 
of things that are available in the private sector to do, from 
hanging drywall to food service, etc., have never, ever been 
subject to the pressure of competition. Which is why our goal 
is focused on the commercial jobs being performed in the public 
sector right now.
    That is not to say that we do not want the public sector to 
have the opportunity to compete.
    Senator Durbin. How often?
    Ms. Styles. We have a competition cycle for things in the 
private sector generally of every 3 to 5 years.
    Senator Durbin. So you would say on a 3 to 5 year basis the 
private contractor jobs should be up for competition again 
against Federal employees. Is that going to be the 
administration standards?
    Ms. Styles. Where appropriate. This is an agency-by-agency 
decision about how they want to manage their agencies.
    Senator Durbin. You would be willing to set goals of how 
many jobs in private contractors' hands? You have set goals 
here. 85,000 Federal jobs are going to be at stake in this 
competition in this year. Are you willing to state a goal of 
how many jobs currently in the private sector will be up for 
recompetition each year to see whether or not Federal employees 
would do a better job and save the taxpayers money?
    Ms. Styles. I am confused. If you think our goals are 
arbitrary, I am not sure why that would not also be an 
arbitrary goal?
    Senator Durbin. Why do you apply these goals to Federal 
employees but you will not apply them to those in the private 
sector who have taken over Federal jobs?
    Ms. Styles. Because the Federal employees' jobs have never 
been subject to the pressures of competition.
    Senator Durbin. And I might also add it starts with the 
assumption that once in the private sector that is where they 
are staying. And I think honestly, if the goal is to have 
quality service for the taxpayers, and to have real 
competition, we ought to recompete those jobs that have gone to 
private sector.
    Ms. Styles. We are not opposed. In fact, the Circular A-76 
right now gives them that opportunity. There are some barriers 
there to actually bringing things back in in the Circular A-76. 
We are willing to remove those barriers. We are willing to 
encourage agencies, where appropriate, to take a look at what 
should be contracted. And we have already done it with the 
Department of Housing and Urban Development, because quite 
frankly they took too many FTE cuts and sent too much to the 
private sector already. We have come up with a plan for them, 
that we are still working on right now, that says maybe a lower 
percentage of competition for your public sector employees is 
appropriate. And maybe you also need to be looking at what you 
can bring back in-house right now, because you cannot manage 
the contracts you have.
    Senator Durbin. I like this, and I will tell you that I am 
going to follow through on it. We are going to make sure that 
we have a clear understanding of what the administration's goal 
is going to be about recompeting these jobs that went to the 
private sector. Senator Voinovich's experience and your 
statement now about HUD, at least give us some pause as to 
whether or not once they are ``out of the Federal Government'' 
whether the taxpayers are still winning.
    Director Holman, most of the questions have been directed 
to your fellow witness here, but I want to make sure I 
understand. Ms. Styles has said that the goal here is to save 
money. But you, through the GAO, have told us repeatedly, this 
is a pretty tough thing to do, quantify how much you are 
saving.
    I think your statements and your respective testimonies 
probably referred to different periods of time, in terms of 
savings at the Department of Defense. At one point, I believe 
Ms. Styles has used the figure of $11 billion in Department of 
Defense savings of competing out, and you have used a much 
smaller figure of $396 million for 1 year. So I do not want to 
mischaracterize that comparison.
    But speak to this issue about how we ultimately can feel 
that we are saving money in this whole process of A-76 and 
competing out.
    Mr. Holman. Senator Durbin, we have not established a 
precise figure overall for savings that have been realized. 
What we have done, on a case study basis selectively, is to go 
in and look at actual competitions that have been completed, to 
look at the costs that were incurred in doing the studies, the 
costs that were associated with implementing the studies, costs 
associated with saved pay where Federal employees may be RIFed, 
separation pay, and so forth.
    Where we have done those case studies, in most instances, 
we have found that significant savings were being realized. Now 
the anomalies associated with each case, they were each 
different. Each had unique circumstances. In many cases, the 
agencies had not done as good a job as we would have liked to 
have seen establishing baseline costs before they went into the 
competition. That made it difficult for us then to go back and 
say OK, how much money was actually saved from that 
competition.
    So that is why we have been very reluctant to put a precise 
figure on the amount of savings that have been realized. But 
having done these assessments, it is clear to us in many cases 
there are savings, significant savings. I might indicate so 
much so in some cases, you start to ask the question why did it 
take an A-76 competition to achieve these savings? Why weren't 
the efficiencies being achieved without the competitions?
    Senator Durbin. I do not quarrel with the possibility that 
there will be outsourcing and save taxpayers dollars. I do 
think we have to step back and decide whether or not that is 
actually happening, whether there is another overarching goal 
as Undersecretary Aldrich suggested such as national security 
and inherently governmental jobs.
    But what troubled me was the presumption that outsourcing 
is, in and of itself, a valuable thing to happen. I think that 
is a sentiment which I think we have all raised and brought to 
question in this hearing this morning.
    I want to thank you both for your attendance today. Ms. 
Styles, thank you for coming. Director Holman, thank you as 
well. I appreciate the testimony of the first panel and now we 
will call the second panel in for their testimony, and I will 
introduce them.
    Dan Guttman is here. He is a Fellow of the Washington 
Center for the Study of American Government at Johns Hopkins 
University. Bobby L. Harnage, Sr. is National President of the 
American Federation of Government Employees. Colleen Kelley, 
National President of the National Treasury Employees Union. 
Mary Lou Patel, Chief Financial Officer of Advanced System 
Development. And Stan Soloway, President of the Professional 
Services Council.
    Thank you all for joining us this morning, and we are going 
to invite your testimony in the order that you were seated. The 
first one to testify will be Bobby Harnage. Your full statement 
will be made part of the record and if you would be kind enough 
to summarize it at this moment, we would appreciate it. Mr. 
Harnage.

  STATEMENT OF BOBBY L. HARNAGE, SR.,\1\ NATIONAL PRESIDENT, 
      AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES, AFL-CIO

    Mr. Harnage. Thank you, Chairman Durbin, and Ranking Member 
Voinovich and other distinguished Members of the Governmental 
Affairs Committee. On behalf of the 600,000 Federal employees 
that I represent across the Nation, I appreciate this 
opportunity to discuss the serious long-standing problems of 
Federal service contracting policy.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Harnage appears in the Appendix 
on page 76.
---------------------------------------------------------------------------
    Let me also take this opportunity to thank you, Senator 
Durbin, for the leading efforts that you have made to correct 
those problems through the introduction of the TRAC Act. I also 
want to thank the 17 senators who have cosponsored this 
important piece of legislation, including Senators Lieberman, 
Torricelli and Dayton of this Committee.
    Mr. Chairman, my written testimony is quite detailed and 
you have it for the record, and therefore I would like to just 
summarize sort of off the cuff.
    There has been a lot of talk about the TRAC Act, a lot of 
opposition to it, but no one has been offering any attempt to 
address the most important issues of the TRAC Act. It has been 
simply an opportunity to try and kill the legislation rather 
than try and address the issues that are very important and 
identified in that TRAC Act.
    Let me say up front, there is no intent for us to shut down 
government. How ridiculous that would be. That is us. We are 
the government. There would be no reason for us wanting to shut 
the government down.
    There has been comment that this is to stop privatization, 
and that is not true. This organization, for the last 6 years, 
has stood for competition, not stopping privatization but 
stopping competition. Most often referred to stopping 
privatization has to do with enforcement and accountability.
    All too often we see the Senate and the House and Congress 
pass legislation with the best of intentions and DOD thumb its 
nose at it and not follow through with the requirements of that 
piece of legislation. And therefore, we see a need for some 
enforcement. If that enforcement is too strong, we are willing 
to work with you and others to address those concerns.
    The Senate bill is much different than the House bill as a 
reflection of the work that you have done, Senator, in trying 
to address those concerns that was expressed in the House bill. 
I want to thank you for that, too.
    We see this as a very demoralizing situation with the 
Federal employees. Right now I am particularly concerned with 
the acts of the administration while we are in this war on 
terrorism. It just seems odd to me that while we are calling 
our Federal workforce and our war fighters together, and many 
of them are working 7 days a week, 12 hours a day to keep this 
country safe, to make sure that our war fighters have the 
supplies and the ability to fight terrorism, we are saying by 
the way, all this dedication is appreciated but we are 
contracting out your job.
    I would also like to point out that a lot of people that 
are now securing the airports and a lot of people that are 
overseas fighting terrorists are our members who were Federal 
employees but belong to the active Reserves, and they have been 
activated. And while they are over there fighting this war 
their jobs are being studied, as to whether or not there will 
be jobs when they get back home. And I think that is 
ridiculous.
    I wrote a letter to the administration and to the DOD and 
said now that we are in this heightened security and this 
crisis situation, please withdraw those ridiculous quotas that 
you have, that affects the ability of us to fight our war. The 
response I got was this is a reason to step it up rather than 
slow it down. I just simply do not understand that.
    We are seeing a lot of contracting being as a result of 
lowballing now, to where the contractors know they get their 
foot in the door there will be no competition later. We hear a 
lot of talk about competition, but when you look at the record 
once it goes private there is very little private/private 
competition. Sure it is put out for competition but no 
competition is there. So when they say it was competed, they 
are being truthful, but when you say was there competition, 
they are being misleading.
    I heard a moment ago about the situation in HUD. We were 
here trying to express our concern back under the past 
administration, what was going on with HUD. Let us make it 
clear, HUD has never used A-76, regardless of what they tell 
you. It has never been used.
    When you check into it, they will say oh yes, we used A-76, 
but we used the waivers in the A-76 process. There has never 
been public/private competition in HUD. Not today, not 
yesterday, not ever. I challenge you to check that out.
    This quota that we see, I keep asking myself why do we have 
these quotas? I understood what Senator Bennett said and I 
agreed with him. While he was fighting in the halls of 
Congress, I was fighting in the Pentagon, to try to change that 
privatization in place in Kelly and McClelland. Thank goodness 
we were both successful in getting some competition there.
    But what this quota is all about is to make it happen 
regardless of cause. Senator Voinovich, I want to work with 
you. You are doing an outstanding job in trying to fight this 
human capital crisis, trying to identify what we need to do. I 
have met with you in your office. I have met with you at the 
Kennedy School of Business at Harvard. We are going to continue 
working with you.
    But it just blows my mind as to how we think we can deal 
with the human capital crisis with the DOD now taking the 
position that their solution is simply privatizing. So when 
they start giving you numbers that appear to be decreasing, 
that does not include the vacancies that they now intend to 
turn over to a contractor without competition. And that is how 
they will address the human capital crisis, simply privatize 
it, contract it out. That will be the solution.
    I look forward to your questions. I hope I get some of the 
same questions that was asked the previous panel. I do have 
some concerns with their answers.
    That concludes my summary.
    Senator Durbin. Thank you very much, Mr. Harnage. Stan 
Soloway, President of the Professional Services Council.

   STATEMENT OF STAN Z. SOLOWAY,\1\ PRESIDENT, PROFESSIONAL 
                        SERVICES COUNCIL

    Mr. Soloway. Senator, thank you very much. My name is Stan 
Soloway, President of the Professional Services Council, the 
Nation's principle trade association of government, 
professional, and technical services providers. I appreciate 
the opportunity to testify before you this morning.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Soloway appears in the Appendix 
on page 105.
---------------------------------------------------------------------------
    Even before the horrific events of September 11, we believe 
the need for a robust and growing partnership between the 
government and the competitive private sector was evident to 
many. In the aftermath of September 11, its priorities and 
missions have been altered forever. That need is greater than 
ever.
    As the private sector speeds ahead with almost daily 
advances in information technology and security, biotech, 
business process reengineering, e-commerce and e-business 
solutions, integrated facilities management and more, the 
government has struggled to keep pace. And as the government 
faces its daunting human resource problems, ever growing 
competition for talent with the private sector and continuing 
financial constraints, the need for that vital partnership 
grows even more.
    And to suggest that in such a partnership the private 
parties have a somehow diminished sense of commitment to their 
Nation or their mission, given that many of the members of that 
private partnership are former government employees, is 
demonstrably false. As the events following September 11 should 
have made clear, and as I understand has been made clear to 
this Committee in recent correspondence from labor 
organizations opposed to the TRAC Act.
    Unfortunately, the current debate on outsourcing and 
privatization not only fails to focus on the critical issues 
but is being conducted largely in an environment beset by false 
premises and perceptions. First we are told repeatedly that 
there is an enormous contractor workforce operating somewhere 
in the dark doing the bulk of the government's business. The 
so-called shadow workforce, the myth goes, is larger than the 
government itself, far less accountable for its actions, and 
over the last decade has dramatically increased at the expense 
of Federal employees. As Senator Voinovich indicated, Paul 
Light has estimated the size of this shadow workforce as 5.6 
million.
    But despite popular perception, Light's numbers have 
nothing to do with the contractor workforce. Rather, they were 
arrived at using the Commerce Department's Regional Input/
Output Modeling System, or RIMS, which is designed to project 
not only the direct employment that would result from, for 
instance, the relocation of a plant, but also the overall 
economic impact including grocery store clerks, teachers, gas 
station attendants, and more. Thus, his figures offer little or 
no insight into the size or scope of the Federal contractor 
workforce.
    That is why other analyses, including DOD's own studies, 
suggest the actual number of contractor employees supporting 
the government is only a fraction, maybe 20 percent of Light's 
numbers. In short, the shadow workforce casts a smaller shadow 
than many assert.
    I would also suggest that arbitrary head counting of either 
Federal employees or contractor employees tells us little of 
value.
    Second, the myth that the government has radically 
increased its outsourcing at the expense of incumbent Federal 
employees is factually incorrect. Some 60 percent of the growth 
in service contracting over the last 10 years has been in the 
civilian agencies, yet 90 percent of the workforce reductions 
have come at DOD. In the civilian agencies, service contracting 
has grown by some 33 percent over the last decade. During that 
same time, the civilian workforce has been reduced by 3 
percent. If there were a correlation between increases in 
service contracting and workforce reductions, the data should 
at least suggest it, but it does not.
    Moreover, where the government workforce reductions have 
been greatest, there have also been similar reductions in 
service contracting and vice versa. In other words, outsourcing 
and Federal workforce levels have actually tended to travel 
parallel, not conflicting, paths.
    What about the accountability of contractors? Let me start 
by saying we have many challenges in contract management, but 
so too do we have challenges with management across the 
government, as Senator Thompson made clear in his opening 
statement and as this Committee reported last June. The 
problems of management cut across all aspects of government 
today. Thus, any suggestion that reducing contracting out or 
competition would de facto result in an improvement in 
government performance and oversight and management is simply 
untrue.
    In the case of contractors, they are subject to a range of 
checks and balances, including ongoing competitive pressures. 
In fact, 75 percent of all service contracting actions and more 
than 90 percent of all IT service actions are competitively 
awarded and routinely recompeted.
    Contractor costs are subject to a range of government 
directed accounting standards and audit provisions. Contractors 
are continually rated on performance and previous performance, 
along with other critical non-cost factors, is typically a 
significant evaluation criterion in competitions for new work.
    The GAO has reported that the government does not know in 
the aggregate precisely how much money is being saved through 
outsourcing but, as Mr. Holman made clear, the issue is not 
whether money is being saved, the only issue is how much.
    And what of government activities? Let us stick simply to 
cost, and let us make clear this is not a criticism of 
government people, it is a criticism of government systems and 
government processes. To quote the GAO in a report on A-76 
public/private competitions, ``the government does not know the 
cost of the activities it competes.''
    In an independent study by the Center for Naval Analyses 
which sought to assess the relative long-term savings from 
outsourced and insourced work could not access in-house 
performance because the data, according to the study, does not 
exist.
    Accountability cuts both ways, can be a challenge both 
ways, and needs attention both ways. Any suggestion that 
contract performance is somehow less transparent or accountable 
than internal government costs or performance just is not 
correct.
    This leads me to the TRAC Act, which fundamentally disrupts 
the kind of strategic planning that Senator Voinovich and 
others concerned with human capital, I believe, think is 
absolutely necessary as the government faces the capital crisis 
of the future. The TRAC Act could force a moratorium on service 
contracting but would, without question, require that every 
service contract, recompetition, task order, option or other 
action be subjected to the widely discredited A-76 process. The 
bill does not, as many believe, deal only with work currently 
being performed by Federal employees, work for which those 
employees typically but not always do compete. Rather it deals 
with almost the entire universe of commercial activities being 
performed in support of the government.
    If TRAC were to pass in whole or in part, procurements that 
today can be competed competitively in a matter of weeks or 
months would take years. Among other impacts, high performing 
commercial companies, many of whom have only recently entered 
the government market, would beat a hasty retreat rather than 
be subjected to the distorted, inaccurate, and low cost focus 
of the A-76 process.
    The e-government, e-commerce, and other technology 
initiatives of both political parties would suffer potentially 
fatal blows, and in the end the government and the taxpayer 
will pay the bill.
    Today, A-76 is utilized in less than 2 percent of all 
service contracting because only that small amount has involved 
work currently being employed by Federal employees. It is a 
process that industry, the Federal unions, and many others have 
testified does not work. So why dramatically expand its use? 
Why create false competition where real competition already 
exists?
    For those reasons, PSC and the rest of the industrial base 
that supports the government oppose the TRAC Act. It is also 
opposed by labor unions, taxpayer organizations, national 
security organizations, and small business.
    Some 50 years ago the House Committee on Government 
Operations observed that ``a strange contradiction exists when 
the government gives lip service to small business and then 
enters into unfair competition with it.'' That observation 
remains as true today as it did then.
    With all due respect, Mr. Chairman, the TRAC Act is ill-
conceived, is based on faulty premises, driven in large part by 
a mythological environment, and could strangle the government. 
Moreover, passage of the bill or any parts of it could, in 
fact, destroy the delicate but very vital partnership between 
the public and private sectors. That is why opposition to the 
legislation is broad and deep and why support for an expanded 
partnership is so strong.
    Thank you very much for the opportunity to testify this 
morning. I look forward to your questions.
    Senator Durbin. Thank you, Mr. Soloway. Ms. Kelley.

STATEMENT OF COLLEEN M. KELLEY,\1\ NATIONAL PRESIDENT, NATIONAL 
                TREASURY EMPLOYEES UNION (NTEU)

    Ms. Kelley. Thank you, Senator Durbin and Senator 
Lieberman. I want to thank you, on behalf of the NTEU members 
across the country, for the opportunity to testify today. And I 
want to thank you for holding this hearing.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Kelley appears in the Appendix on 
page 112.
---------------------------------------------------------------------------
    I would also like to thank all of the Federal employees in 
the audience, who work so hard every day delivering the 
services to American taxpayers. Obviously, as evidenced by the 
large turnout, as we have all noted, this is a subject that is 
critically important to Federal employees.
    The past 6 months, as we all know, have been very trying 
times for the American public. First came the tragic events of 
September 11, then the spread of anthrax, the security threats 
at our ports and our borders, the ongoing recession, and then 
the corporate accounting scandals. Never before has it been so 
clear how vulnerable our Nation is to such a wide variety of 
attacks. And never before has the need to maintain a highly 
trained, highly skilled, dedicated and valued Federal workforce 
to respond to and prevent these attacks been so clear.
    The Customs inspectors who inspect foreign cargo, the FDA 
employees who ensure a safe food supply and who work to approve 
new vaccines. The FDIC and SEC employees who regulate our 
banking and securities industries. And the men and women at the 
IRS who ensure the revenues due to the treasury are paid. Our 
democracy depends on these patriots, and Americans recognize 
their work.
    We can all agree that government services should be 
delivered to the American taxpayers in the most cost-effective 
manner possible and that agencies should continue to strive for 
higher performance in the delivery of these services. The 
taxpayers deserve accountability, reliability, and a 
transparent system that is fair and equitable.
    Today NTEU would like to make suggestions for improving the 
delivery of government services. First, when it comes to 
accountability for the Federal workforce, there is little we do 
not know about the quality and the costs of government services 
as delivered by Federal employees. Unfortunately, we know 
virtually nothing about the quality and the real costs of the 
government functions being performed by private contractors. 
This is unfair to the taxpayers and to the Federal employees.
    Because of very little governmental oversight of 
contractors, when a contractor is not performing or when 
contract costs escalate, it is often too late to fix the 
problem. Just last year, for example, we learned that Mellon 
Bank, a contractor hired by the IRS, had lost, shredded and 
removed over 40,000 tax returns worth over $1 billion revenues 
for the government. Fortunately, that contract was terminated.
    But how could the government let this fraud go on for so 
long? Forty thousand tax returns and $1 billion in tax revenue. 
It took a very long time before we realized there was a 
problem. Why is that? The answer is because Congress and the 
administration have never put in place a reliable government-
wide system or provided adequate tracking to track the work of 
contractors.
    Before contracting out even more government work, we need 
to get a better handle on the current system. NTEU believes 
that the best way to do this would be for Congress to approve 
S. 1152, the TRAC Act. The TRAC Act would require agencies to 
implement systems to track whether contracting efforts are 
saving money, whether contractors are delivering services on 
time and efficiently, and that when contractors are not living 
up to their end of the deal, the government work is being 
brought back in-house.
    In addition to passage of the TRAC Act, NTEU believes that 
the acquisition workforce, those responsible for not only 
awarding contracts but for overseeing them as well, should be 
increased and that training should be improved for them. We all 
know, we have talked all day today, about the OMB directives on 
the 5 percent and 10 percent outsourcing quotas leading up to 
ultimately 50 percent or 425,000 Federal jobs.
    This mandated sourcing program is not truly competitive. 
Regardless of how well Federal employees are doing their jobs 
today, the directive provides absolutely no assurance that they 
will have an opportunity to compete to keep their jobs. Since 
agencies are not required to hold a competition, NTEU fears 
that in most cases they will be converting the jobs directly to 
the private sector without competition because it is the 
easiest thing to do.
    And then they will do this not only because it is easy but 
because they do not have the staffing in place, the expertise 
or the training, to run a fair public/private competition.
    The one-size-fits-all arbitrary competitive sourcing 
quotas, which give no consideration whatsoever to the 
uniqueness of each agency, are already having a negative impact 
on the morale of the Federal workforce, and will continue to 
harm the ability of Federal agencies to effectively carry out 
their missions and to attract and retain quality Federal 
employees.
    Before contracting out more jobs, the government needs to 
evaluate what the long-term risks are to our Nation. Congress 
and the administration need to make investments in increased 
agency staffing and better training so that government services 
can be delivered by Federal employees at even lower costs and 
increased efficiencies.
    NTEU urges adoption of our recommendations and passage of 
S. 1152, which we believe are practical and sensible. Our 
recommendations will clean up the current system while better 
serving the needs and the interests of the American taxpayers.
    Senator Durbin, I would just offer to you, I am an 
accountant and a CPA. I represent many Federal employees who 
are accountants, and we offer our services to you to help 
review those balance sheets when they arrive.
    [Applause.]
    Senator Durbin. Thank you. I am sure it would be very 
objective, and I appreciate that very much. Ms. Patel.

   STATEMENT OF MARY LOU PATEL,\1\ CHIEF FINANCIAL OFFICER, 
               ADVANCED SYSTEMS DEVELOPMENT, INC.

    Ms. Patel. Mr. Chairman and Members of the Committee, my 
name is Mary Lou Patel and I work for Advanced Systems 
Development. I am here to discuss my perspective on ``Who's 
doing work for the government: Monitoring, accountability, and 
competition in the Federal and service contract workforce.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Patel appears in the Appendix on 
page 116.
---------------------------------------------------------------------------
    Advanced Systems Development is known as ASD. We are a 
small, disadvantaged business providing IT support services to 
the government in the areas of network administration, 
engineering, systems administration and engineering, web 
development, security, firewalls, information insurance, and 
help desks. The company was founded in 1978 by Richard L. 
Bennett, who is still a very active member of the company.
    The Small Business Administration approved the company in 
the 8(a) program in 1982 and the company graduated in 1992 with 
the 8(a) business ending in 1995. During the 8(a) years, the 
company maintained a steady revenue base of $4.3 million to $5 
million. After graduation, the first year of revenue was $5.7 
million. Last year we completed the year at $14.9 million and 
this year we plan to project a revenue of $17.5 million.
    ASD has earned a positive reputation with our customers, 
with the Office of Secretary of Defense and its components, 
with the Bureau of Labor Statistics under the Department of 
Labor, Joint Staff and Air Force work. Within the Office of 
Secretary of Defense, ASD started in 1982 with 3 technical 
staff and today we have 133.
    ASD has a reputation of outstanding performance with our 
customers. This is possible due to ASD's commitment to our 
customers, their mission, providing employees with the skills 
that produce quality skills delivered.
    On September 11, ASD had 73 staff in the Pentagon. On 
September 12, we had 71. Although two members of our staff were 
unharmed physically, emotionally they could not return. Our 
employees are our most important resource. We had three crisis 
management sessions for counseling in response to this trauma, 
which helped our employees tremendously.
    Many years ASD provided mostly help desk support to the 
Office of Secretary of Defense for Programs Analysis and 
Evaluation, Acquisition Technology, and Logistics, Directorate 
of Operational Test and Evaluation, Office of General Counsel, 
and the U.S. Court of Military Appeals. Four years ago, we 
competitively won the Directorate of Personnel and Security, 3 
years ago the Office of Comptroller, 2 years ago the Secretary 
of Defense, and this year the Office of Legislative Affairs. 
The delivery order for the Secretary of Defense was awarded 
under our previous administration and we continue today to 
support Secretary of Defense Rumsfeld.
    ASD enjoys a low attrition rate. As a result of this, not 
only does this make our employees very happy, but our customers 
receive the benefit of retaining a knowledge base. ASD 
implemented a career ladder that included in-house training, 
both with our professional staff helping our lower level staff, 
and also using professional organizations outside. This 
resulted in 76 employees receiving IT certifications last year, 
such as MCSCs, CNAs, and certifications like that.
    Recently, a banker requested a list of our customers and 
asked me to provide references to assess our performance. After 
he called our various customers he called me and he said were 
all of those your relatives? I was taken aback and said no. He 
said that the satisfaction that our customers expressed was so 
extraordinary, he was unprepared for such glowing reports.
    During the 15 years of mostly help desk support, as various 
training programs were implemented, the expansion to a wide 
range of IT desktop functions was achieved. Our customers have 
benefited from this professional development and growth of our 
employees. With the explosion of the information age, the 
development of new computer hardware and software and 
dependence on computers, ASD has worked hand-in-hand with our 
customers developing state-of-the-art capability to support 
their mission.
    ASD works closely with our customers to ensure accurate 
quality services. We have oversight. We are assigned an 
installation representative, task monitors, contract officer, 
and technical representatives. We have monitoring on a monthly 
basis to measure performance measurements. There are service 
level agreements that are provided by Gardner Group as metrics 
to be followed. Examples of that are first resolution report, 
time to close work orders, team scorecards, knowledge based 
reporting, end of month status, and monthly invoice charging.
    We also have oversight at a corporate level, Defense 
Contract Audit Agencies. Annually we have incurred cost audits, 
we have periodic accounting system audits. We have policy and 
procedure audits. We have billing rate audits. We have review 
of executive salary audits and limitation on amount of payment. 
We also have review of unallowable, making certain that is not 
included in our rates but are coming out of company profits.
    We also have oversight by the Department of Labor with 
Title VII, the Uniform Guidelines on Employee Selection 
Procedures, training for sexual harassment, OFCCP for 
affirmative action plans and EEOC reporting, the Family Medical 
Leave Act, Americans with Disabilities Act, and safety training 
through the EPA.
    ASD's dedication to our customers and our efforts to 
maintain a reputation of past performance extended to the most 
recent experience of providing staff to customers with no 
funding. The delay in the Defense appropriation and 
authorization bills placed ASD in a position that, with our 
monthly revenue of $1.5 million, we had $700,000 funded. So 
during October, November, December, and January, we were 
accumulating $800,000 of work that we would not receive payment 
for as we performed the work.
    We continued to perform under this new contract with our 
existing customer, committed to providing uninterrupted 
service, but we could not be paid. Under continuing resolution 
funding was for ongoing, continuing efforts. The agency had 
awarded the company a new contract as of September 16, 
effective October 1, which represented what was unbilled.
    During this time, when we needed to cover payroll, ASD 
sought the assistance of our bank instead of cutting employees 
and the service to our customers. Our bank refused. They would 
not permit borrowing because they said it was not funded.
    In early December, with $1.6 million of work completed 
which we could not bill, we were in a critical need of cash. We 
had risked the net worth of the company to maintain our 
customer relationship. We appealed to the customer and we 
appealed to the Small Disadvantaged Business Utilization 
Office. We received partial funding under three of our eight 
delivery orders, which provided a partial and temporary 
solution to our problem.
    After passage of the Defense Authorization Appropriation 
Bills, contracts released most of the funding during the last 
week of January. To meet our continuing need for operating 
capital, we resorted to calling on a relationship with a prime 
contractor for assistance. Twice we asked this prime contractor 
to make early payment of subcontractor invoices.
    On March 1, 2002, last Friday, we received a payment from 
DFAS for $1.3 million which covered most of October and 
November performance expenses.
    In conclusion, I believe these events have highlighted 
ASD's continued commitment to providing high quality services 
that meet the needs of our government customers and their 
missions. When they have problems, we work with them to remedy 
them as soon as possible. It is this commitment to quality, our 
reputation for past performance, and our employees that do the 
work for our customer in partnership with our customer that has 
allowed ASD to grow and succeed in the government marketplace.
    I appreciate the opportunity to be here today.
    Senator Durbin. Thank you for your testimony, too.
    Mr. Guttman, your testimony will be made part of the 
record. I note that you have been of service to Senator Pryor 
on some previous investigations of this issue. I welcome your 
testimony, if you would please summarize it and we will go to 
questions.

STATEMENT OF DAN GUTTMAN,\1\ FELLOW, WASHINGTON CENTER FOR THE 
     STUDY OF AMERICAN GOVERNMENT, JOHNS HOPKINS UNIVERSITY

    Mr. Guttman. Thank you. It is a privilege to appear before 
you, Mr. Chairman, and Senator Voinovich today. I appear as a 
citizen whose interest in performance of public purposes by 
private actors dates to law school research leading to The 
Shadow Government a quarter century ago. My experience since, 
as you have noted, has been immensely enriched by service as a 
staff member of this Committee, but also working as counsel to 
nuclear weapons workers who are, as Mr. Soloway would say, part 
of the contract workforce that has done an immense benefit 
during the cold war and today for our Nation.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Guttman appears in the Appendix 
on page 119.
---------------------------------------------------------------------------
    Senator Voinovich started off by noting that Paul Light has 
told us several years ago that all of a sudden we have a shadow 
of government workforce of approximately 8 million. Mr. Soloway 
tells us that number is probably too large, perhaps by an order 
of magnitude. That is the good news. The bad news is the U.S. 
Government cannot tell us within an order of magnitude what the 
size of that workforce is.
    Most of this shadow of government, as Mr. Soloway correctly 
pointed out, is obviously not doing the things that we, as 
citizens, would think of as the work of government. Most of it 
is doing services that are provided routinely by the commercial 
sector. But a large and substantial portion is doing what we 
would call the basic work of government, drafting rules, plans, 
policies and budgets, writing statutorily required reports to 
the Congress, interpreting and enforcing laws, dealing with 
citizens seeking government assistance and with foreign 
governments, managing nuclear weapons complex sites and serving 
in combat zones, providing the workforce for foreign aid nation 
building, and selecting and managing other contractors in the 
official workforce itself.
    It is important to understand that this shadow of 
government is not a recent creation. It is not a Reagan or 
Clinton creation. It really reflects a basic, profound 
constitutional change in the structure of our government that 
dates to World War II and the beginning of the Cold War. It was 
not an accident. It was a product of design. It has lain, 
unexamined for decades. September 11 shows us that we are now 
at a period where due diligence is in order.
    I think the take home message for this hearing is what 
Administrator Styles has told you. This is a time where we have 
to look at the government workforce as a whole.
    At the dawn of the Cold War, reformers deployed contractors 
and grantees to harness private enterprise to public purpose. 
They knew the private sector would provide expertise and 
powerful political support for increased Federal commitment to 
national defense and public welfare tasks. They hoped the 
private sector would countervail against the dead hand of the 
official bureaucracy and allay concern that we all share as 
Americans of a centralized big government.
    Those present at the creation--businessmen, officials and 
scholars--saw what they were doing as a profound constitutional 
change. Kennedy School Dean Don Price called it a diffusion of 
sovereignty in 1965.
    At the same time, the best and the brightest generation was 
aware that there were problems with this constitutional set of 
reforms. The highlight, the high water mark for the 
identification of these problems was a report to President 
Kennedy in 1962--the Bell Report. It said first, it is 
axiomatic that the government officials have to have the 
competence to be in control of the work of the government.
    Second, however, it declared that, in fact, the increased 
reliance on contractors--this was 1962--was blurring the 
boundaries between public and private.
    Most importantly, it warned we have a dynamic, not a static 
situation, because we have two sets of rules. We have the rules 
we apply to officials, ethics, pay caps, transparency, that we 
do not apply to contractors with good reason. We hire 
contractors because we expect they are autonomous. They come 
from the private sector, we assume there will be an official 
oversight of these people of the officials having these rules.
    The problem the Bell Report identified was that over time 
with these two sets of rules, the brains of government would 
migrate into the private workforce. The Bell Report backed away 
from addressing these what it called philosophical issues, 
basically saying we are in a Cold War, we need to get on with 
it, let us address that set of basic questions later. September 
11 shows that later is now.
    One-half century of Federal reliance on contractors and 
grantees has produced remarkable successes. We all know about 
them. The Manhattan and Apollo projects, victory in the Cold 
War, advances in biomedical understanding, to name a few. At 
the same time, the Bell Report's concerns have borne out.
    First, we have a declared governing principle, and now, in 
the FAIR Act, a Congressionally declared principle as well as 
an executive principle, that only officials can perform 
inherently governmental functions. That is a principle of law 
that is increasingly a fiction or a fig leaf. Since the Bell 
Report, third party government has grown as if on automatic 
pilot. Driven by the inexorable forces of bipartisan limits on 
the number of officials, personnel ceilings--I must confess, I 
share Senator Voinovich's view that the Clinton reduction was a 
Democrat pushing it downward, this is bipartisan--the creation 
of new programs or agencies has meant that work is necessarily 
contracted out without due regard for whether it is inherently 
governmental, or indeed often without regard for cost.
    Second, we have a government premised on openness, the bulk 
of whose workforce is invisible to citizens, press, and too 
often even to Congress and the highest ranking political 
appointees. Notwithstanding the conflict of interest disclosure 
requirements, the few public reviews of the conflict disclosure 
process indicate that too often contractors are hired without 
due regard for potentially conflicting interests.
    Even as they work side by side with officials, as Ms. Patel 
says and we all acknowledge and are very proud of the 
contractors who were in the Pentagon, at the same time the 
officials are on the organization charts and in the phone book. 
The contractors are not. Even as they do the basic memos and 
policy drafts for officials, they are transmitted anonymously 
so that Senator Pryor found, to the embarrassment of the 
Secretary of Energy, that his Congressional testimony was 
written lock, stock, and barrel by a contractor. The 
procurement office did not know about that.
    Senator Pryor did one of the few reviews--I do not know of 
any other reviews of the conflict of interest disclosure 
process used by agencies--and found that contractors routinely 
failed to disclose relevant interests and officials ignored 
publicly available information that should have rung alarms. 
This is not to say it is a routine, but it occurs too often. 
Most importantly, he found it occurred in relation to very 
sensitive national security issues. Contractors were working 
for foreign interests while working for the U.S. Government 
without the government being aware of it.
    Third, today we have two sets of rules to regulate. Those 
who perform the work of government. We can no longer presume 
that those who actually do the work of government are 
themselves governed by the laws enacted to define the limits of 
government and to protect ourselves against official abuse.
    What are those laws? The Constitution of the United States. 
Law students do not appreciate--it only applies to people who 
work for the government--whether they are called State actors 
or instrumentality. If General Motors says you cannot talk in 
the lunchroom, that is General Motors. If the U.S. Government 
tells someone they cannot talk in a lunchroom, that is a First 
Amendment question.
    The ethics provisions, the conflict of interest rules, the 
Freedom of Information Act, the political rule, and the Hatch 
Act apply to officials. The question of what is an inherently 
governmental function, this goes to Senator Durbin's opening 
statement, it is not a nit-picking scholastic tax code debate, 
as it so often seems to be today. It is a very practical 
question.
    After September 11, does it make a difference to us if the 
people who are out on the front line of homeland defense are 
subject to the limits of our Constitution, subject to the 
statutory rules that govern officials? Maybe it does, maybe it 
does not, but that is what the inherently governmental question 
is. It is not an effort to get people to do some kind of 
homework.
    Key rules governing officials do not govern private actors 
who perform the work of government, or in the case of conflict 
of interest rules, apply to them in a lesser extent. Again, if 
we assume government officials are in control, and that the 
contractors are doing commercial work, that is fine. If this 
changes, we have to rethink what is going on.
    Fourth, we have an official workforce whose ability to 
account for the government and its private workforce is 
increasingly problematic. That is why Senator Voinovich, one of 
the reasons, he has been concerned. We have been seeing the 
hollowing out, the brain drain, in part because of personnel 
ceilings but in part because we have two sets of rules. Why 
should I work as an official if I can get paid twice as much 
and not be subject to ethics restrictions or political 
restrictions, doing the same or more interesting work as a 
contractor?
    Fifth, in the absence of Congressional and executive 
oversight, the rules of law to govern third parties who perform 
government work are being made by accident and happenstance, 
often driven by third parties themselves. There has been 
executive and Congressional bipartisan fiction that the work of 
government is being done by officials so we can have our 
personnel reviews over here, our Volcker Commissions over here, 
and our procurement reviews over here and nobody has to look at 
the reality that Administrator Styles is talking about and we 
are all aware of, that the work of government is now done by a 
mixed workforce.
    So instead of the rules of this new game being set by you 
all and President Bush, they are being set as Dan Guttman gets 
upset with a contractor or goes to court or goes to a 
particular Congressman and fixes it in some obscure provision 
of some bill.
    Sixth--this is a very important one--in the absence of 
rules of law, which we do not have for the third party 
workforce, the tools of accountability that we are relying on 
are suboptimal. In a nutshell, it is very simple. There are two 
things that any of us here say you can do to hold the system to 
account. One is competition, whether we call it competition or 
stakeholders or interest groups, let us bring competitors in, 
keeping one another honest. Let us bring stakeholders in.
    That is great. That is the premise of our Constitution. 
Madison, in the Federalist Papers, talks about the need for 
factions. Factions drive our political process. The problem is 
Madison said that does not do it alone. We still need a 
government. Competition and stakeholders are great, but the 
public interest may not be represented.
    Performance measures--we all think they are terrific. They 
are not new. As Senator Voinovich says, the problem in 
government is they are hard to come by and people have other 
things to do but stand around and measure them. They are 
suboptimal in the absence of rule of law.
    Seventh, because we have failed to attend to our own house, 
we export and import systems of governance based on slogans 
whose practical meaning we ill understand. We are damaging our 
own national interest and those of nations and people 
throughout the world who say what are you doing? How do you 
manage government in the United States?
    The examples are unfortunately too ready to come by: The 
failure of U.S. aid to Russia, turned over to a private entity, 
Harvard. The U.S. Department of Justice is now in court trying 
to get $120 million from Harvard. We were exporting corruption 
under the name of exporting good governance, because we 
ourselves did not understand what we were doing with our 
contract and we did not understand what we were doing when we 
were going over there.
    In the 1980's, the Department of Energy, reading about 
Margaret Thatcher saying let us privatize, ``privatized'' all 
of our Department of Energy weapons complex cleanup. Nobody at 
the Department of Energy pointed out to themselves that we have 
been having this done by private contractors for years. Within 
a year you all were having hearings on $100 million cost 
overruns.
    The failure of the U.S. Enrichment Corporation 
privatization, which Senator Voinovich is infinitely aware of, 
was not only predictable, it was predicted. That was treated as 
if this was a private business deal, done in secret, when it 
was giving to a private entity of basic national security 
functions. We now have the Bush Administration picking up the 
pieces saying how are we going to put these pieces together? We 
did not have a clue. We thought we were selling a cement plant 
or a gas station, not putting into private sector public 
functions which had to remain under control.
    Senator Durbin. Mr. Guttman, as a former Senate committee 
staffer, you know how members get nervous when witnesses go 
over, so if you would summarize, we would appreciate it.
    Mr. Guttman. Yes. Truth in government, who is running the 
government, what rules of law will apply to those who do the 
work of government? Are we going to have two sets of rules, or 
are we going to do mixes and matches? Contractors who are doing 
vital work that is inherently government get to be governed by 
those kinds of rules.
    Second, what kinds of mechanisms do we have now?
    And third, and most importantly, and this goes to this 
whole TRAC question, if we are continuing to blur the lines, 
putting contractors and officials in competition, it sounds 
great. But the more we make contractors and officials look like 
one another, do we lose or risk losing the basic qualities of 
public service and private entrepreneurship that we have always 
valued in each? That is a very serious question because that is 
where the flow is going.
    I apologize for taking more than 5 minutes.
    Senator Durbin. Thank you very much.
    Your whole testimony will be made part of the record.
    Mr. Soloway, let me ask you, in this whole debate over this 
issue, do you agree that we should make certain that Federal 
agencies really do track the costs and savings of contracting 
out?
    Mr. Soloway. I think that the Federal agencies should be 
tracking the cost savings and performance of all of their 
activities, be they contracted activities or internal 
activities.
    I think one of the misconceptions that exists here, and it 
goes back again to the GAO reports of the past on financial 
management, is that if you have a contract in any locality of 
the government, at the buying activity level where the contract 
is actually let, they have complete and total visibility into 
what your costs are because they have to validate and approve, 
sometimes multiple times, every invoice that comes through the 
door.
    Every time Ms. Patel's company submits an invoice there is 
somebody there who has complete visibility----
    Senator Durbin. I have several questions and I would like 
to get through them all and then we can have a general 
discussion.
    Let me ask you, do you believe that there should be real 
competition when it comes to contracting out, between the 
public and private sector?
    Mr. Soloway. I believe that where there is an incumbent 
workforce involved, and where the skill sets, the resources, 
the capabilities in the government exist to be competitive, the 
Professional Services Council has said, in many of those cases 
public/private competition is valid.
    However, I would point out again, the TRAC Act does not 
limit itself to where there are incumbent employees involved, 
and, competition exists across the board.
    Senator Durbin. We can address that.
    Ms. Styles, in her testimony, said that she also believed 
there should be contracting in. So that once contracted out, 
some of these services should be recompeted to see if perhaps 
public employees could do a better job. Do you quarrel with 
that conclusion?
    Mr. Soloway. In essence, I do quarrel with that 
conclusion----
    Senator Durbin. Why would you quarrel with that?
    Mr. Soloway [continuing]. Because I think there would be 
very narrow circumstances in which it would be in the interest 
of the government, once a decision has been made that the 
function is commercial in nature, which is the supposition we 
are operating from here. Competition has been conducted, 
whether it was work performed in the government before or not. 
You have to realize that most of what we are talking about was 
never performed in the government. This is work that was new 
work and so forth.
    Senator Durbin. So this competition thing can be pretty 
uncomfortable, right?
    Mr. Soloway. No, in the private sector we are very 
comfortable with it.
    Senator Durbin. Then why would you be opposed to the 
contracting in? You would be subject to rebidding and 
recompetition. And if competition is OK for one side, why is it 
not all right for the private sector?
    Mr. Soloway. Let me be very clear here. Competition is what 
drives the private sector. We have absolutely no objection to 
competition and most of the work performed by the private 
sector on behalf of the government is routinely recompeted. The 
question you are asking is should there be a government bidder, 
a government entity bidding against contractors for already 
contracted work. And if we had a process that was a real 
competition that really looked at, on an equal playing field, 
quality, technical, performance, real cost, and so forth, then 
you might have an argument----
    Senator Durbin. You are making the same argument the public 
employees are making. You are saying that if you had to go to 
recompete as a private sector, you might not be treated fairly. 
They might not take into consideration a company's quality of 
service, the people who are there, and their dedication. You 
hear the same thing from these people, who have given their 
lives to public service. But they are facing a competition that 
you do not want to face.
    [Applause.]
    Mr. Soloway. Senator, let me distinguish again, first, 
every government contractor lives in a world of competition 
where routinely they are under risk, the employees and the 
company at large, of completely losing the work they perform to 
other competitors. So there are constant competitive forces at 
work, which is the distinction Ms. Styles was trying to draw.
    The second point I would make to you is that the A-76 
competition process bears little resemblance to the kinds of 
competitive procurements that are done throughout the rest of 
government.
    Senator Durbin. I just do not follow this thinking. If you 
have work being done by government employees and there is a 
competition, public/private competition, and a private company 
wins that competition, Ms. Patel's or others, you are saying 
the fact that her company and others have to compete in that 
private sector workplace is enough.
    But the thought of coming back and competing with 
government employees at some future date to see if you could 
still win the competition is something you reject.
    Mr. Soloway. I would go back to the strategic question that 
you have to begin with before we even get to the question of 
who is competing for what. What is the mission of the agency? 
Is there a reason to believe that bringing the work back in-
house for reasons other than perhaps some kind of cost 
comparison is beneficial to the government? Let me give you an 
example.
    Senator Durbin. Whoa, cost savings was the reason, do you 
not remember? It was about cost savings, according to Ms. 
Styles.
    Mr. Soloway. No, I believe she said it was cost, it was 
also innovation, it was creativity, all of which is driven by 
competition. It is driven in the public workforce when they 
face competition like any other workforce. The innovations and 
creativity emerge from the public workforce.
    But I believe that you are comparing apples to oranges 
here, sir, to be very honest with you. The fact of the matter 
is that when you have a public/private competition for work 
going on and it goes into the private sector, the reason we 
have that competition as you, I believe, stated in your 
statement if I did not misinterpret, was to be, in your words, 
fair to the existing Federal employees involved.
    When you have work that is already contracted out or new 
work and there is no existing Federal workforce, no incumbent 
workforce, performing that work, the question has to be asked 
what strategic benefit to the government do you get by creating 
a workforce to compete in an environment where there is already 
full competition?
    Senator Durbin. I will tell you what it is. It is called 
competition. And recalling Jack Nicholson's statement in a 
movie, ``I do not think you can take competition.'' What you 
are saying is that when it comes to contracting in, you just do 
not want to see that competition.
    Mr. Soloway. It is a longer discussion, I suppose, but if 
it were a real competition I think you would have a different 
story. But remember again my point earlier, this work is 
competitive in the private sector.
    Senator Durbin. I do not understand why it is real 
competition when the public employees are competing with the 
private sector, but it is not real competition when the private 
sector has to put their contract on the line against the public 
employees reclaiming it.
    Mr. Soloway. Can I clarify one thing? I do not believe that 
the process that we now use in public/private competition is 
fully fair to either employees or contractors. And I do not 
believe it is truly a competitive environment because it does 
not allow for the consideration of the kinds of factors you are 
talking about.
    Senator Durbin. I can tell you that I have gone through 
these basic elements and I can understand why you oppose the 
TRAC Act. I can understand why, from your point of view, this 
idea of facing real recompetition with Federal employees is 
something you obviously do not want to face.
    But you are asking them to face it with their jobs on a 
regular basis. I do not think it is fair.
    Mr. Soloway. Our company employees face it with their jobs 
every day of the week, as well, sir. Routinely.
    Senator Durbin. From what your testimony said, you do not 
want to face it when it comes to contracting in.
    Mr. Harnage, you wanted to comment on some of the questions 
earlier. I only have a minute left, and I would give you 30 
seconds and Ms. Kelley 30 seconds, as well.
    Mr. Harnage. Well, first of all, Senator, I think to answer 
your question you have to come to the realization that I did 
several years ago. This is not about saving money. This is 
about moving money and jobs to the private sector. It is just 
that simple. If you think it is about saving money, you are 
missing the mark. Nothing that they are doing is about saving 
money.
    And what we are trying to do is to get you focused on 3 
percent of what is being contracted out. Only 3 percent comes 
under A-76. 97 percent of it is being done without public/
private competition. So they have got you focusing on the 
little piece and not on the big piece.
    I agree with you, there ought to be consideration of 
bringing it back in-house. A lot of the figures that you are 
being told about what is happening in the private sector and it 
being competed, better than 80 percent of the private sector 
competition is without competition. It is being put out there 
for competition but there is no competing forces there because 
they eat each other's young. They merge and they acquisition 
and all of that. So there is no competition there.
    But everybody says competition is good because it is 
savings. You heard Ms. Styles say there is a 20 to 30 percent 
savings because it is competed. Well, if that is true, why does 
it not work the other way, in the other direction? And that is 
one of the reasons for the TRAC Act.
    We try to get you focused on the 100 percent.
    Senator Durbin. I am trying my best to focus, too. Ms. 
Kelley, if you would like to comment for 30 seconds?
    Ms. Kelley. OMB's directive does not require competition. 
In fact, it makes it clear that the agencies can do 
competition, they can do direct conversion, or they can look 
for waivers to do the competition. So if there is going to be 
true competition, then what Federal employees need, want, and 
have the right to expect, is the support, the resources, the 
time and the expertise, the time to develop the expertise to be 
able to be involved in a true competition. And there is no 
doubt in my mind that if they were supported with the 
resources, the technical training and the true opportunity to 
compete, that there is no one who can do the work of the 
Federal Government better than Federal employees.
    [Applause.]
    Senator Durbin. Thank you very much. Senator Voinovich.
    Senator Voinovich. The testimony of Ms. Styles indicated 
that the administration did not have a bias against current 
Federal employees. Would not all of the witnesses agree that 
setting arbitrary percentages contradicts her testimony?
    Mr. Harnage. Certainly.
    Mr. Soloway. I think what Ms. Styles was saying, and far be 
it from me to be a spokesman for the administration, what Ms. 
Styles I believe was saying was that, in terms of who delivers 
the services, the administration is taking no position. What 
they want to see is the force of competition brought to bear on 
government to help drive efficiency, innovation, and so forth.
    Senator Voinovich. The fact is that when you use numbers 
and pick them out of the air, and then say there is not a bias 
against people that are working in the Federal Government, the 
fact that you picked these numbers indicates that you feel that 
they are not competent and capable of getting the job done.
    The other thing that Ms. Kelley had to say is something 
that goes to your testimony, Ms. Patel. You were just telling 
us about how good you guys do with your people. That is 
wonderful. The question I have is what does the Federal 
Government do in terms of their people about training, about 
tools, about empowerment and the things that they need to get 
the job done?
    I think part of the problem why Federal employees may not 
be able to be as competitive as they would like to be is 
because they really have not been valued the way they should be 
and given the environment where they could develop and grow and 
be competitive.
    [Applause.]
    So it seems to me that, in a logical sense, you would start 
with those and if that does not get the job done, then you look 
at some other options.
    I am taken by this figure, Bobby. You say that 97 percent 
of this farming out is done without A-76?
    Mr. Harnage. Yes, sir.
    Mr. Soloway. Senator, can I clarify that number just to be 
clear on what it is? The A-76 process is designed to deal with 
situations where you have an incumbent Federal workforce whose 
positions are being subjected to competition. What that number 
tells us, and I am not saying there have not been any muddy 
areas along the way, I am not saying it is a perfect number, is 
that well over 95 percent of the procurements the government 
engages in do not have an impact on existing Federal employees, 
do not involve work currently being performed by employees.
    I will give you one example: 50 percent of the growth in 
contracting in the civilian agencies has been in information 
technology, an area the government has clearly not invested in. 
The government is clearly not keeping pace. The government is 
not a developer of technology capabilities any more. That 
responsibility, that investment, is coming now from the 
commercial sector.
    So when we talk about the figure of 97 percent, we need to 
be absolutely clear that is because only a small portion of the 
outsourcing done by the government has involved competing 
Federal positions.
    Senator Voinovich. I am interested in information from all 
of you at the table to get into more specifics about that, 
because that is a real concern to me.
    I would also, before I say anything else, Senator Thompson, 
Mr. Chairman, has asked that I get your permission to allow him 
to ask questions for the record.
    Senator Durbin. Without objection.
    Senator Voinovich. I would also like to have all of you 
submit to me information you have regarding authoritative 
studies that have evaluated the performance of private 
contractors. And also longitudinal studies to look at the long-
term costs once the contracts have been farmed out.
    Mr. Harnage, you have indicated that once you farm it out 
and there is cost savings there, that nobody looks down the 
road to what it is 4 or 5 years out. It is very easy, somebody 
low bids the job and gets it. Then before you know it you wake 
up and the cost savings that you thought you were getting have 
disappeared because they now have it.
    I would be interested in looking at that.
    Mr. Harnage. You need to be careful there, Senator, because 
a lot of what you are being told is about the accountability of 
the current cost. It is not an accountability of what it is 
supposed to be, but what it currently is. There is no match 
there. There is no comparison. That is what the TRAC Act does.
    Senator Voinovich. I do not understand what you just said 
to me.
    Mr. Harnage. The contractor submits its bill, so to speak, 
and you look at it and say yes, this is a reasonable bill for 
the amount of service being provided. We have accounted for 
everything that we have charged the government for. Maybe that 
is true, but that does not take into account that bill was 
supposed to be $10 million less, according to the competition 
in previous years. Nobody is looking back.
    A while ago there was a question concerning the 
administration's budget and it automatically assumed that there 
was going to be fewer Federal employees. That is based on a 
projected savings, not a real savings but a projected savings. 
And nobody is looking back to see if those actual savings have 
occurred.
    Senator Voinovich. But the point is we ought to have the 
ability to look back to evaluate. That is what I am interested 
in.
    Mr. Harnage. That is exactly right.
    Senator Voinovich. Again, as I say, if you could provide me 
with some of that information, I would be very grateful.
    I would also be interested in the private sector's view on 
A-76. How can we improve it to make it a fairer process than it 
is today. Any comments on that?
    Mr. Soloway. Senator, I think there are a number of things 
we could do to improve it. Both Bobby, Colleen, and I, of 
course, are on the Commercial Activities Panel at the GAO that 
is looking at this very issue, and I think there will be a lot 
of information and recommendations coming out of that in just a 
couple of months. But I would be happy to submit some things to 
you in the meantime, highlighting some of the issues that you 
talk about.
    Senator Voinovich. Mr. Chairman, I think that is one thing 
that we ought to look at. We have got a mixed group of people 
on that. It would be interesting to just see how we could move 
quickly to tighten that up and make it better than it now is.
    Senator Durbin. I want to thank the panel, as well as my 
colleague, Senator Voinovich who, I acknowledged at the outset, 
has been the real leader on Capitol Hill in this Federal human 
capital debate. This has been a very interesting and spirited 
Committee hearing. I attend a lot and it is rare to have as 
many people in the audience following as closely. You would 
think your jobs were at stake here.
    [Applause.]
    Let me conclude by saying that this is not the end of the 
discussion. I had discussed having this hearing so that we 
could acquaint ourselves a little better with all of the sides 
of the issue. I thank all the witnesses for helping us reach 
that goal. And now we want to reach out to other members of 
Congress and engage them in this debate so that we might move 
forward with important legislation to really provide a clear 
and honest answer to this challenge.
    This hearing stands adjourned.
    [Whereupon, at 11:52 a.m., the Committee adjourned, subject 
to the call of the Chair.]
                            A P P E N D I X

                              ----------                              

                 PREPARED STATEMENT OF SENATOR BUNNING
    Thank you, Mr. Chairman.
    Today's hearing is an important one, and I appreciate the time our 
witnesses have set aside to be here today.
    Outsourcing of government jobs is an issue that I hear about 
frequently, especially from constituents who work for the Federal 
Government and whose positions may be up for competition.
    I think everyone would probably agree that certain standards must 
be met when the Federal Government considers public-private 
competitions and we should demand--and get--the same level of service 
from contractors as from Federal employees.
    The Federal Government shouldn't tolerate shoddy or careless work 
from any contractor, and contractors should be accountable for their 
work. Contractors should meet the same standards as Federal employees, 
and they shouldn't be hired if they cannot meet these standards.
    However, it seems to me that there are some jobs in the Federal 
Government that can be turned over to the private contractor.
    Outsourcing some jobs should remain an option for Federal agencies, 
especially when the government can realize a significant savings in 
costs.
    The testimony from some of our witnesses today raises several 
concerns about the current system, and Congress and Federal agencies 
can learn a lot from the Department of Defense's experiences with 
competitive sourcing.
    I am looking forward to the findings of the Commercial Activities 
Study that is due out in May of this year, and from gaining the 
perspective of the witnesses testifying today.
    We need a contracting system that is both fair to Federal workers 
and can reduce some government costs.
    Thank you, Mr. Chairman.
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