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79–883 PDF 2002

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

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS

JOSEPH I. LIEBERMAN, Connecticut, Chairman

CARL LEVIN, Michigan

DANIEL K. AKAKA, Hawaii

RICHARD J. DURBIN, Illinois

ROBERT G. TORRICELLI, New Jersey

MAX CLELAND, Georgia

THOMAS R. CARPER, Delaware

JEAN CARNAHAN, Missouri

MARK DAYTON, Minnesota

FRED THOMPSON, Tennessee

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

GEORGE V. VOINOVICH, Ohio

PETE V. DOMENICI, New Mexico

THAD COCHRAN, Mississippi

ROBERT F. BENNETT, Utah

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

(III)

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

Page

IV

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

(1)

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

2

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 FedVerDate 11-MAY-2000 08:32 Aug 12, 2002 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 79883.TXT SAFFAIRS PsN: SAFFAIRS
3

eral 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

4

1The prepared statement of Senator Thomas appears in the Appendix on page 147.

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 illserved.

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

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.

5

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

6

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

7

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.

8

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 fulltime 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.

9

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 longstanding 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

10

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,

11

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 longterm 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.]

12

1The prepared statement of Ms. Styles appears in the Appendix on page 48.

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.

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.

13

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

14

1The prepared statement of Mr. Holman appears in the Appendix on page 60.

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.

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

15

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

16

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 longterm 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

17

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

18

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.

19

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/priVerDate 11-MAY-2000 08:32 Aug 12, 2002 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6601 79883.TXT SAFFAIRS PsN: SAFFAIRS
20

vate 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 reevaluate 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

21

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 politVerDate 11-MAY-2000 08:32 Aug 12, 2002 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6601 79883.TXT SAFFAIRS PsN: SAFFAIRS
22

ical 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.

23

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 commitVerDate 11-MAY-2000 08:32 Aug 12, 2002 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6601 79883.TXT SAFFAIRS PsN: SAFFAIRS
24

ment 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.

25

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?

26

1The prepared statement of Mr. Harnage appears in the Appendix on page 76.

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.

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

27

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

28

1The prepared statement of Mr. Soloway appears in the Appendix on page 105.

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.

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

29

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

30

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 curVerDate 11-MAY-2000 08:32 Aug 12, 2002 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6601 79883.TXT SAFFAIRS PsN: SAFFAIRS
31

1The prepared statement of Ms. Kelley appears in the Appendix on page 112.

rently 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.

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.

32

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,

33

1The prepared statement of Ms. Patel appears in the Appendix on page 116.

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.

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.

34

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.

35

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.

36

1The prepared statement of Mr. Guttman appears in the Appendix on page 119.

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.

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

37

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 orVerDate 11-MAY-2000 08:32 Aug 12, 2002 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6601 79883.TXT SAFFAIRS PsN: SAFFAIRS
38

ganization 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?

39

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

40

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.

41

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

42

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.

43

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.

44

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.

45

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

46

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.]

(47)

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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