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THE BEST SERVICES AT THE LOWEST PRICE: MOVING BEYOND A BLACK AND WHITE DISCUSSION

OF OUTSOURCING

HEARING

BEFORE THE

SUBCOMMITTEE ON TECHNOLOGY AND

PROCUREMENT POLICY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

JUNE 28, 2001

Serial No. 107–80

Printed for the use of the Committee on Government Reform

(

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

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

BOB BARR, Georgia

DAN MILLER, Florida

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

DAVE WELDON, Florida

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

C.L. ‘‘BUTCH’’ OTTER, Idaho

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, Tennessee

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

JANICE D. SCHAKOWSKY, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON,California

——— ———

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

JAMES C. WILSON, Chief Counsel

ROBERT A. BRIGGS, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT POLICY

THOMAS M. DAVIS, Virginia, Chairman

JO ANN DAVIS, Virginia

STEPHEN HORN, California

DOUG OSE, California

EDWARD L. SCHROCK, Virginia

JIM TURNER, Texas

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

MELISSA WOJCIAK, Staff Director

VICTORIA PROCTOR, Professional Staff Member

JAMES DECHENE, Clerk

MICHELLE ASH, Minority Counsel

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C O N T E N T S

Page

Hearing held on June 28, 2001 ............................................................................... 1

Statement of:

Gutierrez, Hon. Luis V., a Representative in Congress from the State

of Illinois ........................................................................................................ 32

Harnage, Bobby, national president, American Federation of Government

Employees; Colleen Kelley, national president, National Treasury Employees Union; Patricia Armstrong, member, Federal Managers Association; Paul Lombardi, president and chief executive officer, Dyncorp,

Professional Services Council; Timothy Psomas, president, Psomas,

American Consulting Engineers Council; and Colonel Aaron Floyd

(ret.), president AFB Enterprises, Inc., retired Military Officers Association ............................................................................................................ 112

Holman, Barry, Director, Defense Capabilities and Management, U.S.

General Accounting Office; Angela Styles, Director, Office of Federal

Procurement Policy, Office of Management and Budget; and Ray

Dubois, Under Secretary of Defense for Installations and Environment,

U.S. Department of Defense ........................................................................ 50

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

Texas .............................................................................................................. 5

Wynn, Hon. Albert, a Representative in Congress from the State of Maryland ................................................................................................................ 13

Letters, statements, etc., submitted for the record by:

Armstrong, Patricia, member, Federal Managers Association, prepared

statement of ................................................................................................... 182

Davis, Hon. Thomas M., a Representative in Congress from the State

of Virginia, prepared statement of .............................................................. 2

Dubois, Ray, Under Secretary of Defense for Installations and Environment, U.S. Department of Defense, prepared statement of ...................... 85

Floyd, Colonel Aaron, (ret.), president AFB Enterprises, Inc., retired Military Officers Association, prepared statement of ....................................... 219

Gutierrez, Hon. Luis V., a Representative in Congress from the State

of Illinois, prepared statement of ................................................................ 35

Harnage, Bobby, national president, American Federation of Government

Employees, prepared statement of .............................................................. 115

Holman, Barry, Director, Defense Capabilities and Management, U.S.

General Accounting Office, prepared statement of .................................... 53

Kelley, Colleen, national president, National Treasury Employees Union,

prepared statement of ................................................................................... 174

Lombardi, Paul, president and chief executive officer, Dyncorp, Professional Services Council, prepared statement of .......................................... 196

Psomas, Timothy, president, Psomas, American Consulting Engineers

Council, prepared statement of .................................................................... 212

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

Texas, prepared statement of ....................................................................... 9

Styles, Angela, Director, Office of Federal Procurement Policy, Office

of Management and Budget, prepared statement of .................................. 77

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

prepared statement of ................................................................................... 43

Waxman, Hon. Henry A., a Representative in Congress from the State

of California, prepared statement of ........................................................... 48

Wynn, Hon. Albert, a Representative in Congress from the State of Maryland, prepared statement of ......................................................................... 16

(1)

THE BEST SERVICES AT THE LOWEST PRICE:

MOVING BEYOND A BLACK AND WHITE DISCUSSION OF OUTSOURCING

THURSDAY, JUNE 28, 2001

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT

POLICY, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 2:15 p.m., in room

2154, Rayburn House Office Building, Hon. Thomas M. Davis

(chairman of the subcommittee) presiding.

Present: Representatives Tom Davis of Virginia, Jo Ann Davis of

Virginia, Horn, Turner, Kanjorski, Mink, Waxman, Cummings and

Kucinich.

Staff present: Melissa Wojciak, staff director; Amy Heerink, chief

counsel; George Rogers, counsel; Victoria Proctor, professional staff

member; Jack Hession, communications director; James DeChene,

clerk; Phil Barnett, minority chief counsel; Michelle Ash, minority

counsel; Mark Stephenson, minority professional staff member; and

Jean Gosa, minority assistant clerk.

Mr. TOM DAVIS OF VIRGINIA. If there is no objection, I’m going

to move ahead with our first panel and then we will give opening

statements, because I know some of you have other things to do,

and we appreciate you being here.

Let me start with Mr. Sessions, and then Mr. Wynn, we’ll go to

you. You have a major piece of legislation you sponsored, and then

we’ll move to you, Mr. Gutierrez, and thank you for being with us.

[The prepared statement of Hon. Thomas M. Davis follows:]

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Mr. TOM DAVIS OF VIRGINIA. Pete, go ahead.

STATEMENT OF HON. PETE SESSIONS, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF TEXAS

Mr. SESSIONS. Thank you, Mr. Chairman and members of this

subcommittee. It’s good to be back with you. Ms. Davis, it is good

to see you here also.

Mr. Chairman, thank you so very much for the opportunity to appear before this subcommittee this afternoon. I commend each of

you for taking time to meet with this group of people, including

this panel that are here today on such an important issue, and we

look forward to your deliberations and the outcome on this issue.

First, I want to say that I was one of those who is the sponsor

of the FAIR Act, because the American people deserve to know that

their hard earned tax dollars are being spent as effectively and

wisely as possible. The FAIR Act was therefore the first step in a

process of defining just what is government work, and also what

might be considered competitive. Among what things those activities might logically be reviewed for alternate delivery strategies

also. It was, and I believe remains an important first step for this

government, like any other institution, public or private, simply

cannot be expected to engage in such fundamental self-analysis and

challenge on its own.

In the private sector, such exercises are routine and driven by

the competitive nature of the marketplace. Those same market

forces are too absent from the government environment, and thus

the FAIR Act is a tool to help us move forward and make progress,

and I applaud this administration for its unyielding commitment to

ensuring that the results of the FAIR Act inventories do not sit on

the shelf, but rather capitalize on to help ensure that the taxpayers

of our Nation, in fact, are getting the best value for their hardearned tax dollars.

Mr. Chairman, I think competition is a good thing and a healthy

thing. It drives innovation and performance. It drives efficiency

and, in a high performing organization, it also drives employee satisfaction and morale. I also believe in the tenets of the government’s longstanding policy of relying whenever possible on the competitive private sector for the provision of goods and services. That

policy is built on straightforward logic that is every bit as relevant

today as it was more than 50 years ago.

The private sector, not the government, is the engine that drives

our economy. The creation and expansion of private sector employment, investment and profit is what makes this engine run. Therefore, where the government is performing work that a competitive

private sector could perform, why wouldn’t you want to allow competition to exist? Why wouldn’t we want to seek and embrace the

technology and innovations of the private sector? The results work

to everyone’s benefit. The government improves its efficiency and

quality of service, the taxpayer gets assurance that their tax dollars are being wisely managed, and our economy grows. Quite

frankly, I see no downside to that equation.

This is not to say that everything done by the government that

is not strictly defined as inherently governmental must simply be

outsourced. In some cases, some form of competition between the

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existing work force and the private sector bidders does make sense,

but in others, such competition are neither beneficial nor possible.

Moreover, while I fully agree that the extraordinary men and

women in our government and the work force, that they deserve to

be treated with respect and fairness in recognition for the work

that they do for this country, I do not agree that such treatment

must be automatically extended to arbitrarily protecting Federal

jobs.

After all, when the functions are outsourced, the evidence is clear

that few employees end up without a job and the government accounting office and Rand Corp. and others have made it clear that

there is no evidence that they end up sharply reducing wages and

benefits. Indeed, we have had testimony in this subcommittee that

the opposite can happen.

So I see outsourcing as a tool, one that the private sector uses

every day and that we have responsibility to utilize. We have no

right to arbitrarily perform work in the government if that work

is neither inherently governmental nor of the kind that must absolutely be performed by the organic work force. And we have a responsibility as stewards of the public trust to aggressively utilize

competition to ensure that we’re fulfilling faithfully our roles.

Mr. Chairman, I must admit that I am sometimes amazed at this

debate and the rhetoric associated with it. After all, this is not an

academic exercise. It is a policy discussion that has the benefit of

years of experience and data in support. That data and experience

are eminently clear. First, competition saves money. Although you

don’t need a study to know it, it is the foundation of our whole economic system.

Second, the government is in an ever-growing danger of falling

further and further behind the private sector in the use and application of innovative processes and technology.

Third, as the Federal work force grays and large percentages approach retirement, this is a movement in history where we can

more aggressively than ever look at alternate sourcing strategies

and change the very culture of government.

Some would argue that we don’t really know what outsourcing

saves the government, that there is somehow question of accountability here, but such a suggestion ignores the facts. Fact one is

that we do know at the local activity level exactly what is being

spent on outsource services. Payments are subject to a wide range

of audits, validation and even more.

Unfortunately, the same cannot be said for our own internal government operations. How many agencies have been able to comply

with the Chief Financial Officers Act? How many elements within

the government have true activity based costing that enables full

visibility into all costs? The answer to both questions is few. As the

Senate Governmental Affairs Committee pointed out in a recent

audit, and as GAO and others have repeatedly reminded us, we

have a serious management problem in the government. It inhibits

our ability as the representatives of the American taxpayer to account for ways in which tax dollars are spent. The problem with

accountability lies not with our contract work, rather with our own

internal operations.

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With all due respect to my colleague and my friend from Maryland, Mrs. Morella—excuse me, yes, Mrs. Morella, who is a friend

of mine, that’s why I am so opposed to H.R. 721, and I am sorry

that she is not here today, but I am sure she will get the message.

Mr. TOM DAVIS OF VIRGINIA. Mr. Wynn’s a friend of yours, isn’t

he?

Mr. SESSIONS. And Mr. Wynn is also.

Mr. TOM DAVIS OF VIRGINIA. Just want to get that on the record.

Mr. SESSIONS. Mr. Wynn is a friend of mine. The so called TRAC

Act, it completely ignores the tremendous problems associated with

internal accountability and assumes problems with accountability

in our contracted work that simply do not exist. In addition, the

bill creates onerous requirements that would make any further

outsourcing extremely difficult. It would do so by subjecting every

single contract, modification, task order or option to a public-private competition, regardless of whether the government needs to

perform the work involved or whether the work force exists or

whether it even needs to be hired to do so.

The TRAC Act is a solution without a problem. It flies in the face

of all the acquisition reform that we have made over the last 6 to

8 years and would limit Federal agency managers flexibility as

they try to carry out their mission. The bottom line is that the bill

amounts to a complete moratorium on all contracting efforts. If we

really want accountability, I would suggest that the best way to

achieve it would be to subject every commercial activity in the government to the same kinds of competitive pressures, accounting demands and performance requirements that are contracted work

subjected to. That would do a lot more good for the American taxpayer than the current bill that we are discussing today.

The government is not a business, nor can it be run exactly as

one would run a business, but we can learn from the commercial

sector. We can and should aggressively compete, and where appropriate, directly outsource commercial activities performed by the

government so that our work force can focus on its true core competencies. We can and we should outsource and include competition

as a tool that we cannot only use to enable improved performance,

but we can also reduce costs and access to innovation, but also as

tools through which the government appropriately supports and assists the further growth and strength of our national economy.

Mr. Chairman, I will end by saying this, that the FAIR Act was

a bill that we discussed across this committee and in this Congress

and it was debated in negotiation with the former Clinton administration. It was one that was worked hard for a compromise and one

that was hewn for success, and I believe that this new bill that we

are talking about today would not only take that carefully crafted

opportunity that we had and would do away with it, but it would

lead this body to believing that what we need to do is invest more

and more money in government without seeing the outcomes that

would be based from our tax dollars.

Thank you so much for allowing me the time.

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Mr. TOM DAVIS OF VIRGINIA. Mr. Sessions, thank you. I understand you may have to leave, and feel free to leave if we don’t get

there for questions.

Mr. SESSIONS. Thank you so very much.

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

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Mr. TOM DAVIS OF VIRGINIA. Now, I’m going to call on your

friend, Mr. Wynn, to speak. Our welcome and thanks for being

here, and thank you for your interest in this subject.

STATEMENT OF HON. ALBERT WYNN, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF MARYLAND

Mr. WYNN. Thank you very much, Mr. Chairman. I am not always on this side of the table. But I am very delighted to be here.

I thank you for the opportunity to testify as well as to be before

our ranking member and my Democratic colleagues today.

I also want to take this opportunity to thank the Federal employees who are here because all too often we talk about Federal employees, you don’t get to see them enough. So they’re here today,

here and in the hallway and they have a very great interest in this

issue because they are providing the services that run our government, and in my opinion they’re doing a very good job.

We’re here today to talk about privatization, outsourcing, or more

plainly, moving services previously performed by government employees out to the private sector to for-profit companies. I’m very

pleased to discuss how we can assure that the American taxpayer

receives the best value in the provision of these government services. One approach to assuring this best value is embodied in

Truthfulness, Responsibility and Accountability and Contracting

Act, H.R. 721, commonly known as the TRAC Act, which I have introduced and which, to date, enjoys a bipartisan support of more

than 185 of our colleagues.

As my good friend, Mr. Sessions, indicated, in almost every endeavor of human commerce, competition yields the best quality and

the best value and that’s essence of the TRAC Act to ensure there’s

a fair competition between hardworking in-house Federal employees and private contractors to determine who can really perform

and provide the best value to the American public, both quantitatively in terms of dollars and qualitatively in terms of the service provided.

In recent years there seems to be a notion that has gained momentum that outsourcing is the most cost efficient approach providing government services. Unfortunately, to date there’s been no

empirical evidence to prove this, either the quantitatively or qualitatively, and thus I really question the underlying assumption.

Supporters of contracting out, as you heard, claim that it saves

money for the taxpayers. Well, where is the evidence? GAO has yet

to provide concrete evidence that such savings exists, and after several years and billions of dollars of outsourcing, GAO cannot say

that taxpayers are well served. Even my Republican colleagues

noted in the fiscal year 2000 defense appropriations bill, there is

no clear evidence that current DOD outsourcing and privatization

efforts are reducing the cost of support functions within DOD, with

high cost contractors simply replacing government employees. In

addition, the current privatization efforts appears to have created

serious oversight problems for DOD, especially in those cases

where DOD has contracted for financial management and other

routine administrative functions.

In the absence of accountability and congressional oversight, the

problem caused by indiscriminate contracting out and privatization

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will grow worse in both DOD and other agencies. The TRAC Act

basically prohibits any Federal agency from making a decision to

privatize, outsource, contract out or contract for the performance of

a function currently performed by such agency unless five requirements are met. I submit these are very reasonable and prudent requirements.

Prior to contracting out, agencies would have to meet the following five objectives. First, many of the safeguards against indiscriminate contracting out such as effective contract administration

to reduce waste, fraud and abuse statutes prohibiting the management of Federal employees by arbitrary personnel ceilings, as well

as provision of the Federal Workforce Restructuring Act to prohibit

replacing displaced Federal employees with contract employees

have not been followed. Commitments to Federal employees to

make contracting out and privatization more equitable have not

been kept.

The TRAC Act would temporarily suspend new contracts until

these oversights have been corrected and we have in place a procedure which effectively reviews this issue. This will give agencies an

incentive to correct these longstanding problems. There would be

exceptions for national security, patient care, blind and handicap

contract and situations involving economic harm. So the suggestion

that somehow the TRAC Act would grind government to a halt is

simply not true.

Second, the TRAC Act would require the establishment of systems to monitor the cost efficiency and savings of this outsourcing.

Currently agencies do not monitor the cost or the efficiency of billions of dollars in contracting out and privatization. There’s no

oversight of contracts after they have been awarded to compare

past costs with current costs, which is to say that the contract goes

out and there’s an assumption that this is the most efficient way

to do business, but yet there is no monitoring to see if there is actual savings.

The third requirement of the bill, it will allow agencies to hire

additional Federal employees when they can do the work more economically and efficiently than private contractors. There are instances when if an agency had been allowed to hire three or four

more additional personnel, they could have done the work more

cheaply than the outside contractor.

The fourth provision of the act requires that Federal employees

and private contractors have the same level of public-private competition, and here we get back to that notion. Public-private competition should work both ways. Contractors compete for Federal

Government jobs. Federal employees ought to be able to compete

for their own jobs.

Right now there are twice as many contract employees working

on the Federal payroll as Federal employees, and they perform this

work without any competition. So for those who believe we need

more competition, I suggest the TRAC Act provides it.

Fifth, the TRAC Act requires Office of Personnel Management

and Department of Labor to compare the wages and benefits of

Federal employees and their contractor counterparts. The point

here is it is not good policy to contract out simply to avoid paying

health benefits, and we ought to analyze this issue to compare

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whether or not we’re handing government work to contractors who

simply are able to low ball because they don’t offer reasonable benefits.

I believe the TRAC Act addresses the major concerns that we in

government have about quality and taxpayer value without interfering with the operation of government. As I indicated, the suspension of contracts is prospective only, only affecting new contracts. Any existing contract would not be interrupted. The suspension is only temporary until the requirements of reasonable oversight are put in place and at that point the agency may proceed.

There has to be a competition, a simple competition analyzing

whether we can do a better job in government or outside of government.

Now, one of the criticisms that you will hear is that the A–76 circular, which is a vehicle for this competition, is too burdensome

and that may be, but then what we ought to do is focus on streamlining the A–76 procedure rather than eliminating the competition

between Federal employees and private sector employees. We have

a responsibility to the taxpayers to ensure that they get best value,

and the only way we can do this is through a real competitive analysis of what Federal Government employees can provide in terms

of quality and cost with that which is provided on the outside by

the private sector.

I believe that the TRAC Act is a reasonable approach to solving

this problem. I believe it shows respect for the efforts that have already been made by very loyal and committed Federal employees,

and I hope that this committee, in analyzing this bill, other pieces

of legislation, as well as the GAO study that is currently underway,

would keep in mind that we do need a fair competition and we do

need significant oversight of the contracting out that’s occurring,

and that ultimately, our responsibility is not to the notion of

outsourcing or the philosophy of outsourcing, but to assuring best

value for the taxpayer.

Thank you for your time, Mr. Chairman.

Mr. TOM DAVIS OF VIRGINIA. Mr. Wynn, thank you very much for

your interest in this subject.

[The prepared statement of Hon. Albert Wynn follows:]

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Mr. TOM DAVIS OF VIRGINIA. Mr. Gutierrez, thank you for being

with us.

STATEMENT OF HON. LUIS V. GUTIERREZ, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. GUTIERREZ. Good afternoon, Chairman Davis, Ranking Member Turner, and members of the subcommittee. I want to thank you

for the opportunity to testify today. I have come to talk to you

about a bill I introduced in March, H.R. 917, the Federal Living

Wage Responsibility Act of 2001.

The bill has a simple premise: Employees who work full time

should be paid a wage that assures that they will not live in poverty. This legislation mandates a livable wage for all employees

under Federal contracts and subcontracts. 78 representatives currently cosponsor this important legislation.

It is important to note that the Federal Government does not collect data on Federal contract workers. The only data available concerning the number of workers earning less than $8.50 an hour

comes from the General Services Administration. With the implementation of the TRAC Act, we would be able to acquire these necessary data since the TRAC Act mandates the Secretary of Labor

to conduct a study on the wage and benefit levels of contractor employees.

However, GSA data and other data is startling and demonstrates

the importance of quick Federal action. A recent study by the Economic Policy Institute finds that an estimated 162,000 Federal contract workers earn less than $8.50 an hour. Their income does not

reach the poverty threshold of $17,650 per year for a family of four.

These workers represent 11 percent of the total 1.4 million Federal

contract workers in the United States.

According to the Office of Personnel Management, a total of

4,974 full-time Federal employees earn a salary below the poverty

level for a family of four, as dictated by Health and Human Services. The majority of these low-wage contracts and subcontracts are

concentrated in the defense industry, 62 percent, and most of them

are large business, 59 percent. Private sector workers earning less

than a living wage are mostly female, adult, full-time workers, and

they are disproportionately minorities.

My bill addresses these inequities. It mandates that the Federal

Government and any employer under a Federal contract or subcontract of an amount exceeding $10,000, or a subcontract under

that contract to pay each of their respective workers an hourly

wage or salary equivalent sufficient for a worker to earn while

working 40 hours a week on a full-time basis the amount that the

Federal Government dictates is above the poverty level for family

of four as determined by the Department of Health and Human

Services.

The bill also requires an additional amount, determined by the

Secretary of Labor, based on the locality in which a worker resides

sufficient to cover the costs to such a worker to obtain any fringe

benefits not provided by the worker’s employer. Fringe benefits include medical, hospital care or contributions to health care insurance plans, contributions to retirement, life insurance, disability,

vacation and holiday pay. Although Congress passed laws such as

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Davis Bacon Act and the Service Contract Act to help ensure that

employees of the Federal contractors earn a decent wage, thousands of Federal workers and federally contracted workers still do

not earn enough to support themselves or their family according to

our own Federal Government and the standards set forth by

Health and Human Services.

This legislation will allow hardworking Americans to earn quality wages and to increase their savings for such essential needs as

their retirement and their children’s education. The Federal Government must take responsibility, workable steps to reward working Americans and to help keep them out of poverty. This bill represents a practical step toward that goal.

In 1999, only 32 percent of Federal contract workers were covered by some sort of law requiring that they be paid at least a prevailing wage, which is usually defined as the median wage of each

occupation and industry. But even this minority of covered workers

are not guaranteed a living wage under current laws. For example,

the Department of Labor has set its minimum pay rate at a level

below $8.50 an hour for workers covered under the Service Contract Act in 201 job classifications. Health and Human Services says you have to earn $17,700 for

a family of four to live above poverty, and our government then in

another Department says we are going to pay you less than that.

I believe it’s vital for the Federal Government at a time of record

surpluses to send all of its full-time employees home with a paycheck that allows them to lift their families out of poverty.

Mr. Chairman, it should be noted that 65 cities and counties nationwide have already passed laws that require companies doing

business with tax dollars to pay a living wage to employees. There

are an additional 75 cities considering enacting living wage laws.

This legislation also has gained backing from profamily worker advocates around the country, groups like ACORN and the National

Campaign for Jobs and Income Support in Chicago, New York, Boston and dozens of other cities have rallied in support.

I share a deep concern for many workers who, although employed full-time, are unable to support themselves and their families in a dignified manner. Today the working poor are the largest

growing sector of the economy. They fulfil many of the basic needs

of our community, but their efforts are not rewarded with wages

sufficient to care for a family’s basic need.

This bill is in keeping with the President’s initiative to raise the

pay and benefits of enlisted military personnel. Civilians employed

by the Department of Defense are among the government employees most likely to earn subpoverty level wages while two-thirds of

contractors paying poverty level wages are in the defense industry.

The defense of our Nation is a combined effort involving military

personnel and their civilian peers. President Bush’s effort to increase the pay of uniformed personnel would be well complemented

by an effort to ensure that no individual involving keeping the Nation secure is vulnerable to the difficulty and risks of poverty.

Mr. Chairman, more than 50 years ago the General Assembly of

the United Nations adopted the Universal Declaration of Human

Rights. Article 23 of that document states, ‘‘everyone who works

has the right to just and favorable remuneration, ensuring for one’s

34

self and one’s family an existence worthy of human dignity.’’ However, this is an impossibility for countless families nationwide in

the 21st century America. The Federal Government goes to great

lengths to monitor the poverty level and with good reason, but the

government should also determine whether it is allowing its own

workers to meet that standard.

Mr. Chairman, the basic purpose of the legislation is simple. We

should not pay Federal employees that work for us or contractors

that work for us to a family of four less than what our own Health

and Human Services Department dictate is poverty, and if we do

that Mr. Chairman, here’s what we’re doing, they’re collecting Medicaid, they’re collecting food stamps, they’re section 8 subsidies on

their rental. All we’re doing is subsidizing the very contractors by

allowing them to pay, because then these employees obviously are

allowed, under our welfare standards, to apply for other—it’s terrible to work for the Federal Government on the one hand, fulltime 40 hours a week, and on the other hand, get a check from another part of the government because the Federal Government

hasn’t ensured that you made a living wage.

Thank you very much, Mr. Chairman.

Mr. TOM DAVIS OF VIRGINIA. Mr. Gutierrez, thank you very much

for that testimony.

[The prepared statement of Hon. Luis V. Gutierrez follows:]

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Mr. TOM DAVIS OF VIRGINIA. Mr. Wynn, thank you. Do we have

any questions? I know we have two other panels. I think—Mr.

Wynn, sure.

Mr. WYNN. Mr. Chairman, with your indulgence I’d like to add

two statements to my testimony if that could be submitted.

Mr. TOM DAVIS OF VIRGINIA. We’d be happy to enter that into the

record, and we appreciate both of your interests in this and Mr.

Sessions, too, who’s left. I know y’all have very strong feelings

about this. You have put forward legislation and we appreciate the

opportunity to hear from you today.

Before I call our first panel, I think I’m going to go now to opening statements from Members so that Members will have an opportunity to put in statements, and I will start as the chairman of the

subcommittee and welcome everybody to today’s oversight hearing

about outsourcing in the Federal Government.

In light of the recent creation of the General Accounting Office’s

commercial activities panel, I decided to call this hearing to review

whether or not outsourcing is an effective means to enhance cost

savings and efficient delivery of services while ensuring the equitable treatment of Federal employees. We will also take a look at

Federal agencies implementation of the Federal Activities Inventory Reform Act [FAIR] Act.

Over the years, the executive branch has emphasized spending

reductions and focused on maximizing efficiencies in the Federal

Government. The introduction of competition in the procurement

process has played a decisive role in creating the incentives necessary to achieve cost savings and improving efficiency. The executive branch has encouraged outsourcing by Federal agencies as a

way to purchase commercially available goods and services from

the private sector instead of competing against its citizens.

In 1966, OMB formalized this policy in circular A–76. The subsequent supplemental handbook explains the procedures for conducting cost comparison studies through managed competitions to determine whether an agency’s commercial activities should be performed in-house by Federal employees, by another Federal agency

through an interservice support agreement or by contractors. GAO

has reported that the policy results in cost savings in the Defense

Department. However, most other Federal agencies choose not to

implement A–76 studies. Have these agencies found alternatives to

A–76? Are they still realizing cost savings while improving their

delivery of services? It’s understandable that some agencies may

shy away from using the A–76 process. It is lengthy, it’s complex,

it’s burdensome and participants in the Federal work force as well

as the private sector have raised valid concerns which we will hear

more about later today.

As we review the process today I think we need to keep in mind

the Federal Government’s responsibility to the taxpayers. The government should strive to provide taxpayers with the best quality

services at the lowest price. So the first question I pose to our witnesses today is should the lowest price continue to be the deciding

factor for job competitions? Is there any benefit for using best value

as the benchmark?

I have several other concerns that I hope witnesses will try to

address. First, Federal employees are disadvantaged during A–76

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cost comparison studies because they are not adequately trained to

write performance work statements. Additionally, if the contract is

awarded to the private sector the Federal employees are seldom

trained to write contracts and effectively manage them to protect

taxpayer interest.

Second, the lengthy A–76 process creates uncertainty among

Federal employees whose jobs are being competed. Frequently you

can have such a demoralizing effect that our best skilled and dedicated employees look elsewhere for the work. Since the Federal

Government work force is dwindling rapidly and nearly 50 percent

of Federal employees are eligible to retire over the next 5 years it’s

imperative that the government establish initiatives to prevent the

unnecessary loss of Federal workers.

And third, there’s a perception among some contractors that

costs such as overhead are calculated differently in the private sector from the Federal Government, and therefore, not enough accurate cost information is available to ensure fair cost comparisons,

and after a contract has been awarded, there are some concerns

that the government accounting system is not advanced enough to

accurately track cost savings.

The A–76 process, in my opinion, is broken, but what can be

done to fix it? To help in this regard, section 832 of the Floyd D.

Spence National Defense Authorization Act for 2001 mandates

GAO convene a panel of experts to study the policies and procedures governing the transfer of the Federal Government’s commercial activities from its employees to contractors. The panel will report to Congress next May with recommendations for improvements, and I look forward to the panel’s report.

Now I’d like to reiterate that the government’s job is to provide

taxpayers with the best value for their money. It’s neither our responsibility to protect jobs nor is it our responsibility to outsource

jobs. In addition to our examination of outsourcing, I think we

should reevaluate Civil Service rules and employee compensation

as part of the larger human resources crisis facing the Federal

Government today.

My colleague, Representative Wynn, introduced the TRAC Act,

which would place a moratorium on new contracting and prohibit

Federal agencies from exercising options, extensions and renewals

of current contracts. It affects all contracting at every level of government, and there’s no termination date for the bill. The TRAC

Act is one proposed solution. It’s the result of the frustrations felt

by public sector employees in a process that, in my opinion, needs

revamping.

But an adversarial approach to Federal Government outsourcing

raises other concerns about the continuity of service delivery to taxpayers. Let’s focus our attention on constructive reforms to improve

the government’s performance of its core functions. How can it provide the greatest efficiency and highest quality of services at the

best value to taxpayers? We need to examine these issues in the

context of the Federal Government’s human capital management

crisis and determine what initiatives and reforms must be implemented to recruit and retain well-qualified employees.

And finally, while the FAIR Act does not require that agencies

outsource commercial functions, it’s a potentially powerful strategic

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tool to help agencies identify possible opportunities for outsourcing

and/or management reform. But I am alarmed by the OMB’s recent

directive that in the fiscal year 2002 agencies are required to

outsource 5 percent of Federal jobs designated as not inherently

governmental and listed on the agency’s inventories under the

FAIR Act. And just last week, OMB added a directive requiring 10

percent of these jobs be outsourced in fiscal year 2003. No justification for these percentages has been offered to date. I remain unconvinced that arbitrarily assigning Federal agencies target figures is

the best means to ensure cost savings in the government. I expect

OMB will clarify this directive today.

I thank you and I would now recognize my ranking member Mr.

Turner, for any statement he’d like to make.

Mr. TURNER. Thank you, Mr. Chairman. I appreciate very much

the fact that you have held this hearing today on contracting out

by the Federal Government, and I think this is, perhaps, the best

attended subcommittee hearing that we have had in my memory

with a long line of our loyal Federal employees out in the hall unable to get into the hearing room, but we do appreciate the interest

that has been expressed by all of you, and I want to join in expressing my appreciation to all of our participants today and to our Federal employees who do such a fine job, taking care of the business

of the public in their roles in the respective agencies.

I understand today we may have people from all over the United

States. I know the American Federation of Government Employees

tell me that they have people here from California and New York

and Maine and Florida today. So we are certainly glad to have all

of you here.

Our purpose, of course, is to conduct a hearing to try to ensure

that the taxpayers receive the very best services at the lowest cost.

That sounds like a simple goal to try to achieve, and yet it is

fraught with complexity and in ensuring fair treatment for our

Federal employees must certainly be a priority in this process. This

subcommittee will explore why Federal agencies implement so few

public private competitions under the circular A–76, and also examine what alternatives we may pursue to ensure efficiency in cost

savings.

Contracting out of commercial services has become an increasingly important and controversial teacher of Federal procurement

in recent years, and the Bush administration has indicated that it

will promote greater outsourcing by the Federal Government. It is

in light of that that it is particularly timely that this hearing be

held.

I want to thank the chairman for giving Mr. Wynn the opportunity to use this hearing to lay out his bill, the TRAC Act. He has

done an exceedingly large amount of work over the years with regard to these issues, and he represents, of course as you do, Mr.

Chairman, a large number of Federal employees. His legislation

raises many of the issues that we as a committee need to be addressing.

Circular A–76 contains the Federal policy that governs how contracting out decisions are made in the Federal Government. The

objective of that program has been to achieve efficiencies by encouraging competition between the private sector and Federal emVerDate 11-MAY-2000 10:57 Sep 12, 2002 Jkt 000000 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 C:\DOCS\80842.TXT HGOVREF1 PsN: HGOVREF1
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ployees for commercial activities. No one seems to be particularly

happy with the way A–76 works in practice, no matter which side

you sit on. That is why I think it’s important that the Congress authorize the study contained in the Defense Authorization Act of last

year in which the GAO is directed to examine the A–76 procedure

and to report its findings to Congress no later than May 1, 2002.

I was particularly pleased to see the GAO taking this responsibility very seriously as I think particularly indicated by the fact that

the head of the agency, General Walker, chose to chair the panel

himself. I think this hearing today will be very productive, and I

think that if we all approach it with the right objective in mind,

that is, trying to provide the best services for our Federal employees at the best price possible, we will make significant process.

Thank you, Mr. Chairman.

[The prepared statement of Hon. Jim Turner follows:]

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Mr. TOM DAVIS OF VIRGINIA. Thank you very much.

Ms. Davis.

Ms. JO ANN DAVIS OF VIRGINIA. Thank you, Mr. Chairman. I’d

just like to say thank you for holding this hearing and I’m anxious

to hear from the witnesses to learn more about it. I have heard a

lot about the A–76 program in my own home district, and I’d like

to know where we’re going on it. So thank you very much.

Mr. TOM DAVIS OF VIRGINIA. Thank you very much.

Mr. Waxman. Mr. Kanjorski.

Mr. KANJORSKI. Thank you very much, Mr. Chairman, and I congratulate you for holding the hearing. I just hope that Mr. Turner

recognizes that we also have people from Pennsylvania here as one

of the States.

Mr. TOM DAVIS OF VIRGINIA. Let the record be so reflective.

Mr. KANJORSKI. Mr. Chairman, I have been very familiar with

A–76 over the last 14 years, and at one time in the past served as

chairman of the subcommittee, the jurisdiction of those factors. I

am disturbed in the beginning of the 21st century, I have heard the

testimony of my two colleagues from Maryland and from Illinois,

when they indicate that we actually have Federal employees that

are being paid below the poverty level working for the U.S. Government, and I think it is important that we set an example, not only

that they should get a fair wage but also that we don’t allow ourselves to go to the least common denominator, and to a large extent

contracting out is, as I have observed it over the last decade or better, we are missing the fundamental points of what government

work is all about in terms of looking at quality for the best price.

But we also tend to drive those jobs that are at the lower income

scales out into the private sector and the private contractor generally gets the benefit by not providing the basic service that all

of us believe workers should have, that is, medical and health care,

pension programs and a minimum earning wage for a family.

I had the occasion to see firsthand some of this work, and I just

make two more observations. One, as Mr. Sessions says, we should

do this because we can save money at practically any expense.

Well, I made two visits to two military installations more than 12

years ago, one in Utah and one in Alaska. In Utah, the private contractor came on the base and within several months of running the

security operation on the base, 21 missiles were missing and never

found. I don’t know how you account for that lack of security when

you have private workers coming and going and opening up these

bases.

In Kodiak, AK, they actually contracted out the entire base operation, and the contractor failed to perform, and after 1 year, the

base itself was in jeopardy of operating and that is the main headquarters for the Coast Guard of the United States.

So, in many regards, I have seen contracting out turn into an absolute disaster. I think the bill that Mr. Wynn has introduced, the

TRAC bill, represents the best thinking to get the best job done for

the American worker and the American taxpayer, and I urge the

sunlight to shine on this problem so that we don’t dumb ourselves

down to the least common denominator.

Thank you, Mr. Chairman.

Mr. TOM DAVIS OF VIRGINIA. Thank you.

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Mr. Waxman.

Mr. WAXMAN. Thank you very much, Mr. Chairman. I want to

thank you for holding this hearing. As you know, I joined 22 of our

colleagues on this committee requesting that Truthfulness, Responsibility and Accountability in Contracting Act [TRAC] Act, be the

focus of the hearing. Although today’s hearing covers all the issues

of outsourcing, I’m pleased that we’ll have the opportunity to review the TRAC Act. The TRAC Act now has over 180 cosponsors

and deserves our serious attention.

Since 1955 the executive branch has promoted outsourcing by

Federal agencies as a means to purchase commercially available

goods and services from the private sector. In 1966 the Office of

Management and Budget issued circular A–76, which established

how contracting out decisions should be made in the government.

Most recently, the Bush administration moved to promote increased outsourcing by the Federal Government. Advocates of

outsourcing believe this action will enhance the cost savings and efficient delivery of services.

Well, in my view, the key to cost savings and efficiency is competition between the private sector and Federal employees for commercial activities, not automatic outsourcing. I’m amazed how often

the assumption is that outsourcing is always better and is automatically accepted as fact. The real fact of the matter is that Federal employees all across our country do superb work and often at

a fraction of the price contractors would charge. The Federal work

force is an invaluable resource that is often taken for granted and,

even worse, sometimes deliberately denigrated. That makes no

sense and it absolutely makes no sense to insist on outsourcing

when work can be done more efficiently and better by Federal

workers.

Unfortunately, the Federal Government has often avoided competition, avoided competition by directly converting work to the private sector or by labelling work as new so that competition becomes impossible.

Every Member of Congress should support government efficiency

and saving taxpayer dollars, but in order to determine whether taxpayers are receiving savings, true cost comparisons must be performed.

In addition, agencies should be required to keep records of the

costs and savings associated with both contracting out and contracting in. That’s why I support the TRAC Act, which requires

agencies to track the costs and savings of contracting out and to

conduct public-private competitions. Moreover, the TRAC Act abolishes the use of arbitrary personnel ceilings and would also require

agencies to subject work performed by contractors to the same level

of public-private competition as work performed by Federal employees.

Mr. Chairman, outsourcing exists because of the theory that it

saves money and improves efficiency. Unfortunately, for too long,

we have failed to apply any accountability to whether or how often

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that theory really works. I want to work with you to make sure we

have solid data for cost comparisons and then we should apply that

data in a fair and unbiased way to outsourcing decisions.

Thank you very much.

[The prepared statement of Hon. Henry A. Waxman follows:]

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Mr. TOM DAVIS OF VIRGINIA. Thank you Mr. Waxman. Mrs.

Mink, any opening statement?

Mrs. MINK. No.

Mr. TOM DAVIS OF VIRGINIA. I’m not sure if we have anyone from

Hawaii here today.

Mrs. MINK. May I ask, Mr. Chairman, if there is anyone here in

the audience from Hawaii?

Mr. TOM DAVIS OF VIRGINIA. There you go.

Mrs. MINK. Aloha.

Mr. TOM DAVIS OF VIRGINIA. All I can say is that’s dedication.

We are going to call our second panel of witnesses at this point.

We have Barry Holman, from the U.S. General Accounting Office.

We have Angela Styles who is the Director of the Office of Federal

Procurement Policy, Office of Management and Budget. And we

have Ray DuBois who is the U.S. Department of Defense Under

Secretary of defense for installations and environment.

I would just say, as you know, it is the policy of this committee

that all witnesses be sworn before you testify and if you’d rise with

me and raise your right hands. And Ms. Styles, I understand this

is your first day back from maternity leave?

Ms. STYLES. Yes, it is.

Mr. TOM DAVIS OF VIRGINIA. Thank you very much for being

here.

[Witnesses sworn.]

Mr. TOM DAVIS OF VIRGINIA. Please be seated. Just for efficient

time for questions, we have your testimony in the record. All of it

will be entered into the record. We’d like you to keep your submissions to 5 minutes. There’s a light in front. You will have green for

the first 4 minutes. It will be yellow for your 4th minute and at

the end of 5 minutes the red light will go on, if you could proceed

to summarize at that point. I’ll give you a few seconds. If you don’t,

I’ll tap the gavel and ask you to summarize at that point. So Mr.

Holman, we’ll start with you and thank you for being here.

STATEMENTS OF BARRY HOLMAN, DIRECTOR, DEFENSE CAPABILITIES AND MANAGEMENT, U.S. GENERAL ACCOUNTING

OFFICE; ANGELA STYLES, DIRECTOR, OFFICE OF FEDERAL

PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND

BUDGET; AND RAY DUBOIS, UNDER SECRETARY OF DEFENSE FOR INSTALLATIONS AND ENVIRONMENT, U.S. DEPARTMENT OF DEFENSE

Mr. HOLMAN. Mr. Chairman, I’m pleased to be here today to

present our observations on DOD’s use of OMB circular A–76 to

conduct cost comparison studies to determine whether commercial

activities should be performed by the government or by the private

sector. DOD refers to A–76 cost comparison studies as competitive

sourcing.

My comments today are based on work that we have carried out

in recent years monitoring DOD’s progress in implementing its A– 76 program with the goal of saving money that may be applied to

other priority needs. My testimony focuses on the evolution of the

A–76 program in DOD and addresses the question of whether savings are being realized, identifies some key issues we’ve identified

that may be useful to other agencies as they think about using the

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A–76 process, and I’ll provide a few comments on the work of the

commercial activities panel which you’ve already referred to.

First, let me say that DOD has been a leader among Federal

agencies in the use of the A–76 process in recent years, and at one

point planned to study over 229,000 positions under that process.

However, the number of positions planned for study, the timeframes for launching and completing those studies, has changed

over time as the program has evolved. DOD now plans to study

160,000 positions under A–76, still a rather ambitious goal.

At the same time, the Department has now augmented its A–76

program for what it terms strategic sourcing, a broader array of reinvention and reengineering options that may not necessarily involve A–76 competitions, at least in the short term. Strategic

sourcing may encompass consolidation, restructuring, reengineering activities, privatization, joint ventures for the private sector or

the termination of obsolete services. Strategic sourcing can involve

functions or activities regardless of whether they’re considered inherently governmental, military essential or commercial. I should

add also that these actions are recognized in the introduction to the

A–76 handbook as being part of a body of options in addition to A– 76 that agencies must consider as they contemplate reinventing

government operations.

The broader emphasis on strategic sourcing today is intended to

help DOD realize the sizable savings goals that it established

under its program. DOD has already reprogrammed over $11 billion in anticipated savings from A–76 and strategic sourcing into

its modernization account.

The second point I would make is that one of the greatest topics

of interest to observers of the A–76 process is whether savings are

being realized. My answer to that question is yes, and that savings

have resulted primarily by reducing the number of positions needed to perform activities being studied. This is true regardless of

whether the government or the private sector wins the competitions.

At the same time, I must add that a variety of factors make it

difficult to measure the precise amount of net savings from A–76.

Moreover savings may be limited in the short term because the up

front investment costs associated with conducting and implementing results of these studies. Further reported savings from A–76

studies will continue to have some element of uncertainty and imprecision and will be difficult to track in the outyears because

workload requirements change, affect program costs, a baseline

from which savings are calculated. However, considering that DOD

has already reduced its operating budget on the outyears on the assumption of these savings, it’s crucial that its estimates be as accurate as possible.

Third, there are issues which we have raised concerning DOD’s

A–76 program that may serve as a useful lesson for other agencies

that use the A–76 process. They include the finding that studies

have generally taken longer than initially expected and have generally required greater resources than initially projected. Finding

and selecting functions to compete can be difficult, notwithstanding

the existence of the FAIR Act inventories, and making premature

budget cuts on the assumption of projected savings can be risky.

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These issues should not detract from a need to explore options

for achieving savings but should serve as indicators of things to

watch for in planning and conducting such studies.

Finally, increased emphasis on A–76 has served to underscore

concerns expressed by both government employees and industry

about the A–76 process. Federal managers and others have been

concerned about organizational turbulence that typically follows

the announcement of A–76 studies. 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 offers to appeal A–76 decisions. The industry representatives have complained about the fairness of the process and

the lack of a level playing field between the government and the

private sector. Everyone has been concerned about the time required to complete the studies.

Amid these concerns over the process as you have already indicated, the Congress enacted section 832 of this year’s National Defense Authorization Act. The legislation required the Comptroller

General to convene a panel of experts to study the policies and procedures governing the transfer of commercial activities from government personnel to Federal contractors. The panel, which includes the Comptroller General as the Chair, includes senior officials from DOD, private industry, Federal labor organizations and

OMB.

Among the issues the panel will be reviewing are the A–76 process and implementation of the FAIR Act. The panel had its first

meeting on May 8th of this year, its first public hearing on June

11. At the first hearing, over 40 individuals representing many perspectives presented their views. The panel currently plans to hold

two additional hearings, one on August 8th in Indianapolis, IN,

and the other on August 15 in San Antonio, TX. The panel is required to report its findings and recommendations to the Congress

by May of next year.

Mr. Chairman, Members, this concludes my summary, and I’d be

please to answer any questions you might have.

Mr. TOM DAVIS OF VIRGINIA. Thank you very much and we’ll be

back with you for questions.

[The prepared statement of Mr. Holman follows:]

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Mr. TOM DAVIS OF VIRGINIA. Ms. Styles, welcome. Thank you for

coming.

Ms. STYLES. Thank you. Mr. Chairman and members of the subcommittee, I’m pleased to be here today to discuss the administration’s competitive sourcing initiative and the proposed Truthfulness, Responsibility and Accountability in Contracting Act [TRAC]

Act.

There are two points I want to clearly communicate today. First

is the administration’s commitment to competition. Second is the

administration’s strong opposition to the TRAC Act. Competition is

fundamental to our economy and to our system of procurement. It

drives better value, innovation, performance and importantly significant cost savings. A major element of our commitment to competition is the administration’s competitive sourcing initiative. The

President has committed to opening one half of the Federal commercial workload listed on the FAIR Act inventories to competition.

Implementing this initiative, OMB has taken several steps. First,

budget was linked to performance planning through the President’s

budget blueprint and through a February 14, 2001 memorandum

from Mitch Daniels, the Director of OMB to the departments and

agencies.

Second, this guidance was followed by a March 9, 2001 memorandum from Shawn O’Keefe, the Deputy Director of OMB to the departments and agencies. The memorandum requested agencies to

develop performance plans to implement the A–76 competitive

sourcing initiative. For fiscal year 2002, this memo requested that

the agencies complete competitions or directly convert not less than

5 percent of the commercial workload listed on the agency’s FAIR

Act inventories.

To assist the agencies in meeting this competitive sourcing goal,

OMB has undertaken a three-part initiative. First, OMB is invigorating the use of circular A–76 by introducing positive monetary

incentives. Agencies get to retain the savings that are achieved

through A–76 public private competitions.

Second, OMB will make one or two immediate amendments to

the circular to expand and improve the process. Importantly, tomorrow a proposed change to A–76 will be published in the Federal

Register for notice and comment. This proposal, if promulgated,

would remove the current grandfather provision in A–76 that exempts inner service support agreements from competition. Agencies

have long provided commercial support services to other agencies

on a reimbursable basis. This includes a wide variety of commercial

support services from paycheck services and ADP to facilities operation and maintenance.

The example that I often use is OMB paychecks. Myself and all

other OMB employees receive their paychecks from DFAS, the Defense Finance and Accounting Service within the Department of

Defense. In other words, the provision of paychecks to OMB employees, a clearly commercial service, is provided to OMB by the

Department of Defense on a reimbursable basis. OMB, or the Executive Office of the President, pays DFAS for providing these paychecks. The concern is that A–76 exempts this clearly commercial

service, the provision of paychecks, from competition with the private sector. Could these services be provided less expensively or

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more efficiently by the private sector? We don’t know, because

these services don’t have to be competed right now. The proposed

change would require competition of these commercial services provided on an interagency basis every 3 to 5 years.

The third part of OMB’s initiative is the establishment of an A–

76 streamlining working group. They will be working with the

GAO commercial activity panel and taking a hard look at how we

can improve the A–76 process. As many of you know, the A–76

process has become difficult to implement. The process takes too

long, it has generated significant distrust and several GAO reports

have found weaknesses in the current structure and application.

What was designed to provide reasonable estimates of costs on a

level playing field has become so rigid that the process itself is an

impediment to competition.

In the long term, OMB anticipates vastly simplifying this cumbersome process by replacing the complex and artificial A–76 cost

requirements with a budgeted measure of full agency costs. With

full cost budgeting the agency’s budget cost will substitute for the

complex A–76 cost comparison requirements. The difficulties in implementation of A–76 and our plans to make long-term changes do

not, however, reflect on our commitment to use the current circular

to achieve our competitive sourcing goals. The circular provides an

effective and established policy framework that has resulted in significant performance improvement and substantial economic savings. We are committed to public-private competition, and we are

committed to using the current A–76 circular to meet the fiscal

year 2002 competitive sourcing goals.

I want to make very clear, however, that in supporting publicprivate competition, we support the provision of government service

by those best able to do so, be that the private sector or the government itself. This is not an outsourcing initiative. We are subjecting

government functions to competition. What is the most important

is the cost, quality and availability of this service, not who provides

it. An often forgotten fact in this discussion is that more than 50

percent of the time the in-house organization wins the public-private competition. The simple fact that the commercial function undergoes competition creates cost savings, innovation and improved

performance.

The second but related issue that I want to address is the administration’s strong opposition to the TRAC Act. Freezing all currently contracted activities to determine if they could be performed

more effectively by the private sector would put at risk the Federal

Government’s ability to acquire needed support services in both the

short and the long term. This legislation would seriously affect several primary functions of government, including the public health

and welfare, constituting a threat to national security.

Mr. TOM DAVIS OF VIRGINIA. Ms. Styles, I’ve given you a little

bit of time. Could you sum up?

Ms. STYLES. I’m almost done.

Mr. TOM DAVIS OF VIRGINIA. OK.

Ms. STYLES. Even Medicare would not be able to issue payments

since this function is performed by contract. We estimate the TRAC

Act would affect over 230,000 contract actions, a simply untenable

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outcome.

Mr. Chairman that concludes my statement and I’ll be glad to

answer questions.

Mr. TOM DAVIS OF VIRGINIA. Thank you very much.

[The prepared statement of Ms. Styles follows:]

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Mr. TOM DAVIS OF VIRGINIA. Mr. DuBois.

Mr. DUBOIS. Mr. Chairman, thank you very much for allowing

me to represent the Secretary of Defense in front of this important

subcommittee and to address this important issue. I have submitted a written statement as you know, but I would like to bear particular attention to certain issues that the Secretary asked me to

bring up this afternoon.

A–76 competitions, as we all know, attract a lot of attention.

They generate vital savings results, but they need to be put into

perspective. Service contracting performed as a result of A–76 competitions is estimated to comprise less than 2 percent of all defense

service contracting. While our competitive sourcing program may

be small in the greater scheme of things, it has generated some

gratifying results.

Between fiscal 1995 and 2000, we’ve completed over 550 A–76

initiatives that have affected over 25,000 government employees.

As Ms. Styles said, more than half of those A–76 competitions, specifically 57 percent in the DOD, were won by the government’s

most efficient organization. The remainder of the competitions, 43

percent, were won by the private sector. Savings are achieved regardless of whether the work stays in-house or moves to the private sector. We saw a reduction of 12,000 government positions involved in the activities studied, but relatively few personnel, about

10 percent suffered involuntary separation actions. 1,311 were removed from the Federal work force through a RIF. We have found

that in these A–76 initiatives between 1995 and 2000 that we have

averaged 34 percent in savings.

Now, I know that both Congressman Wynn and Congressman

Waxman referred to the fact that there were no empirical evidence

to date underlying these savings. In fact, I believe Congressman

Wynn also made the comment that GAO has not yet provided concrete evidence of those savings. Now, I will defer obviously to my

colleague to my right from GAO, but we believe that both GAO and

the Rand Corp. and the Center for Naval Analysis examined these

savings and their results, their analysis unanimously support the

fact that realistic savings have been achieved.

In the past year, we specifically asked again that the issue of

long-term savings be examined and again, the CNA, Center for

Naval Analysis, confirmed the savings garnered are persistent.

Now, there are a number of issues today that we need to talk

about to include bill 721, the TRAC Act. We believe in the Department of Defense that because the reality of those savings is so

strong, that any form of temporary suspension of competitive

sourcing activities would, as a practical matter, create an expensive, destructive and unprogrammed cost as anticipated savings

would not be realized. While there are legitimate concerns surrounding this program, we believe it would be a real mistake to

stop it in its tracks until all questions are answered.

Now, A–76 cost comparison studies are subject to intense scrutiny by both internal and external parties. It is certainly frustrating that problem situations get a disproportionate share of attention, but I know that you are well familiar with that phenomenon

in the various issues that we all struggle with. We identify systemic problems. We have been proactive in identifying required

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changes to procedures, and while the process is far from perfect

and we continue to seek improvement, we conversely do not want

to overreact to anomalous errors made by well-intentioned, hardworking employees.

It is again important to recognize that among these hundreds of

decisions during fiscal year 1995 to 2000, only six tentative cost

comparison decisions were reversed through appeal or protest.

Sixty-nine percent of all decisions resulted in no appeal, and 88

percent of all decisions resulted in no protest at all. Unfortunately,

the problem cases tend to overshadow the many decisions that reflect a solid program.

The Secretary of Defense this morning testified before the House

Armed Services Committee, and this afternoon as we speak, is testifying in front of the Senate Armed Services Committee. In his

testimony, he refers to the obligation that we, the Department of

Defense, the entire Federal Government, have to taxpayers to

spend their money wisely as reflected also in your comments, Mr.

Chairman.

The Department of Defense needs greater freedom to manage so

we can save the taxpayers money in as many areas as we can. The

Secretary this morning and this afternoon addressed the issue that

he is going to submit to the Congress for their consideration, that

is to say, rationalization and restructuring of the DOD infrastructure. Ms. Styles, I believe, referred to increasing threshholds in the

Davis Bacon Act.

But we also must address the issue of more aggressive contracting out, both in terms of housing and in terms of other services

that are not military core competencies and that can be more efficiently performed in the private sector.

I just want to make one final remark if I might, Mr. Chairman.

Yesterday I testified before the Military Construction Subcommittee of the House Appropriations Committee. I was reminded by

Chairman Dave Hobson that I had returned to government after 24

years. Both Secretary Rumsfeld and I left the Federal Government,

left the Department of Defense in 1977. We went into the private

sector. My first 10 years from 1977 to 1987 were spent focused on

productivity improvements both in terms of process, systemic and

human. I have never been involved with an organization, either as

an consultant or as an employee or an executive in the private or

the public sector that could not by better management, by better

systems, including information systems, operate at least 5 percent,

if not more, more efficiently if given the freedom to do so.

Now in the Department of Defense, one last comment, if I might,

5 percent of the DOD budget is over $15 billion. Those savings

could go a long way to satisfying many of the unfunded requirements that exist.

Thank you, Mr. Chairman, and I look forward to your questions.

[The prepared statement of Mr. DuBois follows:]

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Mr. TOM DAVIS OF VIRGINIA. Thank you very much. Let me start

the questioning for 5 minutes. Ms. Styles, in your testimony, you

discussed OMB’s recent directive that agencies compete 5 percent

of Federal jobs designated as not inherently governmental and listed on the agency’s inventories under the FAIR Act, and then OMB,

as I understand, has just added a directive requiring 10 percent of

these jobs be outsourced in fiscal year 2003. What analysis is going

in to directing a percentage—isn’t that prejudging the situation

and are we becoming subject to quotas here that we have to meet

in prejudging—that gives me some concern.

Ms. STYLES. I think we need to clarify what may be a fundamental misunderstanding is that we are asking agencies to compete a

percentage of their FAIR Act inventories. We are not asking them

to outsource a percentage of their FAIR Act inventories. When

these jobs are competed through the A–76 process or these functions are competed through the A–76 process, more than 50 percent

of them are won in-house. So it’s not a question—it is simply a

measure of competition, not a measure of outsourcing the number

of jobs that will be going to the private sector.

Mr. TOM DAVIS OF VIRGINIA. Because I think we can agree—I

hope we can agree that the bottom line is savings to the government and to the taxpayer.

Ms. STYLES. Absolutely.

Mr. TOM DAVIS OF VIRGINIA. And that’s what ought to drive this.

I think we’re going to hear testimony later, we’ve heard some earlier, how do you best determine that? There are clearly some consequences and some concerns right now about the way it’s being

measured. You have up front costs with your A–76 that have to be

absorbed, and I haven’t heard anybody say A–76 is the greatest

thing going, and you all are relying a lot on the A–76 not exclusively, but a lot for that to try to meet your goals.

Ms. STYLES. Absolutely, and I’d like to add, it’s not just cost savings. We’re seeing improved management, improved performance.

We’re seeing innovation. All of these things are just as important

as the cost savings.

Mr. TOM DAVIS OF VIRGINIA. OK. All right. Thank you. Is OMB

providing agencies with detailed guidance to help them implement

this policy and choose the positions to compete?

Ms. STYLES. No. It’s going to vary on agency-by-agency basis on

the number of not inherently governmental positions they have,

their missions and goals. So we’re letting the agency decide what

is best to meet 5 percent competitive sourcing goal.

Mr. TOM DAVIS OF VIRGINIA. OK. One of the interesting things

in your testimony, you state that part of the administration’s policy

will include allowing agencies to retain the savings they achieve

through the A–76 process. Do you have limitations on how the

agency uses that money? I mention that because when I was the

head of the county government in Fairfax, we would go to our

agency heads in tough budget times and ask them for cuts, and

when we allowed them to keep it and then gave them discretion

as to how to use it, all of a sudden the savings were forthcoming.

So I’m intrigued by allowing them to do that. We find a great reluctance on the part of agencies or subagencies to cut their budgets

just to pay for somebody that overran their budget somewhere else.

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I assume that’s the philosophy that you’re doing that. I guess my

questions are No. 1, how will agencies be permitted to use the

money, could it be used as a work force retention tool to give bonuses to employees for their cost savings accomplishments? And

also, if an agency receives the cost savings, will it affect their budget for the following year?

Ms. STYLES. Right. In the past, there have been some negative

monetary incentives that have been implemented to try and get

agencies to use the A–76 process. We’ve decided that positive monetary incentives are the best way to achieve these goals and we are

letting the agencies decide how to use the savings that they will

be achieving and how to best invigorate the employees.

Mr. TOM DAVIS OF VIRGINIA. Is there any prohibition on using

that, for example, for bonuses?

Ms. STYLES. There is no prohibition on it.

Mr. TOM DAVIS OF VIRGINIA. OK. I think that’s important. One

of the fundamental problems we have in government right now,

and one of the things I see with so much of this outsourcing going,

is it’s hard to keep in-house capabilities sometimes given the different pay differentials between, and particularly in IT areas but

in some others, between what you can make on the outside and

what you make inside, and if we don’t reform, how we are compensating people within government, that outsourcing is inevitable

no matter what your past because you have to get the job done and

you’re not being able to get and reward and train people that are

in government to do the job now. How do you see that? And I’ll also

ask the other panelists if they’d like to comment on that, particularly you, Mr. DuBois. Is that a problem at Defense?

Mr. DUBOIS. I think that the issues of how many we’ve got to

address will always provide a certain amount of problems for us.

Mr. TOM DAVIS OF VIRGINIA. Say that again.

Mr. DUBOIS. I’m sorry, repeat your question so I better understand it.

Mr. TOM DAVIS OF VIRGINIA. I’m saying in-house training, retraining people, recruiting, retaining good people in-house is increasingly difficult in some of these areas, given the compensation

methodologies that you have available to you and what competition

offers on the outside. Outsourcing is inevitable under that panel

unless you substantially alter the compensation package within

agencies. Do you think that’s an accurate statement?

Mr. DUBOIS. That’s right, and of course on the military side we

have a bonus structure that can somehow address those issues. We

also have a bonus structure with respect to SCS employees, although we are constrained to the extent we don’t have the same

flexibility as the private sector does. When it feels or when it believes it needs to, a company needs to attract computer programmers in a particular language, it can immediately adjust the opening salary or the attractiveness of that salary to do so. We can’t do

that in the government.

Mr. TOM DAVIS OF VIRGINIA. Thank you. My time’s up.

Mr. Turner.

Mr. TURNER. Mr. Holman, I want to ask you, based on your experience to address one of the, what I think is one of the more difficult issues we face. We know the administration has suggested

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these percentages that we need to look at in terms of outsourcing,

and Ms. Styles has said well, the intent is to be sure there’s competition, it’s not an automatic, and yet when this proposal was initially laid out by the administration, I believe it was the Deputy

Director of Management, Mr. O’Keefe, when he was asked the

question about how this would all be carried out and whether or

not to reach these numbers, the agencies would just have to go to

direct conversion rather than competition, and his response, as I

recall from reading that interchange was, he said well, let’s talk.

So that left a lot of the Federal employees groups very uncertain

about how this is all going to work, and obviously if you’re going

to be pushed toward some magic number, it will be a lot easier just

to go to that conversion, and I understand there are some difficulties, there’s some time constraints involved in doing a true publicprivate competition.

The numbers that I have indicated that only about 1 percent of

the service contracts undertaken by DOD were undertaken with

public-private competition. In the civilian agencies as a whole, that

number is about one-tenth of 1 percent, and at the heart of this

seems to be that we’re trying to achieve a fair competition, and in

many instances, the Federal employees can submit a proposal that

would be superior to a private contractor and yet the way this process seems to be working, we really don’t see that happening very

often. Why is it that we have such low percentages of true publicprivate competition in outsourcing?

Mr. HOLMAN. That’s one of those questions that I wish that there

were more data available that would help us to get a handle on

that issue. I mean, you’re absolutely right. The data we’ve seen

suggests between 1 and 2 percent of contracts that are awarded;

service contracts are done under A–76. As we’ve seen data that

looks at where are the increases in service contracting that’s occurring, we see it’s occurring for information technology; or we see it’s

occurring for studies and so forth. I can’t give you a precise answer

as to why we don’t see more in that area, other than perhaps it’s

for work that’s not already being done in house. It’s additional

work that’s required, new work or so forth.

But in terms of your earlier question, in terms of the direct conversion, one of the things we’re still looking forward to see is to see

what the impact of OMB’s new directive in terms of DOD’s ongoing

program. I mean, DOD is the only agency that’s got an extremely

robust A–76 program already. So we’re looking ourselves to see

how OMB’s new direction would impact that program, whether it

would add to it to the existing plans for competitive sourcing studies.

Certainly, DOD has done its share of direct conversions, and

those are authorized. When you have fewer than 10 employees that

are affected by the action, you can do that. Or if you are converting

military positions. So a good share of DOD’s actions under A–76

have been direct conversions. How many of them will be in the future, I’m not sure. But it does have a fairly robust program of public-private competitions.

Mr. TURNER. Well, obviously you’ve done 10 times better than

the rest of the Federal agencies. But it does seem it’s going to require a commitment, Ms. Stiles, from the administration to insure

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that there’s a vigorous effort made to have a true competition. I

also have some concerns about a problem that I always have

suspicioned exists, that once we out source, then it also becomes

sort of an out-of-sight and out-of-mind decision.

You know, it’s often easy to criticize the Federal Government for

not being aggressive about promoting competition and continuing

to maintain a large Federal work force. And yet the other side of

the coin can also be true, once out sourced, if it becomes an outof-sight, out-of-mind decision, then that activity becomes a captive

to the private contractor; and when, in fact, upon renewal of the

contract, often times the price continues to rise at a rate that it

would not or should not were there again, true competition.

And I’m interested in the DOD’s experience, the degree to which

you conduct, if at all, postcontract reviews of outsource activities to

assess whether or not there are cost savings that are achieved over

time. As you know, the GAO reported, as well as the administration recently, that there’s been very little savings as a total in

terms of the cumulative activities of outsourcing, very little savings, if any, even though there were examples of savings in certain

activities. But overall it seems the A–76 program has not resulted

in significant savings, if any at all, based on the administration’s

reports, as well as the GAO reports. So what do we do to insure

there is an accurate and adequate postcontract review, see if

there’s really savings there?

Mr. HOLMAN. Well, Mr. Turner, we in GAO we’ve looked at a

number of case studies of A–76 competitions. We’ve tried to address that issue; and certainly one of the things we see, that it becomes difficult to track what happens to these examinations—results of these actions over time, if contracting action is the result

of an A-76 competition. You certainly can tell it at the point of the

competition because you have the comparison between the public

and the private sector. As that contracting action ages, you have

changes in the work requirements; new work may be added. And

we’d look to see what extent there may have been limitations to

how the original performance work statement was written that

would cause changes to occur. You have changes in the mandated

wage rates under the service-contracting act. Those things happen

over time.

It sort of gives you a distorted picture or an inability to make a

direct comparison to where things were at the original point of

competition. But to the extent we’ve been able to do some case

studies within 1 or 2, 3 years of competitions, we’ve seen that those

savings are still there. We’ve seen some of the things I’ve talked

about in terms of wage-rate changes. We’ve seen changes in performance work statements. We’ve seen limitations and how the

original savings were calculated; limitations in the baseline, to use

to compare savings. But when we take all those things into consideration, based on the case studies we’ve been able to do, the majority of them, we found savings continue. I think over time the issue

becomes one of if you want to assure continued savings, it becomes

an issue of recompetitions after so many years, again, to—I think

the issue is competition as the driver to force, encourage the savings. I think that is probably the answer.

Mr. DUBOIS. Mr. Turner, may I add a comment?

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Mr. TURNER. Yes, Mr. Secretary.

Mr. DUBOIS. As I indicated in my opening statement, the Center

for Naval Analysis has done and continues to study these issues.

In fact, they examined in detail 16 cost-comparison studies, and the

study found that real savings were generated, were persistent, and

that in more than 80 percent of the cases, performance levels were

sustained or improved as reflected in satisfaction levels of users

and observers of performance. There are two in particular that I

think are worthy of note: one in your home State of Texas, Goodfellow Air Force base, where in the MOU the Government in-house

officer was the winning offer. Back in October 1994, there were 311

total government positions in competition. And this was for base

operating support, things such as facility maintenance and repair,

motor vehicle operations, supply operations, base telephone, switchboard, etc. The in-house offer which won reduced from 311 the

number of government positions to 176 civilians. A 37 percent expected savings was predicted, $22 million. The observed savings

was also achieved at that level, and the effective savings, that is,

to say the difference between the baseline costs and the real costs

to providing the same set of functions as defined in the performance work statement was $27 million.

There was one other issue, one other specific that I thought was

worth mentioning, wherein the private sector won, Peterson Air

Force base in Colorado. The functions competed were vehicle operations and maintenance. The original number of government positions in competition were 99. The private sector bid won, resulting

in 73 positions, a $7.3 million expected savings; in terms of observed savings, slightly less, $6.6 million. In both cases, the performance level results were satisfied or very satisfied by the user.

There were a couple of other points that you made that perhaps

I could clear up just a bit. And one is that A-76 procedures only

apply to work currently done in house. My comment that 2 percent,

only 2 percent of the services outsourced were done under the A76. It doesn’t include new work or, as an example, the Navy-Marine Corps intranet procurement. It’s essentially a service contract,

but it’s also $13 billion, the largest in the history of the Department, and was not done under A-76. The issue about competition

or the sustainment of a competitive environment and atmosphere,

of course, the contract is not forever. It is not in perpetuity. Most

contracts are recompeted every 5 years, and every contract is reviewed every year. And some contracts have been discontinued, as

was mentioned earlier today. Thank you.

Ms. STILES. Mr. Turner, if I could make a statement there. I’d

like to clarify A-76, the circular itself, does apply to new work. Inhouse organizations can submit a bid for new work under the circular. And I’d also like to say that for our fiscal year 2002 goals,

only direct conversion, under 10 people applies. And only A-76 private—public-private competitions apply. So those are the only two

things that the agency can use to meet our goals.

Mr. TURNER. Thank you. Thank you, Mr. Chairman.

Mr. TOM DAVIS OF VIRGINIA. Thank you. Ms. Davis.

Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Mr. Chairman; and

thank you all for being here to testify today. Mr. Holman, one of

the most important elements of the competitive outsourcing is the

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ability of the Government to access the latest in technologies provided by our private industries. It’s especially true with our Armed

Forces. Do you believe that, if implemented, the TRAC Act will

hinder the military as it moves into the 21st century?

Mr. HOLMAN. Ms. Davis, that’s—I like that question. It’s a tough

one to answer, but I like it. I’m in sympathy with much of what’s

being tried to be accomplished with the TRAC bill in terms of trying to get more information. Certainly, there’s a frustration there

at times of not being able to know more of what’s taking place. One

of the issues as I look at the TRAC bill is just that one, what would

happen in the area, say, of information technology if the TRAC bill

is intended to cover all contracting actions and, as I indicated just

a few minutes ago, we see so much of the contracting actions taking place today, a large increase related to information technology.

We know there’s difficulty in attracting and retaining personnel

with that capability. So it does raise a question of how it would affect that area.

Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Mr. Holman. You’ll

find that the Armed Forces, or Armed Services, is very important

to me for my district. And in the same light, you know, we just had

a problem with one of our small bases where the A-76 study was

being conducted; and I had a lot of constituents, quite a few actually, who only had a year left until they retired. So you know, it’s

a double-edged sword for me. I don’t want to see, you know, my

constituents lose their jobs; but yet our national security interest

is of utmost importance for me.

Which brings me to a question for you, Mr. DuBois. The TRAC

bill, according to Mr. Wynn’s testimony, would make exceptions in

the case of the national security interest. Who would determine the

national security interest? Under the TRAC act, could the DOD remove itself or would the GAO make that decision? Do you know?

Mr. DUBOIS. I’m not sure, Ms. Davis. I’ll have to look into that

and report back to you.

Mrs. JO ANN DAVIS OF VIRGINIA. If you could let me know that,

I would really appreciate it.

Ms. STILES. I believe it would be OMB that makes the determination.

Mrs. JO ANN DAVIS OF VIRGINIA. OK. Thank you very much, Mr.

Chairman.

Mr. TOM DAVIS OF VIRGINIA. Thank you very much. Mr. Waxman.

Mr. WAXMAN. Thank you, Mr. Chairman. Ms. Stiles, as you

know, a panel of experts chaired by GAO Controller General David

Walker has been established to examine the OMB circular A-76,

and they’re due to report to Congress on reforms next year. We’ve

heard those in support of the TRAC action we should wait until

next year before pushing for its passage so that we may have the

benefit of the panel’s report. On the other hand, the Bush administration certainly didn’t take this approach.

As you mentioned in your testimony, in a March 9 memorandum,

OMB’s Deputy Secretary Sean O’Keefe expressed the President’s

commitment to review at least one-half of the Federal positions

listed on the FAIR Act inventory of commercial functions for possible contracting out. That translates to a cut in the Federal work

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force of as many as 425,000 people. Reducing the Federal work

force by 425,000 jobs certainly appears to be a broad change. I’m

curious to know why the Bush administration didn’t wait for the

panel’s report before choosing to aggressively promote contracting

out.

And before I ask you to comment on that, I want to point out

that from the beginning of its tenure, the Bush administration has

taken a series of antiworker actions. First, President Bush issued

a number of Executive orders, including one that eliminated the

National Partnership Counsel, which was created to improve labor

management relations throughout the Federal Government. Second, the administration repealed their ergonomics rule and is

working to permanently delay implementation of the contractor-responsibility rule. Now the Bush administration is pushing for more

outsourcing. You’ve suggested you’re just opening the work to competition, not automatically outsourcing; yet the March 9 memorandum states that direct conversion is possible as an alternative to

public-private competition.

The Bush administration, in my view, should rescind this latest

policy of aggressive outsourcing and follow its own rhetoric. It

should wait until it has heard from the panel of experts about how

the Federal Government can improve, but certainly not abolish the

private-public competition process.

What’s your response?

Ms. STILES. Direct conversions are part of the A-76 circular, and

only direct conversions of less than 10 employees will apply. So if

you look at the competitive-sourcing goal, it’s a competitive

sourcing initiative. Competition is the key. It is not outsourcing.

The only two items that will apply are direct conversions of less

than 10 people, this is for fiscal year 2002, and A-76 public-private

competitions.

Mr. WAXMAN. There’s been repeated talk and pressure to reduce

the Federal work force; and those who call for a reduction in the

Federal Government, they said the Government will get smaller if

we have a smaller work force and taxpayers save money. But the

facts show that shrinking the Federal work-force does not shrink

the Federal Government because contractors are hired in place of

the Federal workers. Paul Light of the Brookings Institution estimates a contractor work force is 5.6 million people strong and the

Federal work force is less than a third of that, at about 1.8 million

people. He further explains that except for DOD and DOE reductions due to the end of the cold war, the size of the contractor work

force is increasing rapidly, and the trend is to continue expansion.

With a contractor work force more than triple that the size of the

Federal Government, I find it troubling that some suggest we’re decreasing the size of government. Now President Bush wants to reduce the Federal work force by as many as 425,000 more people.

Do you have any guarantees that this further reduction will result

in a smaller Federal Government and save taxpayers dollars?

And before you answer that question, I want to add that I think

we’re heading in the wrong direction. The existence of 5.6 million

contractors is stunning. Sometimes agencies have to hire contractors to be the overseers of other contractors. OMB should be reviewing its policies to decrease its reliance on contractors. Also

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OMB should ensure that Federal workers are available as contract

managers. In addition, OMB should be measuring the Federal Government’s performance by quality, not by reductions in quantity.

And even if the goal is to reduce the Federal work force, which I

think is a misguided goal, we cannot suggest that we have made

such a reduction if we’ve added contractors to replace Federal employees.

What do you have to say to that?

Ms. STILES. I’m sorry. What is the question?

Mr. WAXMAN. Well, my question is, how do you respond to the

comment by Mr. Light at Brookings that we’re not reducing government? And then do we have any guarantees that this further reduction in the work force will result in a smaller Federal Government and save taxpayers dollars?

Ms. STILES. The A-76 Competitive Sourcing Initiative is part of

a much larger goal of the administration to link budget to performance. This isn’t an outsourcing initiative. We want to be able to reflect the true cost of contracting to the taxpayer. What A-76 does

is when you have the public-private competition, you get to see

what the true cost is, which you don’t get to see in the current

budget process. So it’s part of a much larger initiative that we’re

looking at right here. I think several people from OMB have spoken earlier this week on our move for full cost budgeting.

Mr. WAXMAN. Well, let me ask you to respond to that first question I asked you and that’s, why isn’t the Bush administration

waiting for the GAO report on this whole subject before moving aggressively in the area of reducing the work force of the Federal

Government?

Ms. STILES. We’re not aggressively moving to reduce the work

force. We’re moving for competition for the goals of savings, innovation and improved performance, as well as improved management.

Mr. WAXMAN. I know, but GAO will tell us whether we’re really

get savings and efficiency and all of those good goals. We ought to

find out their evaluation of what we’ve done to this point first.

Ms. STILES. We are actively participating in the GAO review

panel, but we’re not going to wait for the benefits of competition.

Mr. WAXMAN. Well, my time is up. I think you’re not waiting

until you get the benefits of the information that I think would give

you a better basis for making a decision as to what direction to

pursue. Thank you, Mr. Chairman.

Mr. TOM DAVIS OF VIRGINIA. Just to go on with what Mr. Waxman was saying, if I could continue. One of the major concerns—

and I think I expressed this in my early concerns—I think I was

allayed with what you said, but let me make sure I understand.

Cutting Federal employees doesn’t mean you save a nickel. You

agree with that. Correct?

Ms. STILES. Absolutely.

Mr. TOM DAVIS OF VIRGINIA. I mean, the real question we ought

to ask is not how many Federal employees you have or don’t have,

but how much money are we saving the taxpayers. And I think I’ve

heard at least from this panel a unanimous agreement that just by

competing out, even if it’s kept in-house, it gets more efficient by

having to go through the competition. Is that, at least on this

panel, is that how it’s felt?

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Ms. STILES. Absolutely.

Mr. TOM DAVIS OF VIRGINIA. But ultimately I think the previous

administration set some arbitrary numbers. We had some problems

in our district where a number of people were going to be cut from

the Federal work force as if this somehow accomplished something

good. And at the end of the day, we’ve got to ask did you save any

money by it. And it’s something this subcommittee’s got to watch

because we’re interested in savings, absolutely. But I am not sure

that you can always equate getting rid of Federal positions as savings.

And you have to make that case, and I think how we measure

that is, as I read the study from GAO, we’re not always accurate

in terms of how we determine that. We need to look for better ways

to do that. Certainly, from the Federal employee community,

there’s a concern that some of these go out; and you track it 3, 4

years later as the work orders change, it’s very difficult to measure

if you’ve got real savings or not. And I think you can understand

that.

Ms. STILES. I think a large part of the problem was, as I was trying to describe, is that we don’t have full cost budgeting right now.

A program manager in the Federal Government can’t make a rational decision based on the true cost to the taxpayer because of

the current budget process, and we are trying to change that. We

are trying to reflect the true cost so they will know and be able to

make a rational decision on what should be performed, and by

whom.

Mr. TOM DAVIS OF VIRGINIA. OK. The FAIR Act by publishing

yearly inventories of commercial functions by positions has made

commercial activities within the Federal Government transparent.

What efforts does OMB plan to provide the same transparency with

the contractor work force? Do you understand what I’m saying?

Ms. STILES. No. Can you repeat that?

Mr. TOM DAVIS OF VIRGINIA. Yeah. We publish yearly inventories

of commercial functions by positions within the Federal Government. OK? And you do that under the FAIR Act. On stuff that’s

already outsourced, are we reviewing that to make sure that this

meets the same criteria in looking at bringing some of that inhouse or not?

Ms. STILES. There has been initiative within the Army,

which—— Mr. TOM DAVIS OF VIRGINIA. All right. Maybe Mr. Dubois, are

you familiar with that?

Ms. STILES. But I can also say——

Mr. DUBOIS. I’m not familiar with the specifics of the Army.

Mr. TOM DAVIS OF VIRGINIA. Well, could you look at that and get

back with us.

Mr. DUBOIS. I certainly will.

Mr. TOM DAVIS OF VIRGINIA. I think everybody needs to understand all the rules. This is very complicated. I’ve been doing it for

years, and there’s still things I don’t understand.

Ms. STILES. I mean, as a general proposition, we know the service dollars that are being contracted. I think the cost of determining the contract employees far out weights the benefits of knowing

that number. I mean, the cost to determine that is rather substanVerDate 11-MAY-2000 10:57 Sep 12, 2002 Jkt 000000 PO 00000 Frm 00106 Fmt 6633 Sfmt 6633 C:\DOCS\80842.TXT HGOVREF1 PsN: HGOVREF1
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tial, and ultimately it comes back to the taxpayer because contractors, if they’re going to have to tell us those numbers, are simply

going to charge us more for the goods and services they’re providing.

Mr. TOM DAVIS OF VIRGINIA. Let me ask you this: in recent years

there’s been a significant emphasis on reducing the size of government. To what extent are FTE ceilings, full-time equivalent employee ceilings, on the Federal Government or civilian work force,

either implicitly or explicitly forcing agencies to contract for services? Have you seen any of that?

Ms. STILES. No, and that is not certainly any part of our initiative.

Mr. TOM DAVIS OF VIRGINIA. It’s not in here. It has been, though.

It was previous to this that there were FTE goals that were sent

out, both by Congress and the administration.

Ms. STILES. We do not believe the agency—Department should be

managing based on FTE ceilings.

Mr. TOM DAVIS OF VIRGINIA. OK. Mr. Holman, you agree with

that?

Mr. HOLMAN. I think in the past we’ve seen concerns on the part

of government workers the perception that there were artificial

ceilings that were forcing work to go out of house. It’s one of those

things that’s difficult to gauge. But to the extent there are, you

know, arbitrary ceilings or artificial cuts mandated in the Federal

work force that aren’t necessarily tied to specific reductions in

work, I think it fosters that perception.

Mr. DUBOIS. Mr. Chairman, if I might, both in the public and in

the private sector, I’ve seen these so-called head-count exercises. In

fact, as a practical matter, the Congress requires the Department

of Defense to submit every year a management report on how

many folks are in their so-called headquarter units and components

beginning with, obviously, the Office of the Secretary of Defense.

My view, and I think the view of the Secretary, is that to utilize

only that metric—the metric of head-count and not the metric of

how much we’re spending to get what level of service doesn’t make

much sense.

Mr. TOM DAVIS OF VIRGINIA. Last question for the GAO here.

Could you report to the subcommittee, not today, all of the reporting and the auditing requirements that contractors have to comply

with today when they’re contracting with the Department of Defense. That would be helpful for us. And if you could then say also

with the civilian agencies and just look at what we are asking

them to do in terms of getting information back to us on these, that

would be helpful to us. As you know, we end up getting charged

for this.

Mr. HOLMAN. Dealing with the A-76 process?

Mr. TOM DAVIS OF VIRGINIA. Contract-wide.

Mr. HOLMAN. OK. We can work with you on that.

Mr. TOM DAVIS OF VIRGINIA. And in general there are going to

be obviously specific contracts where you’re asking for other items

and stuff. But we’d like to understand what burden we’re putting

on contractors in terms of reporting back; what information we’re

getting; is it the right information; should we be getting additional

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information, or is there some information here that’s maybe not

useful.

Mr. HOLMAN. OK. Yes, sir.

Mr. TOM DAVIS OF VIRGINIA. I thank you. I’m sorry. Mr. Kanjorski.

Mr. KANJORSKI. Thank you very much, Mr. Chairman. The testimony I’ve heard so far sort of concentrates on cost and quantity,

the cost to the Government and the quantity of employees, or the

private sector contractor employees. I’m more interested, have you

done any followup, Mr. Holman, on the effect of quality? Let me

give you an example. If we wanted to save in congressional offices,

we’d just adopt a policy that we fire an entire staff every 2 years

and rehire them, because they’d never have to be paid an incrementally higher amount. But then we’d be trading off some experience and some quality that we assume employees gain over a number of years of performing a certain task. Are you examining the

loss of quality in the Federal work force that occurs by this shifting

to the private sector?

Mr. HOLMAN. Well, Mr. Kanjorski, we’ve done some case studies

ostensibly to try to get information on what happens to costs. We’ve

also been sensitive to that issue of quality of service being provided; and certainly, you know, we’ve seen cases here or there

where there have been contractor problems, contractor default. But

they’ve been the minority of cases that we’ve looked at. I mean, one

of the benefits of the A-76 process is that agencies are required to

put in place a management plan to oversee these contracts. And

again—and it’s been a limited number we’ve been able to look at;

but where we looked at them, the quality has pretty much been

there.

Mr. KANJORSKI. OK. Well, I’m curious. I could give you a suggestion to the Defense Department. A number of years ago, I went

through your educational program and it’s probably 9,000 teachers

in the Defense Department. Many of them have 20, 30 years of experience. They’re exceptional. You could fire them all and hire recent college graduates and save an enormous amount of money,

probably 50 percent. Now, I don’t know what the tradeoff is there.

But let me talk about something that does disturb me and that

is recently we sent helicopters to Kosovo, and I think they were on

the ground for at least 60 or 90 days and never took off. And as

I understand, the reason is that they were not maintained and

ready for combat service, because all of the maintenance and service for most type of facilities and most aircraft in the Defense Department are provided by contractor employees not government

employees. Now, I was astounded to find out that we’re sending

combat forces into combat zones, and we have to bring contract employees to service them. I can’t believe that’s a moving Army. And

if you can justify that in the name of savings, I’ve got a good deal.

China Inc. has offered to maintain the entire Air Force of the

United States at a much cheaper price. They’ll even build the

planes for you cheaper. But is that where we want to go?

Mr. DUBOIS. No, I don’t think that’s where we want to go, Congressman. I would suggest that particular situation, which is in another component other than mine, the helicopters and the maintenance contracts——

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Mr. KANJORSKI. Well, is that correct or not?

Mr. DUBOIS [continuing]. Were not the Department of Defense.

They were another agency.

Mr. KANJORSKI. They were what?

Mr. DUBOIS. They were not Department of Defense contracts, as

far as I understand. They were another agency’s contracts.

Mr. KANJORSKI. They weren’t the Air Force?

Mr. DUBOIS. Not to my knowledge.

Mr. KANJORSKI. Do we have a helicopter service or something?

Mr. DUBOIS. No. You might address your question to the Drug

Enforcement Agency.

Mr. KANJORSKI. I’m sorry.

Mr. DUBOIS. You might address your question to the Drug Enforcement Agency as opposed to—— Mr. KANJORSKI. In Kosovo it was the Drug Enforcement Agency?

Mr. DUBOIS. No. I’m sorry. I thought you were talking about

South America.

Mr. KANJORSKI. No, I was talking about Kosovo. We put in 90

Black helicopters, or whatever they call them.

Mr. DUBOIS. Blackhawks.

Mr. KANJORSKI. None of them flew in combat because they were

not ready for combat and because we did not have the maintenance

force in place to service them. That’s what my understanding was.

Mr. DUBOIS. I think it’s a legitimate question. I’ll get you an answer on that. It’s an area outside my component.

Mr. KANJORSKI. OK. Am I correct that all these military bases

across the country, the military does not provide the maintenance

work force; but, in fact, those are all private contracts out there?

Mr. DUBOIS. To my knowledge that is not correct, sir.

Mr. KANJORSKI. OK. Do you know what number is privately contracted out?

Mr. DUBOIS. No, I don’t. I’ll get that answer for you.

Mr. KANJORSKI. OK. I would suggest there is a military base outside of Boston, MA, that has 1,500 aircraft maintenance people.

They’re all private contractors. They’re not government employees.

Now, I haven’t checked the others; but I’d like you to look into that

because I think it goes right down to the level of what I’m talking

about, quality, and providing the needed operation. I’ve got a facility in my district that’s a depot and it’s an electronic depot. And

now they’re allowing contractors to provide throwaway items that

do not meet military specifications. And a lot of this equipment’s

going to get into the field and not work. And what are we going

to do about this? We have billions of dollars and a strong Army to

move; but all because of this cost, and I don’t not want to save

costs.

But carried to its ultimate result, we should hire the Chinese

Army. It’d be a lot cheaper in defense. And I’m afraid in government we’re getting carried away. Ms. Stiles, I’m not picking on you.

But a couple of years ago, one of the administrations wanted to replace the IRS accounting with private contracting firms. And it

makes eminent sense. You could make a great argument about it.

But I can tell you, I’m one of the taxpayers that doesn’t want a private contractor person knowing what my income tax statement is.

And there’s confidential information in government all the time

106

that is given to government because they can lose their jobs; they

can be prosecuted. They have to perform a standard to keep their

job. But you’re looking at it from a dollar sense. Your paycheck,

you know, do you want a private contractor to provide that paycheck and know everything about you? It’s up to you. I don’t particularly think that’s always the best quality of service.

Mr. TOM DAVIS OF VIRGINIA. Thank you. The gentleman’s time

has expired.

Ms. STILES. If I can address that?

Mr. TOM DAVIS OF VIRGINIA. Sure.

Ms. STILES. I think even if there were not any cost savings associated with our competitive sourcing initiative, there is so much improvement in management and performance and innovation it

would probably be worthwhile if there weren’t the savings there.

Mr. KANJORSKI. Why don’t you start on the management side, as

Mr. Waxman said, and wait for the review board to come back before we start putting in these new Executive orders and change the

system?

Ms. STILES. We don’t have any new Executive orders, and we

were working with the GAO review panel; and we intend to continue to do so.

Mr. TOM DAVIS OF VIRGINIA. The gentleman’s time has expired.

Ms. Davis.

Mrs. JO ANN DAVIS OF VIRGINIA. Yes, I just have one quick question, Mr. Chairman. Ms. Stiles, you stated when I asked the question earlier on the TRAC legislation that OMB will determine the

national security interest. Currently with the outsourcing, who determines whether something is national security interest when

they hire, you know, when they outsource it?

Ms. STILES. If it’s an inherent governmental function, it is not

subject to A-76.

Mrs. JO ANN DAVIS OF VIRGINIA. Would maintenance of aircraft

be considered national security interest?

Ms. STILES. I’m assuming the determination is probably made by

the Department of Defense.

Mr. DUBOIS. Right. And certain aircraft are maintained by the

original equipment manufacturer. Other aircraft are maintained in

our depot systems, and that is determined by the service chief in

each individual service.

Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Mr. Chairman.

Mr. TOM DAVIS OF VIRGINIA. Mr. Cummings.

Mr. CUMMINGS. Thank you very much, Mr. Chairman. Ms. Stiles,

and all of you, I thank you for being here. And Ms. Stiles, I want

to pick up where you left off question before last. You said even if

there wasn’t cost savings—could you repeat that for me?

Ms. STILES. This initiative would be worthwhile even if there

weren’t savings associated with it because what we see through

public-private competitions is significantly improved management,

be that on the private sector side or in in-house organizations. We

see innovations, and the benefits are significant. It’s not just cost

savings.

Mr. CUMMINGS. And I’m sure that you could refer us to the reports that you’re talking about so we have a basis for what you just

said?

107

Ms. STILES. Well, I think Mr. Holman, a few minutes ago, was

talking about the quality; and I think they have said that the quality is good. But I would certainly submit for the record.

Mr. CUMMINGS. Yeah, I’d like to know what you base your opinion on. OK?

Ms. STILES. OK.

Mr. CUMMINGS. One of the things I guess that has always concerned me—and as I walked up the hall to see all the people in the

hallway and I have a lot of Federal employees in my district, it

seems like so often what happens is Federal employees get a bad

rap. And I think that—and these are hard-working Americans who

give so much to their country. They are the glue to keep our country together. And sometimes I really begin to wonder about whether we are true to them as they are to us.

And then I look at a situation where just yesterday it was reported by the General Accounting Office that there were some

health care contractors who were taking seminars given by consultants on how to take advantage of Medicare and Medicaid through

questionable billing techniques. And then a matter that I’m very

close to since I’m the ranking member on our Criminal Justice Subcommittee, Ogilvie and Mather, who was contracted by the Federal

Government to produce some—we contracted with them, this advertising agency, to do some work for us with regard to our antidrug messages. And they have been referred to the Justice Department by this administration.

Can you tell me what guidance your office has given agencies to

insure that the proper contract—the managers are in place to avoid

this kind of abuse? Because we should be just as upset about people, private contractors who allegedly, in this case, abuse the system, misuse our tax dollars that we’ve worked hard to give to the

Government. We should be just as concerned about them as we are

about the things that you’re talking about today. And since these

are folks—and we spent millions, millions upon millions of dollars

for an ad agency to put out ads to help our children, to save their

lives, to keep them off of drugs. And now we’ve got a referral by

the Bush administration to the Justice Department. So help me

with that.

Ms. STILES. I think there are always going to be problems, but

hopefully they’re ones that we can solve through our current Federal acquisition system. I think your first reference was to the

Medicare contractor; is that correct?

Mr. CUMMINGS. Yes.

Ms. STILES. Medicare contracts are not governed by the same

rules that other contracts are governed by the Federal acquisition

regulation. Hopefully, though, those regulations do work. And the

system does work most of the time. And to the extent it doesn’t,

I think we need to try and fix it.

Mr. CUMMINGS. I mean, are you doing anything to—again, my

question was, what guidance are you giving OMB as to how to deal

with these agencies to ensure that these kinds of things don’t happen?

Ms. STILES. Well, I mean, we have a whole set of regulations that

we work with all of the civilian agencies to implement to make

sure that we have a procurement system that works. And the enVerDate 11-MAY-2000 10:57 Sep 12, 2002 Jkt 000000 PO 00000 Frm 00111 Fmt 6633 Sfmt 6633 C:\DOCS\80842.TXT HGOVREF1 PsN: HGOVREF1
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tire Federal acquisition regulation is there to ensure that we provide—that the contracts that we have are good contracts and run

efficiently and effectively and that we avoid these problems. But I

think they are going to happen sometimes.

Mr. CUMMINGS. Now, going back to my first statement, when

you’ve got people who have worked hard for the Government for

many years, who have tennis shoes to buy this September, who

have to feed their families, and who have done a good job over and

over again, I mean, I’m just wondering what’s the Bush administration’s feeling about them, like the people who are sitting behind

you, all of whom represent families—— Ms. STILES. Absolutely. I don’t think—— Mr. CUMMINGS [continuing]. Just like you do.

Ms. STILES. Actually, I don’t think our feelings are any different

than yours.

Mr. CUMMINGS. I’m sorry. I didn’t hear you.

Ms. STILES. We fully support the Federal work force. My experience has been with the acquisition work force before coming to this

job, and it’s been an excellent experience. We have good workers

out there.

Mr. TOM DAVIS OF VIRGINIA. OK. Thank you very much. The gentleman’s time has expired. Mr. Kucinich.

Mr. KUCINICH. Thank you very much, Mr. Chair. I want to thank

the Chair for his indulgence in allowing me to ask a few questions,

and I want to thank the panelists for their participation. Mr.

Chairman, I just want to start out by explaining that I have a situation back in my home district in Cleveland, OH, where the Defense Financial and Accounting Service [DFAS], employs about 450

people in Cleveland who perform retiree and annuitant pay functions for the military. This operation was recently contracted out

through an A-76 review to a company called ACS Government Solutions Group. And apparently, this firm has said that it’s going to

provide savings to the Government over the next 10 years. So this

conclusion is certainly subject to close consideration.

I would like to ask a question to Ms. Stiles. Do agencies monitor

the type of wage-and-benefits package contractors offer their employees once work is outsourced?

Ms. STILES. As a general proposition, no. There has been an

initiative—— Mr. KUCINICH. Could you speak closer to the mic?

Ms. STILES. Certainly. As a general proposition, there has been

a general initiative——

Mr. KUCINICH. There has been an initiative?

Ms. STILES. Yeah, to take a look at the contractor work force. So

we’re going to have to get back to you.

Mr. KUCINICH. So what’s your answer, that you really haven’t

monitored it, but you’re going to?

Ms. STILES. No. There’s been an initiative that was recently suspended within the Army to take a look at the contractor work force,

the number of contractor employees that are working, as well as

some more of the specifics. I mean, there was an initiative to collect

some of the data, but aside from that, no.

Mr. KUCINICH. So I’ll just go over the question again because this

question is phrased, as you know, quite deliberately; and I just

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want to make sure I have your right response. Do agencies monitor

the type of wage-and-benefits packages contractors offer their employees once the work is outsourced?

Ms. STILES. As a general proposition, no.

Mr. KUCINICH. No. OK. Isn’t it possible that companies like ACS

Government Solutions out-bid Federal workers by providing less

compensation to employees over the life of the contract?

Ms. STILES. I believe that’s possible, yes.

Mr. KUCINICH. OK. The Economic Policy Institute reports that

more than 1 in 10 Federal workers earn less than a living wage.

Now, isn’t it possible that contractors realize savings by fighting

unionization and otherwise violating the spirit of labor laws?

Ms. STILES. I’m sure that they are paying the wage based on the

competitive pressures that they face.

Mr. KUCINICH. OK. And do you think this puts the Government

in this difficult position of being in the business of saving money

on the backs of workers who are also U.S. taxpayers, who are loyal,

who are well trained, who are honest and who are, you know, being

supervised under government laws and regulations. I mean, does

that—how do you respond to that?

Ms. STILES. I think the dynamic of competition benefits everyone,

particularly when we’re looking at this A-76 initiative. We’re looking at cost-savings improved-performance innovation. It’s a benefit

to everyone involved.

Mr. KUCINICH. OK. Thank you. Do any of the agencies monitor

how contractors treat their employees once they receive work?

Ms. STILES. No, not that I know of.

Mr. KUCINICH. And Mr. Holman, has GAO conducted any such

study?

Mr. HOLMAN. Congressman, we’ve done some work to try to

evaluate what happens to the pay and benefits of Federal employees that are affected by A-76 studies. It’s more on a case-study approach. And I have to say that as a result of it we have to say we

can’t draw universal conclusions what happens, because it varies

with so many factors. A lot of it has to do with the locality where

the action takes place, the technical nature of the work. A lot of

it has to do with the age of the Federal employees.

Mr. KUCINICH. Well, I’d like to—I can appreciate there are variables. Now, according to the numbers I have from the DOD, of the

286 A-76 reviews it conducted over the last 5 years, only 8 of them

were on work performed by contractors. Would GAO be receptive

to a request from, perhaps, the ranking member, with his indulgence or from any member of the Government Reform Committee

to do such a study which deals with the type of wage-and-benefit

packages that are offered employees once they’re outsourced and

also to look at some of these issues that are raised here with respect to how contractors treat their employees once they receive

work?

Mr. HOLMAN. We’re certainly receptive to doing more work in

that area as needed. But let me say that, you know, we have

looked at that issue and we’ve seen instances where employees, as

a result of the contracting action, the work is outsourced they may

make less. They may make more. One of the difficulties, again, is

with the age of the Federal work force, so many nearing retirement

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age. When a contract, an A-76 action, happens, an award goes to

the private sector, the contractor is anxious to have those workers.

That’s how they’re going to build their work force, a skilled work

force, if they can.

Mr. KUCINICH. I know my time’s expired.

Mr. TOM DAVIS OF VIRGINIA. It is.

Mr. KUCINICH. I want to thank the Chair, and I just want to say

that my concern would be that it’s easier to pay younger workers

less and get rid of dedicated older workers. I’ll send a followup letter to GAO. I want to thank the Chair for his kindness.

Mr. TOM DAVIS OF VIRGINIA. Let me just say from my perspective

I think one of the problems is that we have too much oversight of

some of these contractors in terms of what they’re paying, how

much they can pay benefits. In my experience back before I came

here, I saw just a lot of overregulation, sometimes from auditors

and stuff looking at things that had no bearing at all on what level

of service the Government was getting or how much they were paying and trying to tell companies how they had to run their business. So Mr. Kucinich thinks we don’t have enough regulation. One

of the questions I asked before is maybe we have too much in that

area. So we have divergent opinions on that. But you’re going to

hear that because we have a lot of different opinions up here today.

I appreciate your indulgence. Anything anybody wants to add before I dismiss this panel and move on to the next?

Mr. DUBOIS. I think there is one issue that has now been raised

both by Mr. Cummings and Mr. Kucinich, and that is a concern

that I have about the fabulous quality that we have in the Federal

work force today, which is very close over the next 5 years, a large

percentage of that Federal work force, that quality work force is eligible for retirement. And one of the ironies here may very well be

that the only way to access that quality work force is after they voluntarily retire is contract for them.

Mr. TOM DAVIS OF VIRGINIA. One of the other parties—I think

we talked before about some of the incentives we have within the

existing Civil Service structure to retain good employees in their

early career and given the career path. The current Civil Service

system doesn’t really allow what we need to do in those areas. But

you’re right, the next 5 years are a huge test for us; and because

of some of the revolving-door arguments that have been put in by

preceding Congresses, the only way we can access some of these

people is to move them out into the private sector. Mr. Turner has

a couple of questions, and then we’ll let you go.

Mr. TURNER. Ms. Stiles, you mentioned earlier in your remarks

and testimony that there is a new change in the A-76 procedure

that will permit interagency servicing agreements to be open to

competition and it would be published tomorrow in the Federal

Register. Is that an invitation for comment, or is that a directive

that this change will occur?

Ms. STILES. Invitation for notice and comment.

Mr. TURNER. And Mr. Holman, from your perspective—obviously

we’ve talked about DFAS, the Defense Finance and Accounting

Service—and Mr. Kucinich referred to it having lost a contract to

the private sector. That agency, as we mentioned earlier, does a lot

of interservice, or interagency servicing, of the checks and those

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kind of things for other agencies. Do you happen to know why

interagency servicing agreements were exempt initially from A-76?

Mr. HOLMAN. I’m not sure why they were exempted other than

perhaps there was probably an interest at a point in time to encourage interservicing as a way to take advantage of capabilities

that existed across agencies to achieve efficiencies that way. That

would be just speculation on my part, though.

Mr. TURNER. I know you may not have been familiar with the

news just announced, but it seems to me that this is going to be

a—quite a difficult area to move into. I’m sure DFAS has made a

significant investment in equipment and personnel to handle the

interagency servicing agreements that it does currently manage;

and obviously, we want those kinds of interagency agreements to

work as efficiently as possible. But in truth and fact, whatever payments are being made by other agencies for that service is going

back into the Treasury as a result of the interagency agreement.

So it seems to create quite a much more difficult area to analyze;

and, in fact, if some of our agencies begin to lose interagency contracts, the investments in equipment and personnel and training

that have been made may create losses to us that will be difficult

to evaluate, as well as we may lose economies of scale that exist

perhaps in DFAS that performs those services for a large number

of Federal agencies.

So I would be interested if you have any concerns about moving

into that area of interagency servicing agreements.

Ms. STILES. Can I clarify the scale that we’re looking at here?

These are only interagency service support agreements that were

entered into prior to 1997, so the universe is smaller than you

might think. Ones after that point in time are subject to competition. So this is just removing a grandfathering provision.

Mr. TURNER. And would that affect DFAS?

Ms. STILES. Yes.

Mr. TURNER. OK.

Ms. STILES. To the extent that the agreement was entered into

before 1997.

Mr. HOLMAN. Right. Again, I think the driving factor behind the

A-76 process is—the forcing action is competition as a way to

achieve greater savings, whether the existing government—obviously, the current activity is competing for that, continuing that

work. Again, that’s why so many of the competitions are won by

the in-house organizations. Where they lose—again, many of the

contractors are very anxious to try to recruit the former government employees because they do see that as an experienced base

of workers.

Sometimes it’s difficult to attract those workers, though, because

many of them are in that age group of that it’s just a few years

of retirement and they don’t—they’re wanting to seek that retirement under the Civil Service Retirement System or the FERS system. So that does make it difficult to track those workers at times.

But on the other hand, our work has shown that many workers do

retire and many of them do go work for these contractors and can

fare rather well. I’m sure you know it’s a mixed bag. Again, it’s

very difficult to draw universal conclusions, but you do see a range

of actions that many times are very positive.

112

Mr. TURNER. Thank you, Mr. Chairman.

Mr. TOM DAVIS OF VIRGINIA. Thank you very much. Let me

thank this panel very much. Ms. Stiles, thank you very much for

being here, your first day back. I think you did a great job. I hope

the administration ought to be proud of what you’ve done.

Ms. STILES. Thank you.

Mr. TOM DAVIS OF VIRGINIA. We look forward to working with

you, and I think you can hear the array of views we have up here

in the Congress on these issues that we can synthesize and work

with over the next 2 years. So we thank all of you very much.

Mr. TOM DAVIS OF VIRGINIA. Let’s take a 2-minute break as we

move the next panel up. Anybody who will be on the next panel

need to refresh themselves or anything here before we get on because I know you’ve been sitting here a long time, we’ll be happy

to accommodate you. All right. It’s customary to swear in our witnesses. If you would just rise and raise your right hands.

[Witnesses sworn.]

Mr. TOM DAVIS OF VIRGINIA. We have your full statements, and

they will all be made part of the record. What I would ask is try

to limit your comments to 5 minutes, and then we’ll have plenty

of time for some questions and some give and take. I’m sorry it’s

been so late getting to you, but this is really the heart of the panels

right here. We’re going to get some different ideas on these issues

and go back and forth. And let me just say in advance we really

appreciate everybody taking the time to be here.

Mr. Harnage, we’ll start with you, and we’ll work straight on

down. Thank you for being with us.

STATEMENTS OF BOBBY HARNAGE, NATIONAL PRESIDENT,

AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES;

COLLEEN KELLEY, NATIONAL PRESIDENT, NATIONAL

TREASURY EMPLOYEES UNION; PATRICIA ARMSTRONG,

MEMBER, FEDERAL MANAGERS ASSOCIATION; PAUL

LOMBARDI, PRESIDENT AND CHIEF EXECUTIVE OFFICER,

DYNCORP, PROFESSIONAL SERVICES COUNCIL; TIMOTHY

PSOMAS, PRESIDENT, PSOMAS, AMERICAN CONSULTING ENGINEERS COUNCIL; AND COLONEL AARON FLOYD (RET.),

PRESIDENT AFB ENTERPRISES, INC., RETIRED MILITARY

OFFICERS ASSOCIATION

Mr. HARNAGE. Mr. Chairman and members of the subcommittee,

the AFG represents over 600,000 Federal and D.C. Government

employees across the Nation and around the world. And, Mr.

Chairman, last year you promised us that we would have a hearing

on our TRAC Act, and I want to thank you and let you know I appreciate this opportunity to appear before this committee. My written testimony includes a detailed discussion on the need for prompt

passage of the TRAC Act, a comprehensive Federal service contract

and reform legislation that has been cosponsored by 185 lawmakers, and it’s supported by 103 organizations that represent

over 15 million Americans.

Mr. Chairman, it is clear to us that OMB is working hand in

hand with contractors to sell off the Government. Over the next 4

years, the jobs of 425,000 Federal employees will be tossed up for

grabs, either directly converted to contractor performance without

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public-private competition or be subjected to public-private competition. No one knows what the mix will be, but it’s fairly obvious

the intent of the message. The failure of agencies to carefully track the more than $100 billion already spent on service contracts is well documented. Nevertheless, OMB is directing agencies to undertake massive increases

in service contracting-out without first establishing systems to

readily track the cost of this scheme. Although OMB officials say

they favor public-private competition, their policies tell the real

story. They’re encouraging agencies to use direct conversions to fulfill their arbitrary quotas of reviewing under A-76 the jobs of

42,000 Federal employees in fiscal year 2002 and another 85,000

in fiscal year 2003, a process that deprives Federal employees of

the opportunity to compete in defense of their jobs.

If the savings are in the competition, as OMB officials contend,

and not in contract amount, why eliminate the competition, especially given that we win approximately 60 percent of those petitions? Or is that the reason for direct conversions? OMB officials

are also very selective about how they use public-private competitions. Not a single job in the massive service contractor work force

will be reviewed for public-private competition or direct conversion

over the next 4 years.

And there is no sign that OMB will allow Federal employees opportunities to compete for new work. OMB insists that whether or

not Federal employees should be allowed to compete for new work

or work currently performed by a contractor is a decision that must

be left to agency discretion. However, it does not leave that same

discretion to the agencies when it comes to Federal employee work.

Let’s look at the facts. For years contractors have acquired almost all of their work without public-private competition. And for

years, contractors’ work is almost never subject to the scrutiny of

the A-76 process. The evidence that its agencies have abused their

discretion to not allow Federal employees opportunity to complete

is simply undisputable. Federal employees have paid a steep price

for these failures, and the interests of every single American who

relied on Federal Government services have not been well served

either.

That’s why AFG is a strong supporter of the TRAC Act because

it would require the agencies to establish systems to track the cost

of service contracting. And it will ensure that Federal employees

have opportunity to compete for our work and new work as well as

contracted work to the extent that they compete for ours. By ensuring that agencies can run themselves like businesses, and always

at least considering the possibility of in-house performance before

giving work to contractors, the Federal Government can improve

contract administration and begin recovering from the human capital crisis, the natural results of years of mindless downsizing and

indiscriminate service contracting, the self-inflicted crisis we face

today.

I also ask the subcommittee to support two additional pieces of

legislation, the legislation referred to by Congressman Gutierrez of

the Federal Living Wage Act, and I also urge the subcommittee to

include in this year’s defense authorization bill Representative

Charlie Gonzales’s bill to establish fairness and equity by providing

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standing to DOD employees to contest bad A-76 decisions before

the Federal claims court or the General Accounting Office.

As you know, the TRAC Act has won the allegiance of Federal

employees across the Nation and around the world because it is our

best hope of finally making Federal service contracting fair to Federal employees and accountable to the taxpayers. Today, in this

hearing room and out in the hall, we have employees from Maine

to Georgia, from Virginia to Wisconsin, from Kentucky to Oregon.

They do not want to work for an employer driven by the bottom

line. They want to work for their country and provide the best service to the American public.

Although there will be a comparison bill introduced in the very

near future, possibly today or tomorrow in the Senate, Mr. Chairman, I look forward to working with you and to move this important piece of legislation. Thank you for this opportunity to appear

before the subcommittee, and I’ll be glad to answer any of your

questions.

Mr. TOM DAVIS OF VIRGINIA. Mr. Harnage, thank you very much

for being here.

[The prepared statement of Mr. Harnage follows:]

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Mr. TOM DAVIS OF VIRGINIA. Ms. Kelley.

Ms. KELLEY. Thank you, Chairman Davis, ranking member

Turner, the subcommittee. As the national president of the National Treasury Employees Union, I want to thank you for the opportunity to testify today on behalf of NTEU members across the

country, Federal employees, 150,000 strong who do the work of our

Federal Government every day. We are here to debate who should

deliver government services and what the process should be for

making that determination.

I’m sure we can agree on a couple of things. We can agree that

government services should be delivered to the American taxpayers

in the most reliable, most efficient, and most cost-effective manner.

We can agree that steps need to be taken to resolve the Government’s human capital crisis to ensure that there are Federal employees to deliver the work of the Federal Government in the years

ahead. And we can agree that taxpayers rightly demand and expect

that there is accountability for how their tax dollars are spent on

delivering services.

When it comes to accountability and oversight of the Federal

work force there is crystal clear transparency. There is very little

we do not know about the quality and the costs of the government

services that are delivered by Federal employees.

However, we know virtually nothing about the contractor work

force and the work being done by contractors. What we do know

is often based on reports from the media, sometimes successes of

course but more often problems. One was referenced earlier by Mr.

Cummings concerning the Washington Post article on the advertising agency that’s producing anti-drug messages for the Government.

We also learned earlier this year that a contractor hired by the

IRS mistakenly mailed out forms that contained confidential taxpayer information to the wrong taxpayers, and just this week the

Boston Globe reported that a contractor hired by the IRS has lost

checks from 1,800 taxpayers.

Now, there should be the same level of transparency and accountability for the work performed by contractors as there is for

–7e work performed by Federal employees. Before Congress even

considers methods to change Federal accounting procedures or Federal contracting procedures, the taxpayers deserve to know exactly

how their tax dollars are being spent on current contracts.

Even though more dollars are doled out every year for contractor

work than is spent on the Federal work force, there is little or no

oversight of the Federal contracts once they have been awarded.

We need to get a better handle on the current contracts under a

new system, and NTE believes the way to do that would be for

Congress to support and approve the TRAC Act, which of course

would require agencies to implement systems to track whether current contracting efforts are saving money, whether the contractors

are delivering services on time and efficiently and that when a contractor is not living up to his or her end of the deal that the government work is then brought back in-house.

Unfortunately, even though no new accountability procedures

have been adopted, the administration has taken the extreme actions that will undoubtedly exacerbate this problem with contractVerDate 11-MAY-2000 10:57 Sep 12, 2002 Jkt 000000 PO 00000 Frm 00175 Fmt 6633 Sfmt 6633 C:\DOCS\80842.TXT HGOVREF1 PsN: HGOVREF1
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ing out and the lack of oversight. For example, OMB recently directed agencies to include inherently governmental jobs on the fair

inventory lists to be submitted this month. Inherently governmental work was deliberately excluded from the scope of the FAIR

Act because there was a bipartisan consensus that inherently governmental work should be performed by Federal employees. If it is

listed, it will just be a matter of time before contractors are performing inherently governmental jobs.

It is very, very difficult to assign cost values to the protection of

the privacy of America’s taxpayers, to the security of our Nation internally and externally, or responding to the economic or unknown

crisis in the future. But the question is, is it worth the long-term

risks to our Nation to shut the Government out of the government

service business. I think the answer is no.

NTE agrees with your concerns, Mr. Chairman, on the recent

OMB directive to agencies that at least 5 percent of the jobs on the

FAIR Act inventories must be either put up for competition or directly converted to the private sector without competition during

fiscal year 2002, and the administration will then direct agencies

to open up 10 percent of the jobs in 2003 as part of a larger effort

toward the 425,000 Federal jobs that have been targeted. But how

can the administration set these arbitrary quotas without first

evaluating their impact on an agency’s ability to deliver the services? Quotas are not the answer.

Furthermore, since many agencies have very little experience in

administering public private competitions, they are turning to contractors to run the competitions. For example, at the Farm Service

Agency in order to meet the 5 percent directive from OMB, the

agency is hiring a contractor to develop the agency’s most efficient

organization, to develop the agency’s statement of work, and then

the official government cost estimate for performing the work will

be delivered by a contractor, and the agency is using additional

contractors to train the agency’s contracting personnel. Something

is inherently wrong when private contractors are being hired to put

the Government’s bid together and to train the government employees on how to administer the competitions.

Our fear, as you noted, Mr. Turner, is that the agencies will opt

instead to direct conversions of these jobs in order to meet the

OMB targets. What incentives do agencies have to go through the

expense of hiring contractors to run a competition when they can

just as easily directly convert the work. As my friend National

President Bobby Harnage and I stated recently in a letter to OMB

Director Mitch Daniels, absent a compelling rationale arising out

of an extraordinary set of circumstances there can be no justification for a direct conversion to private contractors, no matter how

many or how few jobs are at stake.

We’re also concerned about the number of contractor oversight

employees available in the services today, in the agencies that can

oversee these contracts. As you know, I am a member of the Commercial Activities Panel, which was established last year by Congress to look at the subject we are discussing today. I am hopeful

that this subcommittee will wait for the panel to complete its work

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cedures. However, I do believe there should be more accountability

controls put in place, and I am hopeful that this subcommittee will

work with us to address those.

Thank you.

[The prepared statement of Ms. Kelley follows:]

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Mr. TOM DAVIS OF VIRGINIA. Thank you very much. Ms. Armstrong, thank you for being here.

Ms. ARMSTRONG. Chairman Davis, Ranking Member Turner and

members of the subcommittee, my name is Patricia Armstrong. On

behalf of the 200,000 executives, managers and supervisors in the

Federal Government whose interests are represented by FMA, I

would like to thank you for allowing us to present our views before

this distinguished subcommittee.

I am currently a program analyst, Industrial Management

Branch, Naval Air Systems Command, at Patuxent River, MD. Previously I spent 20 years at the Naval Air Depot at Cherry Point.

My statements are my own in my capacity as an FMA member and

do not represent the views of the Department of Defense or the

Navy.

When balancing interests, government needs, employee rights

and contractor concerns, there are fundamental value differences in

costs, accountability and control between performing work in the

private and public sectors. The Government is ultimately responsible for the work and must abide by legal and ethical rules that

do not apply in the private sector, such as the Freedom of Information Act. Civil servants also face challenges in managing third

party contractors who are outside their hierarchical authority. The

private sector, whether performing more efficiently or not, differs

in that it is guided by profit motive.

FMA is encouraged by the direction taken by the administration

to ask agencies to submit reports this week on work force planning

and restructuring before moving forward with any government

right-sizing. Arbitrary figures without reasoned justification do not

have a place in the right-sizing arena. OMB announced this week,

however, the requirement for agencies to compete at least 10 percent of all government positions considered commercial in nature

in fiscal year 2003. FMA has concerns about the use of arbitrary

targets when attempting to achieve the most efficient organization

across government.

The FAIR Act reporting process is flawed in that it assumes the

job title is always a commercial activity across government, even

though this assessment is best made by the agency based on responsibilities of the person in that particular position. The term

‘‘inherently governmental’’ as defined under the FAIR Act has

never been clear. Perhaps a checklist of questions should be created to determine whether or not work is inherently governmental

before contracting out work. For FAIR Act reporting, lack of clear

definitive guidance and revisions of guidance as well as misinterpretation of intended requirements all result in confusion as to

what is and what is not inherently governmental.

Caution should be exercised if commercial activity studies are

thought to be a panacea for efficiency savings. Conducting a cost

comparison generally consumes 2 to 3 years and is paid for by the

agency using contractors and government employees. Implementing

the results of cost comparison, either the Government MEO or contractor MEO, generally consumes another year. Since most activities are dynamic in nature, the CA study costs generally outweigh

the planned benefits.

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Furthermore, there are many issues that impact the activities

aside from just cost, such as morale, downgrading of employees,

loss of experienced workers and the training cost of new employees.

In many cases the work force has achieved its right size by normal

attrition, and the A–76 cost comparison which results in an MEO

is at the required staffing level or in some cases must hire up to

fulfill the MEO staffing requirements. Cost savings are calculated

and reported on all completed studies. However, whether the MEO

results in a smaller work force or just a lesser paid work force, the

cost savings are just not there when the cost of the studies are considered.

An alternative A–76 that I know, Mr. Chairman, you have taken

an interest in is the bid-to-goal process, which gives Federal employees the chance to streamline their operations. Similar to an A–

76 competition, bid-to-goal begins with the creation of a performance work statement. Contractors and the in-house group then submit bids to fulfill the performance requirements at the lowest cost.

The in-house team is afforded the first opportunity to meet the performance standards at the lowest cost bid. If the in-house team is

unable to meet this performance threshold, the work is then

outsourced to the private sector.

Another idea is the use of transitional benefit corporations

[TBCs]. Unlike A–76 procedures, however, the TBC model would

also allow outsource workers to retain their Federal health and

pension benefits. With respect to TBCs and the bid-to-goal, however, we at FMA would want to be assured that the initial

outsourcing of the activity is warranted in the first place.

President Bush directed the Secretary of Defense to provide an

assessment of our future defense needs. The President’s 2002 defense budget has increased $33 billion over fiscal year 2001’s budget in an attempt to improve readiness. But if we don’t match that

plan with an assessment of what the Government should maintain

as an in-house capability, we may find that we are at the mercy

of nongovernment forces when it comes to contingency response.

We do not want to create monopolies or limit ourselves to foreign

suppliers of our defense needs. We must ensure competition by

maintaining an ongoing strike-free, in-house depot capability that

can quickly gear up for any contingency.

I have got one more paragraph.

Forty-three percent of depots have already been closed. The 20

remaining depots account for only 4.4 percent of the domestic

bases. For military readiness, any future BRAC should exclude

depot bases.

Mr. Chairman, FMA applauds Congress for establishing the GAO

Commercial Activities Panel to hold public hearings and look for a

better approach to the problems. As I testified before this panel 2

weeks ago, it is our hope that the A–76 process will be changed to

empower Federal managers to determine what is a commercial activity and what is inherently governmental and implement their

own MEOs, MEOs that measure the entire work force both public

and private, and report their cost and performance. FMA urges

support for legislation, the TRAC Act, to correct several longstanding inequities in the contracting out process.

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Thank you, Congressmen Kanjorski, Waxman, Cummings,

Kucinich, Congresswoman Mink for cosponsorship.

I want to thank you again, Mr. Chairman, for having FMA to

serve as a sounding board in an effort to ensure that policy decisions are made rationally and provide the greatest return for the

taxpayer. I hope these experiences are helpful.

This concludes my statement. I’ll be happy to answer your questions, including those on best value and actual studies.

[The prepared statement of Ms. Armstrong follows:]

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Mr. TOM DAVIS OF VIRGINIA. Thank you very much. Mr.

Lombardi, thank you for being here.

Mr. LOMBARDI. Mr. Chairman, members of the subcommittee, my

name is Paul Lombardi. I am the president and CEO of DynCorp,

a technical and professional services firm. I’m also the chairman of

the Professional Services Council, which is the principal trade association representing technical and professional service providers. It

is in that capacity I appear before you today. I have also supplied

the subcommittee with my written testimony and now wish to

focus my remarks in three areas, outsourcing, TRAC bill and public

and private competition under A–76. I will keep my comments very

short.

Outsourcing is not a new concept. In fact, many high performance companies like IBM, Microsoft, British Aerospace and others

outsource noncore functions to service providers as well as focusing

on their true mission and product lines. More and more State governments and local governments are outsourcing, like the city of

Indianapolis, who has saved an enormous amount of their budget

while getting good citizen satisfaction.

In the Federal Government outsourcing should be about quality

and performance of service. It’s about having government employees focus on inherently governmental and core capabilities. It’s

about a constructive partnership with the private sector to serve

the taxpayer in a more efficient and productive manner. It’s about

doing more with less. It’s about smart, strategic management.

There are a number of recent reports that have been quoted already to the subcommittee from GAO and CNA, the Center for

Naval Analysis, that positively talks to these very issues. That

brings me to the TRAC Act, which I believe is an ill-conceived piece

of legislation for the following reason, and all the benefits of innovation that it would bring. It would stop outsourcing. It would also

severely slow down all service contracts, including options. It would

have a severe impact on a large number of government contractors

that we represent.

It is hard to argue against truthfulness responsibility and accountability, but this bill does nothing to improve any of that. If

it is accountability you want in the bill, the bill completely ignores

that, that the Government already has a complete insight into all

contractor activities, yet really has no insight into the governmental control of its internal activities. Furthermore, Congress has

already addressed truthfulness responsibility and accountability by

passing the Federal Acquisition Streamlining Act in 1984, ClingerCohen in 1996 and the Government Performance and Results Act.

We do not need this new proposed legislation.

Simply put, TRAC is not about accountability at all. It is about

killing competition and outsourcing.

Finally, although the PSE does not truly endorse public-private

competition, if it must occur a better process must be put in place.

The A–76 process is severely flawed and must be rewired to meet

the government needs of today. A new model must be followed. It

must clearly eliminate the built in conflict of interest in source selection. It must require the Government to utilize full activitybased cost accounting systems internally so real costs can be accurately accrued. It must eliminate the practice of technical leveling.

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It must require that all offers, public and private, be subjected to

similar best value evaluations and it must seek innovative solutions.

Mr. Chairman, PSE’s position on this matter is aligned with recent goals announced by the Office of Management and Budget and

the Bush administration. We believe that government industry

outsourcing is good government. We believe that H.R. 721 is a redundant piece of legislation and could be devastating to the Government. We believe that A–76 reform is a must.

Although my comments before you today are short and to the

point, they are further elaborated in my written testimony.

Thank you for your time this afternoon. I’ll be happy to take any

questions.

[The prepared statement of Mr. Lombardi follows:]

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Mr. TOM DAVIS OF VIRGINIA. Thank you very much. Mr. Psomas.

Mr. PSOMAS. Thank you, Mr. Chairman. Mr. Chairman and

members of the subcommittee, thank you for the opportunity to appear before you this afternoon and to share my views on the

outsourcing of government commercial activities. My name is Tim

Psomas. I’m president of Psomas Engineering, a California-based

company that provides professional engineering services to both the

public and private sector. We provide civil and environmental engineering, surveying and geographic information systems services to

the Federal Government.

My firm is an active member of the American Council of Engineering Companies [ACEC], which is the primary business association of the engineering industry, representing over 5,800 engineering companies in the United States and totaling over 500,000 employees. These firms range from large multi-disciplined architectural and engineering firms to small business and minority-owned

firms. Regardless of size, ACEC members deliver vital infrastructure services to the American people, including the design and construction of roads, airports, power plants and waste water treatment facilities, the safe disposal of unexploded ordnance, the cleanup of Superfund sides and brownfield redevelopment. The quality

and innovation that ACEC’s members bring to the environment ensures the safety of those who ultimately pay for these services, the

U.S. taxpayers.

Today’s topic, outsourcing of government commercial activities, is

the No. 1 issue of ACEC this year. We applaud the Bush administration for campaigning on the importance of outsourcing in smart

government, and we appreciate the efforts of Mitch Daniels, Director of OMB, and his Secretary Angela Styles for advancing the concept of best value procurement.

The debate that is currently taking place regarding the

outsourcing of government commercial activities occurs at a critical

time for the U.S. Government. As Federal agencies face tight budgets and a looming capital crisis, a human capital crisis, the need

to efficiently allocate scarce resources has become increasingly important. Outsourcing is a proven management tool that directly

contributes to enhanced performance through improved quality, reduced standby costs, increased innovation and access to technical

expertise not available in-house.

Regarding improved quality, outsourcing provides a direct source

of accountability and responsibility by tying contractor compensation to the successful implementation of contracts.

Regarding reduced standby costs, most public agencies have

found that it is not cost efficient to retain highly specialized individuals for work that is infrequent and use outsourcing as a means

to easily draw upon a reliable pool of expertise.

Regarding increased innovation, when private firms are required

to compete for the government contracts, a climate is created that

spurs new ideas and innovative thinking.

And regarding access to expertise, as private engineers are exposed to a wide variety of clients with challenging projects, they

often bring unparalleled experience to their assignments.

I am particularly interested in commenting on anti-outsourcing

legislation that was introduced in February, as I am a veteran of

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a similar battle that occurred in the State of California, and let me

tell you my story.

In 1998, the professional engineers and California government

introduced Proposition 224, which aimed at severely limiting

outsourcing. The reasons were similar to the reasons articulated by

representatives of the Federal Employees Union. Chief among

them was the supposed high cost of contractors. The union argued

that a cost comparison is the only fair way to choose the design

team. What they didn’t say is that their proposed method of comparing costs was anything but fair, as it would take into account

only the marginal cost of State work and compare them with the

total cost for private work, and the competitions that were proposed would require a long process of solicitation with various government agencies and locations throughout the State, an untenable

situation.

Despite the attempt of the union, 62 percent of California voters

rejected the idea that the use of private design consultants by State

and local public agencies should be severely limited. A huge coalition, including private sector unions, local governments, broad

based business groups, taxpayer groups, contractors, transportation

groups and ANE firms vocally opposed Proposition 224. Following

defeat of that proposition, the engineering industry led a coalition

that sponsored a ballot measure to change the California State constitution to allow State and local governments to outsource architectural engineering services.

Along with Federal contractors, the engineering industry was

disappointed that the TRAC bill was reintroduced this year. The

legislation is not only out of step with current trends in Federal

procurement, but it’s also out of step with the advice that the multilateral development banks give to former Soviet bloc countries as

it would dramatically increase the size and scope of government. As

with the PEG initiative in California, this legislation is based on

a flawed assumption that government contractors are not held accountable for cost performance. Performance of outsourced measures is routinely measured and monitored in the Federal system.

Mr. Chairman, thank you for allowing me to share my thoughts

on this important public policy issue.

[The prepared statement of Mr. Psomas follows:]

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Mr. TOM DAVIS OF VIRGINIA. Thank you very much. Colonel,

thank you for being here. You’re last, but not least. Save the best

for last.

Mr. FLOYD. Absolutely. I thank you, Mr. Chairman and members

of the committee, for allowing me to testify this afternoon on these

issues. Like the gentlemen, before me I’ve already submitted my

information for testimony. I want to summarize a couple of things

here that are important to my group.

My name is Aaron B. Floyd. I’m a Colonel, retired from the Air

Force, and I own a company, a small business, and I represent 110

other small business persons, all colonels or majors or lieutenant

colonels from the Army, Air Force and Navy. We have, last year

we, combined, our income was like $400 million. We provide jobs

for thousands of people around the Beltway, thousands of folks,

and we are Federal Government employees before when we’re on

active duty. Now we’re on the other side of the street, and we think

that outsourcing is the way to go. We actually believe that because

we can see it as it works out, because if you don’t outsource then

where are we going to go, what are we going to have for ourselves

in terms of work? We’ve earned it, we’re veterans, we fought in the

wars, and now we own companies and want an opportunity to participate, and outsourcing gives us that opportunity.

We believe that the TRAC legislation goes the wrong way. We

believe if it goes the way it’s purported to go it will stop competition and stifle it, and it will create a lot of folks on payrolls that

don’t need to be there. We believe a fair and equitable way to do

that is the A–76 and the way it is going. I want to make that clear

from my group.

There’s one other thing that my group is concerned with, however, that is not on the agenda, and that’s the effect of bundling.

We believe as small business persons that the way bundling is now

done is not fair for us. Right now the Government takes the large—

the contracts and gives them to a bunch of large guys and then the

little guys only get what’s left, and we can’t compete with Lockheed

Martin and the other large companies involved, and the only way

you can grow a small company is to have one prime contract. You

don’t get one when you bundle. When you bundle the only contract

you get is a subcontract. With a subcontract all you get is a technical person and you don’t get any money for overhead or for finance or all the things that requires a company to be a company.

So I have survived in this business for 13 years. I have one great

contract that is not bundled. I won it fair and square in competition and—but it was a small contract when I got it, about $7 million. Now it’s worth about $28 million. I am the readiness contractor for the Pentagon. I run the readiness data base that tells the

chairman, when he wants to send people to Kosovo it tells him

what forces can go and their readiness status. I am surviving because I’m the prime on that contract, and I have been able to grow

it that way. If I was not the prime, I wouldn’t be here talking to

you today. So bundling is anti-that. It keeps us from being private;

it’s the antithesis of allowing small businesses to grow.

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Those are basically my comments. I think basically again the A– 76 is a good practice and it just needs to be fine-tuned. The FAIR

Act is basically fair, and TRAC is a bad bill.

Thank you.

[The prepared statement of Mr. Floyd follows:]

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Mr. TOM DAVIS OF VIRGINIA. Thank you very much. Well, let me

start the questioning. OK. First, let me ask Ms. Kelley, let me ask

you and Mr. Lombardi and Mrs. Armstrong, when is it appropriate

to outsource? Can you describe in your opinion when is it appropriate to go outside government for contracts? Can you give us

some idea where you think this might be appropriate?

Ms. KELLEY. I think it’s always fair to ask the question of if it’s

appropriate to contract out, and on that point when the question

is asked, the processes have to be in place to ensure that the right

questions are being asked, and if the answer is yes, then the question is what are the procedures that should be used, and all of

these things are things that are being looked at and under the purview of the Commercial Activities Panel. These are exactly the

questions that this panel is wrestling with and that will be part of

the report in May 2002.

Mr. TOM DAVIS OF VIRGINIA. Are you comfortable that you’re

having adequate input into that panel and having a dialog with

people on both sides of this issue?

Ms. KELLEY. Yes, there is a lot of dialog, a lot of input and I actually believe everyone on the panel has come there with a very

open mind and a very good listening mode. We’ve been sharing incredible amounts of information even though we have different

opinions perhaps on what the solution is, but I’m hopeful that as

we work through the process, by the time it’s time for our report

we will have been able to learn and absorb all of this and come up

with the best answers for the Government in this recommendation.

Mr. TOM DAVIS OF VIRGINIA. I think this committee is eagerly

watching what happens there. That doesn’t mean we won’t act before or after or will even act on it, but we think it is a good format

for exchanging views, and as you can see, even among Members

from both sides there’s a lot of different views on this. So I think

the dialog is important. So everyone understands everyone’s position because I’m not sure anybody’s wrong here but there are different perspectives as we get into it, and I think we need to be

guided at the end of the day by the best value for the American

taxpayer. That’s my own view on this. I appreciate the comment.

Mr. Harnage, do you have any comment?

Mr. HARNAGE. Yes. And you know we haven’t implied an end to

A–76 and we haven’t implied an end to outsourcing. We’ve noticed

today and before today there’s a lot of people like hollering fire in

a theater. What amazes me so far is that everybody wants to throw

away the solution rather than develop the solution. If there’s some

problems with TRAC let’s talk about the problem with TRAC and

make it a better piece of legislation rather than just say we don’t

want any transparency, we don’t want any accountability of the

contract.

Certainly there are times that outsourcing makes sense. The construction industry, for example, would be the first one that would

pop to my mind, something that we only have a temporary need,

whether it be a 3-month construction project or a 2-month construction job, probably too expensive for the Government to maintain that capability in-house, but it makes sense to keep the maintenance of that construction once it’s done in-house. The same with

we don’t want to build aircraft, but it makes sense that once the

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aircraft is turned over to the Government the Federal employees,

the military people maintain that aircraft, because it’s really not

cost efficient for that contractor to maintain that inventory. They

want to move on to bigger, newer and better aircraft.

So there are areas that surely it makes sense to outsource, and

our position has not been to end the outsources as some people

might want to imply.

What we’re asking for is competition and the opportunity to compete for the jobs, and what we’re asking for is that it not always

be our job that’s competed. OMB says competition saves money, but

why does OMB say but we are only going to look at the Federal

employee? We’re saying let’s look at new work. If it makes sense

to bring it in-house, if we can do it better and less expensive, why

not do it, why is it a foregone conclusion that it is going to go outhouse, and that’s a pun intended.

Mr. TOM DAVIS OF VIRGINIA. OK. Ms. Armstrong.

Mr. ARMSTRONG. I think there are cases where outsourcing is

useful. It’s certainly been used successfully since BRAC and the defense depots, mainly out of necessity more than the choice. For example, at the depots they always carry a quadrille of contractors

that work on the aircraft itself and that’s beneficial. When you

have a certain workload, you can hire contractors, and when the

workload goes down, you can let them go. But as far as where it’s

best used, I think that partnering with industry to bring in new

technology to help train Federal workers in those areas, those core

skill areas, is helpful. You don’t exactly want to turn over your core

functions to contractors, but have them come in and partner. I

think that’s beneficial, and that’s the Federal manager can make

that decision.

Mr. TOM DAVIS OF VIRGINIA. That’s helpful. Mr. Lombardi, let me

ask and you and the panel on the other side. We always get in this

fight of price versus value. This has been, ever since I have been

involved in government contracting, the question is should price

drive it, should value drive it. Do you have a general philosophy

of where you think price ought to drive it? Clearly, if you are cutting grass or something, price ought to be the determinative, but

when you get into some of these complex IT areas, building a

spaceship, you need to look at overall value. Do you have a criteria

on what ought to be price and value driven or do you think they’re

intertwined?

Mr. LOMBARDI. Yeah. I would say, Mr. Chairman, they’re somewhat intertwined. It’s difficult in every case to generalize that price

is the only issue. The Government has gone a long way, I believe,

in terms of bringing best value back into the procurement process.

Price is an issue, that’s part of the best value, but certainly quality

performance, innovation, technology, bringing technology to bear

where it hasn’t been before. That’s what the private sector is here

to support.

Mr. TOM DAVIS OF VIRGINIA. So basically you’re saying you get

more innovation at the private level and that’s what you get by

bringing that into the processes?

Mr. LOMBARDI. I think what the Government has always depended upon is to bring technology and innovation to the table.

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Mr. TOM DAVIS OF VIRGINIA. OK. I appreciate it. Any comments

on it?

Mr. PSOMAS. Mr. Chairman, thank you. In that regard the AE

and design-related services industry has been somewhat fortunate

to have the advantage of the Brooks Act procurement process,

which is really a two-step best value procurement whereby the

competition is really for qualifications and the availability of the

best qualified, the individual who can deliver that service to the

Government, and so on that basis a selection is made. And then the

second step is the negotiation of scope, fee, budget, schedule with

the contractor that’s selected to do that work. So again the AE industry perhaps has a good deal of experience with a competition

that is really a two-step, best value competition.

Mr. TOM DAVIS OF VIRGINIA. Thank you very much. Colonel

Floyd, you want to add anything to that?

Mr. FLOYD. Just finally, I think the two watchwords ought to be

fairness and equity on any legislation we’re talking about, and

that’s what I think that my constituents would like me to ensure,

that in it all, whether it be TRAC or whether it be A–76, that it’s

fair and equitable and there’s an opportunity for all of us to participate.

Mr. TOM DAVIS OF VIRGINIA. Thank you. Mr. Turner.

Mr. TURNER. Thank you, Mr. Chairman. One of the issues that

I’d be interested in your comments on is this initial decision as to

whether or not to allow a public-private competition, and I noticed

Mr. Lombardi in the suggestion that you had made of the Professional Services Council model for public-private competition, it addresses a number of the deficiencies that you see in the current A– 76 process, but your model assumes, as I read the presentation of

it, that the agency would first make the determination as to whether or not they should conduct a private-public competition based on

what you referred to in your statement as some obvious factors. I

want a little help on this because there clearly are some activities

that you might look at on their face obviously wouldn’t be appropriate to contract out if it’s an activity that is currently being carried out by government employees. If those government employees

want to submit a proposal or try to be competitive, what’s wrong

with always allowing that as an option, because many times obviously that option would not be exercised, depending on these obvious circumstances that you’re referring to. So what would be wrong

with allowing that in the mix?

Mr. LOMBARDI. Mr. Turner, I think the A–76 process is again

what my comments were focused in on. The public-private competition, it’s not a level playing field from the private sector’s point of

view. It is just not a way in the public sector to get accountability

for costs. I have a wing full of auditors that are defense auditors

who basically audit everything my company does and so do all defense contractors. So in DOD I think there are certain things that

public-private competition is important and, in fact, competition

over and over again every 3 to 5 years doesn’t disallow the public

sector from coming back into play. I think there’s a lot of misconceptions associated with A–76. We think it’s the process that

has to be fixed, not whether or not there should be public-private

competition.

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Now having said that, in the civil sector, where there’s new work

coming out, not work that has been done previously by the Government, Federal employees and I might also say, I’m a Federal employee from 17 years so I have access to both sides of that equation.

When innovation and technology is required in an agency, mostly

in the civil agencies, we believe that it should just be a competition

between the private sector involved. That is the motivation. It’s not

a profit motivation per se. It is winning that private competition

that motivates us. That’s what our society allows us to do.

Mr. TURNER. Any of the other panelists have a comment on the

issue of the initial decision about a public-private competition? I

mean, I’m asking that question basically in light of the fact that

we have very few of them and it could be that in many cases there

they are not appropriate, but I’m wondering if we’re missing an opportunity here not to allow a little more flexibility with regard to

the initial decision as to whether or not there should be a publicprivate competition.

Ms. KELLEY. Mr. Turner, I believe there always should be that

option. I agree, as you say, that many times the option may not be

exercised, but the fact that the work is not done today in the Government and now someone has determined it needs to be done for

the Government, that the Government and the employee should

surely have the opportunity to be a part of the process to determine

who can do it best for America’s taxpayers, and I think the, you

know, words that many of us have used over and over again that

would oversee that process would be one of fairness, one of oversight, a level playing field has been mentioned often, and the issue

of transparency.

So I believe the opportunity should be there and then to be exercised in each case as the situation dictates.

Mr. ARMSTRONG. Mr. Turner, I have a comment. Yes, I agree

that we should be offered the opportunity to have a competition. In

most cases we have not been able to. It has always been decisions

to outsource with no competition. As far as the cost is concerned,

I think that the Federal Government is making great strides in activity-based costing, ERP and other initiatives to have a better accounting system for their costs. And it’s in the TRAC bill we are

asking for the cost of contractors to be reported, if it’s true. As my

colleague Mr. Lombardi says, that companies have a team of auditors to have audit information on their costs, why would it be such

a burden to report that so that we can have true competition. I

think we need to get better at doing that and share more information.

Mr. HARNAGE. Mr. Turner, if I might I’d like to add, I think you

have hit on a very important point of the TRAC Act. I refer to this

often as a magician, a magician tries to divert your attention to

somewhere else other than what he’s doing his deed. We’ve heard

testimony today that 2 percent at best, maybe a little over, of all

the privatization service contracting is done by A–76. That means

that between 97 and 98 percent of the service contract done in the

Federal Government is done without public-private competition,

and if we look at OMB and this administration’s proposal to increase the amount of competitions under the FAIR Act, we’re only

going to raise that a few percentage points. You know, maybe we’ll

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get to 5 percent or 8 percent, let’s say 10 percent, but nobody wants

to focus on that other 9 percent and what’s happening to it. We

want to continue focusing on that small percentage of what’s happening, that small A–76 process where it all ought to be under

competition and not just a Federal employee job or not just every

now and then.

So I think you’ve hit on a very important point, and that’s what

the TRAC Act says; let there be competition. Everybody agrees that

competition saves the taxpayers dollars, whether it stays in-house

or whether it goes outside. So let’s have, if that’s true then let’s

compete all of it. Let’s just not be selective in what we compete,

and it shouldn’t always be the Federal employee’s job that’s competed. If competition is good for us, it’s good for them.

Mr. LOMBARDI. Mr. Turner, I would also—I support that it’s only

been 2 percent of service contracting which is under A–76 competition. So what about the other 98 percent? By far the largest growth

area in service contracting has been in the ADP or IT arena. In the

civilian agencies the growth over 10 years has been more than 300

percent. At DOD the growth has been 100 percent, but it’s all in

the ADP area. We are not displacing Federal employees in those

areas. The private sector is introducing the technology that’s being

purchased and it is being competed, severely competed in the private sector.

Mr. TURNER. And I would assume those types of contracts would

be contracts that Federal employees would have no interest in competing in, probably do not have the ability or the capability to compete for those types of contracts. Would that be accurate?

Mr. LOMBARDI. I wouldn’t judge that. All I would say to you is

that if the governmental agencies are going out-house, so to speak,

to get new technology, that technology isn’t being developed by the

public sector. It’s being developed—enabling technology being developed and introduced by the private sector.

Mr. TURNER. I notice in your presentation you mentioned a number of deficiencies that exist in the current A–76 process. I’m looking here at the new model for public-private competition. Would

you mind discussing those six areas that you have identified as

being problem areas for the A–76 process. Some of them I’m not

sure I understand exactly the nature of the problem you’re describing is the reason I was asking you to refer to them.

Mr. LOMBARDI. OK. In my written testimony, Mr. Turner, I have

included a PSE document which gives you some further explanation of that. Just to talk to these points though, conflict of interest is one, in our opinion, on the private sector, the people whose

jobs could be displaced as a result of the A–76 competition, judge

the whole procurement, including the private sector’s proposal. To

me that’s an inherent conflict of interest. Activity-based cost accounting, we have that. My cost of my office, my salary, my fringe

is included in every bid that goes out. I doubt very seriously whether the GNA costs associated with the Government overhead employees, not the people who actually perform the job are going to

be layered into those bids. That’s why we need activity-based accounting in the Federal Government.

Technical leveling is a way whereby there’s constant discussion

between the contracting official on the government side and the

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competitors on the private sector side. Now remember in A–76 the

public sector picks a private sector winner and the private sector

then competes against the public sector. So we have a tendency to

be leveled in that particular area before we even compete with the

public sector bid.

And innovative solutions, if we introduce ways of including technology to displace people, we’re saving the Government money, we

are also helping our bid in terms of its discrimination against our

competition, and that is usually taken out because we’re competing

against an MEO in many cases. So these are the kinds of things

I think would be further elaborated in our point paper, which is included in my testimony.

Mr. TURNER. What does ‘‘transfusion’’ refer to? You mentioned

that in relationship, you say the ‘‘syndrome of technical leveling

and transfusion.’’ What does ‘‘transfusion’’ refer to? That’s in that

same list of deficiencies in the current process that you were, I

think, looking at the same list that I’m looking at, which is on page

2 of the new model for public-private competition.

Mr. LOMBARDI. OK. Well, I don’t have that in front of me.

Mr. TURNER. I’m looking at a different document. Another item

that you mention on here is a distorted application of best value

procurement to only the private sector bidders and not to the Government bidder. What does that refer to?

Mr. LOMBARDI. When we introduce our proposals on the private

sector side, again we’re introducing new ideas, new technologies.

We spend an inordinate amount of time and money in the development of these proposals. When we then go up against the public

sector’s bid, we are only going against what’s called the MEO,

which is the Mean Effective Organization. Our value proposition,

as it were, is not compared against anything on the public sector

side. That is what I had in mind there.

Mr. TURNER. And the model that you recommend to remedy

these deficiencies that you have outlined involves, as I understand

it, an advisory committee that would actually make the decision

separate and apart from the agency itself is that at kind of the

heart of your structure of your revised model.

Mr. LOMBARDI. What I had in mind, there is in the evaluation

of the public sector bid and the private sector bid that the agency

procuring—I mean the actual people who are involved in the MEO

creation should be taken out of the process of source selection, and

in fact that has happened in many cases and the most recent being

the A–76 out of Andrews Air Force Base on the 89th Wing.

Mr. TURNER. And one of the factors that you say should be a part

of this process is a generic, you say generic standard soft landing

procedures for displaced Federal employees be incorporated in

every solicitation to assure consistency and avoid any gaming in

this most sensitive area. Speak to that issue.

Mr. LOMBARDI. Yes. I think the—there’s no question that when

the private sector wins an A–76 competition, the first place they

look for the work force, especially in regions that don’t have vast

work forces available, is to the work force that has been displaced

as a result of that particular decision. So soft landing issues would

be to have a process built into the A–76 process to take right of

first refusal on the part of the displaced employees to have a soft

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landing in terms of the development of the new work force under

the private sector tutelage, and in fact that happens in many

places, if not in all places. I don’t have the exact statistics, but

somewhere around 80 percent of the Federal employees who are

displaced as a result of a private competitor win are asked back

into the private sector, many at higher pay grades.

Mr. TURNER. But you’re suggesting that information be included

as a part of the initial proposal rather than being an after the fact

offer to those employees?

Mr. LOMBARDI. It can be and it could also be one of the issues,

one of the process changes that goes into the A–76 review process.

In other words, if we—if the committee were to use the authorization bill that’s already been passed to restudy A–76 our proposition

would be that would be fertile ground to be included in the new

process.

Mr. TURNER. Now, Ms. Kelley, would that be an improvement,

the suggestion Mr. Lombardi just made?

Ms. KELLEY. It would surely address issues that have been issues

for some employees, but I think it’s a much bigger question. It is

a start and would it be well received by some. Depending on where

they are in their Federal career and what the salary and growth

opportunities were, sure, I definitely think it would be seen as a

step forward. I don’t think it solves the whole problem, but I see

it as a step forward.

Mr. TURNER. Thank you, Mr. Chairman.

Mr. TOM DAVIS OF VIRGINIA. Thank you very much. One of the

concerns that I have with the TRAC Act as it’s currently drafted

in particularly some of these very complex, high level IT procurements is the inability of the current Federal work force, given the

training and capital management issues, to handle those in-house.

We have not done a good job in the Federal Government of being

able to train and retrain people with the latest technologies and

bring people in with a skill level and retain them in that. We just

have not done the job. Part of it is our competition. And part of it

is the training is one of the first things that get cut when budgets

get cut.

We aren’t utilizing some of our most skilled and valuable people

in the best way possible, and OMB has come up now with a restructuring initiative to assess human capital management, what

they call a crisis in the Government, but I think that is part of it,

and that is part of my concern, is that we are just not ready yet

to step up to the plate on at least one level of procurement. That’s

not to say we’re not in some other areas, but in many of the areas

that Mr. Lombardi’s group, the engineering groups that they represent in these levels, we don’t have the in-house skills at this

point or the in-house compensation packages to try to compete at

the Federal level, given current Civil Service regulations, and I

think it would take a change of those to bring us up to a competitive level, and I understand your frustration, Ms. Kelley, when you

talk about how some of these procurements are managed by outsiders. We outsource procurements. We have people in the frustration level. That certainly isn’t the fault of your workers. It’s not a

fault of your members, but it is a failing of the Government, appropriately, I think, to utilize what they have and to look for it, and

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until we get that solved I think in these procurements that it

would be in my judgment very difficult to implement at least in

these sectors, some of the things that the TRAC Act calls for.

That’s my concern. I’d like anybody to address that over on the

left side of the table if you have any, you want to rebut me or share

a concern or add to what I’m saying.

Mr. HARNAGE. Well, we have the same, some of the same concerns that you do. You know, this did not happen by accident. I

have had a lot of frustrations in trying to deal with the Department of Defense over the last few years. And for 20 years now

we’ve—it’s not a matter of whether we should have been training

our people to keep up with the high-tech industry. The decision

was made not to do that. Who made that decision I’m not sure, but

some of it was through budget cuts and some of it’s through the

agencies not using the funds available to them for training and

using them somewhere else. I had high hopes of working with Senator Voinovich on that because every one of his subjects that we

had several meetings over is how do we get more training into the

Federal Government so that we would have that capability, and I

think the question that you have to ask when it comes to high-tech,

and I think you’re absolutely right on the current situation, but

should we have that capability in-house in order not only to be

competitive but to serve as an oversight of those contracts that we

do have to have.

Mr. TOM DAVIS OF VIRGINIA. If I could add to that, I don’t think

Mr. Lombardi would disagree for a second that you ought to have

more in-house capability. It’s frustrating for them on some of these

procurements, too, to have officers who aren’t trained to oversee

them. Is that correct, Mr. Lombardi? And I’m not trying to put

words in your mouth. I don’t think there’s any disagreement on

these things, but we are dealing with a structure that has evolved

before we were on the scene, and it just has gotten worse and

worse and worse.

Mr. HARNAGE. You’re that young, I’m not.

Mr. TOM DAVIS OF VIRGINIA. I don’t mean to interrupt, but thank

you.

Mr. LOMBARDI. At the fear of adding a little levity to the hearings, I’d have to give you an analogy. My son is an engineer, mechanical engineer. He’s 4 years out of Virginia Tech. He happens

to be an Oracle finance expert, if you want to say that, 4 years out

of Virginia Tech. He happens to make more than the Secretary of

Defense.

Mr. TOM DAVIS OF VIRGINIA. Probably worth more than the Secretary of Defense we could argue on some days. It just depends on

how you look at it. At least that’s what the marketplace judges.

Mr. PSOMAS. Mr. Chairman, I’d like to add to that if I might.

ACEC really looks to a very strong Federal work force, well paid,

well trained. That’s really where we want to work. We see this as

really a partnership. However, even in my firm there are activities

that are not really activities that we’re going to train employees in.

They’re not things that we do regularly and for this special expertise we go outside and we outsource. So there is—I think there are

situations that it’s really not prudent to provide staffing on a fulltime, permanent basis for activities or technologies that change, for

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things that are not going to be reusable by any organization,

whether it’s governmental or private.

Mr. TOM DAVIS OF VIRGINIA. OK.

Ms. KELLEY. Mr. Chairman, if I could just add, I do think this

borders on another issue that has garnered a lot of activity over

the past year, and unfortunately what I continue to see is that we

talk about it but don’t do a lot about it, and that is the Government

stepping up to the need for funding to provide recruiting and retention incentives for the on-board work force so that expertise can be

retained and can be increased, and we don’t do that. We talk about

it a lot but nothing happens, and as a result we are facing this critical loss of expertise that will only raise the question even higher

as to whether outsourcing is the appropriate answer, because

there’s just no one left.

Mr. TOM DAVIS OF VIRGINIA. Well, and just to take it a step further on this, I mean one of the arguments that was made in the

previous panel and I would say we’ve all seen it happen, is people

leave government service, they walk across the street after retirement or whatever, they go to work maybe for one of the companies

Mr. Lombardi represents and they make more money doing something that’s outsourced either because we don’t have the in-house

capability to do the work or sometimes it is managed better and

they take people and can pay them more. How does that work, Mr.

Lombardi, where you can walk and pay people more on the outside

and at the same time save the Government money?

Mr. LOMBARDI. Well, it works, I would say.

Mr. TOM DAVIS OF VIRGINIA. Yeah. I want to know how.

Mr. LOMBARDI. I don’t have an exact number for you, Mr. Chairman, but a fair amount of our work force is previous government

employees, maybe 70 percent, and not only do they bring the expertise with them, they bring the culture with them, and they bring

the understanding of the various agencies.

Mr. TOM DAVIS OF VIRGINIA. You have a more flexible management style, don’t you, than you do in government?

Mr. LOMBARDI. And we can also train them because we have

within our own—we have to train them or we lose them. So the

work force has to be continuously upgraded in that regard, and I

think, I don’t want to confuse TRAC with the compensation issue

for Federal employees. I don’t think those are the same issues here

at all.

Mr. TOM DAVIS OF VIRGINIA. No, they’re not.

Mr. LOMBARDI. I left government service because of compensation

issues.

Mr. TOM DAVIS OF VIRGINIA. I understand. Let me ask Mr. Floyd,

you have people who have worked for the Government, they come

over and work for you, they seem to be doing pretty well, and yet

I think you would say you manage these better than you could do

some of these in-house. Is it just because we have so many rules

in government that don’t allow this and this isn’t the fault of the

employees; this is just because we have rules and regulations and

things that inhibit management from being as efficient as it might

be?

Mr. FLOYD. First thing, you’re right, that in my company, for instance, I have 60 people. I would think 40 to 60 percent are ex-govVerDate 11-MAY-2000 10:57 Sep 12, 2002 Jkt 000000 PO 00000 Frm 00234 Fmt 6633 Sfmt 6633 C:\DOCS\80842.TXT HGOVREF1 PsN: HGOVREF1
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ernment employees and some of them because the Government

didn’t, in the computer area, some of the Government services decided not to promote those people at all and those are the very people I wanted and the Government had a job for those people but

they wouldn’t promote them so they got out and came to work for

me. I was able to pay them and my company offers all the services.

We offer health care and benefits and all those kinds of things, but

because we have to maintain a certain—when we bid we have to

maintain our bid rate. We know what we have to pay and we know

what we can do. We can pay them more but we don’t have 10 people doing the job where two people can do it. We put two people

on it and get it done that way.

Mr. TOM DAVIS OF VIRGINIA. So it’s management flexibility basically?

Mr. FLOYD. Absolutely, and someone mentioned that contractors

don’t get oversight. We in fact do get a lot of oversight and that

my contracts are normally 5-year contracts, 1 base year and 4 option years, and every quarter they look to see how I’m doing and

if I don’t do well I won’t get those option years. So I am just kept,

you know, on an even keel by the Government oversight. There is

oversight.

Mr. TOM DAVIS OF VIRGINIA. Let me just say this to all of you.

We have a series of votes now, so I’m going to recess. I think you

all have been very articulate for your particular points of views,

and on some of these issues there is no difference. We understand

the basic problems and we need to address them at a different level

than this committee has, but we need to—I think there is unanimity on that. I think we are going to keep talking with some of the

committees that we have organized, and we will revisit this as well

and try to meet with everybody individually as well to look at this,

but I just appreciate everybody coming out here today.

I particularly want to thank the employees who have taken probably a day off to come here, sit through these hearings. We understand the concerns that you have. We want to try to address them.

It’s more complex. I hope you get an appreciation for some of the

complexity of this as well, but we hear you and we understand it.

And before we close, I want to just again thank everybody and

I want to thank our staff for organizing this. We’re going to keep

the record open for 10 days if you would like to submit anything

as a followup, something occurs to you, you just want to enter into

the record and make sure it’s part of the public record. I’m going

now to enter into the record a briefing memo that was distributed

to the subcommittee members.

Again, I guess we’re going to hold the record open for 2 weeks

instead of 10 days from this date for those who may want to move

forward with submissions for possible inclusion, and again thank

all of you very much and these proceedings are closed.

[Whereupon, at 5:32 p.m., the subcommittee was adjourned.]

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